8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549

FORM 8-K

CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported):
April 3, 2011

RAE Systems Inc.

(Exact name of registrant as specified in its charter)

Delaware	001-31783	77-0280662
(State or other jurisdiction	(Commission File No.)	(I.R.S. Employer
of incorporation)		Identification No.)

3775 North First Street
San Jose, California 95134
408-952-8200
(Address and telephone number of registrant’s principal executive offices)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o    Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o    Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o    Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o    Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01 Entry into a Material Definitive Agreement.

     Amendment No. 1 to Agreement and Plan of Merger

     On April 3, 2011, RAE Systems Inc. (the “Company”) entered into an amendment (the “Amendment”) to the Agreement and Plan of Merger dated as of January 18, 2011, as it may be further amended from time to time (the “Merger Agreement”) with Ray Holding Corporation (“Purchaser”) and Ray Merger Sub Corporation (“Merger Sub”), a wholly owned subsidiary of Purchaser. Purchaser and Merger Sub are each affiliates of Vector Capital IV, L.P and Vector Capital III, L.P. (collectively, “Vector”). Pursuant to the Amendment, Purchaser has increased the price per share to be paid to the Company’s unaffiliated stockholders from $1.75 per share to $1.88 per share, without interest. In addition, the termination fee payable upon termination of the Merger Agreement under specified circumstances was increased from $3.71 million to $4.01 million (reduced by any expense reimbursement paid or payable under the Merger Agreement). Pursuant to an amendment to the Guarantee Agreement (the “Guarantee Amendment”) among Vector Capital IV, L.P., Vector Capital III, L.P. and the Company, the cap on Vector’s obligation to guarantee the obligations of Purchaser and Merger Sub to pay the cash merger consideration was increased from $82,850,000 to $89,280,000.

     The foregoing descriptions of the Amendment and Guarantee Amendment and related transactions are only summaries, do not purport to be complete and are qualified in their entirety by reference to the Amendment and Guarantee Amendment, copies of which are furnished as Exhibit 2.1 and 10.1, respectively, to this report.

Item 7.01 Regulation FD Disclosure.

The Company will reschedule the date for its Special Meeting of Stockholders with respect to the Merger Agreement, and will announce the new date and time when that has been determined.

Additional Information About the Amendment and Where You Can Find It

     In connection with entry into of the Amendment, the Company will file a supplement to the proxy statement filed with the Securities and Exchange Commission (the “Commission”) on March 9, 2011, as supplemented on March 16, 2011 and March 28, 2011, for the Company’s special stockholder meeting and stockholders are strongly advised to read the proxy statement and all subsequent supplements to the proxy statement when they become available because they contain important information about the merger. Investors and stockholders may obtain free copies of the proxy statement (including all supplements to the proxy statement) and other documents filed by the Company at the Commission’s web site at http://www.sec.gov. The proxy statement (including all supplements to the proxy statement) and other relevant documents may also be obtained for free by directing a request to the Company’s Investor Relations Agency Lippert/Heilshorn & Associates at (415) 433-3777 or RAE Systems IR c/o Lippert/Heilshorn & Associates, 44 Montgomery Street, Suite 3520, San Francisco, California 94104. .

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits.

Exhibit	Description
2.1	Amendment No. 1 to Agreement and Plan of Merger, dated as of April 3, 2011, by and among RAE Systems Inc., Ray Holding Corporation and Ray Merger Sub Corporation.
10.1	Amendment No. 1 to Guarantee, dated as of April 3, 2011, by and among Capital IV, L.P., Vector Capital III, L.P. and the Company.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: April 4, 2011

RAE SYSTEMS INC.
By:	/s/ Randall Gausman
	Name:	Randall Gausman
	Title:	Vice President and Chief Financial Officer

EXHIBIT INDEX

Exhibit	Description
2.1	Amendment No. 1 to Agreement and Plan of Merger, dated as of April 3, 2011, by and among RAE Systems Inc., Ray Holding Corporation and Ray Merger Sub Corporation.
10.1	Amendment No. 1 to Guarantee, dated as of April 3, 2011, by and among Capital IV, L.P., Vector Capital III, L.P. and the Company.

EX-2.1

Exhibit 2.1

AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER

     This Amendment No. 1 (this “Amendment No. 1”) to that certain Agreement and Plan of Merger, dated as of January 18, 2011 (the “Merger Agreement”), by and among Ray Holding Corporation, a Delaware corporation (“Parent”); Ray Merger Sub Corporation, a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub”); and RAE Systems Inc., a Delaware corporation (the “Company”), is made and entered into as of April 3, 2011 by and among Parent, Merger Sub and the Company. All capitalized terms that are used in this Amendment No. 1 but not defined in this Amendment No. 1 shall have the respective meanings ascribed thereto in the Merger Agreement.

     WHEREAS, on April 2, 2011, the Company received an Acquisition Proposal from Rudy II Acquisition Corp. (the “Bidder”) (such Acquisition Proposal, the “BV/SFW Proposal”);

     WHEREAS, on April 3, 2011, Parent offered to amend the Merger Agreement on the terms set forth herein;

     WHEREAS, the boards of directors of Parent and Merger Sub have approved this Amendment No. 1;

     WHEREAS, the Board of Directors, after considering the recommendation of the Special Committee, has approved this Amendment No. 1 and has determined that the Merger (on the terms as provided in the Merger Agreement and as amended by this Amendment No. 1) is in the best interest of the Company and its stockholders and declared it advisable to enter into this Amendment No. 1 and the Merger (on the terms as provided in the Merger Agreement and as amended by this Amendment No. 1).

     The parties to this Amendment No. 1, intending to be legally bound, agree as follows:

     1. Merger Consideration. Section 1.5(a)(iii) of the Merger Agreement is hereby amended by replacing, in the definition of Merger Consideration set forth therein, the reference to “$1.75” with “$1.88”.

     2. BV/SFW Proposal. The following covenant shall be deemed, for all purposes of and under the Merger Agreement, to form a part of Section 4.3(c) of the Merger Agreement:

The Company shall immediately cease and cause to be terminated any solicitation, encouragement, discussion or negotiation with the Bidder, the entities that have provided signed guarantees of certain of the Bidder’s obligations in connection with the BV/SFW Proposal and their respective Affiliates and Representatives (the “BV/SFW Persons”) conducted heretofore by the Company, its Subsidiaries or any of their respective Representatives with respect to the BV/SFW Proposal; for the avoidance of doubt, the foregoing shall not preclude the Company from taking any actions permitted by this Section 4.3 if one of more of the BV/SFW Persons submits a new Acquisition Proposal satisfying the requirements of the proviso to the first sentence of Section 4.3(a) of the Merger Agreement.

     3. Termination Fee. Section 8.4(c)(i) of the Merger Agreement is hereby amended by replacing, in clause (A) thereof, the reference to “$3,710,000” with “$4,010,000”.

     4. Public Announcement. The Company shall issue a press release on the date of this Amendment No. 1 with respect to the execution of this Amendment No. 1, which press release will be in form mutually agreed by the Company and Parent.

     5. Merger Agreement References. The parties hereto hereby agree that all references to the “Agreement” set forth in the Merger Agreement (including, without limitation, in the representations and warranties of the parties set forth therein) shall be deemed to be references to the Merger Agreement as amended by this Amendment No. 1.

     6. Full Force and Effect. Except as expressly amended or modified hereby, the Merger Agreement and the agreements, documents, instruments and certificates among the parties hereto as contemplated by, or referred to, in the Merger Agreement shall remain in full force and effect without any amendment or other modification thereto.

     7. Counterparts. This Amendment No. 1 may be executed in several counterparts, each of which shall be deemed an original and all of which shall constitute one and the same instrument. The exchange of a fully executed Amendment No. 1 (in counterparts or otherwise) by facsimile shall be sufficient to bind the parties to the terms and conditions of this Amendment No. 1.

[Remainder of page intentionally left blank]

In Witness Whereof, the parties have caused this Amendment No. 1 to be executed as of the date first above written.

Ray Holding Corporation
By:	/s/ David Baylor
	Name:	David Baylor
	Title:	President
Ray Merger Sub Corporation
By:	/s/ David Baylor
	Name:	David Baylor
	Title:	President
RAE Systems Inc.
By:	/s/ Randall Gausman
	Name:	Randall Gausman
	Title:	Chief Financial Officer

Amendment No. 1 Signature Page

EX-10.1

Exhibit 10.1

AMENDMENT NO. 1 TO GUARANTEE

          This Amendment No. 1 (this “Amendment No. 1”) to that certain Guarantee dated as of January 18, 2011 (the “Guarantee”), dated April 3, 2011, is entered into by Vector Capital IV, L.P. (“VCIV”) and Vector Capital III, L.P. (“VCIII,” and each of VCIII and VCIV, a “Guarantor” and collectively VCIII and VCIV, the “Guarantors”) in favor of RAE Systems Inc., a Delaware corporation (the “Company”). Capitalized terms used herein and not otherwise defined shall have the respective meanings assigned to such terms in the Merger Agreement (as defined below).

RECITAL

     Ray Holding Corporation, a Delaware corporation (“Parent”), Ray Merger Sub Corporation, a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub”), and the Company have entered into that certain Agreement and Plan of Merger, dated as of January 18, 2011 (as amended, modified or supplemented from time to time, the “Merger Agreement”), and it was a requirement of the Merger Agreement that Parent deliver this Guarantee to the Company concurrently with the execution and delivery thereof.

     On April 3, 2011, Parent offered to amend the Merger Agreement on the terms set forth in an Amendment No. 1 to the Merger Agreement to provide for, among other things, an increase in the Merger Consideration payable.

     The parties to this Amendment No. 1, intending to be legally bound, agree as follows:

     1. Cap. Section 1(b) of the Guarantee is amended by replacing, in the definition of Cap set forth therein, the reference to “82,850,000” with “$89,280,000”.

     2. Guarantee References. The parties hereto hereby agree that all references to the “Guarantee” set forth in the Guarantee shall be deemed to be references to the Guarantee as amended by this Amendment No. 1.

     3. Full Force and Effect. Except as expressly amended or modified hereby, the Guarantee shall remain in full force and effect without any amendment or other modification thereto.

     4. Counterparts. This Amendment No. 1 may be executed in several counterparts, each of which shall be deemed an original and all of which shall constitute one and the same instrument. The exchange of a fully executed Amendment No. 1 (in counterparts or otherwise) by facsimile shall be sufficient to bind the parties to the terms and conditions of this Amendment No. 1.

[Remainder of Page Intentionally Left Blank]

          IN WITNESS WHEREOF, the undersigned have caused this Amendment No. 1 to be duly executed and delivered as of the date first written above.

Vector Capital IV, L.P.
By:	Vector Capital Partners IV, L.P.,
	itsgeneral partner
By:	Vector Capital, L.L.C.,
	itsgeneral partner
By:	/s/ Alexander R. Slusky
	Name:	Alexander R. Slusky
	Title:	Managing Member
Vector Capital III, L.P.
By:	Vector Capital Partners III, L.P.,
	itsgeneral partner
By:	Vector Capital, L.L.C.,
	itsgeneral partner
By:	/s/ Alexander R. Slusky
	Name:	Alexander R. Slusky
	Title:	Managing Member

Signature Page to Amendment No. 1 to Guarantee

RAE Systems Inc.
By:	/s/ Randall Gausman
	Name:	Randall Gausman
	Title:	CFO

Signature Page to Amendment No. 1 to Guarantee