Exhibit 10.4


 


***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.


 


SECOND AMENDMENT TO


MANUFACTURING AGREEMENT


AND AWARD LETTER


 


THIS SECOND AMENDMENT (the “Second Amendment”) to the Manufacturing Agreement made on
and as of May 20, 2002, as amended, and the Award Letter made on and as of
May 20, 2002 (collectively, the “Agreement”) is
hereby made and entered into as of September 16, 2005 (the “Second 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., Solectron Europe B.V. and other Offshore
Business Headquarters (“OBHQs”), whose
principal place of business is 847 Gibraltar Drive, Milpitas, California 95035
(hereinafter “Supplier”).


 


BACKGROUND:


 


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


 


WHEREAS,
pursuant to Section 12.15 of the base terms of the Manufacturing
Agreement, Dot Hill and Supplier desire to amend certain provisions of the
Agreement, as set forth below.


 


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, as follows:


 


SECOND
AMENDMENT:


 


1.                                       Product Pricing and Elements.  Add the following provisions to the end of Section 3.3.1,
Product Pricing and Elements, of the base terms of the Manufacturing
Agreement:


 


“Notwithstanding anything to the contrary, upon the
first customer shipment (“FCS”) of any
Product by Supplier to Dot Hill under this Agreement for Dot Hill’s intended
delivery to Network Appliance, Inc. (the “Commencement
Date”), Supplier shall adjust certain elements of pricing to Dot
Hill based upon the total anticipated purchases of Products that will be made
by Dot Hill under this Agreement after the Commencement Date for each
applicable twelve (12)-month period set forth below.  This adjustment will start on the
Commencement Date and apply to all purchases made by Dot Hill under this
Agreement on and after the Commencement Date. 
The applicable percentage in the below schedules will be applied to all
Products that Dot Hill may purchase from Supplier during each applicable twelve
(12)-month period set forth below, as opposed to only any incremental purchases
of Products that Dot Hill may make under this Agreement.


 


Confidential


 


1





















 


A
reconciliation of actual purchases of Products made by Dot Hill from Supplier
under this Agreement to the amount of forecasted purchases that was used in
determining the amount to be charged by Supplier to Dot Hill based on the
schedules below for each twelve (12)-month period below will be performed by
the parties within [***] after the end of each such twelve (12)-month period in
order to determine if there is a balance due from Dot Hill based on the use of
an inaccurate amount of forecasted purchases for such applicable twelve
(12)-month period.  If there is a balance
due from Dot Hill for Dot Hill’s purchases of Products from Supplier based on
the results of such reconciliation, then Dot Hill will issue to Supplier a
purchase order for such balance immediately after the completion of such
reconciliation, and Supplier will thereafter issue an invoice to Dot Hill for
such balance within [***] after Supplier’s receipt of such purchase order.  Subject to Dot Hill’s prompt receipt of a
proper and valid invoice for this balance from Supplier, such balance will be
paid by Dot Hill to Supplier within [***] after Dot Hill’s receipt of Supplier’s
invoice for such balance.


 


First Twelve (12)-Month Period immediately after Commencement Date:


 


	
  Forecasted
  Purchases by Dot 

  Hill in U.S. Dollars (M = 

  million)

  	
   

  	
  SG&A Percentage Markup

  	
   

  	
  Materials Percentage Markup

  
	
  Less than 290M

  	
   

  	
  [***]

  	
   

  	
  [***]

  
	
  290M+ to 300M

  	
   

  	
  [***]

  	
   

  	
  [***]

  
	
  300M+ to 310M

  	
   

  	
  [***]

  	
   

  	
  [***]

  
	
  310M+ to 320M

  	
   

  	
  [***]

  	
   

  	
  [***]

  
	
  320M+ to 330M

  	
   

  	
  [***]

  	
   

  	
  [***]

  
	
  Greater than 330M

  	
   

  	
  [***]

  	
   

  	
  [***]

  



 


Second Twelve (12)-Month Period immediately after Commencement Date:


 


	
  Forecasted
  Purchases by Dot 

  Hill in U.S. Dollars (M = 

  million)

  	
   

  	
  SG&A Markup

  	
   

  	
  Materials Markup

  
	
  Less than 310M

  	
   

  	
  [***]

  	
   

  	
  [***]

  
	
  310M+ to 320M

  	
   

  	
  [***]

  	
   

  	
  [***]

  
	
  320M+ to 330M

  	
   

  	
  [***]

  	
   

  	
  [***]

  
	
  330M+ to 340M

  	
   

  	
  [***]

  	
   

  	
  [***]

  
	
  340M+ to 350M

  	
   

  	
  [***]

  	
   

  	
  [***]

  
	
  350M+ to 360M

  	
   

  	
  [***]

  	
   

  	
  [***]

  
	
  360M+ to 370M

  	
   

  	
  [***]

  	
   

  	
  [***]

  
	
  370M+ to 380M

  	
   

  	
  [***]

  	
   

  	
  [***]

  
	
  380M+ to 390M

  	
   

  	
  [***]

  	
   

  	
  [***]

  
	
  390M+ to 400M

  	
   

  	
  [***]

  	
   

  	
  [***]

  
	
  Greater than 400M

  	
   

  	
  [***]

  	
   

  	
  [***]

  



 


2





















 


No
later than [***] after the Supplier’s first production run for the Product(s)
above, Supplier and Dot Hill will meet and confer to determine if the rates
above will be [***].


 


2.                                       Cost Reductions. 
Delete the provisions of Section 3.3.3, Cost Reductions, of the
base terms of the Manufacturing Agreement in their entirety and insert the
following in their place and stead:


 


“3.3.3                  Cost Reductions. Supplier will actively work towards
achieving 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 [***]
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: (i) [***] for the [***] after their implementation; and (ii) [***]
thereafter.  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 by Dot Hill or any customer to Dot Hill [***] with
any third parties for raw materials or components (including, without
limitation, drives, controllers and/or power supplies) included in the
Products, shall be [***].”


 


3.                                       Documentation. 
Delete the provisions of Section 3.3.4, Documentation, of
the base terms of the Manufacturing Agreement in their entirety and insert the
following in their place and stead:


 


“3.3.4               Documentation. 
Promptly upon request by Dot Hill, Supplier will
provide to Dot Hill a full-costed bill of materials, including [***], for each
Product (“BOM”). This BOM will include all [***]
provided that Supplier shall not be required to provide any third-party
information that is subject to a confidentiality agreement between Supplier and
such third party.  Upon request from Dot
Hill, Supplier will provide to Dot Hill [***]. 
Upon request by Dot Hill, Supplier will also provide [***] with the
desire to aggressively drive down costs for Product(s), while maintaining
Product quality.  Supplier will also make
available to Dot Hill all supporting documentation regarding Supplier’s cost
reduction efforts (as specified in section 3.3.1 above) and prices for
each Product at least [***] prior to each quarterly Product Cost Review (“PCR”) cycle.  Such
information shall be in a format to be mutually agreed upon by Dot Hill and
Supplier and shall include costs that relate directly to this Agreement.  All information which is provided by Supplier
to Dot Hill hereunder may be shared by Dot Hill with its customers provided
that such customers have entered into a nondisclosure agreement either with
Supplier or Dot Hill prior to Dot Hill’s sharing of any Supplier Confidential
Information.  If Dot Hill desires to
disclose Supplier Confidential Information to a customer under a nondisclosure
agreement between Dot Hill and such customer, then Dot Hill will ensure that
the provisions of such nondisclosure agreement will protect Supplier
Confidential Information from further disclosure in a manner no less stringent
than the confidentiality obligations that Dot Hill has agreed to undertake with
Supplier under this Agreement.”


 


4.                                       Non-Recurring Engineering Charges. 
Insert the following as Section 3.3.9, Non-Recurring Engineering
Charges, into the base terms of the Manufacturing Agreement:


 


“3.3.9               Non-Recurring Engineering Charges. 
Supplier will [***] for non-recurring engineering in any Product(s)
supplied to Dot Hill unless approved in writing by an authorized representative
of Dot Hill.  The parties will negotiate
in good faith any applicable NRE costs, and unless otherwise agreed Supplier
will [***].”


 


5.                                       Delivery Point. 
Delete the provisions of Section 3.5.1, Delivery Point, of
the base terms of the Manufacturing Agreement in their entirety and insert the
following in their place and stead:


 


3





















 


“3.5.1               Delivery Point. 
Supplier will deliver those Product(s) which are set forth in an Award
Letter to Dot Hill in accordance with the provisions of such Award Letter or as
may otherwise be mutually agreed in writing by the authorized representatives
of the parties.”


 


6.                                       Delivery Performance. 
Delete the provisions of Section 3.5.4, Delivery Performance,
of the base terms of the Manufacturing Agreement in their entirety and insert
the following in their place and stead:


 


“3.5.4               Delivery Performance


 


(a)                                  Supplier shall ensure that units of
Product(s) in Purchase Orders are available for delivery to Dot Hill upon the
issuance by Dot Hill of Demand Triggers in accordance with the provisions of the
applicable Award Letter(s) and any Attachments thereto.  Supplier shall also ensure that units of
Product(s) maintained for Upside Support are available for delivery to Dot Hill
in accordance with the provisions of the Award Letter(s) and any Attachments
thereto.


 


(b)                                 If Supplier anticipates that it will be
unable to deliver the total quantity of Products ordered on the scheduled
delivery date, Supplier shall notify Dot Hill promptly.  Dot Hill may, at its sole option, accept partial
delivery of the total quantity of Products ordered.  If Dot Hill chooses to accept partial
delivery, Dot Hill may, at its sole option and discretion: (1) reschedule the
delivery of other units not included in such parties delivery or (2) if
such partial delivery is due to fault of Supplier and Dot Hill loses customer
orders as a result of such delay, cancel the affected portion of the order
without any further obligation to Supplier. 
Any partial deliveries shall be separately invoiced by Supplier.


 


(c)                                  In the event that
either Supplier fails to meet Dot Hill’s delivery requirements contained in any
Purchase Orders or fails to deliver Upside Support that Supplier is obligated
to maintain for Dot Hill under the applicable Award Letter, due to
circumstances which are within the reasonable control of Supplier, then
Supplier agrees to take measures, at Supplier’s expense, which may be
reasonably necessary to produce and deliver Products to meet Dot Hill’s
original delivery schedule.  These
measures may include the deployment of additional resources by Supplier to
produce Products and/or the payment by Supplier of charges to expedite delivery
to Dot Hill of such Products to the extent necessary to meet Dot Hill’s
original delivery schedule.”


 


7.                                       Audit Rights. Add the following provisions to Section 3.9.10,
Audit Rights, of the base terms of the Manufacturing Agreement:


 


“Additionally, upon request by Dot Hill and
reasonable notice, to the fullest extent that Supplier may do so without
violating any confidentiality obligations to third parties, Supplier will
permit SQE, SBM and technical teams from Dot Hill’s customers to have access to
information to audit, qualify and interact with Supplier during the life of the
Product(s) [***].  Supplier will use its
reasonable efforts to close actions raised, together with any concerns raised
with Supplier’s suppliers. Upon request by Dot Hill, Supplier will also [***].”


 


4





















 


8.                                       Compliance with Certain Standards.  Add
the following provisions as Section 3.9.14, Compliance with Certain
Standards, of the base terms of the Manufacturing Agreement:


 


“3.9.14        Compliance with Certain Standards


 


(a)                                  At no additional charge to Dot Hill, Supplier
shall develop and make available to Dot Hill manufacturing processes to produce
Products which comply with Directive 2002/95/EC of the
European Parliament and of the Council of 27 January 2003 on the
restriction of the use of certain hazardous substances in electrical and
electronic equipment (“RoHS
Directive”) to the extent
applicable to the manufacturing process materials selected and used by Supplier
in its manufacturing processes for the Products.  Supplier acknowledges and agrees that
compliance to the RoHS Directive to the extent applicable to the manufacturing
process materials selected and used by Supplier in its manufacturing processes
for the Products shall form a part of the Specification for Products supplied
or to be supplied to Dot Hill.


 


(b)                                 [***] Supplier will also implement processes for the disposal of Products
that are returned by Dot Hill to Supplier for disposal in connection with
Supplier’s warranty, service or epidemic failure responsibilities, and in
accordance with those instructions provided by Dot Hill.  These instructions will comply, where applicable,
with Directive 2002/96/EC of the European Parliament and of the Council of 27 January 2003
on waste electrical and electronic equipment (“WEEE Directive”).
Supplier acknowledges and agrees that compliance to the WEEE Directive shall
form a part of the Specification relative to disposal activities by Supplier in connection with Supplier’s warranty,
service or epidemic failure responsibilities for Products supplied or to
be supplied to Dot Hill.


 


(c)                                  [***] Supplier will develop and make available to
Dot Hill manufacturing processes to produce Products which comply with federal
and state laws and regulations in the U.S. and other non-RoHS Directive
countries where the Products are supplied by Supplier to the extent applicable
to the manufacturing process materials selected and used by Supplier in its
manufacturing processes for the Product. 
Supplier acknowledges and agrees that compliance to the such laws and
regulations shall form a part of the Specification relative to manufacturing
processes used by Supplier to produce Products supplied or to be supplied to
Dot Hill.


 


(d)                                 [***] Supplier shall also use commercially
reasonable efforts to develop and implement manufacturing processes to produce
Products that comply with any new environmental standards prior to the
mandatory compliance date of such standards and a mutually agreed
implementation plan for any such new environmental standards. Supplier
acknowledges and agrees that compliance to any mutually agreed implementation
plan for any such new environmental standards shall form a part of the
Specification relative to manufacturing processes used by Supplier to produce
Products supplied or to be supplied to Dot Hill.


 


(e)                                  Supplier does not
warrant Products, and shall have no liability whatsoever for any costs, losses
or damages resulting from any claimed Product defects or failures, to the
extent that the claims result, in whole or in part, from non compliance with
the requirements of RoHS Directive, or any other law, regulation, directive or
order governing the permissible content of regulated substances or the WEEE
Directive (collectively “Environmental Directives”) (except to the extent that
such Environmental Directives are directly applicable to and govern the use of
manufacturing process materials selected and used by Supplier in its
manufacturing processes).


 


9.                                       Local Support. 
Delete the provisions of Section 5.1, Upside Support/Accelerated
Delivery, of the base terms of the Manufacturing Agreement in their
entirety and insert the following in their place and stead:


 


5





















 


“5.1                         Local Support.  Upon
request by Dot Hill, Supplier will assign local technical and operations
support for trouble-shooting quality and operational issues on site at Dot Hill
or Dot Hill’s customer sites.  The
support personnel will be at the specified site within [***] of such request
and will remain at that site for the length of time [***].  Upon request by Dot Hill, Supplier will also
provide on-site technical support, as needed, during the development of new
products.  For those quality or
operational issues for Products that arise or result from a defect or problem
in workmanship of the Products, all reasonable costs associated with such on-site
technical support will be borne by Supplier.”


 


10.                                 Order of Precedence. 
Delete the provisions in Section 12.14, Order of Precedence,
of the base terms of the Manufacturing Agreement in their entirety and replace such provisions with the
following:


 


“12.14           Order of Precedence.  In
the event of any conflict or inconsistency between the documents comprising
this Agreement, the order of precedence as to any such conflicting or
inconsistent provisions shall be as follows: (i) the provisions in an
Award Letter for the Product(s) covered under such Award Letter, including any
Attachments incorporated therein; (ii) the provisions in the base terms of
this Agreement; and (iii) the provisions in any Exhibits to the base terms
of this Agreement.”


 


11.                                 Applicability
of Provisions in Award Letter.  Add the following sentence into Section 1,
Scope, of the Award Letter made on and
as of May 20, 2002, as amended:


 


“The provisions contained in this Award Letter and
all related Attachments that are specifically described in Section 10,
Award Letter Components, shall apply to those Product(s) described in Attachment
A to this Award Letter, and not to any other Product(s) that may be
supplied under any other Award Letters which are or may be issued under the
Agreement.”


 


12.                                 Demand Replenishment Initiative.  Delete, in its entirety, the provisions of Section 2.1,
Demand Replenishment Initiative, in the
Award Letter made on and as of May 20, 2002, as amended.


 


13.                                 Product Lead-times. Delete, in its entirety, the provisions
of Section 4, Product Leadtimes,
in the Award Letter made on and as of May 20, 2002, as amended.


 


14.                                 Award Letter Components. 
Add into the schedule within Section 10, Award Letter
Components, of the Award Letter made on and as of May 20, 2002,
as amended, the following attachments:


 


ý                                    Attachment
F (Demand Replenishment Program)


ý                                    Attachment
G (Direct Customer Fulfillment)


 


15.                                 Demand Replenishment Program. Remove the line that refers to
Exhibit D (Demand Replenishment Program) in the Agreement
Components section of the signature page of the Manufacturing
Agreement made on an as of May 20, 2002, as amended.  Additionally, move in their entirety all of
the existing provisions that are contained in Exhibit D, Demand
Replenishment Program, as amended, to the new Attachment F (Demand
Replenishment Program) to the Award Letter made on and as of May 20, 2002,
as amended, which attachment is incorporated by reference into such Award
Letter.


 


16.                                 Direct
Customer Fulfillment.  Insert the
executed Direct Customer Fulfillment Exhibit by and between Solectron Corporation
and Dot Hill Systems Corporation into Attachment G
(Direct Customer Fulfillment) to the Award Letter dated May 20, 2002, as
amended, which attachment is incorporated by reference into such Award Letter.


 


6





















 


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


 


	
  DOT HILL SYSTEMS CORPORATION

  	
   

  	
  SOLECTRON CORPORATION

  
	
   

  	
   

  	
   

  
	
  By

  	
    /s/
  Preston Romm

  	
   

  	
  By

  	
    /s/
  Darryl Payton

  
	
  Authorized Signature

  	
   

  	
  Authorized Signature

  
	
   

  	
   

  	
   

  
	
  Printed
  Name: Preston Romm

  	
   

  	
  Printed
  Name: Darryl Payton

  
	
   

  	
   

  	
   

  
	
  Title: CFO

  	
   

  	
  Title:
  Director Contracts and Compliance

  
	
   

  	
   

  	
   

  
	
  Date:
  September 16, 2005

  	
   

  	
  Date:
  September 16, 2005

  
					



 


7





















 


Direct Customer Fulfillment Exhibit


 


This Direct Customer Fulfillment
Exhibit (the “Exhibit”) is
issued under, and subject to the terms and conditions of the Agreement dated
May 20, 2002, and as amended March 10, 2005, (the “Agreement”) by and
among Solectron Corporation and its subsidiaries and affiliates, (“Supplier”), Dot Hill Systems Corporation, and Dot Hill
Systems International B.V. (Dot Hill Systems Inc. and Dot Hill Systems
International B.V. are collectively “Dot Hill”).  All capitalized terms used herein shall have
the same meaning as in the Agreement.


 


Exhibit Summary:


 


This Exhibit describes Supplier’s contractual requirements for
implementing Dot Hill’s direct customer fulfillment supply chain initiative
solely with respect to business of Dot Hill anticipated to be conducted with
Customer(s), as defined below.  Dot
Hill’s new supply chain architecture eliminates large distribution centers in
favor of (1) direct shipment of finished goods from Supplier to Dot Hill
for Dot Hill’s intended delivery to such Customer(s).; and
(2) high-velocity cross-dock operations to consolidate customer orders
from multiple suppliers.  Dot Hill’s
suppliers are expected to participate, where agreed, in this new supply chain
architecture by complying with new requirements contained in this
Exhibit and the Direct Customer Fulfillment Specification (defined below),
which is incorporated by reference herein.


 


1.         Definitions:


 


1.1                  Blanket Purchase Order (“BPO”)
means Dot Hill’s Blanket Purchase Order for Product.  Blanket Purchase Orders will include the
mutually agreed price and quantities for the stated time period. Dot Hill may
provide a Blanket Purchase Order in the form of hard copy, by facsimile, or by
electronic transfer if there are electronic data exchange terms in place
between Dot Hill and Supplier.  A BPO
does not bind Dot Hill with respect to any particular quantities, delivery
dates, or dollar values for purchase.


 


1.2                  Blanket Purchase Order (BPO) Release is Dot Hill’s signal of
its intent to procure Products from Supplier, and each BPO Release
automatically decrements the quarterly Blanket Purchase Order.  The Direct Customer Fulfillment Specification
describes the BPO Release process.  A BPO
Release will indicate the part number(s), quantity(ies), delivery date(s), and
destination(s) for the Product(s) being requested.


 


1.3                  Customer means [***].


 


1.4                  Direct Customer Fulfillment Specification means Dot Hill’s
Customer’s Direct Customer Fulfillment Specification #923-3377 which contains
procedures applicable to Supplier, as modified by Dot Hill from time to time,
and is incorporated by reference into this Exhibit.


 


1.5                  Final Call-Off means the BPO Release confirmation or change
message that Dot Hill will send Supplier to indicate the amount of Product that
Dot Hill’s carrier will pick up, pursuant to the process set forth in the
Direct Customer Fulfillment Specification.


 


1.6                  Processing Leadtime means the number of days from Dot Hill’s
BPO Release to availability of 


 


1





















 


the designated
Dot Hill part on Supplier’s dock, or Supplier’s designated hub, packaged and
ready for pickup according the terms of this Exhibit, and shall be specified in
this Exhibit, an applicable Award Letter or other document.


 


1.7                  Blanket Purchase Order Release Confirmation or Active Commit
means the signal that Supplier must send Dot Hill to actively commit to a BPO
Release pursuant to the process set forth in the Direct Customer Fulfillment Specification.


 


2.          Term.  This Exhibit shall become effective on
the date on which Dot Hill Systems has entered into a binding, written direct
customer fulfillment exhibit with [***]
that contains the same or substantially equivalent provisions as those set
forth herein, and shall have the same Term as the Agreement or applicable Award
Letter for the Product, whichever is longer.


 


3.          Order of Precedence.  Notwithstanding any other order of precedence
in the Agreement, this Exhibit shall have precedence over any conflicting
terms in the Direct Customer Fulfillment Specification or the Agreement, as it
may be amended from time to time and including any other Exhibit or Award
Letter incorporated into such Agreement. 
In the event of a conflict between the terms of this Exhibit and a
Schedule attached to this Exhibit, the terms of the Schedule shall
govern.


 


4.          Direct Customer
Fulfillment Specification. 
Supplier hereby agrees to comply at all times with the Dot Hill policies
and procedures and on-going Supplier obligations identified in the Direct
Customer Fulfillment Specification as applicable to Supplier.  Supplier acknowledges that from time to time
Dot Hill’s Customer may modify or add to the Direct Customer Fulfillment
specification.  Upon receipt of a revision
from Dot Hill, Supplier agrees to read and familiarize itself with revision of
the Direct Customer Fulfillment specification within [***] of receipt. In the event that Supplier has reason to
believe that at any time it will not be able to comply with the then most
current version of the Direct Customer Fulfillment specification, Supplier
shall immediately notify Dot Hill in writing. 
Dot Hill and Supplier agree to negotiate in good faith to promptly
resolve any reasonable objections that Supplier raises regarding its compliance
to the revised Direct Customer Fulfillment specification.


 


5.          Lot Sizing.  Supplier shall have no minimum order quantity
requirements, either in units or value. 
Unless otherwise agreed to in writing by Dot Hill, all Products will
have a lot size quantity of one (1).


 


6.          Processing Leadtime.  Dot Hill and Supplier shall mutually agree on
a Processing Leadtime for every Dot Hill part number supplied by Supplier.  Supplier shall conform to all mutually agreed
Processing Leadtimes in its performance under this Exhibit.


 


7.          Packaging and Risk of Loss.  Supplier shall package and palletize all
Products according to the Direct Customer Fulfillment Specification.  Supplier shall be liable for any loss or
damage to Products and any related shipping costs due to Supplier’s failure to
comply with Dot Hill’s packaging and palletizing requirement, regardless of any
acceptance registered by Dot Hill’s carrier at Supplier’s dock.


 


8.          Demand Horizon.


 


8.1                  Dot
Hill shall provide the Supplier with a Demand Horizon Report with format,
content, and timing according to the Direct Customer Fulfillment
Specification.  The Demand Horizon report
is a snapshot of Dot Hill’s backlog published for use by the Supplier to manage
the transition from weekly forecasts in the Supplier co-planning process to one
or more daily Blanket Purchase Order Releases. 
The Demand Horizon Report is Dot Hill proprietary and confidential.


 


8.2                  The
Demand Horizon Report is not a commitment by Dot Hill to purchase any
particular quantity of goods.


 


8.3                  Suppliers
shall review each Demand Horizon report, and in the event that Supplier is not
able to 


 


2





















 


support the
entire demand, Supplier shall so indicate at the earliest possible time to Dot
Hill according to the procedure in the Direct Customer Fulfillment
Specification.


 


9.         Blanket Purchase Order
Release (“BPO Release”) by Dot Hill


 


9.1                  Dot
Hill will issue a separate BPO Release for (1) Products destined for
direct shipment to the Customer of Dot Hill, and (2) Products destined for
a Dot Hill cross dock.


 


9.2                  If
Dot Hill requests Supplier to provide Products in fewer days/hours than the
Processing Leadtime for that Product, Supplier agrees to make commercially
reasonable efforts to accommodate Dot Hill’s request.


 


10.    Active Commit; Blanket
Purchase Order Confirmation by Supplier.


 


10.1            Supplier
must actively commit to each BPO Release as described in the Direct Customer
Fulfillment Specification.


 


10.2            In
the event that Product is not available according to the terms of the BPO
Release, Supplier shall immediately notify Dot Hill per the process in the
Direct Customer Fulfillment Specification for decommiting against a BPO
Release.  Any decommit against a BPO
Release may trigger Dot Hill remedies as further described in this Agreement.


 


10.3            Supplier’s
predictability metrics must meet the requirements in the Direct Customer
Fulfillment Specification. 
Dot Hill shall review Supplier’s performance in accordance with Dot
Hill’s scorecarding process.


 


11.  Dot Hill Final Call-Off


 


11.1            In
response to Supplier’s Active Commit, Dot Hill will send a Final Call-Off
message to Supplier indicating the quantity of product that Dot Hill’s carrier
will pick up.  The Dot Hill Final
Call-Off is described in the Direct Customer Fulfillment Specification.


 


11.2            Dot
Hill may choose to cancel or reschedule any or all quantities of an order
within the rescheduling parameters as set forth in the Agreement and not
affecting Supplier’s rights to certain cancellation charges.  Dot Hill would only expect the Final Call-Off
to indicate more than original quantities if Supplier had previously confirmed
that Supplier could support upside quantities within the Processing Leadtime.


 


12.  Supplier Positions Products
For Dot Hill’s Carrier


 


12.1            The
Supplier should begin the process of preparing the Products for pick up no
later than Supplier’s receipt of the Final Call-Off.  All Products shall be fully ready for pick up
by Dot Hill’s carrier prior to the Dot Hill-specified due date.


 


12.2            A
failure by Supplier to have Products ready for pick up shall be a breach of
this Agreement, and in addition to any other remedy available to Dot Hill,
Supplier shall pay for any additional costs incurred by Dot Hill as a result of
Supplier’s failure to timely position Products for pick up, including but not
limited to charges for wasted transportation and expedited freight.


 


12.3            Supplier
shall package, label, and stage each order onto unique pallets according to Dot
Hill’s instructions, shrink-wrap each pallet, and place all packing slip
documentation in a location easily recognizable by Dot Hill’s carrier.


 


12.4            Supplier,
as well as any Supplier Third party hub(s), agree to use commercially
reasonable efforts to support Dot Hill’s hours of operations during standard
business operations and during peak periods.


 


12.5            All
freight cost associated to Product returned to the Supplier will be borne by
Dot Hill 


 


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notwithstanding
section 14.1 for overage discovered.


 


13.    Title Transfer.  Title to hardware included in Products shall
transfer from Supplier to Dot Hill [***].  Supplier shall [***].  Dot Hill shall [***].


 


14.    Return Process.


 


14.1            [***] any Product overage discovered at
the time of receipt at Dot Hill’s customer, or at time of receipt at Dot Hill’s
cross dock, shall be returned to Supplier at Supplier’s expense for full credit
to Dot Hill.


 


14.2            Supplier
and Dot Hill agree that product returned to Supplier for credit, will be
returned at the then current price for said product sold to Dot Hill, and when
resold, resold at that same price.


 


14.3            Supplier
agrees to return privileges [***]
shipped by Supplier for that particular product family.  Only current revision product will be
returned to Supplier, and that product will only be returned in an “as-new”
condition and in the original packaging. 
No open boxes, or otherwise used product, will be received back by
Supplier. All returned product will be subject to [***].


 


14.4            It
is agreed that any product returned to Supplier which is aged greater than [***] – will be rejected by Supplier,
with Dot Hill’s concurrence, as the terms with Dot Hill’s customer base limit
them to [***] return
privileges.  Returns will not be accepted
the [***].


 


14.5            Agreement
is that any product returned to Supplier shall be designated within Supplier as
the first product to be shipped back to Dot Hill against any new purchase
orders received for that configuration. 
This will ensure prompt turnover of all returned product and minimal
asset aging within Supplier.


 


14.6            It
is mutually agreed that the intent of the CFIT agreement is that no returned
product will age at Supplier greater than [***]. In the unlikely event that does occur, Dot Hill agrees to
pay charges in accordance with the Agreement.


 


15.    Supplier Source Location
and Changes.  Supplier
shall have a local European and United States source for all Products, which
shall be located within Dot Hill, defined maximum Intransit Leadtime
boundaries.  Supplier shall give Dot Hill
at least [***] prior written
notice of any location changes of its dock or hub.  Supplier will identify and provide Supplier’s
own and/or third-party hub(s) within such distance from each Dot Hill
cross-dock location as to be able to fulfill Dot Hill’s purchase orders within
Dot Hill-specified lead times.  To the
extent that third-party hub(s) are used, Supplier will execute contracts
directly with such third parties and will be solely responsible for the
management and performance of such hub. 
Use of third party hub(s) will not relieve Supplier of its obligations
under this Agreement to provide Product to Dot Hill within Dot Hill-specified
Intransit Leadtimes.


 


16.    Scope.  Supplier and Dot Hill hereby agree that the
provisions of this Direct Customer Fulfillment Exhibit shall apply only to
those Products intended for delivery by Dot Hill to a Customer.


 


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In witness hereof, the undersigned duly authorized representatives of
the Parties have executed and delivered this Exhibit as of the latest date
of execution set forth below:


 


	
  For: Dot Hill Systems Corporation

  	
   

  	
  For: Solectron Corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Sign: 

  	
  /s/ Preston Romm

  	
   

  	
   

  	
  Sign:

  	
  /s/ Darryl Payton

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Print: Preston Romm

  	
   

  	
  Print: Darryl Payton

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Title: CFO

  	
   

  	
  Title: Director Contracts and Compliance

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Date: 9/16/05

  	
   

  	
  Date: 9/16/05

  
							



 


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