**Exhibit 10.42**

 

**1996EMPLOYEE STOCK PURCHASE PLAN**

**OF**

**OVERLANDSTORAGE, INC.**

 

**(asAmended and Restated Effective August 22, 2005)**

 

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TABLE OF CONTENTS

 
| 1.     | PURPOSE                                              |   |
|--------|------------------------------------------------------|--------|
|   |                                                 |   |
| 2.     | DEFINITIONS                                          |   |
|   |                                                 |   |
| 3.     | ELIGIBILITY                                          |   |
|   |                                                 |   |
| 4.     | PARTICIPATION                                        |   |
|   |                                                 |   |
| 5.     | OFFERING                                             |   |
|   |                                                 |   |
| 6.     | PURCHASE OF STOCK                                    |   |
|   |                                                 |   |
| 7.     | PAYMENT AND DELIVERY                                 |   |
|   |                                                 |   |
| 8.     | RECAPITALIZATION                                     |   |
|   |                                                 |   |
| 9.     | MERGER, LIQUIDATION,  OTHER CORPORATION TRANSACTIONS |   |
|   |                                                 |   |
| 10.    | TRANSFERABILITY                                      |   |
|   |                                                 |   |
| 11.    | AMENDMENT OR  TERMINATION OF THE PLAN                |   |
|   |                                                 |   |
| 12.    | ADMINISTRATION                                       |   |
|   |                                                 |   |
| 13.    | COMMITTEE RULES FOR  FOREIGN JURISDICTIONS           |   |
|   |                                                 |   |
| 14.    | SECURITIES LAWS  REQUIREMENTS                        |   |
|   |                                                 |   |
| 15.    | GOVERNMENTAL REGULATIONS                             |   |
|   |                                                 |   |
| 16.    | NO ENLARGEMENT OF  EMPLOYEE RIGHTS                   |   |
|   |                                                 |   |
| 17.    | GOVERNING LAW                                        |   |
|   |                                                 |   |
| 18.    | EFFECTIVE DATE AND  SUBSEQUENT PLAN HISTORY          |   |

 

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**1996 EMPLOYEE STOCK PURCHASE PLANOF OVERLAND STORAGE, INC.**

 

**(as Amended and Restated Effective August 22,2005)**

 

**1.****                                      PURPOSE.**

 

The purpose ofthis Plan is to provide an opportunity for Employees of Overland Storage, Inc.(the “Corporation”) and its Designated Subsidiaries, to purchase Common Stockof the Corporation and thereby to have an additional incentive to contribute tothe prosperity of the Corporation.  It isthe intention of the Corporation that the Plan qualify as an “Employee StockPurchase Plan” under Section 423 of the Internal Revenue Code of 1986, asamended, although the Corporation makes no undertaking nor representation tomaintain such qualification.

 

**2.****                                      DEFINITIONS.**

 

(a)**                                  “Board”**shall mean the Board of Directors of the Corporation.

 

(b)                                 **“Base Compensation”** means, with respect to eachParticipant for each pay period, such Participant’s Compensation, excluding (i) BonusCompensation; (ii) any amounts contributed by the Corporation or aDesignated Subsidiary to any pension plan, deferred compensation plan, or othersimilar plan; (iii) any automobile allowance (or reimbursement for suchexpenses); and (iv) any amounts paid as a starting bonus or finder’s fee.

 

(c)                                  **“Bonus Compensation”** means, with respect to eachParticipant for each period with respect to which a cash bonus is payable tosuch Employee, the amount of the cash bonus payable to such Participant forsuch period.  Except as determined by theCommittee, Bonus Compensation does not include: (i) any amountscontributed by the Corporation or a Designated Subsidiary to any pension plan,deferred compensation plan, or other similar plan; (ii) any automobileallowance (or reimbursement for such expenses); or (iii) any amounts paid asa starting bonus or finder’s fee.

 

(d)                                 **“Code”** shall mean the Internal Revenue Code of 1986,as amended.

 

(e)**                                  “Committee”**shall mean the committee appointed by the Board in accordance with Section 12of the Plan.

 

(f)**                                    “CommonStock”** shall mean the Common Stock of the Corporation, or any stockinto which such Common Stock may be converted.

 

(g)**                                 “Compensation”**shall mean an Employee’s wages or salary and other amounts payable to anEmployee on account of personal services rendered by the Employee to the Corporationor a Designated Subsidiary and which are reportable as wages or othercompensation on the Employee’s Form W-2, plus pre-tax contributions of theEmployee under a cash or deferred arrangement (401(k) plan) or cafeteria planmaintained by the Corporation or a

 

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Designated Subsidiary, but excluding, however, (1) non-cash fringebenefits, (2) special payments as determined by the Committee (e.g.,moving expenses, unused vacation, severance pay), (3) income from theexercise of stock options or other stock purchases and (4) any other itemsof Compensation as determined by the Committee.

 

(h)**                                 “Corporation”**shall mean Overland Storage, Inc., a California corporation.

 

(i)**                                     “DesignatedSubsidiary”** shall mean a Subsidiary which has been designated by theBoard as eligible to participate in the Plan.

 

(j)**                                     “Employee”**shall mean an individual classified as an employee (within the meaning of Code Section 3401(c) andthe regulations thereunder) by the Corporation or a Designated Subsidiary onthe Corporation payroll records during the relevant participation period.

 

(k)**                                  “EntryDate”** shall mean the first day of each Option Period.

 

(l)**                                     “ExerciseDate”** shall mean the last business day of each Exercise Period.

 

(m)**                               “ExercisePeriod”**shall mean a three-month, six-month or other period asdetermined by the Board.  The firstExercise Period during an Option Period shall commence on the first day of suchOption Period.  Subsequent ExercisePeriods, if any, shall run consecutively after the termination of the precedingExercise Period.  The last ExercisePeriod in an Option Period shall terminate on the last day of such OptionPeriod.

 

(n)**                                 “FairMarket Value”** shall mean the value of one (1) share of CommonStock on the relevant date, determined as follows:

 

(1)                                  If the shares are traded on an exchange,the reported “closing price” on the last trading date immediately preceding therelevant date;

 

(2)                                  If the shares are traded over-the-counteron the Nasdaq Stock Market, the Nasdaq Official Closing Price reported for thelast trading date immediately preceding the relevant date;

 

(3)                                  If neither (1) nor (2) applies,the fair market value as determined by the Committee in good faith.  Such determination shall be conclusive andbinding on all persons.

 

(o)                                 **“Maximum Percentage”** means the maximum percentage of (i) BaseCompensation, or (ii) Base Compensation and Bonus Compensation, which aParticipant may elect to have withheld from Compensation pursuant to Section 4.  The Maximum Percentage will be fifteenpercent (15%) unless a lower percentage amount is designated by the Committeewith respect to an Option Period.

 

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(p)**                                 “OptionPeriod”** shall mean a period of up to twenty-seven (27) months asdetermined by the Committee.  The Boardmay determine that the Option Period and the Exercise Period are the same.

 

(q)**                                 “Participant”**shall mean a participant in the Plan as described in Section 4 of thePlan.

 

(r)**                                    “Plan”**shall mean this employee stock purchase plan.

 

(s)**                                  “Shareholder”**shall mean a record holder of shares entitled to vote shares of Common Stockunder the Corporation’s by-laws.

 

(t)**                                    “Subsidiary”**shall mean any corporation (other than the Corporation) in an unbroken chain ofcorporations beginning with the Corporation, as described in Code Section 424(f).

 

**3.****                                      ELIGIBILITY.**

 

Any Employeeregularly employed on a full-time basis by the Corporation or by any DesignatedSubsidiary on an Entry Date shall be eligible to participate in the Plan withrespect to the Option Period commencing on such Entry Date, provided that theCommittee may establish administrative rules requiring that employmentcommence some minimum period (e.g., one pay period) prior to an Entry Date tobe eligible to participate with respect to that Entry Date and provided furtherthat (1) the Board may extend eligibility to part-time Employees pursuantto criteria and procedures established by the Committee and (2) the Boardmay impose an eligibility period on participation of up to two years withrespect to participation on any prospective Entry Date.  The Board may also determine that adesignated group of highly compensated Employees (e.g., Employees subject to Section 16(b) ofthe Securities Exchange Act of 1934) are ineligible to participate in thePlan.  An Employee shall be consideredemployed on a full-time basis unless his or her customary employment is lessthan 20 hours per week or five months per year. No Employee may participate in the Plan if immediately after an optionis granted the Employee owns or is considered to own (within the meaning ofCode Section 424(d)), shares of stock, including stock which the Employeemay purchase by conversion of convertible securities or under outstandingoptions granted by the Corporation, possessing five percent (5%) or more of thetotal combined voting power or value of all classes of stock of the Corporationor of any of its Subsidiaries.  AllEmployees who participate in the Plan shall have the same rights and privilegesunder the Plan except for differences which may be mandated by local law andwhich are consistent with Code Section 423(b)(5).  The Board may impose restrictions oneligibility and participation of Employees who are officers and directors tofacilitate compliance with federal or state securities laws or foreign laws.

 

**4.****                                      PARTICIPATION.**

 

4.1                                 An Employee who is eligible to participate in the Plan inaccordance with Section 3 may become a Participant by filing, on a dateprescribed by the Committee prior to an

 

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applicable Entry Date, a completed payroll deductionauthorization and Plan enrollment form provided by the Corporation.  An eligible Employee may authorize payrolldeductions at the rate of any whole percentage (i.e., 1%, 2%, 3%, etc.), up tothe Maximum Percentage, of either (i) the Employee’s Base Compensation, or(ii) the Employee’s Base Compensation and Bonus Compensation, as electedby the Employee in the payroll deduction authorization and Plan enrollmentform. If an Employee has elected to participate in the Plan but has not made anelection whether payroll deductions should be calculated and withheld from theEmployee’s Base Compensation, or from the Employee’s Base Compensation andBonus Compensation, then payroll deductions shall be calculated and withheldfrom such Employee’s Base Compensation only. All payroll deductions may be held by the Corporation and commingledwith its other corporate funds.  Nointerest shall be paid or credited to the Participant with respect to suchpayroll deductions except where required by local law as determined by theCommittee.  A separate bookkeepingaccount for each Participant shall be maintained by the Corporation under thePlan and the amount of each Participant’s payroll deductions shall be creditedto such account.  A Participant may notmake any additional payments into such account.

 

4.2                                 Under procedures established by the Committee, aParticipant may suspend or discontinue participation in the Plan at any timeduring an Exercise Period by completing and filing a new payroll deductionauthorization and Plan enrollment form with the Corporation.  A Participant may increase or decrease his orher rate of payroll deductions, or change his or her election of the portion ofCompensation (i.e., Base Compensation, or Base Compensation and BonusCompensation) from which payroll deductions will be calculated and withheld, byfiling a new payroll deduction authorization and Plan enrollment form at anytime. Changes in rate shall be effective as soon as reasonably practicableafter the Corporation has received such form. Changes in the portion of Compensation from which payroll deductionswill be calculated and withheld will be effective for the next commencingExercise Period, subject to continuing eligibility of the Participant pursuantto Section 3.  The Committee mayestablish rules limiting the frequency with which Participants mayincrease or decrease the rate of payroll deduction, or change the election ofthe portion of Compensation from which payroll deductions will be calculatedand withheld, and may impose a waiting period on Participants wishing toincrease the rate of payroll deductions after a decrease. If a new payrolldeduction authorization and Plan enrollment form is not filed with theCorporation, the rate of payroll deductions and the portion of Compensationfrom which payroll deductions will be calculated and withheld shall continue asoriginally elected (i) throughout the Option Period and (ii) subjectto continued eligibility as determined under Section 3, for succeedingOption Periods; unless in either case the Committee determines to change theMaximum Percentage.

 

If aParticipant suspends participation during an Exercise Period, his or heraccumulated payroll deductions will remain in the Plan for purchase of sharesas specified in Section 6 on the following Exercise Date, but theParticipant will not again participate until he or she completes a new payrolldeduction authorization and Plan enrollment form.  The Committee may establish rules limitingthe frequency with which Participants may suspend and resume payroll deductionsunder the Plan and may impose a waiting period on Participants wishing toresume suspended payroll deductions.  Ifa Participant discontinues participation in the Plan, the amount credited to

 

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the Participant’s individual account shall be paid to the Participantwithout interest (except where required by local law).  In the event any Participant terminatesemployment with the Corporation or any Subsidiary for any reason (includingdeath) prior to the expiration of an Option Period, the Participant’sparticipation in the Plan shall terminate and all amounts credited to the Participant’saccount shall be paid to the Participant or the Participant’s estate withoutinterest (except where required by local law). Whether a termination of employment has occurred shall be determined bythe Committee.  The Committee may also establishrules regarding when leaves of absence or change of employment status(e.g., from full-time to part-time) will be considered to be a termination ofemployment, and the Committee may establish termination of employmentprocedures for this Plan which are independent of similar rules establishedunder other benefit plans of the Corporation and its Subsidiaries.

 

In the eventof a Participant’s death, any accumulated payroll deductions will be paid,without interest, to the estate of the Participant.

 

**5.****                                      OFFERING.**

 

5.1                                 The maximum number of shares of Common Stock which may beissued pursuant to the Plan shall be 600,000 shares.  The Board may designate any amount ofavailable shares for offering for any Option Period determined pursuant to Section 5.2.

 

5.2                                 Each Option Period, Entry Date and Exercise Period shall bedetermined by the Board.  The Board shallhave the power to change the duration of future Option Periods or futureExercise Periods, and to determine whether or not to have overlapping OptionPeriods, with respect to any prospective offering, without shareholderapproval, and without regard to the expectations of any Participants.

 

5.3                                 With respect to each Option Period, each eligible Employeewho has elected to participate as provided in Section 4.1 shall be grantedan option to purchase that number of shares of Common Stock which may bepurchased with the payroll deductions accumulated on behalf of such Employee(assuming payroll deductions at a rate of 15% of Compensation) during eachExercise Period within such Option Period at the purchase price specified in Section 5.4below; provided, however, (1) in no event shall the Employee be entitledto accrue rights to purchase shares under the Plan (and all other employeestock purchase plans, as defined in Code Section 423, of the Corporationand its subsidiaries) at a rate which exceeds $25,000 of the Fair Market Valueof such stock (determined at the time the option is granted) for any calendaryear in which such option is outstanding at any time, and (2) the maximumshares subject to any option shall in no event exceed 1,500.

 

5.4                                 The option price under each option shall be determined bythe Board or Committee as either:

 

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(a)                                  a percentage, not less than 85%,established by the Board or Committee (the “Designated Percentage”) of the FairMarket Value on the Exercise Date on which the Common Stock is purchased; or

 

(b)                                 the lower of (i) the DesignatedPercentage of the Fair Market Value of the Common Stock on the Entry Date onwhich an option is granted, or (ii) the Designated Percentage of the FairMarket Value on the Exercise Date on which the Common Stock is purchased.

 

The Board orCommittee may change the Designated Percentage with respect to any future OptionPeriod, but not below 85%.

 

5.5                                 If the total number of shares of Common Stock for whichoptions granted under the Plan are exercisable exceeds the maximum number ofshares offered on any Entry Date, the number of shares which may be purchasedunder options granted on the Entry Date shall be reduced on a pro rata basis inas nearly a uniform manner as shall be practicable and equitable.  In this event, payroll deductions shall alsobe reduced or refunded accordingly.  Ifan Employee’s payroll deductions during any Exercise Period exceeds thepurchase price for the maximum number of shares permitted to be purchased underSection 5.3, the excess shall be refunded to the Participant withoutinterest (except where otherwise required by local law).

 

5.6                                 If the option price is determined in accordance with Section 5.4(b),then in the event that the Fair Market Value of the Corporation’s Common Stockis lower on the first day of an Exercise Period within an Option Period(subsequent “Reassessment Date”) than it was on the Entry Date for such OptionPeriod, all Employees participating in the Plan on the Reassessment Date shallbe deemed to have relinquished the unexercised portion of the option granted onthe Entry Date and to have enrolled in and received a new option commencing onsuch Reassessment Date, unless the Board has determined not to permitoverlapping Option Periods or to restrict such transfers to lower price OptionPeriods.

 

**6.****                                      PURCHASEOF STOCK.**

 

Upon theexpiration of each Exercise Period, a Participant’s option shall be exercisedautomatically for the purchase of that number of full shares of Common Stockwhich the accumulated payroll deductions credited to the Participant’s accountat that time shall purchase at the applicable price specified in Section 5.4.

 

**7.****                                      PAYMENTAND DELIVERY.**

 

Upon theexercise of an option, the Corporation shall deliver to the Participant theCommon Stock purchased and the balance of any amount of payroll deductionscredited to the Participant’s account not used for the purchase.  The Board may permit or require that sharesbe deposited directly with a broker designated by the Participant (or a brokerselected by the Committee) or to a designated agent of the Company, and theCommittee may utilize electronic or automated methods of share transfer.  The Board may require that shares be retainedwith

 

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such broker or agent for a designated period of time (and may restrictdispositions during that period) and/or may establish other procedures topermit tracking of disqualifying dispositions of such shares or to restricttransfer of such shares.  To the extentthe unused cash balance represents a fractional share, the unused cash balancecredited to the Participant’s account shall be carried over to the nextExercise Period, if the Participant is also a Participant in the Plan at thattime or refunded to the Participant, as determined by the Committee.  The Corporation shall retain the amount ofpayroll deductions used to purchase Common Stock as full payment for the CommonStock and the Common Stock shall then be fully paid and non-assessable.  No Participant shall have any voting,dividend, or other stockholder rights with respect to shares subject to anyoption granted under the Plan until the option has been exercised and sharesissued.

 

**8.****                                      RECAPITALIZATION.**

 

If after thegrant of an option, but prior to the purchase of Common Stock under the option,there is any increase or decrease in the number of outstanding shares of CommonStock because of a stock split, stock dividend, combination or recapitalizationof shares subject to options, the number of shares to be purchased pursuant toan option, the share limit of Section 5.3 and the maximum number of sharesspecified in Section 5.1 shall be proportionately increased or decreased,the terms relating to the purchase price with respect to the option shall beappropriately adjusted by the Board, and the Board shall take any furtheractions which, in the exercise of its discretion, may be necessary orappropriate under the circumstances.

 

The Board, ifit so determines in the exercise of its sole discretion, also may adjust thenumber of shares specified in Section 5.1, as well as the price per shareof Common Stock covered by each outstanding option and the maximum number ofshares subject to any individual option, in the event the Corporation effectsone or more reorganizations, recapitalizations, spin-offs, split-ups, rightsofferings or reductions of shares of its outstanding Common Stock.

 

The Board’sdeterminations under this Section 8 shall be conclusive and binding on allparties.

 

**9.****                                      MERGER,LIQUIDATION, OTHER CORPORATION TRANSACTIONS.**

 

In the eventof the proposed liquidation or dissolution of the Corporation, the OptionPeriod will terminate immediately prior to the consummation of such proposedtransaction, unless otherwise provided by the Board in its sole discretion, andall outstanding options shall automatically terminate and the amounts of allpayroll deductions will be refunded without interest to the Participants.

 

In the eventof a proposed sale of all or substantially all of the assets of theCorporation, or the merger or consolidation of the Corporation with or intoanother corporation, then in the sole discretion of the Board, (1) eachoption shall be assumed or an equivalent option shall be substituted by thesuccessor corporation or parent or subsidiary of such successor corporation,

 

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(2) a date established by the Board on or before the date ofconsummation of such merger, consolidation or sale shall be treated as anExercise Date, and all outstanding options shall be deemed exercisable on suchdate or (3) all outstanding options shall terminate and the accumulated payrolldeductions shall be returned to the Participants.

 

**10.****                               TRANSFERABILITY.**

 

Optionsgranted to Participants may not be voluntarily or involuntarily assigned,transferred, pledged, or otherwise disposed of in any way, and any attemptedassignment, transfer, pledge, or other disposition shall be null and void andwithout effect.  If a Participant in anymanner attempts to transfer, assign or otherwise encumber his or her rights orinterest under the Plan, other than as permitted by the Code, such act shall betreated as an election by the participant to discontinue participation in thePlan pursuant to Section 4.2.

 

**11.****                               AMENDMENTOR TERMINATION OF THE PLAN.**

 

11.1                           The Plan shall continue until, January 31, 2007 unlesspreviously terminated in accordance with Section 11.2.

 

11.2                           The Board may, in its sole discretion, insofar as permittedby law, terminate or suspend the Plan, or revise or amend it in any respectwhatsoever, except that, without approval of the shareholders, no such revisionor amendment shall:

 

(a)                                  materiallyincrease the number of shares subject to the Plan, other than an adjustmentunder Section 8 of the Plan;

 

(b)                                 materiallymodify the requirements as to eligibility for participation in the Plan, exceptas otherwise specified in this Plan;

 

(c)                                  materiallyincrease the benefits accruing to Participants;

 

(d)                                 reducethe purchase price specified in Section 5.4, except as specified in Section 8;

 

(e)                                  extendthe term of the Plan beyond the date specified in Section 11.1; or

 

(f)                                    amendthis Section 11.2 to defeat its purpose.

 

**12.****                               ADMINISTRATION.**

 

The Boardshall appoint a Committee consisting of at least two members who will serve forsuch period of time as the Board may specify and who may be removed by theBoard at any time.  The Committee will havethe authority and responsibility for the day-to-day administration of the Plan,the authority and responsibility specifically provided in this Plan and anyadditional duties, responsibility and authority delegated to the Committee bythe Board, which may include

 

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any of the functions assigned to the Board in this Plan.  The Committee shall have full power andauthority to promulgate any rules and regulations which it deems necessaryfor the proper administration of the Plan, to interpret the provisions andsupervise the administration of the Plan, and to take all action in connectionwith administration of the Plan as it deems necessary or advisable, consistentwith the delegation from the Board. Decisions of the Board and the Committee shall be final and binding uponall participants.  Any decision reducedto writing and signed by a majority of the members of the Committee shall befully effective as if it had been made at a meeting of the Committee dulyheld.  The Corporation shall pay allexpenses incurred in the administration of the Plan.  No Board or Committee member shall be liablefor any action or determination made in good faith with respect to the Plan orany option granted thereunder.

 

**13.****                               COMMITTEERULES FOR FOREIGN JURISDICTIONS.**

 

The Committeemay adopt rules or procedures relating to the operation and administrationof the Plan in non-United States jurisdictions to accommodate the specificrequirements of local laws and procedures. Without limiting the generality of the foregoing, the Committee isspecifically authorized to adopt rules and procedures regarding handlingof payroll deductions, payment of interest, conversion of local currency,withholding procedures and handling of stock certificates which vary with localrequirements.

 

**14.****                               SECURITIESLAWS REQUIREMENTS.**

 

TheCorporation shall not be under any obligation to issue Common Stock upon theexercise of any option unless and until the Corporation has determined that: (i) itand the Participant have taken all actions required to register the CommonStock under the Securities Act of 1933, or to perfect an exemption from theregistration requirements thereof; (ii) any applicable listing requirementof any stock exchange on which the Common Stock is listed has been satisfied;and (iii) all other applicable provisions of state, federal and applicableforeign law have been satisfied.

 

**15.****                               GOVERNMENTALREGULATIONS.**

 

This Plan andthe Corporation’s obligation to sell and deliver shares of its stock under thePlan shall be subject to the approval of any governmental authority required inconnection with the Plan or the authorization, issuance, sale, or delivery ofstock hereunder.

 

**16.****                               NOENLARGEMENT OF EMPLOYEE RIGHTS.**

 

Nothingcontained in this Plan shall be deemed to give any Employee the right to beretained in the employ of the Corporation or any Designated Subsidiary or tointerfere with the right of the Corporation or Designated Subsidiary todischarge any Employee at any time.

 

**17.****                               GOVERNINGLAW.**

 

This Planshall be governed by California law.

 

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**18.****                               EFFECTIVEDATE AND SUBSEQUENT PLAN HISTORY.**

 

This Plan becameeffective on the first date in 1997 in which the Common Stock traded on theNasdaq System or Nasdaq National Market System. The Board approved an increase in shares of Common Stock that may beissued under the Plan from 250,000 to 500,000 on September 25, 1998, whichincrease was approved by shareholders on November 12, 1998.  The Board approved certain amendments to thePlan on August 20, 2003, which amendments did not require the approval ofthe shareholders of the Corporation.  TheBoard approved an increase in shares of Common Stock that may be issued underthe Plan from 500,000 to 600,000 on September 6, 2003, which increase isreflected in Section 5.1, but is subject to approval of the shareholdersof the Corporation within 12 months of its adoption by the Board ofDirectors.  The Board approved certainamendments to the Plan on August 11, 2005, effective August 22, 2005,which amendments did not require the approval of the shareholders of theCorporation.

 

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