Exhibit 10.26
Rackable Systems, Inc.
721 Charcot Avenue
San Jose, CA 95131
December 23, 2002
Parthenon Capital, LLC
200 State Street
Boston, Massachusetts 94111
Ladies and Gentlemen:
1. Agreement.
This letter agreement (the
“Advisory Agreement” ) confirms that Rackable
Systems, Inc., a Delaware corporation (formerly known as Rackable
Corporation, the “Company” and, together with
its subsidiaries, the “Companies” ) has engaged
Parthenon Capital, LLC ( “PC” ) to act as its
business advisor. PC shall render advisory services to the
Companies and shall make available the services of certain of its
employees to advise the Companies, and to assist and support the
management of the Companies on business matters, in each case to
the extent mutually agreed upon by the parties hereto. Such
advisory services may include but are not limited to: support of
management, board and committee participation, advice with respect
to development and implementation of strategies for the operating,
marketing and financial performance of the Companies, evaluation of
acquisition opportunities, if any, evaluation of corporate
initiatives, assistance in obtaining financing and operations under
any financing agreements.
2. Fees and Expenses.
During the term of PC’s
engagement hereunder, the Companies jointly and severally agree to
pay the following:
(a) Monitoring Fee.
The Companies shall pay, or cause
to be paid, to PC a fee equal to $210,000 per annum, in advance in
quarterly installments of $52,500 each (a
“Payment” ), on March 31, June 30, September 30,
and December 31 of each year; provided, that, should this letter
agreement be terminated for any reason prior to the end of a
quarter with respect to which PC has received a Payment, PC shall
not be obligated to return any portion of such Payment and provided
further, that, the first Payment shall be due as of the date
hereof.
(b) Closing Fee.
On the date hereof, the Companies
shall pay, or cause to be paid, to PC a fee equal to $210,000 for
services rendered in connection with the structuring of the
transactions contemplated by the Securities Purchase Agreement (the
“Securities Purchase Agreement” ), dated as of
the date hereof, between such affiliates and the Company, plus
out-of-pocket fees and expenses incurred in connection therewith or
related thereto.
(c) Funding Fee.
In addition, immediately upon the
closing of each investment by PC or its affiliates in one or more
of the Companies (including, without limitation, pursuant to
Section 1.4 of the Securities Purchase Agreement of the Company),
the Companies shall pay, or cause to be paid, to PC a transaction
fee equal to 1% of the aggregate amounts funded by PC and/or its
affiliates in connection with such closing, plus out-of-pocket fees
and expenses incurred in connection therewith or related
thereto.
(d) Expenses.
(i) Out of Pocket.
The Companies shall reimburse PC,
upon request from time to time, for all of PC’s reasonable
out-of-pocket expenses incurred in connection with the provision of
services hereunder or the attendance at any meeting of the board of
managers (or other similar governing body) of the Companies or any
committee thereof related to the services PC shall provide the
Companies in accordance with this Advisory Agreement or otherwise
in any way relating to the Companies or in any way relating to, or
arising out of, the direct or indirect investment in or ownership
of the Companies (or their respective parent(s)) by any fund
affiliated with PC.
(ii) Legal and Other Fees and
Expenses. The Companies
shall reimburse PC for the reasonable fees and disbursements of
legal counsel, accountants, other consultants and advisors, related
to the services PC shall provide the Companies in accordance with
this Advisory Agreement.
(iii) Acquisition or Financing
Expenses. The Companies
shall reimburse PC for any documented out-of-pocket expenses in
connection with add-on acquisitions or financings for the
Companies.
(iv) Other Customary
Fees. The Companies shall
pay PC for any mutually agreeable customary fees, otherwise payable
to third party providers in connection with strategic advisory
services provided by PC.
(v) Other Customary Financing
Fees. The Companies shall
pay PC for any mutually agreeable customary fees in connection with
PC’s participation in the evaluation, negotiation and/or
consummation of senior financing for any acquisition transactions
by the Companies, which such fee may be based upon a percentage of
the gross purchase price of the transaction (including all
liabilities assumed or otherwise included in the transaction), such
fee to be due and payable for the foregoing services at the closing
of the transaction, whether or not any such senior financing is
actually applied for, committed or drawn upon.
3. Payments.
All fees shall be payable pursuant
to this Advisory Agreement shall be paid by wire transfer of
immediately available funds to PC or, at PC’s direction, to
its designees and shall be paid irrespective of the level, quality
or amount of service provided. Without in any way limiting any
rights or remedies that PC ma
