10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC  20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2003

Commission File Number: 000-22071

OVERLAND STORAGE, INC.

(Exact name of registrant as specified in its charter)

California	95-3535285
(State or other jurisdiction of incorporation)	(IRS Employer Identification No.)

4820 Overland Avenue, San Diego, California  92123-1599

(Address of principal executive offices, including zip code)

(858) 571-5555

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  ý       No  o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12B-2 of the Act).   Yes  ý       No  o

As of February 2, 2004, there were 13,571,864 shares of the registrant’s common stock, no par value, issued and outstanding.

OVERLAND STORAGE, INC.

FORM 10-Q

For the quarterly period ended December 31, 2003

Table of Contents

PART I  -  FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Consolidated Condensed Statement of Operations — Three and six months ended December 31, 2003 and 2002
	Consolidated Condensed Balance Sheet — December 31, 2003 and June 30, 2003
	Consolidated Condensed Statement of Cash Flows — Six months ended December 31, 2003 and 2002
	Notes to Consolidated Condensed Financial Statements
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures About Market Risk
Item 4.	Controls and Procedures
PART II  -  OTHER INFORMATION
Item 1.	Legal Proceedings
Item 4.	Submission of Matters to a Vote of Security Holders
Item 6.	Exhibits and Reports on Form 8-K
	Signature

2

PART I  —  FINANCIAL INFORMATION

Item 1.  —  Financial Statements

OVERLAND STORAGE, INC.

CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS

(Unaudited)

(In thousands, except per share data)

	Three Months Ended December 31,					Six Months Ended December 31,
	2003		2002			2003		2002
Net revenues:
Product sales	$	67,176	$	47,795		$	123,315	$	81,789
Royalties & services	574		816			1,004		1,362
Total net revenues	67,750		48,611			124,319		83,151
Cost of revenues	50,078		35,448			91,070		60,976
Gross profit	17,672		13,163			33,249		22,175
Operating expenses:
Sales and marketing	7,542		6,707			15,393		12,759
Research and development	1,973		1,729			3,783		3,423
General and administrative	2,969		2,375			5,551		4,526
Total operating expenses	12,484		10,811			24,727		20,708
Income from operations	5,188		2,352			8,522		1,467
Other income (expense):
Interest income, net	113		26			209		94
Other income (expense), net	11		(51		)	1		(85		)
Income before income taxes	5,312		2,327			8,732		1,476
Provision for income taxes	1,859		803			3,056		509
Net income	$	3,453	$	1,524		$	5,676	$	967
Earnings per share:
Basic	$	0.26	$	0.14		$	0.43	$	0.09
Diluted	$	0.24	$	0.13		$	0.40	$	0.08
Number of shares used in computing earnings per share:
Basic	13,309		11,049			13,141		11,037
Diluted	14,465		11,940			14,356		11,884

See accompanying notes to consolidated condensed financial statements.

3

OVERLAND STORAGE, INC.

CONSOLIDATED CONDENSED BALANCE SHEET

(In thousands)

	December 31, 2003			June 30, 2003
	(unaudited)
ASSETS:
Current assets:
Cash and cash equivalents	$	59,022		$	55,020
Accounts receivable, less allowance for doubtful accounts of $272 and $413, respectively	38,773			31,850
Inventories	18,829			19,262
Deferred income taxes	4,351			4,351
Other current assets	3,478			2,461
Total current assets	124,453			112,944
Property and equipment, net	7,961			8,171
Intangible assets	8,084			8,983
Other assets	879			824
	$	141,377		$	130,922
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Current liabilities:
Accounts payable	$	17,113		$	15,546
Accrued liabilities	5,392			4,526
Accrued payroll and employee compensation	3,764			3,194
Income taxes payable	2,703			2,292
Accrued warranty	2,587			2,129
Current portion of long-term debt	—			931
Total current liabilities	31,559			28,618
Long-term debt	—			3,026
Deferred tax liabilities	4,091			4,091
Other liabilities	2,469			1,923
Total liabilities	38,119			37,658
Shareholders’ equity:
Common stock, no par value, 25,000 shares authorized; 13,487 and 12,959 shares issued and outstanding, respectively	68,228			63,884
Accumulated other comprehensive loss	(218		)	(192		)
Retained earnings	35,248			29,572
Total shareholders’ equity	103,258			93,264
	$	141,377		$	130,922

See accompanying notes to consolidated condensed financial statements.

4

OVERLAND STORAGE, INC.

CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS

(Unaudited)

(In thousands)

	Six Months Ended December 31,
	2003			2002
OPERATING ACTIVITIES:
Net income	$	5,676		$	967
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	2,075			1,173
Changes in operating assets and liabilities:
Accounts receivable	(6,923		)	(8,156		)
Inventories	433			(2,196		)
Accounts payable and accrued liabilities	3,302			9,530
Accrued payroll and employee compensation	570			201
Other, net	(526		)	(494		)
Net cash provided by operating activities	4,607			1,025
INVESTING ACTIVITIES:
Capital expenditures	(966		)	(677		)
Net cash used in investing activities	(966		)	(677		)
FINANCING ACTIVITIES:
Payments on long-term debt	(3,957		)	(233		)
Proceeds from the exercise of stock options and the sale of stock under the employee stock purchase plan	4,344			496
Net cash provided by financing activities	387			263
Effect of exchange rate changes on cash	(26		)	25
Net increase in cash and cash equivalents	4,002			636
Cash and cash equivalents at the beginning of the period	55,020			26,884
Cash and cash equivalents at the end of the period	$	59,022		$	27,520

See accompanying notes to consolidated condensed financial statements.

5

OVERLAND STORAGE, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

Note 1 — Basis of Presentation

The accompanying condensed consolidated financial statements of Overland Storage, Inc. and its subsidiaries (“Overland Storage” or the “Company”) have been prepared without audit pursuant to the rules and regulations of the Securities and Exchange Commission for Form 10-Q.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been condensed or omitted pursuant to such rules and regulations.  In the opinion of management, these statements reflect all normal recurring adjustments necessary for a fair presentation of the financial position, results of operations and cash flows for all periods presented. The results of operations for such periods are not necessarily indicative of the results expected for the full fiscal year. Our second fiscal quarter ends on the Sunday closest to December 31.  For ease of presentation, our second fiscal quarter end is deemed to be December 31.  For further information, refer to the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2003 on file with the Securities and Exchange Commission.

Certain prior period amounts have been reclassified to conform to the current year presentation.

Note 2 – Accounting for Stock-Based Compensation

The Company accounts for employee stock-based compensation using the intrinsic value method.  In most cases, the Company does not recognize compensation expense for its employee stock option grants, as they have been granted at the fair market value of the underlying Common Stock at the grant date.  Similarly, the Company has not recognized compensation expense for purchase rights under its qualified Employee Stock Purchase Plan, or ESPP, as the Plan is considered non-compensatory.  Had compensation expense for the Company’s employee stock-based compensation awards been determined based on the fair value at the grant date for awards through December 31, 2003 consistent with the provisions of SFAS No. 123, its after-tax net income and after-tax net income per share would have been reduced to the pro forma amounts indicated below (in thousands, except net income per share):

	Three Months Ended December 31,						Six Months Ended December 31,
	2003			2002			2003			2002
	(unaudited)						(unaudited)
Net income, as reported	$	3,453		$	1,524		$	5,676		$	967
Deduct: Stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects	(1,319		)	(1,056		)	(2,769		)	(2,005		)
Pro forma net income (loss)	$	2,134		$	468		$	2,907		$	(1,038	)
Earnings (loss) per share:
Basic - as reported	$	0.26		$	0.14		$	0.43		$	0.09
Basic - pro forma	$	0.16		$	0.04		$	0.22		$	(0.09	)
Diluted - as reported	$	0.24		$	0.13		$	0.40		$	0.08
Diluted - pro forma	$	0.15		$	0.04		$	0.20		$	(0.09	)

6

Note 3 — Inventories

Inventories consist of the following (in thousands):

	December 31, 2003		June 30, 2003
	(unaudited)
Raw materials	$	7,612	$	8,029
Work-in-process	2,339		2,244
Finished goods	8,878		8,989
	$	18,829	$	19,262

Note 4 — Earnings Per Share

Basic earnings per share (“EPS”) is computed based on the weighted-average number of shares of common stock outstanding during the period.  Diluted EPS is computed based on the weighted average number of shares of common stock outstanding during the period increased by the weighted average number of common stock equivalents outstanding during the period, using the treasury stock method.  Anti-dilutive common stock equivalents excluded from the computation of diluted earnings per share amounted to 291,750 and 625,300 at December 31, 2003 and 2002, respectively.

A reconciliation of the calculation of basic and diluted EPS is as follows (in thousands, except per share data):

	Three Months Ended December 31,				Six Months Ended December 31,
	2003		2002		2003		2002
	(unaudited)				(unaudited)
Net income	$	3,453	$	1,524	$	5,676	$	967
BASIC EPS:
Weighted average number of common shares outstanding	13,309		11,049		13,141		11,037
Basic earnings per share	$	0.26	$	0.14	$	0.43	$	0.09
DILUTED EPS:
Weighted average number of common shares outstanding	13,309		11,049		13,141		11,037
Common stock equivalents from the issuance of options using the treasury stock method	1,156		891		1,215		847
	14,465		11,940		14,356		11,884
Diluted earnings per share	$	0.24	$	0.13	$	0.40	$	0.08

7

Note 5 – Comprehensive Income

Comprehensive income includes, in addition to net income, foreign currency translation effects which are charged or credited to accumulated other comprehensive income within shareholders’ equity.

Comprehensive income for the three and six months ended December 31, 2003 and 2002 was as follows (in thousands):

	Three Months Ended December 31,					Six Months Ended December 31,
	2003			2002		2003			2002
	(unaudited)					(unaudited)
Net income	$	3,453		$	1,524	$	5,676		$	967
Foreign currency translation effect	(30		)	17		(26		)	25
Comprehensive income	$	3,423		$	1,541	$	5,650		$	992

Note 6 — Bank Borrowings and Debt Arrangements

At December 31, 2003, the Company had a credit facility consisting of a $10,000,000 revolving line of credit for working capital purposes that expires on November 30, 2004.  The line of credit is collateralized by the Company’s assets.  Interest on the line of credit is set at the bank’s prime rate (4.00% on December 31, 2003) in effect from time to time minus 0.25% or, at the Company’s option, a rate equal to LIBOR plus 2.25%.  The loan agreement that governs the credit facility contains certain financial and non-financial covenants.  At December 31, 2003, no amounts were outstanding under the line of credit.  During the three months ended December 31, 2003, the Company extinguished the outstanding term note balance of $3,724,000.

Note 7 – Legal Proceedings

The Company is subject to various legal proceedings and claims that arise in the ordinary course of business.  In the opinion of management, the amount of any ultimate liability with respect to these actions will not materially affect the Company’s consolidated financial statements or results of operations.

In January 2003, Raytheon Company filed a lawsuit against the Company and various other companies in the United States District Court for the Eastern District of Texas.  The complaint alleges that the Company’s products infringe United States Patent No. 5,412,791, entitled Mass Data Storage Library.  In the complaint, Raytheon demands that the defendants stop selling infringing products, pay Raytheon for their past use of the invention under the patent and pay Raytheon’s costs and expenses and its reasonable attorney fees.  In February 2003, Raytheon filed a First Amended Complaint stating its original claim with more particularity. The Company filed its answer to Raytheon’s First Amended Complaint in March 2003, denying all material allegations in the complaint and asserting counterclaims seeking to have Raytheon’s ‘791 patent declared invalid, unenforceable and not infringed by the Company.  In April 2003, Raytheon filed a Second Amended Complaint against the defendants containing the same substantive infringement allegations and also adding a ninth defendant.  In May 2003, the Company responded to Raytheon’s Second Amended Complaint with its Answer and Amended Counterclaims, again contesting infringement, invalidity and enforceability of the ‘791 patent.  The case is currently moving through the discovery process.  Raytheon was originally asserting sixteen claims of the ‘791 patent, but now has dropped all but four of the claims.  In January 2004, the Court held a hearing to construe the terms of the four remaining claims, and the parties are currently awaiting the Court’s claim construction ruling.  The case is presently set for trial in September 2004.

The Company has not recorded any accrual for contingent liability associated with the legal proceedings described above based on the Company’s belief that a liability, while possible, is not probable.  Further, any possible range of loss cannot be estimated at this time.

8

Note 8 — Accrued Restructuring Charges

During the fourth quarter of fiscal year 2001, the Company recorded a pretax charge of approximately $2.5 million, including $2.2 million in inventory and fixed asset impairments and $363,000 of restructuring charges, related to the sale of its Travan-based WS30 and EDT40 tape drive designs and related assets and its exit from the entry-level tape drive business including the closure of its Longmont, Colorado facility.

During fiscal year 2002, the Company increased the restructuring accrual for facility rent by $228,000 to reflect an adjustment in the estimated liability related to the closure of the Longmont facility, based upon the increased amount of time the Company believed would be required to sublease the facility, given the weakening real estate market in Longmont, Colorado.

Subsequent to the termination of the Travan based development project in May 2002, the Company temporarily used the Longmont facility for certain engineering operations primarily related to its software products.  During the third quarter of fiscal year 2003, the Company completed its relocation of all operations from the Longmont facility to its San Diego headquarters.  After the relocation the Company re-evaluated its accrual related to the Longmont facility lease.  While the Company continues to pursue sub-lease opportunities, based upon the current commercial real estate market in Longmont, it determined that it is unlikely that it will be able to sub-lease the property and recorded an additional charge of $156,000 as an operating expense within research and development to accrue all of the remaining payments due under the lease.  The accrued facility costs are expected to be paid over the remaining life of the lease, which expires in November 2005.

The following table summarizes the activity and balances of the accrued restructuring charges through December 31, 2003 (in thousands):

	Employee Related			Lease and Facility			Total
Restructuring charge	159			204			$	363
Cash payments	(31		)	—			(31		)
Accrued restructuring charges at June 30, 2001	128			204			332
Cash payments	(128		)	—			(128		)
Adjustments	—			228			228
Accrued restructuring charges at June 30, 2002	$	—		$	432		$	432
Cash payments	—			(72		)	(72		)
Adjustments	—			156			156
Accrued restructuring charges at June 30, 2003	$	—		$	516		$	516
Cash payments	—			(98		)	(98		)
Adjustments	—			—			—
Accrued restructuring charges at December 31, 2003	$	—		$	418		$	418

Note 9 — Guarantees

The Company’s standard warranty is a three year advance replacement return-to-factory warranty that covers both parts and labor.  For products that it distributes and for drives and tapes used in its products that are manufactured by a third party, the Company passes on to the customer the warranty provided by the manufacturer.  The Company also provides on-site service for the first warranty year of its higher-end products, for which it contracts with third-party service providers.

9

The Company provides for the estimated cost of product warranties at the time revenue is recognized.  The Company’s product warranty liability reflects its best estimate of probable liability under its product warranties.  The Company estimates the warranty based on expected product failure rates, historical experience, and other currently available information.

The Company also sells extended on-site warranties for certain products for which revenue is deferred and recognized over the warranty period.

Changes in the liability for product warranty and deferred revenue associated with extended warranties for the six months ended December 31, 2003 were as follows (in thousands):

	Product Warranty			Deferred Revenue
Balance at June 30, 2003	$	2,129		$	1,458
Settlements made during the period	(1,185		)	(970		)
Change in liability for warranties issued during the period	1,781			1,646
Change in liability for preexisting warranties	(138		)	(131		)
Balance at December 31, 2003	$	2,587		$	2,003

Under the Company’s sales agreements with certain customers, subject to certain exceptions and limitations, the Company has agreed to indemnify its customers for damages and costs, including attorneys fees, resulting from infringement by its products of third-party intellectual property rights.  In certain circumstances, the Company may have an obligation to defend its customer against claims of such infringement by third parties.  Subject to expiration or termination of third party intellectual property rights and to statutes of limitation that bar third party claims, the terms of the Company’s indemnifications are generally perpetual from the effective date of the agreement.  Based on historical experience, the Company does not believe any significant payments will result, accordingly, no amounts have been accrued for its indemnification.  However, there can be no assurances that the Company will not have any future financial exposure under these indemnifications.

Note 10 – Intangible Assets

At December 31, 2003 the Company had intangible assets of $8,084,000 consisting solely of the technology purchased in the Okapi acquisition during fiscal year 2003.  During the three months ended December 31, 2003, $449,000 was amortized.  The Okapi technology is being amortized over five years.

Estimated amortization expense for this intangible asset will be approximately $1,800,000 for the fiscal year 2004 and each of the four fiscal years thereafter.

10

Item 2. – Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The discussion in this section contains certain statements of a forward-looking nature relating to future events or our future performance.  Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not the only means of identifying forward-looking statements.  Such statements are only predictions and actual events or results may differ materially.  In evaluating such statements, you should specifically consider various factors identified in this Report, including the matters set forth under the caption “Risk Factors,” which could cause actual results to vary from those indicated by such forward-looking statements.

Overview

We design, develop, manufacture, market and support data storage management solutions used by businesses for backup, archival and data interchange functions in high-availability network computing environments.

Our primary products are automated tape libraries, powerloaders and loaders which combine electro-mechanical robotics, electronic hardware and firmware developed by us with an emphasis on efficiency of design, functionality and reliability.  We also distribute products manufactured by other original equipment manufacturers (“OEMs”) and market various other products including spare parts and tape media.

We also license an internally developed and patented tape encoding technology under the name Variable Rate Randomizer or “VR(2)” that is used by tape drive manufacturers to increase the capacity and performance of their products.

Additionally, we license and sell a software product under the name “Overland Storage Resource Manager.”  To date, sales generated from the Overland Storage Resource Manager have not been material.

In June 2003, we acquired Okapi Software, Inc., a privately-owned company based in San Diego, California.  Through this acquisition, we entered the emerging market of intelligent, disk-based appliances based on iSCSI and Serial ATA disk technologies.  The Okapi backup accelerator product complements our existing family of tape automation products.  In August 2003, we announced the availability of three new Overland-branded disk-based products based on the Okapi technology.

Formerly known as Overland Data, Inc., we changed our name on June 28, 2002 to Overland Storage, Inc. to reflect our expanded commitment to both hardware and software storage solutions.

Risk Factors

Our business is highly dependent on our level of sales to one major customer.

Hewlett Packard, including the former Compaq which HP acquired in May 2002, has been our largest customer accounting for approximately 58% of net revenue in fiscal year 2003, 62% of net revenues in fiscal year 2002 and 63% of net revenues in fiscal year 2001.  Sales to HP accounted for approximately 60% of our net revenues for the quarter ended December 31, 2003.  No other customer accounted for more than 10% of net revenues during the quarter ended December 31, 2003.

Our sales to HP may be affected adversely by various factors relating to HP’s business, liquidity, results of operation and financial position.  We expect that HP will continue to represent a significant portion of our revenues in future periods.  Consequently, our business, liquidity, results of operation and financial position would be materially and adversely affected by the loss of the HP account or the reduction, delay or cancellation of HP orders.  Neither HP nor any other customer is obligated to purchase a specific amount of our products or provide binding forecasts of purchases for any period.

11

The market price of our common stock may be very volatile.

The market price of our common stock has experienced significant fluctuations since it commenced trading in February 1997.  The market price of our common stock may continue to fluctuate significantly in the future.  Many factors could cause the market price of our common stock to fluctuate, including:

•announcements concerning us or our competitors;

•changes in earnings estimates by analysts;

•purchasing decisions of HP and other significant customers;

•quarterly variations in operating results;

•the introduction of new technologies or products;

•changes in product pricing policies by us or our competitors; and

•     changes in general economic conditions.

In addition, stock markets have experienced extreme price and volume volatility in recent years.  This volatility has had a substantial effect on the market prices of securities of many smaller public companies for reasons frequently unrelated or disproportionate to the operating performance of the specific companies.  These market fluctuations may adversely affect the market price of our common stock.

Our financial results may fluctuate substantially for many reasons, and past results should not be relied on as indications of future performance.

All of the markets that we serve are volatile and subject to market shifts, which we may not be able to discern in advance. A slowdown in the demand for workstations, mid-range computer systems, networks and servers could have a significant adverse effect on the demand for our products in any given period.  We have experienced delays in receipt of purchase orders and, on occasion, anticipated purchase orders have been rescheduled or have not materialized due to changes in customer requirements.  Our customers may cancel or delay purchase orders for a variety of reasons, including the rescheduling of new product introductions, changes in their inventory practices or forecasted demand, general economic conditions affecting our customers’ markets, changes in our pricing or the pricing of our competitors, new product announcements by us or others, quality or reliability problems related to our products or selection of competitive products as alternate sources of supply.  In particular, our ability to forecast sales to distributors, integrators and value-added resellers is especially limited as these customers typically provide to us relatively short order lead times or are permitted to change orders on short notice.  Given that a large portion of our sales are generated by our European channel, our first fiscal quarter (July through September) is commonly impacted by seasonally slow European orders, reflecting the summer holiday period in Europe.

In addition, our financial results have fluctuated and will continue to fluctuate quarterly and annually based on many other factors such as:

•changes in customer mix (e.g., OEM vs. branded);

•the level of utilization of our production capacity;

•changes in product mix;

•fluctuations in average selling prices;

•manufacturing yields;

•increases in production and engineering costs associated with initial production of new products;

•changes in the cost of or limitations on availability of materials; and

12

•     labor shortages.

Based on all of the foregoing, we believe that our revenues and operating results will continue to fluctuate, and period-to-period comparisons are not necessarily meaningful and should not be relied on as indications of future performance.  Furthermore, in some future quarters, our revenues and operating results could be below the expectations of public market analysts or investors, which could result in a material adverse effect on the price of our common stock.  In addition, portions of our expenses are fixed and difficult to reduce if revenues do not meet our expectations.  These fixed expenses magnify the material adverse effect of any revenue shortfall.

We face intense competition and price pressure, and many of our competitors have substantially greater resources than we do.

The worldwide storage market is intensely competitive as a number of manufacturers of tape automation solutions and storage management software products compete for a limited number of customers.  In addition, barriers to entry are relatively low in these markets.  We currently participate in the mid-range of the tape backup market.  In this segment, some of our competitors have substantially greater financial and other resources, larger research and development staffs, and more experience and capabilities in manufacturing, marketing and distributing products.  Our hardware products currently compete with products made by Advanced Digital Information Corporation, Quantum Corporation and Storage Technology Corporation.  Our disk-based and software products currently compete with products made by International Business Machines Corporation, HP, Computer Associates International, Inc., EMC Corporation, Veritas Software Corporation, Quantum Corporation, Network Appliance, Inc. and numerous small startups.  The markets for our products are characterized by significant price competition, and we anticipate that our products will face increasing price pressure.  This pressure could result in significant price erosion, reduced profit margins and loss of market share, which could have a material adverse effect on our business, liquidity, results of operation and financial position.

Our business is highly dependent on the continued availability and market acceptance of the tape technologies incorporated in our products.

We derive a majority of our revenue from products that incorporate tape drives purchased from other manufacturers and based on unique formats and tape technologies.  Certain of these tape drives are only available from a single manufacturer, and we expect to continue to derive a substantial amount of our revenue from products incorporating these tape drives for the foreseeable future.  In particular, a portion of our products incorporate DLTtape drives manufactured by Quantum Corporation.  Quantum also is one of our competitors because Quantum markets its own tape automation products.  We do not have a long-term contract with Quantum, which could cease supplying tape drives directly to us.  Although Quantum has licensed Tandberg Data to be a second source manufacturer of DLTtape drives, we have not qualified Tandberg as an alternative supplier.

In addition, from time to time in the past, we have not obtained as many drives as we have needed from various vendors due to drive shortages or quality issues.  Any prolonged inability to obtain adequate deliveries could require us to pay more for components, parts and other supplies, seek alternative sources of supply, delay shipment of products and damage relationships with current and prospective customers.  This type of delay or damage could have a material adverse effect on our business, liquidity, results of operation and financial position.  In the past, we have experienced problems with the supply of newly-introduced tape drives and these problems adversely affected our sales and earnings.  We cannot assure you that these or similar problems will not reoccur, or that we will not experience similar or more serious disruptions in supply in the future with current or new versions of tape drives.

Our future operating results depend on the continued availability and market acceptance of the current tape technologies that we use.  If tape drives incorporating other technologies gain comparable or superior market acceptance than those currently incorporated in our products, then we might have to modify the design of our tape automation products to incorporate these tape drives.  Our inability to do so or to obtain sufficient quantities of these tape drives could have a material adverse effect on our business, liquidity, results of operation and financial position.

13

Our tape-based storage solutions compete with other storage technologies, such as hard disk drives, and may face competition in the future from other emerging technologies.  The prices of hard disk drives continue to decrease while capacity and performance have increased.  If hard disk drives or products incorporating other technologies gain comparable or superior market acceptance to tape drive technology, or their costs decline far more rapidly than tape drive and media costs, we would face increased competition from these alternative technologies.  If we are not able to respond to such competition through increased performance and lower prices for our products, or the introduction of competitive new products incorporating new technologies, our business, financial condition and operating results could be materially and adversely affected.

Our success depends on our ability to anticipate rapid technological changes and develop new and enhanced products.

As an advanced technology company, we are subject to numerous risks and uncertainties, generally characterized by rapid technological change and intense competition.  In this environment, our future success will depend on our ability to anticipate changes in technology, to develop new and enhanced products on a timely and cost-effective basis and to introduce, manufacture and achieve market acceptance of these new and enhanced products.  Development schedules for high technology products are inherently subject to uncertainty.  We may not meet our product development schedules, including those for products based on our VR(2) technology or storage management software products, and development costs could exceed budgeted amounts.  In addition, there can be no assurance that our licensees, in the case of our VR(2) technology, or our licensors, in the case of our software products, will meet their product development schedules.  Our business, liquidity, results of operation and financial position may be materially and adversely affected if the products or product enhancements that we develop are delayed or not delivered due to developmental problems, quality issues or component shortage problems, or if our products or product enhancements do not achieve market acceptance or are unreliable.  The introduction, whether by us or our competitors, of new products embodying new technologies, such as new sequential or random access mass storage devices, and the emergence of new industry standards could render existing products obsolete or not marketable, which may have a material adverse effect on our business, liquidity, results of operation and financial position.

We rely on outside suppliers to provide a large number of components and subassemblies incorporated in our products.

Our products have a large number of components and subassemblies produced by outside suppliers.  Accordingly, we depend greatly on these suppliers for tape drives, printed circuit boards and integrated circuits, which are essential to the manufacture of our products.  In addition, for certain of these items, we qualify only a single source, which can magnify the risk of shortages and decrease our ability to negotiate with our suppliers on the basis of price.  If these shortages occur, or if we experience quality problems with suppliers, then our product shipments could be significantly delayed or costs significantly increased, which would have a material adverse effect on our business, liquidity, results of operation and financial position.

Our international operations are important to our business and involve unique risks.

Historically, sales to customers outside of the U.S. have represented a significant portion of our sales and we expect them to continue representing a significant portion of sales.  Sales to customers outside the U.S. are subject to various risks, including:

•     the imposition of governmental controls mandating compliance with various foreign and U.S. export laws;

•     currency exchange fluctuations;

•     political and economic instability;

•     trade restrictions;

•     changes in tariffs and taxes;

14

•     longer payment cycles (typically associated with international sales); and

•     difficulties in staffing and managing international operations.

Furthermore, we cannot assure that we will be able to comply with changes in foreign standards in the future, even though we endeavor to meet standards established by foreign regulatory bodies.  Our inability to design products that comply with foreign standards could have a material adverse effect on our business, liquidity, results of operation and financial position.  Currently, nearly all of our international sales are denominated in U.S. dollars and fluctuations in the value of foreign currencies relative to the U.S. dollar could, therefore, make our products less price competitive.  Additionally, the expenses of our international subsidiaries are denominated in their local currencies.  We currently do not engage in foreign currency hedging transactions, and are therefore exposed to some level of currency risk.

Our ability to compete effectively depends in part on our ability to protect effectively our intellectual property rights.

We rely on a combination of patent, copyright, trademark, trade secret and other intellectual property laws to protect our intellectual property rights.  These rights, however, may not prevent competitors from developing products that are substantially equivalent or superior to our products.  To the extent we have or obtain patents, such patents may not afford meaningful protection for our technology and products.  Others may challenge our patents and, as a result, our patents could be narrowed, invalidated or unenforceable.  In addition, current or future patent applications may not result in the issuance of patents in the United States or foreign countries.  The laws of certain foreign countries may not protect our intellectual property to the same extent as U.S. laws.  Furthermore, competitors may independently develop similar products, duplicate our products or, if patents are issued to us, design around these patents.

In order to protect or enforce our patent rights, we may initiate interference proceedings, oppositions, or patent litigation against third parties, such as infringement suits.  These lawsuits could be expensive, take significant time and divert management’s attention from other business concerns.  The patent position of information technology firms generally is highly uncertain, involves complex legal and factual questions, and has recently been the subject of much litigation.  No consistent policy has emerged from the U.S. Patent and Trademark Office or the courts regarding the breadth of claims allowed or the degree of protection afforded under information technology patents.

Raytheon Company has sued us for patent infringement.   This litigation subjects us to significant liabilities, costs and expenses.

In January 2003, Raytheon Company filed a lawsuit against us and various other companies in the United States District Court for the Eastern District of Texas.  The complaint alleges that certain of our products infringe United States Patent No. 5,412,791, entitled Mass Data Storage Library.  In the complaint, Raytheon demands that the defendants stop selling infringing products, pay Raytheon for their past use of the invention under the patent and pay Raytheon’s costs and expenses and its reasonable attorney fees.  We continue to sell the products alleged by Raytheon to be infringing.  An adverse outcome in the Raytheon litigation (or similar proceedings) could:

•     subject us to significant liabilities;

•     require us to license disputed rights from Raytheon or others; or

•     require us to cease marketing or using some products.

Any of these events could have a material adverse effect on our business, liquidity, results of operation and financial position.  In addition, even if we do not experience an adverse outcome in the Raytheon litigation, or similar proceedings, the legal fees and other costs and expenses associated with litigation have been and may continue to be substantial and may adversely impact our business, liquidity, results of operation and financial position.

15

Our success will depend partly on our ability to operate without infringing on or misappropriating the proprietary rights of others.

In addition to the Raytheon litigation discussed above, we may be sued for infringing on the patent rights or misappropriating the proprietary rights of others.  Intellectual property litigation is costly, and, even if we prevail, the cost of such litigation could adversely affect our business, financial condition and results of operations.  In addition, litigation is time consuming and could divert management attention and resources away from our business.  If we do not prevail in any litigation, we could be required to stop the infringing activity and/or pay substantial damages.  Under some circumstances in the United States, these damages could be triple the actual damages the patent holder incurs.  If we have supplied infringing products to third parties for marketing or licensed third parties to manufacture, use or market infringing products, we may be obligated to indemnify these third parties for any damages they may be required to pay to the patent holder and for any losses the third parties may sustain themselves as the result of lost sales or damages paid to the patent holder.

If a third party holding rights under a patent successfully asserts an infringement claim with respect to any of our products, we may be prevented from manufacturing or marketing our infringing product in the country or countries covered by the patent we infringe, unless we can obtain a license from the patent holder.  Any required license may not be available to us on acceptable terms, or at all.  Some licenses may be non-exclusive, and therefore, our competitors may have access to the same technology licensed to us.  If we fail to obtain a required license or are unable to design around a patent, we may be unable to market some of our products, which could have a material adverse effect on our business, financial condition and results of operations.

Our new software and disk-based products involve many significant risks.

In June 2002, we announced the launch of our first software product, the Overland Storage Resource Manager and in August 2003 we began shipping our REO Series of disk-based products based on technology acquired from Okapi Software, Inc.  To date, our sales generated from these products have not been material.

The success of these new products is uncertain and subject to significant risks, any of which could have a material adverse effect on our business, liquidity, results of operation and financial position.  We must commit significant resources to these new products before determining whether they will result in any success.  In addition, our disk-based business is highly dependent upon the general industry acceptance and adoption of the new iSCSI standard.  If these new products are not adopted by customers or do not achieve anticipated sales levels, any related intangible assets we have recorded may be impaired.  Such impairment would result in a charge against earnings in the period for which impairment is determined to exist, and reduce our assets and shareholders’ equity

We have not been involved previously in the development, marketing and sale of software or disk-based products, and these areas are new to many of our personnel.  We will need to continuously update and periodically upgrade these products to stay competitive.  Any delay in the commercial release of new or enhanced software or disk-based products could result in a significant loss of potential revenues and may adversely impact the market price of our common stock.

The software industry is highly competitive.  Some of our competitors may have an advantage due to their relationships with their customers and other third parties and their significantly greater financial, technical, marketing and other resources.  Our competitors also may have the ability to respond more quickly than we can to new or emerging technologies and changes in customer requirements.  This competition could seriously impede our ability to sell software products on terms favorable to us.  In addition, our current and potential competitors may develop and market new software products that render our existing or future products obsolete, unmarketable or less competitive.  Our current and potential competitors may make strategic acquisitions or establish cooperative relationships among themselves or with other competitors, thereby increasing the availability of their services to address the needs of our current and prospective customers.  We may not be able to compete successfully against our current and future competitors, and competitive pressures that we encounter may seriously harm our business.

16

We license the majority of our software code from another company and depend on that software developer for the timely delivery of competitive, defect-free software that forms the basis for our software products.  In April 2003, EMC Corporation, one of our software competitors, acquired our software licensor.  As a result of this acquisition, our software licensor has available substantially greater financial and other resources, including an enhanced capability to develop and market similar and competitive software offerings.  Although EMC Corporation announced that it intends to continue our software license relationship, our commercial arrangement may not develop successfully and EMC Corporation could compete more directly with us.

If our software or disk-based products do not achieve market acceptance or success, then the association of our brand name with these products may adversely affect our reputation and our sales of other products, as well as dilute the value of our brand name.

Our warranty reserves may not adequately cover our warranty obligations.

We have established reserves for the estimated liability associated with our product warranties.  However, we could experience unforeseen circumstances where these or future reserves may not adequately cover our warranty obligations.  For example, the failure or inadequate performance of product components that we purchase could increase our warranty obligations beyond these reserves.

Our credit facility is collateralized by a general security interest in our assets. If we were to default, then the lender would have the right to foreclose on our assets.

At December 31, 2003, our credit facility consisted of a $10.0 million revolving line of credit for working capital purposes which expires on November 30, 2004. At December 31, 2003, no amounts were outstanding under the line of credit which is collateralized by a general security interest in our assets.  If we were to borrow funds under the line of credit and subsequently default under the terms and conditions of the credit facility, the lender would have the right to accelerate any indebtedness outstanding and foreclose on our assets in order to satisfy our indebtedness.  Such a foreclosure could have a material adverse effect on our business, liquidity, results of operation and financial position.

Our credit facility requires that we comply with several financial and non-financial covenants.  If we fail to comply with these covenants, then we will be in default of the credit facility.

The loan agreement that governs our credit facility requires us to comply with several financial and non-financial covenants.  Our ability to comply with these covenants may be affected by events beyond our control, including prevailing economic, financial and industry conditions.  A violation of one or more of these covenants would constitute a default under the credit facility, which would enable the lender, at its option without notice, to accelerate all then-outstanding indebtedness under the credit facility and/or terminate the lender’s obligation to extend credit under the credit facility, either of which could materially and adversely impact our business, liquidity, results of operation and financial position.

Our success depends on our ability to attract, retain and motivate our executives and other key personnel.

Our future success depends in large part on our ability to attract, retain and motivate our executives and other key personnel, many of whom have been instrumental in developing new technologies and setting strategic plans.  Our growth also depends in large part on our continuing ability to hire, motivate and retain highly qualified management, technical, sales and marketing team members. Competition for qualified personnel is intense and there can be no assurance that we will retain existing personnel or attract additional qualified personnel in the future.

Future mergers and acquisitions may increase the risks associated with our business.

In the future, we may pursue mergers and acquisitions of complementary businesses, products or technologies as we seek to expand and increase the value-added component of our product offerings.  Mergers and acquisitions involve numerous risks, including liabilities that we may assume from the acquired company, difficulties in the assimilation of the operations and personnel of the acquired business, the diversion of management’s attention from other business concerns, risks of entering

17

markets in which we have no direct prior experience, and the potential loss of key employees of the acquired business.

Future mergers and acquisitions by us also may result in dilutive issuances of our equity securities and the incurrence of additional debt and amortization expenses related to intangible assets.  Any of these factors could adversely affect our business, liquidity, results of operation and financial position.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of consolidated financial statements requires that we make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent liabilities. On an on-going basis, we evaluate our estimates, including those related to revenue recognition, bad debts, inventories, income taxes, warranty obligations and contingencies. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe the following accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Revenue Recognition

Revenue on direct product sales (excluding sales to commercial distributors and certain OEM customers) is recognized upon shipment of products to our customers. These customers are not entitled to any specific right of return or price protection, except for any defective product that may be returned under our warranty policy.  Title and risk of loss transfer to the customer when the product leaves our dock. Product sales to commercial distribution customers are subject to certain rights of return, stock rotation privileges and price protection.  Because we are unable to estimate our exposure for returned product or price adjustments, revenue from shipments to these customers is not recognized until the related products are in turn sold to the ultimate customer by the commercial distributor. At December 31, 2003, $968,000 of product had been shipped to our commercial distributors, but not yet shipped to their ultimate customers. As part of our existing agreements with certain OEM customers, we ship products to various distribution hubs around the world and retain ownership of that inventory until it is pulled by these OEM customers to fulfill their customer orders, at which time, generally the same business day, we record the sale.

We have entered into various licensing agreements relating to our VR(2) technology. These agreements typically call for royalty fees based on sales by licensees of products containing VR(2). Royalties on sales by licensees of products containing VR(2) are recorded when earned, generally in the period during which the licensee ships the products containing VR(2) technology. In certain instances, the customer has elected to purchase the ASIC chips from us embodying VR(2), which are priced to include the cost of the chip plus an embedded royalty fee. In these instances, revenues on ASIC chip sales are recorded as product revenue when earned, which is upon the shipment of the underlying ASIC chip incorporating the VR(2) technology to the customer.

In some cases, these licensing agreements include initial payments to us for the delivery of the VR(2) technology platform, consulting services or both. We recognize revenues related to the transfer of the technology platform upon delivery and acceptance by the customer, which entitles us to the initial fee and eliminates any further obligations under the agreement.  We recognize revenue related to consulting services as earned, typically based on time committed to the project.

We recognize software revenues in accordance with the American Institute of Certified Public Accountants’ (AICPA) Statement of Position 97-2, “Software Revenue Recognition” (SOP 97-2), as amended by SOP 98-9, “Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions” (SOP 98-9). We license software under noncancelable perpetual agreements.

18

License revenues are recognized in the period in which the license agreement is in place, the fee is fixed and determinable, delivery of the technology has occurred and collectibility is probable.  Sales through our resellers are evidenced by a master agreement governing the relationship together with binding purchase orders placed electronically on our business-to-business ordering system.  We considered the license to be delivered, and the license revenue is recognized, when the reseller is issued a license key in the name of a specifically identified end user.

For software arrangements that include multiple elements, SOP 97-2 requires that we allocate the fee to the individual elements based on vendor-specific objective evidence of fair value (VSOE), regardless of the prices stated within the contract.  VSOE is limited to the price charged when the element is sold separately or, for an element that is not yet sold separately, the price established by management having the relevant authority.  When there is VSOE for the undelivered elements in multiple-element arrangements that are not accounted for using contract accounting, we allocate revenue to the delivered elements of the arrangement using the residual value method.  Therefore, we defer revenues from the arrangement fee equal to the fair value of the undelivered elements and the difference between the total arrangement fee and the amount deferred for the undelivered elements is recognized as revenue related to the delivered elements. The fair value of maintenance and postcontract customer support obligations are based upon separate sales of renewals to other customers or upon renewal rates quoted in the contracts.

When VSOE does not exist to allocate revenue to each of the various elements of an arrangement we cannot allocate revenue using the residual value method, we defer the entire fee from the arrangement until the earlier of the establishment of VSOE or the delivery of all the elements of the arrangement.

Allowance for Doubtful Accounts

We prepare our estimate of allowance for doubtful accounts based on identification of the collectibility of specific accounts and the overall condition of the receivable portfolio. When evaluating the adequacy of the allowance for doubtful accounts, we analyze specific trade and other receivables, historical bad debts, customer credits, customer concentrations, customer credit-worthiness, current economic trends and changes in customers’ payment terms and/or patterns. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make additional payments, then we may need to make additional allowances. Likewise, if we determine that we could realize more of our receivables in the future than previously estimated, we would adjust the allowance to increase income in the period we made this determination. We review the allowance for doubtful accounts on a quarterly basis and record adjustments as deemed necessary.

Inventory Valuation

We record inventories at the lower of cost or market value.  We assess the value of our inventories periodically based upon numerous factors including expected product or material demand, current market conditions, technological obsolescence, current cost and net realizable value. If necessary, we adjust our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of the inventory and the estimated market value. Likewise, we record an adverse purchase commitment liability when anticipated market sales prices are lower than committed costs. If actual market conditions are less favorable than what we projected, then we may need to record additional inventory adjustments and adverse purchase commitments.

Income Taxes

We estimate our tax liability based on current tax laws in the statutory jurisdictions in which we operate. These estimates include judgments about deferred tax assets and liabilities resulting from temporary differences between assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes, as well as about the realization of deferred tax assets. If we cannot realize certain deferred tax assets or if the tax laws change unfavorably, we could experience potential significant losses in excess of provisions established. Likewise, if we can realize additional deferred tax assets or if tax laws change favorably, we could experience potential significant gains.

19

Warranty Obligations

We generally provide a three year advance replacement return-to-factory warranty on our NEO Series, PowerLoader, and LoaderXpress products.  We also provide on-site service for the first warranty year of the NEO Series products located in the United States and Canada, for which we contract with third-party service providers.  For most products, we offer a program called XchangeNOW as part of our return-to-factory warranty which enables customers to receive an advance replacement unit shipped within two business days after placing a service request.  The customer ships the defective unit back to us using the shipping materials from the replacement unit.  Separately priced on-site warranties are offered for sale to customers of other product lines.

We provide for the estimated cost of product warranties at the time revenue is recognized. While we engage in extensive product quality programs and processes, including actively monitoring and evaluating the quality of our component suppliers, our warranty obligation is affected by product failure rates and material usage or service delivery costs incurred in correcting a product failure. If actual product failure rates, material usage or service delivery costs differ from our estimates, then we would need to revise the estimated warranty liability.

Impairment of Assets

We also consider potential impairment of both tangible and intangible assets when circumstances indicate that the carrying amount of an asset may not be recoverable. In such circumstances, we may incur material charges relating to the impairment of such asset.  We would measure any required impairment loss as the amount by which the asset’s carrying value exceeds its fair value and we would record it as a reduction in the carrying value of the related assets and charge it to results of operations.

20

Results Of Operations

The following table sets forth items in our statement of operations as a percentage of net revenues for the periods presented.  The data has been derived from our unaudited condensed consolidated financial statements.

	Three Months Ended December 31,				Six Months Ended December 31,
	2003		2002		2003		2002
Net revenues	100.0	%	100.0	%	100.0	%	100.0	%
Cost of revenues	73.9		72.9		73.3		73.3
Gross profit	26.1		27.1		26.7		26.7
Operating expenses:
Sales and marketing	11.1		13.8		12.4		15.3
Research and development	2.9		3.6		3.0		4.1
General and administrative	4.4		4.9		4.5		5.5
Total operating expenses	18.4		22.3		19.9		24.9
Income from operations	7.7		4.8		6.8		1.8
Other income:
Interest income, net	0.2		0.1		0.2		0.1
Other income (expense), net	—		(0.1	)	—		(0.1	)
Income before income taxes	7.9		4.8		7.0		1.8
Provision for income taxes	2.8		1.7		2.4		0.6
Net income	5.1	%	3.1	%	4.6	%	1.2	%

For the three months ended December 31, 2003 and 2002

Net Revenues. Net revenues of $67.8 million in the second quarter of fiscal year 2004 were $19.1 million or 39% above net revenues of $48.6 million in the second quarter of fiscal year 2003. Revenues from our OEM customers as a group during the second quarter of fiscal year 2004 increased by $13.9 million or 44% when compared to the second quarter of fiscal year 2003.  This revenue increase was driven largely by a depressed quarter in the prior year as a result of transitional issues within our largest OEM customer. In addition, the increase in OEM revenue also reflects the growth of IBM as a NEO customer, a relationship which began midway through the second quarter of fiscal year 2003. Sales to HP accounted for 60% of net revenues in the second quarter of fiscal year 2004, compared to 59% in the second quarter of fiscal year 2003.

Net revenues from Overland branded products during the second quarter of fiscal year 2004 grew 34% over the second quarter of fiscal year 2003 from $15.9 million to $21.3 million.  This increase reflects our increased focus on the Overland branded channel over the past year including the addition of two private label customers in Asia and an increase in U.S. Government sector activity.

We also launched our new REO Series disk-based products, derived from the technology acquired in the acquisition of Okapi Software, Inc., during the first quarter of fiscal year 2004.  While the amount of revenue generated from REO sales continues to be relatively insignificant, unit shipments during the second quarter continued to exceed our initial expectations.

VR(2) revenues during the second quarter of fiscal year 2004 amounted to $1.0 million and were comprised of royalties of $574,000 and chip sales of $454,000. VR(2) revenues during the second quarter of fiscal

21

year 2003 amounted to $1.2 million and were comprised of royalties of $545,000, chip sales of $410,000 and engineering service fees of $250,000.

A summary of the sales mix by product for the periods presented in the statement of operations follows:

	Three Months Ended December 31,				Six Months Ended December 31,
	2003		2002		2003		2002
Library products:
Neo series	67.8	%	65.5	%	66.5	%	63.4	%
Loaders	9.6		14.1		10.1		15.7
LibraryPro	0.9		2.5		1.1		3.5
	78.3		82.1		77.7		82.6
Other:
Spare parts, controllers, other	20.2		15.4		21.0		15.1
VR(2) royalties and services	1.5		2.5		1.3		2.3
	100.0	%	100.0	%	100.0	%	100.0	%

Gross Profit.Gross profit amounted to $17.7 million in the second quarter of fiscal year 2004, an increase of $4.5 million or 34% from $13.2 million in the second quarter of fiscal year 2003, resulting primarily from the increased sales volumes.  The gross margin percentage decreased to 26.1% in the second quarter of fiscal year 2004 from 27.1% in the second quarter of fiscal year 2003.  The decrease in gross margin percentage was due primarily to $449,000 of amortization expense related to the $9.0 million purchased intangible asset from the Okapi acquisition in June of 2003 and the unfavorable channel mix of lower margin OEM revenues versus the higher margin Overland branded revenues.  The asset acquired from Okapi is being amortized to cost of revenues over five years, the estimated useful life of the acquired products.

Sales and Marketing Expense. Sales and marketing expense amounted to $7.5 million, representing 11.1% of net revenues in the second quarter of fiscal year 2004, compared to $6.7 million or 13.8% of net revenues in the second quarter of fiscal year 2003.  Increased expenditures were due primarily to salary and related expenses associated with the expansion of our Overland branded sales and customer support, incremental expenses associated with the acquisition of the Okapi sales and marketing function, acquired in June of 2003, and expenses associated with the launch of our new REO Series disk-based and NEO 8000 library products.

Research and Development Expense. Research and development expense amounted to $2.0 million, representing 2.9% of net revenues in the second quarter of fiscal year 2004, compared to $1.7 million or 3.6% of net revenues in the second quarter of fiscal year 2003.  Increases from the addition of the Okapi research and development team and expenses associated with the development and beta phase of our high-end of the mid-range data library were partially offset by the restructure of our advanced research group.  Most of the personnel from this group were reassigned elsewhere within the company.

General and Administrative Expense. General and administrative expense amounted to $3.0 million, representing 4.4% of net revenues in the second quarter of fiscal year 2004, compared to $2.4 million or 4.9% of net revenues in the second quarter of fiscal year 2003.  This increase was due primarily to legal fees related to the Raytheon patent infringement lawsuit.  Also contributing to this increase were higher consulting fees associated to Sarbanes-Oxley compliance and employee related costs as a result of the reassignment of personnel from our advanced research group and the addition of information systems personnel.

Interest Income, net. During the second quarter of fiscal year 2004, we generated net interest income of $113,000 compared to $26,000 during the same period of the prior fiscal year.  This increase was due to

22

higher average cash balances combined with lower average amounts of outstanding debt as a result of an early repayment of the entire balance of our term loan.

Income Taxes. Our effective tax rate in the second quarter of fiscal year 2004 was 35.0%, based on the estimated effective tax rate for the entire fiscal year 2004, compared to 34.5% in the second quarter of fiscal year 2003.  The effective tax rate for the entire fiscal year 2003 was 34.4%.

For the six months ended December 31, 2003 and 2002

Net Revenues. Net revenues of $124.3 million in the first six months of fiscal year 2004 were $41.1 million or 49% above net revenues of $83.2 million in the first six months of fiscal year 2003. Revenues from our OEM customers as a group during the first six months of fiscal year 2004 increased by $31.5 million or 62% when compared to the first six months of fiscal year 2003.  This revenue increase was driven largely by a depressed period in the prior year as a result of transitional issues within our largest OEM customer. In addition, this increase also reflects shipments of NEO Series products to IBM, a relationship which began midway through the second quarter of fiscal year 2003, for the full period in fiscal year 2004. Sales to HP accounted for 60.0% of net revenues in the first six months of fiscal year 2004, compared to 56.8% in the first six months of fiscal year 2003.

Net revenues from Overland branded products during the first six months of fiscal year 2004 grew 32% over the first six months of fiscal year 2003 from $30.5 million to $40.4 million.  This increase reflects our increased focus on the Overland branded channel over the past year including the addition of two private label customers in Asia and an increase in U.S. Government sector activity.

VR(2) revenues during the first six months of fiscal year 2004 amounted to $1.7 million and were comprised of royalties of $1.0 million and chip sales of $659,000. VR(2) revenues during the first six months of fiscal year 2003 amounted to $1.9 million and were comprised of royalties of $841,000, engineering service fees of $500,000 and chip sales of $518,000.

Gross Profit.Gross profit amounted to $33.2 million in the first six months of fiscal year 2004, an increase of $11.0 million or 50% from $22.2 million in the first six months of fiscal year 2003, resulting primarily from the increased sales volumes.  The gross margin percentage remained flat at 26.7% in the first six months of fiscal year 2004 when compared to the same period of fiscal year 2003.  Within gross margin as a percentage of revenue, a favorable effect on gross margin was experienced due to a combination of increased revenue volumes spread across relatively fixed manufacturing overhead costs compared to the prior year, primarily during the first quarter of fiscal year 2003 when these fixed manufacturing costs were artificially high as a percentage of revenue due to the depressed revenue during the HP/Compaq merger transition; lower material costs achieved through cost reduction efforts as our NEO Series products mature; and lower shrinkage/scrap charges.  Offsetting these favorable effects on the gross margin percentage was an unfavorable channel mix of lower margin OEM revenues versus the higher margin Overland branded revenues and $899,000 of amortization expense related to the $9.0 million purchased intangible asset from the Okapi acquisition in June of 2003.

Sales and Marketing Expense. Sales and marketing expense amounted to $15.4 million, representing 12.4% of net revenues in the first six months of fiscal year 2004, compared to $12.8 million or 15.3% of net revenues in the first six months of fiscal year 2003.  Increased expenditures were due primarily to salary and related expenses associated with the expansion of our Overland branded sales force, incremental expenses associated with the acquisition of the Okapi sales and marketing function, acquired in June of 2003, and expenses associated with the launch of our new REO Series disk-based and NEO 8000 library products including our inaugural world-wide partner conference.

Research and Development Expense. Research and development expense amounted to $3.8 million, representing 3.0% of net revenues in the first six months of fiscal year 2004, compared to $3.4 million or 4.1% of net revenues in the first six months of fiscal year 2003.  Increases from the addition of the Okapi research and development team and expenses associated with the development and beta phase of our recently announced high-end of the mid-range data library were partially offset by the restructure of our advanced research group.  Most of the personnel from this group were reassigned elsewhere within the company.

23

General and Administrative Expense. General and administrative expense amounted to $5.6 million, representing 4.5% of net revenues in the first six months of fiscal year 2004, compared to $4.5 million or 5.5% of net revenues in the first six months of fiscal year 2003.  This increase was primarily due to legal fees related to the Raytheon patent infringement lawsuit.  Also contributing to this increase were higher consulting fees associated to Sarbanes-Oxley compliance and employee related costs as a result of the reassignment of personnel from our advanced research group and the addition of information systems personnel.

Interest Income, net. During the first six months of fiscal year 2004, we generated net interest income of $209,000 compared to $94,000 during the same period of the prior fiscal year.  This increase was due to higher average cash balances combined with lower average amounts of outstanding debt as a result of an early repayment of the entire balance of our term loan.

Income Taxes. Our effective tax rate in the first six months of fiscal year 2004 was 35.0%, based on the estimated effective tax rate for the entire fiscal year 2004, compared to 34.5% in the first six months of fiscal year 2003.  The effective tax rate for the entire fiscal year 2003 was 34.4%.

Liquidity and Capital Resources.  Our primary source of liquidity has historically been cash generated from operations.  In the fourth quarter of fiscal year 2003, we raised an aggregate of $20.6 million in net proceeds through the sale of our common stock in a private placement.  In addition, during fiscal year 2002, we supplemented cash generated from operations by borrowing on a term loan under our credit facility which was subsequently completely repaid in the second quarter of fiscal year 2004.  During the first six months of fiscal year 2004, our cash and cash equivalents increased by $4.0 million as operating cash inflows of $4.6 million and inflows from financing activities of $387,000 exceeded capital expenditures of $966,000. Operating cash inflows during the first six months of fiscal year 2004 resulted primarily from net income for the period, an increase in accounts payable, accrued compensation, and decreased inventory levels, partially offset by an increase in accounts receivable.  The increase in accounts receivable, accounts payable and the decreased inventory levels were driven largely by the increased sales volume during the period. Capital expenditures during the first six months of fiscal year 2004 were comprised primarily of computer and related equipment. Financing cash inflows during the first six months of fiscal year 2004 included a $4.3 million inflow related to stock option exercises and the sale of stock under the employee stock purchase plan.  This inflow was nearly offset by $3.9 million in principal payments to completely satisfy our long-term debt obligation.

In fiscal year 2001, we entered into a lease for our headquarters in San Diego, California. The headquarters comprise two buildings, representing approximately 160,000 total square feet. The buildings were completed in March 2002 at which time we occupied the buildings and the lease commenced. The lease is for a period of 12 years and can be renewed for one additional five-year period.

At December 31, 2003, we had a credit facility consisting of a $10.0 million revolving line of credit for working capital purposes that expires on November 30, 2004.  The line of credit is collateralized by a general security interest in our assets.  Interest on the line of credit is set at the bank’s prime rate (4.00% on December 31, 2003) in effect from time to time minus 0.25% or, at our option, a rate equal to LIBOR plus 2.25%.  At December 31, 2003, no amounts were outstanding under the line of credit.

In addition, the credit facility requires us to comply with several financial and non-financial covenants. A violation of one or more of these covenants would constitute a default under the credit facility, which would enable the lender, at its option without notice, to accelerate all then outstanding indebtedness under the credit facility and/or terminate the lender’s obligation to extend credit under the credit facility.

At December 31, 2003, we had $59.0 million of cash and cash equivalents and the unused bank line of credit of $10.0 million. We believe that these resources will be sufficient to fund our operations and to provide for our growth for the next twelve months and into the foreseeable future.

24

Off-Balance Sheet Arrangements and Contractual Obligations.  We have no off-balance sheet arrangements or significant guarantees to third parties not fully recorded in our Balance Sheets or fully disclosed in our Notes to Consolidated Financial Statements.

The following schedule summarizes our contractual obligations to make future payments as of December 31, 2003: (in thousands)

	Payments Due by Period
Contractual Obligations	Total		Less than 1 year		1-3 years		3-5 years		After 5 years
Operating Leases	$	35,613	$	3,305	$	6,459	$	6,511	$	19,338
Total Contractual Cash Obligations	$	35,613	$	3,305	$	6,459	$	6,511	$	19,338

Item 3.  —  Quantitative and Qualitative Disclosures About Market Risk

Market risk represents the risk of loss that may impact our financial position, results of operations or cash flows due to adverse changes in financial and commodity market prices and rates.  We are exposed to market risk in the areas of changes in United States interest rates and changes in foreign currency exchange rates as measured against the United States dollar.  These exposures are directly related to our normal operating and funding activities. Historically, we have not used derivative instruments or engaged in hedging activities.

Interest Rate Risk.Our financial instruments with market risk exposure are cash equivalents, short-term investments and, to the extent utilized, revolving line of credit.  At December 31, 2003 no amounts were outstanding under the line of credit.  The primary objective of our investment activities is to preserve principal while maximizing yields without significantly increasing risk.  To achieve this objective, we currently maintain a portfolio of high-grade commercial paper and money market funds.

Interest on the line of credit is set at the bank’s prime rate from time to time minus 0.25% or, at our option, a rate equal to LIBOR plus 2.25%.  Our objective in maintaining access to these variable rate borrowings is the flexibility obtained regarding early repayment without penalties and lower overall cost as compared with fixed rate borrowings.

Under our current policies, we do not use interest rate derivative instruments to manage our exposure to interest rate changes.  A hypothetical 100 basis point adverse move in interest rates along the entire interest rate yield curve would result in no material change in our pre-tax earnings and cash flow.

Foreign Currency Risk.We conduct business on a global basis and essentially all of our products sold in international markets are denominated in U.S. dollars.  Historically, export sales have represented a significant portion of our sales and are expected to continue to represent a significant portion of sales.

Our wholly-owned subsidiaries in the United Kingdom, France and Germany incur costs that are denominated in local currencies.  As exchange rates vary, these results when translated may vary from expectations and adversely affect overall results.  The effect of exchange rate fluctuations on foreign currency transactions during the second quarter of 2004 was not material.

25

Item 4. — Controls and Procedures

We maintain disclosure controls and procedures designed to ensure that material information related to Overland, including our consolidated subsidiaries, is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms.

(a)As of the end of the period covered by this report, we carried out an evaluation under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded, as of the date of such evaluation, that the design and operation of such disclosure controls and procedures were effective.

(b)No significant changes were made in our internal controls over financial reporting (as defined in rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal quarter.

26

PART II  —  OTHER INFORMATION

Item 1.  —  Legal Proceedings

In January 2003, Raytheon Company filed a lawsuit against us and various other companies in the United States District Court for the Eastern District of Texas.  The complaint alleges that our products infringe United States Patent No. 5,412,791, entitled Mass Data Storage Library.  In the complaint, Raytheon demands that the defendants stop selling infringing products, pay Raytheon for their past use of the invention under the patent and pay Raytheon’s costs and expenses and its reasonable attorney fees.  In February 2003, Raytheon filed a First Amended Complaint stating its original claim with more particularity. We filed an Answer and Counterclaims to Raytheon’s First Amended Complaint in March 2003, denying all material allegations in the complaint and asserting counterclaims seeking to have Raytheon’s ‘791 patent declared invalid, unenforceable and not infringed by us.  In April 2003, Raytheon filed a Second Amended Complaint against the defendants containing the same substantive infringement allegations and also adding a ninth defendant.  In May 2003, we responded to Raytheon’s Second Amended Complaint with an Answer and Amended Counterclaims, again contesting infringement, invalidity and enforceability of the ‘791 patent.  The case is currently moving through the discovery process.  Raytheon was originally asserting sixteen claims of the ‘791 patent, but now has dropped all but four of the claims.  In January 2004, the Court held a hearing to construe the terms of the four remaining claims, and the parties are currently awaiting the Court’s claim construction ruling.  The case is presently set for trial in September 2004.

In addition to the foregoing matter, we are from time to time involved in various lawsuits and legal proceedings which arise in the ordinary course of business.  We are currently not aware of any such legal proceedings or claims which we believe will have, individually or in the aggregate, a material adverse affect on our business, financial condition or operating results.  However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.

27

Item 4.  —  Submission of Matters to a Vote of Security Holders

On November 17, 2003 the Company held its Annual Meeting of Shareholders in San Diego, California.  At the meeting, the shareholders approved management’s slate of directors and three additional proposals with the following vote distribution:

Item	Affirmative	Negative	Withheld	Non-vote
Election of Board Members
Christopher Calisi	11,188,652		50,819
Robert A. Degan	11,094,242		145,229
Scott McClendon	11,174,886		64,585
John Mutch	11,093,942		145,529
Peter Preuss	11,073,182		166,289
John A. Shane	11,077,753		161,718
Other Matters
Approve an amendment to the 1996 Employee Stock Purchase Plan to increase the number of shares available for issuance by 100,000	8,069,029	449,778	36,262	2,684,402
Approve the 2003 Equity Incentive Plan	6,952,932	1,563,819	38,318	2,684,402
Reappoint PricewaterhouseCoopers LLP as independent auditors for fiscal year 2004	10,967,881	260,385	11,205

28

Item 6.  —  Exhibits and Reports on Form 8-K

(a)	Exhibits
	10.1	Second Modification to Business Loan Agreement and Addendum A dated September 10, 2003 by and between Overland and Comerica Bank-California.
	10.2	Loan Revision/Extension Agreement dated September 10, 2003 by and between Overland and Comerica Bank-California.
	10.3	Second Amendment to VR(2) Technology License Agreement dated November 7, 2003 by and between Overland and Storage Technology Corp. +
	10.4*	Amended and Restated 1996 Employee Stock Purchase Plan (Exhibit 10.2 to the quarterly report on Form 10-Q for the quarter ended September 30, 2003 is incorporated by reference herein).
	10.5*	2003 Equity Incentive Plan (Exhibit 99.2 to the Registration Statement on Form S-8 for Overland, filed with the SEC on December 17, 2003 is incorporated by reference herein).
	10.6*	Form of Stock Option Agreement for Options Granted to Senior Officers Under the 2003 Equity Incentive Plan.
	10.7*	Form of Stock Option Agreement for Options Granted to Outside Directors Under the 2003 Equity Incentive Plan.
	10.8*	Form of Standard Stock Option Agreement for Options Granted Under the 2003 Equity Incentive Plan.
	10.9	Product Purchase Agreement No. 1585-042103 dated July 31, 2003 between Overland and Hewlett-Packard Company. +
	10.10	Base Agreement #4902RL1317 dated November 1, 2002 between Overland and International Business Machines Corporation. +
	31.1	Certification of Christopher Calisi, President and Chief Executive Officer, pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2	Certification of Vernon A. LoForti, Vice President and Chief Financial Officer, pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxely Act of 2002, executed by Christopher Calisi, President and Chief Executive Officer, and Vernon A. LoForti, Vice President and Chief Financial Officer.
	+	We have requested confidential treatment for certain portions of this Exhibit.
	*	Management contract or compensation plan or arrangement.
(b)	Reports on Form 8-K.
		On October 22, 2003, we furnished a current report on Form 8-K under Item 12 containing the October 22, 2003 press release related to our announcement of first quarter fiscal 2004 results.

29

SIGNATURE

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	OVERLAND STORAGE, INC.
Date:  February 10, 2003	By:	/s/	Vernon A. LoForti
			Vernon A. LoForti
			Vice President, Chief Financial Officer and Secretary

30

EX-10.1

EXHIBIT 10.1

SECOND MODIFICATION TO BUSINESS LOAN AGREEMENT

AND ADDENDUM A

This SecondModification to Business Loan Agreement and Addendum A (this “Modification”) is entered into by and between OVERLAND STORAGE, INC. (“Borrower”) and COMERICA BANK-CALIFORNIA (“Bank”) as of this 10th day of September 2003, at San Jose, California.

RECITALS

This Modification is entered into upon the basis of the following facts and understandings of the parties, which facts and understandings are acknowledged by the parties to be true and accurate:

Bank and Borrower previously entered into a Business Loan Agreement and Addendum A dated November 28, 2001, which was subsequently amended pursuant tothat certain Modification agreement dated August 13, 2002.  The Business Loan Agreement and each modification shall collectively be referred to herein as the “Agreement.”

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as set forth below.

AGREEMENT

1.Incorporation by Reference. The Recitals and the documents referred to therein are incorporated herein by this reference.  Except as otherwise noted, the terms not defined herein shall have the meaning set forth in the Agreement.

2.Modification to the Agreement. Subject to the satisfaction of the conditions precedent as set forth in Section 3 hereof, the Agreement is hereby modified as set forth below.

A.Section 1 of Addendum A to Business Loan Agreement is hereby deleted in its entirety and replaced with the following:

1.Definitions Relating to Financial Covenants.

Cash Flow as used in this Agreement means for any applicable period of determination, the net income (as later defined) (after deduction for income taxes and other taxes of Borrower or its subsidiaries, determined by reference to income or profits of Borrower or its subsidiaries) for such period, plus, to the extent deducted in computation of such net income, the amount of depreciation and amortization expense and the amount of deferred tax liability during such period, all as determined in accordance with GAAP.

Cash Flow Coverage Ratio as used in this Agreement means, as of any applicable date of determination, Earnings Before Interest Taxes Amortization Depreciation and Amortization (EBITDA), minus unfunded capital expenditures, minus tax expense, divided by current portion of long term debt, plus interest expense calculated on an annualized basis.

Current Assets as used in this Agreement means, as of any applicable date of determination, all unrestricted cash, CD’s or marketable securities, non-affiliated accounts receivable, United States Government securities and/or claims against the United States Government, and inventories (held for sale in the ordinary course of business) of Borrower and its subsidiaries.

Current Liabilities as used in this Agreement means, as of any applicable date of determination,   (i) all liabilities of Borrower or its subsidiaries that should be classified as current in accordance with GAAP, including, without limitation, any portion of the principal of the Indebtedness under this Agreement, the Note and/or the Loan Documents classified as current, plus (ii) to the extent not otherwise included, all liabilities of Borrower to any of its affiliates (including officers, directors, shareholders, subsidiaries and commonly held companies), whether or not classified as current in accordance with GAAP unless same shall be the long term portion of Subordinated Debt (as defined below).

Current Ratio as used in this Agreement means, as of an applicable date of determination, Current Assets divided by Current Liabilities.

Debt shall mean, as of any applicable date of determination, all items of indebtedness, obligation or liability of a person, whether matured or unmatured, liquidated or unliquidated, direct or indirect, absolute or contingent, joint or several, that should be classified as liabilities in accordance with GAAP excepting such liabilities as shall be Subordinated Debt (as defined below).

Net Income shall mean the net income (or loss) of a person for any period determined in accordance with GAAP but, however, excluding:

1

(a)any gains or losses on the sale or other disposition, not in the ordinary course of business, of investments or fixed or capital assets, and any taxes on the excluded gains and any tax deductions or credits on account on any excluded losses; and

(b)in the case of the Borrower, net earnings of any person in which Borrower has an ownership interest, unless such net earnings shall have actually been received by Borrower in the form of cash distributions.

Quick Assets as used in this Agreement means, as of any applicable date of determination, unrestricted cash, CD’s or marketable securities and net accounts receivable arising from the sale of goods and services, and United States Government securities and/or claims against the United States Government of Borrower and its subsidiaries.

Quick Ratio as used in this Agreement means, as of an applicable date of determination, Quick Assets divided by Current Liabilities, excluding subordinated debt.

Tangible Effective Net Worth as used in this Agreement means Tangible Net Worth as of any applicable date of determination, increased by the long term portion of Subordinated Debt (as defined below), if any, of Borrower or its subsidiaries and decreased by the following:  Subscription lists, organization expenses, trade accounts receivable converted to notes, and money due to Borrower or its subsidiaries from affiliates (including officers, directors, subsidiaries and commonly held companies).

Tangible Net Worth as used in this Agreement means, as of any applicable date of determination, the excess of:

(a)the net book value of all assets of Borrower and its subsidiaries (other than patents, patent rights, trademarks, trade names, franchises, copyrights, licenses, goodwill, and similar intangible assets) after all appropriate deductions in accordance with GAAP (including, without limitation, reserves for doubtful receivables, obsolescence, depreciation and amortization), minus

(b)all Total Liabilities of Borrower and its subsidiaries and any amounts due from the Borrower’s stockholders, officers and affilates.

Total Liabilities as used in this Agreement means, as of any applicable date, the total of all items of indebtedness, obligation or liability which, in accordance with GAAP consistently applied, would be included in determining the total liabilities of Borrower or its subsidiaries, including, without limitation, (a) all obligations secured by any mortgage, pledge, security interest or other lien on property owned or acquired, whether or not the obligations secured thereby shall have been assumed; (b) all obligations which are capitalized lease obligations; and (c) all guaranties, endorsements or other contingent or surety obligations with respect to the indebtedness of others, whether or not reflected on the balance sheets of Borrower or its subsidiaries, including, without limitation, any obligation to furnish funds, directly or indirectly through the purchase of goods, supplies, services, or by way of stock purchase, capital contribution, advance or loan or any obligation to enter into a contract for any of the foregoing.

Total Liabilities to Tangible Effective Net Worth Ratio means, as of any applicable date, Total Liabilities divided by Tangible Effective Net Worth.

Subordinated Debt as used in this Agreement means indebtedness of Borrower to third parties which has been subordinated to all Indebtedness owing by Borrower to Bank pursuant to a subordination agreement in form and content satisfactory to Bank.

3.Legal Effect.  Except as specifically set forth in this Modification, all of the terms and conditions of the Agreement remain in full force and effect.  The effectiveness of this Modification is conditioned upon receipt by Bank of this Modification, and any other documents which Bank may require to carry out the terms hereof, including but not limited to the following:

4.Integration. This is an integrated Modification and supersedes all prior negotiations and agreements regarding the subject matter hereof.  All amendments hereto must be in writing and signed by the parties.

IN WITNESS WHEREOF, the parties have agreed as of the date first set forth above.

OVERLAND STORAGE, INC.	COMERICA BANK-CALIFORNIA
By:	By:
Title:		Richmond Boyce
		Vice President-Western DIvision

2

EX-10.2

EXHIBIT 10.2

[Comerica Logo]	BORROWER
	Overland Storage, Inc.	LOAN REVISION/EXTENSION AGREEMENT
Comerica Bank — California	4820 Overland Avenue San Diego, CA 92123-1599
(Herein called “Bank”)	(Herein called “Borrower”)

ORIGINAL NOTE INFORMATION	INTEREST RATE	AMOUNT	NOTE DATE	MATURITY DATE	OBLIGATOR #	NOTE #
	B-0.25 OR *%	$10,000,000.00	11/28/01	11/30/03	5820359795	26

This Agreement is effective as of: September 10, 2003

ORIGINAL OBLIGATION:

This Loan Revision Agreement refers to the loan evidenced by the above Note dated November 28, 2001 in favor of Bank executed by Overland Storage, Inc. in the amount of $10,000,000.00 payable in full on November 30, 2003.  {  } Said Note is secured by a Deed of Trust dated N/A (hereinafter referred to as the “Encumbrance”), recorded on N/A as Instrument No. N/A in the Office of County Recorder of N/A County California.

CURRENT OBLIGATION:

                The unpaid principal balance of said Note as of September 10, 2003 is $0.00 on which interest is paid to August 31, 2003, with a maturity of November 30, 2003. {X} As modified by previous Loan Modification dated August 30, 2002.

REVISION:

The undersigned Borrower hereby requests Bank to revise the terms of said Note, and said Bank to accept payment thereof at the time, or times, in the following manner:

The maturity date is hereby amended from November 30, 2003 to November 30, 2004.

*Libor  +2.25%

In consideration of Bank’s acceptance of the revision of said Note, including the time for payment thereof, all as set forth above, the Borrower does hereby acknowledge and admit to such indebtedness, and further does unconditionally agree to pay such indebtedness together with interest thereon within the time and in the manner as revised in accordance with the foregoing, together with any and all attorney’s fees, cost of collection, and any other sums secured by the Encumbrance.

Any and all security for said Note including but not limited to the Encumbrance, if any, may be enforced by Bank concurrently or Independently of each other and in such order as Bank may determine; and with reference to any such security in addition to the Encumbrance Bank may, without consent of or notice to Borrower, exchange, substitute or release such security without affecting the liability of the Borrower, and Bank may release any one or more parties hereto or to the above obligation or permit the liability of said party or parties to terminate without affecting the liability of any other party or parties liable thereon.

This Agreement is a revision only, and not a novation; and except as herein provided, all of the terms and conditions of said Note, said Encumbrance and all related documents shall remain unchanged and in full force and effect.

When one or more Borrowers signs this Agreement, all agree:

a. That where in this Agreement the word “Borrower” appears, it shall read “each Borrower”;

b. That breach of any covenant by any Borrower may at the Bank’s option be treated as breach by all Borrowers;

c. That the liability and obligations of each Borrower are joint and several.

Dated this 10^th day of September, 2003. Overland Storage, Inc.

The foregoing agreement is accepted this 10^th day of September, 2003.

By:
	Richmond C. Boyce
	Vice President-Western Division

Each of the undersigned agree and consent to the foregoing revisions to this Agreement and the Encumbrance, if any.

EX-10.3

EXHIBIT 10.3

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

SECOND AMENDMENT TO
VR² TECHNOLOGY LICENSE AGREEMENT

THIS SECOND AMENDMENT TO VR² TECHNOLOGY LICENSEAGREEMENT (this “Amendment”) is made and entered into as of this 7^th day of November, 2003 (the “Amendment Effective Date”), by and between Overland Storage, Inc., a California corporation, having a place of business at 4820 Overland Avenue, San Diego, CA  92123 (“Overland”), and Storage Technology Corp., a Delaware corporation, having a place of business at One Storage Tek Drive, Louisville, CO 80028(“StorageTek”).

RECITALS

A.            Overland and StorageTek are parties to that certain VR² Technology License Agreement, dated effective as of April 27, 2000 (the “Original Agreement”) and whereby, Overland granted a license to StorageTek with respect to the VR² Intellectual Property, VR² Intellectual Property Derivatives and know-how of the VR² Core (as each such capitalized term is defined in the Original Agreement) to develop, make, use, sell and offer for sale tape drive products incorporating application specific integrated circuits embodying such VR² Intellectual Property, VR² Intellectual Property Derivatives and know-how of the VR² Core all as set forth in the Original Agreement.  The Original Agreement was amended by mutual agreement of the parties by that certain Amendment to VR² Technology License Agreement, as of June 18, 2002 (the “First Amendment”).

B.            StorageTek and Overland have agreed to amend the Original Agreement in several respects and under the terms and conditions herein and specifically relating to changes in the royalty schedule to go into effect for VR² Compliant Products shipped on or after January 1, 2004.

NOW, THEREFORE, in consideration of the mutual promises, covenants and other terms and conditions contained herein and for other good and valuable consideration, the receipt of which is acknowledged by both parties, the parties agree as follows:

1.             Definitions.           For purposes of this Amendment, any capitalized terms used herein will have the meanings ascribed to such terms or, if no meaning is ascribed herein, such capitalized terms will have the meanings ascribed in the Original Agreement.

2.             Amendment to Section 4.3.   Section 4.3 of the Original Agreement, as amended by the First Amendment, is hereby deleted in its entirety and replaced with the following:

4.3          Royalty.  In consideration for the Core License, for each VR² Compliant Product sold by StorageTek as part of a tape drive, StorageTek shall pay to Overland a royalty amount for each Channel contained within such VR² Compliant Product [***] in accordance with the terms and conditions set forth in Exhibit B-1 [***].   StorageTek shall deliver such royalty payments to Overland not later than [***] days after the end of each Quarterduring the Term of this Agreement.

1

3.             No Other Changes.  Except as expressly provided in this Amendment, the Original Agreement remains un-amended and unmodified and in full force and effect.

4.             General. This Amendment 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.  This Amendment may be modified only by a subsequent written agreement signed by the parties.  If any provision of this Amendment is held to be unenforceable, the remaining provisions will continue unaffected.

5.             Governing Law.   This Amendment will be governed in all respects solely and exclusively by the laws of the State of California, U.S.A. without regard to conflict of law principles.

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their duly authorized representatives as of the Amendment Effective Date.

Overland Storage, Inc.:		Storage Technology Corp.:
By:	/s/ Vernon A. LoForti	By:	/s/ Chris Durkeee
	Vernon A. LoForti	Chris Durkeee
Vice President and Chief Financial Officer		Contracts Administrator Sr. Consultant

2

EXHIBIT B-1

[***]

[***]

(1) [***].

(2) [***].

3

EX-10.6

EXHIBIT 10.6

Overland Storage, Inc.

2003 Equity Incentive Plan

Notice of Stock Option Grant

(Senior Officer, Limited Transferability)

You have been granted the following option to purchase shares of the Common Stock of Overland Storage, Inc. (the “Company”):

Name of Optionee:
Total Number of Shares:
Type of Option:	Incentive Stock Option
	Nonstatutory Stock Option
Exercise Price Per Share:	$
Date of Grant:
Vesting Commencement Date:
Vesting Schedule:	This option becomes exercisable with respect to the first [           ]% of the Shares subject to this option when you complete [           ] months of continuous “Service” (as defined in the Plan) from the Vesting Commencement Date.  Thereafter, this option becomes exercisable with respect to an additional [           ]% of the Shares subject to this option when you complete each month of Service.
Expiration Date:	[                         ][        ], 20[    ], or if such date falls on a day when Company headquarters are not open for business, at the close of business at Company headquarters on the last business day before such date.  This option expires earlier if your Service terminates earlier, as described in the Stock Option Agreement.

You and the Company agree that this option is granted under and governed by the terms and conditions of the 2003 Equity Incentive Plan (the “Plan”) and the Stock Option Agreement, both of which are attached to and made a part of this document.

You further agree that the Company may deliver by email all documents relating to the Plan or this option (including, without limitation, prospectuses required by the Securities and Exchange Commission) and all other documents that the Company is required to deliver to its security holders (including, without limitation, annual reports and proxy statements).  You also agree that

the Company may deliver these documents by posting them on a web site maintained by the Company or by a third party under contract with the Company.  If the Company posts these documents on a web site, it will notify you by email.

Optionee:	Overland Storage, Inc.
	By:
	Title:

2

Overland Storage, Inc.

2003 Equity Incentive Plan

Stock Option Agreement

Tax Treatment	This option is intended to be an incentive stock option under section 422 of the Internal Revenue Code or a nonstatutory stock option, as provided in the Notice of Stock Option Grant.
Vesting	This option becomes exercisable in installments, as shown in the Notice of Stock Option Grant.  In addition, this option becomes exercisable in full if either of the following events occurs:
	•Your Service terminates because of total and permanent disability, or death, or
	•The Company is subject to a “Change in Control” (as defined in the Plan) before your Service terminates.
	This option will in no event become exercisable for additional shares after your Service has terminated for any reason.
Term	This option expires in any event at the close of business at Company headquarters on the 10th anniversary of the Date of Grant, as shown in the Notice of Stock Option Grant, or if such anniversary date would fall on a day when Company headquarters are not open for business, at the close of business at Company headquarters on the last business day before such anniversary date.  (It will expire earlier if your Service terminates, as described below.)
Regular Termination	If your Service terminates for any reason except death or total and permanent disability, then this option will expire at the close of business at Company headquarters on the date three months after your termination date, or if such expiration date would fall on a day when Company headquarters are not open for business, at the close of business at Company headquarters on the last business day before such expiration date.  The Company determines when your Service terminates for this purpose.

3

Death	If you die before your Service terminates, then this option will expire at the close of business at Company headquarters on the date 12 months after the date of death, or if such expiration date would fall on a day when Company headquarters are not open for business, at the close of business at Company headquarters on the last business day before such expiration date.
Disability	If your Service terminates because of your total and permanent disability, then this option will expire at the close of business at Company headquarters on the date 12 months after your termination date, or if such expiration date would fall on a day when Company headquarters are not open for business, at the close of business at Company headquarters on the last business day before such expiration date.
	For all purposes under this Agreement, “total and permanent disability” means that you are unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted, or can be expected to last, for a continuous period of not less than one year.
Leaves of Absence and Part-Time Work	For purposes of this option, your Service does not terminate when you go on a military leave, a sick leave or another bona fide leave of absence, if the leave was approved by the Company in writing and if continued crediting of Service is required by the terms of the leave or by applicable law. But your Service terminates when the approved leave ends, unless you immediately return to active work. If this option is designated as an Incentive Stock Option, and if such leave exceeds ninety (90) days, and reemployment upon expiration of such leave is not guaranteed by statute or contract, then this option shall be treated as a Non-Qualified Stock Option on the day three (3) months and one (1) day following the expiration of such ninety (90) day period.

4

	If you go on a leave of absence, then the vesting schedule specified in the Notice of Stock Option Grant may be adjusted in accordance with the Company’s leave of absence policy or the terms of your leave.  If you commence working on a part-time basis, then the vesting schedule specified in the Notice of Stock Option Grant may be adjusted in accordance with the Company’s part-time work policy or the terms of an agreement between you and the Company pertaining to your part-time schedule.
Restrictions on Exercise	The Company will not permit anyone to exercise this option if the issuance of shares at that time would violate any “Applicable Law” (as defined in the Plan).
Notice of Exercise	When you wish to exercise this option, you may select one of the following:
	•If you have established an account with E*Trade OptionsLink (www.optionslink.com, (800) 838-0908), or such other or substitute employee stock option plan administrative service as the Company may elect to engage (such stock option administrative service being the “Plan Agency”), you may elect to exercise this option by utilizing the procedures established by the Plan Agency for exercise of this option. Such procedures may include provisions for execution of an electronic or a written notice stating the number of shares to be purchased pursuant to this option and accompanied by delivery of an executed exercise agreement as implemented by the Plan Agency, and payment made in accordance with this Agreement and the Plan for the full purchase price of the shares to be purchased.  The “Committee” (as defined in the Plan) may from time to time establish further limitations and rules or procedures for exercise through the Plan Agency.  The Company may also discontinue use of the Plan Agency at any time, in which case you will be required to use the exercise procedure described below.
	•Notify the Company by filing the proper “Exercise Notice” form at the address given on the form.  Your notice must specify how many shares you wish to purchase.  Your notice must also specify how your shares should be registered.

5

	Exercise through the Plan Agency will be effective in accordance with the policies and procedures of the Plan Agency.  An “Exercise Notice” filed with the Company will be effective when the Company receives it together with payment made in accordance with this Agreement and the Plan for the full purchase price of the shares to be purchased.
	If another person wants to exercise this option after it has been transferred to him or her (a “Transferee”), that person must prove to the Company’s satisfaction that he or she is entitled to exercise this option, and must then select one of the exercise alternatives specified above; provided that exercise by a Transferee may not be available through the Plan Agency, and if it is available, such exercise may require additional procedures or documentation established by the Company or the Plan Agency.
Form of Payment	When you exercise your option, you must pay the option exercise price for the shares that you are purchasing.  Payment may be made in one or a combination of the following forms:
	•Your personal check, a cashier’s check or a money order.
	•Irrevocable directions to a securities broker (such as the Plan Agency) approved by the Company to sell all or part of your option shares and to deliver to the Company from the sale proceeds an amount sufficient to pay the option exercise price and any withholding taxes.  (The balance of the sale proceeds, if any, will be delivered to you.) This procedure will be permitted only if you utilize the services of the Plan Agency, or another securities broker pre-approved by the Company in its sole discretion.  You will not be permitted to use this procedure if you are an “Officer” or “Director” (each as defined in the Plan) and this procedure would be deemed an extension of credit or the arranging of an extension of credit in the form of a personal loan by the Company.

6

Withholding Taxes and Stock Withholding	You will not be allowed to exercise this option unless you make arrangements acceptable to the Company to pay any withholding taxes that may be due as a result of the option exercise.  With the Company’s consent, these arrangements may include withholding shares of Company stock that otherwise would be issued to you when you exercise this option.  The value of these shares, determined as of the effective date of the option exercise, will be applied to the withholding taxes.
Restrictions on Resale	You agree not to sell any option shares at a time when Applicable Law, Company policies or an agreement between the Company and its underwriters prohibit a sale.  This restriction will apply as long as your Service continues and for such period of time after the termination of your Service as the Company may specify.
Transfer of Option	In general, only you may exercise this option prior to your death.  You may not transfer or assign this option,  unless one of the provisions below applies. For instance, you may not sell this option or use it as security for a loan.  If you attempt to do any of these things, this option will immediately become invalid.  You may, however, dispose of this option in your will or in a beneficiary designation.
	If this option is designated as a nonstatutory stock option in the Notice of Stock Option Grant, then the Committee may, in its sole discretion, allow you to transfer this option as a gift to one or more family members.  For purposes of this Agreement, “family member” means a child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law (including adoptive relationships), any individual sharing your household (other than a tenant or employee), a trust in which one or more of these individuals have more than 50% of the beneficial interest, a foundation in which you or one or more of these persons control the management of assets, and any entity in which you or one or more of these persons own more than 50% of the voting interest.
	If this option is designated as an incentive stock option, the Committee may, in its sole discretion, allow you to transfer this option to a trust, where under Section 671 of the Code and other Applicable Law you are considered the sole beneficial owner of this option while it is held in trust.

7

	Regardless of any marital property settlement agreement, the Company is not obligated to honor a notice of exercise from your former spouse, nor is the Company obligated to recognize your former spouse’s interest in your option in any other way, except pursuant to a Domestic Relations Order.
	The Committee will allow you to transfer this option only if both you and the transferee(s) execute the forms prescribed by the Committee, which include the consent of the transferee(s) to be bound by this Agreement.
Retention Rights	Your option or this Agreement does not give you the right to be retained by the Company or a subsidiary of the Company in any capacity.  The Company and its subsidiaries reserve the right to terminate your Service at any time, with or without cause.
Shareholder Rights	You (or your estate, heirs or transferee) have no rights as a shareholder of the Company until you (or your estate, heirs or transferee) have exercised this option by giving the required notice to the Company and paying the exercise price.  No adjustments are made for dividends or other rights if the applicable record date occurs before this option is exercised, except as described in the Plan.
Adjustments	In the event of a stock split, a stock dividend or a similar change in Company stock, the number of shares covered by this option and the exercise price per share may be adjusted pursuant to the Plan.
Governing Law	This Agreement will be interpreted and enforced under the laws of the State of California (without regard to its choice-of-law provisions).
The Plan and Other Agreements	The text of the Plan is incorporated in this Agreement by reference.
	This Agreement and the Plan constitute the entire understanding between you and the Company regarding this option.  Any prior agreements, commitments or negotiations concerning this option are superseded.  This Agreement may be amended only by another written agreement between the parties.

By signing your Notice of Stock Option Grant form which precedes this Agreement, you agree to all of the terms and conditions described above and in the Plan.

8

EX-10.7

EXHIBIT 10.7

OVERLAND STORAGE, INC.
2003 EQUITY INCENTIVE PLAN

NOTICE OF STOCK OPTION GRANT
(OUTSIDE DIRECTOR, LIMITED TRANSFERABILITY)

You have been granted the following option to purchase shares of the Common Stock of Overland Storage, Inc. (the “Company”):

Name of Optionee:
Total Number of Shares:
Type of Option:	Nonstatutory Stock Option
Exercise Price Per Share:	$
Date of Grant:
Vesting Commencement Date:
Vesting Schedule:	This option becomes exercisable with respect to 1,500 shares subject to this option when you complete one month of continuous “Service” (as defined in the Plan) from the Vesting Commencement Date.  Thereafter, this option becomes exercisable with respect to an additional 1,500 Shares subject to this option when you complete each additional month of Service.  If this option was granted pursuant to Section 7.2 or 7.3 of the Plan, this option will be fully exercisable upon the first annual meeting of the Company’s shareholders following the Date of Grant if Service has been continuous from the Date of Grant to such meeting date.
Expiration Date:	[                ][      ], 20[   ], or if such anniversary date would fall on a day when Company headquarters are not open for business, at the close of business at Company headquarters on the last business day before such anniversary date.  This option expires earlier if your Service terminates earlier, as described in the Stock Option Agreement.

You and the Company agree that this option is granted under and governed by the terms and conditions of the 2003 Equity Incentive Plan (the “Plan”) and the Stock Option Agreement, both of which are attached to and made a part of this document.

You further agree that the Company may deliver by email all documents relating to the Plan or this option (including, without limitation, prospectuses required by the Securities and Exchange Commission) and all other documents that the Company is required to deliver to its security holders (including, without limitation, annual reports and proxy statements).  You also agree that

the Company may deliver these documents by posting them on a web site maintained by the Company or by a third party under contract with the Company.  If the Company posts these documents on a web site, it will notify you by email.

Optionee:	Overland Storage, Inc.
	By:
	Title:

2

OVERLAND STORAGE, INC.
2003 EQUITY INCENTIVE PLAN

STOCK OPTION AGREEMENT

Tax Treatment	This option is intended to be a nonstatutory stock option.
Vesting	This option becomes exercisable in installments, as shown in the Notice of Stock Option Grant.  In addition, this option becomes exercisable in full if either of the following events occurs:
	•Your Service terminates because of total and permanent disability, or death, or
	•The Company is subject to a “Change in Control” (as defined in the Plan) before your Service terminates.
	This option will in no event become exercisable for additional shares after your Service has terminated for any reason.
Regular Termination	If your Service terminates for any reason except death or total and permanent disability, then this option will expire at the close of business at Company headquarters on the date three months after your termination date, or if such expiration date would fall on a day when Company headquarters are not open for business, at the close of business at Company headquarters on the last business day before such expiration date.  The Company determines when your Service terminates for this purpose.
Death	If you die before your Service terminates, then this option will expire at the close of business at Company headquarters on the date 12 months after the date of death, or if such expiration date would fall on a day when Company headquarters are not open for business, at the close of business at Company headquarters on the last business day before such expiration date.
Disability	If your Service terminates because of your total and permanent disability, then this option will expire at the close of business at Company headquarters on the date 12 months after your termination date, or if such expiration date would fall on a day when Company headquarters are not open for business, at the close of business at Company headquarters on the last business day before such expiration date.

3

	For all purposes under this Agreement, “total and permanent disability” means that you are unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted, or can be expected to last, for a continuous period of not less than one year.
Restrictions on Exercise	The Company will not permit you to exercise this option if the issuance of shares at that time would violate any “Applicable Law” (as defined in the Plan).
Notice of Exercise	When you wish to exercise this option, you may select one of the following:
	•           If you have established an account with E*Trade OptionsLink (www.optionslink.com, (800) 838-0908), or such other or substitute employee stock option plan administrative service as the Company may elect to engage (such stock option administrative service being the “Plan Agency”), you may elect to exercise this option by utilizing the procedures established by the Plan Agency for exercise of this option. Such procedures may include provisions for execution of an electronic or a written notice stating the number of shares to be purchased pursuant to this option and accompanied by delivery of an executed exercise agreement as implemented by the Plan Agency, and payment made in accordance with this Agreement and the Plan for the full purchase price of the shares to be purchased.  The Committee may from time to time establish further limitations and rules or procedures for exercise through the Plan Agency.  The Company may also discontinue use of the Plan Agency at any time, in which case you will be required to use the exercise procedure described below.
	•           Notify the Company by filing the proper “Exercise Notice” form at the address given on the form.  Your notice must specify how many shares you wish to purchase.  Your notice must also specify how your shares should be registered.
	Exercise through the Plan Agency will be effective in accordance with the policies and procedures of the Plan Agency.  An “Exercise Notice” filed with the Company will be effective when the Company receives it together with payment made in accordance with this Agreement and the Plan for the full purchase price of

4

	the shares to be purchased.
	If another person wants to exercise this option after it has been transferred to him or her (a “Transferee”), that person must prove to the Company’s satisfaction that he or she is entitled to exercise this option, and must then select one of the exercise alternatives specified above; provided that exercise by a Transferee may not be available through the Plan Agency, and if it is available, such exercise may require additional procedures or documentation established by the Company or the Plan Agency.
Form of Payment	When you exercise your option, you must pay the option exercise price for the shares that you are purchasing.  Payment may be made in one (or a combination of two or more) of the following forms:
	•Your personal check, a cashier’s check or a money order.
	•Irrevocable directions to a securities broker (such as the Plan Agency) approved by the Company to sell all or part of your option shares and to deliver to the Company from the sale proceeds an amount sufficient to pay the option exercise price and any withholding taxes.  (The balance of the sale proceeds, if any, will be delivered to you.) This procedure will be permitted only if you utilize the services of the Plan Agency, or another securities broker pre-approved by the Company in its sole discretion.  You will not be permitted to use this procedure if you are an “Officer” or “Director” (each as defined in the Plan) and this procedure would be deemed an extension of credit or the arranging of an extension of credit in the form of a personal loan by the Company.
Withholding Taxes and Stock Withholding	You will not be allowed to exercise this option unless you make arrangements acceptable to the Company to pay any withholding taxes that may be due as a result of the option exercise.  With the Company’s consent, these arrangements may include withholding shares of Company stock that otherwise would be issued to you when you exercise this option.  The value of these shares, determined as of the effective date of the option exercise, will be applied to the withholding taxes.
Restrictions on Resale	You agree not to sell any option shares at a time when Applicable Law, Company policies or an agreement

5

	between the Company and its underwriters prohibit a sale.  This restriction will apply as long as your Service continues and for such period of time after the termination of your Service as the Company may specify.
Transfer of Option	In general, only you may exercise this option prior to your death.  You may not transfer or assign this option,  unless one of the provisions below applies. For instance, you may not sell this option or use it as security for a loan.  If you attempt to do any of these things, this option will immediately become invalid.  You may, however, dispose of this option in your will or in a beneficiary designation.
	The Committee may, in its sole discretion, allow you to transfer this option as a gift to one or more family members.  For purposes of this Agreement, “family member” means a child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law (including adoptive relationships), any individual sharing your household (other than a tenant or employee), a trust in which one or more of these individuals have more than 50% of the beneficial interest, a foundation in which you or one or more of these persons control the management of assets, and any entity in which you or one or more of these persons own more than 50% of the voting interest.
	Regardless of any marital property settlement agreement, the Company is not obligated to honor a notice of exercise from your former spouse, nor is the Company obligated to recognize your former spouse’s interest in your option in any other way, except pursuant to a Domestic Relations Order.
	The Committee will allow you to transfer this option only if both you and the transferee(s) execute the forms prescribed by the Committee, which include the consent of the transferee(s) to be bound by this Agreement.
Retention Rights	Your option or this Agreement does not give you the right to be retained by the Company or a subsidiary of the Company in any capacity.  The Company and its subsidiaries reserve the right to terminate your Service at any time, with or without cause.
Shareholder Rights	You, or your estate or heirs, have no rights as a shareholder of the Company until you have exercised

6

	this option by giving the required notice to the Company and paying the exercise price.  No adjustments are made for dividends or other rights if the applicable record date occurs before you exercise this option, except as described in the Plan.
Adjustments	In the event of a stock split, a stock dividend or a similar change in Company stock, the number of shares covered by this option and the exercise price per share may be adjusted pursuant to the Plan.
Governing Law	This Agreement will be interpreted and enforced under the laws of the State of California (without regard to its choice-of-law provisions).
The Plan and Other Agreements	The text of the Plan is incorporated in this Agreement by reference.
	This Agreement and the Plan constitute the entire understanding between you and the Company regarding this option.  Any prior agreements, commitments or negotiations concerning this option are superseded.  This Agreement may be amended only by another written agreement between the parties.

By signing your Notice of Stock Option Grant form which precedes this Agreement, you agree to all of the terms and conditions described above and in the Plan.

7

EX-10.8

EXHIBIT 10.8

Overland Storage, Inc.

2003 Equity Incentive Plan

Notice of Stock Option Grant

(Standard, Limited Transferability)

You have been granted the following option to purchase shares of the Common Stock of Overland Storage, Inc. (the “Company”):

Name of Optionee:
Total Number of Shares:
Type of Option:	Incentive Stock Option
	Nonstatutory Stock Option
Exercise Price Per Share:	$
Date of Grant:
Vesting Commencement Date:
Vesting Schedule:	This option becomes exercisable with respect to the first [             ]% of the Shares subject to this option when you complete [             ] months of continuous “Service” (as defined in the Plan) from the Vesting Commencement Date.  Thereafter, this option becomes exercisable with respect to an additional [             ]% of the Shares subject to this option when you complete each month of Service.
Expiration Date:	[                    ][     ], 20[    ], or if such date falls on a day when Company headquarters are not open for business, at the close of business at Company headquarters on the last business day before such date.  This option expires earlier if your Service terminates earlier, as described in the Stock Option Agreement.

You and the Company agree that this option is granted under and governed by the terms and conditions of the 2003 Equity Incentive Plan (the “Plan”) and the Stock Option Agreement, both of which are attached to and made a part of this document.

You further agree that the Company may deliver by email all documents relating to the Plan or this option (including, without limitation, prospectuses required by the Securities and Exchange Commission) and all other documents that the Company is required to deliver to its security

holders (including, without limitation, annual reports and proxy statements).  You also agree that the Company may deliver these documents by posting them on a web site maintained by the Company or by a third party under contract with the Company.  If the Company posts these documents on a web site, it will notify you by email.

Optionee:	Overland Storage, Inc.
	By:
	Title:

2

Overland Storage, Inc.

2003 Equity Incentive Plan

Stock Option Agreement

Tax Treatment	This option is intended to be an incentive stock option under section 422 of the Internal Revenue Code or a nonstatutory stock option, as provided in the Notice of Stock Option Grant.
Vesting	This option becomes exercisable in installments, as shown in the Notice of Stock Option Grant.  In addition, this option becomes exercisable in full if your Service terminates because of total and permanent disability, or death.
	This option will in no event become exercisable for additional shares after your Service has terminated for any reason.
Term	This option expires in any event at the close of business at Company headquarters on the 10th anniversary of the Date of Grant, as shown in the Notice of Stock Option Grant, or if such anniversary date would fall on a day when Company headquarters are not open for business, at the close of business at Company headquarters on the last business day before such anniversary date.  (It will expire earlier if your Service terminates, as described below.)
Regular Termination	If your Service terminates for any reason except death or total and permanent disability, then this option will expire at the close of business at Company headquarters on the date three months after your termination date, or if such expiration date would fall on a day when Company headquarters are not open for business, at the close of business at Company headquarters on the last business day before such expiration date.  The Company determines when your Service terminates for this purpose.
Death	If you die before your Service terminates, then this option will expire at the close of business at Company headquarters on the date 12 months after the date of death, or if such expiration date would fall on a day when Company headquarters are not open for business, at the close of business at Company headquarters on the last business day before such expiration date.

3

Disability	If your Service terminates because of your total and permanent disability, then this option will expire at the close of business at Company headquarters on the date 12 months after your termination date, or if such expiration date would fall on a day when Company headquarters are not open for business, at the close of business at Company headquarters on the last business day before such expiration date.
	For all purposes under this Agreement, “total and permanent disability” means that you are unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted, or can be expected to last, for a continuous period of not less than one year.
Leaves of Absence and Part-Time Work	For purposes of this option, your Service does not terminate when you go on a military leave, a sick leave or another bona fide leave of absence, if the leave was approved by the Company in writing and if continued crediting of Service is required by the terms of the leave or by applicable law. But your Service terminates when the approved leave ends, unless you immediately return to active work. If this option is designated as an Incentive Stock Option, and if such leave exceeds ninety (90) days, and reemployment upon expiration of such leave is not guaranteed by statute or contract, then this option shall be treated as a Non-Qualified Stock Option on the day three (3) months and one (1) day following the expiration of such ninety (90) day period.
	If you go on a leave of absence, then the vesting schedule specified in the Notice of Stock Option Grant may be adjusted in accordance with the Company’s leave of absence policy or the terms of your leave.  If you commence working on a part-time basis, then the vesting schedule specified in the Notice of Stock Option Grant may be adjusted in accordance with the Company’s part-time work policy or the terms of an agreement between you and the Company pertaining to your part-time schedule.
Restrictions on Exercise	The Company will not permit anyone to exercise this option if the issuance of shares at that time would violate any “Applicable Law” (as defined in the Plan).
Notice of Exercise	When you wish to exercise this option, you may select one of the following:

4

•If you have established an account with E*Trade OptionsLink (www.optionslink.com, (800) 838-0908), or such other or substitute employee stock option plan administrative service as the Company may elect to engage (such stock option administrative service being the “Plan Agency”), you may elect to exercise this option by utilizing the procedures established by the Plan Agency for exercise of this option. Such procedures may include provisions for execution of an electronic or a written notice stating the number of shares to be purchased pursuant to this option and accompanied by delivery of an executed exercise agreement as implemented by the Plan Agency, and payment made in accordance with this Agreement and the Plan for the full purchase price of the shares to be purchased.  The “Committee” (as defined in the Plan) may from time to time establish further limitations and rules or procedures for exercise through the Plan Agency.  The Company may also discontinue use of the Plan Agency at any time, in which case you will be required to use the exercise procedure described below.

•Notify the Company by filing the proper “Exercise Notice” form at the address given on the form.  Your notice must specify how many shares you wish to purchase.  Your notice must also specify how your shares should be registered.

Exercise through the Plan Agency will be effective in accordance with the policies and procedures of the Plan Agency.  An “Exercise Notice” filed with the Company will be effective when the Company receives it together with payment made in accordance with this Agreement and the Plan for the full purchase price of the shares to be purchased.

If another person wants to exercise this option after it has been transferred to him or her (a “Transferee”), that person must prove to the Company’s satisfaction that he or she is entitled to exercise this option, and must then select one of the exercise alternatives specified above; provided that exercise by a Transferee may not be available through the Plan Agency, and if it is available, such exercise may require additional procedures or documentation established by the Company or the Plan Agency.

5

Form of Payment	When you exercise your option, you must pay the option exercise price for the shares that you are purchasing.  Payment may be made in one or a combination of the following forms:
	•Your personal check, a cashier’s check or a money order.
	•Irrevocable directions to a securities broker (such as the Plan Agency) approved by the Company to sell all or part of your option shares and to deliver to the Company from the sale proceeds an amount sufficient to pay the option exercise price and any withholding taxes.  (The balance of the sale proceeds, if any, will be delivered to you.) This procedure will be permitted only if you utilize the services of the Plan Agency, or another securities broker pre-approved by the Company in its sole discretion.  You will not be permitted to use this procedure if you are an “Officer” or “Director” (each as defined in the Plan) and this procedure would be deemed an extension of credit or the arranging of an extension of credit in the form of a personal loan by the Company.
Withholding Taxes and Stock Withholding	You will not be allowed to exercise this option unless you make arrangements acceptable to the Company to pay any withholding taxes that may be due as a result of the option exercise.  With the Company’s consent, these arrangements may include withholding shares of Company stock that otherwise would be issued to you when you exercise this option.  The value of these shares, determined as of the effective date of the option exercise, will be applied to the withholding taxes.
Restrictions on Resale	You agree not to sell any option shares at a time when Applicable Law, Company policies or an agreement between the Company and its underwriters prohibit a sale.  This restriction will apply as long as your Service continues and for such period of time after the termination of your Service as the Company may specify.
Transfer of Option	In general, only you may exercise this option prior to your death.  You may not transfer or assign this option,  unless one of the provisions below applies. For instance, you may not sell this option or use it as security for a loan.  If you attempt to do any of these things, this option will immediately become invalid.  You may, however, dispose of this option in your will or in a beneficiary designation.

6

	If this option is designated as a nonstatutory stock option in the Notice of Stock Option Grant, then the Committee may, in its sole discretion, allow you to transfer this option as a gift to one or more family members.  For purposes of this Agreement, “family member” means a child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law (including adoptive relationships), any individual sharing your household (other than a tenant or employee), a trust in which one or more of these individuals have more than 50% of the beneficial interest, a foundation in which you or one or more of these persons control the management of assets, and any entity in which you or one or more of these persons own more than 50% of the voting interest.
	If this option is designated as an incentive stock option, the Committee may, in its sole discretion, allow you to transfer this option to a trust, where under Section 671 of the Code and other Applicable Law you are considered the sole beneficial owner of this option while it is held in trust.
	Regardless of any marital property settlement agreement, the Company is not obligated to honor a notice of exercise from your former spouse, nor is the Company obligated to recognize your former spouse’s interest in your option in any other way, except pursuant to a Domestic Relations Order.
	The Committee will allow you to transfer this option only if both you and the transferee(s) execute the forms prescribed by the Committee, which include the consent of the transferee(s) to be bound by this Agreement.
Retention Rights	Your option or this Agreement does not give you the right to be retained by the Company or a subsidiary of the Company in any capacity.  The Company and its subsidiaries reserve the right to terminate your Service at any time, with or without cause.
Shareholder Rights	You (or your estate, heirs or transferee) have no rights as a shareholder of the Company until you (or your estate, heirs or transferee) have exercised this option by giving the required notice to the Company and paying the exercise price.  No adjustments are made for dividends or other rights if the applicable record date occurs before this option is exercised, except as described in the Plan.

7

Adjustments	In the event of a stock split, a stock dividend or a similar change in Company stock, the number of shares covered by this option and the exercise price per share may be adjusted pursuant to the Plan.
Governing Law	This Agreement will be interpreted and enforced under the laws of the State of California (without regard to its choice-of-law provisions).
The Plan and Other Agreements	The text of the Plan is incorporated in this Agreement by reference.
	This Agreement and the Plan constitute the entire understanding between you and the Company regarding this option.  Any prior agreements, commitments or negotiations concerning this option are superseded.  This Agreement may be amended only by another written agreement between the parties.

By signing your Notice of Stock Option Grant form which precedes this Agreement, you agree to all of the terms and conditions described above and in the Plan.

8

EX-10.9

Exhibit 10.9

Overland Storage PPA 1585-042103

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

PRODUCT PURCHASE AGREEMENT

NO. 1585-042103

1

TABLE OF CONTENTS
1.	SCOPE OF AGREEMENT
1.1 General.
1.2 Eligible Purchasers
1.3 Term of Agreement
1.4 Committed Volume
2.	DEFINITIONS
2.1 Definitions
3.	ORDERING AND SHIPMENT OF PRODUCT
3.1 In General
3.2 Orders
3.3 Blanket Purchase Orders
3.4 Order Acceptance and Acknowledgment
3.5 Emergency Orders
3.6 Forecasts
3.7 Lead Times
3.8 Inventory Requirements
3.9 Order Changes
3.10 Purchase Reports
3.11 Delivery, Shipment and Packaging
4.	PRICES AND PAYMENT TERMS
4.1  Prices
4.2  Payment Terms
4.3  Offset
4.4  Discounts and Rebates
4.5 Sales Taxes and Duties
4.6 Financial Condition
5.	[***]
6.	PRODUCT RETURNS; NON-CONFORMING PRODUCT
6.1 Return Materials Authorization
6.2 Return Charges
6.3 Duty to Remove Marks or Destroy Non-conforming Product
6.4 Correction of Non-conforming Product
7.	ENGINEERING PROCESS OR DESIGN CHANGES
7.1 Supplier Proposed Changes
7.2 Notice of Proposed Change
7.3 HP Proposed Changes
7.4 Safety Standard Changes
8.	QUALITY
8.1 Quality System

2

8.2 Product Holds
8.3 HP’s Right to Inspect Facilities
8.4  Reports
8.5 SUPPLIER RATING
9.	SAFETY
10.	WARRANTIES
10.1 Product General Warranties
10.2 Product Intellectual Property Warranties.
10.3 Warranty Periods
10.4 Software and Documentation Warranty
10.5 Services and Support Warranty
10.6 Compliance with Applicable Law
10.7 Warranty Exclusions
10.8 DISCLAIMER
11.	SUPPORT; OTHER SERVICES
11.1 General
11.2 New HP Products
11.3 HP Property
11.4 Substitute Products
11.5 Survival of Support Obligations
12.	DISCONTINUANCE OF PRODUCT
12.1 [***] Buy Rights
12.2 HP’s Right to Manufacture
12.3 Survival of [***] Buy Rights
13.	LOSS CONTROL
13.1 Business Continuity
13.2 Safety, Security and Fire Protection
14.	MARKETING AND LICENSING
14.1 Marketing Authority
14.2 No Rights in Marks
14.3 Private Labeling
14.4 Software License
14.5 Documentation License
15.	INTELLECTUAL PROPERTY PROTECTION
15.1 Supplier’s Duty to Defend
15.2 HP’s Duty to Notify
15.3 Actions After Injunction or Order
15.4 Limitations
15.5 Intellectual Property Developed under this Agreement
16.	TRADE REQUIREMENTS
17.	CLASSIFICATION AND LICENSING AUTHORITY

3

18.	GOVERNMENTAL COMPLIANCE
18.1 Duty to Comply
18.2 Social and Environmental Responsibility
18.3 Environmental Requirements
18.4 Procurement Regulations
18.5Anti-Terrorism Security Measures
19.	FORCE MAJEURE EVENTS
19.1 Delaying Causes
19.2 Occurrence of a Delaying Cause
19.3 Resumption of Performance
20.	EVENTS OF DEFAULT AND REMEDIES
20.1 Events of Default
20.2 Rights and Remedies Upon Default
20.3 Cover Costs
21.	CONFIDENTIAL INFORMATION
21.1 Confidential Information
21.2 Exclusions
21.3 Personal Data
22.	INSURANCE AND INDEMNITY
23.	LIMITATION OF LIABILITY
23.1 Liability Disclaimers
23.2 Liability Limitations
23.3 Exceptions to Liability Disclaimers and Limitations
23.4 EXCLUDED DAMAGES
24.	TERMINATION
24.1 Termination for Convenience
24.2 Termination for Default
24.3 Termination for Assignment
24.4 Termination Pursuant to Other Power
24.5 Effect of Termination
24.6 Termination Claim
25.	MISCELLANEOUS
25.1 Notices
25.2 Exhibits; Other Documents
25.3 Independent Contractors
25.4 Assignment
25.5 No Waiver
25.6 No Third Party Beneficiary
25.7 Headings; Interpretation
25.8 Publicity
25.9 Severability

4

Signature Authorization

5

PRODUCT PURCHASE AGREEMENT

NO. 1585-042103

This PRODUCT PURCHASE AGREEMENT (“Agreement”) is entered into as of the 31^st day of July 2003 (the “Effective Date”) by and between HEWLETT-PACKARD COMPANY (“HP”), a Delaware corporation, having its principal place of business located at 3000 Hanover Street, Palo Alto, California 94304, and OVERLAND STORAGE, INC. (“Supplier”), a

ý    corporation

olimited liability company

other,

organized and operating under the laws of California with its principal place of business at:

4820 Overland Avenue

San Diego, California 92123.

RECITALS

WHEREAS, Supplier wishes to sell, and HP wishes to purchase, goods or services, or both, upon the terms and conditions hereinafter provided; and

WHEREAS, Supplier and HP intend to establish mutual understanding concerning such sales and purchases and, in so doing and in performing hereunder, meet the parties’ respective needs for a well-defined and stable relationship in an atmosphere of close cooperation and mutual trust.

NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained, Supplier and HP hereby agree as follows:

1.SCOPE OF AGREEMENT

1.1General. The goods to be provided hereunder are set forth in Exhibit A (the “Goods”). Goods will meet Specifications and any other requirements which may be attached hereto or referred to herein. Any services to be provided, whether primary performance hereunder as set forth in Exhibit C (the “Services”) or performed in connection with the furnishing of Goods, will meet generally accepted practices and standards and any other requirements

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

6

which may be attached hereto or referred to herein. As used herein, “Product” refers interchangeably to Goods or Services, or both in combination, unless the context expressly otherwise provides.

1.2Eligible Purchasers. [***] and, as may be mutually agreed in writing by Supplier and HP, [***] pursuant to the terms of this Agreement; provided that:

1.2.1 [***];

1.2.2 [***];and

1.2.3 As may reasonably be requested [***].

Each Eligible Purchaser will, when purchasing Product pursuant to this Agreement, state as may be reasonably acceptable to Supplier that such Eligible Purchaser is purchasing Product pursuant to this Agreement, [***] with respect to any Accepted Order for Product; provided that nothing herein restricts or otherwise limits modification or waiver of this Agreement, or part hereof, with respect to any such Order upon mutual agreement in writing [***].  Anything in this Agreement to the contrary notwithstanding, any liability disclaimer or limitation in this Agreement applicable to HP or Supplier inter se will be applicable to each Eligible Purchaser and to Supplier inter se; provided that [***].

1.3 Term of Agreement. This Agreement will be effective upon execution by the parties and covers a period (the “Term”) which commences as of the Effective Date and continues for one (1) year and thereafter continues indefinitely unless terminated earlier under the terms of this Agreement; provided that in no event will this Agreement continue longer than three (3) years from the Effective Date unless extended or renewed upon mutual written agreement of the parties.

1.4 Committed Volume. [***] nothing in this Agreement obligates HP to purchase any minimum quantity of Product. This Agreement sets forth the terms and conditions during the Term which govern Orders and Acknowledgments for Product or which otherwise apply to any legally binding volume commitment for Product. Any Order or Acknowledgment or other legally binding volume commitment for Product which is entered during the Term will remain governed by this Agreement notwithstanding expiration or termination of this Agreement for any reason. Unless otherwise agreed, [***] within which to purchase Product at the then current volume rate and pricing then in effect. [***]. Unless otherwise agreed, if Supplier is unable, for any reason or no reason, to furnish or delays furnishing committed volume, [***] with this Agreement.

7

2.DEFINITIONS

2.1 Definitions. As used in this Agreement, and in addition to other terms elsewhere defined in thisAgreement, each of the following terms has the indicated meanings:

“Accepted Order” means an Order as to which Supplier has issued its Acknowledgment accepting the Order or which is deemed accepted as set forth in Section 3.4 or which otherwise constitutes a contract under Applicable Law, is legally binding or legally enforceable.

“Acknowledgment” means a written or electronic acknowledgment or confirmation issued by Supplier in response to and following Supplier’s receipt of an Order issued by HP or an Eligible Purchaser to Supplier for Delivery of Product.

“Affiliate” means an entity whose voting shares are owned less than fifty percent (50%), but at least ten percent (10%), by a party to this Agreement and which is not controlled by, or under common control with, a party to this Agreement as its Subsidiary.

“Applicable Law” means all constitutions, laws, statutes, codes, ordinances, orders, judgments, decrees, injunctions, rules, regulations, permits and legally binding requirements of all federal, state and local governmental authorities applicable to any party’s performance under this Agreement.

“Backlog” means Orders placed by HP or Eligible Purchasers and not yet shipped by Supplier to the destination required under the Order.

“Business Day” (whether initial letters are capitalized or not) means a Day other than a Saturday, Sunday or a Day on which U.S. commercial banks in [***], or, if different, commercial banking institutions in the location at which performance of an act or obligation under this Agreement is to occur, are closed or required to close under Applicable Law.

“Confidential Information” has the meaning set forth in Section 21.1.

“Control” (including the terms “controlling,” “controlled by” and “under common control with”) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person or entity, whether through the ownership of voting securities, by contract or otherwise.

“Day” (whether initial letter is capitalized or not) means a calendar day and includes Saturdays, Sundays and holidays, except that, in the event that an obligation to be performed under this Agreement falls due on a day other than a Business Day, the obligation will be deemed due on the first Business Day thereafter.

8

“Delaying Cause” has the meaning set forth in Section 19. 1.

“Delivery” means, in accordance with an Accepted Order and this Agreement, delivery to common carrier for shipment or shipment and arrival of Product at the receiving area, as HP or an Eligible Purchaser may designate, and Supplier may agree, from time to time during the Term. “Deliver” or usage of similar import refers to a Delivery.

“Delivery Date” means the date specified in an Accepted Order for the Delivery of Product by Supplier to the destination required under the Accepted Order.

“Discontinued Product” has the meaning set forth in Section 12. 1.

“Documentation” means the technical documentation that Supplier will provide with Product from time to time during the Term and to the extent HP may reasonably request and show need for access.

“Eligible Purchaser” means [***].

“Emergency Order” has the meaning set forth in Section 3.5.

“Engineering Change” has the meaning set forth in Section 7. 1.

“Epidemic Failure” has the meaning set forth in Exhibit J.

“Failure Rate” has the meaning set forth in Exhibit J.

“Field Failure” has the meaning set forth in Exhibit J.

“Forecast” means HP’s non-binding (except as may be required in Exhibit I with respect to buffer inventory) estimate of purchases of Product over a [***] period, or such other period as may be designated by the parties.

“HP Contractor” or “Contractor” means any third party which performs work for HP or HP Subsidiaries or Affiliates and which requires Product from Supplier. HP Contractors are independent contractors of HP or its Subsidiaries or Affiliates and are not legally related to HP or its Subsidiaries or Affiliates as agent, employee, partner, joint venturer or other manner.

“HP Products” means the HP products or systems that include or incorporate Product and that will be marketed and sold to end-user customers by HP or HP Subsidiaries or Affiliates and its and their resellers.

“HP Property” means all property including without limitation models, tools, equipment, copies of designs and documentation and other materials that may be

9

furnished to Supplier by HP or on HP’s behalf or separately paid for by HP for use by Supplier in connection with this Agreement or any Order.

“HP Warehouse” means any facility which is owned, leased, rented or use of which is otherwise arranged by HP where HP inventory, including raw material, components and work-in-process, may be stored.

“Hubs” means Supplier or Supplier’s logistic service providers which store, maintain or handle Supplier Managed Inventory.

“Indemnitee” has the meaning set forth in Section 15. 1.

“Infringing Product’ has the meaning set forth in Section 15.3.

“Intellectual Property Rights” means any ideas, whether or not patentable, inventions, discoveries, processes, works of authorship, marks, names, know-how, and any and all rights in such materials on a worldwide basis, including any rights in patents, inventor’s certificates, utility models, copyrights, moral rights, trade secrets, mask works, trade names and marks and other analogous rights.

“IP Claim” has the meaning set forth in Section 15. 1.

“Lead Time” means the time between the date an Order is issued and the Delivery Date.

“Mark” (whether initial letter is capitalized or not) means any trademark, service mark, trademark and service mark application, trade dress, trade name, logo, insignia, symbol, design or other marking identifying a party or its products.

“Month” and “year” mean calendar month and year.

“Non-cancelable Order” means an Accepted Order that due to special circumstances (e.g., ordered quantities or item of Product) or agreement of the parties may not be rescheduled or canceled by HP, except as set forth in Section 3.9. Any Accepted Order for Unique Product will be deemed to be a Non-cancelable Order.

“Non-conforming Product” means any Product which after Delivery and reasonable opportunity for inspection and acceptance does not comply with the Specifications or otherwise does not comply with the requirements of an Accepted Order or this Agreement.

“Non-SMI” has the meaning set forth in Section 3.8.

10

“Order” means a written or electronic purchase order or release issued by HP or an Eligible Purchaser to Supplier for Delivery of Product.

“Product” has the meaning set forth in Section 1.1 and includes any Goods and services set forth in Exhibit A, Parts and, as the context may allow, all related Documentation and other deliverables provided pursuant to this Agreement. “Parts” means the spares, replacements, components and other items that may be supplied inconjunction with or as additions to Product.

“Return Materials Authorization” or “RMA” has the meaning set forth in Section 6.1.

“Schematics” means construction and assembly drawings, photo-tooling for PCBs, and codes, software or firmware for custom or proprietary components.

“Services” has the meaning set forth in Exhibit C.

“Shipment” (whether initial letter is capitalized or not) means the date of shipment from Supplier’s facility, or in the case of Product shipped from a third party warehouse, the date of shipment from the third party warehouse to HP or an Eligible Purchaser’s facility.

“Software” means one or more programs capable of operating on a controller, processor or other device or hardware product. Software may be a separate Product, included with another Product or fixed in a device or hardware product and not removable in normal operation.

“Specifications” means Supplier’s standard specifications for Product, the technical and functional requirements for Product set forth in Exhibit A, any Unique Specification and any other requirements which may be attached hereto or referred to herein or agreed to by the parties or which may be published in Supplier’s manuals and technical data sheets for Product in effect on the date Supplier Delivers the corresponding Order.

“Subcontractor” means any third party, under contract or other arrangement with Supplier, with responsibility for supply of components or parts for Product, Support of Product, or for assembly, storage or configuration of Product.

“Subsidiary” means an entity controlled by, or under common control with, a party to this Agreement, through ownership or control of fifty percent (50%) or greater of the voting power of the shares or other means of ownership or control, for as long as such ownership or control continues to exist.

“Supplier ManagedInventory” or “SMI” means a program or process for Supplier’s inventory to be stored at Hubs or within Supplier’s designated area within an HP Warehouse.

11

“Support” means technical support and other Services as set forth in Exhibit C, standard services Supplier customarily provides for Product, or substantial equivalent, and services for Productmutually agreed to be provided by Supplier to HP; provided that if Product includes orconstitutes Software, Support also includes fixes, updates and upgrades, unless otherwise agreed.

“Technical Information” means Supplier’s manufacturing information and technology to produce Product and provide Support, including without limitation: (i) specifications, software, schematics, designs, drawings or other materials pertinent to the most currentrevision level of manufacturing of Product; (ii) copies of all inspection, manufacturing, test and quality control procedures and any other work processes; (iii) designs relating to jigs, fixtures and tooling; (iv) Supplier history files; (v) support documentation; and (vi) any additional technical information or materials that may be agreed to by the parties.

“Term” has the meaning set forth in Section 1.3.

“Unique Materials” means special parts or components or dedicated raw materials which are used in the production of HP’s Unique Product and which cannot reasonably be reused, reworked, returned, sold or otherwise incorporated into any other products manufactured by Supplier.

“Unique Product” means Product that is unique in nature, customer-specific to HP and cannot be resold by Supplier to customers other than HP without major modification.

“Unique Specification” means a specialized or particularized requirement of HP which is unique to HP and which does not include industry standards or conventional requirements or guidelines or Supplier’s own standards, requirements or guidelines.

3.ORDERING AND SHIPMENT OF PRODUCT

3.1 In General. HP and Eligible Purchaser may order Product in one or more of the following ways: (a) by issuing a standard purchase order or Order; (b) by issuing a Blanket Purchase Order; or (c) according to any applicable SMI process.  Only an Order which fully complies with the terms of this Agreement can create a binding obligation to purchase for HP or the Eligible Purchaser. Each Order must be in writing (which includes electronic form). A binding obligation to purchase by HP or an Eligible Purchaser and to sell by the Supplier is created when the Order is Acknowledged and accepted by the Supplier as provided herein. Such obligation to purchase and sell is limited to the Products and quantity covered by the applicable Order.

12

3.2 Orders. Each sale and purchase of Product under this Agreement will be initiated by an Order issued to Supplier by HP or an Eligible Purchaser. [***]. HP or an eligible Purchaser may schedule regular intervals for Deliveries by an Order setting forth the intervals. This Agreement applies to all Orders for Product and all Acknowledgment of Orders whether or not the Order or Acknowledgment refers to this Agreement.

3.3 Blanket Purchase Orders. [***]. Except as may be set forth in Exhibit I, [***]. Supplier will use its commercially reasonable efforts to fulfill all Forecasts it receives from HP and/or the Eligible Purchaser that are associated with Blanket Purchase Orders. .

3.4 Order Acceptance and Acknowledgment. [***]; provided that such confirmation of receipt does not constitute an acceptance of the Order unless it expressly so states. [***]. Unless otherwise expressly agreed by HP, Delivery must be in strict conformity with Accepted Orders and time is of the essence.

3.5 Emergency Orders. HP or an Eligible Purchaser may issue Orders on an emergency basis (“Emergency Order”). Subject to availability of Product, Supplier will use reasonable commercial efforts to fill Emergency Orders upon acceptance thereof by Supplier.

3.6 Forecasts. As Supplier may reasonably request, [***]. Supplier will use all commercially reasonable efforts to fulfill all Forecasts provided to it by HP. HP may revise any Forecasts as necessary.

3.7 Lead Times. [***]. Either party may request a change in Lead Times at any time, and any change announced by Supplier will apply unless otherwise agreed; provided that Lead Times may not be materially lengthened on less than [***] prior notice.

3.8 Inventory Requirements. [***] Use of an SMI process, whether with Hubs, HP Warehouse or otherwise, may require additional or different terms and conditions and is subject to mutual agreement. Inventory requirements for an SMI process may be agreed by the parties. Without limiting any of the obligations or liabilitiesof Supplier, Supplier will maintain, at its own expense, as long as this Agreement is in effect, insurance policies of the kind and limits listed below

3.9 Order Changes. [***] by notice to Supplier as set forth in this Section; provided that any increase in quantity or any rescheduling to an earlier Delivery Date is subject to Supplier’s Acknowledgment as set forth in Section 3.4. [***]. At any time prior to Shipment, HP may decrease any Accepted Order; provided that quantities under a Non-cancelable Order may not be decreased, and Non-cancelable Orders may not be canceled, to the extent Supplier has commenced production or acquired special components or dedicated raw materials for production. Accepted Orders for Product not shipped from Hubs

13

may be canceled at any time prior to Supplier’s commencement of production, and those shipped from Hubs may be canceled at any time prior to Shipment. If HP cancels or modifies any Accepted Order upon less than applicable notice or other requirement set forth in this Section, Supplier may invoice HP Supplier’s customary cancellation charge.

3.10 Purchase Reports. Within [***] after close of each HP fiscal quarter, Supplier will provide HP a report which details purchases of Product by HP and all Eligible Purchasers by item, quantity and purchase location, showing total quantities shipped, total dollars invoiced, returns, percent of on-time and on-quality orders and such other information as HP and Supplier may mutually determine is appropriate. Reports will be sent to HP’s respective purchase locations, and a report detailing HP’s total purchases will be sent to HP’s primary contact set forth in Exhibit F.

3.11 Delivery, Shipment and Packaging. As set forth in Exhibit B, attached hereto.

4.PRICES AND PAYMENT TERMS. Prices, payment terms and other pricing terms will be as follows:

4.1  Prices. Prices [***] during the Term.

4.2  Payment Terms. Payment terms are [***]. No invoice may be dated or submitted earlier than date of Delivery. Any prompt payment discount will be calculated from the same date. Payment will be in U.S. currency unless otherwise stated. Payment terms are firm for the entire Term unless changed by mutual written agreement of the parties.

4.3  Offset. With respect to any payment, reimbursement or other amount owed by Supplier to HP under this Agreement, [***] by HP to Supplier under this Agreement or any other agreement.

4.4  Discounts and Rebates. Discounts and rebates [***].

4.5 Sales Taxes and Duties. Unless otherwise agreed, prices are exclusive of all taxes or duties (other than taxes levied on Supplier’s income) that Supplier may be required to collect or pay upon purchase, sale or shipment of Product. Any such taxes or duties must appear as a separate item on Supplier’s invoice. HP will pay such taxes or duties unless HP is exempt. Where applicable, HP will provide Supplier with an exemption resale certificate.

4.6 Financial Condition. Any credit line extended to an Eligible Purchaser will be subject to Supplier’s normal credit standards and approval procedures in effect from time to time during the Term. [***], and Supplier will make available to HP, upon written request, information as may be reasonable, customary and sufficient

14

[***]. If the financial condition of either party materially and adversely changes from its financial condition as of the date of this Agreement, then the other party will have the [***].

5.[***]

5.1[***].

5.2[***].

5.3[***].

5.4[***].

5.5[***].

6.PRODUCT RETURNS; NON-CONFORMING PRODUCT

6.1 Return Materials Authorization. Product may be returned to Supplier by HP and by Eligible Purchasers as set forth in this Article and in Article 11.0. Product returned to Supplier will be accompanied by a Return Materials Authorization (“RMA”). Unless Supplier reasonably requires further verification, Supplier will provide an RMA within [***] of HP’s request. HP may return Product without an RMA if Supplier unreasonably refuses or fails to provide an RMA.

6.2 Return Charges. All Non-conforming Product returned to Supplier, and all replacement Product shipped by Supplier, [***].

6.3 Duty to Remove Marks or Destroy Non-conforming Product. Supplier will not sell, transfer or otherwise relinquish possession of Product which bears any HP Mark, part number or identifier, including any HP packaging, copyright, color or design scheme or code, other than as may be Ordered for Delivery by HP or Eligible Purchasers, nor may Supplier sell, transfer or otherwise relinquish possession or dispose of or reuse or remanufacture Non-conforming Product which bears any HP Mark, part number or other such identifier unless Supplier removes same there from, even if such removal would result in destruction of the affected Product or Non-conforming Product. Supplier will not represent any Product as built for HP or to HP specifications; provided that nothing herein limits or otherwise affects Supplier’s right to represent Product as functional in or compatible with any HP Products or as complying with or conforming to specifications for HP Products, when such representation is true and correct in all material respects. All manufacturing overruns of HP branded Product or defective HP branded Product will be destroyed by Supplier in a secure manner upon HP’s authorization. At no time may an HP branded Product be sold or transferred to another party without HP’s prior written authorization.

15

6.4 Correction of Non-conforming Product. An entire lot of Product may be returned if a statistically significant sampling of that lot contains Non-conforming Product. Supplier will, as may be reasonable under the facts and circumstances and within a reasonable time, [***], and having reviewed its options with HP, repair or rework Nonconforming Product or replace same and reship for redelivery, [***], or issue credit therefore or refund the purchase price if paid.

7.ENGINEERING PROCESS OR DESIGN CHANGES

7.1 Supplier Proposed Changes. Except as set forth in this Article, Supplier will notmake or incorporate any changes in Product or geographical relocations affecting electrical performance, mechanical form, fit, function or performance, environmental compatibility, chemical characteristics, software compatibility or the life, reliability or quality of Product.

7.2 Notice of Proposed Change. Supplier will notify HP in writing of any proposed Engineering Change and will provide evaluation samples and other appropriate information as HP may reasonably request a delay of up to [***] prior to the first proposed shipment of any Product involving an Engineering Change provided that Supplier may not provide Product involving an Engineering Change to HP for production usage until HP has notified Supplier, in writing, that it has completed its qualification testing. If any such change affects price, component obsolescence, quality performance or delivery schedules of Product, an impact proposal prepared by Supplier shall be presented to HP for approval prior to Supplier initiating any change.  If as a result of such an Engineering Change HP would be unable to utilize Product due to a failure under HP’s qualifications, Supplier will continue to provide Product without the Engineering Change until Supplier and HP resolve any qualification issues. If a resolution mutually recognized as such by both parties is not achieved within a reasonable time, Supplier may, subject to Sections 11.5 and 12.1, discontinue supply of Product without the Engineering Change, whereupon HP may cancel allAccepted Orders for Product without cost or liability or terminate this Agreement upon written notice to Supplier.

7.3 HP Proposed Changes. HP may change HP-supplied drawings or designs or the Specifications at any time prior to manufacture effective upon notice to Supplier. If any such change affects price, component obsolescence, quality performance or delivery schedules of Product, an impact proposal prepared by Supplier shall be presented to HP for approval prior to Supplier initiating any change. Supplier may make written claim for any equitable adjustment related to such change within [***] from the date HP gives notice to Supplier of such change, or such claim will be deemed untimely and adjustment with respect thereto will be waived, renounced, released and forever barred.

7.4 Safety Standard Changes. Supplier will provide HP oral notice, to be followed by written notice, or email notice within [***] of Supplier having knowledge of

16

the need for any upgrade, substitution or other change required to make Product meet applicable safety standards or requirements of Applicable Law. HP, in its discretion, may require that all affected Product be reworked or returned to Supplier for upgrade to current revisions or be upgraded by Supplier or HP in the field. If Product met applicable safety standards and requirements of Applicable Law at time of manufacture, HP and Supplier will share the costs of any subsequent upgrade, substitution or other required correction as may be equitable under the circumstances; provided that if mutual agreement on sharing such costs is not reached within [***] of Supplier’s initial notice hereunder, the parties will divide costs equally betweenthem. If Product met applicable safety standards and requirements of Applicable Law at the time of Delivery, HP will bear all costs of any subsequent upgrade, substitution or other required correction.

8.QUALITY

8.1 Quality System. Supplier will maintain a quality system that ensures compliance with this Agreement and meets at least one (1) of the following:

•   Currently certified to the applicable ISO 9000 series of standards for the Products and/or spare parts provided to HP

•  Maintains a quality management system and manual that complies with the applicable ISO 9000 quality systems series of standards

•   Currently executing a plan to achieve ISO 9000 certification within [***] from the Effective Date

•   Has successfully passed HP’s supplier qualification audits

Supplier, upon written request from HP, will provide to HP copies of Supplier’s quality system documentation and supporting test documentation. The parties will create and maintain a combined team to provide oversight of Supplier’s quality systems to ensure Supplier’s compliance with this Agreement.

8.2  Product Holds. Supplier will, upon HP’s request, hold shipments of Product until HP’s verification that the Product complies with HP’s specifications.

8.3 HP’s Right to Inspect Facilities. With reasonable advance notice (but no less than [***] notice), during normal business hours and in compliance with Supplier’s security and safety requirements, HP and/or its designated representative may inspect Supplier’s production and repair facilities (including but not limited to Product, raw materials, equipment associated manufacturing processes, test and inspection data, reliability data, failure analysis data, corrective action data, and training data) to ensure compliance with this Agreement. HP’s inspection may be for any reason related to this Agreement, including assuring Supplier’s compliance with HP’s requirements. Supplier will use reasonable

17

efforts to secure for HP similar rights to inspect Supplier’s Subcontractors at no charge to HP.

8.4  Reports. Supplier will provide quality-related reports and such other reports and information as HP may reasonably request.

8.5 SUPPLIER RATING. HP PERIODICALLY REVIEWS ITS SUPPLIERS UNDER A RATING SYSTEM FOR TECHNOLOGY, QUALITY, RESPONSIVENESS, DELIVERY, COST, ENVIRONMENT, REGULATORY AND SECURITY (TQRDC-RS). SUPPLIER WILL PARTICIPATE IN THE TQRDC-RS REVIEW PROCESS.

9.SAFETY

Supplier will designate a representative within its organization to interface with HP on Product safety issues. Supplier will work with HP to establish a procedure for reporting real or potential Product safety problems or risks to HP within [***] of Supplier becoming aware of such problems or risks.

10.WARRANTIES

10.1 Product General Warranties. Supplier represents and warrants that all Product is and will:

10.1.1[***].

10.1.2[***].

10.1.3[***].

10.1.4[***].

10.1.5[***].

10.1.6[***].

10.2 Product Intellectual Property Warranties. Supplier represents and warrants with regard to all Product (including Software and Documentation to the extent included with Product) that:

10.2.1 [***].

10.2.2 Except as has been disclosed to HP in writing prior to the date of this Agreement, [***].

18

[***]. If a U.S. District Court or any court worldwide adjudges that Product, or any item or part thereof, [***] irrespective of whether further right of appeal lies available to Supplier, or if Product or use is enjoined at any stage of the proceedings, [***]. [***].

10.3 Warranty Periods. [***]. The warranties set forth in Sections 10.1.2 and 10.1.5 are effective upon Delivery, are continuing and will remain in effect for the longer of Supplier’s normal warranty period or as stated in Exhibit J following acceptance of the Product. The warranties set forth in Sections 10.1.1, 10.1.3, 10.1.4 and 10.1.6 are made and effective at Delivery. All warranties set forth in Section 10.2 areeffective at Delivery, are continuing and will remain in effect in perpetuity.

10.4 Software and Documentation Warranty. If Product includes or constitutes Software, Supplier provides additional warranties, and warrants Software and related Documentation, as set forth in Exhibit H.

10.5 Services and Support Warranty. Supplier warrants that all Services and Support will be provided in a professional and workmanlike manner by competent, experienced personnel possessing suitable expertise in the subject matter.

10.6 Compliance with Applicable Law. Supplier warrants that it will comply with Applicable Law in its performance under this Agreement.

10.7 Warranty Exclusions.The warranties set forth in this Article 10 will not apply to any Product to the extent such Product (i) have been improperly installed, repaired, altered or otherwise modified (other than by Supplier or Supplier’s authorized Subcontractors), (ii) have been subjected to misuse, abuse, negligence or accident, (iii) have been used in a manner contrary to Specifications or Supplier’s written instructions or Documentation, (iv) are comprised of materials provided or a design stipulated by HP and not approved by Supplier in writing or (v) are used Product (to the extent HP may have waived Section 10. 1.3 in a particular instance), and do not cover normal wear and tear.

10.8 DISCLAIMER. EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, SUPPLIER MAKES NO OTHER WARRANTIES, EITHER EXPRESS OR IMPLIED, REGARDING PRODUCT INCLUDING MERCHANTABILITY AND FITNESS FOR ANY PARTICULAR PURPOSE.

11.SUPPORT; OTHER SERVICES

11.1 General. Supplier will maintain such number of qualified personnel as is necessary to provide timely and knowledgeable Support and will provide Support to HP as set forth in Exhibit C. Supplier may independently offer and provide maintenance and supportservices to third parties, including HP’s customers, but

19

Supplier may not use HP Confidential Information or HP Property to provide such services.

11.2 New HP Products. HP may request that Supplier provide [***]. Supplier will consider each request on a case-by-case basis. [***].

11.3 HP Property. HP may provide to Supplier HP Property solely for use in providing Services, Support or in Supplier’s manufacturing, testing or adapting Product. All HP Property will be segregated from Supplier’s property and identified as the sole property of HP. HP Property may not be transferred, assigned, loaned or otherwise encumbered by Supplier in any way. HP Property may be provided to third parties for fulfillment of Supplier’s obligations hereunder only upon HP’s prior written consent. [***], upon HP’s request or in all events upon termination or expiration of this Agreement. HP may require Supplier to enter into further written agreement and execute appropriate documentation as a condition to Supplier having access to HP Property.

11.4 Substitute Products. [***], if compatible with any current version of HP Products, [***].

11.5 Survival of Support Obligations. Unless otherwise stated in Exhibit C, Supplier’s obligations to provide Support will continue throughout the [***]; provided that as to any Product for which manufacture or supply is discontinued in accordance with Article 12.0, such obligations may be discontinued when such Product is discontinued or if later, when Supplier ceases Support for that Product; and provided further that in the event of any expiration or termination of this Agreement, except a termination by Supplier pursuant to Section 24.2 for HP’s default, Supplier may, unless otherwise agreed, charge for providing Support at the prices mutually agreed upon by HP and Supplier.

12.DISCONTINUANCE OF PRODUCT

12.1 [***] Buy Rights. In consideration of HP’s purchase of any Product or Spares hereunder, Supplier grants to HP the option to purchase Products and Spares [***] for a period of [***], [***]. If thereafter Supplier determines to discontinue the manufacture, supply of said Product (a “Discontinued Product”), Supplier will give written notice to HP in no event less than [***] in advance of the last date the Discontinued Product can beordered (the “Notice Period”). After receipt of notice of discontinuance, during the Notice Period, HP may at its discretion:

12.1.1 Purchase from Supplier such commercially reasonable quantity of the Discontinued Product as HP may reasonably deem necessary for its future requirements; or

20

12.1.2 Manufacture and/or Support the Discontinued Product under the manufacturing rights granted in Section 12.2, [***].

12.2 HP’s Right to Manufacture. Subject to Section 12.1, [***].

12.2.1 [***] within a reasonable time after HP has notified Supplier of HP’s exercise of its rights under this Section 12.2. [***]. If HP uses self-help measures to obtain possession of any such Technical Information, HP may [***].

12.2.2 Supplier will furnish to HP within [***] after HP’s written request, the names and addresses of Supplier’s sources for Parts not manufactured by Supplier, including the appropriate part numbers for commercially available equivalents of electronic Parts. Supplier will use reasonable efforts to enable HP to [***].

12.2.3 Supplier will furnish to HP [***] all Parts catalogues, schematics, design specifications, blueprints, material lists, engineering change orders, and other servicing documentation deemed necessary by HP to service and support the Discontinued Product.

12.2.4 Supplier [***] license rights it may have with third parties for software, documentation or any intellectual property used in the manufacture of the Discontinued Product.

12.3 Survival of [***] Buy Rights. Supplier’s obligations to provide [***] buy rights as set forth in Section 12.1 and manufacturing rights as set forth in Section 12.2 [***], except a termination by Supplier pursuant to Section 24.2 for HP’s default, for [***] of this Agreement. Notwithstanding any expiration or termination of this Agreement, Supplier may, at its discretion, provide [***] buy rights as set forth in Section 12.1 for [***] following any such expiration or termination.

13.LOSS CONTROL

13.1 Business Continuity

13.1.1Supplier will develop and keep current a formal business continuity plan that details Supplier’s strategies for response to and recovery from a broad spectrum of potential disasters that could disrupt operations and timely delivery of Product, material and services required pursuant to this Agreement.

Supplier’s planwill include a baseline material hazard analysis, a written recovery plan and documented emergency and incident response procedures, a mitigation plan to prevent losses or minimize the effects of a disaster, and a crisis communication plan.

21

“Hazard” means an existing or unusual occurrence in the natural or the human-made environment that may adversely affect human life, property, or activity to the extent of a disaster. Industrial/Technological Hazards include destruction of data storage, retrieval and processing facilities, hazardous materials release, loss of data systems integrity from breaches of security, power failures, structural failures, telecommunications failures, and transportation failures. Natural Hazards include earthquake, flood, hurricane, landslide, tornado, tsunami, volcano, wild or forest fire, and windstorm and winter storm.

13.1.2(a)Supplier will conduct an annual test and evaluation of its business continuity plan, which upon request by HP may be witnessed by HP, to ensure expected systemic and process responsiveness from Supplier.

13.1.2(b) Upon request, Supplier will make its business continuity plan and the annual evaluation available to HP or its designated representative for review.

13.2 Safety, Security and Fire Protection. Supplier will be responsible for maintaining the Hubs, SMI and all warehouse and storage facilities and operations (except HP Warehouses) in accordance with applicable and prudent safety, security, and fire protection standards. Supplier will allow HP and its designated representatives to perform on-site audits of such facilities and operations and will cooperate in the resolution of recommendations for improvement.

14.MARKETING AND LICENSING

14.1 Marketing Authority. HP will have the authority worldwide to market Product andHP Products containing Product to the extent it deems appropriate. Without limiting the generality of the foregoing sentence, [***] with respect to marketing Product or HP Products [***] developing, purchasing, licensing or marketing any product which performs the same or similar function as Product. HP will have the right to use its own business and license terms for all marketing and distribution of Product and HP Products.

14.2 No Rights in Marks. Except as otherwise set forth in Section 14.3, nothing in this Agreement grants either party any rights in the Marks of the other party; provided that HP may use the name of Supplier and the name of any Product in advertising and marketing Product or HP Products. As Supplier may reasonably require, Product will be affixed with copyright notices sufficient to give notice as to the respective rights of the parties.

14.3 Private Labeling. If during the Term HP requests Supplier to produce HP private label versions of Product, Supplier will ensure that Product contains HP Marks, serial number format and packaging as specified by HP and conforms to HP specifications for external appearance. Supplier will make commercially reasonable efforts to fulfill such request, as long as there is no material change in

22

form or dimensions of Product and no required commercially unreasonable action. [***].

14.4 [***].

14.5 [***]. For purposes of this Agreement, [***]. These rights with respect to the Documentation will extend to Eligible Purchasers and, to the extent related to distribution or sale of HP Products, to HP Subsidiaries, Affiliates and third party channels of distribution as may be authorized by HP.

15.INTELLECTUAL PROPERTY PROTECTION

15.1 Supplier’s Duty to Defend. Except as provided in Section 15.4 and conditioned upon HP’s satisfaction of its obligations under Section 15.2, Supplier will, to the maximum extent permitted by law, [***] (individually, an “Indemnitee” and collectively, “Indemnitees”) [***]

15.2 HP’s Duty to Notify. HP will give Supplier prompt notice of any IP Claim. If Supplier assumes defense of such IP Claim without reservation of rights, HP will provide Supplier the authority, information and reasonable assistance (at Supplier’s expense) necessary to defend. Supplier will control defense, and HP will not settle such IP Claim without Supplier’s consent, not to be unreasonably withheld; provided that if Supplier does not diligently pursue resolution of such IP Claim or fails to provide HP, upon request at any time and from time to time, with reasonable assurance that it will diligently pursue resolution, then HP may, without in any way limiting its other rights and remedies, defend the claim and collect all costs of doing so from Supplier. [***] settlement or compromise Supplier desires to enter [***]. HP and any other Indemnitee may, in its or their discretion, participate in the defense of such IP Claim.

15.3 Actions After Injunction or Order. If the use or combination of any Product is enjoined, if the combination of any Product with an HP Product is enjoined where such combination is intended by Supplier or reasonably inferable from Specifications, Supplier’s written designs or Documentation or if a court or government agency enters an injunction or order forbidding the importing of any Product or preventing the Delivery of any Product to HP (any of which Product being referred to as “Infringing Product”), Supplier will, as may be reasonable under the facts and circumstances and within a reasonable time, [***], and having reviewed its options with HP:

15.3.1 [***].

15.3.2 [***].

15.3.3 [***].

23

15.3.4 [***].

If none of the foregoing options is commercially achievable, [***].

In addition to the above,  [***].

15.4 Limitations. Nothing in this Article 15 applies to any Products to the extent such Products (i) have been improperly installed, repaired, altered or otherwise modified (other than by Supplier or Supplier’s authorized Subcontractors), (ii) have been subjected to misuse, abuse, negligence or accident, (iii) have been used in a manner contrary to Specifications or Supplier’s written instructions or Documentation; (iv) are comprised of materials provided or a design stipulated by HP or information or instructions provided by HP and not approved by Supplier in writing to the extent that the claim arises from Supplier’s compliance with a Unique Specification or result directly from use of such materials, design or information so provided by HP or (v) have been (A) modified by HP or a third party or (B) used by HP or a third party in connection with or in combination with an HP Product or a part or system not provided by Supplier in an application which in either the case of (A) or (B) is not expressly intended by or prohibited by Supplier in Specifications, Supplier’s written designs or Documentation; [***].To the extent that any of the foregoing limitations would otherwise apply, it will not apply where the Product is claimed to be an unauthorized use, misappropriation or infringement on account of a manufacturing, test, upgrade and/or repair process used by Supplier unless HP has required Supplier to use in manufacture, test, upgrade and/or repair of such Product the particular manufacturing, test, upgrade and/or repair steps that resulted in such claim. Notwithstanding anything else contained in this Agreement, [***].

15.5 Intellectual Property Developed under this Agreement. Intellectual Property Rights developed by Supplier or otherwise arising in the performance of this Agreement will be owned as provided in this Section. [***].

15.5.1 [***]. Either party may proceed on its own if the other party declines to participate or fund such activities, and any such refusal to participate or fund will not affect the parties’ joint ownership rights with respect to any affected Intellectual Property Rights. [***].

15.5.2 Notwithstanding the foregoing, [***],  provided that (a) additional consideration is provided for in a professional services agreement or (b) as the parties hereto otherwise agree in writing.  In the event Intellectual Property Rights arising under this agreement (irrespective of who developed those rights, or whether the rights were jointly developed) are developed by Supplier not as a result of [***], but where those Intellectual Property Rights have [***] (as opposed to the products, processes or services of [***] in aggregate), Supplier agrees [***] for so long as HP is

24

in an active purchasing relationship with Supplier or an affiliate of the Supplier on the same terms and conditions.

15.5.3 Each party agrees to require its employees and contractors to be subject to an assignment obligation to such party for any Intellectual Property Rights arising under this Agreement.

16.TRADE REQUIREMENTS

16.1 Supplier understands that this Agreement is subject to compliance with U.S. and other national export, import, customs and trade-related laws and regulations and that it is responsible for implementing procedures to ensure compliance with all guidelines outlined in each of HP Regional Trade Guidelines. Supplier acknowledges that it is knowledgeable about such laws, regulations, and HP requirements and agrees to comply with same.

16.2 Supplier, at each of its sites, is responsible for determining the appropriate country of origin (“CO”) for the product(s) it manufactures/assembles for HP and for marking these products in accordance with the requirements set out in BF Regional Trade Guidelines. Further, Supplier will cooperate fully with HP in supplying data to facilitate HP’s origin reporting requirements and qualification for preferential origin programs such as NAFTA, IFTA, FMF, EXIM and the like including, but not limited to, all requested origin analysis, certificates of origin, manufacturer’s affidavits, data (e.g. EDI) transmissions, and special reporting.

16.3 The following trade data elements must be able to be printed out or be capable of being transferred electronically on each commercial invoice prior to shipment of Product and must be sent to HP via the standard electronic/EDI shipping confirmation signal:

•Country of Origin (line item level)

•Import Country HTS Classification (line item level)

•ECCN (line item level)

•License (line item level)

•Destination Control Statement

•HP Part Number

•Appropriate INCOTERM

Further, Supplier must maintain, and reproduce upon demand, all documentation relating to the international transport of HP goods for a period of not less than six (6) calendar years from the date of each shipment. All such record keeping system will comport with the legal requirements of the U.S. and other nations including, but not limited to, requirements set out in Parts 762 and 772, U.S. Department of Commerce, Export Administration Regulations and the U.S. Customs Record-Keeping Regulations, 19 C.F.R. 163.

25

Supplier will provide immediate notice to HP (via the site’s appointed HP representative) in the event of an action by the U.S. or other national government customs/export authorities that relates specifically to goods or services provided to HP by Supplier’s sites.

Supplier will afford HP, and HP’s duly appointed agents, reasonable access to the sites for trade compliance audit purposes and further agrees to respond in a timely manner to HP’s requests for production of trade control records and to comply with all remedial or corrective actions that HP may specify.

16.4 Supplier must be capable of producing accurate and complete shipping documentation for each Supplier site and each shipment from such site. Supplier is responsible forknowing and understanding shipping documentation standards applied in the normal course of international business and for knowing and understanding additional requirements outlined in HP Regional Trade Guidelines. Supplier acknowledges that each of its sites is staffed with personnel knowledgeable about such standards and HP requirements and agrees to comply with same.

16.5 Supplier is responsible for knowing and understanding the terms of sale governing its agreement(s) with HP. Supplier is responsible for understanding the scope of its responsibilities under the applicable sales term(s), for ensuring that all of the site’s employees and agents are likewise educated, and for implementing procedures to ensure that the site, the site’s employees and the site’s agents fulfill the Supplier’s responsibilities under the applicable term(s).

16.6 For each transaction where HP is to be importer of record, the Supplier is responsible for ensuring that commercial documentation accurately reflects the actual price paid or payable between HP and Supplier’s site. It is Supplier’s responsibility that each of its sites reconciles its financial records against commercial documentation in order to validate HP’s use of transaction value, whenever possible, for declarations to Customs. When transaction value cannot be applied, Supplier will apply sequentially the World Trade Organization (“WTO”) valuation rules for HP transactions. Supplier acknowledges that it is knowledgeable about the requirements for transaction value declarations and agrees to comply with same.

16.7 Duty Drawback. Unless otherwise requested, Supplier will allow HP to be the importer of record for all Deliveries. If HP is not importer of record and Supplier obtains duty drawback rights to Product, Supplier will, upon HP’s request, provide HP with documents required by the customs authorities of the country of receipt to prove importation and to transfer duty drawback rights to HP if HP has paid or arranged deposit of the subject duties.

26

17.CLASSIFICATION AND LICENSING AUTHORITY

17.1 Where Products are of HP’s design, technology or software or are manufactured to HP’s functional specification, HP will assist the Supplier in the export of the commodities by providing Export Control Commodity Numbers (“ECCN”) and Harmonized Tariff Code Numbers (“HTS”) on behalf of HP’s subsidiary Hewlett-Packard International GmbH (“HPIG”). Supplier will comply with Applicable Law governing import or export of Product and will be solely responsible for obtaining all requisite licenses and other authorizations. Supplier will not export, re-export or otherwise disclose, directly or indirectly, technical data or the direct product of such technical data received from HP without HP’s prior knowledge and written consent.

17.2 Supplier’s Declaration. Where Products are of Supplier’s design, technology or software or are manufactured to the Supplier’s functional specification; the Supplier will provide HP with the correct ECCN or with sufficient technical information to determine classification. Additionally, the Supplier must provide any additional information that it knows will affect the determination of license authority. The information will be supplied via trade’s supplier’s declaration at: [***].

17.3 Country of Origin Marking. The Supplier will mark the containers, in English, as well as all Products with the Country of Origin, in compliance with Section 304 of the United States Tariff Act. If the Product itself cannot be marked legibly due to size, then its immediate container must be marked with a signed certificate stating Country of Origin (manufacture) by quantity and part number (HP’s and Supplier’s).

18.GOVERNMENTAL COMPLIANCE

18.1 Duty to Comply. Supplier, its agents, employees and Subcontractors will comply with all ApplicableLaw in its performance of this Agreement. Upon request, Supplier agrees to certify compliance with any applicable law or regulations. HP is neither responsible for monitoring Supplier’s nor Supplier’s Subcontractor’s compliance with any Applicable Law.

18.2 Social and Environmental Responsibility. Supplier warrants that in all countries in which Supplier and, to Supplier’s knowledge, information and belief, Supplier’s authorized Subcontractors do business, its and their operations comply with all applicable laws and regulations governing protection of the environment, employee health and safety, and labor and employment practices, including but not limited to, laws and regulations relating to working hours, working conditions, wages, benefits, child labor, forced labor, freedom of association and equal employment opportunity. [***].

18.2.1Supplier warrants that its U.S. operations comply with the requirements of Executive Order 11246, the Vocational

27

Rehabilitation Act and the Vietnam Era Veterans’ Readjustment Assistance Act.

18.2.2Accessibility. Supplier is in compliance with all applicable laws and regulations governing the accessibility of information technology for people with disabilities.  Supplier will provide HP with information about accessibility features of Products.

18.3 Environmental Requirements. Without limiting the generality of Sections 18.1 and18.2 above, Supplier warrants and agrees that:

18.3.1 Product Content. All Products and their packaging will comply with HP’sGeneral Specifications for Environment, DWG No. A-5951-1745-1 [***] and, for purposes of this Agreement, such specifications are part of the Specifications for the Product.

18.3.2 Shipment. All Products will be shipped in conformance with all applicable national and international transportation regulations including, where applicable, regulations regarding chemicals and hazardous materials, dangerous goods, or fumigation and aeration. All packaging materials, including pallets, will be free of pests and comply with national and international regulations regarding Solid Wood Packing Materials (SWPM) where applicable.

18.3.3 Chemical Substances. Each chemical substance contained in the Product is on the inventory of chemical substances compiled and published by the United States Environmental Protection Agency pursuant to the Toxic Substances Control Act.

18.3.4 Supplier will provide complete and accurate Material Safety Data Sheets (MSDS) for Product to HP prior to shipment.

18.3.5 Environmental Information. Supplier will furnish HP any information reasonably requested by HP to confirm compliance with Applicable Law or to determine the environmental effects of materials included in the Products or in the packaging.

18.3.6 Disposition of Excess Materials. Supplier will recycle or dispose of any excess or waste materials generated from manufacture, test, upgrade or repair of Product (including damaged or nonconforming product or materials) in compliance with the provisions of this Agreement, Applicable Law and any specific instructions received from HP.

18.3.7 Manufacturer will continuously implement and maintain processes and policies designed to protect the environment at any facility at which

28

Product manufacturing, test, upgrade or repair operations are performed under this Agreement.

18.3.8 Ozone Depleting Substances. Supplier hereby certifies that neither Product, nor any part, piece or component of any Product:

18.3.8.1 Contains any “Class I Substance” or “Class II Substance” as those terms are defined in 42 U.S.C. Section 7671 and implementing regulations of the United States Environmental Protection Agency at 40 C.F.R. Part 82, as now in existence or hereafter amended; or

18.3.8.2 Has been manufactured, tested, upgraded, or repaired with a process that uses any “Class I or Class II Substance.”

18.4 Procurement Regulations. HP is a commercial corporation that is also a contractor and subcontractor for the U.S. government. All of the Products to be purchased from Subcontractor by HP pursuant to a subcontract/purchase order in the United States, its territories, possessions, the District of Columbia and the Commonwealth of Puerto Rico are deemed to be “Commercial Items” as defined in Federal Acquisition Regulation (“FAR”) 2. 10 1, Part 12 and 52.202 1(c). Notwithstanding any other clause in HP’s contract with the U.S. government, only those clauses identified in the clause at FAR 52.244-6 are required to be in agreements (subcontracts) for commercial items or commercial components. In addition, and in accordance with determinations made as a result of U.S. government audits, HP is required to flow down FAR 52.219-9, Small Business Subcontracting Plan, on all subcontracts/purchase orders with large business concerns that exceed $500,000 in value.

Pursuant to FAR 52.212-5(e) and/or FAR 44.402(b), subcontractor, meaning any supplier,distributor, vendor or firm that furnishes supplies or services to or for a prime contractor or another subcontractor in support of U.S. government business, will accept the following FAR clauses, which are hereby incorporated by reference into this Agreement, with the same force and effect as if they were presented in full:

FAR 52.222-26, Equal Opportunity (February 1999)

FAR 52.219-8, Utilization of Small Business Concerns (October 2000)

APPLICABLE IF THE SUBCONTRACT/PURCHASE ORDER EXCEEDS $2,500: FAR 52.222-41, Service Contract Act of 1965, as Amended (May 1989) if the purchase order is principally for the furnishing of services through the use of service employees.

APPLICABLE IF THE SUBCONTRACT/PURCHASE ORDER IS FOR $10,000 OR MORE:

29

FAR 52.222-35, Affirmative Action for Disabled Veterans and Veterans of the Vietnam Era (April 1998)

FAR 52.222-36, Affirmative Action for Workers with Disabilities (June 1998)

APPLICABLE IF THE SUBCONTRACT/PURCHASE ORDER EXCEEDS$500,000 AND SUBCONTRACTOR IS NOT A SMALL BUSINESS:

FAR 52.219-9, Small Business Subcontracting Plan (October 2000)

18.5 Anti-Terrorism Security Measures. Supplier acknowledges that its failure to comply with the laws, or regulations of any applicable governmental authority, U.S. CTPAT or equivalent security guidelines or TAPA/HP security requirements will be considered by HP as negligence and failure on the part of Supplier to provide due care for HP shipments. Supplier will be liable for all fines and penalties imposed on HP, and other damages incurred by HP, relating to Supplier’s noncompliance with any such security regulations, guidelines or requirements.

19.FORCE MAJEURE EVENTS

19.1 Delaying Causes. Neither party will be liable for any delay in performanceunder this Agreement caused by any act of God or other cause beyond Supplier’s reasonable control and without Supplier’s fault or negligence including but not limited to fire, flood, war, embargo, riot or an unforeseeable intervention of any government authority, which causes complete business interruption (a “Delaying Cause”). A Delaying Cause does not include delaysin transportation, shortages of materials, delays by manufacturers or Subcontractors or economic considerations or inefficiencies. No Delaying Cause will suspend or excuse either party’s obligations as set forth in Articles 15, 21 and 22.

19.2 Occurrence of a Delaying Cause. Any party whose performance is affected by a Delaying Cause will notify the other party promptly upon commencement of a Delaying Cause and will provide its best estimate of the expected duration of such occurrence. Upon notice to Supplier during pendency of a Delaying Cause, HP may terminate any unfilled Accepted Orders without liability. Any party whose performance is affected by a Delaying Cause will exercise reasonable diligence to overcome and effect cessation of the Delaying Cause and to mitigate effects thereof. Performance of the parties’ respective obligations to purchase and sell Product will be suspended to the extent affected by, and for the duration of, a Delaying Cause, and during pendency of a Delaying Cause affecting Supplier’s ability to make timely Delivery, [***].

19.3 Resumption of Performance. The parties will resume performance under this Agreement once the Delaying Cause ceases, and HP may, upon written notice not

30

later than [***] following such cessation, extend the Term up to the length of time the DelayingCause endured.

20.EVENTS OF DEFAULT AND REMEDIES

20.1 Events of Default. A party will be in default under this Agreement uponthe

occurrence of any of the following events (each an “Event of Default”):

20.1.1 Said party fails to pay or perform any payment obligation when and as due under this Agreement or any Accepted Order after ten (10) days written notice from the other party;

20.1.2 Said party fails to perform any obligation under this Agreement or any Accepted Order, other than as set forth in Section 20.1.1, when such failure continues for [***] after written notice thereof is given or, if such failure cannot reasonably be cured within said [***], but is capable of cure within a longer period not exceeding [***] and said party commences to cure such failure promptly upon receipt of such written notice and thereafter proceeds with reasonable diligence to cure such failure, for such longer period as may be necessary for said party to cure the same with reasonable diligence;

20.1.3 Any representation or warranty made by said party in connection with this Agreement proves to be false in any material respect; provided that if such representation or warranty is capable of being cured, then said party may cure such misrepresentation or breach of warranty within [***] after written notice thereof is given or, if such misrepresentation or breach of warranty cannot reasonably be cured within said [***], but is capable of cure within a longer period not exceeding [***] and said party commences to cure same promptly and thereafter proceeds with reasonable diligence to cure same, for such longer period as may be necessary for said party to cure the same with reasonable diligence;

20.1.4 Said party makes an assignment for the benefit of creditors, admits in writing its inability to pay its debts as they mature, applies to any court for the appointment of a trustee or receiver for any of its properties, or commences any voluntary proceeding under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution, liquidation or other similar law of any. jurisdiction; or any such application or any such proceeding is filed or commenced against said party and said party indicates its approval, consent or acquiescence thereto; or there is filed or commenced against said party an involuntary proceeding under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution, liquidationor other similar law of any jurisdiction and such proceeding is not dismissed, and remains

31

in effect, for [***] or more; or an order is entered adjudicating said party bankrupt or insolvent; or

20.1.5 Except as may be permitted under Section 25.4, said party transfers all or substantially all of its properties or merges with or into any other entity or there is otherwise any change in controlling interest or ownership of said party, without the prior written consent of the other party.

20.2 Rights and Remedies Upon Default. Upon the occurrence and during the continuation of any Event of Default, the party not in default will have, in addition to all other rights and remedies provided herein, all of the rights and remedies under the Uniform Commercial Code, as may be limited or otherwise affected by this Agreement. [***]. All rights and remedies will be cumulative and may be exercised singularly or concurrently.

20.3 Cover Costs. In the event of default by Supplier, Supplier and HP agree to discuss [***] of certain premium costs (“Cover Costs”) reasonably incurred by HP to remedy Supplier’s default. [***].

21.CONFIDENTIAL INFORMATION

21.1 Confidential Information.During the Term, a party (the “Recipient”) may receive or have access to certain information of the other party (the “Discloser”) that is marked as “Confidential Information,” including, though not limited to, information or data concerning the Discloser’s products or product plans, business operations, strategies, customers and related business information. The Recipient will protect the confidentiality of Confidential Information with the same degree of care as the Recipient uses for its own similar information, but not less than reasonable care. Confidential Information may only be used by those employees of the Recipient who have a need to know such information for purposes related to this Agreement. Supplier will, upon HP’s written request, use commercially reasonable efforts to cause any entity or person designated by HP to enter into a nondisclosure agreement which affords materially comparable protections for HP’s Confidential Information as the Confidential Disclosure Agreement referenced in Exhibit D. [***].

21.2 Exclusions. The foregoing confidentiality obligations will not apply to any information that (a) is known by the Recipient prior to disclosure, (b) was developed by the Recipient prior to disclosure or is subsequently developed independently and without reference to the disclosure, (c) is or becomes publicly available through no fault of the Recipient, (d) is rightfully received from a third party with no duty of confidentiality, (e) is disclosed by the Recipient with the Discloser’s written approval or (f) is disclosed under operation of law.

21.3 Personal Data. Both parties agree to comply with the applicable data protection rules when collecting, storing, transferring, sharing and/or otherwise

32

processing any personal data in connection with this Agreement. Unless expressly agreed otherwise, any HP employee personal data HP discloses to Supplier may only be used by Supplier in accordance with the then current HP Privacy Policy (available on request) for administering the relationship between Supplier and HP. Unless expressly agreed otherwise, any personal data customer discloses to HP may be used by HP in accordance with the then current HP Privacy Policy for administering the relationship between the customer and HP and for providing customer with information about HP’s products, services and programs. HP may share such personal data with other HP entities and business partners who are providing services on behalf of HP (whether established in Europe or elsewhere) that are bound by appropriate confidentiality obligations. HP will secure customer’s consent before sharing such personal data with any other third party.

22.INSURANCE AND INDEMNITY

22.1 Without limiting any of the obligations or liabilities of Supplier, Supplier will maintain, at its own expense, as long as this Agreement is in effect, insurance policies of the kind and limits listed below:

Worker’s Compensation Insurance: Supplier will maintain Workers Compensation Insurance as required by Applicable Law having jurisdiction over Supplier’s employees wherever work is to be performed under this Agreement.

Employer’s Liability Insurance: Supplier will maintain Employer’s Liability Insurance in an amount keeping with the law of the nation, state, territory or province having jurisdiction over Supplier’s employees wherever work is to be performed under this Agreement [***].

General Liability Insurance: Supplier will maintain Comprehensive or Commercial General Liability Insurance (including but not limited to premises and operations, products and completed operations, broad form contractual liability, broad form property damage and personal injury liability) with a minimum limit of [***] claims of bodily injury, including death, and property damagethat may arise from use of the Products or acts or omissions of Supplier under this Agreement. Each policy obtained by Supplier will name HP, its officers, subsidiaries, directors and employees as additional insureds. Such insurance will apply as primary insurance and no other insurance will be called upon to contribute to a loss covered thereunder.

Claims Made Coverage. If any policies have “claims made” coverage, Supplier will maintain such coverages with HP named as an additional insured for a minimum of three years after termination of this Agreement. Any such coverage must have a retroactive date no later than the date upon which work commenced under this Agreement.

33

Additional Requirements. All deductibles on policies providing coverage will be paid by Supplier. In the event Supplier is self insured for matters described in Section 13.0, Supplier agrees to respond to any claims or losses made against or incurred by HP in the same fashion as if insurance had been purchased with the same or broader coverage terms than what is generally available to similar Supplier’s. In no event will the coverages or limits of any insurance required under this Article, or the lack or unavailability of any other insurance, be deemed to limit or diminish Supplier’s obligations or liability to HP under this Agreement. In addition, where allowed by law, such policies will permit Supplier to waive, on its own behalf and on behalf of its insurers, any rights of subrogation against HP, its subsidiaries, officer directors and employee.

All insurance policies will be written by a company authorized to do business in the territory and jurisdiction where the project is located. In no event will the coverage or limits of any insurance maintained by Supplier under this Article, or the lack or unavailability of any other insurance, limit or diminish in any way Supplier’s obligations or liability to HP under this Agreement. All insurance policies will be written with appropriately licensed and financially responsibleinsurers

Certificate of Insurance. Supplier will furnish Certificates of Insurance acceptable to HP before any Work is commenced hereunder by Supplier. The Certificate of Insurance will provide that there will be no cancellation or reduction of coverage without [***] prior written notice to HP.

22.2 Indemnity. Supplier will, to the maximum extent permitted by law, indemnify, defend and hold harmless HP and HP’s directors, officers, employees and agents from and against any and all claims, liability, loss or damage for bodily injury, occupational sickness or disease or death of any person, including any employee of Supplier or any Subcontractor, or for any physical damage to property, or loss of use thereof, (i) to the extent proximately caused by Product or Non-conforming Product or (ii) which is proximately caused by the negligence, strict liability or other fault of, or breach of this Agreement or any Accepted Order by, Supplier, including its Subcontractors and its and their employees, agents and suppliers, in whole or in part or jointly with HP. Nothing in this Article 22.0 applies to any Products to the extent such Products have been installed, repaired, altered, modified or used by HP in a manner contrary to Specifications or Supplier’s written instructions or Documentation. In the event any claim, liability, loss or damage is caused by the joint or concurrent negligence, strict liability or other fault of Supplier and HP, except to the extent due to HP’s passive negligence or HP’s failure to manage or supervise Supplier, includingits Subcontractors and its and their employees, agents and suppliers, or HP’s failure to oversee or control Supplier’s performance under this Agreement or any Accepted Order, including performance of Supplier’s Subcontractors and its and their employees, agents and suppliers, then such claim, liability, loss or damage will be borne by Supplier and HP in proportion to its respective degree of

34

fault. Conditioned upon HP’s satisfaction of its obligations under Section 22.3, Supplier will at its own expense defend any suit, action or other proceeding asserting a claim covered hereunder, and Supplier will pay all costs, including attorneys’ fees and litigation costs, incurred in enforcement. Supplier will not have any obligation to defend, indemnify or hold harmless hereunder when the occurrence giving rise to such claim, charge, liability, loss or damage is caused solely by the negligence, strict liability or other fault of HP. Supplier’s obligations to defend, indemnify and hold harmless hereunder will not be limited or otherwise affected by any insurance, self-insurance or retention of risk which it may carry or assume.

22.3 HP’s Duty toNotify. HP will give Supplier prompt notice of any such claim or action for which Supplier is obligated to indemnify under Section 22.2. If Supplier assumes defense of such claim or action without reservation of rights, [***], upon request at any time and from time to time, with reasonable assurance that it will diligently pursue resolution, HP may, without in any way limiting its other rights and remedies, defend the claim and collect all costs of doing so from Supplier. [***]. HP and any other Indemnitee may, in its or their discretion, participate in the defense of such claim or action.

23.LIMITATION OF LIABILITY

23.1 Liability Disclaimers. TO THE FULLEST EXTENT PERMITTED BY LAW, NEITHER PARTY WILL BE LIABLE TO THE OTHER FOR ANY SPECIAL, INDIRECT, OR CONSEQUENTIAL DAMAGES OF THE OTHER (INCLUDING LOSS OF PROFITS OR REVENUE, COST OF CAPITAL OR DOWNTIME COSTS) ARISING OUT OF ANY PERFORMANCE OF THIS AGREEMENT OR ANY ORDER, REGARDLESS OF WHETHER SUCH DAMAGES ARE BASED IN TORT, WARRANTY, CONTRACT OR ANY OTHER LEGAL THEORY, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES; [***].

23.2 Liability Limitations. The respective liability of Supplier and HP to each other for any claim whether in contract, warranty, negligence, tort, strict liability, or otherwise for loss or damage arising out of, connected with, or resulting from this Agreement or any Order or the performance or breach hereof, or from the design, manufacture, sale, delivery, resale, repair, replacement, installation, technical direction, inspection, operation or use of any Goods covered by or furnished under this Agreement or any Order, or from any Services rendered in connection herewith, [***].

23.3 Exceptions to Liability Disclaimers and Limitations. NOTHING IN THIS ARTICLE 23 OR OTHERWISE EXCLUDES, DISCLAIMS, LIMITS OR OTHERWISE AFFECTS EITHER PARTY’S LIABILITY FOR CLAIMS OF ANY THIRD PARTY, CLAIMS FOR PERSONAL INJURY OR DEATH OR

35

CLAIMS FOR PHYSICAL DAMAGE TO PROPERTY. EXCLUDED DAMAGES. NEITHER PARTY WILL BE LIABLE TO THE OTHER FOR ANY PENAL, EXEMPLARY OR PUNITIVE DAMAGES OR FOR ANY MULTIPLE DAMAGES.

24.TERMINATION

24.1 Termination for Convenience. HP may terminate this Agreement at any time without liability for damages and without need to show cause upon [***] Supplier may terminate this Agreement at any time without liability for damages and without need to show cause upon 180 days prior written notice. Except for any obligations to purchase Products in inventory as [***], upon termination pursuant to this Section, HP’s entire payment liability will be limited to all Products for which HP has received and accepted delivery.

24.2 Termination for Default. Either party may terminate this Agreement or any Accepted Order in accordance with Article 20.0.

24.3 Termination for Assignment. Either party may, upon reasonable prior written notice, terminate this Agreement or any Accepted Order in case of an assignment or attempted assignment of this Agreement or any Accepted Order to a competing entity or in case of an assumption or delegation of performance of this Agreement or any Accepted Order by a competing entity, if in the party’s reasonable determination such assignment or performance would be detrimental to the performance of this Agreement or any Accepted Order or to its business interests or prospects.

24.4 Termination Pursuant to Other Power. Either party may terminate this Agreement or any Accepted Order pursuant to any other right granted to or reserved in that party under this Agreement or any Accepted Order or as may exist at law or in equity, as may be limited or otherwise affected by this Agreement.

24.5 Effect of Termination. [***].

24.6 Termination Claim. Upon the occurrence of a termination event, failure of either party to submit it’s termination claim in writing within [***] unless extended bythe other party in writing prior to the expiration of said period, will constitute a waiver and release of such claim, and neither party will be required to notify the other party or make any determination thereof. [***].

25.MISCELLANEOUS

25.1 Notices. All notices that are required to be given under this Agreement will be in writing and will be sent to the respective address as set forth in Exhibit F, or such other address as each party may designate by notice given in accordance

36

with this Section. Any such notice may be delivered by hand, by overnight courier, by first class pre-paid letter or by facsimile or electronic mail transmission, and will be deemed to have been received: (a) by hand delivery, at the time of delivery; (b) by overnight courier, on the succeeding business day; (c) by first class mail, two (2) business days after day of mailing; and (d) by facsimile or electronic mail, immediately upon confirmation of transmission, provided a confirmatory copy is sent pre-paid by first class mail or overnight courier or is hand delivered by the end of the next business day.

25.2 Exhibits; Other Documents. The Exhibits and Schedules attached to this Agreement and all other documents referred to herein are hereby incorporated herein by this reference and made part of this Agreement. In the event of any conflict between a provision contained in any Exhibit, Schedule or other document and a provision of this Agreement, then the provisions of the Exhibit will govern.

25.3 Independent Contractors. The relationship of the parties established under this Agreement is that of independent contractors, and neither party is a partner, employee, agent or joint venturer of or with the other. Nothing in this Agreement precludes either party from independently developing, manufacturing, selling or supporting products similar to Product.

25.4 Assignment. Subject to the exception set forth in the following sentence, neither this Agreement nor any right, license, privilege or obligation provided herein or in any Accepted Order may be assigned, transferred or shared by either party without the other party’s prior written consent, not to be unreasonably withheld, and any attempted assignment, transfer or sharing without consent is void; provided that Supplier may perform its obligations hereunder through any Subsidiary or Affiliate for whose performance Supplier will be responsible and remains liable. [***]  The assigning party must ensure that the assignee assumes in writing or by operation of law the assigning party’s obligations, and no assignment will relieve the assigning party of its obligations, under this Agreement and any assigned Accepted Orders. This Agreement will inure to the benefit of and will be binding on the permitted successors and assigns of the parties.

25.5 No Waiver. No modification or waiver of or amendment to or release from any provision of this Agreement or any Accepted Order and no waiver of or release from any breach or default hereunder will be of any force or effect unless contained in a writing which is signed by the party which is sought to be bound thereby, nor may same be held or considered to be a modification or waiver of or amendment to or release from any other provision, nor be a waiver of or release from any other breach or default. No modification or waiver of or amendment to or release from any provision of this Agreement and no waiver of or release from any breach or default hereunder will result from any conflicting, different or printed provisions of any subsequently dated sales or purchase order, order

37

acknowledgment, or a confirmation thereof, for Product, unless such subsequent provision is stated conspicuously on the face of any such order, acknowledgment or confirmation and such order, acknowledgment or confirmation is agreed in a writing signed by an authorized representative of the party to be bound thereby. The parties contemplate that from time to time such order, acknowledgment and confirmation forms may be utilized, and the provisions of this Agreement will govern and control such forms except to the extent of any such subsequent provision as aforesaid. The failure of any party to enforce any provision of this Agreement, or to exercise any right, will not be considered a waiver of that provision or right.

25.6 No Third Party Beneficiary. This Agreement does not confer any right or remedy other than to the parties hereto and their respective permitted successors and assigns, and no action may be brought against any party hereto by any third party claiming as a third party beneficiary to this Agreement or any Accepted Order. Nothing in this Agreement is intended torelieve or discharge any obligation or liability of any third party to any party to this Agreement, and nothing herein confers, or is intended to give any third party, any right of subrogation or action over.

25.7 Headings; Interpretation. The Article and Section headings used in this Agreement are for convenience of reference only and do not limit or extend the meaning of any provision of this Agreement, and will not be used in interpretation of any provision of this Agreement. All terms defined in this Agreement in the singular form will have comparable meanings when used in the plural form and vice versa. References in this Agreement to “Articles,” “Sections,” “Exhibits” and “Schedules” are to articles, sections, exhibits and schedules herein or hereto unless otherwise indicated. The words “include” and “including” and words of similar import when used in this Agreement will not be construed to be limiting or exclusive.

25.8 Publicity. Subject to the terms and conditions of Article 19 above, neither party may publicize or disclose to any third party, without the written consent of the other party, the existence or terms of this Agreement except as required under applicable federal securities laws. In the event that Supplier becomes aware that disclosure is likely to be required by operation of law, Supplier shall promptly provide HP with ample notice and opportunity to seek a protective order. Supplier agrees that in the event that disclosure to the SEC is likely, Supplier shall promptly file a request for confidential treatment. Without limiting the generality of the foregoing sentence, no press releases regarding the subject matter, content, or existence of this Agreement may be made without the prior mutual consent of each party.

25.9 Severability. If any provision in this Agreement is held invalid or unenforceable by a body of competent jurisdiction, such provision will be construed limited or, if necessary, severed only to the extent necessary to

38

eliminate such invalidity or unenforceability. The parties will negotiate a valid, enforceable substitute provision that most nearly effects the parties’ original intent in entering into this Agreement or to provide an equitable adjustment in the event no such provision can be added. The other provisions of this Agreement will remain in full force and effect.

25.10 Entire Agreement. This Agreement, together with the Exhibits and Schedules, comprise the entire understanding between the parties with respect to the subject matter hereof and supersede any previous communications, representations or agreements, whether oral or written, with respect thereto; provided that any separate non-disclosure agreement between the parties will continue unchanged and in full force and effect according to its terms. For purposes of construction and interpretation, this Agreement will be deemed to have been drafted by both parties, and no ambiguity will be construed in favor of or against either party.

25.11 [***]

25.12 Governing Law. This Agreement and each Order and Acknowledgment will be governed in all respects by California law without reference to any choice or conflict of laws provisions of California or the law of any other jurisdiction. The parties hereby submit to the jurisdiction of the courts of California or any court of the United States sitting in California with subject matter jurisdiction, and waive any venue objections against the United States District Court for the Northern District of California, San Jose Branch and the Superior and Municipal Courts of the State of California, Santa Clara County, in any litigation arising under this Agreement. The parties exclude application of the 1980 United Nations Convention on Contracts for the International Sale of Goods, if applicable.

25.13 Counterparts. This Agreement may be executed in any number of counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. If this Agreement is executed in counterparts, no signatory hereto will be bound until all parties have duly executed, or caused to be duly executed, a counterpart of this Agreement.

25.14 Authority of Signatory. If HP or Supplier executes this Agreement by agent or representative, such agent or representative by his/her act of signing this Agreement individually warrants and represents to the parties, and HP and Supplier warrant and represent respectively to each other, that he/she is authorized to execute, acknowledge and deliver this Agreement on behalf of HP or Supplier, as the case may be, and thereby to bind the respective party to the same.

25.15 Disputes/Escalation Process.Supplier and HP will attempt in good faith to resolve all disputes under this Agreement by mutual agreement before initiating any legal action or attempting to enforce any rights or remedies hereunder; provided that nothing herein will prevent either party from giving notice at any

39

time of default as set forth in Article 20.0 or termination as set forth in Article 24.0. [***] both parties may pursue any or all rights and remedies as may exist at law or in equity, as may be limited or otherwise affected by this Agreement. [***]. Nothing herein will prevent either party, at any time, from suggesting referral of any dispute to mediation before a mutually acceptable mediator under mutually acceptable rules and procedures.

40

IN WITNESS WHEREOF, the parties, intending to be legally bound, have executed this Agreement by their respective authorized representatives as of the Effective Date.

OVERLAND STORAGE		HEWLETT-PACKARD COMPANY
Supplier		HP
By		By
Print Name: Vernon A. LoForti		Print Name:  Richard Gentilini
Title:	Vice President and Chief Financial Officer	Title: Director NSS Procurement

41

EXHIBIT A

TO PRODUCT PURCHASE AGREEMENT

BETWEEN HP AND OVERLAND STORAGE

PRODUCT DESCRIPTION AND SPECIFICATIONS

1.  Product Description

Storage tape libraries, related accessories, options and spares

2.  Product Specifications

Product will conform to Specifications.  Specifications include without limitation:

a)HP Product and Spares specifications and all industry standard specifications included within the Product and Spares specification.

b)HP Safety and regulatory agency requirements

c)HP’s Packing and Shipping Requirements specified in Exhibit B

d)HP’s General Specification for Environment

e)Technical requirements specified in Accepted Orders

42

EXHIBIT B

TO PRODUCT PURCHASE AGREEMENT

BETWEEN HP AND OVERLAND STORAGE

DELIVERY, PACKING AND SHIPPING REQUIREMENTS

1.0 General Shipping Terms

1.1Shipment Requirements.  All Accepted Orders are to be shipped complete.  Supplier will give HP immediate notice if it learns or has reason to believe that it cannot meet a Delivery Date or that only a portion of the Accepted Order will be available for Delivery to meet a Delivery Date.  For partial shipments, Supplier will ship the available quantities unless directed by HP to reschedule Delivery.  If Supplier ships by a method other than as specified in the corresponding Accepted Order, Supplier will pay any resulting increase in the cost of shipment.  HP may utilize drop shipment options to any destination; provided that if HP drop ships outside the country in which the Accepted Order is placed, HP will pay all resulting additional costs. The failure of Supplier to comply with these shipping requirements will be considered a material breach of the Agreement.

1.2Right to Accept Over Shipments.  If Supplier ships more Product than is covered by the corresponding Accepted Order, the amount of the over shipment may be either retained by HP for application against future Orders or returned to Supplier at Supplier’s risk and expense, as HP may determine in its discretion.

1.3[***]

1.4Freight Terms; Passage of Title; and Risk of Loss.  Freight terms will be negotiated by the parties from time to time during the Term.  [***].

1.5Packing List.  Each Delivery will include a packing list that satisfies the requirements, including as to country of origin, set forth in Article 16 and Exhibit B.

1.6Packaging.  Supplier will preserve, package, handle and pack all items of Product so as to protect same from loss, damage, electrostatic discharge or otherwise in conformance with good commercial practice, Exhibit B, Specifications, Applicable Law and other applicable standards as may be mutually agreed from time to time.

1.7Responsibility for Damage.  Supplier will select the common carrier to be used for shipment of Product.  Supplier is responsible and liable for any loss or damage due to its failure to properly preserve, package, handle or pack Product.  Neither HP nor any Eligible Purchaser will be required to assert any claim for such loss or damage

43

against the common carrier involved, nor will either be liable for any loss or damage due to a release of chemicals or other hazardous materials to the environment by reason of improper Delivery or Non-conforming Product.

1.8Off-Premises Inspection.  [***].  HP will bear its expenses of pre-inspection, and will indemnify and hold Supplier harmless from any damage or injury caused by HP’s personnel at such facility.

1.9Inspection.  HP will inspect Product upon Delivery to verify whether HP has received the number of boxes of Product shown on Supplier’s packing list and to detect any visible damage or any apparent damage from transportation to the boxes or packaging of Product.  HP will promptly notify Supplier of any such damage to the boxes or external packaging as delivered and will make a notation on the common carrier’s waybill of such damage and/or of any shipment shortages.  HP will also promptly notify Supplier of any shortage in the number of boxes delivered.

1.10Changes to delivery dates may only be made by HP’s authorized purchasing representatives, as specified by HP.  HP may, [***], issue Change Orders for Product quantities and schedule dates. If any Change Order is made orally, Supplier will send HP a written confirmation thereof within [***] Business Days of Supplier’s receipt of said Change Order and HP will provide Supplier with an Order confirming such change within [***] Business Days of receiving Supplier’s confirmation.

1.11If Supplier does not deliver Product in accordance with an Accepted Order or such Product does not meet the Specifications, then HP shall have the right to receive remedies specified herein.  Supplier is not responsible for delays caused by a Delaying Cause as defined in Section 19.1. Supplier acknowledges the importance of HP receiving Product in a timely manner.  [***].

2.0Outbound Logistics Operational Requirements

Supplier is required to meet the following outbound logistics requirements in order to ship products from their facility/shipping site to HP specified destinations.  [***].

A.Customs & Legal Requirements

1.[***].  [***].  [***].  Requirements will vary based on shipping origin, shipping destination, financial flow, customs regulations, and Supplier’s legal registration within origin/ destinations countries.

2.Legal Registration - The Supplier will be responsible for obtaining appropriate registrations to legally conduct outbound logistics as specified by HP.

44

B.Physical Shipping Requirements

1.Documents and Labeling – The Supplier must be able to produce and support all required shipping documentation required to meet customs (export and import), transportation, and customer requirements.  Specific requirements will vary based on shipping origin, shipping destination, transportation lane, delivery tracking, and customer.  Supported documents include the following.

•Commercial Invoice – multiple type

•International Packing list

•Bill of Lading/ Airway Bill

•Shipping labels

2.Packing and Marking – The Supplier must prepare and pack all Products in a manner (i) [***], that is consistent with practices customary in the computer component industry, (ii) necessary to meet a designated carrier’s requirements, and (iii) that conforms with the laws and regulations of any applicable country (including, but not limited to, the United States of America) and any applicable subdivision thereof.

3.Palletizing — The Supplier is required to palletize products for shipments when required based on transportation mode.  The Supplier will need to provide documented pallet specifications for HP approval based on product dimensions.  Palletizing of products will need to be sufficient to adequately protect the products during shipment, provide necessary security measures, support shipment load optimization, and meet customer requirements.

4.[***]

5.Serial Number Scanning — The Supplier will need to support serial number scanning for product shipments requiring serial number tracking as defined by HP.  Scanned product serial numbers will be required on shipping documentation and will need to be systemically provided to HP or other sites as defined within the IM requirements.

6.Additional Requirements — HP may request additional outbound logistics requirements of the Supplier either during implementation or post implementation.  These requirements could include, but are not limited, to the following:

•New customer requirements

•Trade laws (customs)

•Process integration and improvements

45

C.Security Requirements

The Supplier will be required to meet HP security requirements to effectively minimize product damages and losses from shipment point of origin to destination.

D.Carrier/ Freight Forwarder Requirements

1.Delivery Service Level — The Supplier will need to support HP specified transportation modes and delivery service levels.

2.Use of HP Carriers – In the case that HP is responsible for the outbound transportation, the Supplier will be required to schedule shipments via specific HP carriers.  Carrier assignments will vary based on shipping origin, shipping destination, customer, shipment size, product type, and other factors.  In the case that HP carriers need to be used, HP will provide the Supplier a Routing Guide with routing parameters and specific carrier preferences.

3.Carrier Scheduling – The Supplier will be responsible for arranging carrier pick up and providing required shipment documentation.

4.Reporting – In some cases the Supplier will be required to support outbound logistics reporting needs beyond those established in the IM requirements.

E.IM System Requirements

The Supplier will be required to support all IM system requirements directly related to meeting the outbound logistics requirements as defined in the IM system requirements.  Outbound logistics operations processes will be required to be automated in the areas of producing shipping documentation and capturing and sending logistics required information.

F.Compliance & Audits

The Supplier will be required to support logistics process and IM system audits related to the outbound logistics requirements.  This will include [***].  Audit findings and observations will be shared with the Supplier as a means of improving logistics execution to ensure all customs and customer requirements are successfully supported.

46

3.0Duties Minimization

a)Supplier will enclose a “Form A” document in every shipment to Europe or the United States of America to comply with “General System of Preferences” (“GSP”) requirements each time this benefit can be applied to shipments.

b)Supplier will also make all reasonable effort to minimize freight and duties and keep the Product eligible for the GSP by choosing suitable components and manufacturing site(s) for Product.

47

EXHIBIT C

TO PRODUCT PURCHASE AGREEMENT
BETWEEN HP AND OVERLAND STORAGE

SERVICE & SUPPORT REQUIREMENTS

This Service and Support Requirements Exhibit (“SSR”) is part of the Purchase Agreement between HP and Supplier (“Agreement”) and provides additional terms and conditions for maintenance Parts as set forth on the attached list of spares (“Spares”) and associated services defined below (“Services”) to be provided to HP’s services organization.  Terms used have the same definitions as in the Agreement.  In the case of conflict with the Agreement, the terms of this SSR will take precedence as regards service and support but will not otherwise modify the Agreement.

A.  SPARES AVAILABILITY: Supplier will provide Spares and associated Services to HP as requested by HP. Spares are identified on the attached Schedule of Spares. [***].  Spares will take priority over HP’s production units (first builds) and will ship first.

B. DELIVERY: Supplier will ship Spares from a Supplier hub located in San Diego, CA.  Supplier will maintain a sufficient inventory of spares at each hub in order to ship orders and repair/exchange Products within [***].  Supplier will use product failure data available to it as the manufacturer, product failure trend data provided by HP, and HP Forecasts and any other information available to Supplier to maintain adequate inventory. Any other changes/additions to Supplier’s hub facilities will need to be negotiated and mutually agreed.

C.  PRIORITY DELIVERY: If HP is experiencing a critical support situation, Supplier will use its best efforts to ship same day, [***].

D.  RMA PROCEDURE: At least weekly, HP will return to Supplier any Products to be returned, and HP will request an RMA# prior to return of any material to Supplier.  HP will provide quantity and part numbers of materials to be returned. Products will be returned to Supplier’s designated hubs.  [***].  If Supplier cannot repair/exchange parts in [***], then Supplier will use its best efforts [***] to repair/exchange Products and the lead-time for such repair/exhchange will not exceed [***].  Supplier will provide the RMA# within [***].

E.  WARRANTY SUPPORT:  Upon receipt of Supplier’s RMA, HP will return in warranty Spares to Supplier for repair/exchange.   From time to time to manage unusual situations, [***].  Supplier will notify HP [***] of receipt if the failure of any Spare is attributable to obvious end user negligence or abuse and is not the warranty responsibility of Supplier; unless HP is notified [***].  HP may audit any Spare Supplier claims has been subjected to obvious end user abuse and will provide disposition, [***], instructing Supplier to return to HP, repair at HP’s expense or other.

48

F.  WARRANTY: Supplier warrants replacement Spares for the remaining Product warranty term or [***] calendar days from the date of shipment to HP, whichever is greater. Supplier is responsible to track Spares warranty by item serial number and will provide to HP or HP’s designated third party upon request information about repair dates for specific units.

G.  POST WARRANTY SUPPORT: HP may return out of warranty Spares for repair.  Repair pricing for out of warranty Spares returned is identified on the attached Spares and Repairs Pricing Exhibit.  Supplier will notify HP [***] of receipt if any returned Spare has been damaged and not repairable.  Supplier will not be obligated to replace or repair such damaged returns because repair pricing is based on HP returning repairable units.  HP may audit the damaged Spare and will provide disposition, [***], instructing Supplier to return to HP, scrap at Supplier site or similar disposition.  Unless Supplier reports damage with five business days, Supplier will be obligated to replace the returned Spare at the pricing agreed upon in this Exhibit.

I.  TERM OF AVAILABILITY: HP may purchase Spares and return defective spares for repair/exchange during the “Term of Availability”. The Term of Availability, for each Spare, is a period of time continuing for (i) [***] from the date Supplier last ships HP volume shipments of any Product during the Term, which the Spare is used to support and (ii) which ends upon written notification from Supplier. Supplier’s notification, discontinuing Product support (see Section 12 of PPA), must provide [***] notice to HP and identify the affected Spares. Supplier will support HP’s non-cancelable order, received a minimum [***] in advance of the end of the Term of Availability, requesting delivery for “last buy” quantities with shipment on or before the end of the Term of Availability.

J.  SUBSTITUTION:  Supplier may request HP approval to deliver a one-time or permanent replacement for any Spare.   The replacement Spare must meet or exceed all contract specifications that were applicable to the item(s) being replaced and must be priced equivalent to the item(s) being replaced.  [***].  Once a permanent replacement parts has been approved, the remaining Term of Availability applicable to the item being replaced shall apply to the replacement Spare.

K.  PRICING: The purchase price for Spares, are identified in the Schedule of Spares.  HP and Supplier agree to [***], as necessary. Pricing changes are subject to mutual agreement and must be documented in writing.  For warranty repairs/replacements, HP or its designated third party will be responsible for the return of the material to Supplier’s designated repair center.  [***].

[***]

L.  RIGHTS AND ASSISTANCE TO REPAIR: In the event that Supplier affects the end-of-service (EOS) of a Spare not superceded by a compatible alternative, Supplier grants to HP the right to repair and have repaired Spares for as long as HP chooses to support Products. [***]

49

M.  QUALITY: [***].  Spares, if repaired and not new, will have functionality at least equivalent to the current shippable revision, will be functionally compatible and suitable for replacement in all Products which the Spare supports, and externally visible portions of the Product will meet the attached cosmetic specifications.  Upon request by HP, Supplier will provide information reasonably needed by HP to understand quality and reliability issues such as failure analysis data, reliability testing data, inspection histories, and specifications as well as provide access to facilities and repair processes.  Supplier agrees to share all support documentation by giving HP read access to their knowledge repository when appropriate.  Also, requests for support related information will be delivered to HP within 14 days of request except that Supplier agrees to deliver priorities requests for escalation support within one business day.

Quality Reporting

See Exhibit J; “Reporting Requirements”.

HP and supplier will agree to work together, to use supplier data for mutually agreed upon goals and metrics.  Key Process Indicators may include, but are not limited to-DOA, NTF/NFF, MROC, and TTF.  Collection of data, metric goals, frequency and submission of quality data will be finalized no later then August 31st 2003.

N.  THIRD PARTY REPAIR SERVICES: HP may use a third party to manage aspects of its repair processes.  Upon HP’s request and subject to mutual agreement with Supplier, Supplier will provide HP’s third party repair center with the same support it provides to HP.  [***].

O.  SUPPLIER MANAGEMENT PROGRAM: Supplier agrees to participate in HP’s Supplier Management Program applicable to Services and Support and meet with HP, as requested up to twice per year, in order to review Supplier’s performance, establish performance metrics to drive continuous improvements, and discuss other areas of mutual concern.  Supplier agrees to designate a Supplier Representative who shall act as HP’s primary contact for any service issues, parts purchases, exchange, repair, quality or customer escalated issues. Supplier must provide an internal written escalation process and said Representative or designated backup(s) must be available to HP during normal business hours.

P.  TECHNICAL SUPPORT:  Overland shall provide technical Support to HP for the duration set forth in and subject to Section 11.5 of the Purchase Agreement.  [***].

50

Schedule of Spares

[***]

51

EXHIBIT D

TO PRODUCT PURCHASE AGREEMENT
BETWEEN HP AND OVERLAND STORAGE

CONFIDENTIAL DISCLOSURE AGREEMENT

Supplier and HP are parties to a certain non-disclosure agreement [***] dated June 2003.

52

EXHIBIT F

TO PRODUCT PURCHASE AGREEMENT
BETWEEN HP AND OVERLAND STORAGE

RECIPIENTS FOR NOTICES

For HP:

Name	[***]
Title	Commodity Manager
Address	Hewlett Packard Company
	200 Forest Street
	Marlboro, MA 01752
Phone Number	[***]
FAX Number	[***]
Email	[***]

For Supplier:

Name	[***]
Title	Account Manager
Address	4820 Overland Ave
	San Diego, CA 92123
Phone Number	[***]
FAX Number	[***]
Email	[***]

53

RELATIONSHIP MANAGERS

The Agreement will be facilitated by a management sponsor from each party.

The sponsors will conduct quarterly reviews concerning status of the Agreement and outlook for the future.  Each sponsor will act, respectively, as an escalation path for issues arising under the Agreement during the Term with the objective of timely resolution.

The individuals indicated in this Exhibit may be re-designated at any time by their respective employers with appropriate information to the other party.

HP TITLE	HP Name, Address, Phone, Fax, E-Mail	SUPPLIER Equivalent TITLE	SUPPLIER Name, Address, Phone, Fax, E-Mail
Commodity Manager	[***]	HP Account Manager	[***]
Quality Engineer	[***]	Quality Engineer	[***]
Engineering Program Manager	[***]	Program Manager	[***]
Marketing Manager	[***]	Director Marketing Programs	[***]
Service Commodity Manager	[***]	Customer Service Supervisor	[***]
Product Safety Representative	[***]	Product Safety Representative	[***]
Procurement Manager	[***]	Director OEM Sales	[***]
Business Segment Manager	[***]	VP WW Sales	[***]

54

EXHIBIT G

TO PRODUCT PURCHASE AGREEMENT
BETWEEN HP AND OVERLAND STORAGE

MARKETING SUPPORT AND DEVELOPMENT FUNDS
NEW PRODUCT REQUIREMENTS

1.[***]

2.Supplier agrees to the exclusive use of HP Ultrium drives on all NEO based library products provided there are no supply contraints, that the quality and reliability meet or exceed competitive products and that the pricing is less than or equal to competitor drive pricing and except for OEM or major account opportunities as defined by the customer.

3.Supplier agrees to Marketing Development Funds (MDF) equal to [***] of [***].

4.Supplier agrees to buy/sell HP branded media products provided there are no supply constraints, that the quality and reliability meet or exceed competitive products and that pricing for the media is less than or equal to other competitive media products.

5.Supplier agrees to provide an HP focused worldwide account team, to support high level sales management engagement, general sales force engagement, sales training and managing sales process issues and conflict resolution.

6.Supplier agrees to provide an HP focused marketing support person responsible for, but not limited to, creating and delivering HP sales tools, marketing promotions, collateral, event coordination and advertising support

7 [***].

8.Supplier agrees to provide training support, including, but not limited to, quarterly training events, technical support for product configuration and call center training.

55

9.As it relates to any joint new product development, Supplier will support a [***] providing [***].  Supplier agrees to support HP with exclusivity on any unique features where HP has invested financially such as with NRE in the development of the feature or where both parties have mutually agreed on exclusivity prior to the implementation of the feature...

10.[***].

11.Supplier will perform, as mutually agreed by the parties, reasonable agency compliance testing per HP’s requirements and provide HP certifications from agencies as required by HP.

12.[***].

13.[***].

14.Supplier will provide source code for all learning product materials but not limited to; installation guides, user guides and service guides.

56

EXHIBIT H

TO PRODUCT PURCHASE AGREEMENT
BETWEEN HP AND OVERLAND STORAGE

SOFTWARE AND DOCUMENTATION WARRANTY

To the extent Product includes or constitutes Software and with respect to related Documentation, Supplier warrants and represents to HP, in addition to the warranties set forth in Article 9 of the Agreement:

1.That Supplier has, as of date of delivery, and perpetually thereafter, clear title for sufficient proprietary rights in and to the Software and Documentation to grant HP any license, lease or other non-ownership rights granted in and to the Software and Documentation and that the Software and Documentation are free of any and all restrictions, settlements, judgments or adverse claims that might adversely affect any such right granted HP.

2.That the Software will conform to Specifications and will operate substantially in accordance with the Specifications and Documentation.

3.That the Software will not (1) contain lock out devices or have any virus, disabling device, time bomb, Trojan horse, back door or any other harmful component, (2) replicate, transmit or activate itself without control of a person operating the computing equipment on which it resides, (3) alter, damage or erase any data or other computer programs without control of a person operating the computing equipment on which it resides or (4) contain any code, key, node lock, time-out or other function whether implemented by electronic, mechanical or other means which restricts or may restrict use or access to programs or data based on residency on a specific hardware configuration, frequency or duration of use, or other limiting criteria.

4.That the Software and Documentation, including accompanying trademarks, copyrights and trade names, do not violate or infringe any patent, copyright, trademark, trade secret or other proprietary right of any third party, that Supplier is not aware of any facts upon which such a claim for infringement could be based and that Supplier will promptly notify HP if it becomes aware of any claim or any facts upon which a claim could be based.

[***]

57

EXHIBIT I

TO PRODUCT PURCHASE AGREEMENT
BETWEEN HP AND OVERLAND STORAGE

Flex / Buffer Model

Supplier shall develop and implement internal processes to provide HP maximum flexibility and shall maintain buffer inventory as directed. Subject to and in accordance with Section 5.4 of the Product Purchase Agreement, [***]

Flex is defined as ability to accept incremental demand.

Buffer is defined as ability to pull-in existing demand.

HP’s flex requirements are:

Number of Calendar Days Prior to Scheduled Demand Date	HP’s Maximum % Increase	HP’s Maximum % Decrease	Maximum USD liability for Decreases of HP Unique Product **
0 – 30	[***]	[***]	[***]
31 – 60	[***]	[***]	[***]
61 – 90	[***]	[***]	[***]
91 +	[***]	[***]	[***]

* Any weekly incremental upside above these percentages will be responded to with best reasonable efforts in the areas of number of units and replenishment cycle time.

[***]

In addition to the weekly EDI transmission, HP also agrees to chair a weekly interlock meeting with Supplier to review short and long term Forecast updates.

58

EXHIBIT J

TO PRODUCT PURCHASE AGREEMENT
BETWEEN HP AND OVERLAND STORAGE

QUALITY ASSURANCE REQUIREMENTS AND
ADDITIONAL PRODUCT WARRANTIES

This exhibit specifies the Quality agreement that has been reached between Supplier and HP.  This exhibit applies to all automated tape libraries purchased from Supplier unless otherwise specified.

1.Warranty

Supplier hereby warrants that for [***] months from the date of Delivery of Product(s) to Buyer or to Buyer’s customers, that (i) all Product(s), shall be free from defects in material, workmanship, and design; and (ii) shall conform to applicable specifications drawings, samples, and descriptions which references this agreement; and (iii) shall be suitable for the purpose for which they were intended.

2.Supplier’s Annualized Return Rate (SRR) / Supplier’s Annual Field Rate (SFR)

Supplier shall incorporate sufficient design margin, quality control, and reliability tests on tape libraries purchased by HP to ensure that the agreed to SRR/SFR is not exceeded.  The SRR/SFR for the individual tape drive family will be referenced in the HP Product Specification.  SRR performance goals will be communicated via the QBR.  Suppliershall support Field Performance Analysis initiatives and other related activities as needed to reduce SRR/SFR.

[***]

3.Epidemic Failure

a. “Epidemic Failure” shall have either of the following two meanings:

1.The occurrence of multiple failures of the same component(s), for the same cause, to the extent that the annualized failure rate exceeds [***] the agreed upon failure rate in the HP Product Specification. This annualized failure rate shall be based on a [***], and Supplier and HP must agree that the failures have been properly diagnosed and that the failure count for that cause is accurate.

59

2.Random supplier attributable failures for multiple causes to the extent that the annualized failure rate exceeds [***] the agreed upon failure rate in the HP Product Specification. This annualized failure rate shall be based on a [***], and supplier and HP must agree that the failures have been properly diagnosed and the failure count for that cause is accurate.

b. Epidemic failure process definition and compensation

1.In the event HP believes there has been an Epidemic Failure, HP shall immediately provide written notice to Supplier.

2.No later than [***] following receipt of such notice, Supplier shall use its reasonable efforts to (a) stop production until containment and/or corrective action is in place, (b) provide a plan for conducting complete root cause failure analysis, and (c) begin implementing a corrective action plan as soon as is reasonably practical.

3.[***]

4.[***]

5.[***]

4.Firmware Controls

Supplier shall control distribution and use of diagnostics and Firmware shipping with the Product.  Firmware revision shall be traceable to the serial number of the units.  For firmware not created by HP, this information shall be conveyed to HP for field tracking purposes.

Supplier shall back up all HP-supplied test software on media that will allow testing of individual products.  [***].

5.Product Traceability

Supplier shall maintain traceability records for all regulatory-controlled products listed in agency reports.  Such products must be traceable from the source of manufacture by lot or date code through the manufacturing process, and to their final destination via serialization.  Traceability information shall be provided to HP upon request.  Traceability must be in place by date code or serial number for all returned FRU’s.

6.Safety and Regulatory Agency Reports

Supplier shall provide copies of all regulatory and safety agency submittal reports and approvals as defined in the Supplier Management Process.

60

7.New Material Requirements

HP will not purchase, or accept delivery, of Product that has been shipped to any of Supplier’s customers.  Supplier shall notify HP in writing:  A)  if such Product was mistakenly shipped to HP or B)  to request approval prior to shipment of such Product to HP in order for Supplier to meet obligations to HP.

8.Supply Interruptions

Supplier will not intentionally ship any Product to HP with a potential problem that could result in a channel purge or Product hold.  Supplier’ goal is to have zero Product purges or Product holds in HP’ process.

9.Supplier Management Process (formally the Supplier Development Process)

Supplier will adhere to all aspects of HP’ Supplier Management Process.  All data requested by HP will be provided by Supplier during the 5 Step qualification process.  Supplier will implement an agreed to Process Management Plan (PMP) prior to Step 3 release.

10.Final Audit / Out of box Audit Quality (OBA)

Supplier will perform “Out of Box Audit” (OBA), [***].

Upon failure, a clearance will be completed of both finished goods Product of the same part number, and WIP. If repeated failures are found, all potentially impacted inventory within Supplier control will be screened/corrected, an estimate of exposure to HP calculated and communicated to HP Procurement Engineering [***] of the original failure.

All OBA failures will require the immediate generation of an 8D and communication to HP per the 8D response guidelines detailed below in the “closed loop corrective action process”.

11.Ongoing Reliability Testing

Supplier will be responsible for demonstrating Product reliability meets specified goals both prior to Step 2 via RDT (Reliability Demonstration Testing) and thereafter on ongoing revenue shipments by conducting an On-Going Reliability Test (ORT) on Product supplied to HP.  The ORT plan will be modeled in accordance with MIL STD 781, Probability Ratio Sequential Test (PRST). ORT testing is the process whereby the Product MTBF is verified [***].  In addition ORT is to, monitor the outgoing quality level from production, assure HP the process is in manufacturing control, and minimize the potential for “early life or field” failures.

The conditions and criteria for the continuous On-Going Reliability Test shall be mutually defined and agreed to by HP and the Supplier.  Failures causing test to enter the failure zone will be reported to HP Procurement Engineering [***] and will require an 8D for closure.  Test results will be reported [***].

12.Failure Analysis

Supplier will be responsible for performing [***] led failure analysis in conjunction with the HP Procurement Engineering Team.  The preliminary failure analysis results will be

61

communicated to HP [***].  For any library or library FRU that is returned to Supplier for detailed failure analysis, the closed loop corrective action process will be used.

13.Closed Loop Corrective Action Process

In the event that HP encounters problems of any nature that affect the ability to sustain full manufacturing needs (late Product shipment, Product shortage, receiving inspection failures, in-line manufacturing failures, material purges, etc.), HP will notify the Supplier and generate a Supplier Corrective Action Request (SCAR) using the Compaq 8-D process or equivalent.

The Supplier is required to acknowledge receipt of the Request for Corrective Action within [***] Supplier [***].  Furthermore, the Supplier is required to define and implement an effective containment [***] of receipt of the SCAR.  A long term, corrective action plan should be available [***] working days of root cause identification.  The proposed timeframes should be considered general guidelines.  Each SCAR should be assessed for its criticality and urgency and action taken appropriately.

The Supplier is expected to respond with the following information:

[***]

[***]

[***]

[***]

Furthermore, the Supplier will report internal problem issues including failure to meet agreed upon quality goals (Purges, OBA, and ORT. etc).  The Supplier will adhere to the aforementioned response times.

14.Process/Product Change Notification Process

The Supplier must notify HP of any significant changes to the manufacturing process, Product, test or critical components [***].  Significant changes include, but are not limited to the following:

•Changes affecting Form, Fit, or Functionality of the Product

•Changes in the primary manufacturing site/location

•Changes in Supplier’s final acceptance test process

•Changes in critical components

During the development phase, all proposed SCR/PCN’s should be forward to the appropriate Design Engineer.  During the production phase, proposed all SCR/PCN’s should be forwarded to the appropriate Procurement Engineer.  The notification must be received at HP no later than [***] to the Supplier’s planned implementation date.  At a minimum, the notification must contain the following information:

62

•[***]

•[***]

•[***]

•[***]

•[***]

•[***]

•[***]

•[***]

Final approval is granted by HP, based on successful Product analysis and qualification [***]), and is subject to audit by HP.  The Supplier and all affected departments shall be notified in writing of the final status.  HP will make every effort to shorten the qualification timeframe whenever possible.  [***].

Although timeframes for SCR/PCN notification and qualification have been defined, it is understood that each SCR/PCN should be reviewed for criticality and urgency and action taken appropriately.

15.Reporting Requirements

Supplier will adhere to the following reporting timelines.

Any critical problems on which HP has issued an 8D will be responded to per the timeline above.

Supplier will inform HP within [***] of any incident whereby a violation of a critical parameter in the Process Management Plan (PMP) has occurred.

Supplier will inform HP within [***] of any ORT or OBA failures.

Reaction guidelines and stop ship criteria will be established around “Out of Box Audit”, in accordance with the aforementioned sampling plans.

The following information will be provided by Supplier on a [***] basis on the due dates mutually agreed as follows:

•Summary of all [***] led F/A libraries analyzed for HP.

•Summary of all libraries / library FRU’s returned to Supplier where root cause failure analysis was specifically requested.

•[***] summary of all failure analysis performed on failing libraries from any HP factory integration testing.

•[***] by defect description for Total fallout.

•Product/Process Change Notification Log (SCR)

•8D’s on top [***] problems by defect.

•SRR and SFR data

•Process Management Plan (if changed from current released version)

63

•Updated 8D for the following if required:

• Purges/Product Hold

• OBA failures

• ORT failures

16.[***]

64

EXHIBIT K

TO PRODUCT PURCHASE AGREEMENT
BETWEEN HP AND OVERLAND STORAGE

PRICING

Supplier will provide a Product and Spares pricing schedule to HP [***] which is incorporated into this Agreement by reference. It will include Supplier’s part number and description, HP’s part number and current quarter pricing plus [***]. The terms and conditions of this Agreement shall apply to those Products and Spares purchased by HP.

Supplier agrees that pricing [***].

65

EXHIBIT M

TO PRODUCT PURCHASE AGREEMENT

BETWEEN HP AND OVERLAND STORAGE

HP REGIONAL TRADE GUIDELINES

TABLE OF CONTENT

SECTION 1			HP Trade Basics (Overview)
	1.1	Compliance
	1.2	Terms of Sale
	1.3	Country of Origin
	1.4	Valuation
	1.5	Shipping Documentation
	1.6	Records
SECTION 2			COO Marking/Labeling
	2.1	Country of Origin
	2.2	Marking
	2.3	COO Checklist
SECTION 3			Shipping Documentation
	3.1	Documentation Requirements
	3.2	Commercial Invoice
SECTION 4			Reporting/Recordkeeping
	4.1	Reporting/Data Transmissions

66

4.2	Records
4.3	Trade Incidents
4.4	Audit

SECTION 1HP Trade Basics

1.1Trade Compliance

Each Supplier shipping location bears ultimate responsibility for ensuring its own import/export compliance; however, HP is responsible for setting baseline policies and guidelines for Supplier operations.  The following is distributed in order to clearly convey HP’s minimum trade compliance expectations and to provide an operations reference tool for Supplier locations; responsibility for developing and implementing procedures to comply with the following belongs solely to the Supplier .

1.2Terms of Sale

Supplier is responsible for implementing the sales term (eg. FOB, FCA, DDP, etc.) negotiated with HP.  Supplier’s responsibilities may include, but are not limited to, the following:

•Warehouse storage at point of origin

•Warehouse labor at point of origin

•Export packing

•Loading at point of origin

•Inland freight to origin port

•Port receiving

•Loading on vessel

•International freight/transport

•Customs clearance at destination port

•Delivery to final destination

1.3Country of Origin

Each Supplier site is responsible for determining the appropriate country of origin (“COO”) for the product(s) it manufactures/assembles and for marking the products accordingly.  Further, each site must ensure that shipping documentation and EDI confirmation signals accurately convey shipment-level COO data; Country of Origin is a mandatory line-item data element for all HP EDI shipping confirmation (eg. 856/4010) signals.  Finally, each site must cooperate fully with HP in supplying data to facilitate HP’s origin reporting requirements and qualification for preferential origin programs such as NAFTA, IFTA, FMF, EXIM and the like including, but not limited to, all requested origin analysis, certificates of origin, manufacturer’s affidavits, data transmissions, and special reporting.

67

Additional HP COO marking/labeling guidelines are set out in Section 2 of this Exhibit.

1.4Valuation

For each and every transaction where HP is to be importer of record into the US, the Supplier site is responsible for ensuring that commercial documentation accurately reflects the actual price paid or payable between HP and the site.  It is Supplier’s responsibility to reconcile its financial records against commercial documentation in order to validate HP’s use of Transaction Value for declarations to US Customs under Section 402(b)(1) of the Trade Agreements Act of 1979 (TAA; 19 U.S.C. 1401a); no alternate valuation methodologies are used or approved for HP transactions.

Zero dollar values are unacceptable for US Customs purposes.  Where items are provided “free of charge,” the commercial invoice must reflect fair market value for the products; the nomenclature “Value for Customs Purposes Only,” may be used in these instances.

1.5Shipping Documentation

All Supplier sites must be capable of producing accurate and complete shipping documentation for each shipment.  Supplier is responsible for knowing and understanding shipping standards applied in the normal course of international business and for knowing and understanding additional HP requirements outlined in this Exhibit.

1.6Recordkeeping/Reporting

Each Supplier site must comply with record-keeping, data-transmission, incident-reporting, and audit requirements set out in Section 4 of this Exhibit.

SECTION 2Labeling/ Marking

2.1Country of Origin

A Product’s country of origin is where the Product is wholly manufactured or the final location where a substantial transformation occurs.  A Product is substantially transformed if the end product functions in a significantly different manner than the individual components. As a practical matter, Customs looks to whether the final assembly has a new “name, character, and use” from the component level parts.

[***]

2.2Marking

Every article of foreign origin entering the United States must be marked with the English name of the country of origin preceded by the HP standard nomenclature: “PRODUCT OF.”  This marking must appear in a conspicuous, legible, indelible

68

and permanent form on the outermost packaging (e.g. pallet), on the consumer packaging (box in which the item will arrive to the ultimate consumer), and on the Product itself.

For the human readable portion of HP’s standard label, COO must be indicated by the complete country name; abbreviations are unacceptable.  For the barcode scan area, COO should be represented by the 2-digit ISO country code; one digit codes (eg. A = US) are NO LONGER ACCEPTABLE nor supported by HP.  Material with multiple COOs must be segregated, separately palletized (if applicable) and separately scanned so as to be represented on the commercial invoice as individual invoice line items with individual COOs.

COO Product markings/labels must ALWAYS match COO indicated on the commercial invoice and reported to HP via the shipping confirmation signal.  Supplier is responsible for implementing procedures to ensure that labels are checked for accuracy and audited against shipping documentation/data transmissions.

Further clarification regarding HP marking standards is provided in HP’s COO Marking Policy, as well as HP’s Country of Origin Encoding spec [***]

2.3.1COO Checklist

Supplier must adhere to the following COO requirements:

•Must implement processes to determine correct COO for Products.

•Must ensure that COO is labeled on outermost packaging conspicuously, legibly, indelibly, and permanently.

•Must ensure that COO is labeled on consumer packaging (box in which the item will arrive to the last person in the US who will receive it in its imported form) conspicuously, legibly, indelibly, and permanently.

•Must ensure that COO is labeled directly on the Product conspicuously, legibly, indelibly, and permanently.

•Must ensure that the accurate COO prints in the designated field on the commercial invoice.

•Must ensure that COO designated for a particular Product to be shipped is consistent across all labels and documentation.

69

SECTION 3Shipping Documentation

3.1Documentation Requirements

Supplier must adhere to the following trade requirements:

•Must produce accurate and complete shipping documentation for each and every shipment.  All text must be in English; all monetary amounts must be represented in US dollars.

•Must be able to reproduce shipping document on demand (with or without requested modifications and/or corrections) for a minimum of [***] after shipment.

•Must have internal audit procedures in place for verification/correction of all outbound documentation issues including, but not limited to, proper print alignment.Where data is printed more than 1/16” off assigned documentation fields,the documentation must be discarded and reprinted before shipment release.

3.2Commercial Invoice

The following fields are required for each and every commercial invoice:

•	Ship To Address	Address to which the Goods are being shipped. Provided by EDI feed from HP.*
•	Bill To Address	Address to which billing information will be sent. Provided by EDI feed from HP.*
•	Ship To ID #	Specific ID # assigned to each Ship To address. Provided by EDI feed from HP.*
•	Bill To ID #	Specific ID # assigned to each Bill To address. Provided by EDI feed from HP.*
•	Ship ID/Invoice No.	Unique number assigned at the time of shipment to each outbound shipment.  This number should never be repeated and should appear on the shipping label tying the freight to the commercial invoice for a given shipment. Assigned by the Supplier site.
•	Date	Actual shipment date. Assigned by the Supplier site.

70

•	Page	Commercial invoice page number.  Multi-page invoices will follow the format eg. 1/4, 2/4, etc. Assigned by the Supplier site.
•	Bill of Lading No.	Air waybill number utilized for transport. Assigned by the Supplier site.
•	Shipped Via	HP-approved courier/freight forwarder handling the transport. Provided by EDI feed from HP.*
•	Freight Terms	Party responsible for freight charges. (Eg. “Pre-paid,”  “collect”) Provided by EDI feed from HP.*
•	Terms of Sale	Incoterm designating responsibilities of the parties. (Eg. EXW, FCA, DDP) Provided by EDI feed from HP.*
•	Terms of Payment	Agreed upon payment terms. [***] Provided by EDI feed from HP.*
•	Customer P.O. No.	Purchase ordernumberassigned to the transaction Provided by EDI feed from HP.*
•	Sales Order No.	Sales Order number under which the shipment is placed. Provided by EDI feed from HP.*
•	Line Item	Sales Order line item fulfilled by the item shipped.
		Provided by EDI feed from HP.*
•	Product No.	HP part number assigned to the Product.
		Provided by EDI feed from HP.
•	Description	Description of the Good(s).
		Provided by EDI feed from HP.*
•	Quantity	Number of units of the particular part shipped.
		Provided by EDI feed from HP.*
•	Unit Price shipper	Actual dollar value to be paid to the Supplier for oneunit of the particular part number. Provided by EDI feed from HP.*

71

•	Extended Price	Sum of quantity field multiplied by unit price. Provided by EDI feed from HP.*
•	Total Value	Sum of extended values for all line items. Provided by EDI feed from HP.*
•	Country of Origin	The country in which the Goods were manufactured. DETERMINED AND APPLIED BY THE SUPPLIER SITE.
•	License	Export License exception determined by HP trade. Provided by EDI feed from HP.*
•	ECCN	Export Commodity Control # determined by HP. Provided by EDI feed from HP.*
•	HTS	Harmonized tariff scheduleclassification determined by HP. Provided by EDI feed from HP.*
•	Destination Control	Statement required to be printed on all commercial invoices perthe US Export Administration Regulations. Provided by EDI feed from HP.*

In accordance with controlling customs requirements, HP also requires line level itemization of the following:

•Desktop computers necessitate separate itemization of the CPU, mouse, and keyboard.

•All items shipped with “dropped-in-the-box” (uninstalled) software necessitate separate software itemization.  Software country of origin is the location where programming/recording is installed on the media.  Software value is to be indicated per the media (unrecorded CD, diskette, or tape) value only.

* ALL data transmitted from HP must be verified for accuracy.  Supplier is responsible for implementing procedures demonstrating reasonable care in the verification of all data received from HP.

72

SECTION 4Reporting/ Recordkeeping

4.1Reporting/Data Transmissions

The following trade data elements must be printed on each commercial invoice and must be returned to HP via the standard electronic/EDI Shipping Confirmation signal:

•Country of Origin (line item level)

•HTS Classification (line item level)

•ECCN (line item level)

•License (line item level)

•Destination Control Statement

These are HP-required data elements for the Shipping Confirmation signal.  Failure to transmit these items will result in signal rejection.

4.2Records

Each Supplier site must maintain a system for retention, retrieval and reproduction (for a period of not less than six calendar years from the date of each shipment) of original shipping, export, customs, import and other trade-related documentation (“Trade Control Records”), pertaining to the international transport of HP Goods.  Such record keeping system will comport with the legal requirements of the U.S. and other nations including, but not limited to, requirements set out in Parts 762 and 772, U.S. Department of Commerce, Export Administration Regulations and the U.S. Customs Record-Keeping Regulations, 19 C.F.R. 163.

Supplier, upon receipt of written notice from HP, will collect, reproduce if required, and provide to HP (at Supplier’s expense) originals and/or satisfactory copies of 100% of the Trade Control Records as HP may request from time to time.  All HP requests for Trade Control Records must be fulfilled within 15 business days of HP’s written request, or the response date required by an official government record production request or subpoena, whichever is the lesser time for response.  Supplier will not destroy or render inaccessible any of the Trade Control Records relating to HP transactions, without having first obtained the express written permission from HP.

4.3Trade Incidents

Supplier will provide immediate notice to HP in the event of an action by U.S. or other national government customs/export authorities which relates specifically to Goods or Services provided to HP by Supplier. Such government communications and actions may include, but are not limited to, cargo detentions, cargo seizures, subpoenas, record production requests and search warrants.  Issues, questions, or incidents arising pursuant to this section should be escalated to HP via the

[***]

4.4Audit

Supplier will afford HP, and HP’s duly appointed agents, reasonable access to Supplier’s premises for trade compliance audit purposes.  Supplier further agrees

73

to fully cooperate with HP in this regard, to respond in a timely manner to HP’s requests for production of Trade Control Records, and to comply with all remedial or corrective actions that HP may specify.

74

EX-10.10

Exhibit 10.10

Confidential Treatment Requested

Base Agreement # 4902RL1317

This Base Agreement (“Base Agreement”) dated as of November 1, 2002 (“Effective Date”), between International Business Machines Corporation (“Buyer”) and Overland Storage, Inc. (“Supplier”), establishes the basis for a multinational procurement relationship under which Supplier will provide Buyer the Products and Services described in SOWs issued under this Base Agreement.  Products and Services acquired by Buyer on or after the Effective Date will be covered by this Base Agreement.  This Base Agreement will remain in effect until terminated.

1.0          Definitions

“Affiliates” means entities that control, are controlled by, or are under common control with, a party to this Agreement.

“Agreement” means this Base Agreement and any relevant Statements of Work (“SOW”), Work Authorizations (“WA”), and other attachments or appendices specifically referenced in this Agreement.

“Bulk Pull Indicator” means whether Pull Notifications will be sent to Supplier singly (designated by an “S”) or in groups such that such Pull Notifications cumulate to a Product quantity of at least one pallet (designated by a “G”).

“Epidemic Defects” shall mean Products that experience one of more of the following: (a) the same or similar defect at a rate of one percent (1%) or more (or other rate that may be specified in an SOW) in any given sixty (60) day period, (b) the same or similar defect at a rate of one percent (1%) or more (or other rate that may be specified in an SOW) of total purchases, (c) recalls, or (d) safety defects.

“Lead Time” means the minimum length of time prior to a specific delivery date that Supplier must receive a WA from Buyer to ensure delivery by such date.

“Liability Horizon” means the period of time as specified in the Pull Product Profile used to calculate the maximum liability for a given Pull Product.

“Liability Horizon Quantity” means the quantity of Pull Products specified in the Planning Schedule contained within the Liability Horizon.

“Overage” means the quantity of Pull Products by which the Liability Horizon Quantity specified in a Planning Schedule exceeds the quantity of Pull Products committed to in Pull Notifications.

“Participation Agreement” or “PA” means an agreement signed by one or more Affiliates which incorporates by reference the terms and conditions in this Base Agreement, any relevant SOW, and other attachments or appendices specifically referenced in the PA.

“Personnel” means agents, employees or subcontractors engaged or appointed by Buyer or Supplier.

“Planning Schedule” means Buyer’s most recent forecast of requirements for Pull Products, as derived from the forecasting process set forth in the SOW.

“Prices” means the agreed upon payment and currency for Products and Services, including all applicable fees, payments and taxes, as specified in the relevant SOW and/or WA.

“Process Time” means the time required for Buyer, subject to the Bulk Pull Indicator, to issue a Pull Notification once Product has been pulled from the hub.

“Products” means items that Supplier prepares for or provides to Buyer as described in a SOW.

“Pull Buffer” means a quantity of Pull Products which is held in inventory by Supplier.

“Pull Products” means Products specified in a Pull Product Profile.

“Pull Product Profile” means the section of the SOW, or other document provided by Buyer, describing Pull Products.

“Pull Purchase Order” means a logistical processing document used for invoicing, receiving and forecasting purposes which does not represent a WA nor bind Buyer to any quantity or delivery date.

THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST.  REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

“Pull Notification” means Buyer’s only authorization (WA) for Supplier to deliver a specified quantity of Pull Products.

“Response Time” means the time required for the Supplier to manufacture Product.

“Rounding Indicator” means the minimum quantity of Products that Buyer may pull at any time.

“Taxes” means any and all applicable taxes, charges, fees, levies or other assessments imposed or collected by any governmental entity worldwide or any political subdivision thereof and however designated or levied on sales of Products or Services, or sales, use, transfer, goods and services or value added tax or any other duties or fees related to any payment made by Buyer to Supplier for Product and/or Service provided by Supplier to Buyer under or pursuant to this Agreement; exclusive, however, of taxes imposed upon the net income or capital of Supplier or taxes in lieu of such net income taxes or such other taxes which are to be borne by the Supplier under law.  Supplier shall also bear sole responsibility for all taxes, assessments, or other levies on its own leased or purchased property, equipment or software.

“Transit Time” means the Lead Time less the Response Time.

“Services” means work that Supplier performs for Buyer as described in a SOW.

“Statement of Work” or “SOW” means any document that:

1.  identifies itself as a statement of work;

2.  is signed by both parties;

3.  incorporates by reference the terms and conditions of this Base Agreement; and

4.  describes the Products and Services, including any requirements, specifications or schedules.

“Upside Flexibility” means a percentage of Pull Products specified in the Pull Product Profile in excess of the Liability Horizon Quantity.

“Work Authorization” or “WA” means Buyer’s authorization in either electronic or tangible form for Supplier to conduct transactions under this Agreement in accordance with the applicable SOW (i.e., a purchase order, bill of lading, or other Buyer designated document).  A SOW is a WA only if designated as such in writing by Buyer.

2.0          Statement of Work

Supplier will provide the Products or Services as specified in the relevant SOW only when specified in a WA.  Supplier will begin work only after receiving a WA from Buyer.  Buyer may request changes to a SOW and Supplier will submit to Buyer the impact of such changes.  Changes accepted by Buyer will be specified in an amended SOW or change order signed by both parties.  Supplier will maintain the capability to supply agreed upon Products, including parts of Products, for a period of time as required by law and any additional periods of time specified in the relevant SOW.  Supplier will notify Buyer of its intent to withdraw any Product and will continue to deliver such withdrawn Products for the periods as specified in the relevant SOW.

3.0          Pricing

Supplier will provide Products and Services to Buyer for the Prices.  Prices for Products and Services specified in a SOW and/or WA and accepted by Buyer plus the payment of applicable Taxes will be the only amount due to Supplier from Buyer. The relevant SOW or WA shall contain Prices for each country receiving Products and Services under this Agreement.

4.0          Payments and Acceptance

Terms for payment will be specified in the relevant SOW and/or WA.  Payment of invoices will not be deemed acceptance of Products or Services, but rather such Products or Services will be subject to

2

inspection, test, acceptance or rejection by Buyer until successful integration into Buyer’s products, or for a period as specified in the relevant SOW, whichever occurs first.  Buyer may, at its option, either reject Products or Services that do not comply with the specifications and requirements for a refund plus any inspection, test and transportation charges paid by Buyer, or require prompt correction or replacement of such Products upon Buyer’s written instruction.  Buyer may reject entire lots of Products which do not meet quality levels as specified in the relevant SOW and/or WA.

5.0          Electronic Commerce

To the extent permitted by local law, the parties will conduct transactions using an electronic commerce approach under which the parties will electronically transmit and receive legally binding purchase and sale obligations, including electronic credit entries transmitted by Buyer to the Supplier account specified in the relevant SOW and/or WA.  The parties will enter into a separate agreement governing the transmission of such electronic transactions and associated responsibilities of the parties.

6.0Warranties

6.1          Ongoing Warranties

Supplier makes the following ongoing representations and warranties:

1.  it has the right to enter into this Agreement and its performance of this Agreement will comply, at its own expense, with the terms of any contract, obligation, law, regulation or ordinance to which it is or becomes subject;

2.  no claim, lien, or action exists or is threatened against Supplier that would interfere with Buyer’s use or sale of the Products;

3.  Products and Services do not infringe any intellectual property right of a third party;

4.  all authors have agreed not to assert their moral rights (personal rights associated with authorship of a work under applicable law) in the Products, to the extent permitted by law;

5.  Products are free from defects in material and workmanship and will conform to the warranties, specifications and requirements, including but not limited to quality requirements in this Agreement for the time period as specified in the relevant SOW and/or WA;

6.  Products are free of defects in design (except for written designs provided by Buyer unless the defects in Buyer’s designs are based on Supplier’s specifications);

7.  Products are safe for use consistent with and will comply with the warranties, specifications and requirements in this Agreement;

8.  Products and Services which interact in any capacity with monetary data are euro ready such that when used in accordance with their associated documentation they are capable of correctly processing monetary data in the euro denomination and respecting the euro currency formatting conventions (including the euro sign);

9.  none of the Products contain nor are any of the Products manufactured using ozone depleting substances such as halons, chlorofluorocarbons, hydrochlorofluorocarbons, methyl chloroform and carbon tetrachloride as defined by the Montreal Protocol , and as also specified in the relevant SOW and/or WA;

10.  Products are new and do not contain used or reconditioned parts, unless otherwise specified in the relevant SOW and/or WA;

11.  to the extent Products include software code (including without limitation firmware, BIOS, and device drivers), Products contain no harmful code;

12.  all Products and all parts of Products, including, but not limited to parts that may be identified as field replacement units, customer replacement units, spare parts, and/or parts that have any floppy disk controller functions and other storage devices shall not experience any measurable loss of data, and shall conform with any other related requirements specified in the relevant SOW and/or WA;

3

13.  all Products will process date data correctly (including, without limitation, correctly processing, providing, receiving, and displaying date data within and between the twentieth and twenty-first centuries), and are designed to exchange date data accurately and correctly with other products (including, without limitation, hardware, code, other software, and firmware) when used with products which are designed to exchange date data accurately and correctly;

14. it is knowledgeable with, and is and will remain in full compliance with all applicable export and import laws, regulations, orders, and policies (including, but not limited to, securing all necessary clearance requirements, export and import licenses and exemptions from, and making all proper filings with appropriate governmental bodies and/or disclosuresrelating to the release or transfer to non U.S. nationals of technology and software in the U.S., or outside the U.S., release or transfer of technology and software having U.S. content or derived from U.S.-origin software or technology);

15. it will not export, directly or indirectly, any technology, software or commodities of U.S. origin or having U.S. content provided by Buyer or their direct product to any of the countries or to nationals of those countries, wherever located,listed in U.S. Export Administration Regulations, as modified from time to time, unless authorized by appropriate government license or regulations;

16. it will not use, disclose, or transfer across borders any information that is processed for Buyer that may identify an individual (“Personal Data”), except to the extent necessary to perform under this Agreement; and

17. it will comply with all applicable data privacy laws and regulations, will implement and maintain appropriate technical and other protections for the Personal Data, and will cooperate fully with Buyer’s requests for access to, correction of, and destruction of Personal Data in Supplier’s possession.

6.2          Warranty Redemption

If Products or Services do not comply with the warranties in this Agreement, Supplier will repair or replace Products (at the latest revision level) or re-perform Services, or credit or refund the Price of Products or Services, such remedy at Buyer’s reasonable discretion (provided that any remedy requested by Buyer in the interests of maximizing customer satisfaction will always be deemed reasonable).  For such Products, Supplier will issue to Buyer a Return Material Authorization (“RMA”) within five (5) days of Buyer’s notice.  If Supplier fails to repair or replace Products or re-perform Services in a timely manner, Buyer may do so and Supplier will reimburse Buyer for actual and reasonable expenses.  Buyer may return Products which do not conform to the warranties in this Agreement from any Buyer location to the nearest authorized Supplier location at cost of Supplier and Supplier will, at cost of Supplier, return any repaired or replaced Product in a timely manner. SECTIONS 6.2, 6.4, AND 9.0 OF THE BASE AGREMENT, STATE BUYER’S SOLE REMEDIES FOR ANY BREACH OF WARRANTY IN SECTION 6.1 OF THE BASE AGREEMENT.

6.3          Post Warranty Service

Supplier will offer post warranty Services as specified in the relevant SOW or identify a third party which will provide such Services.  In the event a third party or Buyer will provide such Services, Supplier will provide the designated party with the information required for the performance of the Services.

6.4          Epidemic Defects

For Epidemic Defects, Supplier will, at Buyer’s discretion: (a) refund or credit the Product Price, or replace or repair the Products at no charge in a timely manner, and (b) reimburse Buyer for all actual and reasonable expenses incurred by Buyer related to Epidemic Defects, including, without limitation, costs associated with repair or replacement, field costs, problem diagnosis, and field and finished goods inventory related costs.   Supplier will commence such performance within five (5) calendar days of Buyer’s notice to Supplier of an Epidemic Defect. SECTIONS 6.2, 6.4, AND 9.0 OF THE BASE

4

AGREMENT, STATE BUYER’S SOLE REMEDIES FOR ANY BREACH OF WARRANTY IN SECTION 6.1 OF THE BASE AGREEMENT.

7.0Delivery

7.1          Delivery Logistics

Delivery under this Agreement means delivery to the Buyer location and delivery point as specified in the relevant SOW and/or WA.  Buyer may cancel or reschedule the delivery date or change the delivery point as specified in the relevant SOW and/or WA.  The term of sale will be specified in a SOW or WA.  Buyer may issue a twelve (12) month rolling forecast for quantities of Products that may be required, and Supplier’s obligations of maintaining sufficient inventory to satisfy Buyer’s requirements for the Product are conditioned upon Buyer providing such forecast to Supplier.  Supplier will only deliver the Products specified in a WA.  ANY PRODUCT QUANTITIES CITED IN OR PURSUANT TO THIS AGREEMENT, EXCEPT FOR QUANTITIES CITED IN A WA AS FIRM, ARE PRELIMINARY AND NON-BINDING ONLY.  BUYER MAKES NO REPRESENTATION OR WARRANTY AS TO THE QUANTITY OF PRODUCTS THAT IT WILL PURCHASE, IF ANY.

7.2          On-Time Delivery

The Lead Time for Buyer to issue a WA prior to delivery will be specified in a SOW.  Products specified in a WA for delivery with such Lead Time will be delivered on time.  Supplier will use reasonable efforts when Buyer requests delivery with a shorter Lead Time.  If Supplier cannot comply with a delivery commitment, Supplier will promptly notify Buyer of a revised delivery date and Buyer may:

1.  cancel without charge Products or Services not yet delivered;

2.  ***; and

3.  exercise all other remedies provided at law, in equity and in this Agreement.

7.3          Replenishment

Buyer will issue a Pull Purchase Order for any Pull Products that it may include in Pull Notifications. Notwithstanding the Pull Purchase Order, Supplier will only deliver Pull Products that are specified in a Pull Notification, and will make such delivery on the delivery date(s) specified in the relevant Pull Notification. Other than the Liability Horizon Quantity, Buyer makes no representation or warranty and assumes no liability regarding the quantity of Pull Products that it will purchase.  Buyer assumes no liability for materials procured or products built in excess of the Liability Horizon Quantity.  Supplier will apply Overages towards future Pull Notifications and the parties will agree to a reconciliation amount and a disposition of Overages, if any.  Such reconciliation amount will be reduced by any amount realized by Supplier for Pull Products (including raw materials or works-in-progress) used, returned or sold to any party other than Buyer, and any other reductions agreed to by the parties.

8.0          Intellectual Property

Supplier grants Buyer all intellectual property rights licensable by Supplier which are necessary for Buyer to use and sell the Products.  This Agreement does not grant either party the right to use the other party’s or their Affiliates’ trademarks, trade names or service marks.

5

9.0          Supplier Liability for Third Party Claims

9.1          General Indemnification

Supplier will defend, hold harmless and indemnify, including legal fees, Buyer and Buyer Personnel against third party claims and all governmental fines and penalties that arise or are alleged to have arisen as a result of negligent or intentional acts or omissions of Supplier or Supplier Personnel or breach by Supplier of any term of this Agreement.

9.2          Intellectual Property Indemnification

Supplier will defend, or at Buyer’s option cooperate in the defense of, hold harmless and indemnify, including legal fees, Buyer and Buyer Personnel from third party claims that Supplier’s Products or Services infringe the intellectual property rights of a third party.  In addition, if such a claim is or is likely to be made, Supplier will, at its own expense, exercise the first of the following remedies that is practicable:

1.  obtain for Buyer the right to continue to use and sell the Products and Services consistent with this Agreement;

2.  modify the Products and Services so they are non-infringing and in compliance with this Agreement;

3.  replace the Products and Services, with non-infringing ones that comply with this Agreement; or

4.  at Buyer’s request (or where Supplier is required by court order or law), cancel infringing Services and accept the return of the infringing Products and refund any amount paid.

9.3          Exceptions to Indemnification

Supplier will have no obligation to indemnify Buyer or Buyer Personnel for claims that Supplier’s Products or Services infringe the intellectual property rights of a third party to the extent such claims arise as a result of:

1.  Buyer’s combination of Products or Services with other products or services not reasonably foreseeable by Supplier and such infringement or claim would have been avoided in the absence of such combination;

2.  Buyer’s modification of the Products except for Supplier intended modifications required for use of the Products and such infringement or claim would have been avoided in the absence of such modification; or,

3.  Supplier’s implementation of a Buyer originated design and such infringement or claim would have been avoided in the absence of such implementation.

Buyer will give Supplier prompt notice of third party claims against Buyer, and cooperate in the investigation, settlement and defense of such claims at Supplier’s expense. Buyer will allow Supplier to control the defense and settlement of such claim, subject to Buyer’s consent to any settlement, provided that Buyer may control the defense and settlement of any claims to the extent such claims also cover products or services not covered by this Agreement. If Buyer fails to perform its obligations under this section, Supplier’s liability hereunder will be reduced only to the extent that Supplier’s liability is increased by such failure to perform by Buyer.

10.0        Limitation of Liability

***

11.0        Supplier and Supplier Personnel

Supplier is an independent contractor and this Agreement does not create an agency relationship between Buyer and Supplier or Buyer and Supplier Personnel.  Buyer assumes no liability or responsibility for Supplier Personnel.  Supplier will:

1.  ensure it and Supplier Personnel are in compliance with all laws, regulations, ordinances, and licensing requirements;

6

2.  be responsible for the supervision, control, compensation, withholdings, health and safety of Supplier Personnel;

3.  inform Buyer if a former employee of Buyer will be assigned work under this Agreement, such assignment subject to Buyer approval; and

4.  ensure Supplier Personnel performing Services on Buyer’s premises comply with the On Premises Guidelines and upon request, provide Buyer, for export evaluation purposes, the country of citizenship and permanent residence and immigration status of those persons.  Buyer retains the right to refuse to accept persons made available by Supplier for export control reasons.

12.0        Insurance

Supplier will maintain at its expense:

1.  commercial general or public liability insurance with a minimum limit per occurrence or accident of 1,000,000 USD (or local currency equivalent); and,

2.  workers’ compensation or employer’s liability insurance as required by local law, such policies waiving any subrogation rights against Buyer; and,

Insurance required under clause (1) will name Buyer as an additional insured with respect to Buyer’s insurable interest, will be primary or non-contributory regarding insured damages or expenses, and will be purchased from insurers with an AM Best Rating of B+ or better and a financial class rating of 11 or better.

13.0Term and Termination

13.1        Termination of this Base Agreement

Either party may terminate this Base Agreement, without any cancellation charge, for a material breach of this Agreement by the other party or if the other party becomes insolvent or files or has filed against it a petition in bankruptcy (“Cause”), to the extent permitted by law.  Such termination will be effective at the end of a thirty (30) day written notice period if the Cause remains uncured.Either party may terminate this Base Agreement without Cause when there are no outstanding SOWs or WAs.

13.2        Termination of a SOW or WA

Buyer may, upon written notice to Supplier, terminate a SOW or WA with Cause effective thirty (30) days after such written notice or a period of time as specified in such notice, provided the Cause remains uncured on the effective date of such termination. Buyer may, upon written notice to Supplier, terminate a SOW or WA without Cause effective sixty (60) days after such written notice or a period of time as specified in such notice. In the event Buyer terminates a SOW or WA without Cause, Buyer will compensate Supplier for the actual and reasonable costs incurred by Supplier for work in process up to and including the date of termination, provided that Supplier uses reasonable efforts to mitigate Buyer’s liability under this subsection by, among other actions, accepting the return of, returning to its suppliers, selling to others, or otherwise using the canceled Products (including raw materials or works in process), and provided that such expenses do not exceed the Prices. Upon termination, in accordance with Buyer’s written direction, Supplier will immediately:  (i) cease work; (ii) prepare and submit to Buyer an itemization of all completed and partially completed Products and Services; (iii) deliver to Buyer Products satisfactorily completed up to the date of termination at the agreed upon Prices in the relevant SOW and/or WA; and (iv) deliver upon Buyer’s request any work in process.

7

14.0        General

14.1        Amendments

This Agreement may only be amended by a writing specifically referencing this Agreement which has been signed by authorized representatives of the parties.

14.2        Assignment

Neither party will assign their rights or delegate or subcontract their duties under this Agreement to third parties or Affiliates without the prior written consent of the other party, such consent not to be withheld unreasonably, except that either party may assign this Agreement in conjunction with the sale of a substantial part of its business utilizing this Agreement.  Any unauthorized assignment of this Agreement is void.

14.3        Choice of Law and Forum; Waiver of Jury Trial; Limitation of Action

This Agreement and the performance of transactions under this Agreement will be governed by the laws of the country where the Buyer entering into the relevant agreement or PA is located, except that the laws of the State of New York applicable to contracts executed in and performed entirely within that State will apply if any part of the transaction is performed within the United States.  The United Nations Convention on Contracts for the International Sale of Goods does not apply.  The parties expressly waive any right to a jury trial regarding disputes related to this Agreement.  Unless otherwise provided by local law without the possibility of contractual waiver or limitation, any legal or other action related to this Agreement must be commenced no later than two (2) years from the date on which the cause of action arose.

14.4        Communications

All communications between the parties regarding this Agreement will be conducted through the parties’ representatives as specified in the relevant SOW, or other Personnel as specified by the parties.

14.5        Counterparts

This Agreement may be signed in one or more counterparts, each of which will be deemed to be an original and all of which when taken together will constitute the same agreement.  Any copy of this Agreement made by reliable means (for example, photocopy or facsimile) is considered an original.

14.6        Exchange of Information

All information exchanged is non confidential.  If either party requires the exchange of confidential information, it will be made under a separate signed confidentiality agreement between the parties.  The parties will not publicize the terms of this Agreement, or the relationship, in any advertising, marketing or promotional materials without prior written consent of the other party except as may be required by law, provided the party publicizing obtains any confidentiality treatment available.  Supplier will use information regarding this Agreement only in the performance of this Agreement.For any business personal information relating to Supplier Personnel that Supplier provides to Buyer, Supplier has obtained the agreement of the Supplier Personnel to release the information to Buyer and to allow Buyer to use such information in connection with this Agreement.

14.7        Freedom of Action

This Agreement is nonexclusive and either party may design, develop, manufacture, acquire or market competitive products or services.  Buyer will independently establish prices for resale of Products or Services and is not obligated to announce or market any Products or Services and does not guarantee the success of its marketing efforts, if any.

8

14.8        Force Majeure

Neither party will be in default or liable for any delay or failure to comply with this Agreement due to any act beyond the control of the affected party, excluding labor disputes, provided such party immediately notifies the other.

14.9        Obligations of Affiliates

Affiliates will acknowledge acceptance of the terms of this Agreement through the signing of a PA before conducting any transaction under this Agreement.

14.10      Prior Communications and Order of Precedence

This Agreement replaces any prior oral or written agreements or other communication between the parties with respect to the subject matter of this Agreement, excluding any confidential disclosure agreements.  In the event of any conflict in these documents, the order of precedence will be:

1.  the Pull Product Profile contained in the relevant SOW;

2.  the quantity, payment and delivery terms of the relevant WA;

3.  the remaining provisions of the relevant SOW;

4.  this Base Agreement; and

5.  the remaining terms of the relevant WA.

14.11      Record Keeping and Audit Rights

Supplier will maintain (and provide to Buyer upon request) relevant business and accounting records to support invoices under this Agreement and proof of required permits and professional licenses, for a period of time as required by local law, but not for less than three (3) years following completion or termination of the relevant SOW and/or WA.  All accounting records will be maintained in accordance with generally accepted accounting principles.

14.12      Severability

If any term in this Agreement is found by competent judicial authority to be unenforceable in any respect, the validity of the remainder of this Agreement will be unaffected, provided that such unenforceability does not materially affect the parties’ rights under this Agreement.

14.13      Survival

The provisions set forth in the following Sections and Subsections of this Base Agreement will survive after termination or expiration of this Agreement and will remain in effect until fulfilled:  “Ongoing Warranties”, “Epidemic Defects”, “Warranty Redemption”, “Intellectual Property”, “Supplier Liability for Third Party Claims”, “Limitation of Liability”, “Record Keeping and Audit Rights”, “Choice of Law and Forum; Waiver of Jury Trial; Limitation of Action”, “Exchange of Information”, and “Prior Communications and Order of Precedence”.

14.14      Waiver

An effective waiver under this Agreement must be in writing signed by the party waiving its right.  A waiver by either party of any instance of the other party’s noncompliance with any obligation or responsibility under this Agreement will not be deemed a waiver of subsequent instances.

9

ACCEPTED AND AGREED TO:		ACCEPTED AND AGREED TO:
BUYER		SUPPLIER
By:  /s/ Kevin J. Beichner	11/20/02	By:  /s/ Robert J. Scroop	11/25/02
Buyer Signature	Date	Supplier Signature	Date
Kevin J. Beichner		Robert J. Scroop
Printed Name		Printed Name
GCM Removable Storage		VP & GM Storage Resource Business Unit
Title & Organization		Title & Organization

10

Confidential Treatment Requested

STATEMENT OF WORK # 4902RL1340

This Statement of Work  # 4902RL1340 (“SOW”) adopts and incorporates by reference the terms and conditions of the Base Agreement  # 4902RL1317 (“BA”) between International Business Machines Corporation (“Buyer”) and Overland Storage, Inc. (“Supplier”).  This SOW is effective beginning on November 1, 2002 and will remain in effect until November 1, 2005.  Transactions performed under this SOW will be conducted in accordance with and be subject to the terms and conditions of this SOW, the BA and any applicable Work Authorizations (“WAs”).  Any provisions of this SOW that by their nature extend beyond its termination or expiration will remain in effect until fulfilled, and apply to respective successors and assignees. This SOW is not a WA. Product Unique Attachments (as defined below) must be signed by both parties or incorporated by reference into a document signed by both parties, and the terms of a Product Unique Attachment will apply only to the Products identified in such Product Unique Attachment. The initial Product Unique Attachment is attached hereto as “Product Unique Attachment # 1” and incorporated herein by reference. Subsequent Product Unique Attachments or changes to existing Product Unique Attachments will take effect on the effective date provided therein and will be incorporated herein upon execution by the parties.

1.0DEFINITIONS

“APAR” means the form used to report suspected Problems to Supplier, and to request their resolution.

“APAR Closing Codes” means the established set of codes used to denote the final resolution of an APAR.

“APAR Correction Times” means the objectives that Supplier will achieve for resolution of Problems.

•“Severity 1” Problems will be resolved by Supplier within *** days of its receipt of the APAR, and Supplier will use best efforts to provide relief to affected Customers within *** hours of Supplier’s receipt of the APAR.

•“Severity 2” Problem will be resolved by Supplier within *** days of its receipt of the APAR;

•“Severity 3” Problem will be resolved by Supplier within *** days of its receipt of the APAR; and

•“Severity 4” Problem will be resolved by Supplier within *** days of its receipt of the APAR.

“Certified Service Product” or “CSP” means Repaired Products. Notwithstanding the relevant “Ongoing Warranties” provision in the BA, CSP may contain used or reconditioned part(s), provided that such part(s) are properly marked as “SERVICEABLE USED PART(S)” as further described in this SOW.

“Consigned Material” means materials that Buyer owns and continues to own that are entrusted to Supplier.

“Customer(s)” mean Buyer’s customer(s).

“Developer Test Systems” means a configuration of installed hardware and software that Supplier maintains which is representative of typical Customer installations for the Product and, at a minimum, contains current and current minus 1 level of the Product and any prerequisite and co-requisite hardware and software specified by Buyer.

“Emergency Order” or “EO” means a WA placed by Buyer for FRUs with a Lead Time not to exceed ***.

“End of Service” or “EOS” means date when Buyer officially discontinues Customer service and support for a Product. EOS dates are only addressed for the purposes of defining the date through which Supplier will make Repair Services available for Products, and do not affect Supplier’s obligations with respect to FRU or other Product availability.

“Engineering Change” or “EC” means any change(s) to Product.

“Field Replaceable Unit” or “FRU” means a Product, Product component, Product subassembly, Product documentation, Product code, or other Product part used to service a Customer system.

“Lead Time” means the minimum length of time prior to a specific delivery date that Supplier must receive a WA from Buyer to ensure delivery by such date.

THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

1

“Maintenance Level Service” means the service provided, as set forth below, when a Customer identifies a Problem:

•“Level 1” is initial service in response to Customer’s request for support in connection with a suspected Problem;

•“Level 2” is service provided to diagnose and resolve or assist Level 3 in resolving Problems identified by Level 1; and,

•“Level 3” is service provided to develop final resolutions for Problems not resolved by Level 1 and Level 2.

“Problem” means any Product defect, including, without limitation, any defects arising as a result of the failure of the Products to function in accordance with their specifications and other requirements, or other failures or errors.

“Problem Management Record” or “PMR” means a record documenting support actions taken in response to a Customer’s request for support in connection with a suspected Problem.

“Product Unique Attachment”  is a document entitled Product Unique Attachment which contains the terms and conditions unique to a specific Product.

“Repair” or “Repaired” means all required repair activity including, disassembly, failure analysis, testing, component recovery, rework, warranty process, packaging, final testing, and all other processes necessary to ensure Products, which are sent to Supplier for repair within or outside of the relevant Product warranty, meet all the functional performance requirements applicable to newly manufactured Products in accordance with this SOW or relevant WA.

“Turn Around Time” or “TAT” means the elapsed time from the date of receipt acknowledgement of a Product arriving at Supplier’s location for Repair until shipment notice of Repaired Product back to Buyer.

“Yield” means the relationship between Product sent to Supplier for Repair and the CSP returned to Buyer.

2.0PRODUCT DEFINITION

2.1Product Description.

The Products are described in the Product Unique Attachment(s). Products also include all FRUs, CSPs, Product code, and Product documentation.

2.2Product Specifications & Certifications.

Products will comply with all the requirements set forth below:

•CS1-1121-015, IBM Corporate Standard “Automatic Identification (AI) for Packaging, Distribution and Manufacturing — Bar Coded Labels”

•GA21-9261-11a, “Packaging and Handling - Supplier and Interplant Requirements”

•ISO 2859, Sampling Procedures for Inspection by Attributes

•ISO 3951, Sampling Procedures for Inspection by Variables

•EIA - 599 - A, Continuous Improvement

•EIA - 659 - A, Failure, Mechanism, Driven Reliability Monitoring

•EIA - 670, Quality System Assessment

•EIA - 671- A, Problem Analysis and Corrective Actions

•EIA - JESD - 38, Standard for Failure Analysis Report Format

•EIA - JESD - 46, Product Change Notice

•EIA - JESD - 50, Maverick Product Elimination

•Supplier’s published specifications, catalogs, marketing materials, and other documentation, including references in such materials to future upgrades or performance

•FAA Certification, Supplier certifies that Products and their packages do not contain explosives, hazardous materials, incendiaries and/or destructive devices as defined by the FAA

2

•All Product claims, descriptions, specifications, and other requirements described in the Product bill of material, elsewhere in this Agreement, and via other written or electronic communications sent from or approved by Buyer.

2.3COO Product Certification.

Supplier certifies that the Products have the country(ies) of origin specified in the Product Unique Attachment(s) to this SOW.  If there are any changes to this information, Supplier will notify Buyer by providing a new country of origin certification signed by an authorized Supplier representative before shipping any affected Products.  If any part number has more than one country of origin, Supplier certifies that each country of origin is specified in the Product Unique Attachment(s), and Supplier will deliver to Buyer, instructions regarding how Buyer can distinguish each country of origin for part numbers with more than one country of origin prior to shipping the affected Products.

2.4Product Modifications.

ECs submitted by Buyer will be implemented by Supplier in a manner consistent with the Product’s original design (e.g., a missing “caution” label will be replaced by the same type of label and in the same location as originally specified).  Supplier will provide documentation illustrating its performance of ECs upon Buyer’s request. If Buyer places requirements or limitations on a particular Product that result in an increase in Price as compared to the prices of similar products offered without such requirements, then Supplier shall notify Buyer of the opportunity to lower Price, and Buyer shall have the option of modifying the requirements so that its Products can be purchased at this lower price.  Supplier will not make any changes (including any changes affecting form, fit, function and safety) to the Products or to processes supporting Products that have been certified by Buyer, without Buyer’s prior written consent, such consent not to be withheld unreasonably.  In the event such changes are made without Buyer’s prior written consent, Supplier will, at Buyer’s discretion, either:  (i) replace all such products with products approved by Buyer and reimburse Buyer for all actual and reasonable expenses incurred that are associated with such products replacement (including expenses associated with problem diagnosis, testing, and replacement of products in normal inventory, finished goods inventory, distributors inventories, and with Customers); or (ii) credit or refund Buyer the Price of the products. If Supplier improves the safety, function, cost, or reliability of products that it builds for itself or for its other customers by changing a design, component, part, supplier, or production process that may also be used in or in connection with a Product that Supplier builds for Buyer, then Supplier will inform Buyer of such improvement and implement changes to Product as approved by Buyer to incorporate such improvement in Products.

2.5Product Software and Documentation. 

Supplier will deliver, at the earlier of a date requested by Buyer or prior to its first shipment of Product, (i) a fully completed and signed certificate of originality (in a form to be specified by Buyer) for all Product code and documentation, and (ii) all Product code (including all code in, or provided for use with, Products), publications, and documentation in a format and media as specified by Buyer.  Additionally, Supplier will promptly deliver to Buyer all updates (hereinafter “Updates”, such Updates to include, without limitation, all error corrections, enhancements and new versions) to such Product code, publications, and documentation in the same format and media as specified by Buyer. Supplier grants Buyer a nonexclusive, worldwide, perpetual, irrevocable, fully paid up, license to prepare and have prepared derivative works of Product code and documentation and their Updates, and to use, have used, execute, reproduce, transmit, display, perform, transfer, distribute and sublicense Product code and documentation and their Updates and such derivative works, in any medium or distribution technology, and to grant others the rights granted herein.  Buyer will not be obligated to preserve any copyright management information included in the Product code or documentation, or Updates.

3

2.6Tamper Evident Protection.

To the extent that Supplier ships new Product in its final Customer ready form, Supplier shall apply tamper evident protection on the finished Product packaging in the form of an “IBM” logo tape in such a manner that if removed or tampered with, it would be evident that the finished Product packaging has been opened. Supplier will have controls to prevent unauthorized use or dissemination of “IBM” logo tape (including tracking the purchase, internal use, application, and destruction), and to limit access to such materials to only those responsible for the tamper evident sealing on the Products.  Supplier will only use the “IBM” logo tape in connection with new Product.

3.0PURCHASHING

3.1Electronic Commerce.

Buyer may issue scheduling documents (“Blanket Purchase Orders”) which may have the appearance of a normal WA, but do not include a delivery date. Such Blanket Purchase Orders are issued only as a logistical processing document to enable the use of electronic purchase order communications and are not binding in any manner and shall not be considered as WAs by the parties, regardless of quantities or prices that may be included in such Blanket Purchase Orders. Unless previously submitted by Supplier, in order to initiate electronic transfer of payments associated with this SOW, Supplier will complete the form entitled “Authorization for Electronic Funds Transfer” as provided to Supplier by Buyer and fax the completed form to Accounts Payable at the number included on the form.

3.2WA Issuance.

Buyer is under no obligation to purchase any Products and/or Services, except as ordered in WAs and within the liability limits addressed elsewhere in the Agreement, including those addressed in the Product Unique Attachment(s) to this SOW.  Supplier will comply with Buyer’s requested changes to delivery of Products specified in a WA as described in the Product Unique Attachment(s) to this SOW, without additional charge to Buyer.  If Buyer decreases Product quantities specified in a WA outside of allowances described in the Product Unique Attachment(s) to this SOW, Supplier will use all efforts to mitigate Buyer’s liability.  The parties acknowledge that WAs may be placed on Supplier under this SOW by entities other than the Buyer, but only to the extent expressly authorized by Buyer and Supplier in writing, and Supplier agrees that for such purchases that (a) the Buyer authorized third party purchaser under this SOW shall have extended to it all the protections, rights, and other benefits of the Agreement; (b) Buyer is a third party beneficiary and has the right to enforce the terms of this Agreement on such purchases on a joint and several basis; and (c) Buyer shall not be liable to either party with regard to such purchase transactions.

3.3Invoices.

Terms for payment on all Supplier invoices will be net *** days from receipt of an acceptable invoice by Buyer.  Supplier will not invoice Buyer, until after Product delivery.  Invoices to Buyer must include, at a minimum, the following: (i) applicable WA line item numbers; (ii) SOW and WA numbers; (iii) terms of payment as provided herein; (iv) billing period dates; (v) applicable Product unit Prices; (vi) total amount invoiced; (vii) the Harmonized Tariff Code of the importing country for every Product; and, (viii) Product descriptions with sufficient detail to enable verification of associated Product categorical classifications.

3.4Acceptance or Rejection

Buyer may inspect and test all Product at Buyer’s facility prior to acceptance or rejection, and may refuse to accept Product which does not conform to the specifications, certifications, and other requirements referenced in the Agreement.  If Buyer rejects Product and requests a replacement Product, Supplier shall replace the rejected Product within seven (7) calendar days of Buyer’s request, and shall pay for the ***, if required by Buyer, and all other expenses associated with the return of the rejected Product.

4

4.0SUPPLY RESPONSIBILITIES

4.1Taxes and Duties

Supplier warrants that the Prices do not include sales, use or similar taxes that do not apply to Buyer as a reseller of Products and/or Services. In accordance with the applicable delivery terms, Supplier will be responsible for all applicable legal, regulatory and administrative requirements, in addition to all associated duties and fees, associated with importation of Products (where applicable) into the country where the Product is received by Buyer from Supplier.

4.2Spare Parts Availability.

Supplier will maintain the capability to supply, and shall provide Product spare parts (i.e., the entire Product or portions of the Product as described herein or as may be subsequently described by Buyer, including, without limitation all FRUs) technical support for the Product as described in this SOW during the term of this SOW and for a period of *** years thereafter (or longer period as may be required by law upon Buyer or Supplier) under the terms and conditions of the Agreement. Supplier will give Buyer a last time buy option at the end of such *** year period, and shall also offer any follow on products that are compatible with Products herein. Supplier will notify Buyer prior to Supplier’s withdrawal of any Product(s), and such withdrawal will not occur during the term of the SOW and will not affect Supplier’s responsibilities under this section related to spare parts availability or technical support.

4.3Use of Subcontractors.

Supplier’s use of subcontractors will not relieve Supplier of the responsibility for the subcontractor’s performance, and Supplier’s responsibilities assumed under this SOW will be equally applicable to such subcontractors, as must be agreed upon between Supplier and such subcontractors. Buyer reserves the right to review both the Supplier’s management system for the operations of its subcontractors and to review with Supplier, their subcontractor’s management system for operations for the purposes of this SOW. Buyer reserves the right to reject Supplier’s use of a subcontractor in performance of this SOW for any reason.

5.0TECHNICAL SUPPORT

Technical support includes the Level 1, Level 2, and Level 3 responsibilities defined below, Product code, documentation and updates arising out of technical support responsibilities, and all Updates created or made available by Supplier.

5.1Level 1.

Supplier will provide assistance by phone to Buyer, as required by Buyer, in performing the following Level 1 support responsibilities:

•create the PMR;

•obtain from Customer a description of the Problem;

•search for any known resolution(s) relevant to the Problem;

•if a resolution to the Problem is known, specify such resolution to Customer;

•if no resolution to Problem is known, generate APAR, assign APAR Correction Time, forward APAR to Level 2; and

•pass the PMR to Level 2, and update the PMR documenting Level 1 actions.

5.2Level 2.

Supplier will provide assistance by phone to Buyer, as required by Buyer, in performing the following Level 2 support responsibilities:

•receive the PMR/APAR from Level 1;

5

•analyze Problem symptoms and gather additional data from Customer as required;

•recreate Problem on the Developer Test System;

•determine if Problem is due to improper installation of the Product by Customer;

•determine if Problem is due to operationally related hardware or software at the Customer location;

•attempt a bypass or circumvention for high impact Problems (i.e., Severity 1 and 2);

•create APAR record if no resolution to Problem is attained; and

•update the PMR documenting Level 2 actions.

5.3Level 3.

Supplier will perform the following Level 3 support responsibilities:

•receive the APAR/PMR and supporting documentation and materials from Level 2;

•analyze Problem symptoms and diagnose Problem;

•notify Level 2 if additional information, materials or documentation are required;

•attempt to recreate Problem on the Developer Test System;

•assist Level 2 in developing a bypass or circumvention for high impact Problem (i.e., Severity 1 and 2);

•deliver corrections to the Product and/or Product code to Buyer within the applicable APAR Correction Times to fix Problems identified by Buyer;

•return all APARs to Buyer with an APAR Closing Code assigned, including text describing the resolution of Problem;

•confirm resolution of Problem with Customer, and update PMR documenting Level 3 actions; and,

•answer any questions from Buyer and/or Customer concerning the operation and use of Products.

5.4Other Technical Support Responsibilities.

Supplier will provide to Buyer the name and phone numbers of Supplier Personnel to contact for all technical support matters related to the Product. Supplier will provide all training and tools required by Buyer to enable Buyer to perform technical support functions for the Product and will keep Buyer informed of any known Problems and their associated solutions. Supplier agrees to make such services and support available during normal business hours in the form specified by Buyer. At Buyer’s request, Supplier agrees to provide technical Supplier Personnel at Customer sites. Notwithstanding anything to the contrary, Supplier will not contact or work directly with Customers except as directed by Buyer.

6.0QUALITY

6.1Nonconforming Product.

Supplier shall have established, documented, and maintained procedures to ensure that Product, which does not conform to the requirements of the Agreement, is prevented from unintended use or shipment to the Buyer. Supplier must immediately notify Buyer of any factors affecting Product quality. Supplier will not ship affected Products to Buyer without prior written approval from Buyer. Within twenty-four (24) hours of Supplier’s notification to Buyer pursuant to this section, Supplier will provide Buyer a resolution plan including a description of the factor affecting Product quality, documentation of the root cause analysis performed by Supplier in response, a schedule of all actions for the containment and correction of all affected Products, relevant traceability data for the affected Products, and a process ensuring the effectiveness of the actions to be taken hereunder.  If Buyer expressly instructs Supplier to ship nonconforming Product to the Buyer, then Supplier will describe the extent of such Product’s non-conformance in writing and secure Buyer’s written agreement prior to any shipment of any such non-conforming Product.

6.2ISO Requirements.

For ISO compliance, the Supplier represents and warrants that the Supplier is ISO 9001 compliant. Compliance hereunder may be either by means of external accreditation or self-declaration. For external

6

accreditation, Supplier will provide to Buyer, upon Buyer’s request, a copy of the Supplier’s current registration, including the scope, Standard Industrial Classification code or equivalent, all locations involved, and any restrictions or exclusions.  For self-declaration, Supplier will provide to Buyer, upon Buyer’s request, a letter from Supplier’s chief executive officer, chief operating officer, or other executive assuring that self-declaration was performed with due diligence based upon a previously executed internal audit report, and that such self-declaration has had executive management review and approval.

6.3Document Control and Records.

Supplier shall ensure that all documents such as software/firmware, engineering drawings, specifications, contracts, policies, procedures, manufacturing process flow chart, and work instructions (including test procedures) are under revision control and are available to all necessary Buyer and/or Supplier Personnel in the manufacturing environment. Supplier shall a have a system for the effective updating/removal of any obsolete documentation from all manufacturing areas. Supplier will establish and maintain procedures for identification, collection, indexing, filing, storage, maintenance, and disposition of all Product related records, including but not limited to, Statistical Process Control data, test and inspection records, customer pricing records, and all other records required by Buyer. Supplier shall maintain a history file for all Products, by part number, that tracks changes to the Product or Product component designs, materials, and/or manufacturing source. Supplier shall track and retain, for at least four (4) years after termination of this SOW, records which reflect, among other things, any certificates required by law or under this Agreement, all necessary and pertinent documentation that may substantiate pricing, as well as, any other obligation hereunder, such as, not by way of limitation, the date of Supplier’s purchase from a third party supplier, if any, quality test data and Supplier’s source selection process documentation.

6.4Audits.

Upon prior written notice to Supplier, Buyer or Buyer’s representative may conduct audits of any or all Product and Product component facilities and any or all sites where work is being performed or materials are being delivered to Supplier in performance of Supplier’s work for Buyer. Supplier shall, at Buyer’s request and during normal business hours, permit access to Buyer or Buyer’s representative to all manufacturing operations for the Products. Such audits may relate to process control, quality inspection test data, internal audit reports, and any other information related to the Product being manufactured and sold to Buyer in compliance with all the requirements of the Agreement. At Buyer’s request, Supplier shall provide Buyer Product samples together with Product labels, code, documentation, agency certifications, test results, packaging, carton labels, and other items, as required by Buyer to conduct a thorough review of the Product’s conformance with the requirements in the Agreement.

6.5Product Traceability Requirements.

Supplier shall establish and maintain procedures and processes for the identification and lot traceability of critical Product items during all stages of production, delivery, and installation per applicable ISO & EIA standards. Supplier will maintain both forward and backward traceability capabilities and ensure that its response time for traceability requests from Buyer does not exceed twenty-four (24) hours.

6.6Periodic Quality Reviews.

Supplier shall develop and implement a process for continuous Product improvement. Buyer may conduct reviews and/or hold meetings related to Supplier’s performance under the SOW, including but not limited to the following respects, and may compare Supplier’s performance with that of similarly situated suppliers:

•Supplier’s compliance with delivery dates in support of WAs issued by Buyer;

•Supplier’s compliance with Emergency Orders issued by Buyer hereunder;

•Supplier’s compliance with the targeted Shipped Product Quality Level (SPQL) as set by the parties on a monthly basis;

•Supplier’s compliance with the targeted Incoming Product Quality Level (IPQL) as set by the parties on a monthly basis;

7

•Supplier’s compliance with the targeted Field Replace Action Level (FRAL) as set by parties on a monthly basis;

•Percentage of Products failing to function properly upon delivery (also known as the Product DOA rate);

•Supplier’s speed in taking corrective actions for any problems with Product identified by Buyer;

•Supplier’s implementation of lessons learned in previous periodic quality reviews.

In any calendar month in which Supplier shows poor performance with respect to the criteria set forth above, Buyer may notify Supplier of such poor performance.  In such case, Supplier will respond to Buyer with an agreed upon action plan within five (5) business days of notification by Buyer demonstrating its ability to achieve the required measurements. Supplier’s failure to successfully execute an action plan within an agreed upon time frame shall be a material breach of the Agreement. Satisfying any or all criteria and /or requirements of this section 5.0 shall not relieve Supplier of its warranties or other obligations of the Agreement.

7.0EMERGENCY ORDERS

7.1Emergency Order Placement Process.

If or when buffer stock of Product is not available to Buyer from a Supplier hub, Supplier will accept and respond to EOs from Buyer during normal business hours (i.e., 7:00 AM to 5:00PM PST), each business day of the year.  Supplier will provide contact information for EO coverage at all times.  Supplier will respond to all EOs via fax, EDI (or other electronic commerce approach) and/or telephone, such EOs to be confirmed by Buyer with a written WA mailed, faxed, or electronically transmitted to Supplier within two (2) business days of EO placement.  EOs may include Buyer’s WA number, Buyer’s part number, part number description, quantity, unit Price, relevant EO code (A-Alert, A, B, S, and X), delivery date and ship to address. Supplier will acknowledge all EOs back to Buyer via fax or telephone within two (2) hours of receipt for EOs with an A-Alert EO code and within four (4) hours of receipt for EOs with an A, B, S, or X EO code. Buyer may cancel EOs without cost at any time prior to Supplier’s acknowledgement of such EO. Supplier will deliver EO Products directly to the address specified in the EO and in accordance with this SOW.

7.2Emergency Order Shipment Responsibilities.

Supplier will ship all FRUs required pursuant to an EO, using it’s best commercial efforts for same day shipment to arrive on the next business day at the Buyer specified receiving location, subject to receipt of the EO from Buyer within a period reasonably allowing Supplier to meet cutoff times established by the transportation carriers. Supplier will ensure that FRUs that are not shipped on the same day the Supplier receives an EO will be shipped on the next business day after EO receipt.

8.0WARRANTY SUPPORT

8.1Epidemic Defects.

Epidemic Defects shall mean Products that experience one of more of the following: (a) the same or similar defect at a rate of *** or more in any given sixty (60) day period, (b) the same or similar defect at a rate of *** or more of total purchases, (c) recalls, or (d) safety defects.

8.2Warranty Period.

The warranty redemption set forth in the section of the BA entitled, “Warranty Redemption” as it applies to subsection five of the section of the BA entitled, “Ongoing Warranties” will be available to Buyer for all Product hereunder for the longer of the relevant warranty period set forth in the applicable Product Unique Attachment (as calculated from the date Buyer takes title of Product). Such warranty redemption for Repaired Product shall be the longer of the above period for the original Product or one hundred eighty

8

(180) days after the date of Repair. In no case, will said warranty be for a period less than that provided by Supplier to its most favored customers.

8.3Warranty Redemption Logistics.

Supplier will provide Buyer with information and processes by which Buyer is able to verify Product warranty entitlement. Where Supplier is required to ship Product pursuant to its warranty redemption responsibilities under the Agreement, Supplier will ship such Product to Buyer’s designated “ship to” location via Buyer’s designated carrier.  Unless specified otherwise by Buyer, Supplier will provide locations for Buyer to redeem Product warranty in the following four geographic areas: United States, Western Europe, Pacific Rim and Brazil.

8.4Data Integrity.

In addition to all the other warranties in the Agreement, Supplier warrants that all Products shall be tested comprehensively, prior to any delivery, to ensure that all such Products conform to these warranties, and that Supplier shall provide these test results to Buyer upon Buyer’s request.

9.0REPAIR

9.1Required Replacement.

All components of Products sent to Supplier for Repair that exhibit unsafe conditions (including but not limited to cracking, chafing, and/or other unsafe conditions) will be replaced with an identical (same manufacturer, part or model number, electrical/thermal rating, physical dimensions and agency approval) or an approved alternate component (identical mechanical, electrical/thermal, physical, compositional and performance characteristics but different manufacturer). Compliance with this section will not relieve Supplier of its other obligations under the Agreement.

9.2Scope of Repair Services.

Supplier will make Repair Services available to Buyer up through and including the relevant EOS date, as specified by Buyer in writing. Products sent to Supplier for Repair during the applicable warranty period will be Repaired at no cost to Buyer and returned to Buyer at Supplier’s cost. Products sent to Supplier for Repair outside of the applicable warranty period will be Repaired and returned to Buyer freight prepaid in accordance with the delivery date specified by Buyer in the WA for such Repair and at the Repair Prices set forth in the SOW. All Repaired Products must meet the requirements regarding CSPs set forth in this SOW. Repair Services will not be performed on Products sent for Repair a second time.  In such event, Supplier will, at Buyer’s discretion, provide Buyer a replacement Product, or credit or refund Buyer an amount equal to the Price paid by Buyer for the initial Repair (including associated shipping cost) and return the units to Buyer for scrapping.  Supplier must maintain a history of Repair activities and provide a monthly report to Buyer in the format of the attachment to this SOW that is entitled “Monthly Warranty Analysis Report.”

9.3CSP Requirements.

Products will only be classified as CSP with Buyer’s written approval.  Products classified as CSP may be used for field service only and may not be used in the manufacturing of a new Product. CSPs will meet the following criteria: (i) the functional performance of such Products will comply with all current and applicable engineering drawings, specifications, and other Product requirements; (ii) the appearance of such Products will be equivalent to that of a new counterpart; (iii) manufacturer warning labels will remain intact and legible or will be replaced, and protective covers (e.g., guards or shields) will be securely mounted as originally designed or will be replaced; and (iv) the Repair of such Products (including EC related Repairs) will be in compliance with all agreed upon listings and certifications issued by National Certification Body (NCB). If Supplier is not able to meet specified criteria, then Product will be deemed non-repairable and Buyer will be notified accordingly. Suppliers will place on all CSPs, a “SERVICEABLE USED
PART(S)” label meeting the following criteria: (i) printed using high quality paper with a shelf life of ten (10) years;  (ii) using permanent pressure sensitive and tamper evident

9

adhesive (black printing on orange background); (iii) which do not contain any voids, ink specks, ink fill-ins or edge-roughness; (iv) which are applied in a manner that provides durable and wrinkle free labels that permanently and securely bonds to the Product and container under variable environmental conditions; (v) which are clearly visible; and (vi) which will not adversely affect the functionality or aesthetics of the Product. The original manufacture date will be preserved or restored as needed at the time of Repair. Product labels (labels applied directly to the Product) will comply with the following dimensions:  (i) large labels will measure 3.0448 cm x 0.9615 cm (1.1875 in x 0.3750 in); (ii) small labels will measure 2.2435 cm x 0.6410 cm (0.8750 in x 0.2500 in).  Container labels (labels applied to the container) will comply with the following dimensions:  (i) 9.2948 cm x 4.4871 cm (3.6250 in x 1.7500 in).

9.4Engineering Deliverables.

Supplier will provide Buyer, upon Buyer’s request, all the information (in the English language) required to enable Buyer to procure alternate Repair source(s), including but not limited to the following:

•Product drawings

•Schematics / diagrams

•Engineering specifications

•Performance specifications

•Component placement listings

•Certified component source listings (IEC / UC / CSA 950)

•Debug / fault isolation test procedures

•Special tooling drawings / specifications if applicable

•Rework / upgrade instructions

•Test procedures / software  / equipment

•Repair verification procedures / test software / equipment

•Hazardous materials listings

10.0CONSIGNED MATERIALS

10.1Handling of Consigned Materials.

In instances where Buyer sends Product to Supplier for Repair, and/or provides to Supplier tooling and/or other items, Buyer may, but is not obligated to, entrust such Products, tooling, and/or other items to Supplier as Consigned Materials.  Buyer will retain title to Consigned Material at all times. Supplier will: (i) use Consigned Materials only in the performance of this SOW and will not reuse or resell nor allow to be reused or resold any Consigned Material without Buyer’s prior written authorization; (ii) acknowledge receipt of Consigned Materials within five (5) business days of receipt to the Buyer’s Business Coordinator via e-mail or fax, and such acknowledgement will include a detailed report of any quantity shortages or overages (any shortages not reported to Buyer’s Coordinator in such acknowledgement will be deemed received by Supplier), all relevant part numbers, and the relevant WA (if applicable) and quantity; (iii) immediately notify carrier and Buyer’s Business Coordinator of any Consigned Materials that exhibit external damage at the time of delivery from Buyer to Supplier, document on carrier’s freight bill such damage, and receive either an inspection report or a letter from carrier stating that such inspection has been waived; (iv) ensure that Consigned Materials are not pledged, mortgaged, assigned, borrowed or encumbered by security interests or otherwise and are not be removed from Supplier’s location without Buyer’s prior written authorization, unless provided to Buyer in accordance with the terms and conditions of this SOW; (v) provide monthly reports of all transactions made by Supplier involving Consigned Materials, together with the quantities remaining in Supplier’s custody as of the date of such report, and will make due settlement and payment on a monthly basis, if not already made, for any and all Consigned Materials in accordance with this SOW; (vi) maintain account books and records providing complete information as to all such transactions involving Consigned Materials, and such books and records will be available to Buyer during normal business hours, upon forty eight (48) hours prior notice to Supplier; (vii) permit Buyer to inspect Consigned Materials at any time during normal business hours, at Supplier’s location and to remove any or all of the same if Buyer so desires; (viii) maintain replacement cost insurance

10

on Consigned Materials; (ix) upon Buyer’s written request, or upon termination or expiration of this SOW, return Consigned Materials to Buyer pursuant to Buyer’s instructions and in the same condition as received by Supplier; (x) upon Buyer request, mark Consigned Material in a manner acceptable to Buyer to indicate Buyer’s ownership; (xi) control Consigned Materials in a secure and separate area so as to not commingle Consigned Materials with other materials, parts, or other assets of Supplier or of any third party; and (xii) notify Buyer immediately in writing of any personal property taxes or assessments that may be levied on Consigned Materials.  Supplier shall not charge inventory fees or any other costs to Buyer regarding Consigned Materials.

10.2Return of Consigned Materials.

Supplier will provide a packing slip with all return shipments of Consigned Materials to Buyer which specifies Supplier’s name, Buyer part number(s) of Consigned Materials being returned, quantity of Consigned Materials, by Buyer part number, being returned, and the relevant WA number.  Consigned Materials which Supplier is unable to Repair will be returned to Buyer with a packing slip which additionally references a return authorization number, obtained from Buyer, and provide a reason for why Supplier is unable to Repair such Consigned Materials.  Supplier will reimburse Buyer for Consigned Materials that are not returned to Buyer in accordance with the terms of this SOW, including, without limitation, any Consigned Materials that have been stripped, stolen, lost, damaged, or unaccounted for.  The calculations for reimbursement of Consigned Materials is as follows: (i) for new Consigned Materials, Supplier will reimburse Buyer an amount equal to Buyer’s then current price for the Consigned Materials; or (ii) for used Consigned Materials, Supplier will reimburse Buyer an amount equal to *** of Buyer’s weighted average cost per piece.

11.0LIMITATION OF SUPPLIER LIABILITY UNDER THE SOW

Supplier’s liability for Buyer damages arising under this SOW, shall be limited to the greater of *** or the total amount of money paid for Products and Services during the term of the SOW, provided that this limitation shall not apply and have no effect on any Supplier liability arising under section 9.0 of the BA.

ACCEPTED AND AGREED TO:				ACCEPTED AND AGREED TO:
BUYER				SUPPLIER
By:	/s/ Paul Pitarra for Ron Clarke		3/14/03	By:	/s/ Vernon A. LoForti		3/17/03
Buyer Signature		Date		Supplier Signature		Date
Paul Pitarra for Ron Clarke				Vernon A. LoForti
Printed Name				Printed Name
Procurement Director				VP and CFO
Title				Title

11

PRODUCT UNIQUE ATTACHMENT #1 EFFECTIVE BEGINNING NOVEMBER 1, 2002

1.0PRODUCT DESCRIPTION

The Product is an SDLT/LTO Library with associated options. The Product (including Product code and documentation) will be available in the following languages: English

2.0PART NUMBER UNIQUE TERMS

Buyer P/N	Description	***	Delivery Term	***	Country of Origin and Complete Street Address	***	Repair Price (USD)*	TAT	Yield
4560SLX	BASE EXPANDER UNIT	***	FOB KINGSTON US LOCAL WAREHOUSE	***	USA 4820 OVERLAND AVENUE, SAN DIEGO, CA 92123	***	TBD	30 days	100%
59P6656	BASE EXPANDER UNIT	***	DDU Greenock Hub	***	USA 4820 OVERLAND AVENUE, SAN DIEGO, CA 92123	***	TBD	30 days	100%
59P6657	FIBER CHANNEL CARD	***	FOB KINGSTON US LOCAL WAREHOUSE DDU Greenock Hub	***	USA 4820 OVERLAND AVENUE, SAN DIEGO, CA 92123	***	TBD	30 days	100%
59P6658	LTO UPGRADE DRIVE	***	FOB KINGSTON US LOCAL WAREHOUSE DDU Greenock Hub	***	USA 4820 OVERLAND AVENUE, SAN DIEGO, CA 92123	***	TBD	30 days	100%
59P6659	LTO MAGAZINE	***	FOB KINGSTON US LOCAL WAREHOUSE DDU Greenock Hub	***	USA 4820 OVERLAND AVENUE, SAN DIEGO, CA 92123	***	TBD	30 days	100%
59P6660	SDLT UPGRADE DRIVE	***	FOB KINGSTON US LOCAL WAREHOUSE DDU Greenock Hub	***	USA 4820 OVERLAND AVENUE, SAN DIEGO, CA 92123	***	TBD	30 days	100%
59P6661	SDLT MAGAZINE	***	FOB KINGSTON US LOCAL WAREHOUSE DDU Greenock Hub	***	USA 4820 OVERLAND AVENUE, SAN DIEGO, CA 92123	***	TBD	30 days	100%
59P6662	EXPRESS CHANNEL 1	***	FOB KINGSTON US LOCAL WAREHOUSE DDU Greenock Hub	***	USA 4820 OVERLAND AVENUE, SAN DIEGO, CA 92123	***	TBD	30 days	100%
59P6663	EXPRESS CHANNEL 2	***	FOB KINGSTON US LOCAL WAREHOUSE DDU Greenock Hub	***	USA 4820 OVERLAND AVENUE, SAN DIEGO, CA 92123	***	TBD	30 days	100%
59P6698	LTO DRIVE SLED FRU	***	FOB Overland Storage, San Diego	***	USA 4820 OVERLAND AVENUE, SAN DIEGO, CA 92123	***	TBD	30 days	100%

12

59P6699	SDLT DRIVE SLED FRU	***	FOB Overland Storage, San Diego	***	USA 4820 OVERLAND AVENUE, SAN DIEGO, CA 92123	***	TBD	30 days	100%
59P6703	LEFT LTO LIBRARY MAGAZINE FRU	***	FOB Overland Storage, San Diego	***	USA 4820 OVERLAND AVENUE, SAN DIEGO, CA 92123	***	TBD	30 days	100%
59P6704	RIGHT LTO LIBRARY MAGAZINE FRU	***	FOB Overland Storage, San Diego	***	USA 4820 OVERLAND AVENUE, SAN DIEGO, CA 92123	***	TBD	30 days	100%
59P6705	LEFT SDLT LIBRARY MAGAZINE FRU	***	FOB Overland Storage, San Diego	***	USA 4820 OVERLAND AVENUE, SAN DIEGO, CA 92123	***	TBD	30 days	100%
59P6706	RIGHT SDLT LIBRARY MAGAZINE FRU	***	FOB Overland Storage, San Diego	***	USA 4820 OVERLAND AVENUE, SAN DIEGO, CA 92123	***	TBD	30 days	100%
59P6707	ROBOT BARCODE READER FRU	***	FOB Overland Storage, San Diego	***	USA 4820 OVERLAND AVENUE, SAN DIEGO, CA 92123	***	TBD	30 days	100%
59P6708	LIBRARY CNTRLLR FRU	***	FOB Overland Storage, San Diego	***	USA 4820 OVERLAND AVENUE, SAN DIEGO, CA 92123	***	TBD	30 days	100%
59P6709	POWER SUPPLY FRU	***	FOB Overland Storage, San Diego	***	USA 4820 OVERLAND AVENUE, SAN DIEGO, CA 92123	***	TBD	30 days	100%
59P6713	LCD DISPLAY ASSEMBLY FRU	***	FOB Overland Storage, San Diego	***	USA 4820 OVERLAND AVENUE, SAN DIEGO, CA 92123	***	TBD	30 days	100%
59P6715	FIBER CARD FRU	***	FOB Overland Storage, San Diego	***	USA 4820 OVERLAND AVENUE, SAN DIEGO, CA 92123	***	TBD	30 days	100%
71P9121	CARTRIDGE ELEVATOR	***	Overland Storage, San Diego	***	USA 4820 OVERLAND AVENUE, SAN DIEGO, CA 92123	***	TBD	30 days	100%
71P9122	CARTRIDGE ELEVATOR	***	FOB Overland Storage, San Diego	***	USA 4820 OVERLAND AVENUE, SAN DIEGO, CA 92123	***	TBD	30 days	100%

* Repair Price applies only to Products Repairs not covered by Product warranty.

3.0WA FLEXIBILITY

Number of Days prior to a WA Scheduled Delivery Date	Increase of Product Quantity to a WA Scheduled Delivery Date (% of WA Quantity)		Cancellation of Product Quantity to a WA Scheduled Delivery Date (% of WA Quantity)		Rescheduling of Product Quantity to a WA Scheduled Delivery Date (% of WA Quantity)
Less than 15 days	0	%	0	%	0	%
From 15 days to 30 days	50	%	50	%	50	%
From 30 days to 45 days	100	%	100	%	100	%
More than 45 days	Unlimited		100	%	100	%

While the above flexibility terms also apply to Pull Products, in the event the relevant Pull Profile has more favorable terms, then such more favorable terms shall take precedence.

13

4.0REPLENISHMENT

4.1Product Pull Profile.

Buyer P/N

Package Quantity

Pallet Quantity

Container Quantity

Bulk Pull

Rounding Indicator

Pull Start Date

***

Transit Time

Process Time

***

Upside Flexibility

Liability Horizon

4560SLX

1

6

NA

G

6

11/22/02

***

7days

1 DAY

***

Sec 3.0

2 WEEKS

59P6657

1

10

NA

G

10

11/22/02

***

7days

1 DAY

***

Sec 3.0

2 WEEKS

59P6658

1

10

NA

G

10

11/22/02

***

7days

1 DAY

***

Sec 3.0

2 WEEKS

59P6659

1

25

NA

G

25

11/22/02

***

7days

1 DAY

***

Sec 3.0

2 WEEKS

59P6660

1

10

NA

G

10

11/22/02

***

7days

1 DAY

***

Sec 3.0

2 WEEKS

59P6661

1

25

NA

G

25

11/22/02

***

7days

1 DAY

***

Sec 3.0

2 WEEKS

59P6662

1

24

NA

G

24

11/22/02

***

7days

1 DAY

***

Sec 3.0

2 WEEKS

59P6663

1

10

NA

G

10

11/22/02

***

7days

1 DAY

***

Sec 3.0

2 WEEKS

4.2Transaction Documents.

TRANSACTION DOCUMENT	EDI/ANSI EDIFACT	E-Mail	Fax	Frequency
Invoice (810/INVOIC)	X			AS REQUIRED
Remittance Advice (820/REMADV)	X			AS REQUIRED
Planning Schedule (830/DELFOR)	X			AS REQUIRED
Forecast Response (830/DELFOR)	X			AS REQUIRED
Purchase Order (850/ORDERS)	X			AS REQUIRED
PO Acknowledgment (855/ORDRSP)	X			AS REQUIRED
Advance Ship Notice (856/DESADV)	X			AS REQUIRED
PO Change (860/ORDCHG)	X			AS REQUIRED
Pull Notification (862/DELJIT)	X			AS REQUIRED
Product Transfer & Resale Report (867)	X			AS REQUIRED
Functional Acknowledgment (997/CONTRL)	X			AS REQUIRED
Inventory Inquiry/Advice (846/INVRPT)	X			AS REQUIRED

5.0COMMUNICATIONS

Each party may change its designated coordinators and/or addresses any time by a written notification to the relevant coordinator.

5.1Business Coordinators.

SUPPLIER		BUYER
Name	***	Name	***
Title	IBM Account Manager	Title	X Series Tape Commodity Manager
Address	4820 Overland Avenue San Diego, CA 92123	Address	3093 Cornwallis Road Research Triangle Park, NC 27709
Phone	***	Phone	***
Fax	***	Fax	***
E-mail	***	E-mail	***

5.2Technical Coordinators.

SUPPLIER		BUYER
Name	***	Name	***
Title	IBM Account Manager	Title	X Series Procurement Engineer
Address	4820 Overland Avenue San Diego, CA 92123	Address	3093 Cornwallis Road Research Triangle Park, NC 27709
Phone	***	Phone	***
Fax	***	Fax	***
E-mail	***	E-mail	***

14

MONTHLY WARRANTY ANALYSIS REPORT

Supplier Name:

Month:

Buyer P/N Description Barcode Symptoms Actual
Finding Explanation
Code Root Cause Analysis Action Taken to Fix

SUMMARY REPORT
Total Units Repaired in Current Month
Total Warranty Claims Received
Actual Warranty Accepted
Warranty %
High Flyers (more than       %)	High Flyers Require a Corrective Action Plan and Date of Implementation.

EXPLANATION CODE	DESCRIPTION
Code 03	Warranty Expired
Code 04	Missort
Code 07	Cannibalized or Missing Parts
Code 08	Warranty Product Received
Code 09	Physical Damage
Code 10	No Defect Found
Code 11	Other

15

International Business Machines Corporation	Fax completed form to Accounts Payable:
1701 North Street	(607) 755-6124
Endicott, NY 13760

AUTHORIZATION FOR ELECTRONIC FUNDS TRANSFER

You hereby authorize International Business Machines Corporation to initiate credit entries to the account listed below in connection with agreed upon Electronic Data Interchange (EDI) transactions between our companies.  You agree that such transactions will be governed by the National Automated Clearing House Association rules.  This authority is to remain in effect until International Business Machines Corporation has received written notification of termination in such time and such manner as to afford International Business Machines Corporation a reasonable opportunity to act on it.  IN NO EVENT SHALL IBM BE LIABLE FOR ANY SPECIAL, INCIDENTAL, EXEMPLARY OR CONSEQUENTIAL DAMAGES AS A RESULT OF THE DELAY, OMISSION OR ERROR OF AN ELECTRONIC CREDIT ENTRY, EVEN IF INTERNATIONAL BUSINESS MACHINES CORPORATIONS HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

Trading Partner Name
Payment Remit Address
Account Payee
Payee Address
EFT Domestic Banking Institution
Contact Name / Title
Contact Phone Number
Bank Address
Account Number				(MAX 17)
Bank Routing / Transit CD				(MAX 9)
Remit Advice Option		1	2
	DUNS Number / User ID / Account Number
Tax ID Number
By
Name
Title
Phone Number
Date

16

EX-31.1

EXHIBIT 31.1

CERTIFICATION

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT

I, Christopher Calisi, certify that:

1.  I have reviewed this quarterly report on Form 10-Q of Overland Storage, Inc.;

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) [Paragraph omitted pursuant to SEC Release Nos. 33-2838 and 34-47986]

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 10, 2004	By:    /s/ Christopher Calisi
		Christopher Calisi, President and Chief Executive Officer
		(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT

I, Vernon A. LoForti, certify that:

1.  I have reviewed this quarterly report on Form 10-Q of Overland Storage, Inc.;

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) [Paragraph omitted pursuant to SEC Release Nos. 33-2838 and 34-47986]

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 10, 2004	By:    /s/ Vernon A. LoForti
		Vernon A. LoForti, Vice President, Chief Financial Officer and Secretary (Principal Financial Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION REQUIRED BY

SECTION 1350 OF TITLE 18 OF THE UNITED STATES CODE

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned hereby certifies in his capacity as an officer of Overland Storage, Inc. (the  “Company”) that, to his knowledge, the Quarterly Report of the Company on Form 10-Q for the fiscal quarter ended December 31, 2003 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods presented in the financial statements included in such report.

By:	/s/ Christopher Calisi
	Christopher Calisi
	President and Chief
	Executive Officer
	(Principal Executive Officer)
Date: February 10, 2004
By:	/s/ Vernon A. LoForti
	Vernon A. LoForti
	Vice President, Chief Financial
	Officer and Secretary
	(Principal Financial Officer)
Date: February 10, 2004