Exhibit 10.44

 

[g161271koi001.jpg]

 

4820 Overland Ave.

San Diego, CA 92123-1599

(858) 571-5555

(858) 495-4267 fax

 

EMPLOYMENT AGREEMENT

 

This Employment Agreement (“Agreement”), which shall become effective on May 16,
2005, sets forth the terms and conditions of employment agreed upon by and
between Overland Storage, Inc. (“Employer” or the “Company”) and
W. Michael Gawarecki (“Executive”).

 

The parties agree as follows:

 

1.                                       Positions and Duties.  Executive will
be employed by the Company in the position of Vice President reporting to the
Company’s Chief Executive Officer (the “CEO”), and shall do and perform all
services, acts or things necessary or advisable to manage and conduct the
business of the Company consistent with the bylaws of the Company and as
required by the CEO.

 

1.1                                 BEST EFFORTS/FULL-TIME.  DURING THE
EMPLOYMENT TERM (AS DEFINED IN PARAGRAPH 1.2 HEREIN), EXECUTIVE WILL ACT IN THE
BEST INTERESTS OF EMPLOYER AND DEVOTE HIS FULL BUSINESS TIME AND BEST EFFORTS TO
THE PERFORMANCE OF HIS DUTIES UNDER THIS AGREEMENT.  EXECUTIVE AGREES TO BE
AVAILABLE TO RENDER SUCH SERVICES AT ALL REASONABLE TIMES AND PLACES AND IN
ACCORDANCE WITH EMPLOYER’S DIRECTIVES.

 

EXECUTIVE SHALL BE ASSIGNED TO WORK IN THE COMPANY’S CORPORATE OFFICES IN SAN
DIEGO, CALIFORNIA, BUT MAY BE REQUIRED TO TRAVEL IN CONNECTION WITH HIS DUTIES. 
EXECUTIVE WILL ABIDE BY ALL POLICIES, PROCEDURES, AND DECISIONS MADE BY
EMPLOYER, AS WELL AS ALL FEDERAL, STATE AND LOCAL LAWS, REGULATIONS OR
ORDINANCES APPLICABLE TO HIS EMPLOYMENT.

 

DURING HIS EMPLOYMENT, EXECUTIVE MUST NOT ENGAGE IN ANY WORK, PAID OR UNPAID,
THAT CREATES AN ACTUAL OR POTENTIAL CONFLICT OF INTEREST WITH EMPLOYER’S
BUSINESS INTERESTS AND IF, IN THE OPINION OF THE COMPANY’S BOARD OF DIRECTORS,
AN ACTUAL OR POTENTIAL CONFLICT EXISTS, THE BOARD MAY IN ITS SOLE DISCRETION
REQUIRE EXECUTIVE TO CHOOSE TO EITHER (I) DISCONTINUE THE OTHER WORK OR
(II) RESIGN FROM HIS EMPLOYMENT WITH EMPLOYER.  IT IS ANTICIPATED THAT EXECUTIVE
SHALL GENERALLY DEVOTE NO LESS THAN 40 HOURS PER WEEK TO HIS DUTIES FOR
EMPLOYER.

 

1

--------------------------------------------------------------------------------

 

1.2                                 TERM OF EMPLOYMENT.  THIS AGREEMENT SHALL
COMMENCE ON THE EFFECTIVE DATE AND, UNLESS TERMINATED BY EITHER PARTY IN
ACCORDANCE WITH PARAGRAPH 5 HEREIN, SHALL CONTINUE UNTIL JUNE 30, 2006.  THE
PERIOD OF EMPLOYMENT HEREUNDER SHALL BE REFERRED TO HEREIN AS THE “EMPLOYMENT
TERM”.  EXCEPT AS PROVIDED IN PARAGRAPH 6, THIS AGREEMENT SHALL CONTINUE DURING
THE EMPLOYMENT TERM TO GOVERN THE TERMS AND CONDITIONS OF EXECUTIVE’S
EMPLOYMENT, UNLESS MODIFIED BY THE PARTIES HERETO IN WRITING.  EXCEPT AS
OTHERWISE PROVIDED HEREIN, ALL RIGHTS AND OBLIGATIONS HEREUNDER SHALL TERMINATE
UPON THE EXPIRATION OF THE EMPLOYMENT TERM.  THE EMPLOYMENT TERM SHALL NOT BE
DEEMED EXTENDED OR RENEWED WITHOUT THE EXPRESS WRITTEN CONSENT OF THE PARTIES
HERETO.

 

1.3                                 “AT WILL” EMPLOYMENT.  EXECUTIVE’S
EMPLOYMENT WITH THE COMPANY IS AT WILL AND MAY BE TERMINATED BY EXECUTIVE OR BY
THE COMPANY AT ANY TIME FOR ANY REASON, WITH OR WITHOUT CAUSE, SUBJECT TO THE
TERMS AND CONDITIONS OF THIS AGREEMENT.

 

2.               COMPENSATION.

 

2.1                                 BASE SALARY.  AS COMPENSATION FOR THE PROPER
AND SATISFACTORY PERFORMANCE OF ALL DUTIES UNDER THIS AGREEMENT, EXECUTIVE SHALL
EARN AN INITIAL GROSS ANNUAL BASE SALARY OF $246,500 ($9,480.77 GROSS PER
BI-WEEKLY PAYROLL PERIOD), LESS ALL LEGALLY REQUIRED PAYROLL DEDUCTIONS AND
WITHHOLDINGS, PAYABLE IN ACCORDANCE WITH EMPLOYER’S NORMAL PAYROLL PRACTICES
(“BASE SALARY”).  THE BASE SALARY IS SUBJECT TO INCREASE FROM TIME TO TIME IN
THE SOLE DISCRETION OF THE COMPENSATION COMMITTEE.

 

2.2                                 DISCRETIONARY MBO BONUS.  IN ADDITION,
EXECUTIVE WILL BE ELIGIBLE TO PARTICIPATE IN THE COMPANY’S EXECUTIVE MANAGEMENT
BY OBJECTIVE (“MBO”) BONUS PLAN AND TO RECEIVE, IN THE SOLE DISCRETION OF THE
COMPENSATION COMMITTEE OF THE BOARD, A QUARTERLY BONUS FOR EACH QUARTER OF THE
EMPLOYMENT TERM OF UP TO FORTY PERCENT (40%) OF HIS QUARTERLY BASE SALARY, OR
SUCH OTHER AMOUNT AS DETERMINED BY THE COMPENSATION COMMITTEE OF THE BOARD,
BASED ON (1) SUCCESSFUL ACHIEVEMENT BY EXECUTIVE OF MBO PERFORMANCE OBJECTIVES
TO BE DETERMINED BY THE COMPENSATION COMMITTEE OF THE BOARD, AND (2) SUCCESSFUL
ACHIEVEMENT BY THE COMPANY OF QUARTERLY EARNINGS PER SHARE GOALS ESTABLISHED BY
THE BOARD OF DIRECTORS.

 

2.3                                 OUTSOURCING PROJECT BONUS.  IN ADDITION,
CONDITIONED UPON (1) THE SUCCESSFUL COMPLETION OF THE COMPANY’S MANUFACTURING
OUTSOURCING PROJECT (THE “PROJECT”) NO LATER THAN JULY 3, 2005, WHEREBY ALL OF
THE COMPANY’S MANUFACTURING ACTIVITY TAKING PLACE IN SAN DIEGO, CALIFORNIA WILL
BE RELOCATED TO SANMINA-SCI CORPORATION IN RAPID CITY, SOUTH DAKOTA, AND
(2) MAINTENANCE OF SATISFACTORY PRODUCT QUALITY AND DELIVERY TIMES DURING THE
SIX MONTHS FOLLOWING COMPLETION OF THE PROJECT IN ACCORDANCE WITH EXHIBIT B
HERETO, EXECUTIVE WILL RECEIVE AN ADDITIONAL, ONE-TIME, BONUS EQUAL TO
$100,000.00 (THE “OUTSOURCING PROJECT BONUS”).  THE DETERMINATION OF WHETHER OR
NOT THE PERFORMANCE OBJECTIVES FOR THE OUTSOURCING PROJECT BONUS HAVE BEEN
ACHIEVED SHALL BE MADE AT THE SOLE DISCRETION OF THE COMPENSATION COMMITTEE OF
THE BOARD.  THE OUTSOURCING PROJECT BONUS, IF EARNED, WILL BE PAID TO EXECUTIVE
WITHIN THIRTY (30) DAYS FOLLOWING THE END OF THE SIXTH MONTH FOLLOWING
COMPLETION OF THE PROJECT.

 

2

--------------------------------------------------------------------------------

 

3.               CUSTOMARY FRINGE BENEFITS.  EXECUTIVE SHALL BE ELIGIBLE FOR ALL
CUSTOMARY AND USUAL BENEFITS GENERALLY AVAILABLE TO ALL EXECUTIVE LEVEL
EMPLOYEES OF EMPLOYER, AS DETERMINED IN THE SOLE AND ABSOLUTE DISCRETION OF
EMPLOYER AND SUBJECT TO THE TERMS AND CONDITIONS SET FORTH IN THE APPLICABLE
BENEFIT PLAN OR POLICY.  EMPLOYER RESERVES THE RIGHT TO CHANGE OR ELIMINATE ANY
OF THE FRINGE BENEFITS PROVIDED TO EXECUTIVE LEVEL EMPLOYEES ON A PROSPECTIVE
BASIS AT ANY TIME, AT EMPLOYER’S SOLE AND ABSOLUTE DISCRETION.  EXECUTIVE
UNDERSTANDS THAT ALL BENEFITS PROVIDED IN THIS PARAGRAPH MAY BE REDUCED BY, OR
SUBJECT TO, ALL LEGALLY REQUIRED TAXES.

 

4.               BUSINESS EXPENSES.  EXECUTIVE WILL BE REIMBURSED FOR ALL
REASONABLE, OUT-OF-POCKET BUSINESS EXPENSES INCURRED IN THE PERFORMANCE OF HIS
DUTIES ON BEHALF OF EMPLOYER AS PERMITTED BY AND SUBJECT TO EXECUTIVE’S
COMPLIANCE WITH THE COMPANY’S ESTABLISHED EXPENSE REIMBURSEMENT POLICY.

 

5.               TERMINATION.

 

5.1                                 TERMINATION FOR CAUSE BY EMPLOYER.  EMPLOYER
MAY TERMINATE EXECUTIVE’S EMPLOYMENT UNDER THIS AGREEMENT IMMEDIATELY AT ANY
TIME FOR “CAUSE”, WHICH SHALL INCLUDE, BUT IS NOT LIMITED TO:  (A) ACTS OR
OMISSIONS CONSTITUTING GROSS NEGLIGENCE, RECKLESSNESS OR WILLFUL MISCONDUCT ON
THE PART OF EXECUTIVE WITH RESPECT TO HIS OBLIGATIONS OR OTHERWISE RELATING TO
THE BUSINESS OF EMPLOYER; (B) EXECUTIVE’S MATERIAL BREACH OF THIS AGREEMENT;
(C) EXECUTIVE’S CONVICTION OR ENTRY OF A PLEA OF NOLO CONTENDERE FOR FRAUD,
MISAPPROPRIATION OR EMBEZZLEMENT, OR ANY FELONY OR CRIME OF MORAL TURPITUDE;
(D) EXECUTIVE’S DISHONESTY OR INVOLVEMENT IN ANY CONDUCT THAT ADVERSELY AFFECTS
EMPLOYER’S NAME OR PUBLIC IMAGE OR IS OTHERWISE DETRIMENTAL TO EMPLOYER’S
BUSINESS INTERESTS; (E) EXECUTIVE’S WILLFUL NEGLECT OF DUTIES AS DETERMINED IN
THE SOLE AND EXCLUSIVE DISCRETION OF EMPLOYER; OR (F) EXECUTIVE’S DEATH.

 

5.1.1.                     Entitlements Upon Termination for Cause.  In the
event that Executive’s employment is terminated for Cause in accordance with
paragraph 5.1, Executive shall be entitled to receive:  (a) the Base Salary then
in effect, prorated to the date of termination; (b) any performance bonuses
earned prior to the date of termination; and (c) any expense reimbursements to
which Executive is entitled by virtue of his prior employment with Employer
(collectively, (a), (b) and (c) above are referred to herein as the “Standard
Entitlements”).  In the event of such termination for Cause, Executive shall not
be entitled to receive (i) the Severance Payment (as defined in paragraph 5.2
below), or any part thereof, (ii) any unearned bonus amounts or (iii) any
further vesting of stock options; and all other obligations of Employer to
Executive pursuant to this Agreement shall automatically terminate and be
completely extinguished.

 

5.2                                 TERMINATION WITHOUT CAUSE BY EMPLOYER. 
EMPLOYER MAY TERMINATE EXECUTIVE’S EMPLOYMENT WITHOUT CAUSE AT ANY TIME.  IF
EMPLOYER TERMINATES EXECUTIVE’S EMPLOYMENT WITHOUT CAUSE, EXECUTIVE SHALL BE
ENTITLED TO RECEIVE THE STANDARD ENTITLEMENTS AND, IF EARNED AS OF THE DATE OF
TERMINATION AND UNPAID, THE OUTSOURCING PROJECT BONUS.  IN ADDITION TO THE
ABOVE, IN THE EVENT THAT, PRIOR TO THE EXPIRATION OF THE EMPLOYMENT TERM,
(I) EMPLOYER TERMINATES EXECUTIVE’S EMPLOYMENT WITHOUT CAUSE AND

 

3

--------------------------------------------------------------------------------

 

(II) EXECUTIVE COMPLIES WITH THE CONDITIONS IN PARAGRAPH 5.2.1 BELOW, EXECUTIVE
WILL BE ENTITLED TO AN AGGREGATE SEVERANCE PAYMENT EQUAL TO 100% OF EXECUTIVE’S
THEN ANNUAL BASE SALARY (THE “SEVERANCE PAYMENT”), PAYABLE AT EXECUTIVE’S CHOICE
IN EITHER A LUMP-SUM AMOUNT OR IN 12 EQUAL MONTHLY PAYMENTS WITHOUT INTEREST.
 UPON EXECUTIVE’S TERMINATION WITHOUT CAUSE, SUBJECT TO THE CONDITIONS OF ANY
STOCK OPTIONS PREVIOUSLY GRANTED RELATING TO ANY SHARES OF THE EMPLOYER’S COMMON
STOCK, ALL OF EMPLOYER’S OTHER OBLIGATIONS PURSUANT TO THIS AGREEMENT SHALL
TERMINATE AUTOMATICALLY AND EXTINGUISH COMPLETELY FOLLOWING THE DATE OF SUCH
TERMINATION WITHOUT CAUSE.

 

5.2.1.                     Conditions to Receive Severance Payments.  The
Severance Payment will be paid provided that Executive executes a full general
release in the form attached hereto as Exhibit A, releasing all claims, known or
unknown, that Executive may have against Employer arising out of or in any way
related to Executive’s employment or termination of employment with Employer. 
The payment will be made after expiration of the rescission period referenced in
Section 3 of Exhibit A.

 

5.3                                 VOLUNTARY RESIGNATION BY EXECUTIVE FOR GOOD
REASON. EXECUTIVE MAY VOLUNTARILY RESIGN HIS POSITION WITH EMPLOYER AT ANY TIME
PROVIDED THAT HE DELIVERS TO THE BOARD AT LEAST THIRTY (30) DAYS’ ADVANCE
WRITTEN NOTICE OF HIS RESIGNATION. IN THE EVENT THAT HIS RESIGNATION IS FOR GOOD
REASON (AS DEFINED BELOW), EXECUTIVE WILL BE ENTITLED TO RECEIVE THE STANDARD
ENTITLEMENTS AND, IF EARNED AS OF THE DATE OF TERMINATION AND UNPAID, THE
OUTSOURCING PROJECT BONUS.  IN ADDITION TO THE ABOVE, IN THE EVENT THAT, PRIOR
TO THE EXPIRATION OF THE EMPLOYMENT TERM, (I) EXECUTIVE VOLUNTARILY RESIGNS FOR
GOOD REASON AND (II) EXECUTIVE COMPLIES WITH THE CONDITIONS IN PARAGRAPH 5.2.1
ABOVE, EXECUTIVE WILL BE ENTITLED TO RECEIVE THE SEVERANCE PAYMENT. IN THE EVENT
OF SUCH RESIGNATION FOR GOOD REASON, ALL OF EMPLOYER’S OTHER OBLIGATIONS
PURSUANT TO THIS AGREEMENT SHALL TERMINATE AUTOMATICALLY AND EXTINGUISH
COMPLETELY FOLLOWING THE DATE OF SUCH RESIGNATION FOR GOOD REASON. EXECUTIVE
WILL BE DEEMED TO HAVE RESIGNED FOR “GOOD REASON” IN THE FOLLOWING
CIRCUMSTANCES: (A) EMPLOYER REDUCES EXECUTIVE’S BASE SALARY BY MORE THAN TWENTY
PERCENT (20%), UNLESS THE REDUCTION IS MADE AS PART OF, AND IS GENERALLY
CONSISTENT WITH, A GENERAL REDUCTION OF OTHER SENIOR EXECUTIVE SALARIES; OR
(B) EMPLOYER RELOCATES EXECUTIVE’S PRINCIPAL PLACE OF WORK TO A LOCATION MORE
THAN FIFTY (50) MILES FROM EMPLOYER’S CURRENT LOCATION WITHOUT HIS PRIOR WRITTEN
APPROVAL.

 

5.4                                 VOLUNTARY RESIGNATION BY EXECUTIVE WITHOUT
GOOD REASON.  IN THE EVENT THAT EXECUTIVE’S RESIGNATION IS WITHOUT GOOD REASON,
EXECUTIVE WILL BE ENTITLED TO RECEIVE THE STANDARD ENTITLEMENTS, BUT EXECUTIVE
SHALL NOT BE ENTITLED TO RECEIVE (I) THE SEVERANCE PAYMENT, OR ANY PART THEREOF,
(II) ANY UNEARNED BONUS AMOUNTS OR (III) ANY FURTHER VESTING OF STOCK OPTIONS;
AND ALL OTHER OBLIGATIONS OF EMPLOYER TO EXECUTIVE PURSUANT TO THIS AGREEMENT
SHALL AUTOMATICALLY TERMINATE AND BE COMPLETELY EXTINGUISHED.

 

6.                                       Termination Upon Change of Control.  In
the event of a “Change of Control” (as defined in Executive’s existing Retention
Agreement with the Company), Employer’s obligations to Executive pursuant to
paragraph 5 above shall terminate automatically and extinguish completely.

 

4

--------------------------------------------------------------------------------

 

7.                                       CONFIDENTIALITY/INTELLECTUAL PROPERTY
AGREEMENT AND INSIDER TRADING POLICY.  EXECUTIVE AGREES THAT HE HAS READ,
SIGNED, AND WILL ABIDE BY THE TERMS AND CONDITIONS OF EMPLOYER’S
CONFIDENTIALITY/INTELLECTUAL PROPERTY AGREEMENT AND EMPLOYER’S INSIDER TRADING
POLICY.

 

Executive recognizes that his employment with the Company will involve contact
with information of substantial value to the Company which gives the Company an
advantage over its competitors who do not know or use it, including but not
limited to, techniques, designs, drawings, processes, inventions, developments,
equipment, prototypes, sales and customer information, and business and
financial information relating to the business, products, practices and
techniques of the Company (hereinafter referred to as “Confidential and
Proprietary Information”).  Executive will at all times regard and preserve as
confidential such Confidential and Proprietary Information obtained by Executive
from whatever source and will not, either during his employment with the Company
or thereafter, publish or disclose any part of such Confidential and Proprietary
Information in any manner at any time, or use the same except on behalf of the
Company, without the prior written consent of the Company.

 

8.               NON-COMPETITION.  DURING THE EMPLOYMENT TERM, EXECUTIVE SHALL
DEVOTE EXECUTIVE’S FULL BUSINESS ENERGIES, INTEREST, ABILITIES AND PRODUCTIVE
TIME TO THE PROPER AND EFFICIENT PERFORMANCE OF EXECUTIVE’S DUTIES UNDER THIS
AGREEMENT.

 

EXCEPT WITH THE PRIOR WRITTEN CONSENT OF EMPLOYER, EXECUTIVE WILL NOT, DURING
THE EMPLOYMENT TERM, OR ANY PERIOD DURING WHICH EXECUTIVE IS RECEIVING
COMPENSATION OR ANY OTHER CONSIDERATION FROM EMPLOYER, ENGAGE IN COMPETITION
WITH EMPLOYER, EITHER DIRECTLY OR INDIRECTLY, IN ANY MANNER OR CAPACITY, AS
ADVISER, PRINCIPAL, AGENT, PARTNER, OFFICER, DIRECTOR, EMPLOYEE, MEMBER OF ANY
ASSOCIATION OR OTHERWISE, IN ANY PHASE OF THE BUSINESS OF DEVELOPING,
MANUFACTURING AND MARKETING OF PRODUCTS WHICH ARE IN THE SAME FIELD OF USE OR
WHICH OTHERWISE COMPETE WITH THE PRODUCT OR PRODUCTS ACTIVELY UNDER DEVELOPMENT
BY EMPLOYER.

 

Except as permitted herein, Executive agrees not to acquire, assume or
participate in, directly or indirectly, any position, investment or interest
known by Executive to be adverse or antagonistic to Employer, its business or
prospects, financial or otherwise. Ownership by Executive, as a passive
investment, of less than one percent (1%) of the outstanding shares of capital
stock of any corporation with one or more classes of its capital stock listed on
a national securities exchange or publicly traded in the over-the-counter market
shall not constitute a breach of this paragraph 8.

 

9.               NONSOLICITATION.  DURING THE EMPLOYMENT TERM AND FOR A PERIOD
OF ONE YEAR THEREAFTER, IRRESPECTIVE OF THE MANNER OF TERMINATION OF EMPLOYMENT,
EXECUTIVE AGREES NOT TO, DIRECTLY OR INDIRECTLY, SEPARATELY, OR IN ASSOCIATION
WITH OTHERS:  (A) INTERFERE WITH, IMPAIR, DISRUPT, OR DAMAGE EMPLOYER’S
RELATIONSHIP WITH ANY OF ITS CUSTOMERS OR PROSPECTIVE CUSTOMERS BY SOLICITING,
ENCOURAGING, OR CAUSING OTHERS TO SOLICIT OR ENCOURAGE ANY OF THEM, FOR THE
PURPOSE OF DIVERTING OR TAKING AWAY THE BUSINESS SUCH CUSTOMERS HAVE WITH
EMPLOYER; OR (B) INTERFERE WITH, IMPAIR, DISRUPT, OR DAMAGE EMPLOYER’S BUSINESS
BY SOLICITING, ENCOURAGING, OR CAUSING OTHERS TO SOLICIT OR

 

5

--------------------------------------------------------------------------------

 

ENCOURAGE, ANY OF EMPLOYER’S EMPLOYEES TO DISCONTINUE THEIR EMPLOYMENT WITH
EMPLOYER.

 

10.         AGREEMENT TO ARBITRATE.  THE PARTIES AGREE THAT ANY AND ALL
DISPUTES, CLAIMS OR CONTROVERSIES ARISING OUT OF OR RELATING TO THIS AGREEMENT,
THE EMPLOYMENT RELATIONSHIP BETWEEN THE PARTIES, THE TERMS OR CONDITIONS OF
EMPLOYMENT, OR THE TERMINATION OF THE EMPLOYMENT RELATIONSHIP, THAT ARE NOT
RESOLVED BY THEIR MUTUAL AGREEMENT SHALL BE RESOLVED BY FINAL AND BINDING
ARBITRATION AS THE EXCLUSIVE REMEDY IN ACCORDANCE WITH THE JAMS EMPLOYMENT
ARBITRATION RULES AND PROCEDURES IN EFFECT AT THE TIME ARBITRATION IS
INITIATED.  THE PARTIES HEREBY WAIVE THEIR RIGHT TO HAVE ANY DISPUTE, CLAIM OR
CONTROVERSY DECIDED BY A JUDGE OR JURY IN A COURT.  EITHER PARTY MAY COMMENCE
THE ARBITRATION PROCESS BY FILING A WRITTEN DEMAND FOR ARBITRATION WITH JAMS AND
SENDING A COPY TO THE OTHER PARTY.  THE ARBITRATION SHALL BE CONDUCTED BY ONE
NEUTRAL ARBITRATOR SELECTED BY THE PARTIES FROM A LIST OF ARBITRATORS PROVIDED
BY JAMS, OR ITS SUCCESSOR, IN SAN DIEGO, CALIFORNIA.  IF THE PARTIES ARE UNABLE
TO AGREE UPON AN ARBITRATOR FROM THE LIST PROVIDED, THE PARTIES SHALL ALTERNATE
IN STRIKING NAMES OF ARBITRATORS FROM THE LIST UNTIL ONE IS LEFT WHO SHALL BE
THE ARBITRATOR.  THE PARTIES SHALL BE ENTITLED TO BE REPRESENTED BY COUNSEL IN
THE ARBITRATION PROCEEDING.  THE ARBITRATOR SHALL HAVE THE AUTHORITY TO ORDER
SUCH DISCOVERY, BY WAY OF DEPOSITION, INTERROGATORY, DOCUMENT PRODUCTION, OR
OTHERWISE, AS THE ARBITRATOR CONSIDERS NECESSARY TO A FULL AND FAIR EXPLORATION
OF THE ISSUES IN DISPUTE, CONSISTENT WITH THE EXPEDITED NATURE OF ARBITRATION. 
THE ARBITRATOR IS AUTHORIZED TO AWARD ANY REMEDY OR RELIEF THAT THE ARBITRATOR
DEEMS JUST AND EQUITABLE, INCLUDING ANY REMEDY OR RELIEF THAT WOULD HAVE BEEN
AVAILABLE TO THE PARTIES HAD THE MATTER BEEN HEARD IN COURT.  THE ARBITRATOR
SHALL HAVE THE AUTHORITY TO PROVIDE FOR THE AWARD OF ATTORNEY’S FEES AND COSTS
IN ACCORDANCE WITH APPLICABLE LAW.  EXECUTIVE SHALL NOT BE REQUIRED TO PAY ANY
COST OR EXPENSE OF THE ARBITRATION THAT HE OR SHE WOULD NOT BE REQUIRED TO PAY
IF THE MATTER HAD BEEN HEARD IN COURT.  THE DECISION OF THE ARBITRATOR SHALL BE
IN WRITING AND SHALL PROVIDE THE REASONS FOR THE AWARD UNLESS THE PARTIES AGREE
OTHERWISE.  PROCEEDINGS TO ENFORCE, CONFIRM, MODIFY, SET ASIDE OR VACATE AN
AWARD OR DECISION RENDERED BY THE ARBITRATOR WILL BE CONTROLLED BY AND CONDUCTED
IN CONFORMITY WITH THE FEDERAL ARBITRATION ACT, 9 U.S.C. SEC 1 ET. SEQ. OR
APPLICABLE STATE LAW.  NOTHING IN THIS PARAGRAPH SHALL PROHIBIT OR LIMIT THE
PARTIES FROM SEEKING PROVISIONAL REMEDIES UNDER CALIFORNIA CODE OF CIVIL
PROCEDURE SECTION 1281.8, INCLUDING, BUT NOT LIMITED TO, INJUNCTIVE RELIEF FROM
A COURT OF COMPETENT JURISDICTION.  THE PARTIES AGREE THAT SHOULD EITHER PARTY
INITIATE LITIGATION IN A COURT IN VIOLATION OF THIS PARAGRAPH, THE PARTY WHO
SUCCESSFULLY COMPELS ARBITRATION SHALL BE ENTITLED TO RECOVER ITS/HIS/HER
ATTORNEY’S FEES AND COSTS INCURRED IN COMPELLING ARBITRATION FROM THE PARTY WHO
VIOLATED THIS PARAGRAPH, AND THAT A COURT MAY REQUIRE THE PAYMENT OF SUCH
ATTORNEY’S FEES AND COSTS AS PART OF ITS ORDER COMPELLING ARBITRATION.  IF THE
COURT DECLINES TO ORDER THE PAYMENT OF THE ATTORNEY’S FEES AND COSTS TO THE
PARTY WHO SUCCESSFULLY COMPELS ARBITRATION, THEN THE PARTIES AGREE THAT THE
ARBITRATOR SHALL HAVE THE AUTHORITY TO MAKE SUCH AN ORDER.

 

11.         GENERAL PROVISIONS.

 

11.1                           SUCCESSORS AND ASSIGNS.  THE RIGHTS AND
OBLIGATIONS OF EMPLOYER UNDER THIS AGREEMENT SHALL INURE TO THE BENEFIT OF AND
SHALL BE BINDING UPON THE SUCCESSORS AND ASSIGNS OF EMPLOYER.  EXECUTIVE SHALL
NOT BE ENTITLED TO ASSIGN ANY OF EXECUTIVE’S

 

6

--------------------------------------------------------------------------------

 

RIGHTS OR OBLIGATIONS UNDER THIS AGREEMENT, BUT THIS AGREEMENT SHALL INURE TO
THE BENEFIT OF AND SHALL BE BINDING UPON THE HEIRS OF EXECUTIVE.

 

11.2                           INDEMNIFICATION.  THE INDEMNIFICATION PROVISIONS
FOR OFFICERS AND DIRECTORS UNDER EMPLOYER’S BYLAWS WILL (TO THE MAXIMUM EXTENT
PERMITTED BY LAW) BE EXTENDED TO EXECUTIVE.

 

11.3                           WAIVER.  THIS AGREEMENT MAY NOT BE MODIFIED OR
AMENDED EXCEPT BY AN INSTRUMENT IN WRITING, SIGNED BY EXECUTIVE AND BY A DULY
AUTHORIZED REPRESENTATIVE OF EMPLOYER OTHER THAN EXECUTIVE.  EITHER PARTY’S
FAILURE TO ENFORCE ANY PROVISION OF THIS AGREEMENT SHALL NOT IN ANY WAY BE
CONSTRUED AS AN AMENDMENT OR WAIVER OF ANY SUCH PROVISION, OR PREVENT THAT PARTY
THEREAFTER FROM ENFORCING EACH AND EVERY OTHER PROVISION OF THIS AGREEMENT.

 

11.4                           SEVERABILITY.  IF ANY PROVISION OF THIS AGREEMENT
IS HELD BY AN ARBITRATOR OR A COURT OF LAW TO BE ILLEGAL, INVALID OR
UNENFORCEABLE, THEN:  (A) THAT PROVISION SHALL BE DEEMED AMENDED TO ACHIEVE AS
NEARLY AS POSSIBLE THE SAME ECONOMIC EFFECT AS THE ORIGINAL PROVISION; AND
(B) THE LEGALITY, VALIDITY AND ENFORCEABILITY OF THE REMAINING PROVISIONS OF
THIS AGREEMENT SHALL NOT BE AFFECTED OR IMPAIRED THEREBY.

 

11.5                           INTERPRETATION; CONSTRUCTION.  THIS AGREEMENT HAS
BEEN DRAFTED BY EMPLOYER, BUT EXECUTIVE HAS PARTICIPATED IN THE NEGOTIATION OF
ITS TERMS.  FURTHERMORE, EXECUTIVE ACKNOWLEDGES THAT HE HAS HAD AN OPPORTUNITY
TO REVIEW AND REVISE THE AGREEMENT AND HAVE IT REVIEWED BY LEGAL COUNSEL, IF
DESIRED.  THEREFORE, THE NORMAL RULE OF CONSTRUCTION TO THE EFFECT THAT ANY
AMBIGUITIES ARE TO BE RESOLVED AGAINST THE DRAFTING PARTY SHALL NOT BE EMPLOYED
IN THE INTERPRETATION OF THIS AGREEMENT.

 

11.6                           GOVERNING LAW.  THIS AGREEMENT WILL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.

 

11.7                           Notices.  All notices or demands of any kind
required or permitted to be given by the Company or Executive under this
Agreement shall be given in writing and shall be personally delivered (and
receipted for) or mailed by certified mail, return receipt requested, postage
prepaid, addressed as follows:

 

If to the Company:

 

If to Executive:

 

 

 

Overland Storage Inc.

 

Michael Gawarecki

4820 Overland Ave.

 

3631 Brandywine Street

San Diego, CA 92123-1599

 

San Diego, CA 92117

Attn: Chief Financial Officer

 

 

 

Any such written notice shall be deemed received when personally delivered or
three (3) days after its deposit in the United States mail as specified above. 
Either party may change its address for notices by giving notice to the other
party in the manner specified in this paragraph 11.7.

 

7

--------------------------------------------------------------------------------

 

11.8                           Survival.  The rights and obligations contained
in paragraph 9 (“Nonsolicitation”) shall survive any termination or expiration
of this Agreement for a period of one year, and paragraphs 7
(“Confidentiality/Intellectual Property Agreement and Insider Trading Policy”),
10 (“Agreement to Arbitrate”) and 11 (“General Provisions”) shall survive any
termination or expiration of this Agreement.

 

11.9                           Entire Agreement.  This Agreement constitutes the
entire agreement between the parties relating to the subject matter herein and
supersedes all prior or simultaneous representations, discussions, negotiations,
and agreements, whether written or oral.

 

11.10                     Counterparts.  This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.

 

THE PARTIES TO THIS AGREEMENT HAVE READ THE FOREGOING AGREEMENT IN ITS ENTIRETY
AND FULLY UNDERSTAND EACH AND EVERY PROVISION CONTAINED HEREIN, WHEREFORE, THE
PARTIES HAVE FREELY AND VOLUNTARILY EXECUTED THIS AGREEMENT AS OF THE DATE FIRST
ABOVE WRITTEN.

 

Executive:

 

 

/s/ W. Michael Gawarecki

 

Dated: September 9, 2005

W. Michael Gawarecki

 

 

 

Company:

 

Overland Storage, Inc.

 

 

/s/ Christopher P. Calisi

 

Dated:  September 9, 2005

Christopher P. Calisi

 

President and Chief Executive Officer

 

8

--------------------------------------------------------------------------------

 

EXHIBIT A

 

GENERAL RELEASE

 

This GENERAL RELEASE (“Release”) is entered into effective as of
                          , (the “Effective Date”) by and between Overland
Storage Inc., a California corporation, having its principal offices at 4820
Overland Ave. , San Diego, California 92123-1599 (the “Company”) and W. Michael
Gawarecki, an individual residing at [                          ] (“Employee”)
with reference to the following facts:

 

RECITALS

 

A.                                   The parties entered into an Employment
Agreement (the “Agreement”) dated as of October 20, 2004, by which the parties
agreed that upon the occurrence of certain conditions, Employee would become
eligible for the Severance Payment as defined in the Agreement in exchange for
Employee’s release of the Company from all claims which Employee may have
against the Company as of the date of the termination of Employee’s employment.

 

B.                                     The parties desire to dispose of, fully
and completely, all claims which Employee may have against the Company in the
manner set forth in this Release.

 

AGREEMENT

 

1.               Release.  Employee, for himself and his heirs, successors and
assigns, fully releases and discharges the Company, its officers, directors,
employees, shareholders, attorneys, accountants, other professionals, insurers
and agents (collectively, “Agents”), and all entities related to each party,
including, but not limited to, heirs, executors, administrators, personal
representatives, assigns, parent, subsidiary and sister corporations,
affiliates, partners and co-venturers (collectively, “Related Entities”), from
all rights, claims, demands, actions, causes of action, liabilities and
obligations of every kind, nature and description whatsoever, Employee now has,
owns or holds or has at anytime had, owned or held or may have against the
Company, Agents or Related Entities from any source whatsoever, whether or not
arising from or related to the facts recited in this Release.  Employee
specifically releases and waives any and all claims arising under any express or
implied contract, rule, regulation or ordinance, including, without limitation,
Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the
Americans with Disabilities Act, the California Fair Employment and Housing Act,
and the Age Discrimination in Employment Act, as amended (“ADEA”).

 

2.               Section 1542 Waiver.  This Release is intended as a full and
complete release and discharge of any and all claims that Employee may have
against the Company, Agents or Related Entities.  In making this release,
Employee intends to release each of the Company, Agents and Related Entities
from liability of any nature whatsoever for any claim of damages or injury or
for equitable or declaratory relief of any kind, whether the claim, or any facts
on which such claim might be based, is known

 

9

--------------------------------------------------------------------------------

 

or unknown to him.  Employee expressly waives all rights under §1542 of the
California Civil Code, which Employee understands provides as follows:

 

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR
SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF
KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.

 

Employee acknowledges that he may discover facts different from or in addition
to those that he now believes to be true with respect to this Release.  Employee
agrees that this Release shall remain effective notwithstanding the discovery of
any different or additional facts.

 

3.               Waiver of Certain Claims.  Employee acknowledges that he has
been advised in writing of his right to consult with an attorney prior to
executing the waivers set out in this Release, and that he has been given a
21-day period in which to consider entering into the release of ADEA claims, if
any.  In addition, Employee acknowledges that he has been informed that he may
revoke a signed waiver of the ADEA claims for up to seven (7) days after
executing this Release.

 

4.               No Undue Influence.  This Release is executed voluntarily and
without any duress or undue influence.  Employee acknowledges that he has read
this Release and executed it with his full and free consent.  No provision of
this Release shall be construed against any party by virtue of the fact that
such party or its counsel drafted such provision or the entirety of this
Release.

 

5.               Governing Law.  This Release is made and entered into in the
State of California and accordingly the rights and obligations of the parties
hereunder shall in all respects be construed, interpreted, enforced and governed
in accordance with the laws of the State of California as applied to contracts
entered into by and between residents of California to be wholly performed
within California.

 

6.               Severability.  If any provision of this Release is held to be
invalid, void or unenforceable, the balance of the provisions of this Release
shall, nevertheless, remain in full force and effect and shall in no way be
affected, impaired or invalidated.

 

7.               Counterparts.  This Release may be executed simultaneously in
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.  This Release may
be executed by facsimile, with originals to follow by overnight courier.

 

8.               Dispute Resolution Procedures.  Any dispute or claim arising
out of this Release shall be subject to arbitration in accordance with the
Agreement.

 

10

--------------------------------------------------------------------------------

 

9.               Entire Agreement.  This Agreement constitutes the entire
agreement of the parties with respect to the subject matter of this Agreement,
and supersedes all prior and contemporaneous negotiations, agreements and
understandings between the parties, oral or written.

 

10.         Modification; Waivers.  No modification, termination or attempted
waiver of this Agreement will be valid unless in writing, signed by the party
against whom such modification, termination or waiver is sought to be enforced.

 

11.         Amendment.  This Agreement may be amended or supplemented only by a
writing signed by Employee and the Company.

 

 

Dated:

 

 

 

 

 

 

W. Michael Gawarecki

 

 

 

11

--------------------------------------------------------------------------------

 

EXHIBIT B

 

Outsource Project Metrics

 

Metric

 

Description

 

Baseline

 

Post Outsource

On Time Delivery

 

Measures actual Overland performance to commit dates

 

96.5%

 

> 96.5%

Out of Box Audit

 

10% sample of finished goods. Checks for power-up and correct configuration

 

REO: 97.7%
WGS: 100%
NEO 8000: 95.5%
NEO 2000: 9.5%
NEO 4000: 99.2%
MSL Lite: TBD

 

All metrics post-outsource will be equal to or greater than the last Overland
measures

Product Lead Times

 

Delivery lead times. Varies by product line.

 

REO: 3-5 Days
WGS: 3 Days
NEO 8000: 10 Days
NEO 2000: 3 Days
NEO 4000: 5 Days
MSL Lite: 5 Days
Spares: 5 Days

 

REO: 3-5 Days
WGS: 3 Days
NEO 8000: 10 Days
NEO 2000: 3 Days
NEO 4000: 5 Days
MSL Lite: 5 Days
Spares: 5 Days

1st Pass Yields

 

Product yields associated with operator error. A measure of how well SCI has
trained and where they are on the learning curve.

 

REO: 99.2%
WGS: 99.7%
NEO 8000: 91.3%
NEO 2000: 98.9%
NEO 4000: 96.7%
MSL Lite: TBD

 

All metrics post-outsource will be equal to or greater than the last Overland
measures

Shipping Accuracy

 

Errors made by shipping personnel when processing orders (wrong product,
quantity, addresses, etc)

 

99.7%

 

99.7%

Inventory Accuracy

 

A measure for those parts consigned by Overland to SCI. Currently will include
tape drives and fiber channel boards

 

99%

 

99%

Cost Reduction

 

We will measure actual cost savings by product line. Our estimates were a
minimum of $3.5 million annual savings

 

FY05 costs at time of transfer

 

We expect to be at the minimum run rate by end of Q3, FY06

 

12

--------------------------------------------------------------------------------