Exhibit 10.7

 

OVERLAND STORAGE, INC.

 

SUMMARY SHEET
OF

DIRECTOR AND EXECUTIVE OFFICER COMPENSATION

 

Non-Employee Director Compensation

 

Our compensation plan for non-employee directors consists of both a cash
component and an equity component. We pay each non-employee director $5,000 per
quarter, plus $2,500 for each Board meeting attended ($1,250 if held
telephonically), plus reimbursement for expenses. The Chairman of the Board
receives an additional $2,500 per quarter in addition to the non-employee
director fee of $5,000 per quarter.  Members of the Audit Committee and the
Compensation Committee receive a retainer of $500 per quarter in lieu of a fee
for committee meetings attended during a quarter and members of the Nominating
and Governance Committee receive $500 for each committee meeting attended ($250
if held telephonically and no fee if held the same day as a Board meeting).

 

In addition to the cash component of compensation, each non-employee director
receives stock options.  Under our 2003 Equity Incentive Plan, which we refer to
as the 2003 Incentive Plan, each non-employee director receives a ten-year
nonqualified stock option to purchase 18,000 shares on the same date as the
company’s annual meeting of shareholders.  These options are exercisable at fair
market value on the date of grant and vest in equal monthly installments over a
12-month period, as measured from the grant date.  When a new non-employee
director joins the board, such director will be awarded a new option for a
number of shares determined by multiplying 1,500 by the number of months
remaining until the next scheduled annual meeting date, giving credit for any
partial month.  Such option will vest at the rate of 1,500 shares per month and
will be fully vested at the next annual meeting date, at which time the director
will receive the normal annual grant. If the proposal related to the 2003
Incentive Plan that has been submitted to a vote of shareholders at our 2007
annual meeting is approved, the formula stock options granted to non-employee
directors on the 2007 annual meeting date and thereafter will have six-year
terms.

 

On November 14, 2006, the date of our last annual meeting of shareholders,
Robert Degan, Bill Miller and Michael Norkus each received an option for 18,000
shares.

 

On December 20, 2006, in connection with his appointment as our Interim
President and Chief Executive Officer, Scott McClendon received an option to
purchase up to 75,000 shares of our common stock at the purchase price of $4.29
per share (the closing price of our common stock on the date of grant) pursuant
to the 2003 Incentive Plan.  The option was immediately vested as to 6,250
shares (reflecting the commencement of service as Interim President and Chief
Executive Officer on November 1, 2006), with the remainder vesting at a rate of
6,250 shares on the first day of each month commencing January 1, 2007 through
November 1, 2007, so long as Mr. McClendon is providing services to the
Company.  The option has a ten-year life, subject to continuous service to us.
Mr. McClendon resigned as Interim President and Chief Executive Officer on
August 7, 2007, but continues to serve as Chairman of the Board.

 

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Compensation of Executive Officers

 

Our executive officers serve at the discretion of the Board of Directors. From
time to time, the Compensation Committee of the Board of Directors reviews and
determines the salaries that are paid to our executive officers. The following
table sets forth the annual salary rates for our current executive officers as
of the date of this report on Form 10-Q:

 

Vernon A. LoForti

 

$

400,000

 

Robert Farkaly

 

$

280,000

*

W. Michael Gawarecki

 

$

246,500

 

Kurt L. Kalbfleisch

 

$

200,000

 

Robert J. Scroop

 

$

220,500

 

 

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   * $140,000 of this amount is tied to performance and is paid in the form of a
sales commission.

 

Employment Arrangements with Current Executive Officers

 

The following discussion summarizes the employment arrangements between us and
our current executive officers as of the date of this report on Form 10-Q:

 

Robert Farkaly.  As our Vice President of Worldwide Sales, Mr. Farkaly is an
at-will employee and may be terminated by us for any reason, with our without
notice. He currently earns an annual salary of $280,000, with $140,000 of that
amount guaranteed as base salary and $140,000 tied to performance. On August 13,
2007, he received an option to purchase up to 125,000 shares of our common stock
at the purchase price of $1.62 per share (the closing price of our common stock
on the date of grant) pursuant to the 2003 Incentive Plan. The option will vest
over one year in equal monthly installments. The option will accelerate upon a
“Change in Control” as defined in the 2003 Incentive Plan.  The option has a
three-year life, subject to continuous service.

 

W. Michael Gawarecki.  As our Vice President of Operations, Mr. Gawarecki is an
at-will employee and may be terminated by us for any reason, with or without
notice.  He currently earns an annual salary of $246,500. On August 13, 2007, he
received an option to purchase up to 100,000 shares of our common stock at the
purchase price of $1.62 per share (the closing price of our common stock on the
date of grant) pursuant to the 2003 Incentive Plan. The option will vest over
one year in equal monthly installments. The option will accelerate upon a
“Change in Control” as defined in the 2003 Incentive Plan.  The option has a
three-year life, subject to continuous service.

 

Kurt L. Kalbfleisch.  As our Interim Chief Financial Officer and Vice President
of Finance, Mr. Kalbfleisch is an at-will employee and may be terminated by us
for any reason, with or without notice.  He currently earns an annual salary of
$200,000 per year and will earn cash bonuses of $10,000 each in October 2007,
January 2008, April 2008 and July 2008, subject to his continued employment at
our company at those times. On August 13, 2007, he received an option to
purchase up to 75,000 shares of the Company’s common stock at the purchase price
of $1.62 per share (the closing price of our common stock at the purchase price
of $1.62 per share (the closing price of our common stock on the date of grant)
pursuant to the 2003 Incentive Plan. The option will vest over one year in equal
monthly installments. The option will accelerate upon a “Change in Control” as
defined in the 2003 Incentive Plan.  The option has a three-year life, subject
to continuous service.

 

Vernon A. LoForti.  In connection with his appointment as President and Chief
Executive Officer on August 7, 2007, Mr. LoForti’s annual base salary was
increased from $297,750 to $400,000. We entered into an amended and restated
employment agreement with Mr. LoForti on September 27, 2007. The amended and
restated employment agreement has a one-year term, automatically renews for
successive one-year terms, and provides that our Board may unilaterally modify
Mr. LoForti’s compensation at any time.  If we terminate Mr. LoForti’s
employment without cause, then we are obligated to pay him a severance payment
equal to his base salary, payable on a pro-rated basis according to our normal
payroll cycle for the 12 months following his termination. In addition, he is
entitled to receive accelerated vesting

 

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for any stock options that would otherwise have vested during the 12-month
period following his termination. He is also entitled to receive the cash
severance payment if he resigns for good reason because of any of the following
events: (i) reduction in compensation of more than 10%; (ii) change in position
or duties so that his duties are no longer consistent with his previous
position; or (iii) change in principal place of work to more than 50 miles from
our current facility without his approval.  On August 13, 2007, he received an
option to purchase up to 250,000 shares of our common stock at the purchase
price of $1.62 per share (the closing price of our common stock on the date of
grant) pursuant to the 2003 Incentive Plan. The option will vest over one year
in equal monthly installments. The option will accelerate upon a “Change in
Control” as defined in the 2003 Incentive Plan.  The option has a three-year
life, subject to continuous service.

 

Robert J. Scroop.  As our Vice President, New Product Delivery, Mr. Scroop is an
at-will employee and may be terminated by us for any reason, with or without
notice.  Mr. Scroop currently earns an annual salary of $220,500 per year. On
August 13, 2007, he received an option to purchase up to 75,000 shares of the
Company’s common stock at the purchase price of $1.62 per share (the closing
price of our common stock at the purchase price of $1.62 per share (the closing
price of our common stock on the date of grant) pursuant to the 2003 Incentive
Plan. The option will vest over one year in equal monthly installments. The
option will accelerate upon a “Change in Control” as defined in the 2003
Incentive Plan.  The option has a three-year life, subject to continuous
service.

 

Retention Agreements

 

We entered into amended and restated retention agreements with Messrs. Farkaly,
Gawarecki, Kalbfleisch, LoForti and Scroop effective September 27, 2007. These
agreements provide that the officer will receive a lump sum severance payment
if, within two years of the consummation of a change in control of our company,
he is terminated without cause or resigns with good reason. These severance
payments are based on the officer’s base salary at the time of the consummation
of the change in control or the termination date, whichever is higher, plus his
or her target bonus for the year prior to the consummation of the change in
control, or in the case of Mr. Farkaly, the target sales commission he is
eligible to receive, prior to a change of control, in the event targeted revenue
is achieved for the year. The agreements provide that, upon a change in control,
Mr. LoForti would be entitled to receive an amount equal to 2.0 times his base
salary plus target bonus; and Messrs. Farkaly, Gawarecki, Kalbfleisch, and
Scroop each would be entitled to an amount equal to his respective base salary
plus target bonus (or in the case of Mr. Farkaly, target sales commission). If
any portion of any payment under any of the agreements would constitute an
“excess parachute payment” within the meaning of Section 280G of the Internal
Revenue Code, then that payment will be reduced to an amount that is one dollar
less than the threshold for triggering the tax imposed by Section 4999 of the
Internal Revenue Code.

 

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