SEVERANCE AND RELEASE AGREEMENT

Exhibit 10.1

SEVERANCE AND RELEASE AGREEMENT

     This Severance and Release Agreement (the “Agreement”) by and between MTI Technology Corporation (“MTI” or “the Company”) and Todd Schaeffer (“Schaeffer”) documents the terms and conditions of Schaeffer’s termination from the Company, and is effective                    , (the “Effective Date”).

RECITALS

     On or about February 21, 1995, Schaeffer commenced employment with MTI. Schaeffer was promoted to Corporate Controller on or about September 18, 2001 and is currently the Company’s Chief Financial Officer.

     On or about July 23, 2004, MTI and Schaeffer mutually agreed to terminate Schaeffer’s employment effective on a date to be determined by the parties (the “Employment Termination Date”). MTI does not have a uniform policy or practice of granting particular severance benefits to its employees or executives. However, MTI offered to pay to Schaeffer only those severance benefits described in the paragraphs that follow in exchange for Schaeffer’s release of all claims against the Company and performance of his other obligations hereunder. Schaeffer accepted this offer.

     NOW, THEREFORE, in consideration of the recitals listed above, and the mutual promises contained in this Agreement, Schaeffer and the Company agree, covenant, and represent as follows:

AGREEMENT

1. The Parties’ Responsibilities

          a. MTI will continue Schaeffer’s salary and auto allowance for one year following the Employment Termination Date (the “Salary Continuation Period”) at his base salary in effect on the Effective Date (i.e., $210,000 annually) and at his base auto allowance rate in effect on the Effective Date (i.e., $750 monthly), to be paid on regularly recurring payroll dates for such one year period, and to be less normal payroll deductions.

          b. MTI and Schaeffer agree that from the Effective Date until the Employment Termination Date, Schaeffer will remain employed by MTI at the base salary in effect on the Effective Date (i.e., $210,000 annually), that his benefits will continue in effect and that options already granted to him will continue to vest.

          c. Schaeffer acknowledges that, as of Employment Termination Date, he may be eligible to obtain continuing coverage under MTI’s group medical, vision and dental plans pursuant to the provisions of the Consolidated Omnibus Reconciliation Act and its implementing regulations (“COBRA”). MTI agrees that for a one year period beginning the day following the Employment Termination Date, MTI will pay the premium for any COBRA continuation coverage that Schaeffer elects to obtain. In no event shall MTI be liable for, or be required to pay premiums for any COBRA continuation coverage Schaeffer may elect or be eligible to obtain thereafter. MTI further acknowledges and agrees that during the one year period MTI pays Schaeffer’s COBRA premium, MTI will also reimburse Schaeffer for medical, vision and dental expenses incurred by Schaeffer that are not covered by his COBRA continuation coverage but that would be covered under MTI’s existent Executive Medical Plan.

          d. Subject to the approval of MTI’s Board of Directors’ Compensation Committee, MTI agrees that the Options granted to Schaeffer pursuant to the MTI Technology Corporation 1996 and 2001 Stock Incentive Plans, as amended (the “Stock Incentive Plans”), shall continue and remain in full force and effect, and be exercisable in the same manner as if Schaeffer were to continue his employment with the corporation.

          e. Schaeffer and MTI agree, covenant and represent that Schaeffer shall not be eligible for, or entitled to, any benefits of employment other than those specifically identified in this Agreement.

          f. Schaeffer agrees, covenants and represents that during the period he continues to be employed following the Effective Date he will perform the duties and responsibilities of his position diligently and to the best of his abilities and will cooperate with MTI in the orderly transfer of his responsibilities to his successor. Schaeffer further agrees that during the Salary Continuation Period he will be available to consult with MTI as needed by MTI and as is consistent with Schaeffer’s need to fulfill his responsibilities to any then current employer. Schaeffer further agrees, covenants and represents that during the Salary Continuation

Period and thereafter he shall cooperate in good faith with MTI in the defense of any action that has been or will be brought against MTI that arises out of, or relates in any way to his employment with MTI. MTI agrees, covenants and represents that it shall indemnify and hold Schaeffer harmless to the extent required by law for all that Schaeffer necessarily expends or loses in direct consequence of the discharge of his duties under this paragraph.

          g. Effective as of Schaeffer’s date of termination, MTI and Schaeffer agree that Schaeffer shall be retained by MTI as a consultant pursuant to the terms and conditions of the Consulting Agreement attached as Exhibit “A” (the “Consulting Agreement”).

     2. Release

          a. In consideration of the promises specified in this Agreement and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Schaeffer, for himself and his heirs, assigns, executors, administrators, and agents, past and present (collectively, the “Schaeffer Affiliates”), hereby fully and without limitation releases, covenants not to sue, and forever discharges MTI and its respective subsidiaries, divisions, affiliated corporations, affiliated partnerships, parents, trustees, directors, officers, shareholders, partners, agents, employees, representatives, consultants, attorneys, heirs, assigns, executors and administrators, predecessors and successors, past and present (collectively, the “MTI Releasees”), both individually and collectively, from any and all rights, claims, demands, liabilities, actions and causes of action whether in law or in equity, suits, damages, losses, workers’ compensation claims, attorneys’ fees, costs, and expenses, of whatever nature whatsoever, known or unknown, fixed or contingent, suspected or unsuspected (“Claims”), that Schaeffer or the Schaeffer Affiliates now have, or may ever have, against any of the MTI Releasees that arise out of, or are in any way related to: (i) Schaeffer’s employment by MTI or any of the other MTI Releasees; (ii) the termination of Schaeffer’s employment by MTI or any of the other MTI Releasees; and (iii) any transactions, occurrences, acts or omissions by MTI or any of the other MTI Releasees occurring prior to the Effective Date of this Agreement.

          b. Without limiting the generality of the foregoing, Schaeffer specifically and expressly releases any Claims occurring prior to the Effective Date of this Agreement arising out of or related to violations of any federal or state employment discrimination law, including the California Fair Employment and Housing Act; Title VII of the Civil Rights Act of 1964; the Americans with Disabilities Act; the National Labor Relations Act; the Equal Pay Act; the Employee Retirement Income Security Act of 1974; as well as Claims arising out of or related to violations of the provisions of the California Labor Code; state and federal wage and hour laws; breach of contract; fraud; misrepresentation; common counts; unfair competition; unfair business practices; negligence; defamation; infliction of emotional distress; invasion of privacy; assault; battery; false imprisonment; wrongful termination; and any other state or federal law, rule, or regulation.

          c. Schaeffer agrees, covenants, and represents that he has not commenced, and that he shall never commence or pursue, a claim for workers’ compensation benefits of any kind relating to or resulting from his employment with MTI or any of the MTI Releasees. Schaeffer further agrees, covenants, and represents that, in the event that he has filed or does file a claim for workers’ compensation benefits, MTI may, but is not required to, present this Agreement to the Workers’ Compensation Appeals Board for approval as a compromise and release.

     3. Warranties and Representations

          Schaeffer acknowledges that he is aware of and familiar with the provisions of Section 1542 of the California Civil Code, which provides as follows:

     “A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him, must have materially affected his settlement with the debtor.”

          Schaeffer hereby waives and relinquishes all rights and benefits which he may have under Section 1542 of the California Civil Code, or the law of any other state or jurisdiction, or common law principle, to the same or similar effect. Schaeffer represents and warrants that he has the authority to enter into this Agreement and to bind all persons and entities claiming through him.

     4. Confidentiality and Non-Disparagement

          a. Schaeffer agrees, covenants and represents that the facts relating to the existence of this Agreement, the negotiations leading to the execution of this Agreement, and the terms of this Agreement and the amounts of the Severance Payment and the Supplemental Payment shall be held in confidence, and shall not be disclosed, communicated or divulged to any person other than those who must perform tasks to effectuate this Agreement, without first obtaining the MTI’s written consent to each disclosure.

          b. Schaeffer further agrees, covenants and represents that he shall not take any action or make any comments that actually or potentially disparage, disrupt, damage, impair, or otherwise interfere with MTI’s business interests or reputation.

     5. Trade Secrets

          Schaeffer acknowledges that he executed a Proprietary Information Agreement and that he shall continue to be bound by this Proprietary Information Agreement following the termination of his employment with MTI. A copy of the Proprietary Information Agreement is attached to this Agreement as Exhibit “B.”

     6. Non-Admission of Liability

          Schaeffer agrees, covenants and represents that this Agreement shall not be treated as an admission of liability by MTI, at any time, for any purpose, and that this Agreement shall not be admissible in any proceeding between the parties except a proceeding relating to a breach of its provisions after execution, or a proceeding to obtain approval of the Agreement as a compromise and release as provided in Paragraph 2(c) of this Agreement

     7. Arbitration of Disputes

          All disputes between Schaeffer (and his attorneys, successors, and assigns) and MTI (and its affiliates, shareholders, directors, officers, employees, agents, successors, attorneys, and assigns) relating in any manner whatsoever to Schaeffer’s employment with, or the termination of his employment from, MTI (“Arbitrable Claims”) including, without limitation, all disputes relating to the validity, interpretation, or enforcement of this Agreement, shall be resolved exclusively by arbitration in Orange County, California, by the Judicial Arbitration & Mediation Services, Inc. (the “JAMS”). Such arbitration shall be conducted in accordance with the then-existing arbitration rules of JAMS, with the cost of such arbitration to be borne equally by the parties. The parties to this Agreement, and all who claim thereunder, shall be (i) conclusively bound by the arbitrator’s decision or award, which shall not be subject to appeal; and (ii) have the right to have any decision or award rendered in accordance with this provision entered as a judgment in a court in the State of California or any other court having jurisdiction. The arbitrator shall have the authority to award or grant legal, equitable, and declaratory relief. The parties hereby waive any rights they may have to trial by jury. The Federal Arbitration Act will govern the interpretation and enforcement of this Section pertaining to arbitration, unless it is found inapplicable in which case California law shall control.

     8. Successors and Assigns

          This Agreement shall be binding upon and shall inure to the benefit of the respective heirs, assigns, executors, administrators, successors, subsidiaries, divisions and affiliated corporations and partnerships, past and present, and trustees, directors, officers, shareholders, partners, agents and employees, past and present, of Schaeffer and MTI.

     9. Ambiguities

          This Agreement has been reviewed by the parties. The parties have had a full opportunity to negotiate the terms and conditions of this Agreement. Accordingly, the parties expressly waive any common-law or statutory rule of construction that ambiguities should be construed against the drafter of this Agreement, and agree, covenant, and represent that the language in all parts of this Agreement shall be in all cases construed as a whole, according to its fair meaning.

     10. Choice of Law

          This Agreement has been negotiated and executed in the State of California and is to be performed in Orange County, California. This Agreement shall be governed by and interpreted in accordance with the laws of the State of California, including all matters of construction, validity, performance, and enforcement, without regard to California’s conflict of laws rules.

     11. Integration

          This Agreement, Schaeffer’s Option Agreements with the Company, MTI’s Stock Incentive Plans; and the Proprietary Information Agreement attached as Exhibit “A,” constitute a single, integrated written contract expressing the entire agreement of the parties. There is no other agreement, written or oral, express or implied, between the parties with respect to the subject matter hereof. These agreements may not be orally modified. This Agreement may only be modified in a written instrument signed by all parties.

     12. Severability

          The parties to this Agreement agree, covenant and represent that each and every provision of this Agreement shall be deemed to be contractual, and that they shall not be treated as mere recitals at any time or for any purpose. Therefore, the parties further agree, covenant and represent that each and every provision of this Agreement shall be considered severable, except for the Release provisions of Sections 2 and 3 of this Agreement. If a court of competent jurisdiction finds the release provisions of Sections 2 or 3 of this Agreement to be unenforceable or invalid, then this Agreement shall become null and void, and the Severance Payment paid pursuant to paragraph 1 shall be returned to MTI within a reasonable period of time. If a court of competent jurisdiction finds any provision other than the release provisions of Sections 2 or 3, or part thereof, to be invalid or unenforceable for any reason, that provision, or part thereof, shall remain in force and effect to the extent allowed by law, and all of the remaining provisions of this Agreement shall remain in full force and effect and enforceable.

     13. Execution of Counterparts

          This Agreement may be executed in counterparts, and if so executed and delivered, all of the counterparts together shall constitute one and the same Agreement.

     14. Captions

          The captions and section numbers in this Agreement are inserted for the readers’ convenience, and in no way define, limit, construe or describe the scope or intent of the provisions of this Agreement.

     15. Miscellaneous Provisions

          a. The parties represent that they have read this Agreement and fully understand all of its terms; that they have conferred with their attorneys, or have knowingly and voluntarily chosen not to confer with their attorneys about this Agreement; that he has executed this Agreement without coercion or duress of any kind; and that he understands any rights that he has or may have and signs this Agreement with full knowledge of any such rights.

          b. The parties acknowledge that no representations, statements or promises made by the other party, or by their respective agents or attorneys, have been relied on in entering into this Agreement.

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement, which consists of 6 pages, on the dates indicated below.

CONSULTING AGREEMENT

THIS AGREEMENT is made between MTI Technology Corporation (“MTI”), a Delaware corporation, at 14661 Franklin Avenue, Tustin, California and Todd Schaeffer an independent consultant (“Consultant”).

WHEREAS, Consultant has general experience in the area of financial management, and direct experience in the tactical and strategic financial management of MTI.

WHEREAS, MTI in reliance on Consultant’s representations, is willing to engage Consultant as an independent contractor, and not as an employee.

The parties agree to the following terms and conditions:

1.0 SCOPE OF SERVICES

2.0 TERM OF AGREEMENT

3.0 FEES

4.0 RIGHTS IN DATA

5.0 PROPRIETARY INFORMATION

6.0 CONFIDENTIALITY OF AGREEMENT; PUBLICITY; USE OF MARKS

7.0 WARRANTIES

8.0 LIMITATION OF LIABILITY

9.0 ARBITRATION

10.0 MISCELLANEOUS

Exhibit A

SCOPE OF WORK

Consultant will provide information and conduct research as requested by MTI to assist in the understanding, development and delivery of the following:

Deliverables

At MTI’s sole discretion, MTI may request that Consultant provide advice as to the development and implementation of both tactical and strategic financial plans for MTI or its subsidiaries.

Exhibit B

FEES

MTI agrees to pay Consultant $125 per hour per assignment, with the number of billable hours per assignment to be mutually agreed upon by both MTI and Consultant, in writing, prior to Consultant providing any service relating to the respective assignment. MTI retains the unilateral and sole right to (determine if any services are to be requested of the Consultant, and Consultant agrees not to undertake any actions or provide any services under this Agreement unless directed to do so by the appropriate representatives of MTI.

PAYMENT TERMS

Upon completion of an assignment as set forth in “Exhibit A” and submission of an invoice, the agreed upon amount of the assignment’s billable hours multiplied at the rate of $125 per hour will be paid on a net 30 days.

TERMS OF AGREEMENT

This Agreement is effective for a one-year period beginning on the date of Mr. Schaeffer’s termination. MTI agrees that this Agreement will remain in effect for the full term set forth above, and may only be terminated prior to the expiration date by Consultant. If Consultant does elect to terminate the Agreement prior to the expiration date, Consultant agrees to give MTI thirty (30) days written notice, and to complete any unfinished assignments.

The number of assignments that Consultant will be asked to engage will be solely determined by MTI. MTI may, at its sole discretion, elect not to engage the Consultant for any assignment during the term of this Agreement. Unless the Agreement is terminated by the Consultant pursuant to the terms and conditions as set forth above, Consultant agrees that he will make himself available to MTI during the term of the Agreement.

Exhibit C

CONFIDENTIALITY/NON-DISCLOSURE AGREEMENT

In consideration of MTI Technology Corporation, a Delaware corporation (herein “MTI”) granting me access to MTI facilities and information, I agree as follows: