Document:

General Stipulations

 Exhibit 10.1(a) 
 BEFORE THE 
 PENNSYLVANIA PUBLIC UTILITY COMMISSION 
  

					
	 Petition of Duquesne Light Company
	  	:	  	
	 For Approval of Default Service Plan
	  	:	  	Docket No. P-00072247
	 For The Period January 1, 2008
	  	:	  	
	 Through December 31, 2010
	  	:	  	

 STIPULATION 
 Duquesne Light Company (“Duquesne Light”), the Office of Trial Staff (“OTS”),
the Office of Consumer Advocate (“OCA”), the Office of Small Business Advocate (“OSBA”), Dominion Retail, Inc. (“Dominion”), Reliant Energy, Inc. (“Reliant”), Conservation Consultants, Inc. (“CCI”),
Constellation New Energy, Inc. and Constellation Energy Commodities Group, Inc. (collectively “Constellation”), Citizen Power, Inc. (“Citizen Power”), Exelon Corporation and Exelon Generation Company, LLC (collectively
“Exelon”), Citizens For Pennsylvania’s Future (“PennFuture”), FirstEnergy Solutions Corp. (“FES”), the Pennsylvania Large Energy Users Coalition (“PALEUC”), Strategic Energy, LLC, Direct Energy, LLC and
Retail Energy Supply Association (collectively, the “Parties”) either support, support in part and do not oppose the remainder, or do not oppose (as explained in footnote 1)1 this Stipulation to resolve all issues among them regarding Duquesne Light’s default service plan for the period January 1, 2008 through
December 31, 2010. 
  

	1.	RESIDENTIAL CUSTOMERS. 

  

	 1
	 Duquesne Light, OTS, OSBA, and Dominion join in the entire stipulation. The OCA joins in paragraphs 1
and 5 through 9 of the Stipulation and does not oppose the remaining paragraphs. Reliant supports Paragraphs 3A and 3B and does not oppose the remaining paragraphs. Constellation NewEnergy, Inc. and Constellation Energy Commodities Group, Inc.
support only Paragraph 2.E. on the elimination of declining block energy rates on January 1, 2008 for small commercial and industrial customers with a monthly metered demand that is 25 kW or greater, and agree to waive the following rights
(except as such rights relate to advocacy in support of the terms and conditions of Paragraph 2.E): (a) to file briefs and reply briefs; (b) to file exceptions and replies to exceptions; (c) to petition for reconsideration or
reopening of the Commission’s final order; (d) to appeal the Commission’s final order; and, (e) to initiate or otherwise participate in any other proceeding before the Commission challenging the default service plan approved by
the Commission. CCI, Citizen Power, Exelon, PennFuture, FES, and PALEUC do not oppose this Stipulation and so indicate by their signatory representation at the end of this Stipulation. 

	 	A.	Duquesne Light shall offer residential customers (Rate Schedules RS, RA and RH) default service at the rates set forth in Attachment A for the period January 1, 2008, through
December 31, 2010. The supply rate for Rate RS customers over the three year period will be 7.1560 cents per kWh. In 2008 and 2009, the tail block supply rates for Rate RH customers will be increased by 0.3083 cents per kWh as compared to the
tail block supply rates originally filed by the Company. In 2010, the supply rate for Rate RH customers will be a flat rate of 6.8950 cents per kWh. This rate is 0.2610 cents per kWh lower than the rate originally proposed by the Company for Rate RH
customers in 2010. 

  

	 	B.	Duquesne Light will eliminate declining energy blocks for Rate RH and RA customers so that all residential default service customers are charged flat energy supply rates as of
January 1, 2010. 

  

	 	C.	Ancillary service and PJM administrative costs for Residential customers will be recovered through the Transmission Service Charge (“TSC”) as set forth in Exhibit NJDK-3
of Duquesne St. No. 5. 

  

	2.	SMALL C&I CUSTOMERS. 

  

	 	A.	Duquesne Light shall offer small commercial and industrial (“Small C&I”) customers with maximum registered peak metered demands of less than 25 kW served under rate
schedules GS/GM and GMH fixed rates for the 2008-2010 period at levels set forth in Attachment B. As filed and proposed class average default service supply rates for all small customer classes are provided as Attachment C. 

 

	 	B.	Duquesne Light shall offer Small C&I customers with maximum registered peak metered demands of 25 kW or greater served under rate schedules GM and GMH fixed rates for 2008, but
subject to two market price rate adjustments (every six months) for supply delivered in calendar year 2009 and two market price rate adjustments (every six months) for supply delivered in calendar year 2010. 

  

	 	C.	The market price rate adjustment shall be calculated using the methodology described in Statement No. 3 of Duquesne Light’s testimony, except that rates shall be adjusted
two times in 2009, on January 1, 2009 and July 1, 2009 and two times in 2010, on January 1, 2010 and July 1, 2010. Rather than calculate market price movements based on calendar year forward prices, Duquesne Light shall calculate
market price movements based on six months of forward prices in 2009 and 2010 for the applicable six month rate period. The index shall be calculated according to the following schedule: 

  

	 	i.	On December 1, 2008 (for the six month rate period of January 1, 2009 ending June 30, 2009, based on the twenty trading days immediately preceding
December 1, 2008), 

  

	 	ii.	On June 1, 2009 (for the six month rate period of July 1, 2009 ending December 31, 2009, based on the twenty trading days immediately preceding June 1,
2009), 

  

	 	iii.	On December 1, 2009 (for the six month rate period of January 1, 2010 ending June 30, 2010, based on the twenty trading days immediately preceding
December 1, 2009), and 

  

 - 2 - 

	 	iv.	On June 1, 2010 (for the six month rate period of July 1, 2010 ending December 31, 2010, based on the twenty trading days immediately preceding June 1,
2010). 

  

	 	D.	For purposes of determining a particular customer’s eligibility for either the fixed rate or the indexed Small C&I customer rate during the next calendar year, Duquesne
Light shall evaluate the customer’s 12 most recent months of monthly metered demand for that customer available in October of the preceding year. If the customer’s monthly metered demand is less than 25 kW in each of the 12 months, then
that customer shall be eligible for the fixed default service rate for the next calendar year and automatically assigned to that rate as their default service rate effective with their January billing. However, if the customer’s monthly metered
demand is 25 kW or greater for any single month of the 12 month period, then that customer shall be eligible for the indexed default service rate for the next calendar year and automatically assigned to that rate as their default service rate
effective with their January billing. In no instance, shall a customer be eligible for more than one default service offering at a time. A new GS/GM or GMH customer or GS/GM and GMH customers with limited or no historical data shall be eligible for
and assigned to the applicable default service based on Duquesne Light’s estimate of the customer’s peak monthly metered demand for the next 12 month period. 

  

	 	E.	As set forth in Duquesne Light’s Petition, declining block energy rates for Rate GS customers will be eliminated as of January 1, 2008. Declining block energy rates for
Rate GM and GMH customers with a monthly metered demand less than 25 kW will be phased out by January 1, 2010. Declining block energy rates for Rate GM and GMH customers with a monthly metered demand that is 25 kW or greater will be eliminated
on January 1, 2008. For 2008 and 2009, the declining block energy rates will be combined into a single rate. These rates are shown on Attachment B. 

  

	 	F.	Supply related demand charges for Small C&I customers will be phased out by January 1, 2010, as set forth in Duquesne Light’s Petition. 

  

	 	G.	Rider No. 5, Time of Day Discounts, will terminate on December 31, 2010. 

  

	 	H.	Ancillary service and PJM administrative costs for Small C&I customers will be recovered through the TSC as set forth in Exhibit NJDK-3 of Duquesne St. No. 5.

  

	3.	LARGE C&I CUSTOMERS. 

  

	 	A.	Duquesne Light shall offer large commercial and industrial (“Large C&I”) customers default service at real-time hourly rates. Large C&I rate schedules include
Rates GL, GLH, L and HVPS. 

  

	 	B.	Fixed Price Service Rider No. 8 is eliminated. Rule 45.2 regarding switching rules will be revised to eliminate its applicability to Large C&I rate schedules. In addition,
Rider No. 23 (Generation Rate Adjustment) will be eliminated as it is only applicable to customers electing Rider No. 8. 

  

	 	C.	Rider No. 9 is revised to reflect a fixed administrative cost adder of $3.97 per MWh as set forth in Exhibit NJDK-3 of Duquesne St. No. 5. 

  

 - 3 - 

	4.	LIGHTING CUSTOMERS. 

  

	 	A.	Duquesne Light shall offer lighting customers (Rate Schedules AL, SE, SM, SH, UMS and PAL) default service at the rates set forth in Exhibit WVP-1 of Duquesne Statement No. 4
for the period January 1, 2008, through December 31, 2010. 

  

	 	B.	Ancillary service and PJM administrative costs for Lighting customers will be recovered through the TSC as set forth in Exhibit NJDK-3 of Duquesne St. No. 5.

  

	5.	PURCHASE OF RECEIVABLES PROGRAM. 

 Duquesne
Light’s Purchase of Receivables (“POR”) Program, as explained in the testimony of Nancy J. D. Krajovic and set forth as Exhibit NJDK-1 of Duquesne St. No. 5, is approved. 
  

	6.	POWER PROCUREMENT. 

 Duquesne Light is authorized to
procure power for its Residential, Small C&I and Lighting default service customers through an amendment to its full requirements contract with its affiliate, Duquesne Power. The amendment to the contract is approved as an affiliated interest
agreement. Duquesne Power will rely on competitive wholesale market purchases in PJM to obtain power for Duquesne Light’s default service customers. 
  

	7.	TARIFF MODIFICATIONS. 

 Duquesne Light is authorized
to implement the changes to its Tariff Electric Pa. P.U.C. No. 24 that are reflected in Exhibit NJDK-3 of Duquesne St. No. 5 except that the tariff will be further modified to reflect the changes that are required by this Stipulation.

  

	8.	RATE INCREASES. 

 Duquesne Light agrees not to seek
a rate increase in default service rates (other than the adjustments specifically provided for herein with regard to Small C&I customers and as set forth in Duquesne Light’s Petition and supporting testimony) unless (i) Duquesne Power
defaults on its power contract with Duquesne Light, and (ii) Duquesne Light Holdings defaults on its parent guarantee, and (iii) these defaults threaten the financial ability of Duquesne Light to continue providing reliable service to its
customers. Duquesne Light also may seek a rate increase in default service rates in the event necessary regulatory approvals to carry out the default service plan as proposed by Duquesne Light and modified by the Stipulation are not obtained or
maintained or if substantial modifications are required as a result of regulatory requirements. 
  

	9.	MISCELLANEOUS PROVISIONS. 

  

	 	A.	Except as modified herein, the Petition of Duquesne Light Company For Approval Of Default Service Plan For The Period January 1, 2008 Through December 31, 2010 is
approved. 

  

 - 4 - 

	 	B.	Given the recent approval of the merger settlement at Docket Nos. A-110150F0035 and A-311233F0002 by the Pennsylvania Public Utility Commission, the cost allocation/cross subsidy
issues raised by Strategic Energy, LLC and the Retail Energy Supply Association have become moot in this proceeding. 

  

	 	C.	In the event the Commission adopts final default service regulations that become effective prior to January 1, 2011, and they apply to plans filed prior to the effective date,
Duquesne Light will be granted a waiver of those regulations to the extent that they conflict with the provisions of this Stipulation. 

  

	 	D.	This Stipulation may not be cited as precedent in any future proceedings, except to the extent required to implement or enforce the Stipulation. 

  

	 	E.	It is understood and agreed among the Parties that the Stipulation is the result of compromise, and does not necessarily represent the positions that would be advanced by any party
in this proceeding absent the Stipulation. 

  

	 	F.	The Parties will support or not oppose this Stipulation at hearing and in any briefs that are filed in this proceeding and at all stages of this proceeding going forward from the
date hereof. 

  

	 	G.	The Stipulation may only be amended by a written document duly agreed to and executed by the Parties. 

  

	 	H.	The Parties stipulate that all of the pre-filed written testimony of the Parties’ witnesses will be admitted into the record without objection and to waive cross examination of
such testimony. 

 AGREED TO BY: 
  

							
	 /s/ David B. MacGregor
  
	 		  	Date:	  	4/25/07
	 David B. MacGregor
	 		  		  	
	 Michael W. Gang
	 		  		  	
	 Anthony D. Kanagy
	 		  		  	
	 Gary A. Jack
	 		  		  	
	 For Duquesne Light Company
	 		  		  	

  

							
	 /s/ Charles Daniel Shields
	 		  	Date:	  	3/25/07
	 Charles Daniel Shields
	 		  		  	
	 For Office of Trial Staff
	 		  		  	

  

 - 5 - 

							
	 /s/ Sharon E. Webb
  
	 		  		  	
	William R. Lloyd, Jr.	 		  	Date:	  	4/25/07
	Sharon E. Webb	 		  		  	
	For Office of Small Business Advocate	 		  		  	

  

									
	 /s/ Todd S. Stewart
  
	 		 		  		  	
	Todd S. Stewart	 		 		  	Date:	  	4/25/07
	Gary A. Jeffries	 		 		  		  	
	For Dominion Retail, Inc.	 		 		  		  	

 The following parties join in the parts of the Stipulation identified below and represent to the Pennsylvania
Public Utility Commission that they do not and will not oppose the remaining provisions of this Stipulation, or its terms contained herein, as resolution of this proceeding or adoption by the Commission. 
  

							
	 /s/ Tanya J. McCloskey
  
	 		 		  	
	Tanya J. McCloskey	 		 	Date:	  	4/25/07
	David T. Evrard	 		 		  	
	For Office of Consumer Advocate2	 		 		  	

  

									
	 /s/ Jerry Langdon
  
	 		 		 		  	
	Jerry Langdon	 		 		 	Date:	  	4/25/07
	Ramona C. Cataldi	 		 		 		  	
	Brian J. Knipe	 		 		 		  	
	For Reliant Energy, Inc.3	 		 		 		  	

	 2
	 The Office of Consumer Advocate
joins in paragraphs 1 and 5 through 9 of the Stipulation and does not oppose the remaining paragraphs. 

	 3
	 Reliant Energy, Inc. supports Paragraphs 3A and 3B and does not oppose the remaining paragraphs.

  

 - 6 - 

 The following parties join in the parts of the Stipulation identified below. 
  

							
	 /s/ David P. Zambito
	 		 	Date:	  	4/25/07
	David P. Zambito	 		 		  	
	For Constellation NewEnergy, Inc. and	 		 		  	
	Constellation Energy Commodities Group, Inc.4	 		 		  	

 The following parties do not join in this Stipulation but represent to the Pennsylvania Public Utility Commission
that they do not and will not oppose this Stipulation, or its terms contained herein, as resolution of this proceeding or adoption by the Commission. 
  

							
	 /s/ Nicholas A. Pasciullo
	 		 	Date:	  	4/24/07
	Nicholas A. Pasciullo	 		 		  	
	For Conservation Consultants, Inc.	 		 		  	

  

							
	 /s/ John E. McCaffrey
	 		 	Date:	  	4/25/07
	John E. McCaffrey	 		 		  	
	For Citizen Power, Inc.	 		 		  	
		 		 		  	

  

							
	 /s/ Adrian D. Newall
  
	 		 		  	
	Kent D. Murphy	 		 	Date:	  	4/26/07
	Adrian D. Newall	 		 		  	
	For Exelon Corporation and	 		 		  	
	Exelon Generation Company, LLC	 		 		  	

	 4
	 Constellation NewEnergy, Inc. and Constellation Energy Commodities Group, Inc. support only Paragraph
2.E. on the elimination of declining block energy rates on January 1, 2008 for small commercial and industrial customers with a monthly metered demand that is 25 kW or greater, and agree to waive the following rights (except as such rights relate to
advocacy in support of the terms and conditions of Paragraph 2.E): (a) to file briefs and reply briefs; (b) to file exceptions and replies to exceptions; (c) to petition for reconsideration or reopening of the Commission’s final order; (d) to
appeal the Commission’s final order; and, (e) to initiate or otherwise participate in any other proceeding before the Commission challenging the default service plan approved by the Commission. 

  

 - 7 - 

							
	 /s/ George Jugovic, Jr.
	 		 	Date:	  	 4/25/07

	George Jugovic, Jr.	 		 		  	
	For Citizens For Pennsylvania’s Future	 		 		  	

  

							
	 /s/ Kathy J. Kolich
	 		 	Date:	  	4/26/07
	Kathy J. Kolich	 		 		  	
	For FirstEnergy Solutions Corp.	 		 		  	

  

							
	 /s/ Paul F. Forshay
  
	 		 	Date:	  	4/25/07
	Paul F. Forshay	 		 		  	
	Steven S. Goldenberg	 		 		  	
	For Pennsylvania Large Energy Users Coalition	 		 		  	

  

 - 8 - 

 The following parties join in the parts of the Stipulation identified below and represent to the Pennsylvania Public
Utility Commission that they do not and will not oppose the remaining provisions of this Stipulation, or its terms contained herein, as resolution of this proceeding or adoption by the Commission. 
  

							
	 /s/ Kevin J. Moody 
  
	 		 	Date:	  	4/26/07
	 Daniel Clearfield
	 		 		  	
	 Kevin J. Moody
	 		 		  	
	 For Strategic Energy, LLC; Direct Energy, LLC and the Retail Energy Supply Association5

	 5
	 Strategic, Direct and RESA support Paragraphs 3 and 5 of the Stipulation and do not oppose the remaining
paragraphs. 

  

 - 9 - 

 Exhibit 10.1(b) 
 BEFORE THE 
 PENNSYLVANIA PUBLIC UTILITY COMMISSION 
  

							
	Petition of Duquesne Light Company	 	:	  		  	
	For Approval of Default Service Plan	 	:	  	Docket No. P-00072247	  	
	For The Period January 1, 2008	 	:	  		  	
	Through December 31, 2010	 	:	  		  	

 STIPULATION 
 Duquesne Light Company (“Duquesne Light”), Duquesne Industrial Intervenors (“DII”), Reliant Energy, Inc. (“Reliant”),
Dominion Retail, Inc. (“Dominion”), Constellation NewEnergy, Inc. and Constellation Energy Commodities Group, Inc. (collectively “Constellation”), Direct Energy Services, LLC, (“Direct”) Strategic Energy, LLC,
(“Strategic”) the Retail Energy Supply Association (“RESA”) and the Pennsylvania Large Energy Users Coalition (“PALEUC”) enter into this Stipulation to resolve all remaining issues among them in the above-captioned
proceeding by joining in or agreeing not to oppose this Stipulation. 
 Duquesne Light will provide day ahead hourly pricing as its POLR
service to its large C & I customers during the three year POLR period. Such offering shall be in accordance with the Day Ahead Pricing Guidelines, attached hereto as Exhibit A. Duquesne Light will revise its tariff in its compliance filing in
this proceeding in accordance with these guidelines. It is understood the Customer shall be responsible for all operating reserve charges and other ancillary charges associated with the day-ahead hourly price service described in the attached
guidelines. 
 It is understood and agreed among the Parties that the Stipulation is the result of compromise, and does not necessarily
represent the positions that would be advanced by any party in this proceeding absent the Stipulation. 
  

 - 10 - 

 EITHER AGREED TO BY OR NOT OPPOSED BY: 
  

							
	 /s/ David B. MacGregor
  
	 		 	Date:	 	5/2/07
	David B. MacGregor	 		 		 	
	Michael W. Gang	 		 		 	
	Anthony D. Kanagy	 		 		 	
	Gary A. Jack	 		 		 	
	For Duquesne Light Company	 		 		 	
				
	 /s/ Pamela C. Polacek
  
	 		 	Date:	 	5/2/07
	Pamela C. Polacek	 		 		 	
	Adam L. Benshoff	 		 		 	
	For Duquesne Industrial Intervenors	 		 		 	
				
	 /s/ David P. Zambito (Not Opposed)
	 		 	Date:	 	5/2/07
	David P. Zambito	 		 		 	
	For Constellation NewEnergy, Inc. and	 		 		 	
	Constellation Energy Commodities Group, Inc.	 		 		 	
				
	 /s/ Todd S. Stewart (Not Opposed)
  
	 		 	Date:	 	5/2/07
	Todd S. Stewart	 		 		 	
	Craig R. Burgraff	 		 		 	
	Gary A. Jeffries	 		 		 	
	For Dominion Retail, Inc.	 		 		 	
				
	 /s/ Paul F. Forshay (Not Opposed)
  
	 		 	Date:	 	5/1/07
	Paul F. Forshay	 		 		 	
	Steven S. Goldenberg	 		 		 	
	For Pennsylvania Large Energy Users Coalition	 		 		 	

  

 - 11 - 

							
				
	 /s/ Kevin J. Moody
  
	 		 	Date:	 	 5/1/07

	Daniel Clearfield	 		 		 	
	Kevin J. Moody	 		 		 	
	For Retail Energy Supply Association	 		 		 	
				
	 /s/ Kevin J. Moody
	 		 	 Date:
	 	5/1/07
	Daniel Clearfield	 		 		 	
	Kevin J. Moody	 		 		 	
	For Direct Energy Services, LLC	 		 		 	
				
	 /s/ Jerry Langdon (In Support)
	 		 	Date:	 	5/2/07
	 Jerry Langdon
	 		 		 	
	 Brian Knipe
	 		 		 	
	For Reliant Energy, Inc.	 		 		 	
				
	 /s/ Kevin J. Moody
  
	 		 	Date:	 	5/1/07
	Daniel Clearfield	 		 		 	
	Kevin J. Moody	 		 		 	
	For Strategic Energy, LLC	 		 		 	

  

 - 12 - 

 Exhibit 10.1(c) 
 BEFORE THE 
 PENNSYLVANIA PUBLIC UTILITY COMMISSION 
  

							
	Petition of Duquesne Light Company	 	:	  		  	
	For Approval of Default Service Plan	 	:	  	Docket No. P-00072247	  	
	For The Period January 1, 2008	 	:	  		  	
	Through December 31, 2010	 	:	  		  	

 STIPULATION 
 Duquesne Light Company (“Duquesne Light”), Direct Energy Services, LLC (“Direct”) and the Office of Small Business Advocate
(“OSBA”) enter into this Stipulation to resolve all remaining issues among them in the above-captioned proceeding. 
  

	 	1.	Direct supports or does not oppose the Stipulation among various parties dated April 25, 2007, in the above-captioned proceeding (the “General Stipulation”).

  

	 	2.	No later than three months after the Commission’s order approving this Stipulation and the General Stipulation, Duquesne Light will convene a collaborative regarding a Market
Share Threshold (“MST”) program offering a discount to approved POLR rates. The program will be limited to 5,000 GS and GM customers with maximum measured peak demands of less than 25 kW. Duquesne Light, the OSBA and Direct will
participate in that collaborative. Other parties in the above-captioned proceeding also will be invited to participate. 

  

	 	3.	If Duquesne Light, the OSBA and Direct agree on a proposal, it will be filed as a Joint Petition with the Commission for approval. Duquesne Light’s affiliated electric
generation supplier will be permitted to participate as a bidder in the MST program. The MST program shall commence on the date approved by the Pennsylvania Public Utility Commission and end on December 31, 2010. 

  

 - 13 - 

	 	4.	If a Joint Petition is filed, all other parties in the above-captioned proceeding shall have the right to support or oppose the Joint Petition. 

	 	5.	If the collaborative does not produce a consensus proposal by April 1, 2008, Direct may file a Petition seeking Commission approval of an MST proposal consistent with the terms
set forth in Paragraphs 2 and 3. 

 AGREED TO BY: 
  

							
	 /s/ David B. MacGregor
  
	 	 	 	Date:	 	4/26/07
	David B. MacGregor	 		 		 	
	Michael W. Gang	 		 		 	
	Anthony D. Kanagy	 		 		 	
	Gary A. Jack	 		 		 	
	For Duquesne Light Company	 		 		 	
				
	 /s/ Sharon E. Webb
  
	 		 	Date:	 	4/26/07
	William R. Lloyd, Jr.	 		 		 	
	Sharon E. Webb	 		 		 	
	For Office of Small Business Advocate	 		 		 	
				
	 /s/ Kevin J. Moody
  
	 		 	Date:	 	4/26/07
	Daniel Clearfield	 		 		 	
	Kevin J. Moody	 		 		 	
	For Direct Energy Services, LLC	 		 		 	

  

 - 14 -Waiver and Amendment to Loan Agreement

 Exhibit 10.7 
 WAIVER AND AMENDMENT 
 WAIVER AND AMENDMENT, dated as of March 31, 2007, to that certain Loan
Agreement, dated as of September 29, 2006 (the “Closing Date”) (the “Loan Agreement”), between RACKABLE SYSTEMS, INC., a corporation organized under the laws of the State of Delaware (“Borrower”), and HSBC Bank
USA, National Association a bank organized under the laws of the United States (“Bank”). 
 BACKGROUND 
 Borrower has requested that Bank waive compliance with a certain term of the Loan Agreement and amend a term of the Loan Agreement, and the Bank is
willing to do so on the terms and conditions hereafter set forth. 
 NOW, THEREFORE, in consideration of any loan or advance or grant of
credit heretofore or hereafter made to or for the account of Borrower by Bank, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 
  

	 	1.	Definitions. 

 All capitalized terms not otherwise
defined herein shall have the meanings given to them in the Loan Agreement. 
  

	 	2.	Waiver. 

 Bank hereby waives Borrower’s
compliance with Section 4.1(d), of the Loan Agreement for the fiscal quarter ended March 31, 2007. 
  

	 	3.	Amendment. 

 From and after the date of this Waiver
and Amendment becoming effective in accordance with Section 4 below, paragraph 4.1(d) shall be amended in its entirety to read as follows: 
 “Net Income. The Borrower shall not permit its Net Income to be less than $1.00 for any two consecutive fiscal quarters, excluding the impact of Stock Compensation Charges pursuant to the requirements of FAS 123 (R) and
acquisition related charges for the Terrascale acquisition pursuant to the requirements of purchase accounting rules.” 

	 	4.	Conditions of Effectiveness. 

 This Waiver and
Amendment shall become effective upon the Bank having received three copies of this Waiver and Amendment executed by Borrower. 
  

	 	5.	Representations and Warranties. 

 In order to induce
Bank to enter into this Waiver and Amendment, Borrower hereby represents and warrants as follows: 
 The Loan Agreement continues to
constitute, the legal, valid and binding obligations of Borrower, enforceable against Borrower in accordance with their respective terms. 
 Each of the representations and warranties made by Borrower in the Loan Agreement is true and correct in all material respects on and as of the date hereof as if made on and as of the date hereof (or, if such representation or warranty is
expressly stated to have been made as of a specific date, as of such specific date). 
 No Event of Default has occurred and is continuing or
would exist after giving effect to this Waiver and Amendment. 
 Borrower has no defense, counterclaim or offset with respect to the Loan
Agreement. 
  

	 	6.	Effect on the Loan Agreement. 

 The execution,
delivery and effectiveness of this Waiver and Amendment shall not operate as a waiver of any right, power or remedy of Bank, nor constitute a waiver of any provision of the Loan Agreement, or any other documents, instruments or agreements executed
and/or delivered under or in connection therewith. 
  

	 	7.	Governing Law. 

 This Waiver and Amendment shall be
binding upon and inure to the benefit of the parties hereto and their respective successors and assigns and shall be governed by and construed in accordance with the laws of the State of California. 
  

	 	8.	Headings. 

 Section headings in this Waiver and
Amendment are included herein for convenience of reference only and shall not constitute a part of this Waiver and Amendment for any other purpose. 
  

	 	9.	Counterparts; Facsimile. 

 This Waiver and Amendment
may be executed by the parties hereto in one or more counterparts, each of which shall be deemed an original and all of which when taken together shall constitute one and the same agreement. Any signature delivered by a party by facsimile
transmission shall be deemed to be an original signature hereto. 

 IN WITNESS WHEREOF, this Waiver and Amendment has been duly executed as of the day and year first written
above. 
  

			
	RACKABLE SYSTEMS, INC.
		
	By:	 	 /s/ Madhu Ranganathan

	Name:	 	Madhu Ranganathan
	Title:	 	Chief Financial Officer
	
	HSBC BANK USA, NATIONAL ASSOCIATION
		
	By:	 	 /s/ David C. Hants

	Name:	 	David C. Hants
	Title:	 	Senior Vice President

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