Exhibit 10.5

 

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Certain identified information has been omitted from this document because it is
not material and

would be competitively harmful if publicly disclosed, and has been marked with
“[***]” to indicate

where omissions have been made.

 

 

ORIGINAL EQUIPMENT MANUFACTURING AND SUPPLY AGREEMENT

 

This Original Equipment Manufacturing and Supply Agreement (this “Agreement”) is
made this 1 July 2019 (“Effective Date”) by and among Disguise Systems Limited,
a company based in the United Kingdom (“Buyer”), Disguise Technologies Limited,
a company based in the United Kingdom (“Disguise Tech”), and One Stop Systems,
Inc, a Delaware corporation ("Supplier").  In this Agreement, “Party” shall mean
Buyer or Disguise Tech or Supplier, and “Parties” shall mean Buyer, Disguise
Tech and Supplier. This agreement supersedes and replaces the OEM agreement
dated October 1st 2015.

 

Recitals

 

A.  Supplier has agreed to manufacture and supply certain products as more fully
described in this Agreement to Buyer in accordance with the provisions of this
Agreement as it pertains to such production-released products.  Engineering,
Prototype and pre-production products are not covered by the terms of this
Agreement.

 

B.  Disguise Tech owns certain intellectual property rights in and to the
aforementioned production-released products which Disguise Tech has agreed to
grant a license to Supplier for the purpose of Supplier manufacturing and
supplying such products to Buyer for the next 5 or more years in accordance with
the terms of this Agreement and providing components for replacement and repair
for 2 years subsequently after the product is shipped to the Buyer.

 

C.  This Agreement sets forth the terms and conditions of purchases that may
occur between the Parties.  All such quantities will be specified on Buyer's
purchase orders issued under the provisions of this Agreement.

 

Agreement

 

NOW THEREFORE, in consideration of the mutual covenants and agreements herein
contained and for other good and valuable consideration, the Parties hereby
agree as follows:

 

SECTION A:GENERAL BUSINESS OPERATIONS

 

1.General Responsibilities of the Parties.

 

(a)Specifications.  Supplier and Buyer agree on a list of specifications (the
"Specifications") to which all products currently being produced and all future
products that may be produced (the “Product(s)”) hereto will be manufactured and
supplied in accordance with the terms of this Agreement.  Exhibit A hereto may
be amended from time to time by mutual written agreement of the Parties.

 

(b)Certain Responsibilities of Buyer.  Buyer will distribute the Products
purchased by Buyer from Supplier only in connection with products which Buyer
sells, leases and/or licenses, whether directly or indirectly, through sub-tier
suppliers and/or distributors or otherwise.  Buyer shall be responsible for
securing any required U.S. export licenses relating to the Products.

 

 

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2.Term of the Agreement. Subject to the terms of this agreement, the term of
this Agreement shall commence on the Effective Date and shall expire on the five
(5) year anniversary hereof (the “Term”).  Buyer may provide Supplier with
written notice, no later than Six (6) months before expiration of the Term that
Buyer desires to negotiate with Supplier in good faith for an extension period
as Buyer and Supplier may mutually determine of the Term (the "Extension"). If
the Parties hereto cannot agree on the terms for such Extension within a period
of ninety (90) days following such notice, this Agreement will terminate at the
end of the Term.

 

 

3)Exclusive manufacturing Rights

 

 

a)

Geographic area covered.

 

i.

Subject to clause (iii) below, Supplier and Buyer agree that Supplier will have
exclusive manufacturing rights for all systems sold by Buyer for end shipment
into North, Central and South America only.

 

ii.

Supplier and Buyer agree that Supplier will have exclusive manufacturing rights
for systems sold by Buyer for end shipment into Japan and Korea until such time
that the Buyer commences production shipments with a separate manufacturer
located on the continent of Asia and, immediately, at such point, this
exclusivity right shall automatically terminate.

 

iii.

The exclusive manufacturing rights provided in (i) and (ii) above are in effect
only while the SG&A (S) and Profit (Z) rates in Exhibit B do not exceed the base
rates in Exhibit B factoring in anniversary reductions.

 

b)

The above right in no way precludes Supplier from selling into other areas of
the world if requested by Buyer to do so in accordance with the terms of this
Agreement.

 

 

4)Prices; Payment of Invoices.

 

(a)The pricing model for all Products ordered after the Effective Date is
defined in Exhibit B (the “Price”).

 

(b)The Price provided by the model shall be considered "not to exceed" pricing
until the next price list is mutually agreed by the Parties and published to the
Buyer. The price list shall be published to the Buyer at least every six (6)
months, commencing on the Effective Date, or when Products are added or removed
from the price list at the request of the Buyer (“Pricing Period”).

 

(c)The Price shall be negotiated and agreed upon at the time the purchase order
is placed based on the volumes being ordered. Should the Product specification
change at the request or by acceptance by the Buyer, or should the Buyer change
quantities on a Purchase Order within the Pricing Period, the Price for the
Products may be modified within the Pricing Period, subject to the mutual
agreement between the Parties.

 

(d)Any engineering projects, engineering changes or other non-recurring
engineering (“NRE”) activities be required by the Buyer on Products that are
part of this agreement will be invoiced at the Engineering rate in Exhibit B or
as time to time amended and accepted by the Parties.  All new Engineering
projects for Products that may or may not become part of this Agreement shall be
quoted separately to Buyer.

 

(e)Any cost increases due to sub-tier supplier cost increases shall be
transferred to the Buyer at the start of a new Pricing Period or when the next
order is placed. The Parties shall act in good faith in agreeing such amended
Prices.

 

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(f)Subject to subparagraph (h) below, the parties agree that in respect of any
current tariffs in place in respect of supplies purchased by Supplier from China
(“China Tariffs”) that affect any part of the Products then:

 

 

a.

The Supplier shall use best endeavors to take all steps to mitigate the
additional material costs resulting (whether directly or indirectly) from the
China Tariffs;

 

b.

The Buyer shall use best endeavors to take all steps to mitigate additional
material costs resulting (whether directly or indirectly) from the China Tariffs
due to the Buyer’s choice of 3rd party products required to be purchased by the
Supplier.  For the avoidance of doubt, if the Supplier identifies a commercially
and technically suitable alternative 3rd party product that is not subject to
China Tariffs and does not significantly change the performance of the Products,
the Buyer agrees to best efforts to test and approve the alternate part for
production use. If the Buyer unreasonably declines to use the suitable
alternative part then the Buyer will be liable for the increased material cost
due to the China Tariffs for the life of the Product containing that part;

 

c.

Except as agreed in Section A clause 4 section (f)(b) above, the Buyer shall
only be liable for the China Tariffs (but not including any increased associated
costs not already priced in the Pricing model in Exhibit B) for any Purchase
Order made between the Effective Date and 31 December 2019;

 

d.

Except as agreed in Section A clause 4 section (f)(b) above, for Purchase Orders
(or proposals) from 1 January 2020 if the Supplier refuses to be liable for all
additional costs to the Products that result from the China Tariffs, then the
Buyer has the right to immediately terminate the Supplier’s (i) exclusivity
right contained in Section A clause 3 above and/or (ii) the Minimum Business
Commitment contained in Section A clause 4 (l) below.

 

(g)Subject to subparagraph (h) below, the parties agree that any tariffs or
additional costs caused by export or import restrictions, quota or prohibitions
are imposed by any  government or public authority (“Tariffs”) that affect any
part of the Products then:

 

a.

The Supplier shall use best endeavors to take all steps to mitigate the
additional material costs resulting (whether directly or indirectly) from the
Tariffs;

 

b.

The Buyer shall only be liable for those Tariffs (but not including any
increased associated costs not already priced in the Pricing model in Exhibit B)
for any Purchase Order made for 6 months starting with the date that the Tariffs
came into force (“6 Month Period”);

 

c.

For Purchase Orders (or proposals) submitted after the 6 Month Period if the
Supplier refuses to be liable for all costs in relation to such Tariffs, then
the Buyer has the right to immediately terminate the Supplier’s (i) exclusivity
right contained in Section A clause 3 above and/or (ii) the Minimum Business
Commitment contained in Section A clause 4 (l) below.

 

(h)The Supplier confirms that neither China Tariffs or Tariffs may be
retrospectively charged to the Buyer.

 

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(i)All Products purchased will be invoiced by the Supplier to the Buyer upon
completion of all work to the configuration on the Purchase Order, including all
tests, and delivered to the designated Buyer inventory area the Buyer’s location
of manufacture currently defined as 2235 Enterprise St, Escondido, CA or 51
Industristrasse, Grobenzel Germany.

 

(j)Any changes requested by the Buyer to the systems in the Buyer inventory area
will incur a 2 production hour minimum charge to change the configuration and
re-test the system. New material required for the change will be charged the
Price indicated by the pricing model in Exhibit B.  

 

(k)Any material cost reductions after the Effective Date will be applied to the
System Price Model 1 year after they are realized (“1 Year Period”) and Supplier
shall incorporate these savings into the Products with effect from and shall
accordingly revise the Price List at either the next 1 January or 1 July
whichever date occurs sooner following the 1 Year Period.

 

(l)If total invoiced Product drops below $10,000,000 per calendar year,
escalating by $1,000,000 per year on the anniversary of the Effective Date
(“Minimum Business Commitment”), then the combined SG&A (S) and Profit (Z) rates
in Exhibit B will immediately be fixed at the lower of [***] and [***]
respectively or the prior year’s SG&A and Profit Rate for all shipments in the
following Quarter until the minimum business level is achieved.

 

 

a.

A “Quarter” is defined as a calendar quarter;

 

b.

The Price shall be adjusted and the Buyer will issue a revised Purchase Order
for at the new Price for all Product in subsequent Quarters if any of the
following occurs:

 

i.

The total of all Invoices minus credit memos for the Product is less than 25% of
the Minimum Business Commitment in any two consecutive Quarters.

 

ii.

The total of all Invoices minus credit memos for the Product is less than the
Minimum Business Commitment in any calendar year.

 

c.

Minimum business level - If the new Price is adjusted in accordance with
paragraph (b) above then as soon as business returns to at least 25% of the
Minimum Business Commitment at the next occurring Quarter (meaning that the
minimum business level has been satisfied), the Price for all Products shall be
immediately adjusted by a revised Purchase Order from the Buyer to the original
Price (provided such original amount is lower) for subsequent Quarters.

The Minimum Business Commitment provided in (i) above shall only be in effect
while the SG&A (S) and Profit (Z) rates in Exhibit B do not exceed the base
rates in Exhibit B factoring in anniversary reductions.

 

(m)Buyer will pay for Products purchased and accepted by Buyer within [***] days
after Buyer’s receipt of a correct and conforming invoice from Supplier.  

 

(n)Total Credit Line shall be $[***] $USD.

 

(o)The Price does not include shipping charges and sales taxes from the agreed
upon FOB Origin / OSS Factory. For the avoidance of doubt, the Price does
include shipping charges in respect of the Supplier’s supply, manufacturer and
assembly prior to the final shipment. Supplier shall arrange for shipping the
Products in accordance with Buyer’s instructions. Buyer shall prepare all
shipping documents and Supplier shall be responsible for printing and
incorporating such shipping documents into the Products prior to shipping. Buyer
shall pay for such shipping charges; provided that Supplier ships the Products
in accordance with Buyer's shipping instructions, otherwise Supplier shall pay

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such charges and shall not be entitled to claim such charges from Buyer, nor
shall it be entitled to set off such charges against any amounts owed by
Supplier to Buyer.  Buyer shall pay the aforementioned shipping charges,
customs, duties and sales taxes upon Supplier submitting a duly specified
invoice to Buyer, provided that Buyer has not submitted satisfactory tax
exemption or resale certificates to Supplier, in which case such sales taxes
shall not be payable or invoiced by Suppler.

 

(p)In the event that Supplier owes any payments to Buyer in accordance with this
Agreement, Supplier may elect, at its sole discretion, to set off all or part of
such amounts against amounts duly owed by Buyer to Supplier either at that time
or in the future. Any amounts which may be owing to Buyer by Supplier upon the
termination or expiration of the Term of this Agreement (subject to any
Extensions) shall become immediately payable.

 

(q)If Buyer fails to pay Supplier any amounts owed under this Agreement in
accordance with its terms then interest will accrue beginning on the due date
thereof, at the annual rate of [***], however, that in no event will said annual
interest rate exceed the maximum legal interest rate for corporations.  In the
event of any good faith dispute with regard to any due amount, the undisputed
portion shall be paid as provided herein.  Upon resolution of the disputed
portion, any amounts owed to Supplier shall be paid with interest at the rate
set forth above, accruing from the date such amounts were originally
due.  Notwithstanding anything to the contrary stated herein, Supplier may
suspend performance of Services and withhold the delivery of any Products or any
other materials or deliverables due in connection with the Services until
payment in full of all amounts due and owing to Supplier in connection to such
Services is delivered to Supplier.

 

 

5)

Forecasts, Purchase Orders, Scheduling, and Logistics.

 

(a)Buyer and Supplier agree to comply with the provisions set forth in Exhibit C
hereto, “Forecasts, Purchase Orders, Scheduling and Logistics.”

 

(c)Purchase Orders entered into by Buyer pursuant to this Agreement shall
specify:  (i) quantity of Product; and (ii) any other reasonable ordering
procedures established or as may be agreed between Buyer and Supplier from time
to time.

 

(d)The agreed period between Buyer's issuance of a Purchase Order and the
scheduled delivery date ("Lead-time") is set out in Exhibit C hereto.

 

(e)All orders shall be governed solely by the terms and conditions of this
Agreement.  Any terms or conditions contained in either Party's Purchase Orders,
invoices, packing lists, or other business forms which are additional to or
differ from the provisions of this Agreement, shall have no force or effect
whatsoever, unless otherwise expressly agreed in writing between the Parties.  A
Party's failure to object to any such provisions shall not be deemed a waiver of
its rights herein.

 

6)Term of Availability.  In consideration for Buyer's purchase of the Products,
Supplier grants to Buyer the option to purchase the Products at the last
revision Price level agreed between the Parties pursuant to this Agreement, for
the period of five (5) years from the date of initial release of each product
and subject to availability of any parts.  Thereafter, Supplier may, at their
discretion, discontinue availability of the Product, provided that, at Buyer's
option, Supplier shall first:

 

(a)Sell Buyer sufficient quantities of the Product as Buyer deems necessary; and

 

(b)Grant Buyer a royalty-free, non-exclusive, worldwide Manufacturing License
(as defined below) such that Buyer may make, have made, sell, modify or
otherwise use the Product.

 

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7)Intellectual Property Rights and Grants of Licenses.

 

(a)Disguise Tech’s Intellectual Property Rights. Supplier agrees and
acknowledges that Disguise Tech is the sole and exclusive owner of all rights,
title and interest in and to all intellectual property rights, whether now
existing or that may exist in the future, including any and all copyrights,
patents, design rights (registered or unregistered), trademarks (registered or
unregistered), trade names or other intellectual property rights subsisting in
respect of the Products or any designs, drawings, prototypes, drafts, plans,
representations, models, flow charts, images, illustrations, sketches, plans,
models, photographs and documents relating thereto (whether or not stored
electronically) and all applicable upgrades and modifications of any of the
foregoing, with the exception of the OSS IP Rights, as defined below (“Disguise
Tech IP Rights”).

 

(b)OSS’s Intellectual Property Rights. Supplier is the sole and exclusive owner
of all rights, title and interest in and to all intellectual property rights,
whether now existing or that may exist in the future, including any and all
copyrights, patents, design rights (registered or unregistered), trademarks
(registered or unregistered), trade names or other intellectual property rights
subsisting in respect of the Products or any designs, drawings, prototypes,
drafts, plans, representations, models, flow charts, images, illustrations,
sketches, plans, models, photographs and documents relating thereto (whether or
not stored electronically) of the elements of the Product which have been
developed, designed by Supplier and implemented as part of the Products as
described in Exhibit F hereto (“OSS IP Rights”).

 

(c)Disguise Tech hereby grants to Supplier a non-exclusive license of the
Disguise Tech IP Rights for the Term of this Agreement and any Extensions
(“License Period”) for the territory of the world (the “Territory”) for the sole
purpose of manufacturing the Products in accordance with the terms and
conditions of this Agreement (the “License”). Disguise Tech hereby acknowledges
and declares that the consideration that it receives through Buyer’s purchase of
the Products for the Prices pursuant to this Agreement constitutes the full,
global and definitive consideration for the granting of the License to Supplier.

 

(d)Suppler hereby assigns to Disguise Tech, on an exclusive basis, throughout
the world, in perpetuity (or at least for the legal duration of all intellectual
property rights and their renewals, including, but not limited to, copyright)
and for all purposes, all of the OSS IP Rights, which assignment shall become
effective upon the expiry of the Term of this Agreement (including any
Extensions or Revisions) or any earlier termination of this Agreement in
accordance with its terms and conditions. Supplier hereby acknowledges and
declares that the consideration which it receives through the sale of the
Products to Buyer during the Term (and any Extensions) in accordance with this
Agreement constitutes the full, global and definitive consideration for the
assignment of the OSS IP Rights to Disguise Tech hereunder. Assignment of IP
Rights does not include Manufacturing Rights unless exercised under Section A.8
below.

 

8)Manufacturing Rights.

 

(a)The Supplier agrees to provide the Buyer with the most recent copy of the
Product manual, block diagrams and viewable mechanical model files (i.e.
eDrawing) format for use as first level support documentation and Product data
sheets, upon Buyer’s request.  

 

(b)Further design and manufacturing files will be made available to the Buyer as
part of this Agreement in the following manner:

 

(c)In the event that Buyer decides to have any of the Products manufactured
internally or by a third party after the relevant Product(s) has been designed
and prototypes manufactured and delivered to Buyer, during the Term of this
Agreement and Extension, then Buyer shall inform Supplier in writing of its
decision to do so (“Alternative Manufacturing Notice”) at least six months in
advance (or such other period as agreed between the parties), and Buyer and
Supplier shall thereafter enter into a manufacturing license agreement
(“Manufacturing License Agreement”) which shall include, without limitation, the
following terms and conditions:

 

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(i)Supplier shall grant to Buyer all licenses and rights necessary for Buyer to
manufacture the Products or to grant the same rights to a third party to
manufacture the Products in consideration for the following applicable fees:

a.A one-time license fee of [***], paid upon receipt including any applicable
taxes for each “System” Product, if the Buyer provides Supplier with an
Alternative Manufacturing Notice within twenty-four (24) months of the first
Production Shipment of the relevant Product to the Buyer; or

b. A one-time license fee of [***], paid upon receipt including any applicable
taxes for each “System” Product, if the Buyer provides Supplier with an
Alternative Manufacturing Notice between twenty-four (24) months and forty-eight
(48) months of the first Production Shipment of the relevant Product to the
Buyer; or

c.A one-time license fee of [***], paid upon receipt including any applicable
taxes for each “System” Product, if the Buyer provides Supplier with an
Alternative Manufacturing Notice more than forty-eight (48) months of the first
Production Shipment of the relevant Product to the Buyer;

d.A one-time fee of [***] paid upon receipt, including any applicable taxes for
each “System” Product, if the Buyer has exercised its right to terminate this
agreement in accordance with Section C.5.(a) (Termination for Cause)

e.The first Production Shipment date of a product is defined as the first unit
shipment of a System Product from a Purchase Order that contains (i) the
production system part number and (ii) is not otherwise labeled as a prototype
unit in the referenced Supplier quote or (iii) a date by other mutual agreement
of the Buyer and Seller.

 

(ii)Supplier shall provide and deliver to Buyer copies of the most recent bill
of materials and drawings for all parts designed on behalf of the Buyer.
Drawings do not include common off the shelf items from third parties or items
not designed on behalf of the purchaser.

(d)On or subsequent to first production shipment of the Products to Buyer and at
Buyer’s written request for future Product revisions, Supplier shall deposit
with an escrow agent, pursuant to an executed escrow agreement, a copy of the
Manufacturing Documentation, all for the purpose of allowing Buyer to exercise
its Manufacturing License.  Escrow fees will be the responsibility of the Buyer.

 

SECTION B.PRODUCT QUALITY

 

1.Product Warranties.

 

(a)Supplier warrants that it has the right to manufacture and convey the Product
and that each Product will be free from all liens and encumbrances (including
free from any claim that such Product infringes any third party’s intellectual
property rights), defects in material, workmanship and design and will function
in accordance with and will conform to the Specifications for a period of
[***]from shipment of such Product manufactured at Suppliers authorized
facilities to the Buyer (“Warranty Period”). The warranty period can be extended
to up of [***], prior to the expiration of the original warranty.

 

(b)Buyer or Buyer’s customer shall ship the purported non-conforming Product to
the Supplier authorized repair facilities as listed in Appendix E at the Buyer’s
expense. Purported non-conforming product shipped to any other authorized or
non-authorized repair facility is the sole responsibility of the Buyer. Supplier
shall inspect and verify if the Product is non-conforming and either replace or
repair (as Suppler may determine at its discretion) any Products which do not
perform in accordance with the Specifications during the Warranty Period.
Supplier shall complete such repair or replacement and ship such repaired or
replacement Products to Buyer or to Buyer’s customer at Supplier’s cost (for
shipping) within [***] of Supplier’s receipt of such Products at its
facility.  Such replacement or repaired Products shall be covered by the
warranty set forth in subsection (a) above for the longer of (i) ninety (90)
days from shipment of the replacement Product and (ii) the remaining portion of
the original Warranty Period. Further, the parties may agree to replace parts in
accordance with Exhibit E.

 

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(c)Supplier’s additional warranty terms can be found at www.onestopsystems.com
and are incorporated into this agreement in its entirety and as updated from
time to time insofar as they do not limit the scope of the warranties contained
in this Agreement.  EXCEPT FOR THE WARRANTIES SPECIFIED IN THIS AGREEMENT,
SUPPLIER DOES NOT MAKE AND EXPRESSLY DISCLAIMS ALL OTHER WARRANTIES, WHETHER
EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE.

 

2.Inspection and Acceptance.

 

(a)Supplier shall inspect all Products before shipment to ensure conformance
with the Supplier’s applicable warranty provisions.  In the event that
Supplier’s conformance level falls below [***] due to issues for which Supplier
is responsible, for Products delivered during any consecutive three (3) month
period, as measured by taking all failures over the last 90 days on all products
shipped in the last 90 days. Supplier will provide a corrective action plan
within ten (10) business days of Buyer notifying Supplier of such
non-conformance.  If the Supplier’s corrective action plan does not improve
Supplier’s conformance level to [***]or better during the next 90 days following
the implementation of the Supplier’s corrective action plan, Supplier shall be
deemed to be in material breach of this Agreement in accordance with Section C
clause 5 of this Agreement and the provisions of Section C clause 5 shall apply.
Without prejudice to the forgoing, if the Supplier’s corrective action plan does
not improve Supplier’s conformance level to [***] or better during the next 90
days following the implementation of the Supplier’s corrective action plan,
Buyer may adjust the deliveries of existing orders until Supplier once again
achieves a [***] conformance level for a consecutive 90 day period.

 

(b)Buyer reserves the right to inspect the Products being supplied by Supplier
to ensure that they meet the Specifications.  Buyer shall have twenty-eight (28)
days from receipt of Products to perform such inspection.  Buyer may return
Products which fail to meet the Specifications by first contacting the Supplier
for a valid Return Materials Authorization (“RMA”) number that shall appear on
any and all paperwork, packing lists, air-bills, etc. pertaining to such
shipment returned to Supplier.  Supplier reserves the right to reject any
shipment of returned Product that does not contain a valid RMA number.  Supplier
shall either repair or replace (at Supplier’s discretion) any such Products
returned to Suppler and Supplier shall return such repaired or replacement
Product to Buyer or to Buyer’s customer at Supplier’s cost (for shipping) within
[***]of Supplier’s receipt of such Products at its facility.

 

(c)Supplier shall provide, within [***] of Buyer’s request and in a mutually
agreed upon format, the failure analysis and closed loop corrective action for
each Product or group of Products with identical failures and corrective
actions.  The Supplier shall reserve the right to charge the Buyer a minimum of
one (1) production hour per Product that is returned for repair and for which
the failure analysis is “No Fault Found” (“NFF”).  It is the intent of the
Supplier to work with the Buyer to fashion a minimum test suite to be used by
the Buyer before returning product to minimize NFF reports.

 

SECTION C.OTHER MATTERS

 

1.Non-Disclosure.

 

(a)Each Party hereto acknowledges that the transactions contemplated by this
Agreement will require an exchange of confidential information, including,
without limitation trade secrets, proprietary technological and other
commercially sensitive information, customer lists and similar information which
is of a confidential or proprietary nature (collectively, "Confidential
Information").  With respect to such Confidential Information Supplier and Buyer
agree as follows.

 

(b)Each Party shall hold in confidence all Confidential Information of the
disclosing Party and shall not disclose to any other person or use such
Confidential Information for any purpose other than to as necessary under this
Agreement.

 

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(c)The obligations of subsection (b) above shall not apply to information which
is proved using tangible evidence to:

 

(i)be or have become available to the public from a source other than the
receiving Party;

 

(ii)be or have been released in writing by the disclosing Party as being no
longer Confidential Information which is subject to this Agreement;

 

(iii)be or have been lawfully obtained by the receiving Party from a third party
not subject to any nondisclosure obligation;

 

(iv)have become lawfully known to the receiving Party prior to such disclosure;
or

 

(v)Have been developed by the receiving Party completely independently of the
disclosing Party’s Confidential Information.

 

(d)Each Party acknowledges that a violation of this Section C.1. Would
constitute irreparable damage to the disclosing Party and that any remedy at law
would be inadequate and thereby consents to the entry of injunctive relief
against such violation without the requirement of posting a bond.

 

(e)The Parties acknowledge that the receiving Party shall obtain no rights of
any kind in connection with the other Party’s Confidential Information and that
any additional know-how, process, or improvements based upon the Confidential
Information of the other Party shall be subject to ownership and other rights of
the other Party, except as may otherwise be provided in this Agreement.

 

(f)Upon the written request of the disclosing Party, the receiving Party shall
promptly return or certify the destruction of the disclosing Party’s
Confidential Information, (unless such Confidential Information is necessary for
performance of this Agreement).  

 

2.Trademarks. Each Party hereby grants to the other Party all necessary
permissions for the other Party to utilize the trademarks ("Marks") owned by the
granting Party as expressly instructed by the Mark owner, solely in relation to
the manufacture and marketing of the Products.  Nothing in this Agreement will
create in the Buyer or Supplier any rights in the Marks of the other party.

 

3.U.S. Customs, Marking and Duty Drawback Requirements.

 

(a)Country of Origin.

 

(i)Supplier shall mark each Product with the “Country of Origin” (manufacture),
in compliance with Section 304 of the United States Tariff Act (or any successor
act).  The Product must be conspicuously marked with the Country of Origin.  

 

(ii)For each delivery against purchases made under this Agreement, Supplier
shall furnish Buyer, at Buyers request, with a signed certificate stating
Country of Origin (manufacture) by quantity and Supplier’s part number.

 

(b)Commercial Invoices.  Buyer shall provide a Commercial Invoice with each
shipment made against any order placed by Buyer.  The Commercial Invoice shall
be used for U.S. Customs clearance.  The Commercial Invoice shall be in English
and contain the following information: name and address of manufacturer/Supplier
(where the manufacturer is, not the Supplier); Country of Origin (manufacture)
of the Product; name and address of Buyer; the quantity and unit price; the type
of currency involved; the purchase price in the currency of the purchase; the
terms of sale (i.e., FOB Escondido, CA); freight charges; Supplier's part
number; Buyer 's contact name; and Buyer 's purchase order number.

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4.Similar Products.  Supplier acknowledges that Buyer (both itself and through
its engagement of third parties) designs, develops and acquires hardware and
software products both as stand-alone soft-ware and hardware products and for
use with its own products and that existing or planned hardware and software
independently developed or acquired by Buyer (or its third party contractors)
may contain ideas, designs, features, specifications, uses and concepts similar
to those contained in the Products. Supplier agrees that entering this Agreement
shall not preclude Buyer in any way from using such ideas, designs, features,
specifications, uses and concepts to develop or acquire similar hardware and
software for any purpose without obligation to the Supplier, provided Buyer does
not intentionally or knowingly infringe the OSS IP Rights, subject to the
provisions of Sections A.7 and A.8.

 

5.Termination for Cause.

 

(a)Either Party may terminate this Agreement on thirty (30) days prior written
notice to the other Party in the event the other Party materially breaches any
of its obligations under this Agreement.  For purposes of the foregoing a
material breach shall include, without limitation, the following:

 

(i)Supplier fails to deliver Products on time or in sufficient quantities in
accordance with Buyer’s order and fails to remedy such failure within fifteen
(15) days of Buyer notifying Suppler of such failure, except if such
non-delivery of Products is related to any non-payment by Buyer of fees due to
Supplier under this Agreement.

 

(ii)Products delivered by Supplier fail to conform to the Specifications in
Products in accordance with Buyer’s order and fails to remedy such failure
within fifteen (15) days of Buyer notifying Suppler of such failure.

 

(iii)Either Party fails to perform or breaches any other material obligation
under this Agreement and where such failure is capable of remedy, fails to
remedy such failure or breach within fifteen (15) days of the other Party
notifying the Party in breach.

 

(iv)Any representation or warranty of either Party shall have been found to be
false or misleading.

 

(v)either party files a petition in bankruptcy, has a petition filed against it
regarding bankruptcy, is adjudicated bankrupt, or makes any assignment for the
benefit of creditors that has a material adverse effect on that party’s ability
to perform its obligations under this Agreement, including, without limitation,
payment obligations.

 

(b)Buyer's sole liability to Supplier for such termination (when Buyer is at
fault as per Section C.5.(a) above) shall be to pay Supplier any unpaid balance
due for conforming Product delivered against Buyer's Purchase Order(s), and
material purchased and pipelined to fulfill open purchase orders before receipt
of Buyer’s termination notice.

 

6.Indemnification.

 

(a)Supplier hereby covenants and agrees to indemnify, defend and hold harmless
Buyer including its affiliates, officers, directors and employees, free and
clear and harmless from, and against, any and all claims, administration of
claims, demands, losses, causes of action, liabilities, costs and expenses
(including reasonable attorneys' fees) caused by, resulting from or in any way
connected with (a) Supplier’s acts (including but not limited to any breach of
any third party intellectual property rights), omissions or negligence, or the
acts, omissions or negligence of Supplier’s employees, agents, contractors or
permitted assignees and (b) Supplier’s breach of this Agreement or any of their
representations or warranties contained in this Agreement.

 

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(b)Buyer hereby covenants and agrees to indemnify, defend and hold harmless
Supplier including its affiliates, officers, directors and employees, free and
clear and harmless from, and against, any and all claims, administration of
claims, demands, losses, causes of action, liabilities, costs and expenses
(including reasonable attorneys' fees) caused by, resulting from or in any way
connected with (a) Buyer’s acts, omissions or negligence, or the acts, omissions
or negligence of Buyer’s employees, agents, contractors or permitted assignees
and (b) Buyer’s breach of this Agreement or any of their representations or
warranties contained in this Agreement..

 

(c)Buyer or Supplier (“Claimant”) shall notify the other Party (“the
Defendant”)  promptly in writing of the existence of any such claim, demand or
suit, which if sustained, would give rise to liability on the part of that
Party. The Defendant shall have the option to designate counsel to defend such
claim, demand or suit and it is understood that Defendant shall be responsible
for the fees of such counsel designated by it and control such defense.  The
Claimant shall cooperate in the defense of any such claim, demand or suit and
may participate in the defense of any such claim, demand or suit with counsel of
its own choosing (if the Claimant does not approve counsel designated by the
Defendant) at its own expense, it being understood that the Defendant shall not
be responsible for the payment of any fees of any such counsel.  The Claimant
shall not take any action to compromise or settle any such claim, demand or suit
unless consented to in writing by the Defendant.

 

7.Limitation of Liability.  IN NO EVENT WILL EITHER PARTY BE LIABLE TO THE OTHER
PARTY UNDER THIS AGREEMENT FOR ANY SPECIAL, INCIDENTAL, INDIRECT, PUNITIVE OR
CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS AND LOST BUSINESS), WHETHER BASED
ON BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE), PRODUCT LIABILITY,
FUNDAMENTAL BREACH, OR OTHERWISE ARISING OUT OR RELATED TO THIS AGREEMENT, AND
WHETHER OR NOT SUPPLIER HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGE.  NOTWITHSTANDING ANYTHING ELSE TO THE CONTRARY IN THIS AGREEMENT, THE
MAXIMUM LIABILITY OF:

a.SUPPLIER UNDER THIS AGREEMENT WILL NOT EXCEED THE HIGHER OF: (i) AGGREGATE
AMOUNT OF PAYMENTS RECEIVED BY SUPPLIER UNDER THIS AGREEMENT IN THE TWELVE (12)
MONTH PERIOD PRECEDING THE DATE OF THE CLAIM IN QUESTION; AND (ii) US$5MILLION;
AND

b.BUYER UNDER THIS AGREEMENT WILL NOT EXCEED £5MILLION.

 

8.Survival.  In the event of any termination of the entire Agreement, (a) the
provisions of Sections A.4, A.5, A.6, A.7. A.8, B.1, C.1, C.2., C.4, C.5, C.6,
C.7, C.8, and D shall survive the termination or expiration of this Agreement
and shall bind the Parties and their legal representatives, successors, and
assigns, and (b) the rights of end-user customers of Buyer under any licenses of
Products granted during the term of this Agreement shall survive.

 

9.Insurance. Supplier shall procure and maintain in full force and effect at all
times comprehensive insurance policies covering all of Supplier’s obligations
under this Agreement, including, without limitation, general liability insurance
and product liability insurance in the amount of [***] in any one occurrence and
insurance against perils, including but not limited to, fire, freezing,
lightning, explosion, riot, civil commotion, smoke or sinkhole, in the amount of
[***] in any one occurrence.

 

10.Risk Management and Liability Release.

 

(a)The Supplier shall maintain a Business Resumption Plan for any event, such as
natural or man-made disasters, that impact Supplier’s ability to deliver
Products for a prolonged period of time.

 

(b)The Supplier shall conform to all local, state, and federal laws, rules, and
regulations in performing its obligations under this Agreement.

 

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SECTION D.MISCELLANEOUS   PROVISIONS

 

1.Publicity.  Unless required by law, any announcements or similar publicity
with respect to this Agreement or the transactions contemplated herein shall be
only at such time and in such manner and shall consist of such contents as both
Parties shall mutually agree to in writing.

 

2.Independent Parties.  Supplier and Buyer agree that their relationship is not
that of joint venture, principal and agent, or franchiser and
franchisee.  Supplier and Buyer are independent contractors acting for their own
accounts and neither is authorized to make any commitment or representation,
express or implied, on the other's behalf unless authorized in writing.

 

3.Assignments. Neither Party may assign this Agreement nor any of the rights or
obligations hereunder voluntarily or by operation of law without mutual
agreement, which shall not be unreasonably withheld.  

 

4.No Waiver. The waiver by either Party of any breach of this Agreement by the
other Party in a particular instance must be in a signed writing referring
expressly to this Agreement and shall not operate as a waiver of subsequent
breaches of the same or a different kind.  Either Party's exercise or failure to
exercise any rights under this Agreement in a particular instance shall not
operate as a waiver of said Party's right to exercise the same or different
rights in subsequent instances.

 

5.Headings. The section headings contained herein are for convenience only and
are not intended to affect the meaning or interpretation of this Agreement.

 

6.Notices. All notices and demands of any kind, that either Supplier or Buyer
may be required or desire to serve upon the other Party under this Agreement,
shall be in writing and shall be served by personal delivery, confirmed
facsimile, nationally recognized courier or U.S. first class mail, return
receipt requested, at the following respective addresses:

 

Supplier:

Buyer:

 

 

One Stop Systems, Inc.

Disguise Systems Limited

2235 Enterprise St, #110

[***]

Escondido, CA 92029

[***]

Attn: Steve Cooper

Attn: [***]

 

If by personal delivery or courier, service shall be deemed complete upon such
delivery.  If by mail, service shall be deemed complete upon the expiration of
the fourth day after the date of mailing.  The above addresses may be changed at
any time by giving ten (10) days prior written notice.

 

7.Force majeure.  Neither Party shall be responsible for failure to perform
herein for a period of not more than one hundred and eighty (180) consecutive
days due to causes beyond its reasonable control, including, but not limited to
government regulations, work stoppage, fires, civil disobedience, embargo, war,
riots, rebellions, earthquakes, strikes, floods, water and the elements.

 

8.Severability.  In case any one or more of the provisions contained herein
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision of this Agreement, but this Agreement shall be construed as if
such invalid, illegal or unenforceable provisions had never been contained
herein unless the deletion of such provision or provisions would result in such
a material change as to cause completion of the transactions contemplated herein
to be unreasonable.

 

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9.Entire Agreement.  This Agreement, together with any other documents and
Exhibits incorporated herein by reference, constitutes the entire agreement
between the Parties hereto pertaining to the subject matter hereof.  Any and all
written or oral agreements heretofore existing between the Parties pertaining to
the subject matter of this Agreement are expressly canceled except to the extent
any rights, remedies, obligations or liabilities of the parties that have
accrued up to the date of this agreement including the right to claim damages in
respect of any breach of any agreement which existed at or before the date of
this agreement.  The provisions of this Agreement shall supersede any
contravening or inconsistent terms of any purchase order, invoice, packing slip,
bill of lading or other commercial form issued by Buyer or Supplier in
connection with the Product.

 

10.Counterparts. This Agreement may be executed in two or more
counterparts.  All such counterparts will constitute one and the same agreement.

 

11. Modifications   Any modification of this Agreement must be in writing and
signed by the Party to be charged.

 

12.Governing Law   This Agreement shall be governed by and construed in
accordance with the laws of the State of California without regard to conflict
of laws rules which would cause the laws of any other jurisdiction to apply.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE FOLLOWS.]

 

 

 

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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement by their
respective duly authorized representatives as of the Effective Date.

 

 

ONE STOP SYSTEMS, INC.

 

Disguise Systems Limited.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

By:

 

 

 

By:

 

 

 

 

 

 

 

 

 

Name:

 

 

 

Name:

 

 

 

 

 

 

 

 

 

Title:

 

 

 

Title:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Disguise Technologies Limited

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

By:

 

 

 

 

 

 

 

 

 

 

 

 

 

Name:

 

 

 

 

 

 

 

 

 

 

 

 

 

Title:

 

 

 

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EXHIBIT A

 

PRODUCT AND SPECIFICATIONS

 

 

Any and all systems and parts on the current agreed upon price sheet (see
exhibit B)

 

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EXHIBIT B

 

PRICE

 

 

•

The Pricing for all forecasted items will be determined by the use of the
pricing model (see below).  

 

•

Purchase Orders will be placed using the Prices from the current Price List.

 

•

[***].

 

•

[***].

 

•

The Supplier may use different SG&A and/or Profit Rates for System Products in
the Price List but if these rates are above the base rates in this section (as
adjusted for the agreed percentage point reductions), the Exclusive
Manufacturing Rights and the Minimum Business Commitments shall automatically no
longer apply.

 

•

Purchase Orders in place prior to a new Pricing Period will not be repriced.

 

•

Purchase Orders in place prior to the Effective Date will not be repriced.

 

•

The gross amounts that SG&A and/or Profit Rates percentages are measured against
shall not include sales taxes or any other similar type of taxes.

 

•

All other pricing based on quantity discounts beyond the [***] pieces is valid
only for Purchase Orders placed by the Buyer to the Supplier on the same day for
scheduled delivery over the immediate 12 month period following the date of the
Purchase Order unless agreed otherwise by mutual agreement of both Parties.  

 

 

•

The price list can be updated between Pricing Periods to reflect a new volume of
an expected order or if a new product is introduced between Pricing Products.

 

•

From time to time Buyer may ask the Supplier for material to be pipelined to
cover longer lead time needs.  Any goods purchased on behalf of Buyer at their
request will be Buyers liability. If the program is terminated, or the material
is not used within one (1) year of receipt of the pipelined items, Supplier may
invoice the Buyer for the material.  Buyer shall not be liable for surplus
material if Supplier failed to use the pipelined material in respect of purchase
orders during that time.

 

•

Material cost is calculated as the average cost for items in stock and may not
entirely reflect the last price paid for an item.

 

•

All components of the pricing model will be reviewed every Pricing Period to
determine the new pricing model and Price List for the next Pricing Period.

 

•

The production labor rate (Y) is set at the Effective Date

 

o

Production labor is defined as production activities including, but not limited
to, pull, kit, build, test, and any special request performed by Supplier
production employees. This is a burdened labor rate for production employees
(Direct Labor) without SG&A.  The production labor rate will be reviewed and
adjusted every six months

 

o

Buyer and Supplier will work together in good faith to reduce labor hours to
lower future costs

 

•

The engineering labor rate is set at the Effective Date

 

o

Engineering labor for current sustaining engineering required for Products will
be charged at the above rate.

 

o

Engineering of new products that may or may not become part of this agreement
will quoted separately and not part of this agreement.  

 

•

Pricing model

[***]

 

 

*  This figure shall be subject to the percentage point reductions as fully
described above

 

 

•

Based on the Price List in this section and the minimum business level without
incurring Price adjustments of ten million ($10,000,000) USD per year,
escalating by one million ($1,000,000) per year over the 5 year term of this
agreement the approximate expected value of this agreement is sixty million
($60,000,000) USD. The approximate expected value and term of the agreement does
not guarantee current or future business that will be transacted under this
agreement between the Buyer and the Supplier. Further, for the avoidance of
doubt, the Buyer shall not be liable to the Supplier or any other party for any
loss or damages or any other remedy pursuant to this agreement which is measured
by way of reference to this proposed valuation. The Buyer shall place all
purchase orders and exercise all options under this agreement per the terms
outlined herein.

 

 

 

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disguise tech -

Price List

 

 

Effective Date 1-Jul-2019

[***]

 

 

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EXHIBIT C

 

FORECASTS, PURCHASE ORDERS, SCHEDULING, and LOGISTICS

 

 

 

1.

Forecasts.  Buyer shall provide a minimum of a 6 month rolling forecast by the
end of each month.  Such forecasts shall not be binding on Buyer. Supplier will
procure, manufacture and ship pursuant to Purchase Orders issued by Buyer for
the quantity of Products within the parameters set forth in the 6 month
forecasts and rolling outlooks.  Supplier shall ship Products to such locations
and in such manner and quantities as Buyer shall direct.

 

 

2.

Lead-times.  Minimum Lead-times for the Product shall be [***] after receipt of
Purchase Order. Buyer will request [***] before the start of a month what items
they will be pulling from their Purchase Order (also known as “Call Down”), for
production-released products. This will come in the form of an email stating all
quantities and part numbers that Supplier will be expected to fulfill from the
current open purchase orders.

 

 

3.

Purchase Orders.  Buyer and Supplier agree on the following:

 

•

[***] minimum purchase order release (aka, Call Down)

 

•

Buyer is liable for all materials the Supplier is committed to via their
purchase orders to their vendors or for items in stock to meet customers placed
purchase orders. This liability will never exceed the amounts on open purchase
orders.

 

 

4.

Rescheduling.  Buyer and Supplier shall agree to the following rescheduling
guidelines of approved and scheduled forecasts:

 

•

[***]

 

•

[***]

 

•

[***]

 

•

[***]

 

 

5.

Billing / Title Transfer.  Buyer and Supplier agree to the following Billing and
Title Transfer of products and services provided by Supplier:

 

•

Incoterms:  FOB, origin

 

•

[***]

 

•

[***]

 

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EXHIBIT D

 

SUPPLIER CHANGES TO PRODUCT

 

 

 

1.

Supplier agrees to provide Buyer’s designate development contact person with a
written change notification (“Engineering Change Order” or “ECO”) of any changes
to any designs, specifications or other documents or tooling relating to the
Product within [***] of Supplier's decision to implement any proposed
change.  Such notification will clearly state the reason for the change and the
related cost of implementing the change.  

 

 

2.

If Buyer determines that any change may affect form, fit or function of the
Product, Buyer will give Supplier written notice to such effect within [***] of
Buyer's receipt of Supplier's notification of change. The parties shall use
reasonable endeavors to agree any proposed changes to the Product but no changes
to the Product will be implemented without mutual agreement of both Parties.

 

 

3.

Buyer may purchase Product for evaluation and verification purposes once the
change has been implemented.

 

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EXHIBIT E

 

APPROVED REPAIRS IN THE FIELD

 

List of parts that may be changed by Buyer and Buyer’s customer outside of an
Authorized Service Center without voiding the Product Warranty. The current
approved repairs include

 

 

1.

[***]

 

2.

[***]

 

3.

[***]

 

 

Authorized service centers for the Products:

 

•    OSS HQ:

 

2235 Enterprise St, Suite 110, Escondido CA USA 92029

•    OSS GmbH (Bressner):

 

Industriestraße 51, D - 82194 Gröbenzell, Germany

•    Disguise HQ

 

[***]

 

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EXHIBIT F

 

OSS IP RIGHTS – PRODUCT ELEMENTS

as per Section A.7.(b)

 

 

Elements which are existing or have been developed, designed, adapted, modified
or otherwise devised by Supplier for the purpose of being incorporated in, added
to or otherwise forming part of one or more of the products for Buyer.

 

 

General Description:

 

 

•

Formal and informal design, updates and re-design of the products

 

•

Improvements to the manufacturing, testing, logistics and assembly of the
products

 

•

[***] design based on prior OSS product IP designs

 

•

All design and production considerations including but not limited to:

 

 

o

[***]

 

o

[***]

 

o

[***]

 

o

[***]

 

o

[***]

 

o

[***]

 

o

[***]

 

o

[***]

 

o

[***]

 

o

[***]

 

o

[***]

 

o

[***]

 

o

[***]

 

o

For the avoidance of doubt, all the products’ specifications actually supplied
in writing to Supplier by the Buyer are owned and provided by Disguise Tech to
the Supplier and are not included in the OSS IP Rights.  All specifications of
the Product derived as a result of the Supplier design and execution on the
Disguise Tech written specifications are included in the OSS IP Rights.

 

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