Document:

Exhibit 10.1

 

Overland Storage

Corporate MBO & Bonus Programs

-Executives-

Fiscal Year 2005

 

 

Letter
from the President

 

 

 

Overland Storage is committed to excellence
in everything we do.  To remain a strong
competitor and continue to build a company that stands out in the industry we
want to recognize those executives who help make that happen.  The effort of each individual Overland
Storage executive is critical to the overall success of this Company.  To ensure executives are recognized and
rewarded for their part in helping to achieve our corporate goals the Board of
Directors has approved the Management-By-Objectives (MBO) Bonus Program.

 

The Overland MBO Bonus Program will be a
quarterly based program allowing eligible executives to potentially receive up
to four bonus payments in fiscal year 2005. The CEO will communicate bonus
opportunities to each executive after receiving board approval.  The bonus opportunity will be a percentage of
base salary actually paid in a quarter.

 

MBO programs that are linked to individual
and corporate performance are an excellent way to reward performance.  Many successful high technology growth
companies have adopted MBO programs as they have proven to be a successful way
to highlight the contributions made by executives at all levels and to quickly
reward them for their contribution to the Company’s success.  A performance based bonus program focuses
everyone in the company to do their individual best so that the company and all
executives may share in the successes achieved.

 

I want to stress my personal commitment in
striving for excellence in everything we do, and to building a superior work
environment for all Overland executives.

 

 

Regards,

Christopher Calisi

President & Chief Executive Officer

Overland Storage, Inc.

 

2

 

MANAGEMENT-BY-OBJECTIVES

AND QUARTERLY BONUS PROGRAM

 

Overland Storage, Inc. (“Overland Storage” or
the “Company”) will recognize executive contributions by implementing a bonus
program that is based on the Company’s financial performance and individual
executive performance.  Achievements will
be evaluated on a quarterly basis (fiscal quarter) and the corresponding bonus
will be paid in the following quarter. 
The Board of Directors of Overland Storage reserves the right to modify
this program at any time.

 

Under the MBO Bonus Program, the executive
management staff will within 30 days of the close of each quarter calculate the
bonus pool percentage for such quarter based on the Company’s financial performance
during such quarter.  Each executive also
will receive a Management-By-Objectives (MBO) rating for the quarter from the
CEO.  These factors determine the final
quarterly bonus payout.  Bonuses will
not be paid if the Company performs at less than 90% of planned profitability
targets.

 

MBO Bonus
Program Process

 

1.               Prior to the
start of the fiscal year the projected bonus pool is calculated and budgeted
based on headcount projections and the percentage of salaries targeted for
bonuses.

2.               Prior to the
start of the fiscal year the executive management team will determine the
annual and quarterly financial objectives for the Company.

3.               Prior to the
start of each quarter each executive will establish personal objectives that
are mutually agreed upon with the CEO.

4.               At the end of a
quarter the actual bonus pool percentage is calculated based on the Company’s
actual financial performance. 
Additionally, each executive will receive an individual quarterly rating
on his/her MBO performance (110%-0%).  This
rating will be used to determine the actual bonus payout.

5.               No executive
receiving an individual quarterly rating of less than 80% is eligible to
receive a bonus.

6.               This program
supersedes any previous bonus plan.

 

In order to receive a bonus, executives must
be employed by the Company at the time bonuses are actually paid.  Bonuses will not be paid retroactively or in
advance to any executive.  Executives on
performance improvement plans at the time of the bonus payment are not eligible
to receive any bonus.  Bonuses 

 

3

 

will be pro-rated for those executives who
join the Company within the first 30 days of a new quarter.  Anyone joining after the first 30 days of a
new quarter will enter the bonus program in the following quarter.  Bonuses will be pro-rated accordingly for
those executives on part-time schedules. 
The decision to give bonuses and the amount of the bonus are at the sole
discretion of Overland Storage.  Bonuses
will not be made pursuant to any contract, agreement, or promise and any past
bonus agreements or arrangements are hereby terminated in place of this new
program.

 

EPS
Calculation

 

Our EPS target is pre-defined before the
start of each quarter.   It represents
our expected net income divided by the number of shares outstanding.  The ‘cents above plan’ accounts for each cent
that we exceed the EPS target stated at the beginning of the quarter.  The board reserves the right to adjust the
EPS target for unplanned or extraordinary events that may impact either our net
income or the number of outstanding shares.

 

The Board of Directors reserves the right to
forego payment of any bonus in any quarter for any reason.

 

This program does not constitute a promise to
employ any individual for a specific length of time.  Employment continues according to the Company’s
At-Will Employment Policy.

 

4

 

Annual
Bonus Pool Percentage

 

The bonus pool percentage is a factor used in
calculating individual bonus payouts is determined prior to the start of the
fiscal year. The bonus pool percentage is budgeted at 100% for achieving 100%
of the Company’s profitability goals. 
The bonus pool is established by calculating the eligibility percentage
for each executive (at 100% of target). 
If the Company reaches 100% of its earnings goal the pool is sufficient
to potentially pay each executive a pre-determined percentage of his/her salary
paid per quarter.

 

The bonus pool for executives becomes
available provided the Company achieves at least 90% of its quarterly earnings
target and scales up in linear proportion
with earnings achievement.  No bonus
will be paid for earnings performance less than 90%.

 

 

Quarterly
Bonus Target Eligibility

 

Each
executive has a pre-determined ‘target’ bonus level that is set based upon job
definition/classification.  The table
below shows the bonus targets for all officer positions at Overland.  This bonus target is used, along with several
other factors, in determining the final bonus amount to be paid at the end of
each quarter.  The full description of
how bonuses are calculated follows.

 

 

Target Bonus Levels — Officers

 

	
  President & Chief
  Executive Officer

  	
   

  	
  75%

  
	
  Vice-Presidents (Executive
  Officers)

  	
   

  	
  40%

  
	
  Vice-Presidents
  (Non-executive Officers)

  	
   

  	
  30%

  
	
   

  	
   

  	
  Table 1.

  

 

5

 

Bonus
Payout Calculation

 

The
final quarterly bonus payout is determined in part by your individual rating
and the corporate rating.  These ratings,
together with your quarterly base salary and bonus target, are used to
determine the final bonus amount (before taxes).  This calculation is described below with an
example following.

 

Quarterly
Base Salary x Bonus Target % x Bonus Pool
Percentage x MBO Rating % = BONUS

 

Quarterly
Base Salary

This
is the amount of your annual salary at the end of the quarter divided by four.

 

Bonus Target

Each
executive, based on job classification, is given a ‘target’ bonus percentage
amount (see Table 1 above).

 

Bonus Pool Percentage

The
Company performance in EPS earnings determines the ultimate size of the total
pool from which bonuses will be paid (see examples).  This pool has been developed on a decreasing
acceleration model (see chart).  It is
the intent to reward performance of 90% -130% 
of target at a 1:1 acceleration, 
130%-150% at a 1:.5 acceleration and 150%-175% at a 1:.25 acceleration.

 

 

6

 

MBO Rating

This
is the rating percentage that the CEO gives to you based on your ability to
accomplish the mutually agreed upon goals for that quarter.

 

APPENDIX ‘A’

Examples:  Corporate Target & Actual

 

	
   

  	
   

  	
  Target

  	
   

  	
  Actual

  	
   

  	
   

  
	
  EPS

  	
   

  	
  10 cents

  	
   

  	
  9 cents

  	
   

  	
  (90% of Plan)

  
	
  Executive:

  	
   

  	
  Vice President (Executive
  Officer), Mary Smith

  
	
  Base Salary:

  	
   

  	
  $135,000

  	
   

  	
   

  	
   

  	
   

  
	
  Bonus Target as

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  % of Base Salary:

  	
   

  	
  40%

  	
   

  	
   

  	
   

  	
   

  

 

	
  Quarterly Base Salary

  	
   

  	
  x

  	
   

  	
  Bonus Target%

  	
   

  	
  x

  	
   

  	
  Bonus Pool% 

  	
   

  	
  x

  	
   

  	
  MBO Rating%

  
	
  $33,750

  	
   

  	
  x

  	
   

  	
  40%

  	
   

  	
  x

  	
   

  	
  90%

  	
   

  	
  x

  	
   

  	
  100%

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Quarterly Bonus = $12,150

  	
   

  	
   

  
															

 

	
   

  	
   

  	
  Target

  	
   

  	
  Actual

  	
   

  	
   

  
	
  EPS

  	
   

  	
  10 cents

  	
   

  	
  14 cents

  	
   

  	
  (140% of Plan)

  
	
  Executive:

  	
   

  	
  Vice President (Executive
  Officer), Mary Smith

  
	
  Base Salary:

  	
   

  	
  $135,000

  	
   

  	
   

  	
   

  	
   

  
	
  Bonus Target as

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  % of Base Salary:

  	
   

  	
  40%

  	
   

  	
   

  	
   

  	
   

  

 

	
  Quarterly Base Salary

  	
   

  	
  x

  	
   

  	
  Bonus Target%

  	
   

  	
  x

  	
   

  	
  Bonus Pool% 

  	
   

  	
  x

  	
   

  	
  MBO Rating%

  
	
  $33,750

  	
   

  	
  x

  	
   

  	
  40%

  	
   

  	
  x

  	
   

  	
  135%*

  	
   

  	
  x

  	
   

  	
  100%

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Quarterly Bonus = $ 18,225

  	
   

  	
   

  
															

 

	
   

  	
   

  	
  Target

  	
   

  	
  Actual

  	
   

  	
   

  
	
  EPS

  	
   

  	
  10 cents

  	
   

  	
  16 cents

  	
   

  	
  (160%
  of Plan)

  
	
  Executive:

  	
   

  	
  Vice President (Executive
  Officer), Mary Smith

  
	
  Base Salary:

  	
   

  	
  $135,000

  	
   

  	
   

  	
   

  	
   

  
	
  Bonus Target as

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  % of Base Salary:

  	
   

  	
  40%

  	
   

  	
   

  	
   

  	
   

  

 

	
  Quarterly Base Salary

  	
   

  	
  x

  	
   

  	
  Bonus Target%

  	
   

  	
  x

  	
   

  	
  Bonus Pool% 

  	
   

  	
  x

  	
   

  	
  MBO Rating%

  
	
  $33,750

  	
   

  	
  x

  	
   

  	
  40%

  	
   

  	
  x

  	
   

  	
  146.5%

  	
   

  	
  x

  	
   

  	
  100%

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Quarterly Bonus = $ 19,777.50

  	
   

  	
   

  
															

 

7

 

APPENDIX
‘B’

 

Instructions for filling in Quarterly MBO Form

 

Instructions

 

1.                                       Establish 1-6
quantifiable quarterly objectives with the approval of CEO.

Examples:

                                                a.)            Complete the marketing
communications plan for product X by the end of Q1.  This will include advertising plan, PR plan,
trade show attendance schedule, and budget.

                                                b.)           Complete the firmware design of
product Y by the middle of Q1.  This
includes functional testing, QA sign-off, documentation, and delivery to
manufacturing development.

 

2.                                       Meet with CEO
to discuss objectives, make modifications, and sign form within 5 business days
after the start of a quarter.

 

3.                                       CEO to submit
form to Human Resources by the 10th business day after the start of the
quarter.

 

4.                                       Meet with CEO
periodically throughout the quarter to review progress against objectives and
make any necessary adjustments.

 

5.                                       Within 5
business days after the close of the quarter, complete a narrative
self-assessment of performance on each objective and submit to CEO.

 

6.                                       CEO will review
form and narrative assessment of performance; meet with you to discuss
performance against objectives; make necessary changes; and provide overall
rating by averaging the achievements of all the goals.

 

7.                                       Executive and
CEO to sign form and CEO will submit form, along with assessment of
performance, to Human Resources by the 10th business day after the close of the
quarter.

 

8.                                       Human Resources
will calculate bonus payments by using the formula in the guidelines and submit
bonus list to Payroll for processing.

 

Rating Equivalents:

	
  110%

  	
   

  	
  =

  	
   

  	
  Far exceeded expectations/requirements of the objective. Results
  obtained far exceeded what was expected. Individual put in far more effort
  than was expected. Results were exceptional.

  
	
  105%

  	
   

  	
  =

  	
   

  	
  Exceeded expectations of the objective. Results were superior.

  
	
  100%

  	
   

  	
  =

  	
   

  	
  Met expectations of the objective. Planned objective was accomplished
  within the required timeframe.

  
	
  95%

  	
   

  	
  =

  	
   

  	
  Met all but a small portion of the objective. Results were
  acceptable.

  
	
  90%

  	
   

  	
  =

  	
   

  	
  Met most of the requirements of the objective within the expected
  timeframe.

  
	
  85%

  	
   

  	
  =

  	
   

  	
  Met some of the requirements of the objectives.

  
	
  80%

  	
   

  	
  =

  	
   

  	
  Needed assistance in order to complete the objective. Had difficulty
  meeting normal expectations.

  
	
  0-79%

  	
   

  	
  =

  	
   

  	
  Unsatisfactory. Objective was not accomplished even though it could
  have been completed.

  

 

Think
“SMART” when writing your objectives.

specific.....measurable.....achievable.....relevant.....timely

 

8

 

Quarterly MBO Form

	
   

  	
   

  	
  MBO
  / BONUS PROGRAM

  
	
   

  	
   

  	
  (Management-By-Objectives)

  
	
   

  	
   

  	
   

  
	
  Executive
  Name:

  	
   

  	
  Executive
  Title:

  
	
   

  	
   

  	
   

  
	
  CEO Name:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Department
  Name:

  	
   

  	
  Department
  #:

  
	
   

  	
   

  	
   

  
	
  MBO
  Period (Fiscal Quarter/Year):

  	
   

  	
  Date
  Established:

  

Quarterly Statement of Objectives (1-6)

 

	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Rating

  
	
   

  	
   

  	
  Supporting 

  	
   

  	
  Complete

  	
   

  	
  (0% - 

  
	
  Objective

  	
   

  	
  Goal *

  	
   

  	
  By

  	
   

  	
  110%)

  
	
  1.

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Quarterly Rating (to be completed at end of
  quarter)

  (Average
  of all objectives ratings)

  	
   

  	
   

  

The “Supporting Goal” column should type of
goal this task supports (i.e. personal, department, CEO, Corporate).

 

	
  Start of
  quarter

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Objectives agreed upon

  	
   

  	
  Date: 

  	
   

  	
  Executive: 

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Date: 

  	
   

  	
  CEO: 

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  Provide soft copy to HR

  

 

End of
quarter (attach narrative self-assessment of performance objectives to form):

	
   

  	
   

  
	
  Executive Signature:

  	
  Date:

  
	
   

  	
   

  
	
  CEO Signature:

  	
  Date:

  
	
   

  	
   

  
	
  Human Resources Signature:

  	
  Date:

  

 

9Exhibit 10.2

 

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).

 

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 Equity
Compensation 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 (“Incentive Plan”), our methodology for options and
other equity awards granted to non-employee directors changed to a formula
methodology (Current Equity Compensation Program). Under the Current Equity
Compensation 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. Under the Current Equity
Compensation Program, Messrs. McClendon and Preuss each received an option
for 18,000 shares on November 17, 2003. Non-employee directors who had
existing unvested options granted under the Old Equity Compensation Program on
an annual meeting date did not receive a new grant under the Current Equity
Compensation Program.  On November 15,
2004, Messrs. McClendon, Mutch, Norkus and Preuss each received an option for
18,000 shares.  Under the Current Equity
Compensation Program, when a new non-employee director joins the board, or when
an existing director’s option fully vests under the Old Equity Compensation
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 Equity Compensation Program,
Michael Norkus received an option for 4,500 shares on August 11,
2004.  On March 3, 2005, Robert Degan
received an option for 13,500 shares under the Current Equity Compensation
Program when his options under the Old Equity Compensation Program became fully
vested.

 

1

 

Compensation of Executive Officers

The executive officers of the Company 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 the Company’s executive officers. The following table sets forth
the annual salary rates for the Company’s current executive officers as of the
date of this report on Form 10-Q:

	
  Christopher Calisi

  	
   

  	
  $

  	
  500,000

  	
   

  
	
  Chester Baffa

  	
   

  	
  $

  	
  262,500

  	
   

  
	
  Diane N. Gallo

  	
   

  	
  $

  	
  199,500

  	
   

  
	
  W. Michael Gawerecki

  	
   

  	
  $

  	
  246,500

  	
   

  
	
  Michael S. Kerman

  	
   

  	
  $

  	
  225,000

  	
   

  
	
  Vernon A. LoForti

  	
   

  	
  $

  	
  297,750

  	
   

  
	
  John E.G. Matze

  	
   

  	
  $

  	
  240,000

  	
   

  
	
  Robert J. Scroop

  	
   

  	
  $

  	
  220,500

  	
   

  

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-Q:

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 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 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 the Company’s MBO and Bonus Program.  The above referenced stock option grants to
Mr. Calisi accelerate upon a Change in Control as defined in the Incentive
Plan.  The vesting of shares underling the stock option and restricted
stock grants pursuant to the Incentive Plan described above will cease upon
termination of  Service to the Company, as defined in the Incentive Plan.

 

Mr. Chester Baffa. 
Mr. Baffa,
our Vice President, World-Wide Sales and Customer Support, is an at-will
employee and may be terminated by us for any reason, with or without
notice.  Mr. Baffa currently earns an
annual salary of $262,500 per year.  To
date, in fiscal year 2005, Mr. Baffa has been paid sales commissions of $
26,565.  On November 15, 2004, Mr. Baffa
was granted a stock option to purchase up to 32,600 shares of our common stock
at the purchase price of $14.29 per share pursuant to the Incentive Plan, which
option will vest monthly in arrears from the date of grant in 36 equal
installments.   The above referenced
stock option grant to Mr. Baffa will 

 

2

 

accelerate upon a Change in Control as defined in the Incentive
Plan.  The vesting of shares underling the stock option grant pursuant to
the Incentive Plan described above will cease upon termination of  Service
to the Company, as defined in the 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 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 Incentive Plan, which option will
vest monthly in arrears from the date of grant in 36 equal
installments.   The above referenced
stock option grant to Ms. Gallo will accelerate upon a Change in Control as
defined in the Incentive Plan.  The vesting of shares underling the stock
option grant pursuant to the Incentive Plan described above will cease upon
termination of  Service to the Company, as defined in the Incentive Plan.

 

Mr. W. Michael Gawarecki.  Mr. Gawarecki, our Vice President, Operations, is an
at-will employee and may be terminated by us for any reason, with or without
notice.  Mr. Gawarecki currently earns an
annual salary of $246,500 per year. 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 Incentive Plan, which
option will vest monthly in arrears from the date of grant in 36 equal
installments.   The above referenced
stock option grant to Mr. Gawarecki will accelerate upon a Change in Control as
defined in the Incentive Plan.  The vesting of shares underling the stock
option grant pursuant to the Incentive Plan described above will cease upon
termination of  Service to the Company, as defined in the Incentive Plan.

 

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 Incentive Plan, which option will vest one-third one
year from the date of grant and the remaining two-thirds will vest monthly
thereafter in 24 consecutive equal installments.  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 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 Incentive Plan.  The vesting of shares underling the stock
option grant pursuant to the Incentive Plan described above will cease upon
termination of  Service to the Company, as defined in the 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
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 Incentive Plan, which option
will vest monthly in arrears from the date of grant in 36 equal
installments.   The above referenced
stock option grant to Mr. LoForti will accelerate upon a Change in Control as
defined in the Incentive Plan.  The vesting of shares underling the stock
option grant pursuant to the Incentive Plan described above will cease upon
termination of  Service to the Company, as defined in the Incentive Plan.

 

3

 

Mr.  John
E.G. Matze.  Mr. Matze, our Vice President and Chief
Technology Officer, is an at-will employee and may be terminated by us for any
reason, with or without notice.  Mr.
Matze currently earns an annual salary of $240,000 per year.  On November 15, 2004, Mr. Matze was granted a
stock option to purchase up to 27,100 shares of our common stock at the
purchase price of $14.29 per share and on April 28, 2005, was granted an option
to purchase up to 35,000 shares of our common stock at the purchase price of
$10.86 per share.  Both options were
granted pursuant to the Incentive Plan and both options will vest monthly in
arrears from the date of grant in 36 equal installments.   The above referenced stock option grants to
Mr. Matze will accelerate upon a Change in Control as defined in the Incentive
Plan.  The vesting of shares underling the stock option grants pursuant to
the Incentive Plan described above will cease upon termination of  Service
to the Company, as defined in the Incentive Plan.

 

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 Incentive Plan, which
option will vest monthly in arrears from the date of grant in 36 equal
installments.   The above referenced
stock option grant to Mr. Scroop will accelerate upon a Change in Control as
defined in the Incentive Plan.  The vesting of shares underling the stock
option grant pursuant to the Incentive Plan described above will cease upon
termination of  Service to the Company, as defined in the Incentive Plan.

 

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 Mr. Baffa
effective April 2, 2001, with Ms. Gallo effective August 30, 2002, with
Mr. Matze effective June 25, 2003 and with Mr. Kerman effective August 30,
2004.. 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 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, whatever is
higher, plus his 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 and Messrs. Baffa, Gawarecki, Kerman, Matze 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 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; Mr. Baffa, $23,763; Ms.
Gallo, $30,702; Mr. Gawarecki, $32,001; Mr. Kerman, $12,366; Mr. LoForti,
$40,397;  Mr. Matze, $36,572 and Mr.
Scroop, $33,268.  No bonuses were paid
for the second and third fiscal quarters of 2005, as the EPS targets were not
achieved.

 

4

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