Document:

Exhibit 10.1

 

Confidential
portions of this document have been redacted and filed separately with the
Commission.

[***] symbolizes language omitted pursuant to an application for Confidential
Treatment

 

TRANSITION
AMENDMENT [***] 

 

THIS TRANSITION AMENDMENT (“the
Transition Amendment”) is made and entered into as of this 29th day
of September, 2006 (the “Effective Date’) by and between SANMINA-SCI
Corporation, a Delaware corporation having its principal place of business at
2700 North First Street, San Jose, California 95134 on behalf of itself and its
subsidiaries and affiliates (collectively “SANMINA-SCI”) and Overland Storage,
Inc., a California corporation having its principal place of business at 4820
Overland Avenue, San Diego, CA  92123 (“Overland”).
SANMINA-SCI and Overland are collectively referred to as the “Parties.”

 

W
I  T  N  E  S  S  E  T  H

 

WHEREAS, the Parties are
parties to a Manufacturing and Supply Agreement dated as of November 23, 2004,
as amended by Amendment No. 1 dated May 30, 2005 and as amended by Amendment
No. 2, dated January 1, 2006 (as so amended (the “Agreement”) pursuant to which
SANMINA-SCI has agreed to manufacture certain products for Overland; and

 

WHEREAS, by letter dated
June 26, 2006, Overland advised SANMINA-SCI of Overland’s view that Sanmina-SCI
was in breach of the Agreement (“Breach Letter”); and

 

WHEREAS, by letter dated
July 26, 2006, Sanmina-SCI responded to Overland’s Breach Letter; and

 

WHEREAS, the parties
desire [***] and to reflect such agreements in this Transition Amendment.

 

NOW, THEREFORE, in
consideration of the premises and covenants contained herein and for other
consideration, the receipt and sufficiency of all such consideration being
expressly acknowledged by the parties hereto, the parties agree as follows:

 

1.             Transition. The Parties hereby agree to transfer
the manufacture of the Products from Sanmina-SCI to Overland in accordance with
the transition plan set forth in Exhibit A (the “Transition Plan”).

 

2.             Termination of Agreement. The parties mutually agree
that upon completion of the Transition Plan the Agreement will automatically
terminate.

 

3.             Prices. The prices for Products shall [***] from
the Effective Date until the completion of the Transition Plan; provided,
however that Sanmina-SCI [***] any component, part or raw material
(collectively “Components”). In the event Overland wishes Sanmina-SCI to
manufacture Product for it after the completion of the Transition Plan, the
parties shall negotiate in good faith the pricing of such Products. In the event
the parties are unable to reach agreement on the pricing, Sanmina-SCI shall be
released of any obligation to manufacture such products, and Overland shall be
responsible for all Components ordered by Sanmina-SCI to produce the products
in accordance with the Agreement (including Section 4.2 thereof).

 

4.             [***]

 

5.             Sections 15.1 (Integration) and
15.5 (Governing Law) of the Agreement shall apply to this Transition Amendment.

 

6.             Any capitalized terms contained in
this Transition Amendment and not defined in this Transition Amendment have the
meanings for such terms as are set forth in the Agreement.

 

1

 

Confidential
portions of this document have been redacted and filed separately with the
Commission.

[***] symbolizes language omitted pursuant to an application for Confidential
Treatment

 

7.             Except as expressly provided in or
required as a consequence of this Transition Amendment, the Agreement remains
un-amended and unmodified and in full force and effect.

 

8.             This Transition Amendment, the
Agreement, Amendment No. 1 and Amendment No. 2, contains the entire agreement
between the parties with respect to the subject matter hereof and supersedes
any prior agreements, negotiations, or representations between the parties with
respect to the subject matter hereof, whether written or oral.

 

9.             This Transition Agreement may be
modified only by a subsequent written agreement signed by the parties.

 

10.           If any provision of this Transition
Amendment is held to be unenforceable, the remaining provisions will continue
unaffected.

 

IN WITNESS WHEREOF, the
undersigned hereunto set their hands and seals this 29th day of
September, 2006.

 

 

	
   

  	
  SANMINA-SCI CORPORATION

  	
  OVERLAND STORAGE, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By: Tom Clawson

  	
  By: Vernon A. LoForti

  
	
   

  	
  Title: Executive Vice
  President

  	
  Title: Vice President
  & CFO

  
					

 

2

 

Confidential
portions of this document have been redacted and filed separately with the
Commission.

[***] symbolizes language omitted pursuant to an application for Confidential
Treatment

 

Exhibit A
– Transition Plan

 

 

A.  Sanmina-SCI’s Obligations

[***]

 

1.               Supplier
Notification. Within 30 days of the Effective Date, Sanmina-SCI shall issue
letters to its suppliers giving the suppliers permission to share pricing
information with Overland and allowing Overland to place orders directly with
the suppliers for Components. Sanmina-SCI shall use its best commercial efforts
to settle any outstanding payment issues (delinquencies, credit holds) with any
such supplier.

 

2.               Documentation.
Prior to the completion of the Transition Plan, Sanmina-SCI shall provide
Overland with all of the following items it has in its possession: (i)
electronic and/or hard copies of method sheets for the production of the
Products; (ii) electronic and/or hard copies of AVL/AML and RoHS
certifications; (iii) copies of all receiving inspection files for Components
used in the production of the Products (iv) copies of all Overland Product
label files and (v) electronic copies of bills of material.

 

3.               Equipment. Prior
to the completion of this Transition Plan, Sanmina-SCI shall return to Overland
all Overland-owned equipment, tooling, and fixtures (collectively “Overland
Equipment”) used in the manufacturing of the Products. In the event Sanmina-SCI
does not have in its possession any of the Overland Equipment (e.g., the
Equipment is lost) or in the event the Overland Equipment is defective as a
result of Sanmina-SCI’s failure to maintain it in accordance with Section 8.2
of the Agreement, then, in lieu of returning the missing or damaged Overland
Equipment, Sanmina-SCI shall pay Overland an amount equal to the net book value
of missing or damaged Overland Equipment, and such payment shall satisfy
Sanmina-SCI’s obligations under this paragraph. [***].

 

4.               Training. According
to the schedule in the Transition Plan, Sanmina-SCI shall provide up to 500
hours (excluding travel time) of on the job training on its manufacturing
process and/or other technical issues to enable Overland to manufacture the
Products. [***]. Overland shall be responsible for all costs associated with
its employees’ attendance at such training.

 

B.  Overland’s Obligations

[***]

 

5.              Components. Prior to the
completion of this Transition Plan and conditioned upon [***], Overland shall
purchase from Sanmina-SCI all Components that Overland is required to purchase
under Sections 10.4(a) and Section 4.2(g) of the Agreement, and such purchase
will be subject to the terms and conditions set forth in the Agreement except
that such Components will be sold and purchased at the Delivered Cost (plus a
2.5% material overhead charge) [***].

 

C.  Other Obligations

 

6.               Hiring. Overland
shall have the right to make offers to hire any Sanmina-SCI employee currently
involved with the Overland program in Rapid City, provided that it first
obtains Sanmina-SCI’s consent, which consent will not be unreasonably refused.

 

3

 

Confidential
portions of this document have been redacted and filed separately with the
Commission.

[***] symbolizes language omitted pursuant to an application for Confidential
Treatment

 

7.               Escorts. From
the Effective Date until the completion of the Transition Plan, Sanmina shall
no longer require Overland employees to have escorts in the visitors conference
room, the common areas and in the Overland manufacturing area of the Rapid City
facility.

 

8.               ECOs. [***].

 

9.               Sanmina-SCI shall
sell to Overland, at a mutually agreed-upon price not exceeding the net book
value of the Equipment, any unique Equipment (originally sold by Overland to
Sanmina-SCI) used in manufacturing the Products as mutually agreed between the
Parties in good faith. Sanmina-SCI shall pay for the cost of shipping (via UPS
ground) the Equipment to Overland’s facility in San Diego, CA. Any Equipment
sold to Overland under this paragraph shall be sold “AS IS” without warranty.

 

4Exhibit
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).  Members of the Special
Committee on Shareholder Value will receive $500 for each committee meeting
attended (whether telephonically or in person). 
Such fee will not be paid for committee meetings in joint session with
the full board. The Board has not yet determined the compensation for directors
serving on the newly-created Strategy Committee.

 

In addition to the cash
component of compensation, each non-employee director receives stock
options.  Under our 2003 Equity Incentive
Plan, which we refer to as the 2003 Incentive Plan, 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.  When a new non-employee director joins the
board, 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. On November 15,
2005, the date of our last annual meeting of shareholders, Scott McClendon,
Robert Degan and Michael Norkus each received an option for 18,000 shares.  In connection with their elections to the
Board, Mark Barrenechea received an option for 16,500 shares on December 21,
2005 and William Miller received an option for 7,500 shares on June 12, 2006.

 

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-Q:

 

	
  Scott McClendon

  	
   

  	
  $

  	
  395,000 

  	
  (1)

  
	
  W. Michael Gawarecki

  	
   

  	
  $

  	
  246,500

  	
   

  
	
  Christie Huff

  	
   

  	
  $

  	
  195,000

  	
   

  
	
  Michael S.
  Kerman

  	
   

  	
  $

  	
  225,000

  	
   

  
	
  Vernon A.
  LoForti

  	
   

  	
  $

  	
  297,750

  	
   

  
	
  Robert J. Scroop

  	
   

  	
  $

  	
  220,500

  	
   

  

 

(1)  In connection with his appointment as Interim
President and Chief Executive Officer, the Compensation Committee has approved
a temporary compensation package for Mr. McClendon that consists of a
monthly salary of $32,916.67.

 

 1
 

 

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:

 

Scott McClendon.   On November 1, 2006, the
Board appointed Scott McClendon as our Interim President and Chief Executive Officer
effective immediately. The Compensation Committee has approved a temporary
compensation package for Mr. McClendon that consists of a monthly salary
of $32,916.67. The base salary is equivalent to the base salary earned by
Mr. Calisi at the time of his departure. Mr. McClendon will also be
entitled to participate in the company’s employee benefit plans.
Mr. McClendon will not receive fees paid to the company’s non-employee
directors or the Chairman of the Board fee while serving as Interim President
and Chief Executive Officer.

 

W. Michael Gawarecki.   Mr.
Gawarecki, our Vice President of Operations is an at-will employee and may be
terminated by us for any reason, with our without notice.  Mr. Gawarecki currently earns an annual
salary of $246,500.

 

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.

 

 2
 

 

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.

 

Vernon A. LoForti.  We entered into an employment agreement with
Mr. LoForti on December 4, 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.

 

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.

 

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.

 

Retention
Agreements

 

We entered into retention
agreements with Messrs. LoForti, Scroop and Gawarecki effective
January 27, 2000, with Mr. Kerman effective August 30, 2004 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. LoForti would be entitled to receive
an amount equal to 2.0 times his base salary plus target bonus; and Ms. Huff, and
Messrs. Gawarecki, Kerman, and Scroop each would be entitled to an amount
equal to his or her 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.

 

 

 3

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