Dot Hill Finalized Acquisition of Ciprico RAID Software and NAS IPs

Dot Hill Systems Corp. will acquire the RAIDCore and NAS (Networked Attached Storage) intellectual property assets from Ciprico, Inc. The assets to be acquired include all of Ciprico’s rights to its RAIDCore technology and products along with specified rights to Ciprico’s NAS intellectual property.

Under the terms of the agreement, Dot Hill will purchase the assets for:

• (i) cash of $2.25 million less a credit back to Dot Hill for the previously announced debtor-in-possession loan to Ciprico of $225,000;
• (ii) a $1 million unsecured interest-free note maturing in March 2012; and
• (iii) subsequent payments of 6.67 percent of net revenues from the RAIDCore and NAS assets over the course of 42 months and not to exceed $2 million.

The material terms of the acquisition are further described in Dot Hill’s Form 8-K filed with the Securities Exchange Commission on September 23, 2008. The company stated that it had hired many of Ciprico’s RAIDCore and NAS engineering team and expected to incur incremental operating costs of approximately $3 million per annum associated with the purchase of these assets. Given the relatively nascent state associated with RAIDCore revenues, the company does not expect that the purchase of the RAIDCore and NAS assets will be accretive in the first year.

The addition of these assets will position Dot Hill to serve the growing enterprise class software RAID market focused on server and workstation based deployments of data protection. According to IDC, more than two million servers were shipped in the second quarter of 2008, with 11.2 percent year-over-year growth. Over the next three to five years, it is estimated that enterprise-class versions of software RAID will become standard features of entry-level and mid-level servers as RAID continues to move from higher end platforms into more mainstream offerings. The acquisition of Ciprico’s RAIDCore assets will allow Dot Hill to take advantage of this trend.

"Dot Hill has long been a leader in providing proven, scalable storage solutions to the OEM and systems integrator community," said Dana Kammersgard, president and chief executive officer of Dot Hill. "The addition of the RAIDCore intellectual property and products and the Minneapolis-based engineering and support expertise will open new market opportunities for Dot Hill in the growing host-based storage arena on a worldwide scale."

"This is a significant step forward for Dot Hill," continued Kammersgard. "These products complement Dot Hill’s existing world-class line of entry-level and midrange external hardware storage arrays and have the potential to increase our margins and may allow us to leverage opportunities at new and existing OEM and system integrator partners worldwide. We believe the breadth of the offerings — from software RAID and NAS through general purpose and ruggedized carrier-class midrange systems — will strongly position Dot Hill in the marketplace."

RAIDCore is a pure software implementation that takes advantage of today’s high performance multi-core based servers rather than the specialized hardware acceleration engines that are used in external RAID systems. This creates an extremely cost-effective, yet robust internal RAID solution that OEMs and systems builders can now deploy on entry-level and higher level servers without significant cost burden. A key differentiator of the RAIDCore architecture is that it supports a highly portable, hardware and chip agnostic approach to high performance, feature-rich host software RAID, allowing OEMs, ODMs, motherboard merchants and appliance builders to support a wider range of hardware platforms with a single unified RAID software stack and management solution. Competitive offerings tend to be tied to a specific vendors’ custom silicon, restricting options in server hardware architecture or limiting RAID functionality to that provided by the silicon supplier.

"The introduction of higher capacity drives along with smaller form factors and high performance multi-core CPUs is driving this requirement for RAID data protection on servers and high-end workstations," said Cooper Cowart, vice president of marketing for Dot Hill. "In addition, the NAS technology provides an excellent starting point for certain of our OEM and systems integrator partners to create efficient and cost-effective NAS appliances that leverage RAIDCore and the abundance of CPU cycles available in common, off-the-shelf server class Intel compatible hardware."

The RAIDCore products include the VST Pro software package recently launched by Ciprico, as well as several of the new series of RAIDCore host bus adapters. Dot Hill expects to target distribution of these products via its existing and new OEM customers that have offerings focused on the x86-class server and workstation market as well as through other routes to market.