Document:

Prepared by R.R. Donnelley Financial -- RAE Systems Inc. 1993 Stock Plan

  
 Exhibit 10.3 
  
 RAE SYSTEMS INC. 
  
 1993 STOCK PLAN 
 (as amended through August 6, 1999) 
  
 1.    Purposes of the
Plan. The purposes of this Stock Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees and Consultants of the Company and its Subsidiaries and to
promote the success of the Company’s business. Options granted under the Plan may be incentive stock options (as defined under Section 422 of the Code) or non-statutory stock options, as determined by the Administrator at the time of grant of
an option and subject to the applicable provisions of Section 422 of the Code, as amended, and the regulations promulgated thereunder. Stock purchase rights may also be granted under the Plan. 
  

2.    Definitions. As used herein, the following definitions shall apply: 
  
 (a) “Administrator” means the Board or any of its Committees appointed pursuant to Section 4 of the Plan. 
  
 (b) “Board” means the Board of Directors of the Company. 
  
 (c) “Code” means the Internal Revenue Code of 1986, as amended. 
  
 (d) “Committee” means a Committee appointed by the Board of Directors in accordance with Section 4 of the Plan. 
  
 (e) “Common Stock” means the Common Stock of the Company. 
  
 (f) “Company” means RAE Systems Inc., a California corporation. 
  
 (g) “Consultant” means any person, including an advisor, who is engaged by the Company or any Parent or Subsidiary to render services and is
compensated for such services, and any director of the Company whether compensated for such services or not provided that if and in the event the Company registers any class of any equity security pursuant to the Exchange Act, the term Consultant
shall thereafter not include directors who are not compensated for their services or are paid only a director’s fee by the Company. 
  
 (h) “Continuous Status as an Employee or Consultant” means that the employment or consulting relationship is not interrupted or terminated by the Company, any Parent or Subsidiary. Continuous Status
as an Employee or Consultant shall not be considered interrupted in the case of: (i) any leave of absence approved by the Board, including sick leave, military leave, or any other personal leave; provided, however, that for purposes of Incentive
Stock Options, any such leave may not exceed ninety (90) days, unless reemployment upon the expiration of such leave is guaranteed by contract (including certain Company policies) or statute; provided, further, that on the ninety-first (91st) day of
any such leave (where reemployment is not guaranteed by contract or statute) the Optionee’s Incentive Stock Option shall automatically convert to a Nonstatutory Stock Option or (ii) transfers between locations of the Company or between the
Company, its Parent, its Subsidiaries or its successor. 

  
 (i) “Employee” means any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of the Company. The payment of a director’s fee by the Company shall not be sufficient to constitute “employment” by the Company. 
  
 (j) “Exchange Act” means the Securities Exchange Act of 1934, as amended. 
  
 (k) “Fair Market Value” means, as of any date, the value of Common Stock determined as follows: 

 
 (i) If the Common Stock is listed on any established stock exchange or a national market system including without
limitation the National Market System of the National Association of Securities Dealers, Inc. Automated Quotation (“NASDAQ”) System, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales
were reported, as quoted on such exchange or system for the last market trading day prior to the time of determination) as reported in The Wall Street Journal or such other source as the Administrator deems reliable; 
  
 (ii) If the Common Stock is quoted on the NASDAQ System (but not on the National Market System thereof) or regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high bid and low asked prices for the Common Stock or; 
  
 (iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Administrator. 

 
 (l) “Incentive Stock Option” means an Option intended to qualify as an incentive stock option within the
meaning of Section 422 of the Code. 
  
 (m) “Nonstatutory Stock Option” means an Option not
intended to qualify as an Incentive Stock Option. 
  
 (n) “Option” means a stock option granted
pursuant to the Plan. 
  
 (o) “Optioned Stock” means the Common Stock subject to an Option or a
Stock Purchase Right. 
  
 (p) “Optionee” means an Employee or Consultant who receives an Option
or Stock Purchase Right. 
  
 (q) “Parent” means a “parent corporation”, whether now or
hereafter existing, as defined in Section 424( e) of the Code. 
  
 (r) “Plan” means this 1993
Stock Plan. 
  
 (s) “Restricted Stock” means shares of Common Stock acquired pursuant to a grant
of a Stock Purchase Right under Section 11 below. 
 

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 (t) “Share” means a share of the Common Stock, as adjusted
in accordance with Section 12 below. 
  
 (u) “Stock Purchase Right” means the right to purchase
Common Stock pursuant to Section 11 below. 
  
 (v) “Subsidiary” means a “subsidiary
corporation”, whether now or hereafter existing, as defined in Section 424(f) of the Code. 
  
 3.    Stock Subject to the Plan. Subject to the provisions of Section 12 of the Plan, the maximum aggregate number of shares which may be optioned and sold under the Plan is 4,000,000 shares of Common
Stock. The shares may be authorized, but unissued, or reacquired Common Stock. 
  
 If an Option should expire or become
unexercisable for any reason without having been exercised in full, the Unpurchased Shares which were subject thereto shall, unless the Plan shall have been terminated, become available for future grant under the Plan. 
  
 4.    Administration of the Plan. 
  
 (a) Initial Plan Procedure. Prior to the date, if any, upon which the Company becomes subject to the Exchange Act, the Plan shall be administered by the Board or
a committee appointed by the Board. 
  
 (b) Plan Procedure After the Date, if any, Upon Which the Company
Becomes Subject to the Exchange Act. 
  
 (i) Administration With Respect to Directors and Officers.
With respect to grants of Options or Stock Purchase Rights to Employees who are also officers or directors of the Company, the Plan shall be administered by (A) the Board if the Board may administer the Plan in compliance with Rule 16b-3 promulgated
under the Exchange Act or any successor thereto (“Rule 16b-3”) with respect to a plan intended to qualify thereunder as a discretionary plan, or (B) a committee designated by the Board to administer the Plan, which committee shall be
constituted in such a manner as to permit the Plan to comply with Rule 16b-3 with respect to a plan intended to qualify thereunder as a discretionary plan. Once appointed, such Committee shall continue to serve in its designated capacity until
otherwise directed by the Board. From time to time the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies,
however caused, and remove all members of the Committee and thereafter directly administer the Plan, all to the extent permitted by Rule 16b-3 with respect to a plan intended to qualify thereunder as a discretionary plan. 
  
 (ii) Multiple Administrative Bodies. If permitted by Rule 16b-3, the Plan may be administered by different bodies with respect
to directors, non-director officers and Employees who are neither directors nor officers. 
  
 (iii)
Administration With Respect to Consultants and Other Employees. With respect to grants of Options or Stock Purchase Rights to Employees or Consultants who are 
 

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neither directors nor officers of the Company, the Plan shall be administered by (A) the Board or (B) a committee designated by the Board, which committee shall be constituted in such a manner as
to satisfy the legal requirements relating to the administration of incentive stock option plans, if any, of California corporate and securities laws, of the Code, and of any applicable stock exchange (the “Applicable Laws”). Once
appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill vacancies, however caused, and remove all members of the Committee and thereafter directly administer the Plan, all to the extent permitted by the Applicable Laws. 

 
 (c) Powers of the Administrator. Subject to the provisions of the Plan and in the case of a Committee, the specific
duties delegated by the Board to such Committee, and subject to the approval of any relevant authorities, including the approval, if required, of any stock exchange upon which the Common Stock is listed, the Administrator shall have the authority,
in its discretion: 
  
 (i) to determine the Fair Market Value of the Common Stock, in accordance with Section
2(k) of the Plan; 
  
 (ii) to select the Consultants and Employees to whom Options and Stock Purchase Rights may
from time to time be granted hereunder; 
  
 (iii) to determine whether and to what extent Options and Stock
Purchase Rights or any combination thereof are granted hereunder; 
  
 (iv) to determine the number of shares of
Common Stock to be covered by each such award granted hereunder; 
  
 (v) to approve forms of agreement for use
under the Plan; 
  
 (vi) to determine the terms and conditions, not inconsistent with the terms of the Plan, of
any award granted hereunder; 
  
 (vii) to determine whether and under what circumstances an Option may be settled
in cash under subsection 9(f) instead of Common Stock; 
  
 (viii) to reduce the exercise price of any Option to
the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option shall have declined since the date the Option was granted; 
  
 (ix) to determine the terms and restrictions applicable to Stock Purchase Rights and the Restricted Stock purchased by exercising such Stock Purchase Rights; and

  
 (x) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan. 

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 (d) Effect of Administrator’s Decision. All decisions,
determinations and interpretations of the Administrator shall be final and binding on all Optionees and any other holders of any Options or Stock Purchase Rights. 
  
 5.    Eligibility. 
  
 (a) Nonstatutory Stock Options and Stock Purchase Rights may be granted to Employees and Consultants. Incentive Stock Options may be granted only to Employees. An Employee or Consultant who has been granted an Option or Stock Purchase Right
may, if otherwise eligible, be granted additional Options or Stock Purchase Rights. 
  
 (b) Each Option shall be
designated in the written option agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designations, to the extent that the aggregate Fair Market Value of the Shares with respect to which Options
designated as Incentive Stock Options are exercisable for the first time by any Optionee during any calendar year (under all plans of the Company or any Parent or Subsidiary) exceeds $100,000, such excess Options shall be treated as Nonstatutory
Stock Options. 
  
 (c) For purposes of Section 5(b), Incentive Stock Options shall be taken into account in the
order in which they were granted, and the Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted. 
  
 (d) The Plan shall not confer upon any Optionee any right with respect to continuation of employment or consulting relationship with the Company, nor shall it interfere
in any way with his or her right or the Company’s right to terminate his or her employment or consulting relationship at any time, with or without cause. 
  
 6.    Term of Plan. The Plan shall become effective upon the earlier to occur of its adoption by the Board of Directors or its approval by the shareholders of the Company as described
in Section 18 of the Plan. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 14 of the Plan. 
  
 7.    Term of Option. The term of each Option shall be the term stated in the Option Agreement; provided, however, that the term shall be no more than ten (10) years from the date of
grant thereof. However, in the case of an Incentive Stock Option granted to an Optionee who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the term of the Option shall be five (5) years from the date of grant thereof or such shorter term as may be provided in the Option Agreement. 
  
 8.    Option Exercise Price and Consideration. 
  
 (a) The per share exercise price for the Shares to be issued pursuant to exercise of an Option shall be such price as is determined by the Board, but shall be subject
to the following: 
  
 (i) In the case of an Incentive Stock Option 
 

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 (A) granted to an Employee who, at the time of the grant of such Incentive
Stock Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on
the date of grant. 
  
 (B) granted to any Employee, the per Share exercise price shall be no less than 100% of
the Fair Market Value per Share on the date of grant. 
  
 (ii) In the case of a Nonstatutory Stock Option

  
 (A) granted to a person who, at the time of the grant of such Option, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant. 
  
 (B) granted to any person, the per Share exercise price shall be no less than 85% of the Fair Market Value per Share on the date of
grant. 
  
 (b) The consideration to be paid for the Shares to be issued upon exercise of an Option, including the
method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant) and may consist entirely of (1) cash, (2) check, (3) promissory note, (4) other Shares which (x) in
the case of Shares acquired upon exercise of an Option either have been owned by the Optionee for more than six months on the date of surrender or were not acquired, directly or indirectly, from the Company, and (y) have a Fair Market Value on the
date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised, (5) delivery of a properly executed exercise notice together with such other documentation as the Administrator and the broker, if
applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the exercise price, or (6) any combination of the foregoing methods of payment. In making its determination as to
the type of consideration to accept, the Board shall consider if acceptance of such consideration may be reasonably expected to benefit the Company. 
  
 9.    Exercise of Option. 
  
 (a) Procedure
for Exercise; Rights as a Shareholder. Any Option granted hereunder shall be exercisable at such times and under such conditions as determined by the Board, including performance criteria with respect to the Company and/or the Optionee, and as
shall be permissible under the terms of the Plan. 
  
 An Option may not be exercised for a fraction of a Share.

  
 An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company
in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may, as authorized by the Board,
consist of any consideration and method of payment allowable under Section 8(b) of the Plan. Until the issuance (as evidenced by the appropriate entry on the books of the Company or 
 

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of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a shareholder shall exist with
respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such stock certificate promptly upon exercise of the Option. No adjustment will be made for a dividend or other right for
which the record date is prior to the date the stock certificate is issued, except as provided in Section 12 of the Plan. 
  
 Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to
which the Option is exercised. 
  
 (b) Termination of Employment or Consulting Relationship. In the event
of termination of an Optionee’s Continuous Status as an Employee or Consultant with the Company (but not in the event of an Optionee’s change of status from Employee to Consultant (in which case an Employee’s Incentive Stock Option
shall automatically convert to a Nonstatutory Stock Option on the ninety-first (91st) day following such change of status) or from Consultant to Employee), such Optionee may, but only within such period of time as is determined by the Administrator,
of at least thirty (30) days, with such determination in the case of an Incentive Stock Option not exceeding three (3) months after the date of such termination (but in no event later than the expiration date of the term of such Option as set forth
in the Option Agreement), exercise his or her Option to the extent that Optionee was entitled to exercise it at the date of such termination. To the extent that Optionee was not entitled to exercise the Option at the date of such termination, or if
Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate. 
  
 (c) Disability of Optionee. Notwithstanding the provisions of Section 9(b) above, in the event of termination of an Optionee’s Continuous Status as an Employee or Consultant as a result of his total and
permanent disability (as defined in Section 22(e)(3) of the Code), Optionee may, but only within twelve (12) months from the date of such termination (but in no event later than the expiration date of the term of such Option as set forth in the
Option Agreement), exercise the Option to the extent otherwise entitled to exercise it at the date of such termination. To the extent that Optionee was not entitled to exercise the Option at the date of termination, or if Optionee does not exercise
such Option to the extent so entitled within the time specified herein, the Option shall terminate. 
  
 (d)
Death of Optionee. In the event of termination of an Optionee’s Continuous Status as an Employee or Consultant as a result of the death of an Optionee, the Option may be exercised, at any time within twelve (12) months following the date
of death (but in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), by the Optionee’s estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only
to the extent the Optionee was entitled to exercise the Option at the date of death. To the extent that Optionee was not entitled to exercise the Option at the date of death, or if Optionee does not exercise such Option to the extent so entitled
within the time specified herein, the Option shall terminate. 
  
 (e) Rule 16b-3. Options granted to
persons subject to Section 16(b) of the Exchange Act must comply with Rule 16b-3 and shall contain such additional conditions or 
 

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restrictions as may be required thereunder to qualify for the maximum exemption from Section 16 of the Exchange Act with respect to Plan transactions. 
  
 (f) Buyout Provisions. The Administrator may at any time offer to buy out for a payment in cash or Shares, an Option previously
granted, based on such terms and conditions as the Administrator shall establish and communicate to the Optionee at the time that such offer is made. 
  
 10.    Non-Transferability of Options and Stock Purchase Rights. Options and Stock Purchase Rights may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. 
  
 11.    Stock Purchase Rights. 
  
 (a) Rights
to Purchase. Stock Purchase Rights may be issued either alone, in addition to, or in tandem with other awards granted under the Plan and/or cash awards made outside of the Plan. After the Administrator determines that it will offer Stock
Purchase Rights under the Plan, it shall advise the offeree in writing of the terms, conditions and restrictions related to the offer, including the number of Shares that such person shall be entitled to purchase, the price to be paid, and the time
within which such person must accept such offer, which shall in no event exceed thirty (30) days from the date upon which the Administrator made the determination to grant the Stock Purchase Right. The offer shall be accepted by execution of a
Restricted Stock purchase agreement in the form determined by the Administrator. Shares purchased pursuant to the grant of a Stock Purchase Right shall be referred to herein as “Restricted Stock.” 
  
 (b) Repurchase Option. Unless the Administrator determines otherwise, the Restricted Stock purchase agreement shall grant the
Company a repurchase option exercisable upon the voluntary or involuntary termination of the purchaser’s employment with the Company for any reason (including death or disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the purchaser and may be paid by cancellation of any indebtedness of the purchaser to the Company. The repurchase option shall lapse at such rate as the Committee may determine,
but at a minimum rate of 20% per year. 
  
 (c) Other Provisions. The Restricted Stock purchase agreement
shall contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Administrator in its sole discretion. In addition, the provisions of Restricted Stock purchase agreements need not be the same with
respect to each purchaser. 
  
 (d) Rights as a Shareholder. Once the Stock Purchase Right is exercised,
the purchaser shall have the rights equivalent to those of a shareholder, and shall be a shareholder when his or her purchase is entered upon the records of the duly authorized transfer agent of the Company. No adjustment will be made for a dividend
or other right for which the record date is prior to the date the Stock Purchase Right is exercised, except as provided in Section 12 of the Plan. 
 

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 12.    Adjustments Upon Changes in Capitalization or Merger.

  
 (a) Changes in Capitalization. Subject to any required action by the shareholders of the Company, the
number of shares of Common Stock covered by each outstanding Option or Stock Purchase Right, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options or Stock Purchase Rights have yet
been granted or which have been returned to the Plan upon cancellation or expiration of an Option or Stock Purchase Right, as well as the price per share of Common Stock covered by each such outstanding Option or Stock Purchase Right, shall be
proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been “effected without
receipt of consideration.” Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class,
or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option or Stock Purchase Right. 

 
 (b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Board
shall notify the Optionee at least fifteen (15) days prior to such proposed action. To the extent it has not been previously exercised, the Option or Stock Purchase Right will terminate immediately prior to the consummation of such proposed action.

  
 (c) Merger. In the event of a merger of the Company with or into another corporation, the Option or
Stock Purchase Right shall be assumed or an equivalent option or right shall be substituted by such successor corporation or a parent or subsidiary of such successor corporation. If, in such event, the Option or Stock Purchase Right is not assumed
or substituted, the Option or Stock Purchase Right shall terminate as of the date of the closing of the merger. For the purposes of this paragraph, the Option or Stock Purchase Right shall be considered assumed if, following the merger, the option
or right confers the right to purchase, for each Share of Optioned Stock subject to the Option or Stock Purchase Right immediately prior to the merger, the consideration (whether stock, cash, or other securities or property) received in the merger
by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided,
however, that if such consideration received in the merger was not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation and the participant, provide for the
consideration to be received upon the exercise of the Option or Stock Purchase Right, for each Share of Optioned Stock subject to the Option or Stock Purchase Right, to be solely common stock of the successor corporation or its Parent equal in fair
market value to the per share consideration received by holders of Common Stock in the merger. 
  
 13.    Time of Granting Options and Stock Purchase Rights. The date of grant of an Option or Stock Purchase Right shall, for all purposes, be the date on which the Administrator 

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makes the determination granting such Option or Stock Purchase Right, or such other date as is determined by the Board. Notice of the determination shall be given to each Employee or Consultant
to whom an Option or Stock Purchase Right is so granted within a reasonable time after the date of such grant. 
  
 14.    Amendment and Termination of the Plan. 
  
 (a) Amendment and
Termination. The Board may at any time amend, alter, suspend or discontinue the Plan, but no amendment, alteration, suspension or discontinuation shall be made which would impair the rights of any Optionee under any grant theretofore made,
without his or her consent. In addition, to the extent necessary and desirable to comply with Rule 16b-3 under the Exchange Act or with Section 422 of the Code (or any other applicable law or regulation, including the requirements of the NASD or an
established stock exchange), the Company shall obtain shareholder approval of any Plan amendment in such a manner and to such a degree as required. 
  
 (b) Effect of Amendment or Termination. Any such amendment or termination of the Plan shall not affect Options or Stock Purchase Rights already granted and such
Options and Stock Purchase Rights shall remain in full force and effect as if this Plan had not been amended or terminated, unless mutually agreed otherwise between the Optionee and the Board, which agreement must be in writing and signed by the
Optionee and the Company. 
  
 15.    Conditions Upon Issuance of Shares. Shares
shall not be issued pursuant to the exercise of an Option or Stock Purchase Right unless the exercise of such Option or Stock Purchase Right and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of
law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further
subject to the approval of counsel for the Company with respect to such compliance. 
  
 As a condition to the exercise of an Option
or Stock Purchase Right, the Company may require the person exercising such Option or Stock Purchase Right to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present
intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned relevant provisions of law. 
  
 16.    Reservation of Shares. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. 
  
 The inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares
as to which such requisite authority shall not have been obtained. 
 

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 17.    Agreements. Options and Stock Purchase Rights shall be
evidenced by written agreements in such form as the Board shall approve from time to time. 
  
 18.    Shareholder Approval. Continuance of the Plan shall be subject to approval by the shareholders of the Company within twelve (12) months before or after the date the Plan is adopted. Such shareholder
approval shall be obtained in the degree and manner required under applicable state and federal law and the rules of any stock exchange upon which the Common Stock is listed. 
  
 19.    Information to Optionees and Purchasers. The Company shall provide to each Optionee and to each individual who acquired Shares pursuant to the
Plan, during the period such Optionee or purchaser has one or more Options or Stock Purchase Rights outstanding, and, in the case of an individual who acquired Shares pursuant to the Plan, during the period such individual owns such Shares, copies
of annual financial statements. The Company shall not be required to provide such statements to key employees whose duties in connection with the Company assure their access to equivalent information. 
 

 11Prepared by R.R. Donnelley Financial -- Restricted Stock Purchase Agreement between the Registrant and Joseph Ng

  
 Exhibit 10.6 
  
 RAE SYSTEMS INC. 
 RESTRICTED STOCK PURCHASE AGREEMENT 
  
 This Restricted Stock Purchase Agreement is dated as of December             , 2001 (the “Effective Date”) by and
between RAE Systems Inc., a California corporation (the “Company”), and Joseph Ng (the “Purchaser”). 
  
 WHEREAS, the Company desires to provide incentive to the Purchaser to identify and evaluate potential partners acceptable to the Company and to otherwise assist the Company with respect to a contemplated merger of the Company with a
publicly-listed company. 
  
 WHEREAS, in connection with such engagement, the Company desires to issue shares of restricted common
stock pursuant to the terms hereto. 
  
 NOW THEREFORE, in consideration of the covenants, promises and representations set forth
herein, and for other good and valuable consideration, the parties agree as follows: 
  
 1.    Number of
Shares and Price Per Share.    Purchaser hereby agrees to purchase from the Company and the Company agrees to sell to Purchaser such number of shares of Common Stock of the Company, par value $.01 per share (the
“Stock”), as is set forth on such Purchaser’s signature page hereto for a purchase price of $.125 per share. The closing of the purchase and sale described above shall occur immediately upon execution of this Agreement. 

 
 2.    Share Repurchase Option.    At any time after March 31, 2002 (the “Target
Date”), the Company shall have the option (the “Repurchase Option”) to reacquire any shares purchased pursuant to this Agreement which have not been released to the Purchaser pursuant to subsection 2(a) (the “Unreleased
Shares”) under the terms set forth in this Section 2; provided, however, that if a definitive agreement to consummate a Qualifying Transaction (as defined below) has been entered into by the Company and is still in full force and effect as of
March 31, 2002, such Target Date shall be the earlier of: (i) the closing of the Qualifying Transaction contemplated by such definitive agreement; (ii) termination of such definitive agreement; or (iii) September 30, 2002. 
  
 (a)    Release of Shares from Repurchase Option.    All of the Stock purchased
hereunder shall be released from the Company’s Repurchase Option upon the closing of: (i) a direct or indirect sale or exchange by the shareholders of the Company of all or substantially all of the stock of the Company; (ii) merger; or (iii)
sale, exchange, or transfer of all or substantially all of the Company’s assets, whereby such sale, exchange, merger or transfer set forth in (i), (ii) or (iii) is with a publicly-traded corporation ((i), (ii) and (iii), a “Qualifying
Transaction”). At all times the Company shall have the right to accept or reject any proposed transaction, including any which may qualify as a Qualifying Transaction, and to approve or disapprove any terms and conditions of any proposed
transaction, including any which may qualify as a Qualifying Transaction. 
  
 (b)    Exercise of Unvested Share Repurchase Option.    If the Transaction has not occurred by the Target Date, or if the Purchaser or the Purchaser’s legal representative attempts to
dispose of any Unreleased Shares other than as allowed in this Agreement, the Company may 
 

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exercise the Repurchase Option by written notice to the Escrow Agent (as defined in Section 7) and to the Purchaser or the Purchaser’s legal representative within 30 days after the Target
Date or within 90 days after the Company has received notice of the attempted disposition. 
 

  
 (c)    Payment for Shares and Return of Shares.    Payment by the Company to the Escrow Agent on behalf of the Purchaser or the Purchaser’s legal representative shall be made in cash
within 30 days after the date of the mailing of the written notice of exercise of the Unvested Share Repurchase Option. The purchase price per share being purchased by the Company pursuant to the Repurchase Option shall be $0.125 per share, adjusted
appropriately to reflect any stock split, stock dividend, recapitalization, etc. Within 30 days after payment by the Company, the Escrow Agent shall give the shares which the Company has purchased to the Company and shall give the payment received
from the Company to the Purchaser. 
  
 (d)    Transfer
Restriction.    Except for the escrow described in Section 7 or the transfer of Stock to the Company or its assignees contemplated by this Agreement, none of the Stock or any beneficial interest therein shall be transferred,
encumbered or otherwise disposed of in any way until the release of such Stock from the Company’s Repurchase Option in accordance with the provisions of this Agreement, other than by will or the laws of descent or distribution. 

 
 (e)    Assignment of Unvested Share Repurchase Option.    The Company may
assign the Repurchase Option to one or more persons, who shall have the right to exercise the Repurchase Option in his own name for his own account. 
  
 3.    Stock Dividends, etc.    If, from time to time, there is any stock dividend, stock split or other change in the character or amount of any of the outstanding stock
of the Company, then in such event any and all new substituted or additional securities to which Purchaser is entitled by reason of Purchaser’s ownership of Unreleased Shares or Stock shall be immediately subject to the Repurchase Option with
the same force and effect as the Unreleased Shares or Stock. 
  
 4.    Consent of
Spouse.    If the Purchaser is married on the date of this Agreement and if community property laws govern Purchaser’s ownership of the Stock, the Purchaser’s spouse shall execute a Consent of Spouse in the form of
Exhibit A hereto, effective on the date hereof. Such consent shall not be deemed to confer or convey to the spouse any rights in the Stock that do not otherwise exist by operation of law or the agreement of the parties. If such Purchaser
should marry or remarry subsequent to the date of this Agreement and the foregoing applies, the Purchaser shall within thirty (30) days thereafter obtain his new spouse’s acknowledgment of and consent to the existence and binding effect of all
restrictions contained in this Agreement by signing an additional Consent of Spouse in the form of Exhibit A. 
  
 5.    Legends.    All certificates representing any shares of Stock subject to the provisions of this Agreement shall have endorsed thereon the following legends: 
  
 (a)    “THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A REPURCHASE OPTION IN FAVOR OF THE COMPANY
OR ITS ASSIGNEE SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED 
 

 2 

	 	
HOLDER, OR HIS PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THIS COMPANY. 
 

  
 (b)    “THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR
THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.” 
  
 (c)    Any legend required to be placed thereon by the federal or state securities authorities. 

 
 6.    Warranties and Representations.    In connection with the proposed purchase of the
Stock, the Purchaser hereby agrees, represents and warrants as follows: 
  
 (a)    The
Purchaser is purchasing the Stock solely for his own account for investment and not with a view to, or for resale in connection with, any distribution thereof within the meaning of the Securities Act of 1933 as amended (the “Act”). The
Purchaser further represents that he does not have any present intention of selling, offering to sell or otherwise disposing of or distributing the Stock or any portion thereof; and that the entire legal and beneficial interest of the Stock he is
purchasing is being purchased for, and will be held for the account of, the Purchaser only and neither in whole nor in part for any other person. 
  
 (b)    The Purchaser is aware of the Company’s business affairs and financial condition and has acquired sufficient information about the
Company to reach an informed and knowledgeable decision to acquire the Stock. The Purchaser further represents and warrants that he has discussed the Company and its plans, operations and financial condition with its officers, has received all such
information as he deems necessary and appropriate to enable him to evaluate the financial risk inherent in making an investment in the Stock and has received satisfactory and complete information concerning the business and financial condition of
the Company in response to all inquiries in respect thereof. 
  
 (c)    The Purchaser
realizes that his purchase of the Stock will be a highly speculative investment, and he is able, without impairing his financial condition, to hold the Stock for an indefinite period of time and to suffer a complete loss on his investment.

  
 (d)    The Company has disclosed to the Purchaser that: 
  
 (i)    The sale of the Stock has not been registered under the Act, and the Stock must be held indefinitely unless
a transfer of it is subsequently registered under the Act or an 
 

 3 

	 	
exemption from such registration is available, and that the Company is under no obligation to register the Stock; 
 

  
 (ii)    The Company will make a notation in its records of the aforementioned restrictions on transfer and legends. 
  
 7.    Escrow.    As security for his faithful performance of the terms of this Agreement and to ensure
the availability for delivery of the Stock upon exercise of the Repurchase Option herein provided for, the Purchaser agrees to deliver to and deposit with Gray Cary Ware & Freidenrich LLP (the “Escrow Agent”), as Escrow Agent in this
transaction, a Stock Assignment duly endorsed (with date and number of shares blank) in the form attached hereto as Exhibit B, together with the certificate or certificates evidencing the Stock. Such documents shall be held by the Escrow
Agent pursuant to the Joint Escrow Instructions of the Company and the Purchaser set forth in Exhibit C attached hereto and incorporated by this reference, which instructions shall also be delivered to the Escrow Agent at the closing
hereunder. 
  
 8.    Transfers in Violation of Agreement.    The Company shall not
be required (i) to transfer on its books any shares of Stock of the Company which shall have been sold or transferred in violation of any of the provisions set forth in this Agreement or (ii) to treat as owner of such shares or to accord the right
to vote as such owner or to pay dividends to any transferee to whom such shares shall have been so transferred. 
  
 9.    Rights as Shareholder.    Subject to the provisions of this Agreement, the Purchaser shall exercise all rights and privileges of a shareholder of the Company with respect to the Stock
deposited in escrow. 
  
 10.    Further Instruments.    The parties agree to execute
such further instruments and to take such further action as may reasonably be necessary to carry out the intent of this Agreement. 
  
 11.    Information/Confidentiality.    The Company will cooperate with, and make available to, Purchaser all information which Purchaser reasonably request in connection with the performance of
its services, including all information concerning the business, assets, operations or financial condition of the Company. Except as contemplated by this Agreement, the Purchaser shall keep confidential all non-public information provided to it by
the Company, including the fact of a possible Qualifying Transaction, and shall not disclose such information to any third party without the prior consent of the Company. 
  
 12.    Expenses.    All costs and expenses incurred by or in connection with the services to be rendered by Purchaser relating to the
identification and evaluation of potential partners with respect a Qualifying Transaction shall be costs and expenses of Purchaser and shall not be reimbursed by the Company. 
  
 13.    Lock Up Agreement.    Purchaser shall, upon the request of the Company or upon the request of the entity with which the Company may
participate in a sale, exchange, merger or transfer constituting a Qualifying Transaction (the “Surviving Corporation”) or underwriters managing any underwritten offering of the Company’s securities or securities of the Surviving

 

 4 

 
Corporation, agree not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of (each, a “Transfer”) any shares of Common Stock of the
Company or the Surviving Corporation owned by such Purchaser as a result of the Qualifying Transaction without the prior written consent of the Company, the Surviving Corporation or such underwriters, as the case may be, for such period of time (not
to exceed one year) from the effective date of the closing of the Qualifying Transaction or any such registration thereafter, as the case may be, as the Company, the Surviving Corporation or such underwriters may reasonably request; provided,
however, that if Robert I. Chen Transfers any shares of Common Stock of the Company or the Surviving Corporation owned by him after the effective date of the closing of the transaction or any such registration thereafter, this paragraph shall not
restrict Purchaser with respect to a proportionate amount of shares sold to him pursuant to this Agreement. For purposes of the foregoing sentence, proportionate amount of shares shall mean the percentage consisting of the ratio determined by
dividing (a) the aggregate number of shares Transferred by Mr. Chen, by (b) the aggregate number of shares of Common Stock held by Mr. Chen; provided, further, that if the proportionate amount Transferred by Mr. Chen is 10% or greater of the shares
held by Mr. Chen, this paragraph shall not restrict Purchaser with respect to any of his shares sold to him pursuant to this Agreement. 
  
 14.    Notice.    Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery, upon deposit in the United States Post
Office, by registered or certified mail with postage and fees prepaid, or upon delivery to an overnight courier service addressed to the other party at the address hereinafter shown below his signature or at such other address as such party may
designate by ten (10) days’ advance written notice to the other party. 
  
 15.    Successors and
Assigns.    This Agreement shall inure to the benefit of, and be binding upon, the successors and assigns of each party, including, without limitation, in the case of the Purchaser, Purchaser’s heirs, executors,
administrators, successors and assigns. 
  
 16.    Entire Agreement;
Amendments.    This Agreement, together with the Exhibits hereto, shall be construed under the laws of the State of California (as it applies to agreements between California residents, entered into and to be performed
entirely within California), and constitutes the entire agreement of the parties with respect to the subject matter hereof superseding all prior written or oral agreements, and no amendment or addition hereto shall be deemed effective unless agreed
to in writing by the parties. 
  
 17.    Right to Specific Performance.    The
Purchaser agrees that the Company shall be entitled to a decree of specific performance of the terms hereof or an injunction restraining violation of this Agreement, said right to be in addition to any other remedies available to the Company.

  
 18.    Separability.    If any provision of this Agreement is held by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining provisions shall nevertheless continue in full force and effect without being impaired or invalidated in any way and shall be construed in accordance with the purposes and
tenor and effect of this Agreement. 
  
 19.    Tax Consequences and Tax Election Notification.

 

 5 

  
 (a)    The Purchaser understands that Section 83 of the
Internal Revenue Code of 1986, as amended (the “Code”) taxes as ordinary income the difference between the amount paid for the Stock and the fair market value of the Stock as of the date any restrictions on the Stock lapse. In this
context, “restriction” means the right of the Company to buy back the stock pursuant to the Repurchase Option. The Purchaser understands that he may elect to be taxed at the time the Stock is purchased rather than when and as the
Repurchase Option expires by filing an election under Section 83(b) of the Code with the Internal Revenue Service (the “IRS”) within 30 days from the date of purchase. Even if the fair market value of the Stock equals the amount paid for
the Stock, the election must be made to avoid adverse tax consequences in the future. The Purchaser understands that failure to make this filing timely will result in the recognition of ordinary income by the Purchaser, as the Repurchase Option
lapses, on the difference between the purchase price and the fair market value of the Stock at the time such restriction lapses. 
  
 (b)    The Purchaser understands that the purchase price of the Stock has been set by the Board of Directors and that the Company believes this valuation is a fair attempt to appraise it. The
Purchaser understands, however, that if the Purchaser files a Section 83(b) election, the Company can give no assurances that the purchase price will be accepted as the fair market value of the Stock by the IRS, and that the IRS could assert that
the value of the Stock on the date of purchase was substantially greater than the purchase price. 
  
 If the IRS were to
successfully argue in a tax determination that the Stock had a value greater than the price paid by the Purchaser, and the Purchaser has filed a Section 83(b) election, the additional value would constitute ordinary income as of the date of its
receipt. The additional taxes (and interest) due would be payable by the Purchaser. There is no provision for the Company to reimburse the Purchaser for any potential tax liability, and the Purchaser assumes all responsibility for any such
liability. If the additional value attributed to the Stock was more than 25 percent of the Purchaser’s gross income for the year in which that value was taxable, the IRS would have six years from the due date for filing of the Purchaser’s
the return (or the actual filing date of the return if filed thereafter) within which to assess the additional tax and interest. 
  
 THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER’S SOLE RESPONSIBILITY AND NOT THE COMPANY’S RESPONSIBILITY TO FILE TIMELY THE ELECTION UNDER SECTION 83(B), EVEN IF THE PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO
MAKE THIS FILING ON THE PURCHASER’S BEHALF. THE PURCHASER FURTHER UNDERSTANDS THAT ANY PURPORTED ELECTION PURSUANT TO SECTION 83(B) MUST COMPLY WITH THE PROVISIONS OF TREASURY REGULATION SECTION 1.83-2. PURCHASER ACKNOWLEDGES THAT HE HAS BEEN
ADVISED BY THE COMPANY TO SEEK THE ASSISTANCE OF A TAX ADVISOR IN THIS MATTER. 
  
 (c)    The
Purchaser shall notify the Company in writing if Purchaser files an election pursuant to Section 83(b) of the Code. The Company intends, in the event it does not receive from Purchaser evidence of such filing, to claim a tax deduction for any amount
which would be taxable to Purchaser in the absence of such an election. 
 

 6 

  
  
  
 [remainder of this
page intentionally left blank] 
 

 7 

  
 IN WITNESS WHEREOF, the parties hereto have executed this Restricted Stock Purchase Agreement
as of the day and year first above written. 
  
 
	  	  	  
	 “PURCHASER”
 	  	 “COMPANY”
 
	 
	 Joseph Ng
 	  	 RAE Systems Inc.
 
	 200,000 shares of Company Common Stock
 	  	  
	 
	 /s/    JOSEPH NG
 
Joseph Ng
 	  	 /s/    ROBERT I. CHEN
 
By:
 
	  	  	 Title:
 
	 
	 Address of Purchaser:
 	  	 Address of the Company:
 
	 26990 Arastradero
 	  	 1339 Moffett Park Drive
 
	 Los Altos, CA 94022
 	  	 Sunnyvale, California 94089
 

 
 

 8 

  
 EXHIBIT A 
  
 CONSENT OF SPOUSE 
  
 I,
                    , spouse of Joseph Ng, acknowledge that I have read the Restricted Stock Purchase Agreement dated as of December
    , 2001, to which this Consent is attached as Exhibit A (the “Agreement”) and that I know its contents. I am aware that by its provisions the Company has the option to purchase certain shares of Stock of the Company
which my spouse owns pursuant to the Agreement including any interest I might have therein, upon termination of his employment under circumstances set forth in the Agreement, and that certain other restrictions are imposed upon the sale or other
disposition of the Stock during my spouse’s lifetime and in the event of his death. 
  
 I agree that my interest, if any, in
the Stock subject to the Agreement shall be bound by the Agreement and further understand and agree that any community property interest I may have in the Stock shall be similarly bound by the Agreement. 
  
 
	 
	 Dated: December     , 2001 
 	 	 

	 
	  	 	 

	 
	  	 	 (Print
Name)                    
 

 
 

 9 

  
 EXHIBIT B 
  
 ASSIGNMENT SEPARATE FROM CERTIFICATE 
  
 FOR VALUE RECEIVED, Joseph Ng hereby sells, assigns
and transfers unto              Two Hundred Thousand (200,000) shares of the Common Stock of RAE Systems Inc., a California corporation, standing in the undersigned’s name on the books
of said corporation represented by Certificate No.              herewith, and do hereby irrevocably constitute and appoint
             attorney to transfer the said stock on the books of the said corporation with full power of substitution in the premises. 
  

	 
	 Date:
 	 	      
 
	 	  	 	  	 	      
 

	  	 	  	 	  	 	  	 	 Joseph Ng
 

 
 

 10 

  
 EXHIBIT C 
  
 JOINT ESCROW INSTRUCTIONS 
  
 December         , 2001

  
 Gray Cary Ware & Freidenrich LLP 
 400 Hamilton Avenue 
 Palo Alto, California 94301 
  
 Ladies and Gentlemen: 
  
 As Escrow Agent for both RAE Systems Inc., a California corporation (“Company”), and the undersigned purchaser of stock (the “Stock”) of the Company
(“Purchaser”), you are hereby authorized and directed to hold the documents delivered to you pursuant to the terms of that certain Restricted Stock Purchase Agreement (“Agreement”), dated as of the date hereof, to which a copy of
these Joint Escrow Instructions is attached as Exhibit C, in accordance with the following instructions: 
  
 1.    In the event the Company and/or any assignee of the Company (referred to collectively for convenience herein as the “Company”) shall elect to exercise the Repurchase Option set forth in the Agreement, the
Company shall give to Purchaser and you a written notice specifying the number of shares of Stock to be repurchased, the purchase price, and the time for closing the repurchase. Subject to paragraph 14 below, Purchaser and the Company hereby
irrevocably authorize and direct you to close the transaction contemplated by such notice in accordance with the terms of the notice. 
  
 2.    At the closing, you are directed (a) to date the stock assignments necessary for the transfer in question, (b) to fill in the number of shares of Stock being transferred, and (c) to deliver same, together with the
certificates evidencing the shares of Stock to be transferred, to the Company against the simultaneous delivery to you of the purchase price (by check) or cancellation of indebtedness for the number of shares of Stock being purchased pursuant to the
exercise of the Repurchase Option. 
  
 3.    Purchaser irrevocably authorizes the Company to deposit with you
any certificates evidencing shares of Stock to be held by you hereunder and any additions and substitutions to said shares as defined in the Agreement. Purchaser does hereby irrevocably constitute and appoint you as his attorney-in-fact and agent
for the term of this escrow to execute with respect to such securities all stock certificates, stock assignments, or other documents necessary or appropriate to make such securities negotiable and complete any transaction herein contemplated,
including, but not limited to, the filing with the Department of Corporations of the State of California of an Application for Consent to Transfer Securities Subject to Legend or Escrow Condition Pursuant to Section 25151 of the California Corporate
Securities Law of 1968 as 
 

 11 

 
presently in existence or any successor form. Subject to the provisions of this paragraph 3, Purchaser shall exercise all rights and privileges of a shareholder of the Company while the Stock is
held by you. 
  
 4.    This escrow shall terminate at such time as there are no longer any shares of stock
subject to the Repurchase Option. 
  
 5.    If at the time of termination of this escrow you should have in
your possession any documents, securities, or other property belonging to Purchaser, you shall deliver all of same to Purchaser and shall be discharged of all further obligations hereunder. 
  
 6.    Your duties hereunder may be altered, amended, modified or revoked only by a writing signed by all of the parties hereto. 
  
 7.    You shall be obligated only for the performance of such duties as are specifically set forth herein and may rely and shall be
protected in relying or refraining from acting on any instrument reasonably believed by you to be genuine and to have been signed or presented by the proper party or parties. You shall not be personally liable for any act you may do or omit to do
hereunder as Escrow Agent or as attorney-­in–fact for Purchaser while acting in good faith and in the exercise of your own good judgment, and any act done or omitted by you pursuant to the advice of your own attorneys shall be conclusive
evidence to such good faith. 
  
 8.    You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation, excepting only orders or process of courts of law, and are hereby expressly authorized to comply with and obey orders, judgments or decrees of any court. In case you obey or
comply with any such order, judgment or decree of any court, you shall not be liable to any of the parties hereto or to any other person, firm or corporation by reason of such compliance, notwithstanding any such order, judgment or decree being
subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction. 
  
 9.    You shall not be liable in any respect on account of the identity, authorities or rights of the parties executing or delivering or purporting to execute or deliver the Agreement or any documents or papers deposited
or called for hereunder. 
  
 10.    You shall not be liable for the outlawing of any rights under the statute
of limitations with respect to these Joint Escrow Instructions or any documents deposited with you. 
  
 11.    You shall be entitled to employ such legal counsel and other experts as you may deem necessary or proper to advise you in connection with your obligations hereunder, may rely upon the advice of such counsel, and
may pay such counsel reasonable compensation therefor. 
  
 12.    Your responsibilities as Escrow Agent
hereunder shall terminate if you shall cease to be counsel to the Company or if you shall resign by written notice to each party. In the event of any such termination, the Company shall appoint a successor Escrow Agent. 
 

 12 

  
 13.    If you reasonably require other or further instructions in
connection with these Joint Escrow Instructions or obligations in respect hereto, the necessary parties hereto shall join in furnishing such instruments. 
  
 14.    It is understood and agreed that should any dispute arise with respect to the delivery and/or ownership or rights of possession of the securities held by you hereunder, you are authorized
and directed to retain in your possession without liability to any one all or any part of said securities until such dispute shall have been settled either by mutual written agreement of the parties concerned or by a final order, decree, or judgment
of a court of competent jurisdiction after the time for appeal has expired and no appeal has been perfected, but you shall be under no duty whatsoever to institute or defend any such proceedings. 
  

15.    Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or upon deposit in the
United States Post Office, by registered or certified mail with postage and fees prepaid, addressed to each of the other parties thereunto entitled at the following addresses, or at such other addresses as a party may designate by ten (10)
days’ advance written notice to each of the other parties hereto. 
  
 
	                                 COMPANY:
 	  	 RAE Systems Inc.
 
	  	  	 1339 Moffett Park Drive
 
	  	  	 Sunnyvale, CA 94089
 
	  	  	 Attn: President
 
	 
	                                 PURCHASER:
 	  	 Joseph Ng
 
	  	  	 26990 Arastradero
 
	  	  	 Los Altos, CA 94022
 
	 
	                                 ESCROW AGENT:
 	  	 Gray Cary Ware & Freidenrich LLP
 
	  	  	 400 Hamilton Avenue
 
	  	  	 Palo Alto, California 94301
 
	  	  	 Attn: Gregory M. Gallo, Esq.
 

 
  
 16.    By signing these Joint Escrow Instructions, you become
a party hereto only for the purpose of said Joint Escrow Instructions; you do not become a party to the Agreement. 
 

 13 

  
 17.    This instrument shall be binding upon and inure to the benefit of
the parties hereto, and their respective successors and permitted assigns. 
  
 
	 Very truly yours,
 
	 
	 COMPANY:
 
	 
	 RAE SYSTEMS INC.,
 a California
corporation
 
	  
	 
	 

	 By:
 Title:
 

 
  
 
	 PURCHASER:
 
	 
	 

	 Joseph Ng
 Agreed to
and accepted as of the date set forth above
 

 
  
  
 
	 ESCROW AGENT:
 
	 
	 Gray Cary Ware & Freidenrich LLP
 
	 
	 By:
 	 	 

	  	 	 Gregory M. Gallo
 

 
 

 14

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