10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________________________ 

FORM 10-K

_______________________________

(Mark One)

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

For the Fiscal Year Ended December 31, 2014

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to             

Commission file number 1-13317

_______________________________

DOT HILL SYSTEMS CORP.

(Exact name of registrant as specified in its charter)

_______________________________

Delaware	13-3460176
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1351 S. Sunset Street, Longmont, CO	80501
(Address of principal executive offices)	(Zip Code)

(303) 845-3200

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

_______________________________

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x

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  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   x  No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	¨	Accelerated filer	x
Non-accelerated filer	o (Do not check if a smaller reporting company)	Smaller reporting company	o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of June 30, 2014 was $277,450,499.

The registrant had 60,813,245 shares of common stock, $0.001 par value, outstanding as of February 27, 2015.

Documents Incorporated by Reference

Portions of the registrant’s definitive proxy statement for its 2015 annual meeting of stockholders are incorporated by reference into Part III of this Form 10-K.

DOT HILL SYSTEMS CORP.

FORM 10-K

For the Year Ended December 31, 2014

INDEX

Part I
Item 1.	Business	5
Item 1A.	Risk Factors	18
Item 1B.	Unresolved Staff Comments	30
Item 2.	Properties	31
Item 3.	Legal Proceedings	31
Item 4.	Mine Safety Disclosures	31
Part II
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	31
Item 6.	Selected Financial Data	33
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	34
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	48
Item 8.	Financial Statements and Supplementary Data	48
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	49
Item 9A.	Controls and Procedures	49
Item 9B.	Other Information	51
Part III
Item 10.	Directors, Executive Officers and Corporate Governance	51
Item 11.	Executive Compensation	51
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	51
Item 13.	Certain Relationships and Related Transactions, and Director Independence	51
Item 14.	Principal Accounting Fees and Services	52
Part IV
Item 15.	Exhibits, Financial Statement Schedules	52

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Forward-Looking Statements

Certain statements contained in this annual report on Form 10-K, including, but not limited to, statements regarding the development, growth and expansion of our business, our intent, belief or current expectations, primarily with respect to our future operating performance and the products we expect to offer, and other statements regarding matters that are not historical facts, are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and are subject to the “safe harbor” created by these sections. Future filings with the Securities and Exchange Commission, or SEC, future press releases and future oral or written statements made by us or with our approval, which are not statements of historical fact, may also contain forward-looking statements. Because such statements include risks and uncertainties, many of which are beyond our control, actual results may differ materially from those expressed or implied by such forward-looking statements. Some of the factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements are set forth in the section entitled “Risk Factors” and in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere throughout this annual report on Form 10-K.

Readers are cautioned not to place undue reliance on these forward-looking statements. The forward-looking statements speak only as of the date on which they are made, and, except as required by applicable law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.

In this annual report on Form 10-K, “Dot Hill,” “we,” “us” and “our” refer to Dot Hill Systems Corp. and our wholly owned subsidiaries on a consolidated basis, unless the context otherwise provides.

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PART I

Item 1. Business

We design, manufacture and market a range of storage systems, including hybrid storage arrays, for the entry and mid-range storage markets. We focus on selling through Server-based original equipment manufacturers, or OEMs, such as Hewlett-Packard, or HP, Dell Inc., or Dell, Lenovo Group Limited, or Lenovo, Advanced Micro Devices, Inc., or AMD, and Stratus Technologies, or Stratus; as well as into Vertical Markets through embedded solution OEMs, such as Flextronics, Teradata Corporation, or Teradata, Motorola, Inc., or Motorola, Tektronix Inc., or Tektronix, Samsung Electronics, or Samsung, Concurrent Computer Corporation, or Concurrent, Autodesk Inc., or Autodesk, Imagine Communications and Nokia Siemens Network, or Nokia Siemens, which primarily include media and entertainment, telecommunications, high performance computing, digital image archive, big data and oil and gas.

Typical customers for our storage systems products, which include our AssuredSAN^TMline of storage array products, include organizations requiring high reliability, high performance networked or direct attached storage and data management solutions in an open systems architecture. Most of our sales through our Server OEMs go into the IT infrastructure of companies and organizations to support a wide variety of internal applications, including email, Enterprise Resource Planning, retail transactions and voicemail. On the other hand, much of our product sales into Vertical Markets support the revenue streams of embedded solution partners' end-user customers, such as the central office infrastructure of telco providers, video editing and streaming appliances, and big data analytics solutions. Our storage solutions consist of integrated hardware, firmware and software products employing a modular system that allows end-users to add various protocol, performance, capacity or data protection schemes as needed. Our broad range of products, from small capacity direct attached to complete multi-hundred terabyte, or TB, storage area networks, or SANs, provide end-users with a cost-effective means of addressing increasing storage demands at compelling price-performance points. Our current product family based on our AssuredSAN architecture provides high performance and large disk array capacities with both hard disk drives, or HDDs, and flash-based Solid State Drives, or SSDs, for a broad variety of environments, employing Fibre Channel, Internet Small Computer Systems Interface, or iSCSI, or Serial Attached SCSI, or SAS, interconnects to switches and/or hosts. In addition, our Assured family of data protection software products provides additional layers of data protection options to complement our line of storage disk arrays. Our current mainstream AssuredSAN family of entry-level and mid-range storage products and Just a Bunch of Disks, or JBOD, arrays are targeted primarily at mainstream enterprise and small-to-medium business, or SMB, applications. Some of our AssuredSAN products have been distinguished by certification as Network Equipment Building System, or NEBS, Level 3 (a telecommunications standard for equipment used in central offices) and are MIL-STD-810F (a military standard created by the United States government) compliant based on their ruggedness and reliability.

Our products span Price Bands 2 through 5 as defined by International Data Corporation, or IDC. Our AssuredSAN 3000 Series product addresses the entry level market (bands 2 and 3) and AssuredSAN 4000 and Pro 5000 Series products address the mid-range market (bands 4 and 5). AssuredSAN Pro 4000 and Pro 5000 Series products include RealStor^TMsoftware that incorporates autonomic real-time data tiering via a virtualized back-end. With RealStor, businesses gain the advantage of using very high performance SSDs, to their maximum benefit, while storing less frequently accessed data on larger and much less expensive HDDs. Our AssuredSAN 3000 Series products are typically, but not exclusively, sold through our Server OEM partners, our AssuredSAN 4000 Series products are sold through both Server OEM partners and Vertical Markets partners, and our Pro 5000 Series are typically, but not exclusively, sold through our Vertical Market partners.

Our agreements with our customers do not contain any minimum purchase commitments and may be terminated at any time upon notice from the applicable customer. Our ability to achieve and maintain profitability will depend on, among other things:

• the level and mix of orders we actually receive from such customers;

• the actual amounts we spend on marketing support;

• the actual amounts we spend for inventory support and incremental internal investment to develop or enhance our products;

• our ability to reduce product cost;

• our product lead time;

• our ability to meet delivery schedules required by our customers; and

• the economic environment.

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Our products and services are sold worldwide to facilitate server and SAN storage implementations, primarily through Server OEMs, Vertical Markets partners that include embedded solution OEMs that integrate our products into their solutions, and value-added resellers, or VARs. Our storage system products' Server OEM partners currently include, among others, HP, Lenovo and Stratus, who purchase our AssuredSAN products, and Dell and AMD, who purchase our AssuredVRA products. Our Vertical Markets partners include Flextronics, Teradata, CGG, Motorola, Tektronix, Samsung, Concurrent, Autodesk, Imagine Communications, Quantum and Nokia Siemens. Although our products and services are sold worldwide, the majority of our net revenue is derived from our United States operations.

We began shipping products to HP, currently our largest customer, in the fourth quarter of 2007. In 2008, we amended our agreement with HP to allow for sales of additional products to additional divisions within HP. Our products are primarily sold as HP’s MSA product family. HP launched its third generation product line, called the P2000 product line, in 2010. Sales to HP increased in 2010 as we began selling our next generation host interfaces across the HP P2000 product line. HP launched its fourth generation product line with the introduction of the 2040 line in mid-2013, and extended the portfolio in early 2014 with the 1040 line. In late 2014, HP introduced firmware with the ability of autonomic real time tiering. The agreement with HP does not contain any minimum purchase commitments. In 2011, we extended our supply agreement with HP by five years to expire in October 2016 and also extended the expiration of 1.6 million warrants granted to HP in 2008 to expire concurrently with the supply agreement in October 2016.

The demand for our products has been affected in the past, and may continue to be affected in the future, by various factors, including, but not limited to, the following:

• our ability to maintain and enhance relationships with our Server OEM and Vertical Markets customers, as well as our ability to win new business;

• our ability to source critical components such as integrated circuits, hard disk drives, memory and other components on a timely basis;

• the amount of field failures resulting in product replacements or recalls;

• our ability to launch new products in accordance with OEM specifications, schedules and milestones;

• our ability to sell Dot Hill branded products through resellers;

• our ability to win new Server OEM and Vertical Markets customers who embed our products into their solutions;

• general economic and political conditions and specific conditions in the markets we address, including the continuing volatility in the technology sector, current general economic volatility and trends in the data storage markets in various geographic regions;

• the timing, rescheduling or cancellation of significant customer orders and our ability, as well as the ability of our customers, to manage inventory;

• our customer's product launch timelines and sales cycle; and

• the inability of certain of our customers who depend on credit to have access to their traditional sources of credit to finance the purchase of products from us, particularly in the current global economic environment, which may lead them to reduce their level of purchases or to seek credit or other accommodations from us.

For these and other reasons, our net revenue and results of operations in 2014 and prior periods may not necessarily be indicative of future net revenue and results of operations.

We were formed in 1999 by the combination of Box Hill Systems Corp., or Box Hill, and Artecon, Inc., or Artecon. We reincorporated in Delaware in 2001. Our website address is http://www.dothill.com. Information contained on our website does not constitute a part of this annual report on Form 10-K. Our annual reports on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K and all amendments to those reports that we file with the SEC are currently available free of charge to the general public through our website promptly after being filed with the SEC and are also accessible through the SEC’s website which may be found at http://www.sec.gov. In addition, you may read and copy the materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

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Industry Background

Overall Storage Market

According to "Worldwide and U.S. Enterprise Storage Systems 2014 - 2018 Forecast," published by IDC, the overall enterprise storage market is a $35.7 billion industry in 2014, and will grow to $41.7 billion in 2018. Included in the total is spending on external storage systems which is estimated at $27.2 billion in 2014, and will grow to $31.7 billion in 2018 at a 3.7% compound annual growth rate, or CAGR.

External storage refers to storage systems not inside a server. The main components of a storage array system are HDDs, SSDs, one or two storage controllers, power supplies and an enclosure. The main advantage of networked storage, including SAN and Network Attached Storage is that it allows multiple servers to share the storage resources connected through a network interface such as Fibre Channel or iSCSI.

IDC tracks shipments of products from storage vendors and divides the market into ten specific price bands. Price bands most relevant to Dot Hill are bands 2 through 5, which represent a $9.7 billion projected total available market in 2015.

Types of Data

Gartner, Inc., or Gartner, an information technology research and advisory company, classifies data types into four categories based on the format of how the data is stored. This differentiates data types across traditional relational, XML, messaging and multi-media formats. Examples of data types in the four categories include:

• Structured data. Structured data includes relational databases where full atomicity, consistency, isolation, and durability, or ACID, features are supported.

• Semi-structured data. Semi-structured data is structured data that include metadata and are self-descripting. This also includes XML data.

• Quasi-structured data. Quasi-structured data includes web clickstream data that contains some inconsistencies in data values and format.

• Unstructured data. Unstructured data includes text documents, images, video and general file-based data.

Dot Hill storage products are suited to all data types.

Storage Systems by Market Segment

Traditionally, storage vendors have designed products for markets differentiated by capacity, performance, price and feature set. These storage markets are typically identified as:

• Entry-level. Entry-level storage products are designed for lower capacity, less complex data storage needs. OEMs and server companies address this market primarily through an indirect sales channel approach employing distributors, retailers and VARs that assist IT managers in identifying, purchasing and installing the product.

• Mid-range. Mid-range or departmental/work-group storage products are designed for higher capacity and performance than entry-level products, but still feature ease of use and manageability, and are attached to a local server or a network of servers tailored to the needs of the local users. In this market, storage providers, OEMs and server companies primarily sell their products to local IT managers either directly or through distributors, VARs and regional system integrators, or SIs.

• High-end. High-end or data center storage products are designed for use by larger organizations where data storage and management is critical. These organizations require large capacity storage systems that feature high-performance, automation, extreme reliability, continuous availability, operating systems interoperability and global service and support. In this market, storage providers, OEMs and server companies sell their products with a combination of a direct sales force and indirect channels, including OEMs, large SIs, VARs and managed services providers.

Dot Hill storage products address the entry-level (bands 2 and 3) and mid-range segments (bands 4 and 5).

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Industry Trends

There are several disruptive trends in the storage industry that will continue to drive demand for increasing storage requirements in terms of capacity, performance, and price. These trends include the following:

• The real-time nature of information access based on rapid adoption of mobile consumer devices such as smart phones and tablets, which have created the need for application-aware data storage systems that respond to changing workloads in real-time;

• The explosion of personal data stored and shared on social networking sites and stored or accessed on various mobile consumer devices;

• Consolidation of compute power and storage in a variety of centralized or cloud architectures;

• Big Data capture, storage and management of various unstructured and quasi-structured data formats;

• Business intelligence and analytics, often applied to Big Data stores that require additional storage resources during the map/reduce process;

• Data security and compliance requirements from government entities and customer privacy expectations; and

• Storage systems optimized for flash storage and storage class memory products to increase performance while optimizing cost.

We believe the storage industry is strong and growing and our unique product and company strengths will satisfy a growing set of customers in the years ahead.

Our Strategy

Our primary objective is to sustain and grow profitability through our core business of selling entry and mid-level storage arrays through OEMs, including Server OEMs and Vertical Market's OEMs focused on solutions for media and entertainment, telecommunications, Big Data, HPC Digital Image Archive and oil and gas, and also through channel based resellers focused primarily on the same Vertical Markets. We launched our first mid-range products on August 22, 2012, which include the AssuredSAN Pro 5000 Series, with RealStor software that incorporates autonomic real-time data tiering, and the AssuredSAN 4000 Series next-generation, high performance storage solution designed to deliver best-in-class price performance, 99.999 percent availability and exceptional streaming throughput. On November 4, 2014, we introduced RealStor 2.0, which represents the next advancement in storage intelligence, and expanded the RealStor software platform to the AssuredSAN 4000 Series with our storage array model 4004. In addition, we will strive to create greater economies of scale and operating leverage in our entry level OEM storage array business, by focusing on new customer opportunities that may arise as a result of industry consolidation.

More specifically our strategy for the storage array business includes the following:

• Focus on embedding our storage products into solutions for media and entertainment, telecommunications, Big Data, HPC Digital Image Archive and oil and gas. Our AssuredSAN products are particularly well-suited for read and write workloads that are both random and sequential. A random workload implies that multiple users may wish to access the same data simultaneously. A sequential workload implies that users will need access to large files. The Vertical Markets we target all need storage with such performance characteristics. By addressing the needs of these markets through both OEMs that would embed our storage into their solutions and resellers that also sell into these segments, we can benefit from our channel partners’ knowledge of these Vertical Markets, extensive direct and indirect distribution networks, installed customer bases and greater sales, marketing and global service and support infrastructures. The costs associated with a direct worldwide sales force are extensive. By leveraging the sales networks of our partners, we can manage our sales and marketing costs to much lower levels. In addition, we encourage our partners to provide direct support and service to end-users.

• Focus on existing customers and develop new customer relationships. We have entered into OEM agreements with, HP, Tektronix, Lenovo, Dell, AMD, Motorola, Samsung, Stratus, Concurrent, Flextronics, Teradata, and CGG, among others. We intend to focus on expanding our relationships with our existing customers and to continue seeking additional OEM relationships with other industry leaders to sell current products and expand the number of products offered to these customers to enable them to address new markets.

• Grow and extend technology leadership. We view our core competencies as the research, design and engineering of modular open storage systems and data protection for enterprise servers. We believe that focused research and development on advanced, cost effective storage technologies is critical to our ongoing success. We intend to continue

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to develop and integrate high-end features into our products in order to offer more complete storage solutions and enhance our existing products to benefit our channel partners’ efforts to increase sales.

• Continue to add value through software functionality. RealStor 2.0 was introduced to the market on November 4, 2014. In addition to expanding the software platform to the latest AssuredSAN 4000 Series product, new functionality was added, including tiering between different classes of HDDs and the ability to lock or pin a certain host application to a fixed tier within the hybrid array. Our real-time autonomic tiering algorithm enables fast response for changing workloads to maintain high performance with little or no intervention from a storage administrator.

• Leverage our AssuredSAN architecture. We developed our AssuredSAN architecture as a foundational element of our AssuredSAN modular storage arrays. This modular architecture, along with the RealStor software platform, allows us to quickly develop and bring to market new products based on this foundation. We intend to focus and unify our development efforts on this approach, which we believe offers a competitive time to market advantage to us. In particular, we intend to utilize our AssuredSAN products to continually extend the feature sets of both our entry-level and mid-range solutions and build a comprehensive set of software-based features that offer our customers increased levels of value and differentiation.

• Quickly adopt new standards. We strive to introduce products that are first to market. For example, in November 2013 we introduced AssuredSAN Series 4000, storage array model 4004, the first entry-level storage array with flexible Fibre Channel and Fibre Channel / iSCSI interfaces that can be configured for 8Gb or 16Gb FIBRE Channel, or 1Gb or 10Gb iSCI host connectivity. This model series also offers a 12Gb SAS interface option. In August 2012, we introduced AssuredSAN Pro 5000 Series with RealStor software that incorporates autonomic real-time data tiering. With RealStor, businesses gain the advantage of very high performance SSDs, using them to their maximum benefit to store very frequently accessed or "hot" data, while storing less frequently accessed data on slower, but much less expensive, hard disk drives. This storage array technology delivers performance improvements within minutes for workloads as data being stored on the Series 5000 products are analyzed in real-time and migrated to faster but more expensive SSDs or to slower HDDs, based on frequency of use. On the same day, we also introduced our AssuredSAN 4000 Series next-generation, high performance storage solution designed to deliver best-in-class price performance, 99.999 percent availability, and exceptional streaming throughput. The Series 4000 shares the same architecture as the Series 5000. In addition, our AssuredVRA enterprise redundant array of independent disks, or RAID, stack for Windows and Linux servers allow us to quickly adopt and migrate to next generation Intel and AMD class server architectures due to its highly modular architecture and approach.

• Pursue strategic alliances, partnerships and acquisitions. We plan to continue to evaluate and selectively pursue strategic acquisitions, alliances and partnerships and other strategic alternatives that are complementary to our business. We believe that growth of the network storage market will create additional opportunities to expand our business. In some cases, we believe the most efficient pursuit of these opportunities may be through partnerships and relationships that allow us to leverage our existing products, core competencies and channels while capitalizing on products, technologies and channels that may be available through potential strategic partners.

Our Products

Product Positioning and Highlights

We design, manufacture and market a range of enterprise storage solutions and virtual RAID adapters for the entry and mid-range storage markets. Typical customers for our storage systems products, which include our AssuredSAN line of storage array products, include organizations requiring high reliability, high performance networked or direct attached storage and data management solutions in an open systems architecture. Most of our sales through our Server OEMs go into the IT infrastructure of companies and organizations to support a wide variety of internal applications, including email, Enterprise Resource and Planning, retail transactions and voicemail. On the other hand, much of our product sales into Vertical Markets support the revenue streams of embedded solution partners' end-user customers, such as the central office infrastructure of telco providers, video editing and streaming appliances, and big data analytics solutions. Our storage solutions consist of integrated hardware, firmware and software products employing a modular system that allows end-users to add various protocol, performance, capacity or data protection schemes as needed. Our broad range of products, from small capacity direct attached to complete multi-hundred TB SANs, provide end-users with a cost-effective means of addressing increasing storage demands at compelling price-performance points. Our current product family based on our AssuredSAN architecture with RealStor software for real-time autonomic tiering provides high performance and large disk array capacities for a broad variety of environments, employing Fibre Channel, iSCSI or SAS interconnects to switches and/or hosts. In addition, our Assured family of data protection software products provides additional layers of data protection options to complement our line of storage disk arrays.

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Our AssuredSAN storage solutions are positioned in the market to lead in these areas:

• Proven value for network storage. Our storage arrays support raw capacities up to 576TB with 6TB disk drives, and offer high availability with dual redundant controllers.

• Best-in-Class reliability and high availability. Based on approximately 700,000 total storage array systems shipped, and the large number of systems tracked in field service, the AssuredSAN product line has consistently demonstrated 99.999 percent availability. Our products have been validated by rigorous testing by multiple demanding OEM customers.

• Best-in-Class price/performance. With the introduction of the AssuredSAN Series 4000, storage array model 4004 and RealStor 2.0 software, we have established industry leading performance in terms of streaming read/write performance and transactions per second for this class of product. Our mid-range class products deliver more performance at a given price point than competing systems in the market. Multiple OEM customers have selected and qualified our RealStor software for use in their mid-range storage solutions.

• Most responsive storage with real-time tiering. Our RealStor 2.0 software enables autonomic real-time tiering across disk technologies to achieve greater performance for dynamic workloads. With RealStor, businesses gain the advantage of deploying very high performance SSDs, using them to their maximum benefit to store very frequently accessed or “hot” data, while storing less frequently accessed data on slower, but much less expensive hard disk drives. This 8^th generation storage array technology delivers performance improvements within minutes for workloads, as data being stored on the AssuredSAN 4000 Series, storage array model 4004 products are analyzed in real-time and migrated to faster but more expensive SSDs or to slower HDDs based on frequency of use.

• Disruptively simple interface for improved operational efficiency. In addition to the autonomic real-time tiering in the RealStor 2.0, the software interface has been designed for simplicity that eliminates all low level configuration tasks without complex policy settings.

AssuredSAN Product Line

We design our family of open systems storage hardware and software products with the reliability, flexibility and performance necessary to meet IT managers' needs for easily scalable cost-effective solutions. We currently offer storage systems in Fibre Channel, iSCSI, and SAS host interfaces which include HDD and SSD drive technologies. We also offer enterprise class RAID software for industry standard Windows and Linux servers, as well as storage management applications, which can manage any one or all of our storage system configurations. The RealStor 2.0 software adds autonomic real-time tiering, thin provisioning, fast RAID rebuild and a disruptively simple user interface called Storage Management Console. In addition, performance-enhancing and Data Management Software is sold bundled with our storage systems or licensed separately to OEM customers, including AssuredSnap, AssuredCopy and AssuredRemote.

We also offer AssuredSAN Modular Storage Architecture products focused on the incorporation of SAS drive technology with a variety of front-end host interfaces. These products are focused on the general purpose market initially and introduce several technological advancements including EcoStor™ (elimination of batteries in a RAID cache management system) and SimulCache™ (high-speed mirrored cache coherency).

• AssuredSAN 3000 Series. The 3000 Series is ideal for demanding applications such as video post-production, surveillance, and virtual machine environments (VMware, Microsoft and Citrix). With the introduction of the 24 drive small form factor drive products (2U/24), we believe we were also the first to offer such systems with full embedded RAID and data protection capability. Our AssuredSAN 3000 Series includes a range of interface options including 8Gb and 16Gb Fibre Channel, 1Gb and 10Gb iSCSI, 6Gb SAS and a hybrid Fibre Channel / iSCSI option.

• AssuredSAN 4000 Series. Our AssuredSAN™ 4000 storage arrays which were announced on August 22, 2012 are the highest performing storage solutions in our portfolio with a traditional user interface for RAID storage systems. On November 6, 2013, we further enhanced the AssuredSAN 4000 Series with the storage array model 4004 based on the Company's ninth-generation RAID architecture and added support for real-time autonomic tiering and other virtualized features with the introduction of RealStor 2.0 on November 4, 2014. These products offer greater data security, faster throughput and substantial business benefits for markets that demand extremely high-bandwidth performance, such as cloud service providers, media and entertainment, oil and gas, telecommunications, big data analytics and digital image archiving. Host interface options include 12Gb SAS, 8Gb and 16Gb FC, 1Gb and 10Gb iSCI and the only hybrid 16Gb Gen 5 Fibre Channel/10Gb iSCI converged interface. RealStor 2.0 software includes these key features:

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◦ RealTier™, autonomic real-time storage tiering;

◦ RealThin™, thin provisioning solution;

◦ RealPool™, automated pooling dramatically simplifies storage setup;

◦ RealQuick™, method for rapidly rebuilding sectors in record time;

◦ RealSnap^TM, create snapshots as equal volumes for greater flexibility; and

◦ RealCache^TM, increase cache capacity by 100 times to easily handle peak application demand.

• AssuredSAN Pro 5000 Series. Also announced on August 22, 2012, our AssuredSAN Pro 5000 Series adds automated tiered storage capabilities to our smart, simple, SAN storage line-up. Using the Pro 5000 Series with integrated RealStor management software, IT managers can improve data responsiveness, remove provisioning and allocation guesswork, and simplify storage management and expansion. RealStor, our unique, patent pending software, takes tiered storage to a more advanced level going beyond batch data migration to Real-Time automated tiered storage that continuously responds to user data demands by moving 'hot' data to a high-speed SSD tier.

• AssuredSAN Ultra48 Chassis. In February 2014, we introduced an industry-first high density chassis that supports 48 small form factor drives in an enclosure utilizing only two rack units of space. This chassis is compatible with all AssuredSAN Series 4000 and storage array model 4004 controllers and also supports expansion chassis to enable up to 196 drives utilizing only eight rack units.

• AssuredSAN Ultra56 Chassis. In November 2014, we introduced a high density chassis that supports 56 large form factor drives in an enclosure utilizing four rack units of space. This enclosure meets NEBS Level 3 carrier-grade environmental requirements and also supports AssuredSAN Series 4000, storage array model 4004 controllers as well as expansion chassis.

Additional AssuredSAN Features

• High Availability. We believe that high availability is essential to our customers due to the critical nature of the data being stored. We have demonstrated 99.999 percent availability in our product lines and integrate the latest in technological advances to meet expanding market opportunities. We design redundancy, high reliability, high performance and ruggedness into our storage systems. Redundant components have the ability to be replaced while the system is on-line without interrupting network activity.

• Modular Scalability. Our products are designed using a single cohesive modular architecture that allows customers to size and configure storage systems to meet their specific requirements or storage network type. This modular architecture also allows customers to easily expand and, in some cases, reconfigure a system as their needs change, permitting them to extend the useful life of and better utilize their existing systems.

• Rugged Product Design. Our AssuredSAN products are designed to operate under extreme climatic and other harsh operating conditions without degradation in reliability or performance, as attested to with the NEBS Level 3 and MIL-STD-810F compliance.

• Open Systems, Multi-Platform Support. As an independent provider of storage products, we are well positioned to provide storage solutions on a variety of platforms and operating systems, including Linux, HP-UX, Solaris and Windows. Our product lines support access to data by multiple servers using different operating systems simultaneously. This multi-platform compatibility allows customers to standardize on a single storage system that can readily be reconfigured and redeployed at minimal cost as the customer's storage architecture changes.

Data Management Software for AssuredSAN Products

Software features available with our AssuredSAN products include the following:

• AssuredSnap. AssuredSnap is our Data Management Software, or DMS, that introduces point in time snapshot technology into the AssuredSAN product family. AssuredSnap provides the ability to create point-in-time copies or backups of disk volumes with restoration of data to any captured point in time snapshot. Since AssuredSnap only copies changed data to disk, it can virtually eliminate backup windows. The AssuredSnap implementation is not only fast, but also reduces the size of snapshots by storing only a single instance of changed blocks. This technology allows IT managers increased backup efficiency and flexibility.

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• AssuredCopy. AssuredCopy is our DMS that introduces data cloning or volume copy services into the AssuredSAN product family. AssuredCopy leverages snapshot technology to create complete, physically independent copies of master or snapshot volumes. Once complete, volume copies can be mounted to any host system for read-only or read-write access. As both a data protection and a data management technology, AssuredCopy can be used to support applications such as backup and data recovery, data mining, decision support, data distribution and migration, application development and test. AssuredCopy protects against accidental or malicious loss or corruption of data, and provides additional protection against complete volume failure.

• AssuredRemote. AssuredRemote is our DMS that introduces remote replication into the AssuredSAN product family. AssuredRemote leverages snapshot technology and then transfers them to a paired array over either Fiber Channel or Ethernet for enhanced data protection and disaster recovery.

• Storage Management Console. Storage Management Console is a web-based interface with RealStor 2.0 using a new, intuitive design to manage and monitor all aspects of the storage array. User actions are organized with powerful tools to sort and filter information for easy access. A customization tool kit is available to enable OEM customers to private-label the interface for their individual brands.

• RAIDar. RAIDar is a web-based interface used for configuring, monitoring, error reporting and running diagnostics for certain of our RAID systems. A customization tool kit available with this interface enables our OEM customers to private-label the user interface quickly and cost efficiently.

AssuredVRA Product Line

AssuredVRA is a high-performance, feature rich, host based RAID stack for Windows and Linux based enterprise servers. Our OEM and SI customers typically integrate AssuredVRA as an ingredient of their entry-level Intel or AMD based server products. It has the ability to replace a dedicated hardware RAID adapter in many applications by utilizing the built-in disk I/O ports built into modern server hardware. In most instances, AssuredVRA is private labeled and branded with the OEMs own brand.

Dot Hill Market Access

Horizontal Markets

• Server Attach Storage. This is the traditional market for external network storage systems. SAN storage arrays connected through a network interface such as Fibre Channel or iSCSI, or as a direct-attach configuration using a SAS interface and sold by one of the major system manufacturers. We currently sell to HP, Lenovo, Stratus and other manufacturers that attach to server systems.

• Server Virtualization. Increasingly, servers are being virtualized through a hypervisor platform such as VMware, Microsoft Hyper-V, or Citrix and external network storage is connected through a network interface such as Fibre Channel or iSCSI to support these systems. Each physical server may handle multiple host applications. In this environment, we offer specialized features within the storage array to better integrate with the hypervisor platform. Examples are Microsoft VSS and VMware SRM.

Vertical Markets

• Telecommunications. We sell through multiple OEMs in the telecommunications space including Tektronix, Samsung, Motorola, and Nokia Siemens. Demand for storage in this market remains strong due to the proliferation of mobile devices and the build-out of 4G wireless networks.

• Media and Entertainment. We have established success in various media and entertainment industries such as video post-production and broadcast systems. Our success in this segment spans both OEM and Indirect Channel partners. Current OEM customers include Autodesk, Concurrent, Quantum and Imagine Communications.

• Big Data / Data Analytics. Numerous business and technology trends are disrupting the traditional data management and processing landscape and perhaps none more than big data and data analytics. Many businesses now view the analysis of big data stores as a competitive advantage. This approach requires a new approach to the analysis of large unstructured data sources. We have engaged in this segment through OEM partners and expect this market will continue to expand with opportunities across all channels. Current OEM customers include Flextronics and Teradata.

• Oil and Gas. Energyexploration and delivery is significant part of the worldwide economy. In this industry advanced computing and storage technologies are used for acquisition, retrieval and analysis for seismic data as well as equipment monitoring and process optimization.Current OEM customers include CGG.

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• Digital Image Archive. This segment includes the capture, storage and analysis of digital images from satellite, surveillance systems, medical images and many other applications.

OEM Partners for AssuredSAN platform

Our products and services are sold worldwide to facilitate server and SAN storage implementations, primarily through Server OEMs and OEMs who focus on select Vertical Markets. Our storage system products' OEM partners currently include, among others, Autodesk, CGG, Concurrent, Imagine Communications, HP, Lenovo, Motorola, Quantum, Samsung, Stratus, Tektronix, Flextronics and Teradata. Although our products and services are sold worldwide, the majority of our net revenue is derived from our United States operations.

OEM Partners for AssuredVRA Platform

Virtual RAID Adapter, or VRA, technology is a unique class of pure, host-based software RAID that combines key advantages of pure software RAID with many of the key advantages of hardware RAID adapters. As such it optimized for integration with server manufacturers. Our AssuredVRA OEM partners currently include, among others, Dell, AMD, and Supermicro.

Distribution Partners

Beginning in late 2009, we began placing more emphasis on selling higher gross margin products, which include appliance products and hardware products through indirect sales channels. This involves a two-tier distribution model whereby we sell directly to distributors who then sell to solutions partners who sell a final solution to end customers. In 2014, we maintained distribution agreements in North America with Promark Technology, Inc., Pacific Alliance Capital, Inc., and Synnex among others, and in EMEA with Hammer PLC and Avnet, among others.

Business Overview

Sales and Marketing

Our hardware and software products and services are sold worldwide to facilitate network storage implementations in the entry level and mid-range market segments. Dot Hill branded products are sold primarily through distributors, VARs and resellers while “blackbox” and OEM-customized products are sold primarily through Server OEMs, Vertical Markets OEMs and federal contractors. We utilize these channels to reach end-user customers that range in size from small businesses to government agencies and large multinational corporations. We maintain a sales and marketing organization operating out of our office in Longmont, Colorado, with regional offices in Germany, Japan, the United Kingdom and China as well as several smaller localized field sales offices throughout North America. Generally, our customers have no minimum purchase requirements and have certain rights to extend, delay or cancel shipment of their orders without penalty.

We support our indirect and OEM channels with a set of marketing programs designed to promote our products and technology leadership, attract additional channel partners and generate end-user demand. Our product marketing team focuses on marketing strategy, market requirements, product launches, product messaging, demand assessment, competitive analysis, public relations, marketing communications and channel marketing. The marketing team ensures that all marketing activities occur on a well-managed, timely basis in coordination with our development, manufacturing and sales groups, as well as our sales channel partners. The groups work closely with our sales and research and development groups to align our product development road map to meet key customer and channel technology requirements.

Sales and marketing expenses consist primarily of salaries, marketing program related costs, lead generation, customer-related evaluation unit expenses, promotional costs and travel expenses.

Outsourced Manufacturing

Our manufacturing strategy includes outsourcing substantially all of our manufacturing to third-party manufacturers in order to reduce sales cycle times and manufacturing infrastructure, enhance working capital and improve margins by taking advantage of the third parties' manufacturing and procurement economies of scale. In September 2008, we entered into a manufacturing agreement with Foxconn Technology Group, or Foxconn. Under the terms of the agreement, Foxconn supplies us with manufacturing, assembly and test services from its facilities in China and final integration services including final assembly, testing and configure-to-order services through its worldwide facilities. In November 2011, we amended our agreement with Foxconn to extend the manufacturing agreement for a period of three years. In addition, Foxconn agreed to waive the requirement for a letter of credit and improved payment terms. In November 2014, we extended the agreement to March 11, 2015, and in March 2015, we extended the agreement to September 1, 2015. We are currently in negotiations to further extend our contract. If the agreement is not further extended, pursuant to terms in the existing agreement, we can continue to operate with Foxconn for a period of six months following the expiration of the agreement, as the Company may

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issue purchase orders and Foxconn may accept purchase orders under the terms and conditions of the existing agreement. The majority of our products sold in 2012, 2013, and 2014 were manufactured by Foxconn. We expect Foxconn to manufacture substantially all of our products in 2015.

Cost of goods sold includes costs of materials, subcontractor costs, salary and related benefits for the production and service departments, depreciation and amortization of equipment and intangible assets used in the production and service departments, production facility rent and allocation of overhead as well as manufacturing variances and freight.

Research and Development

Our research and development team has been focused on developing innovative storage products including hardware and software. Hardware platforms are highly leveraged across the product line to minimize investment and deliver products that meet needs in multiple target markets.

Our software capabilities were significantly expanded in 2014 with the introduction of RealStor 2.0 software which expanded the product line coverage for real-time autonomic tiering and other storage virtualized features to certain 4000 Series products. RealStor technology overcomes the limitations of other tiered storage solutions to deliver a combination of industry-leading high performance and high availability on a scalable platform with advanced features that are easy to manage with minimal IT resources. Intelligent RealTier algorithms operate continuously, autonomically and in real-time to deliver the best possible improvement in performance for today's rapidly-changing real-world workloads. And the low initial capital expenditure, combined with streamlined management, result in a surprisingly low total cost of ownership, while the performance gains yield a high return on investment.

We have a history of industry firsts, including the first successfully commercialized hot-swappable SCSI disk array and RAID storage system for the UNIX environment and the first NEBS Level 3 certified and MIL-STD-810F tested line of storage systems. We were first to market and have patented SimulCache, which increases the write performance in a dual controller array. We were first to market and have patented EcoStor into our AssuredSAN products, which eliminates batteries in the storage system, thereby decreasing service costs while ensuring permanent data integrity in the event of power failure. We also believe that we were one of the first in the industry to be able to reliably intermix SAS and SATA drives in the same storage system without caveat. This has enabled us to build products that can optimize capacity and performance applications within the same storage array. We launched the first external RAID products using both 24 small form factor drives and 12 large form factor drives in a two unit high chassis form factor for the media and entertainment industry where read and write bandwidth is of significant importance. Also, we believe we were first to market in February 2010 with entry level storage arrays that offered 8Gb Fibre Channel, 6Gb SAS and a hybrid Fibre Channel/iSCSI interface in our AssuredSAN 3000 product line.

We are focused on continuously developing products that meet changing customer needs and anticipating and proactively responding to highly evolving technology in a timely and cost-effective manner. We also generally design and develop our products to have a modular architecture that can be scaled to meet customer needs and modified to respond to technological developments in the open systems computing environment across product lines. We are actively working on next generation technologies in both storage hardware protocols and storage software applications. Research and development expenses consist primarily of project-related expenses, consulting charges and salaries for employees directly engaged in research and development. Our total research and development expenses were $34.2 million in 2012, $35.3 million in 2013 and $37.6 million in 2014. In 2014, we capitalized software development costs of $1.2 million. There were no capitalized software development costs in 2013 or 2012.

Customer Service and Support

We recognize that providing comprehensive, proactive and responsive support is essential to maintaining and growing customer satisfaction, fostering customer loyalty and securing repeat business.

Our team of pre-sales sales engineers work in conjunction with their sales counterparts within our partners to train, scope opportunities and implement Dot Hill products in their customer environments when required. There are sales tools, try and buy and Beta evaluations, Partner Portal with all required sales information and competitive data. We offer partner boot camps in the Longmont, Colorado office for new product training, partner collaboration and feedback at various times throughout the year. This pre-sales support approach ensures our partners get whatever they require to be successful selling Dot Hill Products.

We provide comprehensive global customer service and support 24 hours a day, seven days a week, 365 days a year, either directly or through third-party service providers, aimed at simplifying installation, minimizing usage problems, maximizing system availability and streamlining administration. Through direct and third-party service providers, we maintain a global network of professional engineers and technicians who provide telephonic technical support in various languages from strategically located global response centers on a 24-hour, seven-day basis. In addition, we have the ability to provide four-hour on-site service response per contract on a global basis. We also offer all of our customers' access to SANsolve, our web-hosted

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interactive support knowledge base that gives our customers the ability to find answers to technical questions through our Customer Resource Center as well as initiate and track all support requests. Phone support is available via the web with a knowledge base and a Customer Resource Center with various information about our products and certification matrix.

Our new products also incorporate many diagnostic tools that will support the end user in self-servicing and diagnosing the issue easily. Industry standard SLA's are utilized but are also customizable by the partner if required.

We have also taken steps to better align our service and support structure with our indirect sales model, including the following:

• Collaborated with our OEM partners to provide support and service directly to end-users. For example, HP and other OEMs provide direct support to their end-user customers;

• Identified key areas for further development such as product certification/recertification training for our channel partners. In addition, we offered expanded array support services for a fee through our professional services offerings; and

• Established additional authorized service providers to provide localized service support in certain Asian and European locations.

We continue to capitalize on a growing population of product whose initial warranty expired by providing cost effective extended warranty and out-of-warranty repair services.

Intellectual Property

Our success depends significantly upon our proprietary technology. We have received registered trademark protection for the marks SANnet (R), SANpath (R), SANscape (R), Stratis (R), Dot Hill (R), Dot Hill Systems (R) and the Dot Hill logo. Other trademark registrations are in process including RealStor^TM, RealTier^TM, RealThin^TM, and RealQuick^TM, AssuredSAN^TM, SimulCache^TM, and EcoStor^TM. We have attempted to protect our intellectual property rights primarily through copyrights, trade secrets, employee and third party nondisclosure agreements and other measures. We have registered trademarks and will continue to evaluate the registration of additional trademarks as appropriate. We claim common law protection for, and may seek to register, other trademarks. In addition, we generally enter into confidentiality agreements with our employees and with key vendors and suppliers.

As of December 31, 2014, we had been awarded a total of 101 United States patents, 9 of which were awarded in 2014. 93 of these patents generally cover RAID controller and SAN-related technology. In addition, as of December 31, 2014 we had 25 filed United States patent applications pending approval. The patents covering our core technologies expire from 2022 to 2033. In addition, if we are unable to protect our intellectual property, or infringe intellectual property of a third party, our operating results could be harmed.

We also license certain technology from third parties and pay royalties on products shipped that incorporate such technology.

OEM Sales Cycle

Our OEM sales cycle involves four distinct phases that characterize the pipeline of current and potential OEM customers. Although the time to bring on a new OEM customer can be significant, the revenue stream usually continues through one or more product cycles.

Phase 1 - Product Evaluation. During this phase, customers are investigating and evaluation products with regard to features, performance, and pricing. In addition, assessment of a vendor's capability for quality, support, processes, and flexibility is often as important as the product assessment. This phase typically takes one to six months and ends when the customer grants a verbal award to the selected vendor.

Phase 2 - Contract and SOW. This phase involves development of a formal agreement and sometimes a statement of work if there is any customization or feature enhancements required. During this time the business engagement is established. This phase typically takes one to six months and ends with a signed contract.

Phase 3 - Customize and Solution Integration. In Phase 3, any product customization is implemented as defined in a statement of work. The OEM customer will also test, integrate and develop their complete solution to be ready for market. This phase typically takes one to 12 months and ends with product availability.

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Phase 4 - OEM Launch and Ramp. The final phase is launch and ramp of the product through the OEM customer's process. Revenue begins as product ships, and a ramp to full volume usually takes between three and 12 months. The timing and magnitude of revenue ramp for new customers is almost entirely dependent on their internal execution.

Administration

General and administrative expenses consist primarily of compensation to officers and employees performing administrative functions, as well as expenditures for legal, accounting and other administrative services and fluctuations in currency valuations.

Other income (expense), net is comprised primarily of interest income earned on our cash and cash equivalents and other miscellaneous income and expense items.

Competition

The storage market is intensely competitive and is characterized by rapidly changing technology. For our AssuredSAN storage products sold to OEMs, we compete primarily against independent storage system suppliers including Fujitsu Technology Solutions GmbH, or Fujitsu, NEC Corporation, Infortrend Technology or Infortrend, Promise Technology, Inc., or Promise, Nimble Storage, Inc., or Nimble, and NetApp as a result of its acquisition of LSI's Engenio Division in May 2011. For our AssuredSAN storage products sold through indirect channels, our competitors include EMC Corp., or EMC, Hitachi Data Systems Corp., or Hitachi, NetApp, Infortrend, and Promise. Our indirect channels also compete with traditional suppliers of computer systems and servers, including International Business Machines Corporation, or IBM, Oracle Corp., or Oracle, Dell, HP and Nimble, which market storage systems as well as other computer products.

Many of our existing and potential competitors have longer operating histories, greater name recognition and substantially greater financial, technical, sales, marketing and other resources than we do. As a result, they may have more advanced technology, larger distribution channels, stronger brand names, better customer service and access to more customers than we do. Other large companies with significant resources could become direct competitors, either through acquiring a competitor or through internal efforts. Additionally, a number of public and privately held companies are currently attempting to enter the storage market, some of which may become significant competitors in the future. We could conceivably compete with some of the original design manufacturers, one of whom is currently our manufacturing partner, as they develop expertise in chassis design and power and cooling technologies.

We believe the principal competitive factors in the hardware storage systems and software storage solutions markets are:

• product performance, features, scalability and reliability;

• price;

• product breadth;

• timeliness of new product introductions;

• brand reputation;

• interoperability and ease of management; and

• responsiveness to OEMs and customer support.

We believe that we compete favorably in several of these categories. To remain competitive, we believe we must invest significant resources in developing new products, enhancing our current products and maintaining high quality standards and customer satisfaction.

Dot Hill Operating Leverage

We believe we have several unique points of operating leverage that will create value for the business. As such, we are focused on improving our business strength in these areas.

Gross margin levers will improve the overall margin of the business. For example, our supply chain costs are relatively fixed and as volume increases, the average cost per unit declines, which will improve margins. The primary drivers of gross margin are the mix of customers (Server OEM vs. Vertical Markets), the size of the customer (large vs. small), the products purchased by our customers (entry level vs. mid-range) and engagement model (drive-full vs. drive-less).

Operating expense levers enable us to significantly leverage a relatively fixed engineering investment across multiple customers with similar product needs. Within the OEM sales team, the effort is largely centered on design wins and not on-

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going demand generation. Also, general and administrative costs are relatively fixed and as volume increases, the incremental expense to support the increased volume is disproportionately smaller than the increased volume, which will improve operating margins.

Balance sheet and cash leverage is gained with working capital and line of credit that are sufficient to satisfy customers and suppliers. This enables investment in adding new customers to the pipeline. If needed, we have the cash to invest in inventory.

Employees

As of December 31, 2014, we had 324 full-time employees, of whom 171 were engaged in research and development, 53 in sales and marketing, 53 in manufacturing, 34 in general management and administration and 13 in customer service and support. We have not had a work stoppage among our employees and none of our employees are represented under collective bargaining agreements. We consider our relations with our employees to be good.

Named Executive Officers of the Registrant

Name	Age	Position	Officer or Key Employee Since
Dana W. Kammersgard	59	Chief Executive Officer and President	August 1984(1)
Hanif I. Jamal	54	Senior Vice President, Chief Financial Officer, Treasurer and Corporate Secretary	July 2006

(1) In 1999, Artecon and Box Hill merged to form Dot Hill. Artecon was founded in 1984 and Mr. Kammersgard was an officer of Artecon from its inception until the merger, and has been an officer of Dot Hill since that date.

All officers are elected by our Board of Directors and serve at the pleasure of our Board of Directors as provided in our bylaws.

Dana W. Kammersgard has served as our President since August 2004. In March 2006, Mr. Kammersgard was appointed as our Chief Executive Officer and President. From August 1999 to August 2004, Mr. Kammersgard served as our Chief Technical Officer. Mr. Kammersgard was a founder of Artecon and served as a director from its inception in 1984 until the merger of Box Hill and Artecon in August 1999. At Artecon, Mr. Kammersgard served in various positions since 1984, including Secretary and Senior Vice President of Engineering from March 1998 until August 1999 and as Vice President of Sales and Marketing from March 1997 until March 1998. Prior to co-founding Artecon, Mr. Kammersgard was the director of software development at CALMA, a division of General Electric Company. Mr. Kammersgard holds a B.A. in Chemistry from the University of California, San Diego.

Hanif I. Jamal has served as our Senior Vice President, Chief Financial Officer, Treasurer and Corporate Secretary since July 2006. Prior to joining Dot Hill, Mr. Jamal served as Vice President and Corporate Treasurer for Gateway Inc. from 2004 to 2006. Prior to joining Gateway in 2002, Mr. Jamal served in a number of leadership positions over 17 years within Hewlett- Packard Company in the customer financing division, HP Technology Finance. Mr. Jamal led HP’s customer financing operations in North America, Latin America and Europe and was also Vice President and General Manager for HP’s Commercial and Consumer Financing Division. In 1998, he established Hewlett-Packard International Bank in Dublin, Ireland, and served as Managing Director through 2000. Mr. Jamal holds an MBA from Stanford Graduate School of Business and a Bachelor of Science degree, with Honors, in Management Sciences from the University of Manchester Institute of Science and Technology in the United Kingdom.

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Item 1A. Risk Factors

The following sets forth risk factors that may affect our future results. Our business, results of operations and financial condition may be materially and adversely affected due to any of the following risks. The trading price of our common stock could decline due to any of these risks. In assessing these risks, you should also refer to the other information contained or incorporated by reference in this annual report on Form 10-K, including our financial statements and related notes.

We are dependent on sales to a relatively small number of customers and a disruption in sales to any one of these customers could materially harm our financial results.

Our business is highly dependent on a limited number of customers. For example, sales to our largest Server OEM customer, or Customer A, and two large Vertical Markets customers, or Customers B and C, accounted for 68%, 0% and 10%, respectively, of our net revenue for the year ended December 31, 2012, 59%, less than 1% and 13%, respectively, of our net revenue for the year ended December 31, 2013 and 47%, 11% and 8%, respectively, of our net revenue for the year ended December 31, 2014. We expect Customers A and C to represent much greater than 10% and Customer B to represent around 10% of our net revenue for 2015. If our relationships with Customers A, B and/or C or certain of our other customers were disrupted or declined significantly, we would lose a substantial portion of our anticipated net revenue and our business could be materially harmed. We cannot guarantee that our relationship with Customers A, B and/or C or our other customers will expand or not otherwise be disrupted.

Going forward, we expect to generate additional revenue from our Vertical Markets partners and from potential new Server OEM customers. However, if we are unable to generate sufficient revenue and gross profit from these sources, our financial results could be harmed.

Factors that could influence our relationship with our significant customers and other potential new customers include:

• our ability to maintain our products at prices that are competitive with those of our competitors;

• our ability to maintain quality levels for our products sufficient to meet the expectations of our customers;

• our ability to produce, ship and deliver a sufficient quantity of our products in a timely manner to meet the needs of our customers;

• our ability to continue to develop and launch new products that our customers feel meet their needs and requirements, with respect to cost, timeliness, features, performance and other factors;

• our ability to provide timely, responsive and accurate customer support to our customers;

• the ability of our customers to effectively deliver, market and increase sales of their own solutions based on our products; and

• our customers' ability to develop and produce competing products to replace our technology.

Product recalls, epidemic failures, post-manufacture repairs of our products, liability claims and associated costs could harm our reputation, divert resources, reduce sales and increase costs and could have a material adverse effect on our financial condition and our results of operations.

Our products may contain undetected errors, or failures that become epidemic failures (as defined in our customer agreements), which may be discovered after shipment, resulting in a loss of net revenue, an increase in costs to rework or replace failed products, product liability claims, a tarnished reputation, a loss of customers, or a loss or delay in market acceptance of our products, any of which could harm or disrupt our business. Product failures or recalls could be the result of components purchased from our suppliers not meeting the required specifications or containing undetected quality errors and manufacturing defects despite our quality controls, or from our own design deficiencies.

Even if the errors are detected before shipment, such errors still could result in the halting of production, delay of shipments, delay of recovery costs, loss of goodwill, tarnishment of reputation and/or a substantial decrease in net revenue. Our standard warranty provides that if our systems do not function to published specifications, we will repair or replace the defective component or system without charge generally for a period of approximately three years. We generally extend to our customers the warranties provided to us by our suppliers, and accordingly, the majority of our warranty obligations to customers are intended to be covered by corresponding supplier warranties. There can be no assurance that our suppliers will continue to provide such warranties to us in the future or that our warranty obligations to our customers will be covered by corresponding warranties from our suppliers, which could have a material adverse effect on our operating results and financial condition. Significant warranty costs could decrease our gross margin and negatively impact our business, financial condition and results of operations. In addition, defects in our products could result in our customers claiming property damages,

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consequential damages, or bodily injury, which could also result in loss of customers and goodwill. Our customers may assert claims that our products have failed to meet agreed-to specifications or that they have sustained injuries from our products, and we may be subject to lawsuits relating to these claims. There is a risk that these claims or liabilities may exceed, or fall outside of the scope of our insurance coverage. Significant claims exceeding our expected warranty provisions could distract management’s attention from operating our business and, if successful, result in material claims against us that might not be covered by our insurance. The last significant quality issue was discovered in 2009, and was due to a problem with one of our power supply vendors. Refer to Note 6 of the Consolidated Financial Statements of this annual report on Form 10-K for further details.

Potential future acquisitions may not be successfully integrated or produce the results we anticipate.

As part of our strategy, we are continuously evaluating opportunities to buy other businesses or technologies that would complement our current products, expand the breadth of our markets, or enhance our technical capabilities. The acquisition and ongoing integration of new businesses into our business may adversely affect our operations or profitability.

Our inability to grow and manage our indirect sales channel may significantly impact our ability to increase net revenue, gross margin and operating income.

We have recently expanded our indirect sales model to access end-user markets primarily through our distributors, VARs and OSPs and are investing significant monetary and human resources in order to grow this indirect sales channel. If we cannot successfully identify, manage, develop, and generate sufficient net revenue through our indirect sales channel, our business could be harmed. In addition, even if we are able to grow our indirect sales channel, managing the interaction of our OEMs’, distributors’, VARs’ and OSPs’ efforts to reach various potential customer segments for our products and services is a complex process. Moreover, since each channel method has distinct risks and gross margins, our failure to implement the most advantageous balance in the delivery model for our products and services could adversely affect our net revenue and gross margin and our profitability.

Turmoil in the global economy, credit markets and the financial services industry may negatively impact our net revenue, access to capital, our customers’ access to capital and ability to pay for their purchases in a timely manner, and our suppliers’ access to capital and ability to provide us with goods and timely delivery, or willingness to provide credit terms to us.

The global economic condition could affect the demand for our products and negatively impact our net revenue and operating profit. We are unable to predict changes in general macroeconomic conditions and when, or if, global IT spending rates will be affected and to what degree they will be impacted. Furthermore, even if IT spending rates increase, we cannot be certain that the market for external storage solutions will be positively impacted. If there are future reductions in either domestic or international IT spending rates, or if IT spending rates do not increase, our net revenue, operating results and financial condition may be adversely affected. In addition, the global economic condition could also adversely impact our customers’, and/or their customers’, ability to finance the purchase of storage systems from us, or our suppliers’ ability to provide us with product, any of which may negatively impact our business, financial condition and results of operations.

Our smaller customers may not be as well capitalized as, nor do they have the financial resources of, our larger customers. In addition, sales to all our customers are typically made on credit without collateral. There is a risk that customers will not pay, or that payment may be delayed, because of their liquidity constraints or because they are awaiting payment from their customers, or other factors beyond our control, which could increase our exposure to losses from bad debts or increase accounts receivable, and thus reduce cash.

Our third-party manufacturers rely on other third parties to supply key components of our storage products. Some of these components are available only from one or limited sources in the quantities and quality we require. Should any of the component suppliers cease to operate due to current economic conditions or otherwise, we would have to qualify and locate alternative suppliers. We estimate that replacing key components we currently use in our products with those of another supplier could involve several months of hardware and software modification, which could significantly harm our ability to meet our customers’ orders for our products, damage our customer relationships and result in a loss of sales.

Our manufacturing suppliers provide us with credit terms that have in some cases been negotiated and documented in our manufacturing agreements. The credit terms we receive from these suppliers vary amongst our manufacturing partners but they all provide for adequate credit limits and credit terms. Should any of our manufacturing partners reduce our credit limits or shorten payment terms, due to their inability to purchase credit insurance or due to uncertainty regarding our financial position, our cash resources and working capital could be significantly impacted.

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Our contracts with customers do not include minimum purchase requirements and are not exclusive, and we cannot provide assurance that our relationship with these customers will not be terminated or will generate significant sales.

None of our contracts with our existing customers, including Customers A, B and C, contain minimum purchase commitments and while our contracts typically contain a specified term, our customers may cancel purchase orders at any time, cease making purchases or elect not to renew the applicable contract upon the expiration of the current term. Consequently, our customers generally order only through written purchase orders. Further, we do not expect that future contracts with customers, if any, will include any minimum purchase commitments. Changes in the timing or volume of purchases by our major customers could result in lower net revenue. For example, we cannot be certain that our sales to any of our customers will continue at historical levels or will reach expected levels. In addition, our existing contracts do not require our customers to purchase our products exclusively or on a preferential basis over the products of any of our competitors. Consequently, to the extent they are not sole sourced, our customers may sell the products of our competitors. The decision by any of our customers to cancel purchase orders, cease making purchases or terminate their respective contracts could cause our net revenue to decline substantially, and our business, financial condition and results of operations could be significantly harmed.

We sell on a purchase order basis, making us subject to uncertainties and variability in demand by our customers, and our component suppliers may make obsolete certain components we incorporate into our products, either of which could decrease net revenue and adversely affect our operating results.

We sell to our customers on a purchase order basis rather than pursuant to long-term contracts or contracts with minimum purchase requirements. Consequently, our sales are subject to demand variability by our customers. The level and timing of orders placed by our customers vary for a variety of reasons, including seasonal buying by end-users, the introduction of new technologies and general economic conditions.

Customers submitting a purchase order may cancel, reduce or delay their orders. If we are unable to anticipate and respond to the demands of our customers, we may lose customers because we have an inadequate supply of products, or we may have excess inventory which may have to be sold in the open market at a substantial discount, if at all possible, either of which may harm our business, financial position and operating results.

In addition, there are occasions when some of our component suppliers make obsolete certain components that we incorporate into our products. In these situations we may be required to purchase such components on a “last time buy” basis, based on our forecasts of customer demand. If we incorrectly forecast customer demand or if our customers' over- or under-forecast demand, we may have an inadequate supply of products, or we may have excess inventory which may have to be sold in the open market at a substantial discount, if at all possible, either of which may harm our business, financial position and operating results.

Furthermore, we are contractually obligated to purchase excess and obsolete material and finished goods from our contract manufacturer if not consumed within 90 days of our contract manufacturer’s purchase, which could have a material effect on our financial results.

Our sales cycle varies substantially from customer to customer and future net revenue in any period may be lower than our historical net revenue or forecasts.

Our sales are difficult to forecast because the open systems storage market is rapidly evolving and our sales cycle varies substantially from customer to customer. Customer orders for our products fall into two categories: OEM sales and Dot Hill branded sales through the channel. For the OEM business, the length of time between initial contact with a potential customer and the sale of our product may last from 6 to 36 months. This is particularly true during times of economic slowdown and when selling products that require complex installations. For the branded sales business through the channel, sales cycles can range from 30 days to three months or more for individual deals. With Dot Hill's new products in the mid-range segment, sales cycles are expected to increase to a range of 60 days to six months. This can increase the time for product decisions in both the OEM and channel business for customers taking our new products.

Additional factors that may extend our sales cycle, particularly orders for new products, include:

• the amount of time needed for technical evaluations by customers;

• customers’ budget constraints and changes to customers’ budgets during the course of the sales cycle;

• customers’ internal review and testing procedures;

• our engineering work necessary to integrate a storage solution with a customer’s system;

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• the complexity of technical challenges that need to be overcome during the development, testing and/or qualification process for new products and/or new customers;

• our ability to meet unique customer specifications and requirements;

• difficulties by our customers in integrating our products and technologies into their own products;

• the timing of our customer's product launches and their sales cycles;

• the ability of our customers to ramp sales of our products including the desire of customer's to purchase legacy products; and

• the total available market for our products within each specific customer.

Our net revenue is difficult for us to predict since it is directly affected by the timing of large orders. We may ship products representing a significant portion of our net revenue for a quarter during the last month of that quarter. In addition, our expense levels are based, in part, on our expectations as to future sales. As a result, if sales levels are below expectations, our operating results may be disproportionately affected. We cannot provide assurance that our sales will not decline in future periods.

The open systems storage market is rapidly changing and we may be unable to keep pace with or properly prepare for the effects of those changes and if we fail to develop and market new software and hardware products that meet customer requirements, our business will be harmed.

The open systems data storage market in which we operate is characterized by rapid technological change, frequent new product introductions, new interface protocol, evolving industry standards and consolidation among our competitors, suppliers and customers. Customer preferences in this market are difficult to predict and changes in those preferences and the introduction of new products by our competitors or us, or new entrants into the open systems storage market, could render our existing products obsolete or uncompetitive. Our success will depend upon our ability to address the increasingly sophisticated needs of customers, to enhance existing products, and to develop and introduce on a timely basis new competitive products, including new software and hardware, and enhancements to existing software and hardware that keep pace with technological developments and emerging industry standards, such as the market shift to cloud-related infrastructure. If we cannot successfully identify, manage, develop, manufacture or market product enhancements or new products, our business will be harmed. In addition, consolidation among our competitors, suppliers and customers may harm our business by increasing the resources of our competitors, reducing the number of suppliers available to us for our product components and increasing competition for customers by reducing the number of customer-purchasing decisions.

We believe that to remain competitive, we will need to continue to develop new hardware and software products, which will require a significant investment in new product development. Our competitors and new market participants may be developing alternative technologies, which may adversely affect the market acceptance of our products. If alternative technologies and interface protocols are adopted by the industry that we have not incorporated into our products, we may become uncompetitive and not have product offerings for select market segments. Even if our new products are developed on time, we may not be able to manufacture them at competitive prices or in sufficient volumes.

We may not be able to reduce expenses timely in response to any shortfalls in net revenue or gross margin.

We primarily sell to Customers A, B and C and other OEMs and thus do not need to make substantial incremental investments in sales and marketing to generate demand for our products to our customers. Additionally, we outsource substantially all of our manufacturing to very large contract manufacturing partners in Asia. Hence, there is little incremental cost required to increase our production capacity. Furthermore, we have an adopted modular architecture to our storage system products and consequently if our customers do not require substantial customization, we are able to launch products based on existing product platforms for new OEMs or channel partners at modest incremental expenditures.

In the past, we have taken and may have to take further measures to reduce expenses if net revenue or gross margins decline and we experience greater operating losses or do not achieve profitable results. A number of factors could preclude us from successfully bringing variable costs and expenses in line with our net revenue, such as the fact that our variable expense levels are based in part on our expectations as to future sales. This limits our ability to reduce expenses quickly in response to any shortfalls in net revenue or gross margin. Consequently, if net revenue does not generate enough gross margin to cover operating expenses, our operating results may be negatively affected.

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The market for storage products is intensely competitive and subject to substantial pricing pressure that may harm our net revenue, gross margin and operating results.

The storage market is intensely competitive and is characterized by rapidly changing technology. For our AssuredSAN storage hardware products, we compete primarily against independent storage system suppliers, including EMC, Hitachi, Infortrend, Promise, NEC and NetApp as a result of its acquisition of LSI’s Engenio Division in May 2011. We also compete with traditional suppliers of computer systems, including IBM, Oracle, Dell, HP and Nimble, which market storage systems as well as other computer products.

Many of our existing and potential competitors have longer operating histories, greater name recognition and substantially greater financial, technical, sales, marketing and other resources than we do. In addition, some of our competitors have much lower labor costs than we do. As a result, they may have more advanced technology, larger distribution channels, stronger brand names, better customer service, more financial leverage and access to more customers than we do. Other large companies with significant resources could become direct competitors, either through acquiring a competitor or through internal efforts. Additionally, a number of public and privately held companies are currently attempting to enter the storage market, some of which may become significant competitors in the future. In the future, it is conceivable that we could compete with some of the original design manufacturers, one of whom is currently our manufacturing partner, as they develop expertise in chassis design and power and cooling technologies.

We could also lose current or future business to certain of our suppliers or manufacturers, some of which directly and indirectly compete with us. Currently, we leverage our supply and manufacturing relationships to provide substantially all of our products. Our suppliers and manufacturers are very familiar with the specific attributes of our products and may be able to provide our customers with similar products.

We also expect that competition will increase as a result of industry consolidation and the creation of companies with new, innovative product offerings. Current and potential competitors have established or may establish cooperative relationships among themselves or with third parties to increase the ability of their products to address the needs of our prospective customers.

Accordingly, it is possible that new competitors, or alliances among competitors, may emerge and rapidly acquire significant market share. Increased competition is likely to result in price reductions, and may reduce operating margins and create a potential loss of market share, any of which could harm our business. We believe that the principal competitive factors affecting the storage systems market include: performance, features, scalability and reliability; price; product breadth; product availability and quality; timeliness of new product introductions; interoperability; and ease of management.

We cannot provide assurance that we will be able to successfully incorporate these factors into our products and compete against current or future competitors or that competitive pressures we face will not harm our business. If we are unable to cost effectively develop and market products to compete with the products of competitors, our business will be materially and adversely affected. In addition, if major customers who are also competitors cease purchasing our products in order to concentrate on sales of their own products, our business will be harmed.

Additional pricing pressures are due, in part, to continuing decreases in component prices, such as those of disks, memory, semiconductors and RAID controllers. Decreases in component prices are typically passed on to customers by storage companies through a continuing decrease in the price of storage hardware systems.

Pricing pressures could also result when we cannot pass increased material costs on to our customers. For example, a significant increase in fuel prices could result in higher steel and freight costs which we may not be able to pass on to our customers.

Pricing pressures also exist from our significant customers that may attempt to change the terms, including pricing, payment terms and post sales obligations with us. For example, during the fourth quarter of 2013, we increased payment terms to a large OEM customer. We granted an additional but smaller increase in payment terms to the same OEM customer commencing in the second quarter of 2014. As our customers are pressured to reduce prices as a result of competitive factors, we may be required to contractually, or otherwise, commit to price reductions for our products prior to determining if we can implement corresponding cost reductions. If we are unable to achieve such cost reductions, or are unable to pass along cost increases to our customers, and have to reduce the pricing of our products, our gross margin may be negatively impacted which could have a material adverse effect on our business, financial condition and results of operations.

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Our inability to lower product costs or changes in the mix of products we sell may significantly impact our gross margin and results of operations.

Our gross margin is determined in large part based on our contract manufacturing costs, our component costs, the timing and magnitude of product cost reductions, and our ability to include RAID controllers and value added features into our products, such as DMS and RealStor, as well as the prices at which we sell our products. The amount of revenue recognized from software and service sales and the relative mix of such sales in comparison to sales of our other products will also impact our gross margin, as the gross margin on sales of software and services is higher than that of our other products. If we are unable to lower production costs to be consistent with our projections or if we experience any decline in selling prices, such as with certain customers with whom we have negotiated periodic price reductions based on specific criteria, our gross margin and results of operations may suffer. Some of the new products we are currently shipping or expect to begin shipping are in the early stages of their life cycle. Our historical experience indicates that gross margin on new products are low initially and increase over time as a result of maturing manufacturing processes, component cost reductions and re-engineering the products to reduce costs. If we fail to achieve these improvements, our gross margin will be negatively impacted and our business, financial condition and results of operations could be significantly harmed.

In addition, we typically plan our production and inventory levels based on internal forecasts of customer demand, which is highly unpredictable and can fluctuate substantially. Such forecasts have not historically demonstrated a high degree of accuracy. From time to time, in response to anticipated long lead times to obtain inventory and materials from our outside suppliers, we may order materials in advance of anticipated customer demand. This advance ordering may result in excess inventory levels or unanticipated inventory write-downs due to expected orders that fail to materialize.

Additional factors which could adversely impact gross margin dollars and gross margin percentage include:

• changes in the mix of products we sell to our customers;

• increased price competition;

• introduction of new products by us or our competitors, including products with price performance advantages;

• our inability to reduce production or component costs;

• entry into new markets or the acquisition of new customers;

• sales discounts and marketing development funds;

• increases in material or labor costs;

• excess inventory, inventory shrinkages and losses and inventory holding charges;

• the timing of purchase price variances resulting from reductions in component costs purchased on our behalf by our contract manufacturers or owned by us in inventory versus the original cost of those components;

• increased warranty costs and costs associated with any potential future product quality and product defect issues;

• our inability to sell our higher performance products, or our software products and our services;

• component shortages which can result in expedite fees, overtime or increased use of air freight; and

• increased freight costs resulting from higher fuel prices, or from the need to expedite shipments of components to our contract manufacturers or finished goods to some of our customers and their hub locations.

Our customers may have very aggressive product launch and ramp schedules and our efforts to accommodate these schedules may divert our management’s attention, cause component shortages and force us to allocate products across many customers, all of which could harm our customer relationships.

Our efforts to accommodate our customers’ aggressive launch and ramp schedules can divert management’s attention from the rest of our business and force us to allocate product volumes across many customers due to component shortages, all of which could harm our relations with customers. In addition, we could incur overtime, expedite charges, and other charges such as shipping products by air as opposed to by ocean, as a result of efforts to meet such schedules. Any of these factors could result in lower net revenue and gross margin as well as increased operating expenses which could have an impact on our business, financial condition and results of operations.

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Manufacturing and supplier disruptions could harm our business.

We primarily rely on Foxconn to manufacture our products. In November 2011, we amended our agreement with Foxconn to extend the manufacturing agreement for three years. In November 2014, we extended the agreement to March 11, 2015, and in March 2015, we extended the agreement to September 1, 2015. We are currently in negotiations to further extend our contract. If the agreement is not further extended, pursuant to terms in the existing agreement, we can continue to operate with Foxconn for a period of six months following the expiration of the agreement, as the Company may issue purchase orders and Foxconn may accept purchase orders under the terms and conditions of the existing agreement. However, if they do not perform their obligations under our agreement, or if we otherwise determine to transition manufacturing of our products to another third party manufacturer, it could take several months to establish and qualify alternative manufacturing for our products and we may not be able to fulfill our customers’ orders in a timely manner. If Foxconn fails to meet their obligations under the agreement, we cannot be certain that we will be able to identify a suitable alternative manufacturing partner that meets the requirements of our customers and one that is cost competitive. Failure to identify a suitable alternative manufacturing partner could impact our customer relationships and our financial condition.

Due to our use of third-party manufacturers, our ability to control the timing of shipments could decrease. Delayed shipment could result in the deferral or cancellation of purchases of our products. Any significant deferral or cancellation of these sales would harm our results of operations in any particular quarter. Net revenue for a period may be lower than predicted if large orders forecasted for that period are delayed or are not realized, which could also impact cash flow or result in a decline in our stock price. To the extent we establish a relationship with an alternative manufacturer for our products, we may be able to partially mitigate potential disruptions to our business. We may also suffer manufacturing disruptions as we ramp up manufacturing processes for newly introduced products, or if our contract manufacturer experiences other disruptions in the manufacturing process, such as disruptions that may be caused by the ongoing move of manufacturing facilities from Longhua, China, to Tianjin, China, there could be delays in the delivery of these products to our customers that adversely affect our results of operations. We also generally extend to our customers the warranties provided to us by our suppliers and, accordingly, the majority of our warranty obligations to customers are covered by supplier warranties. For warranty costs not covered by our suppliers, we reserve for estimated warranty costs in the period the net revenue is recognized. There can be no assurance that our suppliers will continue to provide such warranties to us in the future, or that we have estimated these costs correctly, which could have a material adverse effect on our business, financial condition and results of operations.

Any shortage of disk drives, memory or other components could increase our costs or harm our ability to manufacture and deliver our storage products to our customers in a timely manner.

From time to time there is significant market demand for disk drives, semiconductors, memory and other components, and we may experience component shortages, selective supply allocations and increased prices of such components. In such event, we may be required to purchase our components from alternative suppliers, and we cannot be certain that alternative sources of supplies will be available on competitive terms. Even if alternative sources of supply for critical components such as disk drives and memory become available, incorporating substitute components into our products could delay our ability to deliver our products in a timely manner.

Demand for disk drives and memory has at times surpassed supply, forcing drive, memory and component suppliers, including those who supply the components that are integrated into many of our storage products, to manage allocation of their inventory. If such a shortage were prolonged, we may be forced to pay higher prices for disk drives, memory or components or may be unable to purchase sufficient quantities of these components to meet our customers’ demand for our storage products in a timely manner or at all.

We may experience losses in the future, and may have difficulty forecasting future operating results, which could result in revenue and earnings volatility, which could cause our stock price to decline.

For the years ended December 31, 2014, 2013, and 2012, we incurred income (loss) from continuing operations of $8.1 million, $5.5 million, and $(10.4) million, respectively. We expect our business to remain volatile as we are often unable to reliably predict net revenue from our customers. Net revenue from our customers, the mix of products sold to our customers, our ability to introduce new products as planned and our ability to reduce product costs and manage our operating expenses and manufacturing variances will continue to affect our financial results for 2014. Consequently, we cannot provide assurance that we will be profitable in any future period.

Our future operating results and profitability will depend on, and could vary substantially as a result of many factors, including:

• our ability to maintain and enhance relationships with our customers, in particular our OEM customers, as well as our ability to win new business;

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• our ability to implement and achieve targeted gross margin and cost reduction objectives;

• our ability to contain operating expenses and manufacturing variances;

• our ability to meet product delivery schedules for our customers which could result in increased air freight, expedite and overtime charges;

• the extent to which we invest in new initiatives such as channel sales and software development;

• our plans to maintain and enhance our engineering, research, development and product testing programs;

• the success of our manufacturing strategy and relationships with our contract manufacturing partners;

• the success of our sales and marketing efforts;

• the amount of field failures resulting in product replacements, recalls or customer penalties;

• the extent and terms of any development, marketing or other arrangements;

• changes in economic, regulatory or competitive conditions, including the current worldwide economic crisis;

• costs of filing, prosecuting, defending and enforcing intellectual property rights;

• costs of litigating and defending law suits; and

• our ability to capitalize on new customer opportunities resulting from industry consolidation.

Our success depends significantly upon our ability to protect our intellectual property and to avoid infringing the intellectual property of third parties, which has already resulted in costly, time-consuming litigation and could result in the inability to offer certain products.

We rely primarily on patents, copyrights, trademarks, trade secrets, nondisclosure agreements and common law to protect our intellectual property. Despite our efforts to protect our intellectual property, unauthorized parties may attempt to copy aspects of our products or obtain and use information that we regard as proprietary. In addition, the laws of foreign countries may not adequately protect our intellectual property rights. Our efforts to protect our intellectual property from third party discovery and infringement may be insufficient and third parties may independently develop technologies similar to ours, duplicate our products or design around our patents.

Furthermore, third parties may assert infringement claims against us, which would require us to incur substantial license fees, legal fees and other expenses, and distract management from the operations of our business. In addition, we enter into indemnification agreements with third parties in the ordinary course of business that generally require us to reimburse losses suffered by the third party due to various events, such as lawsuits arising from patent or copyright infringement.

We expect that providers of storage products will increasingly be subject to infringement claims as the number of products and competitors increase. We receive, from time to time, letters from third parties suggesting that we may require a license from such third parties to manufacture or sell our products. We evaluate all such communications to assess whether to seek a license from the patent owner. We may be required to purchase licenses that could have a material impact on our business, or, we may not be able to obtain the necessary license from a third party on commercially reasonable terms, or at all. Consequently, we could be prohibited from selling and marketing products that incorporate the protected technology or incur substantial costs to redesign our products in a manner to avoid infringement of third party intellectual property rights.

We are currently involved in an ongoing dispute with Crossroads Inc. It is probable that we will resolve this contractual dispute for royalty payments from 2009 to the current period for a total amount in the range of $1.0 million to $3.4 million. Refer to Note 12 of the Consolidated Financial Statements of this annual report on Form 10-K for further details.

Our success depends on our ability to attract and retain key personnel.

Our performance depends in significant part on our ability to attract and retain talented senior management and other key personnel. Our key personnel include Dana Kammersgard, our Chief Executive Officer and President, and Hanif Jamal, our Senior Vice President, Chief Financial Officer, Treasurer and Corporate Secretary. If either of these individuals were to terminate his employment with us, we would be required to locate and hire a suitable replacement. In addition, if any of our key engineering, sales and general and administrative employees were to terminate their employment with us, our business could be harmed. Competition for attracting talented employees in the technology industry can be intense. We may be unable to identify suitable replacements for any employees that we lose. In addition, even if we are successful in locating suitable replacements, the time and cost involved in recruiting, hiring, training and integrating new employees, particularly key employees responsible

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for significant portions of our operations, could harm our business by delaying our production schedule, our research and development efforts, our ability to execute on our business strategy and our client development and marketing efforts.

Many of our customer relationships are based on personal relationships between the customer and our executives or sales representatives. If these representatives terminate their employment with us, we may be forced to expend substantial resources to attempt to retain the customers that the sales representatives serviced. Ultimately, if we were unsuccessful in retaining these customers, our net revenue would decline.

Protective provisions in our charter and bylaws could prevent a takeover which could harm our stockholders.

Our certificate of incorporation and bylaws contain a number of provisions that could impede a takeover or prevent us from being acquired, including, but not limited to, a classified board of directors, the elimination of our stockholders’ ability to take action by written consent and limitations on the ability of our stockholders to remove a director from office without cause. Our board of directors may issue additional shares of common stock or establish one or more classes or series of preferred stock with such designations, relative voting rights, dividend rates, liquidation and other rights, preferences and limitations as determined by our board of directors without stockholder approval. Each of these charter and bylaw provisions give our board of directors, acting without stockholder approval, the ability to prevent, or render more difficult or costly, the completion of a takeover transaction that our stockholders might view as being in their best interests.

Unanticipated changes in tax laws or adverse outcomes resulting from examination of our income tax returns could adversely affect our results of operations.

We are subject to income taxes in the United States and various foreign jurisdictions. Our effective income tax rates have recently been and could in the future be adversely affected by changes in tax laws or interpretations of those tax laws, by changes in the mix of earnings in countries with differing statutory tax rates, by discovery of new information in the course of our tax return preparation process, or by changes in the valuation of our deferred tax assets and liabilities. Our effective income tax rates are also affected by intercompany transactions for licenses, services, funding and other items. Additionally, we are subject to the continuous examination of our income tax returns by the Internal Revenue Service and other tax authorities which may result in the assessment of additional income taxes. We regularly assess the likelihood of adverse outcomes resulting from these examinations. However, there can be no assurance that the outcomes from these examinations will not have a material adverse effect on our business, financial condition and results of operations.

The exercise of outstanding stock options and warrants may result in dilution to our stockholders.

We have a large number of outstanding stock options and warrants. Dilution of the per share value of our common stock could result from the exercise of outstanding stock options and warrants. When the exercise price of outstanding stock options and warrants is less than the trading price of our common stock, the exercise of such stock options and warrants would have a dilutive effect on our stockholders. The possibility of the issuance of shares of our common stock upon exercise of stock options and warrants could cause the trading price of our common stock to decline.

Furthermore, it is also possible that future large customers or suppliers may make our relationship with them contingent on receiving warrants to purchase shares of our common stock. The impact of potentially issuing additional warrants could have a dilutive effect on our stockholders.

Our stock price may be highly volatile and could decline substantially and unexpectedly, which can and has in some cases resulted in litigation.

The market price of our common stock has fluctuated substantially, and there can be no assurance that such volatility will not continue. Several factors could impact our stock price including, but not limited to:

• differences between our actual operating results and the published expectations of analysts;

• quarterly fluctuations in our operating results;

• mergers and acquisitions in the data storage marketplace;

• introduction of new products or changes in product pricing policies by our competitors or us;

• conditions in the markets in which we operate;

• changes in market projections by industry forecasters;

• changes in estimates of our earnings by us or industry analysts;

• overall market conditions for high technology equities;

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• rumors or dissemination of false information; and

• general economic and geopolitical conditions.

It is often the case that securities class action litigation is brought against a company following periods of volatility in the market price of its securities. Securities litigation could result in the expenditure of substantial funds, divert management’s attention and resources, harm our reputation in the industry and the securities markets and reduce our profitability.

Future sales of our common stock may hurt our market price.

A significant portion of our common stock is owned by a few institutional stockholders. As a result, a substantial number of shares of our common stock may become available for resale. If these or other of our stockholders sell substantial amounts of our common stock in the public market, the market price of our common stock could decline. These sales might also make it more difficult for us to sell equity securities in the future at times and prices that we deem appropriate.

Our system of internal controls may be inadequate.

We maintain a system of internal controls in order to ensure we are able to collect, process, summarize, and disclose the information required by the Securities and Exchange Commission within the time periods specified. Any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Due to these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. Additionally, public companies in the United States are required to review their internal controls under the Sarbanes-Oxley Act of 2002. If the internal controls put in place by us, including a wide range of manual internal controls, are not adequate or fail to perform as anticipated, errors could occur that would not be detected, which could require us to restate our consolidated financial statements, receive an adverse audit opinion on the effectiveness of our internal controls, and/or take other actions that will divert significant financial and managerial resources, as well as be subject to fines and/or other government enforcement actions. Furthermore, the price of our stock could be adversely affected.

Environmental compliance costs could adversely affect our results of operations.

Many of our products are subject to various laws governing chemical substances in products, including those regulating the manufacture and distribution of chemical substances and those restricting the presence of certain substances in electronic products. We could incur substantial costs, or our products could be restricted from entering certain countries, if our products become non-compliant with environmental laws.

We face increasing complexity in our product design and procurement operations as we adjust to new and future requirements relating to the materials composition of our products, including the restrictions on lead and certain other substances that apply to specified electronic products put on the market in the European Union as of July 1, 2006 (Restriction of Hazardous Substances Directive, or RoHS). We design our products to ensure that they comply with these requirements as well as related requirements imposed by our customers. We are also working with our suppliers to provide us with compliant materials, parts and components. If our products do not comply with the European substance restrictions, we could become subject to fines, civil or criminal sanctions, and contract damage claims. In addition, we could be prohibited from shipping non-compliant products into the European Union, and required to recall and replace any products already shipped, if such products were found to be non-compliant, which would disrupt our ability to ship products and result in reduced net revenue, increased obsolete or excess inventories and harm to our business and customer relationships. Various other countries and states in the United States have issued, or are in the process of issuing, other environmental regulations that may impose additional restrictions or obligations and require further changes to our products. These regulations could impose a significant cost of doing business in those countries and states.

The European Union has enacted the Waste Electrical and Electronic Equipment Directive, which makes producers of electrical goods financially responsible for specified collection, recycling, treatment and disposal of past and future covered products. Similar legislation has been or may be enacted in other jurisdictions, including in the United States, Canada, Mexico, China and Japan, the cumulative impact of which could be significant.

Some of our products are subject to state, federal and international laws governing protection of the environment, governing proper handling and disposal of materials used to manufacture our products, governing human health and safety, regulating the use of certain chemical substances and requiring disclosure of the use of certain “conflict minerals.” We endeavor to comply with these environmental and other laws, yet compliance with such laws could increase our product design, development, procurement, manufacturing and administration costs, limit our ability to manage excess and obsolete non-compliant inventory, change our sales activities, damage our reputation if we are required to disclose the use of certain "conflict

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minerals" or otherwise impact future financial results of our business. Any violation of these laws can subject us to significant liability, including fines, penalties and possible prohibition of sales of our products into one or more states or countries and result in a material adverse effect on our financial condition or results of operations.

Due to the global nature of our business, risks inherent in our international operations could have a material adverse effect on our business.

Although a substantial portion of our business is located and conducted in the United States, a significant portion of our operations are located outside of the United States. The majority of our products are manufactured outside of the United States, and we have research and development and service centers overseas. Accordingly, our business and our future operating results could be adversely affected by a variety of factors affecting our international operations, some of which are beyond our control, including regulatory, political, or economic conditions in a specific country or region, trade protection measures and other regulatory requirements, government spending patterns, and acts of terrorism and international conflicts. In addition, we may not be able to maintain or increase international market demand for our products.

We face exposure to adverse movements in foreign currency exchange rates as a result of our international operations. These exposures may change over time as business practices evolve, and they could have a material adverse impact on our financial results and cash flows. Our international sales are denominated in United States Dollars and in foreign currencies. An increase in the value of the United States Dollar relative to foreign currencies could make our products more expensive and therefore, potentially less competitive in foreign markets. Conversely, lowering our price in local currency may result in lower United States-based revenues. A decrease in the value of the United States Dollar relative to foreign currencies could increase operating expenses in foreign markets. Prices for our products are substantially United States Dollar denominated, even when sold to customers that are located outside the United States. Therefore, as a substantial portion of our sales are from countries outside the United States, fluctuations in currency exchange rates, most notably the strengthening of the United States Dollar against other foreign currencies, contribute to variations in sales of products in impacted jurisdictions and could adversely impact demand and revenue growth. In addition, currency variations can adversely affect margins on sales of our products in countries outside the United States.

Additional risks inherent in our international business activities generally include, among others, difficulties in managing international operations and compliance with complex tax regulations in each tax jurisdiction.

In addition, due to the global nature of our business, we are subject to complex legal, tax and regulatory requirements in the United States and the foreign jurisdictions in which we operate and sell our products, including antitrust and anti-competition laws, rules and regulations, and regulations related to data privacy. We are also subject to the potential loss of proprietary information due to piracy, misappropriation or laws that may be less protective of our intellectual property rights than United States laws. Such factors could have an adverse impact on our business, operating results and financial position.

Moreover, in many foreign countries, particularly in those with developing economies, it is common to engage in business practices that are prohibited by our internal policies and procedures, or Unites States laws and regulations applicable to us, such as the Foreign Corrupt Practices Act. There can be no assurance that all of our employees, contractors and agents, as well as those companies to which we outsource certain of our business operations, will comply with these policies, procedures, laws and/or regulations. Any such violation could subject us to fines and other penalties, which could have a material adverse effect on our business, financial condition or results of operations.

Our business could be materially and adversely affected as a result of a natural disaster, terrorist acts or other catastrophic events.

We depend on the ability of our personnel, raw materials, equipment and products to move reasonably unimpeded around the world. Any political, military, terrorism, global trade, world health or other issue that hinders this movement or restricts the import or export of materials could lead to significant business disruptions. Furthermore, any strike, economic failure or other material disruption caused by fire, floods, hurricanes, earthquakes, volcanoes, power loss, power shortages, environmental disasters, telecommunications or business information systems failures, break-ins and similar events, could also adversely affect our ability to conduct business. If such disruptions result in cancellations of customer orders or contribute to a general decrease in economic activity or corporate spending on information technology, or directly impact our marketing, manufacturing, financial and logistics functions, or impair our ability to meet our customer demands, our results of operations and financial condition could be materially adversely affected.

Our business is subject to increasingly complex corporate governance, public disclosure, and accounting and tax requirements that have increased both our costs and the risk of noncompliance.

Because our common stock is publicly traded, we are subject to certain rules and regulations of federal, state and financial market exchange entities charged with the protection of investors and the oversight of companies whose securities are

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publicly traded. These entities, including the Public Company Accounting Oversight Board, the SEC, and NASDAQ have implemented requirements and regulations and continue developing additional regulations and requirements in response to corporate scandals and laws enacted by Congress, most notably the Sarbanes-Oxley Act of 2002. Our efforts to comply with these regulations have resulted in, and are likely to continue resulting in, increased general and administrative expenses and diversion of management time and attention from revenue-generating activities to compliance activities.

On July 21, 2010, the President signed into law the Dodd-Frank Act. Many aspects of the Dodd-Frank Act are subject to rulemaking and will take effect over several years, making it difficult to anticipate the overall financial impact on us. However, as we continue to implement changes in response to this new law and its associated regulations, we expect to incur additional operating costs that could have a material adverse effect on our financial condition and results of operations.

A change in accounting standards or practices and varying interpretations of existing accounting pronouncements, such as the changes to revenue recognition standards, the increased use of fair value measures, additional proposed changes to revenue recognition, lease accounting, financial instruments and other accounting standards, and the potential requirement that United States registrants prepare financial statements in accordance with International Financial Reporting Standards, could have a significant effect on our reported financial results or the way we conduct our business. Implementation of accounting regulations and related interpretations and policies, particularly those related to revenue recognition, could cause us to defer recognition of revenue or recognize lower revenue, which may affect our results of operations.

Because new and modified laws, regulations, and standards are subject to varying interpretations in many cases due to their lack of specificity, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This evolution may result in continuing uncertainty regarding compliance matters and additional costs necessitated by ongoing revisions to our disclosure and governance practices.

We are subject to risks related to the provision of employee health care benefits and recent health care reform legislation.

In March 2010, comprehensive health care reform legislation under the Patient Protection and Affordable Care Act (HR 3590) and the Health Care Education and Affordability Reconciliation Act (HR 4872) was passed and signed into law. Among other things, the health care reform legislation includes guaranteed coverage requirements, eliminates pre-existing condition exclusions and annual and lifetime maximum limits, restricts the extent to which policies can be rescinded and imposes new and significant taxes on health insurers and health care benefits. Provisions of the health care reform legislation become effective at various dates over the next several years. The Department of Health and Human Services, the National Association of Insurance Commissioners, the Department of Labor and the Treasury Department have yet to issue necessary enabling regulations and guidance with respect to the health care reform legislation.

Due to the breadth and complexity of the health care reform legislation, the lack of implementing regulations and interpretive guidance, and the phased-in nature of the implementation, it is difficult to predict the overall impact of the health care reform legislation on our business over the coming years. Our results of operations, financial position and cash flows could be materially adversely affected due to this health care reform legislation. We expect to experience significant increases in health care costs into the foreseeable future.

We are exposed to the credit and non-payment risk of our customers, resellers, and distributors, especially during times of economic uncertainty and tight credit markets, which could result in material losses.

Most of our sales to customers are on an open credit basis. While we monitor individual customer payment capability in granting such open credit arrangements, and seek to limit such open credit to amounts we believe are reasonable, we may experience losses due to a customer’s inability to pay.

In the past, there have been bankruptcies by our customers to whom we had extended open credit, causing us to incur bad debt charges. We may be subject to similar losses in future periods. Any future losses could harm our business and have a material adverse effect on our operating results and financial condition. Additionally, to the extent that the recent turmoil in the credit markets makes it more difficult for customers to obtain open credit or financing, those customers’ ability to purchase our products could be adversely impacted, which in turn could have a material adverse impact on our financial condition and operating results.

We make significant investments in research and development to improve our technology and develop new technologies, and unsuccessful investments could materially adversely affect our business, financial condition and results of operations.

Over the past several years, our business strategy has been to derive a competitive advantage by moving from being a follower of new technologies to being a leader in the innovation and development of new technologies. This strategy requires

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us to make significant investments in research and development and, in attempting to remain competitive, we may increase our capital expenditures and expenses above our historical run-rate model, including the capitalization of a software project under development discussed more fully in Note 5 to the Consolidated Financial Statements of this annual report on Form 10-K. There can be no assurance that these investments will result in viable technologies or products, or if these investments do result in viable technologies or products, that they will be profitable or accepted by the market. Significant investments in unsuccessful research and development efforts could materially adversely affect our business, financial condition and results of operations. In addition, increased investments in technology could cause our cost structure to fall out of alignment with demand for our products, which would have a negative impact on our financial results.

Violation of applicable laws, including labor or environmental laws, and certain other practices by our suppliers could harm our business.

We expect our suppliers to operate in compliance with applicable laws and regulations, including labor and environmental laws, and to otherwise meet our required supplier standards of conduct. While our internal operating guidelines promote ethical business practices, we do not control our suppliers or their labor or environmental practices. The violation of labor, environmental or other laws by any of our suppliers, or divergence of a supplier’s business practices from those generally accepted as ethical in the United States, could harm our business by:

• interrupting or otherwise disrupting the shipment of our product components;

• damaging our reputation;

• forcing us to find alternate component sources;

• reducing demand for our products (for example, through a consumer boycott); or

• exposing us to potential liability for our supplier’s wrongdoings.

We are vulnerable to system failures or attacks, which could harm our business.

We are heavily dependent on our technology infrastructure, among other functions, to operate our factories, sell our products, fulfill orders, manage inventory and bill, collect and make payments. Our systems are vulnerable to damage or interruption from natural disasters, power loss, telecommunication failures, computer viruses, computer denial-of-service attacks and other events. Our business is also subject to break-ins, sabotage and intentional acts of vandalism by third parties as well as employees. Despite any precautions we may take, such problems could result in, among other consequences, interruptions in our business, which could harm our reputation and financial condition.

Cybersecurity breaches could expose us to liability, damage our reputation, compromise our ability to conduct business, require us to incur significant costs or otherwise adversely affect our financial results.

We retain sensitive data in our secure data centers and on our networks, including intellectual property, proprietary business information and personally identifiable information. We face a number of threats to our data centers and networks from unauthorized access, security breaches and other system disruptions. As with any company with an internet presence, our infrastructure may be vulnerable to attacks by hackers or other disruptive problems. Any such security breach may compromise information stored on our networks and may result in significant data losses or theft of our, our customers’, our business partners’ or our employees’ intellectual property, proprietary business information or personally identifiable information. In addition, we have outsourced a number of our business functions to third party contractors, and any breach of their security systems could adversely affect us.

It is critical to our business strategy that our infrastructure remains secure and is perceived by customers and partners to be secure. A cybersecurity breach could negatively affect our reputation as a trusted provider of information infrastructure by adversely affecting the market’s perception of the security or reliability of our products or services. In addition, a cyber-attack could result in other negative consequences, including remediation costs, disruption of internal operations, increased cybersecurity protection costs, lost revenues or litigation.

Item 1B. Unresolved Staff Comments

None.

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Item 2. Properties

Our corporate headquarters currently occupy approximately 88,000 square feet that includes office and laboratory space in two buildings located in Longmont, Colorado. These facilities include research and development, administration, sales and marketing and operations functions. The lease for these buildings expires in May 2018.

We lease approximately 7,300 square feet of office space located in Plymouth, Minnesota, under a lease that expires in October 2015. We use this office space as a research and development facility for our AssuredVRA software.

In addition, we lease other international office space in Germany, Japan, China, Singapore and the United Kingdom, primarily for supply-based management and sales and marketing functions.

Our existing leased facilities are appropriate for our current needs. We do not own any real estate.

Item 3.Legal Proceedings

The information required by this Item is incorporated by reference from Note 12, Commitments and Contingencies, of the Consolidated Financial Statements of this annual report on Form 10-K.

Item 4. Mine Safety Disclosures

None.

PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is currently included for quotation on the NASDAQ Global Market and is currently traded under the symbol “HILL.”

The following table sets forth for the periods indicated the per share range of the high and low sales prices of our common stock as reported on the NASDAQ Global Market.

Year Ended December 31, 2013:	Low		High
First Quarter	$	0.88	$	1.39
Second Quarter	1.10		2.31
Third Quarter	2.04		2.97
Fourth Quarter	2.13		3.41
Year Ended December 31, 2014:
First Quarter	$	3.17	$	6.06
Second Quarter	2.91		4.77
Third Quarter	3.31		4.93
Fourth Quarter	3.14		4.99

On February 27, 2015 the last reported sale price for our common stock on the NASDAQ Global Market was $4.06 per share. As of February 27, 2015 there were 60,813,245 shares of our common stock outstanding held by approximately 91 holders of record. We have never paid any cash dividends on our common stock, and currently intend to retain future earnings, if any, to the extent possible to fund the development and growth of our business. We do not anticipate paying any cash dividends on our common stock in the foreseeable future.

The information required to be disclosed by item 201(d) of Regulation S-K, “Securities Authorized for Issuance Under Equity Compensation Plans,” is included under Item 12 of Part III of this annual report on Form 10-K.

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PERFORMANCE MEASUREMENT COMPARISON

The following graph compares the cumulative 5-year total stockholder return on our common stock relative to the cumulative total returns of the S&P 500 Index, the NASDAQ Composite Index and the NASDAQ Computer Index. An investment of $100 (with reinvestment of all dividends) is assumed to have been made in our common stock and in each index on December 31, 2009 and its relative performance is tracked through December 31, 2014.

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Item 6. Selected Financial Data

We derived the selected consolidated financial data presented below from our audited consolidated financial statements for the years ended December 31, 2012, 2013 and 2014, which are included elsewhere in this annual report on Form 10-K. Statement of Operations data for the years ended December 31, 2010 and 2011 and balance sheet data as of December 31, 2010, 2011 and 2012 have been derived from our audited consolidated financial statements not included herein. All data are in thousands except per share data. You should read the selected consolidated financial data together with our consolidated financial statements and related disclosures thereto and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this annual report on Form 10-K.

	2010			2011			2012			2013			2014
	(in thousands, except per share amounts)
Statement of Operations Data (Year Ended December 31):
Net Revenue	$	251,838		$	195,827		$	194,548		$	206,565		$	217,665
Cost of goods sold	207,653			150,544			146,177			140,495			145,090
Gross profit	44,185			45,283			48,371			66,070			72,575
Operating expenses:
Research and development	28,113			31,196			34,199			35,332			37,645
Sales and marketing	11,837			13,225			14,133			13,450			14,505
General and administrative	11,251			9,174			9,695			11,658			12,122
Operating income (loss)	(7,016		)	(8,312		)	(9,656		)	5,630			8,303
Other income (loss), net	(3		)	(23		)	3			(39		)	(21		)
Income tax expense	213			129			749			51			227
Income (loss) from continuing operations	(7,232		)	(8,464		)	(10,402		)	5,540			8,055
Loss from discontinued operations (2)	(6,019		)	(13,560		)	(4,548		)	(476		)	—
Net income (loss)	$	(13,251	)	$	(22,024	)	$	(14,950	)	$	5,064		$	8,055
Net income (loss) per share - basic and diluted (1):
Income (loss) from continuing operations	$	(0.14	)	$	(0.15	)	$	(0.18	)	$	0.09		$	0.13
Loss from discontinued operations	(0.11		)	(0.25		)	(0.08		)	(0.01		)	—
Basic and diluted	$	(0.25	)	$	(0.40	)	$	(0.26	)	$	0.09		$	0.13
Balance Sheet Data (as of December 31):
Cash, cash equivalents and short-term investments	$	45,732		$	46,168		$	40,315		$	40,406		$	42,492
Working capital	49,879			41,387			34,286			43,794			53,494
Total assets	107,502			98,879			83,937			105,384			120,232
Total long-term debt	71			—			—			—			—
Total stockholders' equity	64,378			48,702			38,775			47,647			62,530

(1) See Note 2 of Notes to Consolidated Financial Statements of this annual report on Form 10-K for an explanation of the calculation of net income (loss) per share.

(2) During September 2011, we performed an impairment analysis over our long-lived and intangible assets. The impairment analysis identified $4.1 million of impaired goodwill, $2.8 million of impaired acquired software and $0.1 million of impaired acquired trade name, all related to our acquisition of Cloverleaf, Inc. As of December 31, 2011, the goodwill impairment charge, long-lived asset impairment charge and the acquired software impairment charge were recorded as components of discontinued operations. In February 2012, our Board of Directors approved a plan to exit our AssuredUVS business and close down our Israel Technology Development Center. During the second quarter of 2012, we explored the potential sale of the AssuredUVS business, but were unsuccessful in locating a buyer and ended efforts to sell the business or its component assets as of June 30, 2012. Accordingly, during 2012, we recognized an impairment of $0.2 million of property, plant and equipment and $1.6 million for the remaining value of acquired software as a component of discontinued operations.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statement for Forward-Looking Information

Certain statements contained in this annual report on Form 10-K, including statements regarding the development, growth and expansion of our business, our intent, belief or current expectations, primarily with respect to our future operating performance and the products we expect to offer, and other statements regarding matters that are not historical facts, are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and are subject to the “safe harbor” created by these sections. Because such forward-looking statements are subject to risks and uncertainties, many of which are beyond our control, actual results may differ materially from those expressed or implied by such forward-looking statements. Some of the factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements can be found in Part I, Item 1A, “Risk Factors” and elsewhere in this annual report on Form 10-K. Readers are cautioned not to place undue reliance on forward-looking statements. The forward-looking statements speak only as of the date on which they are made, and we undertake no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they are made.

The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and notes thereto included elsewhere in this annual report on Form 10-K.

Overview

We design, manufacture and market a range of storage systems, including hybrid storage arrays, for the entry and mid-range storage markets. We focus on selling through Server-based original equipment manufacturers, or OEMs, such as Hewlett-Packard, or HP, Dell Inc., or Dell, Lenovo Group Limited, or Lenovo, Advanced Micro Devices, Inc., or AMD, and Stratus Technologies, or Stratus; as well as into Vertical Markets through embedded solution OEMs, such as Flextronics, Teradata Corporation, or Teradata, Motorola, Inc., or Motorola, Tektronix Inc., or Tektronix, Samsung Electronics, or Samsung, Concurrent Computer Corporation, or Concurrent, Autodesk Inc., or Autodesk, Imagine Communications and Nokia Siemens Network, or Nokia Siemens, which primarily include media and entertainment, telecommunications, high performance computing, digital image archive, big data and oil and gas.

Typical customers for our storage systems products, which include our AssuredSAN line of storage array products, include organizations requiring high reliability, high performance networked or direct attached storage and data management solutions in an open systems architecture. Most of our sales through our Server OEMs go into the IT infrastructure of companies and organizations to support a wide variety of internal applications, including email, Enterprise Resource Planning, retail transactions and voicemail. On the other hand, much of our product sales into Vertical Markets support the revenue streams of embedded solution partners' end-user customers, such as the central office infrastructure of telco providers, video editing and streaming appliances, and big data analytics solutions. Our storage solutions consist of integrated hardware, firmware and software products employing a modular system that allows end-users to add various protocol, performance, capacity or data protection schemes as needed. Our broad range of products, from small capacity direct attached to complete multi-hundred terabyte, or TB, storage area networks, or SANs, provide end-users with a cost-effective means of addressing increasing storage demands at compelling price-performance points. Our current product family based on our AssuredSAN architecture provides high performance and large disk array capacities with both hard disk drives, or HDDs, and flash-based Solid State Drives, or SSDs, for a broad variety of environments, employing Fibre Channel, Internet Small Computer Systems Interface, or iSCSI, or Serial Attached SCSI, or SAS, interconnects to switches and/or hosts. In addition, our Assured family of data protection software products provides additional layers of data protection options to complement our line of storage disk arrays. Our current mainstream AssuredSAN family of entry-level and mid-range storage products and Just a Bunch of Disks, or JBOD, arrays are targeted primarily at mainstream enterprise and small-to-medium business, or SMB, applications. Some of our AssuredSAN products have been distinguished by certification as Network Equipment Building System, or NEBS, Level 3 (a telecommunications standard for equipment used in central offices) and are MIL-STD-810F (a military standard created by the United States government) compliant based on their ruggedness and reliability.

Our products span Price Bands 2 through 5 as defined by International Data Corporation, or IDC. Our AssuredSAN 3000 Series product addresses the entry level market (bands 2 and 3) and AssuredSAN 4000 and Pro 5000 Series products address the mid-range market (bands 4 and 5). AssuredSAN Pro 4000 and Pro 5000 Series products include RealStor software that incorporates autonomic real-time data tiering via a virtualized back-end. With RealStor, businesses gain the advantage of using very high performance SSDs, to their maximum benefit, while storing less frequently accessed data on larger and much less expensive HDDs. Our AssuredSAN 3000 Series products are typically, but not exclusively, sold through our Server OEM partners, our AssuredSAN 4000 Series products are sold through both Server OEM partners and Vertical Markets partners, and our Pro 5000 Series are typically, but not exclusively, sold through our Vertical Market partners.

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Our agreements with our customers do not contain any minimum purchase commitments and may be terminated at any time upon notice from the applicable customer. Our ability to achieve and maintain profitability will depend on, among other things:

• the level and mix of orders we actually receive from such customers;

• the actual amounts we spend on marketing support;

• the actual amounts we spend for inventory support and incremental internal investment to develop or enhance our products;

• our ability to reduce product cost;

• our product lead time;

• our ability to meet delivery schedules required by our customers; and

• the economic environment.

Our products and services are sold worldwide to facilitate server and SAN storage implementations, primarily through Server OEMs, Vertical Markets partners that include embedded solution OEMs that integrate our products into their solutions, and value-added resellers, or VARs. Our storage system products' Server OEM partners currently include, among others, HP, Lenovo and Stratus, who purchase our AssuredSAN products, and Dell and AMD, who purchase our AssuredVRA products. Our Vertical Markets partners include Flextronics, Teradata, CGG, Motorola, Tektronix, Samsung, Concurrent, Autodesk, Imagine Communications, Quantum and Nokia Siemens. Although our products and services are sold worldwide, the majority of our net revenue is derived from our United States operations.

We began shipping products to HP, currently our largest customer, in the fourth quarter of 2007. In 2008, we amended our agreement with HP to allow for sales of additional products to additional divisions within HP. Our products are primarily sold as HP’s MSA product family. HP launched its third generation product line, called the P2000 product line, in 2010. Sales to HP increased in 2010 as we began selling our next generation host interfaces across the HP P2000 product line. HP launched its fourth generation product line with the introduction of the 2040 line in mid-2013, and extended the portfolio in early 2014 with the 1040 line. In late 2014, HP introduced firmware with the ability of autonomic real time tiering. The agreement with HP does not contain any minimum purchase commitments. In 2011, we extended our supply agreement with HP by five years to expire in October 2016 and also extended the expiration of 1.6 million warrants granted to HP in 2008 to expire concurrently with the supply agreement in October 2016.

The demand for our products has been affected in the past, and may continue to be affected in the future, by various factors, including, but not limited to, the following:

• our ability to maintain and enhance relationships with our Server OEM and Vertical Markets customers, as well as our ability to win new business;

• our ability to source critical components such as integrated circuits, hard disk drives, memory and other components on a timely basis;

• the amount of field failures resulting in product replacements or recalls;

• our ability to launch new products in accordance with OEM specifications, schedules and milestones;

• our ability to sell Dot Hill branded products through resellers;

• our ability to win new Server OEM and Vertical Markets customers who embed our products into their solutions;

• general economic and political conditions and specific conditions in the markets we address, including the continuing volatility in the technology sector, current general economic volatility and trends in the data storage markets in various geographic regions;

• the timing, rescheduling or cancellation of significant customer orders and our ability, as well as the ability of our customers, to manage inventory;

• our customer's product launch timelines and sales cycle; and

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• the inability of certain of our customers who depend on credit to have access to their traditional sources of credit to finance the purchase of products from us, particularly in the current global economic environment, which may lead them to reduce their level of purchases or to seek credit or other accommodations from us.

For these and other reasons, our net revenue and results of operations in 2014 and prior periods may not necessarily be indicative of future net revenue and results of operations.

Our manufacturing strategy includes outsourcing substantially all of our manufacturing to third-party manufacturers in order to reduce sales cycle times and manufacturing infrastructure, enhance working capital and improve margins by taking advantage of the third parties’ manufacturing and procurement economies of scale. In September 2008, we entered into a manufacturing agreement with Foxconn. Under the terms of the agreement, Foxconn supplies us with manufacturing, assembly and test services from its facilities in China and final integration services, including final assembly, testing and configure-to-order services, through its worldwide facilities. In November 2011, we amended our agreement with Foxconn to extend the manufacturing agreement for a period of three years. In addition, Foxconn agreed to waive the requirement for a letter of credit and improved our payment terms. In November 2014, we extended the agreement to March 11, 2015, and in March 2015, we extended the agreement to September 1, 2015. We are currently in negotiations to further extend our contract. If the agreement is not further extended, pursuant to terms in the existing agreement, we can continue to operate with Foxconn for a period of six months following the expiration of the agreement, as the Company may issue purchase orders and Foxconn may accept purchase orders under the terms and conditions of the existing agreement. The majority of our products sold in 2012, 2013 and 2014 were manufactured by Foxconn. We expect Foxconn to manufacture substantially all of our products in 2015.

Cost of goods sold includes costs of materials, subcontractor costs, salary and related benefits for the production and service departments, depreciation and amortization of equipment and intangible assets used in the production and service departments, production facility rent and allocation of overhead as well as manufacturing variances and freight.

Research and development expenses consist primarily of project-related expenses, consulting charges and salaries for employees directly engaged in research and development.

Sales and marketing expenses consist primarily of salaries and commissions, marketing related costs, advertising, customer-related evaluation unit expenses, promotional costs and travel expenses.

General and administrative expenses consist primarily of compensation to officers and employees performing administrative functions, as well as expenditures for legal, accounting and other administrative services and fluctuations in currency valuations. Restructuring charges are aggregated in the general and administrative expenses line item.

Other income (expense), net consists primarily of interest income earned on our cash and cash equivalents and other miscellaneous income and expense items.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are 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 these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the dates of the financial statements and the reported amounts of net revenue and expenses in the reporting periods. We base our estimates on current facts, historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. We evaluate these estimates on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably likely to occur could materially impact the financial statements. We have many accounting policies that require us to make estimates and assumptions - the determination of useful lives of long-lived assets, the valuation of long-lived assets, accruals for restructuring, capitalization of software development costs, contingent liabilities and income taxes, including the valuation allowance for deferred tax assets, and the valuation and recognition of share-based compensation expense. The items listed below are not inclusive of all of our accounting policies but is a listing, identified by management, of those policies which require the most significant judgments and estimates to be made in the preparation of the consolidated financial statements.

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Revenue Recognition

We derive our revenue from sales of our hardware products, software and services.

Hardware

Hardware product revenue consists of revenue from sales of our AssuredSAN storage systems that are integrated with our OEM customers' industry standard hardware and which become essential to the integrated system product. We recognize hardware product revenue when the following fundamental criteria are met: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred; (iii) the price is fixed or determinable; and (iv) collectability is reasonably assured. Revenue is recognized for hardware product sales upon transfer of title and risk of loss to the customer and, in addition, upon installation for certain of our AssuredUVS appliance products. We record reductions to revenue for estimated product returns and pricing adjustments in the same period that the related revenue is recorded. These estimates are based on contractual return rights, historical sales returns, analysis of credit memo data and other factors known at the time. If actual future returns and pricing adjustments differ from past experience and our estimates, additional revenue reserves may be required.

We exclude from revenues taxes collected from customers on behalf of governmental authorities.

Software

In accordance with the specific guidance for recognizing software revenue, where applicable, we recognize revenue from perpetual software licenses at the inception of the license term assuming all revenue recognition criteria have been met. We use the relative fair value method to allocate revenue to software licenses at the inception of the license term when vendor-specific objective evidence, or VSOE, of fair value for all elements related to our products is available. We have established VSOE for the fair value of our software licenses and support services as measured by the prices paid by our customers when the licenses and services are sold separately on a standalone basis. Software revenue represents less than 5% of our net revenue, which could become more significant in future fiscal years.

Specific long-term software contracts may contain multiple deliverables including software licenses, services, training and post-contract support, or PCS, for which we have not established VSOE of fair value of any of the elements.  Under specific guidance for recognizing software revenue, we defer all revenue related to each deliverable until the only undelivered element is PCS. We then begin recognizing revenue ratably over the PCS period.

We defer all the direct and incremental costs related to the deliverables in these contracts until delivery of all the elements except PCS. The deferred costs are then recognized ratably over the contractual PCS support periods as a component of Cost of Goods Sold.

During the preparation of the Company's consolidated financial statements for the year ended December 31, 2012 and the accounting analysis for the renewal of a long-term software contract, the Company determined that it had applied an inappropriate revenue recognition methodology to the contract.  The Company recorded revenue as royalty payments were received on this contract and should have deferred all the revenue and direct and incremental costs until all the deliverables, except PCS, were delivered in 2012.

This was corrected in the fourth quarter of 2012, and the net out-of-period impact of these adjustments was $1.1 million, consisting of a reduction of revenue and research and development costs of $4.2 million and $3.1 million, respectively.Once all elements except PCS were delivered, the related deferred direct and incremental costs began to be recognized ratably over the contractual PCS support period, as a component of Cost of Goods Sold.

Service

Our service revenue primarily includes out-of-warranty repairs and product maintenance contracts. Out-of warranty repairs primarily consist of product repair services performed by our contract manufacturers for those customers that allowed their original product warranty to expire without purchasing one of our higher level support service plans. Revenue from these out-of-warranty repairs, and the associated cost of sales, is recognized in the period these services are provided. Service revenue also consists of product maintenance contracts purchased by our customers as an extension of our standard warranty. Revenue from our product maintenance contracts is deferred and recognized ratably over the contract term, generally12to36months. Net revenue derived from services was less than 10%of total revenue for all periods presented.

Revenue Recognition for Arrangements with Multiple Deliverables

For multi-element arrangements that include hardware products containing software essential to the hardware product’s functionality and undelivered non-software services (all non-software related elements), we allocate the transaction price to all deliverables based on their relative selling prices. In such circumstances, we use a hierarchy to determine the selling price to be

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used for allocating the transaction price to deliverables: (i) VSOE of fair value, (ii) third-party evidence of selling price, or TPE, and (iii) best estimate of the selling price, or ESP. VSOE of fair value generally exists only when we sell the deliverable separately and represents the actual price charged by us for that deliverable. ESPs reflect our best estimates of what the selling prices of the deliverables would be if they were sold regularly on a standalone basis.

Revenue Recognition for Sales to Channel Partners

On sales to channel partners, we evaluate whether fees are considered fixed or determinable by considering a number of factors, including our ability to estimate returns, payment terms and our relationship and past history with the particular channel partner. If fees are not considered fixed or determinable at the time of sale to a channel partner, revenue recognition is deferred until there is persuasive evidence indicating the product has sold through to an end-user. Persuasive evidence of sell-through may include reports from channel partners documenting sell-through activity or data indicating an order has shipped to an end-user.

Deferred Revenue

We defer revenue on upfront nonrefundable payments received from our customers and recognize it ratably over the term of the agreement, unless the payment is in exchange for products delivered that represent the culmination of a separate earnings process. When we provide consideration to a customer, we recognize the value of that consideration as a reduction in net revenue. We may be required to maintain inventory with certain of our largest OEM customers, which we refer to as "hubbing" arrangements. Pursuant to these arrangements we deliver products to a customer or a designated third-party warehouse based upon the customer’s projected needs, but do not recognize product revenue unless and until the customer has taken legal title of our product from the warehouse to incorporate into its end products.

Warranty and Related Obligations

Our standard warranty provides that if our systems do not function to published specifications, we will repair or replace the defective component, system or firmware without charge generally for a period of approximatelythree years. We generally extend to our customers the warranties provided to us by our suppliers, and accordingly, the majority of our warranty obligations to customers are typically intended to be covered by corresponding supplier warranties. For warranty costs not covered by our suppliers, we provide for estimated warranty costs in the period the revenue is recognized. There can be no assurance that our suppliers will continue to provide such warranties to us in the future or that our warranty obligations to our customers will be covered by corresponding warranties from our suppliers, the absence of which could have a material effect on our financial statements. Estimated liabilities for product warranties are included in accrued expenses.

Valuation of Inventories

Inventories are comprised of finished goods and purchased parts and assemblies, which include costs to purchase assembled units and overhead, and are valued at the lower of cost (first-in, first-out method) or market value. The valuation of inventory requires us to estimate excess or obsolete inventory. The determination of excess or obsolete inventory requires us to estimate the future demand for our products. Our customers may require us to purchase and stock material amounts of inventory to ensure availability to meet forecasts, which increases our risk of excess quantities. Because our markets are volatile and are subject to technological risks, price changes and inventory reduction programs by our customers, and because we are required to make last-time buys of certain components on occasion, there is a risk that we will forecast incorrectly and produce excess inventories of particular products or have commitments to purchase excess inventory components from our suppliers. As a result, actual demand will differ from forecasts, and such a difference has in the past and may in the future have a material adverse effect on our gross margin and our results of operations. Any write downs to inventory due to the existence of excess quantities, physical obsolescence, changes in pricing, damage, or other causes result in a new cost basis for the inventory. When we sell or dispose of reserved inventory, the new cost basis is charged to cost of sales. The largest factor affecting the accuracy of our provisions for excess inventories is the accuracy of our forecasts of end-customer demand. The accuracy of our estimates depends in part on the accuracy of the non-binding forecasts we get from our end customers, the accuracy of our own forecast of warranty requirements of our customers, the demand for storage systems in our market segments and the speed at which our products are designed in or out of our customers’ products.

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Results of Operations

The following table sets forth certain items from our statements of operations as a percentage of net revenue for the periods indicated (percentages may not aggregate due to rounding):

	Years Ended December 31,
	2012		2013		2014
Net revenue	100.0	%	100.0	%	100.0	%
Cost of goods sold	75.1		68.0		66.7
Gross profit	24.9		32.0		33.3
Operating expenses:
Research and development	17.6		17.1		17.3
Sales and marketing	7.3		6.5		6.7
General and administrative	5.0		5.6		5.6
Total operating expenses	29.9		29.2		29.5
Operating income (loss)	(5.0	)	2.8		3.8
Other income (expense), net	—		—		—
Income (loss) before income taxes and discontinued operations	(5.0	)	2.8		3.8
Income tax expense	0.4		—		0.1
Income (loss) from continuing operations	(5.4	)	2.8		3.7
Loss from discontinued operations	(2.3	)	(0.2	)	—
Net income (loss)	(7.7	)%	2.6	%	3.7	%

Year EndedDecember 31, 2013 Compared to the Year EndedDecember 31, 2014

Net Revenue

	Year Ended December 31,
	2013				2014
	Amount		% of Net Revenue		Amount		% of Net Revenue		Increase (Decrease)			% Change
	(in thousands, except percentages)
Net Revenue:
Server OEM	$	134,798	65.3	%	$	115,580	53.1	%	$	(19,218	)	(14.3	)%
Vertical Markets	71,767		34.7		102,085		46.9		30,318			42.2
Consolidated Net Revenue	$	206,565	100.0	%	$	217,665	100.0	%	$	11,100		5.4	%

Revenues from our largest Server OEM customer declined from approximately 59% of our consolidated net revenue for the year ended December 31, 2013 to approximately 47% of our consolidated net revenue for the year ended December 31, 2014. We expect sales to this customer as a percentage of consolidated net revenue to continue to decline, but to continue to represent a substantial portion of our Server OEM net revenue during 2015.

Net revenue from the Vertical Markets segment increased primarily due to a ramp in sales to existing and new Vertical Markets customers. The ramp in sales was due to a combination of factors, including additional demand for our existing product line and the addition of our higher density chassis options. We expect the growth trend in sales to Vertical Markets to continue during 2015.

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Cost of Goods Sold

	Year Ended December 31,
	2013				2014
	Amount		% of Net Revenue		Amount		% of Net Revenue		Increase (Decrease)			% Change
	(in thousands, except percentages)
Cost of Goods Sold:
Server OEM	$	99,264	48.1	%	$	86,369	39.7	%	$	(12,895	)	(13.0	)%
Vertical Markets	41,231		20.0		58,721		27.0		17,490			42.4
Consolidated Cost of Goods Sold	$	140,495	68.0	%	$	145,090	66.7	%	$	4,595		3.3	%

Server OEM cost of goods sold decreased largely as a result of the decrease in revenue from Server OEM customers during the year ended December 31, 2014. In addition, Server OEM cost of goods sold did not decrease at the same rate as Server OEM revenue due to the relatively fixed overhead costs being allocated to lower revenue.

Vertical Markets cost of goods sold increased mainly as a result of the increase in Vertical Markets revenue during the year ended December 31, 2014.

Gross Profit

	Year Ended December 31,
	2013				2014
	Amount		% of  Segment Net Revenue		Amount		% of  Segment Net Revenue		Increase (Decrease)			% Change
	(in thousands, except percentages)
Gross Profit:
Server OEM	$	35,534	26.4	%	$	29,211	25.3	%	$	(6,323	)	(17.8	)%
Vertical Markets	30,536		42.5		43,364		42.5		12,828			42.0
Consolidated Gross Profit	$	66,070	32.0	%	$	72,575	33.3	%	$	6,505		9.8	%

The primary drivers of the decrease in Server OEM gross profit margin were the mix of product sales and the increased warranty costs, in addition to relatively fixed overhead costs being allocated to lower revenue.

Vertical Markets gross profit margin was consistent year over year, with the benefits of allocating relatively fixed overhead costs to higher revenues being offset by changes in product and customer mix.

Consolidated gross profit margin increased due to increase in higher margin Vertical Markets business revenue.

Research and Development Expenses

	Year Ended December 31,
	2013				2014
	Amount		% of Net Revenue		Amount		% of Net Revenue		Increase (Decrease)		% Change
	(in thousands, except percentages)
Research and Development Expenses	$	35,332	17.1	%	$	37,645	17.3	%	$	2,313	6.5	%

Research and development expenses are included in the Corporate segment and are not allocated between the Server OEM and Vertical Markets segments as most research and development efforts are deployed across both of these segments. The increase in research and development expenses was due to a combination of an increase in compensation expense of $1.4 million, with associated increases in share-based compensation expense of $0.2 million, travel expenses of $0.1 million and allocated common costs of $0.4 million, due to an increase in headcount necessary to support the research and development function. This increase was partially offset by capitalization of software development costs of $1.2 million. In addition, there was an increase of $0.6 million in project spend expenses to support new product releases, as well as an increase in depreciation and other expenses of $0.4 million. The increase was also due to the research and development expenses for the year ended December 31, 2013 including a non-recurring deferral of $0.4 million related to a certain software contract.

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We expect that the timing of our engineering headcount requirements and material purchases to support new product releases will affect the amount of research and development expenses in future periods. In addition, we expect that future levels of capitalized software development costs will fluctuate significantly dependent upon the type of software development projects undertaken.

Sales and Marketing Expenses

	Year Ended December 31,
	2013				2014
	Amount		% of Net Revenue		Amount		% of Net Revenue		Increase (Decrease)			% Change
	(in thousands, except percentages)
Sales and Marketing Expenses:
Server OEM	$	2,070	1.0	%	$	2,120	1.0	%	$	50		2.4	%
Vertical Markets	8,755		4.2		9,777		4.5		1,022			11.7
Corporate	2,625		1.3		2,608		1.2		(17		)	(0.6	)
Consolidated Sales and Marketing Expenses	$	13,450	6.5	%	$	14,505	6.7	%	$	1,055		7.8	%

Server OEM sales and marketing expense was relatively consistent year over year.

Vertical Markets sales and marketing expense rose due to an increase of $0.5 million in compensation expense due to additional headcount, and an increase of $0.3 million in marketing expenses, as well as an increase of $0.2 million in related travel expenses, which rose in the year ended December 31, 2014 as a result of new product introductions.

Corporate sales and marketing expense was consistent year over year.

General and Administrative Expenses

	Year Ended December 31,
	2013				2014
	Amount		% of Net Revenue		Amount		% of Net Revenue		Increase (Decrease)		% Change
	(in thousands, except percentages)
General and Administrative Expenses	$	11,658	5.6	%	$	12,122	5.6	%	$	464	4.0	%

General and administrative expenses are included in the Corporate segment. General and administrative expenses increase was primarily due to the accrual of a loss contingency of $1.0 million. For a discussion of the loss contingency, refer to Note 12 of the Consolidated Financial Statements of this annual report on Form 10-K. In addition, the increase is partially due to a $0.7 million increase in legal and other professional fees. These increases were partially offset by a $0.6 million decrease in compensation expense, a $0.4 million decrease in foreign currency losses and a $0.2 decrease in bank charges for the year ended December 31, 2014.

Other Income (Expense), net

	Year Ended December 31,
	2013					2014
	Amount			% of Net Revenue		Amount			% of Net Revenue		(Increase) Decrease		% Change
	(in thousands, except percentages)
Other Income (Expense), net	$	(39	)	—	%	$	(21	)	—	%	$	18	46.2	%

Other income (expense), net consists of interest income on our cash and cash equivalents, interest expense related to our note payable and other miscellaneous items.

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Income Taxes

We recorded an income tax expense of $0.1 million for the year ended December 31, 2013 and an income tax expense of $0.2 million for the year ended December 31, 2014. Our current year provision primarily relates to estimated liabilities relating to certain tax expense in certain states and foreign jurisdictions in which we operate, offset partially by a favorable adjustment to settlements for tax liabilities owed to certain foreign jurisdictions.

Loss From Discontinued Operations

	Year Ended December 31,
	2013					2014
	Amount			% of Net Revenue		Amount		% of Net Revenue		(Increase) Decrease		% Change
	(in thousands, except percentages)
Loss From Discontinued Operations	$	(476	)	(0.2	)%	$	—	—	%	$	476	(100.0	)%

Loss from discontinued operations for the year ended December 31, 2013 was limited to the continued support of certain maintenance contracts entered into prior to the Company's decision in the first quarter of 2012 to close down our Israel Technology Center and exit our AssuredUVS business. See Note 3 to the Consolidated Financial Statements of this annual report on Form 10-K for more details regarding our discontinued operations.

Year EndedDecember 31, 2012 Compared to the Year EndedDecember 31, 2013

Net Revenue

	Year Ended December 31,
	2012				2013
	Amount		% of Net Revenue		Amount		% of Net Revenue		Increase (Decrease)			% Change
	(in thousands, except percentages)
Net Revenue:
Server OEM	$	143,353	73.7	%	$	134,798	65.3	%	$	(8,555	)	(6.0	)%
Vertical Markets	51,195		26.3		71,767		34.7		20,572			40.2
Consolidated Net Revenue	$	194,548	100.0	%	$	206,565	100.0	%	$	12,017		6.2	%

Revenue from our largest Server OEM customer declined from approximately 68% of our consolidated net revenue for the year ended December 31, 2012 to approximately 59% of our consolidated net revenue for the year ended December 31, 2013. During the fourth quarter of 2013, as a result of amending our agreement with a large OEM customer, we granted them more favorable payment terms commencing in October 2013, and granted an additional but smaller increase in payment terms in June 2014. In return for this concession, the customer awarded the Company two additional product or feature development programs and committed to purchase products to approximately their forecasted levels for the fourth quarter of 2013 as at the time of the execution of the contract amendment. In the fourth quarter of 2013, sales to this customer were a little higher than their contractual commitments for the quarter, partially offsetting the decrease in sales volume.

During the preparation of the Company's consolidated financial statements for the year ended December 31, 2012 and the accounting analysis for the renewal of a long-term software contract, the Company determined that it had applied an inappropriate revenue recognition methodology to the contract.  The Company recorded revenue as royalty payments were received on this contract and should have deferred all the revenue and direct and incremental costs until all the deliverables, except PCS, were delivered in 2012.

This was corrected in the fourth quarter of 2012, and the net out-of-period impact of these adjustments was $1.1 million, consisting of a reduction of revenue and research and development costs of $4.2 million and $3.1 million, respectively.

Vertical Markets increase in net revenue was primarily due to a ramp in sales to new and existing Vertical Markets customers. The ramp in sales was due to increased demand for our product lines and focused efforts on developing sales to Vertical Markets including the Big Data/Data Analytics, Media and Entertainment and telco providers sectors.

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Cost of Goods Sold

	Year Ended December 31,
	2012				2013
	Amount		% of Net Revenue		Amount		% of Net Revenue		Increase (Decrease)			% Change
	(in thousands, except percentages)
Cost of Goods Sold:
Server OEM	$	112,670	57.9	%	$	99,264	48.1	%	$	(13,406	)	(11.9	)%
Vertical Markets	33,507		17.2		41,231		20.0		7,724			23.1
Consolidated Cost of Goods Sold	$	146,177	75.1	%	$	140,495	68.0	%	$	(5,682	)	(3.9	)%

Server OEM cost of goods sold decreased primarily as a result of the decrease in revenue from customers during the year. In addition, Server OEM cost of goods sold decreased due to a more favorable customer and product mix, greater supply chain efficiencies, component cost reductions, the absence of specific non-recurring charges to cost of goods sold in the year ended December 31, 2013 and decreased warranty related costs.

Vertical Markets cost of goods sold increased primarily as a result of the increase in revenue during the year ended December 31, 2013 and specific nonrecurring charges to Vertical Markets cost of goods sold in the year ended December 31, 2013, which was partially offset by greater supply chain efficiencies, component cost reductions and decreased warranty related costs.

Gross Profit

	Year Ended December 31,
	2012				2013
	Amount		% of  Segment Net Revenue		Amount		% of  Segment Net Revenue		Increase (Decrease)		% Change
	(in thousands, except percentages)
Gross Profit:
Server OEM	$	30,683	21.4	%	$	35,534	26.4	%	$	4,851	15.8	%
Vertical Markets	17,688		34.6		30,536		42.5		12,848		72.6
Gross Profit	$	48,371	24.9	%	$	66,070	32.0	%	$	17,699	36.6	%

The increase in Server OEM gross profit margin was driven by the benefits from the absence of specific non-recurring charges to Server OEM cost of goods sold in the year ended December 31, 2013, a more favorable customer and product mix, as well as greater supply chain efficiencies, component cost reductions and decreased warranty related costs. The decrease in warranty related costs reflects our negotiation of more favorable rates with a third-party service provider during the first quarter of 2013. Accordingly, we adjusted our warranty accrual by $0.8 million to reflect this change.

The increase in Vertical Markets gross profit margin was due to the benefits from greater supply chain efficiencies, component cost reductions, decreased warranty related costs and a greater revenue base across which to spread certain overhead charges.

Research and Development Expenses

	Year Ended December 31,
	2012				2013
	Amount		% of Net Revenue		Amount		% of Net Revenue		Increase (Decrease)		% Change
	(in thousands, except percentages)
Research and Development Expenses	$	34,199	17.6	%	$	35,332	17.1	%	$	1,133	3.3	%

Research and development expenses are included in the Corporate segment and are not allocated between the Server OEM and Vertical Markets segments as most research and development efforts are deployed across both of these segments. The increase in research and development expenses was primarily due to the fact that in 2012, the Company deferred $3.6 million in direct and incremental engineering costs related to a long-term customer software contract (see Note 1 to the Consolidated Financial Statements of this annual report on Form 10-K). In addition, allocable costs increased $0.6 million.

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This increase was partially offset by a $1.5 million decrease in project materials, test equipment and tooling expense, a $0.7 million decrease in share-based compensation expense, and a $0.6 million decrease to consultant fees.

The increase in allocated costs is due to increased headcount and equipment necessary to support the research and development function. The decrease in project materials, test equipment and tooling expense resulted from the scheduling and timing of new product development. The decrease in share-based compensation expense is due to an overall decline in the value of unvested options and awards, driven by a lower share price on grant date and increased use of options versus unvested stock awards.

We expect that the timing of our engineering material purchases and additional headcount requirements to support new product releases will affect the amount of research and development expenses in future periods.

Sales and Marketing Expenses

	Year Ended December 31,
	2012				2013
	Amount		% of Net Revenue		Amount		% of Net Revenue		Increase (Decrease)			% Change
	(in thousands, except percentages)
Sales and Marketing Expenses:
Server OEM	$	1,965	1.0	%	$	2,070	1.0	%	$	105		5.3	%
Vertical Markets	9,830		5.1		8,755		4.2		(1,075		)	(10.9	)
Corporate	2,338		1.2		2,625		1.3		287			12.3
Consolidated Sales and Marketing Expenses	$	14,133	7.3	%	$	13,450	6.5	%	$	(683	)	(4.8	)%

Server OEM sales and market expense increased slightly for the year ended December 31, 2013 as compared to the year ended December 31, 2012 due to increased compensation related expenses.

Vertical Markets sales and marketing expense decreased primarily due to a decrease in evaluation unit expenses of $0.7 million and a decrease in other marketing expenses of $0.4 million, both of which were higher in the year ended December 31, 2012 as a result of new product introduction.

Corporate sales and marketing expenses increase was primarily due to increased participation in trade shows and industry events.

General and Administrative Expenses

	Year Ended December 31,
	2012				2013
	Amount		% of Net Revenue		Amount		% of Net Revenue		Increase (Decrease)		% Change
	(in thousands, except percentages)
General and Administrative Expenses	$	9,695	5.0	%	$	11,658	5.6	%	$	1,963	20.2	%

General and administrative expenses are included in the Corporate segment. General and administrative expenses increase was partially due to a $0.9 million increase in compensation expense for the hiring of key administrative personnel, as well as increased bonus accruals. Professional fees also increased by $0.5 million as a result of an increase in special projects performed by one of our service providers. Bank charges increased by $0.3 million due to a realignment between expense categories in 2013.

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Other Income (Expense), net

	Year Ended December 31,
	2012				2013
	Amount		% of Net Revenue		Amount			% of Net Revenue		Increase (Decrease)			% Change
	(in thousands, except percentages)
Other Income (Expense), net	$	3	—	%	$	(39	)	—	%	$	(42	)	1,400.0	%

Other income (expense), net consists of interest income on our cash and cash equivalents, interest expense related to our note payable and other miscellaneous items.

Income Taxes

We recorded an income tax provision of $0.7 million for the year ended December 31, 2012 and an income tax provision of $0.1 million for the year ended December 31, 2013. Our provision primarily relates to estimated liabilities relating to certain tax positions involving our foreign subsidiaries that have not been concluded with the relevant taxing authority. The decrease from the prior year is a result of expense related to unrecognized tax positions that did not recur in 2013.

Loss From Discontinued Operations

	Year Ended December 31,
	2012					2013
	Amount			% of Net Revenue		Amount			% of Net Revenue		(Increase) Decrease		% Change
	(in thousands, except percentages)
Loss From Discontinued Operations	$	(4,548	)	(2.3	)%	$	(476	)	(0.2	)%	$	4,072	(89.5	)%

The decline in loss from discontinued operations was primarily driven by the Company's decision in the first quarter of 2012 to close down our Israel Technology Center and exit out of our AssuredUVS business. See Note 3 to the Consolidated Financial Statements of this annual report on Form 10-K for more details regarding our discontinued operations.

Liquidity and Capital Resources

The primary drivers affecting cash and liquidity are net income (loss), working capital requirements and capital expenditures. Historically, the payment terms we have had to offer our customers have been relatively similar to the terms received from our suppliers. If our net revenue increases, it is likely that our accounts receivable balance will also increase. Conversely, if our net revenue decreases, it is likely that our accounts receivable will also decrease. Our accounts receivable could increase if customers, such as large OEM customers, delay their payments, or if intra quarter timing of revenues is back-end loaded within a particular quarter. During the fourth quarter of 2013, we increased payment terms to a large OEM customer. We granted an additional but smaller increase in payment terms to the same OEM customer commencing in the second quarter of 2014. While this did delay collection of our accounts receivable and correspondingly reduce cash, our net working capital was not impacted. In addition, we expect our cash to be impacted in the future due to increases in inventory related to a ramp in sales to new or existing customers. In March 2015, we agreed to shorten our payment terms to our primary contract manufacturer which will reduce our cash, but our net working capital will not be impacted. Our accounts payable may also increase or decrease in connection with changes in volumes as well as our cash conservation strategies. In connection with our contingent liabilities, our cash could be impacted to the extent we incur settlements, fines, penalties or judgments in connection with some of these matters. Refer to Note 12 of the Consolidated Financial Statements of this annual report on Form 10-K.

As of December 31, 2014, we had $42.5 million of cash and cash equivalents and $53.5 million of working capital compared to $40.4 million of cash and cash equivalents and $43.8 million of working capital as of December 31, 2013. The changes in cash and cash equivalents are further described below.

Cash equivalents include highly liquid investments purchased with original maturities of 90 days or less and consist principally of money market funds. As of December 31, 2014, $3.0 million of the $42.5 million of cash and cash equivalents was held by our foreign subsidiaries. We currently intend to repatriate approximately $2.0 million of our cash and cash equivalents when we close down our Netherlands subsidiary during 2015. We obtained a favorable ruling from the Netherlands and will not be charged foreign taxes on the repatriation and we expect that our net operating loss carryforwards and foreign tax credits will be available to offset any United States tax liability, should one arise. We anticipate that future foreign earnings will

45

be deemed to be permanently reinvested, although we could elect to repatriate funds held in one or more foreign jurisdictions. If applicable, withholding taxes could reduce the net amount repatriated, and we could be required to accrue and remit applicable United States income taxes to the extent a tax liability results after utilization of net operating loss carryforwards and available tax credits.

Operating Activities

Net cash provided by operating activities for the year ended December 31, 2014 was $6.7 million compared to $4.1 million for the year ended December 31, 2013. The operating activities that affected cash were primarily net income (loss), which totaled $8.1 million and $5.1 million for the years ended December 31, 2014 and 2013, respectively, in addition to the factors discussed below.

The adjustments to reconcile net income to net cash provided by operating activities for the year ended December 31, 2014 for items that did not affect cash consisted of depreciation and amortization of $4.0 million and share-based compensation expense of $3.1 million.

Cash flows from operations reflect the positive impact of $3.0 million related to the increase in accounts payable for the year ended December 31, 2014, driven by higher inventory purchases due to increased sales volumes. However, due to higher levels of cost of goods sold, our days payable outstanding decreased from 74 days at December 31, 2013 to 72 days at December 31, 2014. Deferred revenue had a $1.1 million positive impact to cash from operations during the year ended December 31, 2014 due to an increase in prepaid maintenance agreements sold through our channel partners, and the deferral of revenue for certain software contracts, to be recognized over the contract terms.

Cash flows from operations reflect the negative impact of $0.9 million, related to an increase in accounts receivable during the year ended December 31, 2014, which was primarily due to significantly higher overall revenues in the fourth quarter of 2014 relative to the fourth quarter of 2013, partially offset by an increase in sales returns reserve also due to higher overall revenues in the fourth quarter of 2014. Days sales outstanding declined from 67 days at December 31, 2013 to 63 days at December 31, 2014 despite the increase in overall accounts receivable balance, reflecting the intra quarter timing of revenues. The increase in inventory for the year ended December 31, 2014 had a $4.8 million negative impact on cash flows from operations, primarily related to the increase in sales and ramping of certain customers. Cash flows from operations also reflects the negative impact of $3.7 million related to an overall increase in prepaid expenses and other assets at December 31, 2014, which was primarily due to increases in non-trade accounts receivable and certain other annual prepaid contracts, as well as the negative impact of $1.5 million related to an overall increase in other long-term liabilities, primarily due to the accrual of a legal settlement. Accrued compensation and other expenses negatively impacted the cash from operations by $1.8 million for the year ended December 31, 2014 due primarily to the payment of accrued bonuses during the first half of 2014.

Investing Activities

Cash used in investing activities for the year ended December 31, 2014 was approximately $6.1 million compared to $3.6 million for the year ended December 31, 2013. Cash used in investing activities for the year ended December 31, 2014 was due to test and other equipment used in internal laboratories and at our contract manufacturing partners for use in the production of our products and also the capitalization of costs associated with software development.

Financing Activities

Cash provided by financing activities for the year ended December 31, 2014 was approximately $1.6 million compared to insignificant amounts for the year ended December 31, 2013. Cash provided by financing activities for the year ended December 31, 2014 was primarily due to the sale of stock to employees under our employee stock plans of approximately $3.7 million. The increase in proceeds from the sale of stock to employees under our employee stock plans is due to favorable stock prices enticing more employees to exercise their options. This was partially offset by a pay-down of our borrowings on our credit facility of $2.0 million and tax liability payments of $0.1 million made by Dot Hill associated with employee equity awards.

Based on current macro-economic conditions and conditions in the state of the data storage systems markets, our own organizational structure and our current outlook, we presently expect our cash and cash equivalents will be sufficient to fund our operations, working capital and capital requirements for at least the next 12 months. However, we may deem it necessary to invest in our business, our technologies or other businesses, in which case we may need to raise additional funds through debt or equity financing. Also, our capital resources could be negatively impacted by unforeseen future events.

The actual amount and timing of working capital and capital expenditures that we may incur in future periods may vary significantly and will depend upon numerous factors, including the intra quarter timing and overall levels of net revenue and expenditures from our core business and strategic investments, the overall level of net profits or losses, our ability to manage

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our relationships with our contract manufacturers, the potential growth or decline in inventory to support our customers, costs associated with product quality issues and the recovery, if any, of such costs from a supplier, the status of our relationships with key customers, partners and suppliers, the timing and extent of the introduction of new products and services, growth in operations, legal settlements and the economic environment. In addition, the actual amount and timing of working capital will depend on our ability to maintain payment terms with our suppliers consistent with the credit terms of our customers. For example, if Foxconn, our major contract manufacturing partner, were to further shorten our payment terms with them, or if significant customers were to further lengthen their payment terms with us, our financial condition could be negatively impacted.

We maintain a credit facility with Silicon Valley Bank for cash advances and letters of credit of up to an aggregate of$30.0 millionbased upon an advance rate dependent on certain concentration limits within eligible accounts receivable. These limitations exclude certain eligible customer receivables if an individual customer account balance exceeds 25, 50 or 85 percentof the total eligible accounts receivable, depending on the customer, as defined by our Loan and Security Agreement with Silicon Valley Bank. Borrowings under the credit facility bear interest at the Silicon Valley Bank's prime rate, which was4.0% at December 31, 2014, and are secured by substantially all of our accounts receivable, deposit and securities accounts. The agreement provides for a negative pledge on our inventory and intellectual property, subject to certain exceptions, and contains usual and customary covenants for an arrangement of its type, including an obligation that we maintain at all times a net worth, as defined in the agreement. As of December 31, 2014, the Company had significant coverage with regard to this covenant. The agreement also includes provisions to increase the financing facility by$20.0 millionsubject to our meeting certain requirements, including$40.0 millionin borrowing base for the immediately preceding90 days, and Silicon Valley Bank locating a lender willing to finance the additional facility. In addition, if our cash and cash equivalents net of the total amount outstanding under the credit facility fall below$20.0 million(measured on a rolling three-month basis), the interest rate will increase to the Silicon Valley Bank's prime rate plus1.0%and additional restrictions will apply. The maturity date of the credit facility is July 21, 2017.

As ofDecember 31, 2014we hadnooutstanding letters of credit and there waszerooutstanding under the Silicon Valley Bank line of credit. There was $30.0 million available for borrowing under the agreement as of December 31, 2014. We are currently in compliance with all covenant requirements.

Contractual Obligations

The following table summarizes our contractual obligations as of December 31, 2014 (in thousands).

	Total		2015		2016		2017		2018		2019		Thereafter
Operating lease obligations	$	2,942	$	873	$	849	$	860	$	360	$	—	$	—
Inventory-related purchase obligations	47,440		47,440		—		—		—		—		—
Credit facility borrowings	—		—		—		—		—		—		—
Total	$	50,382	$	48,313	$	849	$	860	$	360	$	—	$	—

We lease office space, equipment and automobiles under non-cancelable operating leases, which expire at various dates through May 2018. For purposes of the table above, the operating lease obligations exclude common area maintenance, real estate taxes and insurance expenses.

Inventory related purchase obligations represent contractual purchase commitments to our suppliers for certain components in order to ensure supply of select key components at the most favorable pricing.

In addition to the amounts shown in the table above, $0.6 million of unrecognized tax benefits have been recorded as liabilities, and we are uncertain as to if or when such amounts may be settled.

Off — Balance Sheet Arrangements

At December 31, 2014, we did not have any relationship with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance variable interest, or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we did not engage in trading activities involving non-exchange traded contracts. As a result, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships. We do not have relationships and

47

transactions with persons and entities that derive benefits from their non-independent relationship with us or our related parties except as disclosed herein.

We enter into indemnification agreements with third parties in the ordinary course of business that generally require us to reimburse losses suffered by the third party due to various events, such as lawsuits arising from patent or copyright infringement. These indemnification obligations are considered off-balance sheet arrangements under accounting guidance. It is not possible to determine the maximum potential exposure under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Such indemnification agreements may not be subject to maximum loss clauses. Historically, we have not incurred material costs as a result of obligations under these agreements.

Recent Accounting Pronouncements

Please see Note 1 of the Notes to Consolidated Financial Statements of this annual report on Form 10-K.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

We place our cash equivalents with high-credit-quality financial institutions, investing primarily in money market accounts. We have established guidelines relative to credit ratings, diversification and maturities that seek to maintain safety and liquidity. Our investment strategy generally results in lower yields on investments but reduces the risk to principal in the short term prior to these funds being invested in our business. Our interest income is sensitive to changes in the general level of interest rates. In this regard, changes in interest rates can affect the interest earned on our cash equivalents. A 10% unfavorable change in the interest rate would not materially impact our December 31, 2014 financial statements.

We have a line of credit agreement, which accrues interest on any outstanding balances at the Silicon Valley Bank's prime rate. As of December 31, 2014, there was zero outstanding under this line. As we make borrowings under this line, we are exposed to interest rate risk on such debt.

Indicated changes in interest rates are based on hypothetical movements and are not necessarily indicative of the actual results that may occur. Future earnings and losses will be affected by actual fluctuations in interest rates.

Foreign Currency Exchange Rate Risk

We conduct a portion of our business in currencies other than the United States Dollar, the currency in which our Consolidated Financial Statements are reported. The most significant foreign currencies that subjected us to foreign currency exchange rate risk for the year ended December 31, 2014 were the Euro, British Pound, and the Japanese Yen. Correspondingly, our operating results could be adversely affected by foreign currency exchange rate volatility relative to the United States Dollar. Additionally, if we liquidate any of our foreign subsidiaries, our cumulative translation adjustment recorded in Other Comprehensive Income would be required to be reclassified into earnings. The Company currently anticipates liquidation of its Netherlands operating unit during early 2015. The Netherlands operating unit currently has no active operations. Cumulative translation losses related to the Netherlands operating unit of approximately $2.7 million would be reclassified from Other Comprehensive Income (Loss) to Operating Income (Loss). Although we continue to evaluate strategies to mitigate risks related to the effect of fluctuations in currency exchange rates, we will likely continue to recognize gains or losses from international transactions and foreign currency changes. Although foreign currency transaction gains and losses have not historically been material, we incurred $0.1 million in foreign currency losses during the year ended December 31, 2014. Future changes in foreign currency rates could adversely impact our financial statements. A 10% unfavorable change in exchange rates would result in foreign currency losses of approximately $0.1 million.

Item 8. Financial Statements and Supplementary Data

The information required by this Item is incorporated by reference from the financial statements beginning on page F-1 of this annual report on Form 10-K.

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Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Based on management’s evaluation (with the participation of our chief executive officer and chief financial officer), as of the end of the period covered by this report, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act), are effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fourth quarter of 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of consolidated financial statements for external purposes in accordance with United States generally accepted accounting principles.

Management assessed our internal control over financial reporting as of December 31, 2014, the end of our fiscal year. Management based its assessment on criteria established by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013 framework). Management’s assessment included evaluation of elements such as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and our overall control environment.

Based on our assessment, management has concluded that our internal control over financial reporting was effective as of the end of the fiscal year to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external reporting purposes in accordance with United States generally accepted accounting principles.

Our independent registered public accounting firm, Deloitte and Touche LLP, independently assessed the effectiveness of the company’s internal control over financial reporting, as stated in their attestation report, which is included at the end of Part II of this Form 10-K.

49

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Dot Hill Systems Corp. and Subsidiaries

Longmont, Colorado

We have audited the internal control over financial reporting of Dot Hill Systems Corp. and Subsidiaries (the "Company") as of December 31, 2014, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission . The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying "Management's Report on Internal Control Over Financial Reporting". Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2014 of the Company and our report dated March 11, 2015 expressed an unqualified opinion on those financial statements.

/s/ Deloitte & Touche LLP

Denver, Colorado

March 11, 2015

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Item 9B. Other Information

None.

Part III

Item 10. Directors, Executive Officers and Corporate Governance

Some of the information required by this item is incorporated by reference to our Definitive Proxy Statement to be filed with the SEC pursuant to Regulation 14A in connection with our 2015 annual meeting of stockholders under the headings “Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance.” Other information required by this item is incorporated by reference to Item 1 of Part I of this annual report on Form 10-K under the heading “Named Executive Officers and Key Employees of the Registrant.”

We have adopted a code of ethics that applies to our principal executive officer and principal financial officer, who is also our principal accounting officer. This code of ethics is incorporated in our code of business conduct and ethics that applies to all of our officers, directors and employees. A copy of our code of business conduct and ethics is available on our website at www.dothill.com. We intend to satisfy the SEC’s disclosure requirements regarding amendments to, or waivers of, the code of business conduct and ethics by posting such information on our website. A paper copy of our code of business conduct and ethics may be obtained free of charge by writing to our Investor Relations Department at our principal executive office.

Item 11. Executive Compensation

The information required by this item is incorporated by reference to our Definitive Proxy Statement to be filed with the SEC pursuant to Regulation 14A in connection with our 2015 annual meeting of stockholders under the headings “Executive Compensation,” “Compensation Committee Report” and “Compensation Committee Interlocks and Insider Participation.”

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information under the heading “Security Ownership of Certain Beneficial Owners and Management” in our Definitive Proxy Statement to be filed with the SEC pursuant to Regulation 14A in connection with our 2015 annual meeting of stockholders is incorporated by reference.

Securities Authorized for Issuance Under Equity Compensation Plans

The following table sets forth our equity securities authorized for issuance under equity compensation plans as of December 31, 2014.

Stock Plan	Number of Securities to be Issued Upon Exercise of Outstanding Options and Rights	Weighted Average Exercise Price of Outstanding Options and Rights		Number of Securities Remaining Available for Future Issuance
2000 Equity Incentive Plan	2,178,746	$	3.48	—
2009 Equity Incentive Plan	7,124,198	$	2.41	7,814,281
2000 Employee Stock Purchase Plan	Not Applicable	Not Applicable		—
2014 Employee Stock Purchase Plan	Not Applicable	Not Applicable		3,803,519
2000 Non-Employee Directors Stock Option Plan	650,000	$	2.44	243,124
Total	9,952,944			11,860,924

All of our equity compensation plans have been approved by our stockholders.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by this item is incorporated by reference to our Definitive Proxy Statement to be filed with the SEC pursuant to Regulation 14A in connection with our 2015 annual meeting of stockholders under the headings “Election of Director(s),” “Transactions with Related Persons” and “Policies and Procedures with Respect to Related Party Transactions.”

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Item 14. Principal Accounting Fees and Services

The information required by this item is incorporated by reference to our Definitive Proxy Statement to be filed with the SEC pursuant to Regulation 14A in connection with our 2015 annual meeting of stockholders under the heading “Ratification of Selection of Independent Auditors.”

Item 15. Exhibits, Financial Statement Schedules

The following documents are filed as part of this report:

(1) Financial statements:

The consolidated balance sheets as of December 31, 2013 and 2014, and the consolidated statements of operations and comprehensive loss, stockholders’ equity and cash flows for the years ended December 31, 2012, 2013 and 2014, together with notes thereto included elsewhere in this annual report on Form 10-K are incorporated herein by reference.

(2) All other schedules have been omitted from this annual report on Form 10-K because they are not applicable or because the information required by any applicable schedule is included in the consolidated financial statements or the notes thereto.

(3) Exhibits:

Exhibit Number	Description
2.1	Agreement and Plan of Merger dated as of February 23, 2004, by and among Dot Hill Systems Corp., DHSA Corp., Chaparral Network Storage, Inc., and C. Timothy Smoot, as Stockholders' Representative. (1)
2.2	Amended and Restated Asset Purchase and Technology License Agreement dated September 17, 2008 by and between Dot Hill Systems Corp. and Ciprico Inc. (2)
3.1	Certificate of Incorporation of Dot Hill Systems Corp. (3)
3.2	Amended and Restated By-laws of Dot Hill Systems Corp. (4)
4.1	Form of Common Stock Certificate. (5)
4.2	Certificate of Designation of Series A Junior Participating Preferred Stock, as filed with the Secretary of State of Delaware on May 19, 2003. (6)
4.3	Warrant to Purchase Shares of Common Stock dated January 4, 2008. (8)
10.1	2000 Amended and Restated Equity Incentive Plan. (9)†
10.2	2009 Equity Incentive Plan, as amended. (29)†
10.3	Form of Stock Option Agreement (Incentive and Non-statutory Stock Options) used in connection with the 2000 Amended and Restated Equity Incentive Plan. (9)†
10.4	Form of Stock Option Grant Notice used in connection with the 2000 Amended and Restated Equity Incentive Plan. (9)†
10.5	Amended and Restated 2000 Employee Stock Purchase Plan. (10)†
10.6	Amended and Restated 2000 Non-Employee Directors' Stock Option Plan. (11)†
10.7	Form of Stock Option Agreement used in connection with the 2000 Non-Employee Directors' Stock Option Plan.(12)†
10.8	Amended and Restated Employment Agreement between Dot Hill Systems Corp. and Dana Kammersgard, effective as of December 18, 2008. (13)†
10.9	Amended and Restated Employment Agreement between Dot Hill Systems Corp. and Hanif I. Jamal, effective as of March 16, 2009. (27)†
10.10	Non-Employee Director Compensation Policy. (15)†
10.11	Form of Indemnity Agreement. (16)
10.12	Lease Agreement by and between Dot Hill Systems Corp. and Equastone 2200 Faraday, LLC effective as of September 1, 2005 and dated as of September 16, 2005. (17)
10.13	Lease Agreement by and between Dot Hill Systems Corp. and Circle Capital Longmont LLC as of April 12, 2007.(18)

52

10.14	Loan and Security Agreement dated August 1, 2008 by and between Dot Hill Systems Corp. and Silicon Valley Bank. (19)
10.15	Manufacturing Agreement between Dot Hill Systems Corp. and Flextronics Corporation dated May 20, 2002.(20)*
10.16	Amendment to Manufacturing Agreement between Dot Hill Systems Corp. and Solectron Corporation dated April 5, 2005. (21)*
10.17	Second Amendment to Manufacturing Agreement dated September 16, 2005 between Dot Hill Systems Corp. and Solectron Corporation. (22)*
10.18	Second Award Letter dated September 16, 2005 between Dot Hill Systems Corp. and Solectron Corporation. (22)*
10.19	Manufacturing Agreement by and among Dot Hill Systems Corp., MiTAC International Corporation and SYNNEX Corporation dated February 20, 2007. (23)*
10.20	Manufacturing and Purchase Agreement dated September 24, 2008 by and between Dot Hill Systems Corp. and Hon Hai Precision Industry LTD. (2)*
10.21	Amended and Restated Technology License Agreement, dated as of October 29, 2010 among NetApp, Inc., NetApp Holding and Manufacturing B.V. and Dot Hill Systems Corp. (28)*
10.22	Product Purchase Agreement dated September 10, 2007 by and between Dot Hill Systems Corp. and Hewlett-Packard Company. (25)*
10.23	Amendment One to Product Purchase Agreement dated January 4, 2008, by and between Dot Hill Systems Corp. and Hewlett-Packard Company. (25)*
10.24	Amendment Eight to Product Purchase Agreement dated September 30, 2008 by and between Dot Hill Systems Corp. and Hewlett Packard Company. (2)*
10.25	Patent Cross License dated December 29, 2005 between Dot Hill Systems Corp. and International Business Machines Corporation. (24)*
10.26	Amended Settlement and License Agreement dated October 5, 2006 by and between Dot Hill Systems Corp. and Crossroads, Inc. (26)*
10.27	Amendment to Lease Agreement by and between Dot Hill Systems Corp. and Circle Capital Longmont LLC as of April 12, 2007. (30)
10.28	Amendment Twelve to Product Purchase Agreement dated September 10, 2007 by and between Dot Hill Systems Corp. and Hewlett-Packard Company. (30)*
10.29	Third Amendment to Loan and Security Agreement dated June 22, 2012 by and between Dot Hill Systems Corp. and Silicon Valley Bank. (31)
10.30	First Amendment to Lease Agreement by and between Dot Hill Systems Corp. and DL Faraday L.P. as of July 24, 2012. (32)
10.31	Amendment Fourteen to Product Purchase Agreement dated September 10, 2007 by and between Dot Hill Systems Corp. and Hewlett-Packard Company. (33)*
10.32	Amendment Fifteen to Product Purchase Agreement dated September 10, 2007, by and between Dot Hill Systems Corp. and Hewlett-Packard Company. (34)*
10.33	Addendum Two to Product Purchase Agreement dated September 10, 2007 by and between Dot Hill Systems Corp. and Hewlett-Packard Company. (15)*
10.34	Amendment Three to Product Purchase Agreement dated September 10, 2007 by and between Dot Hill Systems Corp. and Hewlett-Packard Company. (15)
10.35	Amendment Four to Product Purchase Agreement dated September 10, 2007 by and between Dot Hill Systems Corp. and Hewlett-Packard Company. (15)
10.36	Amendment Five to Product Purchase Agreement dated September 10, 2007 by and between Dot Hill Systems Corp. and Hewlett-Packard Company. (15)*
10.37	Amendment Six to Product Purchase Agreement dated September 10, 2007 by and between Dot Hill Systems Corp. and Hewlett-Packard Company. (35)*
10.38	Amendment Nine to Product Purchase Agreement dated September 10, 2007 by and between Dot Hill Systems Corp. and Hewlett-Packard Company. (15)*
10.39	Amendment Ten to Product Purchase Agreement dated September 10, 2007 by and between Dot Hill Systems Corp. and Hewlett-Packard Company. (15)*
10.40	Amendment Thirteen to Product Purchase Agreement dated September 10, 2007 by and between Dot Hill Systems Corp. and Hewlett-Packard Company. (15)*
10.41	First Amendment to Loan and Security Agreement dated July 30,2009 by and between Dot Hill Systems Corp. and Silicon Valley Bank. (15)
10.42	Second Amendment to Loan and Security Agreement dated February 3, 2011 by and between Dot Hill Systems Corp. and Silicon Valley Bank. (15)
10.43	Dot Hill Systems Corp. 2014 Employee Stock Purchase Plan. (36)†

53

10.44	Amendment Three to Manufacturing and Purchase Agreement Between Dot Hill Systems Corp. and Hon Hai Precision Industry Co. Ltd. +
10.45	Amendment Four to Manufacturing and Purchase Agreement Between Dot Hill Systems Corp. and Hon Hai Precision Industry Co. Ltd. +
10.46	Strategic Supplier Master Purchase Agreement by and between Dot Hill Systems Corp. and Teradata Operations, Inc. as of July 12, 2012. *+
10.47	Supplier Managed Inventory Agreement by and between Dot Hill Systems Corp. and Flextronics as of August 8, 2013. *+
10.48	Fourth Amendment to Loan and Security Agreement dated November 13, 2014 by and between Dot Hill Systems Corp. and Silicon Valley Bank. +
10.49	Amendment Sixteen to Product Purchase Agreement dated September 10, 2007 by and between Dot Hill Systems Corp. and Hewlett-Packard Company. *+
10.50	Amendment Five to Manufacturing and Purchase Agreement Between Dot Hill Systems Corp. and Hon Hai Precision Industry Co. Ltd. +
10.51	Amendment Six to Manufacturing and Purchase Agreement Between Dot Hill Systems Corp. and Hon Hai Precision Industry Co. Ltd. +
10.52	Amendment Seven to Manufacturing and Purchase Agreement Between Dot Hill Systems Corp. and Hon Hai Precision Industry Co. Ltd. *+
21.1	Subsidiaries of Dot Hill Systems Corp. (7)
23.1	Consent of Deloitte & Touche LLP
24.1	Power of Attorney. Reference is made to the signature page hereto.
31.1	Certification pursuant to 17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification pursuant to 17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a), 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-Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

+ Filed herewith.

† Indicates management or compensatory plan or arrangement.

* Confidential treatment has been granted by, or requested from, the SEC.

Dot Hill's Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K have a Commission File Number of 001-13317.

(1) Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on February 24, 2004 and incorporated herein by reference.

(2) Filed as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2008 and incorporated herein by reference.

(3) Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on September 19, 2001 and incorporated herein by reference.

(4) Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on December 26, 2007 and incorporated herein by reference.

(5) Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on January 14, 2003 and incorporated herein by reference.

(6) Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on May 19, 2003 and incorporated herein by reference.

(7) Filed as an exhibit to our Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated herein by reference.

(8) Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on January 7, 2008 and incorporated herein by reference.

54

(9) Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on August 23, 2000 and incorporated herein by reference.

(10) Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on June 19, 2009 and incorporated herein by reference.

(11) Filed as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 and incorporated herein by reference.

(12) Filed as an exhibit to our Registration Statement on Form S-8 (No. 333-43834) and incorporated herein by reference.

(13) Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on December 24, 2008 and incorporated herein by reference.

(14) Filed as item 5.02(e) of our Current Report on Form 8-K filed with the SEC on April 3, 2008 and incorporated herein by reference.

(15) Filed as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 and incorporated herein by reference.

(16) Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on December 13, 2005 and incorporated herein by reference.

(17) Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on September 21, 2005 and incorporated herein by reference.

(18) Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on April 16, 2007 and incorporated herein by reference.

(19) Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on August 5, 2008 and incorporated herein by reference.

(20) Filed as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 and incorporated herein by reference.

(21) Filed as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 and incorporated herein by reference.

(22) Filed as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2005 and incorporated herein by reference.

(23) Filed as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2007 and incorporated herein by reference.

(24) Filed as an exhibit to our Annual Report on Form 10-K for the year ended December 31, 2005 and incorporated herein by reference.

(25) Filed as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 and incorporated herein by reference.

(26) Filed as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2006 and incorporated herein by reference.

(27) Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on March 20, 2009 and incorporated herein by reference.

(28) Filed as an exhibit to our Annual Report on Form 10-K for the year ended December 31, 2010 and incorporated herein by reference.

(29) Filed as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 and incorporated herein by reference.

(30) Filed as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 and incorporated herein by reference.

(31) Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on June 27, 2012 and incorporated herein by reference.

(32) Filed as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 and incorporated herein by reference.

(33) Filed as an exhibit to our Annual Report on Form 10-K for the year ended December 31, 2013 and incorporated herein by reference.

(34) Filed as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 and incorporated herein by reference

(35) Filed as an exhibit to our Quarterly Report on Form 10-Q-A filed with the SEC on December 3, 2014 and incorporated herein by reference.

(36) Filed as an exhibit to our Form S-8 filed with the SEC on January 22, 2014 and incorporated herein by reference.

55

SIGNATURES

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

		Dot Hill Systems Corp.
Date:	March 11, 2015
		By:	/S/ DANA W. KAMMERSGARD
			Dana W. Kammersgard
			Chief Executive Officer, President and Director
			(Principal Executive Officer)
Date:	March 11, 2015
		By:	/S/ HANIF I. JAMAL
			Hanif I. Jamal
			Senior Vice President, Chief Financial Officer, Treasurer and Corporate Secretary
			(Principal Financial and Accounting Officer)

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Dana W. Kammersgard and Hanif I. Jamal, and each of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place, and stead, in any and all capacities, to sign any and all amendments to this Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming that all said attorneys-in-fact and agents, or any of them or their or his substitute or substituted, may lawfully do or cause to be done by virtue hereof.

56

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Name	Title	Date
/S/ DANA W. KAMMERSGARD Dana W. Kammersgard	Chief Executive Officer, President and Director (Principal Executive Officer)	March 11, 2015
/S/ HANIF I. JAMAL Hanif I. Jamal	Chief Financial Officer, and Treasurer (Principal Financial and Accounting Officer)	March 11, 2015
/S/ CHARLES F. CHRIST Charles F. Christ	Chairman of the Board of Directors	March 11, 2015
/S/ THOMAS H. MARMEN Thomas H. Marmen	Director	March 11, 2015
/S/ RICHARD MEJIA JR Richard Mejia, Jr.	Director	March 11, 2015
/S/ BARRY A. RUDOLPH Barry A. Rudolph	Director	March 11, 2015
/S/ RODERICK M. SHERWOOD III Roderick M. Sherwood III	Director	March 11, 2015
/S/ DEBRA E. TIBEY Debra E. Tibey	Director	March 11, 2015

57

INDEX TO FINANCIAL STATEMENTS

	Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	F-1
FINANCIAL STATEMENTS:
Consolidated balance sheets as of December 31, 2013 and 2014	F-2
Consolidated statements of operations and comprehensive income (loss) for the years ended December  31, 2012, 2013 and 2014	F-3
Consolidated statements of stockholders’ equity for the years ended December  31, 2012, 2013 and 2014	F-4
Consolidated statements of cash flows for the years ended December 31, 2012, 2013 and 2014	F-5
Notes to consolidated financial statements for the years ended December 31, 2012, 2013 and 2014	F-6

58

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Dot Hill Systems Corp. and Subsidiaries

Longmont, Colorado

We have audited the accompanying consolidated balance sheets of Dot Hill Systems Corp. and Subsidiaries (the "Company") as of December 31, 2013 and 2014, and the related consolidated statements of operations and comprehensive income (loss), stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2014. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Dot Hill Systems Corp. and Subsidiaries as of December 31, 2013 and 2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2014, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 11, 2015 expressed an unqualified opinion on the Company's internal control over financial reporting.

/s/ Deloitte & Touche LLP

Denver, Colorado

March 11, 2015

F-1

DOT HILL SYSTEMS CORP.

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2013 AND 2014

(In thousands, except par value data)

	December 31,
	2013			2014
ASSETS
Current Assets:
Cash and cash equivalents	$	40,406		$	42,492
Accounts receivable, net	42,907			43,328
Inventories	6,539			11,342
Prepaid expenses and other assets	7,265			11,126
Total current assets	97,117			108,288
Property and equipment, net	7,565			8,764
Intangible assets	—			2,680
Other assets	702			500
Total assets	$	105,384		$	120,232
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	33,255		$	37,421
Accrued compensation	4,922			4,015
Accrued expenses	8,935			8,039
Deferred revenue	4,211			5,319
Credit facility borrowings	2,000			—
Total current liabilities	53,323			54,794
Other long-term liabilities	4,414			2,908
Total liabilities	57,737			57,702
Commitments and Contingencies (Note 12)
Stockholders’ Equity:
Preferred stock, $.001 par value, 10,000 shares authorized, zero shares issued and outstanding at December 31, 2013 and 2014	—			—
Common stock, $.001 par value, 100,000 shares authorized, 59,138 and 60,777 shares issued and outstanding at December 31, 2013 and 2014, respectively	59			61
Additional paid-in capital	330,103			336,827
Accumulated other comprehensive loss	(3,254		)	(3,152		)
Accumulated deficit	(279,261		)	(271,206		)
Total stockholders’ equity	47,647			62,530
Total liabilities and stockholders’ equity	$	105,384		$	120,232

See accompanying notes to consolidated financial statements.

F-2

DOT HILL SYSTEMS CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

(In thousands, except per share amounts)

	Year ended December 31,
	2012			2013			2014
NET REVENUE	$	194,548		$	206,565		$	217,665
COST OF GOODS SOLD	146,177			140,495			145,090
GROSS PROFIT	48,371			66,070			72,575
OPERATING EXPENSES:
Research and development	34,199			35,332			37,645
Sales and marketing	14,133			13,450			14,505
General and administrative	9,695			11,658			12,122
Total operating expenses	58,027			60,440			64,272
OPERATING INCOME (LOSS)	(9,656		)	5,630			8,303
OTHER INCOME:
Interest income (expense), net	(8		)	(16		)	(36		)
Other income (expense), net	11			(23		)	15
Total other income (expense), net	3			(39		)	(21		)
INCOME (LOSS) BEFORE INCOME TAXES AND DISCONTINUED OPERATIONS	(9,653		)	5,591			8,282
INCOME TAX EXPENSE	749			51			227
INCOME (LOSS) FROM CONTINUING OPERATIONS	(10,402		)	5,540			8,055
LOSS FROM DISCONTINUED OPERATIONS	(4,548		)	(476		)	—
NET INCOME (LOSS)	$	(14,950	)	$	5,064		$	8,055
NET INCOME (LOSS) PER SHARE
Income (Loss) from continuing operations - basic and diluted	$	(0.18	)	$	0.09		$	0.13
Loss from discontinued operations - basic and diluted	$	(0.08	)	$	(0.01	)	$	—
Net Income (Loss) per share - basic and diluted	$	(0.26	)	$	0.09		$	0.13
WEIGHTED AVERAGE SHARES USED TO CALCULATE NET LOSS PER SHARE:
Basic	56,954			58,521			60,171
Diluted	56,954			59,247			63,898
COMPREHENSIVE INCOME (LOSS):
Net income (loss)	$	(14,950	)	$	5,064		$	8,055
Foreign currency translation adjustment	129			279			102
Comprehensive income (loss)	$	(14,821	)	$	5,343		$	8,157

See accompanying notes to consolidated financial statements.

F-3

DOT HILL SYSTEMS CORP.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

(In thousands)

	Common Stock
	Shares		Amount		Additional Paid-In Capital		Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Stockholders’ Equity
Balance, January 1, 2012	57,699		$	58	$	321,681	$	(3,662	)	$	(269,375	)	$	48,702
Common stock issued (canceled) under stock plans, net	(253	)	—		166								166
Common stock issued under bonus plan	819		—		1,005								1,005
Share-based compensation expense					3,723								3,723
Foreign currency translation adjustment							129						129
Net loss										(14,950		)	(14,950		)
Balance, December 31, 2012	58,265		$	58	$	326,575	$	(3,533	)	$	(284,325	)	$	38,775
Common stock issued under stock plans, net	873		1		838								839
Share-based compensation expense					2,690								2,690
Foreign currency translation adjustment							279						279
Net income										5,064			5,064
Balance, December 31, 2013	59,138		$	59	$	330,103	$	(3,254	)	$	(279,261	)	$	47,647
Common stock issued under stock plans, net	1,639		2		3,579								3,581
Share-based compensation expense					3,145								3,145
Foreign currency translation adjustment							102						102
Net income										8,055			8,055
Balance, December 31, 2014	60,777		$	61	$	336,827	$	(3,152	)	$	(271,206	)	$	62,530

See accompanying notes to consolidated financial statements.

F-4

DOT HILL SYSTEMS CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

(In thousands)

	2012			2013			2014
Cash Flows From Operating Activities:
Net income (loss)	$	(14,950	)	$	5,064		$	8,055
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	3,527			3,125			3,972
Provision for bad debt expense	25			2			64
Share-based compensation expense	3,723			2,690			3,145
Long-lived assets impairment charge	1,647			—			—
Write-off of property and equipment	244			23			63
Changes in operating assets and liabilities:
Accounts receivable	6,621			(17,931		)	(859		)
Inventories	213			(1,503		)	(4,845		)
Prepaid expenses and other assets	1,740			(1,618		)	(3,682		)
Accounts payable	(7,474		)	11,100			2,962
Accrued compensation and other expenses	(2,505		)	614			(1,783		)
Deferred revenue	2,017			1,340			1,122
Other long-term liabilities	2,726			1,182			(1,490		)
Net cash provided by (used in) operating activities	(2,446		)	4,088			6,724
Cash Flows From Investing Activities:
Purchases of property and equipment	(6,152		)	(3,644		)	(4,156		)
Purchases of intangible assets	—			—			(1,990		)
Proceeds from sale of property and equipment	74			—			—
Net cash used in investing activities	(6,078		)	(3,644		)	(6,146		)
Cash Flows From Financing Activities:
Principal payment of note payable	(71		)	—			—
Payments on bank borrowings	(1,800		)	(7,700		)	(2,000		)
Proceeds from bank borrowings	4,600			6,900			—
Shares withheld for tax purposes	(590		)	(223		)	(95		)
Proceeds from sale of stock to employees	756			1,062			3,676
Net cash provided by financing activities	2,895			39			1,581
Effect of Exchange Rate Changes on Cash and Cash Equivalents	(224		)	(392		)	(73		)
Net Increase (Decrease) in Cash and Cash Equivalents	(5,853		)	91			2,086
Cash and Cash Equivalents, beginning of period	46,168			40,315			40,406
Cash and Cash Equivalents, end of period	$	40,315		$	40,406		$	42,492
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
Capital expenditures incurred but not yet paid	$	477		$	398		$	2,125
Property and equipment transferred from inventory	—			—			42
Stock payment for employee bonus plan	1,005			—			—
Supplemental Cash Flow Data:
Cash paid for income taxes	$	116		$	72		$	254

See accompanying notes to consolidated financial statements.

F-5

DOT HILL SYSTEMS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014

1. Summary of Significant Accounting Policies

Description of Business

Dot Hill Systems Corp (referred to herein as Dot Hill, we, our or us) is a provider of storage systems for the entry and mid-range storage markets for organizations requiring high reliability, high performance networked storage and data management solutions in an open systems architecture. Our storage solutions consist of integrated hardware, firmware and software products employing a modular system that allows end-users to add various capacity or data protection schemes as needed. Our broad range of products, from medium capacity standalone storage units to complete multi-terabyte storage area networks, or SANs, provide end-users with a cost-effective means of addressing increasing storage demands without sacrificing performance.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP.

Principles of Consolidation

The accompanying consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries. Intercompany transactions and balances have been eliminated in consolidation.

Foreign Currency

For our foreign subsidiaries whose functional currency is the local currency, assets and liabilities are translated into United States Dollars at period-end exchange rates. Revenues and expenses, and gains and losses, are translated at rates of exchange that approximate the rates in effect on the transaction date. Resulting translation gains and losses are recognized as a component of other comprehensive loss.

For our foreign subsidiaries that maintain their books of record in a currency other than the functional currency, the subsidiaries remeasure monetary assets and liabilities using current rates of exchange at the balance sheet date and remeasure non-monetary assets and liabilities using historical rates of exchange. Gains and losses from re-measurement for such subsidiaries are recognized currently in income as a component of general and administrative expenses. We incurred foreign currency transaction losses of $0.5 million and $0.1 million for the years ended December 31, 2013 and 2014. We realized foreign currency transaction gains of $0.5 million for the year ended December 31, 2012.

Foreign currency translation adjustments comprise the entire amount of our accumulated other comprehensive loss at December 31, 2012, 2013 and 2014.

Use of Accounting Estimates

The preparation of our audited consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the dates of the financial statements and the reported amounts of net revenue and expenses in the reporting periods. The accounting estimates that require management’s most significant and subjective judgments include revenue recognition, inventory valuation (refer to Note 4, Inventories) and recurring and specific issue warranty obligations (refer to Note 6, Product Warranties). In addition, we have other accounting policies that involve estimates such as the determination of useful lives of long-lived assets, the valuation of long-lived assets, accruals for restructuring, capitalization of software development costs, contingent liabilities and income taxes, including the valuation allowance for deferred tax assets, and the valuation and recognition of share-based compensation expense. Actual results may differ from these estimates and such differences could be material.

Revenue Recognition

We derive our revenue from sales of our hardware products, software and services.

Hardware

Hardware product revenue consists of revenue from sales of our AssuredSAN storage systems that are integrated with our original equipment manufacturers, or OEM, customers' industry standard hardware and which become essential to the integrated system product. We recognize hardware product revenue when the following fundamental criteria are met: (i)

F-6

persuasive evidence of an arrangement exists; (ii) delivery has occurred; (iii) the price is fixed or determinable; and (iv) collectability is reasonably assured. Revenue is recognized for hardware product sales upon transfer of title and risk of loss to the customer and, in addition, upon installation for certain of our AssuredUVS appliance products. We record reductions to revenue for estimated product returns and pricing adjustments in the same period that the related revenue is recorded. These estimates are based on contractual return rights, historical sales returns, analysis of credit memo data and other factors known at the time. If actual future returns and pricing adjustments differ from past experience and our estimates, additional revenue reserves may be required.

We exclude from revenues taxes collected from customers on behalf of governmental authorities.

Software

In accordance with the specific guidance for recognizing software revenue, where applicable, we recognize revenue from perpetual software licenses at the inception of the license term assuming all revenue recognition criteria have been met. We use the relative fair value method to allocate revenue to software licenses at the inception of the license term when vendor-specific objective evidence, or VSOE, of fair value for all elements related to our products is available. We have established VSOE for the fair value of our software licenses and support services as measured by the prices paid by our customers when the licenses and services are sold separately on a standalone basis.

Specific long-term software contracts may contain multiple deliverables including software licenses, services, training and post-contract support, or PCS, for which we have not established VSOE of fair value of any of the elements.  Under specific guidance for recognizing software revenue, we defer all revenue related to each deliverable until the only undelivered element is PCS. We then begin recognizing revenue ratably over the PCS period.

We defer all the direct and incremental costs related to the deliverables in these contracts until delivery of all the elements except PCS. The deferred costs are then recognized ratably over the contractual PCS support periods as a component of Cost of Goods Sold.

During the preparation of the Company's consolidated financial statements for the year ended December 31, 2012 and the accounting analysis for the renewal of a long-term software contract, the Company determined that it had applied an inappropriate revenue recognition methodology to the contract.  The Company recorded revenue as royalty payments were received on this contract and should have deferred all the revenue and direct and incremental costs until all the deliverables, except PCS, were delivered in 2012.

This was corrected in the fourth quarter of 2012, and the net out-of-period impact of these adjustments was $1.1 million, consisting of a reduction of revenue and research and development costs of $4.2 million and $3.1 million, respectively.Once all elements except PCS were delivered, the related deferred direct and incremental costs began to be recognized ratably over the contractual PCS support period, as a component of Cost of Goods Sold.

Service

Our service revenue primarily includes out-of-warranty repairs and product maintenance contracts. Out-of warranty repairs primarily consist of product repair services performed by our contract manufacturers for those customers that allowed their original product warranty to expire without purchasing one of our higher level support service plans. Revenue from these out-of-warranty repairs, and the associated cost of sales, is recognized in the period these services are provided. Service revenue also consists of product maintenance contracts purchased by our customers as an extension of our standard warranty. Revenue from our product maintenance contracts is deferred and recognized ratably over the contract term, generally12to36months. Net revenue derived from services was less than 10%of total revenue for all periods presented.

Revenue Recognition for Arrangements with Multiple Deliverables

For multi-element arrangements that include hardware products containing software essential to the hardware product’s functionality and undelivered non-software services (all non-software related elements), we allocate the transaction price to all deliverables based on their relative selling prices. In such circumstances, we use a hierarchy to determine the selling price to be used for allocating the transaction price to deliverables: (i) VSOE of fair value, (ii) third-party evidence of selling price, or TPE, and (iii) best estimate of the selling price, or ESP. VSOE of fair value generally exists only when we sell the deliverable separately and represents the actual price charged by us for that deliverable. ESPs reflect our best estimates of what the selling prices of the deliverables would be if they were sold regularly on a standalone basis.

Revenue Recognition for Sales to Channel Partners

On sales to channel partners, we evaluate whether fees are considered fixed or determinable by considering a number of factors, including our ability to estimate returns, payment terms and our relationship and past history with the particular

F-7

channel partner. If fees are not considered fixed or determinable at the time of sale to a channel partner, revenue recognition is deferred until there is persuasive evidence indicating the product has sold through to an end-user. Persuasive evidence of sell-through may include reports from channel partners documenting sell-through activity or data indicating an order has shipped to an end-user.

Deferred Revenue

We defer revenue on upfront nonrefundable payments received from our customers and recognize it ratably over the term of the agreement, unless the payment is in exchange for products delivered that represent the culmination of a separate earnings process. When we provide consideration to a customer, we recognize the value of that consideration as a reduction in net revenue. We may be required to maintain inventory with certain of our largest OEM customers, which we refer to as "hubbing" arrangements. Pursuant to these arrangements we deliver products to a customer or a designated third-party warehouse based upon the customer’s projected needs, but do not recognize product revenue unless and until the customer has taken legal title of our product from the warehouse to incorporate into its end products.

Advertising Costs

We expense advertising costs in the period incurred. Advertising expense is included as a component of sales and marketing expense. Advertising expense was $1.2 million, $1.6 million and $1.8 million for the years ended December 31, 2012, 2013 and 2014, respectively.

Shipping and Handling

Cost related to the shipping and handling of our products is included in cost of goods sold for all periods presented.

Research and Development and Capitalized Software Development Costs

Research and development costs are expensed as incurred. In conjunction with the development of our products, we incur certain software development costs. For the majority of our software development projects, no costs have been capitalized because the period between achieving technological feasibility and completion of such software is relatively short and software development costs qualifying for capitalization have been insignificant. On a specific software project under development, it was determined that the period between achieving technological feasibility and completion of the software is not relatively short and software development costs qualifying for capitalization will be significant. For this project, since technological feasibility has been established, all software development costs are capitalized until the product is available for general release to customers. Judgment is required in determining when technological feasibility of a product is established. We have determined that technological feasibility for our software products is reached after all high-risk development issues have been resolved through coding and testing. The amortization of these costs will be included in cost of goods sold over the estimated life of the products. Refer to Note 5, Intangible Assets.

Share-Based Compensation

Share-based compensation expense for all share-based payment awards granted is determined based on the grant-date fair value. We recognize these compensation costs net of an estimated forfeiture rate, and recognize compensation cost only for those shares expected to vest on a straight-line basis over the requisite service period of the award, which is generally the vesting term of the share-based payment awards. We estimate forfeiture rates based on our historical experience.

Income Taxes

We recognize deferred tax assets and liabilities for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts using enacted tax rates in effect for the year the differences are expected to reverse. We record a valuation allowance to reduce the deferred tax assets to the amount that is more likely than not to be realized.

Contingent Liabilities

We are involved in certain claims from time to time arising in the ordinary course of business involving our products, suppliers, and/or customers. We may incur settlements, fines, penalties or judgments in connection with some of these matters. While we may be unable to estimate the ultimate dollar amount of exposure or loss in connection with these matters, we make accruals as warranted. The amounts we accrue could vary substantially from amounts we pay due to several factors including the following: possible third-party contributions, the inherent uncertainties of the estimation process, and the uncertainties involved in litigation. We believe that we have adequately provided in our consolidated financial statements for the impact of these contingencies. We also believe that the outcomes will not materially affect our results of operations, our financial position or our cash flows, except as disclosed. Refer to Note 12, Commitments and Contingencies.

F-8

Cash and Cash Equivalents

We classify investments as cash equivalents if they are readily convertible to cash and have original maturities of three months or less at the time of acquisition. Cash and cash equivalents consist primarily of money market mutual funds issued or managed in the United States. At December 31, 2013 and 2014, the carrying value of cash and cash equivalents approximates fair value due to the short period of time to maturity.

As of December 31, 2014, $3.0 million of the $42.5 million of cash, cash equivalents, and marketable securities was held by our foreign subsidiaries, as compared to $3.6 million of the $40.4 million of cash, cash equivalents and marketable securities held by our foreign subsidiaries as of December 31, 2013. We currently intend to repatriate approximately $2.0 million of our cash and cash equivalents when we close down our Netherlands subsidiary during 2015. We obtained a favorable ruling from the Netherlands and will not be charged foreign taxes on the repatriation and we expect that our net operating loss carryforwards and foreign tax credits will be available to offset any United States tax liability, should one arise. We anticipate that future foreign earnings will be deemed to be permanently reinvested, although we could elect to repatriate funds held in one or more foreign jurisdictions. If applicable, withholding taxes could reduce the net amount repatriated, and we could be required to accrue and remit applicable United States income taxes to the extent a tax liability results after utilization of net operating loss carryforwards and available tax credits. Refer to Note 12, Commitments and Contingencies, for a discussion of the associated cumulative translation loss.

Property and Equipment

Property and equipment are recorded at cost less accumulated depreciation. Property and equipment are depreciated for financial reporting purposes using the straight-line method over the following estimated useful lives: machinery and equipment, furniture, fixtures and computer software, 3-5 years; leasehold improvements are amortized using the straight-line method over the shorter of the useful lives of the assets or the terms of the leases. Significant improvements to our property and equipment are capitalized while expenditures for maintenance and repairs are charged to expense in the period incurred.

The components of property and equipment consist of the following, (in thousands):

	December 31,
	2013			2014
Machinery and equipment	$	16,628		$	19,263
Furniture, fixtures, and computer software	1,669			2,072
Leasehold improvements	2,578			2,620
Construction in progress	831			228
Total property and equipment, at cost	21,706			24,183
Less accumulated depreciation	(14,141		)	(15,419		)
Property and equipment, net	$	7,565		$	8,764

Depreciation expense was $2.5 million, $3.1 million and $4.0 million for the years ended December 31, 2012, 2013 and 2014, respectively.

Concentration of Customers and Suppliers

A majority of our net revenue is derived from a limited number of customers. For the years ended December 31, 2012 and 2013, we had two customers, Customer A and C, that accounted for 10% or more of our total net revenue. For the year ended December 31, 2014, we had two customers, Customer A and B, that account for 10% or more of our total net revenue. Our agreements with our customers do not contain any minimum purchase commitments, do not obligate them to purchase their storage solutions exclusively from us and may be terminated at any time upon notice.

F-9

Net revenue consists of all product and service revenues. Net revenue by major customer is as follows (as a percentage of total net revenue):

	Year Ended December 31,
	2012		2013		2014
Customer A	68	%	59	%	47	%
Customer B	—	%	0	%	11	%
Customer C	10	%	13	%	8	%
Other customers less than 10%	22	%	28	%	34	%
Total	100	%	100	%	100	%

If our relationship with Customers A, B and/or C were disrupted or declined significantly, we would lose a substantial portion of our anticipated net revenue and our business could be materially harmed. We cannot guarantee that our relationship with Customers A, B and/or C or our other customers will expand or not otherwise be disrupted.

At December 31, 2013, we had one customer, Customer A, comprising 63% of our total accounts receivable. At December 31, 2014, we had two customers, Customer A and B, comprising 40% and 31%, respectively, of our total accounts receivable. The decrease in accounts receivable from Customer A is due to decreased revenue in the fourth quarter of 2014 as compared to the fourth quarter of 2013, and the increase in accounts receivable from Customer B is due to increased revenue in the fourth quarter of 2014 as compared to the fourth quarter of 2013. No other customer balance exceeded 10% of our total accounts receivable balance at December 31, 2013 or 2014.

We currently rely on one contract manufacturing partner, Foxconn Technology Group, or Foxconn, to produce substantially all of our products. As a result, should Foxconn or parts suppliers not produce and deliver inventory for us to sell on a timely basis, operating results may be adversely impacted. In November 2011, we amended our agreement with Foxconn to extend the manufacturing agreement for a period of three years. In November 2014, we extended the agreement to March 11, 2015, and in March 2015, we extended the agreement to September 1, 2015. We are currently in negotiations to further extend our contract. If the agreement is not further extended, pursuant to terms in the existing agreement, we can continue to operate with Foxconn for a period of six months following the expiration of the agreement, as the Company may issue purchase orders and Foxconn may accept purchase orders under the terms and conditions of the existing agreement.

Long-lived asset impairment

We periodically review the recoverability of the carrying value of long-lived assets for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable. An impairment in the carrying value of an asset group is recognized whenever anticipated future undiscounted cash flows from an asset group are estimated to be less than its carrying value. The amount of impairment recognized is the difference between the carrying value of the asset group and its fair value. Fair value estimates are based on assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates, reflecting varying degrees of perceived risk. There were no impairment charges in continuing operations for the years ended December 31, 2012, 2013 or 2014.

Valuation of Goodwill

The changes in the carrying amount of goodwill are as follows during the years ended December 31, 2013 and 2014 (in thousands):

	December 31,
	2013			2014
Balance, beginning of the year
Goodwill	$	44,840		$	44,840
Accumulated impairment losses	(44,840		)	(44,840		)
	—			—
Balance, end of the year
Goodwill	44,840			44,840
Accumulated impairment losses	(44,840		)	(44,840		)
	$	—		$	—

Goodwill is not allocated to reporting segments as the balance is fully impaired.

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Allowance for Doubtful Accounts

We establish an allowance for doubtful accounts for accounts receivable amounts that may not be collectible. We determine the allowance for doubtful accounts based on the aging of our accounts receivable balances and an analysis of our historical experience of bad debt write-offs. Bad debt expense was $0.0 million, $0.0 million and $0.1 million for the years ended December 31, 2012, 2013 and 2014, respectively.

The changes in the allowance for doubtful accounts are as follows during the years ended December 31, 2013 and 2014 (in thousands):

	December 31,
	2013			2014
Balance, beginning of the year	$	240		$	23
Write offs	(219		)	—
Additions to allowance	2			64
Balance, end of the year	$	23		$	87

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued that we adopt as of the specified effective date. We believe that, other than the matter described below, the impact of recently issued standards that are not yet effective will not have a material impact on our results of operations and financial position.

In May 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606), or ASU 2014-09. This update creates modifications to various revenue accounting standards for specialized transactions and industries. ASU 2014-09 is intended to conform revenue accounting principles with a concurrently issued International Financial Reporting Standards with previously differing treatment between United States practice and those of much of the rest of the world, as well as, to enhance disclosures related to disaggregated revenue information. The updated guidance may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application. The updated guidance is effective for public entities for annual reporting periods beginning on or after December 15, 2016, and interim periods within those annual periods. Early adoption is not permitted and entities have the choice to apply ASU 2014-09 either retrospectively to each reporting period presented or by recognizing the cumulative effect of applying ASU 2014-09 at the date of initial application and not adjusting comparative information. The Company is currently evaluating the requirements of ASU 2014-09 and has not yet determined its impact on the Company's consolidated financial statements.

2. Earnings Per Share

Basic earnings per share, including continuing and discontinued operations, is calculated by dividing net income (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted earnings per share, including continuing and discontinued operations, is computed by dividing net income (loss) for the period by the weighted average number of shares of common stock outstanding during the period and including the dilutive effect of common stock that would be issued assuming conversion or exercise of outstanding warrants, stock options, share based compensation awards and other dilutive securities. No such items were included in the computation of diluted loss per share for the year ended December 31, 2012 because we incurred a net loss in the period and the effect of inclusion would have been anti-dilutive.

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The following is a reconciliation of weighted-average shares outstanding used in the calculation of basic and diluted earnings from continuing operations per share (in thousands, except per share data):

	Year Ended December 31,
	2012			2013		2014
Income (loss) from continuing operations	$	(10,402	)	$	5,540	$	8,055
Basic weighted-average common shares outstanding	56,954			58,521		60,171
Assumed exercise of dilutive stock options, warrants and restricted stock	—			726		3,727
Diluted weighted-average common shares outstanding	56,954			59,247		63,898
Income (loss) from continuing operations:
Basic income (loss) per share	$	(0.18	)	$	0.09	$	0.13
Diluted income (loss) per share	$	(0.18	)	$	0.09	$	0.13

Outstanding equity awards not included in the calculation of diluted net earnings (loss) per share because their effect was anti-dilutive were as follows:

	December 31, 2012			December 31, 2013			December 31, 2014
	Number of Potential Shares	Range of Exercise Prices		Number of Potential Shares	Range of Exercise Prices		Number of Potential Shares	Range of Exercise Prices
Stock options	8,952,129	$0.47 - $16.36		5,879,842	$1.55 - $15.15		2,518,000	$3.46 - $7.84
Unvested stock awards	655,402	$	—	92,811	$	—	55,900	$	—
Warrants	1,602,489	$	2.40	1,602,489	$	2.40	—	$	—

3. Discontinued Operations

During 2011, our primary AssuredUVS customer informed us that the AssuredUVS software would no longer be a component of its business strategy, which would result in a significant decline in revenues for the Company.

In February 2012, our Board of Directors approved a plan to exit our AssuredUVS business and close down our Israel Technology Development Center. During the second quarter of 2012, we explored the potential sale of the AssuredUVS business, but were unsuccessful in locating a buyer and ended efforts to sell the business or its component assets as of June 30, 2012. Accordingly, we recognized an impairment of $0.2 million of property, plant and equipment and $1.6 million for the remaining value of acquired software as a component of cost of goods sold as of June 30, 2012. The AssuredUVS business is now recorded in discontinued operations, since we have ceased all ongoing operational activities as of September 30, 2012.

The following is a summary of the components of loss from discontinued operations, (in thousands):

	Year Ended December 31,
	2012			2013			2014
Net revenue	$	360		$	50		$	—
Cost of goods sold	2,501			142			—
Gross profit	(2,141		)	(92		)	—
Operating expenses:
Research and development	741			—			—
Sales and marketing	56			—			—
General and administrative	765			393			—
Restructuring charge (recovery)	844			(10		)	—
Total operating expenses	2,406			383			—
Operating loss	(4,547		)	(475		)	—
Other income (expense), net	(1		)	(1		)	—
Loss from discontinued operations	$	(4,548	)	$	(476	)	$	—

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The activity in 2013 was limited to the continued support of certain maintenance contracts entered into prior to shutting down the Israel Technology Development Center, as well as expenses related to the resolution of a dispute with the former primary AssuredUVS customer.

4. Inventories

The components of inventories consist of the following (in thousands):

	December 31,
	2013		2014
Purchased parts and materials	$	2,911	$	2,273
Finished goods	3,628		9,069
Total inventory	$	6,539	$	11,342

Inventories are comprised of finished goods and purchased parts and assemblies, which include costs to purchase assembled units and overhead, and are valued at the lower of cost (first-in, first-out method) or market value. The valuation of inventory requires us to estimate excess or obsolete inventory. The determination of excess or obsolete inventory requires us to estimate the future demand for our products. Our customers may require us to purchase and stock material amounts of inventory to ensure availability to meet forecasts, which increases our risk of excess quantities. Because our markets are volatile and are subject to technological risks, price changes and inventory reduction programs by our customers, and because we are required to make last-time buys of certain components on occasion, there is a risk that we will forecast incorrectly and produce excess inventories of particular products or have commitments to purchase excess inventory components from our suppliers. As a result, actual demand will differ from forecasts, and such a difference has in the past and may in the future have a material adverse effect on our gross margin and our results of operations. Any write downs to inventory due to the existence of excess quantities, physical obsolescence, changes in pricing, damage, or other causes result in a new cost basis for the inventory. When we sell or dispose of reserved inventory, the new cost basis is charged to cost of sales. The increase in inventory at December 31, 2014 as compared to December 31, 2013 is due to higher required levels of inventory for a significant customer maintained at a vendor managed inventory location.

5. Intangible Assets

Identifiable intangible assets are as follows (in thousands):

		December 31, 2013
	Estimated Useful  Life	Gross		Accumulated Amortization		Net
Technology-based intangible assets	N/A	$	—	$	—	$	—
Total intangible assets		$	—	$	—	$	—

		December 31, 2014
	Estimated Useful  Life	Gross		Accumulated Amortization		Net
Technology-based intangible assets	Not yet determined	$	2,680	$	—	$	2,680
Total intangible assets		$	2,680	$	—	$	2,680

Technology-based intangible assets include software to be sold, leased or otherwise marketed. The estimated useful life and projected date that the intangible assets will be generally available for release to customers is not readily determinable as of December 31, 2014. Intangible assets have not been allocated to reporting segments as they are used across the operating segments.

Amortization expense related to intangible assets totaled $0.8 million, $0.0 million and $0.0 million for the years ended December 31, 2012, 2013 and 2014, respectively. Amortization expense for the year ended December 31, 2012 is included in the corporate segment.

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6. Product Warranties

Our standard warranty provides that if our systems do not function to published specifications, we will repair or replace the defective component, system or firmware without charge generally for a period of approximatelythree years. We generally extend to our customers the warranties provided to us by our suppliers, and accordingly, the majority of our warranty obligations to customers are typically intended to be covered by corresponding supplier warranties. For warranty costs not covered by our suppliers, we provide for estimated warranty costs in the period the revenue is recognized. There can be no assurance that our suppliers will continue to provide such warranties to us in the future or that our warranty obligations to our customers will be covered by corresponding warranties from our suppliers, the absence of which could have a material effect on our financial statements. Estimated liabilities for product warranties are included in accrued expenses.

In October 2009, we discovered a quality issue associated with certain power supply devices provided by a long-term component supplier, which resulted in a higher than expected level of power supply failures to us and our customers. In the second and third quarters of 2011, a material customer provided us with a framework estimating the potential claims precipitated by the power supply failures. A final settlement with this material customer was reached during the second quarter of 2012. The terms of the agreement required an immediate payment of $2.0 million, and future price concessions and rebates based on sales volumes. As of December 31, 2014, less than $0.1 million in liability related to this settlement remains outstanding.

During the second quarter of 2011, based on the advice of legal counsel, we established that our component supplier is contractually obligated to reimburse us for fair and reasonable costs we incur with our customers associated with these power supply failures. We continued to negotiate this settlement with our supplier and during the second quarter of 2012, the supplier signed a final settlement agreement providing for additional reimbursements above what was recognized as of September 30, 2011. Pursuant to the settlement, the supplier agreed to cash consideration of $1.2 million, which was fully received as of December 31, 2013. Additionally, our supplier committed to product rebates and/or price concessions on product orders for a period of 39 months from the execution of the settlement agreement, in return for our agreement to release our supplier from all obligations relating to the power supply failures known by us to date.

In addition, we have commenced discussions with our General Liability and Errors and Omissions Insurance and underwriters and will continue to pursue our rights to cover any damages we incur and that are not reimbursed by our supplier. The insurance company has issued a reservation of rights letter to us and at this time, it is not possible to estimate to what extent the residual amounts, if any, we will be covered by our carrier. As of December 31, 2014 we recorded $0.1 million for reimbursement to be received from our insurance carrier.

Our warranty accrual and cost activity is as follows (in thousands):

	December 31,
	2012			2013			2014
Balance, beginning of year	$	6,871		$	4,455		$	2,965
Charges to operations	2,116			1,350			1,770
Deductions for payments made	(4,532		)	(2,840		)	(1,372		)
Balance, end of year	$	4,455		$	2,965		$	3,363

During the first quarter of 2013, we were able to negotiate more favorable rates with a third-party service provider. Accordingly, we adjusted our warranty accrual by $0.8 million to reflect this change. In addition, the decrease in deductions for payments made during year ended December 31, 2014 as compared to the year ended December 31, 2013 relates primarily to price concessions and rebates based on sales volumes issued in 2013 to a material customer related to a quality issue associated with certain power supply devices.

7. Credit Facilities

We maintain a credit facility with Silicon Valley Bank for cash advances and letters of credit of up to an aggregate of$30.0 millionbased upon an advance rate dependent on certain concentration limits within eligible accounts receivable. These limitations exclude certain eligible customer receivables if an individual customer account balance exceeds 25, 50 or 85 percentof the total eligible accounts receivable, depending on the customer, as defined by our Loan and Security Agreement with Silicon Valley Bank. Borrowings under the credit facility bear interest at the Silicon Valley Bank's prime rate, which was4.0% at December 31, 2014, and are secured by substantially all of our accounts receivable, deposit and securities accounts. The agreement provides for a negative pledge on our inventory and intellectual property, subject to certain exceptions, and contains

F-14

usual and customary covenants for an arrangement of its type, including an obligation that we maintain at all times a net worth, as defined in the agreement. As of December 31, 2014, the Company had significant coverage with regard to this covenant. The agreement also includes provisions to increase the financing facility by$20 millionsubject to our meeting certain requirements, including$40.0 millionin borrowing base for the immediately preceding90 days, and Silicon Valley Bank locating a lender willing to finance the additional facility. In addition, if our cash and cash equivalents net of the total amount outstanding under the credit facility fall below$20.0 million(measured on a rolling three-month basis), the interest rate will increase to the Silicon Valley Bank's prime rate plus1.0%and additional restrictions will apply. The maturity date of the credit facility is July 21, 2017.

As ofDecember 31, 2014we hadnooutstanding letters of credit and there waszerooutstanding under the Silicon Valley Bank line of credit. There was $30.0 million available for borrowing under the agreement as of December 31, 2014. We are currently in compliance with all financial covenant requirements.

8. Fair Value Measurements

The short-term nature of our financial instruments expose the Company to limited credit risk and have no stated maturities or have short-term maturities and carry interest rates that approximate market interest rates. There were no transfers between Level I, II or III inputs for any of our assets measured at fair value during the reporting period.

Assets Measured at Fair Value on a Recurring Basis

			Fair Value Measurements Using
Description	December 31, 2013		Quoted Prices for Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total (Losses)
	(in thousands)
Cash and cash equivalents	$	40,406	$	40,406	$	—	$	—	$	—

			Fair Value Measurements Using
Description	December 31, 2014		Quoted Prices for Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total (Losses)
	(in thousands)
Cash and cash equivalents	$	42,492	$	42,492	$	—	$	—	$	—

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and credit facility borrowings. The carrying values on our balance sheet of our cash and cash equivalents, accounts receivable, and accounts payable approximate their fair values due to the short maturities. The following disclosures relate to financial instruments for which the ending balances at December 31, 2013 and December 31, 2014, are not carried at fair value in their entirety on the Consolidated Balance Sheets. These tables present the carrying value and fair value, by fair value hierarchy, of our financial instruments, excluding cash and cash equivalents, accounts receivable and accounts payable at December 31, 2013 and 2014, respectively (in thousands).

			Fair Value Measurements Using
Description	December 31, 2013		Quoted Prices for Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total (Losses)
Credit facility borrowings	$	2,000	$	—	$	2,000	$	—	$	—

The Company had no outstanding borrowings on the credit facility as of December 31, 2014.

The fair value of the Company's debt was estimated using a market approach based on the amount at the measurement date that the Company would receive to enter into an identical liability, since quoted prices for the Company's debt instrument are not available.

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9. Income Taxes

Components of income (loss) from continuing operations before taxes are as follows, (in thousands):

	Year Ended December 31,
	2012			2013			2014
Income (loss) from continuing operations before taxes:
United States	$	(7,211	)	$	9,051		$	12,569
Foreign	(2,442		)	(3,460		)	(4,287		)
Total income (loss) from continuing operations before taxes	$	(9,653	)	$	5,591		$	8,282

Components of the income tax provision (benefit) are as follows, (in thousands):

	Year Ended December 31,
	2012		2013			2014
Current:
Federal	$	—	$	(28	)	$	(26	)
State and local	67		99			161
Foreign	682		85			89
	749		156			224
Deferred:
Federal	—		—			—
State, local and foreign	—		(105		)	3
	—		(105		)	3
Total income tax provision	$	749	$	51		$	227

The reconciliation of the income tax provision computed using the federal statutory income tax rate to the recognized income tax provision (benefit) is as follows, (in thousands):

	Year Ended December 31,
	2012			2013			2014
Federal statutory rate	$	(3,282	)	$	1,901		$	2,816
State and local income taxes, net of federal benefit	(16		)	65			106
State rate change and other adjustments	531			—			(49		)
Adjustments to state deferred taxes	—			(590		)	389
Increase (decrease) in valuation allowance	597			(1,672		)	(3,332		)
Foreign tax rate differential	915			24			(59		)
Research and development credits	127			(365		)	(267		)
Share-based compensation	518			491			245
Uncertain tax positions	767			(43		)	57
Adjustments to federal deferred taxes	525			110			208
Other	67			130			113
Income tax provision	$	749		$	51		$	227

F-16

The tax effect of temporary differences that give rise to deferred income taxes are as follows, (in thousands):

	December 31,
	2013			2014
Deferred tax assets:
Net operating loss and tax credit carry forwards	$	93,128		$	88,656
Inventory reserve and uniform capitalization	1,474			1,705
Stock options and warrants	2,440			2,704
Allowance for bad debts and sales returns	171			880
Vacation accrual	261			146
Deferred rent	143			126
Deferred revenue	380			433
Warranty accrual	958			1,173
Depreciation and amortization	1,358			1,137
Other accruals and reserves	362			433
Accrued Bonus	873			418
Intangible assets	1,195			1,037
Total deferred tax assets	102,743			98,848
Deferred tax liabilities:
State taxes	(3,885		)	(3,696		)
Other	(548		)	(187		)
Total deferred income tax liabilities	(4,433		)	(3,883		)
Valuation allowance	(98,205		)	(94,873		)
Net deferred tax assets	$	105		$	92

As a result of certain realization requirements, the table of deferred tax assets and liabilities shown above does not include deferred tax assets for net operating losses as of December 31, 2014 that arose directly from tax deductions related to equity compensation in excess of compensation recognized for financial reporting. Equity will be increased by $2.5 million if and when such excess tax benefits are recognized through current taxes payable. The Company uses FASB Accounting Standards Codification, or ASC, 740, Income Taxes, ordering when determining when excess tax benefits or shortfalls have been realized.

United States income and withholding taxes have not been recognized on the excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries that are essentially permanent in duration.

The following table summarizes the activity related to our unrecognized tax benefits (in thousands):

	Year Ended December 31,
	2012			2013			2014
Balance, January 1	$	5,025		$	5,726		$	5,771
Increase related to prior period positions	583			341			122
Increase related to current year tax positions	241			380			169
Reductions for tax positions of prior years	(123		)	(676		)	(395		)
Settlements	—			—			—
Balance, December 31	$	5,726		$	5,771		$	5,667

At December 31, 2012, 2013, and 2014 we had cumulative unrecognized tax benefits of approximately $5.7 million, $5.8 million, and $5.7 million, respectively, of which approximately $0.9 million, $0.8 million, and $0.6 million, respectively, are included in other long term liabilities that, if recognized, would affect the effective tax rate. The remaining $4.8 million, $5.0 million and $5.1 million of unrecognized tax benefits will have no impact on the effective tax rate due to the existence of net operating loss carryforwards and a full valuation allowance. Consistent with previous periods, penalties and tax related interest expense are reported as a component of income tax expense. As of December 31, 2012, and 2013, the total amount of accrued income tax related interest and penalties included in the consolidated balance sheet was less than $0.2 million and approximately $0.4 million, respectively. As of December 31, 2014, the total amount of accrued income tax related interest and penalties included in the consolidated balance sheet was approximately $0.5 million. We anticipate none of our unrecognized tax positions will be settled or reversed within the next 12 months.

F-17

Due to net operating losses and other tax attributes going forward, we are currently open to audit under the statute of limitations by the Internal Revenue Service for the years ending March 31, 2000 through December 31, 2014. With few exceptions, our state income tax returns are open to audit for the years ended December 31, 2010 through 2014.

We periodically evaluate the likelihood of the realization of deferred tax assets, and adjust the carrying amount of the deferred tax assets by the valuation allowance to the extent the future realization of the deferred tax assets is not judged to be more likely than not. We consider many factors when assessing the likelihood of future realization of our deferred tax assets, including our recent cumulative earnings experience by taxing jurisdiction, expectations of future taxable income or loss, the carryforward periods available to us for tax reporting purposes, and other relevant factors.

At December 31, 2014, based on the weight of available evidence, including cumulative losses in recent years and expectations regarding future taxable income, we determined that it was not more likely than not that our deferred tax assets would be realized and have a $94.9 million valuation allowance associated with our deferred tax assets.

As of December 31, 2014, we had federal net operating loss carryforwards of approximately $182.9 million which begin to expire in the tax year ending 2020, and state net operating loss carryforwards of approximately $101.7 million which begin to expire in the tax year ending 2015. We had foreign net operating loss carryforwards of $43.8 million, which have no expiration date. In addition, we had federal tax credit carryforwards of $4.9 million, of which approximately $0.4 million can be carried forward indefinitely to offset future tax liability, and the remaining $4.5 million begin to expire in the tax year ending 2018. We also had state tax credit carryforwards of $3.5 million, of which the entire $3.5 million has no expiration date.

As a result of our equity transactions, an ownership change, within the meaning of IRC Section 382, occurred on September 18, 2003. As a result, annual use of our federal net operating loss and credit carry forwards is limited to (i) the aggregate fair market value of Dot Hill immediately before the ownership change multiplied by (ii) the long-term tax-exempt rate (within the meaning of Section 382 (f) of the IRC) in effect at that time. The annual limitation is cumulative and, therefore, if not fully utilized in a year, can be utilized in future years in addition to the IRC Section 382 limitation for those years.

As a result of our acquisition of Chaparral Network Storage, Inc., or Chaparral, a second ownership change, within the meaning of IRC Section 382, occurred on February 23, 2004. As a result, annual use of Chaparral’s federal net operating loss and credit carry forwards may be limited. The annual limitation is cumulative and, therefore, if not fully utilized in a year, can be utilized in future years in addition to the Section 382 limitation for those years.

As a result of our acquisition of Cloverleaf, a third ownership change, within the meaning of IRC Section 382, occurred on January 26, 2010. As a result, annual use of Cloverleaf’s federal net operating loss and credit carry forwards may be limited. The annual limitation is cumulative and, therefore, if not fully utilized in a year, can be utilized in future years in addition to the Section 382 limitation for those years.

10. Stockholders’ Equity, Equity Incentive Plans and Warrants

Stock Incentive Plans

2009 EIP. Our stockholders approved the 2009 Equity Incentive Plan, or the 2009 EIP, at our annual meeting of stockholders held on June 15, 2009. The 2009 EIP authorizes the issuance or grant of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock unit awards, stock appreciation rights, performance awards, performance cash awards and other stock awards to our employees, directors and consultants and is intended as the successor to and continuation of our 2000 EIP. Following the approval of the 2009 EIP by our stockholders, no additional stock awards may be granted under the 2000 Amended and Restated Equity Incentive Plan, or the 2000 EIP. All outstanding stock awards granted under the 2000 EIP will remain subject to the terms of the 2000 EIP provided, however, that any shares subject to outstanding stock awards granted under the 2000 EIP that expire or terminate for any reason prior to exercise or settlement shall become available for issuance pursuant to awards granted under the 2009 EIP. Awards granted under the 2000 EIP expire 10 years from the date of grant. Awards granted under the 2009 EIP expire seven years from the date of grant. As of June 15, 2009, the total number of shares of our common stock reserved for issuance under the 2009 EIP consisted of 4,500,000 shares plus 7,112,217 shares that are subject to outstanding stock awards under the 2000 EIP that may become available for grant under the 2009 EIP if they expire or terminate for any reason prior to exercise or settlement under the 2000 EIP. On May 2, 2011 shareholders approved our Amended 2009 Equity Incentive Plan, primarily to increase the share reserve by 8,000,000 shares. On May 5, 2014, shareholders approved an amendment to the Amended 2009 Equity Incentive Plan, primarily to increase the share reserve by 7,000,000 shares. Unless sooner terminated by our Board of Directors, the 2009 EIP shall automatically terminate on April 26, 2019, the day before the tenth anniversary of the date the 2009 EIP was adopted by the Board. The Board of Directors may also amend the 2009 EIP at any time subject to applicable laws and regulations, including the rules and regulations of The

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NASDAQ Stock Market LLC. In general, no amendment or termination of the 2009 EIP may adversely affect any rights under awards already granted to a participant unless agreed to by the affected participant.

During 2012, 2013 and 2014, we granted restricted stock and options to purchase common stock with various vesting as approved by the Compensation Committee of the Board and/or the Chief Executive Officer and Chief Financial Officer, as appropriate, upon each grant. As of December 31, 2014, 55,900 shares of restricted stock were outstanding under the 2009 EIP, of which none were performance-based restricted stock awards. Additionally, no shares of restricted stock were outstanding under the 2000 EIP. As of December 31, 2014, options to purchase 7,124,198 and 2,178,746 shares of common stock were outstanding under the 2009 EIP and 2000 EIP, respectively. 7,814,281 shares of common stock remained available for grant under the 2009 EIP.

2000 NEDSOP. Under our 2000 Non-Employee Directors Stock Option Plan, or 2000 NEDSOP, non-qualified stock options to purchase common stock are automatically granted to our non-employee directors upon appointment to our Board of Directors (initial grants) and upon each of our annual meeting of stockholders (annual grants). Options granted under the 2000 NEDSOP expire 10 years from the date of the grant. Initial grants vest over four years, with 25% of the shares subject to the option vesting one year from the date of grant and the remaining shares subject to the option vesting ratably thereafter on a monthly basis. Annual grants are fully vested on the date of grant. 1,000,000 shares of common stock are reserved for issuance under the 2000 NEDSOP. As of December 31, 2014, options to purchase 650,000 shares of common stock were outstanding under the 2000 NEDSOP and options to purchase 243,124 shares of common stock remained available for grant under the 2000 NEDSOP.

ESPP. Our stockholders approved our Amended and Restated Employee Stock Purchase Plan, or 2000 ESPP, at our annual meeting of stockholders held on June 15, 2009, primarily to increase the share reserve under the 2000 ESPP by 4,000,000 shares. The 2000 ESPP qualified under the provisions of Section 423 of the Internal Revenue Code, or IRC, and provided our eligible employees, as defined in the 2000 ESPP, with an opportunity to purchase shares of our common stock at 85% of fair market value. There were 808,761 and 195,857 shares issued under the 2000 ESPP for the years ended December 31, 2013 and 2014, respectively. The 2000 ESPP was terminated after the last purchase on January 31, 2014. On January 21, 2014, the Board of Directors adopted the Dot Hill Systems Corp. 2014 Employee Stock Purchase Plan, or the 2014 ESPP, which was approved by our stockholders on May 5, 2014. There are 4,000,000 shares of common stock reserved for issuance under the 2014 ESPP. The 2014 ESPP qualifies under the provisions of Section 423 of the IRC, and provides our eligible employees, as defined in the 2014 ESPP, with an opportunity to purchase shares of our common stock at 85% of fair market value. There were 196,481 shares issued under the 2014 ESPP for the year ended December 31, 2014. As of December 31, 2014, the 2014 ESPP had a total of 3,803,519 shares available for purchase.

As of December 31, 2014, total unrecognized share-based compensation cost related to unvested stock options, restricted stock awards, management stock incentive plan and our 2014 ESPP was $5.2 million, which is expected to be recognized over a weighted-average period of approximately 2.5 years.

The following table summarizes share-based compensation expense, (in thousands):

	Year Ended December 31,
	2012		2013		2014
Cost of goods sold	$	617	$	334	$	350
Sales and marketing	419		274		353
Research and development	1,705		1,054		1,304
General and administrative	1,024		1,028		1,138
Share-based compensation expense before taxes	3,765		2,690		3,145
Related deferred income tax benefits	—		—		—
Share-based compensation expense	$	3,765	$	2,690	$	3,145
Share-based compensation expense is derived from:
Stock options	$	1,508	$	1,924	$	2,642
Restricted stock awards	1,958		489		181
2014 and 2000 ESPP	299		277		322
Total	$	3,765	$	2,690	$	3,145

We estimate forfeitures at the time of grant and revise, if necessary, in subsequent periods if actual forfeitures differ from those estimates. We have historically and continue to estimate the fair value of share-based awards using the Black-Scholes pricing model.

F-19

A summary of stock option activity for 2014 is as follows:

	Number of shares		Weighted average exercise price		Weighted average remaining contractual term (in years)	Aggregate intrinsic value
Outstanding at January 1, 2014	9,850,498		$	2.58
Granted	2,370,500		4.04
Exercised	(1,184,829	)	2.20
Forfeited	(554,079	)	2.53
Expired	(529,146	)	8.89
Outstanding at December 31, 2014	9,952,944		$	2.64	4.34	$	18,369,137
Vested and expected to vest at December 31, 2014	9,578,949		$	2.61	4.27	$	17,994,450
Exercisable at December 31, 2014	6,141,839		$	2.48	3.52	$	12,604,603

A summary of restricted stock award activity for 2014 is as follows:

	Number of shares		Weighted average grant date fair value
Outstanding at January 1, 2014	92,811		$	1.73
Granted	80,000		4.32
Vested	(116,661	)	2.25
Forfeited	(250	)	2.90
Outstanding and unvested at December 31, 2014	55,900		$	4.33

The weighted average grant-date fair values of options granted during the years ended December 31, 2012, 2013 and 2014 were $0.89 per share, $1.05 per share, and $2.35 per share, respectively. The total intrinsic value of options exercised during the years ended December 31, 2012, 2013 and 2014 were $0.0 million, $0.2 million, and $2.6 million, respectively.

The weighted average grant-date fair values of restricted stock awards granted during the years ended December 31, 2012, 2013 and 2014 were $1.23, $1.74 and $4.32 per share, respectively. The fair value of restricted stock awards that vested during the years ended December 31, 2012, 2013 and 2014 was $3.3 million, $1.3 million and $0.3 million, respectively.

Cash generated from options exercised under all share-based compensation arrangements for the years ended December 31, 2012, 2013 and 2014 were $0.0 million, $0.3 million and $2.6 million, respectively. Cash generated from the purchase of shares through the 2000 ESPP for the years ended December 31, 2012, and 2013 and through the 2000 ESPP and 2014 ESPP for the year ended December 31, 2014, was $0.7 million, $0.7 million, and $1.1 million respectively. We issue new shares from the respective plan share reserves upon exercise of options to purchase common stock and for purchases through the 2000 ESPP and 2014 ESPP.

The aggregate intrinsic value in the stock option summary table above is based on our closing stock price of $4.42 per share as of the last business day of the fiscal year ended December 31, 2014, which represents the value that would have been realized by the optionees had all options been exercised on that date. The total fair value of options to purchase common stock that vested during the years ended December 31, 2012, 2013 and 2014 was $2.1 million, $2.2 million, and $2.9 million, respectively.

F-20

To estimate compensation expense for the years ended December 31, 2012, 2013, and 2014 we used the Black-Scholes pricing model with the following weighted-average assumptions for equity awards granted:

	EIP and NEDSOP						ESPP
	Year Ended December 31,						Year Ended December 31,
	2012		2013		2014		2012		2013		2014
Risk-free interest rate	1.19	%	1.07	%	1.59	%	0.12	%	0.09	%	0.05	%
Expected dividend yield	—	%	—	%	—	%	—	%	—	%	—	%
Volatility	81	%	82	%	70	%	64	%	63	%	60	%
Expected Term	5.2 years		5.3 years		4.9 years		0.5 years		0.5 years		0.5 years
Forfeiture Rate	0%-10.62%		0%-9.45%		0%-10.05%		—	%	—	%	—	%

The risk-free interest rate is based on the implied yield available on United States Treasury issues with an equivalent remaining term. We have not paid dividends in the past and do not plan to pay any dividends in the future.

The expected volatility is based on historical volatility of our stock for the related vesting period. The expected life of the equity award is based on historical experience.

The forfeiture rate is estimated when awards are granted and updated if information becomes available indicating that actual forfeitures will differ.

Warrants

In January 2008, we amended our Product Purchase Agreement, or Agreement, originally entered into with Hewlett-Packard Company, or HP, in September 2007, to allow for sales to additional divisions within HP. In connection with the Agreement, we issued a warrant to HP to purchase 1,602,489 shares of our common stock (approximately 3.5% of our outstanding shares prior to the issuance of the warrant) at an exercise price of $2.40 per share.

On October 31, 2011, we amended again the Product Purchase Agreement originally entered into with HP on September 10, 2007. In part, this Amendment extends until October 30, 2016 the expiration date of the warrant previously issued to HP to purchase 1,602,489 shares of our common stock at the original exercise price of $2.40 per share.

11. Employee Retirement Benefit Plans

Dot Hill Retirement Savings Plan

The Dot Hill Retirement Savings Plan, which qualifies under Section 401(k) of the IRC, is open to eligible employees over 21 years of age. Under the plan, participating United States employees may defer up to 100% of their pretax salary, but not more than statutory limits. At our discretion we may make contributions to this plan for plan participants. Our matching contributions vest to employees as a percentage based on years of employment from one to five years, and matching contributions are fully vested to employees after five years of employment. Our matching contributions to the retirement savings plan for the years ended December 31, 2012, 2013 and 2014 were $0.3 million, $0.4 million and $0.3 million, respectively.

12. Commitments and Contingencies

Operating Leases

We lease office space, equipment and automobiles under non-cancelable operating leases, which expire at various dates through May 2018. Rent expense for the years ended December 31, 2012, 2013 and 2014 was $1.1 million, $1.2 million and $1.2 million, respectively. We record rent expense on a straight–line basis based on contractual lease payments.

F-21

Future minimum lease payments due under all non-cancelable operating leases as of December 31, 2014 are as follows (in thousands):

Year Ended December 31,
2015	$	873
2016	849
2017	860
2018	360
2019	—
Thereafter	—
Total minimum lease payments	$	2,942

For purposes of the table above, the operating lease obligations exclude common area maintenance, real estate taxes and insurance expenses.

Unconditional Purchase Obligations

We have unconditional inventory related purchase obligations to certain suppliers for certain commodities in order to ensure supply of select key components at the most favorable pricing. Additionally, we have non-inventory related purchase obligations that represent purchase commitments made in the ordinary course of business. At December 31, 2014, we had approximately $47.4 million of unconditional purchase obligations, of which $0.9 million for excess purchase commitments was recorded in Accrued Expenses on the balance sheet.

Cumulative Translation Adjustment

If we liquidate any of our foreign subsidiaries, our cumulative translation adjustment recorded in Other Comprehensive Income would be required to be reclassified into earnings. As discussed in Note 3 to the Consolidated Financial Statements, the Company currently anticipates liquidation of its Netherlands operating unit during early 2015. The Netherlands operating unit currently has no active operations. Cumulative translation losses of approximately $2.7 million related to the Netherlands operating unit would be reclassified from other comprehensive loss to operating loss.

Legal Proceedings

We are not party to any significant legal proceedings, except as described below, but are involved in certain legal actions and claims from time to time arising in the ordinary course of business. Although occasional adverse decisions or settlements may occur, the Company believes that the final disposition of such matters will not have a material adverse effect on its financial position or results of operations.

Crossroads, Inc. - During the quarter ended September 30, 2014, the Company met with Crossroads Inc., or Crossroads, to establish a framework to resolve the dispute regarding the Amended Settlement and License Agreement dated October 2006. On September 19, 2014, the United States District Court for the Western District of Texas partially granted the Company’s motion for partial summary judgment as to Crossroads’ claims concerning royalty payments on product sales to HP for the period after the Fall of 2011 and at the same time held that the Company is not entitled to the benefit of a license Crossroads granted to HP for the period prior to fall 2011. In addition, a patent claim construction hearing occurred on October 6-7, 2014 but no claim construction order was issued and no trial date has been set. On February 27, 2015, the Company filed motions to join two inter partes reviews of the validity of the patent that are being conducted by the United States Patent Office and filed a motion to stay the district court litigation pending the entry of final written decisions in the inter partes reviews. No trial date has been set. Based on the United States District Court’s response to the Company’s motion for partial summary judgment and ongoing discussions with Crossroads, it is probable that the Company will resolve this dispute for royalty payments from 2009 to the current period for a total amount in the range of $1.0 million to $3.4 million. As of December 31, 2014, $1.0 million was accrued and charged to general and administrative expense. We are in the early stages of the potential settlement of this matter.  Accordingly, the actual amount of a settlement could be different than the amount accrued or the currently estimated maximum amount and the difference could be material.

F-22

13. Segment Information

Operating segments, as defined in ASC 280, Segment Reporting, are components of an enterprise for which separate financial information is available and is evaluated regularly by the Chief Operating Decision Maker, or CODM, in deciding how to allocate resources and in assessing performance. ASC 280 also requires disclosures about products and services, geographic areas and significant customers.

Prior to the first quarter of 2014, our CODM managed our business as one reportable operating segment that included the design, manufacture, and marketing of a range of storage systems for the entry and mid-range storage markets. Beginning in the first quarter of 2014, due to the growth and significance of our Vertical Markets, our CODM is managing our business in three reportable operating segments: Server OEM, Vertical Markets and Corporate. Hence, we changed our reporting segments accordingly, and segment information for all periods presented has been reclassified to conform to fiscal 2014 presentation.

Server OEM

The Server OEM segment consists primarily of large Original Equipment Manufacturers who purchase products from us to sell along with their server products. Our products are typically sold in server led sales into their end-user customers' corporate information technology infrastructure. Server OEM customers include Customer A (refer to Note 1, Summary of Significant Accounting Policies - Concentration of Customers and Suppliers).

Vertical Markets

The Vertical Markets segment consists of strategically selected Vertical Markets that have a propensity for high data growth. Some of our target Vertical Markets include Media and Entertainment, Telecommunications Infrastructure, Oil and Gas, Big Data Analytics and Digital Imaging, among others. These customers typically embed their products into their customer solutions which quite often generate revenue for their end-user customers. We sell to these customers through both Vertical Markets OEM partners or embedded solutions integrators, as well as through channel partners. Vertical Markets customers include Customers B and C (refer to Note 1, Summary of Significant Accounting Policies - Concentration of Customers and Suppliers).

Corporate

The Corporate segment consists primarily of costs that support both the Server OEM and Vertical Markets segments.

Net revenues by segment are as follows (in thousands):

	Year ended December 31,
	2012		2013		2014
Net revenue:
Server OEM	$	143,353	$	134,798	$	115,580
Vertical Markets	51,195		71,767		102,085
Total net revenue	$	194,548	$	206,565	$	217,665

Operating income (loss) by segment, and a reconciliation to consolidated income (loss) before income taxes and discontinued operations is as follows (in thousands):

	Year ended December 31,
	2012			2013			2014
Operating income (loss):
Server OEM	$	28,718		$	33,464		$	27,091
Vertical Markets	7,858			21,781			33,587
Corporate	(46,232		)	(49,615		)	(52,375		)
Total operating income (loss)	(9,656		)	5,630			8,303
Total other income (expense), net	3			(39		)	(21		)
Income (loss) before income taxes and discontinued operations	$	(9,653	)	$	5,591		$	8,282

The segments use many of the same assets. For internal reporting purposes, we do not allocate assets by segment and therefore, asset, depreciation and amortization, or capital expenditure by segment information is not provided to our CODM.

F-23

Geographic Information

Net revenue is recorded in the geographic area in which the sale is originated. Long-lived assets include property and equipment, net, identifiable intangible assets and other non-current assets. Information concerning principal geographic areas in which we operate is as follows (in thousands):

	Year ended December 31,
	2012		2013		2014
Net revenue:
United States	$	192,801	$	204,764	$	216,306
Europe, Middle East and Africa	14		3		—
Asia	1,733		1,798		1,359
Total net revenue	$	194,548	$	206,565	$	217,665
Long-lived assets:
United States	$	7,682	$	8,147	$	9,159
Europe, Middle East and Africa	68		15		13
Asia	—		—		—
Total long-lived assets	$	7,750	$	8,162	$	9,172

14. Quarterly Financial Information (Unaudited)

The information presented below reflects all adjustments, which, in the opinion of management, are of a normal and recurring nature necessary to present fairly the results of operations for the periods presented (in thousands, except per share amounts):

Year Ended December 31, 2013:	First Quarter			Second Quarter		Third Quarter		Fourth Quarter
Net revenue	$	44,480		$	50,683	$	52,603	$	58,799
Gross profit	14,440			17,007		16,873		17,750
Income (loss) before income taxes and discontinued operations	(526		)	2,138		1,875		2,104
Net income (loss) from continuing operations	(560		)	2,089		1,775		2,236
Basic and diluted net income (loss) per share from continuing operations	$	(0.01	)	$	0.04	$	0.03	$	0.03

Year Ended December 31, 2014:	First Quarter			Second Quarter			Third Quarter		Fourth Quarter
Net revenue	$	48,207		$	48,222		$	52,121	$	69,115
Gross profit	15,265			16,023			16,962		24,325
Income (loss) before income taxes and discontinued operations	(411		)	(4		)	86		8,611
Net income (loss) from continuing operations	(412		)	(78		)	40		8,505
Basic and diluted net income (loss) per share from continuing operations	$	(0.01	)	$	(0.00	)	$	0.00	$	0.14

F-24

EX-10.44

Exhibit 10.44

Amendment Three to Manufacturing and Purchase Agreement

Between Dot Hill Systems Corp. and Hon Hai Precision Industry

Co. Ltd.

This Amendment No.3 ("Amendment") is dated January 31, 2013 (the "Effective Date") and is an amendment to the Manufacturing and Purchase Agreement dated September 2008 (the "Agreement") between Dot Hill Systems Corp. and its subsidiaries ("Dot Hill") and Hon Hai Precision Industry Ltd, and its parents, subsidiaries and affiliate companies ("Foxconn").

Except as expressly set forth herein, all other terms and conditions of the Agreement shall continue in full force and effect. Capitalized terms used but not defined herein shall have the meanings given thereto in the Agreement. This Amendment shall become part of the Agreement and all applicable terms and conditions of the Agreement including, but not limited to Section 21.7 of the Agreement regarding Further Assurances, shall apply to this Amendment.

Whereas, Dot Hill and Foxconn wish to enter into this amendment to set forth ways in which to leverage each other's Supplier Quality Engineering resources to better address quality assurance obligations with respect to components and other materials used by Foxconn to manufacture the Products ("Components"), and

Whereas, Dot Hill and Foxconn also wish to standardize and set forth in writing the efforts and obligations regarding: audits; SCAR status reporting, KPI reporting; and other quality-related activities.

Therefore, Appendix 3 of the Agreement shall be revised to add the following terms and conditions:

11. The parties agree that various Supplier Quality Assurance obligations will be divided between the parties as set forth on Exhibit 1, attached hereto and made a part hereof by reference. On Exhibit 1, "X" signifies involvement, the letter "R" signifies Responsible (primary) and the letter "S" signifies Supporting role. "Supporting role" means providing data or assistance as may be required and provided to fulfill the Supplier Quality obligation as outlined by the primary Responsible party.

12. Foxconn Supplier Quality Engineers ("SQE") are only able to easily audit suppliers within the Guangdong and Hebei provinces (the "Provinces") until such time that the manufacturing site is moved to Tianjin. There are certain key suppliers that exist outside of these Provinces. The parties agree that Foxconn will be primarily Responsible for auditing and ensuring compliance with all applicable requirements as may be set forth herein or in the Agreement ("Requirements") for those suppliers that are within the Guangdong and Hebei Provinces and Dot Hill will assume a Supporting role. For suppliers outside the Guangdong and Hebei Provinces, Dot Hill will be primarily Responsible for auditing and ensuring compliance with the Requirements, and Foxconn will assume a Supporting role.

1

Exhibit 10.44

13. Foxconn has received copies of Dot Hill's key supplier audit plans for review and coordination. Foxconn will execute the items that they are responsible for as set forth in Exhibit 1.

14. Foxconn has received a copy of Dot Hill's Supplier Quality Management Handbook ("SQMH''), which is also available to Foxconn through Dot Hill's online database called Agile ("Agile"). Dot Hill may update the SQMH from time to time, and upon notice, Foxconn agrees to access the updated SQMH, which will automatically replace the previous SQMH. The parties agree that Foxconn will use reasonable commercial efforts to have those suppliers for whom it is Responsible to audit and oversee adhere to the latest version of the SQMH.

15. The parties will use commercially reasonable efforts to reconcile their auditing methods, and mutually agree to a set of methods going forward. Such auditing methods will include, but not be limited to: frequency of audits; acceptance criteria, and; other methods ("Audit Methods"). The agreed-upon Audit Methods will then be placed in Agile along with any subsequent audit results. Each party hereby agrees that with respect to the suppliers for whom it is tasked to audit and oversee, the parties will comply with the agreed-upon Audit Methods as placed in Agile.

16. Foxconn will consider the frequency for KPI reporting for suppliers selected by Dot Hill, and will submit a list of suggested frequencies by supplier. The parties will then mutually agree upon the list, and each agrees to work toward fulfillment of those frequencies.

17. The parties agree to use Agile as the software tool for creating a unified database, and as a repository for all information relating to supplier quality assurance including, but not limited to: audit reports; non-conformance tracking; and yield issue tracking; SCAR issuance.

18. Foxconn will review material shortage reports on a weekly basis to assure shortages are not due to quality issues. If the shortages are due to quality issues, Foxconn will take immediate steps to resolve the situation as quickly as is commercially reasonable.

19. Dot Hill shall develop and propose a standardized tier 2 ("T2") KPI report format. Upon mutual agreement, such KPI report format will be used by SQEs from both parties with respect to all components and commodities.

20. Process Management Plans (PMP) will be monitored by both Foxconn and Dot Hill at all suppliers as shown in Exhibit 1. Any changes to agreed-upon processes require that the supplier submit a Process Change Notification (PCN) to Dot Hill and/or Foxconn PRIOR TO implementing the change, and these changes will be subject to Dot Hill's approval. PCNs need to be issued for all, but not limited to, the following:

• Tooling changes

• Design changes

2

Exhibit 10.44

• Manufacturing location changes

• Manufacturing, testing, quality assurance, reporting, assembly or other applicable process changes

• Material or component changes

• Sub-supplier changes

• Testing process changes

Intending to be legally bound, the parties execute this Amendment to be effective as of the Effective Date stated above.

DOT HILL	Hon Hai Precision Industry Co. Ltd.
/s/ Dana Kammersgard	/s/ Jackson Shih
Signature	Signature
Name: Dana Kammersgard	Name: Jackson Shih
Title: CEO	Title: V.P.
Date: 3/23/13	Date: 4/30/13

3

Exhibit 10.44

EXHIBIT 1. Amendment No. 3 January 31, 2013 to the Manufacturing and Purchase Agreement dated September 2008

Team

Mechanical Parts Responsibilities

Foxconn

QA

Product Eng

DCC

SBM

Production

PM/NPI

Management

Dot Hill

QA

Engineering

Procurement

Config Management

PM

Management

Development

Sourcing

X

R

S

X=

Involved

Design Requirement and Verification

X

R

S

R=

Responsible (primary)

RoHS / REACH Certifications

X

R

S

S=

Supporting role

PPAP

X

R

S

Initial Process Management Plan (PMP)

X

R

S

Initial Supplier Survey, QPA, QSA

X

R

S

Initial part numbers

X

S

R

Initial BOMS

X

S

R

Drawings and models

X

S

R

Development Planning and timelines

X

R

S

NPI

Special Build

1. SB BOM or PN release

X

S

R

2. SB BOM or PN loading

X

R

S

3. Material purchase

X

R

S

X

S

4. Material inspection

X

R

X

S

5. Manufacturing support arrangement

X

R

S

6. Finalize Process Management Plan (PMP)

X

S

R

X

S

7. Final product verification and report

X

R

S

8. Final product approval

X

R

S

RDT

X

R

S

AVL Add

1. Dot Hill system update

X

S

R

2. ECO release

X

S

R

S

3. Foxconn system update

X

S

R

4. Foxconn implementation

X

S

R

Production

Annual Audit

1. Foxconn Internal Suppliers

X

R

S

X

S

2. Local suppliers

X

R

S

X

S

4

Exhibit 10.44

3. Inter-province suppliers

X

S

X

R

4. Oversea Suppliers

X

S

X

R

Quality Assurance

1. IQC Data Reporting

X

R

2. LRR data reporting

X

R

3. RoHS sampling plan

X

R

X

S

4. SCAR/CAR monitoring

X

R

5. Escalation

X

S

R

S

X

S

6. Disqualification

X

S

S

X

R

S

S

7. Tool life monitoring

X

R

X

S

8. Nth First Article reports

X

R

X

S

ECN

1. ECN request

X

S

S

X

R

S

2. ECN review and verification

X

S

S

S

S

X

S

R

3. Agile release

X

S

R

4. Foxconn implementation

X

S

R

Quality Returns

1. Defect verification

X

R

2. Return logistic arrangement

X

R

3. Credit notes or replacements

X

S

R

Quality Improvements

1. Joint Suppliers redesign and re-verification

X

S

R

2. Joint Supplier QBR

X

R

S

X

S

R

Second Sourcing

1. Repeat the sourcing procedure

X

S

X

S

R

5

Exhibit 10.44

Team

Power Supply Parts Responsibilities

Foxconn

QA

Product Eng

DCC

SBM

Production

PM / NPI

Management

Dot Hill

QA

Engineering

Procurement

Config Management

PM

Management

Manufacturing Ops

PS Supplier

Design Engineering

Procurement

SBM

QA

Production

Production Eng

Management

Development

Sourcing

X

R

S

X

R

S

X=

Involved

Design Requirement and Verification

X

S

R

S

X

R

S

R=

Responsible (primary)

Supplier Audits

X

R

S

R

X

S

R

R

S=

Supporting role

Prototypes and Engineering Builds

X

R

S

X

R

S

Ops Builds

X

S

R

X

R

S

Initial Process Management Plan (PMP)

X

S

S

X

S

S

S

R

NPI

Special Build

1. Material purchase

X

R

S

X

S

S

2. Material inspection

X

R

S

X

S

S

3. Manufacturing support arrangement

X

S

S

R

4. Finalize Process Management Plan (PMP)

X

S

X

R

5. Final product verification and report

X

S

R

S

X

S

6. Final product report

X

R

S

S

S

S

X

S

AVL Add

1. Dot Hill system update

X

S

R

2. ECO release

X

S

R

S

3. Foxconn system update

X

S

R

4. Foxconn implementation

X

S

R

Production

Annual Audit

1. Foxconn Internal Suppliers

X

R

S

X

S

2. Local suppliers

X

R

S

X

S

3. Inter-province suppliers

X

S

X

R

4. Oversea Suppliers

X

S

X

R

5. ECN/PCN Notifications

X

S

R

X

S

R

X

S

R

6

Exhibit 10.44

Quality Assurance

1. IQC Data Reporting

X

R

X

S

2. LRR data reporting

X

R

S

3. Supplier SPC, Yield Reports & monitoring

X

R

X

S

X

S

S

4. SCAR/CAR monitoring

X

R

X

S

5. Escalation

X

R

X

S

6. Disqualification

X

S

S

X

R

S

S

Quality Returns

1. Defect verification

X

R

X

S

2. Return logistic arrangement

X

S

R

3. Credit notes or replacements

X

S

R

Quality Improvements

1. Joint Suppliers redesign and re-verification

X

S

X

R

X

R

2. Joint Supplier QBR

X

S

X

R

Second Sourcing

1. Repeat the procedure

X

S

X

R

S

7

Exhibit 10.44

Team

Power Supply Parts Responsibilities

Foxconn

QA

Product Eng

DCC

SBM

Production

PM / NPI

Management

Dot Hill

QA

Engineering

Procurement

Config Management

PM

Management

Manufacturing Ops

PS Supplier

Design Engineering

Procurement

SBM

QA

Production

Production Eng

Management

Development

Sourcing

X

R

S

X

R

S

X=

Involved

Design Requirement and Verification

X

S

R

S

X

R

S

R=

Responsible (primary)

Supplier Audits

X

R

S

R

X

S

R

R

S=

Supporting role

Prototypes and Engineering Builds

X

R

S

X

R

S

Ops Builds

X

S

R

X

R

S

Initial Process Management Plan (PMP)

X

S

S

X

S

S

S

R

NPI

Special Build

1. Material purchase

X

R

S

X

S

S

2. Material inspection

X

R

S

X

S

S

3. Manufacturing support arrangement

X

S

S

R

4. Finalize Process Management Plan (PMP)

X

S

X

R

5. Final product verification and report

X

S

R

S

X

S

6. Final product report

X

R

S

S

S

S

X

S

AVL Add

1. Dot Hill system update

X

S

R

2. ECO release

X

S

R

S

3. Foxconn system update

X

S

R

4. Foxconn implementation

X

S

R

Production

Annual Audit

1. Foxconn Internal Suppliers

X

R

S

X

S

2. Local suppliers

X

R

S

X

S

3. Inter-province suppliers

X

S

X

R

4. Oversea Suppliers

X

S

X

R

5. ECN/PCN Notifications

X

S

R

X

S

R

X

S

R

Quality Assurance

1. IQC Data Reporting

X

R

X

S

8

Exhibit 10.44

2. LRR data reporting

X

R

S

3. Supplier SPC, Yield Reports & monitoring

X

R

X

S

X

S

S

4. SCAR/CAR monitoring

X

R

X

S

5. Escalation

X

R

X

S

6. Disqualification

X

S

S

X

R

S

S

Quality Returns

1. Defect verification

X

R

X

S

2. Return logistic arrangement

X

S

R

3. Credit notes or replacements

X

S

R

Quality Improvements

1. Joint Suppliers redesign and re-verification

X

S

X

R

X

R

2. Joint Supplier QBR

X

S

X

R

Second Sourcing

1. Repeat the procedure

X

S

X

R

S

9

Exhibit 10.44

Team

Active Components and Supercaps Responsibilities

Foxconn

QA

Product Eng

DCC

SBM

Production

PM/NPI

Management

Dot Hill

QA

Engineering

Procurement

Config Management

PM

Management

Manufacturing Ops

Development

Sourcing

X

R

S

X=

Involved

Design Requirement and Verification

X

R

S

S

R=

Responsible (primary)

Supplier Audits

X

R

S

S

S=

Supporting role

Initial Process Management Plan (PMP)

X

R

S

NPI

Special Build

1. Material purchase

X

R

S

X

S

S

2. Material inspection

X

R

S

X

S

S

3. Manufacturing support arrangement

X

S

S

R

4. Finalize Process Management Plan (PMP)

X

S

X

R

S

5. Final product verification and report

X

S

R

S

X

S

6. Final product report

X

R

S

S

S

S

X

S

AVL Add

1. Dot Hill system update

X

S

R

2. ECO release

X

S

R

S

3. Foxconn system update

X

S

R

4. Foxconn implementation

X

S

R

Production

Annual Audit

1. Foxconn Internal Suppliers

X

R

S

X

S

2. Local suppliers

X

R

S

X

S

3. Inter-province suppliers

X

S

X

R

4. Oversea Suppliers

X

S

X

R

Quality Monitoring

1. IQC Data Reporting

X

R

X

S

2. LRR data reporting

X

R

S

3. Supplier SPC, Yield Reports & monitoring

X

R

X

S

4. SCAR/CAR monitoring

X

R

X

S

5. Escalation

X

R

X

S

6. Disqualification

X

S

X

R

S

S

Quality Returns

1. Defect verification

X

R

X

S

2. Return logistic arrangement

X

S

R

10

Exhibit 10.44

3. Credit notes or replacements	X	S	R
Quality Improvements
1. Joint Suppliers redesign and re-verification	X		S		X		R
2. Joint Supplier QBR	X			S	X			R
Second Sourcing
1. Repeat the procedure	X		S		X	S	R	S

11

EX-10.45

Exhibit 10.45

Amendment Four to

Manufacturing and Purchase Agreement Between

Dot Hill Systems Corp. and Hon Hai Precision Industry Co. Ltd.

This Amendment Four ("Amendment") is dated April 25, 2013 (the "Effective Date") and is an amendment to the Manufacturing and Purchase Agreement dated September 2008 (the "Agreement") between Dot Hill Systems Corp. and its subsidiaries ("Dot Hill") and Hon Hai Precision Industry Ltd, and its parents, subsidiaries and affiliate companies ("Foxconn").

Except as expressly set forth herein, all other terms and conditions of the Agreement shall continue in full force and effect. Capitalized terms used but not defined herein shall have the meanings given thereto in the Agreement. This Amendment shall become part of the Agreement and all applicable terms and conditions of the Agreement.

Whereas, Dot Hill and Foxconn wish to set forth details regarding Foxconn's social and environmental responsibility obligations as described in Section 4.14 of the Agreement,

Wherefore, the Agreement shall be revised to add the following terms and conditions:

4.15 Compliance with the Electronic Industry Code of Conduct ("EICC")

4.15.1 SUPPLIER shall implement a management system to continuously review its EICC conformance and to address any non-conformances.

4.15.2 SUPPLIER grants to Dot Hill's customers the same rights that it grants to Dot Hill under Section 4.14(3)(a) through (d) with respect to compliance with the EICC including: the right to audit SUPPLIER; the right to meet with SUPPLIER to discuss compliance, and; the right to receive reports regarding compliance.

4.15.3 SUPPLIER shall resolve non-compliance with the EICC immediately or as soon as practicable and report resolutions to Dot Hill, which Dot Hill may share with its customers.

4.15.4 SUPPLIER shall conduct a self-audit from an E!CC-approved third party auditor, at SUPPLIER's expense, once every twenty-four (24) months. Upon completion of each Validated Audit Process (as defined by the EICC), SUPPLIER shall provide a copy of the results to Dot Hill, which Dot Hill may share with its customers.

4.15.5 SUPPLIER shall subscribe to the EICC-ON Tool, to input EICC Self-Assessment Questionnaire ("SAQ") responses at SUPPLIER's expense.

Intending to be legally bound, the parties execute this Amendment to be effective as of the Effective Date stated above.

1

Exhibit 10.45

DOT HILL	Hon Hai Precision Industry Co. Ltd.
/s/ Dana Kammersgard	/s/ Jackson Shih
Signature	Signature
Name: Dana Kammersgard	Name: Jackson Shih
Title: PRES. & CEO	Title: V.P.
Date: 5-3-13	Date: 4/30/13

2

EX-10.46

Exhibit 10.46

***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.

TERADATA OPERATIONS, INC.

Agreement Number __________

STRATEGIC SUPPLIER MASTER PURCHASE AGREEMENT

Dot Hill Systems Corp.	Teradata Operations, Inc.
1351 S. Sunset Street	10000 Innovation Drive
Longmont, CO 80501	Dayton, Ohio 45342

Dot Hill Systems Corp. ("Dot Hill") will provide Teradata with data storage systems and ancillary goods and services for use by Teradata as a component in its enterprise data warehouse systems and equipment.

The parties hereby agree to the terms of this Strategic Supplier Master Purchase Agreement, as evidenced by the signatures of their authorized representatives below:

Dot Hill Systems Corp.                    Teradata Operations, Inc.

By:     /s/ Dana W. Kammersgard                By:    /s/ Bruce A. Langos

Name:    Dana W. Kammersgard                Name:    Bruce A. Langos

Title:    CEO                        Title:    President

Date:    8/6/12                        Date:    8/2/12

Strategic Supplier Master Purchase Agreement

Teradata Confidential                                    1

Exhibit 10.46

TERADATA OPERATIONS, INC.

Agreement Number __________

STRATEGIC SUPPLIER MASTER PURCHASE AGREEMENT

This Strategic Supplier Master Purchase Agreement ("Agreement") is made as of July 12, 2012 (the "Effective Date"), by and between Teradata Operations, Inc. a Delaware corporation with its principal place of business at 10000 Innovation Drive, Dayton, Ohio 45342 USA ("Teradata"), and Dot Hill Systems Corp., a Delaware corporation with its principal place of business at 1351 S. Sunset Street, Longmont, CO 80501 ("Supplier"). Teradata and Supplier agree as follows:

1.    STRATEGIC SUPPLIER PARTNERSHIP FOR PRODUCTS

1.1    Teradata produces and markets enterprise data warehouse systems and equipment which include software, parts, supplies and services. Supplier provides data storage systems and ancillary goods and services and agrees to sell and/or license its "Products" to Teradata, for its use, or for resale or license to customers, as supplied or under Teradata logo. "Product(s)" refers to Supplier's products as referenced in Exhibit A of this Agreement, including Parts, Software, and all modifications, changes and improvements made during the Term of this Agreement; "Software" means versions of computer programs, including software or firmware, provided in or with the Products and all modifications, changes and improvements made during the Term of this Agreement; and "Part(s)'' means any component, subassembly, field replaceable unit (''FRU"), or other module of the Products.

1.2     Supplier recognizes that Teradata sells products directly and through Teradata affiliates, distributors and resellers (collectively, "Resellers"). Supplier recognizes that Teradata uses outsourced contract manufacturers ("CMs") to produce Teradata equipment. Supplier will negotiate agreements with CMs for supply of Products to CMs. As between Supplier and Teradata, the terms of this Agreement apply to any Products purchased by Teradata or its CMs for use in Teradata equipment. Except with respect to payment only (where such payment is past due under a valid purchase order placed by a CM as authorized by Teradata in writing to Supplier), Teradata is not responsible to Supplier for any damage incurred by Supplier as a result of any action or omission of any CM. Teradata will provide written requests to Supplier regarding those entities that it wishes to add as a CM under this Agreement.

1.3    Supplier represents that the terms, including prices and warranties, provided to Teradata under this Agreement are and will remain as good as or better than the best terms offered by Supplier to any commercial customer who has purchased the same or comparable Products in similar quantities and under similar conditions.

1.4    If Supplier acquires or develops a type of generally-available product which is like any Product, or performs a similar function, or would obsolete any Product due to new technology, Supplier will afford Teradata adequate notice prior to the release of it; furnish Teradata with the specifications and pertinent information: offer pre-release and post-release engineering evaluations: and agree to add such new products to this Agreement, all as soon as or sooner than Supplier's other customers. In support of the foregoing, Supplier will loan reasonable quantities of Product to Teradata for evaluation for reasonable periods at no charge in accordance with a mutually agreed master loaner agreement. Supplier will also loan reasonable quantities of Product to Teradata customers for proof-of-concept evaluations for periods of up to three (3) months at no charge in accordance with mutually agreed loaner agreements.

1.5    Supplier will provide Teradata with reasonable account support that addresses the operational and information needs of each of the following key business areas within Teradata: operations, engineering, product management, maintenance and support services, and professional services.

Strategic Supplier Master Purchase Agreement

Teradata Confidential                                    2

Exhibit 10.46

2.     PRICING AND TAXES

2.1     Pricing, including initial pricing, will be set out and determined pursuant to Exhibit B of this Agreement, as amended from time to time. All prices and payments will be in U.S. Dollars unless otherwise agreed in writing. Throughout the Term of this Agreement, Supplier will use its commercially reasonable efforts to reduce costs for all Products. Supplier will adjust its prices to pass to Teradata [...***...]% of the standard cost reductions it receives from its hard disk drive suppliers within [...***...] of receiving such reduction and [...***...] percent ([...***...]%) of non-drive standard cost reductions within [...***...] of realizing such standard cost reductions ("Cost Reductions"). The aforementioned Cost Reductions and Annual Cost Erosion Plan (described below) shall not apply to: (a) [...***...]; (b) [...***...]; (c) [...***...]; or (d) [...***...]. [...***...] shall be so identified on the applicable version of Exhibit B. The parties will meet annually to set a binding cost erosion plan for the next calendar year ("Annual Cost Erosion Plan"). The parties will [...***...] an annual cost erosion of at least [...***...] percent ([...***...]%), on average across all Products and Parts, but the actual, binding Annual Cost Erosion Plan may be more or less than the [...***...] percent. If Supplier will not meet the Annual Cost Erosion Plan, [...***...]. Teradata will be entitled to the better of the Cost Reductions or the Annual Cost Erosion Plan

2.2     Supplier agrees that Teradata may require from time-to-time special terms and consideration for specific sales opportunities, which will be reviewed and agreed to on a case by case basis upon the understanding that such terms, conditions and discounts may be better than those stated within this Agreement and shall remain valid for the duration of any such sales opportunity's delivery and installation schedule.

2.3     Product prices in Exhibit B of this Agreement, as amended from time to time, are exclusive of shipping, handling and all taxes, including federal, state or local sales, use, property, excise, value added or similar taxes that may be levied as a result of sale or delivery of any Product under this Agreement. Such taxes will be stated separately on invoices on all sales for which Teradata has not provided valid exemption documentation. Supplier and Teradata agree to render reasonable assistance (for example, by providing valid resale certificates or documentation necessary to claim zero rating for VAT) to exempt the sale of Products from such taxes. Teradata shall not be responsible for any taxes based upon the personal property ownership or gross or net income of Supplier.

3.    FORECASTS, ORDERS, PAYMENT, AND SHIPMENT

3.1    Supplier agrees to cooperate with Teradata and its CM in establishing electronic ordering and invoicing processes, and to obtain and operate such hardware and software as is reasonably required to implement such processes. Where Teradata contracts for services outside the United States through in-country entities. Supplier will reasonably cooperate with Teradata in entering agreements with such entities equivalent to this Agreement except for local requirements such as payment in local currency.

3.2    Teradata or a CM will use reasonable efforts to provide Supplier with forecasts (estimates of requirements) for Product, on a [...***...] rolling basis, updated monthly or other mutually agreed interval. Forecasts are for general planning purposes only, and are not binding on Teradata. Supplier will generally plan and align resources required to meet the forecasts, and will notify Teradata of any inability to meet any forecast as it becomes aware of such inability.

3.3    Supplier agrees to sell Products to Teradata and its CMs in accordance with the terms and conditions of this Agreement. Products will be ordered and specific commitments will be made by Teradata only when Teradata or a CM places “Purchase Orders" with Supplier tor Products for use in Teradata equipment, ordering specific quantities of Products or requesting shipment of specific quantities of Products pursuant to a blanket purchase order. The committed ship date (“CSD'') is the agreed upon lead time or the requested ship date of an accepted Purchase Order. Unless otherwise agreed in Purchase Orders or otherwise, Supplier shall use commercially reasonable efforts to deliver Direct Ship Orders with a maximum of [...***...] early and [...***...] late shall be allowed for all shipments. Teradata will have no obligation to purchase any Product until it places a firm Purchase Order (or a CM places a firm Purchase Order as authorized by Teradata in writing to Supplier). Supplier will reject any non­ conforming Purchase Order in writing, stating the reason for rejection, delivered to Teradata (or the CM. as applicable) within [...***...] a tier receipt, otherwise Purchase Orders will be deemed accepted.

Strategic Supplier Master Purchase Agreement                 ***Confidential Treatment Requested

Teradata Confidential                                3

Exhibit 10.46

3.4    Neither party is liable for failing to fulfill its obligations due to causes beyond its reasonable control and without its fault or negligence. A party must (a) use commercially reasonable efforts to promptly notify the other of conditions which will result in a delay in or failure of performances, (b) use commercially reasonable efforts to avoid or remove the conditions, and (c) immediately continue performance when the conditions are removed. In the event of constrained capacity, whether excused or not, Supplier will use reasonable efforts to utilize capacity planned for Teradata to meet Teradata requirements, and in no event will Teradata's available allocation be lower than the proportion of Teradata's pre-allocation Purchase Orders as a percentage of Supplier's business for the Products. Acceptance by Teradata of such percentage of its Purchase Orders will not waive any rights or remedies which Teradata may have as a result of Supplier's failure to ship all ordered Products.

3.5    This Section 3.5 applies when Teradata orders from Supplier for shipment directly to Teradata ("Direct Ship Orders"). The agreed upon lead time is [...***...] for forecasted amounts and [...***...] for amounts outside of forecast, however, Supplier has the right to [...***...]. Direct Ship Orders will be shipped FCA (Incoterms 2000) Supplier' designated distribution facility. Risk of loss, and damage of Product will pass from Supplier to Teradata upon leaving Supplier's designated distribution facility. Supplier will provide Teradata with advance shipment notice at least [...***...] prior to shipping using a method and format reasonably requested by Teradata. If Supplier knows in advance that itwill not ship the agreed upon quantity on the CSD, Supplier will promptly notify Teradata, but no less than [...***...] prior to the CSD, using a method and format reasonably requested by Teradata. Payment is due net [...***...] from the date of receipt of a proper and correct invoice, following Teradata's receipt of conforming Products. Invoices will be submitted electronically through Teradata's web based invoicing site. Teradata may change and/or cancel any Purchase Order in whole or in part, at its convenience and without liability, [...***...] or more days before the requested delivery date upon written notice to Supplier.

3.6    This Section 3.6 applies when Teradata orders from Supplier through a CM. The following will be handled in accordance with Supplier's agreement with the CM: a) freight arrangements, b) invoicing, c) payment and credit terms, d) title, e) risk of loss, f) advance shipment notices, and g) minimum buffer inventory level, and h) agreed upon lead time. With respect to Product or Parts delivered through the VMI ("VMI Orders"), Teradata or its CM may change and/or cancel any Purchase Order in whole or in part and without liability, and return the Product to Supplier to the extent cancelled, as per Exhibit I, Section 3. Supplier will operate a Vendor Managed Inventory

(VMI) near Teradata designated CM facility (currently in South Carolina) and maintain inventory in the VMI dedicated to Teradata. The VMI Terms and Conditions set forth in Exhibit I, attached hereto and made a part hereof by reference, shall apply to VMI Inventory and VMI Orders. Upon discovery of any non-conformance of a Product in VMI, the Supplier is obligated within [...***...] to verify the conformance of the existing inventory for that Product in the remainder of the VMI.

3.7    Teradata and CMs will have no liability to Supplier if any Purchase Order is canceled due to Supplier's failure to comply with this Agreement, or to the extent the Products are reusable or can be readily sold by Supplier to another buyer.

3.8    If Supplier fails to ship the agreed upon quantity on the CSD due to Supplier's fault, Supplier will [...***...] specified by Teradata or a CM, [...***...] to Teradata. If Supplier is unable for any reason to supply any portion of Teradata's requirements on time, such portion will be considered to [...***...].

3.9    Supplier will provide to Teradata, prior to the first delivery of any Product, a certificate of origin stating the country of origin for the Product. If the country of origin for any Product changes, Supplier will provide an updated certificate of origin before any delivery of such Product.

3.10    All Products and Parts will be packed by Supplier in accordance with generally accepted industry standards and all applicable country, federal, state and other governmental regulations in effect at the time of shipment. Single unit packaging is required for spare Parts. Each box will contain Products or Parts ordered under a single Purchase Order. Products, Parts and packaging will be labeled as reasonably required by Teradata.

Strategic Supplier Master Purchase Agreement                 ***Confidential Treatment Requested

Teradata Confidential                                4

Exhibit 10.46

4.    LICENSE OF SOFTWARE AND DOCUMENTS

As to Software provided in or with the Products at no additional charge, Supplier hereby grants a worldwide, non-exclusive, royalty-free license: (a) to Teradata and CMs to install and test the Software prior to resale to Teradata customers, and (b) to Teradata to resell and distribute copies of the Software in or with the Products, in object code form only, (either directly or through Teradata distributors and resellers). The Software will be licensed to Teradata customers under the terms and conditions used to license Teradata's own software of like nature. Title to Software will remain with Supplier and its licensors, as applicable, and Teradata acquires no rights in the Software other than those specifically described herein. Except as expressly required to be permitted under applicable law, Teradata shall not reverse engineer, decompile, modify, translate or disassemble the Software, or cause or aid any third party to do so. Certain Software Products may be licensed separately for additional or separate fees, which fees shall be set forth on Exhibit B.

During the Term, Supplier grants to Teradata a worldwide, non-exclusive, royalty-free license to use Supplier's trademarks and trade names ("Supplier's Marks") on or in connection with the Products and Software. Supplier will provide a complete set of documentation agreed upon by Teradata and Supplier relating to the operation and/or maintenance of Products as is customarily supplied to end users ("End User Documentation"). Supplier will deliver End User Documentation to Teradata in electronic format. Supplier hereby grants to Teradata and its designated document producer a perpetual, worldwide, non-exclusive, royalty-free license to reproduce, distribute, perform and display copies and create derivative works of the End User Documentation but only for use with the Products. Any substantive modification to the End User Documentation shall require Supplier's approval prior to distribution.

5.    PRODUCT WARRANTIES, QUALITY, SERVICE SUPPORT

5.1    Warranties

a.General Warranties. "Specifications" means the mutually agreed specifications for the Product, including any and all modifications, amendments or changes thereto made pursuant to this Agreement. Exhibit A consists of the initial Specification for the Products. Supplier warrants that all Products will conform to the Specifications, as well as the quality, safety and regulatory provisions of this Agreement, and will be merchantable, of good material and workmanship, and [...***...] will be free from defects in design. Claims for Products not complying with the above warranty ("Non-complying Product") will be submitted by Teradata within [...***...] from the date of delivery of the Non-complying Product to Teradata (or a CM). If the Product is software, it shall contain no viruses or harmful code, and if it relies on or generates data that is date dependent, any calculations performed or information provided will be accurate. Furthermore, Supplier warrants that it has the right to grant the licenses set forth herein and that the Products are free and clear of all liens, encumbrances and conflicting rights. Supplier will promptly repair or replace Non-complying Products as per Exhibit H. If the parties mutually agree (and Supplier will not unreasonably withhold, delay or condition its agreement) that an issue of the highest priority (business critical) requires that Teradata go on-site for resolution and is not capable of being handled remotely, and if the issue is determined to have been caused by a Products' Non-compliance, then Supplier shall reimburse Teradata's travel and lodging costs, and time spent at a reasonable rate, of going on-site. If the Product is services, and the services are rejected within [...***...] ([...***...]) days of their tender, Supplier will perform such work as necessary to provide the services required. Any shipment of Non-complying Products by Teradata (or a CM) to Supplier shall be at Teradata's (or CM) risk and expense and the return shipment of repaired or replacement Products by Supplier to Teradata (or a CM) under this paragraph will be at Supplier's risk and expense. Supplier will have the warranty obligations provided in this Section as to all Products, notwithstanding their acceptance by Teradata (or a CM).

b. Upon the expiration of the warranty period set forth in 5.1(a), Supplier shall pass through to Teradata the warranties if any, provided to Supplier by its applicable hard disk drive ('"HDD'") supplier(s). Supplier makes no representation of any kind [...***...]. Supplier and Teradata will review and mutually agree to [...***...] described in 5.1(a). In no case will Supplier be required to [...***...].

5.2    Quality. As may be further detailed in Exhibit C, Supplier will implement, maintain and continuously improve quality necessary to produce and deliver only those Products that are defect free and strictly conforming to

Strategic Supplier Master Purchase Agreement                 ***Confidential Treatment Requested

Teradata Confidential                                5

Exhibit 10.46

the Specifications. Any acceptance by Teradata (or a CM) of Products not conforming to the quality obligations of Supplier under this Agreement shall not be a waiver of those obligations in any respect. Supplier commits to delivering Products conforming to the reliability, design verification, compatibility testing, and interoperability requirements referenced in this Agreement. Supplier will also use its reasonable efforts to assist Teradata in its Product qualification process by providing the following in a timely manner: a) all requested Product documents and information then-currently available; b) a copy of all test plans and reports; c) a copy of all regulatory certifications; d) a defined support structure; and e) assistance in resolving any problems that may arise. In support of the foregoing, Supplier will loan reasonable quantities of Product to Teradata for purposes of qualifying such Products for reasonable periods at no charge in accordance with a mutually agreed master loaner agreement. Teradata may stop the qualification process for a Product at any time and shall not be liable to Supplier for such stoppage or any other failure of a Product to become qualified.

5.3    Service Support Requirements. During the Term of this Agreement and for [...***...] after delivery by Supplier of the last unit of the Product for Teradata, Supplier will provide support in accordance with Exhibit D and Exhibit F. Such support will be provided [...***...], except with respect to [...***...].

5.4    Safety & Regulatory. As may also be indicated in Exhibit E and/or in applicable specifications, Supplier warrants that all Products and packaging material will comply with all applicable country, federal, state and other governmental regulations in effect at the time of shipment and Products and Parts will be listed or certified by a nationally recognized testing laboratory with Supplier's name, Supplier's trade name, Supplier's trademark and file number. Additional Product specific safety and regulatory requirements may be indicated in the Product Specifications. Supplier warrants that all Products and Parts will comply with current rules and regulations of the Federal Communications Commission (FCC) concerning electromagnetic interference including, without limitation, equipment labeling and instruction manual information requirements. All Products must be labeled in accordance with the specific requirements for the regulatory approvals required by this Agreement. One (I) copy of each international certification documentation with the testing and compliance investigation reports, shall be maintained by Supplier for at least ten (I 0) years beyond the last date of manufacture, or provided to Teradata for archival purposes.

5.5    Epidemic Failures.

(a)Epidemic Failure is defined as FRU failures at or above the Failure Rate of [...***...] percent ([...***...]%) (however, for hard disk drives the Failure Rate shall be [...***...] percent ([...***...]%)) resulting from defects in material, workmanship, manufacturing process and/or design deficiencies attributable to Supplier that are attributable to the same or similar root cause (after a particular FRU type has been delivered at production levels for at least [...***...] in order to achieve statistically relevant quantities) of FRUs during the period of [...***...] after shipment by Supplier, and that;

• Occur within any [...***...] or;

• Occur within any [...***...].

(b)The FRU Failure Rate shall be calculated as follows: [...***...]%, where "A" is the failure rate, "B" is the cumulative returned and [...***...] (defined below) and "C" is the affected shipment quantities described in the bullet points, above.

(c)Claims for non-compliance will be considered [...***...], and will [...***...]. The [...***...] shall also [...***...] but only where after [...***...], there is [...***...]. (For purposes of clarity, the category of [...***...] consists of instances where the [...***...], and the category of [...***...] consists of instances where the [...***...].)

(d)In the event of an Epidemic Failure. Supplier will (a) correct the cause on all FRUs to be shipped thereafter and (b) per mutual agreement, promptly repair or replace all affected FRUs or pay Teradata its costs, pre-

Strategic Supplier Master Purchase Agreement                 ***Confidential Treatment Requested

Teradata Confidential                                6

Exhibit 10.46

approved per mutual agreement, of remedying the non-compliance including all parts, labor and other related costs directly related to fixing cause of the Epidemic Failure.

5.6    Third party Licenses. Supplier will provide Teradata with (1) a written list of all third party licenses applicable to the Products with each version of the Products supplied to Teradata; (2) copies of all such third party licenses or written instructions necessary for Teradata to fully comply with such third party licenses; and (3) distributions of all source code that should be made available to Teradata pursuant to such third party licenses. Nothing in this Agreement is intended to restrict additional rights, if any, granted to Teradata pursuant to such third party licenses. Supplier warrants that (a) it has fully complied with the terms and conditions of such third party licenses; (b) Teradata's exercise of its rights under this Agreement with respect to the Products is permitted by such third party licenses; (c) each version of the Products distributed to Teradata will include a distribution of a copy of the source code that should be made available to Teradata pursuant to such third party licenses and Teradata may distribute such source code with Teradata products; and (d) Supplier has not used any open source software in the Products in such a way that Teradata's exercise of its rights under this Agreement with respect to the Products would cause any Teradata portions of Teradata products to become subject to any open source licensing terms or obligations.

5.7    THE WARRANTIES STATED IN THIS AGREEMENT ARE IN LIEU OF ALL OTHER WARRANTIES, WHETHER EXPRESSED, IMPLIED OR STATUTORY. EXCEPT AS EXPRESSLY STATED IN THIS AGREEMENT, THERE ARE NO WARRANTIES, EXPRESS OR IMPLIED, BY OPERATION OF LAW OR OTHERWISE, AND ALL PRODUCTS, SERVICES AND OTHER ITEMS ARE PROVIDED [...***...]. SUPPLIER DISCLAIMS ANY IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. ANY WARRANTIES MADE TO TERADATA UNDER THIS AGREEMENT EXTEND SOLELY TO TERADA TA AND ITS END-USERS.

5.8    PRODUCTS ARE NOT ABSOLUTELY FAULT-TOLERANT AND ARE NOT DESIGNED FOR USE OR RESALE AS ON-LINE CONTROL EQUIPMENT IN HAZARDOUS ENVIRONMENTS REQUIRING FAIL­ SAFE PERFORMANCE IN WHICH THE FAILURE OF THE PRODUCTS COULD LEAD DIRECTLY TO DEATH, PERSONAL INJURY OR SEVERE PHYSICAL OR ENVIRONMENTAL DAMAGE SUCH AS, BUT NOT LIMITED TO, THE OPERATION OF NUCLEAR FACILITIES, AIRCRAFT NAVIGATION OR COMMUNICATION SYSTEMS, DIRECT LIFE SUPPORT SYSTEMS, CRITICAL SAFETY SYSTEMS, MEDICAL DEVICES, WEAPONS SYSTEMS OR SATELLITE EQUIPMENT ("HIGH RISK ACTIVITIES"). SUPPLIER DISCLAIMS ANY EXPRESS OR IMPLIED WARRANTY OF FITNESS. FOR HIGH RISK ACTIVITIES.

5.9    To enable Teradata to acquire and support the Product under certain conditions Supplier agrees to perform the obligations set forth in Exhibit G (Escrow, Conditional Manufacturing License, and Contract Manufacturers).

6.    PRODUCT LIABILITY INDEMNITY AND INSURANCE

6.1    Supplier will defend at its expense and indemnify Teradata, its customers, employees, directors, contractors and affiliates for any actual or threatened third party claims, suits, costs (including attorney's fees), losses or damages ("Loss'') caused by any Products' use as intended. Teradata shall give (1) prompt written notice of the Loss: (2) reasonably requested information that Teradata possesses about the Loss: (3) reasonable cooperation and assistance: and (4) sole authority to defend or settle any claim. Supplier will keep Teradata informed of the progress of the claim and will confer with Teradata on strategies for the defense and settlement of the claim.

6.2    Supplier will maintain, at its expense, product liability insurance, with Teradata named as an additional insured, as will protect Teradata, its officers, agents and employees, from claims relating to the Products or Parts. The insurance will a) provide limits of at least $[...***...] combined single limit (“CSL") per occurrence, for bodily injury and property damage, with not less than $[...***...] annual aggregate; b) carry an endorsement that the insurance will be primary and that insurance, if any, maintained by Teradata will be excess: and c) if coverage is on a "Claims Made" form, then a policy must be maintained during the Term of this Agreement and for a period of [...***...] thereafter. Certificates of insurance showing compliance with these requirements will be furnished by Supplier immediately after signing this Agreement. Certificates will state that the policy or policies have been

Strategic Supplier Master Purchase Agreement                 ***Confidential Treatment Requested

Teradata Confidential                                7

Exhibit 10.46

issued and are in force, will not expire or lapse, and will not be canceled or changed so as to affect the insurance described in the certificate.

7.    INDEMNIFICATION FOR INFRINGEMENT

Supplier will defend at its expense any actual or threatened claim or suit brought against Teradata, its affiliates, distributors and end users alleging that any Product or Part infringes a patent, copyright, trade secret or other intellectual property right and will pay all costs and damages awarded. Teradata will give Supplier (1) prompt written notice of the claim; (2) reasonably requested information that Teradata possesses about the claim; (3) reasonable cooperation and assistance; and (4) sole authority to defend or settle the claim. In the defense or settlement of the claim, Supplier may obtain for Teradata the right to continue using the Product or Part or replace or modify the Product or Part so that it becomes non-infringing with equivalent functionality. If Supplier is unable to reasonably secure those remedies, Supplier will refund the purchase price for infringing Products or Parts and refund license fees for infringing Software. Supplier is not obligated to indemnify Teradata under this Section if the claim results only from i) modifications necessary to comply with Teradata's designs, ii) modifications not made by Supplier or in accordance with Supplier's instructions, or iii) the use of the Product with other products not furnished or specified by Supplier, unless such other products are necessary for use of the Product.

8.    LIABILITY LIMITATIONS

8.t    IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES UNDER THIS AGREEMENT, [...***...], EVEN IF THE PARTY HAS BEEN NOTIFIED OF THE POSSIBILITY OF ANY SUCH DAMAGES. THIS SECTION 8.1 WILL NOT APPLY WITH RESPECT TO CLAIMS BROUGHT UNDER SECTIONS [...***...], OR 9 OF THIS AGREEMENT OR FOR CLAIMS INVOLVING THE VIOLATION OF A PARTY'S INTELLECTUAL PROPERTY RIGHTS.

8.2    SUPPLIER'S LIABILITY FOR ANY AND ALL CAUSES WHETHER BASED ON NEGLIGENCE, BREACH OF CONTRACT, WARRANTY, OR OTHER LEGAL THEORY, SHALL NOT EXCEED [...***...]DOLLARS (US $[...***...]). THIS SECTION 8.2 WILL NOT APPLY WITH RESPECT TO CLAIMS BROUGHT UNDER SECTIONS [...***...] OR 9 OF THIS AGREEMENT OR FOR CLAIMS INVOLVING

THE VIOLATION OF A PARTY'S INTELLECTUAL PROPERTY RIGHTS. After purchases under this Agreement over a [...***...] period reach [...***...] dollars ($[...***...]), the parties will mutually agree upon an increase in the foregoing limit reasonably related to annual purchases.

9.    CONFIDENTIALITY

9.1    "Confidential Information" is information reasonably related to this Agreement that complies with this paragraph. Confidential Information disclosed in documents or other tangible form must be clearly marked as confidential at the time of disclosure. Confidential Information in oral or other intangible form must be identified as confidential at the time of disclosure, and summarized in tangible form clearly marked as confidential and delivered to the recipient within 10 calendar days thereafter. Notwithstanding the foregoing, proprietary source code and information that a reasonable person would believe to be confidential given the nature of the information or the circumstances of disclosure is not subject to the identification requirements of this Section and shall be deemed Confidential Information.

9.2    Confidential Information does not include information that: (a) is or becomes public knowledge through no wrongful act of the recipient; (b) is already known to the recipient without an obligation of confidentiality; (c) is rightfully obtained by the recipient from any third party without similar restriction and without breach of any obligation owed to the disclosing party: (d) is independently developed by or for the recipient; (e) is furnished to a third party by the disclosing party without a similar restriction on the third party's rights: (I) is incorporated in and is ascertainable from a product which has been placed on sale; or (g) is approved for release by written authorization of the disclosing party.

Strategic Supplier Master Purchase Agreement                 ***Confidential Treatment Requested

Teradata Confidential                                8

Exhibit 10.46

9.3    For a period of three (3) years from the date of receipt, the recipient will use reasonable efforts to prevent the disclosure of Confidential Information to any other person, unless disclosure is required by law. With respect to source code versions of software, the obligation of confidentiality shall apply for as long as the source code within any of the exceptions set forth in Section 9.2. The recipient may disclose Confidential Information to its affiliates or contractors with a legitimate need to know who agree in writing to confidentiality obligations consistent with this Section 9. Each party will only use the other's Confidential Information for its performance under this Agreement. All materials containing Confidential Information are and remain the discloser's property, and except as otherwise required to perform this Agreement, upon written request, the recipient will promptly return or destroy them, and all copies of them, except a single archival copy. This Section 9 does not grant the recipient a license to any of the discloser's patents, copyrights or trademarks.

10. TERM AND TERMINATION

10.1     Subject to the terms of this Section 10, this Agreement will continue for an initial term of three (3) years from the Effective Date. Unless written notice of non-renewal is given at least one (1) year prior to the expiration of the initial term, this Agreement will automatically renew and continue thereafter until terminated in accordance with this Section 10. Either party may terminate the renewal period without cause at any time by giving the other party written notice of termination at least one (1) year prior to such termination date. "Term" means the initial term and the renewal period.

10.2    Either party may terminate this Agreement (a) upon thirty (30) calendar days written notice to the other party in the event that the other party is in material breach and fails to cure the breach during the notice period; or (b) immediately, if the other party becomes insolvent or seeks protection, voluntarily or involuntarily, under any bankruptcy law.

10.3    Termination will not affect either party's right to recover any money amounts, or require performance of any obligations, due at the time of termination. Upon termination of this Agreement, each party will promptly remit to the other all unpaid money due as of the effective date of such termination in accordance with the terms and conditions of this Agreement.

10.4    The provisions of this Agreement intended to survive termination of this Agreement to complete performance (including without limitation payment. risk of loss, title, license of software. taxes. warranty, support, liability, confidentiality, indemnity, termination. interpretation, law, and dispute resolution), will survive the expiration of the Term and any termination of this Agreement.

11. NOTICES

All notices (including requests. consents or waivers) made under this Agreement will be in writing and delivered by facsimile, electronic mail or other electronic means (in which case the recipient will provide acknowledgment of receipt within one business day separately from any machine-generated automatic reply): or by prepaid means providing proof of delivery. Notices are effective upon receipt, and will be sent to the addresses shown on the cover page of this Agreement, with additional copies to:

General Counsel/Notices	Chief Financial Officer
Teradata Operations, Inc.	Dot Hill Systems Corp.
10000 Innovation Drive	1351 S. Sunset Street
Dayton, Ohio 45342	Longmont, CO 80501
Fax: (937) 847-8425
Email: law.notices@teradata.com	Email: hanif.jamal@dothill.com

Either party may change its address upon notice as required by this Section.

Strategic Supplier Master Purchase Agreement

Teradata Confidential                                    9

Exhibit 10.46

12.    LAW AND DISPUTES

New York law will govern this Agreement and Purchase Orders under it, except that the U.S. Federal Arbitration Act will govern all issues of arbitrability. Supplier and Teradata waive application of the U.N. Convention on Contracts for the International Sale of Goods. In the event of a dispute arising out of or related to this Agreement, each party will give the other prompt notice of such, and both will meet promptly for good faith discussions to try to resolve the matter. If that fails, such dispute will be resolved by final and binding arbitration before a sole arbitrator, who is an attorney, and will be administered by the American Arbitration Association under its then-current Commercial Arbitration Rules. The decision and award of the arbitrator will be final and binding, and the award rendered may be entered in any court having jurisdiction thereof. The arbitration will be held in the city where the party not initiating the claim has its U.S. headquarters or main-office. Except to the extent, if any, elected by the claiming party, the obligation to arbitrate hereunder will not apply to claims for misuse or infringement of a party's intellectual property. The arbitrator must enforce the terms of this Agreement and will have no authority to award any damages in conflict with or in excess of the limitations and exclusions set forth in this Agreement. Neither party may bring a claim more than 2 years after the underlying cause of action first accrues.

13.    GENERAL

13.1    No assignment of this Agreement will be valid without the prior written consent of the other party, which consent will not be unreasonably withheld, delayed or conditioned. Notwithstanding the foregoing, either party may assign this Agreement to a successor in interest to all (or substantially all) of that party's assets; provided that the successor agrees to be bound by the Agreement and, in the other party's reasonable judgment, the successor, or an affiliate thereof, is not considered to be a competitor of the other party. If the successor (or an affiliate thereof) is reasonably considered to be a competitor, then the assignment shall be allowed provided that: (a) the successor and affiliate agree to confidentiality terms specifically crafted to protect the intellectual property of the non-assigning party, and; (b) the successor specifically agrees, in writing, to continue to fulfill Purchase Orders for Products, Parts and Services available under this Agreement for a period of at least eighteen (18) months from the date of assignment, and to fulfill all other obligations as set forth in this Agreement.

13.2    Teradata outsources some of its operations (e.g., contract manufacturers for component integration (including the Products) and distribution; contractors to create documentation; distributors and Resellers for sales and distribution; and affiliates for any of the foregoing). Teradata may exercise the rights granted in this Agreement directly or cause others to exercise them on its behalf. All rights granted to Teradata in this Agreement may be exercised by any affiliate of Teradata agreeing to be bound by the terms of this Agreement, provided that Supplier may, in its discretion, set differing payment terms for such affiliate based on the affiliate's credit worthiness.

13.3    The provisions of this Agreement are severable. If any provision is unenforceable, the remaining provisions will remain in effect provided the intent of the parties has not been materially frustrated.

13.4    Except as required by law or otherwise provided in this Agreement, neither party will publicize the existence of this Agreement or its terms without the prior written consent of the other party, which consent will not be unreasonably withheld, delayed or conditioned. When, on the advice of Supplier's counsel, Supplier reasonably believes that Teradata's purchases and forecasts have reached a level of revenue material enough to require reporting under US security laws, Supplier will obtain Teradata's prior written consent regarding the description of such disclosure, which consent will not be unreasonably withheld, delayed or conditioned.

13.5    The parties to this Agreement are independent contractors. Nothing in this Agreement creates a partnership, joint venture, agency, or franchise relationship. Neither party, nor any of its representatives, has authority to create any obligations on behalf of the other party and will not represent that it has such authority.

13.6    The headings within this Agreement are for convenience only and will not affect the interpretation of this Agreement. Shipping terms will be interpreted in accordance with the then-current International Chamber of Commerce lncoterms. "Include", "includes", and "including" shall be interpreted as introducing a list of examples which do not limit the generality of any preceding words or any words in the list of examples.

Strategic Supplier Master Purchase Agreement

Teradata Confidential                                    10

Exhibit 10.46

13.7    This Agreement, which includes the Exhibits attached hereto, contains the entire agreement between the parties. This Agreement supersedes any other agreement or communication, whether written or oral, that may have been made or entered into with regard to the subject matter hereof by Supplier and Teradata, as well as any terms stated on any purchase order, invoice, acknowledgment, acceptance form, or other printed document used by either party, even if acknowledged by the party sought to be bound. This Agreement may not be amended, modified or waived, except by an agreement in writing signed by authorized representatives of both parties. Failure to enforce any provision of this Agreement is not a waiver of future enforcement of that or any other provision. This Agreement may be executed in any number of counterparts, including, without limitation, executed counterparts delivered by facsimile or other electronic transmission, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument. In the event of an express conflict between the then-current Specifications, previous Specifications, or the quality, safety and regulatory provisions of this Agreement, the then-current Specifications take precedence.

13.8    Notwithstanding anything to the contrary, this Agreement does not restrict either party from developing, improving or marketing competitive products or services.

13.9    When applicable, clauses identified in Federal Acquisition Regulation (FAR) 52.244-6 (Subcontracts for Commercial Items) or FAR 52.212-5 (Contract Terms and Conditions Required to Implement Statutes or Executive Orders - Commercial Items) and parallel clauses published in federal agency FAR supplements and, for Purchase Orders intended for U.S. Government end-use, FAR 52.225-5, Trade Agreements Act, shall be deemed to be incorporated into this Agreement.

14.    AUDITS

Supplier will keep all usual and proper records and books of account, and all usual and proper entries relating to compliance with this Agreement, and permit Teradata to audit the same (not more than once a year), to be performed by an auditor approved in writing by the parties, under the terms of a non-disclosure agreement between Supplier and the auditor.

15.    EXHIBITS

This Agreement consists of and incorporates all of the following Exhibits:

Exhibit A - Product Specifications	Exhibit D - Product Support Requirements
Exhibit B - Pricing	Exhibit E - Safety and Regulatory Agency Requirements
Exhibit C - Quality	Exhibit F - Workmanship Requirements
Exhibit G - Escrow	Exhibit H - RMA Procedures
Exhibit I - VMI Terms and Conditions

Strategic Supplier Master Purchase Agreement

Teradata Confidential                                    11

Exhibit 10.46

EXHIBIT A

PRODUCT SPECIFICATIONS

[...***...]    [...***...]

***End of Exhibit A***

Strategic Supplier Master Purchase Agreement                 ***Confidential Treatment Requested

Teradata Confidential                                12

Exhibit 10.46

EXHIBIT B

PRICING AND DELIVERY SCHEDULE

The initial price for the Products and Parts on the Effective Date are as indicated in the table below (plus the [...***...]% [...***...] stated in the following paragraph). The parties will review pricing quarterly or on an as-needed basis. The parties shall modify prices only upon mutual agreement. Notwithstanding the foregoing, Supplier may increase pricing without Teradata's consent if a force majeure-type event (such as natural disasters, war and riot) increases Supplier's cost of providing Products or Services to Teradata, but only to the extent of [...***...] percent ([...***...]%) of such increase in cost to Supplier resulting from such force majeure event. Supplier shall provide reasonable evidence of such increased costs upon request.

To cover Supplier's increased costs [...***...], the prices established under this Agreement will be increased by [...***...] percent ([...***...]%). but only until the purchases under this Agreement over any consecutive [...***...] period first exceed [...***...] dollars ($[...***...]).

[...***...]

***End of Exhibit B ***

Strategic Supplier Master Purchase Agreement                 ***Confidential Treatment Requested

Teradata Confidential                                13

Exhibit 10.46

EXHIBIT C

QUALITY

1.PURPOSE

The purpose of this Quality Exhibit (Exhibit C) is to provide an overview of Teradata's quality expectations. Additional expectations may also be indicated in each applicable Product Specification. The terms defined in Section 3.0 of this Exhibit C will be used in quality related documents, discussions, and herein to ensure a mutual understanding between both Teradata and Supplier.

2.    SCOPE

The Supplier must commit to data driven processes based on continuous improvement and defect prevention with a goal of delivering defect free Products, Parts and Services to Teradata and its customers. This Exhibit also establishes Teradata's quality reporting requirements, which will be used to measure the Supplier's performance against the goals established in this Exhibit. The intent is to define the Supplier's responsibilities for meeting Teradata's quality and reliability goals and business objectives.

3.    TERMS AND DEFINITIONS

3.1Detective Product or Part.A Defective Product or Part is one not meeting applicable warranty, functionality or other specified requirements indicated in this Agreement, the Exhibits, or in the Specifications.

3.2    Metrics.Metrics refers to data used to track commodity quality for review and improvement such as DPPM or MTBF.

3.3    Defective Parts Per Million, or DPPM. DPPM is calculated by dividing the number of defective Products or Parts by the total volume used within a specified period of time, multiplied by 1,000,000. All functional and non-functional defects which end customers may consider as quality problems shall be counted in the DPPM measure.

3.4    Mean Time Between failure or MTBF. MTBF shall be calculated by using observed failure rates of similar components to the Products or Parts (e.g. the 'Bellcore' failure rate database). Operating temperature assumptions will be documented. "MTBF Demonstrated”refers to reliability for Products or Parts predicted or measured by operating a set of the Products or Part for a period of time under normal operating conditions. The Product or Part hours and the confirmed failure data collected shall be analyzed to predict the demonstrated MTBF at an [...***...] percent ([...***...]%) confidence level using the 'Chi Square goodness of fit' method. For system level Products, the calculated and demonstrated MTBF is to be based on an average (planned) as-shipped Product configuration.

3.5    MTBF Actual Field Performance. MTBF Actual Field Performance refers to a measure of actual field demonstrated reliability across the entire Teradata customer population of a Product or Part. Teradata will measure this using an information system that captures all hardware service actions on Products and Pm1s sold in the U.S. and in other areas as available. Assumptions are made regarding average customer powered-on hours (7x24 hours/week) to calculate the actual MTBF.

3.6    Quality Agreement.Quality Agreement refers to this document as further jointly agreed to by Teradata and Supplier, to document Supplier's expected performance on a discrete set of deliverables. These deliverables include, but are not limited to, Out of Box (''OOB") quality. Supplier Corrective Action Request ("SCAR") response times, and failure analysis turnaround times.

Strategic Supplier Master Purchase Agreement                 ***Confidential Treatment Requested

Teradata Confidential                                14

Exhibit 10.46

3.7    Out of Box Failure. An Out of Dox Failure ("ODF") is defined as a non-conformance during staging or at the time of installation at an end customer site of a Product or Part against the Product specification at the time of manufacture. For all Products, the measurement window for Out of Box Failures is the shorter of the [...***...] or [...***...] from the [...***...]. Dead on Arrivals ("DOAs") are measured within that window established for Out of Box Failures. DOA is defined as a Product of Part that fails (does not function materially in accordance with its specifications) the first time the Product or Part is powered up for use.

3.8    Quality Improvement Plan. A Quality Improvement Plan ("QIP") is a plan to improve quality based on a formal and approved methodology such as TQM. SPC, and Six Sigma.

3.9    First Article Inspection. First-article inspection is a pre-acceptance review of a new or newly­ changed product against a predetermined set of requirements or specifications prior to manufacturing release.

3.10    Incidents Per System Per Year. Incidents Per System Per Year is a measure of the service call rate for products installed in the field.

3.11    Early Life Failure. An early-life failure is any failure that occurs in the interval between [...***...] and [...***...]after Product is installed at an end-customer site.

3.12    New Product Introduction Plan. A New Product Introduction Plan ("NPI") plan defines product specific objectives, strategies, requirements and methods used to validate the quality of a product or process prior to its implementation.

3.13    Field Quality Audits. Quality audits conducted by Teradata at the customer site to measure and report a customer's experiences installing Teradata products. In select instances as business cases dictate, Teradata will expect support from Supplier on these audits on a mutually agreed basis.

4.    QUALITY AND RELIABILITY PERFORMANCE

If performance levels are not consistently maintained, Teradata requires Supplier to undertake reasonable commercial efforts to bring performance levels within the desired range. Supplier and Teradata may mutually decide to use multiple Supplier facilities for manufacturing Products to Teradata requirements. All identified performance goals will be applied to each manufacturing site individually. Supplier is expected to leverage best practices and processes across these facilities in order to meet or exceed the stated quality performance goals. Quality and reliability goals will be updated by Teradata on an annual basis.

4.1    Quality Improvement Plan. The requirement for a QIP is triggered when performance to specified quality, delivery, or response time metrics is not meeting stated goals. The QIP will define the improvements and action needed to achieve these goals. The QIP shall specify the quality metrics to be used to quantify improvement. Teradata and Supplier will work together to jointly develop the QIP. Teradata will be responsible for providing quality data when applicable. This does not relieve Supplier of the responsibility to complete the QIP and submit it to Teradata for review and approval. Covered topics for Products and Parts manufactured for Teradata will include, but are not limited to, product quality, reliability, and failure analysis. This document will be reviewed and updated as often as needed, and will be managed by Teradata and Supplier.

4.2 Closed Loop Corrective Action Requirements. Supplier shall establish and maintain a Closed Loop Corrective Action ("CLC A") Process capable of addressing any quality issue in accordance with Teradata's requirements. Root Cause Analysis and Corrective Action Identification may be triggered by the discovery of a problem from any source (e.g., engineering test failures, manufacturing staging failures, or field failures). When required, Teradata will document and submit a formal SCAR to Supplier. Supplier shall provide a written response within the specified time defined in the SCAR. Depending on the severity of the problem (i.e., line down or customer issue), Supplier will use commercially reasonable efforts to respond within [...***...] and to resolve the issue within [...***...]. If the problem cannot be reasonably resolved within [...***...], Supplier shall commence to resolve within [...***...] and thereafter diligently and continuously pursue such resolution to

Strategic Supplier Master Purchase Agreement                 ***Confidential Treatment Requested

Teradata Confidential                                15

Exhibit 10.46

completion. The response shall include information so that Teradata can insure actions taken will demonstrate institutionalized quality improvement.

Teradata's expectations for returning defective Products will be detailed herein and as further agreed. Minimally, Teradata will have the option of returning integration (Teradata through-process) failures for full root-cause corrective action failure analysis. Field failures will be routed for repair or analysis at Teradata's discretion. Supplier agrees to maintain equipment and personnel to allow for prompt and accurate failure analysis or standard repair on all Products sourced by Teradata. Corrective action will be mutually agreed upon by both parties. Depending on the severity of the problem, Teradata can request a response time of [...***...] for failure analysis results.

The chart below states the number of calendar days for each FA type, starting from the date the failed component is received by Supplier, until Supplier (1) identities the actual component that failed (Component Failure Analysis (CFA)), (2) recreates the issue to allow Supplier Engineering to create a solution (Problem Recreation (PR)), (3) issues preliminary root cause analysis report (Root Cause Analysis (RCA)), and (4) issues final, written RCA report.

FA Type	Boards	Drives	Power Systems
CFA	[...***...]	[...***...]	[...***...]
PR	[...***...]	[...***...]	[...***...]
RCA	[...***...]	[...***...]	[...***...]
Supplier issues written RCA report	[...***...]	[...***...]	[...***...]

4.3    Quality Management System. Supplier shall establish and maintain a quality management system capable of measuring and evaluating product quality. At a minimum, Supplier shall be ISO 9001 registered to the latest version of the Standards. As a manufacturing partner, Teradata will be allowed to reference the ISO certification of Supplier sites where Teradata product is manufactured.

4.4    Quality Reporting. Supplier shall provide weekly and monthly performance results and supporting data to Teradata for all metrics defined in this Exhibit. Report content will be of a mutually agreed format. These reports are expected on a weekly and monthly basis regardless of whether goals are or are not being achieved. Data elements not previously discussed under this Agreement, or other Specifications may also be required based on business needs and requirements.

On a weekly basis, Supplier will provide electronic data to Teradata outlining as-shipped configurations for all Products shipped. Minimally this will include Part numbers tied to a serialized Product class/I.D., as well as the customer name (if applicable) and shipping address for each Product shipped. Teradata and Supplier will mutually agree on which Parts will be tracked for each Product shipped.

4.5    Quality Goals. Supplier will use reasonable commercial efforts to meet or exceed the quality goals as defined in Sections 7.0 and 8.0 of this Exhibit C.

4.6    New Product Quality Plan/New Product Introduction. Supplier shall develop and maintain a NPI plan for all new hardware and software products (if applicable) provided to Teradata. Prior to release of a Product or Part. Teradata will review with Supplier the NPI plan requirements. Teradata's review and acceptance of the plan does not relieve Supplier of the responsibility for using best commercial efforts to achieve the quality and reliability goals defined in the plan. Supplier will assign a resource to act as a liaison for all manufacturing sites to support Teradata's internal qualification and release processes with schedule updates and specified deliverables. The NPJ plan elements typically will include:

Strategic Supplier Master Purchase Agreement                 ***Confidential Treatment Requested

Teradata Confidential                                16

Exhibit 10.46

Hardware	Software (If Applicable)
Design review (including DFX)	Design review
Unit test	Code inspection
Qualification test	Unit test
Acceptance test	Integration test
Integration test	Acceptance test
Reliability	Quality goals
Regulatory requirements	Phase Audits
Quality goals/strategy review
Performance vs. goal validation
Life cycle management
TDU (Percent Defect Rate)
Phase Audits

4.7    Stop Orders. Stop Orders and Product Holds which may create potential field performance or Committed Ship Date ("CSD") issues will be communicated to Teradata within [...***...]. To prevent customer dissatisfaction, Teradata may initiate a stop shipment of Product from any Supplier facility.

4.8    Supply Line Management. Supplier will manage the performance of their supply chain. Supplier Report Cards or other performance review formats will be reviewed with Suppliers regularly. Supplier will drive for continuous Supplier performance improvement in all areas. Where mutually agreed upon to support continuous improvement, Supplier and Teradata will establish Supplier performance goals. Supplier will also review their supplier's performance data with Teradata.

4.9    Approved Vendor List. Supplier will develop and maintain an Approved Vendor List ("AVL") that lists all Supplier suppliers who have been qualified to do business with Supplier. This list is reviewed frequently and Suppliers are rated based on performance against requirements. Changes to the AVL must follow Teradata's change control requirements defined in Section 5.0 of this Exhibit C.

4.10    Customer Satisfaction Issues. Supplier must provide processes that support "Whole Unit RMA Replacement" for Out of Box or DOA failures. Multiple defective units will be aggregated into full pallet quantities or other lot size previously defined at Supplier request. Once that defined quantity of OBF units has been reached or the product has aged no more than [...***...], Teradata will request an RMA with Supplier. When requesting an RMA, Teradata will provide product identification ("PID"), S/N and failure description. The expected repair time of RMA units shall not exceed set standard interval of normal orders. Return transit time shall not exceed [...***...]. The turnaround time begins when the units are received at Supplier's dock and ends when they are shipped by Supplier. Any shipment of defective Products or Parts to Supplier, and the return shipment of repaired or replacement Products or Parts to Teradata with respect to DOA failures will be at Supplier's risk and expense. When agreed upon by Teradata and Supplier, Supplier will be allowed to provide replacement parts to correct defects instead of returning the whole unit to Supplier.

4.11 RMA Processing. With respect to Products that experience Defects beyond the time period of a DOA, the RMA procedures, terms and conditions set forth on Exhibit H shall apply.

5.    CHANGE CONTROL PROCESS

For Products and Parts produced for Teradata, Supplier will use a mutually agreed to process to communicate and manage all changes. Typically Teradata's standard system is used to manage Design Review ("DR") Engineering Change Order ("ECO") changes over the life cycle of the product. Records shall be maintained indicating Product serial number and cut-in dates for all changes. Changes that affect the form, fit, function, or performance of a Product or Part shall be tracked by a part number change. All changes shall be electronically forwarded to Teradata in the format mutually agreed to. Samples may also be requested by Teradata prior to acceptance. Supplier will provide advance notification to Teradata on any changes to Teradata Product prior to phase in or implementation. Types of changes, change information content, and notification time frames are defined in Section 5.1 of this Exhibit C.

Strategic Supplier Master Purchase Agreement                 ***Confidential Treatment Requested

Teradata Confidential                                17

Exhibit 10.46

5.1    Teradata will not accept any production quantities of Products (which as defined includes Parts) that include such change until Teradata engineering has the opportunity to evaluate and formally approve the change. The evaluation can be performed by Teradata or by Supplier performing (or paying a third party to perform) the tests and providing written results to Teradata engineering. The notice of change from Supplier must include at a minimum the following: 1) reason for change (e.g., availability of a part, cost reduction, etc.); 2) desired date of introduction; 3) detailed difference between the old and new process; 4) results of testing that support same or better resulting performance; 5) cost impact (cost savings are expected to be communicated also); and 6) means of differentiating Products by identification number change, revision level change, or by some other means so that Teradata can discern the difference as needed. The Supplier will send a written change notice via letter, e-mail, or fax to the identified Teradata contacts [...***...] days prior to the intended break in of the change. When Teradata has more than one engineering organization involved, a change may be approved by some and not by others. If this occurs, Supplier can withdraw the change request and continue to provide the current Product or supply both the current and proposed version of the Product so long as both are clearly marked and both can be ordered individually, having different Teradata part numbers. Supplier should provide a minimum of [...***...] advance written notice to Teradata of any changes in the manufacturing process or relocation of production to a different manufacturing facility. This notice should include additions or deletions of any tests or assembly processes. Teradata's standard system should be used to request these changes using the Request for Change ("RFC") capabilities of the system. Supplier will provide a minimum of [...***...] advance written notice if Supplier plans to obsolete any Products or Parts or dispose of any tooling. Notwithstanding the foregoing, with respect to [...***...], Dot Hill will be held to using only commercially reasonable efforts of providing [...***...] advance written notice. A [...***...] notice will also be provided for parts going End of Life ("EOL"). Teradata will respond by e-mail, fax, and/or its standard system with the approval or rejection of the change request.

6.    FORMAL REVIEWS AND AUDITS

Formal Reviews and Audits involve Supplier Survey; Supplier Process Audit; Product Design/Redesign Audit/Product Compliance and Certification Audit; and Quarterly Reviews. All formal reviews shall be documented by Supplier along with all action plans and action items. Teradata may or may not perform all of the above reviews. Supplier will provide all reasonable assistance with any such requested review by Teradata. Performance of such will be based on business needs. Minimally the Supplier will provide resources whose primary responsibility is to ensure through accepted account management procedures that committed performance levels on all Products and Parts are met. Typical execution would require Supplier to maintain business, technical and quality management resources that serve as Teradata's focal points into Supplier's business. As such, these personnel are expected to be available to sufficiently support Teradata's interests with Supplier.

7. QUALITY PERFORMANCE AND OUT-OF-BOX QUALITY GOALS

The purpose of this Section is to define Teradata's quality metrics and to establish Supplier's annual performance goals. The goals defined herein represent performance levels considered to be attainable by Teradata. Updated goals will be jointly developed on an annual basis. Teradata and Supplier will meet during the 4thquarter of each year and use industry benchmarks for best in class performance to determine future performance goals.

7.1 Supplier shall use reasonable commercial efforts to meet the Out-of-Box quality requirements for Products or Parts as defined in the table below. An Out-of-Box failure is defined as a non-conformance during staging or at the time of installation of a Product or Part against the product specification. For all Teradata Products, the measurement window is the first [...***...] of operation. The measurement is an aggregate of all products shipped from the manufacturing facility measured on a monthly basis. Quality levels will be calculated by dividing the Total Number of Failures by the Total Quantity of Units Staged and/or Installed Without Failure X 100. Out-of-Box quality will be reviewed on a weekly and monthly basis for each product or product family by Teradata.

Metrics                            2011        2012        2013

Q1 Goal        Q2 Goal        Q3 Goal

Out-of-Box Quality Goal (Percent)                [...***...]    [...***...]    [...***...]

Strategic Supplier Master Purchase Agreement                 ***Confidential Treatment Requested

Teradata Confidential                                18

Exhibit 10.46

8.    RELIABILITY REQUIREMENTS

Supplier is responsible for meeting Teradata's Reliability, and MTBF goals as defined in the Product Specifications. Supplier will provide a calculated or demonstrated MTBF for all major components to validate reliability requirements can be met in the field.

9.    FIRST ARTICLE INSPECTION

9.1    All initial purchases of a particular Product, including Parts, from the Supplier shall be subject to first article inspection by Teradata at the Teradata Parts Distribution and Repair Center (PDRC).

9.2    A minimum of ten (10) pieces are required for proper evaluation of Product during the first article inspection process. If the initial order quantity is for a quantity less than ten (10), future orders may be subject to first article inspection until the minimum quantity requirement has been successfully met.

9.3    First article inspection is based on the Part's conformance to Teradata's standards for workmanship, electro static discharge, packaging specifications, the Specification, and the original Statement of Work, if any. Any rejected Product will be returned for corrective action at the expense of the Supplier pursuant to this Agreement.

10.    PRODUCTION TESTING

Supplier will test each unit of Product for conformance to the Specification prior to shipment of the unit to Teradata in accordance with a mutually agreed factory acceptance test procedure.

***End of Exhibit C ***

Strategic Supplier Master Purchase Agreement

Teradata Confidential                                    19

Exhibit 10.46

EXHIBIT D

PRODUCT SUPPORT REQUIREMENTS

1.    SCOPE

Teradata will be the primary point of contact for all Teradata customers ("Customers") with Product problems. Supplier plays an essential role in enabling Teradata to support Customers. This Exhibit details Teradata's expectations and Supplier's responsibilities pursuant to that support.

2.    TECHNICAL INFORMATION

Throughout the Term of the Agreement, Supplier will provide Teradata and Teradata authorized support providers the following "Technical Information" at no additional charge but solely for use with the Products and Parts:

• A Problem History Database that is regularly updated and includes descriptions of all changes, enhancements, or problem fixes provided by Supplier, in a format suitable for publishing on Teradata's corporate intranet.

• Technical Information Documentation that includes all information necessary to install, diagnose, repair and maintain the Products, such as user, operator, service and systems administrator manuals; service test procedures and a list of any special tools and service test equipment used; site preparation and installation specifications; documentation for the purpose of problem identification and resolution; technical bulletins, engineering change orders, software updates, bulletin board access and web site access; and other relevant materials; in an electronic format suitable for both reproduction and for publishing on Teradata's corporate intranet, all of which shall be updated from time-to-time if and when it becomes available at no cost to Teradata. Technical Information Documentation will be provided to Teradata as soon as practicable, but within [...***...] following the signing of this Agreement. New Technical Information Documentation will be provided to Teradata as soon as practicable, but within [...***...] following its general release. Teradata and Teradata authorized support providers may reproduce, modify, internally distribute, and use the Technical Information Documentation for the sole purpose of providing manuals, training and support for the Products to Customers.

• Access to, and use of, Diagnostic Software ("Diagnostics'') for the sole purpose of servicing, maintaining and diagnosing your Products on behalf of end users of Products. Diagnostics includes any programs, whether referred to as "software", "firmware" or otherwise, and documentation, product information, and publications, wherever resident and on whatever media, as well as, any Supplier developed guided support procedures, videos, and best practices. Under no circumstances will Teradata display, demonstrate, or disclose the Diagnostics to any other person, or use the Diagnostics for the benefit of any person other than Customers in accordance with this Exhibit.

3.    TRAINING

As reasonably requested by Teradata, Supplier will provide Product training at no additional charge in the following areas: (a) engineering and design: (b) set-up and installation: (c) maintenance and field repair: (d) depot repair: and

(e) end-user operation. At no additional charge, Teradata may videotape such training classes and reproduce, distribute, and use such videotape(s) and any related class materials for the sole purpose of training personnel of Teradata and Teradata authorized support providers to support the Products for Customers.

Strategic Supplier Master Purchase Agreement                 ***Confidential Treatment Requested

Teradata Confidential                                20

Exhibit 10.46

4.    TECHNICAL SUPPORT

Teradata shall attempt to resolve Customer Product problems independently using the training and information provided by Supplier. If a greater level of technical expertise is required, Teradata shall engage Supplier in resolving the Customer's problem(s), although Teradata shall continue to be the sole point of contact to the Customer throughout the problem resolution process. Teradata will assign a Priority Level, as described below, and Teradata will provide Supplier a unique reference number for each problem, and Supplier will use the same number when communicating with Teradata. Teradata will provide Supplier with all information relevant to the problem, including, if applicable, the method used by Teradata to duplicate the problem on its own systems. Teradata will convey the information to Supplier expediently. Supplier shall make available via telephone or pager seven (7) days per week, twenty-four (24) hours per day, 365 days per year, individuals sufficiently skilled to assist Teradata in problem resolution. If necessary, Supplier's technical representatives will be available to provide on-site support at Customer locations [...***...] after Teradata informs Licensor of the necessity of on-site support, however, if it is determined that the issue is not due to [...***...], [...***...], and [...***...]. Supplier's price for [...***...], [...***...] and [...***...] will be as set forth in Exhibit B of the Agreement. The start date for a Customer's support services will be the date set forth in Teradata's Purchase Order for such services.

4.1    Levels of Support. As outlined below, Teradata shall provide Level 1and Level 2 support, and Supplier shall provide Level 3 support on an as-required basis. Level 3 support will be provided [...***...], except with respect to [...***...], [...***...] and [...***...]. Teradata must ensure that its support personnel that provide Level 1and Level 2 support have attended support courses taught by Supplier or by Teradata personnel that have attended "train the trainer" courses taught by Supplier free of charge.

• Level 1-Call acceptance and ownership until resolution. Gather problem information and determine criticality.

Search knowledge base and deliver known solutions to Customer. Dispatch Teradata Customer Engineer as appropriate. Escalate to Level 2 support as required.

• Level2- Respond to Level 1escalations with a higher level of expertise in a specific technology area. Develop and gain customer agreement for problem isolation, solution creation and solution implementation plan. Provide an existing fix, work-around solution, or escalate to Supplier for assistance. Coordinate Supplier's performance.

• Level3- Assign resources as required to resolve problem in accordance with Section 4.3 below. Work with Teradata Level 2 support to coordinate the development and delivery of problem solutions.

Escalations to Level 3 should be presented to Supplier with all reasonably available pertinent configuration detail and failure information or symptoms documented in detail.

4.2Response, Update and Resolution Guidelines. When Supplier is engaged by Teradata in problem resolution, Supplier will comply with the following guidelines enabling Teradata to meet commitments to Customers. Time measurement begins when the incident is first opened by Customer. Teradata shall promptly notify Supplier of the incident. Time frames stated in days are contiguous calendar days.

Priority	Type	Definition
P1	Critical:	Severe End-User Customer impact: Product cannot perform one or more normal functions. Loss of data or no access to data. Loss of ability to manage or service. Needs immediate attention. Existing workaround unavailable
		Examples:
		- System down

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Exhibit 10.46

		- Data loss
		- Data unavailable
		- Workaround unavailable
Hot Priority Two (HP2)	Business Critical:	This is a very sensitive End-User Customer needing special attention. The End-User Customer set the support level as "P1" due to critical business requirements, but it does not fall within the definition for P1.
P2	Urgent:	Moderate End-User Customer impact: Product performance is significantly degraded, major functionality loss. Workaround exists.
		Examples:
		- Major system function is unavailable or degraded (workaround available)
		- Running unprotected
		- New installation deadline approaching
P3	Routine:	Limited End-User Customer Impact: Product function is largely unaffected; non-urgent questions or delays. Minor or cosmetic defect in the product.
		Examples:
		- New SW installs
		- Code Upgrades

Priority	P1 deadline *	P2 deadline *	P3 deadline *
Initial TERADATA response to End- User Customer call	[...***...]	[...***...]	[...***...]
PARTNER response to TERADATA	[...***...]	[...***...]	[...***...]
First Level Management Escalation	[...***...]	[...***...]	[...***...]
Second Level Management Escalation	[...***...]	[...***...]	[...***...]
Third Level Management Escalation	[...***...]	[...***...]	[...***...]
PARTNER Status Updates to TERADATA	[...***...]	[...***...]	[...***...]
Work Around	[...***...]	[...***...]	[...***...]
Problem Fix**	[...***...]	[...***...]	[...***...]

** [...***...].

Strategic Supplier Master Purchase Agreement                 ***Confidential Treatment Requested

Teradata Confidential                                22

Exhibit 10.46

4.3    Software Fixes and Updates. "Software Fixes" or "Fixes" are software problem fixes, critical patches, modified documentation or other changes intended to correct feature/function deficiencies in the Product and/or system vulnerabilities as defined by the Carnegie Mellon-Software Engineering Institute's CERT® Coordination Center (CERT/CC). For additional information regarding CERT®, on the Internet visit www.cert.org. "Software Updates" or "Updates" are changes to the Product which incorporate accumulated Fixes into the then-current version of the Product. Supplier will, at its expense, provide Teradata with all Fixes and Updates developed by Supplier during the Term of the Agreement. "Software" as defined in this Agreement includes "Fixes" and "Updates". Supplier hereby grants to Teradata a non-exclusive, worldwide license to reproduce, use, install, resell, and distribute Software Fixes and Software Updates to Teradata's Customers, which shall be royalty-free. Teradata will not knowingly provide such Fixes and Updates to Teradata's Customers who have not licensed the corresponding Product. All copies of such Fixes and Updates made by Teradata will contain any copyright, trademark, disclaimer or patent notices that appear on or in the original Fixes and Updates provided by Supplier.

4.4    Software Version Changes.If a version change to a Product addresses an identified Customer problem which has not been previously resolved by a Fix or Update, Supplier will, at its expense, provide Teradata with the new version of the Product, subject to the change control process in Exhibit C. "Software" as defined in this Agreement includes the new version. Supplier hereby grants to Teradata a royalty-free, non-exclusive, worldwide, license to reproduce, use, install, resell, and distribute the new version to Customers. Teradata will not knowingly provide the new version to Customers who have not licensed the corresponding Product. All copies will contain any copyright, trademark, disclaimer or patent notices that appear on or in the original provided by Supplier.

4.5    Supplier Point(s) of Contact. Supplier's point(s) of contact for Technical Support shall be provided to Teradata not later than the Effective Date of the Agreement or this Exhibit.

4.6    Continuing Availability.Supplier's Technical Support as described in this Section 4 shall be available to Teradata during the Term of the Agreement and for [...***...] after delivery by Supplier of the last unit of the Product. Such Technical Support will be provided [...***...], except with respect to [...***...], [...***...], and [...***...]. Termination of this Agreement regardless of the reason will not relieve either party from its support obligations arising hereunder prior to such termination. Rights and obligations defined in this Exhibit which by their nature should survive will remain in effect after termination or expiration of the Agreement. Should the parties agree to terminate the Agreement, they will work together to develop a mutually agreeable plan to provide continued services to affected End Users.

4.7Reporting. Supplier shall provide Teradata with monthly reports detailing Supplier's performance relative to the response and resolution guidelines specified in this Section 4. These reports shall minimally include a complete list of problems escalated to Supplier, the time and date each problem call was received, a brief description of each problem, its Priority Level, the time between Supplier's problem call receipt and initial response, problem status, and if resolved, the date and time of closure.

4.8On-site services. When requested, Supplier's technical representatives will be available to provide on-site support at Customer locations. Supplier will provide on-site support at Customer locations with two service level options:

• Business Critical: On-site response seven (7) days per week, twenty-four (24) hours per day within [...***...] for P1 problems and within [...***...] for other on-site requests. Supplier’s price for the technical support in this Section 4 with Business Critical on-site support will be as set forth in Exhibit B of the Agreement.

• Base: On-site response seven (7) days per week, twenty-four (24) hours per day within [...***...] for P1 problems. On-site response [...***...] per week, [...***...] per day within the next business day for other on-site requests. Supplier's price for the technical support in this Section 4 with Base on-site support will be as set forth in Exhibit B of the Agreement.

Supplier will provide an on-site spare part service option in which Supplier maintains mutually agreed inventories of spare pans at End User sites at discount levels equivalent to those for other services set forth in Exhibit B.

Strategic Supplier Master Purchase Agreement                 ***Confidential Treatment Requested

Teradata Confidential                                23

Exhibit 10.46

5.    PRODUCT CHANGES

In the event a Product requires a new version Part, Supplier will identify by serial or tracer number those Products requiring a newer version Part. Supplier will continue to make available, for the time period specified in Section 6 below, Parts supplied to Teradata which are identical to or interchangeable with all previous versions utilized in Products supplied to Teradata. Supplier will provide Teradata, at Supplier's expense, any Parts, documentation, and/or instructions necessary to install any field retrofit orders issued by Supplier for Products, but only if the issue requiring the field retrofit order is [...***...] or [...***...], and only where the field retrofit order [...***...]:

(a)to meet [...***...] after a Product's original shipment;

(b)to fix [...***...] after a Product's original shipment;

(c) to assure [...***...];, and/or

(d) to assure [...***...].

Such field retrofit orders for which Supplier is responsible as described above shall be referred to as an "FRO." (The terms, conditions and pricing of any other field retrofit orders that are not FROs, and therefore that fall outside of the bounds set forth above, shall be mutually agreed upon by the parties on a case by case basis.) At Teradata's request, Supplier will deliver FROs directly to Teradata's Customers at no charge. Supplier and Teradata will negotiate in good faith a fixed per-incident charge for each FRO Teradata installs for Supplier's benefit. Supplier will deliver appropriate quantities of FRO parts to complete the FRO within [...***...] of the release of the Supplier approved FRO.

6.    PARTS

A complete list with Teradata Part Numbers for the Products and Parts ("Parts List") shall be provided to Teradata by Supplier at least [...***...] prior to the delivery of the first Product of each type ordered by Teradata. Such Parts Lists shall be substantially in the format set out by Teradata, and shall contain the following information: Part MTBF, Vendor I Supplier Part Number, Vendor Name or PDRC Supplier Code, OEM Part Number, Vendor Address, Vendor Contact Name, Vendor Phone Number, Vendor I Supplier Lead Time (days), Part Cost ($), Minimum Order Quantity, Part Warranty Months (0=No Warranty), Reworkable Status (Y/N), Serialized RW (Y/N), Non-reworkable, Recoverable (Y/N). Consigned Part (Y/N), Mod Kit Part (Y/N), Rework Turnaround Time Days (if applicable). Rework Cost (if applicable), Shelf Life Days, Shelf Life Control, MSDS Data, Harmonized Code, ECCN, ECLN, Country of Origin, Encryptor Status, and Warranty Turnaround Time Days (if applicable). All Parts which are subassemblies or modules and which are identified on a Parts List will have affixed markings, which include the Teradata Part Number, revision level, date of manufacture, country of origin, and an Original Equipment Manufacturer ("'OEM") identifier.

6.1    Supplier shall make available to Teradata such Parts as Teradata may require for all Products purchased for Teradata from Supplier for a period of not less than [...***...] after the date of Supplier's delivery of the last unit of the Product.

6.2    If after the [...***...] availability period described in Section 6.1 Supplier decides to discontinue the availability of any Part or component thereof: Supplier shall notify Teradata in writing at least [...***...] prior to discontinuing the availability of any Part or component thereof, however, with respect to disk drives Supplier shall [...***...] to provide [...***...] prior to [...***...]. Teradata may then buy from Supplier such quantities as Teradata deems necessary to fulfill its Product support requirements and or use commercially reasonable efforts to make available everything required to produce the Parts to a supplier specified by Teradata. The foregoing includes, but is not limited to, detail part sources with confirmed availability for all Bill Of Material parts, test equipment, test fixtures, manufacturing aids, test processes, yield information, and engineering documentation.

6.3    Engineering Changes. Despite Teradata's approval of Product changes, Supplier agrees to [...***...] to notify Teradata in writing at least [...***...] in advance of any change in purchased or manufactured Parts which affect form, fit, function, field maintenance or safety agency approval. Notification will be provided to:

Strategic Supplier Master Purchase Agreement                 ***Confidential Treatment Requested

Teradata Confidential                                24

Exhibit 10.46

Teradata Operations, Inc.

200 Highway 74 South

Peachtree City, GA 30269 USA

Attn: ECC

6.4    If there is any change to a current Part (which is not made upon Teradata's request) that affects its ability to replace the current Part, Supplier will provide a different Part Number for the latest version Part. Supplier will upgrade, rework, replace or reimburse Teradata (which of the four options being at Supplier's discretion and expense) for Parts in Teradata's service part inventory, and for any Teradata-owned test and repair equipment unique to Supplier's Product, which is made obsolete as a result of Product/Part changes. Reimbursement will equal Teradata's original cost (including delivery) for such Parts. Reimbursement for test and repair equipment will be equal to Teradata's replacement cost, or Supplier may reimburse Teradata for the cost to modify test and repair equipment so that it remains useable. At Supplier's option and expense, Teradata will return obsolete Parts and test and repair equipment which have been replaced (or for which Teradata has been reimbursed) by Supplier.

6.5    Intentionally not used.

6.6 Intentionally not used.

6.7Warranty. Supplier warrants all Products, including Services and Parts, as set forth in Section 5.1 (General Warranties) of the Agreement. Warranty reimbursement for claims for Parts not complying with the above warranty will be handled in accordance with the terms specified below.

6.7.1 Warranty Reimbursement.    Supplier's Parts will be assigned to one of two "Warranty Tiers" as mutually agreed between the parties.

TIER 1 -Expendable Parts are Parts that are normally not re-workable and are discarded after use. Supplier will provide a list of expendable Parts. On a monthly basis, Teradata will report to Supplier the quantity of Expendable Parts (by item name, Teradata part number and description of failure) that are defective during the preceding month for compensation. Supplier will review and approve such requests for compensation on a monthly basis. At Supplier's option, Supplier's reimbursement will be in the form of (i) a replacement Part (new or reworked to perform like new), or (ii) a refund or purchase credit based on Teradata's cost for the Part.

TIER 2- Reworkable Parts are Parts that are normally re-workable and are either repaired or replaced. Supplier will ensure that each Tier 2 Part has a serial number, model number, date of manufacture, or some other identification that will enable Supplier to verify whether the Part is under warranty. Teradata will accumulate the consumed Tier 2 Parts and periodically return them to Supplier as per Exhibit H. For Tier 2 Parts that are defective, which are still under warranty, Supplier will provide: 1) a replacement Part (new or reworked to perform like new); or if providing a replacement is not commercially practicable 2) a refund or purchase credit, at Teradata's option, equal to Teradata's cost for the Part.

7. ORDERS

7.1Non-Emergency Orders. Supplier will carry Parts and Products adequate to meet an average lead time (measured from receipt of order to availability for shipment) of live [...***...], or as otherwise stated in the Agreement.

7.2    Emergency Orders. Supplier agrees to accept emergency orders seven (7) days per week, twenty-four (24) hours per day for reasonable quantities of Parts and Services from Teradata, which may be shipped by Supplier from one or more locations, in Supplier's discretion. Supplier shall fill all emergency orders without additional charge to Teradata based on the emergency nature of the order. Supplier shall use its best efforts, including taking material from production or from other Teradata customers’ non-emergency orders, to perform the Services and make Parts and Products available for shipment no later than [...***...] following receipt of the emergency order from Teradata. Supplier shall provide waybill information to the Teradata emergency order originator as soon as possible but no later than 10:30am Eastern Time [...***...]. Supplier's point(s) of contact for emergency orders shall be provided to Teradata upon signing of the Agreement or the effective date of this Exhibit. Supplier will ship

Strategic Supplier Master Purchase Agreement                 ***Confidential Treatment Requested

Teradata Confidential                                25

Exhibit 10.46

Parts or Products on an "Overnight" basis, or make such Parts or Products available for immediate pickup, at Teradata's discretion.

8.    SUPPLIER'S DISTRIBUTION CAPABILITY (SUPPLIER DIRECT)

Supplier agrees to maintain or develop worldwide direct ship capability from Supplier's location(s) directly to Teradata customers or Teradata designated field locations upon [...***...] and made an addendum to this Agreement. This includes making shipments to the Teradata Global Distribution Centers in the Americas, Europe, the Middle East and Africa, and Asia Pacific and Japan. This distribution capability is known as "Supplier Direct".

9.    REWORKABLE PARTS

"Reworkable Parts" are Parts that have failed, but may be reworked to perform in accordance with the OEM specifications, and are returned in "like new" condition. Supplier's Parts List shall identify all Reworkable Parts and include the repair price for each Part. Reworkable Parts under warranty at the time of failure shall be reworked by Supplier and returned to Teradata (or a CM) at no charge and in accordance with the Warranty Reimbursement terms of this Exhibit (Section 6.7).

9.1    Supplier's location(s) for receipt of Reworkable Parts shall be provided to Teradata, and should such Supplier location(s) be unacceptable to Teradata, Teradata reserves the right to request an alternate repair supplier, as regional return locations are preferred by Teradata.

9.2    Supplier agrees that Reworked Parts and packaging will be in clean, like-new condition, and are subject to the same cosmetic, quality and acceptance criteria as new Products and Parts. If displays or monitors are reworked, phosphor bums are not allowed anywhere on the CRT. No bends or twists in metal frames, brackets, enclosures, etc. are allowed. Teradata will provide workmanship standards for cosmetic details and standards concerning acceptable defects on printed circuit boards upon request. Rework Label guidelines are specified in the Teradata Supplier Guide.

9.3    Inspection of Rework Services. If any Rework Services do not conform to the requirements of this Agreement, Teradata may require the Supplier to re-perform the Rework Services at no additional cost to Teradata. Supplier shall provide a Return Material Authorization (RMA) number within [...***...] of Teradata's request for a RMA enabling Teradata to return non-conforming Parts. If defects in Services cannot be corrected by re-performance. Teradata may (a) require the Supplier to take necessary action to ensure that future performance conforms to requirements; and (2) reduce the purchase order price to reflect the reduced value of the Services performed.

9.4    Non-Complying Parts. Any shipment of Non-complying Parts by Teradata (or a CM) to the Supplier shall be at Teradata's risk and expense and the return shipment of repaired or replacement Parts by the Supplier to Teradata (or a CM) will be at the Supplier's risk and expense.

9.5    Non-Repairable Parts. If the Supplier determines the Part is not repairable, the Supplier shall contact the Teradata Buyer listed on the Purchase Order for disposition instructions. Decisions to scrap Teradata property will be solely that of Teradata and will not be independently made by the Supplier without consultation with Teradata. With [...***...] written notice, Teradata may request permission to visit a specific repair location to inspect Parts deemed as scrap, and review with the Supplier procedures and accountability of Teradata assets.

9.6    Discontinuance of Repair Services. Supplier shall notify Teradata in writing at least [...***...] prior to discontinuing repair services for any Part. In such event, Supplier shall [...***...] to make available to Teradata everything required to repair the Parts such as, but not limited to, applicable Engineering drawings, Part specifications, processes and all other information relevant to the repair of the Part that will allow Teradata to move the repair requirements to an alternate repair provider.

***End of Exhibit D***

Strategic Supplier Master Purchase Agreement                 ***Confidential Treatment Requested

Teradata Confidential                                26

Exhibit 10.46

EXHIBIT E

SAFETY AND REGULATORY AGENCY REQUIREMENTS BY COUNTRY

One (1) copy of each international certification documentation with the testing and compliance investigation reports, shall be maintained by Supplier for at least [...***...] beyond the last date of manufacture, or provided to Teradata for archival purposes.

Domestic Requirements- For Products intended for release in the United States only:

A. Product Safety- The Product will be Listed (end-use product) or Recognized (component), per UL Standard UL 60950-1 2nd edition for use as Information Technology Equipment, by a Nationally Recognized Testing Laboratory (such as Underwriters Laboratories, TUV Rheinland, TUV Product Service or other). Each unit will be marked with the appropriate safety agency logo. Manufacturing process shall comply with the requirements of UL or other NRTL.

B. Electro-Magnetic Emissions - The Product will comply with Federal Communications Commission (FCC) requirements CFR Title 47, Parts 2 and 15. Each unit will be labeled appropriately for Class A or Class B and documentation will contain user statements as required per the FCC rules.

C. Telecommunication Equipment - All equipment that connects directly to a telecommunication network, either public or private, will comply with Federal Communications Commission (FCC) requirements CFR Title 47, Part 68. Each unit will be labeled appropriately as required by the FCC rules.

D. Laser Containing Devices - All Products that contain laser devices (scanners, printers, CD devices, etc.) must comply with the Center for Devices and Radiological Health (CDRH) regulations CFR Title 21. Each unit will bear a CDRH compliance label and any caution labels appropriate for the class laser device integrated into the Product per the regulations. All Product documentation must contain the required user warning statements. In addition, Products must comply with individual state laws (i.e., New York) that require additional registration and/or approval.

E. Ozone Depleting Chemicals- Seller will label all Products and Parts (including all packaging) as required by the United States Environmental Protection Agency's regulations in effect at the time of delivery of the Product or Parts. As of September 1993, the basic regulations may be found at Volume 40 of the Code of Federal Regulations, Part 82, entitled “Protection of Stratospheric Ozone." Subpart E, entitled "The Labeling of Products Using Ozone Depleting Substances."

F. CRT (Cathode Ray Tube) Containing Devices - All Products which contain CRTs which emit X-Rays (monitors. displays, etc.) must comply with the Center for Devices and Radiological Health (CDRH) Regulations CFR Title 21. Each unit will bear a CDRH compliance label, also bearing all other information required by the regulations. Supplier will provide Teradata with the "accession number" allocated by CDRH, and will comply with all appropriate CDRH requirements, specifically with respect to labeling, reporting, and submission of annual reports.

G. C-TPAT (Customs-Trade Partnership Against Terrorism) - Supplier will work with Teradata to address concerns and recommendations pertaining to C-TPAT.

H. Radio and Telecommunication Terminal Equipment

United States - The Product must have a Grant of Equipment Authorization issued by the Federal Communication Commission or equivalent issued by a Telecommunication Certification Body (TCB) verifying compliance with Code of Federal Regulations 47, Parts 2 and 15. Documentation will contain user statements as required per the FCC rules.

Strategic Supplier Master Purchase Agreement                 ***Confidential Treatment Requested

Teradata Confidential                                27

Exhibit 10.46

I. Products incorporating a scale to record commercial transactions must have NTEP Weights & Measures Type­ approval for U.S. and Canada in accordance with NIST Handbook 44 and NCWM Publication 44- Weighing Devices.

International Requirements- For Products intended for release outside the U.S.: Check off applicable regulatory requirements for countries and regions where Product released and for installations are planned outside the United States.

A.Product Safety:

YES     Canada - Products will be certified by the Canadian Standards Association or other safety agency

acceptable in Canada (e.g. UL for Canada) for compliance with the latest edition of the CSA Standard CAN/CSA-C22.2 No. 60950, Safety of Information Technology Equipment.

YES European Union (EU) - Products must comply with EU Directive 2006/95/EC (Low Voltage Directive). Testing and certification by any national "notified body" (e.g. VDE, TUV, BSI, etc.) for compliance to EN 60950-1 "Safety of Information Technology Equipment" is required. A CB (Certification Body) test certificate and CB report should be obtained from a recognized CBTL (CB Testing Laboratory). A CE mark should be placed on the product as evidence of compliance with the applicable EU Directives.

YES     China- CCC certification should be obtained. CCC certificate must be provided.

YES     Mexico- Certification by NOM or by one of the US agents such as UL or TUV.

YES     Japan- Products shall have PSE certification and bear the PSE mark as applicable.

NOT Saudi Arabia- Certification by SASO which is by ETL as an agent in Cortland, NY. CURRENTLY

CERTIFIED

YES     Russia- GOST-R certification is required

YES     Taiwan- BSMI certification to CNS CNS14336 is required

YES Other International Countries- Product compliance with IEC 60950-1, "Safety of Information Technology Equipment" and a CB report (covering all appropriate national deviations) from a CBTL is required.

B.Electro-Magnetic Emissions:

YES Canada - Compliance with U.S. FCC rules or CISPR Publication 22 are satisfactory for Canadian requirements but additionally each Product must be labeled and documentation statements (in English and French, suggested wording is in ICES-003) included per Industry Canada (IC) Radio Interference Regulations.

YES European Economic Area (EEA) and Switzerland- The product must comply with 2004/108/EC Directive relating to Electromagnetic Compatibility. The products require a Suppliers Declaration of Conformity with a CE marking on the product.

YES     Japan- Products must be tested and certified for Japanese VCCI compliance.

YES Korea- Products must be tested and MIC certified by the Korean Radio Research Laboratory for compliance with the Korean Ministry of Communication Ordinance 825.

YES     Taiwan- Testing and BSMI certification to CNS 13438 is required

YES Australia and New Zealand- Products must be tested and certified for compliance with AS/NZS CISPR 22. A Supplier's Declaration of Conformity must be on file in Australia. Each product must bear the C-tick mark and the appropriate ACMA supplier code number, or ABN number.

YES    Other International Countries- Evidence of compliance with CISPR 22 is required.

C.Telecommunication Equipment Approvals:

N/A Canada- The Product must have an equipment grant issued by Industry Canada (IC) verifying compliance with the Standard for Technical Equipment CS-03.

N/A United Kingdom - The Product must be authorized by the British Approvals Board for Telecommunications (BABT) for connection to a telecommunication network.

N/A Other International Countries - Most countries outside the U.S. require permission (which may be in the form of a license) to be obtained from a local PTT authority prior to connection to a telecommunications network. Specific country PTT approvals for the purchased Product should be specified below.

Strategic Supplier Master Purchase Agreement

Teradata Confidential                                    28

Exhibit 10.46

_________________________________________________________________

_________________________________________________________________

_________________________________________________________________

D.    Laser Containing Products:

YES Outside the U.S. - Products containing laser devices must show evidence of compliance with IEC/EN 60825-1 "Safety of Laser Products". An IEC/EN60825-1 report must be provided.

YES Europe - Products containing laser devices must show evidence of compliance with EN 60825-1

"Safety of Laser Products". AN EN 60825-1 report must be provided.

E.     Radio and Telecommunication Terminal Equipment This subsection E is not applicable to Supplier's Products.

Canada - The Product must have a Technical Acceptance Certificate issued by the Industry Canada verifying its compliance with specification RSS21 0.

Australia - The Product must comply with AS/NZS 3548 including the completion and submittal of a signed Supplier's Declaration of Conformity held in Australia.

New Zealand - The Product must comply with the Radiocommunications Regulation Part 43 of the Ministry of Commerce. This includes a letter from the ministry indicating the receipt of a completed Declaration of Conformity.

European Union - The Product must comply with Radio and Telecommunications Terminal Equipment Directive (R&TTE) 1999/5/EC. In the case the Product does not comply with a harmonized standard it shall comply with the country specific standards for all countries within the EU.

All other countries will require radio certification per specific country requirements.

F.     Recycling and Restrictions of Hazardous Substances

All products marketed in Europe are required to meet electronic waste handling requirements such as the European Union's Waste Electrical & Electronic Equipment (WEEE) Directive (Directive 2002/96/EC), and the Restriction of Hazardous Substances (RoHS) Directive (Directive 2002/95/EC).

G.     Products incorporating scales to record commercial transactions must comply with EU Directive “Non­ automatic

Weighing Instruments" (90/384/EEC) and must be type-approved by a Notified Body in the EU.

H.     Product incorporating scales to record commercial transactions must comply with Weights and Measures requirements for the

geographic locations for which they are intended.

NOTE:All Products must be labeled in accordance with the specific requirements for the regulatory approvals required above in this Exhibit E.

***End of Exhibit E***

Strategic Supplier Master Purchase Agreement

Teradata Confidential                                    29

Exhibit 10.46

EXHIBIT F

WORKMANSHIP REQUIREMENTS REGARDING PLATING PROCESS FOR METAL PARTS

The purpose of this document is to state Teradata's requirements for the plating processes of metal parts supplied to Teradata. Teradata may delegate certain functions to a CM. You will be informed what functions have been retained by Teradata and what functions have been delegated to a CM.

All plating processes used for metal parts must meet the following requirements:

I.    Electrical conductivity if it is so required to facilitate grounding or other specific purposes

2.    Sufficient corrosion protection (un-covered metal edges and tool marks are allowed)

3.     ROHS or other international regulatory compliances

4.     No known metal whisker growth history

As it relates to the fourth requirement, zinc electro plating is one of the processes that are not acceptable to Teradata however, [...***...]. HOG (with reference to ASTM A527/A527M or ASTM A653/A653M) is one of the processes that are acceptable to Teradata and, as of the Effective Date, is the method used for the majority of the Product components. It is not the intent of this document to state an exclusive list of acceptable plating processes, leaving room for the vendor and Teradata to reach agreement on plating processes that meet the requirements.

All material specifications for metal parts that the vendor uses in products supplied to Teradata (whether manufactured by vendor or procured from 3^rd parties) must be submitted to Teradata and be approved by Teradata in writing. Any deviation from approved material specifications must be approved by Teradata in writing before the new specifications can be used.

Teradata may implement a screening process to sample parts from all vendors for plating processes that do not meet approved plating processes, and reserves the right to return all non-compliant materials to the vendor in accordance with this Agreement.

Teradata reserves the right to prospectively disqualify any plating processes that it previously approved if new evidence or knowledge becomes available.

Each vendor agrees that all products that it supplies to Teradata (or to a CM for Teradata) will conform to those metal plating processes approved by Teradata in accordance with this section, until Teradata provides written approval to Vendor of other metal plating processes.

***End of Exhibit F***

Strategic Supplier Master Purchase Agreement                 ***Confidential Treatment Requested

Teradata Confidential                                30

Exhibit 10.46

Exhibit G

ESCROW, CONDITIONAL MANUFACTURING LICENSE, AND CONTRACT MANUFACTURERS

Within [...***...] after the Effective Date and for at least [...***...] after delivery by Supplier of the last unit of the Product, Supplier will enter into and maintain an escrow agreement with Teradata and Iron Mountain Intellectual Property Management, Inc. ("Escrow Agent") that is substantially similar to Escrow Agent's then-current, standard three-party escrow service agreement and that at a minimum: (1) requires Supplier to deposit the Deposit Materials; (2) requires Supplier to update the Deposit Materials promptly after Teradata receives a new release of the Product; (3) provides for release of the Deposit Materials to Teradata upon the occurrence of one of the following events (each a "Release Event"): (A) Teradata terminates this Agreement due to Supplier's material breach, (B) Supplier discontinues the manufacture or marketing of the Product despite having an obligation to do so under the Agreement, (C) Supplier is unable or unwilling to supply Teradata with timely delivery of Teradata's reasonable requirements of Product for a period of [...***...] despite having an obligation to do so under the Agreement, (D) Supplier is unable or unwilling to provide Teradata with the Product Support Requirements set forth in Exhibit D of this Agreement for a period of [...***...] despite having an obligation to do so under the Agreement, , or (E) Supplier's failure to function as a going concern or to operate in the ordinary course. Notwithstanding the foregoing, if a force majeure or similar event excuses Supplier from obligations to perform as described in subsections (B), (C) or (D) above, Supplier's failure to perform those obligations will still be a Release Event entitling Teradata to access the Deposit Materials. "Deposit Materials" means all necessary and useful information to understand, design, manufacture, maintain, support, and modify (but only modifications for the purpose of supporting then­ existing revisions, and not for the purpose of creating new functions or features) the Product, including without limitation: specifications, designs, drawings, technical documents, test information, computer programs (in binary and source form), procedures, manufacturing methods and materials, a bill of materials (with costs), vendor lists (with contact information), a list of required third party technology that Supplier cannot sublicense (with contact information for obtaining sublicenses and copies of Supplier's licenses), a list of Supplier's engineers (with contact information) whose know-how would enable Teradata to exercise its rights herein, and a list of third party consultants (with contact information) whose know-how would assist Teradata to exercise its rights herein.

Supplier will be responsible to pay Iron Mountain the fees associated with establishing this escrow (the initial Set Up Fee). Teradata will be responsible to pay Iron Mountain for its Enrollment Fee, the Annual Deposit Maintenance Fee and any Fees relating to additional services requested of Iron Mountain by Teradata, including but not limited to verification testing and independent audit of the sufficiency of the Deposit Materials.

Upon the occurrence of a Release Event, Supplier hereby grants Teradata a [...***...], royalty-free, fully paid-up, worldwide, irrevocable (except for breach of the License Limitations, below), nonexclusive, license under all rights with respect to the Product owned by Supplier (or to which Supplier has the right to grant sublicense), including without limitation, the rights to reproduce, distribute, publish, transmit, publicly perform, publicly display, provide access. maintain, make, have made, import, use, repair, offer to sell, sell, lease, license, sublicense, and/or otherwise transfer the Product, as well as to authorize others to do any or all of the above. The foregoing license shall also include the right to modify, enhance and prepare derivative works of the Product, but only for the purpose of supporting then-existing revisions, and not for the purpose of creating new products, functions or features. In addition to the foregoing manufacturing license, upon the occurrence of a Release Event, Supplier hereby consents to Teradata directly procuring from any vendor any and all parts, assemblies, software, tools, information, and anything else necessary or useful to understand, design, manufacture, maintain, support, and modify the Product. (collectively "Escrow License")

Within [...***...] after the Effective Date, Supplier will [...***...] to amend its agreement ("CMA") with [...***...] ("CM") in a form reasonably satisfactory to Teradata to provide Teradata a non-exclusive right to exercise Supplier's rights under the CMA to have the Product manufactured by CM for Teradata for a period of [...***...] after written notice ("CM Notice") from Teradata to CM stating that a Release Event has occurred and that

Strategic Supplier Master Purchase Agreement                 ***Confidential Treatment Requested

Teradata Confidential                                31

Exhibit 10.46

Teradata agrees to be bound by the CMA to the extent that it exercises rights under the CMA. The amendment will state that Teradata's obligations under the CMA are limited as follows: (1) Teradata has no obligations under the CMA until after delivering the CM Notice to CM and exercising its rights under the CMA, (2) Teradata is not responsible for any obligations to CM accruing prior to delivering the CM Notice to CM, and (3) Teradata is only obligated to CM by the CMA to the extent that it exercises rights under the CMA and is not responsible for any obligations to CM arising from any action or inaction of Supplier or any other entity. The amendment will name Teradata as a third party beneficiary of the amended CMA entitled to enforce the terms and conditions of the CMA. Supplier will provide Teradata with a written copy of such amendment promptly after its execution. The amendment will require CM to provide Teradata with a copy of the CMA promptly after CM receives the CM Notice. Supplier will not modify Teradata's rights under the amended CMA without Teradata's written consent, which consent will not be unreasonably withheld.

Supplier will provide Teradata with written notice identifying each contract manufacturer that it uses to manufacture the Product. Upon the occurrence of a Release Event, Supplier will [...***...] to facilitate and enable Teradata to purchase Product, Parts and/or Services for a period of [...***...] directly from Supplier's CM.

Supplier will [...***...] to cause terms substantially similar to the amendment to be included in each of its contract manufacturing agreements ("Other CMAs") related to the Product. For each such agreement, Supplier will provide Teradata with written notice of having entered such agreement including information identifying the agreement, copies of the sections granting Teradata the right to exercise the agreement, and contact information for the contract manufacturer.

Supplier will not attempt to hinder or otherwise interfere with Teradata's proper exercise of its rights under the amended CMA or Other CMAs. Upon request from a third party to confirm Teradata's rights under this Exhibit, Supplier will promptly provide written confirmation of such rights and simultaneously provide Teradata with a copy of such confirmation.

Escrow License Limitations:

Notwithstanding the foregoing, Teradata's exercise of the Escrow License and/or CMA License is subject to the following conditions, exclusions and limitations (collectively "License Limitations"):

(i)Teradata must manage the Deposit Materials and its exercise of the rights herein in a confidential manner;

(ii)Products and Parts manufactured by Teradata must be used, sold, and distributed to Teradata's customers in Teradata's normal course of business, and not for any other purpose such as (but not limited to) the purpose of entering into a new line of business to compete with Supplier;

(iii)The rights hereunder shall terminate upon the earlier of: (a) Supplier's resumption of manufacture and delivery of the Products, Parts or Support, as applicable; (b) the expiration of Supplier's legal requirement under the Agreement to make the particular Product, Part or Support available to Teradata; or c) [...***...] from the Release Event;

(iv)Upon the termination of the Escrow License and/or CMA License, Teradata shall cease exercising its rights under the licenses and return to Dot Hill all Deposit Materials and other documents and materials that were provided to Teradata to enable it to exercise the licenses.

This Exhibit survives any expiration or termination of this Agreement.

Strategic Supplier Master Purchase Agreement                 ***Confidential Treatment Requested

Teradata Confidential                                32

Exhibit 10.46

EXHIBIT H

RMA PROCEDURES

1. General Procedures for RMAs for Product and Parts

(a) If Teradata believes that Product or Parts do not conform to the applicable Specification, Teradata shall notify Supplier in writing of such nonconformance and request an RMA number. Teradata shall provide details of the nonconformance as reasonably requested. The RMA request shall contain:

i. Supplier part number

ii. Supplier serial number

iii. Description of fault/defect

iv. Contact name and telephone number

v. RMA "ship to" address

(b) Upon receiving an RMA request, Supplier will issue an RMA number to Teradata and request that Teradata return the defective Product or Part, as applicable, to Supplier or a third party service provider working on behalf of Supplier. Teradata shall use this RMA number on all communications with Supplier regarding the RMA. It should be noted that whenever possible, Supplier will opt for the return and repair of a Part as opposed to an entire Product unit.

(c) Upon receiving the defective Product or Part, if Supplier believes that it satisfies the applicable Specification, Supplier will contact Teradata and provide Teradata with evidence of compliance with the applicable Specification ("No Trouble Found" or "NTF"). If the NTF rate for Teradata returns exceeds [...***...] percent ([...***...]%) of all Teradata 's returns during any [...***...] period, the parties shall mutually agree upon and execute an action plan aimed at lowering the NTF rate to a rate not to exceed [...***...] percent ([...***...]%). Such action plan may include, among other strategies, [...***...]. Supplier shall provide the [...***...]. Teradata shall be responsible for [...***...], including the [...***...].

(d) One Strike Rule. Notwithstanding anything to the contrary in this Agreement, if Teradata returns a hard disk drive because it reasonably believes the hard disk drive docs not conform to the Specification (even if Supplier determines NTF), Supplier will not return that hard disk drive to Teradata under any circumstances (including after Supplier repairs that hard disk drive).

(e) If the Product or Part fails to satisfy the Specification and it is in-warranty, Supplier will:

• For hardware Products (i) at Supplier's option and expense. repair or replace any hardware Product, or part, FRU or component necessary to cause conformance to its specification, or,

(ii) if (i) is not feasible, issue a credit or refund to Teradata, as directed by Teradata, for the purchase price paid.

• For Software. (i) at Supplier's option and expense, correct any Software which fails to conform to its specifications or, (ii) issue a credit or refund to Teradata, as directed by Teradata, for the license fee paid to Supplier for the Software.

(t)    If a returned Product or Part is out-of-warranty, and if Supplier determines that it is beyond economical repair (BER), Supplier

will so notify Teradata. Teradata will advise Dot Hill to:

1. Continue repair for a fee:

i. Provide a replacement for a fee:

ii. Ship un-repaired unit back to Teradata at Teradata's risk and expense.

(g)     Any warranty described in this Agreement shall not apply to the extent that the Product or Parts (including Software) (i) has been

altered, except by Supplier or under Supplier's direction: (ii) has not been handled.

Strategic Supplier Master Purchase Agreement                 ***Confidential Treatment Requested

Teradata Confidential                                33

Exhibit 10.46

installed, maintained, packaged, shipped or operated in accordance with Supplier's instructions, including by a Teradata CM; or (iii) has been damaged by accident, misuse, negligence, or external factors, such as fire or flood. It is understood that any of these excluding occurrences may happen at a Teradata facility, at a CM facility, at a customer site, in transit, or otherwise. In cases where Supplier suspects that any of the foregoing warranty exclusions apply, Supplier shall contact Teradata and provide the following details:

i. RMA Number;

ii. Digital photograph of damage;

iii. Probable cause of damage;

iv. Statement that repair is chargeable because of a warranty exclusion.

If Teradata agrees with Supplier's conclusion, Teradata will then choose whether to pay for the repair or replacement, or to have the un-repaired unit shipped back to it at its risk and expense. The parties will use reasonable efforts to resolve such dispute, which depending on such resolution may include any of the actions set forth in subsections (e) and (f) above.

(h) For in-warranty Products, Teradata shall be responsible for all risk and transportation costs for shipment of Product or Part to Supplier and Supplier shall be responsible for all risk and transportation costs for shipment of Product or Part back to Teradata. For out-of-warranty Products, Teradata shall be responsible for all risk and transportation costs for shipment of Product or Part to and from Supplier.

(i) If Teradata makes any warranties to its customers that are contrary to, inconsistent with or greater than the warranties given by Supplier herein, Supplier shall not be bound by such warranties.

2.    Advance Replacement

(a) Upon Teradata's request, Supplier will ship replacement Products or Parts (either new or refurbished units) to Teradata prior to receiving the defective Product or Part from Teradata. ("Advance Replacement").

(b) Dot Hill shall strive to ship Advance Replacement Products or Parts, after Supplier's receipt of notice from Teradata that Advance Replacement is required, via express delivery service, to Teradata or CMs located in the United States within [...***...] after receipt of the request.

(c) In all Advance Replacement situations, Teradata shall return the defective Product to Supplier within [...***...] (excluding any time that the Product or Part is held in customs) of receipt of the replacement Product or Part. If at any given time the defective Product or Part is outstanding for more than [...***...] (except [...***...]), Supplier shall [...***...].

(d) All defective Products or Parts, in exchange for which Teradata has received a pre-exchange Product or Part, shall become the property of Supplier. Notwithstanding the foregoing, hard disk drives that cannot be returned due to critical security/confidentiality concerns need not be exchanged provided that Supplier's reasonable procedure is followed, which may include the submission of a "Certificate of Destruction” or the return of a portion of the drive that does not contain stored data, such as the top metal plate.

Strategic Supplier Master Purchase Agreement                 ***Confidential Treatment Requested

Teradata Confidential                                34

Exhibit 10.46

EXHIBIT I

VENDOR MANAGED INVENTORY (VMI) TERMS AND CONDITIONS

I.    General Provisions.

A. Supplier shall establish a VMI location in the immediate vicinity of Columbia, South Carolina (the "VMI Location"). Such VMI Location may, in supplier's discretion, be operated by a third-party ("Hub Operator"). Expenses imposed by the Hub Operator shall be paid for by Supplier. Supplier may, in its discretion, choose an alternate Hub Operator provided that Supplier gives Teradata [...***...] notice of such change.

B. CM (as defined in section 1.2 of the Agreement) may issue purchase orders and thereby "pull" from the VMI Location. If any other entity, including Teradata, wishes to pull from the VMI Location, supplier shall obtain prior approval from personnel in Teradata's Business Operations department before allowing the pull.

C. Prior to a pull from VMI, all VMI inventory shall be the property of Supplier. A pull from VMI inventory signifies the purchase of the pulled Part or Product.

D. Teradata shall provide to Supplier a [...***...], non-binding, rolling forecast, [...***...], and [...***...]. The forecast shall provide requirements by Part or Product number. At the start of each calendar quarter, the parties shall discuss and determine the "build plan" for the quarter.

2.    Lead-Times and VMI Inventory Requirements.

a. Supplier shall [...***...] to ensure that the following amounts are held in the VMI location (collectively "VMI Requirements"):

• [...***...] percent ([...***...]%) of Teradata's calendar quarter forecast shall be made available by the end of the [...***...] in the VMI location; and

• [...***...] of forecasted chassis and Hard Disk Drive (HDD) amounts shall be held in the VMI location.

b. Supplier shall hold the following amounts at the following locations and such amounts shall be made available to Teradata in addition to the VMI Requirements that are set forth in subsection 2(a). below ("Upside Requirements"'):

• [...***...] of forecasted chassis amounts shall be held at a location within the United States; and

• [...***...] of forecasted raw HDD stock at a location within the United States.

• Note, that the foregoing [...***...] may be held in a manner that is [...***...].

c. Supplier shall use commercially reasonable efforts to require that Teradata's CM hold Field Replaceable Unit (“FRU") spare parts for use solely by the CM in amounts and types, and under terms and conditions, to be mutually and reasonably agreed upon by the parties. If Supplier is unable to have the CM agree to such provisions using commercially reasonable efforts, Supplier shall hold such FRU spare parts in the VMI Location with a lead time of [...***...].

d. The lead-time for Orders that fall within VMI Requirements shall be [...***...].

Lead-time is measured from receipt of a valid order until a pull from the VMI location. The goal for delivery within such lead-time is [...***...]%. If such [...***...], the parties shall meet and mutually agree upon [...***...].

Strategic Supplier Master Purchase Agreement                 ***Confidential Treatment Requested

Teradata Confidential                                35

Exhibit 10.46

e. Notwithstanding the foregoing, with respect to an increase in forecasted amounts, Supplier shall be given a reasonable period of time, in light of the size of the increase, to refill the VMI Requirements and Upside Requirements.

3.    Returns. Teradata may return Product or Parts to the VMI location provided that the following conditions are met:

• The return is made within [...***...];

• The return is not made during the [...***...];

• Teradata obtains [...***...] which is used in conjunction with the return);

• Products or Parts subject to a the return (or IRC as defined below) during a [...***...];

• Products or Parts must [...***...];

• Products or Parts cannot be [...***...];

• Any [...***...] for the return shall be paid [...***...] and [...***...] until the Product or Part has been returned to the VMI location;

• Teradata must [...***...] under this provision as [...***...] and [...***...] a Product or Part [...***...];

• If a Product or Part is returned under this section, [...***...] by the Annual Cost Erosion Plan described in Section 2.1 of the Agreement;

• All Products or Parts [...***...]; and

• Teradata agrees to [...***...].

4.    Title and Inventory Pulls. All right, title and interest in and to the VMI inventory shall remain with Supplier until

a pull from the VMI location. Upon a pull, title to pulled Part or Product shall pass and the Part or Product shall be

deemed to have been purchased. Payment shall be made as per the Agreement.

5.    Termination of VMI. If Supplier terminates the Agreement without cause, or Teradata terminates the Agreement for

cause, Supplier shall pay shipping charges to have all VMI inventory shipped out of the VMI location. If Supplier

terminates this Agreement for cause, or Teradata terminates this Agreement (or the need for VMI) without cause, then

Teradata shall pay shipping charges to have VMI inventory shipped to a location within the United States as directed

by Supplier.

6.    Inventory Re-evaluation Credit. At the end of each calendar quarter (starting with the end of the second full calendar

quarter after the Effective Date), Supplier will grant to Teradata's CM (for the benefit of Teradata) an Inventory Re-

evaluation Credit ("IRC") calculated as follows:

IRC = [...***...]

PQP = [...***...]

[...***...] = [...***...]

PQR =[...***...]

Strategic Supplier Master Purchase Agreement                 ***Confidential Treatment Requested

Teradata Confidential                                36

Exhibit 10.46

Q2QR = [...***...]

IRC = ([...***...] - [...***...]) * [...***...]

For example, if [...***...] in Q1; [...***...] in Q2; and

[...***...], then the IRC issued at the end of Q2 would be $[...***...] [($[...***...]*[...***...]% -

$[...***...])*[...***...]%)= $[...***...]]

[...***...]

Strategic Supplier Master Purchase Agreement                 ***Confidential Treatment Requested

Teradata Confidential                                37

EX-10.47

Exhibit 10.47

***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.

Supplier Managed Inventory Agreement

This Supplier Managed Inventory Agreement ("Agreement") is made as of 8/8/2013 (the "Effective Date"), by and between Flextronics a Delaware corporation with a principal place of business at 1000 Technology Drive, W. Columbia, SC 29170 ("Flextronics"), and Dot Hill Systems Corp., a Delaware corporation with a principal place of business at 1351 S. Sunset Street, Longmont, CO 80501 ("Supplier'').

WHEREAS, Supplier entered into a Strategic Supplier Master Purchase Agreement with Teradata Operations. Inc. (''Teradata") in July 2012 (''Teradata Agreement") pursuant to which Supplier sells its Products to Teradata; and

WHEREAS, Flextronics is the current contract manufacturer ("CM") for Teradata, and therefore wishes to purchase the Products from Supplier on Teradata's behalf for use as components in Teradata products; and

WHEREAS, the Teradata Agreement stipulates that Supplier shall enter into an agreement directly with Flextronics (acting as Teradata's CM) by which Flextronics can make direct purchases of Products by "pulling" the Products from Supplier Managed Inventory ("SMI") held at a third party hub provider ("Hub Operator");

WHEREFORE, the parties agree as follows:

1. Scope of Agreement.

This Agreement is intended to provide business terms with respect to Supplier's Products but only when such Products are purchased by Flextronics on behalf of Teradata, and all such

Product purchases shall be governed by this Agreement. The term Products shall include Parts and Software. The term "Software" means all versions of computer software programs

provided by Supplier to Flextronics under this Agreement including stand-alone software packages and firmware that is delivered pre-loaded upon hardware Product. The term "Parts" means any component, subassembly, field replaceable unit ("FRU"), or other module of the Products purchased under this Agreement. Unless otherwise indicated, the term Product shall include Software and Parts.

2. Pricing and Payment

a. Prices. The prices at which Flextronics will purchase Products from Supplier shall be determined as per the Teradata Agreement. All prices and payments will be in U.S. currency unless otherwise agreed in writing. Prices are exclusive of, and Flextronics shall be responsible for payment of: shipping (including shipment of Supplier's Products from the SMI hub to Flextronics), handling and all taxes, including federal, state or local sales, use, property, excise, value added or similar taxes that may be levied as a result of sale or delivery of any Product. The parties will render reasonable assistance to one another (for example, by providing valid resale certificates or documentation necessary to claim zero rating for VAT) to exempt the sale of Products from taxes.

b. Payment. Pament is due net [...***...] (subject to continuing credit approval) from the date that Product is "pulled" from SMI. Credit approval shall be reviewed by Supplier as Supplier deems necessary. Time is of the essence with respect to all payments. Supplier may charge interest at the rate of [...***...] (or the highest lawful rate, whichever is less) on all

1SMI Local Agreement Version     ***Confidential Treatment Requested

Exhibit 10.47

overdue amounts. Flextronics will submit to Supplier its financial data as may be reasonably requested by Supplier for purposes of determining credit worthiness.

3. Forecasts

a. Forecast. Flextronics (or Teradata as determined by Flextronics and Teradata) shall provide Supplier with a [...***...], rolling forecast, updated weekly, and divided into week-long requirements ("Forecast"). The Forecast will be non-binding except as otherwise set forth herein. The Forecast shall provide requirements by Product (or Part) number. At the start of each calendar quarter, the parties shall discuss and determine the Build Plan for the quarter.

b. Response to Forecast Supplier shall notify Flextronics of its inability to meet or any objection(s) to the Forecast no more than [...***...] following receipt thereof, and confirm all supply commits for Product within the SMI Requirements, described in Section 4 below. Supplier's response to the Forecast will state: (a) Supplier's concurrence with the Forecast quantities; or (b) identify any deficiencies in its ability to supply the Forecasted demand. Based on weekly Forecast changes and the Build Plan, Supplier shall review its production starts and materials plan to minimize an inability to meet Forecast.

4. SMI Terms

The obligations set forth in this Section 4 mirror obligations set forth in the Teradata Agreement and are not meant to be additive, but only restate, the obligations that Dot Hill has, ultimately, to Teradata. For example, the SMI Requirements described in the first bullet of Section 4(b) are not additive to the SMI Requirements described in the Teradata Agreement such that Supplier must make available [...***...] of the quarter's Forecast by the end of week [...***...]. Instead, the language in the first bullet of Section 4(b) simply restates the obligation also described in the Teradata Agreement such that Supplier's total obligation (to both Teradata and Flextronics) is [...***...] of the quarter's Forecast by the end of week [...***...].

a. General. Supplier shall establish a SMI location as per the terms of the Teradata Agreement (the "SMI Location"), which shall be operated by the Hub Operator. Expenses imposed by the Hub Operator shall be paid by Supplier. Supplier may, in its discretion, choose an alternate Hub Operator as per the terms of the Teradata Agreement, and will provide Flextronics written notice of such change. Flextronics may issue purchase orders and thereby "pull" from SMI. Flextronics' pull from SMI signifies its purchase of the pulled Product.

b. SMI Inventory Requirements. Supplier shall use commercially reasonable efforts to ensure that the following requriements are met (the amounts described in the following four bullet points are collectively "SMI Requirements"):

• [...***...] percent [...***...] of the quarter's Forecast shall be made available by the end of the second calendar month (week [...***...]) in the SMI location; and

• [...***...] of Forecasted chassis and Hard Disk Drive (HDD) amounts shall be held in the SMI location.

Supplier shall hold the following amounts at the following locations and such amounts shall be made available to Flextronics under this Agreement as additional SMI Requirements:

2SMI Local Agreement Version     ***Confidential Treatment Requested

Exhibit 10.47

• [...***...] of Forecasted chassis amounts shall be held at a location within the United States: and

• [...***...] of Forecasted raw HDD stock at a location within the United States.

Note, that the chassis and HOD stock described in the last two bullet points, above, may be held in a manner that is not yet tested as an integrated system.

Notwithstanding the foregoing, with respect to an increase in Forecasted amounts, Supplier shall be given a reasonable period of time, in light of the size of the increase, to refill the SMI Requirements.

c. Lead Times. The lead-time for orders that fall within SMI Requirements in the first two bullet points (held at the SMI Location) shall be [...***...] or less. Lead-time is measured from receipt of a valid order until a pull from the SMI location. There is no established lead-time for orders that fall outside of SMI Requirement held at the SMI Location.

d. Returns. Flextronics may return Product to the SMI Inventory, but only if all of the following conditions are met:

• The return is made within [...***...] of the original pull;

• The return is not made during the last calendar week of any calendar quarter:

• An RMA number is obtained and used in conjunction with the return;

• Products subject to a the return (or IRC as defined below) during a calendar quarter may not exceed [...***...] percent ([...***...]%) of the amount of all purchases under this Agreement during the previous calendar quarter;

• Products must be returned in factory-shipped, original condition;

• Products cannot have been announced as End of Lifed prior to the original pull;

• Any freight charges for the return shall be paid by Flextronics and Flextronics shall bear risk of loss until the Product has been returned to the SMI location:

• Flextronics must accept Products returned under this provision as new Product upon a subsequent pull and Flextronics may not refuse a Product based solely on its having been returned Flextronics or Teradata;

• If a Product is returned under this section. Flextronics will be given a credit at the price for the then-current quarter as established by the Annual Cost Erosion Plan negotiated between Supplier and Teradata;

• All Products authorized for return shall be subject to inspection by Supplier to confirm that the Products meet the guidelines set forth herein: and

• Flextronics agrees to pay for any and all labor and other charges associated with the stripping off of any private labeling.

3SMI Local Agreement Version     ***Confidential Treatment Requested

Exhibit 10.47

e. Inventory Re-evaluation Credit. At the end of each calendar quarter (starting with the end of the second full calendar quarter after the Effective Date), Supplier will grant to Flextronics, but only for the benefit of Teradata, an Inventory Re­ evaluation Credit ("IRC") calculated as follows. Flextronics hereby warrants that it will use the IRC for Teradata's benefit only, and shall indemnify and hold harmless Supplier from any claim by Teradata that an IRC provided to Flextronics hereunder was not used for the benefit of Teradata:

IRC = Inventory Re-evaluation Credit for the current calendar quarter

PQP = The value of Product purchased by Flextronics under this Agreement in the preceding calendar quarter at the price of purchase

CAP = The cap on Teradata's right of return as established in I.3 above = [...***...]% of PQP

PQR = The sum of credits granted to Flextronics for purchases under this Agreement in the current calendar quarter for Product physically returned at the price established in I.3 above

Q2QR = The % price reduction agreed to in the Annual Cost Erosion Plan from the preceding quarter to the current quarter

IRC = ([...***...] - [...***...]) * [...***...]

For example, if PQP was $[...***...] in Q1; PQR was [...***...] in Q2; and Q2QR was [...***...]%, then the IRC issued at the end of Q2 would be $[...***...] [($[...***...]*[...***...]% - $[...***...])*[...***...]%) = $[...***...]]

5.Shipping, Packaging, Delivery

Orders will be shipped FCA (lncoterms 2000) the SMI Location, and freight charges between the SMI Location and Flextronics will be the responsibility of Flextronics. Risk of loss, and damage of Product will pass from Supplier to Flextronics upon a pull from SMJ.

6.    Incoming Inspection

Supplier is responsible for the quality of the Products. Upon discovery of the Products failure to conform with Product requirements as set forth in the Teradata Agreement, the Seller is obligated within 24 hours to verify the quality of the existing SMI Inventory of the applicable Product.

7.    Flextronic’s Liability for Forecasted Amounts

a.     Products shall be identified in the Schedule as Standard or Non-Standard.

Standards Products Definition: Any Products sold by Seller to a customer(s) other than Buyer. Non-Standard Products Definition: Any Products sold by Seller for Buyer's exclusive consumption and unique to any one of Buyer's customers. Unique labeling, marking or packaging does not constitute a Non-Standard Product. For an item to be considered Non-Standard, it must be identified as such in the

4SMI Local Agreement Version     ***Confidential Treatment Requested

Exhibit 10.47

schedule. Any Products not identified as Non-Standard will be Standard by definition.

b. Buyer's liability based on Forecast changes will be:

For Standard Products, Buyer shall only have liability for Products that have been pulled and received by Buyer.

For Non-Standard Products. The Buyer's liability shall be:

A. [...***...] percent ([...***...]%) of the current contract price for finished Products.

B. A reasonable pro rata cost of the finished Products price for WIP on Non-Standard Products; and

C. The actual and reasonable cost of Seller's cancellation of any Long Lead-Time Material, which Buyer specifically and in writing authorized the Seller to purchase. "Long Lead-Time Material" shall be defined by the Parties on a case-by-case basis according to the unique circumstances of a project.

c. Buyer's liability is driven by the Forecast and Forecast changes. The maximum liability is calculated by taking a given Forecast's weekly requirements within lead-time, adding the additional lead-time requirements for the Buffer/ Consignment Inventory Level unless otherwise defined in the Detail of Products Schedule, and then subtracting any actual consumption from those requirements. The liability will be a combination of full price for finished goods and prorated costs for work-in-process (WIP).

d. From time to time, Supplier may approach Flextronics with information that certain materials or services (for example, manufacturing services) for either Standard Products or Non-Standard Products have been discontinued by Supplier’s suppliers, and in order to supply Flextronics with a Product (again, regardless of whether it is Standard or Non-Standard) containing such discontinued materials, Supplier must place “last time buy" purchases of the effected materials or services. If Flextronics wishes to continue to have access to such materials or services, Flextronics shall be required to purchase such material or services, and thereby authorize Supplier to place a non-cancellable, non-returnable, last time purchase of such materials or services on Flextronics' behalf. Supplier may require that Flextronics pay for the purchase in advance, which amounts will be credited against the purchase price of the applicable Standard or Non-Standard Product/Product when eventually purchased by Flextronics, or require Flextronics to purchase unconsumed materials at a future date to be determined by Supplier.

8.    Flextronics Obligation to Hold FRUs

Flextronics shall hold Parts for use by Flextronics, free of charge, in amounts and types to be mutually agreed upon by the parties, with such agreement not to be unreasonably withheld (“Consignment Parts"). Such Consignment Spares shall be owned by Supplier until “.pulled" for use by Flextronics. Flextronics may use Consignment Parts only as replacements for defective Parts on behalf of Teradata that are identified during Flextronics' manufacturing

5SMI Local Agreement Version     ***Confidential Treatment Requested

Exhibit 10.47

process. Addition terms and conditions of the Consignment Parts are set forth at Exhibit B, attached hereto and made a part hereof by reference.

9.    Intellectual Property Ownership and Confidentiality.

a. Confidentiality. The Nondisclosure Agreement entered into by the parties on or around August 2012 ("NDA'') shall apply to all information disclosed by either party under this Agreement or otherwise pursuant to their relationship as described in this Agreement. As per the NDA, confidential or proprietary information shall be used by either party for the sole purpose of allowing Flextronics to use Products as a component of a larger product created by Flextronics for Teradata. Notwithstanding the foregoing, Section 4 of the NDA is hereby amended to state that the NDA shall be co-terminous with this Agreement, and it may not be terminated by either party unless this Agreement is also being terminated as per the terms of this Agreement.

b. Ownership of Intellectual Property. The parties hereby agree that any and all intellectual property of which the Products consist, or that is derived from the Products, shall remain the property of Supplier ("Intellectual Property"). Supplier hereby grants a worldwide, non-exclusive, royalty-free, personal, non-transferable, non-sublicensable license to Flextronics to use the Intellectual Property for the sole purpose of creating products on behalf of Teradata, and for no other purpose. Except as expressly required to be permitted under applicable law, Flextronics shall not reverse engineer, decompile, modify, translate or disassemble the Products, or cause or aid any third party to do so. Flextronics may use Software in object code only.

10.     Warranties and Support

a. Warranties and Support. Any warranties and support provided by Supplier with respect to the Products are extended to Teradata as per the Teradata Agreement. As of the Effective Date, Flextronics is not expected to process warranty returns (also known as Return Material Authorizations ("RMA")), with respect to non-complying Product units on behalf of Teradata, or to provide support. However, to the extent that Flextronics does need to work directly with Supplier with respect to support issues, and/or process RMAs, the parties will mutually agree upon terms and conditions to govern such circumstances, which terms and conditions shall include the following:

• any shipment of non-complying Products by Flextronics to Supplier shall be at Flextronics' risk and expense, and the return shipment of repaired or replacement Products by Supplier to Flextronics shall be at Supplier's risk and expense;

• Teradata or Flextronics shall attempt to resolve problems independently using the training and information provided by Supplier. If a greater level of technical expertise is required, Teradata or Flextronics shall engage Supplier in resolving the problem(s).

• Teradata or Flextronics will provide Supplier with all information relevant to the problem, including, if applicable, the method used to duplicate the problem on Teradata systems. Teradata or Flextronics will convey the information to Supplier expediently.

6SMI Local Agreement Version

Exhibit 10.47

• Teradata or Flextronics shall provide Level 1 and Level 2 support, and Supplier shall provide Level 3 support on an as-required basis, as those terms are defined in the Teradata Agreement.

• The Flextronics or Teradata support personnel that provide Level 1 and Level 2 support must have attended support courses taught by Supplier or by personnel that have attended "train the trainer'' courses taught by Supplier.

• Escalations to Level 3 should be presented to Supplier with all reasonably available pertinent configuration detail and failure information or symptoms documented in detail.

b. THE WARRANTIES STATED IN THE TERADATA AGREEMENT ARE IN LIEU OF ALL OTHER WARRANTIES, WHETHER EXPRESSED, IMPLIED OR STATUTORY. EXCEPT AS EXPRESSLY STATED IN THE TERADATA AGREEMENT, THERE ARE NO WARRANTIES, EXPRESS OR IMPLIED, BY OPERATION OF LAW OR OTIIERWISE, AND ALL PRODUCTS, SERVICES AND OTHER ITEMS ARE PROVIDED BY SUPPLIER "AS IS" WITIIOUT WARRANTY OF ANY KIND. SUPPLIER DISCLAIMS ANY IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. ANY WARRANTIES MADE UNDER THE TERADATA AGREEMENT EXTEND SOLELY TO TERADATA AND ITS END-USERS.

c. PRODUCTS ARE NOT ABSOLUTELY FAULT-TOLERANT AND ARE NOT DESIGNED FOR USE OR RESALE AS ON-LINE CONTROL EQUIPMENT IN HAZARDOUS ENVIRONMENTS REQUIRING FAIL-SAFE PERFORMANCE IN WHICH THE FAILURE OF THB PRODUCTS COULD LEAD DIRECTLY TO DEATH, PERSONAL INJURY OR SEVERE PHYSICAL OR ENVIRONMENTAL DAMAGE SUCH AS, BUT NOT LIMITED TO, THE OPERATION OF NUCLEAR FACILITIES, AIRCRAFI' NAVIGATION OR COMMUNICATION SYSTEMS, DIRECT LIFE SUPPORT SYSTEMS, CRITICAL SAFETY SYSTEMS, MEDICAL DEVICES, WEAPONS SYSTEMS OR SATELLITE EQUIPMENT ("HIGH RISK ACTIVITIES"). SUPPLIER DISCLAIMS ANY EXPRESS OR IMPLIED WARRANTY OF FITNESS, FOR HIGH RISK ACTIVITIES.

11.    Indemnification

a. Each party will indemnify ("Indemnitor") and hold the other ("Indemnitee") harmless against any claims, costs, damages and liabilities arising out of or in any way connected with the acts or omissions of the Indemnitor, its employees, agents or others for which it is legally responsible including, but not limtied to, a breach of this Agreement.

b. Any indemnification, defense or hold harmless obligations of either party set forth in this Agreement shall be subject to the following with respect to claims for which an Indemnitee seeks indemnification: (i) the Indemnitee provides prompt written notice of the claim to the Indemnitor; (ii) the Indemnitee allows the Indemnitor to defend or settle the claim, provided that any settlement of a claim which does not contain an unconditional release of the Indemnitee will require the prior written consent of such

7SMI Local Agreement Version

Exhibit 10.47

Indemnitee, which consent will not be unreasonably withheld, and; (iii) the Indemnitee provides reasonable assistance to the Indemnitor in defending or settling the claim.

12.    Limit of Liability

d. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES UNDER THIS AGREEMENT, INCLUDING, BUT NOT LIMITED TO, LOSS OF DATA, GOODWILL, REVENUE OR PROFITS, EVEN IF THE PARTY HAS BEEN NOTIFIED OF THE POSSIBILITY OF ANY SUCH DAMAGES. THIS SUB-SECTION WILL NOT APPLY WITH RESPECT TO CLAIMS INVOLVING THE VIOLATION OF A PARTY'S INTELLECTUAL PROPERTY RIGHTS OR CONFIDENTIALITY OBLIGATIONS.

e. SUPPLIER'S LIABILITY FOR ANY AND ALL CAUSES WHETHER BASED ON NEGLIGENCE, BREACH OF CONTRACT, WARRANTY, OR OTHER LEGAL THEORY, SHALL NOT EXCEED ONE MILLION DOLLARS (US $1,000,000.00).

13.    Term and Termination

a. This Agreement shall be co-terminous with the Teradata Agreement, provided however that if Teradata notifies Supplier that Flextronics is no longer its CM, this Agreement shall terminate immediately upon the effective date of such event Notwithstanding the foregoing, either party may terminate this Agreement (a) upon thirty (30) calendar days written notice to the other party if the other party is in material breach of this Agreement and fails to cure the breach during the notice period; or (b) immediately, if the other party becomes insolvent, is unable to conduct business in the normal course due to financial issues, or seeks protection, voluntarily or involuntarily, under any bankruptcy law.

b. Termination (and limits of liability as set forth herein) will not affect either party's right to recover any monetary amounts, or require performance of any obligations, due at the time of termination. Upon termination of this Agreement, each party will promptly remit to the other all unpaid money due as of the effective date of such termination.

c. The provisions of Section 2(b), 9 through 13, and 15 will survive the expiration of the Term and any termination of this Agreement.

14.    Reporting Requirements

Upon Supplier's request, Flextronics will provide information to Supplier, in a form mutually agreed upon by the parties such as monthly or quarterly reports (such agreement not to be unreasonably withheld) to aid Supplier in Supplier's efforts to: provide support, products, services and information to Teradata; understand amounts held in SMI and as Consignment Parts: understand Supplier's exposure with respect to Returns and Inventory Re-Evaluation Credits as described in Sections 4(d) and 4(e); and otherwise report and understand such information that Supplier reasonably requires.

15.    Miscellaneous

a. Notice.

8SMI Local Agreement Version

Exhibit 10.47

All notices (including requests, consents or waivers) sent under this Agreement may be delivered in one of the following ways: (i) by electronic mail provided that the recipient provides acknowledgment of receipt within one business day separately from any machine-generated automatic reply; (ii) or by prepaid means providing proof of delivery. Notices are effective upon receipt, and will be sent to the addresses shown on the cover page of this Agreement, to the attention to either party's highest ranking financial officer. Either party may change its address upon notice as required by this Section.

b. Law and Disputes

New York law will govern this Agreement and transactions under it, except that the U.S. Federal Arbitration Act will govern all issues of arbitrability. Supplier and Flextronics waive application of the U.N. Convention on Contracts for the International Sale of Goods. In the event of a dispute arising out of or related to this Agreement, each party will give the other prompt notice of such, and both will meet promptly for good faith discussions to try to resolve the matter. If that fails, such dispute will be resolved by final and binding arbitration before a sole arbitrator, who is an attorney, and will be administered by the American Arbitration Association under its then-current Commercial Arbitration Rules. The decision and award of the arbitrator will be final and binding, and the award rendered may be entered in any court having jurisdiction thereof. The arbitration will be held in the city where the party not initiating the claim has its U.S. headquarters or main-office. Except to the extent, if any, elected by the claiming party, the obligation to arbitrate hereunder will not apply to claims for misuse or infringement of a party's intellectual property. The arbitrator must enforce the terms of this Agreement and will have no authority to award any damages in conflict with or in excess of the limitations and exclusions set forth in this Agreement. Neither party may bring a claim more than 2 years after the underlying cause of action first accrues. Notwithstanding the foregoing, if a dispute between the parties is related to an ancillary dispute involving Teradata under the Teradata Agreement, and if that ancillary dispute is proceeding in another forum or by another set of procedures, at the election of either party, the dispute between Supplier and Flextronics will be resolved in conjunction with, and in the same forum as, the ancillary dispute involving Teradata.

c. Assignment

No assignment of this Agreement will be valid without the prior written consent of the other party, which consent will not be unreasonably withheld, delayed or conditioned. Notwithstanding the foregoing, Supplier may assign this Agreement to a successor in interest to all (or substantially all) of Supplier's assets, provided that the successor agrees to be bound by the Agreement

d. Severability

The provisions of this Agreement are severable. If any provision is unenforceable, the remaining provisions will remain in effect provided the intent of the parties has not been materially frustrated.

e. Independent Contractors

The parties to this Agreement are independent contractors. Nothing in this Agreement creates a partnership, joint venture, agency, or franchise relationship. Neither party, nor any of its representatives, has authority to create any obligations on behalf of the other party and will not represent that it has such authority.

f. Entire Agreement, Waiver, Modification, Signature

9SMI Local Agreement Version

Exhibit 10.47

This Agreement, which includes the Exhibits attached hereto, contains the entire agreement between the parties. This Agreement supersedes any other agreement or communication, whether written or oral, that may have been made or entered into with regard to the subject matter hereof by Supplier and Flextronics, as well as any terms stated on any purchase order, invoice, acknowledgment, acceptance form, or other printed document used by either party, even if acknowledged by the party sought to be bound. This Agreement may not be amended, modified or waived, except by an agreement in writing signed by authorized representatives of both parties. Failure to enforce any provision of this Agreement is not a waiver of future enforcement of that or any other provision. This Agreement may be executed in any number of counterparts, including, without limitation, executed counterparts delivered by facsimile or other electronic transmission, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument.

g. Force Majeure

Neither party is liable for failing to fulfill its obligations due to causes beyond its reasonable control and without its fault or negligence. A party must (a) use commercially reasonable efforts to promptly notify the other of conditions which will result in a delay in or failure of performances, (b) use commercially reasonable efforts to avoid or remove the conditions, and (c) immediately continue performance when the conditions are removed.

h. Compliance with Laws.

Both parties shall comply with all applicable laws concern ng the manufacture and distribution of Products, and shall ensure that its activities in performance of this Agreement shall not cause the other party to be in violation of any laws, including without limitation import or export laws, security requirements, packaging regulations of destination countries including but not limited to ISPM 15 "Requirements of Wood Packaging Materials," and any applicable Supply Chain security guidelines such as C­

TPAT (Custom Trade Partnership Against Terrorism) of the countries in which either party conducts business.

Signatures

Dot Hill Systems Corp.Flextronics

/s/ Hanif Jamal/s/ Nancy Floyd

Name: Hanif JamalName: Nancy Floyd

Title: CFOTitle: Materials Director

Date: August 13, 2013Date: August 8, 2013

10SMI Local Agreement Version

Exhibit 10.47

EXHIBIT A

LIST OF UNIQUE MATERIALS

AND LONG LEAD TIME MATERIALS

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Dot Hill Part Number	Description	Supplier	Vendor Leadtime (Weeks)
[...***...]	[...***...]	[...***...]	[...***...]
[...***...]	[...***...]	[...***...]	[...***...]
[...***...]	[...***...]	[...***...]	[...***...]
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[...***...]	[...***...]	[...***...]	[...***...]
[...***...]	[...***...]	[...***...]	[...***...]
[...***...]	[...***...]	[...***...]	[...***...]
[...***...]	[...***...]	[...***...]	[...***...]

11SMI Local Agreement Version     ***Confidential Treatment Requested

Exhibit 10.47

EXHIBIT B

TERMS AND CONDITIONS OF CONSIGNMENT PARTS

a. Flextronics shall stock Consignment Parts (as defined in Section 8 of the Agreement) in its facility located at Columbia. SC (the "Facility”) free of charge. Prior to a Pull, Flextronics shall not move Consignment Part from the Facility without Supplier's prior written consent.

b. Flextronics shall take all necessary steps to identify Consignment Parts as belonging to Supplier, segregate it from materials owned by others, and to include Consignment Parts in Flextronics’ applicable inventory cycle count program to ensure count accuracy. Flextronics shall ensure that Consignment Parts are properly stored and protected from the elements and in compliance with industry standards.

c. Flextronics shall manage Consignment Parts at the Facility and rotate Consignment Parts on a first in, first out basis.

d. Flextronics shall report to Supplier the quantity and description of Consignment Parts on a monthly basis, including reports regarding Pulls. In addition, Flextronics shall provide to Supplier Consignment Parts count information within one (1) business day of Supplier's request.

e. Flextronics shall provide Supplier with reasonable access to the Consignment Parts during normal business hours. Supplier may perform a cycle count up to once per quarter but must give Flextronics at least twenty-four (24) hours notice of its intent to perform a cycle count. Such cycle counts shall be performed during normal working hours and without disruption of Flextronics' business or operations.

f. At any time during the Term of this Agreement, within three (3) business days of Supplier's request, Flextronics shall ready Consignment Parts for shipment to Supplier and Supplier may have Consignment Parts shipped back to Supplier; Supplier shall pay shipping charges.

g. Flextronics shall be liable for risk of loss or damage to Consignment Parts while at the Facility prior to a Pull. Flextronics agrees it will maintain insurance to cover any loss or damage to Consignment Parts while in Flextronics’ possession and control in an amount not less than the dollar value of the Consignment Parts. Insurance coverage shall include comprehensive general liability and property insurance. Upon Supplier's request, Flextronics shall provide copies of certificates of insurance showing insurance coverage.

h. Supplier shall be responsible for shipping charges to transfer Consignment Parts to the Facility.

i. All right, title and interest in and to the Consignment Parts shall remain with Supplier until a Pull.

j. Upon a Pull, title to Consignment Parts shall pass to Flextronics and Flextronics shall be deemed to have purchased the Consignment Parts pursuant to the purchase terms and conditions then­existing between the parties. Payment for the Consignment Parts shall be made as per the then­existing terms between the parties.

12SMI Local Agreement Version

Exhibit 10.47

Flextronics

Detail of Goods Schedule

Replenishment Program Part Number Detail

Site: Colorado

Supplier: Dot Hill

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Note: This document is not considered exercisable until both parties have signed.

Flextronics:Dot Hill:

Authorized Signature:/s/ Nancy FloydAuthorized Signature:/s/ Hanif Jamal

Name (Print):Nancy FloydName (Print):Hanif Jamal

Title:Marketing DirectorTitle:CFO

Date:4/23/2013Date:8/14/2013

13SMI Local Agreement Version     ***Confidential Treatment Requested

EX-10.48

Exhibit 10.48

FOURTH AMENDMENT

TO

LOAN AND SECURITY AGREEMENT

THIS FOURTH AMENDMENT to Loan and Security Agreement (this "Amendment") is entered into this 13th day of November, 2014, by and between SILICON VALLEY BANK ("Bank") and DOT HILL SYSTEMS CORP., a Delaware corporation ("Borrower") whose address is 1351 S. Sunset Street, Longmont, CO 80501.

RECITALS

A.Bank and Borrower have entered into that certain Loan and Security Agreement dated as of July 21, 2008 (as amended by that certain First Amendment to Loan and Security Agreement dated as of July 30, 2009, that certain Second Amendment to Loan and Security Agreement dated as of February 3, 2011,and that certain Third Amendment to Loan and Security Agreement dated as of June 22, 20 12, as the same may from time to time be further amended, modified, supplemented or restated, the "Loan Agreement").

B. Bank has extended credit to Borrower for the purposes permitted in the Loan Agreement.

C. Borrower has requested that Bank amend the Loan Agreement to (i) modify the covenants, (ii) extend the maturity date and (iii) make certain other revisions to the Loan Agreement as more fully set forth herein.

D.     Bank has agreed to so amend certain provisions of the Loan Agreement, but only to the extent, in accordance with the terms, subject to the conditions and in reliance upon the representations and warranties set forth below.

AGREEMENT

NOW, THEREFORE, in consideration of the foregoing recitals and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows:

1.Definitions. Capitalized terms used but not defined in this Amendment shall have the meanings given to them in the Loan Agreement.

2.Amendments to Loan Agreement.

2.1 Section 2.4 (Fees). Section 2.4(a) of the Loan Agreement is hereby amended and restated in its entirety to read as follows:

"(a)Intentionally Omitted."

2.2 Section 6.2 (Financial Statements, Reports, Certificates). Section 6.2(a}(i) of the Loan Agreement is hereby amended and restated in its entirety to read as follows:

"(i)Intentionally Omitted."

2.3 Section 6.2 (Financial Statements, Reports, Certificates). Section 6.2(a)(ii) of the Loan Agreement is hereby amended and restated in its entirety to read as follows:

"(ii)within thirty (30} days after the end of each month,

(A) monthly accounts receivable agings, aged by invoice date, (B) monthly accounts payable agings, aged by invoice date, and outstanding or held check registers, if any, (C) monthly reconciliations

WEST\248254374.7

Exhibit 10.48

of accounts receivable agings (aged by invoice date), transaction reports and general ledger, and (D) a report of Borrower's Cash balances; and"

2.4 Section 6.9 (Financial Covenants). Section 6.9(a) of the Loan Agreement is hereby amended and restated in its entirety to read as follows:

"(a)Minimum Net Worth. At least Fifty Million Dollars ($50,000,000), increasing quarterly by fifty percent (50%) of Net Income and monthly by fifty percent (50%) of issuances of equity after the Fourth Amendment Effective Date, and the principal amount of Subordinated Debt; provided that, upon the issuance of any Unsecured Convertible Notes, this Section 6.9(a) shall be amended in a manner acceptable to Bank in its sole discretion."

2.5 Section 7.7 (Distributions; Investments). Section 7.7 of the Loan Agreement is hereby amended and restated in its entirety to read as follows:

"(a) Pay any dividends or make any distribution or payment or redeem, retire or purchase any capital stock in excess of One Million Dollars ($1,000,000) per fiscal year; provided that (i) Borrower may convert any of its convertible securities into other securities pursuant to the terms of such convertible securities or otherwise in exchange thereof, (ii) Borrower may pay dividends solely in common stock; and (iii) Borrower may repurchase the stock of former employees or consultants pursuant to stock repurchase agreements so long as an Event of Default does not exist at the time of such repurchase and would not exist after giving effect to such repurchase, and (iv) substantially concurrently with the issuance of any Unsecured Convertible Notes, Borrower may repurchase shares of its publicly traded stock with proceeds of such Unsecured Convertible Notes for all such repurchases; or (b) directly or indirectly make any Investment other than Permitted Investments, or permit any of its Subsidiaries to do so."

2.6 Section 8 (Events of Default). Section 8 of the Loan Agreement is hereby amended by adding the following new Section 8.11 at the end thereof:

8.11 Fundamental Change. The occurrence of a Fundamental Change.

2.7 Section 13 (Definitions). The following terms and their respective definitions set forth in Section 13.1 of the Loan Agreement are hereby added, or amended and restated in their entireties, as follows:

"Fundamental Change" means “fundamental change" as defined in the Unsecured Convertible Notes.

"Fourth Amendment Effective Date" means November 13, 2014.

"Net Worth" means (i) stockholder's equity as calculated in accordance with GAAP, plus (ii) 123R stock based compensation expenses, plus (iii) goodwill and long-lived asset impairment charges in an amount not to exceed Five Million Dollars ($5,000,000) in any calendar year, plus (iv) restructuring expenses to the extent such expenses occur in an amount not to exceed Five Million Dollars ($5,000,000) in the aggregate during the term of this Agreement (excluding the per annum restructuring expenses referred to

WEST\248254374.7

Exhibit 10.48

under clause (vi) below), plus (v) during Borrower's 2012 fiscal year, one time unusual expenses related to write-downs in connection with (a) accounts receivable owing from Xiotech, (b) Borrower's Cloverleaf (UVS) business unit and (c) one time unusual expenses agreed upon by Bank and Borrower, in an amount not to exceed an aggregate of Five Million Dollars ($5,000,000), (vi) plus to the extent they occur, Seven Hundred Fifty Thousand Dollars ($750,000) of restructuring expenses per annum, plus (vii) fifty percent (50%) of the principal amount of any Unsecured Convertible Notes."

"Revolving Line Maturity Date" means July 21, 2017.

"Unsecured Convertible Notes" means senior unsecured convertible notes issued by Borrower from time to time pursuant to documentation in form and substance satisfactory to Bank and in an amount agreed upon by Bank and Borrower, which notes shall be convertible into common stock of Borrower, the proceeds of which shall be used for general corporate purposes (including the repurchase of stock permitted hereunder).

2.8 Section 13 (Definitions).Clause (g) of the defined term "Permitted Indebtedness" set forth in Section 13.1 is hereby amended and restated in its entirety to read as follows:

"(g)Unsecured Convertible Notes having stated maturities no sooner than ninety (90) days after the Revolving Line Maturity Date and being callable or puttable by the holders thereof no sooner than ninety (90) days after the Revolving Line Maturity Date (other than customary rights to accelerate upon an event of default and put rights at the option of the holders of such notes upon the occurrence of a Fundamental Change);"

2.9. Exhibit E to the Loan Agreement is hereby replaced in its entirety with Exhibit E attached hereto.

3. Limitation of Amendments.

3.1The amendments set forth in Section 2, above, are effective for the purposes set forth herein and shall be limited precisely as written and shall not be deemed to (a) be a consent to any amendment, waiver or modification of any other term or condition of any Loan Document, or (b) otherwise prejudice any right or remedy which Bank may now have or may have in the future under or in connection with any Loan Document.

3.2 This Amendment shall be construed in connection with and as part of the Loan Documents and all terms, conditions, representations, warranties, covenants and agreements set forth in the Loan Documents, except as herein amended, are hereby ratified and confirmed and shall remain in full force and effect.

4. Representations and Warranties.To induce Bank to enter into this Amendment. Borrower hereby represents and warrants to Bank as follows:

4.1 Immediately after giving effect to this Amendment (a) the representations and warranties contained in the Loan Documents are true, accurate and complete in all material respects as of the date hereof (except to the extent such representations and warranties relate to an earlier date, in which case they are true and correct in all material respects as of such date), and (b) no Event of Default has occurred and is continuing;

4.2 Borrower has the power and authority to execute and deliver this Amendment and to perform its obligations under the Loan Agreement, as amended by this Amendment;

WEST\248254374.7

Exhibit 10.48

4.3 The organizational documents of Borrower delivered to Bank on the Effective Date remain true, accurate and complete and have not been amended, supplemented or restated and are and continue to be in full force and effect;

4.4 The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, have been duly authorized;

4.5 The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not and will not contravene (a) any law or regulation binding on or affecting Borrower, (b) any contractual restriction with a Person binding on Borrower. (c) any order, judgment or decree of any court or other governmental or public body or authority, or subdivision thereof. binding on Borrower, or (d) the organizational documents of Borrower;

4.6 The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not require any order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by any governmental or public body or authority, or subdivision thereof, binding on either Borrower, except as already has been obtained or made; and

4.7 This Amendment has been duly executed and delivered by Borrower and is the binding obligation of Borrower, enforceable against Borrower in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application and equitable principles relating to or affecting creditors' rights.

5. Counterparts. This Amendment may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument.

6. Effectiveness. This Amendment shall be deemed effective upon (a) the due execution and delivery to Bank of this Amendment by each party hereto, (b) the due execution and delivery to Bank of updated Borrowing Resolutions for Borrower, (c) Borrower's payment of a third of the total amendment fee of One Hundred Thirty Five Thousand Dollars ($135,000) (the "Amendment Fee") in an amount equal to Forty-Five Thousand Dollars ($45,000) which may be debited from any of Borrower's accounts with Bank and (d) Borrower's payment of all Bank expenses incurred through the date of this Amendment, which may be debited from any of Borrower's accounts with Bank.

7. Furtherances. Borrower shall pay the remaining balance of the Amendment Fee in two

(2) equal payments of Forty-Five Thousand Dollars ($45,000) on each of the next two (2) succeeding anniversaries of the Fourth Amendment Effective Date.

[Balance of Page Intentionally Left Blank]

[Signature page follows]

WEST\248254374.7

Exhibit 10.48

IN W ITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the date first written above

BANK	BORROWER
Silicon Valley Bank	Dot Hill Systems Corp.
By: /s/ Kurt Nichols	By: /s/ Hanif Jamal
Name: Kurt Nichols	Name: Hanif Jamal
Title: Director	Title: CFO

[Signature Page to Fourth Amendment to Loan and Security Agreement]

WEST\248254374.7

Exhibit 10.48

EXHIBIT E- COMPLIANCE CERTIFICATE

TO: SILICON VALLEY BANK                                Date: __________________

FROM: DOT HILL SYSTEMS CORP.

The undersigned authorized officer of DOT HILL SYSTEMS CORP. ("Borrower") certifies that under the terms and conditions of the Loan and Security Agreement between Borrower and Bank (as amended, modified, supplemented or restated from time to time, the "Agreement"), (1) Borrower is in complete compliance for the period ending _______________ with all required covenants except as noted below, (2) there are no Events of Default, (3) all representations and warranties in the Agreement are true and correct in all material respects on this date except as noted below; provided, however. that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date, (4) Borrower, and each of its Subsidiaries, has timely filed all required tax returns and reports, and Borrower has timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower except as otherwise permitted pursuant to the terms of Section 6.5 of the Agreement, and (5) no Liens have been levied or claims made against Borrower or any of its Subsidiaries relating to unpaid employee payroll or benefits of which Borrower has not previously provided written notification to Bank. Attached are the required documents supporting the certification. The undersigned certifies that these are prepared in accordance with GAAP consistently applied from one period to the next except as explained in an accompanying letter or footnotes or as permitted in the Agreement. The undersigned acknowledges that no borrowings may be requested at any time or date of determination that Borrower is not in compliance with any of the terms of the Agreement, and that compliance is determined not just at the date this certificate is delivered. Capitalized terms used but not otherwise defined herein shall have the meanings given them in the Agreement.

Please indicate compliance status by circling Yes/No under "Complies" column.

Reporting Covenant	Required	Complies
10-Q, 10-K and 8-K	Within 5 days after filing with SEC	Yes No
Compliance Certificate	With 10-Q or 10-K	Yes No
Cash Balance report, A/R & A/P Agings	Monthly within 30 days	Yes No
Annual Board of Director-approved projections	March 31st of each year	Yes No

Financial Covenant	Required	Actual	Complies
Maintain on a Quarterly Basis:
Minimum Net Worth	$*	$	Yes No

* At least Fifty Million Dollars ($50,000.000), increasing quarterly by fifty percent (50%) of Net Income and monthly by fifty percent (50%) of issuances of equity after the Fourth Amendment Effective Date, and the principal amount of Subordinated Debt; provided that,upon the issuance of any Unsecured Convertible Notes, Minimum Net Worth shall be amended in a manner acceptable to Bank in its sole discretion.

"Net Worth" means (i) stockholder's equity as calculated in accordance with GAAP, plus (ii) 123R stock based compensation expenses, plus (iii) goodwill and long-lived asset impairment charges in an amount not to exceed Five Million Dollars ($5,000,000) in any calendar year, plus (iv) restructuring expenses to the extent such expenses occur in an amount not to exceed Five Million Dollars ($5,000,000) in the aggregate during the term of this Agreement (excluding the per annum restructuring expenses referred to under clause

(vi) below), plus (v) during Borrower's 2012 fiscal year, one time unusual expenses related to write-downs

Exhibit E-1

WEST\248254374.7

Exhibit 10.48

in connection with (a) accounts receivable owing from Xiotech, (b) Borrower's Cloverleaf (UVS) business unit and (c) one time unusual expenses agreed upon by Bank and Borrower, in an amount not to exceed an aggregate of Five Million Dollars ($5,000,000), (vi) plus to the extent they occur, Seven Hundred Fifty Thousand Dollars ($750,000) of restructuring expenses per annum, plus (vii) fifty percent (50%) of the principal amount of any Unsecured Convertible Notes.

The following are the exceptions with respect to the certification above: (If no exceptions exist, state "No exceptions to note.")

_____________________________________________________________________________________________________

_____________________________________________________________________________________________________

_____________________________________________________________________________________________________

DOT HILL SYSTEMS CORP.	BANK USE ONLY
By:	Received by:
Name:		Authorized Signor
Title:	Date:
	Verified by:
		Authorized Signor
	Date:
	Compliance Status: Yes No

Exhibit E-2

WEST\248254374.7

Exhibit 10.48

BORROWING RESOLUTIONS

SVB>Silicon Valley Bank

A Member of SVB Financial Group

CORPORATE BORROWING CERTIFICATE

BORROWWER: DOT HILL SYSTEMS CORP. DATE: November 13, 2014

BANK :Silicon Valley Bank

I hereby certify as follows, as of the date set forth above:

1. I am the Secretary, Assistant Secretary or other officer of the Borrower. My title is as set forth below.

2. Borrower's exact legal name is set forth above. Borrower is a corporation existing under the laws of the

State of

DELAWARE

[print name of state]

3.Attached hereto are true, correct and complete copies of Borrower's Certificate of Incorporation (including amendments), as filed with the Secretary of State of the state in which Borrower is incorporated as set forth in paragraph 2 above. Such Certificate of Incorporation have not been amended, annulled, rescinded, revoked or supplemented, and remain in full force and effect as of the date hereof.

4.The following resolutions were duly and validly adopted by Borrower's Board of Directors at a duly held meeting of such directors (or pursuant to a unanimous written consent or other authorized corporate action). Such resolutions are in full force and effect as of the date hereof and have not been in any way modified, repealed, rescinded, amended or revoked, and Bank may rely on them until Bank receives written notice of revocation from Borrower.

RESOLVED, that any one of the following officers or employees of Borrower, whose names, titles and signatures are below, may act on behalf of Borrower:

			Authorized to Add
Name	Title	Signature	or Remove Signatories
Hanif Jamal	CFO	/s/ Hanif Jamal	x
			o
			o
			o

RESOLVED FURTHER, that any one of the persons designated above with a checked box beside his or her name may, from time to time, add or remove any individuals to and from the above list of persons authorized to act on behalf or Borrower.

RESOLVED FURTHER, that such individuals may, on behalf for Borrower:

Borrow Money. Borrow money from Silicon Valley Bank ("Bank ").

Execute Loan Documents. Execute any loan documents Bank requires.

WEST\248254374.7

Exhibit 10.48

Grant Security. Grant Bank a security interest in any of Borrower's assets.

Negotiate Items. Negotiate or discount all drafts, trade acceptances, promissory notes, or other

Indebtedness in which Borrower has an interest and receive cash or otherwise use the proceeds.

Letters of Credit. Apply for letters or credit from Bank.

Further Acts. Designate other individuals to request advances, pay fees and costs and execute other documents or agreements (including documents or agreement that waive Borrowers right to a jury trial) they believe to be necessary to effectuate such resolutions.

RESOLVED FURTHER, that all acts authorized by the above resolutions and any prior acts relating thereto are ratified.

5. The persons listed above are Borrower's officers or employees with their titles and signatures shown next to their names.

By:	/s/ Hanif Jamal
Name:	Hanif Jamal
Title:	CFO

***If the Secretary, Assistant Secretary or other certifying officer executing above is designated by the resolutions set forth in paragraph 4 as one of the authorized signing officers, this Certificate must also be signed by a second authorized officer or director of Borrower.

I, the _______CEO__________ of Borrower, hereby certify as to paragraphs 1 through 5

[print title]

above, as of the date set forth above.

By:	/s/ Dana Kammersgard
Name:	Dana Kammersgard
Title:	CEO

WEST\248254374.7

EX-10.49

Exhibit 10.49

***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.

Amendment Sixteen

To the Product Purchase Agreement No. 02542-60507

This Sixteenth Amendment (“Amendment Sixteen”) amends that certain Product Purchase Agreement No. 02542-60507, including all exhibits and executed Amendments One through Fifteen (the “Agreement”) dated September 9, 2007, by and between Dot Hill Systems Corp (“Supplier”) a corporation organized and operating under the laws of Delaware with its principal place of business at 1351 S. Sunset Street, Longmont, Colorado 80501 and Hewlett-Packard Company (“HP”), a Delaware corporation, with offices at 3000 Hanover Street, Palo Alto, California 94304. Supplier and HP may be referred to individually as “Party” and collectively as “Parties”.

RECITALS

WHEREAS, HP and Supplier have previously entered into the Agreement stated above;

WHEREAS, the purpose of this Amendment Sixteen is to update the Pricing Exhibit (E-9) which is found in Amendment 15 with the pricing in the form attached as Exhibit (E-10), and to clarify pricing for data management software and support for Products sold by Supplier and purchased by HP pursuant to the Agreement; and

WHEREAS, HP and Supplier desire to amend the Agreement as herein provided;

TERMS

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, HP and Supplier hereby agree as follows:

1. Effective Date. The effective date of this Amendment Sixteen shall be December 1, 2014 (“Amendment Sixteen Effective Date”).

2.

3. Exhibit (E-9) (Pricing) that can be found in Amendment 15 is hereby deleted in its entirety and no longer effective. Exhibit E-9 is hereby replaced in full by the new Exhibit E-10 (Updated Pricing Table), which is attached to this Exhibit Sixteen and is incorporated into the Agreement.

Except as expressly set forth in this Amendment Sixteen, the Agreement remains in effect and is unchanged.

IN WITNESS WHEREOF, the Parties, intending to be legally bound hereby, have executed this Amendment Sixteen as of the Amendment Sixteen Effective Date.

Amendment Sixteen to Dot Hill PPA# 02542-60507                    Page| 1

DOT HILL SYSTEMS CORP.	HEWLETT-PACKARD COMPANY
/s/ Hanif Jamal	/s/ Grant Reoch
Authorized Representative	Authorized Representative
2/2/2015	2/3/2015
Date	Date
Hanif Jamal	Grant Reoch
Printed Name	Printed Name
CFO	Director of Procurement
Title	Title

Amendment Sixteen to Dot Hill PPA# 02542-60507                    Page| 2

Exhibit 10.49

EXHIBIT (E-10)

UPDATED PRICING TABLE

1. As of the Amendment Sixteen Effective Date, pricing under the Agreement for those Products described in the table set forth below as Exhibit (E-10) Table (the “Table”) shall be as per the Table. Any previous pricing for such Products that contradicts the pricing in the Table shall not be effective after the Amendment Sixteen Effective Date. All pricing set forth in Exhibit E-9 is superseded by this E-10. The pricing of any Products not listed in the Table shall remain as it was prior to this Amendment Sixteen.

EXHIBIT (E-10) TABLE

Product	Pricing or Pricing Changes, as Applicable
[...***...]	[...***...]
[...***...]	[...***...]
[...***...]	[...***...]
[...***...]	[...***...]
[...***...]	[...***...]	[...***...]	[...***...]
	[...***...]	[...***...]	[...***...]
	[...***...]	[...***...]	[...***...]
	[...***...]	[...***...]	[...***...]
	[...***...]	[...***...]	[...***...]
	[...***...]

Amendment Sixteen to Dot Hill PPA# 02542-60507      Page | 3

***Confidential Treatment Requested

Exhibit 10.49

2. On the date that the Phoenix (non-linear) Firmware (PHX) is made generally available (“Phoenix General Availability Date or PHX GA”), HP shall pay to Dot Hill a one-time licensing fee of [...***...] dollars ($[...***...]) to give HP access to the existing 2040 LX install base.

3. Prior to and after the PHX GA, pricing and payment procedures for software add-ons and support of the add-ons for use on G3 systems will remain as currently set forth in the Agreement. Such information can be found in Amendment 5 and the attached pricing appendix on lines 19 through 55.

4. Prior to PHX GA, pricing and payment procedures software add-ons and support of the add-ons to be used on G4 systems will as currently set forth in the Agreement. Such information can be found in Amendment 5 and on the attached pricing appendix lines 5 through 15.

5. After PHX GA, pricing for software add-ons to be used on G4 systems will be as per the table above. Support for the add-ons may be purchased for six years, the first payment to be made by HP to Dot Hill at the time of the initial purchase (and included in Initial License Fee) and then six more annual license fees may be paid on the anniversary of the purchase at the prices set forth in the table above. Notwithstanding anything to the contrary set forth in this Agreement, the annual license fee is paid in exchange for bug fixes, support and updates/upgrades, which are not available absent payment of the fee.

6. In all cases, the price reduction requirements found in the Agreement (including Section 4.6) shall not apply to software add-on pricing or support pricing.

7. Pricing in the Table is expressed in US Dollars. Certain pricing in the Table is expressed as a firm price, and other pricing is expressed as increases or reductions from pricing in effect just prior to the Amendment Sixteen Effective Date.

8. The following definitions apply to Amendment Sixteen and the Table:

• [...***...]

• [...***...]

• [...***...]

• [...***...]

• [...***...]

--- End of Exhibit (E-10) ---

Amendment Sixteen to Dot Hill PPA# 02542-60507      Page | 4

***Confidential Treatment Requested

Exhibit 10.49

Pricing Appendix

[...***...]

Amendment Sixteen to Dot Hill PPA# 02542-60507      Page | 5

***Confidential Treatment Requested

EX-10.50

Exhibit 10.50

Amendment Five to

Manufacturing and Purchase Agreement Between

Dot Hill Systems Corp. and Hon Hai Precision Industry Co. Ltd.

This Amendment Five ("Amendment") is dated November 14, 2014 (the ''Effective Date") and is an amendment to the Manufacturing and Purchase Agreement dated September 2008 (the "Agreement") between Dot Hill Systems Corp. and its subsidiaries ("Dot Hill") and Hon Hai Precision Industry Ltd, and its parents, subsidiaries and affiliate companies ("Foxconn").

Except as expressly set forth herein, all other terms and conditions of the Agreement (including all amendments to the Agreement) shall continue in full force and effect. Capitalized terms used but not defined herein shall have the meanings given thereto in the Agreement. This Amendment shall become part of the Agreement and all applicable terms and conditions of the Agreement.

Whereas, Dot Hill and Foxconn wish to extend the Term of the Agreement on an interim basis to allow for necessary updates to the Agreement;

Wherefore, the Agreement shall be revised as follows:

1. Article 14.1 shall be deleted in its entirety, and in its place the following shall be inserted:

"14.1 Term. The Term of this Agreement shall be from the original Effective Date of the

Agreement (in September 2008) until and through February 11,2015, unless terminated

pursuant to the termination provisions of this Agreement."

In witness hereof, the parties have caused this Amendment to be executed by their duly authorized representatives as set forth below .

Dot Hill Systems Corp.	Hon Hai Precision Industry Co. Ltd.
/s/ Hanif Jamal	/s/ Peter Wu
Name: Hanif Jamal	Name: Peter Wu
Title: CFO	Title: Director
Date: 12/23/2014	Date: 12/16/2014

1

EX-10.51

Exhibit 10.51

Amendment Six to

Manufacturing and Purchase Agreement Between

Dot Hill Systems Corp. and Hon Hai Precision Industry Co. Ltd.

This Amendment Five Six ("Amendment") is dated November 14, 2014 (the ''Effective Date") and is an amendment to the Manufacturing and Purchase Agreement dated September 2008 (the "Agreement") between Dot Hill Systems Corp. and its subsidiaries ("Dot Hill") and Hon Hai Precision Industry Ltd, and its parents, subsidiaries and affiliate companies ("Foxconn").

Except as expressly set forth herein, all other terms and conditions of the Agreement (including all amendments to the Agreement) shall continue in full force and effect. Capitalized terms used but not defined herein shall have the meanings given thereto in the Agreement. This Amendment shall become part of the Agreement and all applicable terms and conditions of the Agreement.

Whereas, Dot Hill and Foxconn wish to extend the Term of the Agreement on an interim basis to allow for necessary updates to the Agreement;

Wherefore, the Agreement shall be revised as follows:

1. Article 14.1 shall be deleted in its entirety, and in its place the following shall be inserted:

"14.1 Term. The Term of this Agreement shall be from the original Effective Date of the

Agreement (in September 2008) until and through March 11,2015, unless terminated

pursuant to the termination provisions of this Agreement."

In witness hereof, the parties have caused this Amendment to be executed by their duly authorized representatives as set forth below .

Dot Hill Systems Corp.	Hon Hai Precision Industry Co. Ltd.
/s/ Hanif Jamal	/s/ Peter Wu
Name: Hanif Jamal	Name: Peter Wu
Title: CFO	Title: Director
Date: 2-3-15	Date: 01/14/2015

1

EX-10.52

Exhibit 10.52

***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.

Amendment Seven to

Manufacturing and Purchase Agreement Between

Dot Hill Systems Corp. and Hon Hai Precision Industry Co. Ltd.

This Amendment Seven (“Amendment”) is dated March 5, 2015 and is an amendment to the Manufacturing and Purchase Agreement dated September 2008 (the “Agreement”) between Dot Hill Systems Corp. and its subsidiaries (“Dot Hill”) and Hon Hai Precision Industry Ltd, and its parents, subsidiaries and affiliate companies (“Foxconn”).

Except as expressly set forth herein, all other terms and conditions of the Agreement (including all amendments to the Agreement) and any other agreements between the parties shall continue in full force and effect. Capitalized terms used but not defined herein shall have the meanings given thereto in the Agreement. This Amendment shall become part of the Agreement and all applicable terms and conditions of the Agreement.

Whereas, Dot Hill and Foxconn wish to extend the Term of the Agreement; and

Whereas, Dot Hill and Foxconn wish to set forth certain terms and conditions of the Agreement, with varying effective dates and periods of effectiveness as set forth herein;

Wherefore, the Agreement shall be revised as follows:

1. Section 14.1 shall be deleted in its entirety, and in its place the following shall be inserted:

“14.1 Term. The Term of this Agreement shall be from the original Effective Date of the Agreement (in September 2008) until and through September 1, 2015 (without any interruption), unless and until terminated pursuant to the termination provisions of this Agreement (“Extension Term”). From the signing of Amendment Seven until September 1, 2015, it is the intent of the parties to negotiate in good faith additional and/or modified terms and conditions to the Agreement, including a new Term.

2. Effective March 12, 2015 and applying only to shipments made from March 12, 2015 through the Extension Term, section 6.4 shall be deleted in its entirety, and in its place the following shall be inserted:

6.4. Payment Terms. All payments shall be made in US dollars and will be due [...***...] days after Dot Hill receives the invoice from Supplier.

3. As of March 31, 2015, the following [...***...] described in Amendment Two of the Agreement are suspended and ineffective during the Extension Term: (a) Section 5.4.3 (describing a [...***...]); (b) Section 5.6.1 (describing a [...***...]); (c) Section 5.6.2 (describing a [...***...] on [...***...]); and (d) Section 5.6.3 (describing a [...***...]) (collectively “[...***...]”). For purposes of clarity, the aforementioned [...***...] will remain in place and binding until end of day March 31, 2015. As of April 1, 2015 and through the remainder of the Extension Term, the following [...***...] shall commence and shall be binding upon the parties (“[...***...]”):

• With respect to those [...***...] set forth on Exhibit 1 to this Amendment, made a part hereof by reference (“[...***...]”) [...***...]

1     ***Confidential Treatment Requested

Exhibit 10.52

[...***...] under the Agreement in the [...***...] set forth on Exhibit 1. If an [...***...] undergoes a revision or change in SKU number, Exhibit 1 shall automatically include such revised [...***...] (regardless of SKU number) and the [...***...] set forth on Exhibit 1 shall apply to such new revision. Further, the parties expect to modify Exhibit 1, such as when [...***...] to the Agreement, and at such time the parties will mutually agree upon modifications to Exhibit 1 (including [...***...]) which shall automatically be made a part of this Amendment; plus

• At the end of each [...***...], the parties shall [...***...] between the [...***...] for that [...***...] and compare it to [...***...] during the [...***...] of the [...***...] (“[...***...]”). If the [...***...] is [...***...] (in other words, the [...***...]), then Foxconn shall [...***...] to Dot Hill [...***...] ([...***...]%) of the [...***...]. If the [...***...] is [...***...], then [...***...] shall be made with respect to that [...***...] and, in addition, the [...***...] will be applied to [...***...] until the [...***...] is exhausted. For purposes of this Amendment, the term “[...***...]" (or “[...***...]”) shall be [...***...] by [...***...] (from the [...***...]) from the [...***...] for the product.

[...***...] of all Amendment 6 [...***...] shall be submitted to Dot Hill for review within [...***...] days of the end of the [...***...] during which [...***...] was made under the Agreement. Dot Hill and Foxconn shall come to an [...***...] within [...***...] days after the submission from Foxconn. [...***...] will be sent to Dot Hill [...***...] days after the end of the [...***...]. In Dot Hill’s discretion, [...***...] may be made by [...***...] by Dot Hill to Foxconn, or by [...***...] to Dot Hill.

4. Section 14.4 is hereby amended by deleting the period of one hundred and eight days (180) days, and in its place inserting the period of one (1) year, thereby extending the notice period required for termination for convenience.

In witness hereof, the parties have caused this Amendment to be executed by their duly authorized representatives as set forth below.

Dot Hill Systems Corp.	Hon Hai Precision Industry Co. Ltd.
/s/ Hanif Jamal	/s/ Peter Wu
Name: Hanif Jamal	Name: Peter Wu
Title: CFO	Title: Director
Date: 3-6-15	Date: 03/05/2015

2     ***Confidential Treatment Requested

Exhibit 10.52

EXHIBIT 1 TO AMENDMENT SEVEN

Number	Description	PCBA Cost	PCBA MVA	[...***...]	% of [,,,***...]
[...***...]	[...***...]	[...***...]	[...***...]	[...***...]	[...***...]
[...***...]	[...***...]	[...***...]	[...***...]	[...***...]	[...***...]
[...***...]	[...***...]	[...***...]	[...***...]	[...***...]	[...***...]
[...***...]	[...***...]	[...***...]	[...***...]	[...***...]	[...***...]
[...***...]	[...***...]	[...***...]	[...***...]	[...***...]	[...***...]
[...***...]	[...***...]	[...***...]	[...***...]	[...***...]	[...***...]
[...***...]	[...***...]	[...***...]	[...***...]	[...***...]	[...***...]
[...***...]	[...***...]	[...***...]	[...***...]	[...***...]	[...***...]
[...***...]	[...***...]	[...***...]	[...***...]	[...***...]	[...***...]
[...***...]	[...***...]	[...***...]	[...***...]	[...***...]	[...***...]
[...***...]	[...***...]	[...***...]	[...***...]	[...***...]	[...***...]
[...***...]	[...***...]	[...***...]	[...***...]	[...***...]	[...***...]
[...***...]	[...***...]	[...***...]	[...***...]	[...***...]	[...***...]
[...***...]	[...***...]	[...***...]	[...***...]	[...***...]	[...***...]
[...***...]	[...***...]	[...***...]	[...***...]	[...***...]	[...***...]
[...***...]	[...***...]	[...***...]	[...***...]	[...***...]	[...***...]
[...***...]	[...***...]	[...***...]	[...***...]	[...***...]	[...***...]
[...***...]	[...***...]	[...***...]	[...***...]	[...***...]	[...***...]
[...***...]	[...***...]	[...***...]	[...***...]	[...***...]	[...***...]
[...***...]	[...***...]	[...***...]	[...***...]	[...***...]	[...***...]
[...***...]	[...***...]	[...***...]	[...***...]	[...***...]	[...***...]
[...***...]	[...***...]	[...***...]	[...***...]	[...***...]	[...***...]
[...***...]	[...***...]	[...***...]	[...***...]	[...***...]	[...***...]
[...***...]	[...***...]	[...***...]	[...***...]	[...***...]	[...***...]
[...***...]	[...***...]	[...***...]	[...***...]	[...***...]	[...***...]
[...***...]	[...***...]	[...***...]	[...***...]	[...***...]	[...***...]
[...***...]	[...***...]	[...***...]	[...***...]	[...***...]	[...***...]
[...***...]	[...***...]	[...***...]	[...***...]	[...***...]	[...***...]
[...***...]	[...***...]	[...***...]	[...***...]	[...***...]	[...***...]
[...***...]	[...***...]	[...***...]	[...***...]	[...***...]	[...***...]
[...***...]	[...***...]	[...***...]	[...***...]	[...***...]	[...***...]
[...***...]	[...***...]	[...***...]	[...***...]	[...***...]	[...***...]
[...***...]	[...***...]	[...***...]	[...***...]	[...***...]	[...***...]
[...***...]	[...***...]	[...***...]	[...***...]	[...***...]	[...***...]

3     ***Confidential Treatment Requested

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement Nos. 333-102593 and 333-104958 on Form S-3 and Registration Statement Nos. 333-160116, 333-176250, 333-193481 and 333-202614 on Form S-8 of our reports dated March 11, 2015, relating to the consolidated financial statements of Dot Hill Systems Corp. and Subsidiaries (the "Company"), and the effectiveness of the Company's internal control over financial reporting, appearing in this Annual Report on Form 10-K of Dot Hill Systems Corp. for the year ended December 31, 2014.

/s/ Deloitte & Touche LLP

Denver, Colorado

March 11, 2015

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Dana W. Kammersgard, certify that:

1. I have reviewed this Annual Report on Form 10-K of Dot Hill Systems Corporation;

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 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(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 fourth fiscal quarter 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 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.

/s/ DANA W. KAMMERSGARD

Dana W. Kammersgard

Chief Executive Officer, President and Director

(Principal Executive Officer)

Date: March 11, 2015

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Hanif I. Jamal, certify that:

1. I have reviewed this Annual Report on Form 10-K of Dot Hill Systems Corporation;

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 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(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 fourth fiscal quarter 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 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.

/s/ HANIF I. JAMAL

Hanif I. Jamal

Senior Vice President, Chief Financial Officer,

Treasurer and Corporate Secretary

(Principal Financial and Accounting Officer)

Date: March 11, 2015

EX-32.1

Exhibit 32.1

The following certifications that accompany the Form 10-K to which they relate, are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Dot Hill Systems Corp. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-K), irrespective of any general incorporation language contained in such filing

Certification of Chief Executive Officer

Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350), Dana W. Kammersgard, Chief Executive Officer of Dot Hill Systems Corporation (the “Company”) hereby certifies, to such officer's knowledge, that:

(i) the accompanying Annual Report on Form 10-K of the Company for the annual period ended December 31, 2014 (the “Report”) to which this Certification is attached as Exhibit 32.1, fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ DANA W. KAMMERSGARD 

Dana W. Kammersgard

Chief Executive Officer

Date: March 11, 2015

Certification of Chief Financial Officer

Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350), Hanif I. Jamal, Chief Financial Officer of Dot Hill Systems Corporation (the “Company”) hereby certifies, to such officer's knowledge, that:

(i) the accompanying Annual Report on Form 10-K of the Company for the annual period ended December 31, 2014 (the “Report”) to which this Certification is attached as Exhibit 32.1, fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ HANIF I. JAMAL

Hanif I. Jamal

Chief Financial Officer

Date: March 11, 2015

XML

Summary Of Significant Accounting Policies (Allowance for Doubtful Accounts) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Allowance for Doubtful Accounts Receivable [Roll Forward]
Balance, beginning of year	$ 23	$ 240
Allowance for Doubtful Accounts Receivable, Write-offs	0	(219)
Additions to allowance	64	2	0
Balance, quarter ended	$ 87	$ 23	$ 240

XML

Income Taxes (Reconciliation of Income Tax) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Income Tax Disclosure [Abstract]
State and local income taxes, net of federal benefit	$ 2,816	$ 1,901	$ (3,282)
State and local income taxes, net of federal benefit	106	65	(16)
State rate change and other adjustments	(49)	0	531
Effective Income Tax Rate Reconciliation, Change in State Deferred Tax Assets, Amount	389	(590)	0
Increase (decrease) in valuation allowance	(3,332)	(1,672)	597
Foreign tax rate differential	(59)	24	915
Research and development credits	(267)	(365)	127
Share-based compensation	245	491	518
Uncertain tax positions	57	(43)	767
Adjustments to federal deferred taxes	208	110	525
Other	113	130	67
Income tax provision	$ 227	$ 51	$ 749

XML

Product Warranties (Details) (USD $)	3 Months Ended	12 Months Ended			3 Months Ended
	Mar. 31, 2013	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012	Jun. 30, 2012
Product Liability Contingency [Line Items]
Maximum product warranty term		3 years
Warranty accrual		$ 3,363,000	$ 2,965,000	$ 4,455,000
Estimated product warranty liability		100,000
Reimbursement receivable			1,200,000
Period of product rebates/price concessions under settlement agreement			39 months
Movement in Standard Product Warranty Accrual [Roll Forward]
Balance, beginning of period	4,455,000	2,965,000	4,455,000	6,871,000
Charges to operations		1,770,000	1,350,000	2,116,000
Deductions for costs incurred		(1,372,000)	(2,840,000)	(4,532,000)
Balance, end of period		3,363,000	2,965,000	4,455,000
Decrease in warrant accrual due to more favorable rates with a third-party service provider	800,000
Estimated Insurance Recoveries		100,000
Material Customer [Member]
Movement in Standard Product Warranty Accrual [Roll Forward]
Deductions for costs incurred					$ (2,000,000)

XML

Income Taxes (Deferred Tax Assets) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
Deferred Tax Assets, Gross [Abstract]
Net operating loss and tax credit carry forwards	$ 88,656	$ 93,128
Inventory reserve and uniform capitalization	1,705	1,474
Stock options and warrants	2,704	2,440
Allowance for bad debts and sales returns	880	171
Vacation accrual	146	261
Deferred rent	126	143
Deferred revenue	433	380
Warranty accrual	1,173	958
Depreciation and amortization	1,137	1,358
Other accruals and reserves	433	362
Accrued Bonus	418	873
Intangible assets	1,037	1,195
Total deferred tax assets	98,848	102,743
Deferred Tax Liabilities, Gross [Abstract]
State taxes	(3,696)	(3,885)
Other	(187)	(548)
Total deferred income tax liabilities	(3,883)	(4,433)
Valuation allowance	(94,873)	(98,205)
Net deferred tax assets	$ 92	$ 105

XML

Inventories (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
Inventory Disclosure [Abstract]
Purchased parts and materials	$ 2,273	$ 2,911
Finished goods	9,069	3,628
Total inventory	$ 11,342	$ 6,539

XML

Quarterly Financial Information (Tables)

12 Months Ended

Dec. 31, 2014

Quarterly Financial Information Disclosure [Abstract]

Schedule of Quarterly Financial Information (Unaudited)

The information presented below reflects all adjustments, which, in the opinion of management, are of a normal and recurring nature necessary to present fairly the results of operations for the periods presented (in thousands, except per share amounts):

Year Ended December 31, 2013:	First Quarter			Second Quarter		Third Quarter		Fourth Quarter
Net revenue	$	44,480		$	50,683	$	52,603	$	58,799
Gross profit	14,440			17,007		16,873		17,750
Income (loss) before income taxes and discontinued operations	(526		)	2,138		1,875		2,104
Net income (loss) from continuing operations	(560		)	2,089		1,775		2,236
Basic and diluted net income (loss) per share from continuing operations	$	(0.01	)	$	0.04	$	0.03	$	0.03

Year Ended December 31, 2014:	First Quarter			Second Quarter			Third Quarter		Fourth Quarter
Net revenue	$	48,207		$	48,222		$	52,121	$	69,115
Gross profit	15,265			16,023			16,962		24,325
Income (loss) before income taxes and discontinued operations	(411		)	(4		)	86		8,611
Net income (loss) from continuing operations	(412		)	(78		)	40		8,505
Basic and diluted net income (loss) per share from continuing operations	$	(0.01	)	$	(0.00	)	$	0.00	$	0.14

XML

Income Taxes (Operating Loss Carryforwards) (Details) (USD $) In Millions, unless otherwise specified	Dec. 31, 2014
Federal [Member]
Operating Loss Carryforwards [Line Items]
Operating Loss Carryforwards	$ 182.9
State [Member]
Operating Loss Carryforwards [Line Items]
Operating Loss Carryforwards	101.7
Foreign Tax Authority [Member]
Operating Loss Carryforwards [Line Items]
Operating Loss Carryforwards	$ 43.8

XML

Inventories (Tables)

12 Months Ended

Dec. 31, 2014

Inventory Disclosure [Abstract]

Components of inventory

The components of inventories consist of the following (in thousands):

	December 31,
	2013		2014
Purchased parts and materials	$	2,911	$	2,273
Finished goods	3,628		9,069
Total inventory	$	6,539	$	11,342

XML

Fair Value Measurements (Details) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Estimate of Fair Value [Member] | Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Credit facility borrowings	$ 0	$ 0
Estimate of Fair Value [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Credit facility borrowings	0	2,000,000
Estimate of Fair Value [Member] | Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Credit facility borrowings	0	0
Reported Value [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Credit facility borrowings	0	2,000,000
Recurring [Member] | Estimate of Fair Value [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash and cash equivalents, fair value adjustment	0	0
Assets, Fair Value Adjustment	0	0
Recurring [Member] | Estimate of Fair Value [Member] | Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash and cash equivalents	42,492,000	40,406,000
Recurring [Member] | Estimate of Fair Value [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash and cash equivalents	0	0
Recurring [Member] | Estimate of Fair Value [Member] | Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash and cash equivalents	0	0
Recurring [Member] | Reported Value [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash and cash equivalents	$ 42,492,000	$ 40,406,000

XML

Summary Of Significant Accounting Policies (Changes in the Carrying Amount of Goodwill) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Goodwill [Roll Forward]
Goodwill	$ 44,840	$ 44,840	$ 44,840
Accumulated impairment losses	(44,840)	(44,840)	(44,840)
Goodwill	44,840	44,840	44,840
Goodwill, net of accumulated impairment losses	$ 0	$ 0	$ 0

XML

Summary Of Significant Accounting Policies (Components of Property and Equipment) (Details) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Property, Plant and Equipment [Line Items]
Propertyand equipment, gross	$ 24,183,000	$ 21,706,000
Less accumulated depreciation	(15,419,000)	(14,141,000)
Property and equipment, net	8,764,000	7,565,000
Depreciation	4,000,000	3,100,000	2,500,000
Machinery and equipment [Member]
Property, Plant and Equipment [Line Items]
Propertyand equipment, gross	19,263,000	16,628,000
Furniture, fixtures, and computer software [Member]
Property, Plant and Equipment [Line Items]
Propertyand equipment, gross	2,072,000	1,669,000
Leasehold improvements [Member]
Property, Plant and Equipment [Line Items]
Propertyand equipment, gross	2,620,000	2,578,000
Construction in progress [Member]
Property, Plant and Equipment [Line Items]
Propertyand equipment, gross	$ 228,000	$ 831,000
Minimum [Member]
Property, Plant and Equipment [Line Items]
Useful life	3 years
Maximum [Member]
Property, Plant and Equipment [Line Items]
Useful life	5 years

XML

Income Taxes (Components of Income (Loss) Before Taxes) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2014	Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Income (loss) from continuing operations before taxes:
United States									$ 12,569	$ 9,051	$ (7,211)
Foreign									(4,287)	(3,460)	(2,442)
Total income (loss) from continuing operations before taxes	$ 8,611	$ 86	$ (4)	$ (411)	$ 2,104	$ 1,875	$ 2,138	$ (526)	$ 8,282	$ 5,591	$ (9,653)

XML

Segment Information (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2014	Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2014 segment	Dec. 31, 2013 segment	Dec. 31, 2012 segment
Segment Reporting Information [Line Items]
Number of Reportable Segments									3	1	1
Operating Income (Loss)									$ 8,303	$ 5,630	$ (9,656)
Net revenue	69,115	52,121	48,222	48,207	58,799	52,603	50,683	44,480	217,665	206,565	194,548
Total other income (expense), net									(21)	(39)	3
Income (loss) before income taxes and discontinued operations	8,611	86	(4)	(411)	2,104	1,875	2,138	(526)	8,282	5,591	(9,653)
Long-Lived Assets	9,172				8,162				9,172	8,162	7,750
UNITED STATES
Segment Reporting Information [Line Items]
Net revenue									216,306	204,764	192,801
Long-Lived Assets	9,159				8,147				9,159	8,147	7,682
EMEA [Member]
Segment Reporting Information [Line Items]
Net revenue									0	3	14
Long-Lived Assets	13				15				13	15	68
Asia [Member]
Segment Reporting Information [Line Items]
Net revenue									1,359	1,798	1,733
Long-Lived Assets	0				0				0	0	0
Server OEMs [Member]
Segment Reporting Information [Line Items]
Operating Income (Loss)									27,091	33,464	28,718
Net revenue									115,580	134,798	143,353
Vertical Markets [Member]
Segment Reporting Information [Line Items]
Operating Income (Loss)									33,587	21,781	7,858
Net revenue									102,085	71,767	51,195
Corporate Segment [Member]
Segment Reporting Information [Line Items]
Operating Income (Loss)									$ (52,375)	$ (49,615)	$ (46,232)

XML

Stockholders' Equity, Equity Incentive Plans and Warrants (Summary of Stock Option Activity) (Details) (USD $)	12 Months Ended
	Dec. 31, 2014
Number of shares
Options outstanding at beginning of period (in shares)	9,850,498
Options granted (in shares)	2,370,500
Options exercised (in shares)	(1,184,829)
Options forfeited (in shares)	(554,079)
Options expired (in shares)	(529,146)
Options outstanding at end of period (in shares)	9,952,944
Options vested and expected to vest (in shares)	9,578,949
Options exercisable (in shares)	6,141,839
Weighted average exercise price
Options outstanding at beginning of period, weighted average exercise price	$ 2.58
Options granted, weighted average exercise price	$ 4.04
Options exercised, weighted average exercise price	$ 2.20
Options forfeited, weighted average exercise price	$ 2.53
Options expired, weighted average exercise price	$ 8.89
Options vested and expected to vest, weighted average exercise price	$ 2.61
Options exercisable, weighted average exercise price	$ 2.48
Options outstanding at end of period, weighted average exercise price	$ 2.64
Options outstanding, weighted average remaining contractual term	4 years 4 months 4 days
Options outstanding, aggregate intrinsic value	$ 18,369,137
Options vested and expected to vest, weighted average remaining contractual term	4 years 3 months 7 days
Options vested and expected to vest, aggregate intrinsic value	17,994,450
Options exercisable, weighted average remaining contractual term	3 years 6 months 7 days
Options exercisable, aggregate intrinsic value	$ 12,604,603

XML

Intangible Assets (Details) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Finite-Lived Intangible Assets
Gross	$ 2,680,000	$ 0
Accumulated Amortization	0	0
Net	2,680,000	0
Amortization of intangible assets	0	0	800,000
Software Development [Member]
Finite-Lived Intangible Assets
Gross	2,680,000	0
Accumulated Amortization	0	0
Net	$ 2,680,000	$ 0

XML

Discontinued Operations

12 Months Ended

Dec. 31, 2014

Discontinued Operations and Disposal Groups [Abstract]

Discontinued Operations

Discontinued Operations

During 2011, our primary AssuredUVS customer informed us that the AssuredUVS software would no longer be a component of its business strategy, which would result in a significant decline in revenues for the Company.

In February 2012, our Board of Directors approved a plan to exit our AssuredUVS business and close down our Israel Technology Development Center. During the second quarter of 2012, we explored the potential sale of the AssuredUVS business, but were unsuccessful in locating a buyer and ended efforts to sell the business or its component assets as of June 30, 2012. Accordingly, we recognized an impairment of $0.2 million of property, plant and equipment and $1.6 million for the remaining value of acquired software as a component of cost of goods sold as of June 30, 2012. The AssuredUVS business is now recorded in discontinued operations, since we have ceased all ongoing operational activities as of September 30, 2012.

The following is a summary of the components of loss from discontinued operations, (in thousands):

	Year Ended December 31,
	2012			2013			2014
Net revenue	$	360		$	50		$	—
Cost of goods sold	2,501			142			—
Gross profit	(2,141		)	(92		)	—
Operating expenses:
Research and development	741			—			—
Sales and marketing	56			—			—
General and administrative	765			393			—
Restructuring charge (recovery)	844			(10		)	—
Total operating expenses	2,406			383			—
Operating loss	(4,547		)	(475		)	—
Other income (expense), net	(1		)	(1		)	—
Loss from discontinued operations	$	(4,548	)	$	(476	)	$	—

The activity in 2013 was limited to the continued support of certain maintenance contracts entered into prior to shutting down the Israel Technology Development Center, as well as expenses related to the resolution of a dispute with the former primary AssuredUVS customer.

XML

Stockholders' Equity, Equity Incentive Plans and Warrants (Summary of Restricted Stock Awards Activity) (Details) (Restricted Stock [Member], USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Restricted Stock [Member]
Restricted stock units, unvested (in shares)	55,900	92,811
Restricted stock units, unvested, weighted average grant date fair value	$ 4.33	$ 1.73
Restricted stock units, granted (in shares)	80,000
Restricted stock units, granted, weighted average exercise price	$ 4.32	$ 1.74	$ 1.23
Restricted stock units, vested (in shares)	(116,661)
Restricted stock units, vested, weighted average exercise price	$ 2.25
Restricted stock units, forfeited (in shares)	(250)
Restricted stock units, forfeited, weighted average exercise price	$ 2.90

XML

Earnings Per Share (Antidilutive Securities) (Details) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012	Jan. 31, 2008
Outstanding equity awards not included in the calculation of diluted net loss per share:
Warrants, exercise price				2.40
Stock Options [Member]
Outstanding equity awards not included in the calculation of diluted net loss per share:
Number of equity awards not included in the calculation of diluted net loss per share	2,518,000	5,879,842	8,952,129
Range of exercise prices, lower limit	$ 3.46	$ 1.55	$ 0.47
Range of exercise prices, upper limit	$ 7.84	$ 15.15	$ 16.36
Unvested stock awards [Member]
Outstanding equity awards not included in the calculation of diluted net loss per share:
Number of equity awards not included in the calculation of diluted net loss per share	55,900	92,811	655,402
Warrants [Member]
Outstanding equity awards not included in the calculation of diluted net loss per share:
Number of equity awards not included in the calculation of diluted net loss per share	0	1,602,489	1,602,489
Warrants, exercise price	0.00	2.40	2.40

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Income Taxes (Tables)

12 Months Ended

Dec. 31, 2014

Income Tax Disclosure [Abstract]

Components of income (loss) before taxes

Components of income (loss) from continuing operations before taxes are as follows, (in thousands):

	Year Ended December 31,
	2012			2013			2014
Income (loss) from continuing operations before taxes:
United States	$	(7,211	)	$	9,051		$	12,569
Foreign	(2,442		)	(3,460		)	(4,287		)
Total income (loss) from continuing operations before taxes	$	(9,653	)	$	5,591		$	8,282

Components of income tax provision

Components of the income tax provision (benefit) are as follows, (in thousands):

	Year Ended December 31,
	2012		2013			2014
Current:
Federal	$	—	$	(28	)	$	(26	)
State and local	67		99			161
Foreign	682		85			89
	749		156			224
Deferred:
Federal	—		—			—
State, local and foreign	—		(105		)	3
	—		(105		)	3
Total income tax provision	$	749	$	51		$	227

Reconciliation of the income tax provision

The reconciliation of the income tax provision computed using the federal statutory income tax rate to the recognized income tax provision (benefit) is as follows, (in thousands):

	Year Ended December 31,
	2012			2013			2014
Federal statutory rate	$	(3,282	)	$	1,901		$	2,816
State and local income taxes, net of federal benefit	(16		)	65			106
State rate change and other adjustments	531			—			(49		)
Adjustments to state deferred taxes	—			(590		)	389
Increase (decrease) in valuation allowance	597			(1,672		)	(3,332		)
Foreign tax rate differential	915			24			(59		)
Research and development credits	127			(365		)	(267		)
Share-based compensation	518			491			245
Uncertain tax positions	767			(43		)	57
Adjustments to federal deferred taxes	525			110			208
Other	67			130			113
Income tax provision	$	749		$	51		$	227

The tax effect of temporary differences that give rise to deferred income taxes

The tax effect of temporary differences that give rise to deferred income taxes are as follows, (in thousands):

	December 31,
	2013			2014
Deferred tax assets:
Net operating loss and tax credit carry forwards	$	93,128		$	88,656
Inventory reserve and uniform capitalization	1,474			1,705
Stock options and warrants	2,440			2,704
Allowance for bad debts and sales returns	171			880
Vacation accrual	261			146
Deferred rent	143			126
Deferred revenue	380			433
Warranty accrual	958			1,173
Depreciation and amortization	1,358			1,137
Other accruals and reserves	362			433
Accrued Bonus	873			418
Intangible assets	1,195			1,037
Total deferred tax assets	102,743			98,848
Deferred tax liabilities:
State taxes	(3,885		)	(3,696		)
Other	(548		)	(187		)
Total deferred income tax liabilities	(4,433		)	(3,883		)
Valuation allowance	(98,205		)	(94,873		)
Net deferred tax assets	$	105		$	92

Summary of the activity related to unrecognized tax benefits

The following table summarizes the activity related to our unrecognized tax benefits (in thousands):

	Year Ended December 31,
	2012			2013			2014
Balance, January 1	$	5,025		$	5,726		$	5,771
Increase related to prior period positions	583			341			122
Increase related to current year tax positions	241			380			169
Reductions for tax positions of prior years	(123		)	(676		)	(395		)
Settlements	—			—			—
Balance, December 31	$	5,726		$	5,771		$	5,667

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Fair Value Measurements (Tables)

12 Months Ended

Dec. 31, 2014

Fair Value Disclosures [Abstract]

Assets Measured at Fair Value on a Recurring Basis

These tables present the carrying value and fair value, by fair value hierarchy, of our financial instruments, excluding cash and cash equivalents, accounts receivable and accounts payable at December 31, 2013 and 2014, respectively (in thousands).

			Fair Value Measurements Using
Description	December 31, 2013		Quoted Prices for Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total (Losses)
Credit facility borrowings	$	2,000	$	—	$	2,000	$	—	$	—

Assets Measured at Fair Value on a Recurring Basis

			Fair Value Measurements Using
Description	December 31, 2013		Quoted Prices for Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total (Losses)
	(in thousands)
Cash and cash equivalents	$	40,406	$	40,406	$	—	$	—	$	—

			Fair Value Measurements Using
Description	December 31, 2014		Quoted Prices for Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total (Losses)
	(in thousands)
Cash and cash equivalents	$	42,492	$	42,492	$	—	$	—	$	—

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Income Taxes (Unrecognized Tax Benefit Activity) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Reconciliation of Unrecognized Tax Benefits, Excluding Amounts Pertaining to Examined Tax Returns [Roll Forward]
Unrecognized tax benefits, beginning balance	$ 5,771	$ 5,726	$ 5,025
Increase related to prior period positions	122	341	583
Increase related to current year tax positions	169	380	241
Reductions for tax positions of prior years	(395)	(676)	(123)
Settlements	0	0	0
Unrecognized tax benefits, ending balance	$ 5,667	$ 5,771	$ 5,726

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Earnings Per Share (Calculation of Earnings Per Share) (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2014	Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Earnings Per Share [Abstract]
Income (loss) from continuing operations	$ 8,505	$ 40	$ (78)	$ (412)	$ 2,236	$ 1,775	$ 2,089	$ (560)	$ 8,055	$ 5,540	$ (10,402)
Basic weighted-average common shares outstanding									60,171	58,521	56,954
Assumed exercise of dilutive stock options, warrants and restricted stock									3,727	726	0
Diluted weighted-average common shares outstanding									63,898	59,247	56,954
Income (loss) from continuing operations:
Basic income (loss) per share									$ 0.13	$ 0.09	$ (0.18)
Diluted earnings (loss) per share (usd per share)									$ 0.13	$ 0.09	$ (0.18)

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Stockholders' Equity, Equity Incentive Plans and Warrants (Tables)

12 Months Ended

Dec. 31, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Share-based compensation expense

The following table summarizes share-based compensation expense, (in thousands):

	Year Ended December 31,
	2012		2013		2014
Cost of goods sold	$	617	$	334	$	350
Sales and marketing	419		274		353
Research and development	1,705		1,054		1,304
General and administrative	1,024		1,028		1,138
Share-based compensation expense before taxes	3,765		2,690		3,145
Related deferred income tax benefits	—		—		—
Share-based compensation expense	$	3,765	$	2,690	$	3,145
Share-based compensation expense is derived from:
Stock options	$	1,508	$	1,924	$	2,642
Restricted stock awards	1,958		489		181
2014 and 2000 ESPP	299		277		322
Total	$	3,765	$	2,690	$	3,145

Summary of stock option activity

A summary of stock option activity for 2014 is as follows:

	Number of shares		Weighted average exercise price		Weighted average remaining contractual term (in years)	Aggregate intrinsic value
Outstanding at January 1, 2014	9,850,498		$	2.58
Granted	2,370,500		4.04
Exercised	(1,184,829	)	2.20
Forfeited	(554,079	)	2.53
Expired	(529,146	)	8.89
Outstanding at December 31, 2014	9,952,944		$	2.64	4.34	$	18,369,137
Vested and expected to vest at December 31, 2014	9,578,949		$	2.61	4.27	$	17,994,450
Exercisable at December 31, 2014	6,141,839		$	2.48	3.52	$	12,604,603

Summary of restricted stock activity

A summary of restricted stock award activity for 2014 is as follows:

	Number of shares		Weighted average grant date fair value
Outstanding at January 1, 2014	92,811		$	1.73
Granted	80,000		4.32
Vested	(116,661	)	2.25
Forfeited	(250	)	2.90
Outstanding and unvested at December 31, 2014	55,900		$	4.33

Schedule of valuation assumptions for equity awards

To estimate compensation expense for the years ended December 31, 2012, 2013, and 2014 we used the Black-Scholes pricing model with the following weighted-average assumptions for equity awards granted:

	EIP and NEDSOP						ESPP
	Year Ended December 31,						Year Ended December 31,
	2012		2013		2014		2012		2013		2014
Risk-free interest rate	1.19	%	1.07	%	1.59	%	0.12	%	0.09	%	0.05	%
Expected dividend yield	—	%	—	%	—	%	—	%	—	%	—	%
Volatility	81	%	82	%	70	%	64	%	63	%	60	%
Expected Term	5.2 years		5.3 years		4.9 years		0.5 years		0.5 years		0.5 years
Forfeiture Rate	0%-10.62%		0%-9.45%		0%-10.05%		—	%	—	%	—	%

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Commitments And Contingencies (Tables)

12 Months Ended

Dec. 31, 2014

Commitments and Contingencies Disclosure [Abstract]

Future minimum rental payments for operating leases

Future minimum lease payments due under all non-cancelable operating leases as of December 31, 2014 are as follows (in thousands):

Year Ended December 31,
2015	$	873
2016	849
2017	860
2018	360
2019	—
Thereafter	—
Total minimum lease payments	$	2,942

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Earnings Per Share

12 Months Ended

Dec. 31, 2014

Earnings Per Share [Abstract]

Net Income (Loss) Per Share

Earnings Per Share

Basic earnings per share, including continuing and discontinued operations, is calculated by dividing net income (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted earnings per share, including continuing and discontinued operations, is computed by dividing net income (loss) for the period by the weighted average number of shares of common stock outstanding during the period and including the dilutive effect of common stock that would be issued assuming conversion or exercise of outstanding warrants, stock options, share based compensation awards and other dilutive securities. No such items were included in the computation of diluted loss per share for the year ended December 31, 2012 because we incurred a net loss in the period and the effect of inclusion would have been anti-dilutive.

The following is a reconciliation of weighted-average shares outstanding used in the calculation of basic and diluted earnings from continuing operations per share (in thousands, except per share data):

	Year Ended December 31,
	2012			2013		2014
Income (loss) from continuing operations	$	(10,402	)	$	5,540	$	8,055
Basic weighted-average common shares outstanding	56,954			58,521		60,171
Assumed exercise of dilutive stock options, warrants and restricted stock	—			726		3,727
Diluted weighted-average common shares outstanding	56,954			59,247		63,898
Income (loss) from continuing operations:
Basic income (loss) per share	$	(0.18	)	$	0.09	$	0.13
Diluted income (loss) per share	$	(0.18	)	$	0.09	$	0.13

Outstanding equity awards not included in the calculation of diluted net earnings (loss) per share because their effect was anti-dilutive were as follows:

	December 31, 2012			December 31, 2013			December 31, 2014
	Number of Potential Shares	Range of Exercise Prices		Number of Potential Shares	Range of Exercise Prices		Number of Potential Shares	Range of Exercise Prices
Stock options	8,952,129	$0.47 - $16.36		5,879,842	$1.55 - $15.15		2,518,000	$3.46 - $7.84
Unvested stock awards	655,402	$	—	92,811	$	—	55,900	$	—
Warrants	1,602,489	$	2.40	1,602,489	$	2.40	—	$	—

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Segment Information (Tables)

12 Months Ended

Dec. 31, 2014

Revenues from External Customers and Long-Lived Assets [Line Items]

Schedule of Revenue from External Customers and Long-Lived Assets, by Geographical Areas [Table Text Block]

Information concerning principal geographic areas in which we operate is as follows (in thousands):

	Year ended December 31,
	2012		2013		2014
Net revenue:
United States	$	192,801	$	204,764	$	216,306
Europe, Middle East and Africa	14		3		—
Asia	1,733		1,798		1,359
Total net revenue	$	194,548	$	206,565	$	217,665
Long-lived assets:
United States	$	7,682	$	8,147	$	9,159
Europe, Middle East and Africa	68		15		13
Asia	—		—		—
Total long-lived assets	$	7,750	$	8,162	$	9,172

Schedule of Segment Reporting Information, by Segment [Table Text Block]

Net revenues by segment are as follows (in thousands):

	Year ended December 31,
	2012		2013		2014
Net revenue:
Server OEM	$	143,353	$	134,798	$	115,580
Vertical Markets	51,195		71,767		102,085
Total net revenue	$	194,548	$	206,565	$	217,665

Operating income (loss) by segment, and a reconciliation to consolidated income (loss) before income taxes and discontinued operations is as follows (in thousands):

	Year ended December 31,
	2012			2013			2014
Operating income (loss):
Server OEM	$	28,718		$	33,464		$	27,091
Vertical Markets	7,858			21,781			33,587
Corporate	(46,232		)	(49,615		)	(52,375		)
Total operating income (loss)	(9,656		)	5,630			8,303
Total other income (expense), net	3			(39		)	(21		)
Income (loss) before income taxes and discontinued operations	$	(9,653	)	$	5,591		$	8,282

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Summary Of Significant Accounting Policies (Revenue Recognition) (Details)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Sales Revenue, Services, Net [Member]
Concentration Risk [Line Items]
Service revenue, as a percentage of total revenue	10.00%	10.00%	10.00%
Minimum [Member]
Concentration Risk [Line Items]
Service contract terms	12 months
Maximum [Member]
Concentration Risk [Line Items]
Service contract terms	36 months

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Income Taxes (Components of Income Tax Provision (Benefit)) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Current:
Federal	$ (26)	$ (28)	$ 0
Current State and Local Tax Expense (Benefit)	161	99	67
Current Foreign Tax Expense (Benefit)	89	85	682
Current Income Tax Expense (Benefit)	224	156	749
Deferred:
Federal	0	0	0
State, local and foreign	3	(105)	0
Deferred Income Tax Expense (Benefit)	3	(105)	0
Income tax provision	$ 227	$ 51	$ 749

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
ASSETS
Cash and cash equivalents	$ 42,492	$ 40,406
Accounts receivable, net	43,328	42,907
Inventories	11,342	6,539
Prepaid expenses and other assets	11,126	7,265
Total current assets	108,288	97,117
Property and equipment, net	8,764	7,565
Intangible Assets	2,680	0
Other assets	500	702
Total assets	120,232	105,384
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable	37,421	33,255
Accrued compensation	4,015	4,922
Accrued expenses	8,039	8,935
Deferred revenue	5,319	4,211
Credit facility borrowings	0	2,000
Total current liabilities	54,794	53,323
Other long-term liabilities	2,908	4,414
Total liabilities	57,702	57,737
Commitments and Contingencies (Note 12)
Stockholders’ Equity:
Preferred stock, $.001 par value, 10,000 shares authorized, zero shares issued and outstanding at December 31, 2013 and 2014	0	0
Common stock, $.001 par value, 100,000 shares authorized, 59,138 and 60,777 shares issued and outstanding at December 31, 2013 and 2014, respectively	61	59
Additional paid-in capital	336,827	330,103
Accumulated other comprehensive loss	(3,152)	(3,254)
Accumulated deficit	(271,206)	(279,261)
Total stockholders’ equity	62,530	47,647
Total liabilities and stockholders’ equity	$ 120,232	$ 105,384

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Discontinued Operations (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended	12 Months Ended
	Jun. 30, 2012	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Operating expenses:
Loss from discontinued operations		$ 0	$ (476)	$ (4,548)
AssuredUVS [Member]
Discontinued Operations [Line Items]
Impairment of intangible assets	1,600
Impairment of property, plant and equipment	200
Loss from discontinued operations
Net revenue		0	50	360
Cost of goods sold		0	142	2,501
Gross profit		0	(92)	(2,141)
Operating expenses:
Research and development		0	0	741
Sales and marketing		0	0	56
General and administrative		0	393	765
Restructuring charge (recovery)		0	(10)	844
Total operating expenses		0	383	2,406
Operating loss		0	(475)	(4,547)
Other income (expense), net		0	(1)	(1)
Loss from discontinued operations		$ 0	$ (476)	$ (4,548)

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Consolidated Statements Of Cash Flows (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Statement of Cash Flows [Abstract]
Net income (loss)	$ 8,055	$ 5,064	$ (14,950)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	3,972	3,125	3,527
Provision for bad debt expense	64	2	25
Share-based compensation expense	3,145	2,690	3,723
Long-lived assets impairment charge	0	0	1,647
Write-off of property and equipment	63	23	244
Changes in operating assets and liabilities:
Accounts receivable	(859)	(17,931)	6,621
Inventories	(4,845)	(1,503)	213
Prepaid expenses and other assets	(3,682)	(1,618)	1,740
Accounts payable	2,962	11,100	(7,474)
Accrued compensation and other expenses	(1,783)	614	(2,505)
Deferred revenue	1,122	1,340	2,017
Other long-term liabilities	(1,490)	1,182	2,726
Net cash provided by (used in) operating activities	6,724	4,088	(2,446)
Cash Flows From Investing Activities:
Purchases of property and equipment	(4,156)	(3,644)	(6,152)
Purchases of intangible assets	(1,990)	0	0
Proceeds from sale of property and equipment	0	0	74
Net cash used in investing activities	(6,146)	(3,644)	(6,078)
Cash Flows From Financing Activities:
Principal payment of note payable	0	0	(71)
Payments on bank borrowings	(2,000)	(7,700)	(1,800)
Proceeds from bank borrowings	0	6,900	4,600
Shares withheld for tax purposes	(95)	(223)	(590)
Proceeds from sale of stock to employees	3,676	1,062	756
Net cash provided by financing activities	1,581	39	2,895
Effect of Exchange Rate Changes on Cash and Cash Equivalents	(73)	(392)	(224)
Net Increase (Decrease) in Cash and Cash Equivalents	2,086	91	(5,853)
Cash and Cash Equivalents, beginning of period	40,406	40,315	46,168
Cash and Cash Equivalents, end of period	42,492	40,406	40,315
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
Capital expenditures incurred but not yet paid	2,125	398	477
Property and equipment transferred from inventory	42	0	0
Stock payment for employee bonus plan	0	0	1,005
Supplemental Cash Flow Data:
Cash paid for income taxes	$ 254	$ 72	$ 116

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Stockholders' Equity, Equity Incentive Plans and Warrants (Details) (USD $) In Millions, except Share data, unless otherwise specified	12 Months Ended			0 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012	Jun. 15, 2009	May 05, 2014	Jan. 31, 2008	May 02, 2011
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options to purchase common stock, outstanding	9,952,944	9,850,498
Total unrecognized share-based compensation cost	$ 5.2
Unrecognized compensation cost, period for recognition	2 years 6 months
Options granted, weighted average exercise price	$ 2.35	$ 1.05	$ 0.89
Intrinsic value of options exercised	2.6	0.2	0
Fair value of options vested in period	2.9	2.2	2.1
Cash received from exercise of stock options	2.6	0.3	0
Share price	$ 4.42
Number of warrants issued as a percentage of outstanding shares						3.50%
Warrants, exercise price						2.40
2000 EIP [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected Term	10 years
Common stock reserved for future issuance (in shares)				7,112,217
Options to purchase common stock, outstanding	2,178,746
2009 EIP [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected Term	7 years
Common stock reserved for future issuance (in shares)	7,814,281			4,500,000	7,000,000		8,000,000
Options to purchase common stock, outstanding	7,124,198
2000 NEDSOP [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Goods and Nonemployee Services Transaction, Valuation Method, Expected Term	10 years
2000ESPP [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected Term	6 months	6 months	6 months
Stock Issued During Period, Shares, New Issues				4,000,000
Shares issued in period	195,857	808,761
Cash received from exercise of stock options	1.1	0.7	0.7
2014ESPP [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options to purchase common stock, outstanding	3,803,519
Stock Issued During Period, Shares, New Issues					4,000,000
Discount from market price on share purchases	85.00%
Shares issued in period	196,481
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number	55,900	92,811
Options outstanding, weighted average exercise price	$ 4.32	$ 1.74	$ 1.23
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period, Fair Value	$ 0.3	$ 1.3	$ 3.3
Restricted Stock [Member] | 2000 EIP [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number	0
Restricted Stock [Member] | 2009 EIP [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number	55,900
Performance Shares [Member] | 2009 EIP [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number	0
Director [Member] | 2000 NEDSOP [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options to purchase common stock, outstanding	650,000
Percentage of awards vesting	25.00%
Award vesting period	4 years
Deferred Compensation Arrangement with Individual, Common Stock Reserved for Future Issuance	1,000,000
Number of shares available for grant	243,124
Director [Member] | Vesting after first year [Member] | 2000 NEDSOP [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting period	1 year
Common Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Warrants outstanding						1,602,489

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Summary Of Significant Accounting Policies (Advertising Costs) (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Accounting Policies [Abstract]
Advertising expense	$ 1.8	$ 1.6	$ 1.2

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Commitments And Contingencies (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2015
Loss Contingencies [Line Items]
Rent expense	$ 1.2	$ 1.2	$ 1.1
Unconditional purchase obligations	47.4
Loss Contingency, Estimate of Possible Loss	0.9
Contract Dispute [Member]
Loss Contingencies [Line Items]
Loss Contingency, Range of Possible Loss, Minimum	1.0
Loss Contingency, Range of Possible Loss, Maximum	3.4
Loss Contingency Accrual	1.0
Scenario, Forecast [Member]
Loss Contingencies [Line Items]
Other Comprehensive Income (Loss), Foreign Currency Transaction and Translation Reclassification Adjustment from AOCI, Realized upon Sale or Liquidation, Net of Tax				$ (2.7)

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Summary Of Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2014

Accounting Policies [Abstract]

Property and equipment

The components of property and equipment consist of the following, (in thousands):

	December 31,
	2013			2014
Machinery and equipment	$	16,628		$	19,263
Furniture, fixtures, and computer software	1,669			2,072
Leasehold improvements	2,578			2,620
Construction in progress	831			228
Total property and equipment, at cost	21,706			24,183
Less accumulated depreciation	(14,141		)	(15,419		)
Property and equipment, net	$	7,565		$	8,764

Net revenue by major customer

Net revenue by major customer is as follows (as a percentage of total net revenue):

	Year Ended December 31,
	2012		2013		2014
Customer A	68	%	59	%	47	%
Customer B	—	%	0	%	11	%
Customer C	10	%	13	%	8	%
Other customers less than 10%	22	%	28	%	34	%
Total	100	%	100	%	100	%

Schedule of Goodwill [Table Text Block]

The changes in the carrying amount of goodwill are as follows during the years ended December 31, 2013 and 2014 (in thousands):

	December 31,
	2013			2014
Balance, beginning of the year
Goodwill	$	44,840		$	44,840
Accumulated impairment losses	(44,840		)	(44,840		)
	—			—
Balance, end of the year
Goodwill	44,840			44,840
Accumulated impairment losses	(44,840		)	(44,840		)
	$	—		$	—

Allowance for doubtful accounts

	December 31,
	2013			2014
Balance, beginning of the year	$	240		$	23
Write offs	(219		)	—
Additions to allowance	2			64
Balance, end of the year	$	23		$	87

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Summary Of Significant Accounting Policies (Cash and Cash Equivalents) (Details) (USD $)	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Cash and Cash Equivalents [Line Items]
Cash and cash equivalents	$ 42,492,000	$ 40,406,000	$ 40,315,000	$ 46,168,000
Foreign earnings expected to be repatriated in next fiscal year	2,000,000
Foreign Subsidiaries [Member]
Cash and Cash Equivalents [Line Items]
Cash and cash equivalents	$ 3,000,000	$ 3,600,000

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Discontinued Operations (Tables)

12 Months Ended

Dec. 31, 2014

Discontinued Operations and Disposal Groups [Abstract]

Summary of the components of loss from discontinued operations

The following is a summary of the components of loss from discontinued operations, (in thousands):

	Year Ended December 31,
	2012			2013			2014
Net revenue	$	360		$	50		$	—
Cost of goods sold	2,501			142			—
Gross profit	(2,141		)	(92		)	—
Operating expenses:
Research and development	741			—			—
Sales and marketing	56			—			—
General and administrative	765			393			—
Restructuring charge (recovery)	844			(10		)	—
Total operating expenses	2,406			383			—
Operating loss	(4,547		)	(475		)	—
Other income (expense), net	(1		)	(1		)	—
Loss from discontinued operations	$	(4,548	)	$	(476	)	$	—

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Quarterly Financial Information (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2014	Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Quarterly Financial Information Disclosure [Abstract]
Net revenue	$ 69,115	$ 52,121	$ 48,222	$ 48,207	$ 58,799	$ 52,603	$ 50,683	$ 44,480	$ 217,665	$ 206,565	$ 194,548
Gross profit	24,325	16,962	16,023	15,265	17,750	16,873	17,007	14,440	72,575	66,070	48,371
Income (loss) before income taxes and discontinued operations	8,611	86	(4)	(411)	2,104	1,875	2,138	(526)	8,282	5,591	(9,653)
Net income (Loss) from continuing operations	$ 8,505	$ 40	$ (78)	$ (412)	$ 2,236	$ 1,775	$ 2,089	$ (560)	$ 8,055	$ 5,540	$ (10,402)
Basic and diluted net income (loss) per share from continuing operations	$ 0.14	$ 0.00	$ 0.00	$ (0.01)	$ 0.03	$ 0.03	$ 0.04	$ (0.01)	$ 0.13	$ 0.09	$ (0.18)

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Summary Of Significant Accounting Policies

12 Months Ended

Dec. 31, 2014

Accounting Policies [Abstract]

Summary Of Significant Accounting Policies

Summary of Significant Accounting Policies

Description of Business

Dot Hill Systems Corp (referred to herein as Dot Hill, we, our or us) is a provider of storage systems for the entry and mid-range storage markets for organizations requiring high reliability, high performance networked storage and data management solutions in an open systems architecture. Our storage solutions consist of integrated hardware, firmware and software products employing a modular system that allows end-users to add various capacity or data protection schemes as needed. Our broad range of products, from medium capacity standalone storage units to complete multi-terabyte storage area networks, or SANs, provide end-users with a cost-effective means of addressing increasing storage demands without sacrificing performance.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP.

Principles of Consolidation

The accompanying consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries. Intercompany transactions and balances have been eliminated in consolidation.

Foreign Currency

For our foreign subsidiaries whose functional currency is the local currency, assets and liabilities are translated into United States Dollars at period-end exchange rates. Revenues and expenses, and gains and losses, are translated at rates of exchange that approximate the rates in effect on the transaction date. Resulting translation gains and losses are recognized as a component of other comprehensive loss.

For our foreign subsidiaries that maintain their books of record in a currency other than the functional currency, the subsidiaries remeasure monetary assets and liabilities using current rates of exchange at the balance sheet date and remeasure non-monetary assets and liabilities using historical rates of exchange. Gains and losses from re-measurement for such subsidiaries are recognized currently in income as a component of general and administrative expenses. We incurred foreign currency transaction losses of $0.5 million and $0.1 million for the years ended December 31, 2013 and 2014. We realized foreign currency transaction gains of $0.5 million for the year ended December 31, 2012.

Foreign currency translation adjustments comprise the entire amount of our accumulated other comprehensive loss at December 31, 2012, 2013 and 2014.

Use of Accounting Estimates

The preparation of our audited consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the dates of the financial statements and the reported amounts of net revenue and expenses in the reporting periods. The accounting estimates that require management’s most significant and subjective judgments include revenue recognition, inventory valuation (refer to Note 4, Inventories) and recurring and specific issue warranty obligations (refer to Note 6, Product Warranties). In addition, we have other accounting policies that involve estimates such as the determination of useful lives of long-lived assets, the valuation of long-lived assets, accruals for restructuring, capitalization of software development costs, contingent liabilities and income taxes, including the valuation allowance for deferred tax assets, and the valuation and recognition of share-based compensation expense. Actual results may differ from these estimates and such differences could be material.

Revenue Recognition

We derive our revenue from sales of our hardware products, software and services.

Hardware

Hardware product revenue consists of revenue from sales of our AssuredSAN storage systems that are integrated with our original equipment manufacturers, or OEM, customers' industry standard hardware and which become essential to the integrated system product. We recognize hardware product revenue when the following fundamental criteria are met: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred; (iii) the price is fixed or determinable; and (iv) collectability is reasonably assured. Revenue is recognized for hardware product sales upon transfer of title and risk of loss to the customer and, in addition, upon installation for certain of our AssuredUVS appliance products. We record reductions to revenue for estimated product returns and pricing adjustments in the same period that the related revenue is recorded. These estimates are based on contractual return rights, historical sales returns, analysis of credit memo data and other factors known at the time. If actual future returns and pricing adjustments differ from past experience and our estimates, additional revenue reserves may be required.

We exclude from revenues taxes collected from customers on behalf of governmental authorities.

Software

In accordance with the specific guidance for recognizing software revenue, where applicable, we recognize revenue from perpetual software licenses at the inception of the license term assuming all revenue recognition criteria have been met. We use the relative fair value method to allocate revenue to software licenses at the inception of the license term when vendor-specific objective evidence, or VSOE, of fair value for all elements related to our products is available. We have established VSOE for the fair value of our software licenses and support services as measured by the prices paid by our customers when the licenses and services are sold separately on a standalone basis.

Specific long-term software contracts may contain multiple deliverables including software licenses, services, training and post-contract support, or PCS, for which we have not established VSOE of fair value of any of the elements.  Under specific guidance for recognizing software revenue, we defer all revenue related to each deliverable until the only undelivered element is PCS. We then begin recognizing revenue ratably over the PCS period.

We defer all the direct and incremental costs related to the deliverables in these contracts until delivery of all the elements except PCS. The deferred costs are then recognized ratably over the contractual PCS support periods as a component of Cost of Goods Sold.

During the preparation of the Company's consolidated financial statements for the year ended December 31, 2012 and the accounting analysis for the renewal of a long-term software contract, the Company determined that it had applied an inappropriate revenue recognition methodology to the contract.  The Company recorded revenue as royalty payments were received on this contract and should have deferred all the revenue and direct and incremental costs until all the deliverables, except PCS, were delivered in 2012.

This was corrected in the fourth quarter of 2012, and the net out-of-period impact of these adjustments was $1.1 million, consisting of a reduction of revenue and research and development costs of $4.2 million and $3.1 million, respectively.Once all elements except PCS were delivered, the related deferred direct and incremental costs began to be recognized ratably over the contractual PCS support period, as a component of Cost of Goods Sold.

Service

Our service revenue primarily includes out-of-warranty repairs and product maintenance contracts. Out-of warranty repairs primarily consist of product repair services performed by our contract manufacturers for those customers that allowed their original product warranty to expire without purchasing one of our higher level support service plans. Revenue from these out-of-warranty repairs, and the associated cost of sales, is recognized in the period these services are provided. Service revenue also consists of product maintenance contracts purchased by our customers as an extension of our standard warranty. Revenue from our product maintenance contracts is deferred and recognized ratably over the contract term, generally12to36months. Net revenue derived from services was less than 10%of total revenue for all periods presented.

Revenue Recognition for Arrangements with Multiple Deliverables

For multi-element arrangements that include hardware products containing software essential to the hardware product’s functionality and undelivered non-software services (all non-software related elements), we allocate the transaction price to all deliverables based on their relative selling prices. In such circumstances, we use a hierarchy to determine the selling price to be used for allocating the transaction price to deliverables: (i) VSOE of fair value, (ii) third-party evidence of selling price, or TPE, and (iii) best estimate of the selling price, or ESP. VSOE of fair value generally exists only when we sell the deliverable separately and represents the actual price charged by us for that deliverable. ESPs reflect our best estimates of what the selling prices of the deliverables would be if they were sold regularly on a standalone basis.

Revenue Recognition for Sales to Channel Partners

On sales to channel partners, we evaluate whether fees are considered fixed or determinable by considering a number of factors, including our ability to estimate returns, payment terms and our relationship and past history with the particular channel partner. If fees are not considered fixed or determinable at the time of sale to a channel partner, revenue recognition is deferred until there is persuasive evidence indicating the product has sold through to an end-user. Persuasive evidence of sell-through may include reports from channel partners documenting sell-through activity or data indicating an order has shipped to an end-user.

Deferred Revenue

We defer revenue on upfront nonrefundable payments received from our customers and recognize it ratably over the term of the agreement, unless the payment is in exchange for products delivered that represent the culmination of a separate earnings process. When we provide consideration to a customer, we recognize the value of that consideration as a reduction in net revenue. We may be required to maintain inventory with certain of our largest OEM customers, which we refer to as "hubbing" arrangements. Pursuant to these arrangements we deliver products to a customer or a designated third-party warehouse based upon the customer’s projected needs, but do not recognize product revenue unless and until the customer has taken legal title of our product from the warehouse to incorporate into its end products.

Advertising Costs

We expense advertising costs in the period incurred. Advertising expense is included as a component of sales and marketing expense. Advertising expense was $1.2 million, $1.6 million and $1.8 million for the years ended December 31, 2012, 2013 and 2014, respectively.

Shipping and Handling

Cost related to the shipping and handling of our products is included in cost of goods sold for all periods presented.

Research and Development and Capitalized Software Development Costs

Research and development costs are expensed as incurred. In conjunction with the development of our products, we incur certain software development costs. For the majority of our software development projects, no costs have been capitalized because the period between achieving technological feasibility and completion of such software is relatively short and software development costs qualifying for capitalization have been insignificant. On a specific software project under development, it was determined that the period between achieving technological feasibility and completion of the software is not relatively short and software development costs qualifying for capitalization will be significant. For this project, since technological feasibility has been established, all software development costs are capitalized until the product is available for general release to customers. Judgment is required in determining when technological feasibility of a product is established. We have determined that technological feasibility for our software products is reached after all high-risk development issues have been resolved through coding and testing. The amortization of these costs will be included in cost of goods sold over the estimated life of the products. Refer to Note 5, Intangible Assets.

Share-Based Compensation

Share-based compensation expense for all share-based payment awards granted is determined based on the grant-date fair value. We recognize these compensation costs net of an estimated forfeiture rate, and recognize compensation cost only for those shares expected to vest on a straight-line basis over the requisite service period of the award, which is generally the vesting term of the share-based payment awards. We estimate forfeiture rates based on our historical experience.

Income Taxes

We recognize deferred tax assets and liabilities for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts using enacted tax rates in effect for the year the differences are expected to reverse. We record a valuation allowance to reduce the deferred tax assets to the amount that is more likely than not to be realized.

Contingent Liabilities

We are involved in certain claims from time to time arising in the ordinary course of business involving our products, suppliers, and/or customers. We may incur settlements, fines, penalties or judgments in connection with some of these matters. While we may be unable to estimate the ultimate dollar amount of exposure or loss in connection with these matters, we make accruals as warranted. The amounts we accrue could vary substantially from amounts we pay due to several factors including the following: possible third-party contributions, the inherent uncertainties of the estimation process, and the uncertainties involved in litigation. We believe that we have adequately provided in our consolidated financial statements for the impact of these contingencies. We also believe that the outcomes will not materially affect our results of operations, our financial position or our cash flows, except as disclosed. Refer to Note 12, Commitments and Contingencies.

Cash and Cash Equivalents

We classify investments as cash equivalents if they are readily convertible to cash and have original maturities of three months or less at the time of acquisition. Cash and cash equivalents consist primarily of money market mutual funds issued or managed in the United States. At December 31, 2013 and 2014, the carrying value of cash and cash equivalents approximates fair value due to the short period of time to maturity.

As of December 31, 2014, $3.0 million of the $42.5 million of cash, cash equivalents, and marketable securities was held by our foreign subsidiaries, as compared to $3.6 million of the $40.4 million of cash, cash equivalents and marketable securities held by our foreign subsidiaries as of December 31, 2013. We currently intend to repatriate approximately $2.0 million of our cash and cash equivalents when we close down our Netherlands subsidiary during 2015. We obtained a favorable ruling from the Netherlands and will not be charged foreign taxes on the repatriation and we expect that our net operating loss carryforwards and foreign tax credits will be available to offset any United States tax liability, should one arise. We anticipate that future foreign earnings will be deemed to be permanently reinvested, although we could elect to repatriate funds held in one or more foreign jurisdictions. If applicable, withholding taxes could reduce the net amount repatriated, and we could be required to accrue and remit applicable United States income taxes to the extent a tax liability results after utilization of net operating loss carryforwards and available tax credits. Refer to Note 12, Commitments and Contingencies, for a discussion of the associated cumulative translation loss.

Property and Equipment

Property and equipment are recorded at cost less accumulated depreciation. Property and equipment are depreciated for financial reporting purposes using the straight-line method over the following estimated useful lives: machinery and equipment, furniture, fixtures and computer software, 3-5 years; leasehold improvements are amortized using the straight-line method over the shorter of the useful lives of the assets or the terms of the leases. Significant improvements to our property and equipment are capitalized while expenditures for maintenance and repairs are charged to expense in the period incurred.

The components of property and equipment consist of the following, (in thousands):

	December 31,
	2013			2014
Machinery and equipment	$	16,628		$	19,263
Furniture, fixtures, and computer software	1,669			2,072
Leasehold improvements	2,578			2,620
Construction in progress	831			228
Total property and equipment, at cost	21,706			24,183
Less accumulated depreciation	(14,141		)	(15,419		)
Property and equipment, net	$	7,565		$	8,764

Depreciation expense was $2.5 million, $3.1 million and $4.0 million for the years ended December 31, 2012, 2013 and 2014, respectively.

Concentration of Customers and Suppliers

A majority of our net revenue is derived from a limited number of customers. For the years ended December 31, 2012 and 2013, we had two customers, Customer A and C, that accounted for 10% or more of our total net revenue. For the year ended December 31, 2014, we had two customers, Customer A and B, that account for 10% or more of our total net revenue. Our agreements with our customers do not contain any minimum purchase commitments, do not obligate them to purchase their storage solutions exclusively from us and may be terminated at any time upon notice.

Net revenue consists of all product and service revenues. Net revenue by major customer is as follows (as a percentage of total net revenue):

	Year Ended December 31,
	2012		2013		2014
Customer A	68	%	59	%	47	%
Customer B	—	%	0	%	11	%
Customer C	10	%	13	%	8	%
Other customers less than 10%	22	%	28	%	34	%
Total	100	%	100	%	100	%

If our relationship with Customers A, B and/or C were disrupted or declined significantly, we would lose a substantial portion of our anticipated net revenue and our business could be materially harmed. We cannot guarantee that our relationship with Customers A, B and/or C or our other customers will expand or not otherwise be disrupted.

At December 31, 2013, we had one customer, Customer A, comprising 63% of our total accounts receivable. At December 31, 2014, we had two customers, Customer A and B, comprising 40% and 31%, respectively, of our total accounts receivable. The decrease in accounts receivable from Customer A is due to decreased revenue in the fourth quarter of 2014 as compared to the fourth quarter of 2013, and the increase in accounts receivable from Customer B is due to increased revenue in the fourth quarter of 2014 as compared to the fourth quarter of 2013. No other customer balance exceeded 10% of our total accounts receivable balance at December 31, 2013 or 2014.

We currently rely on one contract manufacturing partner, Foxconn Technology Group, or Foxconn, to produce substantially all of our products. As a result, should Foxconn or parts suppliers not produce and deliver inventory for us to sell on a timely basis, operating results may be adversely impacted. In November 2011, we amended our agreement with Foxconn to extend the manufacturing agreement for a period of three years. In November 2014, we extended the agreement to March 11, 2015, and in March 2015, we extended the agreement to September 1, 2015. We are currently in negotiations to further extend our contract. If the agreement is not further extended, pursuant to terms in the existing agreement, we can continue to operate with Foxconn for a period of six months following the expiration of the agreement, as the Company may issue purchase orders and Foxconn may accept purchase orders under the terms and conditions of the existing agreement.

Long-lived asset impairment

We periodically review the recoverability of the carrying value of long-lived assets for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable. An impairment in the carrying value of an asset group is recognized whenever anticipated future undiscounted cash flows from an asset group are estimated to be less than its carrying value. The amount of impairment recognized is the difference between the carrying value of the asset group and its fair value. Fair value estimates are based on assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates, reflecting varying degrees of perceived risk. There were no impairment charges in continuing operations for the years ended December 31, 2012, 2013 or 2014.

Valuation of Goodwill

The changes in the carrying amount of goodwill are as follows during the years ended December 31, 2013 and 2014 (in thousands):

	December 31,
	2013			2014
Balance, beginning of the year
Goodwill	$	44,840		$	44,840
Accumulated impairment losses	(44,840		)	(44,840		)
	—			—
Balance, end of the year
Goodwill	44,840			44,840
Accumulated impairment losses	(44,840		)	(44,840		)
	$	—		$	—

Goodwill is not allocated to reporting segments as the balance is fully impaired.

Allowance for Doubtful Accounts

We establish an allowance for doubtful accounts for accounts receivable amounts that may not be collectible. We determine the allowance for doubtful accounts based on the aging of our accounts receivable balances and an analysis of our historical experience of bad debt write-offs. Bad debt expense was $0.0 million, $0.0 million and $0.1 million for the years ended December 31, 2012, 2013 and 2014, respectively.

The changes in the allowance for doubtful accounts are as follows during the years ended December 31, 2013 and 2014 (in thousands):

	December 31,
	2013			2014
Balance, beginning of the year	$	240		$	23
Write offs	(219		)	—
Additions to allowance	2			64
Balance, end of the year	$	23		$	87

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued that we adopt as of the specified effective date. We believe that, other than the matter described below, the impact of recently issued standards that are not yet effective will not have a material impact on our results of operations and financial position.

In May 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606), or ASU 2014-09. This update creates modifications to various revenue accounting standards for specialized transactions and industries. ASU 2014-09 is intended to conform revenue accounting principles with a concurrently issued International Financial Reporting Standards with previously differing treatment between United States practice and those of much of the rest of the world, as well as, to enhance disclosures related to disaggregated revenue information. The updated guidance may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application. The updated guidance is effective for public entities for annual reporting periods beginning on or after December 15, 2016, and interim periods within those annual periods. Early adoption is not permitted and entities have the choice to apply ASU 2014-09 either retrospectively to each reporting period presented or by recognizing the cumulative effect of applying ASU 2014-09 at the date of initial application and not adjusting comparative information. The Company is currently evaluating the requirements of ASU 2014-09 and has not yet determined its impact on the Company's consolidated financial statements.

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Consolidated Balance Sheets (Parenthetical) (USD $)	Dec. 31, 2014	Dec. 31, 2013
Statement of Financial Position [Abstract]
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	100,000,000	100,000,000
Common stock, shares issued	60,777,000	59,138,000
Common stock, shares outstanding	60,777,000	59,138,000

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Employee Retirement Benefit Plans

12 Months Ended

Dec. 31, 2014

Compensation and Retirement Disclosure [Abstract]

Employee Retirment Benefit Plans

Employee Retirement Benefit Plans

Dot Hill Retirement Savings Plan

The Dot Hill Retirement Savings Plan, which qualifies under Section 401(k) of the IRC, is open to eligible employees over 21 years of age. Under the plan, participating United States employees may defer up to 100% of their pretax salary, but not more than statutory limits. At our discretion we may make contributions to this plan for plan participants. Our matching contributions vest to employees as a percentage based on years of employment from one to five years, and matching contributions are fully vested to employees after five years of employment. Our matching contributions to the retirement savings plan for the years ended December 31, 2012, 2013 and 2014 were $0.3 million, $0.4 million and $0.3 million, respectively.

XML

Document And Entity Information (USD $)	12 Months Ended
	Dec. 31, 2014	Feb. 27, 2015	Jun. 30, 2013
Document And Entity Information [Abstract]
Entity Registrant Name	DOT HILL SYSTEMS CORP
Entity Central Index Key	0001042783
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Document Type	10-K
Document Period End Date	Dec. 31, 2014
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	FY
Amendment Flag	false
Entity Common Stock, Shares Outstanding		60,813,245
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Public Float			$ 277,450,499

XML

Commitments And Contingencies

12 Months Ended

Dec. 31, 2014

Commitments and Contingencies Disclosure [Abstract]

Commitments And Contingencies

Commitments and Contingencies

Operating Leases

We lease office space, equipment and automobiles under non-cancelable operating leases, which expire at various dates through May 2018. Rent expense for the years ended December 31, 2012, 2013 and 2014 was $1.1 million, $1.2 million and $1.2 million, respectively. We record rent expense on a straight–line basis based on contractual lease payments.

Future minimum lease payments due under all non-cancelable operating leases as of December 31, 2014 are as follows (in thousands):

Year Ended December 31,
2015	$	873
2016	849
2017	860
2018	360
2019	—
Thereafter	—
Total minimum lease payments	$	2,942

For purposes of the table above, the operating lease obligations exclude common area maintenance, real estate taxes and insurance expenses.

Unconditional Purchase Obligations

We have unconditional inventory related purchase obligations to certain suppliers for certain commodities in order to ensure supply of select key components at the most favorable pricing. Additionally, we have non-inventory related purchase obligations that represent purchase commitments made in the ordinary course of business. At December 31, 2014, we had approximately $47.4 million of unconditional purchase obligations, of which $0.9 million for excess purchase commitments was recorded in Accrued Expenses on the balance sheet.

Cumulative Translation Adjustment

If we liquidate any of our foreign subsidiaries, our cumulative translation adjustment recorded in Other Comprehensive Income would be required to be reclassified into earnings. As discussed in Note 3 to the Consolidated Financial Statements, the Company currently anticipates liquidation of its Netherlands operating unit during early 2015. The Netherlands operating unit currently has no active operations. Cumulative translation losses of approximately $2.7 million related to the Netherlands operating unit would be reclassified from other comprehensive loss to operating loss.

Legal Proceedings

We are not party to any significant legal proceedings, except as described below, but are involved in certain legal actions and claims from time to time arising in the ordinary course of business. Although occasional adverse decisions or settlements may occur, the Company believes that the final disposition of such matters will not have a material adverse effect on its financial position or results of operations.

Crossroads, Inc. - During the quarter ended September 30, 2014, the Company met with Crossroads Inc., or Crossroads, to establish a framework to resolve the dispute regarding the Amended Settlement and License Agreement dated October 2006. On September 19, 2014, the United States District Court for the Western District of Texas partially granted the Company’s motion for partial summary judgment as to Crossroads’ claims concerning royalty payments on product sales to HP for the period after the Fall of 2011 and at the same time held that the Company is not entitled to the benefit of a license Crossroads granted to HP for the period prior to fall 2011. In addition, a patent claim construction hearing occurred on October 6-7, 2014 but no claim construction order was issued and no trial date has been set. On February 27, 2015, the Company filed motions to join two inter partes reviews of the validity of the patent that are being conducted by the United States Patent Office and filed a motion to stay the district court litigation pending the entry of final written decisions in the inter partes reviews. No trial date has been set. Based on the United States District Court’s response to the Company’s motion for partial summary judgment and ongoing discussions with Crossroads, it is probable that the Company will resolve this dispute for royalty payments from 2009 to the current period for a total amount in the range of $1.0 million to $3.4 million. As of December 31, 2014, $1.0 million was accrued and charged to general and administrative expense. We are in the early stages of the potential settlement of this matter.  Accordingly, the actual amount of a settlement could be different than the amount accrued or the currently estimated maximum amount and the difference could be material.

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Consolidated Statements Of Operations and Comprehensive Loss (USD $) In Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
NET REVENUE	$ 217,665	$ 206,565	$ 194,548
COST OF GOODS SOLD	145,090	140,495	146,177
GROSS PROFIT	72,575	66,070	48,371
OPERATING EXPENSES:
Research and development	37,645	35,332	34,199
Sales and marketing	14,505	13,450	14,133
General and administrative	12,122	11,658	9,695
Total operating expenses	64,272	60,440	58,027
OPERATING INCOME (LOSS)	8,303	5,630	(9,656)
OTHER INCOME:
Interest income (expense), net	(36)	(16)	(8)
Other income (expense), net	15	(23)	11
Total other income (expense), net	(21)	(39)	3
INCOME (LOSS) BEFORE INCOME TAXES AND DISCONTINUED OPERATIONS	8,282	5,591	(9,653)
INCOME TAX EXPENSE	227	51	749
INCOME (LOSS) FROM CONTINUING OPERATIONS	8,055	5,540	(10,402)
LOSS FROM DISCONTINUED OPERATIONS	0	(476)	(4,548)
NET INCOME (LOSS)	8,055	5,064	(14,950)
NET INCOME (LOSS) PER SHARE
Income (Loss) from continuing operations - basic and diluted	$ 0.13	$ 0.09	$ (0.18)
Loss from discontinued operations - basic and diluted	$ 0.00	$ (0.01)	$ (0.08)
Net Income (Loss) per share - basic and diluted	$ 0.13	$ 0.09	$ (0.26)
WEIGHTED AVERAGE SHARES USED TO CALCULATE NET LOSS PER SHARE:
Basic weighted-average common shares outstanding	60,171	58,521	56,954
Diluted weighted-average common shares outstanding	63,898	59,247	56,954
COMPREHENSIVE INCOME (LOSS):
NET INCOME (LOSS)	8,055	5,064	(14,950)
Foreign currency translation adjustment	102	279	129
Comprehensive income (loss)	$ 8,157	$ 5,343	$ (14,821)

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Product Warranties

12 Months Ended

Dec. 31, 2014

Product Warranties Disclosures [Abstract]

Product Warranties

Product Warranties

Our standard warranty provides that if our systems do not function to published specifications, we will repair or replace the defective component, system or firmware without charge generally for a period of approximatelythree years. We generally extend to our customers the warranties provided to us by our suppliers, and accordingly, the majority of our warranty obligations to customers are typically intended to be covered by corresponding supplier warranties. For warranty costs not covered by our suppliers, we provide for estimated warranty costs in the period the revenue is recognized. There can be no assurance that our suppliers will continue to provide such warranties to us in the future or that our warranty obligations to our customers will be covered by corresponding warranties from our suppliers, the absence of which could have a material effect on our financial statements. Estimated liabilities for product warranties are included in accrued expenses.

In October 2009, we discovered a quality issue associated with certain power supply devices provided by a long-term component supplier, which resulted in a higher than expected level of power supply failures to us and our customers. In the second and third quarters of 2011, a material customer provided us with a framework estimating the potential claims precipitated by the power supply failures. A final settlement with this material customer was reached during the second quarter of 2012. The terms of the agreement required an immediate payment of $2.0 million, and future price concessions and rebates based on sales volumes. As of December 31, 2014, less than $0.1 million in liability related to this settlement remains outstanding.

During the second quarter of 2011, based on the advice of legal counsel, we established that our component supplier is contractually obligated to reimburse us for fair and reasonable costs we incur with our customers associated with these power supply failures. We continued to negotiate this settlement with our supplier and during the second quarter of 2012, the supplier signed a final settlement agreement providing for additional reimbursements above what was recognized as of September 30, 2011. Pursuant to the settlement, the supplier agreed to cash consideration of $1.2 million, which was fully received as of December 31, 2013. Additionally, our supplier committed to product rebates and/or price concessions on product orders for a period of 39 months from the execution of the settlement agreement, in return for our agreement to release our supplier from all obligations relating to the power supply failures known by us to date.

In addition, we have commenced discussions with our General Liability and Errors and Omissions Insurance and underwriters and will continue to pursue our rights to cover any damages we incur and that are not reimbursed by our supplier. The insurance company has issued a reservation of rights letter to us and at this time, it is not possible to estimate to what extent the residual amounts, if any, we will be covered by our carrier. As of December 31, 2014 we recorded $0.1 million for reimbursement to be received from our insurance carrier.

Our warranty accrual and cost activity is as follows (in thousands):

	December 31,
	2012			2013			2014
Balance, beginning of year	$	6,871		$	4,455		$	2,965
Charges to operations	2,116			1,350			1,770
Deductions for payments made	(4,532		)	(2,840		)	(1,372		)
Balance, end of year	$	4,455		$	2,965		$	3,363

During the first quarter of 2013, we were able to negotiate more favorable rates with a third-party service provider. Accordingly, we adjusted our warranty accrual by $0.8 million to reflect this change. In addition, the decrease in deductions for payments made during year ended December 31, 2014 as compared to the year ended December 31, 2013 relates primarily to price concessions and rebates based on sales volumes issued in 2013 to a material customer related to a quality issue associated with certain power supply devices.

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Intangible Assets

12 Months Ended

Dec. 31, 2014

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Assets

Intangible Assets

Identifiable intangible assets are as follows (in thousands):

		December 31, 2013
	Estimated Useful  Life	Gross		Accumulated Amortization		Net
Technology-based intangible assets	N/A	$	—	$	—	$	—
Total intangible assets		$	—	$	—	$	—

		December 31, 2014
	Estimated Useful  Life	Gross		Accumulated Amortization		Net
Technology-based intangible assets	Not yet determined	$	2,680	$	—	$	2,680
Total intangible assets		$	2,680	$	—	$	2,680

Technology-based intangible assets include software to be sold, leased or otherwise marketed. The estimated useful life and projected date that the intangible assets will be generally available for release to customers is not readily determinable as of December 31, 2014. Intangible assets have not been allocated to reporting segments as they are used across the operating segments.

Amortization expense related to intangible assets totaled $0.8 million, $0.0 million and $0.0 million for the years ended December 31, 2012, 2013 and 2014, respectively. Amortization expense for the year ended December 31, 2012 is included in the corporate segment.

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Earnings Per Share (Tables)

12 Months Ended

Dec. 31, 2014

Earnings Per Share [Abstract]

Schedule of earnings per share, basic and diluted

The following is a reconciliation of weighted-average shares outstanding used in the calculation of basic and diluted earnings from continuing operations per share (in thousands, except per share data):

	Year Ended December 31,
	2012			2013		2014
Income (loss) from continuing operations	$	(10,402	)	$	5,540	$	8,055
Basic weighted-average common shares outstanding	56,954			58,521		60,171
Assumed exercise of dilutive stock options, warrants and restricted stock	—			726		3,727
Diluted weighted-average common shares outstanding	56,954			59,247		63,898
Income (loss) from continuing operations:
Basic income (loss) per share	$	(0.18	)	$	0.09	$	0.13
Diluted income (loss) per share	$	(0.18	)	$	0.09	$	0.13

Outstanding equity awards not included in calculation of diluted net loss per share

Outstanding equity awards not included in the calculation of diluted net earnings (loss) per share because their effect was anti-dilutive were as follows:

	December 31, 2012			December 31, 2013			December 31, 2014
	Number of Potential Shares	Range of Exercise Prices		Number of Potential Shares	Range of Exercise Prices		Number of Potential Shares	Range of Exercise Prices
Stock options	8,952,129	$0.47 - $16.36		5,879,842	$1.55 - $15.15		2,518,000	$3.46 - $7.84
Unvested stock awards	655,402	$	—	92,811	$	—	55,900	$	—
Warrants	1,602,489	$	2.40	1,602,489	$	2.40	—	$	—

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Segment Information Segment Information

12 Months Ended

Dec. 31, 2014

Segment Reporting [Abstract]

Segment Information

Segment Information

Operating segments, as defined in ASC 280, Segment Reporting, are components of an enterprise for which separate financial information is available and is evaluated regularly by the Chief Operating Decision Maker, or CODM, in deciding how to allocate resources and in assessing performance. ASC 280 also requires disclosures about products and services, geographic areas and significant customers.

Prior to the first quarter of 2014, our CODM managed our business as one reportable operating segment that included the design, manufacture, and marketing of a range of storage systems for the entry and mid-range storage markets. Beginning in the first quarter of 2014, due to the growth and significance of our Vertical Markets, our CODM is managing our business in three reportable operating segments: Server OEM, Vertical Markets and Corporate. Hence, we changed our reporting segments accordingly, and segment information for all periods presented has been reclassified to conform to fiscal 2014 presentation.

Server OEM

The Server OEM segment consists primarily of large Original Equipment Manufacturers who purchase products from us to sell along with their server products. Our products are typically sold in server led sales into their end-user customers' corporate information technology infrastructure. Server OEM customers include Customer A (refer to Note 1, Summary of Significant Accounting Policies - Concentration of Customers and Suppliers).

Vertical Markets

The Vertical Markets segment consists of strategically selected Vertical Markets that have a propensity for high data growth. Some of our target Vertical Markets include Media and Entertainment, Telecommunications Infrastructure, Oil and Gas, Big Data Analytics and Digital Imaging, among others. These customers typically embed their products into their customer solutions which quite often generate revenue for their end-user customers. We sell to these customers through both Vertical Markets OEM partners or embedded solutions integrators, as well as through channel partners. Vertical Markets customers include Customers B and C (refer to Note 1, Summary of Significant Accounting Policies - Concentration of Customers and Suppliers).

Corporate

The Corporate segment consists primarily of costs that support both the Server OEM and Vertical Markets segments.

Net revenues by segment are as follows (in thousands):

	Year ended December 31,
	2012		2013		2014
Net revenue:
Server OEM	$	143,353	$	134,798	$	115,580
Vertical Markets	51,195		71,767		102,085
Total net revenue	$	194,548	$	206,565	$	217,665

Operating income (loss) by segment, and a reconciliation to consolidated income (loss) before income taxes and discontinued operations is as follows (in thousands):

	Year ended December 31,
	2012			2013			2014
Operating income (loss):
Server OEM	$	28,718		$	33,464		$	27,091
Vertical Markets	7,858			21,781			33,587
Corporate	(46,232		)	(49,615		)	(52,375		)
Total operating income (loss)	(9,656		)	5,630			8,303
Total other income (expense), net	3			(39		)	(21		)
Income (loss) before income taxes and discontinued operations	$	(9,653	)	$	5,591		$	8,282

The segments use many of the same assets. For internal reporting purposes, we do not allocate assets by segment and therefore, asset, depreciation and amortization, or capital expenditure by segment information is not provided to our CODM.

Geographic Information

Net revenue is recorded in the geographic area in which the sale is originated. Long-lived assets include property and equipment, net, identifiable intangible assets and other non-current assets. Information concerning principal geographic areas in which we operate is as follows (in thousands):

	Year ended December 31,
	2012		2013		2014
Net revenue:
United States	$	192,801	$	204,764	$	216,306
Europe, Middle East and Africa	14		3		—
Asia	1,733		1,798		1,359
Total net revenue	$	194,548	$	206,565	$	217,665
Long-lived assets:
United States	$	7,682	$	8,147	$	9,159
Europe, Middle East and Africa	68		15		13
Asia	—		—		—
Total long-lived assets	$	7,750	$	8,162	$	9,172

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Income Taxes

12 Months Ended

Dec. 31, 2014

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Components of income (loss) from continuing operations before taxes are as follows, (in thousands):

	Year Ended December 31,
	2012			2013			2014
Income (loss) from continuing operations before taxes:
United States	$	(7,211	)	$	9,051		$	12,569
Foreign	(2,442		)	(3,460		)	(4,287		)
Total income (loss) from continuing operations before taxes	$	(9,653	)	$	5,591		$	8,282

Components of the income tax provision (benefit) are as follows, (in thousands):

	Year Ended December 31,
	2012		2013			2014
Current:
Federal	$	—	$	(28	)	$	(26	)
State and local	67		99			161
Foreign	682		85			89
	749		156			224
Deferred:
Federal	—		—			—
State, local and foreign	—		(105		)	3
	—		(105		)	3
Total income tax provision	$	749	$	51		$	227

The reconciliation of the income tax provision computed using the federal statutory income tax rate to the recognized income tax provision (benefit) is as follows, (in thousands):

	Year Ended December 31,
	2012			2013			2014
Federal statutory rate	$	(3,282	)	$	1,901		$	2,816
State and local income taxes, net of federal benefit	(16		)	65			106
State rate change and other adjustments	531			—			(49		)
Adjustments to state deferred taxes	—			(590		)	389
Increase (decrease) in valuation allowance	597			(1,672		)	(3,332		)
Foreign tax rate differential	915			24			(59		)
Research and development credits	127			(365		)	(267		)
Share-based compensation	518			491			245
Uncertain tax positions	767			(43		)	57
Adjustments to federal deferred taxes	525			110			208
Other	67			130			113
Income tax provision	$	749		$	51		$	227

The tax effect of temporary differences that give rise to deferred income taxes are as follows, (in thousands):

	December 31,
	2013			2014
Deferred tax assets:
Net operating loss and tax credit carry forwards	$	93,128		$	88,656
Inventory reserve and uniform capitalization	1,474			1,705
Stock options and warrants	2,440			2,704
Allowance for bad debts and sales returns	171			880
Vacation accrual	261			146
Deferred rent	143			126
Deferred revenue	380			433
Warranty accrual	958			1,173
Depreciation and amortization	1,358			1,137
Other accruals and reserves	362			433
Accrued Bonus	873			418
Intangible assets	1,195			1,037
Total deferred tax assets	102,743			98,848
Deferred tax liabilities:
State taxes	(3,885		)	(3,696		)
Other	(548		)	(187		)
Total deferred income tax liabilities	(4,433		)	(3,883		)
Valuation allowance	(98,205		)	(94,873		)
Net deferred tax assets	$	105		$	92

As a result of certain realization requirements, the table of deferred tax assets and liabilities shown above does not include deferred tax assets for net operating losses as of December 31, 2014 that arose directly from tax deductions related to equity compensation in excess of compensation recognized for financial reporting. Equity will be increased by $2.5 million if and when such excess tax benefits are recognized through current taxes payable. The Company uses FASB Accounting Standards Codification, or ASC, 740, Income Taxes, ordering when determining when excess tax benefits or shortfalls have been realized.

United States income and withholding taxes have not been recognized on the excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries that are essentially permanent in duration.

The following table summarizes the activity related to our unrecognized tax benefits (in thousands):

	Year Ended December 31,
	2012			2013			2014
Balance, January 1	$	5,025		$	5,726		$	5,771
Increase related to prior period positions	583			341			122
Increase related to current year tax positions	241			380			169
Reductions for tax positions of prior years	(123		)	(676		)	(395		)
Settlements	—			—			—
Balance, December 31	$	5,726		$	5,771		$	5,667

At December 31, 2012, 2013, and 2014 we had cumulative unrecognized tax benefits of approximately $5.7 million, $5.8 million, and $5.7 million, respectively, of which approximately $0.9 million, $0.8 million, and $0.6 million, respectively, are included in other long term liabilities that, if recognized, would affect the effective tax rate. The remaining $4.8 million, $5.0 million and $5.1 million of unrecognized tax benefits will have no impact on the effective tax rate due to the existence of net operating loss carryforwards and a full valuation allowance. Consistent with previous periods, penalties and tax related interest expense are reported as a component of income tax expense. As of December 31, 2012, and 2013, the total amount of accrued income tax related interest and penalties included in the consolidated balance sheet was less than $0.2 million and approximately $0.4 million, respectively. As of December 31, 2014, the total amount of accrued income tax related interest and penalties included in the consolidated balance sheet was approximately $0.5 million. We anticipate none of our unrecognized tax positions will be settled or reversed within the next 12 months.

Due to net operating losses and other tax attributes going forward, we are currently open to audit under the statute of limitations by the Internal Revenue Service for the years ending March 31, 2000 through December 31, 2014. With few exceptions, our state income tax returns are open to audit for the years ended December 31, 2010 through 2014.

We periodically evaluate the likelihood of the realization of deferred tax assets, and adjust the carrying amount of the deferred tax assets by the valuation allowance to the extent the future realization of the deferred tax assets is not judged to be more likely than not. We consider many factors when assessing the likelihood of future realization of our deferred tax assets, including our recent cumulative earnings experience by taxing jurisdiction, expectations of future taxable income or loss, the carryforward periods available to us for tax reporting purposes, and other relevant factors.

At December 31, 2014, based on the weight of available evidence, including cumulative losses in recent years and expectations regarding future taxable income, we determined that it was not more likely than not that our deferred tax assets would be realized and have a $94.9 million valuation allowance associated with our deferred tax assets.

As of December 31, 2014, we had federal net operating loss carryforwards of approximately $182.9 million which begin to expire in the tax year ending 2020, and state net operating loss carryforwards of approximately $101.7 million which begin to expire in the tax year ending 2015. We had foreign net operating loss carryforwards of $43.8 million, which have no expiration date. In addition, we had federal tax credit carryforwards of $4.9 million, of which approximately $0.4 million can be carried forward indefinitely to offset future tax liability, and the remaining $4.5 million begin to expire in the tax year ending 2018. We also had state tax credit carryforwards of $3.5 million, of which the entire $3.5 million has no expiration date.

As a result of our equity transactions, an ownership change, within the meaning of IRC Section 382, occurred on September 18, 2003. As a result, annual use of our federal net operating loss and credit carry forwards is limited to (i) the aggregate fair market value of Dot Hill immediately before the ownership change multiplied by (ii) the long-term tax-exempt rate (within the meaning of Section 382 (f) of the IRC) in effect at that time. The annual limitation is cumulative and, therefore, if not fully utilized in a year, can be utilized in future years in addition to the IRC Section 382 limitation for those years.

As a result of our acquisition of Chaparral Network Storage, Inc., or Chaparral, a second ownership change, within the meaning of IRC Section 382, occurred on February 23, 2004. As a result, annual use of Chaparral’s federal net operating loss and credit carry forwards may be limited. The annual limitation is cumulative and, therefore, if not fully utilized in a year, can be utilized in future years in addition to the Section 382 limitation for those years.

As a result of our acquisition of Cloverleaf, a third ownership change, within the meaning of IRC Section 382, occurred on January 26, 2010. As a result, annual use of Cloverleaf’s federal net operating loss and credit carry forwards may be limited. The annual limitation is cumulative and, therefore, if not fully utilized in a year, can be utilized in future years in addition to the Section 382 limitation for those years.

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Stockholders' Equity, Equity Incentive Plans and Warrants (Share-based Compensation Expense) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Share-based compensation expense, gross	$ 3,145	$ 2,690	$ 3,765
Related deferred income tax benefits	0	0	0
Share-based compensation expense, net of tax	3,145	2,690	3,765
Stock Options [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Share-based compensation expense, gross	2,642	1,924	1,508
Restricted Stock [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Share-based compensation expense, gross	181	489	1,958
Employee Stock Purchase Pan [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Share-based compensation expense, gross	322	277	299
Cost of Sales [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Share-based compensation expense, gross	350	334	617
Selling and marketing [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Share-based compensation expense, gross	353	274	419
Research and development [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Share-based compensation expense, gross	1,304	1,054	1,705
General and administrative [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Share-based compensation expense, gross	$ 1,138	$ 1,028	$ 1,024

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Credit Facilities

12 Months Ended

Dec. 31, 2014

Line of Credit Facility [Abstract]

Credit Facilities

Credit Facilities

We maintain a credit facility with Silicon Valley Bank for cash advances and letters of credit of up to an aggregate of$30.0 millionbased upon an advance rate dependent on certain concentration limits within eligible accounts receivable. These limitations exclude certain eligible customer receivables if an individual customer account balance exceeds 25, 50 or 85 percentof the total eligible accounts receivable, depending on the customer, as defined by our Loan and Security Agreement with Silicon Valley Bank. Borrowings under the credit facility bear interest at the Silicon Valley Bank's prime rate, which was4.0% at December 31, 2014, and are secured by substantially all of our accounts receivable, deposit and securities accounts. The agreement provides for a negative pledge on our inventory and intellectual property, subject to certain exceptions, and contains usual and customary covenants for an arrangement of its type, including an obligation that we maintain at all times a net worth, as defined in the agreement. As of December 31, 2014, the Company had significant coverage with regard to this covenant. The agreement also includes provisions to increase the financing facility by$20 millionsubject to our meeting certain requirements, including$40.0 millionin borrowing base for the immediately preceding90 days, and Silicon Valley Bank locating a lender willing to finance the additional facility. In addition, if our cash and cash equivalents net of the total amount outstanding under the credit facility fall below$20.0 million(measured on a rolling three-month basis), the interest rate will increase to the Silicon Valley Bank's prime rate plus1.0%and additional restrictions will apply. The maturity date of the credit facility is July 21, 2017.

As ofDecember 31, 2014we hadnooutstanding letters of credit and there waszerooutstanding under the Silicon Valley Bank line of credit. There was $30.0 million available for borrowing under the agreement as of December 31, 2014. We are currently in compliance with all financial covenant requirements.

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Fair Value Measurements

12 Months Ended

Dec. 31, 2014

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

The short-term nature of our financial instruments expose the Company to limited credit risk and have no stated maturities or have short-term maturities and carry interest rates that approximate market interest rates. There were no transfers between Level I, II or III inputs for any of our assets measured at fair value during the reporting period.

Assets Measured at Fair Value on a Recurring Basis

			Fair Value Measurements Using
Description	December 31, 2013		Quoted Prices for Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total (Losses)
	(in thousands)
Cash and cash equivalents	$	40,406	$	40,406	$	—	$	—	$	—

			Fair Value Measurements Using
Description	December 31, 2014		Quoted Prices for Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total (Losses)
	(in thousands)
Cash and cash equivalents	$	42,492	$	42,492	$	—	$	—	$	—

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and credit facility borrowings. The carrying values on our balance sheet of our cash and cash equivalents, accounts receivable, and accounts payable approximate their fair values due to the short maturities. The following disclosures relate to financial instruments for which the ending balances at December 31, 2013 and December 31, 2014, are not carried at fair value in their entirety on the Consolidated Balance Sheets. These tables present the carrying value and fair value, by fair value hierarchy, of our financial instruments, excluding cash and cash equivalents, accounts receivable and accounts payable at December 31, 2013 and 2014, respectively (in thousands).

			Fair Value Measurements Using
Description	December 31, 2013		Quoted Prices for Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total (Losses)
Credit facility borrowings	$	2,000	$	—	$	2,000	$	—	$	—

The Company had no outstanding borrowings on the credit facility as of December 31, 2014.

The fair value of the Company's debt was estimated using a market approach based on the amount at the measurement date that the Company would receive to enter into an identical liability, since quoted prices for the Company's debt instrument are not available.

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Stockholders' Equity, Equity Incentive Plans and Warrants

12 Months Ended

Dec. 31, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stockholders’ Equity, Equity Incentive Plans and Warrants

Stockholders’ Equity, Equity Incentive Plans and Warrants

Stock Incentive Plans

2009 EIP. Our stockholders approved the 2009 Equity Incentive Plan, or the 2009 EIP, at our annual meeting of stockholders held on June 15, 2009. The 2009 EIP authorizes the issuance or grant of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock unit awards, stock appreciation rights, performance awards, performance cash awards and other stock awards to our employees, directors and consultants and is intended as the successor to and continuation of our 2000 EIP. Following the approval of the 2009 EIP by our stockholders, no additional stock awards may be granted under the 2000 Amended and Restated Equity Incentive Plan, or the 2000 EIP. All outstanding stock awards granted under the 2000 EIP will remain subject to the terms of the 2000 EIP provided, however, that any shares subject to outstanding stock awards granted under the 2000 EIP that expire or terminate for any reason prior to exercise or settlement shall become available for issuance pursuant to awards granted under the 2009 EIP. Awards granted under the 2000 EIP expire 10 years from the date of grant. Awards granted under the 2009 EIP expire seven years from the date of grant. As of June 15, 2009, the total number of shares of our common stock reserved for issuance under the 2009 EIP consisted of 4,500,000 shares plus 7,112,217 shares that are subject to outstanding stock awards under the 2000 EIP that may become available for grant under the 2009 EIP if they expire or terminate for any reason prior to exercise or settlement under the 2000 EIP. On May 2, 2011 shareholders approved our Amended 2009 Equity Incentive Plan, primarily to increase the share reserve by 8,000,000 shares. On May 5, 2014, shareholders approved an amendment to the Amended 2009 Equity Incentive Plan, primarily to increase the share reserve by 7,000,000 shares. Unless sooner terminated by our Board of Directors, the 2009 EIP shall automatically terminate on April 26, 2019, the day before the tenth anniversary of the date the 2009 EIP was adopted by the Board. The Board of Directors may also amend the 2009 EIP at any time subject to applicable laws and regulations, including the rules and regulations of The NASDAQ Stock Market LLC. In general, no amendment or termination of the 2009 EIP may adversely affect any rights under awards already granted to a participant unless agreed to by the affected participant.

During 2012, 2013 and 2014, we granted restricted stock and options to purchase common stock with various vesting as approved by the Compensation Committee of the Board and/or the Chief Executive Officer and Chief Financial Officer, as appropriate, upon each grant. As of December 31, 2014, 55,900 shares of restricted stock were outstanding under the 2009 EIP, of which none were performance-based restricted stock awards. Additionally, no shares of restricted stock were outstanding under the 2000 EIP. As of December 31, 2014, options to purchase 7,124,198 and 2,178,746 shares of common stock were outstanding under the 2009 EIP and 2000 EIP, respectively. 7,814,281 shares of common stock remained available for grant under the 2009 EIP.

2000 NEDSOP. Under our 2000 Non-Employee Directors Stock Option Plan, or 2000 NEDSOP, non-qualified stock options to purchase common stock are automatically granted to our non-employee directors upon appointment to our Board of Directors (initial grants) and upon each of our annual meeting of stockholders (annual grants). Options granted under the 2000 NEDSOP expire 10 years from the date of the grant. Initial grants vest over four years, with 25% of the shares subject to the option vesting one year from the date of grant and the remaining shares subject to the option vesting ratably thereafter on a monthly basis. Annual grants are fully vested on the date of grant. 1,000,000 shares of common stock are reserved for issuance under the 2000 NEDSOP. As of December 31, 2014, options to purchase 650,000 shares of common stock were outstanding under the 2000 NEDSOP and options to purchase 243,124 shares of common stock remained available for grant under the 2000 NEDSOP.

ESPP. Our stockholders approved our Amended and Restated Employee Stock Purchase Plan, or 2000 ESPP, at our annual meeting of stockholders held on June 15, 2009, primarily to increase the share reserve under the 2000 ESPP by 4,000,000 shares. The 2000 ESPP qualified under the provisions of Section 423 of the Internal Revenue Code, or IRC, and provided our eligible employees, as defined in the 2000 ESPP, with an opportunity to purchase shares of our common stock at 85% of fair market value. There were 808,761 and 195,857 shares issued under the 2000 ESPP for the years ended December 31, 2013 and 2014, respectively. The 2000 ESPP was terminated after the last purchase on January 31, 2014. On January 21, 2014, the Board of Directors adopted the Dot Hill Systems Corp. 2014 Employee Stock Purchase Plan, or the 2014 ESPP, which was approved by our stockholders on May 5, 2014. There are 4,000,000 shares of common stock reserved for issuance under the 2014 ESPP. The 2014 ESPP qualifies under the provisions of Section 423 of the IRC, and provides our eligible employees, as defined in the 2014 ESPP, with an opportunity to purchase shares of our common stock at 85% of fair market value. There were 196,481 shares issued under the 2014 ESPP for the year ended December 31, 2014. As of December 31, 2014, the 2014 ESPP had a total of 3,803,519 shares available for purchase.

As of December 31, 2014, total unrecognized share-based compensation cost related to unvested stock options, restricted stock awards, management stock incentive plan and our 2014 ESPP was $5.2 million, which is expected to be recognized over a weighted-average period of approximately 2.5 years.

The following table summarizes share-based compensation expense, (in thousands):

	Year Ended December 31,
	2012		2013		2014
Cost of goods sold	$	617	$	334	$	350
Sales and marketing	419		274		353
Research and development	1,705		1,054		1,304
General and administrative	1,024		1,028		1,138
Share-based compensation expense before taxes	3,765		2,690		3,145
Related deferred income tax benefits	—		—		—
Share-based compensation expense	$	3,765	$	2,690	$	3,145
Share-based compensation expense is derived from:
Stock options	$	1,508	$	1,924	$	2,642
Restricted stock awards	1,958		489		181
2014 and 2000 ESPP	299		277		322
Total	$	3,765	$	2,690	$	3,145

We estimate forfeitures at the time of grant and revise, if necessary, in subsequent periods if actual forfeitures differ from those estimates. We have historically and continue to estimate the fair value of share-based awards using the Black-Scholes pricing model.

A summary of stock option activity for 2014 is as follows:

	Number of shares		Weighted average exercise price		Weighted average remaining contractual term (in years)	Aggregate intrinsic value
Outstanding at January 1, 2014	9,850,498		$	2.58
Granted	2,370,500		4.04
Exercised	(1,184,829	)	2.20
Forfeited	(554,079	)	2.53
Expired	(529,146	)	8.89
Outstanding at December 31, 2014	9,952,944		$	2.64	4.34	$	18,369,137
Vested and expected to vest at December 31, 2014	9,578,949		$	2.61	4.27	$	17,994,450
Exercisable at December 31, 2014	6,141,839		$	2.48	3.52	$	12,604,603

A summary of restricted stock award activity for 2014 is as follows:

	Number of shares		Weighted average grant date fair value
Outstanding at January 1, 2014	92,811		$	1.73
Granted	80,000		4.32
Vested	(116,661	)	2.25
Forfeited	(250	)	2.90
Outstanding and unvested at December 31, 2014	55,900		$	4.33

The weighted average grant-date fair values of options granted during the years ended December 31, 2012, 2013 and 2014 were $0.89 per share, $1.05 per share, and $2.35 per share, respectively. The total intrinsic value of options exercised during the years ended December 31, 2012, 2013 and 2014 were $0.0 million, $0.2 million, and $2.6 million, respectively.

The weighted average grant-date fair values of restricted stock awards granted during the years ended December 31, 2012, 2013 and 2014 were $1.23, $1.74 and $4.32 per share, respectively. The fair value of restricted stock awards that vested during the years ended December 31, 2012, 2013 and 2014 was $3.3 million, $1.3 million and $0.3 million, respectively.

Cash generated from options exercised under all share-based compensation arrangements for the years ended December 31, 2012, 2013 and 2014 were $0.0 million, $0.3 million and $2.6 million, respectively. Cash generated from the purchase of shares through the 2000 ESPP for the years ended December 31, 2012, and 2013 and through the 2000 ESPP and 2014 ESPP for the year ended December 31, 2014, was $0.7 million, $0.7 million, and $1.1 million respectively. We issue new shares from the respective plan share reserves upon exercise of options to purchase common stock and for purchases through the 2000 ESPP and 2014 ESPP.

The aggregate intrinsic value in the stock option summary table above is based on our closing stock price of $4.42 per share as of the last business day of the fiscal year ended December 31, 2014, which represents the value that would have been realized by the optionees had all options been exercised on that date. The total fair value of options to purchase common stock that vested during the years ended December 31, 2012, 2013 and 2014 was $2.1 million, $2.2 million, and $2.9 million, respectively.

To estimate compensation expense for the years ended December 31, 2012, 2013, and 2014 we used the Black-Scholes pricing model with the following weighted-average assumptions for equity awards granted:

	EIP and NEDSOP						ESPP
	Year Ended December 31,						Year Ended December 31,
	2012		2013		2014		2012		2013		2014
Risk-free interest rate	1.19	%	1.07	%	1.59	%	0.12	%	0.09	%	0.05	%
Expected dividend yield	—	%	—	%	—	%	—	%	—	%	—	%
Volatility	81	%	82	%	70	%	64	%	63	%	60	%
Expected Term	5.2 years		5.3 years		4.9 years		0.5 years		0.5 years		0.5 years
Forfeiture Rate	0%-10.62%		0%-9.45%		0%-10.05%		—	%	—	%	—	%

The risk-free interest rate is based on the implied yield available on United States Treasury issues with an equivalent remaining term. We have not paid dividends in the past and do not plan to pay any dividends in the future.

The expected volatility is based on historical volatility of our stock for the related vesting period. The expected life of the equity award is based on historical experience.

The forfeiture rate is estimated when awards are granted and updated if information becomes available indicating that actual forfeitures will differ.

Warrants

In January 2008, we amended our Product Purchase Agreement, or Agreement, originally entered into with Hewlett-Packard Company, or HP, in September 2007, to allow for sales to additional divisions within HP. In connection with the Agreement, we issued a warrant to HP to purchase 1,602,489 shares of our common stock (approximately 3.5% of our outstanding shares prior to the issuance of the warrant) at an exercise price of $2.40 per share.

On October 31, 2011, we amended again the Product Purchase Agreement originally entered into with HP on September 10, 2007. In part, this Amendment extends until October 30, 2016 the expiration date of the warrant previously issued to HP to purchase 1,602,489 shares of our common stock at the original exercise price of $2.40 per share.

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Employee Retirement Benefit Plans (Details) (401K [Member], USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Defined Benefit Plan Disclosure [Line Items]
Maximum employee contribution, as a percentage	100.00%
Vesting period	5 years
Contributions to the retirement savings plan	$ 0.3	$ 0.4	$ 0.3
Minimum [Member]
Defined Benefit Plan Disclosure [Line Items]
Vesting period	1 year
Maximum [Member]
Defined Benefit Plan Disclosure [Line Items]
Vesting period	5 years

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Commitments And Contingencies (Future Minimum Lease Payments) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014
Operating Leases, Future Minimum Payments Due
2015	$ 873
2016	849
2017	860
2018	360
2019	0
Thereafter	0
Total minimum lease payments	$ 2,942

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Stockholders' Equity, Equity Incentive Plans and Warrants (Schedule of Fair Value Assumptions) (Details)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Forfeiture Rate, Minimum	0.00%	0.00%	0.00%
Forfeiture Rate, Maximum	10.05%	9.45%	10.62%
EIP and NEDSOP [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Risk-free interest rate	1.59%	1.07%	1.19%
Expected dividend yield	0.00%	0.00%	0.00%
Volatility	70.00%	82.00%	81.00%
Expected Term	4 years 11 months 12 days	5 years 3 months 18 days	5 years 2 months 10 days
2000ESPP [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Risk-free interest rate	0.05%	0.09%	0.12%
Expected dividend yield	0.00%	0.00%	0.00%
Volatility	60.00%	63.00%	64.00%
Expected Term	6 months	6 months	6 months
Forfeiture Rate	0.00%	0.00%	0.00%

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Summary Of Significant Accounting Policies (Foreign Currency Translation) (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Accounting Policies [Abstract]
Foreign currency translation gains (losses)	$ (0.1)	$ (0.5)	$ 0.5

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Income Taxes (Details) (USD $)	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Income Tax Disclosure [Abstract]
Anticpated increase in equity, if deferred tax benefits are recognized	$ 2,500,000
Unrecognized tax benefits	5,667,000	5,771,000	5,726,000	5,025,000
Unrecognized tax benefits that would impact effective tax rate	600,000	800,000	900,000
Unrecognized tax benefits that would not impact effective tax rate	5,100,000	5,000,000	4,800,000
Income tax penalties and tax related interest accrued	500,000	400,000	200,000
Valuation allowance	94,873,000	98,205,000
Increase in unrecognized tax benefits from settlements with taxing authorities	$ 0

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Summary Of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2014

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP.

Principles of Consolidation

Principles of Consolidation

The accompanying consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries. Intercompany transactions and balances have been eliminated in consolidation.

Foreign Currency Transaction

Foreign Currency

For our foreign subsidiaries whose functional currency is the local currency, assets and liabilities are translated into United States Dollars at period-end exchange rates. Revenues and expenses, and gains and losses, are translated at rates of exchange that approximate the rates in effect on the transaction date. Resulting translation gains and losses are recognized as a component of other comprehensive loss.

For our foreign subsidiaries that maintain their books of record in a currency other than the functional currency, the subsidiaries remeasure monetary assets and liabilities using current rates of exchange at the balance sheet date and remeasure non-monetary assets and liabilities using historical rates of exchange. Gains and losses from re-measurement for such subsidiaries are recognized currently in income as a component of general and administrative expenses. We incurred foreign currency transaction losses of $0.5 million and $0.1 million for the years ended December 31, 2013 and 2014. We realized foreign currency transaction gains of $0.5 million for the year ended December 31, 2012.

Foreign currency translation adjustments comprise the entire amount of our accumulated other comprehensive loss at December 31, 2012, 2013 and 2014.

Use of Accounting Estimates

Use of Accounting Estimates

The preparation of our audited consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the dates of the financial statements and the reported amounts of net revenue and expenses in the reporting periods. The accounting estimates that require management’s most significant and subjective judgments include revenue recognition, inventory valuation (refer to Note 4, Inventories) and recurring and specific issue warranty obligations (refer to Note 6, Product Warranties). In addition, we have other accounting policies that involve estimates such as the determination of useful lives of long-lived assets, the valuation of long-lived assets, accruals for restructuring, capitalization of software development costs, contingent liabilities and income taxes, including the valuation allowance for deferred tax assets, and the valuation and recognition of share-based compensation expense. Actual results may differ from these estimates and such differences could be material.

Revenue Recognition

Revenue Recognition

We derive our revenue from sales of our hardware products, software and services.

Hardware

Hardware product revenue consists of revenue from sales of our AssuredSAN storage systems that are integrated with our original equipment manufacturers, or OEM, customers' industry standard hardware and which become essential to the integrated system product. We recognize hardware product revenue when the following fundamental criteria are met: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred; (iii) the price is fixed or determinable; and (iv) collectability is reasonably assured. Revenue is recognized for hardware product sales upon transfer of title and risk of loss to the customer and, in addition, upon installation for certain of our AssuredUVS appliance products. We record reductions to revenue for estimated product returns and pricing adjustments in the same period that the related revenue is recorded. These estimates are based on contractual return rights, historical sales returns, analysis of credit memo data and other factors known at the time. If actual future returns and pricing adjustments differ from past experience and our estimates, additional revenue reserves may be required.

We exclude from revenues taxes collected from customers on behalf of governmental authorities.

Software

In accordance with the specific guidance for recognizing software revenue, where applicable, we recognize revenue from perpetual software licenses at the inception of the license term assuming all revenue recognition criteria have been met. We use the relative fair value method to allocate revenue to software licenses at the inception of the license term when vendor-specific objective evidence, or VSOE, of fair value for all elements related to our products is available. We have established VSOE for the fair value of our software licenses and support services as measured by the prices paid by our customers when the licenses and services are sold separately on a standalone basis.

Specific long-term software contracts may contain multiple deliverables including software licenses, services, training and post-contract support, or PCS, for which we have not established VSOE of fair value of any of the elements.  Under specific guidance for recognizing software revenue, we defer all revenue related to each deliverable until the only undelivered element is PCS. We then begin recognizing revenue ratably over the PCS period.

We defer all the direct and incremental costs related to the deliverables in these contracts until delivery of all the elements except PCS. The deferred costs are then recognized ratably over the contractual PCS support periods as a component of Cost of Goods Sold.

During the preparation of the Company's consolidated financial statements for the year ended December 31, 2012 and the accounting analysis for the renewal of a long-term software contract, the Company determined that it had applied an inappropriate revenue recognition methodology to the contract.  The Company recorded revenue as royalty payments were received on this contract and should have deferred all the revenue and direct and incremental costs until all the deliverables, except PCS, were delivered in 2012.

This was corrected in the fourth quarter of 2012, and the net out-of-period impact of these adjustments was $1.1 million, consisting of a reduction of revenue and research and development costs of $4.2 million and $3.1 million, respectively.Once all elements except PCS were delivered, the related deferred direct and incremental costs began to be recognized ratably over the contractual PCS support period, as a component of Cost of Goods Sold.

Service

Our service revenue primarily includes out-of-warranty repairs and product maintenance contracts. Out-of warranty repairs primarily consist of product repair services performed by our contract manufacturers for those customers that allowed their original product warranty to expire without purchasing one of our higher level support service plans. Revenue from these out-of-warranty repairs, and the associated cost of sales, is recognized in the period these services are provided. Service revenue also consists of product maintenance contracts purchased by our customers as an extension of our standard warranty. Revenue from our product maintenance contracts is deferred and recognized ratably over the contract term, generally12to36months. Net revenue derived from services was less than 10%of total revenue for all periods presented.

Revenue Recognition for Arrangements with Multiple Deliverables

For multi-element arrangements that include hardware products containing software essential to the hardware product’s functionality and undelivered non-software services (all non-software related elements), we allocate the transaction price to all deliverables based on their relative selling prices. In such circumstances, we use a hierarchy to determine the selling price to be used for allocating the transaction price to deliverables: (i) VSOE of fair value, (ii) third-party evidence of selling price, or TPE, and (iii) best estimate of the selling price, or ESP. VSOE of fair value generally exists only when we sell the deliverable separately and represents the actual price charged by us for that deliverable. ESPs reflect our best estimates of what the selling prices of the deliverables would be if they were sold regularly on a standalone basis.

Revenue Recognition for Sales to Channel Partners

On sales to channel partners, we evaluate whether fees are considered fixed or determinable by considering a number of factors, including our ability to estimate returns, payment terms and our relationship and past history with the particular channel partner. If fees are not considered fixed or determinable at the time of sale to a channel partner, revenue recognition is deferred until there is persuasive evidence indicating the product has sold through to an end-user. Persuasive evidence of sell-through may include reports from channel partners documenting sell-through activity or data indicating an order has shipped to an end-user.

Deferred Revenue

We defer revenue on upfront nonrefundable payments received from our customers and recognize it ratably over the term of the agreement, unless the payment is in exchange for products delivered that represent the culmination of a separate earnings process. When we provide consideration to a customer, we recognize the value of that consideration as a reduction in net revenue. We may be required to maintain inventory with certain of our largest OEM customers, which we refer to as "hubbing" arrangements. Pursuant to these arrangements we deliver products to a customer or a designated third-party warehouse based upon the customer’s projected needs, but do not recognize product revenue unless and until the customer has taken legal title of our product from the warehouse to incorporate into its end products.

Advertising Costs

Advertising Costs

We expense advertising costs in the period incurred. Advertising expense is included as a component of sales and marketing expense. Advertising expense was $1.2 million, $1.6 million and $1.8 million for the years ended December 31, 2012, 2013 and 2014, respectively.

Shipping and Handling

Shipping and Handling

Cost related to the shipping and handling of our products is included in cost of goods sold for all periods presented.

Research and Development

Research and Development and Capitalized Software Development Costs

Research and development costs are expensed as incurred. In conjunction with the development of our products, we incur certain software development costs. For the majority of our software development projects, no costs have been capitalized because the period between achieving technological feasibility and completion of such software is relatively short and software development costs qualifying for capitalization have been insignificant. On a specific software project under development, it was determined that the period between achieving technological feasibility and completion of the software is not relatively short and software development costs qualifying for capitalization will be significant. For this project, since technological feasibility has been established, all software development costs are capitalized until the product is available for general release to customers. Judgment is required in determining when technological feasibility of a product is established. We have determined that technological feasibility for our software products is reached after all high-risk development issues have been resolved through coding and testing. The amortization of these costs will be included in cost of goods sold over the estimated life of the products. Refer to Note 5, Intangible Assets.

Share-Based Compensation

Share-Based Compensation

Share-based compensation expense for all share-based payment awards granted is determined based on the grant-date fair value. We recognize these compensation costs net of an estimated forfeiture rate, and recognize compensation cost only for those shares expected to vest on a straight-line basis over the requisite service period of the award, which is generally the vesting term of the share-based payment awards. We estimate forfeiture rates based on our historical experience.

Income Taxes

Income Taxes

We recognize deferred tax assets and liabilities for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts using enacted tax rates in effect for the year the differences are expected to reverse. We record a valuation allowance to reduce the deferred tax assets to the amount that is more likely than not to be realized.

Contingent Liabilities

Contingent Liabilities

We are involved in certain claims from time to time arising in the ordinary course of business involving our products, suppliers, and/or customers. We may incur settlements, fines, penalties or judgments in connection with some of these matters. While we may be unable to estimate the ultimate dollar amount of exposure or loss in connection with these matters, we make accruals as warranted. The amounts we accrue could vary substantially from amounts we pay due to several factors including the following: possible third-party contributions, the inherent uncertainties of the estimation process, and the uncertainties involved in litigation. We believe that we have adequately provided in our consolidated financial statements for the impact of these contingencies. We also believe that the outcomes will not materially affect our results of operations, our financial position or our cash flows, except as disclosed. Refer to Note 12, Commitments and Contingencies.

Cash and Cash Equivalents

Cash and Cash Equivalents

We classify investments as cash equivalents if they are readily convertible to cash and have original maturities of three months or less at the time of acquisition. Cash and cash equivalents consist primarily of money market mutual funds issued or managed in the United States. At December 31, 2013 and 2014, the carrying value of cash and cash equivalents approximates fair value due to the short period of time to maturity.

As of December 31, 2014, $3.0 million of the $42.5 million of cash, cash equivalents, and marketable securities was held by our foreign subsidiaries, as compared to $3.6 million of the $40.4 million of cash, cash equivalents and marketable securities held by our foreign subsidiaries as of December 31, 2013. We currently intend to repatriate approximately $2.0 million of our cash and cash equivalents when we close down our Netherlands subsidiary during 2015. We obtained a favorable ruling from the Netherlands and will not be charged foreign taxes on the repatriation and we expect that our net operating loss carryforwards and foreign tax credits will be available to offset any United States tax liability, should one arise. We anticipate that future foreign earnings will be deemed to be permanently reinvested, although we could elect to repatriate funds held in one or more foreign jurisdictions. If applicable, withholding taxes could reduce the net amount repatriated, and we could be required to accrue and remit applicable United States income taxes to the extent a tax liability results after utilization of net operating loss carryforwards and available tax credits. Refer to Note 12, Commitments and Contingencies, for a discussion of the associated cumulative translation loss.

Property and Equipment

Property and Equipment

Property and equipment are recorded at cost less accumulated depreciation. Property and equipment are depreciated for financial reporting purposes using the straight-line method over the following estimated useful lives: machinery and equipment, furniture, fixtures and computer software, 3-5 years; leasehold improvements are amortized using the straight-line method over the shorter of the useful lives of the assets or the terms of the leases. Significant improvements to our property and equipment are capitalized while expenditures for maintenance and repairs are charged to expense in the period incurred.

The components of property and equipment consist of the following, (in thousands):

	December 31,
	2013			2014
Machinery and equipment	$	16,628		$	19,263
Furniture, fixtures, and computer software	1,669			2,072
Leasehold improvements	2,578			2,620
Construction in progress	831			228
Total property and equipment, at cost	21,706			24,183
Less accumulated depreciation	(14,141		)	(15,419		)
Property and equipment, net	$	7,565		$	8,764

Depreciation expense was $2.5 million, $3.1 million and $4.0 million for the years ended December 31, 2012, 2013 and 2014, respectively.

Concentration of Customers and Suppliers

Concentration of Customers and Suppliers

A majority of our net revenue is derived from a limited number of customers. For the years ended December 31, 2012 and 2013, we had two customers, Customer A and C, that accounted for 10% or more of our total net revenue. For the year ended December 31, 2014, we had two customers, Customer A and B, that account for 10% or more of our total net revenue. Our agreements with our customers do not contain any minimum purchase commitments, do not obligate them to purchase their storage solutions exclusively from us and may be terminated at any time upon notice.

Net revenue consists of all product and service revenues. Net revenue by major customer is as follows (as a percentage of total net revenue):

	Year Ended December 31,
	2012		2013		2014
Customer A	68	%	59	%	47	%
Customer B	—	%	0	%	11	%
Customer C	10	%	13	%	8	%
Other customers less than 10%	22	%	28	%	34	%
Total	100	%	100	%	100	%

If our relationship with Customers A, B and/or C were disrupted or declined significantly, we would lose a substantial portion of our anticipated net revenue and our business could be materially harmed. We cannot guarantee that our relationship with Customers A, B and/or C or our other customers will expand or not otherwise be disrupted.

At December 31, 2013, we had one customer, Customer A, comprising 63% of our total accounts receivable. At December 31, 2014, we had two customers, Customer A and B, comprising 40% and 31%, respectively, of our total accounts receivable. The decrease in accounts receivable from Customer A is due to decreased revenue in the fourth quarter of 2014 as compared to the fourth quarter of 2013, and the increase in accounts receivable from Customer B is due to increased revenue in the fourth quarter of 2014 as compared to the fourth quarter of 2013. No other customer balance exceeded 10% of our total accounts receivable balance at December 31, 2013 or 2014.

We currently rely on one contract manufacturing partner, Foxconn Technology Group, or Foxconn, to produce substantially all of our products. As a result, should Foxconn or parts suppliers not produce and deliver inventory for us to sell on a timely basis, operating results may be adversely impacted. In November 2011, we amended our agreement with Foxconn to extend the manufacturing agreement for a period of three years. In November 2014, we extended the agreement to March 11, 2015, and in March 2015, we extended the agreement to September 1, 2015. We are currently in negotiations to further extend our contract. If the agreement is not further extended, pursuant to terms in the existing agreement, we can continue to operate with Foxconn for a period of six months following the expiration of the agreement, as the Company may issue purchase orders and Foxconn may accept purchase orders under the terms and conditions of the existing agreement.

Long-lived asset impairment

Long-lived asset impairment

We periodically review the recoverability of the carrying value of long-lived assets for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable. An impairment in the carrying value of an asset group is recognized whenever anticipated future undiscounted cash flows from an asset group are estimated to be less than its carrying value. The amount of impairment recognized is the difference between the carrying value of the asset group and its fair value. Fair value estimates are based on assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates, reflecting varying degrees of perceived risk. There were no impairment charges in continuing operations for the years ended December 31, 2012, 2013 or 2014.

Valuation of Goodwill

Valuation of Goodwill

The changes in the carrying amount of goodwill are as follows during the years ended December 31, 2013 and 2014 (in thousands):

	December 31,
	2013			2014
Balance, beginning of the year
Goodwill	$	44,840		$	44,840
Accumulated impairment losses	(44,840		)	(44,840		)
	—			—
Balance, end of the year
Goodwill	44,840			44,840
Accumulated impairment losses	(44,840		)	(44,840		)
	$	—		$	—

Goodwill is not allocated to reporting segments as the balance is fully impaired.

Allowance for Doubtful Accounts

Allowance for Doubtful Accounts

We establish an allowance for doubtful accounts for accounts receivable amounts that may not be collectible. We determine the allowance for doubtful accounts based on the aging of our accounts receivable balances and an analysis of our historical experience of bad debt write-offs. Bad debt expense was $0.0 million, $0.0 million and $0.1 million for the years ended December 31, 2012, 2013 and 2014, respectively.

The changes in the allowance for doubtful accounts are as follows during the years ended December 31, 2013 and 2014 (in thousands):

	December 31,
	2013			2014
Balance, beginning of the year	$	240		$	23
Write offs	(219		)	—
Additions to allowance	2			64
Balance, end of the year	$	23		$	87

Recent Accounting Pronouncements

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued that we adopt as of the specified effective date. We believe that, other than the matter described below, the impact of recently issued standards that are not yet effective will not have a material impact on our results of operations and financial position.

In May 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606), or ASU 2014-09. This update creates modifications to various revenue accounting standards for specialized transactions and industries. ASU 2014-09 is intended to conform revenue accounting principles with a concurrently issued International Financial Reporting Standards with previously differing treatment between United States practice and those of much of the rest of the world, as well as, to enhance disclosures related to disaggregated revenue information. The updated guidance may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application. The updated guidance is effective for public entities for annual reporting periods beginning on or after December 15, 2016, and interim periods within those annual periods. Early adoption is not permitted and entities have the choice to apply ASU 2014-09 either retrospectively to each reporting period presented or by recognizing the cumulative effect of applying ASU 2014-09 at the date of initial application and not adjusting comparative information. The Company is currently evaluating the requirements of ASU 2014-09 and has not yet determined its impact on the Company's consolidated financial statements.

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Intangible Assets (Tables)

12 Months Ended

Dec. 31, 2014

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of identifiable intangible assets

Identifiable intangible assets are as follows (in thousands):

		December 31, 2013
	Estimated Useful  Life	Gross		Accumulated Amortization		Net
Technology-based intangible assets	N/A	$	—	$	—	$	—
Total intangible assets		$	—	$	—	$	—

		December 31, 2014
	Estimated Useful  Life	Gross		Accumulated Amortization		Net
Technology-based intangible assets	Not yet determined	$	2,680	$	—	$	2,680
Total intangible assets		$	2,680	$	—	$	2,680

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Credit Facilities (Details) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Credit Facility [Line Items]
Proceeds from bank borrowings	$ 0	$ 6,900,000	$ 4,600,000
Amount outstanding	0	2,000,000
Credit facility | Silicon Valley Bank
Credit Facility [Line Items]
Borrowing capacity	30,000,000
Proceeds from bank borrowings	20,000,000
Borrowing base requirement	40,000,000
Period for borrowing base requirement	90 days
Cash and cash equivalents, net of amount outstanding under credit agreement	20,000,000
Interest rate over prime	1.00%
Available borrowing capacity	30,000,000
Credit facility | Silicon Valley Bank | Prime Rate [Member]
Credit Facility [Line Items]
Interest rate over prime	4.00%
Letters of credit | Silicon Valley Bank
Credit Facility [Line Items]
Letters of credit outstanding	0
Amount outstanding	$ 0
Threshold One [Member]
Credit Facility [Line Items]
Customer accounts receivable concentration limit	25.00%
Threshold Two [Member]
Credit Facility [Line Items]
Customer accounts receivable concentration limit	50.00%
Threshold Three [Member]
Credit Facility [Line Items]
Customer accounts receivable concentration limit	85.00%

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Summary Of Significant Accounting Policies (Software) (Details) (Software [Member], USD $) In Millions, unless otherwise specified	3 Months Ended
	Dec. 31, 2012
Quantifying Misstatement in Current Year Financial Statements [Line Items]
Out-of-period impact expense (revenue) adjustment	$ 1.1
Net Revenue [Member]
Quantifying Misstatement in Current Year Financial Statements [Line Items]
Out-of-period impact expense (revenue) adjustment	(4.2)
Cost of Goods Sold [Member]
Quantifying Misstatement in Current Year Financial Statements [Line Items]
Out-of-period impact expense (revenue) adjustment	$ 3.1

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Consolidated Statements Of Stockholders' Equity (USD $) In Thousands, unless otherwise specified	Total	Common Stock [Member]	Additional Paid-in Capital [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Accumulated Deficit [Member]
Beginning balance at at Dec. 31, 2011	$ 48,702	$ 58	$ 321,681	$ (3,662)	$ (269,375)
Beginning balance, shares at at Dec. 31, 2011		57,699
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Common stock issued (canceled) under stock plans, shares		(253)
Common stock issued (canceled) under stock plans	166	0	166
Common stock issued under bonus plans, shares		819
Common stock issued under bonus plans	1,005	0	1,005
Share-based compensation expense	3,723		3,723
Foreign currency translation adjustment	129			129
Net income (loss)	(14,950)				(14,950)
Ending balance at at Dec. 31, 2012	38,775	58	326,575	(3,533)	(284,325)
Ending balance, shares at at Dec. 31, 2012		58,265
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Common stock issued (canceled) under stock plans, shares		873
Common stock issued (canceled) under stock plans	839	1	838
Share-based compensation expense	2,690		2,690
Foreign currency translation adjustment	279			279
Net income (loss)	5,064				5,064
Ending balance at at Dec. 31, 2013	47,647	59	330,103	(3,254)	(279,261)
Ending balance, shares at at Dec. 31, 2013	59,138	59,138
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Common stock issued (canceled) under stock plans, shares		1,639
Common stock issued (canceled) under stock plans	3,581	2	3,579
Share-based compensation expense	3,145		3,145
Foreign currency translation adjustment	102			102
Net income (loss)	8,055				8,055
Ending balance at at Dec. 31, 2014	$ 62,530	$ 61	$ 336,827	$ (3,152)	$ (271,206)
Ending balance, shares at at Dec. 31, 2014	60,777	60,777

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Inventories

12 Months Ended

Dec. 31, 2014

Inventory Disclosure [Abstract]

Inventories

Inventories

The components of inventories consist of the following (in thousands):

	December 31,
	2013		2014
Purchased parts and materials	$	2,911	$	2,273
Finished goods	3,628		9,069
Total inventory	$	6,539	$	11,342

Inventories are comprised of finished goods and purchased parts and assemblies, which include costs to purchase assembled units and overhead, and are valued at the lower of cost (first-in, first-out method) or market value. The valuation of inventory requires us to estimate excess or obsolete inventory. The determination of excess or obsolete inventory requires us to estimate the future demand for our products. Our customers may require us to purchase and stock material amounts of inventory to ensure availability to meet forecasts, which increases our risk of excess quantities. Because our markets are volatile and are subject to technological risks, price changes and inventory reduction programs by our customers, and because we are required to make last-time buys of certain components on occasion, there is a risk that we will forecast incorrectly and produce excess inventories of particular products or have commitments to purchase excess inventory components from our suppliers. As a result, actual demand will differ from forecasts, and such a difference has in the past and may in the future have a material adverse effect on our gross margin and our results of operations. Any write downs to inventory due to the existence of excess quantities, physical obsolescence, changes in pricing, damage, or other causes result in a new cost basis for the inventory. When we sell or dispose of reserved inventory, the new cost basis is charged to cost of sales. The increase in inventory at December 31, 2014 as compared to December 31, 2013 is due to higher required levels of inventory for a significant customer maintained at a vendor managed inventory location.

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Income Taxes (Tax Credit Carryforwards) (Details) (USD $) In Millions, unless otherwise specified	Dec. 31, 2014
Federal [Member]
Tax Credit Carryforward [Line Items]
Tax credit carryforward	$ 4.9
Tax credit carryforward with expiration date	4.5
Tax credit carryforward with no expiration date	0.4
State [Member]
Tax Credit Carryforward [Line Items]
Tax credit carryforward	$ 3.5

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Product Warranties (Tables)

12 Months Ended

Dec. 31, 2014

Product Warranties Disclosures [Abstract]

Warranty Accrual and Cost Activity

Our warranty accrual and cost activity is as follows (in thousands):

	December 31,
	2012			2013			2014
Balance, beginning of year	$	6,871		$	4,455		$	2,965
Charges to operations	2,116			1,350			1,770
Deductions for payments made	(4,532		)	(2,840		)	(1,372		)
Balance, end of year	$	4,455		$	2,965		$	3,363

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Summary Of Significant Accounting Policies (Concentration of Customers and Suppliers) (Details)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Major customers
Number of major customers	2	2	2
Net Revenue [Member] | Customer Concentration Risk [Member]
Major customers
Concentration risk, percentage	100.00%	100.00%	100.00%
Net Revenue [Member] | Customer Concentration Risk [Member] | Customer A [Member]
Major customers
Concentration risk, percentage	47.00%	59.00%	68.00%
Net Revenue [Member] | Customer Concentration Risk [Member] | Customer B [Member]
Major customers
Concentration risk, percentage	11.00%	0.00%	0.00%
Net Revenue [Member] | Customer Concentration Risk [Member] | Customer C [Member]
Major customers
Concentration risk, percentage	8.00%	13.00%	10.00%
Net Revenue [Member] | Customer Concentration Risk [Member] | Other customers less than 10% [Member]
Major customers
Concentration risk, percentage	34.00%	28.00%	22.00%
Accounts Receivable [Member] | Customer A [Member]
Major customers
Concentration risk, percentage	40.00%	63.00%
Accounts Receivable [Member] | Customer B [Member]
Major customers
Concentration risk, percentage	31.00%

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Quarterly Financial Information

12 Months Ended

Dec. 31, 2014

Quarterly Financial Information Disclosure [Abstract]

Quarterly Financial Information (Unaudited)

Quarterly Financial Information (Unaudited)

The information presented below reflects all adjustments, which, in the opinion of management, are of a normal and recurring nature necessary to present fairly the results of operations for the periods presented (in thousands, except per share amounts):

Year Ended December 31, 2013:	First Quarter			Second Quarter		Third Quarter		Fourth Quarter
Net revenue	$	44,480		$	50,683	$	52,603	$	58,799
Gross profit	14,440			17,007		16,873		17,750
Income (loss) before income taxes and discontinued operations	(526		)	2,138		1,875		2,104
Net income (loss) from continuing operations	(560		)	2,089		1,775		2,236
Basic and diluted net income (loss) per share from continuing operations	$	(0.01	)	$	0.04	$	0.03	$	0.03

Year Ended December 31, 2014:	First Quarter			Second Quarter			Third Quarter		Fourth Quarter
Net revenue	$	48,207		$	48,222		$	52,121	$	69,115
Gross profit	15,265			16,023			16,962		24,325
Income (loss) before income taxes and discontinued operations	(411		)	(4		)	86		8,611
Net income (loss) from continuing operations	(412		)	(78		)	40		8,505
Basic and diluted net income (loss) per share from continuing operations	$	(0.01	)	$	(0.00	)	$	0.00	$	0.14