Exhibit 10.24
EXECUTION VERSION
RETENTION
AGREEMENT
This Retention Agreement (this
“ Agreement ”) is entered into on June 24,
2009 between Overland Storage Inc., a California corporation having
its principal offices at 4820 Overland Avenue, San Diego,
California 92123 (the “ Company ”), and Eric
Kelly (“ Employee ”).
AGREEMENT
WHEREAS, Employee is a key employee
of the Company;
WHEREAS, the Company considers that
providing Employee with certain employment termination benefits
will operate as an incentive for Employee to remain employed by the
Company in the event of a Change of Control;
WHEREAS, in conjunction with the
execution of this Agreement, the parties are also entering into an
Employment Agreement on the date hereof (the “ Employment
Agreement ”).
NOW THEREFORE, for the consideration
stated above, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the
Company and Employee agree as follows:
1. Definitions .
1.1. “ Base Salary
” shall mean the Employee’s gross annual salary at the
time of a Change of Control or the Termination Date, whichever is
higher.
1.2. “ Change of
Control ” is defined to have occurred if, and only if,
during Employee’s employment:
(a) any individual, partnership,
firm, corporation, association, trust, unincorporated organization
or other entity or person, or any syndicate or group deemed to be a
person under Section 14(d)(2) of the Exchange Act is or
becomes the “Beneficial Owner” (as defined in Rule
13d-3 of the General Rules and Regulations under the Exchange Act),
directly or indirectly, of securities of the Company representing
30% or more of the combined voting power of the Company’s
then outstanding securities entitled to vote in the election of
directors of the Company;
(b) there occurs a reorganization,
merger, consolidation or other corporate transaction involving the
Company (“ Transaction ”), in each case, with
respect to which the stockholders of the Company immediately prior
to such Transaction do not, immediately after the Transaction, own
more than fifty (50) percent of the combined voting power of
the Company or other corporation resulting from such Transaction;
or
(c) all or substantially all of the
assets of the Company are sold, liquidated or
distributed.
1.3. “ Cause ”
shall mean
(a) Employee’s gross neglect
of his duties to the Company, where Employee has been given a
reasonable opportunity of not less than 30 days to cure his gross
neglect after receiving written notice from the Company’s
Board of Directors (the “ Board ”) (which
reasonable opportunity must be granted during the thirty-day period
preceding termination);
(b) any material breach by Employee
of Employee’s obligations under this Agreement or any
employment agreement which Employee may have with the Company
,which Employee fails to cure within 30 days after receiving
written notice from the Board; or
(c) Employee’s commission of
any act of fraud, theft or embezzlement against the
Company.
1.4. “ Compensation
” shall mean Base Salary plus Target Bonus.
1.5. “ Resignation For Good
Reason ” shall mean the voluntary resignation by Employee
of his employment with the Company within sixty (60) days
before or two years following a Change of Control and within six
(6) months of the occurrence of any of the following Good
Reasons:
(a) any reduction in
Employee’s Base Salary or Target Bonus by more than ten
percent (10%); or
(b) any material reduction in
Employee’s duties, responsibilities and authority;
(c) a relocation by the Company of
Employee’s place of Employment outside a fifty (50) mile
radius of Employee’s current place of employment; provided,
however, that “Good Reason” shall not include
relocation of Executive’s principal place of work to
Employer’s Milpitas, California location or to a location
within thirty (30) miles of Executive’s Danville,
California residence; or
(d) a material breach of this
Agreement or the Employment Agreement by the Company.
An event described in
Section 1.5(a) through (f) will not constitute Good
Reason unless Employee provides written notice to the Company
within 60 days of the Good Reason event of his intention to resign
for Good Reason and unless the Company does not cure or remedy the
alleged Good Reason condition within thirty (30) days of the
Company’s receipt of the written notice.
1.6. “ Severance Period
” shall begin on the Termination Date and extend for eighteen
(18) months following the Termination Date.
1.7. “ Target Bonus
” shall mean the variable annual compensation represented by
the percentage of Base Salary Employee is eligible to receive, if
any, prior to a Change of Control, in the event targeted goals are
achieved for the year. Employee acknowledges that there is no
Target Bonus established for Employee at the date of this
Agreement, but that he is eligible for a Target Bonus for Fiscal
2010 and thereafter in accordance with the terms and conditions of
the Employment Agreement.
2
1.8. “ Termination Date
” shall mean the date of termination of Employee’s
employment relationship with the Company.
1.9. “ Termination
Payments ” shall mean any payment or distribution of
Compensation or benefits made pursuant to
Section 4.1(a)-(c) of this Agreement.
2. Title and Duties .
Employee will hold the position of Chief Executive Officer in
accordance with the terms and conditions of the Employment
Agreement.
3. At-Will Employment .
Employee reaffirms that Employee’s employment relationship
with the Company is at-will, terminable at any time and for any
reason by either the Company or Employee, subject to the terms of
the Employment Agreement. While certain paragraphs of this
Agreement describe events that could occur at a particular time in
the future, nothing in this Agreement may be construed as a
guarantee of employment of any length.
4. Termination Payments
.
4.1. If, within sixty (60) days
before or within two (2) years immediately following a Change
of Control, Employee’s employment terminates as the result of
(i) termination by the Company of Employee’s employment
for a reason other than Cause; or (ii) Employee’s
Resignation for Good Reason:
(a) Employee will receive the
Standard Entitlements (as defined in the Employment
Agreement);
(b) Subject to Section 9,
Employee will be eligible for Severance under this Agreement in a
lump-sum amount equal to 150% of the sum of Base Salary plus Target
Bonus, less applicable state and federal taxes or other payroll
deductions, such amount to be paid (subject to Section 9) in
the month following the month in which Employee’s Separation
from Service (as defined below) occurs; and
(c) Subject to Section 9,
(i) if Employee elects to continue insurance coverage as
afforded to Employee according to the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended (“ COBRA
”), Company will reimburse Employee the amount of the
premiums incurred by Employee during the Severance Period, and
(ii) the Company will reimburse Employee for the costs to
continue life, accident, medical and dental insurance benefits for
Employee and his eligible dependents during the Severance Period in
amounts substantially similar to those which Employee was entitled
to receive under the Employment Agreement immediately prior to the
Termination Date (which amount shall be reduced by the amount of
any reimbursements made by the Company to Employee pursuant to
clause (c)(i) above), the estimated costs of which shall be paid to
Executive in one lump sum payment on the Termination Date (and any
actual costs in excess of such estimate shall be paid to Executive
no later than ten (10) days following his submission of
written evidence of the amount of such excess). Nothing in this
Agreement will extend Employee’s COBRA period beyond the
period allowed under COBRA, nor is Company assuming any
responsibility which Employee has for formally electing to continue
coverage; and
3
(d) Any portion of Employee’s
then outstanding stock options and other equity-based awards
granted by the Company that are not vested shall immediately vest
and, in the case of stock options and similar awards, may be
exercised in whole or in part within one year of the date of
Employee’s termination of employment, subject to earlier
termination upon the expiration of the maximum term of the
applicable options or in connection with a corporate transaction
involving the Company to the extent provided in the Plan and/or the
award agreements that evidence such options.
As used herein, a “
Separation from Service ” occurs when Executive dies,
retires, or otherwise has a termination of employment with the
Company that constitutes a “separation from service”
within the meaning of Treasury Regulation
Section 1.409A-1(h)(1), without regard to the optional
alternative definitions available thereunder.
4.2. The payments set forth in
Section 4.1(b) and (c) above are in exchange for, and
contingent upon Employee’s execution and non-revocation of a
release of all claims as of the Termination Date, in substantially
the form attached to this Agreement as Exhibit A
.
4.3. If Employee’s employment
terminates for any reason after the two year period immediately
following a Change of Control or terminates during that two year
period for any reason other than (i) termination by the
Company of Employee’s employment for a reason other than
Cause; or (ii) Employee’s Resignation for Good Reason,
the Company will pay Employee the Standard Entitlements (as defined
in the Employment Agreement).
5. Retirement and Profit-Sharing
Plans . Notwithstanding anything in this Agreement to the
contrary, Employee’s rights in any retirement, pension or
profit-sharing plans offered by the Company shall be governed by
the rules of such plans as well as by applicable law; provided,
however, that on the Termination Date, Employee shall become fully
vested in all pension and 401(k) account balances.
6. Tax Consequences . The
Company makes no representations regarding the tax consequence of
any provision of this Agreement. Employee is advised to consult
with his own tax advisor with respect to the tax treatment of any
payment contained in this Agreement.
7. Tax Adjustment . In
recognition of Employee’s unique circumstances (namely his
prior service as a member of the Employer’s board of
directors) that significantly increase the possibility that
Section 280G of the Internal Revenue Code of 1986, as amended
(the “ Code ”) could apply during the first two
years of this Agreement, Employer is willing to provide limited
protection to Employee from the possible imposition of excise taxes
under Section 4999 of the Code should an event described in
Section 280G(b)(2)(A)(i) of the Code (a “ Triggering
Event ”) occur in 2009, 2010 or 2011. In the event any
payment, distribution, transfer, benefit or other event with
respect to Employer or a successor, direct or indirect subsidiary
or affiliate of Employer (or any successor or affiliate of any of
them, and including any benefit plan of any of them), and arising
in connection with a Triggering Event occurring after the Effective
Date and on or before December 31, 2011, to or for the benefit
Employee or Employee’s dependents, heirs or beneficiaries
(whether
4
such payment, distribution, transfer, benefit or
other event occurs pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments
required under this Section 7) (each a “ Payment
” and collectively the “ Payments ”) is or
was subject to the excise tax imposed by Section 4999 of the
Code, and any successor provision or any comparable provision of
state or local income tax law, or any interest, penalty or addition
to tax is or was incurred by Employee with respect to such excise
tax (such excise tax, together with any such interest, penalty,
addition to tax, and costs (including professional fees)
hereinafter collectively referred to as the “ Excise
Tax ”), then Employer shall pay to Employee (or to the
applicable taxing authority on Employee’s behalf, at
Employer’s discretion) an additional cash payment
(hereinafter referred to as the “ Gross-Up Payment
”) equal to an amount such that after payment by Employee of
all taxes, interest, penalties, additions to tax and costs imposed
or incurred with respect to the Gross-Up Payment (including,
without limitation, any income and excise taxes imposed upon the
Gross-Up Payment), Employee retains an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon such Payment or
Payments. The Gross-Up Payment, if triggered pursuant to this
Section 7, is intended to put Employee in the same position as
Employee would have been had no Excise Tax been imposed upon or
incurred as a result of any Payment. The preceding provisions of
this Section 7 shall take precedence over the provisions of
any other plan, arrangement or agreement governing Employee’s
rights and entitlements to any benefits or compensation.
Notwithstanding anything in this Section 7 to the contrary,
the amount of any Gross-Up Payment to Employee shall not exceed:
(a) with respect to a Triggering Event that occurs in 2009,
Two Million Five Hundred Thousand Dollars ($2,500,000);
(b) with respect to a Triggering Event that occurs in 2010,
One Million Dollars ($1,000,000); and (c) (b) with
respect to a Triggering Event that occurs in 2011, Six Hundred
Thousand Dollars ($600,000). No Gross-Up Payment shall be owed to
Employee with respect to a Triggering Event that occurs after
December 31, 2011.
Employer shall make the Gross-Up
Payment promptly after any determination that the Gross-Up Payment
is due and in no event later than the last day of the end of
Employee’s taxable year following Employee’s taxable
year in which Employee pays or remits the related taxes. Any
reimbursement of expenses due to Employee pursuant to this
Section 7 or otherwise incurred due to a tax audit or
litigation addressing the existence or amount of a tax liability,
whether federal, state, local or foreign, shall be paid to Employee
promptly after such expenses is incurred, and in all cases no later
than the end of Employee’s taxable year following
Employee’s taxable year in which the taxes that are the
subject of the audit or litigation are remitted to the taxing
authority, or where as a result of such audit or litigation no
taxes are remitted, the end of Employee’s taxable year
following Employee’s taxable year in which the audit is
completed or there is a final and nonappealable settlement or other
resolution of the litigation. Employee shall provide the Employer
with reasonable documentation of such expenses.
Effective with respect to a
Triggering Event occurring on or after January 1, 2012,
notwithstanding the foregoing or any other provision of this
Agreement to the contrary, if it is determined that any portion of
any payment under this Agreement would constitute an “excess
parachute payment” within the meaning of
Section 2
