Document:

Exhibit 10.43

 

OVERLAND
STORAGE, INC.

SUMMARY SHEET

OF

DIRECTOR AND EXECUTIVE OFFICER COMPENSATION

 

Non-Employee Director Compensation 

 

Our
compensation plan for non-employee directors consists of both a cash component
and an equity component. We pay each non-employee director $5,000 per quarter,
plus $2,500 for each Board meeting attended ($1,250 if held telephonically),
plus reimbursement for expenses. The Chairman of the Board receives an
additional $2,500 per quarter in addition to the non-employee director fee of
$5,000 per quarter.  Members of the Audit
Committee and the Compensation Committee receive a retainer of $500 per quarter
in lieu of a fee for committee meetings attended during a quarter and members
of the Nominating and Governance Committee receive $500 for each committee
meeting attended ($250 if held telephonically and no fee if held the same day
as a Board meeting).  Members of the
Special Committee on Shareholder Value will receive $500 for each committee
meeting attended (whether telephonically or in person) since formation of the
committee.  Such fee will not be paid for
committee meeting in joint session with the full board.

 

In addition to the
cash component of compensation, each non-employee director receives stock
options.  Before November 2003, each
non-employee director received a ten-year nonqualified stock option to purchase
50,000 shares at the fair market value upon appointment to the Board (Old Director
Option Program).  These options vested at
the rate of 3,000 shares for each Board meeting held.  To the extent option shares were available
for grant, a new option to purchase 50,000 shares was granted when options held
by a currently serving non-employee director fully vested.  On November 17, 2003, upon shareholder
approval of the company’s 2003 Equity Incentive Plan (2003 Incentive Plan), our
methodology for options and other equity awards granted to non-employee
directors changed to a formula methodology (Current Director Option
Program).  Under the Current Director
Option Program, each non-employee director receives a ten-year nonqualified
stock option to purchase 18,000 shares on the same date as the company’s annual
meeting of shareholders.  These options
are exercisable at fair market value on the date of grant and vest in equal
monthly installments over a 12-month period, as measured from the grant
date.  Non-employee directors who have
existing unvested options granted under the Old Director Option Plan on an
annual meeting date will not receive a new grant under the Current Director
Option Program.  Under the Current Director
Option Program, Messrs. McClendon, Preuss and Norkus each received an
option for 18,000 shares on November 15, 2004.  Mr. Degan did not receive an option
under the Current Director Option Program since he had unvested options granted
under the Old Director Option Program. 
Under the Current Director Option Program, when a new non-employee
director joins the board, or when an existing director’s option fully vests
under the Old Director Option Program, such director will be awarded a new
option for a number of shares determined by multiplying 1,500 by the number of
months remaining until the next scheduled annual meeting date, giving credit
for any partial month.  Such option will
vest at the rate of 1,500 shares per month and will be fully vested at the next
annual meeting date, at which time the director will receive the normal annual
grant.  In connection with his election
to the Board, pursuant to the Current Director Option Program, Mr. Norkus
received an option for 4,500 shares on August 11, 2004.  Mr. Degan was granted an option for
12,000 shares on March 3, 2005 under the Current Director Option Program
when his option under the Old Director Option Program vested in full on the
same date.

 

1

 

Compensation of Executive Officers

 

Our executive officers serve at the discretion of
the Board of Directors. From time to time, the Compensation Committee of the
Board of Directors reviews and determines the salaries that are paid to our
executive officers. The following table sets forth the annual salary rates for
the our current executive officers as of the date of this report on Form 10-K:

 

	
  Christopher
  Calisi

  	
   

  	
  $

  	
  500,000

  	
   

  
	
  Diane N. Gallo

  	
   

  	
  $

  	
  199,500

  	
   

  
	
  W. Michael Gawerecki

  	
   

  	
  $

  	
  246,500

  	
   

  
	
  Christie Huff

  	
   

  	
  $

  	
  195,000

  	
   

  
	
  George Karabatsos

  	
   

  	
  $

  	
  350,000

  	
  (1)

  
	
  Michael S. Kerman

  	
   

  	
  $

  	
  225,000

  	
   

  
	
  Vernon A.
  LoForti

  	
   

  	
  $

  	
  297,750

  	
   

  
	
  Robert J. Scroop

  	
   

  	
  $

  	
  220,500

  	
   

  

 

(1) Of this amount,
$175,000 is tied to performance as described more fully in Employment
Arrangements with Current Executive Officers below.

 

Employment Arrangements with
Current Executive Officers

 

The following discussion summarizes the employment
arrangements between us and our current executive officers as of the date of
this report on Form 10-K:

 

Mr. Christopher Calisi.  We entered into an employment
agreement with Mr. Calisi on March 12, 2001, pursuant to which Mr. Calisi
is employed as our President and Chief Executive Officer. The employment
agreement has a one-year term, automatically renews for successive one-year
terms, and provides that our Board may unilaterally modify Mr. Calisi’s
compensation at any time.  If we
terminate Mr. Calisi’s employment without cause, then we are obligated to
pay him a severance payment equal to his base salary, payable on a pro-rated
basis according to our normal payroll cycle for the 12 months following
his termination. In addition, he is entitled to receive accelerated vesting for
any stock options that would otherwise have vested during the 12-month period
following his termination. He is also entitled to receive the cash severance
payment if he resigns for good reason because of any of the following events: (i) reduction
in compensation of more than 10%; (ii) change in position or duties so
that his duties are no longer consistent with his previous position; or (iii) change
in principal place of work to more than 50 miles from our current facility
without his approval.

 

In addition, on April 28, 2005, the annual
salary of Mr. Calisi was increased by the Compensation Committee to
$500,000 effective immediately.  On that day, Mr. Calisi also
received (1) a cash bonus of $21,500 effective immediately, (2) a
grant of 50,000 restricted shares of our common stock pursuant to the 2003
Incentive Plan, which vest in installments of 16,667, 16,667 and 16,666 shares
on January 1, 2006, January 1, 2007 and January 1, 2008,
respectively, (3) an option to purchase up to 100,000 shares of our
common stock at the purchase price of $11.00 per share pursuant to the 2003
Incentive Plan, which option is immediately vested as to 11,200 shares, with
the remainder vesting at a rate of 2,775 option shares on the last day of the
month commencing May 31, 2005 through December 31, 2007, and (4) a
grant of an additional 50,000 restricted shares of our common stock (which will
vest as to 12,500, 12,500 and 25,000 shares, respectively, if the volume
weighted daily average stock price for ten consecutive trading days reaches
$20, $25 and $30, respectively, on or before January 1, 2008, provided
that Mr. Calisi is employed by us as Chief Executive Officer on such
dates(s)).  Mr. Calisi continues to be eligible to receive a
performance bonus equivalent to 75% of his base salary pursuant to our MBO and
Bonus Program.  The above referenced
stock option grant to Mr. Calisi accelerates upon a Change in Control as
defined in the 2003 Incentive Plan.  The vesting of shares underling the
stock option and restricted stock grants pursuant to the 2003 Incentive Plan
described above will cease upon termination of  Service to Overland, as
defined in the 2003 Incentive Plan.

 

Ms. Diane N. Gallo.  Ms. Gallo, our Vice President, Human
Resources, is an at-will employee and may be terminated by us for any reason,
with or without notice.  Ms. Gallo
currently earns an annual salary of $199,500. On

 

2

 

November 15,
2004, Ms. Gallo was granted a stock option to purchase up to 37,500 shares
of our common stock at the purchase price of $14.29 per share pursuant to the 2003
Incentive Plan, which option became fully vested under the Stock Option
Acceleration Program described below, subject to sale restrictions described
below.

 

Mr. W. Michael Gawarecki.   On September 9,
2005, we entered into an employment agreement with Mr. W. Michael
Gawarecki, our Vice President of Operations, which was effective as of May 16,
2005.  Under the agreement, Mr. Gawarecki
is entitled to a base salary of $246,500 per year and is eligible for
discretionary quarterly bonuses under our MBO and Bonus Plan, which bonuses may
not exceed 40% of Mr. Gawarecki’s quarterly base salary.  Mr. Gawarecki was also eligible to
receive a special bonus related to outsourcing of $100,000, but the conditions
for receiving that bonus were not satisfied. 
Mr. Gawarecki’s current base salary is $246,500.  The term of the agreement will continue until
June 30, 2006 and will not renew unless agreed by the parties in
writing.  Mr. Gawarecki’s employment
is at-will and may be terminated by us or by him at any time and for any
reason, with or without cause.  If Mr. Gawarecki
is terminated without cause or resigns with good reason, he will be entitled to
receive a severance payment equal to 100% of his then annual base salary,
subject to the execution by him of a general release of claims against us.  This severance will be paid in either a
lump-sum amount or in twelve equal monthly installments without interest, at
the election of Mr. Gawarecki.  Our obligation
to pay severance to Mr. Gawarecki under the agreement terminates upon the
occurrence of a change in control.  On November 15,
2004, Mr. Gawarecki was granted a stock option to purchase up to 31,400
shares of our common stock at the purchase price of $14.29 per share pursuant
to the 2003 Incentive Plan, which option became fully vested under the Stock
Option Acceleration Program described below, subject to sale restrictions
described below.

 

Ms. Christie Huff.  Ms. Huff, our Vice
President of Worldwide Marketing, is an at-will employee and may be terminated
by us for any reason, with or without notice. 
Ms. Huff currently earns an annual salary of $195,000 per
year.  On July 4, 2004, Ms. Huff
was granted a stock option to purchase up to 10,000 shares of our common stock
at the purchase price of $13.24 per share pursuant to the 2003 Incentive Plan, which
option became  fully vested pursuant to
the Stock Option Acceleration Program described below.

 

Mr. George Karabatsos.  Mr. Karabatsos, our Vice
President of Worldwide Sales, is an at-will employee and may be terminated by
us for any reason, with or without notice. 
Ms. Karabatsos currently earns an annual salary of $350,000, with
$175,000 of that amount guaranteed as base salary and $175,000 tied to
performance.    When Mr. Karabatsos joined Overland on August 8,
2005, he was granted an option to purchase up to 100,000 shares of the our  common stock at the purchase price of $7.84
per share pursuant to the 2003 Incentive Plan, which option will vest over a
three-year period with one-third vesting on August 8, 2006 and the
remaining two-thirds vesting monthly over the 24 months following that date in
equal installments. The option will accelerate upon a Change in Control as
defined in the 2003 Incentive Plan.  The
option has a ten-year life, subject to continuous service to us.  On his hire date, he was also awarded 15,000
restricted shares of our common stock pursuant to the 2003 Incentive Plan,
which shares will vest in annual installments of 5,000 shares on each of August 8,
2006, August 8, 2007 and August 8, 2008, subject to continuing
service to us.  In addition, we agreed to
reimburse Mr. Karabatsos for up to $20,000 of relocation expenses incurred
by Mr. Karabatsos in his move to San Diego County, and up to $4,000 per
month, for up to three months, for temporary housing.  If Mr. Karabatsos is terminated for
cause within the first twelve months of his employment, he must repay the
amount of his moving and relocation costs and the amount of his signing bonus
(pro-rated on a monthly basis from the first date of his employment).

 

Mr. Michael S. Kerman.  Mr. Kerman, our Vice
President and General Manager of the Appliance Business Unit, is an at-will
employee and may be terminated by us for any reason, with or without
notice.  Mr. Kerman currently earns
an annual salary of $225,000 per year. 
On August 30, 2004,  Mr. Kerman
was granted a new-hire option to purchase up to 75,000 shares of our common
stock at the purchase price of $13.18 pursuant to the 2003 Incentive Plan, which
option became fully vested under the Stock Option Acceleration Program
described below, subject to sale restrictions described below.  On April 28, 2005, Mr. Kerman was
granted an option to purchase up to 25,000 shares of our common stock at the
purchase price of $10.86 per share pursuant to the 2003 Incentive Plan, which
option will vest monthly in arrears from the date of grant in 36 equal
installments.   The above referenced
stock option grants to Mr. Kerman will accelerate upon a Change in Control
as defined in the 2003 Incentive Plan.  The vesting of shares underling
the stock option grant pursuant to the 2003 Incentive Plan described above will
cease upon termination of  Service to us, as defined in the 2003 Incentive
Plan. In addition, we agreed to reimburse Mr. Kerman for up to $100,000 of
relocation expenses incurred by Mr. Kerman  in the event that he is
terminated

 

3

 

without
cause on or before April 29, 2006 and he incurs such expenses related to a
relocation outside of San Diego within six months of his date of termination.

 

Mr. Vernon A. LoForti.  We entered into an employment
agreement with Mr. LoForti on December 2, 2000, pursuant to which Mr. LoForti
is employed as our Vice President and Chief Financial Officer. The employment
agreement has a one-year term, automatically renews for successive one-year
terms, and provides that our Board may unilaterally modify Mr. LoForti’s
compensation at any time.  If we
terminate Mr. LoForti’s employment without cause, then we are obligated to
pay him a severance payment equal to his base salary, payable on a pro-rated
basis according to our normal payroll cycle for the 12 months following
his termination. In addition, he is entitled to receive accelerated vesting for
any stock options that would otherwise have vested during the 12-month period
following his termination. He is also entitled to receive the cash severance
payment if he resigns for good reason because of any of the following events: (i) reduction
in compensation of more than 10%; (ii) change in position or duties so
that his duties are no longer consistent with his previous position; or (iii) change
in principal place of work to more than 50 miles from our current facility
without his approval.  Mr. LoForti
currently earns a salary of $297,750 per year. On November 15, 2004, Mr. LoForti
was granted a stock option to purchase up to 29,700 shares of our common stock
at the purchase price of $14.29 per share pursuant to the 2003 Incentive Plan, which
option became fully vested under the Stock Option Acceleration Program
described below, subject to sale restrictions described below.

 

Mr. Robert J. Scroop.  Mr. Scroop, our Vice President
Engineering, is an at-will employee and may be terminated by us for any reason,
with or without notice.  Mr. Scroop
currently earns an annual salary of $220,500 per year. On November 15,
2004, Mr. Scroop was granted a stock option to purchase up to 29,700
shares of our common stock at the purchase price of $14.29 per share pursuant
to the 2003 Incentive Plan, which option became fully vested under the Stock
Option Acceleration Program described below, subject to sale restrictions
described below.

 

Stock
Option Acceleration Program

 

In July 2005, our Board
of Directors approved the accelerated vesting of all unvested stock options,
held by the company’s officers and employees, with an exercise price at or
above $12.00 per share, effective July 3, 2005. The stock option
acceleration program does not apply to stock options held by our non-employee
directors. The accelerated options were issued under the 2000 Stock Option
Plan, the 2001 Supplemental Stock Option Plan and the 2003 Incentive Plan.  In connection with the acceleration of
vesting of options held by our executive officers, each executive officer agreed
not to sell or transfer any shares subject to accelerated vesting until the
original vesting date would have occurred based on the original vesting schedule (without
giving effect to any future termination of service). The primary purpose of the
accelerated vesting was to eliminate future stock-based employee compensation
expense.

 

4

 

Retention Agreements

 

We
entered into retention agreements with Messrs. LoForti, Scroop and
Gawarecki effective January 27, 2000, with Mr. Calisi effective March 12,
2001, with Ms. Gallo effective August 30, 2002, with Mr. Kerman
effective August 30, 2004, with Mr. Karabatsos effective  August 8, 2005 and with Ms. Huff
effective September 14, 2005.   These agreements provide that the officer will
receive a severance payment if, within two years of the consummation of a
change in control of Overland, he or she is terminated without cause or resigns
with good reason. These severance payments are based on the officer’s base
salary at the time of the consummation of the change in control or the
termination date, whichever is higher, plus his or her target bonus for the
year prior to the consummation of the change in control. The agreements provide
that, upon a change in control, Mr. Calisi would be entitled to receive an
amount equal to 2.5 times his base salary plus target bonus, and Mr. LoForti
would be entitled to receive an amount equal to 2.0 times his base salary plus
target bonus. Ms. Gallo, Ms. Huff, and Messrs. Gawarecki, Karabatsos,
Kerman, and Scroop each would be entitled to an amount equal to their
respective base salary plus target bonus. If any portion of any payment under
any of the agreements would constitute an “excess parachute payment” within the
meaning of Section 280G of the Internal Revenue Code, then that payment
will be reduced to an amount that is one dollar less than the threshold for
triggering the tax imposed by Section 4999 of the Internal Revenue Code.

 

MBO and Bonus Plan

 

Our Chief Executive Officer and other executive
officers, except Mr. Karabatsos, participate in our executive bonus plan
which is designed as a performance-based component of their compensation
package. The Compensation Committee tailors the bonus plan for each executive
to be unique to his area of responsibility. For fiscal year 2005, the plan
established by the Compensation Committee has been and will be evaluated and
paid on a quarterly basis, and included two performance measurement points for
each executive officer:

 

•
our actual earnings per share (EPS) in comparison to the target approved by the
Compensation Committee; and

•
achievement of individual job performance goals and objectives.

 

At the end of the first
quarter of fiscal year 2005, EPS targets and performance measurement points for
each executive officer were met and in October 2004, we paid the following
bonuses to our executive officers:  Mr. Calisi,
$119,575; Ms. Gallo, $30,702; Mr. Gawarecki, $32,001; Ms. Huff, $12,529,
Mr. Kerman, $12,366; Mr. LoForti, $40,397;  and Mr. Scroop, $33,268.  No bonuses were paid for the second, third or
fourth fiscal quarters of 2005, as the EPS targets were not achieved.

 

5Exhibit 10.44

 

 

4820 Overland Ave.

San Diego, CA 92123-1599

(858) 571-5555

(858) 495-4267 fax

 

EMPLOYMENT AGREEMENT

 

This Employment Agreement (“Agreement”), which shall become effective
on May 16, 2005, sets forth the terms and conditions of employment agreed
upon by and between Overland Storage, Inc. (“Employer” or the “Company”)
and W. Michael Gawarecki (“Executive”).

 

The parties agree as
follows:

 

1.                                       Positions
and Duties.  Executive will be
employed by the Company in the position of Vice President reporting to the
Company’s Chief Executive Officer (the “CEO”), and shall do and perform all
services, acts or things necessary or advisable to manage and conduct the
business of the Company consistent with the bylaws of the Company and as
required by the CEO.

 

1.1                                 Best
Efforts/Full-Time.  During the
Employment Term (as defined in paragraph 1.2 herein), Executive will act in the
best interests of Employer and devote his full business time and best efforts
to the performance of his duties under this Agreement.  Executive agrees to be available to render
such services at all reasonable times and places and in accordance with
Employer’s directives.

 

Executive shall be assigned to work in the Company’s corporate offices
in San Diego, California, but may be required to travel in connection with his
duties.  Executive will abide by all
policies, procedures, and decisions made by Employer, as well as all federal,
state and local laws, regulations or ordinances applicable to his employment.

 

During his employment, Executive must not engage in any work, paid or
unpaid, that creates an actual or potential conflict of interest with Employer’s
business interests and if, in the opinion of the Company’s Board of Directors,
an actual or potential conflict exists, the Board may in its sole discretion
require Executive to choose to either (i) discontinue the other work or (ii) resign
from his employment with Employer.  It is
anticipated that Executive shall generally devote no less than 40 hours per
week to his duties for Employer.

 

1

 

1.2                                 Term of Employment. 
This Agreement shall commence on the effective date and, unless
terminated by either party in accordance with paragraph 5 herein, shall
continue until June 30, 2006.  The
period of employment hereunder shall be referred to herein as the “Employment
Term”.  Except as provided in paragraph
6, this Agreement shall continue during the Employment Term to govern the terms
and conditions of Executive’s employment, unless modified by the parties hereto
in writing.  Except as otherwise provided
herein, all rights and obligations hereunder shall terminate upon the
expiration of the Employment Term.  The
Employment Term shall not be deemed extended or renewed without the express
written consent of the parties hereto.

 

1.3                                 “At Will” Employment. 
Executive’s employment with the Company is at will and may be terminated
by Executive or by the Company at any time for any reason, with or without
Cause, subject to the terms and conditions of this Agreement.

 

2.               Compensation.

 

2.1                                 Base Salary.  As
compensation for the proper and satisfactory performance of all duties under
this Agreement, Executive shall earn an initial gross annual base salary of $246,500
($9,480.77 gross per bi-weekly payroll period), less all legally required
payroll deductions and withholdings, payable in accordance with Employer’s
normal payroll practices (“Base Salary”). 
The Base Salary is subject to increase from time to time in the sole
discretion of the Compensation Committee.

 

2.2                                 Discretionary MBO Bonus. 
In addition, Executive will be eligible to participate in the Company’s
Executive Management By Objective (“MBO”) Bonus Plan and to receive, in the
sole discretion of the Compensation Committee of the Board, a quarterly bonus for
each quarter of the Employment Term of up to forty percent (40%) of his
quarterly Base Salary, or such other amount as determined by the Compensation
Committee of the Board, based on (1) successful achievement by Executive of
MBO performance objectives to be determined by the Compensation Committee of
the Board, AND (2) successful achievement by the Company of quarterly
earnings per share goals established by the Board of Directors.

 

2.3                                 Outsourcing Project Bonus. 
In addition, conditioned upon (1) the successful completion of the
Company’s manufacturing outsourcing project (the “Project”) no later than July 3,
2005, whereby all of the Company’s manufacturing activity taking place in San
Diego, California will be relocated to Sanmina-SCI Corporation in Rapid City,
South Dakota, AND (2) maintenance of satisfactory product quality and
delivery times during the six months following completion of the Project in
accordance with Exhibit B hereto, Executive will receive an
additional, one-time, bonus equal to $100,000.00 (the “Outsourcing Project
Bonus”). 
The determination of whether or not the performance objectives for the
Outsourcing Project Bonus have been achieved shall be made at the sole
discretion of the Compensation Committee of the Board.  The Outsourcing Project Bonus, if earned,
will be paid to Executive within thirty (30) days following the end of the
sixth month following completion of the Project.

 

2

 

3.               Customary Fringe Benefits.  Executive
shall be eligible for all customary and usual benefits generally available to
all executive level employees of Employer, as determined in the sole and
absolute discretion of Employer and subject to the terms and conditions set
forth in the applicable benefit plan or policy. 
Employer reserves the right to change or eliminate any of the fringe
benefits provided to executive level employees on a prospective basis at any
time, at Employer’s sole and absolute discretion.  Executive understands that all benefits provided
in this paragraph may be reduced by, or subject to, all legally required taxes.

 

4.               Business Expenses.  Executive
will be reimbursed for all reasonable, out-of-pocket business expenses incurred
in the performance of his duties on behalf of Employer as permitted by and subject
to Executive’s compliance with the Company’s established expense reimbursement
policy.

 

5.               Termination.

 

5.1                                 Termination for Cause by Employer.  Employer may terminate Executive’s employment under this
Agreement immediately at any time for “Cause”, which shall include, but is not
limited to:  (a) acts or omissions
constituting gross negligence, recklessness or willful misconduct on the part
of Executive with respect to his obligations or otherwise relating to the
business of Employer; (b) Executive’s material breach of this Agreement; (c) Executive’s
conviction or entry of a plea of nolo contendere for fraud, misappropriation or
embezzlement, or any felony or crime of moral turpitude; (d) Executive’s
dishonesty or involvement in any conduct that adversely affects Employer’s name
or public image or is otherwise detrimental to Employer’s business interests; (e) Executive’s
willful neglect of duties as determined in the sole and exclusive discretion of
Employer; or (f) Executive’s death.

 

5.1.1.                     Entitlements Upon Termination for Cause.  In the event that Executive’s employment is
terminated for Cause in accordance with paragraph 5.1, Executive shall be
entitled to receive:  (a) the Base
Salary then in effect, prorated to the date of termination; (b) any
performance bonuses earned prior to the date of termination; and (c) any
expense reimbursements to which Executive is entitled by virtue of his prior
employment with Employer (collectively, (a), (b) and (c) above are
referred to herein as the “Standard Entitlements”).  In the event of such termination for Cause,
Executive shall not be entitled to receive (i) the Severance Payment (as
defined in paragraph 5.2 below), or any part thereof, (ii) any
unearned bonus amounts or (iii) any further vesting of stock options; and
all other obligations of Employer to Executive pursuant to this Agreement shall
automatically terminate and be completely extinguished.

 

5.2                                 Termination Without Cause by Employer.  Employer may terminate Executive’s employment without
Cause at any time.  If Employer
terminates Executive’s employment without Cause, Executive shall be entitled to
receive the Standard Entitlements and, if earned as of the date of termination
and unpaid, the Outsourcing Project Bonus. 
In addition to the above, in the event that, prior to the
expiration of the Employment Term, (i) Employer terminates Executive’s employment
without Cause and

 

3

 

(ii) Executive complies with the conditions in
paragraph 5.2.1 below, Executive will be entitled to an aggregate severance
payment equal to 100% of Executive’s then annual Base Salary (the “Severance
Payment”), payable at Executive’s choice in either a lump-sum amount or
in 12 equal monthly payments without interest.  Upon Executive’s termination
without Cause, subject to the conditions of any stock options previously
granted relating to any shares of the Employer’s Common Stock, all of Employer’s other
obligations pursuant to this Agreement shall terminate automatically and
extinguish completely following the date of such termination without Cause.

 

5.2.1.                     Conditions to Receive Severance Payments.  The Severance Payment will be paid provided
that Executive executes a full general release in the form attached hereto as Exhibit A,
releasing all claims, known or unknown, that Executive may have against
Employer arising out of or in any way related to Executive’s employment or
termination of employment with Employer. 
The payment will be made after expiration of the rescission period referenced in Section 3 of Exhibit A.

 

5.3                                 Voluntary Resignation by Executive for Good Reason.
Executive may voluntarily resign his position with Employer at any time
provided that he delivers to the Board at least thirty (30) days’ advance
written notice of his resignation. In the event that his resignation is for
Good Reason (as defined below), Executive will be entitled to receive the Standard Entitlements
and, if earned as of the date of termination and unpaid, the Outsourcing
Project Bonus.  In addition to the above,
in the event that, prior to the expiration of the Employment Term, (i) Executive
voluntarily resigns for Good Reason and (ii) Executive complies with the
conditions in paragraph 5.2.1 above, Executive will be entitled to receive the
Severance Payment. In the event of such resignation for Good Reason, all
of Employer’s other obligations pursuant to this Agreement shall terminate
automatically and extinguish completely following the date of such resignation
for Good Reason. Executive will be deemed to have resigned for “Good Reason” in
the following circumstances: (a) Employer reduces Executive’s Base Salary
by more than twenty percent (20%), unless the reduction is made as part of, and
is generally consistent with, a general reduction of other senior executive
salaries; or (b) Employer relocates Executive’s principal place of work to
a location more than fifty (50) miles from Employer’s current location without
his prior written approval.

 

5.4                                 Voluntary Resignation by Executive Without Good Reason.  In the event that Executive’s resignation is
without Good Reason, Executive will be entitled to receive the Standard
Entitlements, but Executive shall not be entitled to receive (i) the
Severance Payment, or any part thereof, (ii) any unearned bonus amounts or
(iii) any further vesting of stock options; and all other obligations of
Employer to Executive pursuant to this Agreement shall automatically terminate
and be completely extinguished.

 

6.                                       Termination Upon Change of Control.  In the event of a “Change of Control” (as
defined in Executive’s existing Retention Agreement with the Company), Employer’s
obligations to Executive pursuant to paragraph 5 above shall terminate
automatically and extinguish completely.

 

4

 

7.                                       Confidentiality/Intellectual
Property Agreement and Insider Trading Policy.  Executive agrees that he has
read, signed, and will abide by the terms and conditions of Employer’s
Confidentiality/Intellectual Property Agreement and Employer’s Insider Trading
Policy.

 

Executive recognizes that
his employment with the Company will involve contact with information of
substantial value to the Company which gives the Company an advantage over its
competitors who do not know or use it, including but not limited to,
techniques, designs, drawings, processes, inventions, developments, equipment,
prototypes, sales and customer information, and business and financial
information relating to the business, products, practices and techniques of the
Company (hereinafter referred to as “Confidential and Proprietary Information”).  Executive will at all times regard and
preserve as confidential such Confidential and Proprietary Information obtained
by Executive from whatever source and will not, either during his employment
with the Company or thereafter, publish or disclose any part of such
Confidential and Proprietary Information in any manner at any time, or use the
same except on behalf of the Company, without the prior written consent of the Company.

 

8.               Non-Competition.  During
the Employment Term, Executive shall devote Executive’s full business energies,
interest, abilities and productive time to the proper and efficient performance
of Executive’s duties under this Agreement.

 

Except with the prior written consent of Employer,
Executive will not, during the Employment Term, or any period during which
Executive is receiving compensation or any other consideration from Employer,
engage in competition with Employer, either directly or indirectly, in any
manner or capacity, as adviser, principal, agent, partner, officer, director,
employee, member of any association or otherwise, in any phase of the business
of developing, manufacturing and marketing of products which are in the same
field of use or which otherwise compete with the product or products actively
under development by Employer.

 

Except as permitted
herein, Executive agrees not to acquire, assume or participate in, directly or
indirectly, any position, investment or interest known by Executive to be
adverse or antagonistic to Employer, its business or prospects, financial or
otherwise. Ownership by Executive, as a passive investment, of less than one
percent (1%) of the outstanding shares of capital stock of any corporation with
one or more classes of its capital stock listed on a national securities
exchange or publicly traded in the over-the-counter market shall not constitute
a breach of this paragraph 8.

 

9.               Nonsolicitation.  During
the Employment Term and for a period of one year thereafter, irrespective of
the manner of termination of employment, Executive agrees not to, directly or
indirectly, separately, or in association with others:  (a) interfere with, impair, disrupt, or
damage Employer’s relationship with any of its customers or prospective
customers by soliciting, encouraging, or causing others to solicit or encourage
any of them, for the purpose of diverting or taking away the business such
customers have with Employer; or (b) interfere with, impair, disrupt, or
damage Employer’s business by soliciting, encouraging, or causing others to
solicit or

 

5

 

encourage, any of Employer’s employees to
discontinue their employment with Employer.

 

10.         Agreement to Arbitrate.  The
parties agree that any and all disputes, claims or controversies arising out of
or relating to this Agreement, the employment relationship between the parties,
the terms or conditions of employment, or the termination of the employment
relationship, that are not resolved by their mutual agreement shall be resolved
by final and binding arbitration as the exclusive remedy in accordance with the
JAMS Employment Arbitration Rules and Procedures in effect at the time
arbitration is initiated.  THE PARTIES HEREBY WAIVE THEIR RIGHT TO HAVE ANY
DISPUTE, CLAIM OR CONTROVERSY DECIDED BY A JUDGE OR JURY IN A COURT.  Either party may commence the
arbitration process by filing a written demand for arbitration with JAMS and
sending a copy to the other party.  The
arbitration shall be conducted by one neutral arbitrator selected by the
parties from a list of arbitrators provided by JAMS, or its successor, in San
Diego, California.  If the parties are
unable to agree upon an arbitrator from the list provided, the parties shall
alternate in striking names of arbitrators from the list until one is left who
shall be the arbitrator.  The parties
shall be entitled to be represented by counsel in the arbitration proceeding.  The arbitrator shall have the authority to
order such discovery, by way of deposition, interrogatory, document production,
or otherwise, as the arbitrator considers necessary to a full and fair
exploration of the issues in dispute, consistent with the expedited nature of
arbitration.  The arbitrator is
authorized to award any remedy or relief that the arbitrator deems just and
equitable, including any remedy or relief that would have been available to the
parties had the matter been heard in court. 
The arbitrator shall have the authority to provide for the award of
attorney’s fees and costs in accordance with applicable law.  Executive shall not be required to pay any
cost or expense of the arbitration that he or she would not be required to pay
if the matter had been heard in court. 
The decision of the arbitrator shall be in writing and shall provide the
reasons for the award unless the parties agree otherwise.  Proceedings to enforce, confirm, modify, set
aside or vacate an award or decision rendered by the arbitrator will be controlled
by and conducted in conformity with the Federal Arbitration Act, 9 U.S.C. Sec 1
et. seq. or applicable state law. 
Nothing in this paragraph shall prohibit or limit the parties from
seeking provisional remedies under California Code of Civil Procedure section 1281.8,
including, but not limited to, injunctive relief from a court of competent
jurisdiction.  The parties agree that
should either party initiate litigation in a court in violation of this
paragraph, the party who successfully compels arbitration shall be entitled to
recover its/his/her attorney’s fees and costs incurred in compelling
arbitration from the party who violated this paragraph, and that a court may
require the payment of such attorney’s fees and costs as part of its order
compelling arbitration.  If the court
declines to order the payment of the attorney’s fees and costs to the party who
successfully compels arbitration, then the parties agree that the arbitrator
shall have the authority to make such an order.

 

11.         General Provisions.

 

11.1                           Successors and Assigns. 
The rights and obligations of Employer under this Agreement shall inure
to the benefit of and shall be binding upon the successors and assigns of
Employer.  Executive shall not be
entitled to assign any of Executive’s

 

6

 

rights or obligations
under this Agreement, but this Agreement shall inure to the benefit of and
shall be binding upon the heirs of Executive.

 

11.2                           Indemnification.  The
indemnification provisions for Officers and Directors under Employer’s Bylaws
will (to the maximum extent permitted by law) be extended to Executive.

 

11.3                           Waiver.  This
Agreement may not be modified or amended except by an instrument in writing,
signed by Executive and by a duly authorized representative of Employer other
than Executive.  Either party’s failure
to enforce any provision of this Agreement shall not in any way be construed as
an amendment or waiver of any such provision, or prevent that party thereafter
from enforcing each and every other provision of this Agreement.

 

11.4                           Severability.  If any
provision of this Agreement is held by an arbitrator or a court of law to be
illegal, invalid or unenforceable, then: 
(a) that provision shall be deemed amended to achieve as nearly as
possible the same economic effect as the original provision; and (b) the
legality, validity and enforceability of the remaining provisions of this
Agreement shall not be affected or impaired thereby.

 

11.5                           Interpretation; Construction.  This Agreement has been drafted by Employer,
but Executive has participated in the negotiation of its terms.  Furthermore, Executive acknowledges that he
has had an opportunity to review and revise the Agreement and have it reviewed
by legal counsel, if desired.  Therefore,
the normal rule of construction to the effect that any ambiguities are to
be resolved against the drafting party shall not be employed in the
interpretation of this Agreement.

 

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

 

11.7                           Notices.  All notices
or demands of any kind required or permitted to be given by the Company or
Executive under this Agreement shall be given in writing and shall be
personally delivered (and receipted for) or mailed by certified mail, return receipt
requested, postage prepaid, addressed as follows:

 

	
  If to
  the Company:

  	
   

  	
  If to
  Executive:

  
	
   

  	
   

  	
   

  
	
  Overland Storage
  Inc.

  	
   

  	
  Michael
  Gawarecki

  
	
  4820 Overland
  Ave.

  	
   

  	
  3631 Brandywine
  Street

  
	
  San Diego, CA
  92123-1599

  	
   

  	
  San Diego, CA 92117

  
	
  Attn: Chief
  Financial Officer

  	
   

  	
   

  

 

Any such written notice
shall be deemed received when personally delivered or three (3) days after
its deposit in the United States mail as specified above.  Either party may change its address for
notices by giving notice to the other party in the manner specified in this
paragraph 11.7.

 

7

 

11.8                           Survival.  The rights
and obligations contained in paragraph 9 (“Nonsolicitation”) shall survive any
termination or expiration of this Agreement for a period of one year, and
paragraphs 7 (“Confidentiality/Intellectual Property Agreement and Insider
Trading Policy”), 10 (“Agreement to Arbitrate”) and 11 (“General Provisions”)
shall survive any termination or expiration of this Agreement.

 

11.9                           Entire Agreement. 
This Agreement constitutes the entire agreement between the parties
relating to the subject matter herein and supersedes all prior or simultaneous
representations, discussions, negotiations, and agreements, whether written or
oral.

 

11.10                     Counterparts.  This
Agreement may be executed 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.

 

THE PARTIES TO THIS AGREEMENT HAVE READ THE FOREGOING AGREEMENT IN ITS
ENTIRETY AND FULLY UNDERSTAND EACH AND EVERY PROVISION CONTAINED HEREIN,
WHEREFORE, THE PARTIES HAVE FREELY AND VOLUNTARILY EXECUTED THIS AGREEMENT AS
OF THE DATE FIRST ABOVE WRITTEN.

 

Executive:

 

 

	
  /s/ W. Michael Gawarecki

  	
   

  	
  Dated:
  September 9, 2005

  
	
  W. Michael
  Gawarecki

  	
   

  

 

 

Company:

 

Overland Storage, Inc.

 

 

	
  /s/ Christopher P. Calisi

  	
   

  	
  Dated:  September 9, 2005

  
	
  Christopher P.
  Calisi

  	
   

  

President and Chief Executive
Officer

 

8

 

EXHIBIT A

 

GENERAL RELEASE

 

This GENERAL RELEASE (“Release”)
is entered into effective as of                           ,
(the “Effective Date”) by and between Overland Storage Inc., a
California corporation, having its principal offices at 4820 Overland Ave. ,
San Diego, California 92123-1599 (the “Company”) and W. Michael Gawarecki,
an individual residing at [                          ]
(“Employee”) with reference to the following facts:

 

RECITALS

 

A.                                   The
parties entered into an Employment Agreement (the “Agreement”) dated as
of October 20, 2004, by which the parties agreed that upon the occurrence
of certain conditions, Employee would become eligible for the Severance Payment
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 date of
the termination of Employee’s employment.

 

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, 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 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

 

9

 

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

 

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 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 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 arbitration in
accordance with the Agreement.

 

10

 

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

  
	
   

  
	
   

  

 

11

 

EXHIBIT B

 

Outsource Project Metrics

 

	
  Metric

  	
   

  	
  Description

  	
   

  	
  Baseline

  	
   

  	
  Post Outsource

  
	
  On Time Delivery

  	
   

  	
  Measures actual
  Overland performance to commit dates

  	
   

  	
  96.5%

  	
   

  	
  > 96.5%

  
	
  Out of Box Audit

  	
   

  	
  10% sample of
  finished goods. Checks for power-up and correct configuration

  	
   

  	
  REO: 97.7%

  WGS: 100%

  NEO 8000: 95.5%

  NEO 2000: 9.5%

  NEO 4000: 99.2%

  MSL Lite: TBD

  	
   

  	
  All metrics post-outsource will be equal to or
  greater than the last Overland measures

  
	
  Product Lead Times

  	
   

  	
  Delivery lead
  times. Varies by product line.

  	
   

  	
  REO: 3-5 Days

  WGS: 3 Days

  NEO 8000: 10 Days

  NEO 2000: 3 Days

  NEO 4000: 5 Days

  MSL Lite: 5 Days

  Spares: 5 Days

  	
   

  	
  REO: 3-5 Days

  WGS: 3 Days

  NEO 8000: 10 Days

  NEO 2000: 3 Days

  NEO 4000: 5 Days

  MSL Lite: 5 Days

  Spares: 5 Days

  
	
  1st Pass Yields

  	
   

  	
  Product yields
  associated with operator error. A measure of how well SCI has trained and
  where they are on the learning curve.

  	
   

  	
  REO: 99.2%

  WGS: 99.7%

  NEO 8000: 91.3%

  NEO 2000: 98.9%

  NEO 4000: 96.7%

  MSL Lite: TBD

  	
   

  	
  All metrics post-outsource will be equal to or
  greater than the last Overland measures

  
	
  Shipping Accuracy

  	
   

  	
  Errors made by
  shipping personnel when processing orders (wrong product, quantity,
  addresses, etc)

  	
   

  	
  99.7%

  	
   

  	
  99.7%

  
	
  Inventory Accuracy

  	
   

  	
  A measure for
  those parts consigned by Overland to SCI. Currently will include tape drives
  and fiber channel boards

  	
   

  	
  99%

  	
   

  	
  99%

  
	
  Cost Reduction

  	
   

  	
  We will measure
  actual cost savings by product line. Our estimates were a minimum of $3.5
  million annual savings

  	
   

  	
  FY05 costs at time of transfer

  	
   

  	
  We expect to be at the minimum run rate by end of
  Q3, FY06

  

 

12

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