rax10-1.htm


    
      

      

    

    
       

      Amendment
Number One

      to
the

      Economic
Development Agreement

      between

      The
State of Texas

      and

      Rackspace
US, Inc.

      


      July
24, 2009

      


       

      This
Amendment number one (“Amendment”) is by and between the State of Texas
(the “State”), acting by and through the Office of Economic Development and
Tourism, a division within the Office of the Governor (“OOGEDT”), and Rackspace
US, Inc., a Delaware corporation d/b/a Rackspace Managed Hosting
(“Rackspace”).  The State and Rackspace are hereinafter referred to
either individually as the “party,” or collectively as the
“parties.”  The Effective Date of this Amendment is July 24,
2009.

       

      Recitals

       

      Whereas,
the parties hereto entered into that certain Economic Development Agreement
dated effective August 1, 2007 (the “Agreement”); and

      


      Whereas, since entering into the
Agreement, Rackspace has invested over $70 million at the Walzem Road facility
and has created  529 new jobs in the State of Texas; and

      


      Whereas,
due to the current global economic recession and banking crisis, the parties
recognize that the job creation commitments in the Agreement are no longer
feasible and are therefore desirous of amending the Agreement to provide
additional time for job creation and other matters, while at the same time
protecting the assets and investments of the people of Texas;

      


      Agreements

       

      Now,
therefore, in consideration of the mutual promises herein, the parties
agree as follows:

       

      I.           Section
1, State of
Texas Commitment, is deleted in its entirety and replaced with the
following:

       

      1.           STATE
OF TEXAS COMMITMENT

       

      Grant of Funds from the Texas
Enterprise Fund. The State agrees to pay cash from the Texas Enterprise
Fund to Rackspace in an amount not to exceed Twenty-Two Million Dollars
($22,000,000) (the "Funds"). The Funds are composed of a Basic Fund amount of
Eight Million Five Hundred Thousand Dollars ($8,500,000) and Option Fund amounts
of up to Thirteen Million Five Hundred Thousand Dollars ($13,500,000).  The Option Fund amounts described below
under Option A, Option B and/or Option C will be paid promptly after Rackspace’s
exercise of said options in accordance with the terms and conditions set forth
herein.  In no event shall the
total of all Basic Fund and Option Fund amounts paid by the State to Rackspace
exceed Twenty-Two Million Dollars ($22,000,000).  The Basic Fund amount and Option
Fund amounts are more fully described as follows:

      


      
        	
                a)  

              	
                (BASIC) i. Five Million
      Dollars ($5,000,000) of the Funds
      will be paid to Rackspace as soon as practicable following
      execution of this Agreement, provided that all
  necessary

              


      


      
        
           


        

        
           


          
            

          

        

        
           


        

      


      
        	
                 

              	
                documents
      for disbursement
      of the funds have been provided to the State as required and Rackspace
      provides evidence of creating at least Four Hundred Seventy-Five (475)
      Employment Positions by December 31, 2008 (it being understood and agreed
      that the said $5 million has been received by Rackspace and the 475
      Employment Positions have been created);
and

              


      

      


      ii. Three Million Five Hundred Thousand Dollars
($3,500,000) of the Funds will be paid to
Rackspace as soon as practicable following receipt of evidence from
Rackspace of creating at least Seven Hundred Fifty (750) additional Employment
Positions no later than December 31, 2012, in
addition to the 475 Employment Positions referred to in subparagraph a.i. above
for a total of 1,225 Employment Positions.

      


      
        	
                b)  

              	
                (OPTION
      A).  At Rackspace’s sole
      option, Rackspace shall have the right to receive an additional
      Five Million Five Hundred Thousand Dollars ($5,500,000) as soon as
      practicable following receipt of
      evidence from Rackspace of
creating:

              


      

      


      
        	
                i.  

              	
                at
      least Eight Hundred Seventy-Five (875) additional Employment Positions no
      later than December 31, 2013, in addition to
      the 1225 Employment Positions required to receive the Basic Fund amount
      for a total of 2,100 Employment Positions.
  

              


      

      


      
        	
                c)  

              	
                (OPTION B).  At Rackspace’s sole option, it shall
      have the right to receive an
additional:

              


      

      


      Five
Million Two Hundred Fifty Thousand Dollars ($5,250,000) as soon as practicable
following receipt of evidence from
Rackspace of creating:

      


      
        	
                i.  

              	
                at
      least Nine Hundred (900) additional new employment positions no later than
      December 31, 2014, if OPTION A was exercised, in addition to the 1,225 Employment Positions
      required under the Basic Fund amount and the 875 Employment Positions
      under Option A for a total of 3,000 Employment Positions;
      or

              


      

      


      Ten
Million Dollars ($10,000,000) as soon as practicable following receipt of evidence from Rackspace of
creating:

      


      
        	
                 ii.  

              	
                at
      least One Thousand Seven Hundred Seventy-Five (1,775) additional
      Employment Positions no later than December 31, 2014, if OPTION A was not
      exercised, in addition to the 1,225
      Employment Positions required under the Basic Fund amount for a total of
      3,000 Employment Positions.

              


      

      


      
        	
                d)  

              	
                (OPTION
      C).  At Rackspace’s sole
      option, Rackspace shall have the right to receive an additional Two
      Million Seven Hundred Fifty Thousand Dollars ($2,750,000) as soon as
      practicable following receipt of
      evidence from Rackspace of
creating:

              


      

      


      
        	
                i.  

              	
                at
      least One Thousand (1,000) additional new employment positions no later
      than December 31, 2015, if both OPTION A and OPTION B(i) were exercised,
      in addition to the 1,225 Employment
      Positions required under the Basic Fund amount, the 875 Employment
      Positions under Option A, and the 900 Employment Positions under Option
      B(i), for a total of 4,000 Employment Positions;
  or

              


      


      
        
           


        

        
           


          
            

          

        

        
           


        

      


      Three
Million Five Hundred Thousand Dollars ($3,500,000) as soon as practicable
following receipt of evidence from Rackspace of creating:

      


      
        	
                 ii.  

              	
                at
      least One Thousand (1,000) additional Employment Positions no later than
      December 31, 2015, if only OPTION B(ii) was
      exercised, in addition to the 1,225 Employment Positions required under
      the Basic Fund amount, and the 1,775 Employment Positions under Option
      B(ii), for a total of 4,000 Employment Positions;
  or

              


      

      


      Eight
Million Dollars ($8,000,000) as soon as practicable following receipt of
evidence from Rackspace of creating:

      


      
        	
                iii.  

              	
                at
      least One Thousand Nine Hundred (1,900) additional Employment Positions no
      later than December 31, 2015, if only OPTION A was exercised, in addition to the 1,225 Employment Positions
      required under the Basic Fund amount and the 875 Employment Positions
      under Option A, for a total of 4,000 Employment
      Positions.

              


      

      


      Thirteen
Million Five Hundred Thousand Dollars ($13,500,000) as soon as practicable
following receipt of evidence from Rackspace of creating:

      


      
        	
                iv.  

              	
                at
      least Two Thousand Seven Hundred Seventy-Five (2,775) additional
      Employment Positions no later than December 31, 2015, if neither OPTION A
      or OPTION B was exercised, in addition to
      the 1,225 Employment Positions required under the Basic Fund Amount, for a
      total of 4,000 Employment
Positions.

              


      

      


      


      Should
Rackspace decide to exercise any or all of
the options set forth in Paras. 1 (b)-(d) it shall do so by providing written
notice of its intent to do so no later than in the annual compliance report for
the previous year.  In the event an option is exercised, Rackspace
shall provide evidence of the creation of the requisite employment positions set
forth in the option being exercised in the annual compliance report for that
year.

      


      The
format for submitting evidence of job creation will be in sufficient detail for
the State to confirm the asserted job creation. Rackspace must request each
disbursement in writing.

      


      II.           Sections
2.a., b. and c., Rackspace
Funding Conditions, are deleted in their entirety and replaced with the
following:

      


      2.           Rackspace
Funding Conditions

      


      Rackspace
must meet all of the following “Funding Conditions”, or will be subject to
liquidated damages and/or repayment in accordance with the
Agreement.  The Funding Conditions are as follows:

      


      a.  Expansion in Windcrest,
Bexar County, Texas.  Rackspace commits to establishing the
Walzem Road facility in Windcrest, Bexar County, Texas by December 31,
2012.  Rackspace will construct leasehold improvements to meet its
needs.

      



      
        
           


        

        
           


          
            

          

        

        
           


        

      


      b.  Job Target
(BASIC).  Rackspace commits to meeting a job target of (i)
creating a total of at least One Thousand Two Hundred Twenty-Five (1,225)
Employment Positions by December 31, 2012, in Texas and of (ii) maintaining
these Employment Positions through December 31, 2021.  Rackspace also
commits to the following job creation schedule:

      


      
        	
                (i)  

              	
                475
      Employment Positions by December 31, 2008 (“2008 Job Target”);
      and

              


      

      
        	
                 
      (ii)  

              	
                1,225
      Employment Positions by December 31, 2012 (“2012 Job
    Target”).

              


      

      


      c.  Job
Target (OPTION A).  In the event Rackspace is
able to increase employment to a level of 2,100 new employment positions
by December 31, 2013, Rackspace may qualify for an additional Five Million Five Hundred Thousand
Dollars ($5,500,000) as provided for in Section I, paragraph b (OPTION A), of this Agreement.  If Rackspace elects to exercise Option A,
Rackspace will maintain these employment positions through December 31,
2021. The Job Target for Option A will not become
an employment commitment until such time as Rackspace exercises Option A and
receives the funds associated therewith.

      


      d.  Job
Target (OPTION B).  In the event Rackspace is
able to increase employment to a level of 3,000 new employment positions
by December 31, 2014, Rackspace may qualify for up to an additional Ten Million Dollars ($10,000,000)
as provided for in Section I, paragraph c (OPTION B), of this Agreement.  If Rackspace elects to exercise Option B,
Rackspace will maintain these employment positions through December 31,
2021.  The Job Target for Option B will
not become an employment commitment until such time as Rackspace exercises
Option B and receives the funds associated therewith.

      


      e.  Job
Target (OPTION C).  In the event Rackspace is
able to increase employment to a level of 4,000 new employment positions
by December 31, 2015, Rackspace may qualify for up to an additional Thirteen Million Five Hundred Thousand
Dollars ($13,500,000) as provided for in Section I, paragraph d (OPTION C), of this Agreement.  If Rackspace elects to exercise Option C,
Rackspace will maintain these employment positions through December 31,
2021.  The Job Target for Option C will
not become an employment commitment until such time as Rackspace exercises
Option C and receives the funds associated therewith.

      


      f.  Employment
Positions.  For the purposes of this Agreement, “Employment
Positions” shall be defined as jobs meeting all of the following
criteria:

      
 

       (i) New
full-time employment positions in the State of Texas with Rackspace,
and

      


      
        	
                (ii)  

              	
                With
      an average annual gross compensation of at least $56,000 per year
      (excluding benefits as of August 1, 2007), adjusted upward by 2% per year
      over the term of the Agreement to take account of inflation beginning in
      2012.

              


      

      


      At least
two-thirds of the Employment Positions shall be created in Windcrest, Bexar
County, Texas. The remaining one-third of the Employment Positions may be
located anywhere in Texas. Employment Positions will only be counted as new
employment positions for purposes of this Agreement if they are above the total
number of employment positions with Rackspace in the State on August 1, 2007 (the
“Threshold”).  The parties agree that for purposes of this Agreement,
the Threshold shall be 1,436.  The individual Job Targets defined in
Sections 2.a-e may be referred to collectively as the “Job Target.”

      



      
        
           


        

        
           


          
            

          

        

        
           


        

      


      
        	
                III.  

              	
                Section
      3.b., Liquidated
      Damages, 
      is deleted in its entirety and replaced with the
  following:

              


      

      


      3.           Liquidated
Damages

      


      b.  Job
Target.  As set forth in Section 2 above, annually during the
term of this Agreement through 2021 Rackspace must deliver to OOGEDT an Annual
Compliance Verification demonstrating that it has met the Job Target for the
year just ended.  The consequences to Rackspace of satisfying, failing
to satisfy or exceeding the Job Target are as follows:

      


      i.  Compliance With Job
Target.  If Rackspace provides a satisfactory Annual Compliance
Verification that demonstrates that it has met the Job Target for that year,
then Rackspace will be deemed to have met its obligations for such preceding
year and no damages are due.

       

                     
ii.  Failure to Meet
Job Target.  If Rackspace provides an Annual Compliance
Verification that demonstrates that it has not met the Job Target for that
year for the Basic Fund amount and any options
which it has exercised, then OOGEDT may require Rackspace to pay
liquidated damages on a per job basis for every Employment Position by which it
is short that year in accordance with the Clawback Chart, Attachment A. In no
event shall the amount of damages exceed the amount of the Funds granted
pursuant to this Agreement, plus interest at the rate of 3.4% per
year.

      


       iii.  Exceeding Job
Target.  If an Annual Compliance Verification filed by
Rackspace demonstrates that it has exceeded the Job Target for that year, then Rackspace will be
deemed to have exceeded its obligations, and will receive a “Surplus Job Credit”
for each extra Employment Position that it has maintained above the Job Target for that year.  Rackspace
may utilize any earned Surplus Job Credits in following years as
follows:

      


      A.  Rackspace
may expend a Surplus Job Credit in lieu of paying liquidated damages on a per
job basis (for example, if Rackspace owes liquidated damages in the amount of
$126,300 for 100 Employment Positions lacking in a particular year, Rackspace
may discharge this amount by expending 100 Surplus Job Credits it has earned in
prior years); or

      


      B.  Rackspace
may apply Surplus Job Credits toward meeting the remaining Job Target for future
years, in accordance with whichever option has been agreed upon by Rackspace and
OOGEDT, such that if Rackspace accumulates enough Surplus Job Credits it will be
deemed to have fulfilled all of its obligations under the Agreement, and will be
released from the Agreement early (for example, if Rackspace never exercises any
of the possible options and has accumulated at least 1,225 Surplus Job Credits
by December 31, 2020, then it may apply these Surplus Job Credits forward to
fulfill its Job Target for 2021, and may thereby fulfill its obligations and be
released from the Agreement one year early).

       

      C.  The
clawback amounts shall vary based on any options exercised by
Rackspace.  The Clawback Chart, Attachment A, shall be used when
determining the amount of liquidated damages owed by Rackspace, as
applicable.

       

      



      
        
           


        

        
           


          
            

          

        

        
           


        

      


      
        	
                IV.  

              	
                Section
      6.d., Term, is
      amended to change the termination date to January 31,
  2022.

              


      

      


      
        	
                V.  

              	
                Section
      7.h., Notice, is
      amended to update the address for notification to Rackspace as
      follows:

              


      

      


                            Alan
Schoenbaum

                            General
Counsel

                            5000
Walzem Road

                            San
Antonio, Texas 78218

                            Phone:  210-312-4721

                            Fax:  210-312-4848

      


      
        	
                VI.  

              	
                All
      terms and conditions of the Agreement not in conflict with this Amendment
      shall remain in full force and
effect.

              


      

      


      


      


      


      [Rest of the page left intentionally
blank. Signature page follows.]


      
        
           


        

        
           


          
            

          

        

        
           


        

      


      The
parties have caused this Amendment Number One to the Economic Development
Agreement to be executed by their duly authorized representatives as of the date
first specified above.

      


      


      
        The
State of Texas Rackspace
US, Inc.

      

      


       

      


      /s/ Rick
Perry                                                                /s/ Alan
Schoenbaum                                                                

      Governor
Rick Perry

      Sr. Vice-President and
General Counsel

                                                                      [Title]

       

       July 24,
2009                                                                July 16, 2009 

      Date                                                                                              
Date


      
        
           


        

        
           


          
            

          

        

        
           


        

      


      Attachment
A

      Clawback
Chart

      


      
        	
                Option

              	
                Agreement
      Section

              	
                Grant
      Amount

                 

              	
                Total
      Jobs

              	
                Clawback
      Penalty

                (per
      job)

              	
                Payback
      Term

                 

              	
                Interest
      Rate

                 

              
	
                Basic

              	
                1.a.i
      and 1.a.ii

              	
                $8,500,000

              	
                1,225

              	
                $1,263

              	
                15
      years

              	
                3.4%

              
	
                A

              	
                1.b.i

              	
                $14,000,000

              	
                2,100

              	
                $1,230

              	
                15
      years

              	
                3.4%

              
	
                B

              	
                1.c.i

              	
                $19,250,000

              	
                3,000

              	
                $1,218

              	
                15
      years

              	
                3.4%

              
	
                B

              	
                1.c.ii

              	
                $18,500,000

              	
                3,000

              	
                $1,205

              	
                15
      years

              	
                3.4%

              
	
                C

              	
                1.d.i

              	
                $22,000,000

              	
                4,000

              	
                $1,129

              	
                15
      years

              	
                3.4%

              
	
                C

              	
                1.d.ii

              	
                $22,000,000

              	
                4,000

              	
                $1,138

              	
                15
      years

              	
                3.4%

              
	
                C

              	
                1.d.iii

              	
                $22,000,000

              	
                4,000

              	
                $1,133

              	
                15
      years

              	
                3.4%

              
	
                C

              	
                1.d.iv

              	
                $22,000,000

              	
                4,000

              	
                $1,172

              	
                15
      years

              	
                3.4%