exv10w23






AMENDMENT NO. 8




TO LOAN AND SECURITY AGREEMENT




     This Amendment No. 8 to Loan and Security Agreement (this “Amendment”) is entered
into as of April 26, 2010, by and among Rae Systems Inc., a Delaware corporation
(“Borrower”), and Silicon Valley Bank (“Bank”). Capitalized terms used herein without
definition shall have the same meanings given them in the Loan Agreement (as defined below).



Recitals




     A. Borrower and Bank have entered into that certain Loan and Security Agreement dated as of
March 14, 2007 (as amended and as may be further amended, restated, or otherwise modified, the
“Loan Agreement”), pursuant to which the Bank has extended and will make available to Borrower
certain advances of money



     B. Borrower has now requested that Bank extend the maturity date of the Loan Agreement, modify
certain financial covenants, and make certain other changes to the Loan Agreement, all as set forth
more fully herein.



     C. Subject to the representations and warranties of Borrower herein and upon the terms and
conditions set forth in this Amendment, Bank is willing to extend the maturity date of the Loan
Agreement and to make the changes set forth herein.



agreement




     NOW, THEREFORE, in consideration of the foregoing Recitals and intending to be legally bound,
the parties hereto agree as follows:




	 	1.	 	Amendments to Loan Agreement.





          1.1 Section 2.4(a) (Commitment Fee) of the Loan Agreement. Section 2.4(a) of the
Loan Agreement is amended and restated in its entirety and replaced with the following:



          “(a) Commitment Fee. On the Amendment 8 Date, a fully earned, non-refundable
commitment fee of $25,000.”



          1.2 Section 6.8(b) (Trailing 2-Quarters Minimum EBITDA) of the Loan Agreement.
Section 6.8(b) of the Loan Agreement is amended and restated in its entirety and replaced with the
following:




     “(b) Minimum EBITDA. Maintain, measured as of the end of each fiscal
quarter indicated in the following table, for the indicated measurement period, at
least the indicated minimum EBITDA for such measurement period:













 





	 	 	 	 	 
	Fiscal	 	Measurement	 	Minimum
	Quarter	 	Period	 	EBITDA
	March 31, 2010

	 	Fiscal quarter ending 
March 31, 2010
	 	Discrete Quarter:

$(1,000,000)
	 
	 	 	 	 
	June 30, 2010

	 	Fiscal quarters ending
 March 31, 2010, and

June 30, 2010
	 	Combined Quarters:

$(1,900,000)
	 
	 	 	 	 
	September 30, 2010

	 	Fiscal quarters ending
 June 30, 2010, and

September 30, 2010
	 	Combined Quarters:

$(1,800,000)
	 
	 	 	 	 
	December 31, 2010

	 	Fiscal quarters ending
 September 30, 2010, and

December 31, 2010
	 	Combined Quarters:

$(1,000,000)”






          1.3 Section 13 (Definitions). The following definitions that appear in Section 13
of the Loan Agreement are hereby amended to read in their entirety as follows and the following
definitions that do not yet appear in Section 13 of the Loan Agreement are hereby added to Section
13 of the Loan Agreement:



          ““Amendment 8 Date” is April 26, 2010.”



          ““Revolving Line Maturity Date” is the 364th day following the Amendment 8 Date.”



          1.4 Exhibit D (Compliance Certificate). Exhibit D of the Loan Agreement is hereby
amended by deleting it in its entirety and replacing it with Exhibit D attached hereto.
Exhibit D is the only exhibit attached to this Amendment.



     2. Borrower’s Representations And Warranties. Borrower represents and
warrants that:



               (a) immediately upon giving effect to this Amendment, (i) the representations and
warranties contained in the Loan Documents are true, accurate and complete in all material respects
as of the date hereof (except to the extent such representations and warranties relate to an
earlier date, in which case they are true and correct as of such date), and (ii) no Event of
Default has occurred and is continuing;



               (b) Borrower has the corporate power and authority to execute and deliver this
Amendment and to perform its obligations under the Loan Agreement, as amended by this Amendment;



               (c) the certificate of incorporation, bylaws and other organizational documents of
Borrower delivered to Bank on the Effective Date remain true, accurate and complete and have not
been amended, supplemented or restated and are and continue to be in full force and effect;



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               (d) the execution and delivery by Borrower of this Amendment and the performance by
Borrower of its obligations under the Loan Agreement, as amended by this Amendment, have been duly
authorized by all necessary corporate action on the part of Borrower;



               (e) this Amendment has been duly executed and delivered by the Borrower and is the
binding obligation of Borrower, enforceable against it in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or
other similar laws of general application and equitable principles relating to or affecting
creditors’ rights; and



               (f) as of the date hereof, it has no defenses against the obligations to pay any
amounts under the Obligations. Borrower acknowledges that Bank has acted in good faith and has
conducted in a commercially reasonable manner its relationships with such Borrower in connection
with this Amendment and in connection with the Loan Documents.



          Borrower understands and acknowledges that Bank is entering into this Amendment in reliance
upon, and in partial consideration for, the above representations and warranties, and agrees that
such reliance is reasonable and appropriate.



     3. Limitation. The amendments set forth in this Amendment shall be limited
precisely as written and shall not be deemed (a) to be a forbearance, waiver or modification of any
other term or condition of the Loan Agreement or of any other instrument or agreement referred to
therein or to prejudice any right or remedy which Bank may now have or may have in the future under
or in connection with the Loan Agreement or any instrument or agreement referred to therein; (b) to
be a consent to any future amendment or modification, forbearance or waiver to any instrument or
agreement the execution and delivery of which is consented to hereby, or to any waiver of any of
the provisions thereof; or (c) to limit or impair Bank’s right to demand strict performance of all
terms and covenants as of any date. Except as expressly amended hereby, the Loan Agreement shall
continue in full force and effect.



     4. Effectiveness. This Amendment shall become effective upon the
satisfaction of all the following conditions precedent:



          4.1 Amendment. Borrower and Bank shall have duly executed and delivered this
Amendment to Bank;



          4.2 Payment of Commitment Fee. Borrower shall have paid Bank the commitment fee in
the amount of $25,000 as required by Section 2.4(a) of the Loan Agreement (as amended by this
Amendment); and



          4.3 Payment of Bank Expenses. Borrower shall have paid all Bank Expenses incurred
through the date of this Amendment.



     5. Counterparts. This Amendment may be signed in any number of
counterparts, and by different parties hereto in separate counterparts, with the same effect as if
the signatures to each such counterpart were upon a single instrument. All counterparts shall be
deemed an original of this Amendment.



     6. Integration. This Amendment and any documents executed in connection
herewith or pursuant hereto contain the entire agreement between the parties with respect to the
subject matter hereof and supersede all prior agreements, understandings, offers and negotiations,
oral or written, with respect



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thereto and no extrinsic evidence whatsoever may be introduced in any
judicial or arbitration proceeding, if any, involving this Amendment; except that any financing
statements or other agreements or instruments filed by Bank with respect to Borrower shall remain
in full force and effect.



     7. Governing Law; Venue. THIS AMENDMENT SHALL BE GOVERNED BY AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. Borrower and Bank
each submit to the exclusive jurisdiction of the State and Federal courts in Santa Clara County,
California.



[Remainder of page intentionally left blank — signature page follows]




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     IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 8 to Loan
Agreement to be executed as of the date first written above.



	 	 	 	 	 	 	 

	Borrower:	 	Rae Systems Inc.	 	 
	 	 	a Delaware corporation	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Randall Gausman
 

	 	 
	 	 	Printed Name: Randall Gausman	 	 
	 	 	Title: Chief Financial Officer	 	 
	 
	 	 	 	 	 	 
	Bank:	 	Silicon Valley Bank	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Ray Agular
 

	 	 
	 	 	Printed Name: Ray Agular	 	 
	 	 	Title: Relationship Manager	 	 



















 





EXHIBIT D




COMPLIANCE CERTIFICATE



	 	 	 	 	 

	TO:

	 	SILICON VALLEY BANK
	 	Date:                                         
	FROM:

	 	RAE SYSTEMS INC.	 	 





The undersigned authorized officer of RAE Systems Inc. (“Borrower”) certifies that under the terms
and conditions of the Loan and Security Agreement dated as of March 14, 2007, between Borrower and
Bank (the “Agreement”), (1) Borrower is in complete compliance for the period ending
                     with all required covenants except as noted below, (2) there are no Events of
Default, (3) all representations and warranties in the Agreement are true and correct in all
material respects on this date except as noted below; provided, however, that such materiality
qualifier shall not be applicable to any representations and warranties that already are qualified
or modified by materiality in the text thereof; and provided, further that those representations
and warranties expressly referring to a specific date shall be true, accurate and complete in all
material respects as of such date, (4) Borrower, and each of its Subsidiaries, has timely filed all
required tax returns and reports, and Borrower has timely paid all foreign, federal, state and
local taxes, assessments, deposits and contributions owed by Borrower except as otherwise permitted
pursuant to the terms of Section 5.9 of the Agreement, and (5) no Liens have been levied or claims
made against Borrower or any of its Subsidiaries relating to unpaid employee payroll or benefits of
which Borrower has not previously provided written notification to Bank. Attached are the required
documents supporting the certification. The undersigned certifies that these are prepared in
accordance with generally GAAP consistently applied from one period to the next except as explained
in an accompanying letter or footnotes. The undersigned acknowledges that no borrowings may be
requested at any time or date of determination that Borrower is not in compliance with any of the
terms of the Agreement, and that compliance is determined not just at the date this certificate is
delivered. Capitalized terms used but not otherwise defined herein shall have the meanings given
them in the Agreement.




Please indicate compliance status by circling Yes/No under “Complies” column.




	 	 	 	 	 
	Reporting Covenant	 	Required	 	Complies
	Quarterly financial statements (along with Borrower 

prepared consolidating financial statements) with 

Compliance Certificate

	 	Quarterly within earlier of 5 days of
filing 10Q or 50 days of quarter end
	 	Yes   No
	Annual financial statement (CPA Audited) + CC

	 	within earlier of 5 days of
filing 10K or 90 days of FYE
	 	Yes   No
	8-K

	 	Within 5 days after filing with SEC
	 	Yes   No
	Borrowing Base Certificate A/R & A/P Agings and
deferred revenue report

	 	within 30 days of each month
	 	Yes   No
	Projections

	 	Within 45 days of FYE
	 	Yes   No
	Cash balance report

	 	Within 30 days of end of month
	 	Yes   No






	 	 	 	 	 	 	 
	Financial Covenant	 	Required	 	Actual	 	Complies
	Maintain at all times:
	 	 	 	 	 	 
	Minimum Quick Ratio, tested as of
the last day of each fiscal
quarter.

	 	1.0:1.0
	 	___:1.0
	 	Yes   No
	 
	 	 	 	 	 	 
	Furthermore, Borrower shall maintain
at all times, at least $2,000,000
of total cash in deposit accounts
maintained in the name of Borrower
in the United States with Bank.
	 	 	 	 	 	 






 









 






	 	 	 	 	 	 	 
	Financial Covenant	 	Required	 	Actual	 	Complies
	Minimum EBITDA, tested as of the
last day of each fiscal quarter
indicated

	 	Fiscal Quarter Ending 03/31/10:


EBITDA 3 $(1,000,000)
	 	$___
	 	Yes   No
	 
	 	 	 	 	 	 
	 

	 	Fiscal Quarter Ending 06/30/10:	 	 	 	 
	 

	 	Combined EBITDA for fiscal
quarters ending 03/31/10 and
06/30/10 3 $(1,900,000)	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Fiscal Quarter Ending 09/30/10:	 	 	 	 
	 

	 	Combined EBITDA for fiscal
quarters ending 06/30/10 and
09/30/10 3 $(1,800,000)	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Fiscal Quarter Ending 12/31/10:	 	 	 	 
	 

	 	Combined EBITDA for fiscal
quarters ending 09/30/10 and
12/31/10 3 $(1,000,000)	 	 	 	 






     The following financial covenant analys[is][es] and information set forth in Schedule 1
attached hereto are true and accurate as of the date of this Certificate.



     The following are the exceptions with respect to the certification above: (If no exceptions
exist, state “No exceptions to note.”)


 




 




 







	 	 	 	 	 

	RAE SYSTEMS INC.	 	 
	 
	 	 	 	 
	By:
	 	 	 	 
	Name:

	 	 

	 	 
	Title:

	 	 

	 	 
	 

	 	 

	 	 









	 

	BANK USE ONLY

	 

	Received by:                                        

	authorized signer

	 

	Date:                                         

	 

	Verified:                                         

	authorized signer

	 

	Date:                                         

	 

	Compliance Status: Yes   No













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Schedule 1 to Compliance Certificate




Financial Covenants of Borrower


Dated:                                         




I. Quick Ratio (Section 6.8(a))



Required: 1.00:1.00; Furthermore, Borrower shall maintain at all times, at least $2,000,000 of
total cash in deposit accounts maintained in the name of Borrower in the United States with Bank.



Actual:




	 	 	 	 	 

	A. Aggregate value of Borrower’s consolidated unrestricted cash and cash equivalents
	 	$	 	 
	 
	 	 	 
	 
	B. Aggregate value of Borrower’s consolidated net billed accounts receivable
	 	$	 	 
	 
	 	 	 
	 
	C. Aggregate value of Borrower’s consolidated short and long term investments
	 	$	 	 
	 
	 	 	 
	 
	D. Quick Assets (the sum of lines A through C)
	 	$	 	 
	 
	 	 	 
	 
	E. Aggregate value of Obligations to Bank
	 	$	 	 
	 
	 	 	 
	 
	F. Aggregate value of Total Liabilities that mature within one year
	 	$	 	 
	 
	 	 	 
	 
	G. Current Liabilities (the sum of lines E and F)
	 	$	 	 
	 
	 	 	 
	 
	H. Quick Ratio (line D divided by line G)
	 	 	 	 
	 
	 	 	 




Is line H equal to or greater than 1.00:1:00?




	 	 	 

	                     No, not in compliance

	 	                     Yes, in compliance






(continued on next page)

















 








II. Minimum EBITDA (Section 6.8(b))



Required: See chart below




	 	 	 	 	 
	Fiscal	 	Measurement	 	Minimum
	Quarter	 	Period	 	EBITDA
	March 31, 2010

	 	Fiscal quarter ending March 31, 2010
	 	Discrete Quarter:

$(1,000,000)
	June 30, 2010

	 	Fiscal quarters ending March 31, 2010, and
June 30, 2010
	 	Combined Quarters:

$(1,900,000)
	September 30, 2010

	 	Fiscal quarters ending June 30, 2010, and September 30, 2010
	 	Combined Quarters:

$(1,800,000)
	December 31, 2010

	 	Fiscal quarters ending September 30, 2010, and December 31, 2010
	 	Combined Quarters:

$(1,000,000)”





Actual:




	 	 	 	 	 

	A. Net Income
	 	$	 	 
	 
	 	 	 
	B. To the extent included in the determination of Net Income
	 	 	 	 
	 
	1. The provision for income taxes
	 	$	 	 
	 
	 	 	 
	 
	2. Depreciation expense
	 	$	 	 
	 
	 	 	 
	 
	3. Amortization expense
	 	$	 	 
	 
	 	 	 
	 
	4. Net interest expense
	 	$	 	 
	 
	 	 	 
	 
	5. non-cash stock compensation expense.
	 	$	 	 
	 
	 	 	 
	 
	6. The sum of lines 1 through 5
	 	$	 	 
	 
	 	 	 
	 
	C. EBITDA (line A plus line B.6)
	 	 	 	 
	 
	 	 	 




Is line C equal to or greater than the amounts referenced above?




	 	 	 

	                     No, not in compliance

	 	                     Yes, in compliance







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