RAE Rae Systems Common Stock

 

 

UNITED STATES

SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549

SCHEDULE 13D

[Rule 13d-101]

Under the Securities Exchange Act of 1934
(Amendment No. 1)*

RAE Systems Inc.

(Name of Issuer)

Common Stock, $.001 Par Value Per Share
(Title of Class of Securities)

75061P102
(CUSIP Number)

Ray Holding Corporation		With a copy to:
Ray Merger Sub Corporation Vector Capital III, L.P. Vector Entrepreneur Fund III, L.P. Vector Capital IV, L.P. Vector Capital Partners III, L.P. Vector Capital Partners IV, LP. Vector Capital, L.L.C. Alexander R. Slusky c/o Vector Capital Corporation One Market Street, Steuart Tower, 23rd Floor San Francisco, CA 94105 Telephone: (415) 293-5000 Attn: David Baylor		Shearman & Sterling LLP 525 Market Street, 15 th Floor San Francisco, CA 94105 Telephone: (415) 616-1100 Attn: Steve L. Camahort

(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)

May 17, 2011
(Date of Event which Requires Filing of this Statement)

If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of §§240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box. o

Note : Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See §240.13d-7 for other parties to whom copies are to be sent.

The information required on the remainder of this cover page shall not be deemed to be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934 (“ Act ”) or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes).

 

 

CUSIP No.		75061P102

CUSIP No.		75061P102

CUSIP No.		75061P102

CUSIP No.		75061P102

CUSIP No.		75061P102

CUSIP No.		75061P102

CUSIP No.		75061P102

CUSIP No.		75061P102

CUSIP No.		75061P102

     This Amendment No. 1 (this “Amendment No. 1”) to the statement on Schedule 13D filed with the Securities and Exchange Commission on behalf of (i) Ray Holding Corporation, a Delaware Corporation, (“Ray”), (ii) Ray Merger Sub Corporation, a Delaware corporation (“Merger Sub”), (iii) Vector Capital III, L.P., a Delaware limited partnership (“VC III LP”), (iv) Vector Entrepreneur Fund III, L.P., a Delaware limited partnership (“VEF III LP”), (v) Vector Capital IV, L.P., a Delaware limited partnership (“VC IV LP”), (vi) Vector Capital Partners III, L.P., an exempted Cayman limited partnership (“VCP III LP”), (vii) Vector Capital Partners IV, L.P., an exempted Cayman limited partnership (“VCP IV LP”), (viii) Vector Capital, L.L.C., a Delaware limited liability company (“VC LLC”, and together with VC III LP, VEF III LP, VC IV LP, VCP III LP and VCP IV LP, “Vector”), and (ix) Alexander R. Slusky, an individual (“Mr. Slusky,” and together with Ray, Merger Sub and Vector, the “Reporting Persons”) on January 28, 2011 (the “Schedule 13D”) is being filed pursuant to Rule 13d-2 of the Securities Exchange Act, as amended, on behalf of the Reporting Persons to amend certain information set forth below to the items indicated. Unless otherwise stated herein, all capitalized terms used in this Amendment No. 1 have the same meanings as those set forth in the Schedule 13D.

Item 3. Source Amount of Funds or Other Consideration

Item 3 of the Schedule 13D is hereby amended and supplemented by adding the following:

     On May 17, 2011, Ray, Merger Sub and the Company entered into Amendment No. 2 to the Merger Agreement (“Amendment No. 2 to the Merger Agreement”), which was previously amended by Amendment No. 1 dated April 3, 2011 (“Amendment No. 1 to the Merger Agreement”), pursuant to which, among other things, the Merger Consideration was increased to $2.00 per share, payable in cash, without interest.

     Concurrently with the execution of Amendment No. 2 to the Merger Agreement, the Voting Parties entered into consents and agreements with Ray (collectively, the “Consents and Agreements”), pursuant to which, among other things, the Voting Parties and Ray agreed to terminate the Voting Agreements.

     The total value of the Merger transaction, including the amount of funds required by Ray to pay the aggregate consideration pursuant to the Merger Agreement, as amended by Amendment No. 2 to the Merger Agreement, and the transactions contemplated thereby, and pay fees and expenses relating to the Merger, as well as the assumption or repayment of indebtedness, has increased to approximately $131.2 million.

     Concurrently with the execution of Amendment No. 2 to the Merger Agreement, VC III LP, VC IV LP and the Company entered into Amendment No. 2 to the Vector Guarantee (“Amendment No. 2 to the Vector Guarantee”), which was previously amended by Amendment No. 1 dated April 3, 2011 (“Amendment No. 1 to the Vector Guarantee”), pursuant to which the limitation on monetary damages payable by VC III LP and VC IV LLP was increased to an amount equal to (x) $95.210 million minus an amount equal to (A) the “Transferable Shares” (as defined in Item 4 below) times (B) the Merger Consideration.

     The foregoing descriptions of Amendment No. 1 to the Merger Agreement, Amendment No. 2 to the Merger Agreement, the Consents and Agreements, Amendment No. 1 to the Vector Guarantee and Amendment No. 2 to the Vector Guarantee are qualified in their entirety by reference to Amendment No. 1 to the Merger Agreement, Amendment No. 2 to the Merger Agreement, the Form of Consent and Agreement, Amendment No. 1 to the Vector Guarantee and Amendment No. 2 to the Vector Guarantee, which are filed as Exhibits 99.7, 99.8, 99.9, 99.10 and 99.11 hereto, respectively, and which are incorporated herein by reference.

Item 4. Purpose of Transaction

     (a) - (j)

     Item 4 of the Schedule 13D is hereby amended and supplemented by adding the following:

     Parent, Merger Sub and the Company entered into Amendment No. 2 to the Merger Agreement in order to, among other things, (i) increase the Merger Consideration to $2.00 per share, payable in cash, without interest, (ii) increase the termination fee payable by the Company in certain circumstances to $4.27 million, (iii) delete all references to the Voting Agreements, (iv) make clear that the fact that any bona fide written offer by a third party includes as a term thereof the

entry by the Company and such third party of a stock purchase agreement or a stock option agreement issuing to such third party, or providing such third party an option to purchase, newly issued shares of Company common stock representing no more than 19.9% of the total number of shares of Company common stock issued and outstanding as of the date of the grant of such shares or option would not (x) in and of itself, be cause for the Company’s Board of Directors or the Special Committee of the Company’s Board of Directors to determine that such offer does not constitute, or (y) be considered in determining whether such offer is, a “Superior Offer” (as defined in the Merger Agreement), and (v) increase the number of RLC Exchange Shares by an amount equal to (a) (x) (A) the Merger Consideration minus (B) $1.75 times (y) (A) the number of shares of Company common stock owned by the RLC Trust on the closing date of the Merger minus (B) 10,701,525 divided by (b) the Merger Consideration (the “Transferable Shares”).

     Concurrently with the execution of Amendment No. 2 to the Merger Agreement, the Voting Parties entered into the Consents and Agreements, pursuant to which, among other things, the Voting Parties and Ray agreed to terminate the Voting Agreements.

     Concurrently with the execution of Amendment No. 2 to the Merger Agreement, the RLC Trust entered into Amendment No. 1 to its Rollover Agreement (“Amendment No. 1 to the RLC Rollover Agreement”) with Ray which has the effect that, with the Merger Consideration equal to $2.00 per share, the RLC Trust is contributing approximately 585,166 Transferable Shares (worth approximately $1.2 million at $2.00 per share) to Ray for no consideration. To the extent that the Merger Consideration increases after the date hereof, the number of Transferable Shares (and the value of the Merger Consideration associated with them) would correspondingly increase.

     The foregoing descriptions of Amendment No. 2 to the Merger Agreement, the Consents and Agreements, and Amendment No. 1 to the RLC Rollover Agreement are qualified in their entirety by reference to Amendment No. 2 to the Merger Agreement, the Form of Consent and Agreement, and Amendment No. 1 to the RLC Rollover Agreement which are filed as Exhibit 99.8, 99.9, and 99.12 hereto, respectively, and which are incorporated herein by reference.

     Except as set forth in this Item 4, none of the Reporting Persons has any plans or proposals which relate to or would result in any of the actions specified in clauses (a) through (j) of Item 4 of Schedule 13D.

Item 5. Interest in Securities of the Issuer

     Item 5 of the Schedule 13D is hereby amended and restated in its entirety as follows:

     (a) Each of the Reporting Persons’ current ownership in the Issuer and the Issuer’s Common Stock is set forth on the cover pages to this Schedule 13D and is incorporated by reference herein. The ownership percentage appearing on such pages has been calculated based on a total of 59,512,064 shares, which is the number of shares of Issuer’s Common Stock outstanding as of April 30, 2011, as disclosed in the Issuer’s Form 10-Q for the quarter ended March 31, 2011. As a result of the Consents and Agreements discussed in Item 4 above, the Reporting Persons no longer may be deemed to constitute a “group” within the meaning of Section 13(d)(3) of the Exchange Act, with the Voting Parties, and therefore, are no longer required to file statements on Schedule 13D with the Securities and Exchange Commission. The Reporting Persons disclaim membership in any “group” with any person other than the Reporting Persons. The filing of this Schedule 13D by the Reporting Persons shall not be considered an admission that such Reporting Persons, for the purpose of Section 13(d) of the Exchange Act, are the beneficial owners of any of the shares of Common Stock covered in this report, and the Reporting Persons expressly disclaim such beneficial ownership.

     (b) The number of shares of Common Stock of the Issuer that may be deemed to be beneficially owned by each of the Reporting Persons with respect to which there is (i) sole voting power, (ii) shared voting power, (iii) sole dispositive power, and (iv) shared dispositive power is as set forth below.

		Ray				Merger Sub				VC III LP				VEF III LP				VC IV LP				VCP III LP				VCP IV LP				VC LLC				Mr. Slusky
Sole Power to Vote/Direct Vote			0				0				0				0				0				0				0				0				0
Shared Power to Vote/Direct Vote			0				0				1,432,600				34,800				1,432,600				1,467,400				1,432,600				2,900,000				2,900,000
Sole Power to Dispose/Direct Disposition			0				0				0				0				0				0				0				0				0
Shared Power to Dispose/Direct Disposition			0				0				1,432,600				34,800				1,432,600				1,467,400				1,432,600				2,900,000				2,900,000

     (c) Other than as described in Items 3 and 4 above, there have been no transactions in the Issuer’s Common Stock that were effected during the past sixty days by any of the Reporting Persons.

     (d) To the knowledge of the Reporting Persons, no person other than the Reporting Persons has the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, the Shares.

     (e) Not applicable.

Item 6. Contracts, Arrangements, Understandings or Relationships with Respect to Securities of the Issuer.

     Item 6 of the Schedule 13D is hereby amended and supplemented by adding the following:

     The information set forth in Items 3, 4 and 5 above is incorporated herein by reference in its entirety into this Item 6.

Item 7. Material to Be Filed as Exhibits.

Exhibit
Number		Document
99.7		Amendment No. 1 to Agreement and Plan of Merger, dated as of January 18, 2011, by and among RAE Systems Inc., Ray Holding Corporation and Ray Merger Sub Corporation, dated as of April 3, 2011 (Incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed by the Company on April 4, 2011).
99.8		Amendment No. 2 to Agreement and Plan of Merger, dated as of January 18, 2011, as amended by Amendment No. 1 dated as of April 3, 2011, by and among RAE Systems Inc., Ray Holding Corporation and Ray Merger Sub Corporation, dated as of May 17, 2011 (Incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed by the Company on May 18, 2011).
99.9		Form of Consent and Agreement, by and between Ray Holding Corporation and each of Robert Chen and Peter Hsi, respectively, dated as of May 17, 2011. (Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by the Company on May 18, 2011
99.10		Amendment No. 1 to Guarantee, dated as of January 18, 2011, by and among RAE Systems Inc., Vector Capital III, L.P. and Vector Capital IV, L.P., dated as of April 3, 2011. (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the Company on April 4, 2011).
99.11		Amendment No. 2 to Guarantee, dated as of January 18, 2011, as amended by Amendment No. 1 dated as of April 3, 2011, by and among RAE Systems Inc., Vector Capital III, L.P. and Vector Capital IV, L.P., dated as of May 17, 2011. (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the Company on May 18, 2011).
99.12		Amendment No. 1 to Rollover Agreement, dated as of January 18, 2011, by and between the Company and Chen Revocable Trust DTD 5/8/2001, dated as of May 17, 2011.

SIGNATURE

     After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated May 18, 2011.

Rae (AMEX:RAE)
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