EX 10.1


    EXHIBIT
      10.1

    


    [COMPANY
      LETTERHEAD]

    


    May
      24,
      2007

    


    Mark
      J.
      Barrenechea

    


    


    Re: Employment
      Terms

    


    Dear
      Mark:

    


    Rackable
      Systems, Inc. (the “Company”), is pleased to offer you the position of President
      and Chief Executive Officer (“CEO”), on the following terms. Your employment
      shall commence on April 29, 2007.

    


    1.    POSITION.
      You
      will
      serve in an executive capacity and shall perform the duties of CEO as commonly
      associated with this position, as specified in the Bylaws of the Company, and
      as
      required by the Board of Directors of the Company (the “Board”). You will report
      to the Board. Subject to the terms of this offer letter agreement, the Board
      reserves the right to change your position, duties, reporting relationship,
      work
      location, and job duties, from time to time in its discretion. Your new
      employment relationship with the Company will not affect your current status
      as
      a Director on the Board. 

    


    2.    COMPENSATION.
      

     

    (a)
       Base
      Salary. Your
      initial annual base salary will be $350,000.00, less standard payroll deductions
      and withholdings. You will be paid bi-weekly in accordance with Company practice
      and policy. 

     

    (b)
       Performance
      Bonus. In
      addition, you will be eligible to earn an annual performance bonus of up to
      $250,000.00, based upon both your performance and the Company’s performance with
      respect to applicable performance targets which are expected to include revenue
      and profitability targets and other organizational milestones (“Targets”), set
      solely by the Compensation Committee of the Company’s Board of Directors (the
“Compensation Committee”). The bonus payment shall be earned upon the
      fulfillments of Targets and is payable within a reasonable period of time,
      not
      to exceed thirty (30) days from the date that the Compensation Committee
      concludes that Targets have been fulfilled. The Compensation Committee will
      determine in its sole discretion whether the 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.

     

    (c) Review
      of Compensation. Your
      base
      salary and bonus eligibility will be reviewed on an annual or more frequent
      basis by the Compensation Committee and are subject to change
      in
      the discretion of the Compensation Committee, subject to the terms of this
      offer
      letter agreement. 

    


    
      
         

      

      
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    3.    OPTION
      GRANT.

    


    (a) Equity
      Grants. Subject
      to Compensation Committee approval, the Company will issue you an option (the
      “Option”) to purchase 700,000 shares of the Company’s common stock pursuant to
      the Company’s 2005 Equity Incentive Plan (the “Plan”) at an exercise price equal
      to the fair market value of the stock as of the date of grant as determined
      by
      the Compensation Committee. In addition, subject to Compensation Committee
      approval, the Company will grant you 150,000 restricted shares of the Company’s
      common stock (the “Restricted Stock Award”). 

    


    (b) Vesting
      Schedule.
      Both the
      Option and the Restricted Stock Award will be subject to a four-year vesting
      period subject to your continuous service to the Company as an employee or
      consultant (as defined in the Plan and Restricted Stock Purchase Agreement),
      with one forty-eighth (1/48th) of the respective shares subject to the Option
      and the Restricted Stock Award vesting for each full month of your continuous
      service as an employee or consultant following your start date as an employee
      of
      the Company. 

    


    (c) Governing
      Documents. The
      Option will be governed in full by the terms and conditions of the Plan and
      your
      individual Option agreement; the Restricted Stock Award will be governed in
      full
      by the terms and conditions of the Restricted Stock Purchase Agreement. You
      understand that the Option and the Restricted Stock Award are expected to be
      granted on or about June 11, 2007.

    


    4.    EMPLOYEE
      BENEFITS. You
      will
      be eligible to participate in the Company’s standard employee benefit plans in
      accordance with the terms and conditions of the plans and applicable policies
      which may be in effect from time to time, and provided by the Company to its
      executive employees generally, including but not limited to group health
      insurance coverage, disability insurance, life insurance, ESPP, 401(k) Plan,
      and
      paid time off and paid holidays. You will be eligible for reimbursement of
      your
      legitimate and documented business expenses incurred in connection with your
      employment, pursuant to the Company’s standard reimbursement expense policy and
      practices. The Company may modify its benefits programs and policies from time
      to time in its discretion. 

    


    5.    INVENTION
      AND NON-DISCLOSURE AGREEMENT. As
      a
      condition of your employment, you are required to sign and abide by the
      Company’s Proprietary Information and Inventions Agreement (the “Non-Disclosure
      Agreement”), attached hereto as Exhibit
      A.
      

    


    6.    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 the 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. The Board is aware that you serve
      as
      a director for Overland Storage and Berkeley Mills and that you own less than
      10% of the outstanding shares in these companies. The Board may rescind its
      consent to your service as a director of all other corporations or participation
      in other business or public activities, if the Board, in its sole discretion,
      determines that such activities compromise, are in conflict with, or threaten
      to
      compromise or conflict with the Company’s business interests or your duties to
      the Company. 

    


    (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.

    


    7.    AT-WILL
      EMPLOYMENT RELATIONSHIP.
      Your
      employment relationship with the Company is at-will. Accordingly, both you
      and
      the Company may terminate the employment relationship at any time, with or
      without Cause (as defined below), and with or without advance notice.


    


    8.    DEFINITIONS.

    


    (a) Definition
      of “Cause.” For
      purposes of this offer letter agreement, “Cause” is defined as one or more of
      the following events: (i) the indictment or conviction for a felony or other
      crime, in each case involving 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 (defined as conduct
      or
      a failure to act that is so reckless that it demonstrates a substantial lack
      of
      concern for whether an injury will result) 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 offer letter 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, including a Change in Control that results in your no longer
      serving as the Chief Executive Officer of a publicly traded corporate entity;
      (ii) a material reduction by the Company of your base salary; (iii) the
      Company’s material breach of its obligations to you under this offer letter
      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 (i) 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 (ii) 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 offer letter 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.

    


    9.    ACCELERATION
      OF VESTING UPON CHANGE IN CONTROL. All
      unvested stock options and all unvested grants of restricted stock, herein
      referred to and any subsequent grants of stock options, restricted stocks or
      any
      other stock awards in future plans, shall become fully vested upon the closing
      of a Change in Control of the Company.

    


    10.    SEVERANCE
      BENEFITS.

    


    (a) Entitlement
      to Severance Benefits. If,
      at
      any time, your employment is terminated by the Company without Cause, or by
      you
      for Good Reason, you will be eligible to receive, as your sole severance
      benefits (the “Severance Benefits”): 

    


    (1) 
      Severance pay in the total amount equal to the sum of (i) twelve (12) months
      of
      your base salary in effect as of the employment termination date, and (ii)
      the
      full amount of your annual performance bonus. 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. 

    


    (2)
       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 Board if you become
      eligible for group health insurance coverage through a new employer within
      twelve (12) months of your employment termination date; and 

    


    (3)
       Any
      then-outstanding stock options provided to you by the Option (as defined herein)
      and any then-outstanding restricted shares provided to you by the Restricted
      Stock Award (as defined herein) will both be subject to accelerated vesting
      equal to the number of shares that would vest over an additional twelve (12)
      month period, and you will have twelve (12) months from the employment
      termination date in which to exercise the Option.

    


    (b) Release
      Requirement. Notwithstanding
      the foregoing, in order to be eligible for the Severance Benefits, you must
      first sign, date, return to the Company, and allow to become effective the
      Mutual Release of Claims attached hereto as Exhibit
      B,
      which
      the Company also agrees
      to
      sign prior to the Effective Date of the Mutual Release of Claims (as defined
      in
      Exhibit B). You will not be eligible for the Severance Benefits if your
      employment is terminated for Cause, or if you resign for any reason that does
      not qualify as Good Reason. In addition, in the event that you materially breach
      the Non-Disclosure Agreement, the Mutual Release of Claims, or any other
      obligations you owe to the Company after termination of your employment
      (including but not limited to the nonsolicitation provisions hereunder), the
      Company’s obligation to provide the Severance Benefits (or to continue to
      provide the Severance Benefits) will cease immediately and in full as of the
      date of your breach.

     

    
      
         

      

      
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    (d) 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, 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.

    


    (e) Excise
      Tax. 

    


    (i) Anything
      in this agreement to the contrary notwithstanding, if any payment or benefit
      that you would receive pursuant to this offer letter 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” 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. 

    


    (ii) 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.

     

    
      
         

      

      
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    (iii) 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.

    


    (iv) 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.

    


    11.    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, 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. 

    


    12.    MISCELLANEOUS.
      

    


    (a) General
      Provisions. This
      letter, including the attached Non-Disclosure Agreement and Mutual Release
      of
      Claims, constitutes 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 or
      the Board’s discretion, only can be made in a writing signed by a
      duly-authorized member of the Board and you. This letter agreement will bind
      the
      heirs, personal representatives, successors and assigns of both you and the
      Company, and inure to the benefit of both you and the Company, their heirs,
      successors and assigns. If any provision of this letter agreement is determined
      to be invalid or unenforceable, in whole or in part, this determination shall
      not affect any other provision of this letter agreement and the provision in
      question shall be modified so as to be rendered enforceable in a manner
      consistent with the intent of the parties insofar as possible under applicable
      law. This letter agreement shall be construed and enforced in accordance with
      the laws of the State of California without regard to conflicts of law
      principles. Any ambiguity in this letter agreement shall not be construed
      against either party as the drafter. Any waiver of a breach of this letter
      agreement, or rights hereunder, shall be in writing and shall not be deemed
      to
      be a waiver of any successive breach or rights hereunder. This letter agreement
      may be executed in counterparts which shall be deemed to be part of one
      original, and facsimile signatures shall be equivalent to original
      signatures.

     

    
      
         

      

      
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    (b) Legal
      Right to Work. As
      required by law, this offer is subject to satisfactory proof of your right
      to
      work in the United States.

    


     

     

     

     

     

     

     

     

     

     

    [Remainder
      of Page Intentionally Blank.]

     

    
      
         

      

      
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    (c) Acceptance.
      Please
      sign this letter and the attached Non-Disclosure Agreement and return them
      to me
      as soon as possible to accept employment with the Company on the terms set
      forth
      herein. We are very excited about having you join us as an employee and look
      forward to working with you.

    


    Sincerely,

    


    /s/
      Charles M. Boesenberg

      
        

      

    

    Charles
      M. Boesenberg

    Chairman
      of the Compensation Committee of the Board of Directors

    


    


    Understood
      and Agreed:

    


    /s/
      Mark
      J. Barrenechea

      
        

      

    

    Mark
      J.
      Barrenechea

    


    May
      24,
      2007

      
        

      

    

    Date

    


    Exhibit
      A - Invention and Non-Disclosure Agreement

    Exhibit
      B - Mutual Release of Claims

     

    
      
         

      

      
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    EXHIBIT
      A

    


    INVENTION
      AND NON-DISCLOSURE AGREEMENT

     

    RACKABLE
      SYSTEMS, INC.

     

    EMPLOYEE
      PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT

     

    In
      consideration of my employment by Rackable Systems, Inc., a
      Delaware
      corporation
      (the
      "Company"), I hereby agree to the following with respect to my use and
      development of information and technology of the Company, as more fully set
      out
      below.

     

    
      
         

      

      
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    Proprietary
      Information.

     

    Confidential
      Restrictions.
      I agree
      to hold in strict confidence and in trust for the sole benefit of the Company
      all Proprietary Information (as defined below) that I may have access to during
      the course of my employment with the Company and will not disclose any
      Proprietary Information, directly or indirectly, to anyone outside of the
      Company, or use, copy, publish, summarize, or remove from Company premises
      such
      information (or remove from the premises any other property of the Company)
      except (i) during my employment to the extent necessary to carry out my
      responsibilities as an employee of the Company or (ii) after termination of
      my employment, as specifically authorized by the President of the Company.
      I
      further understand that the publication of any Proprietary Information through
      literature or speeches must be approved in advance in writing by the President
      of the Company. "Proprietary Information" shall mean all information and any
      idea in whatever form, tangible or intangible, whether disclosed to or learned
      or developed by me, pertaining in any manner to the business of the Company
      (or
      any affiliate of it that might be formed) or to the Company's customers,
      suppliers, licensors and other commercial partners unless: (i) the
      information is or becomes publicly known through lawful means; (ii) the
      information was rightfully in my possession or part of my general knowledge
      prior to my employment by the Company; or (iii) the information is
      disclosed to me without confidential or proprietary restriction by a third
      party
      who rightfully possesses the information (without confidential or proprietary
      restriction) and did not learn of it, directly or indirectly, from the
      Company.

     

    Third
      Party Information.
      I
      recognize that the Company has received and in the future will receive from
      third parties their confidential or proprietary information subject to a duty
      on
      the Company's part to maintain the confidentiality of such information and
      to
      use it only for certain limited purposes. I agree that I owe the Company and
      such third parties, during the term of my employment and thereafter, a duty
      to
      hold all such confidential or proprietary information in the strictest
      confidence and not to disclose it to any person, firm, or corporation (except
      as
      necessary in carrying out my work for the Company consistent with the Company's
      agreement with such third party) or to use it for the benefit of anyone other
      than for the Company or such third party (consistent with the Company's
      agreement with such third party) without the express written authorization
      of
      the President of the Company. 

     

    Interference
      with Business.
      I
      hereby acknowledge that pursuit of the activities forbidden by this
      Section 1(c) would necessarily involve the use or disclosure of Proprietary
      Information in breach of Section 1, but that proof of such breach would be
      extremely difficult. To forestall such disclosure, use, and breach, I agree
      that
      for the term of this Agreement and for a period of one (1) year after
      termination of my employment with the Company, I shall not, for myself or any
      third party, directly or indirectly (i) divert or attempt to divert from
      the Company (or any affiliate of it that might be formed) any business of any
      kind in which it is engaged, including, without limitation, the solicitation
      of
      or interference with any of its suppliers or customers; (ii) employ,
      solicit for employment, or recommend for employment any person employed by
      the
      Company (or by any affiliate of it that might be formed) during the period
      of
      such person's employment and for a period of one (1) year thereafter; or (iii)
      engage in any business activity that is or may be competitive with the Company
      (or any affiliate of it that might be formed). I understand that none of my
      activities will be prohibited under this Section 1(c) if I can prove that the
      action was taken without the use in any way of Proprietary
      Information.

     

    
      
         

      

      
        -11-

        
          

        

      

      
         

      

    

     

    Inventions.

     

    Defined;
      Statutory Notice.
      I
      understand that during the term of my employment, there are certain restrictions
      on my development of technology, ideas, and inventions, referred to in this
      Agreement as "Invention Ideas." The term Invention Ideas means any and all
      ideas, processes, trademarks, service marks, inventions, technology, computer
      programs, original works of authorship, designs, formulas, discoveries, patents,
      copyrights, and all improvements, rights, and claims related to the foregoing
      that are conceived, developed, or reduced to practice by me alone or with others
      except to the extent that California Labor Code Section 2870 lawfully
      prohibits the assignment of rights in such ideas, processes, inventions, etc.
      I
      understand that Section 2870(a) provides:

     

    
      	 	 	
              Any
                provision in an employment agreement which provides that an employee
                shall
                assign, or offer to assign, any of his or her rights in an invention
                to
                his or her employer shall not apply to an invention that the employee
                developed entirely on his or her own time without using the employer's
                equipment, supplies, facilities, or trade secret information except
                for
                those inventions that either: 

            


    

     

    
      
         

      

      
        -12-

        
          

        

      

      
         

      

    

     

    Relate
      at
      the time of conception or reduction to practice of the invention to the
      employer's business, or actual or demonstrably anticipated research or
      development of the employer. 

     

    Result
      from any work performed by the employee for the employer. 

     

    Records
      of Invention Ideas.
      I agree
      to maintain adequate and current written records on the development of all
      Invention Ideas and to disclose promptly to the Company all Invention Ideas
      and
      relevant records, which records will remain the sole property of the Company.
      I
      further agree that all information and records pertaining to any idea, process,
      trademark, service mark, invention, technology, computer program, original
      work
      of authorship, design, formula, discovery, patent, or copyright that I do not
      believe to be an Invention Idea, but is conceived, developed, or reduced to
      practice by me (alone or with others) during my period of employment or during
      the one-year period following termination of my employment, shall be promptly
      disclosed to the Company (such disclosure to be received in confidence). The
      Company shall examine such information to determine if in fact the idea,
      process, or invention, etc., is an Invention Idea subject to this
      Agreement.

     

    Assignment.
      I agree
      to assign to the Company, without further consideration, my entire right, title,
      and interest (throughout the United States and in all foreign countries), free
      and clear of all liens and encumbrances, in and to each Invention Idea, which
      shall be the sole property of the Company, whether or not patentable. In the
      event any Invention Idea shall be deemed by the Company to be patentable or
      otherwise registrable, I will assist the Company (at its expense) in obtaining
      letters patent or other applicable registrations thereon and I will execute
      all
      documents and do all other things (including testifying at the Company's
      expense) necessary or proper to obtain letters patent or other applicable
      registrations thereon and to vest the Company with full title thereto. Should
      the Company be unable to secure my signature on any document necessary to apply
      for, prosecute, obtain, or enforce any patent, copyright, or other right or
      protection relating to any Invention Idea, whether due to my mental or physical
      incapacity or any other cause, I hereby irrevocably designate and appoint the
      Company and each of its duly authorized officers and agents as my agent and
      attorney-in-fact, to act for and in my behalf and stead, to execute and file
      any
      such document, and to do all other lawfully permitted acts to further the
      prosecution, issuance, and enforcement of patents, copyrights, or other rights
      or protections with the same force and effect as if executed and delivered
      by
      me.

     

    Exclusions.
      Except
      as disclosed in Exhibit A, there are no ideas, processes, trademarks,
      service marks, inventions, technology, computer programs, original works of
      authorship, designs, formulas, discoveries, patents, copyrights, or improvements
      to the foregoing that I wish to exclude from the operation of this
      Agreement.

     

    Post-Termination
      Period.
      I
      acknowledge that because of the difficulty of establishing when any idea,
      process, invention, etc., is first conceived or developed by me, or whether
      it
      results from access to Proprietary Information or the Company’s equipment,
      facilities and data, I agree that any idea, process, trademark, service mark,
      invention, technology, computer program, original work of authorship, design,
      formula, discovery, patent, copyright, or any improvement, rights, or claims
      related to the foregoing shall be presumed to be an Invention Idea if it is
      conceived, developed, used, sold, exploited, or reduced to practice by me or
      with my aid within one (1) year after my termination of employment with the
      Company. I can rebut the above presumption if I prove that the invention, idea,
      process, etc., is not an Invention Idea as defined in
      paragraph 2(a).

     

    
      
         

      

      
        -13-

        
          

        

      

      
         

      

    

    


    I
      understand that nothing in this Agreement is intended to expand the scope of
      protection provided me by Sections 2870 through 2872 of the California Labor
      Code.

     

    Former
      or Conflicting Obligations.
      During
      my employment with the Company, I will not disclose to the Company, or use,
      or
      induce the Company to use, any proprietary information or trade secrets of
      others. I represent that my performance of this Agreement will not breach any
      agreement to keep in confidence proprietary information acquired by me in
      confidence or in trust prior to my employment by the Company. I certify that
      I
      have no outstanding agreement or obligation that is in conflict with any of
      the
      provisions of this Agreement, or that would preclude me from complying with
      the
      provisions hereof. I further certify that during the term of my employment
      with
      the Company, I will not engage in any other employment, occupation, consulting
      or other business activity directly related to the business in which the Company
      is now involved or becomes involved during the term of such
      employment.

     

    Government
      Contracts. I
      understand that the Company has or may enter into contracts with the government
      under which certain intellectual property rights will be required to be
      protected, assigned, licensed, or otherwise transferred and I hereby agree
      to
      execute such other documents and agreements as are necessary to enable the
      Company to meet its obligations under any such government
      contracts.

     

    Termination.
      I hereby
      acknowledge and agree that all personal property, including, without limitation,
      all books, manuals, records, models, drawings, reports, notes, contracts, lists,
      blueprints, and other documents or materials or copies thereof, Proprietary
      Information, and equipment furnished to or prepared by me in the course of
      or
      incident to my employment, belong to the Company and will be promptly returned
      to the Company upon termination of my employment with the Company. Following
      my
      termination, I will not retain any written or other tangible material containing
      any Proprietary Information or information pertaining to any Invention Idea.
      I
      understand that my obligations contained herein will survive the termination
      of
      my employment. In the event of termination of my employment, I agree to sign
      and
      deliver to the Company a Termination Certificate in the form attached hereto
      as
      Exhibit B.

     

    
      
         

      

      
        -14-

        
          

        

      

      
         

      

    

     

    Miscellaneous
      Provisions.

     

    Assignment.
      I agree
      that the Company may assign to another person or entity any of its rights under
      this Agreement, including, without limitation, any successor in interest to
      the
      Company or its business operations. This Agreement shall be binding upon me
      and
      my heirs, executors, administrators, and successors, and shall inure to the
      benefit of the Company's successors and assigns.

     

    Governing
      Law; Severability.
      The
      validity, interpretation, enforceability, and performance of this Agreement
      shall be governed by and construed in accordance with the laws of the State
      of
      California. If any provision of this Agreement, or application thereof to any
      person, place, or circumstance, shall be held by a court of competent
      jurisdiction to be invalid, unenforceable, or void, the remainder of this
      Agreement and such provisions as applied to other persons, places, and
      circumstances shall remain in full force and effect.

     

    Entire
      Agreement.
      The
      terms of this Agreement are the final expression of my agreement with respect
      to
      the subject matter hereof and may not be contradicted by evidence of any prior
      or contemporaneous agreement. This Agreement shall constitute the complete
      and
      exclusive statement of its terms and no extrinsic evidence whatsoever may be
      introduced in any judicial, administrative, or other legal proceeding involving
      this Agreement.

     

    Application
      of this Agreement.
      I
      hereby agree that my obligations set forth in Sections 1 and 2 hereof and
      the definitions of Proprietary Information and Invention Ideas contained therein
      shall be equally applicable to Proprietary Information and Invention Ideas
      relating to any work performed by me for the Company prior to the execution
      of
      this Agreement. 

     

     

    Date:
      May
      24, 2007

    /s/
      Mark
      J. Barrenechea

      
        

      

    

    Signature

     

     

    Mark
      J.
      Barrenechea

      
        

      

    

    Printed
      Name

     

    
      
         

      

      
        -15-

        
          

        

      

      
         

      

    

     

    EXHIBIT
      A

     

    Employee's
      Prior Inventions

     

    Except
      as
      set forth below, there are no ideas, processes, trademarks, service marks,
      inventions, technology, computer programs, original works of authorship,
      designs, formulas, discoveries, patents, copyrights, or any claims, rights,
      or
      improvements to the foregoing that I wish to exclude from the operation of
      this
      Agreement: 

     

    
      
         

      

      
        -16-

        
          

        

      

      
         

      

    

     

    EXHIBIT
      B

    


    TERMINATION
      CERTIFICATE CONCERNING

     

    PROPRIETARY
      INFORMATION AND INVENTIONS

     

     

    This
      is
      to certify that I have returned all personal property of the Company, including,
      without limitation, all books, manuals, records, models, drawings, reports,
      notes, contracts, lists, blueprints, and other documents and materials,
      Proprietary Information, and equipment furnished to or prepared by me in the
      course of or incident to my employment with the Company, and that I did not
      make
      or distribute any copies of the foregoing.

     

    I
      further
      certify that I have reviewed the Employee Proprietary Information and Inventions
      Agreement signed by me and that I have complied with and will continue to comply
      with all of its terms, including, without limitation, (i) the reporting of
      any invention, process, or idea, etc. conceived or developed by me and covered
      by the Agreement and (ii) the preservation as confidential of all
      Proprietary Information pertaining to the Company. This certificate in no way
      limits my responsibilities or the Company’s rights under the
      Agreement.

     

    On
      termination of my employment with the Company, I will be employed by ___________
      [name
      of
      new employer] ________________________________________________ [in
      the 
      _________________ division] and I will be working in connection with the
      following projects:

     

    [generally
      describe the projects]

     

    
      

    

     

    
      
        

      

    

    
       

      
        

      

    

    
       

      
        

      

    

     

    
      
        

      

      
         

        
          

        

      

    

     

    Dated:
      ________________________________

     

     

    
      
        

      

    

    Signature

     

     

     

    
      
        

      

    

    Printed
      Name

    


    
 

    
      
         

      

      
        -17-

        
          

        

      

      
         

      

    

     

    EXHIBIT
      B

    


    MUTUAL
      RELEASE OF CLAIMS

    (To
      be signed on or within 21 days after the employment termination
      date.)

     

    Pursuant
      to the terms of the offer letter agreement between Rackable Systems, Inc. (the
      “Company”) and Mark J. Barrenechea (“Executive”) dated May 24, 2007 (the
“Agreement”), the parties hereby enter into the following Mutual Release of
      Claims (the “Release”):

    


    1.    Executive’s
      Release of Claims: 

    


    Executive
      understands that, on the last date of his employment with the Company, the
      Company will pay him any accrued salary and accrued and unused vacation to
      which
      he is entitled by law, regardless of whether he signs this Release, but he
      is
      not entitled to the Severance Benefits, unless he signs and returns this Release
      to the Company and allows it to become effective.

     

    Executive
      hereby generally and completely releases the Company, its parent, and its and
      their directors, officers, employees, shareholders, partners, agents, attorneys,
      predecessors, successors, parent and subsidiary entities, insurers, affiliates,
      and assigns (collectively the “Released Parties”) of and from any and all
      claims, liabilities and obligations, both known and unknown, arising out of
      or
      in any way related to events, acts, conduct, or omissions occurring at any
      time
      prior to or at the time that Executive signs this Release. This general release
      includes, but is not limited to: (1) all claims arising out of or in any way
      related to Executive’s employment with the Company or the termination of that
      employment; (2) all claims related to Executive’s compensation or benefits from
      the Company, including salary, bonuses, commissions, vacation pay, expense
      reimbursements, severance pay, fringe benefits, stock, stock options, or any
      other ownership or equity interests in the Company; (3) all claims for
      breach of contract, wrongful termination, and breach of the implied covenant
      of
      good faith and fair dealing (including claims based on or arising under the
      Agreement); (4) all tort claims, including claims for fraud, defamation,
      emotional distress, and discharge in violation of public policy; and (5) all
      federal, state, and local statutory claims, including claims for discrimination,
      harassment, retaliation, attorneys’ fees, or other claims arising under the
      federal Civil Rights Act of 1964 (as amended), the federal Americans with
      Disabilities Act of 1990, the federal Age Discrimination in Employment Act
      (as
      amended) (“ADEA”), the federal Family and Medical Leave Act, the California
      Labor Code (as amended), the California Family Rights Act, and the California
      Fair Employment and Housing Act (as amended).

     

    Executive
      understands that notwithstanding the foregoing, the following are not included
      in the Released Claims (the “Excluded Claims”): (i) any rights or claims
      for indemnification Executive may have pursuant to any written indemnification
      agreement to which he is a party, the charter, bylaws, or operating agreements
      of any of the Released Parties, or under applicable law; or (ii) any rights
      which are not waivable as a matter of law. In addition, Executive understands
      that nothing in this release prevents him from filing, cooperating with, or
      participating in any proceeding before the Equal Employment Opportunity
      Commission, the Department of Labor, or the California Department of Fair
      Employment and Housing, except that Executive acknowledges and agrees that
      he
      shall not recover any monetary benefits in connection with any such claim,
      charge or proceeding with regard to any claim released herein. Executive hereby
      represents and warrants that, other than the Excluded Claims, Executive is
      not
      aware of any claims he has or might have against any of the Released Parties
      that are not included in the Released Claims.

     

    Executive
      acknowledges that he is knowingly and voluntarily waiving and releasing any
      rights he may have under the ADEA, and that the consideration given for the
      waiver and release in the preceding paragraph is in addition to anything of
      value to which he is already entitled. Executive further acknowledges that
      he
      has been advised by this writing that: (1) his waiver and release do not apply
      to any rights or claims that may arise after the date he signs this Release;
      (2)
      he should consult with an attorney prior to signing this Release (although
      he
      may choose voluntarily not to do so); (3) he has twenty-one (21) days to
      consider this Release (although he may choose voluntarily to sign it earlier);
      (4) he has seven (7) days following the date he signs this Release to revoke
      it
      by providing written notice of revocation to the Chairman of the Company’s Board
      of Directors; and (5) this Release will not be effective until the date
      upon which the revocation period has expired, which will be the eighth calendar
      day after the date Executive signs it provided that he does not revoke it and
      that the Company has signed this Release by such date (the “Effective
      Date”).

     

    
      
         

      

      
        -18-

        
          

        

      

      
         

      

    

     

    Executive
      hereby represents that he has been paid all compensation owed and for all hours
      worked, he has received all the leave and leave benefits and protections for
      which he is eligible, pursuant to the Family and Medical Leave Act, the
      California Family Rights Act, or otherwise, and he has not suffered any
      on-the-job injury for which he has not already filed a workers’ compensation
      claim. 

    


    2.    Company’s
      Release of Claims:

    


    The
      Company hereby generally and completely releases Executive of and from any
      and
      all claims, liabilities, and obligations, both known and unknown, arising out
      of
      or in any way related to events, acts, conduct or omissions occurring at any
      time prior to or at the time the Company signs this Release (the “Released
      Claims”); provided however, that this Release shall not extend to: (1) any
      claims that may arise out of any events, acts, conduct or omissions occurring
      after this Release is executed, including without limitation, any claims for
      breach of the Agreement; (2) any claims arising at any time out of Executive’s
      obligations to protect the Company’s proprietary information, including without
      limitation, any claims arising from Executive’s obligations under his
      Confidentiality Agreement, claims arising under the California Uniform Trade
      Secrets Act, or common law claims arising from these obligations; or (3) any
      claims arising from any actions by Executive during his employment with the
      Company which were outside of his authority as President and Chief Executive
      Officer and Member of the Board of Directors of the Company or outside of the
      course and scope of his employment (the “Excluded Claims”).

     

    The
      Company hereby represents and warrants that, other than the Excluded Claims,
      it
      is not aware of any claims it has or might have against Executive that are
      not
      included in the Released Claims.

     

    
      
         

      

      
        -19-

        
          

        

      

      
         

      

    

     

    3.    Section
      1542 Waiver:

     

    THE
      PARTIES UNDERSTAND THAT THIS AGREEMENT INCLUDES A RELEASE OF ALL KNOWN AND
      UNKNOWN CLAIMS. The parties acknowledge that each has read and understands
      Section 1542 of the California Civil Code which reads as follows: “A general
      release does not extend to claims which the creditor does not know or suspect
      to
      exist in his or her favor at the time of executing the release, which if known
      by him or her must have materially affected his or her settlement with the
      debtor.” The parties hereby expressly waive and relinquish all rights and
      benefits under that section and any law or legal principle of similar effect
      in
      any jurisdiction with respect to their respective release of claims herein,
      including but not limited to their releases of unknown and unsuspected claims.
      

    


    4.    Additional
      Agreements:

     

    The
      parties hereby further agree as follows: (1) Executive agrees not to disparage
      the Company, its parent, or its or their officers, directors, employees,
      shareholders, affiliates and agents, in any manner likely to be harmful to
      its
      or their business, business reputation, or personal reputation, and the Company
      agrees not to disparage Executive in any manner likely to be harmful to his
      business reputation or personal reputation (although the parties may respond
      accurately and fully to any question, inquiry or request for information as
      required by legal process); (2) not to voluntarily (except in response to legal
      compulsion) assist any third party in bringing or pursuing any proposed or
      pending litigation, arbitration, administrative claim or other formal proceeding
      against the other party, or against the Company’s parent or subsidiary entities,
      affiliates, officers, directors, employees or agents; and (3) to reasonably
      cooperate with the other party, by voluntarily (without legal compulsion)
      providing accurate and complete information, in connection with such other
      party’s actual or contemplated defense, prosecution, or investigation of any
      claims or demands by or against third parties, or other matters, arising from
      events, acts, or failures to act that occurred during the period of Executive’s
      employment by the Company. 

    


    Executive:

     

    By:

    
      
        

      

    

    Mark
      J.
      Barrenechea

     

    Date:

    
      
        

      

    

     

    Company:

     

    By:

      
        

      

    

    Title:

    
      
        

      

    

    Date:

    
      
        

      

    

    


    
      
         

      

        -20-