Rackable Systems, Inc. RETENTION AGREEMENT
Exhibit
10.1
This
Retention
Agreement
(this
“Agreement”),
effective as of the date of the last signature on the signature page hereof
(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”),
and a
Retention Bonus Agreement, dated September 12, 2006, as amended effective
January 9, 2007 as so amended, the “Bonus
Agreement”).
The
Employment Agreement outlines the general terms of employment for the Executive,
and the Bonus Agreement provides for a bonus to be paid to the Executive in
the
event of a change in control of the Company.
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
or the Bonus 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 the conduct of the
Company’s business.
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 Board.
The
Board of Directors of the Company.
1.3 Code.
The
Internal Revenue Code of 1986, as amended.
1.4 Entity.
A
corporation, partnership, limited liability company or other entity.
1.5 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) the
Executive’s willfull 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
budgetary limitations established in good faith by the Board, provided the
Board
provides him with written notice of such refusal or disregard and provides
the
Executive with thirty (30) days to cure such refusal or disregard, and the
Executive fails to cure such refusal or disregard within such thirty (30)
days;
(b) the
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 the Executive
with thirty (30) days to cure such misconduct, and the Executive fails to cure
such misconduct within such thirty (30) days; or
(c) the
Executive’s conviction or plea of nolo
contendre
to a
crime of moral turpitude causing material and demonstrable injury to the Company
or otherwise demonstrating 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.
1.6 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.
1.7 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.
1.8 Resignation
for Good Reason.
The
Executive shall be deemed to have resigned with “Good Reason” if he resigns
after any of the following actions are taken without his written consent: (x)
the reduction of the Executive’s cash compensation by more than 10%; (y) a
material change in the Executive’s job title, reporting structure, duties, or
authority; or (z) the relocation of the Executive’s principal place of work by
30 or more miles.
1.9 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%).
2. Retention
Bonus.
2.1 Cash
Payment.
The
Company shall make a cash payment to the Executive in an amount equal to
$250,000 (less required deductions and withholdings) on each of December 31,
2007, December 31, 2008, December 31, 2009, and December 31, 2010 (each such
date, a “Retention
Bonus Date”),
for a
total of $1,000,000 (each such bonus payment on a Retention Bonus Date, a
“Retention
Bonus Payment”);
provided,
however,
that:
(a) if
the
Executive’s employment with the Company is terminated as a result of either an
Involuntary Termination With Cause or the Executive’s resignation of employment
other than a Resignation for Good Reason, then no Retention Bonus Payment will
be made relating to any Retention Bonus Date following the date of such
termination of employment;
and
(b) if
the
Executive’s employment with the Company is terminated other than as a result of
an event set forth in Section 2.1(a), then the Retention Bonus Payment for
the
next succeeding Retention Bonus Date shall be $250,000 multiplied by the
fraction obtained by dividing the number of calendar days transpired from the
last Retention Bonus Date to the date of termination of the Executive’s
employment divided by 365, and no Retention Bonus Payments will be made relating
to any Retention Bonus Dates thereafter; provided,
however,
that
prior to receipt of any payment pursuant to this Section 2.1(b), the Executive
must sign, date, return to the Company, and allow to become effective, a general
release of all known and unknown claims in a form satisfactory to the
Company.
2.2 Time
of Payment and Form Of Benefits.
(a) Except
as
otherwise provided herein, the payment of a Retention Bonus Payment shall be
paid in a lump-sum payment, subject to applicable withholding, on the applicable
Retention Bonus Date or within five (5) business days thereafter (or, if payment
is made pursuant to Section 2.1(b), within five (5) business days after the
date
after termination of employment upon which all of the requirements with respect
to the general release described in Section 2.1(b) are met), 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 2.2 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.
2.3 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.
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:
To
the
Executive’s home address then on the records of the Company
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 or the Bonus 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 date
following the date of the payment of the last Retention Bonus Payment payable
pursuant to the terms of Section 2.1 hereof. 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 earlier 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
COMPANY:
By:
/s/
Xxxxxx X. Xxxxxx
Name:
Xxxxxx X. Xxxxxx
Its:
Chief Executive Officer
Date:
January 9, 2007
THE
EXECUTIVE:
/s/
Xxxxxxxx Xxxxxxxxx
Xxxxxxxx
Xxxxxxxxx
Date:
January 9, 2007
