Exhibit 10.1


 


***Text Omitted and Filed Separately


with the Securities and Exchange Commission.


Confidential Treatment Requested


Under 17 C.F.R. Sections 200.80(b)(4)


and 240.24b-2.


 


FIRST
AMENDMENT TO


MANUFACTURING
AGREEMENT


AND
AWARD LETTER


 


THIS FIRST AMENDMENT (the “First Amendment”) to the Manufacturing Agreement made on and
as of May 20, 2002, (the “Agreement”) and
related Award Letter made on and as of May 20, 2002 to the Agreement (the “Award Letter”) is hereby made and entered into as of March 10,
2005 (the “First Amendment Effective Date”),
by and between DOT HILL SYSTEMS CORPORATION,
a Delaware corporation, (hereinafter “Dot Hill”)
whose principal place of business is 6305 El Camino Real, Carlsbad, California
92009, and SOLECTRON CORPORATION, a Delaware Corporation, on behalf of itself
and its subsidiaries and affiliates, including but not limited to, Solectron
Technology Singapore Pte. Ltd. and Solectron Europe B.V. and any other Offshore
Business Headquarters (“OBHQs”), with
its principal place of business at 847 Gibraltar Drive, Milpitas, California
95035 (hereinafter “Supplier”).


 


BACKGROUND:


 


WHEREAS, the parties
have entered into the Agreement whereby Solectron acts as a contract
manufacturer for Dot Hill;


 


WHEREAS, Dot Hill
and Supplier entered into an Award Letter effective as of May 20, 2002
which requires Supplier to manufacture certain Product for Dot Hill subject to
the terms and conditions set forth in both the Agreement and the Award Letter;
and


 


WHEREAS, pursuant to
Section 12.15 of the Agreement, Dot Hill and Supplier desire to amend
certain portions of the Agreement and the Award Letter, as set forth below in
this First Amendment.


 


NOW, THEREFORE, for
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Dot Hill and Supplier hereby agree to amend and do amend the
Agreement and Award Letter, as follows:


 


FIRST AMENDMENT:


 


1.                                       Replace Section 3.4
(“Payment Terms”) of the Agreement with
the following provisions:


 


3.4                                 Payment
Terms.  Subject to Dot Hill’s receipt
of validly submitted invoices from Supplier for Products previously delivered
by Supplier to Dot Hill, Dot Hill will pay to Supplier (in U.S. Dollars unless
otherwise specified in an Award Letter) all undisputed amounts that are
included in such invoices for which Dot Hill reasonably believes are due to
Supplier within [***] after the applicable
Reconciliation Date in the table below, but in no event later than the last
business day of Supplier’s then-current quarter-end following such applicable
Reconciliation 


 


*** Confidential Treatment Requested


 


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Date.  Dot Hill may withhold payment for those
amounts it reasonably believes are not properly due to Supplier, pending the
potential resolution of a dispute; provided, however, that notice of such
withheld payment is sent by Dot Hill to Supplier.  Dot Hill will pay the agreed upon amounts
within [***] of resolution of the dispute.  Payment of an invoice will not constitute
acceptance by Dot Hill of Products.  Upon agreement by Supplier, which
will not be unreasonably withheld, delayed or conditioned, invoices will be
subject to adjustment for any errors, shortages or rejected Products.  Supplier will provide Dot Hill with a credit
memo within thirty (30) days after Dot Hill’s return of rightfully rejected
Products for which Dot Hill has paid Supplier. 
The information on Supplier’s invoices shall include, without
limitation, the following information: purchase order number, Dot Hill part
number(s), quantities, unit value and settlement currency, and freight charges
(if applicable), each stated separately.  Invoices must be addressed to
Dot Hill’s Accounts Payable Department, 6305 El Camino Real, Carlsbad,
California, 92009.  With respect to all U.S. imports, the information
provided on Supplier’s invoice shall, at a minimum, conform to all requirements
in any applicable laws or regulations.


 


 


	
  Date of Delivery of Products

  	
   

  	
  Reconciliation Date

  
	
  [***]

  	
   

  	
  [***]

  
	
  [***]

  	
   

  	
  [***]

  
	
  [***]

  	
   

  	
  [***]

  
	
  [***]

  	
   

  	
  [***]

  
	
  [***]

  	
   

  	
  [***]

  



 


The
parties acknowledge that the above payment provisions have been established
based on the prior history of delivery by Supplier of Products to Dot Hill, as
such history exists on the First Amendment Effective Date.  If the delivery pattern for Products changes
in any material manner, then the Parties will promptly negotiate in good faith
and enter into revised payment terms.


 


2.                                       Add
Section 11.5 to Exhibit B to the Agreement as follows:


 


Supplier shall “level load” raw material components in order to build
Finished Goods contained in Dot Hill’s supply plan in a balanced and consistent
manner during the course of each calendar quarter of Dot Hill.  To help Supplier fund purchases of raw
material components associated with the supply plan of Dot Hill for Products that
Dot Hill plans to sell to [***], the parties agree to establish an Inventory Management
Fund (“IMF”). 
The baseline for the IMF and the precise way in which it will be
calculated shall be determined and mutually agreed between Dot Hill and
Supplier during the first week of each of Dot Hill’s quarters that are used for
financial reporting purposes when the supply plan is formulated (e.g. currently
January, April, July, and October).  Unless
otherwise expressly agreed in writing by the authorized representatives of Dot
Hill and Supplier, the IMF program and any calculation of the IMF shall consider
only those planned purchases of raw material components by Supplier that are to
be used in those Products that Dot Hill plans to sell to [***]. 
To administer the IMF program, Supplier shall provide to Dot Hill an IMF
report in a mutually agreeable format on the [***] of each calendar month (or the immediately following
business day after the [***] of
a calendar 


 


*** Confidential Treatment Requested


 


2





















 


month if the [***] occurs on a weekend or on a U.S.
holiday) and which contains all necessary information to calculate the IMF.


 


In each of the first two (2) months of each Dot Hill financial
reporting quarter, the parties shall reconcile the net, undisputed IMF dollar
difference within [***]
after the later of the date on which such IMF report is due or the date on
which Dot Hill’s receives the monthly IMF report from Supplier, and,
thereafter, either Dot Hill will wire funds into the IMF or Supplier will wire
funds out of the IMF to Dot Hill to cover the difference between (i) the
aggregate manufacturing cost of the then-current quarter’s “level load” of
Finished Goods manufactured by Supplier on such day based on Dot Hill’s prior
supply plan for such then-current quarter, and (ii) the aggregate
manufacturing cost of the actual Finished Goods that Dot Hill has purchased
from Supplier at such time during such then-current quarter.


 


In the third month of each Dot Hill financial reporting quarter the
parties shall reconcile the net, undisputed IMF dollar difference within [***] after the later of the date on
which such IMF report is due or the date on which Dot Hill’s receives the
monthly IMF report from Supplier but in no event later than the [***] of such month, and on such day
or immediately thereafter, but in no event later than the penultimate business
day of such month, either Dot Hill will wire funds into the IMF or Supplier
will wire funds out the IMF to Dot Hill to cover the difference between (i) the
aggregate manufacturing cost of the then-current quarter’s “level load” of
Finished Goods (a) manufactured by Supplier on such day based on Dot Hill’s
prior supply plan for such then-current quarter and (b) to be manufactured
by Supplier prior to the end of such then-current quarter for intended delivery
to Dot Hill by Supplier in accordance with such then-current supply plan of Dot
Hill, and (ii) the aggregate manufacturing cost of the actual Finished
Goods that Dot Hill (y) has purchased from Supplier at such time during such
then-current quarter and (z) is scheduled to pull from Supplier during such
then-current quarter based on such then-current supply plan of Dot Hill.


 


Either party may terminate the IMF program upon thirty (30) calendar
days’ written notice to the other party. 
Supplier will promptly remit to Dot Hill, within [***] after the date of any
termination of the IMF program, all funds that exist in the IMF at such time.


 


3.                                       Replace Section 3.3.1
(“Product Pricing and Elements”) of the
Agreement with the following:


 


3.3.1.                     Product Pricing
and Elements. The pricing for the Products shall be set forth in
the Award Letter.  The itemized pricing
elements of Products (including material, material mark-up, labor and other
value-added services and non-recurring engineering charges) for the
then-current quarter and estimates for the following [***] shall be
updated and provided by Supplier to Dot Hill during the first week of each
quarter and more frequently if reasonably requested in writing by Dot Hill.


 


4.                                       Replace
Section 3.3.3 (“Cost Reductions”)
of the Agreement with the following:


 


3.3.3                        Cost Reductions.
Supplier will actively achieve cost reductions on all materials and processes
(including costs associated with assembly and test) associated with Product.
Supplier will provide to Dot Hill an anticipated [***] cost reduction profile on a quarterly basis.
Supplier is encouraged to suggest to Dot Hill changes to materials/processes,
however small, that will result in improved performance, reliability or yield
of Products.  Supplier will pass through
the benefits of all cost reductions achieved as a result of the efforts of the
Supplier one full quarter after their implementation for those units of
inventory for which such cost reductions 


 


*** Confidential Treatment Requested


 


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are
implemented.  Additionally and
notwithstanding anything to the contrary in this Agreement, all cost reductions
that are: (a) achieved through the efforts of Dot Hill, or (b) received
by Supplier based on pricing that is established [***]  or Dot Hill with any third parties for raw
materials or components (including without limitation drives or controllers)
that are to be included in the Products, shall be passed through immediately by
Supplier to Dot Hill for those units of Supplier inventory for which such cost
reductions are implemented.


 


5.                                       Replace
Section 2.1 (Products and Pricing)
under Section 2, Products and Pricing/Initiatives,
of the Award Letter with the following:


 


2.1                               Products and Pricing. Dot Hill may purchase Product(s) from
Supplier at the prices in U.S. dollars as set forth in the Attachment A
to this Award Letter, as such Attachment A shall be updated at any time and
from time to time by Dot Hill and Supplier to reflect any product changes and
cost reductions.   Dot Hill shall receive
from Supplier a reduction in then-current prices for the cost reductions
described in Section 3.3.3 (Cost Reductions) of the Agreement.  All cost reductions provided by Supplier
shall be [***], i.e., the then-current prices will be reduced [***].  During the first week of each calendar
quarter and more frequently as requested by Dot Hill, Supplier shall provide a
detailed cost breakdown to Dot Hill for each Product covered by this Award
Letter for the then-current quarter and estimates for the following [***].  Such cost breakdown will cover all
then-current and estimated costs for the Products.


 


6.                                       Replace
Attachment A to the Award Letter with
the attached updated Attachment A.


 


7.                                       Replace
Section 4.3 of the Exhibit B to the Agreement with the following:


 


Supplier shall deliver each FRU to Dot Hill no later than [***] after Supplier’s receipt of Dot
Hill’s RMA request.  FRUs may be supplied
from an exchange pool of Product that meets the Product Specifications provided
by Dot Hill (the “FRU Pool”).  FRUs supplied by Supplier to Dot Hill will be
free from any defects.  Supplier will be responsible for the
management of the FRU Pool and will move FRUs in and out of the FRU Pool on a
first-in, first-out basis in order to ensure that the oldest units of FRUs are
delivered out of the FRU Pool first. 
Supplier will keep a minimum and maximum inventory level of FRUs in the
FRU Pool based on manufacturing and purchase lead times, transit time to hubs,
and various other factors.  Dot
Hill and Supplier will review by part number the quantity and type of FRUs in
the FRU Pool frequently, but no less than on a quarterly basis.  Supplier will maintain a sufficient level of
FRUs in the FRU Pool to satisfy Dot Hill’s demand for FRUs.  Any
additional requirements for FRUs will be reasonably determined by Supplier and
Dot Hill.


 


Beginning on January 1, 2005, while this Agreement is in effect
Dot Hill will pay Supplier a monthly FRU Pool Fee that shall be determined in
accordance with the table below. 
Provided that Supplier uses its best efforts to meet all agreed delivery
time frames in the table below, Dot Hill may not withhold its payment to
Supplier of the below FRU Pool Fee if such agreed delivery time frames are not
met by Supplier due to the existence of any causes beyond the Supplier’s
reasonable control and those delayed deliveries shall not be considered in
calculating Supplier’s performance in meeting the agreed delivery time frames.


 


In calculating the cost of total average amount of FRUs in the FRU
Pool, the beginning and end of month Supplier purchase or manufacturing cost of
FRUs included in the FRU Pool will be [***]. 
The FRU Pool Fee will be paid by Dot Hill to Supplier within [***] after receipt by Dot Hill of a
proper and validly submitted invoice from Supplier, together with all relevant
details and other information as to how the FRU Pool Fee was calculated by
Supplier.


 


*** Confidential Treatment Requested


 


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  Percentage of FRU’s Delivered
  Within 

  [***] of Receipt of Dot Hill’s Request

  	
   

  	
  Monthly
  FRU Pool Fee to be Paid by Dot Hill

  
	
  [***]%

  	
   

  	
  [***]

  
	
  [***]%

  	
   

  	
  [***]

  
	
  [***]%

  	
   

  	
  [***]

  
	
  [***]%

  	
   

  	
  [***]

  



 


Upon the expiration or earlier termination of this Agreement, or the
expiration of the Service Period that is described in Section 4.6 below,
Supplier will (i) provide immediately to Dot Hill a detailed summary of
the descriptions, quantities and Supplier’s purchase or manufacturing cost for
each item included in the then-existing FRU Pool; and (ii) upon request by
Dot Hill, perform immediate mitigation efforts to reduce the amount and size of
the FRU Pool.  The mitigation efforts
that Supplier will perform, upon request by Dot Hill, to reduce the amount and
size of the FRU Pool will be substantially similar in all material respects to
those mitigation efforts described in Section 3.12 of the base terms of
the Manufacturing Agreement.


 


Subject to Dot Hill’s receipt from Supplier of the information in the
preceding paragraph and the completion by Supplier of all mitigation efforts
requested by Dot Hill to reduce the amount and size of the FRU Pool, Dot Hill
will purchase the then-existing FRUs in the FRU Pool at a price that is
determined based on the [***] for such FRUs [***]
from the date on which such FRUs have initially been placed into the FRU Pool.
For the purpose of this calculation, a [***]
and [***] for such FRUs will be
used to determine any amount required to be paid by Dot Hill for such FRUs.


 


8.                                       Replace Section 9
(“Notices”) of the Award Letter with the
following:


 


Notices: Dot Hill and Supplier shall each assign an
individual to administer the Agreement throughout its term (the “Administrators”). 
Each party may change any such individual upon written notice to the
other party.  Each such party shall
inform the Administrator of the other in writing of any such change.


 


	
  Dot
  Hill’s Administrator shall be:

  	
   

  	
  Supplier’s
  Administrator shall be:

  
	
   

  	
   

  	
   

  
	
  SENIOR V.P. - OPERATIONS

  	
   

  	
  V.P., CONTRACTS AND COMPLIANCE

  
	
  Dot
  Hill Systems Corporation

  	
   

  	
  Solectron
  Corporation

  
	
  6305
  El Camino Real

  	
   

  	
  847
  Gibraltar Drive, Building 5

  
	
  Carlsbad,
  California 92009

  	
   

  	
  Milpitas,
  CA 95035 USA

  
	
  Phone:
  (760) 931-5534

  	
   

  	
  Phone:
  (408) 586-7990

  
	
  Fax:
  (760) 931-5527

  	
   

  	
  Fax:
  (408) 935-5925

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  cc: CONTRACTS COORDINATOR

  



 


*** Confidential Treatment Requested


 


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The
amendments to the Agreement and Award Letter that are made in this First
Amendment shall have prospective force and effect on and after the First
Amendment Effective Date, and will not retroactively affect any rights or
obligations of the parties under the Agreement or the Award Letter.  Except as specifically amended by the
foregoing terms and conditions of this First Amendment, all other terms and
conditions of the Agreement and the Award Letter shall remain in full force and
effect and shall be unaffected thereby.


 


IN WITNESS WHEREOF, the parties through their
duly authorized representatives have executed this First Amendment to become
effective as of the First Amendment Effective Date.


 


 


	
  DOT HILL SYSTEMS CORPORATION

  	
  SOLECTRON CORPORATION

  
	
   

  	
   

  
	
  By

  	
    /s/ James Lambert

  	
   

  	
  By

  	
     /s/ Michael Hartung

  	
   

  
	
   

  	
  Authorized Signature

  	
   

  	
   

  	
  Authorized Signature

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Printed Name: James Lambert

  	
  Printed Name: Michael Hartung

  
	
   

  	
   

  
	
  Title: Chief Executive Officer

  	
  Title: Vice President, Worldwide Sales Operations

  
	
   

  	
   

  
	
  Dated: April 5, 2005

  	
  Dated: April 5, 2005

  



 


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  Attachment
  A

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Part Code

  	
   

  	
  Part Type

  	
   

  	
  Part
  Desciption

  	
   

  	
  Part
  Phase

  	
   

  	
  Rev

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  	
   

  	
  [***]

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   Number of Parts:   

  	
  [***]

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  ***Confidential Treatment
  Requested

  	
   

  	
   

  



 


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