EXHIBIT
10.7


 


OVERLAND
STORAGE, INC.

2003 EQUITY INCENTIVE PLAN


 


NOTICE
OF STOCK OPTION GRANT

(OUTSIDE DIRECTOR, LIMITED TRANSFERABILITY)


 


You have been granted the following option to purchase
shares of the Common Stock of Overland Storage, Inc. (the “Company”):


 


	
  Name
  of Optionee:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Total
  Number of Shares:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Type
  of Option:

  	
   

  	
  Nonstatutory Stock Option

  
	
   

  	
   

  	
   

  
	
  Exercise
  Price Per Share:

  	
   

  	
  $

  
	
   

  	
   

  	
   

  
	
  Date
  of Grant:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Vesting
  Commencement

  Date:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Vesting
  Schedule:

  	
   

  	
  This option becomes exercisable with respect to
  1,500 shares subject to this option when you complete one month of continuous
  “Service” (as defined in the Plan) from the Vesting Commencement Date.  Thereafter, this option becomes
  exercisable with respect to an additional 1,500 Shares subject to this option
  when you complete each additional month of Service.  If this option was granted pursuant to Section 7.2 or 7.3
  of the Plan, this option will be fully exercisable upon the first annual
  meeting of the Company’s shareholders following the Date of Grant if Service
  has been continuous from the Date of Grant to such meeting date.

  
	
   

  	
   

  	
   

  
	
  Expiration
  Date:

  	
   

  	
  [                ][      ],
  20[   ], or if such anniversary date would fall on a day when
  Company headquarters are not open for business, at the close of business at
  Company headquarters on the last business day before such anniversary
  date.  This option expires earlier if
  your Service terminates earlier, as described in the Stock Option Agreement.

  



 


You and the Company agree that this option is granted under and
governed by the terms and conditions of the 2003 Equity Incentive Plan (the
“Plan”) and the Stock Option Agreement, both of which are attached to and made
a part of this document.


 


You further agree that the Company may deliver by
email all documents relating to the Plan or this option (including, without
limitation, prospectuses required by the Securities and Exchange Commission)
and all other documents that the Company is required to deliver to its security
holders (including, without limitation, annual reports and proxy
statements).  You also agree that


 

















 


the Company may deliver these documents by
posting them on a web site maintained by the Company or by a third party under
contract with the Company.  If the
Company posts these documents on a web site, it will notify you by email.


 


	
  Optionee:

  	
  Overland
  Storage, Inc.

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
						



 


2

















 


OVERLAND
STORAGE, INC.

2003 EQUITY INCENTIVE PLAN


 


STOCK OPTION AGREEMENT


 


 


	
  Tax Treatment

  	
   

  	
  This option is intended to be
  a nonstatutory stock option.

  
	
   

  	
   

  	
   

  
	
  Vesting

  	
   

  	
  This option becomes
  exercisable in installments, as shown in the Notice of Stock Option
  Grant.  In addition, this option
  becomes exercisable in full if either of the following events occurs:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  •                                          Your Service terminates because of total and
  permanent disability, or death, or

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  •                                          The Company is subject to a “Change in Control”
  (as defined in the Plan) before your Service terminates.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  This option will in no event
  become exercisable for additional shares after your Service has terminated
  for any reason.

  
	
   

  	
   

  	
   

  
	
  Regular
  Termination

  	
   

  	
  If your Service terminates for
  any reason except death or total and permanent disability, then this option
  will expire at the close of business at Company headquarters on the date
  three months after your termination date, or if such expiration date would
  fall on a day when Company headquarters are not open for business, at the
  close of business at Company headquarters on the last business day before
  such expiration date.  The Company
  determines when your Service terminates for this purpose.

  
	
   

  	
   

  	
   

  
	
  Death

  	
   

  	
  If you die before your Service
  terminates, then this option will expire at the close of business at Company
  headquarters on the date 12 months after the date of death, or if such
  expiration date would fall on a day when Company headquarters are not open
  for business, at the close of business at Company headquarters on the last
  business day before such expiration date.

  
	
   

  	
   

  	
   

  
	
  Disability

  	
   

  	
  If your Service terminates
  because of your total and permanent disability, then this option will expire
  at the close of business at Company headquarters on the date 12 months after
  your termination date, or if such expiration date would fall on a day when
  Company headquarters are not open for business, at the close of business at
  Company headquarters on the last business day before such expiration date.

  



 


3

















 


	
   

  	
   

  	
  For all purposes under this
  Agreement, “total and permanent disability” means that you are unable to
  engage in any substantial gainful activity by reason of any medically
  determinable physical or mental impairment which can be expected to result in
  death or which has lasted, or can be expected to last, for a continuous period
  of not less than one year.

  
	
   

  	
   

  	
   

  
	
  Restrictions on Exercise

  	
   

  	
  The
  Company will not permit you to exercise this option if the issuance of shares
  at that time would violate any “Applicable Law” (as defined in the Plan).

  
	
   

  	
   

  	
   

  
	
  Notice
  of Exercise

  	
   

  	
  When you wish to exercise this option, you may
  select one of the following:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  •           If you have established an account with
  E*Trade OptionsLink (www.optionslink.com, (800) 838-0908), or such other or
  substitute employee stock option plan administrative service as the Company
  may elect to engage (such stock option administrative service being the “Plan
  Agency”), you may elect to exercise this option by utilizing the procedures
  established by the Plan Agency for exercise of this option. Such procedures
  may include provisions for execution of an electronic or a written notice
  stating the number of shares to be purchased pursuant to this option and
  accompanied by delivery of an executed exercise agreement as implemented by
  the Plan Agency, and payment made in accordance with this Agreement and the
  Plan for the full purchase price of the shares to be purchased.  The Committee may from time to time
  establish further limitations and rules or procedures for exercise through
  the Plan Agency.  The Company may also
  discontinue use of the Plan Agency at any time, in which case you will be
  required to use the exercise procedure described below.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  •           Notify the Company by filing the proper
  “Exercise Notice” form at the address given on the form.  Your notice must specify how many shares
  you wish to purchase.  Your notice
  must also specify how your shares should be registered.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Exercise through the
  Plan Agency will be effective in accordance with the policies and procedures
  of the Plan Agency.  An “Exercise
  Notice” filed with the Company will be effective when the Company receives it
  together with payment made in accordance with this Agreement and the Plan for
  the full purchase price of

  



 


4

















 


	
   

  	
   

  	
  the shares to be
  purchased.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  If another person wants
  to exercise this option after it has been transferred to him or her (a
  “Transferee”), that person must prove to the Company’s satisfaction that he
  or she is entitled to exercise this option, and must then select one of the
  exercise alternatives specified above; provided that exercise by a Transferee
  may not be available through the Plan Agency, and if it is available, such
  exercise may require additional procedures or documentation established by
  the Company or the Plan Agency.

  
	
   

  	
   

  	
   

  
	
  Form of Payment

  	
   

  	
  When
  you exercise your option, you must pay the option exercise price for the
  shares that you are purchasing. 
  Payment may be made in one (or a combination of two or more) of the
  following forms:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  •                                          Your personal check, a cashier’s check or a
  money order.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  •                                          Irrevocable
  directions to a securities broker (such as the Plan Agency) approved by the
  Company to sell all or part of your option shares and to deliver to the
  Company from the sale proceeds an amount sufficient to pay the option
  exercise price and any withholding taxes. 
  (The balance of the sale proceeds, if any, will be delivered to you.)
  This procedure will be permitted only if you utilize the services of the Plan
  Agency, or another securities broker pre-approved by the Company in its sole
  discretion.  You will not be permitted
  to use this procedure if you are an “Officer” or “Director” (each as defined
  in the Plan) and this procedure would be deemed an extension of credit or the
  arranging of an extension of credit in the form of a personal loan by the
  Company.

  
	
   

  	
   

  	
   

  
	
  Withholding Taxes and Stock Withholding

  	
   

  	
  You
  will not be allowed to exercise this option unless you make arrangements
  acceptable to the Company to pay any withholding taxes that may be due as a
  result of the option exercise.  With
  the Company’s consent, these arrangements may include withholding shares of
  Company stock that otherwise would be issued to you when you exercise this
  option.  The value of these
  shares, determined as of the effective date of the option exercise, will be
  applied to the withholding taxes.

  
	
   

  	
   

  	
   

  
	
  Restrictions on Resale

  	
   

  	
  You
  agree not to sell any option shares at a time when Applicable Law, Company
  policies or an agreement 

  



 


5

















 


	
   

  	
   

  	
  between
  the Company and its underwriters prohibit a sale.  This restriction will apply as long as your Service continues
  and for such period of time after the termination of your Service as the
  Company may specify.

  
	
   

  	
   

  	
   

  
	
  Transfer of Option

  	
   

  	
  In general, only you
  may exercise this option prior to your death.  You may not transfer or assign this option,  unless one of the provisions below
  applies. For instance, you may not sell this option or use it as security for
  a loan.  If you attempt to do any of
  these things, this option will immediately become invalid.  You may, however, dispose of this option
  in your will or in a beneficiary designation.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  The Committee may, in
  its sole discretion, allow you to transfer this option as a gift to one or
  more family members.  For purposes of this Agreement, “family member”
  means a child, stepchild, grandchild, parent, stepparent, grandparent,
  spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law,
  son-in-law, daughter-in-law, brother-in-law or sister-in-law (including
  adoptive relationships), any individual sharing your household (other than a
  tenant or employee), a trust in which one or more of these individuals have
  more than 50% of the beneficial interest, a foundation in which you or one or
  more of these persons control the management of assets, and any entity in
  which you or one or more of these persons own more than 50% of the voting
  interest.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Regardless of any
  marital property settlement agreement, the Company is not obligated to honor
  a notice of exercise from your former spouse, nor is the Company obligated to
  recognize your former spouse’s interest in your option in any other way,
  except pursuant to a Domestic Relations Order.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  The Committee will
  allow you to transfer this option only if both you and the transferee(s)
  execute the forms prescribed by the Committee, which include the consent of
  the transferee(s) to be bound by this Agreement.

  
	
   

  	
   

  	
   

  
	
  Retention Rights

  	
   

  	
  Your
  option or this Agreement does not give you the right to be retained by the
  Company or a subsidiary of the Company in any capacity.  The Company and its subsidiaries reserve
  the right to terminate your Service at any time, with or without cause.

  
	
   

  	
   

  	
   

  
	
  Shareholder Rights

  	
   

  	
  You,
  or your estate or heirs, have no rights as a shareholder of the Company until
  you have exercised

  



 


6

















 


	
   

  	
   

  	
  this
  option by giving the required notice to the Company and paying the exercise
  price.  No adjustments are made for
  dividends or other rights if the applicable record date occurs before you
  exercise this option, except as described in the Plan.

  
	
   

  	
   

  	
   

  
	
  Adjustments

  	
   

  	
  In the event of a stock split,
  a stock dividend or a similar change in Company stock, the number of shares
  covered by this option and the exercise price per share may be adjusted
  pursuant to the Plan.

  
	
   

  	
   

  	
   

  
	
  Governing Law

  	
   

  	
  This
  Agreement will be interpreted and enforced under the laws of the State of
  California (without regard to its choice-of-law provisions).

  
	
   

  	
   

  	
   

  
	
  The Plan and Other Agreements

  	
   

  	
  The text of the Plan is
  incorporated in this Agreement by reference.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  This
  Agreement and the Plan constitute the entire understanding between you and
  the Company regarding this option. 
  Any prior agreements, commitments or negotiations concerning this
  option are superseded.  This Agreement
  may be amended only by another written agreement between the parties.

  



 


 


By signing your Notice of Stock
Option Grant form which precedes this Agreement, you agree to all of the terms
and conditions described above and in the Plan.


 


7