Rackable Systems, Inc. RETENTION BONUS AGREEMENT
Exhibit
10.2
This
Retention
Bonus Agreement
(this
“Agreement”),
dated
September 12, 2006 (the “Effective
Date”),
is
executed by and between Rackable Systems, Inc., a Delaware corporation (the
“Company”),
and
Xxxxxxxx Xxxxxxxxx (the “Executive”).
The
Company and the Executive are each individually referred to in this Agreement
as
a “Party”
and
are
collectively referred to in this Agreement as the “Parties.”
Recitals
A. The
Executive and the Company are parties to an Employment Agreement, dated December
23, 2002, as amended effective November 16, 2005 (as so amended, the
“Employment
Agreement”).
The
Employment Agreement outlines the general terms of employment for the Executive.
B. The
Parties desire to enter into this Agreement, which shall be in addition to,
and
shall not amend or modify in any way the provisions of the Employment Agreement.
C. The
Company wishes to incentivize the Executive to remain with the Company and
use
his best efforts to assist the Company in connection with any Change in
Control.
Agreement
In
consideration of the mutual promises and covenants set forth in this Agreement,
the receipt and sufficiency of which are acknowledged by the Parties, the
Parties agree as follows:
1. Certain
Definitions.
1.1 Affiliate.
Any
Person that directly or indirectly, through one or more intermediaries,
controls, is controlled by or is under common control with another Person.
For
purposes hereof, “control” means the power to vote or direct the voting of
sufficient securities or other interests to elect a majority of the directors
or
to control the management of another Person.
1.2 Agreement
Termination Date.
The
earliest to occur of: (w) the date the Executive resigns his employment without
“Good Reason” as defined in Section 1.13 below (x) the date the Executive is
subject to an Involuntary Termination With Cause as defined in Section 1.7
below; (y) the Subsidiary Plan Creation Date; and (z) June 26,
2007.
1.3 Board.
The
Board of Directors of the Company.
1.4 Change
in Control.
The
occurrence, in a single transaction or in a series of related transactions,
of
either of the following events:
(a) (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
(b) 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.
1.5 Code.
The
Internal Revenue Code of 1986, as amended.
1.6 Entity.
A
corporation, partnership, limited liability company or other entity.
1.7 Involuntary
Termination With Cause.
A
termination by the Company or any of its Subsidiaries of the Executive’s
employment relationship with the Company or any of its Subsidiaries for any
of
the following reasons:
(a) Executive’s
willful refusal to perform in any material respect the Executive’s duties or
responsibilities for the Company or any of its Subsidiaries or his willful
disregard in any material respect of any lawful written financial or other
budgetary limitations established in good faith by the Board, provided the
Board
provides him with written notice of such refusal or disregard and provides
Executive with thirty (30) days to cure;
(b) Executive’s
willful misconduct 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) provided the Board provides him
with written notice of such misconduct and provides Executive with thirty (30)
days to cure; or
(c) Executive’s
conviction or plea of nolo
contendre
to a
crime of moral turpitude (as defined under California Law) causing material
and
demonstrable injury to the Company or otherwise demonstrating gross 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 Executive 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 of its Affiliates. For the
avoidance of doubt, a termination of employment of the Executive due to death
or
disability shall not qualify as an Involuntary Termination With
Cause.
1.8 Own,
Owned, Owner, Ownership.
A Person
shall be deemed to “Own,” to have “Owned,” to be the “Owner” of, or to have
acquired “Ownership” of securities if such Person, 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.
1.9 Person.
An
individual, a partnership, a limited liability company, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization and a governmental entity or any department, agency or political
subdivision thereof.
1.10 Subsidiary.
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%).
1.11 Subsidiary
Plan.
A
business plan for the establishment of a Subsidiary of the Company (the initial
purpose of which is the design and marketing of a self contained, mobile data
center), to be (x) created by the Executive, (y) presented by the Executive
to
the Board for approval, and (z) approved by the Board and funded by the
Company.
1.12 Subsidiary
Plan Creation Date.
The
date, following the approval of the Subsidiary Plan by the Board, on which
the
Subsidiary that is the subject to the Subsidiary Plan is first funded by the
Company.
1.13 Resignation
for Good Reason.
Executive shall be deemed to have resigned with “Good Reason” if he resigns
after any of the following: (x) the reduction of Executive’s cash compensation
by more than 10%; (y) a change in Executive’s job title, reporting structure,
duties, or authority; or (z) the relocation of Executive’s principal place of
work by 30 or more miles.
2. Retention
Bonus.
2.1 Cash
Payment.
Subject
to Section 2.2, if the Company enters into a definitive agreement for a Change
in Control on or before the Agreement Termination Date, and if the closing
of
such Change in Control shall occur, the Company shall make a cash payment to
the
Executive in an amount equal to $2,000,000 (less required deductions and
withholdings) as described in Section 2.3 and as may be reduced as set forth
in
Section 2.2 (the “Retention
Bonus”).
2.2 Parachute
Payments.
(a) If
any
payment or benefit the Executive would receive (whether pursuant to this
Agreement 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 the Code (the “Excise
Tax”),
then
the Retention Bonus payable pursuant to this Agreement to the Executive shall
be
reduced by the lesser of (x) the Retention Bonus payable pursuant to this
Agreement to the Executive 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 Retention Bonus payable under this Agreement shall be reduced first.
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 2.2(b).
(b) 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 2.2(a). 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 Executive within fifteen (15) calendar days after the
date on which the Executive’s right to a Payment is triggered (if requested at
that time by the Company or the Executive) or such other time as may be jointly
requested by the Company and the Executive. Any good faith determinations of
the
accounting firm made hereunder shall be final, binding and conclusive upon
the
Company and the Executive.
2.3 Time
of Payment and Form Of Benefits.
(a) Except
as
otherwise provided herein, the payment of the Retention Bonus shall be paid
in a
lump-sum payment, subject to applicable withholding, within five (5) business
days after the close of the Change in Control and after the determinations
required by Section 2.2(a) have been delivered to the Company and the Executive
but in no event later than thirty (30) calendar days after the Change in Control
is completed and shall otherwise be made in accordance with and subject to
the
Company’s normal payroll practices.
(b) If
the
Company determines that any cash benefit provided under Section 2.1 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 Company may attach conditions to or
adjust the amounts paid pursuant to this Section 2.3 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.
2.4 Withholding.
All
payments under this Agreement 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.
2.5 Indebtedness
of the Executive. If
the
Executive is indebted to the Company on the date the Retention Bonus is payable
to the Executive pursuant to this Agreement, the Company reserves the right
to
offset any such payment by the amount of such indebtedness and Executive hereby
consents in writing to any such offset.
3. Notices.
Any
notice provided for in this Agreement shall be in writing and shall be either
personally delivered, mailed by first class mail (return receipt requested),
or
sent by overnight courier service, to the recipient at the address indicated
below:
Notices
to the Executive:
Xxxxxxxx
Xxxxxxxxx
00000
Xxx
Xxxxx Xx.
Xxxxxxxx,
XX 00000
Notices
to the Company:
0000
Xxxxxxx Xxxxx
Xxxxxxxx,
XX 00000
Facsimile:
(000) 000-0000
Attention:
Chief
Executive Officer
or
such
other address or to the attention of such other person as the recipient party
shall have specified by prior written notice to the sending party. Any notice
under this Agreement shall be deemed to have been given when so delivered or
mailed.
4. Severability.
Whenever
possible, each provision of this Agreement shall be interpreted in such manner
as to be effective and valid under applicable law, but if any provision of
this
Agreement is held to be invalid, illegal or unenforceable in any respect under
any applicable law or rule in any jurisdiction, such invalidity, illegality
or
unenforceability shall not affect any other provision; provided
that
such provision shall be construed to give effect to the parties intent of such
provision to the maximum extent permitted by applicable law.
5. Complete
Agreement. This Agreement embodies the complete
agreement and understanding among the parties and supersedes and preempts any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any
way.
For the avoidance of doubt, this Agreement does not supersede or preempt any
provisions of the Employment Agreement.
6. No
Strict Construction.
The
language used in this Agreement shall be deemed to be the language chosen by
the
parties hereto to express their mutual intent, and no rule of strict
construction shall be applied against any party.
7. Descriptive
Headings.
The
descriptive headings of this Agreement are inserted for convenience only and
do
not constitute a substantive part of this Agreement.
8. Counterparts.
This
Agreement may be executed in separate counterparts, each of which is deemed
to
be an original and all of which taken together constitute one and the same
agreement.
9. Successors
and Assigns.
This
Agreement is intended to bind and inure to the benefit of and be enforceable
by
the Executive, the Company and their respective heirs, successors and assigns,
except that the Executive may not assign his rights or delegate his obligations
hereunder without the prior written consent of the Company. It is hereby
expressly agreed that the Affiliates of the Company are intended to be
third-party beneficiaries to this Agreement, and are entitled to enforce the
rights and remedies of the Company hereunder.
10. Choice
of Law.
All
issues and questions concerning the construction, validity, enforcement and
interpretation of this Agreement and the exhibits and schedules hereto shall
be
governed by, and construed in accordance with, the laws of the State of
California, without giving effect to any choice of law or conflict of law rules
or provisions (whether of the State of California or any other jurisdiction)
that would cause the application of the laws of any jurisdiction other than
the
State of California.
11. Amendments,
Waivers, and Termination.
This
Agreement will terminate, and be of no further force and effect, on the
Agreement Termination Date, unless there shall have occurred a Change in Control
on or prior to the Agreement Termination Date. As of any particular time, any
term of this Agreement may be amended, the observance of any term of this
Agreement may be waived (either generally or in a particular instance and either
retroactively or prospectively), or this Agreement may be terminated, in each
case only with the written consent of the Company and the Executive. Any
amendment, waiver, or termination executed in accordance with this Section
11
will be binding upon the Executive, the Company, the Company’s
successors-in-interest, and any person claiming for or on behalf of the
Executive or the Company. The foregoing not withstanding, the provisions of
Sections 10 and 13 shall survive any termination of the Agreement
12. Delivery
by Facsimile.
This
Agreement, the agreements referred to herein, and each other agreement or
instrument entered into in connection herewith or therewith or contemplated
hereby or thereby, and any amendments hereto or thereto, to the extent signed
and delivered by means of a facsimile machine, shall be treated in all manner
and respects as an original agreement or instrument and shall be considered
to
have the same binding legal effect as if it were the original signed version
thereof delivered in person. At the request of any party hereto or to any such
agreement or instrument, each other party hereto or thereto shall reexecute
original forms thereof and deliver them to all other parties. No party hereto
or
to any such agreement or instrument shall raise the use of a facsimile machine
to deliver a signature or the fact that any signature or agreement or instrument
was transmitted or communicated through the use of a facsimile machine as a
defense to the formation or enforceability of a contract and each such party
forever waives any such defense.
13. Dispute
Resolution.
Other
than with respect to suits for injunctive or other equitable relief, any dispute
under this Agreement shall be resolved by instituting, after thirty (30) days
written notice to the other party, an arbitration to be conducted in San
Francisco, California in accordance with the Commercial Arbitration Rules
(except as modified below) of the American Arbitration Association and with
the
Expedited Procedures thereof (collectively, the “Rules”).
Each
of the parties hereto agrees that such arbitration shall be conducted by a
panel
of three arbitrators, one of whom is selected by the Company, one of whom is
selected by the Executive and one of whom is mutually agreeable to the
arbitrators selected by the Company and the Executive; provided that such
arbitrators shall each be a retired judge or other qualified person with
relevant experience in deciding cases concerning the matter which is the subject
of the dispute. The arbitrators shall prepare a written decision containing
the
essential findings and conclusions on which the award is based so as to ensure
meaningful judicial review of the decision. In rendering such decision, the
arbitrators shall not add to, subtract from or otherwise modify the provisions
of this Agreement and shall make their determinations in accordance therewith.
Any award rendered by the arbitrators shall be final, binding and sole and
exclusive with respect to the subject matter thereof and judgment may be entered
on it in any court of competent jurisdiction. The losing party shall pay the
fees and expenses of both parties and the arbitrators, and the arbitrators
shall
resolve any fee disputes.
14. No
Implied Employment Contract. This
Agreement shall not be deemed (i) to give the Executive any right to be retained
in the employ of the Company, or (ii) to interfere with the right of the Company
to discharge the Executive at any time, with or without cause, which right
is
hereby reserved.
15. Effectiveness.
This
Agreement is effective upon the execution and delivery of this Agreement by
the
Company and the Executive.
The
Parties have executed this Retention Bonus Agreement as of the Effective
Date.
THE
COMPANY:
By: /s/
Xxxxxx Xxxxxx
Name:
Xxxxxx X. Xxxxxx
Its:
Chief Executive Officer
THE
EXECUTIVE:
/s/
Xxxxxxxx Xxxxxxxxx
Xxxxxxxx
Xxxxxxxxx
