<PAGE>

                                                                    EXHIBIT 10.4


                               RETENTION AGREEMENT


          THIS RETENTION AGREEMENT (the "AGREEMENT"), dated January 27, 2000, is
made by and between Overland Data Inc., a California corporation having its
principal offices at 8975 Balboa Avenue, San Diego, California 92123-1599 (the
"COMPANY") and W. Michael Gawarecki ("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.

     NOW THEREFORE, to induce Employee to remain employed by the Company, 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


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          (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 Bonus.

     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 Bonus; 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 the
Good Reason within ten (10) 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 BONUS" shall mean the variable annual compensation represented
by the percentage of Base Salary Employee is eligible to receive, prior to a
Change of Control, in the event targeted goals are achieved for the year.

     1.8  "TERMINATION DATE" shall mean the date of termination of Employee's
employment relationship with the Company.


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<PAGE>


     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
Operations. His primary duties will include such duties as are assigned or
delegated to Employee by the President and Chief Executive Officer of the
Company (the "PRESIDENT"). 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 President and the Board of Directors of the Company 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 deduction;

          (b)  Employee is eligible for Severance under this Agreement in a
lump-sum amount equal to Base Salary plus Target Bonus, less applicable state
and federal taxes or other payroll deduction;

          (c)  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;

     4.2  The payments set forth in SECTION 4.1(b) AND (c) above are in exchange
for, and contingent upon Employee's execution of a release of all claims as of
the Termination Date, in substantially the form attached to this Agreement as
Exhibit 1.

     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.


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<PAGE>

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.   DISPUTE RESOLUTION PROCEDURES. Any dispute or claim arising out of this
agreement shall be subject to final and binding arbitration. The arbitration
will be conducted by one arbitrator who is a member of the American Arbitration
Association ("AAA") or of the Judicial Arbitration and Mediation Services
("JAMS"). The arbitration shall be held in San Diego, California. The arbitrator
shall have all authority to determine the arbitrability of any claim and enter a
final and binding judgment at the conclusion of any proceedings in respect of
the arbitration. Any final judgment only may be appealed on the grounds of
improper bias or improper conduct of the arbitrator. The parties will be
entitled to conduct discovery (i.e., investigation of facts through depositions
and other means) which shall be governed by the California Code of Civil
Procedure (the "CCP") section 1283.05. The arbitrator shall have all power and
authority to enter orders relating to such discovery as are allowed under the
CCP. The arbitrator will apply California substantive law in all respects. The
party prevailing in the resolution of any such claim will be entitled, in
addition to such other relief as may be granted, to an award of all reasonable
attorneys fees and costs incurred in pursuit of the claim, without regard to any
statute, schedule, or rule of court purported to restrict such award.

9.   GENERAL PROVISIONS.

     9.1  GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the laws of California.

     9.2  ASSIGNMENT. Employee may not assign, pledge or encumber his interest
in this Agreement or any part thereof.

     9.3  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


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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.

     9.4  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.

     9.5  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.

     9.6  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.

     9.7  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.

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

     9.9  DUPLICATE COUNTERPARTS. This Agreement may be executed in duplicate
counterparts; each of which shall be deemed an original; provided, however, such
counterparts shall together constitute only one instrument.

     9.10 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.

     9.11 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.

                                       OVERLAND DATA, INC.


Dated:  January 27, 2000               By:  /s/ Scott McClendon
      ---------------------------         ------------------------------------
                                          Scott McClendon, President and Chief
                                          Executive Officer


Dated:  January 27, 2000                    /s/ W. Michael Gawarecki
      ---------------------------         ------------------------------------
                                          W. Michael Gawarecki, Employee


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<PAGE>


                                    EXHIBIT 1

                                 GENERAL RELEASE

     This GENERAL RELEASE ("RELEASE") is entered into effective as of
______________, ____, (the "EFFECTIVE DATE") by and between Overland Data, Inc.,
a California corporation, having its principal offices at 8975 Balboa Avenue,
San Diego, California 92123-1599 ("COMPANY") and W. Michael Gawarecki, an
individual residing at _____________________ ("EMPLOYEE") with reference to the
following facts:

                                    RECITALS

     A.   The parties entered into a Retention Agreement ("the Agreement") dated
January 27, 2000, by 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,
each fully releases, and discharges Company, its officers, directors, employees,
shareholders, attorneys, accountants, other professionals, insurers and agents
of the other (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,
and the Age Discrimination in Employment Act, as amended ("ADEA").

     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 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:

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<PAGE>


                    A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE
                    CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT
                    THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM
                    MUST HAVE MATERIALLY AFFECTED HIS 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. In
addition, Employee acknowledges that he has been informed that he may revoke a
signed waiver of the ADEA claims for up to seven (7) days after executing this
Release.

     4.   NO UNDUE INFLUENCE. This Release is executed voluntarily and without
any duress or undue influence. Employee acknowledges 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 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 agreement shall be subject to final and binding arbitration. The
arbitration will be conducted by one arbitrator who is a member of the American
Arbitration Association ("AAA") or of the Judicial Arbitration and Mediation
Services ("JAMS"). The arbitration shall be held in San Diego, California. The
arbitrator shall have all authority to determine the arbitrability of any claim
and enter a final and binding judgment at the conclusion of any proceedings in
respect of the arbitration. Any final judgment only may be appealed on the
grounds of improper bias or improper conduct of the arbitrator. The parties will
be entitled to conduct discovery (i.e., investigation of facts through
depositions and other means) which shall be governed by the Code


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<PAGE>


of Civil Procedure ("CCP") section 1283.05. The arbitrator shall have all power
and authority to enter orders relating to such discovery as are allowed under
the CCP. The arbitrator will apply California substantive law in all respects.
The party prevailing in the resolution of any such claim will be entitled, in
addition to such other relief as may be granted, to an award of all reasonable
attorneys fees and costs incurred in pursuit of the claim, without regard to any
statute, schedule, or rule of court purported to restrict such award.

     9.   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.

     10.  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.

     11.  AMENDMENT. This Agreement may be amended or supplemented only by a
writing signed by Employee and the Company.



Dated:
      -----------------------             -----------------------------------
                                          W. Michael Gawarecki, Employee


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