The financial details of Dillion's deal remained unconfirmed Monday, but the San Jose Mercury-News reported the contract is worth $16.35 million and holds an annual average value of $3.27 million.
Dillon made $1.25 million during the 2014–15 season that he split between the Sharks and the Dallas Stars.
The deal leaves the Sharks with four defensemen under contract for at least the next two seasons, and opens up the possibility of signing a fifth defenseman as well.
The third-year player appeared in 60 games for San Jose last season, scoring two goals and seven assists. He had one assist last season in 20 games with Dallas.