Exhibit
10.5


 


AMENDED AND RESTATED RETENTION AGREEMENT


 


This Amended
and Restated Retention Agreement (this “Agreement”) is entered
into on September 27, 2007 between Overland Storage Inc., a California
corporation having its principal offices at 4820 Overland Avenue, San Diego,
California 92123 (the “Company”), and Robert
Farkaly (“Employee”). This Agreement amends,
restates and supersedes in its entirety that certain Retention Agreement
effective July 10, 2007 between the Company and Employee.


 


AGREEMENT


 


WHEREAS,
Employee is a key employee of the Company;


 


WHEREAS,
the Company considers that providing Employee with certain employment
termination benefits will operate as an incentive for Employee to remain
employed by the Company in the event of a Change of Control;


 


WHEREAS,
the parties agreed it is advisable and in the best interests of the parties to
amend and restate this Agreement to make certain changes related to recent
legal developments, most particularly related to California arbitration
procedures and Internal Revenue Code Section 409A, and also to make
certain other changes as reflected herein; and


 


NOW
THEREFORE, for the consideration stated above, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
Company and Employee agree as follows:


 


1.          Definitions.


 


1.1        “Base Salary”
shall mean the Employee’s gross annual salary at the time of a Change of
Control or the Termination Date, whichever is higher.


 


1.2        “Change of Control”
is defined to have occurred if, and only if, during Employee’s employment:


 


(a)           any individual, partnership, firm, corporation,
association, trust, unincorporated organization or other entity or person, or
any syndicate or group deemed to be a person under Section 14(d)(2) of the
Exchange Act is or becomes the “Beneficial Owner” (as defined in Rule 13d-3 of
the General Rules and Regulations under the Exchange Act), directly or
indirectly, of securities of the Company representing 50% or more of the
combined voting power of the Company’s then outstanding securities entitled to
vote in the election of directors of the Company;


 


(b)           there occurs a reorganization, merger, consolidation
or other corporate transaction involving the Company (“Transaction”),
in each case, with respect to which the stockholders of the Company immediately
prior to such Transaction do not, immediately after the Transaction, own more
than fifty (50) percent of the combined voting power of the Company or other
corporation resulting from such Transaction; or


 

















 


(c)           all or substantially all of the assets of the Company
are sold, liquidated or distributed.


 


1.3        “Cause” shall
mean


 


(a)           Employee’s gross neglect of his duties to the Company,
where Employee has been given a reasonable opportunity to cure his gross
neglect (which reasonable opportunity must be granted during the thirty-day
period preceding termination);


 


(b)           any violation by Employee of Employee’s obligations
under this Agreement or any employment agreement which Employee may have with
the Company;


 


(c)           Employee taking any role in any buy-out of the Company
without the approval of the Company’s majority shareholder; or


 


(d)           Employee’s commission of any act of fraud, theft or
embezzlement against the Company.


 


1.4        “Compensation” shall
mean Base Salary plus Target Commission.


 


1.5        “Resignation For Good
Reason” shall mean the voluntary resignation by Employee of his
employment with the Company within two years following a Change of Control and
within three (3) months of the following Good Reasons:


 


(a)           any reduction in Employee’s Base Salary or Target Commission;
or


 


(b)           any reduction in Employee’s title; or


 


(c)           any significant reduction in Employee’s
responsibilities and authority;


 


(d)           any failure by the Company to pay Employee’s Base
Salary; or


 


(e)           a relocation by the Company of Employee’s place of
Employment outside a fifty (50) mile radius of Employee’s current place of
employment.


 


An
event described in Section 1.5(a) through (e) will not constitute Good Reason
unless Employee provides written notice to the Company of his intention to
resign for Good Reason and unless the Company does not cure or remedy the alleged
Good Reason condition within thirty (30) days of the Company’s receipt of the
written notice.


 


1.6        “Severance Period”
shall begin on the Termination Date and extend for twelve months following the
Termination Date.


 


1.7        “Target Commission”
shall mean the variable annual compensation represented by the Sales Commission
Employee is eligible to receive, prior to a Change of Control, in the event
targeted revenue is achieved for the year.


 


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1.8        “Termination Date”
shall mean the date of termination of Employee’s employment relationship with
the Company.


 


1.9        “Termination Payments”
shall mean any payment or distribution of Compensation or benefits made
pursuant to Section 4.1(a)-(c) of this Agreement.


 


2.          Title and Duties. Employee will hold the position of Vice
President of Worldwide Sales. Employee’s primary duties will include such
duties as are assigned or delegated to Employee by the Board of Directors of
the Company (the “Board”). Employee
will: (i) devote his entire business time, attention, skill, and energy
exclusively to the business of the Company; (ii) use his best efforts to promote
the success of the Company’s business; and (iii) cooperate fully with the Board
in the advancement of the best interests of the Company.


 


3.          At-Will Employment. Employee reaffirms that Employee’s
employment relationship with the Company is at-will, terminable at any time and
for any reason by either the Company or Employee. While certain paragraphs of
this Agreement describe events that could occur at a particular time in the
future, nothing in this Agreement may be construed as a guarantee of employment
of any length.


 


4.          Termination Payments.


 


4.1        If, within two (2) years immediately
following a Change of Control, Employee’s employment terminates as the result
of (i) termination by the Company of Employee’s employment for a reason other
than Cause; or (ii) Employee’s Resignation for Good Reason:


 


(a)           Employee will receive a pro-rata share of Base Salary
and accrued but unused vacation through the Termination Date, less applicable
state and federal taxes or other payroll deductions;


 


(b)           Subject to Section 9, Employee will be eligible for
Severance under this Agreement in a lump-sum amount equal to Base Salary plus
Target Commission, less applicable state and federal taxes or other payroll
deductions; and


 


(c)           Subject to Section 9, if Employee elects to continue
insurance coverage as afforded to Employee according to the Consolidated
Omnibus Budget Reconciliation Act of 1985 (“COBRA”),
Company will reimburse Employee the amount of the premiums incurred by Employee
during the Severance Period. Nothing in this Agreement will extend Employee’s
COBRA period beyond the period allowed under COBRA, nor is Company assuming any
responsibility which Employee has for formally electing to continue coverage.


 


With the exception of COBRA reimbursements, all
payments made pursuant to this Section 4.1 will be made within 60 days
following the termination of the employment of Employee, subject to Section 9.


 


4.2        The payments set forth in Section 4.1(b) and
(c) above are in exchange for, and contingent upon Employee’s execution and non-revocation
of a release of all claims as of the Termination Date, in substantially the
form attached to this Agreement as Exhibit A.


 


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4.3        If Employee’s employment terminates for
any reason after the two year period immediately following a Change of Control
or terminates during that two year period for any reason other than (i)
termination by the Company of Employee’s employment for a reason other than
Cause; or (ii) Employee’s Resignation for Good Reason, the Company will pay
Employee a pro-rata share of Base Salary and accrued but unused vacation
through the Termination Date, less applicable state and federal taxes or other
payroll deductions.


 


5.          Retirement and Profit-Sharing Plans. Notwithstanding anything in this
Agreement to the contrary, Employee’s rights in any retirement, pension or
profit-sharing plans offered by the Company shall be governed by the rules of
such plans as well as by applicable law; provided, however, that on the
Termination Date, Employee shall become fully vested in all pension and 401(k)
account balances.


 


6.          Tax Consequences. The Company makes no representations
regarding the tax consequence of any provision of this Agreement. Employee is
advised to consult with his own tax advisor with respect to the tax treatment
of any payment contained in this Agreement.


 


7.          Tax Adjustment. Notwithstanding the foregoing or any
other provision of this Agreement to the contrary, if tax counsel selected by
the Company and acceptable to Employee determines that any portion of any
payment under this Agreement would constitute an “excess parachute payment”
within the meaning of Section 280G of the Internal Revenue Code of 1986, as
amended (the “Code”), the payments to be made to
Employee under this Agreement shall be reduced (but not below zero) such that
the value of the aggregate payments that Employee is entitled to receive under
this Agreement and any other agreement or plan or program of the Company shall
be one dollar ($1) less than the maximum amount of payments which Employee may
receive without becoming subject to the tax imposed by Section 4999 of the
Code.


 


8.          Agreement to Arbitrate. Employee and Company agree to arbitrate
any claim or dispute (“Dispute”)
arising out of or in any way related to this Agreement, the employment
relationship between Company and Employee or the termination of Employee’s
employment, except as provided in paragraph 8.1 below, to the fullest
extent permitted by law. Except as provided above, this method of resolving
Disputes shall be the sole and exclusive remedy of the parties. Accordingly,
the parties understand that, except as provided herein, they are giving up
their rights to have their disputes decided in a court of law and, if
applicable, by a jury, and instead agree that their disputes shall be decided
by an arbitrator.


 


8.1        Scope of the Agreement. A Dispute shall include all disputes or
claims between Employee and Company arising out of, concerning or relating to Employee’s
employment by Company, including, without limitation:  claims for breach of contract, tort,
discrimination, harassment, wrongful termination, demotion, discipline, failure
to accommodate, compensation or benefits claims, constitutional claims and
claims for violation of any local, state or federal law, or common law, to the
fullest extent permitted by law. A Dispute shall not include any dispute or
claim, whether brought by either Employee or Company, for:  (a) workers’ compensation or
unemployment insurance benefits; or (b) the exclusions from arbitration
specified in the California Arbitration Act, California Code of Civil Procedure
section 1281.8. For the purpose of this paragraph 8, references to “Employer”
include Company and all related or affiliated entities and their employees,
supervisors, officers, directors, owners, stockholders, 


 


4

















 


agents,
pension or benefit plans, pension or benefit plan sponsors, fiduciaries,
administrators, and the successors and assigns of any of them, and this
paragraph 8 shall apply to them to the extent that Employee’s claims arise
out of or relate to their actions on behalf of Company.


 


8.2        Consideration. The parties agree that their mutual
promise to arbitrate any and all disputes between them, except as provided in
paragraph 8.1, rather than litigate them before the courts or other
bodies, provides adequate consideration for this paragraph 8.


 


8.3        Initiation of Arbitration. Either party may initiate an
arbitration proceeding by providing the other party with written notice of any
and all claims forming the basis of such proceeding in sufficient detail to
inform the other party of the substance of such claims. In no event shall the
request for arbitration be made after the date when institution of legal or
equitable proceedings based on such claims would be barred by the applicable
statute of limitations.


 


8.4        Arbitration Procedure. The arbitration will be conducted by JAMS
pursuant to its Rules for the Resolution of Employment Disputes in
San Diego, California by a single, neutral arbitrator. The parties are
entitled to representation by an attorney or other representative of their
choosing. The arbitrator shall have the power to enter any award that could be
entered by a judge of the Superior Court of the State of California, as
applicable to the cause of action, and only such power. The arbitrator shall
issue a written and signed statement of the basis of the arbitrator’s decision,
including findings of fact and conclusions of law. The parties agree to abide
by and perform any award rendered by the arbitrator. Judgment on the award may
be entered in any court having jurisdiction thereof.


 


8.5        Costs of Arbitration. If Employee initiates arbitration
against the Company, Employee must pay a filing fee equal to the current filing
fee in the appropriate court had Employee’s claim been brought there, and the Company
shall bear the remaining costs of the arbitration forum, including arbitrator
fees. If the Company initiates arbitration against Employee, the Company shall
bear the entire cost of the arbitration forum, including arbitrator fees. (Such
costs do not include costs of attorneys, discovery, expert witnesses, or other
costs which Employee would have been required to bear had the matter been filed
in a court.)  The arbitrator may award
attorneys’ fees and costs to the prevailing party. If there is any dispute as
to whether the Company or Employee is the prevailing party, the arbitrator will
decide that issue. Any postponement or cancellation fee imposed by the
arbitration service will be paid by the party requesting the postponement or
cancellation, unless the arbitrator determines that such fee would cause undue
hardship on the party. At the conclusion of the arbitration, each party agrees
to promptly pay any arbitration award imposed against that party.


 


8.6        Governing Law. All Disputes between the parties shall
be governed, determined and resolved by the internal laws of the State of
California, including the California Arbitration Act, California Code of Civil
Procedure 1280 et seq.


 


8.7        Discovery. The parties may obtain discovery in aid
of the arbitration to the fullest extent permitted under law, including
California Code of Civil Procedure Section 1283.05. All discovery disputes
shall be resolved by the arbitrator.


 


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9.          IRC Section 409A. Notwithstanding anything to the
contrary, if, at the time of his separation of service from Company, Employee
is a “specified employee” as defined pursuant to Internal Revenue Code Section
409A, and if the amounts that Employee is entitled to receive pursuant to this
Agreement are not otherwise exempt from Code Section 409A, then to the extent
necessary to comply with Code Section 409A, no payments for such amounts may be
made under this Agreement before the date which is six (6) months after
Employee’s separation of service from Company or, if earlier, Employee’s date
of death. All such amounts, which would have otherwise been required to be paid
during such six (6) months after Employee’s separation of service shall instead
be paid to Employee in one lump sum payment on the first business day of the
seventh month after Employee’s separation of service from Company or, if
earlier, Employee’s date of death. All such remaining payments shall be made
pursuant to their original terms and conditions. This Agreement is intended to
comply with the applicable requirements of Code Section 409A and shall be
construed and interpreted in accordance therewith. Company may at any time amend
this Agreement, or any payments to be made hereunder, as necessary to be in
compliance with Code Section 409A and avoid the imposition on Employee of any
potential excise taxes relating to Code Section 409A. Employee shall be solely
liable for taxes (including without limitation resulting from any unexpected or
adverse tax consequences realized by Employee) arising from any payments
received by Employee hereunder.


 


10.        General Provisions.


 


10.1            Governing Law. This Agreement will be governed by and
construed in accordance with the laws of California.


 


10.2            Assignment. Employee may not assign, pledge or
encumber his interest in this Agreement or any part thereof. A purchaser of
substantially all the assets of the Company may assume all of the Company’s liabilities
under this Agreement, and the Company would thereby be relieved of all such
liabilities, provided that Employee accepts employment with such purchaser at
the closing of the transaction.


 


10.3            No Waiver of Breach. The failure to enforce any provision of
this Agreement will not be construed as a waiver of any such provision, nor
prevent a party from enforcing the provision or any other provision of this
Agreement. The rights granted the parties are cumulative, and the election of
one will not constitute a waiver of such party’s right to assert all other
legal and equitable remedies available under the circumstances.


 


10.4            Severability. The provisions of this Agreement are
severable, and if any provision will be held to be invalid or otherwise
unenforceable, in whole or in part, the remainder of the provisions, or
enforceable parts of this Agreement, will not be affected.


 


10.5            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.


 


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10.6            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.


 


10.7            Fees and Expenses. If any proceeding is brought for the
enforcement or interpretation of this Agreement, or because of any alleged
dispute, breach, default or misrepresentation in connection with any provisions
of this Agreement, the successful or prevailing party will be entitled to
recover from the other party reasonable attorneys’ fees and other costs
incurred in that proceeding (including, in the case of an arbitration,
arbitration fees and expenses), in addition to any other relief to which such
party may be entitled.


 


10.8            Amendment. This Agreement may be amended or
supplemented only by a writing signed by both of the parties hereto.


 


10.9            Duplicate Counterparts. This Agreement may be executed in any
number of original, facsimile or .PDF counterparts; each of which shall be
deemed an original and all of which together shall constitute one and the same
instrument.


 


10.10          Interpretation. The headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.


 


10.11          Drafting Ambiguities. Each party to this Agreement and its counsel have
reviewed and revised this Agreement. The rule of construction that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of this Agreement or any of the amendments to this
Agreement.


 


10.12          Recovery of Attorney’s Fees and Expenses. If any litigation shall occur between
Executive and Employer which arises out of or as a result of this Agreement, or
which seeks an interpretation of this Agreement, the prevailing party shall be
entitled to recover reasonable attorneys’ fees and costs. 


 


	
  Dated:

  	
  September
  27, 2007

  	
   

  	
  OVERLAND
  STORAGE, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Kurt Kalbfleisch 

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Kurt
  L. Kalbfleisch

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
  Vice
  President of Finance and Interim

  
	
   

  	
   

  	
  Chief
  Financial Officer

  
							



 


 


	
  Dated:

  	
  October
  5, 2007

  	
   

  	
      /s/
  Robert Farkaly

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Printed
  Name:

  	
  Robert
  Farkaly

  



 


7

















 


EXHIBIT A


 


GENERAL RELEASE


 


This General
Release (“Release”) is entered into effective as
of                             
(the “Effective Date”) between Overland
Storage, Inc., a California corporation, having its principal offices at 4820
Overland Avenue, San Diego, California 92123 (the “Company”)
and                                           ,
an individual residing at                                         
(“Employee”) with reference to the
following facts:


 


RECITALS


 


A.     The parties entered into an Amended and Restated Retention
Agreement dated September 27, 2007 (“the Agreement”) pursuant
to which the parties agreed that, upon the occurrence of certain conditions,
Employee would become eligible for Termination Payments 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 Termination Date.


 


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, the California Labor Code and the Age
Discrimination in Employment Act, as amended (“ADEA”).
Employee acknowledges that the Company has paid Employee all wages, bonuses,
accrued unused vacation pay, options, benefits and monies owed by the Company
to Employee. This release does not waive any claims which as a matter of law
cannot be waived.


 


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


 


A-1

















 


A GENERAL RELEASE DOES
NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN
HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR
HER MUST HAVE MATERIALLY AFFECTED HIS OR HER 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. If Employee does not consider this Release for
the full 21-day period, but instead signs and returns it earlier, Employee has
done so voluntarily with the full understanding that Employee waived Employee’s
right to the full 21-day period. In addition, Employee is hereby informed that
Employee has seven (7) days following the date of signing of this Agreement in
which to revoke this Release. Employee can revoke the Release by sending notice
of my revocation to the attention of the Chairman of the Board of the Company.
If Employee does not send such written notice of revocation via U.S. Mail
postmarked within 7 days, this Release shall become effective and irrevocable
at 12:01 a.m. on the eighth (8th) day after Employee signs it (the “Effective Date”).


 


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 original, facsimile, or
..PDF 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 final and binding arbitration in accordance with the procedures,
terms and conditions set forth Section 8 of the Agreement, which terms are
incorporated herein by reference.


 


A-2

















 


9.      Entire Agreement. This
Release constitutes the entire agreement of the parties with respect to the
subject matter of this Release, and supersedes all prior and contemporaneous
negotiations, agreements and understandings between the parties, oral or
written, including,  without limitation,
the Agreement, between the Company and Employee.


 


10.    Modification; Waivers. No
modification, termination or attempted waiver of this Release 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 Release
may be amended or supplemented only by a writing signed by Employee and the
Company.


 


	
  Dated:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Printed
  Name:

  	
   

  



 


A-3