Exhibit 10.1

RACKABLE SYSTEMS, INC.

FIRST AMENDMENT TO THE EMPLOYMENT AGREEMENT

This FIRST AMENDMENT TO THE EMPLOYMENT AGREEMENT (this “Amendment”) dated
September 19, 2007 (the “Effective Date”) is executed by and between Rackable
Systems, Inc., a Delaware corporation (the “Company”) and Madhu Ranganathan (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 are parties to an Employment Agreement, dated
October 28, 2005 (the “Employment Agreement”), which outlines the general terms
of employment for the Executive.

B. Pursuant to this Amendment and effective immediately upon the Parties’ mutual
execution and delivery of this Amendment, the Parties desire to amend the
Employment Agreement as follows.

AGREEMENT

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

1. Amendment to Employment Agreements. The Parties agree that upon the Effective
Date of this Amendment, the Employment Agreement will be amended as follows:

1.1 The 4th full paragraph on Page 1 of the Employment Agreement shall be
amended to include the following terms at the end of the paragraph: The Company
will determine in its sole discretion whether the performance 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.

1.2 The 2nd, 3rd and 4th paragraphs on Page 2 of the Employment Agreement are
hereby deleted and replaced in their entirety with the following:

 

1. 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 such 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.

 

  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.

 

2. DEFINITIONS.

 

  a. Definition of “Cause.” For purposes of this agreement, “Cause” is defined
as one or more of the following events: (i) the indictment or conviction for any
felony, or conviction of any other crime which involves 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 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 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 as SVP, Chief Financial Officer (“CFO”),
including a Change in Control that results in your no longer serving as the CFO
or any similar position; (ii) a material reduction by the Company of your base
salary; (iii) the Company’s material breach of its obligations to you under this
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 (x) 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 (y) 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 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.

 

3. CHANGE IN CONTROL SEVERANCE BENEFITS. If, within 12 months following a Change
in Control, your employment is terminated by the Company without Cause, or by
you for Good Reason; and if you sign, date, return to the Company and allow to
become effective a release of all claims in a form satisfactory to the Company
in its sole discretion (the “Release”); then in lieu of any Severance Benefits
set forth in Section 4 herein, you shall be entitled to receive the following
severance benefits (the “Change in Control Severance Benefits”):

 

  a. The vesting of all unvested stock options and all unvested grants of
restricted stock herein referred to and any subsequent grants of stock options,
restricted stock or any other stock awards in future plans, shall accelerate in
such amount equal to the number of shares that would vest over an additional
twenty-four (24) month period as if you have continued to be an employee of the
Company for additional twenty-four (24) months following your termination;

 

  b. You will be eligible to receive severance pay in the total amount equal to
the sum of twelve (12) months of your base salary in effect as of the employment
termination date. For purposes of this Section 9(b), “base salary” as used
herein does not include any annual performance bonus or any other bonus payment.
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

 

  c. 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 Company if you become
eligible for group health insurance coverage through a new employer within
twelve (12) months of your employment termination date.

 

4. SEVERANCE BENEFITS. If, at any time other than during the 12 month period
following a Change in Control, your employment is terminated by the Company
without Cause, or by you for Good Reason; and if you sign, date, return to the
Company and allow to become effective a release of all claims in a form
satisfactory to the Company in its sole discretion (the “Release”); then you
shall be entitled to receive the following severance benefits (the “Severance
Benefits”):

 

  a. Severance pay in the total amount equal to the sum of six (6) months of
your base salary in effect as of the employment termination date. The severance
pay will be subject to required payroll deductions and withholdings, and will be
paid in twelve (12) equal installments over a period of six (6) months, with
such payments made on the Company’s normal payroll schedule. For purposes of
this Section 10(a), “base salary” as used herein does not include any annual
performance bonus or any other bonus payment; and

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  b. If you timely elect and continue to remain eligible for 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 six (6) 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 six (6) months of your employment termination
date.

 

5. CONDITIONS TO ELIGIBILITY TO SEVERANCE BENEFITS OR CHANGE IN CONTROL
SEVERANCE BENEFITS. Notwithstanding the foregoing, you will not be eligible for
the Severance Benefits or the Change in Control Severance Benefits if: (A) your
employment is terminated for Cause, or if you resign for any reason that does
not qualify as Good Reason; or (B) in the event that you materially breach the
Non-Disclosure Agreement, the Release of claims, or any other obligations you
owe to the Company after termination of your employment, and the Company’s
obligation to provide the Severance Benefits or the Change in Control Benefits
(or to continue to provide such benefits) will cease immediately and in full as
of the date of your breach.

 

6. 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 in writing, 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.

 

7. EXCISE TAX.

 

  a.

Anything in this agreement to the contrary notwithstanding, if any payment or
benefit that you would receive pursuant to this 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”

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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.

 

  b. 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.

 

  c. 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.

 

  d. 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.

 

8.

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,

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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.

1.3 Except as amended herein, the Employment Agreement shall remain in full
force and effect without modification thereto. In the event of a conflict
between the provisions of this Amendment and those of the Employment Agreement,
the parties agree that this Amendment shall prevail.

1.4 This Amendment, the Employment Agreement (as modified herein), and the
Non-Disclosure Agreement constitute 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 discretion, only can be made in
a writing signed by a duly-authorized member of the Company and you. This
Amendment, the Employment Agreement (as modified herein), and the Non-Disclosure
Agreement shall be construed and enforced in accordance with the laws of the
State of California without regard to conflict of law principles. Any ambiguity
in these agreements shall not be construed against either party as the drafter.
Any waiver of a breach of these agreements, or rights hereunder, shall be in
writing and shall not be deemed to be a waiver of any successive breach or
rights hereunder.

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

 

RACKABLE SYSTEMS, INC.

    MADHU RANGANATHAN

By:

 

/s/ Mark Barrenechea

    By:  

/s/ Madhu Ranganathan

Name:

  Mark J. Barrenechea     Name:   Madhu Ranganathan

Title:

  CEO     Title:   CFO

Signature Date: Sept. 20, 2007

    Signature Date: 9/20/2007