Document:

exv10w19

Exhibit 10.19

AMENDMENT NO. 4 TO

LOAN AND SECURITY AGREEMENT

     This Amendment No. 4 to Loan and Security Agreement (this “Amendment”) is entered
into this 22nd day of May, 2008, 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 may be 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 desires that Bank amend the Loan Agreement upon the terms and conditions more
fully set forth 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 so amend the Loan Agreement.

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 6.8 of the Loan Agreement. Section 6.8 of the Loan Agreement is amended and
restated in its entirety and replaced with the following:

          6.8 Financial Covenants.

          Borrower shall maintain at all times, unless otherwise noted, on a consolidated basis with
respect to Borrower and its Subsidiaries:

          (a) Quick Ratio. Tested as of the last day of each fiscal quarter, a ratio of Quick
Assets to Current Liabilities of at least 1.0 to 1.0.

          (b) EBITDA. Maintain, measured as of the end of each fiscal quarter during the
following periods, EBITDA of at least the following:

	 	 	 	 	 
	Period	 	Minimum EBITDA	 
	April 1, 2008 through June 30, 2008
	 	$ 	(100,000	)
	April 1, 2008 through September 30, 2008
	 	$	1,350,000	 
	July 1, 2008 through December 31, 2008
	 	$	3,500,000	 
	 
	 	 	.	 

 

 

          1.2 Section 13 (Definitions). The following terms and their definitions are amended to read
in their entirety as follows:

          “Borrowing Base” is (a) $3,500,000 plus (b) 80% of Eligible Accounts, as determined by Bank
from Borrower’s most recent Borrowing Base Certificate; provided, however, that Bank may decrease
the foregoing percentages in its good faith business judgment based on events (including without
limitation, the initial field audit examination and the on-going periodic examinations),
conditions, contingencies, or risks which, as determined by Bank, may adversely affect Collateral.

          “Revolving Line Maturity Date” is March 13, 2009.

          1.3 Section 13 (Definitions). The definition of “Tangible Net Worth” in Section 13 is hereby
deleted.

          1.4 Section 13 (Definitions). Section 13 is hereby amended by inserting the following
definition in the appropriate place to preserve the alphabetical order of the definitions in such
section:

          “EBITDA” shall mean (a) Net Income, plus (b) interest expense, plus (c) to the extent deducted
in the calculation of Net Income, depreciation expense and amortization expense, plus (d) income
tax expense.

          1.5 Exhibit C, “Borrowing Base Certificate” of the Loan Agreement is hereby amended by
deleting it in its entirety and replacing it with Exhibit A attached hereto.

          1.6 Exhibit D, “Compliance Certificate” of the Loan Agreement is hereby amended by deleting it
in its entirety and replacing it with Exhibit B attached hereto.

     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;

               (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

2

 

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 amendment 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 Loan Fee. Borrower shall have paid Bank a loan fee of $20,000 ($4,500 of which
has already been paid with extension); and

          4.3 Payment of Bank Expenses. Borrower shall have paid all Bank Expenses (including all
reasonable attorneys’ fees and reasonable 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 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

3

 

STATE OF CALIFORNIA. Borrower and Bank each submit to the exclusive jurisdiction of the State
and Federal courts in Santa Clara County, California.

     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the
date first written above.

	 	 	 	 	 	 	 	 	 	 	 
	Borrower:	 	 	Rae Systems Inc.

a Delaware corporation
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	By: 	/s/ Randall K. Gausman
	 	 	 	 	 
	 	 	 	 	Printed Name: 	Randall K. Gausman
	 

	 	 	 	 	 	 	 	 	 
	 	 	 	 	Title: 	Chief Financial
Officer
	 	 	 	 	 	 
	 
	Bank:	 	 	Silicon Valley Bank
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	By: 	/s/ Ray Aguilar
	 	 	 	 	 
	 	 	 	 	Printed Name:	Ray Aguilar
	 	 	 	 	Title:	Relationship Manager

4

 

EXHIBIT A

EXHIBIT C

BORROWING BASE CERTIFICATE

 

Borrower: RAE Systems Inc.

Lender:  Silicon Valley Bank

Commitment Amount:     $15,000,000

The undersigned represents and warrants that this is true, complete and correct, and that the
information in this Borrowing Base Certificate complies with the representations and warranties in
the Loan and Security Agreement (as amended from time to time) between the undersigned and Silicon
Valley Bank.

	 	 	 	 	 	 	 
	ACCOUNTS RECEIVABLE	 	 	 	 
	1.
	 	Accounts Receivable Book Value as
of                     
                    	 	$	 	 
	 
	 	 	 	 	 
	2.
	 	Additions (please explain on reverse)	 	$	 	 
	 
	 	 	 	 	 
	3.
	 	TOTAL ACCOUNTS RECEIVABLE	 	$	 	 
	 
	 	 	 	 	 
	 
	 	 	 	 	 	 
	ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)	 	 	 	 
	4.
	 	Amounts over 90 days due	 	$	 	 
	 
	 	 	 	 	 
	5.
	 	Balance of 50% over 90 day accounts	 	$	 	 
	 
	 	 	 	 	 
	6.
	 	Credit balances over 90 days	 	$	 	 
	 
	 	 	 	 	 
	7.
	 	Concentration Limits	 	$	 	 
	 
	 	 	 	 	 
	8.
	 	Foreign Accounts	 	$	 	 
	 
	 	 	 	 	 
	9.
	 	Governmental Accounts	 	$	 	 
	 
	 	 	 	 	 
	10.
	 	Contra Accounts	 	$	 	 
	 
	 	 	 	 	 
	11.
	 	Promotion or Demo Accounts	 	$	 	 
	 
	 	 	 	 	 
	12.
	 	Intercompany/Employee Accounts	 	$	 	 
	 
	 	 	 	 	 
	13.
	 	Disputed Accounts	 	$	 	 
	 
	 	 	 	 	 
	14.
	 	Deferred Revenue	 	$	 	 
	 
	 	 	 	 	 
	15.
	 	Other (please explain on reverse)	 	$	 	 
	 
	 	 	 	 	 
	16.
	 	TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS	 	$	 	 
	 
	 	 	 	 	 
	17.
	 	Eligible Accounts (#3 minus #16)	 	$	 	 
	 
	 	 	 	 	 
	18.
	 	ELIGIBLE AMOUNT OF ACCOUNTS ( 80% of #17)	 	$	 	 
	 
	 	 	 	 	 
	 
	 	 	 	 	 	 
	BALANCES	 	 	 	 
	19.
	 	Maximum Loan Amount	 	$	 	15,000,000
	20.
	 	Total Funds Available [Lesser
of #19 or #18 plus $3,500,000]	 	$	 	 
	 
	 	 	 	 	 
	21.
	 	Present balance owing on Line of Credit	 	$	 	 
	 
	 	 	 	 	 
	22.
	 	Outstanding under Sublimits	 	$	 	 
	 
	 	 	 	 	 
	23.
	 	RESERVE POSITION (#20 minus #21 and #22)	 	$	 	 
	 
	 	 	 	 	 

     The undersigned represents and warrants that this is true, complete and correct, and that the
information in this Borrowing Base Certificate complies with the representations and warranties in
the Loan and Security Agreement (as amended from time to time) between the undersigned and Silicon
Valley Bank.

 

 

	 	 	 
	COMMENTS:
	 
	 	 
	By:
	 	 
	 

	 	 
	 

	 	Authorized Signer 
	 
	 	 
	Date:
	 	 
	 

	 	 

	 	 	 	 	 
	BANK USE ONLY
	 
	Received by:	 	 
	 

	 	 	 
	 

	 	 	 	authorized signer
	Date:
	 	 	 
	 	 
	Verified:
	 	 	 
	 	 	 
	 	 	authorized signer

	Date:
	 	 	 
	 	 
	Compliance Status:           Yes       No

2

 

EXHIBIT B

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 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

	 	When the outstanding Obligations
Under Section 2.1 are equal to or
greater than $3,000,000 for longer
than 3 consecutive Business Days
within a calendar month, monthly
within 30 days
	 	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:
	 	 	 	 	 	 
	 
	Tested as of the last
day of each fiscal
quarter,
a Minimum Quick Ratio

	 	1.0:1.0
	 	___:1.0
	 	Yes   No
	 
	Tested as of the last day of each fiscal quarter,

	 	4/1/08-6/30/08, ($100,000)
	 	$                     
	 	Yes    No
	a Minimum EBITDA 

	 	4/1/08-9/30/08, $1,350,000	 	 	 	 
	

	 	7/1/08-12/31/08, $3,500,000	 	 	 	 

 

 

     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.	 	 	BANK USE ONLY
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	Received by:	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	AUTHORIZED SIGNER	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By:

	 	 	 	 	Date:	 	 	 	 	 	 	 	 	 
	 

	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Name:

	 	 	 	Verified:	 	 	 	 	 	 	 	 
	 

	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	AUTHORIZED SIGNER	 	 	 	 	 	 
	Title:

	 	 	 	Date:	 	 	 	 	 	 	 	 	 
	 

	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	Compliance Status:          Yes     No

2

 

Schedule 1 to Compliance Certificate

Financial Covenants of Borrower

Dated:                     

I. Quick Ratio (Section 6.8(a))

Required: 1.00:1.00

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

XV. EBITDA (Section 6.8(b))

Required:  See chart below

	 	 	 	 	 
	Period	 	EBITDA	 
	April 1, 2008 through June 30, 2008
	 	$	(100,000	)
	 
	 	 	 	 
	April 1, 2008 through September 30, 2008
	 	$	1,350,000	 
	 
	 	 	 	 
	July 1,
2008 through December 31, 2008
	 	$	3,500,000	 

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.      The sum of lines 1 through 4	 	$	 	 	 	 
	 
	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	C.
	 	EBITDA (line A plus line B.5)	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 

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

	 	 	 	 	 	 	 
	 

	 	                     No, not in compliance
	 	 	 	                     Yes, in compliance

2exv10w20

Exhibit 10.20

AMENDMENT NO. 5 AND LIMITED WAIVER TO

LOAN AND SECURITY AGREEMENT

     This Amendment No. 5 and Limited Waiver to Loan and Security Agreement (this
“Amendment”) is entered into this
11th day of March, 2009, 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 (a) is in default under Section 6.8(b) of the Loan Agreement for failing to
maintain EBITDA of at least $3,500,000 for the period from July 1, 2008 through December 31, 2008
(the “Existing Default”), and (b) desires that Bank (i) provide the limited waiver of the Existing
Default, and (ii) amend the Loan Agreement upon the terms and conditions more fully set forth
herein.

     B. Subject to the representations and warranties of Borrower herein and upon the terms and
conditions set forth in this Amendment, Bank is willing to provide the conditional limited waiver
contained herein and so amend the Loan Agreement.

agreement

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

     1. Events of Default. Borrower acknowledges that there exists the Event of Default
under Section 6.8(b) of the Loan Agreement due to the Existing Default.

     2. Limited Waiver. Bank hereby agrees, subject to the terms of Section 6 hereof, to
waive the Existing Default.

     3. Amendments to Loan Agreement.

          3.1 Section 2.3(a) of the Loan Agreement. Section 2.3(a) of the Loan Agreement is amended and
restated in its entirety and replaced with the following:

          (a) Interest Rate. Subject to Section 2.3(b), the principal amount outstanding under the
Revolving Line shall accrue interest at a floating per annum rate equal to the Prime Rate plus one
percentage point (1.00%), which interest shall be payable monthly in accordance with Section 2.3(f)
below.

          3.2 Section 2.4(c) of the Loan Agreement. Section 2.4(c) of the Loan Agreement is amended and
restated in its entirety and replaced with the following:

          (c) Unused Revolving Line Facility Fee. A fee (the “Unused Revolving Line Facility Fee”),
payable quarterly, in arrears, on a calendar year basis, in an amount equal to three tenth of one
percent (0.30%) per annum of the average unused portion of the Revolving Line, as determined by
Bank. Borrower shall not be entitled to any credit, rebate or repayment of any Unused Revolving
Line

 

 

Facility Fee previously earned by Bank pursuant to this Section notwithstanding any
termination of the Agreement or the suspension or termination of Bank’s obligation to make loans and advances
hereunder; and

          3.3 Section 6.3(c) of the Loan Agreement. Section 6.3(c) of the Loan Agreement is amended and
restated in its entirety and replaced with the following:

          (c) Within thirty (30) days after the last day of such month, deliver to Bank a duly completed
Borrowing Base Certificate signed by a Responsible Officer, with aged listings of accounts
receivable and accounts payable (by invoice date).

          3.4 Section 6.8 of the Loan Agreement. Section 6.8 of the Loan Agreement is amended and
restated in its entirety and replaced with the following:

          6.8 Financial Covenants.

          Borrower shall maintain at all times, unless otherwise noted, on a consolidated basis with
respect to Borrower and its Subsidiaries:

          (a) Quick Ratio. Tested as of the last day of each fiscal quarter, a ratio of Quick
Assets to Current Liabilities of at least 1.0 to 1.0.

          (b) EBITDA. Maintain, measured as of the end of each fiscal quarter during the
following periods, EBITDA of at least the following:

	 	 	 	 	 
	Period	 	Minimum EBITDA
	January 1, 2009 through March 31, 2009

	 	$	(2,015,000	)
	 

	 	 	.	 

          3.5 Section 8.11 of the Loan Agreement. A new Section 8.11 of the Loan Agreement is hereby
added after Section 8.10 as follows:

          8.11 Compliance. Borrower or any of its Subsidiaries violates or fails to comply with the
Foreign Corrupt Practices Act and/or any related statutes and regulations and such violation or
failure results in either (a) the imposition of potential monetary penalties in excess of $500,000
in the aggregate or material criminal sanctions, or (b) debarment from doing business resulting in
a loss of $1,000,000 of revenue in the aggregate.

          3.6 Section 13 (Definitions). The following terms and their definitions are amended to read
in their entirety as follows:

     “Borrowing Base” is 80% of Eligible Accounts, as determined by Bank from Borrower’s most
recent Borrowing Base Certificate; provided, however, that Bank may decrease the foregoing
percentages in its good faith business judgment based on events (including without limitation, the
initial field audit

2

 

examination and the on-going periodic examinations), conditions, contingencies,
or risks which, as determined by Bank, may adversely affect Collateral.

     “Prime Rate” is Bank’s most recently announced “prime rate,” even if it is not Bank’s lowest
rate; provided however, in no event shall the Prime Rate be less than 4.00%.

     “Revolving Line” is an Advance or Advances in an aggregate amount of up to $10,000,000
outstanding at any time.

     “Revolving Line Maturity Date” is May 12, 2009.

          3.7 Exhibit C, “Borrowing Base Certificate” of the Loan Agreement is hereby amended by
deleting it in its entirety and replacing it with Exhibit A attached hereto.

          3.8 Exhibit D, “Compliance Certificate” of the Loan Agreement is hereby amended by deleting it
in its entirety and replacing it with Exhibit B attached hereto.

     4. 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;

               (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.

3

 

          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.

     5. Limitation. The waiver and 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.

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

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

          6.2 Payment of Loan Fee. Borrower shall have paid Bank a loan fee of $4,500; and

          6.3 Payment of Bank Expenses. Borrower shall have paid all Bank Expenses (including all
reasonable attorneys’ fees and reasonable expenses) incurred through the date of this Amendment.

     7. 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.

     8. 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 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.

     9. 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.

     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the
date first written above.

4

 

	 	 	 	 	 	 	 	 	 	 	 
	Borrower:	 	 	 	Rae Systems Inc.

a Delaware corporation
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	/s/ Randall K. Gausman
	 	 	 	 	 	 	 
	 	 	 	 	 	 	Printed Name: Randall K. Gausman
	 

	 	 	 	 	 	Title:	 	Chief Financial Officer
	 
	 	 	 	 	 	 	 	 	 	 
	Bank:	 	 	 	Silicon Valley Bank
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	/s/ Ray Aguilar
	 	 	 	 	 	 	 
	 	 	 	 	 	 	Printed
Name: Ray Aguilar
	 

	 	 	 	 	 	Title:	 	Relationship Manager

5

 

EXHIBIT A

EXHIBIT C

BORROWING BASE CERTIFICATE

Borrower: RAE Systems Inc.

Lender: Silicon Valley Bank

Commitment Amount: $10,000,000

The undersigned represents and warrants that this is true, complete and correct, and that the
information in this Borrowing Base Certificate complies with the representations and warranties in
the Loan and Security Agreement (as amended from time to time) between the undersigned and Silicon
Valley Bank.

	 	 	 	 	 	 
	ACCOUNTS RECEIVABLE	 	 	 
	1.
	 	Accounts Receivable Book Value as of                               	 	$	 
	 
	 	 	 	 	 
	2.
	 	Additions (please explain on reverse)	 	$	 
	 
	 	 	 	 	 
	3.
	 	TOTAL ACCOUNTS RECEIVABLE	 	$	 
	 
	 	 	 	 	 
	 
	ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)	 	 	 
	4.
	 	Amounts over 90 days due	 	$	 
	 
	 	 	 	 	 
	5.
	 	Balance of 50% over 90 day accounts	 	$	 
	 
	 	 	 	 	 
	6.
	 	Credit balances over 90 days	 	$	 
	 
	 	 	 	 	 
	7.
	 	Concentration Limits	 	$	 
	 
	 	 	 	 	 
	8.
	 	Foreign Accounts	 	$	 
	 
	 	 	 	 	 
	9.
	 	Governmental Accounts	 	$	 
	 
	 	 	 	 	 
	10.
	 	Contra Accounts	 	$	 
	 
	 	 	 	 	 
	11.
	 	Promotion or Demo Accounts	 	$	 
	 
	 	 	 	 	 
	12.
	 	Intercompany/Employee Accounts	 	$	 
	 
	 	 	 	 	 
	13.
	 	Disputed Accounts	 	$	 
	 
	 	 	 	 	 
	14.
	 	Deferred Revenue	 	$	 
	 
	 	 	 	 	 
	15.
	 	Other (please explain on reverse)	 	$	 
	 
	 	 	 	 	 
	16.
	 	TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS	 	$	 
	 
	 	 	 	 	 
	17.
	 	Eligible Accounts (#3 minus #16)	 	$	 
	 
	 	 	 	 	 
	18.
	 	ELIGIBLE AMOUNT OF ACCOUNTS ( 80% of #17)	 	$	 
	 
	 	 	 	 	 
	 
	BALANCES	 	 	 
	19.
	 	Maximum Loan Amount	 	$ 10,000,000
	20.
	 	Total Funds Available [Lesser of #19 or #18]	 	$	 
	 
	 	 	 	 	 
	21.
	 	Present balance owing on Line of Credit	 	$	 
	 
	 	 	 	 	 
	22.
	 	Outstanding under Sublimits	 	$	 
	 
	 	 	 	 	 
	23.
	 	RESERVE POSITION (#20 minus #21 and #22)	 	$	 
	 
	 	 	 	 	 

The undersigned represents and warrants that this is true, complete and correct, and that the
information in this Borrowing Base Certificate complies with the representations and warranties in
the Loan and Security Agreement (as amended from time to time) between the undersigned and Silicon
Valley Bank.

 

	 	 	 
	COMMENTS:
	 
	 	 
	By:
	 	 
	 

	 	 
	 

	 	Authorized Signer 
	 
	 	 
	Date:
	 	 
	 

	 	 

	 	 	 	 	 
	BANK USE ONLY

	 
	Received by:	 	 
	 

	 	 	 
	 

	 	 	 	authorized signer
	Date: 
	 	 	 	 
	 	 
	Verified:
	 	 	 
	 	 	 
	 	 	authorized signer

	Date: 
	 	 	 	 
	 	 
	Compliance Status:           Yes       No

 

 

EXHIBIT B

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 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

	 	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:
	 	 	 	 	 	 	 
	Tested as of the last
day of each fiscal
quarter, a Minimum
Quick Ratio

	 	1.0:1.0
	 	 	___:1.0
	 	Yes    No
	 
	 	 	 	 	 	 	 
	Tested as of the last
day of each fiscal
quarter,
a Minimum EBITDA

	 	1/1/09-3/31/09, ($2,015)
	 	$	 

	 	Yes    No

 

 

     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.	 	 	BANK USE ONLY
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	Received by:	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	AUTHORIZED SIGNER 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By:

	 	 	 	 	Date:	 	 	 	 	 	 	 	 	 
	 

	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Name:

	 	 	 	Verified:	 	 	 	 	 	 	 	 
	 

	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	AUTHORIZED SIGNER	 	 	 	 	 	 
	Title:

	 	 	 	Date:	 	 	 	 	 	 	 	 	 
	 

	 	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	Compliance Status:          Yes     No

2

 

Schedule 1 to Compliance Certificate

Financial Covenants of Borrower

Dated:                     

I. Quick Ratio (Section 6.8(a))

Required: 1.00:1.00

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

XV.
EBITDA (Section 6.8(b))

Required: See chart below

	 	 	 	 	 	 	 	 	 
	Period	
	
	
	EBITDA
	January 31,
2009 through March 31, 2009

Actual:	 	 	 	$	(2,015,000	)  
	 
	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.     The sum of lines 1 through 4	 	$	 	 
	 
	 	 	 	 	 
	 
	 	 	 	 	 	 
	C.
	 	EBITDA (line A plus line B.5)	 	$	 	 
	 
	 	 	 	 	 
	 
	 	 	 	 	 	 

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

	 	 	 	 	 	 	 	 	 
	 
	 	                      No, not in compliance	 	                    Yes, in compliance

2

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