Employment Agreement

First Amendment to Employment Agreement

Change in Control and Severance Agreement

 

 

EMPLOYMENT TERMS

EXHIBIT 10.1

 

[COMPANY LETTERHEAD]

 

May 24, 2007

 

Mark J. Barrenechea

 

 

Re: Employment Terms

 

Dear Mark:

 

Rackable Systems, Inc. (the “Company”), is pleased to offer you the position of President and Chief Executive Officer (“CEO”), on the following terms. Your employment shall commence on April 29, 2007.

 

1.    POSITION. You will serve in an executive capacity and shall perform the duties of CEO as commonly associated with this position, as specified in the Bylaws of the Company, and as required by the Board of Directors of the Company (the “Board”). You will report to the Board. Subject to the terms of this offer letter agreement, the Board reserves the right to change your position, duties, reporting relationship, work location, and job duties, from time to time in its discretion. Your new employment relationship with the Company will not affect your current status as a Director on the Board.

 

2.    COMPENSATION.

 

(a)  Base Salary. Your initial annual base salary will be $350,000.00, less standard payroll deductions and withholdings. You will be paid bi-weekly in accordance with Company practice and policy.

 

(b)  Performance Bonus. In addition, you will be eligible to earn an annual performance bonus of up to $250,000.00, based upon both your performance and the Company’s performance with respect to applicable performance targets which are expected to include revenue and profitability targets and other organizational milestones (“Targets”), set solely by the Compensation Committee of the Company’s Board of Directors (the “Compensation Committee”). The bonus payment shall be earned upon the fulfillments of Targets and is payable within a reasonable period of time, not to exceed thirty (30) days from the date that the Compensation Committee concludes that Targets have been fulfilled. The Compensation Committee will determine in its sole discretion whether the Targets have been achieved, whether you have earned a bonus, and the amount of any earned bonus. You must be employed on the bonus payment date to earn and be eligible to receive any bonus.

 

(c) Review of Compensation. Your base salary and bonus eligibility will be reviewed on an annual or more frequent basis by the Compensation Committee and are subject to change in the discretion of the Compensation Committee, subject to the terms of this offer letter agreement.

 

 

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3.    OPTION GRANT.

 

(a) Equity Grants. Subject to Compensation Committee approval, the Company will issue you an option (the “Option”) to purchase 700,000 shares of the Company’s common stock pursuant to the Company’s 2005 Equity Incentive Plan (the “Plan”) at an exercise price equal to the fair market value of the stock as of the date of grant as determined by the Compensation Committee. In addition, subject to Compensation Committee approval, the Company will grant you 150,000 restricted shares of the Company’s common stock (the “Restricted Stock Award”).

 

(b) Vesting Schedule. Both the Option and the Restricted Stock Award will be subject to a four-year vesting period subject to your continuous service to the Company as an employee or consultant (as defined in the Plan and Restricted Stock Purchase Agreement), with one forty-eighth (1/48th) of the respective shares subject to the Option and the Restricted Stock Award vesting for each full month of your continuous service as an employee or consultant following your start date as an employee of the Company.

 

(c) Governing Documents. The Option will be governed in full by the terms and conditions of the Plan and your individual Option agreement; the Restricted Stock Award will be governed in full by the terms and conditions of the Restricted Stock Purchase Agreement. You understand that the Option and the Restricted Stock Award are expected to be granted on or about June 11, 2007.

 

4.    EMPLOYEE BENEFITS. You will be eligible to participate in the Company’s standard employee benefit plans in accordance with the terms and conditions of the plans and applicable policies which may be in effect from time to time, and provided by the Company to its executive employees generally, including but not limited to group health insurance coverage, disability insurance, life insurance, ESPP, 401(k) Plan, and paid time off and paid holidays. You will be eligible for reimbursement of your legitimate and documented business expenses incurred in connection with your employment, pursuant to the Company’s standard reimbursement expense policy and practices. The Company may modify its benefits programs and policies from time to time in its discretion.

 

5.    INVENTION AND NON-DISCLOSURE AGREEMENT. As a condition of your employment, you are required to sign and abide by the Company’s Proprietary Information and Inventions Agreement (the “Non-Disclosure Agreement”), attached hereto as Exhibit A.

 

6.    SERVICE AS EMPLOYEE; OUTSIDE ACTIVITIES.

 

(a) Location and Duties. You will work at the Company’s corporate headquarters currently located in Fremont, California, subject to necessary business travel. During your employment with the Company, you will devote your best efforts and substantially all of your business time and attention (except for vacation periods and reasonable periods of illness or other incapacity permitted by the Company’s general employment policies) to the business of the Company.

 

 

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(b) Company Policies. Your employment relationship with the Company shall also be governed by the general employment policies and practices of the Company, including but not limited to the policies contained in the Company’s Employee Handbook (except that if the terms of this letter differ from or are in conflict with the Company’s general employment policies or practices, this letter will control), and you will be required to abide by the general employment policies and practices of the Company.

 

(c) Other Activities. Throughout your employment with the Company, you may engage in civic and not-for-profit activities so long as such activities do not interfere with the performance of your duties hereunder or present a conflict of interest with the Company. Subject to the restrictions set forth herein and with the prior written consent of the Board, you may serve as a director of other corporations and may devote a reasonable amount of your time to other types of business or public activities not expressly mentioned in this paragraph. The Board is aware that you serve as a director for Overland Storage and Berkeley Mills and that you own less than 10% of the outstanding shares in these companies. The Board may rescind its consent to your service as a director of all other corporations or participation in other business or public activities, if the Board, in its sole discretion, determines that such activities compromise, are in conflict with, or threaten to compromise or conflict with the Company’s business interests or your duties to the Company.

 

(d) Conflict of Interest. During your employment by the Company, except on behalf of the Company, you will not directly or indirectly serve as an officer, director, stockholder, employee, partner, proprietor, investor, joint venturer, associate, representative or consultant for or on behalf of any other person, corporation, firm, partnership or other entity whatsoever known by you to compete with the Company (or is planning or preparing to compete with the Company), anywhere in the world, in any line of business engaged in (or planned to be engaged in) by the Company; provided, however, that you may purchase or otherwise acquire up to (but not more than) one percent (1%) of any class of securities of any enterprise (but without participating in the activities of such enterprise) if such securities are listed on any national or regional securities exchange.

 

7.    AT-WILL EMPLOYMENT RELATIONSHIP. Your employment relationship with the Company is at-will. Accordingly, both you and the Company may terminate the employment relationship at any time, with or without Cause (as defined below), and with or without advance notice.

 

8.    DEFINITIONS.

 

(a) Definition of “Cause.” For purposes of this offer letter agreement, “Cause” is defined as one or more of the following events: (i) the indictment or conviction for a felony or other crime, in each case involving moral turpitude; (ii) the commission of any other act or omission involving fraud or intentional deceit with respect to the Company or any of its affiliates or any of their directors, stockholders, partners or members; (iii) any act or omission involving dishonesty that causes material injury to the Company or any of its affiliates or any of their directors, stockholders, partners or members; (iv) gross negligence (defined as conduct or a failure to act that is so reckless that it demonstrates a substantial lack of concern for whether an injury will result) with respect to the Company or any of its subsidiaries; (v) willful misconduct with respect to the Company or any of its subsidiaries; (vi) any other material breach of this agreement or any other agreement referred to herein (including the Non-Disclosure Agreement); provided, however, that, it shall only be deemed Cause pursuant to clause (vi) if you are given written notice describing the basis of Cause and, if the event is reasonably susceptible of cure, you fail to cure within thirty (30) days.

 

 

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(b) Definition of “Good Reason.” For purposes of this offer letter agreement, “Good Reason” is defined as one or more of the following conditions that occur without your written consent: (i) the assignment to you, or the removal from you, of any duties or responsibilities that results in the material diminution of your authority, duties or responsibilities, including a Change in Control that results in your no longer serving as the Chief Executive Officer of a publicly traded corporate entity; (ii) a material reduction by the Company of your base salary; (iii) the Company’s material breach of its obligations to you under this offer letter agreement; or (iv) your office relocation to a location more than fifty miles from your then present location; provided however that, it shall only be deemed Good Reason pursuant to the foregoing definition if (i) the Company is given written notice from you within ninety (90) days following the first occurrence of a condition that you consider to constitute Good Reason describing the condition and fails to remedy such condition within thirty (30) days following such written notice, and (ii) you resign from employment within ninety (90) days following the end of the period within which the Company was entitled to remedy the condition constituting Good Reason but failed to do so.

 

(c) Definition of “Change in Control.” For purposes of this offer letter agreement, “Change in Control” means the occurrence, in a single transaction or in a series of related transactions, of either of the following events:

 

(i)  There is consummated (A) a merger, consolidation or similar transaction involving (directly or indirectly) the Company or (B) a tender offer or exchange offer addressed to the stockholders of the Company and, in either event, immediately after the consummation of such merger, consolidation or similar transaction or such tender or exchange offer, the stockholders of the Company immediately prior thereto do not Own, directly or indirectly, either (A) outstanding voting securities representing more than fifty percent (50%) of the combined outstanding voting power of the surviving Entity in such merger, consolidation or similar transaction or (B) more than fifty percent (50%) of the combined outstanding voting power of the parent of the surviving Entity in such merger, consolidation or similar transaction, in each case in substantially the same proportions as their Ownership of the outstanding voting securities of the Company immediately prior to such transaction; or

 

(ii)  There is consummated a sale, lease, exclusive license or other disposition of all or substantially all of the consolidated assets of the Company and its Subsidiaries, other than a sale, lease, license or other disposition of all or substantially all of the consolidated assets of the Company and its Subsidiaries to an Entity, more than fifty percent (50%) of the combined voting power of the voting securities of which are Owned by stockholders of the Company in substantially the same proportions as their Ownership of the outstanding voting securities of the Company immediately prior to such sale, lease, license or other disposition.

 

 

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The term Change in Control shall not include a sale of assets, merger or other transaction effected exclusively for the purpose of changing the domicile of the Company.

 

9.    ACCELERATION OF VESTING UPON CHANGE IN CONTROL. All unvested stock options and all unvested grants of restricted stock, herein referred to and any subsequent grants of stock options, restricted stocks or any other stock awards in future plans, shall become fully vested upon the closing of a Change in Control of the Company.

 

10.    SEVERANCE BENEFITS.

 

(a) Entitlement to Severance Benefits. If, at any time, your employment is terminated by the Company without Cause, or by you for Good Reason, you will be eligible to receive, as your sole severance benefits (the “Severance Benefits”):

 

(1)  Severance pay in the total amount equal to the sum of (i) twelve (12) months of your base salary in effect as of the employment termination date, and (ii) the full amount of your annual performance bonus. The severance pay will be subject to required payroll deductions and withholdings, and will be paid in twenty-four (24) equal installments over a period of twelve (12) months, with such payments made on the Company’s normal payroll schedule.

 

(2)  If you timely elect and continue to remain eligible for continued group health insurance coverage under federal COBRA law or, if applicable, state insurance laws (collectively, “COBRA”), the Company will pay your COBRA premiums sufficient to continue your group health insurance coverage at the same level in effect as of your employment termination date (including dependent coverage, if applicable) for twelve (12) months after the employment termination date; provided that, the Company’s obligation to pay your COBRA premiums will cease earlier if you become eligible for group health insurance coverage through a new employer and you must provide prompt written notice to the Board if you become eligible for group health insurance coverage through a new employer within twelve (12) months of your employment termination date; and

 

(3)  Any then-outstanding stock options provided to you by the Option (as defined herein) and any then-outstanding restricted shares provided to you by the Restricted Stock Award (as defined herein) will both be subject to accelerated vesting equal to the number of shares that would vest over an additional twelve (12) month period, and you will have twelve (12) months from the employment termination date in which to exercise the Option.

 

(b) Release Requirement. Notwithstanding the foregoing, in order to be eligible for the Severance Benefits, you must first sign, date, return to the Company, and allow to become effective the Mutual Release of Claims attached hereto as Exhibit B, which the Company also agrees to sign prior to the Effective Date of the Mutual Release of Claims (as defined in Exhibit B). You will not be eligible for the Severance Benefits if your employment is terminated for Cause, or if you resign for any reason that does not qualify as Good Reason. In addition, in the event that you materially breach the Non-Disclosure Agreement, the Mutual Release of Claims, or any other obligations you owe to the Company after termination of your employment (including but not limited to the nonsolicitation provisions hereunder), the Company’s obligation to provide the Severance Benefits (or to continue to provide the Severance Benefits) will cease immediately and in full as of the date of your breach.

 

 

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(d) Deferred Compensation. Anything in this agreement to the contrary notwithstanding, if the Company reasonably determines that any payments hereunder fail to satisfy the distribution requirements of Section 409A(a)(2) of the Internal Revenue Code of 1986, as amended (the “Code”) and you concur with such determination, then the payment of such benefit shall be delayed to the minimum extent necessary so that such payments are not subject to the provisions of Section 409A(a)(1) of the Code; provided, however, that in no event shall such delay be more than six (6) months and one (1) day from the date of termination of your employment with the Company.

 

(e) Excise Tax.

 

(i) Anything in this agreement to the contrary notwithstanding, if any payment or benefit that you would receive pursuant to this offer letter agreement or otherwise (“Payment”) would (i) constitute a “parachute payment” within the meaning of Section 280G of the Code, and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then such Payment shall be equal to the Reduced Amount (defined below). The “Reduced Amount” shall be either (y) the largest portion of the Payment that would result in no portion of the Payment (after reduction) being subject to the Excise Tax, or (z) the entire Payment, whichever amount after taking into account all applicable federal, state and local employment taxes, income taxes, and the Excise Tax (all computed at the highest applicable marginal rate, net of the maximum reduction in federal income taxes which could be obtained from a deduction of such state and local taxes), results in your receipt, on an after-tax basis, of the greatest amount of the Payment to you.

 

(ii) If a reduction in the Payment is to be made, the reduction in payments and/or benefits shall occur in the following order unless you elect in writing a different order (provided, however, that such election shall be subject to Company approval, such approval not to be unreasonably withheld or delayed, if made on or after the date on which the event that triggers the Payment occurs (the “Payment Event”)): (1) reduction of cash payments; (2) cancellation of accelerated vesting of equity awards other than stock options; (3) cancellation of accelerated vesting of stock options; and (4) reduction of other benefits paid to you. In the event that acceleration of compensation from your equity awards is to be reduced, such acceleration of vesting shall be canceled in the reverse order of the date of grant unless you elect in writing a different order for cancellation.

 

 

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(iii) The accounting firm engaged by the Company for general audit purposes as of the day prior to the effective date of the Payment Event shall perform the foregoing calculations. If the accounting firm so engaged by the Company is serving as accountant or auditor for the individual, entity or group effecting the Payment Event, a nationally recognized accounting firm appointed by the Board and reasonably approved by you shall make the determinations required hereunder. The Company shall bear all expenses with respect to the determinations by such accounting firm required to be made hereunder.

 

(iv) The accounting firm engaged to make the determinations hereunder shall provide its calculations, together with detailed supporting documentation, to the Company and you within fifteen (15) calendar days after the date on which your right to a Payment is triggered (if requested at that time by the Company or you) or such other time or times as requested by the Company or you. If the accounting firm determines that no Excise Tax is payable with respect to a Payment, either before or after the application of the Reduced Amount, it shall furnish the Company and you with an opinion reasonably acceptable to you that no Excise Tax will be imposed with respect to such Payment. The Company shall be entitled to rely upon the accounting firm’s determinations, which shall be final and binding.

 

11.    DISPUTE RESOLUTION. To ensure the rapid and economical resolution of disputes that may arise in connection with your employment, you and the Company agree that any and all disputes, claims, or causes of action, in law or equity, arising from or relating to the enforcement, breach, performance, execution, or interpretation of this agreement, your employment, or the termination of your employment, shall be resolved, to the fullest extent permitted by law, by final, binding and confidential arbitration in San Francisco, California conducted before a single arbitrator by Judicial Arbitration and Mediation Services, Inc. (“JAMS”) or its successor, under the then applicable JAMS rules. By agreeing to this arbitration procedure, both you and the Company waive the right to resolve any such dispute through a trial by jury or judge or by administrative proceeding. The arbitrator shall: (a) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; and (b) issue a written arbitration decision including the arbitrator’s essential findings and conclusions and a statement of the award. The Company shall pay all of JAMS’ arbitration fees. Nothing in this letter agreement shall prevent either you or the Company from obtaining injunctive relief in court if necessary to prevent irreparable harm pending the conclusion of any arbitration. The parties agree that the arbitrator shall award reasonable attorneys fees and costs to the prevailing party in any action brought hereunder, and the arbitrator shall have discretion to determine the prevailing party in an arbitration where multiple claims may be at issue.

 

12.    MISCELLANEOUS.

 

(a) General Provisions. This letter, including the attached Non-Disclosure Agreement and Mutual Release of Claims, constitutes the complete, final and exclusive embodiment of the entire agreement between you and the Company with regard to the subject matter hereof. It is entered into without reliance on any promise or representation, written or oral, other than those expressly contained herein, and it supersedes any other agreements, promises, warranties or representations concerning its subject matter. Changes in your employment terms, other than those expressly reserved herein to the Company’s or the Board’s discretion, only can be made in a writing signed by a duly-authorized member of the Board and you. This letter agreement will bind the heirs, personal representatives, successors and assigns of both you and the Company, and inure to the benefit of both you and the Company, their heirs, successors and assigns. If any provision of this letter agreement is determined to be invalid or unenforceable, in whole or in part, this determination shall not affect any other provision of this letter agreement and the provision in question shall be modified so as to be rendered enforceable in a manner consistent with the intent of the parties insofar as possible under applicable law. This letter agreement shall be construed and enforced in accordance with the laws of the State of California without regard to conflicts of law principles. Any ambiguity in this letter agreement shall not be construed against either party as the drafter. Any waiver of a breach of this letter agreement, or rights hereunder, shall be in writing and shall not be deemed to be a waiver of any successive breach or rights hereunder. This letter agreement may be executed in counterparts which shall be deemed to be part of one original, and facsimile signatures shall be equivalent to original signatures.

 

 

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(b) Legal Right to Work. As required by law, this offer is subject to satisfactory proof of your right to work in the United States.

 

 

 

 

 

 

 

 

 

 

 

[Remainder of Page Intentionally Blank.]

 

 

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(c) Acceptance. Please sign this letter and the attached Non-Disclosure Agreement and return them to me as soon as possible to accept employment with the Company on the terms set forth herein. We are very excited about having you join us as an employee and look forward to working with you.

 

Sincerely,

 

/s/ Charles M. Boesenberg


Charles M. Boesenberg

Chairman of the Compensation Committee of the Board of Directors

 

 

Understood and Agreed:

 

/s/ Mark J. Barrenechea


Mark J. Barrenechea

 

May 24, 2007


Date

 

Exhibit A - Invention and Non-Disclosure Agreement

Exhibit B - Mutual Release of Claims

 

 

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EXHIBIT A

 

INVENTION AND NON-DISCLOSURE AGREEMENT

 

RACKABLE SYSTEMS, INC.

 

EMPLOYEE PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT

 

In consideration of my employment by Rackable Systems, Inc., a Delaware corporation (the "Company"), I hereby agree to the following with respect to my use and development of information and technology of the Company, as more fully set out below.

 

 

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Proprietary Information.

 

Confidential Restrictions. I agree to hold in strict confidence and in trust for the sole benefit of the Company all Proprietary Information (as defined below) that I may have access to during the course of my employment with the Company and will not disclose any Proprietary Information, directly or indirectly, to anyone outside of the Company, or use, copy, publish, summarize, or remove from Company premises such information (or remove from the premises any other property of the Company) except (i) during my employment to the extent necessary to carry out my responsibilities as an employee of the Company or (ii) after termination of my employment, as specifically authorized by the President of the Company. I further understand that the publication of any Proprietary Information through literature or speeches must be approved in advance in writing by the President of the Company. "Proprietary Information" shall mean all information and any idea in whatever form, tangible or intangible, whether disclosed to or learned or developed by me, pertaining in any manner to the business of the Company (or any affiliate of it that might be formed) or to the Company's customers, suppliers, licensors and other commercial partners unless: (i) the information is or becomes publicly known through lawful means; (ii) the information was rightfully in my possession or part of my general knowledge prior to my employment by the Company; or (iii) the information is disclosed to me without confidential or proprietary restriction by a third party who rightfully possesses the information (without confidential or proprietary restriction) and did not learn of it, directly or indirectly, from the Company.

 

Third Party Information. I recognize that the Company has received and in the future will receive from third parties their confidential or proprietary information subject to a duty on the Company's part to maintain the confidentiality of such information and to use it only for certain limited purposes. I agree that I owe the Company and such third parties, during the term of my employment and thereafter, a duty to hold all such confidential or proprietary information in the strictest confidence and not to disclose it to any person, firm, or corporation (except as necessary in carrying out my work for the Company consistent with the Company's agreement with such third party) or to use it for the benefit of anyone other than for the Company or such third party (consistent with the Company's agreement with such third party) without the express written authorization of the President of the Company.

 

Interference with Business. I hereby acknowledge that pursuit of the activities forbidden by this Section 1(c) would necessarily involve the use or disclosure of Proprietary Information in breach of Section 1, but that proof of such breach would be extremely difficult. To forestall such disclosure, use, and breach, I agree that for the term of this Agreement and for a period of one (1) year after termination of my employment with the Company, I shall not, for myself or any third party, directly or indirectly (i) divert or attempt to divert from the Company (or any affiliate of it that might be formed) any business of any kind in which it is engaged, including, without limitation, the solicitation of or interference with any of its suppliers or customers; (ii) employ, solicit for employment, or recommend for employment any person employed by the Company (or by any affiliate of it that might be formed) during the period of such person's employment and for a period of one (1) year thereafter; or (iii) engage in any business activity that is or may be competitive with the Company (or any affiliate of it that might be formed). I understand that none of my activities will be prohibited under this Section 1(c) if I can prove that the action was taken without the use in any way of Proprietary Information.

 

 

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Inventions.

 

Defined; Statutory Notice. I understand that during the term of my employment, there are certain restrictions on my development of technology, ideas, and inventions, referred to in this Agreement as "Invention Ideas." The term Invention Ideas means any and all ideas, processes, trademarks, service marks, inventions, technology, computer programs, original works of authorship, designs, formulas, discoveries, patents, copyrights, and all improvements, rights, and claims related to the foregoing that are conceived, developed, or reduced to practice by me alone or with others except to the extent that California Labor Code Section 2870 lawfully prohibits the assignment of rights in such ideas, processes, inventions, etc. I understand that Section 2870(a) provides:

 

 

 

Any provision in an employment agreement which provides that an employee shall assign, or offer to assign, any of his or her rights in an invention to his or her employer shall not apply to an invention that the employee developed entirely on his or her own time without using the employer's equipment, supplies, facilities, or trade secret information except for those inventions that either:

 

 

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Relate at the time of conception or reduction to practice of the invention to the employer's business, or actual or demonstrably anticipated research or development of the employer.

 

Result from any work performed by the employee for the employer.

 

Records of Invention Ideas. I agree to maintain adequate and current written records on the development of all Invention Ideas and to disclose promptly to the Company all Invention Ideas and relevant records, which records will remain the sole property of the Company. I further agree that all information and records pertaining to any idea, process, trademark, service mark, invention, technology, computer program, original work of authorship, design, formula, discovery, patent, or copyright that I do not believe to be an Invention Idea, but is conceived, developed, or reduced to practice by me (alone or with others) during my period of employment or during the one-year period following termination of my employment, shall be promptly disclosed to the Company (such disclosure to be received in confidence). The Company shall examine such information to determine if in fact the idea, process, or invention, etc., is an Invention Idea subject to this Agreement.

 

Assignment. I agree to assign to the Company, without further consideration, my entire right, title, and interest (throughout the United States and in all foreign countries), free and clear of all liens and encumbrances, in and to each Invention Idea, which shall be the sole property of the Company, whether or not patentable. In the event any Invention Idea shall be deemed by the Company to be patentable or otherwise registrable, I will assist the Company (at its expense) in obtaining letters patent or other applicable registrations thereon and I will execute all documents and do all other things (including testifying at the Company's expense) necessary or proper to obtain letters patent or other applicable registrations thereon and to vest the Company with full title thereto. Should the Company be unable to secure my signature on any document necessary to apply for, prosecute, obtain, or enforce any patent, copyright, or other right or protection relating to any Invention Idea, whether due to my mental or physical incapacity or any other cause, I hereby irrevocably designate and appoint the Company and each of its duly authorized officers and agents as my agent and attorney-in-fact, to act for and in my behalf and stead, to execute and file any such document, and to do all other lawfully permitted acts to further the prosecution, issuance, and enforcement of patents, copyrights, or other rights or protections with the same force and effect as if executed and delivered by me.

 

Exclusions. Except as disclosed in Exhibit A, there are no ideas, processes, trademarks, service marks, inventions, technology, computer programs, original works of authorship, designs, formulas, discoveries, patents, copyrights, or improvements to the foregoing that I wish to exclude from the operation of this Agreement.

 

Post-Termination Period. I acknowledge that because of the difficulty of establishing when any idea, process, invention, etc., is first conceived or developed by me, or whether it results from access to Proprietary Information or the Company’s equipment, facilities and data, I agree that any idea, process, trademark, service mark, invention, technology, computer program, original work of authorship, design, formula, discovery, patent, copyright, or any improvement, rights, or claims related to the foregoing shall be presumed to be an Invention Idea if it is conceived, developed, used, sold, exploited, or reduced to practice by me or with my aid within one (1) year after my termination of employment with the Company. I can rebut the above presumption if I prove that the invention, idea, process, etc., is not an Invention Idea as defined in paragraph 2(a).

 

 

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I understand that nothing in this Agreement is intended to expand the scope of protection provided me by Sections 2870 through 2872 of the California Labor Code.

 

Former or Conflicting Obligations. During my employment with the Company, I will not disclose to the Company, or use, or induce the Company to use, any proprietary information or trade secrets of others. I represent that my performance of this Agreement will not breach any agreement to keep in confidence proprietary information acquired by me in confidence or in trust prior to my employment by the Company. I certify that I have no outstanding agreement or obligation that is in conflict with any of the provisions of this Agreement, or that would preclude me from complying with the provisions hereof. I further certify that during the term of my employment with the Company, I will not engage in any other employment, occupation, consulting or other business activity directly related to the business in which the Company is now involved or becomes involved during the term of such employment.

 

Government Contracts. I understand that the Company has or may enter into contracts with the government under which certain intellectual property rights will be required to be protected, assigned, licensed, or otherwise transferred and I hereby agree to execute such other documents and agreements as are necessary to enable the Company to meet its obligations under any such government contracts.

 

Termination. I hereby acknowledge and agree that all personal property, including, without limitation, all books, manuals, records, models, drawings, reports, notes, contracts, lists, blueprints, and other documents or materials or copies thereof, Proprietary Information, and equipment furnished to or prepared by me in the course of or incident to my employment, belong to the Company and will be promptly returned to the Company upon termination of my employment with the Company. Following my termination, I will not retain any written or other tangible material containing any Proprietary Information or information pertaining to any Invention Idea. I understand that my obligations contained herein will survive the termination of my employment. In the event of termination of my employment, I agree to sign and deliver to the Company a Termination Certificate in the form attached hereto as Exhibit B.

 

 

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Miscellaneous Provisions.

 

Assignment. I agree that the Company may assign to another person or entity any of its rights under this Agreement, including, without limitation, any successor in interest to the Company or its business operations. This Agreement shall be binding upon me and my heirs, executors, administrators, and successors, and shall inure to the benefit of the Company's successors and assigns.

 

Governing Law; Severability. The validity, interpretation, enforceability, and performance of this Agreement shall be governed by and construed in accordance with the laws of the State of California. If any provision of this Agreement, or application thereof to any person, place, or circumstance, shall be held by a court of competent jurisdiction to be invalid, unenforceable, or void, the remainder of this Agreement and such provisions as applied to other persons, places, and circumstances shall remain in full force and effect.

 

Entire Agreement. The terms of this Agreement are the final expression of my agreement with respect to the subject matter hereof and may not be contradicted by evidence of any prior or contemporaneous agreement. This Agreement shall constitute the complete and exclusive statement of its terms and no extrinsic evidence whatsoever may be introduced in any judicial, administrative, or other legal proceeding involving this Agreement.

 

Application of this Agreement. I hereby agree that my obligations set forth in Sections 1 and 2 hereof and the definitions of Proprietary Information and Invention Ideas contained therein shall be equally applicable to Proprietary Information and Invention Ideas relating to any work performed by me for the Company prior to the execution of this Agreement.

 

 

Date: May 24, 2007

/s/ Mark J. Barrenechea


Signature

 

 

Mark J. Barrenechea


Printed Name

 

 

-15-


 

 

EXHIBIT A

 

Employee's Prior Inventions

 

Except as set forth below, there are no ideas, processes, trademarks, service marks, inventions, technology, computer programs, original works of authorship, designs, formulas, discoveries, patents, copyrights, or any claims, rights, or improvements to the foregoing that I wish to exclude from the operation of this Agreement:

 

 

-16-


 

 

EXHIBIT B

 

TERMINATION CERTIFICATE CONCERNING

 

PROPRIETARY INFORMATION AND INVENTIONS

 

 

This is to certify that I have returned all personal property of the Company, including, without limitation, all books, manuals, records, models, drawings, reports, notes, contracts, lists, blueprints, and other documents and materials, Proprietary Information, and equipment furnished to or prepared by me in the course of or incident to my employment with the Company, and that I did not make or distribute any copies of the foregoing.

 

I further certify that I have reviewed the Employee Proprietary Information and Inventions Agreement signed by me and that I have complied with and will continue to comply with all of its terms, including, without limitation, (i) the reporting of any invention, process, or idea, etc. conceived or developed by me and covered by the Agreement and (ii) the preservation as confidential of all Proprietary Information pertaining to the Company. This certificate in no way limits my responsibilities or the Company’s rights under the Agreement.

 

On termination of my employment with the Company, I will be employed by ___________ [name of new employer] ________________________________________________ [in the  _________________ division] and I will be working in connection with the following projects:

 

[generally describe the projects]

 


 


 


 


 


 


 

Dated: ________________________________

 

 


Signature

 

 

 


Printed Name

 


 

 

-17-


 

 

EXHIBIT B

 

MUTUAL RELEASE OF CLAIMS

(To be signed on or within 21 days after the employment termination date.)

 

Pursuant to the terms of the offer letter agreement between Rackable Systems, Inc. (the “Company”) and Mark J. Barrenechea (“Executive”) dated May 24, 2007 (the “Agreement”), the parties hereby enter into the following Mutual Release of Claims (the “Release”):

 

1.    Executive’s Release of Claims: 

 

Executive understands that, on the last date of his employment with the Company, the Company will pay him any accrued salary and accrued and unused vacation to which he is entitled by law, regardless of whether he signs this Release, but he is not entitled to the Severance Benefits, unless he signs and returns this Release to the Company and allows it to become effective.

 

Executive hereby generally and completely releases the Company, its parent, and its and their directors, officers, employees, shareholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns (collectively the “Released Parties”) of and from any and all claims, liabilities and obligations, both known and unknown, arising out of or in any way related to events, acts, conduct, or omissions occurring at any time prior to or at the time that Executive signs this Release. This general release includes, but is not limited to: (1) all claims arising out of or in any way related to Executive’s employment with the Company or the termination of that employment; (2) all claims related to Executive’s compensation or benefits from the Company, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership or equity interests in the Company; (3) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing (including claims based on or arising under the Agreement); (4) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (5) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the federal Age Discrimination in Employment Act (as amended) (“ADEA”), the federal Family and Medical Leave Act, the California Labor Code (as amended), the California Family Rights Act, and the California Fair Employment and Housing Act (as amended).

 

Executive understands that notwithstanding the foregoing, the following are not included in the Released Claims (the “Excluded Claims”): (i) any rights or claims for indemnification Executive may have pursuant to any written indemnification agreement to which he is a party, the charter, bylaws, or operating agreements of any of the Released Parties, or under applicable law; or (ii) any rights which are not waivable as a matter of law. In addition, Executive understands that nothing in this release prevents him from filing, cooperating with, or participating in any proceeding before the Equal Employment Opportunity Commission, the Department of Labor, or the California Department of Fair Employment and Housing, except that Executive acknowledges and agrees that he shall not recover any monetary benefits in connection with any such claim, charge or proceeding with regard to any claim released herein. Executive hereby represents and warrants that, other than the Excluded Claims, Executive is not aware of any claims he has or might have against any of the Released Parties that are not included in the Released Claims.

 

Executive acknowledges that he is knowingly and voluntarily waiving and releasing any rights he may have under the ADEA, and that the consideration given for the waiver and release in the preceding paragraph is in addition to anything of value to which he is already entitled. Executive further acknowledges that he has been advised by this writing that: (1) his waiver and release do not apply to any rights or claims that may arise after the date he signs this Release; (2) he should consult with an attorney prior to signing this Release (although he may choose voluntarily not to do so); (3) he has twenty-one (21) days to consider this Release (although he may choose voluntarily to sign it earlier); (4) he has seven (7) days following the date he signs this Release to revoke it by providing written notice of revocation to the Chairman of the Company’s Board of Directors; and (5) this Release will not be effective until the date upon which the revocation period has expired, which will be the eighth calendar day after the date Executive signs it provided that he does not revoke it and that the Company has signed this Release by such date (the “Effective Date”).

 

 

-18-


 

 

Executive hereby represents that he has been paid all compensation owed and for all hours worked, he has received all the leave and leave benefits and protections for which he is eligible, pursuant to the Family and Medical Leave Act, the California Family Rights Act, or otherwise, and he has not suffered any on-the-job injury for which he has not already filed a workers’ compensation claim.

 

2.    Company’s Release of Claims:

 

The Company hereby generally and completely releases Executive of and from any and all claims, liabilities, and obligations, both known and unknown, arising out of or in any way related to events, acts, conduct or omissions occurring at any time prior to or at the time the Company signs this Release (the “Released Claims”); provided however, that this Release shall not extend to: (1) any claims that may arise out of any events, acts, conduct or omissions occurring after this Release is executed, including without limitation, any claims for breach of the Agreement; (2) any claims arising at any time out of Executive’s obligations to protect the Company’s proprietary information, including without limitation, any claims arising from Executive’s obligations under his Confidentiality Agreement, claims arising under the California Uniform Trade Secrets Act, or common law claims arising from these obligations; or (3) any claims arising from any actions by Executive during his employment with the Company which were outside of his authority as President and Chief Executive Officer and Member of the Board of Directors of the Company or outside of the course and scope of his employment (the “Excluded Claims”).

 

The Company hereby represents and warrants that, other than the Excluded Claims, it is not aware of any claims it has or might have against Executive that are not included in the Released Claims.

 

 

-19-


 

 

3.    Section 1542 Waiver:

 

THE PARTIES UNDERSTAND THAT THIS AGREEMENT INCLUDES A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS. The parties acknowledge that each has read and understands Section 1542 of the California Civil Code which reads as follows: “A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.” The parties hereby expressly waive and relinquish all rights and benefits under that section and any law or legal principle of similar effect in any jurisdiction with respect to their respective release of claims herein, including but not limited to their releases of unknown and unsuspected claims.

 

4.    Additional Agreements:

 

The parties hereby further agree as follows: (1) Executive agrees not to disparage the Company, its parent, or its or their officers, directors, employees, shareholders, affiliates and agents, in any manner likely to be harmful to its or their business, business reputation, or personal reputation, and the Company agrees not to disparage Executive in any manner likely to be harmful to his business reputation or personal reputation (although the parties may respond accurately and fully to any question, inquiry or request for information as required by legal process); (2) not to voluntarily (except in response to legal compulsion) assist any third party in bringing or pursuing any proposed or pending litigation, arbitration, administrative claim or other formal proceeding against the other party, or against the Company’s parent or subsidiary entities, affiliates, officers, directors, employees or agents; and (3) to reasonably cooperate with the other party, by voluntarily (without legal compulsion) providing accurate and complete information, in connection with such other party’s actual or contemplated defense, prosecution, or investigation of any claims or demands by or against third parties, or other matters, arising from events, acts, or failures to act that occurred during the period of Executive’s employment by the Company.

 

Executive:

 

By:


Mark J. Barrenechea

 

Date:


 

Company:

 

By:


Title:


Date:


 

 

-20-


 

 

 

 

 

 

 

 

CHANGE IN CONTROL SEVERANCE BENEFIT PLAN AND FORM OF PARTICIPATION NOTICE

Exhibit 10.1

RACKABLE SYSTEMS, INC.

EXECUTIVE CHANGE IN CONTROL SEVERANCE BENEFIT PLAN

 

1.

INTRODUCTION.

The Rackable Systems, Inc. Executive Change in Control Severance Benefit Plan (the “Plan”) is hereby established by Rackable Systems, Inc. (the “Company”) effective October 3, 2006 (the “Effective Date”). The purpose of the Plan is to provide for the payment of certain severance benefits to certain eligible executive employees of the Company and any of its Subsidiaries if such employees are subject to qualifying employment terminations. This Plan shall supersede, as to any Participant, any severance or change in control benefit plan, policy, or practice previously maintained by the Company or any Subsidiary that is not in writing. For the avoidance of doubt, any written severance and/or change in control benefit provisions of any offer letter, employment agreement, equity incentive plan (or an associated award agreement) or other contract between the Company or any Subsidiary and a Participant is not superseded by the Plan except as may be set forth in such other plan or agreement or in a Participation Notice. This Plan shall not supersede or otherwise amend any written or unwritten severance or change in control benefit plan, policy or practice of the Company with respect to individuals who are not Participants.

 

2.

DEFINITIONS.

For purposes of the Plan, except as may be provided in an individual Participation Notice, the following terms are defined as follows:

(a) “Announcement” means the public announcement of the signing of an agreement pursuant to which a Change in Control is effectuated that results in the payment of benefits pursuant to this Plan.

(b) “Base Value” means the amount equal to the Pre-Announcement Average Value multiplied by the Fully Diluted Shares Outstanding immediately prior to the Announcement. The “Pre-Announcement Average Value” means the average of the closing sales price per share of the Company’s common stock as reported on the Nasdaq Global Market (or if the Nasdaq Global Market is not the primary exchange or national reporting system upon which the Company’s common stock is traded or quoted, then such other primary exchange or national reporting system upon which the Company’s common stock is traded or quoted) for the ten (10) trading days immediately prior to the date of the Announcement. In the event there is a stock split, stock dividend or similar adjustment in the outstanding common stock of the Company during the period when the Pre-Announcement Average Value is determined, an adjustment shall be made by the Plan Administrator to the Pre-Announcement Average Value so as to most closely approximate the Pre-Announcement Average Value that would have resulted had the change in the outstanding common stock of the Company occurred prior to the period in which the Pre-Announcement Average Value was computed.

 

1.


(c) “Benefit Percentage” for a Participant shall be set forth on the Participant’s Participation Notice.

(d) “Board” means the Board of Directors of Rackable Systems, Inc.

(e) “Change in Control” means the occurrence, in a single transaction or in a series of related transactions, of either of the following events:

(i) (x) there is consummated (A) a merger, consolidation or similar transaction involving (directly or indirectly) the Company or (B) a tender offer or exchange offer addressed to the stockholders of the Company and (y), immediately after the consummation of such merger, consolidation or similar transaction or such tender or exchange offer, the stockholders of the Company immediately prior thereto do not Own, directly or indirectly, either (A) outstanding voting securities representing more than fifty percent (50%) of the combined outstanding voting power of the surviving Entity in such merger, consolidation or similar transaction or (B) more than fifty percent (50%) of the combined outstanding voting power of the parent of the surviving Entity in such merger, consolidation or similar transaction, in each case in substantially the same proportions as their Ownership of the outstanding voting securities of the Company immediately prior to such transaction; or

(ii) there is consummated a sale, lease, exclusive license or other disposition of all or substantially all of the consolidated assets of the Company and its Subsidiaries, other than a sale, lease, license or other disposition of all or substantially all of the consolidated assets of the Company and its Subsidiaries to an Entity, more than fifty percent (50%) of the combined voting power of the voting securities of which are Owned by stockholders of the Company in substantially the same proportions as their Ownership of the outstanding voting securities of the Company immediately prior to such sale, lease, license or other disposition.

For the avoidance of doubt, the term Change in Control shall not include a sale of assets, merger or other transaction effected exclusively for the purpose of changing the domicile of the Company.

(f) “Change in Control Termination” means a Covered Termination that occurs within the period commencing three (3) months prior to a Change in Control and ending on the Participant’s Participation Termination Date; provided, however, that the foregoing notwithstanding, a Participant shall not have incurred a Change in Control Termination if a Change in Control shall not have occurred on or prior to the Participant’s Participation Termination Date.

(g) “Change in Control Value” means the Value per share of common stock received by the stockholders of the Company pursuant to a Change in Control multiplied by the Fully Diluted Shares Outstanding immediately prior to the Change in Control.

(h) “Code” means the Internal Revenue Code of 1986, as amended.

(i) “Company” means Rackable Systems, Inc., or any successor entity thereto.

 

2.


(j) “Constructive Termination” means a resignation of employment by a Participant within ninety (90) days after one of the following is undertaken without the Participant’s express written consent:

(i) the Company or any of its Subsidiaries significantly reduces the Participant’s duties, authority or responsibilities, relative to the Participant’s duties, authority or responsibilities as in effect immediately prior to such reduction, taken as a whole; provided, however, that a change in the Participant’s title shall not be taken into account in determining if the Participant’s duties, authority or responsibilities have been reduced for the purposes of this Section 2(j)(i);

(ii) the Company or any of its Subsidiaries reduces the Participant’s base salary, target bonus and/or other cash compensation programs, taken as a whole, unless such reduction is made in connection with an across-the-board, proportionate reduction of substantially all executives’ annual base salaries, bonuses, plans and/or other cash compensation programs instituted because the Company and its Subsidiaries, taken as a whole, are in financial distress;

(iii) the Company or any of its Subsidiaries reduces or eliminates the Participant’s eligibility to participate in (or the benefits associated with participating in) the Company or any of its Subsidiaries’ benefit programs that is inconsistent with the eligibility to participate in (and benefits associated with participation in) such programs enjoyed by similarly situated employees of the Company or any of its Subsidiaries; or

(iv) a relocation of the Participant’s primary business office to a location more than thirty (30) miles from the location at which the Participant predominately performed duties prior to such relocation, except for required travel by the Participant on the Company or any of its Subsidiaries’ business to an extent substantially consistent with the Participant’s prior business travel obligations.

Notwithstanding the foregoing, a termination shall not constitute a Constructive Termination based on conduct described above unless (A) within the fifteen (15) day period following the occurrence of the conduct, the Participant provides the Chief Executive Officer of the Company (provides the Board in the case of a Participant who is the Chief Executive Office) with written notice (the “Constructive Termination Notice”) specifying (x) the particulars of the conduct and (y) that the Participant deems such conduct to be described in (i), (ii), (iii) or (iv) of this Section 2(j), and (B) the conduct described has not been cured within fifteen (15) days following receipt by the Chief Executive Officer of the Company (by the Board in the case of a Participant who is the Chief Executive Office) of such notice.

(k) “Covered Termination” means either (A) an Involuntary Termination Without Cause or (B) a Constructive Termination. For the avoidance of doubt, a termination of employment of a Participant due to death or disability shall not qualify as a Covered Termination.

 

3.


(l) “Eligible Employee” means any individual (A) who is an officer of the Company or any of its Subsidiaries and (B) who has been designated as an Eligible Employee by the Plan Administrator, in its sole discretion.

(m) “Entity” means a corporation, partnership, limited liability company or other entity.

(n)Fully Diluted Shares Outstanding” means, as of any relevant date, the number of shares of common stock outstanding using the treasury stock method as described in SFAS No. 128 – Earnings Per Share.

(o) “Incremental Change in Control Value” means the amount, if any, by which the Change in Control Value exceeds the Base Value.

(p) “Involuntary Termination Without Cause” means a termination by the Company or any of its Subsidiaries of a Participant’s employment relationship with the Company or any of its Subsidiaries for any reason other than the Participant:

(i) willfully refuses to perform in any material respect the Participant’s duties or responsibilities for the Company or any of its Subsidiaries or willfully disregards in any material respect any financial or other budgetary limitations established in good faith by the Board;

(ii) willfully engages in conduct that causes material and demonstrable injury, monetarily or otherwise, to the Company or any of its Subsidiaries, including, but not limited to, misappropriation or conversion of assets of the Company or any of its Subsidiaries (other than non-material assets); or

(iii) engages in an act of moral turpitude causing material and demonstrable injury to the Company or otherwise demonstrates unfitness to serve as an officer of the Company or conviction of or entry of a plea of nolo contendere to a felony.

No act or failure by the Participant shall be deemed “willful” if done, or omitted to be done, in good faith and with the reasonable belief that the action or omission was in the best interest of the Company or any affiliates. For the avoidance of doubt, a transfer of employment of a Participant from (x) the Company or one of its Subsidiaries to (y) the Company, one of its Subsidiaries or an Entity that acquires control of the Company shall not be deemed an Involuntary Termination Without Cause; however, depending on the facts and circumstances, such a transfer of employment may, in conjunction with a resignation by the Participant, result in a Constructive Termination.

(q) “Own,” “Owned,” “Owner,” “Ownership” A person or Entity shall be deemed to “Own,” to have “Owned,” to be the “Owner” of, or to have acquired “Ownership” of securities if such person or Entity, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, is the beneficial owner of such securities. For example, a holder of stock of a corporation (the “direct corporation”) is deemed to Own such stock and to Own a pro rata portion (based on relative holdings of the stock of the direct corporation) of any stock of any other corporation Owned by the direct corporation.

 

4.


(r) “Participant” means an Eligible Employee (A) who has received, signed and returned to the Company a Participation Notice, (B) either (x) who has remained continuously employed by the Company or a Subsidiary from the commencement of the Eligible Employee’s participation in the Plan until the Change in Control or (y) whose employment with the Company or any of its Subsidiaries terminates due to a Covered Termination prior to such Change in Control, and (C) whose participation in the Plan did not otherwise terminate prior to the Change in Control.

(s) “Participation Notice” means the latest notice delivered by the Company to an Eligible Employee informing the Eligible Employee that the Eligible Employee is a participant in the Plan. A Participation Notice shall be in such form as may be determined by the Company. The Company reserves the right to amend a Participation Notice in any way and at any time; provided, however, that no such amendment shall be effective as to any Participant who would be adversely affected by such amendment unless such Participant consents in writing to such amendment.

(t) “Participation Termination Date” means the date a Participant’s participation in the Plan ends as set forth in the Participant’s Participation Notice.

(u) “Plan Administrator” means the Board or any committee duly authorized by the Board to administer the Plan. The Plan Administrator may, but is not required to be, the Compensation Committee of the Board. The Board may at any time administer the Plan, in whole or in part, notwithstanding that the Board has previously appointed a committee to act as the Plan Administrator.

(v) “Subsidiary” means, with respect to the Company, (A) any corporation of which more than fifty percent (50%) of the outstanding capital stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether, at the time, stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, Owned by the Company, and (B) any Entity other than a corporation in which the Company has a direct or indirect interest (whether in the form of voting or participation in profits or capital contribution) of more than fifty percent (50%).

(w) “Value” means, with respect to (i) cash, such amount in cash, (ii) with respect to a share of stock of another Entity, and such stock is publicly traded, such Value shall be deemed to be the last closing sales price of such stock as reported on the primary exchange or national reporting system upon which such Entity’s stock it traded or quoted, and (iii) any other consideration, such Value shall be deemed to be the fair market value as determined in good faith by the Plan Administrator on the date such determination is made.

 

3.

ELIGIBILITY FOR BENEFITS.

(a) General Rules. Subject to the limitations set forth in this Section 3 and in Section 6, in the event of a Change in Control Termination, the Company shall provide the severance benefits described in Section 4 to each affected Participant.

 

5.


(b) Exceptions to Benefit Entitlement. An employee, including an employee who otherwise is a Participant, will not receive benefits under the Plan (or will receive reduced benefits under the Plan) in the following circumstances, as determined by the Plan Administrator in its sole discretion:

(i) The employee’s employment terminates or is terminated for any reason other than a Change in Control Termination.

(ii) The employee does not confirm in writing that he or she shall be subject to the provisions of the employee’s proprietary information agreement with the Company or the employee’s confidentiality agreement with the Company.

(c) Termination or Return of Benefits. In the event of a Change in Control Termination, a Participant’s right to receive benefits under this Plan shall terminate immediately (and any benefits received pursuant to this Plan shall be immediately returned to the Company) if, at any time prior to or during the twelve (12) month period following such Change in Control Termination, the Participant, without the prior written approval of the Plan Administrator:

(i) willfully breaches a material provision of the Participant’s proprietary information or confidentiality agreement with the Company, as referenced in Section 3(b)(ii);

(ii) encourages or solicits any of the Company’s then current employees to leave the Company’s employ for any reason or interferes in any other manner with employment relationships at the time existing between the Company and its then current employees; or

(iii) induces any of the Company’s then current clients, customers, suppliers, vendors, distributors, licensors, licensees or other third party to terminate or materially diminish their existing business relationship with the Company or interferes in any other manner with any existing business relationship between the Company and any then current client, customer, supplier, vendor, distributor, licensor, licensee or other third party.

 

4.

AMOUNT OF BENEFITS.

In the event a Participant incurs a Change in Control Termination, the Participant shall receive the benefits set forth in this Section 4, subject, however, to the payment provisions set forth in Section 5 and the other limitations and exclusions set forth in this Plan.

(a) Cash Benefits. Subject to Section 4(b), the Company shall make cash payments to each such Participant in an amount equal to the Incremental Change in Control Value multiplied by the Participant’s Benefit Percentage.

(b) Parachute Payments.

(i) Except as otherwise provided in an agreement between a Participant and the Company, if any payment or benefit the Participant would receive (whether pursuant to this Plan or otherwise) in connection with a Change in Control from the Company or otherwise (“Payment”) would (i) constitute a “parachute payment” within the meaning of Section 280G of the Code, and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of

 

6.


the Code (the “Excise Tax”), then the benefits payable pursuant to this Plan to such Participant shall be reduced by the lesser of (x) all of the benefits payable pursuant to this Plan to such Participant or (y) the amount necessary so that such Payment (after reduction) shall be equal to the Reduced Amount. The “Reduced Amount” shall be the largest portion of the Payment (prior to reduction) that would result in no portion of the Payment (after reduction) being subject to the Excise Tax. If a reduction in payments or benefits constituting “parachute payments” is necessary so that the Payment (after reduction) equals the Reduced Amount, the benefits under this Plan shall be reduced first unless the Participant elects in writing a different order (provided, however, that such election shall be subject to Company approval if made on or after the date on which the event that triggers the Payment occurs). All determinations required to be made hereunder, including, without limitation, whether a Payment is (or will be) subject to the Excise Tax and any additional assumptions to be utilized in arriving at such determinations, shall be made in accordance with the provisions set forth in Section 4(b)(ii).

(ii) The accounting firm engaged by the Company for the purpose of rendering general tax advice as of the day prior to the effective date of the Change in Control shall perform the calculations required by Section 4(b)(i). If the accounting firm so engaged by the Company is serving as accountant, tax advisor or auditor for the individual, entity or group effecting the Change in Control, the Company shall appoint a nationally recognized accounting firm that is not so serving to make the determinations required hereunder. The Company shall bear all expenses with respect to the determinations by such accounting firm required to be made hereunder. The accounting firm engaged to make the determinations hereunder shall provide its calculations, together with detailed supporting documentation, to the Company and the Participant within fifteen (15) calendar days after the date on which the Participant’s right to a Payment is triggered (if requested at that time by the Company or the Participant) or such other time as may be jointly requested by the Company and the Participant. Any good faith determinations of the accounting firm made hereunder shall be final, binding and conclusive upon the Company and the Participant.

(c) Mitigation. Except as otherwise specifically provided herein, a Participant shall not be required to mitigate damages or the amount of any payment provided under this Plan by seeking other employment or otherwise, nor shall the amount of any payment provided for under this Plan be reduced by any compensation earned by a Participant as a result of employment by another employer or any retirement benefits received by such Participant after the date of the Participant’s Change in Control Termination.

(d) Non-Duplication of Benefits. Except as otherwise specifically provided for herein, no Participant is eligible to receive benefits under this Plan more than one time. This Plan is designed to provide certain severance pay and benefits to Participants pursuant to the terms and conditions set forth in this Plan. Subject to Section 6(b) below, the payments pursuant to this Plan are in addition to, and not in lieu of, any unpaid salary, bonuses, severance or other benefits to which a Participant may be entitled (except to the extent expressly waived in writing) under any other written employment or severance agreement or otherwise for the period ending with the Participant’s Change in Control Termination.

 

7.


5.

TIME OF PAYMENT AND FORM OF BENEFITS.

(a) General Rules. Except as otherwise provided herein, the payment of benefits in Section 4 shall be paid in a lump-sum payment, subject to applicable withholding, within five (5) business days after the determinations required by Section 4(b)(i) have been delivered to the Company and the Participant but in no event later than thirty (30) calendar days after the later of the Change in Control Termination and the Change in Control, and shall otherwise be made in accordance with and subject to the Company’s normal payroll practices.

(b) Application of Section 409A. If the Plan Administrator determines that any cash benefit provided under Section 4(a) fails to satisfy the distribution requirement of Section 409A(a)(2)(A) of the Code as a result of the application of Section 409A(a)(2)(B)(i) of the Code, the payment of such benefit shall be accelerated to the minimum extent necessary so that the benefit is not subject to the provisions of Section 409A(a)(1) of the Code. (It is the intention of the preceding sentence to apply the short-term deferral provisions of Section 409A of the Code, and the regulations and other guidance thereunder, to such payments and benefits. The payment schedule as revised after the application of such preceding sentence shall be referred to as the “Revised Payment Schedule.”) However, if there is no Revised Payment Schedule that would avoid the application of Section 409A(a)(1) of the Code, the payment of such benefits shall not be paid pursuant to the original payment schedule or a Revised Payment Schedule and instead the payment of such benefits shall be delayed to the minimum extent necessary so that such benefits are not subject to the provisions of Section 409A(a)(1) of the Code. The Plan Administrator may attach conditions to or adjust the amounts paid pursuant to this Section 5(b) to preserve, as closely as possible, the economic consequences that would have applied in the absence of Section 409A of the Code; provided, however, that no such condition shall result in the payments being subject to Section 409A(a)(1) of the Code.

(c) Withholding. All payments under the Plan will be subject to all applicable withholding obligations of the Company, including, without limitation, obligations to withhold for federal, state and local income and employment taxes.

(d) Indebtedness of Participants. If a Participant is indebted to the Company on the date any benefits are payable to the Participant pursuant to this Plan, the Plan Administrator reserves the right to offset any such benefits by the amount of such indebtedness.

 

6.

LIMITATIONS ON BENEFITS.

(a) Release. In order to be eligible to receive benefits under the Plan, a Participant must execute a general waiver and release in substantially the form attached hereto as Exhibit A, Exhibit B, or Exhibit C, as appropriate, and such release must become effective in accordance with its terms. Unless a Change in Control has occurred, the Plan Administrator, in its sole discretion, may modify the form of the required release to comply with applicable law and shall determine the form of the required release, which may be incorporated into a termination agreement or other agreement with the Participant.

(b) Certain Reductions. The Plan Administrator, in its sole discretion, shall have the authority to reduce a Participant’s severance benefits hereunder, in whole or in part, by the

 

8.


amount of any other severance benefits, pay in lieu of notice, or other similar benefits payable to the Participant by the Company that become payable in connection with the Participant’s termination of employment pursuant to any applicable legal requirement, including, without limitation, the Worker Adjustment and Retraining Notification Act (the “WARN Act”). The Plan Administrator’s decision to apply such reductions to the severance benefits of one Participant and the amount of such reductions shall in no way obligate the Plan Administrator to apply the same reductions in the same amounts to the severance benefits of any other Participant, even if similarly situated.

 

7.

RIGHT TO INTERPRET PLAN; AMENDMENT AND TERMINATION.

(a) Exclusive Discretion. The Plan Administrator shall have the exclusive discretion and authority to establish rules, forms, and procedures for the administration of the Plan, and to construe and interpret the Plan and to decide any and all questions of fact, interpretation, definition, computation or administration arising in connection with the operation of the Plan, including, but not limited to, the eligibility to participate in the Plan and amount of benefits paid under the Plan. The rules, interpretations, computations and other actions of the Plan Administrator shall be binding and conclusive on all persons.

(b) Amendment or Termination. The Company reserves the right to amend or terminate this Plan or the benefits provided hereunder at any time; provided, however, that no such amendment or termination shall be effective as to any Participant who would be adversely affected by such amendment or termination unless such Participant consents in writing to such amendment or termination. Any action amending or terminating the Plan shall be in writing and executed by the Chief Executive Officer or General Counsel of the Company.

 

8.

NO IMPLIED EMPLOYMENT CONTRACT.

The Plan shall not be deemed (i) to give any employee or other person any right to be retained in the employ of the Company, or (ii) to interfere with the right of the Company to discharge any employee or other person at any time, with or without cause, which right is hereby reserved.

 

9.

GENERAL PROVISIONS.

(a) Notices. Any notice, demand or request required or permitted to be given by either the Company or a Participant pursuant to the terms of this Plan shall be in writing and shall be deemed given when delivered personally or deposited in the U.S. mail, First Class with postage prepaid, and addressed to the parties, in the case of the Company, at 1933 Milmont Drive, Milpitas, CA 95035, Attention General Counsel, and, in the case of a Participant, at the address as set forth in the Company’s employment file maintained for the Participant as previously furnished by the Participant or such other address as a party may request by notifying the other in writing.

(b) Legal Construction. This Plan is intended to be governed by and shall be construed in accordance with the laws of the State of California.

 

9.


(c) Basis of Payments to and from Plan. The Plan shall be unfunded, and all benefits hereunder shall be paid only from the general assets of the Company.

(d) Transfer and Assignment. The rights and obligations of a Participant under this Plan may not be transferred or assigned without the prior written consent of the Company. This Plan shall be binding upon any surviving entity resulting from a Change in Control and upon any other person who is a successor by merger, acquisition, consolidation or otherwise to the business formerly carried on by the Company without regard to whether or not such person or entity actively assumes the obligations hereunder.

(e) Waiver. Any Party’s failure to enforce any provision or provisions of this Plan shall not in any way be construed as a waiver of any such provision or provisions, nor prevent any Party from thereafter enforcing each and every other provision of this Plan. The rights granted the Parties herein are cumulative and shall not constitute a waiver of any Party’s right to assert all other legal remedies available to it under the circumstances.

(f) Severability. Should any provision of this Plan be declared or determined to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired.

(g) Section Headings. Section headings in this Plan are included for convenience of reference only and shall not be considered part of this Plan for any other purpose.

 

10.

EXECUTION.

To record the adoption of the Plan as set forth herein, Rackable Systems, Inc. has caused its duly authorized officer to execute the same as of the Effective Date.

 

 

 

 

RACKABLE SYSTEMS, INC.

 

 

By:

 

/s/ Todd R. Ford

Its:

 

President

 

10.


For Employees Age 40 or Older

Individual Termination

EXHIBIT A

RELEASE AGREEMENT

I understand and agree completely to the terms set forth in the Rackable Systems, Inc. Executive Change in Control Severance Benefit Plan (the “Plan”).

I understand that this Release Agreement (“Release”), together with the Plan, constitutes the complete, final and exclusive embodiment of the entire agreement between the Company and me with regard to the subject matter hereof. I am not relying on any promise or representation by the Company that is not expressly stated therein. Certain capitalized terms used in this Release are defined in the Plan.

I hereby confirm my obligations under the Company’s proprietary information and inventions agreement.

Except as otherwise set forth in this Release, I hereby generally and completely release Rackable Systems, Inc. and its current and former directors, officers, employees, shareholders, partners, agents, attorneys, predecessors, successors, Company and subsidiary entities, insurers, affiliates, and assigns from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring prior to my signing of this Release. My general release of claims includes, but is not limited to, a release of: (1) all claims arising out of or in any way related to my employment with the Company, or the termination of that employment; (2) all claims related to my compensation or benefits from the Company, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other equity or ownership interests in the Company; (3) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing, express or implied; (4) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (5) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the federal Age Discrimination in Employment Act of 1967 (as amended) (“ADEA”), the California Constitution, the constitution of any other state, or the federal constitution, the California Labor Code, and the California Fair Employment and Housing Act (as amended) or similar statute of any other state; provided, however, that nothing in this paragraph shall be construed in any way to release the Company from: (i) its obligation to indemnify me pursuant to agreement or applicable law; or (ii) any obligations undertaken by the Company in the Plan; or (iii) the Company’s statutory obligations to provide payment of all accrued but unpaid wages (including all accrued but unpaid vacation pay); or (iv) any obligations it has under the express terms of a written ERISA-qualified benefit plan (e.g., 401(k) account) or the express terms of any vested stock option or restricted stock awards[; or (v) the Company’s obligations to pay you severance benefits as set forth in Section              of your offer letter/employment agreement dated             ]. I hereby represent that I have no lawsuits, claims or actions pending in my name, or on behalf of any other person or entity, against the Company or any other person or entity subject to the release granted in this paragraph.

 

1.


For Employees Age 40 or Older

Individual Termination

I acknowledge that I am knowingly and voluntarily waiving and releasing any claims and rights I may have under the ADEA. I also acknowledge that the consideration given for my release of ADEA claims and rights is in addition to anything of value to which I was already entitled. I further acknowledge that I have been advised by this writing, as required by the ADEA, that: (a) my release of ADEA claims and rights does not apply to any rights or claims that arise after the date I sign this Release; (b) I should consult with an attorney prior to signing this Release; (c) I have twenty-one (21) days to consider this Release (although I may choose voluntarily to sign it sooner); (d) I have seven (7) days following the date I sign this Release to revoke the Release by providing written notice of revocation to the Company; and (e) this Release will not be effective until the date upon which the revocation period has expired unexercised, which will be the eighth day after I sign this Release (“Effective Date”).

I acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: “A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.” I hereby expressly waive and relinquish all rights and benefits under Section 1542 and any law of any jurisdiction of similar effect with respect to my release of any claims hereunder, including but not limited to unknown and unsuspected claims.

I hereby represent that I have been paid all compensation owed and for all hours worked, I have received all the leave and leave benefits and protections for which I am eligible pursuant to the Family and Medical Leave Act, the California Family Rights Act, or otherwise, and I have not suffered any on-the-job injury for which I have not already filed a workers’ compensation claim.

I acknowledge that to become effective, I must sign this Release not later than twenty-one (21) days following the date it is provided to me and I must promptly provide the signed Release to the Company.

 

 

 

 

EMPLOYEE

 

 

Name:

 

 

Date:

 

 

 

2.


For Employees Age 40 or Older

Group Termination

EXHIBIT B

RELEASE AGREEMENT

I understand and agree completely to the terms set forth in the Rackable Systems, Inc. Executive Change in Control Severance Benefit Plan (the “Plan”).

I understand that this Release Agreement (“Release”), together with the Plan, constitutes the complete, final and exclusive embodiment of the entire agreement between the Company and me with regard to the subject matter hereof. I am not relying on any promise or representation by the Company that is not expressly stated therein. Certain capitalized terms used in this Release are defined in the Plan.

I hereby confirm my obligations under the Company’s proprietary information and inventions agreement.

Except as otherwise set forth in this Release, I hereby generally and completely release Rackable Systems, Inc. and its current and former directors, officers, employees, shareholders, partners, agents, attorneys, predecessors, successors, Company and subsidiary entities, insurers, affiliates, and assigns from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring prior to my signing of this Release. My general release of claims includes, but is not limited to, a release of: (1) all claims arising out of or in any way related to my employment with the Company, or the termination of that employment; (2) all claims related to my compensation or benefits from the Company, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other equity or ownership interests in the Company; (3) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing, express or implied; (4) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (5) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the federal Age Discrimination in Employment Act of 1967 (as amended) (“ADEA”), the California Constitution, the constitution of any other state, or the federal constitution, the California Labor Code, and the California Fair Employment and Housing Act (as amended) or similar statute of any other state; provided, however, that nothing in this paragraph shall be construed in any way to release the Company from: (i) its obligation to indemnify me pursuant to agreement or applicable law; or (ii) any obligations undertaken by the Company in the Plan; or (iii) the Company’s statutory obligations to provide payment of all accrued but unpaid wages (including all accrued but unpaid vacation pay); or (iv) any obligations it has under the express terms of a written ERISA-qualified benefit plan (e.g., 401(k) account) or the express terms of any vested stock option or restricted stock awards[; or (v) the Company’s obligations to pay you severance benefits as set forth in Section              of your offer letter/employment agreement dated             ]. I hereby represent that I have no lawsuits, claims or actions pending in my name, or on behalf of any other person or entity, against the Company or any other person or entity subject to the release granted in this paragraph.

 

1.


For Employees Age 40 or Older

Group Termination

I acknowledge that I am knowingly and voluntarily waiving and releasing any claims and rights that I may have under the ADEA. I also acknowledge that the consideration given for my release of ADEA claims and rights is in addition to anything of value to which I was already entitled. I further acknowledge that I have been advised by this writing, as required by the ADEA, that: (a) my release of ADEA claims and rights does not apply to any rights or claims that arise after the date I sign this Release; (b) I should consult with an attorney prior to signing this Release; (c) I have forty-five (45) days to consider this Release (although I may choose voluntarily to sign it sooner); (d) I have seven (7) days following the date I sign this Release to revoke the Release by providing written notice of revocation to the Company; and (e) this Release will not be effective until the date upon which the revocation period has expired unexercised, which will be the eighth day after I sign this Release (“Effective Date”).

I hereby represent that, when I received this Release, the Company informed me in writing of: (1) any class, unit, or group of individuals covered by the exit incentive or other employment termination program offered to me in connection with this Release, and any time limits applicable to such program; and (2) the job titles and ages of all individuals eligible or selected for the program, and the ages of all individuals in the same job classification or organizational unit who are not eligible or selected for the program.

I acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: “A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.” I hereby expressly waive and relinquish all rights and benefits under Section 1542 and any law of any jurisdiction of similar effect with respect to my release of any claims hereunder, including but not limited to unknown and unsuspected claims.

I hereby represent that I have been paid all compensation owed and for all hours worked, I have received all the leave and leave benefits and protections for which I am eligible pursuant to the Family and Medical Leave Act, the California Family Rights Act, or otherwise, and I have not suffered any on-the-job injury for which I have not already filed a workers’ compensation claim.

I acknowledge that to become effective, I must sign this Release not later than forty-five (45) days following the date it is provided to me and I must promptly provide the signed Release to the Company.

 

 

 

 

EMPLOYEE

 

 

Name:

 

 

Date:

 

 

 

2.


For Employees Under Age 40

Individual and Group Termination

EXHIBIT C

RELEASE AGREEMENT

I understand and agree completely to the terms set forth in the Rackable Systems, Inc. Executive Change in Control Severance Benefit Plan (the “Plan”).

I understand that this Release Agreement (“Release”), together with the Plan, constitutes the complete, final and exclusive embodiment of the entire agreement between the Company and me with regard to the subject matter hereof. I am not relying on any promise or representation by the Company that is not expressly stated therein. Certain capitalized terms used in this Release are defined in the Plan.

I hereby confirm my obligations under the Company’s proprietary information and inventions agreement.

Except as otherwise set forth in this Release, I hereby generally and completely release Rackable Systems, Inc. and its current and former directors, officers, employees, shareholders, partners, agents, attorneys, predecessors, successors, Company and subsidiary entities, insurers, affiliates, and assigns from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring prior to my signing of this Release. My general release of claims includes, but is not limited to, a release of: (1) all claims arising out of or in any way related to my employment with the Company, or the termination of that employment; (2) all claims related to my compensation or benefits from the Company, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other equity or ownership interests in the Company; (3) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (4) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (5) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the California Constitution, the constitution of any other state, or the federal constitution, the California Labor Code, and the California Fair Employment and Housing Act (as amended) or similar statute of any other state; provided, however, that nothing in this paragraph shall be construed in any way to release the Company from: (i) its obligation to indemnify me pursuant to agreement or applicable law; or (ii) any obligations undertaken by the Company in the Plan; or (iii) the Company’s statutory obligations to provide payment of all accrued but unpaid wages (including all accrued but unpaid vacation pay); or (iv) any obligations it has under the express terms of a written ERISA-qualified benefit plan (e.g., 401(k) account) or the express terms of any vested stock option or restricted stock awards[; or (v) the Company’s obligations to pay you severance benefits as set forth in Section              of your offer letter/employment agreement dated             ]. I hereby represent that I have no lawsuits, claims or actions pending in my name, or on behalf of any other person or entity, against the Company or any other person or entity subject to the release granted in this paragraph.


For Employees Under Age 40

Individual and Group Termination

I acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: “A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.” I hereby expressly waive and relinquish all rights and benefits under Section 1542 and any law of any jurisdiction of similar effect with respect to my release of any claims hereunder, including but not limited to unknown and unsuspected claims.

I hereby represent that I have been paid all compensation owed and for all hours worked, I have received all the leave and leave benefits and protections for which I am eligible pursuant to the Family and Medical Leave Act, the California Family Rights Act, or otherwise, and I have not suffered any on-the-job injury for which I have not already filed a workers’ compensation claim.

I acknowledge that to become effective, I must sign and return this Release to the Company so that it is received not later than fourteen (14) days following the date it is provided to me.

 

 

 

 

EMPLOYEE

 

 

Name:

 

 

Date:

 

 


RACKABLE SYSTEMS, INC.

EXECUTIVE CHANGE IN CONTROL SEVERANCE BENEFIT PLAN

PARTICIPATION NOTICE

 

 

 

 

 

 

To:

 

 

 

 

 

 

 

Date:

 

 

 

 

Rackable Systems, Inc. (the “Company”) has adopted the Rackable Systems, Inc. Executive Change in Control Severance Benefit Plan (the “Plan”). The Company is providing you with this Participation Notice to inform you that you qualify as a participant in the Plan. A copy of the Plan document is attached to this Participation Notice. [Except as provided below, the] [The] terms and conditions of your participation in the Plan are as set forth in the Plan, and in the event of any conflict between this Participation Notice and the Plan, the terms of the Plan shall prevail.

Your Benefit Percentage is [            ].1

Your Participation Termination Date is [June 8, 2007][                        ]

Written severance and/or change in control benefit provisions of any offer letter, employment agreement, equity incentive plan (or an associated award agreement) or other contract between the Company or any Subsidiary and Participant superseded by the Plan and this Notice in the event that the undersigned receives or becomes entitled to receive any payment under the Plan:

 

 

 

 

 

 

 

Please retain a copy of this Participation Notice, along with the Plan document, for your records.

 

 

 

 

RACKABLE SYSTEMS, INC.

 

 

By:

 

 

Its:

 

 


1

If the benefit percentages of the participant’s in the Rackable Systems, Inc. Executive Change in Control Benefit Plan are reduced, by agreement or otherwise, then your Benefit Percentage will be proportionally reduced by the same proportional amount as the reduction in the benefit percentage of the participant in Rackable Systems, Inc. Executive Change in Control Benefit Plan whose benefit percentage is the least amount proportionally reduced.


ACKNOWLEDGEMENT [AND AGREEMENT]

The undersigned hereby acknowledges receipt of the foregoing Participation Notice. The undersigned acknowledges that the undersigned has been advised to obtain tax and financial advice regarding the consequences of participating in the Plan, including the effect, if any, of Sections 409A and 4999 of the Internal Revenue Code. [Further, the undersigned acknowledges and agrees that (1) if the undersigned receives or becomes entitled to receive any payment under the Plan, the undersigned waives, with respect to any written severance and/or change in control benefit provisions of any offer letter, employment agreement, equity incentive plan (or an associated award agreement) or other contract between the Company or any Subsidiary and Participant superseded by the Plan and this Notice, as set forth above, any rights to receive such severance and/or change in control benefits and (2) that this waiver is a material condition to the undersigned becoming a Participant in the Plan, and that the Company has relied on this waiver in causing the undersigned to become a Participant in the Plan.]

 

 

 

 

 

Print name

 

 

EX-10.3 4 dex103.htm FIRST AMENDMENT TO EMPLOYMENT AGREEMENT - MARK BARRENECHEA

Exhibit 10.3

RACKABLE SYSTEMS, INC.

FIRST AMENDMENT TO EMPLOYMENT AGREEMENT

This FIRST AMENDMENT TO EMPLOYMENT AGREEMENT (the “First Amendment”) dated December 31, 2008 (the “Effective Date”) is executed by and between Rackable Systems, Inc., a Delaware corporation (the “Company”), and Mark Barrenechea (the “Executive”). The Company and the Executive are each individually referred to in this Amendment as a “Party” and are collectively referred to in this Amendment as the “Parties.”

RECITALS

A. Executive and the Company have entered into an Employment Agreement dated May 24, 2007 (the “Employment Agreement”).

B. The Parties desire to amend the Employment Agreement as follows.

AGREEMENT

In consideration of the mutual promises and covenants set forth in this First Amendment, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:

1. Amendment to Employment Agreement. The Parties agree that upon the Effective Date, the Employment Agreement is hereby amended as follows:

1.1 The first sentence of Section 10(a) is hereby amended to read in its entirety as follows:

If, at any time, your employment is terminated by the Company without Cause, or by you for Good Reason, and such termination of employment constitutes a “separation from service” within the meaning of the Treas. Reg. §1.409A-1(h)(1), without regard to any alternative definitions thereunder, you will be eligible to receive, as your sole severance benefits (the “Severance Benefits”):”

1.2 The second sentence of clause (1) of Section 10(a) is hereby amended to read in its entirety as follows:

The severance pay will be subject to required payroll deductions and withholdings, and will be paid in twenty-four (24) equal installments over a period of twelve (12) months, with such payments made on the Company’s normal payroll schedule and commencing as of the first payroll date following your employment termination date; provided, however, that any payments delayed pending the Effective Date of the Mutual Release of Claims (as set forth below in Section 10(b)) shall be paid in arrears on the payroll date next following such Effective Date.”

1.3. The first sentence of clause (3) of Section 10(a) is hereby amended to read in its entirety as follows:

Any then-outstanding unvested stock options and all unvested grants of restricted stock, herein referred to and any subsequent grants of stock options, restricted stocks or any other stock awards in future plans will be subject to accelerated vesting equal to the number of shares that would vest over an additional twelve (12) month period, and you will have twelve (12) months from the employment termination date in which to exercise these stocks options discussed here in.”


1.4 The first sentence of Section 10(b) is hereby amended to read in its entirety as follows:

Notwithstanding the foregoing, in order to be eligible for the Severance Benefits, you must first sign, date, return to the Company, and allow to become effective the Mutual Release of Claims attached hereto as Exhibit B, which the Company also agrees to sign prior to the Effective Date of the Mutual Release of Claims (as defined in Exhibit B); provided, however, that such Effective Date shall be no later than sixty (60) days following your termination of employment.”

1.5 Section 10(d), “Deferred Compensation,” is hereby amended to read in its entirety as follows:

If the Company (or, if applicable, any successor entity thereto) determines that the severance payments and benefits provided to you pursuant to this Section 10 (any such payments, the “Agreement Payments”) constitute “deferred compensation” under Section 409A of the Internal Revenue Code of 1986, as amended (together, with any state law of similar effect, “Section 409A”) and if you are a “specified employee” of the Company (or, if applicable, any successor entity thereto), as such term is defined in Section 409A(a)(2)(B)(i) (a “Specified Employee”), then, solely to the extent necessary to avoid the imposition of the adverse personal tax consequences under Section 409A, the timing of the Agreement Payments with be delayed as follows: on the earliest to occur of (1) the date that is six months and one day after the date of termination of your employment, and (2) the date of your death (such earliest date, the “Delayed Initial Payment Date”), the Company (or the successor entity thereto, as applicable) shall (i) pay to you a lump sum amount equal to the sum of the Agreement Payments that you would otherwise have received through the Delayed Initial Payment Date if the commencement of the payment of the Agreement Payments had not been delayed pursuant to this Section 10(d) and (ii) commence paying the balance of the Agreement Payments in accordance with the applicable payment schedule set forth in this Agreement. Prior to the imposition of any delay on the Agreement Payments as set forth above, it is intended that (A) each installment of the Agreement Payments be regarded as a separate “payment” for purposes of Treas. Reg. §1.409A-2(b)(2)(i), (B) all Agreement Payments satisfy, to the greatest extent possible, the exemptions from the application of Section 409A provided under Treas. Reg. §1.409A-1(b)(4) and 1.409A-1(b)(9)(iii), and (C) the Agreement Payments consisting of COBRA premiums also satisfy, to the greatest extent possible, the exemption from the application of Section 409A provided under Treas. Reg. §1.409A-1(b)(9)(v).”

1.6 Section 10(e)(ii) is hereby amended to read in its entirety as follows:

If a reduction in the Payment is to be made, the reduction in payments and/or benefits shall occur in a manner necessary to provide you with the greatest economic benefit. If more than one manner of reduction yields the greatest economic benefit, the payments and benefits shall be reduced pro rata.”


1.7 Except as amended herein, the Employment Agreement shall remain in full force and effect without modification.

IN WITNESS WHEREOF, the parties hereto have executed this First Amendment as of the Effective Date.

 

RACKABLE SYSTEMS, INC.

  

  

MARK BARRENECHEA

By:

 

/s/ Charles M. Boesenberg

  

  

By:

  

/s/ Mark Barrenechea

Name:

 

Charles M. Boesenberg

  

  

Name:

  

Mark Barrenechea

Title:

 

Chairman of the Compensation Committee of the Board of Directors

  

  

Title:

  

President and CEO

Signature Date:

 

12/31/2008

  

  

       Signature Date:

  

12/29/2008