To use newer kernels - you need to move to FOG 1.3.0 Release Candidate 8.
1.2.0 only supports kernels up to a certain version, don’t remember what that is but honestly it doesn’t even matter at this point. If you have any problems at all with 1.2.0, the answer is 95% of the time going to be - Move to the latest 1.3.0 RC.
You should not attempt to upgrade if you’re server is on an old Linux distribution, I.E. CentOS 6, Ubuntu 12, Ubuntu 10, Fedora 18, etc. I’d also not advise trying to upgrade a server OS to something newer, it never goes well - there’s always some gotcha that we don’t know about that takes days to figure out - and that’s if the upgrade doesn’t just flat fail. I’d advise building a new server - so you don’t jeopardize your old one, and once it’s going, just migrate things over.
As an update to this I can image smaller batches of 10 with no issue. That would tend to indicate a load, memory leak, or process leak issue. Let me know if you need more troubleshooting on my end to narrow this down. I’ll proceed in smaller batches for now so that I can get everything prepped by my deadlines but I can set up larger batches for testing this as needed.