RAE Systems Inc announced that it has signed a definitive agreement to acquire a 64% interest in KLH (Ke Li Heng), a privately-held Beijing-based company for a purchase price of US$9 million. KLH is a manufacturer and distributor of security, environmental and personal safety monitors and equipment.

The transaction, which is subject to certain closing conditions as well as Chinese government approval, is expected to be completed by mid 2004 and is expected to be accretive to RAE Systems' 2004 earnings. Additionally, we expect approximately $3 million to $4 million in additional revenue from this transaction in 2004.

The combined companies expect to capitalize on significant growth opportunities resulting from complementary products, technologies, distribution channels and geographic presence in China. As one of the world's largest and fastest growing economies, the trend toward security, environmental safety and personal protection is growing quickly. According to the US Commerce Department, China is expected to invest over $300 billion to build their infrastructure over the coming decade, including $23 billion in infrastructure, security and safety spending related to the 2008 Beijing Olympics and other similar events.

KLH was founded in April 1996 and currently has over 140 employees with developed distribution channels in 28 provinces. The company manufactures its own line of security and environmental safety and personal protection monitors, automated monitoring and control instruments and fixed industrial safety sensing and monitoring systems. In addition, the company currently serves as a distributor for RAE Systems' products as well as a number of other complementary security and safety, sensing and monitoring companies.