THE CORPORATE LIBRARY

Related Party Transactions and Outside Related Director Information

Rackable Systems, Inc. (RACK)

4/14/2006 Proxy Information

The following is a description of transactions in 2005 to which we have been a party, in which the amount involved in the transaction exceeds $60,000, and in which any of our directors, former or current executive officers or, to our knowledge, holders of more than 5% of our capital stock had or will have a direct or indirect material interest.

Preferred Stock Conversions

Immediately prior to our initial public offering in June 2005, Rackable Investments LLC, then our largest stockholder, converted all of the shares of our then outstanding Series A preferred stock and distributed the resulting shares to its members. Each share of Series A preferred stock converted into one share of Series B preferred stock, which at the closing of our initial public offering was redeemed for approximately $1.25 in cash, and approximately 0.467 shares of common stock. Mr. Barton, our chief executive officer, was a member of Rackable Investment LLC, and owned units representing 616,667 shares of our Series A preferred stock, and Mr. Ford, our chief financial officer, also was a member of Rackable Investment LLC and owned units in Rackable Investment LLC representing 283,333 shares of our Series A preferred stock.

Warrant Agreement

In connection with our purchase of all of the assets and liabilities of GNJ, Inc., our predecessor corporation, which purchase we refer to in this proxy statement as the Rackable Purchase, we entered into a warrant agreement under which we agreed to issue one or more warrants to GNJ, Inc. to purchase shares of our common stock at the closing of our initial public offering if specified targets were met. Giovanni Coglitore, who ceased to be an executive officer on January 25, 2006, and is currently our Chief Technology Officer, Nikolai Gallo, who ceased to be an executive officer on November 2, 2005, and is currently our Manager, Commodity Procurement, and Jack Randall, who resigned as an executive officer on October 26, 2005 and is currently a consultant to us, each hold 32% of the outstanding stock of GNJ, Inc. In December 2004, we repurchased this warrant issuance obligation by entering into a sale of warrant agreement and promissory note arrangement with each of the former stockholders of GNJ, Inc. (of which approximately 96% was allocated, collectively, to Messrs. Coglitore, Gallo and Randall) for an aggregate principal amount of $3,000,000. We repaid $1.5 million of the principal of these promissory notes on the closing of our initial public offering in June 2005 and the remainder in August 2005.

Stockholders Voting Agreement

We entered into a stockholders voting agreement in connection with the Rackable Purchase in December 2002 that provided for voting rights relating to, among other things, the election of directors. This agreement terminated upon the closing of our initial public offering. We amended this agreement in February 2005 in connection with our agreement related to a Series A preferred stock redemption provision. See “Agreement Related to Series A Preferred Stock Redemption” below for further details.

Registration Agreement

The preferred stockholders described above and we have entered into an agreement and four amendments to such agreement pursuant to which these and other preferred stockholders and other common stockholders have registration rights with respect to their shares of common stock. The amendments have progressively redefined the order of priority among the holders of registration rights and our company in the event that not all shares can be included in an offering that the holders of registration rights and our company desire to include in the offering. The last of these amendments was primarily to define the rights of the holders specifically with respect to our public offering in March 2006.

Employment and Consulting Agreements

We have entered into employment agreements with our former and current executive officers. For more information regarding these agreements, see “Executive Compensation—Employment, Severance and Change of Control Agreements,” above. We have also entered into a consulting agreement with Jack Randall following his resignation as an executive officer. Mr. Randall resigned as Vice President of Information Systems on October 26, 2005 and is currently a consultant to us pursuant to a consulting agreement we entered into with Mr. Randall on November 17, 2005. Under this agreement, Mr. Randall will provide consulting services to us at a rate of $150 per hour to assist us with the maintenance, modification and operation of our existing ERP system and to assist us with the implementation of a new ERP system.

Founders Repurchase and Rights Agreement

In connection with the Rackable Purchase, we entered into a repurchase and rights agreement with Rackable Investment LLC and our founders (Mr. Coglitore, Mr. Gallo and Mr. Randall) which contains rights and obligations that included, among other things:

• our right to repurchase a portion of the common stock held by our founders in the event that they compete with us or solicit our employees;

• an obligation of our founders to consent to a sale of all of our assets if Rackable Investment LLC approves the sale;

• the right of our founders to participate in certain transfers of common stock held by Rackable Investment LLC; and

• the right of our founders to receive financial information from us, examine our books and records and attend meetings of our Board of Directors as observers.

In May 2005, we amended this agreement to terminate each of the above provisions.

In addition, the sale of a warrant agreement with Rackable Investment LLC and our founders described above includes a provision that has the effect of amending the founders repurchase and rights agreement to permit the founders to sell their shares pursuant to their piggy-back rights under the registration agreement described above, and to permit the founders to transfer the same percentage of their shares that Parthenon Investors II, L.P. transfers under Rule 144 of the federal securities laws. The terms of the repurchase and rights agreement prior to the amendment also contained transfer restrictions, including a requirement that our Board must consent to any transfers of common stock by our founders. Under this agreement, as amended, transfers of common stock by our founders do not require the consent of our Board. In November 2005, we further amended the founders repurchase and rights agreement, in connection with an amendment to the registration agreement previously described under “Certain Relationships and Related Party Transactions—Registration Agreement,” to eliminate the contractual restrictions remaining on our founders with respect to the number of shares that they may sell in any one period, other than during a further registered public offering by our company.

Stock Repurchases

In February 2005, we entered into stock repurchase agreements where we purchased from our founders an aggregate of 816,083 shares of our common stock at a purchase price of $7.35 per share, for an aggregate purchase price of $6.0 million.

Agreement Related to Series A Preferred Stock Redemption

In February 2005, we entered into an agreement with Rackable Investment LLC, under which Rackable Investment LLC gave up its right to take cash in lieu of common stock upon redemption of the Series A preferred stock held by it. In consideration for this, we agreed not to take a number of corporate actions without their consent, including establishing a number of terms of and consummating our initial public offering, and to amend the registration rights agreement to provide Rackable Investment LLC and other entities designated as holders of “registrable securities” with additional registration rights in the event of another offering, and amended the voting agreement with Rackable Investment LLC to clarify the provisions of that agreement and to establish that at any time prior to the closing of our initial public offering, Rackable Investment LLC, the founders and Rackable Systems will take all appropriate actions to cause the designees of Rackable Investment LLC, which shall constitute a majority of the members of the Board, and the designees of the founders, to be elected as directors.

Resignations from Our Board of Directors

On February 2, 2005, Brian Golson and Marc Rubin resigned from our Board. Brian Golson is a Partner and Marc Rubin is a Principal at Parthenon Capital, which controlled Rackable Investment LLC, the sole holder of our preferred stock until shortly prior to the closing of our initial public offering in June 2005.

On January 25, 2006, Giovanni Coglitore resigned from our Board. Mr. Coglitore co-founded Rackable Systems and is currently our Chief Technology Officer.

Reimbursement of Legal Expenses

On January 25, 2006, our compensation committee determined to reimburse the founders, Giovanni Coglitore, Nikolai Gallo and Jack Randall, for their legal expenses incurred in connection with our public offering that occurred in December 2005, collectively in the amount of approximately $43,000, plus an additional amount to cover a portion of the taxes on such reimbursement.