Exhibit 10.7
EMPLOYMENT AGREEMENT
 
Qualstar Corporation (the “Company”) and Lawrence D. Firestone (“Executive”)
hereby enter into the following Employment Agreement (the “Agreement”),
effective May 8, 2012 (the “Effective Date”):
 
1.   Employment.  The Company agrees to employ Executive as its Chief Executive
Officer, and Executive accepts such employment, under the terms of this
Agreement.
 
2.   Term.  Executive’s employment shall have an initial Term from June 4, 2012
or such earlier date that he is available to commence employment (“Start Date”)
through June 30, 2013.  On June 30, 2013, the Term shall automatically renew for
one year, unless the Company provides Executive written notice of non-renewal by
March 31, 2013.  If Executive remains employed after June 30, 2014, his
employment shall be considered “at-will.”  Termination of the employment
relationship at any time after June 30, 2014 shall not trigger any compensation
obligations, other than the portion of Executive’s Base Salary and vacation or
other benefits which have accrued through his date of termination, and such
other benefits as are required by law (the “Accrued Compensation”).
 
3.   Position and Duties.
 
3.1  Service with the Company.  Executive agrees to competently perform such
duties customarily performed by a Chief Executive Officer, and such other duties
as shall be assigned to him from time to time by the Board of Directors of the
Company (the “Board”). Executive will use his best efforts to promote the
success of the Company’s business and will cooperate fully with the Board in the
advancement of the best interests of the Company.
 
3.2  Activities During Employment.  Executive will devote his full business
time, energy, ability, attention and skill to his employment under this
Agreement and to the business of the Company.  Absent the prior written approval
of the Board, Executive will not engage in any for-profit business activity,
whether as an employee, officer, consultant, independent contractor or
otherwise.  Executive shall be free to serve on various non-profit organization
boards, so long as they do not unreasonably interfere with his duties to the
Company.
 
3.3  Resignation from Committees of Board.  Executive hereby resigns from all
Committees of the Board of which he is a member (i.e., the Audit and
Compensation Committees), effective immediately.
 
4.   Compensation.
 
4.1      Base Salary.  As compensation for all services to be rendered by
Executive under this Agreement, the Company shall pay to Executive an initial
base salary at the annual rate of $300,000.00 less all previously authorized or
legally required deductions and withholdings (the “Base Salary”), which shall be
paid in accordance with the Company’s normal payroll procedures and
policies.  Starting July 1, 2013, Executive’s Base Salary shall increase to
$350,000.00, unless the Company provides Executive with written notice of
non-renewal as described above.  Executive shall receive no additional
compensation for his service as a member of the Board.
 
 
 

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4.2  Signing Bonus.  Executive shall receive a signing bonus of $75,000.00, to
be paid within 15 days of the Start Date.
 
4.3  Incentive Bonus.  As further compensation for his services, Executive shall
be eligible for an incentive bonus, based on the achievement of certain goals
and objectives established by the Board from time to time.  Executive’s target
incentive bonus shall be 100% of his Base Salary.  The determination of whether
Executive has achieved the goals and objectives established by the Board shall
be at the sole discretion of the Board.  Such bonus shall be paid no later than
2 ½ months after the close of the Company’s fiscal year.  Executive’s incentive
bonus for the initial term ending June 30, 2013 shall be reduced by (1) the
amount of his Signing Bonus ($75,000.00); (2) the amount of his commuting
expenses (up to $60,000.00); and (3) the amount of his expenses for relocation
of his personal items (up to $20,000.00) (the “Bonus Reduction”).
 
4.4  Stock Option Agreement.  The Company shall grant Executive a total of
300,000 stock options pursuant to the Company’s 2008 Stock Incentive Plan (the
“2008 Plan”), as follows: 100,000 options as of the Effective Date (“First
Grant”); 100,000 options as soon as practicable after January 1, 2013, provided
that Executive continues to be employed by the Company (“Second Grant”); and
100,000 options as soon as practicable after January 1, 2014, again provided
that Executive continues to be employed by the Company (“Third
Grant”).  Notwithstanding the foregoing, if the 2008 Plan is amended so as to
permit option grants in excess of 100,000 options per calendar year or a new
plan is adopted which would allow grants in excess of 100,000 options per
calendar year, and such amended or new plan is approved by shareholders prior to
January 1, 2013 or January 1, 2014, then the Second Grant and the Third Grant
shall be granted promptly after shareholder approval of such amendment or new
plan, as applicable.  All grants shall be pursuant to the terms of written stock
option agreements between Executive and the Company.  The exercise price of all
grants will be equal to 100% of the Fair Market Value of the common stock as of
the date of grant, determined in accordance with the provisions of the 2008
Plan.  75,000 options of the First Grant shall vest on June 30, 2013.  The
remaining 25,000 options under the First Grant and the options under the Second
and Third Grants shall be structured to vest quarterly commencing September 30,
2013 at the rate of 18,750 per quarter, and shall provide that the First Grant
options be exhausted first, followed by the Second Grant options, followed by
the Third Grant options. Nothing in this Agreement shall vary the terms of any
Stock Option Agreement signed by Company and Executive.  In the event of a
conflict between this Agreement and any Stock Option Agreement, the terms of the
Stock Option Agreement shall govern.
 
4.5  Adjustment to Bonus Reduction.  If the exercise price per share of the
Second Grant options exceeds the exercise price per share of the First Grant
options, the Company shall adjust the Bonus Reduction by the difference in the
exercise price per share multiplied by 100,000 (“2013 Adjustment”).  If the
exercise price per share of the Third Grant options exceeds the exercise price
per share of the First Grant options, the Company shall increase the Incentive
Bonus for the fiscal year ending June 30, 2014 by the difference in exercise
price per share multiplied by 100,000, less, if applicable, the amount by which
the exercise price per share of the Second Grant options is less than the
exercise price per share of the First Grant options, multiplied by 100,000
(“2014 Adjustment”). The aggregate amount of the 2013 Adjustment and the 2014
Adjustment shall not exceed the Bonus Reduction ($155,000.00).
 
 
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4.6  Participation in Benefit Plans.  Executive shall be entitled to participate
in all employee benefit plans or programs of the Company that are generally
available to the Company’s executive officers or employees, including
vacation/sick pay, health insurance, long-term disability and 401(k) plan.
Executive shall be subject to the terms and conditions of the employee benefit
plans and programs, including, without limitation, the Company’s right to amend
or terminate the employee benefit plans and programs at any time and without
advance notice to the participants.
 
4.7  Expenses.  In accordance with the Company’s policies established from time
to time, the Company will pay or reimburse Executive for all reasonable and
necessary out-of-pocket expenses, including travel expenses, incurred by him in
the performance of his duties under this Agreement. The Company specifically
agrees to reimburse Executive’s reasonable commuting expenses (including
airfare, lodging, travel, automobile and fuel) up to $60,000.00 in the initial
Term.  The Company also agrees to reimburse Executive’s expenses up to
$20,000.00 for relocation of his personal items when Executive relocates his
permanent residence to the Simi Valley, California area, upon presentation of
appropriate documentation.
 
5.           Compensation Upon Separation of Executive’s Employment.
 
5.1  Termination Without Cause or for Good Reason Prior to June 30, 2014. In the
event that the Company terminates Executive’s employment without Cause (as
defined below), or Executive resigns from the Company for Good Reason (as
defined below), prior to June 30, 2014, Executive shall be entitled to receive
(1) the Accrued Compensation; and (2) an amount equal to his then current Base
Salary for a period of 18 months; provided that Executive is not in breach of
the covenants set forth in Section 7.  The Base Salary amount shall be paid in a
lump sum as soon as practicable but no later than sixty (60) days after the
effective termination date; provided, however, that such payment shall not be
made unless and until Executive has had a “separation from service” within the
meaning of Section 409A of the Code (as defined in Section 8.2) and the
requirements of Section 5.4 have been met.
 
5.2  Termination Without Cause or for Good Reason Following Change in Control
Prior to June 30, 2014.  If, within 12 months of a Change in Control (as defined
below), the Company terminates Executive’s employment without Cause (as defined
below), or Executive resigns from the Company for Good Reason (as defined
below), prior to June 30, 2014, Executive shall be entitled to receive (1) the
Accrued Compensation; (2) an amount equal to his then current Base Salary for a
period of 18 months, provided that Executive is not in breach of the covenants
set forth in Section 7; (3) payment of COBRA premiums for Executive, his spouse
and his dependents for a period of 18 months, provided that (i) the Company
shall pay premiums for Executive’s spouse and dependents only for coverage for
which the Executive’s spouse and dependents were enrolled immediately prior to
the termination without Cause or for Good Reason and (ii) if at any time the
Company determines, in its sole discretion, that the payment of the COBRA
premiums would result in a violation of the nondiscrimination rules of Section
105(h)(2) of the Code or any statute or regulation of similar effect (including
but not limited to the 2010 Patient Protection and Affordable Care Act, as
amended by the 2010 Health Care and Education Reconciliation Act), then in lieu
of providing the COBRA premiums, the Company will instead pay Executive on the
last day of each remaining month the Company would have paid the COBRA premiums,
a fully taxable cash payment equal to the COBRA premiums for that month, subject
to all previously authorized or legally required deductions and withholdings;
(4) a lump sum equal to 100% of Executive’s target incentive bonus for 12
months, plus 100% of a pro rata portion of Executive’s target incentive bonus
for the current fiscal year (which lump sum shall assume all applicable
performance metrics and objectives have been obtained by Executive and/or the
Company); and (5) accelerated vesting of all of Executive’s stock options.  The
Base Salary amount shall be paid in a lump sum as soon as practicable but no
later than sixty (60) days after the effective termination date; provided,
however, that such payment shall not be made unless and until Executive has had
a “separation from service” within the meaning of Section 409A of the Code and
the requirements of Section 5.4 have been met.
 
 
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5.3  Separation for Any Other Reason.  In the event that Executive’s employment
is separated (1) by the Company for Cause; (2) by Executive without Good Reason;
(3) by Executive’s death; (4) due to Executive’s inability to perform the
essential functions of his job position, with or without accommodation, due to
mental or physical disability; or (5) for any reason after June 30, 2014,
Executive shall not be entitled to any compensation or any other sum other than
the Accrued Compensation.
 
5.4  Release of Claims.  As a condition to Executive’s right to receive the
compensation provided for in Section 5.1 or 5.2 of this Agreement, other than
the Accrued Compensation, Executive shall, upon termination of his employment,
(i) return all Company property in Executive’s possession, and (ii) enter into a
release agreement in a form reasonably acceptable to the Company.  If the terms
of the release are such that the permissible period for executing the release
spans two tax years, then any payments to be made pursuant to this Agreement
shall commence in the second of the two tax years.
 
6.           Definitions.
 
6.1  Cause.  “Cause” shall mean (A) the commission of any act of fraud,
embezzlement or dishonesty by Executive which materially and adversely affects
the business of the Company, the acquiring or successor entity (or parent or any
subsidiary thereof), (B) any unauthorized use or disclosure by Executive of
confidential information or trade secrets of the Company, the acquiring or
successor entity (or parent or any subsidiary thereof), (C) the continued
refusal or omission by the Executive to perform any material duties required of
him if such duties are consistent with duties customary for the position held
with the Company, the acquiring or successor entity (or parent or any subsidiary
thereof), (D) any material act or omission by the Executive involving
malfeasance or gross negligence in the performance of Executive’s duties to, or
material deviation from any of the policies or directives of, the Company or the
acquiring or successor entity (or parent or any subsidiary thereof), (E) conduct
on the part of Executive which constitutes the breach of any statutory or common
law duty of loyalty to the Company, the acquiring or successor entity (or parent
or any subsidiary thereof), or (F) any illegal act by Executive which materially
and adversely affects the business of the Company, the acquiring or successor
entity (or parent or any subsidiary thereof), or any felony committed by
Executive, as evidenced by conviction thereof.
 
 
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6.2  Good Reason.  Good Reason shall mean (A) a change in Executive’s position
with the Company, the acquiring or successor entity (or parent or any subsidiary
thereof) that materially reduces Executive’s duties and responsibilities, (B) a
material reduction in the duties and responsibilities of the supervisor to whom
Executive is required to report, including a requirement that Executive report
to a corporate officer or employee instead of reporting directly to the Board;
(C) a reduction in Executive’s base salary by more than ten percent (10%), or
(D) a relocation of Executive’s principal place of employment to a location more
than thirty (30) miles from the location of Executive’s principal place of
employment immediately prior to such relocation, provided that such relocation
results in an increase in Executive’s one-way commute to Executive’s principal
place of employment by more than thirty (30) miles based on Executive’s
principal place of residence immediately prior to the announcement of such
relocation, provided and only if, in each case, such change, reduction or
relocation is effected without Executive’s written consent; and further provided
that, in each case, (1) Executive has given written notice of such Good Reason
condition within 90 days of the initial existence of the condition; (2) the
Company has not remedied such condition within 30 days of such notice; and (3)
Executive’s termination occurs within 2 years of the initial existence of the
condition.
 
6.3  Change in Control.  "Change in Control" shall mean (i) the acquisition,
directly or indirectly, in one transaction or a series of related transactions,
by any person or group (within the meaning of Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended) of the beneficial ownership of securities of
the Company possessing more than fifty percent (50%) of the total combined
voting power of all outstanding securities of the Company; (ii) a merger or
consolidation in which the Company is not the surviving entity, except for a
transaction in which the holders of the outstanding voting securities of the
Company immediately prior to such merger or consolidation hold, in the
aggregate, securities possessing more than fifty percent (50%) of the total
combined voting power of all outstanding voting securities of the surviving
entity immediately after such merger or consolidation; (iii) a reverse merger in
which the Company is the surviving entity but in which securities possessing
more than fifty percent (50%) of the total combined voting power of all
outstanding voting securities of the Company are transferred to or acquired by
a  person or persons different from the persons holding those securities
immediately prior to such merger; (iv) the sale, transfer or other disposition
(in one transaction or a series of related transactions) of all or substantially
all of the assets of the Company; or (v) the approval by the stockholders of a
plan or proposal for the liquidation or dissolution of the Company.  In
addition, a “Change in Control” of the Company shall be deemed to have occurred
if, at any time during any period of 12 consecutive months during the term of
this Agreement, individuals who at the beginning of the 12-month period
constituted the entire Board of Directors of the Company do not for any reason
constitute a majority of the Board of Directors, unless the election, or the
nomination for election by the Company’s stockholders, of each new director was
approved by a vote of at least a majority of the directors then still in office
who were directors at the beginning of the period (but not including any new
director whose election or nomination is in connection with an actual or
threatened proxy contest relating to the election of directors of the Company).
 
7.   Employee Proprietary Information and Invention Assignment Agreement (“EPIIA
Agreement”).  Executive shall enter into and comply with the Company’s standard
form EPIIA Agreement.  Executive also agrees to sign and comply with any
subsequent versions of the EPIIA Agreement, as issued by the Company in its sole
discretion.  Notwithstanding any termination or expiration of this Agreement or
termination of Executive’s employment, Executive agrees to continue to comply
with the terms of the EPIIA Agreement, including any subsequent versions.
 
 
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8.   Miscellaneous.
 
8.1  Assignment.  This Agreement shall not be assignable, in whole or in part,
by either party without the prior written consent of the other party, except
that the Company may, without the consent of Executive, assign its rights and
obligations under this Agreement to an Affiliate or to any corporation, firm or
other business entity (i) with or into which the Company may merge or
consolidate, or (ii) to which the Company may sell or transfer all or
substantially all of its assets; provided, however, that such successor entity
shall expressly assume the rights and obligations of the Company hereunder,
which shall become the rights and obligations of such successor entity upon such
assignment.  After any such assignment by the Company, the Company shall be
discharged from all further liability hereunder and such assignee shall
thereafter be deemed to be the Company for the purposes of all provisions of
this Agreement including this Section 8.1.  As used in this Agreement, the term
“Affiliate” means any corporation, association or other business entity of which
more than 50% of the total voting power of shares of stock entitled to vote in
the election of directors, Board or trustees is at the time owned or controlled,
directly or indirectly, by the Company.
 
8.2  409A Compliance.  To the extent applicable, it is intended that the
Agreement comply with the provisions of section 409A of the Internal Revenue
Code of 1986, as amended (the “Code”).  This Agreement will be administered and
interpreted in a manner consistent with this intent, and any provision that
would cause this Agreement to fail to satisfy Section 409A of the Code will have
no force and effect until amended to comply therewith (which amendment may be
retroactive to the extent permitted by Section 409A of the
Code).  Notwithstanding anything contained herein to the contrary, to the extent
required in order to avoid accelerated taxation and/or tax penalties under
Section 409A, Executive shall not be considered to have terminated employment
with the Company for purposes of this Agreement and no payments shall be due to
Executive under this Agreement which are payable upon Executive's termination of
employment until Executive would be considered to have incurred a “separation
from service” from the Company within the meaning of Section 409A of the
Code.  To the extent any payments or benefits provided pursuant to this
Agreement (a) are paid from the date of termination of Executive’s employment
through the date 2 ½ months after the close of the Company’s fiscal year
following such termination, such payments or benefits are intended to constitute
separate payments for purposes of Section 1.409A-2(b)(2) of the Treasury
Regulations and thus payable pursuant to the “short-term deferral” rule set
forth in Section 1.409A-1(b)(4) of the Treasury Regulations; (b) are paid
following such date 2 ½ months after the close of the Company’s fiscal year
following such termination, such payments or benefits are intended to constitute
separate payments for purposes of Section 1.409A-2(b)(2) of the Treasury
Regulations made upon an involuntary separation from service and payable
pursuant to Section 1.409A-1(b)(9)(iii) of the Treasury Regulations, to the
maximum extent permitted by said provision, (c) represent the reimbursement or
payment of costs for outplacement services, such payments or benefits are
intended to constitute separate payments for purposes of Section 1.409A-2(b)(2)
of the Treasury Regulations and to qualify for the exception from deferred
compensation pursuant to Section 1.409A-1(b)(9)(v)(A) of the Treasury
Regulations; and (d) are in excess of the amounts specified in clauses (a), (b)
and (c) of this Section 8.2, such payments or benefits shall (unless otherwise
exempt under Treasury Regulations) be considered separate payments subject to
the distribution requirements of Section 409A(a)(2)(A) of the Code, including,
without limitation, the requirement of Section 409(a)(2)(B)(i) of the Code that
payments or benefits be delayed until 6 months after Executive’s separation from
service if Executive is a “specified employee” within the meaning of the
aforesaid section of the Code at the time of such separation from service.  In
the event that a six month delay of any such separation payments or benefits is
required, on the first regularly scheduled pay date following the conclusion of
the delay period, Executive shall receive a lump-sum payment or benefit in an
amount equal to the separation payments and benefits that were so delayed, and
any remaining separation payments or benefits shall be paid on the same basis
and at the same time as otherwise specified pursuant to this Agreement (subject
to all previously authorized or legally required deductions and
withholdings).  With respect to expenses eligible for reimbursement under the
terms of this Agreement, (i) the amount of such expenses eligible for
reimbursement in any taxable year shall not affect the expenses eligible for
reimbursement in another taxable year and (ii) any reimbursements of such
expenses shall be made no later than the end of the calendar year following the
calendar year in which the related expenses were incurred, except, in each case,
to the extent that the right to reimbursement does not provide for a “deferral
of compensation” within the meaning of Section 409A of the Code.
 
 
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8.3  Section 280G Limitation on Payments.  In the event that the payments and
benefits provided for in this Agreement or otherwise payable to Executive
constitute “parachute payments” within the meaning of Section 280G of the Code
and, but for this Section 8.3, would be subject to the excise tax imposed by
Section 4999 of the Code, then:
 
(a)           Executive’s severance benefits will be either:  (1) paid and
delivered in full, or (2) paid and delivered as to such lesser extent which
would result in no portion of such severance benefits being subject to the
excise tax under Section 4999 of the Code,  whichever of the foregoing amounts,
taking into account the applicable federal, state and local income taxes and the
excise tax imposed by Section 4999, results in the receipt by Executive, on an
after-tax basis, of the greatest amount of severance benefits, notwithstanding
that all or some portion of such severance benefits may be taxable under Section
4999 of the Code.
 
(b)           If a reduction in the severance and other benefits constituting
“parachute payments” is necessary so that no portion of such severance benefits
is subject to the excise tax under Section 4999 of the Code, the reduction shall
occur in the following order: (1) reduction of the severance payments under
Sections 5.1(a), and (2) reduction of continued employee benefits under Section
5.1(b). Unless the Company and Executive otherwise agree in writing, any
determination required under this Section 8.3 will be made in writing by an
independent firm (the “Firm”), whose determination will be conclusive and
binding upon Executive and the Company for all purposes.  For purposes of making
the calculations required by this Section 8.3, the Firm may make reasonable
assumptions and approximations concerning applicable taxes and may rely on
reasonable, good faith interpretations concerning the application of Sections
280G and 4999 of the Code. The Company and Executive will furnish to the Firm
such information and documents as the Firm may reasonably request in order to
make a determination under this Section 8.3 prior to the date payments or
benefits would otherwise become payable to Executive under this Agreement. The
Company will bear all costs the Firm may reasonably incur in connection with any
calculations contemplated by this Section 8.3.
 
 
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8.4  Governing Law.  This Agreement is made under and shall be governed by and
construed in accordance with the laws of the State of California without regard
for conflicts of laws principles.
 
8.5  Entire Agreement.  This Agreement contains the entire agreement of the
parties relating to the subject matter hereof and supersedes all agreements and
understanding with respect to such subject matter not described herein, and the
parties have made no other agreements, representations or warranties, oral or
written, relating to the subject matter of this Agreement.
 
8.6  Amendments.  No amendment or modification of this Agreement shall be deemed
effective unless made in writing signed by the parties.
 
8.7  No Waiver.  No term or condition of this Agreement shall be deemed to have
been waived nor shall there be any estoppel to enforce any provisions of this
Agreement, except by a statement in writing signed by the party against whom
enforcement of the waiver or estoppel is sought.  Any written waiver shall not
be deemed a continuing waiver unless specifically stated, shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any act other than that
specifically waived.
 
8.8  Severability.  To the extent any provision of this Agreement shall be
invalid or unenforceable, it shall be considered deleted and the remainder of
such provision and of this Agreement shall be unaffected and shall continue in
full force and effect.  Executive acknowledges the uncertainty of the law in
this respect and expressly stipulates that this Agreement shall be given the
construction which renders its provisions valid and enforceable to the maximum
extent (not exceeding its express terms) possible under applicable law.
 
8.9  Facsimile and Counterpart Execution.  This Agreement may be executed by
facsimile and in counterparts, each of which shall be deemed an original and all
of which when taken together shall constitute but one and the same instrument.
 
8.10    Notices.  Any notice, demand or request required or permitted to be
given under this Agreement shall be in writing and shall be deemed given when
(i) delivered personally, (ii) mailed by certified or registered mail, postage
prepaid, return receipt requested, (iii) delivered by an overnight courier
service of national reputation for delivery on the next business day (in which
case it shall be deemed delivered on the business day after mailing) or (iv)
sent by facsimile, with a confirmation copy simultaneously mailed (in which case
it shall be deemed given when transmitted).  In each case, the notice shall be
addressed and/or transmitted to the Company at its principal place of business,
Attention: Board of Directors, and if to Executive, at Executive’s most recent
home address as shown in the records of the Company.
 
8.11    Attorneys’ Fees.  In the event that any party hereto brings a legal
action (whether at law or in equity) or arbitration to enforce such party's
rights or remedies, or the obligations of the other party, under this Agreement,
the prevailing party in such legal action shall be entitled to recover its
reasonable legal fees and expenses, and court costs, incurred in connection
therewith from the non-prevailing party.  Attorneys’ fees for employment claims
will be awarded pursuant to applicable statute.
 
 
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8.12    Interpretation of Agreement.  This Agreement has been negotiated at
arm’s length and between persons sophisticated and knowledgeable in the matters
dealt with in this Agreement.  In addition, each party has been represented by
experienced and knowledgeable legal counsel.  Accordingly, any rule of law or
legal decision that would require interpretation of any ambiguities in this
Agreement against the party that has drafted it is not applicable and is
waived.  The provisions of this Agreement shall be interpreted in a reasonable
manner to effect the purpose of the parties and this Agreement.
 
8.13    Headings.  The headings in this Agreement are solely for convenience of
reference and shall not affect its interpretation.
 
8.14    Survival.  The terms and conditions of Sections 7 and 8 shall survive
the termination or expiration of this Agreement and termination of Executive’s
employment and shall remain in full force and effect thereafter.
 
8.15    Taxes.  The Company may withhold from any payments made under this
Agreement all authorized or legally required deductions and withholdings,
including but not limited to income, employment and social insurance
taxes.  Executive acknowledges and represents that the Company has not provided
any tax advice to him in connection with this Agreement and that he has been
advised by the Company to seek tax advice from his own tax advisors regarding
this Agreement and payments that may be made to him pursuant to this Agreement,
including specifically, the application of the provisions of Section 409A of the
Code to such payments.
 
(Signatures on following page.)
 
 
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year set forth above.
 
 

 
“Company”
            Qualstar Corporation                  
 
By:
/S/ Nidhi (Nicki) H. Andalon       Nidhi (Nicki) H. Andalon, Chief Financial
Officer                     “Executive”                     /S/ Lawrence D.
Firestone     Lawrence D. Firestone  

 
                                                 
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