Exhibit 10.3

PURCHASE AGREEMENT

This PURCHASE AGREEMENT (the “Agreement”) is entered into as of December 21,
2010, by and between Overland Storage, Inc., a California corporation
(“Seller”), and the investors listed on the signature pages hereto (each, an
“Investor” and, collectively, the “Investors”).

RECITALS

WHEREAS, Seller owns all of the right, title and interest in and to the Patents
and the Patent Rights (each as defined below); and

WHEREAS, Seller believes that the Litigation Parties (as defined below) have
been infringing on the Patents and the Patent Rights; and

WHEREAS, Seller believes that it has valid claims for infringement against the
Litigation Parties as the owner of the Patents and the Patent Rights (the
“Infringement Claims”); and

WHEREAS, Seller has commenced the Patent Litigation (as defined below) against
the Litigation Parties with respect to the Infringement Claims; and

WHEREAS, Seller wishes to sell to each Investor and each Investor wishes,
severally and not jointly, to purchase from Seller an ownership interest in the
Infringement Claims upon the terms and subject to the conditions hereof.

AGREEMENT

NOW, THEREFORE, in consideration of the mutual promises, agreements,
representations, warranties and covenants contained herein, the parties hereto
agree as follows:

 

1. Definitions.

1.1      “Affiliate” means, with respect to any Person, any other Person that
directly or indirectly through one or more intermediaries, controls or is
controlled by or is under common control with the Person specified. The term
“control” (including the terms “controlling,” “controlled by” and “under common
control with”) means possession, direct or indirect, of the power to direct or
cause the direction of the management and policies of a Person, whether through
the ownership of voting securities, by contract or otherwise.

1.2       “Business Day” means any day except a Saturday, a Sunday or any other
day on which commercial banks are not required by law to be open in New York,
New York.

1.3      “Governmental Entity” means any nation, state, commonwealth, territory,
possession or tribe and any political subdivision, court, judicial tribunal,
department, commission, board, bureau, agency or other instrumentality of any of
the foregoing.

 

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1.4      “ITC” means the International Trade Commission and any successor agency
performing similar functions.

1.5      “Litigation Award” means the amount of any damages award (compensatory,
statutory, punitive or otherwise) or settlement amount payable to Seller or its
Affiliates in cash and arising out of the Patent Litigation, net of
(a) Litigation Fees, (b) Litigation Expenses and (c) any award or settlement
actually paid by Seller and arising from any Retaliatory Lawsuit; provided,
however, that, for the avoidance of doubt, no amounts payable to Seller or
Seller’s shareholders as a result of a Specified Transaction shall be deemed a
part of any Litigation Award.

1.6      “Litigation Expenses” means the total out-of-pocket expenses incurred
by Seller or Seller’s counsel (including, without limitation, expenses for
expert witnesses, trial graphics, court reporting and discovery and all
attorneys’ fees and costs, but excluding Litigation Fees) with respect to the
Patent Litigation.

1.7      “Litigation Fees” means all fees incurred by Seller or Seller’s counsel
with respect to the Patent Litigation, determined at the hourly rates charged by
Seller’s counsel in connection with the Patent Litigation and as set forth in
summaries provided by Seller’s counsel to Seller from time to time (irrespective
of the amount actually invoiced to, or paid by, Seller due to any contingency
fee arrangement between Seller and its counsel).

1.8      “Litigation Parties” means, collectively, BDT AG, BDT-Solutions Gmbh &
Co. KG, BDT Automation Technology (Zhuhai FTZ), BDT de Mexico, S. de R.L. de
C.V., BDT Products, Inc., Dell, Inc., International Business Machines Corp., any
other Person added as a party to the Patent Litigation, the Affiliates of all of
the foregoing and their respective successors and assigns.

1.9      “Patent Litigation” means, collectively, (i) the action filed by Seller
in the United States District Court for the Southern District of California
currently captioned as, Overland Storage, Inc. v. BDT AG (German) et al., Docket
No. 3:10-cv-01700-JLS-BLM, (ii) the action filed by Seller with the ITC on
October 19, 2010, Docket No. 2762, Type: 337 Complaint, Commodity: Automated
Media Library Devises Investigation No. 337-TA-746, and (iii) any amendments,
refilings, substitute actions or other successor proceedings to the foregoing.

1.10      “Patent Rights” means (a) inventions, invention disclosures and
discoveries described in any of the Patents that are included in any claim in
the Patents, and/or subject matter contained therin capable of being reduced to
a patent claim in a reissue or reexamination proceedings brought on any of the
Patents and (b) claims and causes of action (whether known or unknown) and other
enforcement rights under, or on account of, any of the Patents, including,
without limitation, all causes of action and other enforcement rights for
damages, injunctive relief, and any other remedies for past, current and future
infringement.

 

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1.11      “Patents” means only the patents listed on Exhibit A attached hereto
and all reissuances, reexaminations, extensions, continuations, divisionals and
continuations in part of such patents.

1.12      “Percentage Payment” means, as to each Investor, an amount equal to
the percentage of any Litigation Award set forth opposite such Investor’s name
on the signature pages hereto.

1.13      “Person” means any natural person, firm, partnership, association,
corporation, company, trust, business trust, Governmental Entity or other
entity.

1.14      “Retaliatory Lawsuit” means any claims or counterclaims of patent
infringement brought by any of the Litigation Parties related to or in response
to the Patent Litigation.

1.15      “Specified Transaction” means (i) an acquisition by any Person and its
Affiliates of more than 50% of the then outstanding voting power of Seller;
(ii) the merger, consolidation or other business combination transaction of
Seller with any Person or any of its Affiliates pursuant to which the
shareholders of Seller immediately prior to such transaction own less than a
majority of the aggregate voting power of Seller or the successor entity of such
transaction, (iii) sale or transfer all or any substantial portion of Seller’s
assets to any Person or any of its Affiliates, or (iv) any sale, assignment or
exclusive license of the Patents to any Person or any of its Affiliates.

 

2. Purchase and Sale.

2.1        Purchase and Sale of Interest in Litigation Award.    Seller hereby
sells, transfers, conveys, assigns and delivers to each Investor, and each
Investor hereby, severally and not jointly, purchases and accepts from Seller
all right, title and interest in and to such Investor’s Percentage Payment.

2.2        Purchase Price.    In consideration of the Percentage Payment, each
Investor is paying to Seller the purchase price set forth opposite such
Investor’s name on the signature pages hereto by wire transfer of immediately
available funds, receipt of which is hereby acknowledged.

2.3        Payment of Percentage Payment.    Promptly following receipt by
Seller or any of its Affiliates of any Litigation Award or any portion thereof,
Seller shall pay to each Investor its Percentage Payment with respect to such
Litigation Award or any portion thereof actually received by Seller or its
Affiliates. All payments pursuant to this Section 2.3 shall be made within three
(3) Business Days of receipt by Seller or its Affiliates of the applicable
Litigation Award or any portion thereof, and shall be made by wire transfer of
immediately available funds to one or more accounts designated in writing by
such Investor.

2.4        Specified Transaction.    If a Specified Transaction occurs, in lieu
of receiving the Percentage Payment, each Investor shall be entitled to receive
payment as set forth in Exhibit B.

 

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3.         Representations and Warranties of Seller. Seller represents and
warrants to Investors as follows:

3.1        Organization, Authority and Enforceability.    Seller is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of California. Seller has all requisite power and authority to
own, lease and sell the Patents, and to enter into this Agreement and carry out
the provisions hereof. This Agreement has been duly and validly executed by
Seller, and constitutes the valid and binding agreement of Seller enforceable
against Seller in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
rights of creditors and general principles of equity. No other corporate
proceedings on the part of Seller are necessary to authorize the execution and
performance by Seller of the transactions contemplated herein.

3.2        Patents.    Seller owns all right, title and interest in and to the
Patents and the Patent Rights free and clear of any lien, claim, mortgage,
security interest or other encumbrance, other than the interest created pursuant
to this Agreement and the contingency fee arrangements between Seller and its
counsel with respect to the Patent Litigation, the terms of which have been
disclosed to Investors (the “Contingency Arrangements”). Seller has taken all
action necessary or advisable to maintain the Patents, including without
limitation, making all necessary filings and payments to the U.S. Patent and
Trademark Office. The Patents are valid and enforceable in accordance with their
terms. Seller and each other party associated with the filing or prosecution of
the Patents have met their duty to disclose information material to
patentability in accordance with 37 CFR § 1.56. Except as asserted in connection
with the Patent Litigation, neither the Company nor any Affiliate has received
any notice that (a) the Patents infringe or otherwise conflict with the
intellectual property rights of any third party or (b) any Patent is invalid or
unenforceable. Except for the Contingency Arrangements and except as set forth
herein, the Company has not granted any rights to the Infringement Claims to any
Person and no Person is entitled to receive any portion of any Litigation Award.
No consent, approval, filing, notification or other authorization of any Person
is required for the granting of the rights hereunder to the Investors. No Person
other than Seller has the right to consent to the settlement of any Patent
Litigation.

3.3        No Conflict.    The execution and delivery by Seller of this
Agreement and the performance of its obligations hereunder and thereunder, will
not (a) result in a breach of any provision of Seller’s articles of
incorporation or bylaws or (b) breach, violate or contravene any law or
regulation, or create any right of termination or acceleration or Encumbrance,
that, singly or in the aggregate, would have an adverse effect on its authority
or ability to perform any of its obligations under this Agreement.

3.4        No Broker.    Seller has not engaged any corporation, firm or other
entity that is entitled to any fee or commission as a finder or a broker in
connection with the negotiation of this Agreement or the consummation of the
transactions contemplated hereby. Seller shall be responsible for all
liabilities and claims (including costs and expenses of defending against same)
arising in connection with any claim by a finder or broker that it acted on
behalf of Seller in connection with the transactions contemplated hereby.

 

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3.5        No Infringement of Patents.  Seller (a) is not aware of any
infringement by Seller or any of its Affiliates of any patents of any Litigation
Party and (b) has not received any written notice of any such claim of
infringement.

4.         Representations and Warranties of Investors. Each Investor, severally
and not jointly, represents and warrants to Seller as follows:

4.1        Authority; Enforceability.    Such Investor has the requisite power
to enter into this Agreement and to perform its obligations hereunder. This
Agreement has been duly and validly executed by such Investor, and constitutes
the valid and binding agreement of such Investor enforceable against such
Investor in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
rights of creditors. No other proceedings are necessary to authorize the
execution of this Agreement by such Investor or the performance by such Investor
of its obligations hereunder.

4.2        No Conflicts.    The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
result in a breach of any provision of the organizational documents of such
Investor.

4.3        No Broker.    Such Investor has not engaged any corporation, firm or
other entity that is entitled to any fee or commission as a finder or a broker
in connection with the negotiation of this Agreement or the consummation of the
transactions contemplated hereby. Such Investor shall be responsible for all
liabilities and claims (including costs and expenses of defending against same)
arising in connection with any claim by a finder or broker that it acted on
behalf of such Investor in connection with the transactions contemplated hereby.

 

5. Additional Covenants of the Parties.

5.1        Conduct of the Patent Litigation; Settlement.    Seller shall use its
commercially reasonable efforts to prosecute the Patent Litigation to a final
and non-appealable judgment or to a final, definitive settlement as promptly as
practicable. The parties hereto acknowledge and agree that Seller shall have the
right, in its sole discretion, to determine whether to settle the Patent
Litigation and to determine the terms and conditions of any such settlement.

5.2        Payment of Fees and Expenses.    Seller shall timely pay all
Litigation Fees and Litigation Expenses that are required to be paid by Seller.

5.3        Information Rights.    Seller will cause its counsel to provide
periodic updates to Investor as to the status of any Patent Litigation following
any material developments, and to promptly respond to any inquiries of Investor
regarding any Patent Litigation. Each Investor, severally and not jointly,
agrees that all non-public information disclosed to such Investor pursuant to
this Section 5.3 shall be deemed “Confidential Information” pursuant to
Section 8.4 and, accordingly, shall not be divulged to any third party except as
provided therein. Nothing in this Agreement, nor any information provided to an
Investor pursuant to this Section 5.3 is intended to waive or limit Seller’s
attorney-client privilege or to require Seller or its counsel to disclose any
privileged information to any third party (other than Investors).

 

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5.4        Sale of Patents.    Seller shall not enter into any agreement that
would result in the sale, transfer, conveyance, assignment or delivery to any
third party of its right, title and interest in and to the Patents unless such
third party agrees to assume all of the obligations of Seller under this
Agreement; provided, however that this Section 5.4 shall not restrict in any way
Seller’s right or ability to engage in any Specified Transaction or to sell,
transfer, convey, assign or deliver any interest in any Patent Litigation if
Seller retains an interest therein equal to not less than the Percentage Payment
with respect to such Patent Litigation.

5.5        Other Interests in Patent Litigation.    Seller shall not sell,
assign, transfer or otherwise convey any right, title or interest in or to the
Patent Litigation to any other Person on terms more favorable to such Person
than those contained herein. Without limiting the generality of the foregoing,
Seller shall not grant to any Person any right which limits or restricts in any
way Seller’s discretion to prosecute or settle the Patent Litigation or which
gives such Person the right to approve or to consent to such prosecution or
settlement. The provisions of this Section 5.5 shall not restrict in any way
Seller’s right or ability to engage in any Specified Transaction.

6.        Term.    This Agreement shall commence as of the date hereof and shall
continue until the termination of the Patent Litigation and the indefeasible
payment in full by Seller to Investors of either (i) Investors’ Percentage
Payments or (ii) the payments specified in Exhibit B.

7.        Communications.    All notices and other communications hereunder
shall be in writing and shall be deemed given (a) immediately if delivered
personally to, (b) two (2) Business Days after it is sent by registered or
certified mail, return receipt requested, postage prepaid to, or (c) one (1) day
after receipt is electronically confirmed (it being agreed that an automated
reply shall not constitute confirmation), if sent by facsimile or e-mail to, the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):

 

If to Seller:  

Overland Storage, Inc.

9112 Spectrum Center Boulevard

San Diego, California 92123

Attention: Eric Kelly

Fax: (858) 495-4267

Email: ekelly@overlandstorage.com

With a copy to:  

O’Melveny & Myers LLP

2765 Sand Hill Road

Menlo Park, CA 94025

Attention: Paul L. Sieben

Fax: (650) 473-2601

Email: psieben@omm.com

If to Investors:  

c/o Special Situations Fund

527 Madison Avenue, Suite 2600

 

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New York, NY 10022

Attention : David M. Greenhouse

Fax : (212) 319-6677

Email : david@ssfund.com

With a copy to:  

Lowenstein Sandler PC

65 Livingston Avenue

Roseland, NJ 07068

Attention: John D. Hogoboom

Fax: (973) 597-2383

Email: jhogoboom@lowenstein.com

 

8. Miscellaneous.

8.1        Assignment.    This Agreement shall inure to the benefit of and shall
be binding upon the parties hereto and their respective successors and permitted
assigns. This Agreement shall not be assignable (whether voluntarily or
involuntarily, directly or indirectly or by operation of law) by either party
without the written consent of the other and any such purported assignment
without such consent shall be void.

8.2        Third Party Rights.    This Agreement shall not create benefits on
behalf of any other Person, and this Agreement shall be effective only as
between the parties hereto, their successors and permitted assigns.

8.3        Governing Law; Consent to Jurisdiction; Waiver of Jury Trial.    This
Agreement shall be construed, and the legal relations between the parties hereto
shall be determined, in accordance with the laws of the United States of America
and the State of California, USA, as such laws apply to contracts signed and
fully performed in such state without regard to the principles of conflicts of
laws thereof. Each of the parties hereto irrevocably submits to the exclusive
jurisdiction of the courts of the State of New York located in New York County
and the United States District Court for the Southern District of New York for
the purpose of any suit, action, proceeding or judgment relating to or arising
out of this Agreement and the transactions contemplated hereby. Service of
process in connection with any such suit, action or proceeding may be served on
each party hereto anywhere in the world by the same methods as are specified for
the giving of notices under this Agreement. Each of the parties hereto
irrevocably consents to the jurisdiction of any such court in any such suit,
action or proceeding and to the laying of venue in such court. Each party hereto
irrevocably waives any objection to the laying of venue of any such suit, action
or proceeding brought in such courts and irrevocably waives any claim that any
such suit, action or proceeding brought in any such court has been brought in an
inconvenient forum. TO THE EXTENT ALLOWABLE UNDER APPLICABLE LAW, EACH OF THE
PARTIES HERETO WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION
WITH RESPECT TO THIS AGREEMENT AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED
SPECIFICALLY AS TO THIS WAIVER.

 

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8.4        Confidential Information.  Each party hereto will keep the terms and
existence of this Agreement, the identities of the parties hereto and their
Affiliates, and any non-public information concerning or relating to the Patent
Litigation confidential and will not now or hereafter divulge any of this
information (collectively, “Confidential Information”) to any third party except
(a) with the prior written consent of the other party, (b) as may be required by
applicable law, rule, regulation or legal process (including, without
limitation, the rules and regulations of the Securities Exchange Commission),
(c) during the course of litigation, so long as the disclosure of such
information is restricted in the same manner as is the confidential information
of other litigating parties, (d) in confidence to its Affiliates and its and
their respective officers, directors, managers, employees, legal counsel,
accountants, financial advisors, partners, investors, shareholders, lenders,
agents, potential financing sources, and other representatives (collectively,
“Representatives”), who, in the reasonable judgment of the disclosing party,
need to know the Confidential Information, are informed of its confidential
nature, and agree to be bound by the terms of this Section 8.4. Each party
hereto agrees that it shall be responsible for any breach of this Section 8.4 by
its Representatives. Notwithstanding anything to the contrary herein, except as
may be required by applicable law or legal process, no Investor shall discuss,
correspond or otherwise communicate with any defendant in the Patent Litigation
or its representatives regarding any matters pertaining to the Patent
Litigation, including, without limitation, the terms and conditions of any
settlement offers made or proposed to be made. The covenants set forth in this
Section 8.4 shall survive the termination of this Agreement.

8.5        Headings and Interpretation.    The headings of the sections are
inserted for convenience of reference only and are not intended to be a part of
or to affect the meaning or interpretation of this Agreement. All parties hereto
have been represented by counsel in connection with the drafting and negotiation
of this Agreement. Accordingly, in any legal proceeding involving this
Agreement, no rule of strict construction shall be applied in favor of or
against either party by virtue of it having drafted any particular clause or
section.

8.6        Counterparts.    This Agreement may be executed by the parties in one
or more counterparts, including facsimile counterparts, each of which shall be
an original and all of which shall constitute one and the same instrument.

8.7        Severability.    If any section of this Agreement is found by
competent authority to be invalid, illegal or unenforceable in any respect for
any reason, the validity, legality and enforceability of any such section in
every other respect and the remainder of this Agreement shall continue in effect
so long as the Agreement still expresses the intent of the parties. If the
intent of the parties cannot be preserved, this Agreement shall be either
renegotiated or terminated.

8.8        Amendment.    This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.

8.9        No Waiver.    No waiver by either party of any breach of any terms or
conditions contained herein shall be construed as a waiver of any other breach
of the same or other terms or conditions herein. No delay or failure by either
party in enforcing against the other any term or condition of this Agreement
shall be deemed a waiver of any right under this Agreement.

 

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8.10      Entire Agreement.    This Agreement and its Exhibits embody the entire
understanding of the parties with respect to the subject matter hereof and
merges all prior discussions between them, and neither of the parties shall be
bound by any conditions, definitions, warranties, understandings or
representations with respect to the subject matter hereof other than as
expressly provided herein.

8.11      Each Party Bears its Own Costs.    Except as expressly set forth
herein, each Investor and Seller shall bear its own legal, accountancy and other
costs and expenses incurred by them in connection with this Agreement.

8.12      Attorneys’ Fees.    In addition to any other relief awarded, the
prevailing party in any action arising out of this Agreement shall be entitled
to its reasonable and documented attorneys’ and experts’ fees and costs.

[Remainder of Page Intentionally Left Blank]

 

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement, effective
as of the date first written above.

 

OVERLAND STORAGE, INC., a California corporation By:  

/s/ Eric L. Kelly

  Eric L. Kelly   President and Chief Executive Officer

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Purchase Price: $1,200,000     SPECIAL SITUATIONS FUND III QP. L.P. Percentage
Payment: 8.0%           By:  

/s/ David M. Greenhouse

      David M. Greenhouse       General Partner Purchase Price: $900,000    
SPECIAL SITUATIONS PRIVATE Percentage Payment: 6.0%     EQUITY FUND, L.P.    
By:  

/s/ David M. Greenhouse

      David M. Greenhouse       General Partner Purchase Price: $150,000    
SPECIAL SITUATIONS Percentage Payment: 1.0%     TECHNOLOGY FUND, L.P.     By:  

/s/ David M. Greenhouse

      David M. Greenhouse       General Partner Purchase Price: $750,000    
SPECIAL SITUATIONS Percentage Payment: 5.0%     TECHNOLOGY FUND II, L.P.     By:
 

/s/ David M. Greenhouse

      David M. Greenhouse       General Partner

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Exhibit A

Patents

 

Patent No.    Patent
Issue Date    Name    Inventor(s) 6,328,766    12/11/2001   

Media Element Library with Non-Overlapping Subset of Media Elements and
Non-Overlapping Subset of Media Element Drives Accessible to First Host and
Unaccessible to Second Host

 

   Robert M. Long 6,353,581    3/5/2002    Media Access in a Media Library   

Karl B. Offerman

and Kevin T.

Kersey

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Exhibit B

Specified Transaction

If Seller consummates a Specified Transaction, then promptly following payment
to Seller or its shareholders of any proceeds from such Specified Transaction,
Seller shall pay to each Investor, in lieu of any Percentage Payment to which
such Investor is or may become entitled hereunder with respect to the Patent
Litigation, an amount equal to two (2) times the aggregate purchase price
actually paid by such Investor to Seller pursuant to Section 2.2 as of the
effective time of the consummation of such Specified Transaction.