Exhibit 10.3
***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.
AMENDED SETTLEMENT AND LICENSE
AGREEMENT
This Amended
Settlement and License Agreement (“ Agreement ”)
sets forth the terms upon which Crossroads Systems, Inc., a
Delaware Corporation, and all its subsidiaries and affiliates
(“ Crossroads ”) and Dot Hill Systems Corp., a
Delaware corporation, and all its subsidiaries and affiliates
(“ Dot Hill ”), agree to settle the litigation
pending before the U.S. District Court of the Western District of
Texas, Austin Division (the “ Court ”),
captioned Crossroads Systems, (Texas), Inc., Plaintiff v. Dot Hill
Systems Corporation, Defendant, Case No. A-03-CV-754-SS
(“ Patent Litigation ”). Crossroads and Dot Hill
are individually referred to in this Agreement as a “
Party ” and collectively as the “ Parties
.” This Agreement shall be effective as of June 27, 2006
(“ Effective Date ”). This Agreement replaces
and supersedes the Settlement and License Agreement executed by
Crossroads and Dot Hill on or about June 27, 2006, which is
hereinafter referred to as the “ Original Settlement
Agreement .”
Crossroads is
the owner of the ‘972 Patent Family. Crossroads filed the
Patent Litigation alleging the Accused Products infringe U.S.
Patent Nos. 5,941,972 and 6,425,035 and demanding judgment against
Dot Hill. It is now the desire and intention of Crossroads and Dot
Hill to settle and resolve all disputes, differences and claims
which exist in the Patent Litigation.
In
consideration of the mutual promises contained herein, and other
good and valuable consideration, the adequacy of which is hereby
acknowledged, the Parties hereto agree as follows:
1.1
“’ 972 Patent Family ” means U.S. Patent
Nos. 5,941,972, 6,763,419, 6,738,854, 6,425,036, and 6,425,035, and
any other U.S. patents, U.S. patent applications or foreign
counterparts which claim priority to any of the foregoing patents
or to any applications from which any of the foregoing patents
issued, including all reissues, reexaminations, divisional,
continuations, continuations-in-part, and extensions of any of the
foregoing issued patents or pending patent applications.
1.2
“ Accused Products ” means the products accused
by Crossroads of infringement in the Patent Litigation as of
June 5, 2006, that perform RAID including without limitation
the following: SANnet II FC, SANnet II SATA, SANnet II SATA Special
Edition, SANnet I 7000 Series (including without limitation SANnet
I 7124 and SANnet I 7128), SANnet I 4000 Series (including without
limitation SANnet I 4300, SANnet I 4200, SANnet I 4210, and SANnet
I 4220), RIO (including without limitation RIO Xtreme Storage
Server, RIO RAID eXp R3200/RFF244 and RIO RAID eXp R3400/RFF288),
RIVA (including without limitation RIVA I and RIVA FC R2500), and
the following products in the StratisRAID Series, StratisRAID
SRF112, StratisRAID SRF212, StratisRAID SRF116-01, StratisRAID
SRF116-22, StratisRAID SRF216-01 and StratisRAID
SRF216-23.
1.3
“ Extraterratorial Products ” means Dot Hill
products, including Accused Products, Sold to a Third Party located
outside the United States that are (i)
manufactured by
or on behalf of Dot Hill entirely outside of the United States,
(ii) shipped to a location outside the United States without
entering the United States, (iii) at no time subsequently
imported, shipped or delivered into the United States, and
(iv) are covered by the ‘972 Patent Family.
1.4
“ JBOD ” has its ordinary meaning as understood
in the storage industry, including “just a bunch of
disks.”
1.5
“ Licensed Product(s) ” means any product
manufactured by or for Dot Hill, based on designs or specifications
created by Dot Hill, and which is Sold by Dot Hill, that is covered
by any claim of any patent in the ‘972 Patent Family. A JBOD,
in and of itself, is not a Licensed Product. Accused Products,
follow-on products based on those Accused Products, and Accused
Products that have undergone a name change shall be Licensed
Products provided such products contain the same functionality as
the functionality in the Accused Products as of the Effective
Date.
1.6
“ License ” means the license grant from
Crossroads described in Paragraph 4.1.
1.7
“ Net Sales ” means the gross revenues received
by Dot Hill from the Sale of Licensed Products less sales and/or
use taxes actually paid, import and/or export duties actually paid,
outbound transportation prepaid or allowed, other similar types of
expenses typical in the storage industry, rebates and cash
discounts, and amounts allowed or credited due to returns (not to
exceed the original billing or invoice amount).
1.8
“ RAID ” has its ordinary meaning as understood
in the storage industry, including the following RAID levels: RAID
0 (striping), RAID 1 (mirroring), RAID 2 (Error-Correcting Coding),
RAID 3 (Bit-Interleaved Parity), RAID 4 (Dedicated Parity Drive),
RAID 5 (Block Interleaved Distributed Parity), RAID 6 (Independent
Disk With Double Parity), RAID 0+1 (Mirror of Stripes), RAID 10
(Stripe of Mirrors), RAID 7 (Storage Computer Corporation
proprietary), RAID S (EMC proprietary) and to-be developed RAID
levels.
1.9
“ Release ” means the release by Crossroads as
described in Paragraph 3.1.
1.10
“ Sale or Sold ” means the transfer,
distribution or disposition of a Licensed Product for value to a
Third Party.
1.11
“ Third Party ” means any individual, group of
individuals, corporation, partnership, joint venture, trust,
association, unincorporated organization, governmental body or any
entity of any kind or nature other than Dot Hill and Crossroads,
provided, however, that a Party changing its name shall remain a
Party for purposes of this Agreement.
2. D
ismissal . Upon
actual receipt by Crossroads of payment as set forth in Paragraph
5.1, Crossroads shall file with the Court a request for dismissal
of all claims and counterclaims in the Patent Litigation by filing
the Stipulation and Order of Dismissal attached hereto as
Exhibit A. Each Party will appear in court, perform all acts,
sign all necessary documents and cooperate with one another as
necessary to facilitate the dismissal of the claims. Upon receipt
by Crossroads of full payment by Dot Hill pursuant to
Paragraph 5.1, Crossroads will dismiss, with prejudice, the
breach of contract lawsuit it filed against Dot Hill on or about
July 24, 2006.
3.1
Release of Dot Hill . Subject to actual receipt by
Crossroads of payment as set forth in Paragraph 5.1,
Crossroads, with the intention of binding itself, its affiliates,
successors and assigns, does hereby irrevocably release, forever
discharge, and agrees not to assert or assist any third party in
asserting any action, claim, liability or demand (“Crossroads
Claims”) against Dot Hill, and its affiliates, successors,
directors, officers, employees, predecessors, successors, customers
(but only with respect to Licensed Products), and agents, from any
and all Crossroads Claims Crossroads had or may have had on or
before the Effective Date arising out of or relating to
infringement of any of the ‘972 Patent Family based on the
manufacture, having manufactured, use, sale, marketing, offer for
sale, lease, licensing, export, design, development, distribution,
importation, or other disposition of the Licensed Products,
including all claims asserted by Crossroads in the Patent
Litigation. Such release shall pertain to Crossroads Claims whether
now known or unknown. Notwithstanding the foregoing and except as
provided herein, the Release granted in this Paragraph 3.1
shall not extend to any claims, damages and/or liability Crossroads
has or may have arising out of or relating to any products,
processes, designs, methodologies or technology acquired by Dot
Hill, its affiliates or successors after the Effective Date,
including without limitation as part of the acquisition of a Third
Party or the acquisition of any asset(s) of a Third
Party.
3.2
Release of Crossroads . Dot Hill, with the intention of
binding itself, its affiliates, successors and assigns, does hereby
irrevocably release and forever discharge and agrees not to assert
or assist any third party in asserting any action, claim, liability
or demand (“Dot Hill Claims”) against Crossroads, and
its affiliates, successors, directors, officers, employees,
predecessors, successors, customers (only to the extent that such
customers have used or sold products purchased from Crossroads) and
agents, from any and all Dot Hill Claims Dot Hill had or may have
had on or before the Effective Date arising out of or relating to
the ‘972 Patent Family, including all claims asserted by Dot
Hill in the Patent Litigation. Such release shall pertain to Dot
Hill Claims whether now known or unknown.
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*** Confidential Treatment
Requested
3.4
California Civil Code . Each party waives all rights under
Section 1542 of the California Civil Code as such rights may
relate to any Claims. Each party acknowledges that it has consulted
with legal counsel regarding the import of Section 1542 of the
California Civil Code, which provides as follows:
A GENERAL
RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW
OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM, MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR.
4.1
Crossroads License Grant . Subject to actual receipt by
Crossroads of payment as set forth in Paragraph 5 of this
Agreement, Crossroads hereby grants to Dot Hill a non-exclusive,
personal, non-sublicensable, non-transferable, non-assignable
(except as provided herein), indivisible, worldwide,
royalty-bearing license under the ‘972 Patent Family to make,
have made (for Dot Hill only), use, lease, license, design,
develop, distribute, market, sell, offer for sale, export, import
and otherwise dispose of Licensed Products, as well as to make, use
or perform any method or process claimed in the ‘972 Patent
Family after the Effective Date. Dot Hill acknowledges and agrees
that it has only the patent license rights granted in the License
and that all other rights are expressly reserved to
Crossroads.
4.2
After-Acquired Products. The License shall not apply to any
products, processes, designs, methodologies or technology acquired
by Dot Hill, its affiliates and successors after the Effective
Date, including without limitation as part of the acquisition of
a
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*** Confidential Treatment
Requested
Third Party or
the acquisition of any asset(s) of a Third Party, covered by any
claim of the ‘972 Patent Family that was made, used, sold,
offered for sale or imported by the Third Party prior to the date
acquired by Dot Hill.
4.3
Combinations . No license is granted under this Agreement by
Crossroads, either directly or by implication, estoppel or
otherwise, to any Third Parties acquiring items from Dot Hill for
the combination of such acquired items with other item(s), where
the use, manufacture, sale, offer for sale or import of such
combination infringes any claim of the ‘972 Patent Family
based on the other item. For purposes of clarity, if a Third Party
combines a product from Dot Hill that is covered by the License
with another item, such combination is covered by the License as
long as such other item does not independently infringe the
‘972 Patent Family.
4.4
No Challenges . For as long as the License remains in
effect, Dot Hill agrees that it will not challenge, participate in
any challenge to, or aid any Third Party in challenging the
validity or enforceability of any patent in the ‘972 Patent
Family, except as required by subpoena, by law, or by any
governmental or regulatory authority. If this license is terminated
for any reason, including, but not limited to those reasons set
forth in paragraph 8.2 below, Dot Hill expressly reserves the right
to challenge the validity and enforceability of any of the patents
in the ‘972 Patent Family.
4.5
No Obligation to Enforce . Crossroads shall have no
obligation hereunder to institute any action or suit against any
Third Party for infringement of any patent within the ‘972
Patent Family or to defend any action or suit brought by a Third
Party which challenges or concerns the validity or enforceability
of any such patent. In addition, Dot Hill shall have no right to
institute any action or suit against Third Parties for infringement
of any patent in the ‘972 Patent Family.
4.6
No Restriction . Dot Hill agrees that the License shall in
no way restrict Crossroads’ use of the ‘972 Patent
Family, or Crossroads’ manufacture, use, sale, offering for
sale or importation of any product, service, process, or method
covered by the claims of the ‘972 Patent Family, for its own
purposes or in collaboration with Third Parties.
4.7
No Patent Laundering . Dot Hill agrees that the License is
not intended to and does not cover manufacturing activities that
Dot Hill may undertake (either itself or by another under the have
made grant in Paragraph 4.1) on behalf of any Third Party for
the purpose of providing such Third Parties with coverage under the
patent license granted by Crossroads to Dot Hill in this Agreement.
The provisions of this Paragraph 4.7 shall not limit Dot
Hill’s ability to manufacture products on behalf of its OEM
customers, for the purpose of providing such OEM customers with
private-label versions of products primarily designed and
manufactured by Dot Hill, and, subject to all other duties and
obligations of this Agreement, including without limitation
Paragraph 4.3, such manufacture or sales shall continue to be
covered by the License if applicable.
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5.1
Up Front Payment. Dot Hill will pay Crossroads a
non-refundable payment of ten million, five hundred thousand United
States dollars ($10,500,000). Dot Hill’s payment obligation
under this Paragraph 5.1 shall become due and payable within
twenty (20) days of the Effective Date. Dot Hill shall make
this payment in full and shall not reduce the payment due to taxes,
duties, fees or any other tax-related obligations owed by Dot Hill
or any other entity anywhere in the world. Because Dot Hill did not
make full payment of the Up Front Payment owed Crossroads pursuant
to Section 5.1 of the Original Settlement Agreement, Dot Hill
will, not later than Thursday, October 5, 2006,: (1) pay
Crossroads the remaining one million, four hundred thirty thousand
United States dollars ($1,430,000) of the Up Front Payment owed to
Crossroads, and (2) pay Crossroads an additional forty-five
thousand United States dollars ($45,000) as a late fee for Dot
Hill’s failure to pay the entire Up Front Payment within
twenty (20) days of the Effective Date. If Dot Hill makes the
payments as set forth in this Paragraph 5.1 in full not later
than October 5, 2006, Crossroads hereby agrees not to use the
aforementioned instance of not making full payment of the Up Front
Payment as grounds to terminate this Agreement.
5.2
Royalty . For all Sales of Licensed Products after the
Effective Date, Dot Hill shall pay Crossroads a running royalty
equal to two and one half percent (2.5%) of the Net Sales of the
Licensed Products Sold by Dot Hill. Should Dot Hill exchange
Licensed Products for some value other than monetary, the running
royalties payable to Crossroads shall be two and one half percent
(2.5%) of such value received from Third Parties. Dot Hill shall
pay each quarterly royalty payment no later than forty-five
(45) days following the end of each calendar quarter. Dot Hill
shall make these payments in full and shall not reduce these
payments due to taxes, duties, fees or any other tax-related
obligations owed by Dot Hill or any other entity anywhere in the
world.
5.2.1
Non-Extraterritorial Products . The royalty payment of
Paragraph 5.2 shall apply immediately upon the Effective Date
to all Licensed Products that are not Extraterritorial
Products.
5.2.2
Extraterritorial Products . The License and royalty of
Paragraph 5.2 shall apply to Extraterritorial Products as of
the date that Crossroads sends to Dot Hill notice of the issuance
of a patent within the ‘972 Patent Family having any claim
covering such Extraterritorial Products in any jurisdiction in
which the Extraterritorial Products are made, used, sold, offered
for sale, or to which the Extraterritorial Product is shipped or
imported. Such notice is provided by this Agreement for the patents
in the ‘972 Patent Family listed in Exhibit C. By way of
example, if a ‘972 Patent Family patent issues subsequent to
the Effective Date in Japan having a claim that covers
Extraterritorial Products shipped to customers of Dot Hill in
Japan, the 2.5% royalty would apply to those products as of the
date that Crossroads notifies Dot Hill of the issuance of the
Japanese patent. After the Effective Date, Crossroads shall notify
Dot Hill of the issuance of additional non-US patents in the
‘972 Patent Family as those patents issue and, if such patent
is not in English, Crossroads shall provide to Dot Hill either a
description of the technology covered by such patent or an English
translation of such patent. The Parties agree that if any of the
claims issuing for a ‘972 Patent Family patent issued in
non-US jurisdictions are the same or substantively the same as any
claim in U.S. Patent No. 6,425,035, then all Extraterritorial
Products which would be covered by the ‘972 Patent Family in
the United States shall be deemed covered by the claims of such
issued non-US patent.
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5.2.3
After-Acquired Products . The License and royalty of
Paragraph 5.2 shall apply to products, processes, designs,
methodologies or technology acquired by Dot Hill, its affiliates
and successors after the Effective Date, including without
limitation as part of the acquisition of a Third Party or the
acquisition of any asset(s) of a Third Party, that are covered by
any claim of the ‘972 Patent Family that are made, have made
(for Dot Hill only), licensed, leased, marketed, exported,
designed, developed, used, sold, offered for sale, imported or
otherwise distributed by Dot Hill (or any other Third Party) after
the date acquired by Dot Hill. If Dot Hill acquires a Third Party
that already has a license agreement for the ‘972 Patent
Family in place with Crossroads (the “Third Party ‘972
Patent License”), and which Third Party ‘972 Patent
License survives the acquisition by Dot Hill pursuant to its terms,
with respect to only those products acquired from the Third Party
that are sold after such acquisition by Dot Hill, Dot Hill shall
have the option of choosing to make, use, sell, license, lease,
market, have made (for Dot Hill only), export, design, develop,
offer for sale, import and/or otherwise distribute such acquired
products (and follow-on products based primarily on those Accused
Products) under either the royalty terms of this Agreement or under
the payment terms of such Third Party ‘972 Patent
License.
5.2.4
Non-Manipulation . Dot Hill agrees that for the purposes of
determining the running royalty to be paid to Crossroads, Dot Hill
will not artificially manipulate the selling of its products to
avoid or reduce the royalty payment otherwise due to Crossroads,
including without limitation selling a product in a manner so as to
artificially remove it from the definition of a Licensed
Product.
5.2.4.1
By way of example, Dot Hill will not: (i) deconstruct a
product that would otherwise qualify as a Licensed Product (such as
the SANnet II FC products) to remove the RAID controller portion
(that is covered by the ‘972 Patent Family) of the product;
(ii) classify the deconstructed Licensed Product as a JBOD
that would not be subject to the royalty payment, and then;
(iii) sell the RAID controller portion separately, to be
reconstructed by the customer or otherwise reconstructed after the
sale; the foregoing example shall apply equally regardless of
whether the entire RAID controller is removed, a chip is removed, a
board is removed or any other component or software is removed that
would, upon reconstruction, render the equipment covered by the
‘972 Patent Family. In this example, all portions of the
deconstructed Licensed Product would be subject to the royalty
payment of this Paragraph 5.
5.2.4.2
By further way of examp
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