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):

August 8, 2006

RAE Systems Inc.

(Exact name of registrant as specified in its charter)

Delaware	001-31783	77-0588488
(State or other jurisdiction of incorporation)	(Commission File No.)	(I.R.S. Employer Identification No.)

3775 North First Street

San Jose, CA 95134

(Address of principal executive offices)

Registrant’s telephone number, including area code:

(408) 952-8200

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:

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

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

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

¨ 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.

On August 8, 2006, RAE Systems Inc., a Delaware corporation (the “Company”), and Donald W. Morgan, chief financial officer of the Company, entered into a Separation Agreement and General Release of Claims (the “Separation Agreement”) in connection with Mr. Morgan’s notice of retirement (as described in Item 5.02 below).

Pursuant to the Separation Agreement, the Company is required to enter into a Consulting Services Agreement with Mr. Morgan for the six month period following his termination providing for a payment of $16,666.67 per month plus the cost of Mr. Morgan’s COBRA payments. In addition, the Company agreed to pay Mr. Morgan the equivalent of six months of regular base salary in a lump sum of $100,000.00, less applicable withholdings, within seven days following the last day of the six month period in which he provides consulting services. Mr. Morgan will also receive a lump sum payment equal to the cost of six months of COBRA premiums payable at the same time as the severance payment and will receive payments for all wages and accrued, unused vacation through the date of his termination. The Severance Agreement also provides for a release of claims by Mr. Morgan.

Item 5.02 Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers.

On August 8, 2006, Mr. Donald W. Morgan, the Company’s chief financial officer, announced that he plans to retire but that he would continue as chief financial officer until the Company is able to find an adequate replacement. The Company will be conducting a search for a new chief financial officer. A copy of the press release is attached to this report as Exhibit 99.1 and is incorporated herein by reference.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits.

Exhibit No.	Description
99.1	Press Release dated August 8, 2006

SIGNATURES

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

Date: August 8, 2006

RAE SYSTEMS INC.
By:	/s/ Gregory J. Vervais
Name:	Gregory J. Vervais
Title:	Vice President, Human Resources

EXHIBIT INDEX

Exhibit No.	Description
99.1	Press Release dated August 8, 2006

EX-99.1

EXHIBIT 99.1

Company Contact:	IR Agency Contact:
Investor Relations	Moriah Shilton. V.P.
408-952-8402	415-433-3777
investorrelations@raesystems.com	mshilton@lhai-sf.com

RAE Systems Announces the Planned Retirement of Chief Financial

Officer

SAN JOSE, Calif. – August 8, 2006 – RAE Systems Inc. (AMEX: RAE), a leading global provider of rapidly deployable sensor networks that enable customers to identify safety and security threats in real time, today announced the planned retirement of Mr. Donald W. Morgan as chief financial officer for the company. The company intends to conduct a comprehensive search for a replacement. Morgan intends to remain with the company until a successor is appointed and assist with an orderly transition. Mr. Morgan has been chief financial officer since December 2004.

“I want to take this opportunity to publicly thank Don Morgan for his hard work at RAE Systems,” said Robert Chen, chief executive officer and president of RAE Systems. “His professionalism and strong dedication have provided the leadership for us in our Sarbanes-Oxley Act compliance efforts and he has done an outstanding job in deploying a new ERP system.”

About RAE Systems

RAE Systems is a leading global provider of rapidly deployable sensor networks that enable customers to identify safety and security threats in real time. Products include multi-sensor chemical detection, radiation and digital video monitoring networks for homeland security and industrial applications. RAE Systems’ products enable the military and first responders such as firefighters, law enforcement and other emergency management personnel to detect, provide early warning and record events that involve weapons of mass destruction and other hazardous materials. Industrial applications include the detection of toxic industrial chemicals, volatile organic compounds and petrochemicals. RAE Systems’ products are used by many U.S. government agencies, including the Department of Homeland Security, the Department of Justice, and the Department of State, as well as all branches of the U.S. military, and by numerous city and state agencies. Our end users also include many of the world’s leading corporations in the airline, automotive, computer and oil industries. Our products are used in civilian and government atmospheric monitoring programs in over 50 countries. For more information about RAE Systems, please visit www.RAESystems.com.

Safe Harbor Statement

This press release may contain “forward-looking” statements, as that term is used in Section 21E of the Securities Exchange Act of 1934. Forward-looking statements include, without limitation: expressions of “belief,” “anticipation,” or “expectations” of management; statements as to industry trends or future results of operations of RAE Systems and its subsidiaries; and other statements that are not historical fact. These types of statements address matters that are subject to risks and uncertainties, which could cause actual results to differ materially. Factors that could cause or contribute to such differences include, but are not limited to, the general economic and industry factors and receptiveness of the market to RAE Systems and its products. In addition, our forward-looking statements should be considered in the context of other risk factors discussed in our filings with the Securities and Exchange Commission, including but not limited to our annual report on Form 10-K and Form 10-Q filings, available online at http://www.sec.gov. All forward-looking statements are based on information available to the Company on the date hereof, and the Company assumes no obligation to update such statements.