EXCLUSIVE DISTRIBUTOR AGMT

EXCLUSIVE DISTRIBUTOR AGREEMENT



This Agreement is entered into as of the 4TH day of AUGUST, 1995, by and among RACOM SYSTEMS, INC., a corporation organized and existing under the laws of the State of Delaware, U.S.A., having offices at 6080 Greenwood Plaza Boulevard, Englewood, Colorado 80111, (hereinafter referred to as "RACOM") and RACOM JAPAN, INC., a company incorporated under the laws of Japan, with its principal office at Otsuka-shinyurigaoka, Building 5-3, Kamiasao 1-chome, Asao-ku, Kawasaki-shi, Kanagawa-ken, Japan (hereinafter referred as "RJ").



WHEREAS, RACOM is involved in designing and developing radio frequency contactless identification and smart card transponders and communicators;



WHEREAS, RJ desires to enter into an exclusive arrangement with RACOM to market in Japan products manufactured by RACOM; and



WHEREAS, RACOM desires to enter into such an exclusive arrangement with RJ to authorize RJ to market RACOM's products in Japan;



NOW THEREFORE, in consideration of the mutual covenants hereinafter set forth, the parties hereto hereby agree as follows:



ARTICLE 1 - APPOINTMENT



1.1 Subject to the immediately succeeding sentence, RACOM hereby appoints RJ as

its exclusive distributor in Japan (hereinafter referred to as the

"Territory") for RACOM products (hereinafter referred to as "Products")

manufactured and/or sold by RACOM to RJ, and RJ hereby accepts such





ARTICLE 2 - TERM OF AGREEMENT



2.1 This Agreement shall become effective as of the date set forth above when

it has been duly executed by authorized representatives of RACOM and RJ.

It shall continue in full force and effect for a term of two (2) years

after such date (subject to Article 16 and 17), and shall be extended for

additional one year terms upon the mutual agreement of the parties.



2.2 This Agreement includes Appendix A: Standard Terms and Conditions of Sale

which is incorporated herein and made part of this Agreement.









ARTICLE 3 - DUTIES OF DISTRIBUTOR



In addition to all other duties herein set forth, RJ shall have the

following material obligations



3.1 SOLICITATION OF ORDERS



RJ shall extend its reasonable efforts in soliciting orders for and selling

Products for delivery to customers within the Territory.



3.2 ADVERTISING



RJ shall advertise Products to such an extent and in such media as is

reasonably necessary to encourage the sale of Products in the Territory.

The entire cost of said advertising shall be paid by RJ, unless otherwise

agreed to in writing by RACOM. If so agreed, RACOM may, at its sole

discretion, contribute an amount up to one-half (1/2) of the cost of said



3.3 MAILING LIST



RJ shall develop and maintain a mailing list of existing and prospective

customers within the Territory, and shall periodically mail advertising

literature to said customers.



3.4 TRAINING OF SALES FORCE AND SERVICE PERSONNEL



RJ shall at all times maintain an adequate staff of sales personnel

reasonably necessary to carry out the obligations of RJ under this

Agreement, and shall fully train said sales personnel with respect to all

pertinent aspects of the Products.



3.5 MONTHLY REPORTS



RJ shall submit monthly reports to RACOM showing total sales of Products by

complete part number and type, quantity sold, unit price, price extension,

and customer identification and location. Each monthly report shall be

submitted to the person designated by RACOM, as appropriate, by the end of

the month immediately following the month covered by the report, and shall

further include an itemization of the RJ's inventory of each covered

Product as of the end of the month covered by the report.



3.6 MAINTENANCE OF SALES FACILITIES



RJ shall maintain sales offices in the Territory to encourage the sale of

Products and maintain adequate facilities to assure prompt handling of

inquiries, orders and shipments.









3.7 SALES AND TECHNICAL LITERATURE



RJ shall at all times maintain sales data on the Products, including price

lists, catalogs and technical bulletin files. RJ shall keep confidential

all know-how and technical information, and any other proprietary

information furnished to it by RACOM.



3.8 BUSINESS INTEGRITY



RJ shall pursue a high degree of business integrity in its dealings with





ARTICLE 4 - PRICES



4.1 RACOM shall sell the Products to RJ at the prices designated as distributor

cost in RACOM's current price list or at prices negotiated between RACOM

and RJ, whichever is lower. Such prices are F.O.B. Englewood, Colorado,

United States of America, and do not include local sales, use excise,

customs, export, import or similar taxes. RJ shall assume and pay, or

cause to be paid, any and all such taxes, license fees or other charges

incident of the sale of Products. RJ shall pay all fees, assessments and

taxes levied against Products in RJ's possession.



4.2 RACOM may from time to time, notwithstanding the above, upon written notice

to RJ, change the distributor cost set forth in RACOM's current price list,

such change to be effective thirty (30) days after the date of mailing of

said notice to RJ. RACOM's price list shall then be automatically amended



4.3 Any order from RJ received and accepted by RACOM prior to a price increase

on Products which are the subject of such order shall be shipped at the

price in effect at the time of acceptance of such order. Any order from RJ

received and accepted prior to a price decrease on Products which are the

subject of such order will be shipped at the price in effect at the time of

shipment of such order.



4.4 In the event that the price of precious metals (including, but not limited

to, gold and silver) that are incorporated into the Products rises prior to

the delivery of such Products by RACOM, RACOM may adjust the prices set

forth in the current price list immediately by written notice to RJ, and

such prices shall apply to all Products not delivered at the time of such

notice. Such adjustments shall be made in accordance with a formula,

determined solely by RACOM, reasonably designed to pass on the increased

cost of such precious metals.



4.5 In the event of a decrease made under this Agreement in distributor cost on

any Product, RJ may apply for a credit with respect to all items of such

Product then in RJ's inventory equal to the difference between RJ's

original purchase price for such item (adjusted for any credits previously

given with respect to such item pursuant to this paragraph 4.5 or

otherwise) and









the new lower price. Application for such credit must be submitted to

RACOM within thirty (30) days following the effective date of the price

decrease, and must include a tabulated list setting forth the following

with respect to each applicable Product: RACOM's part number, quantity,

unit price paid, quantity on hand and new unit price. If necessary, the

price paid for such Products by RJ shall be determined on a first-in,

first-out basis. This credit will apply only for products purchased within

twelve (12) months of price decrease. Any such application for credit will

be subject to verification by RACOM, for which purpose RACOM shall be

permitted access to RJ's books and records. No credit will be issued

except upon approval of the application by RACOM. To receive a credit, RJ

must be in full compliance with Paragraph 3.5 (Monthly Reports). Credits

shall be applied against pending or future purchase orders. No cash

refunds will be made. All rights of RJ under this Section 4.5 shall

expire upon termination of this Agreement for any reason.



ARTICLE 5 - PAYMENT



5.1 All payments for covered Products hereunder shall be made by RJ in

accordance with the terms and conditions set forth in Appendix A.



5.2 All payments which are not paid when due shall bear interest at the lesser

of 1.5% per month or the maximum lawful rate permitted to be charged under

the Japanese Commercial Code from the date of invoice until payment is



ARTICLE 6 - CHANGES IN PRODUCTS



6.1 Upon 90 days notice to RJ, RACOM may discontinue the manufacture or sale of

any Product and improve or change the design of any Product, and RACOM

shall not incur any liability thereby, or any obligation to provide such

improvements on Products previously purchased and/or sold by RJ.



ARTICLE 7 - WARRANTY AND TERMS OF SALE TO END USERS



7.1 RACOM agrees to provide warranty terms to RJ's customers identical to the

standard warranty terms and procedures set forth in Appendix A, except that

the warranty period shall begin at the time of shipment to RJ's customer

from RJ. Subject to the preceding sentence and except as otherwise

expressly provided herein, RACOM MAKES NO REPRESENTATION OR WARRANTY OF

ANY KIND, EXPRESS OR IMPLIED, AS TO THE MERCHANTABILITY, FITNESS FOR

PARTICULAR PURPOSE, OR ANY OTHER MATTER WITH RESPECT TO THE PRODUCTS. RJ

shall not make any additional representations or warranties regarding the









7.2 RJ shall not, on behalf of RACOM, extend or pass on to purchaser of RACOM's

Products any warranty, other than RACOM's standard warranty, without

written authorization from RACOM.



ARTICLE 8 - RELATIONSHIP OF PARTIES



8.1 The relationship of RJ to RACOM hereunder is solely that of vendee and

vendor. Nothing contained herein shall be deemed to create an agency,

joint venture or partnership relationship between the parties hereto.

Nothing contained herein shall be deemed or construed as granting to

RJ any right or authority to assume or to create any obligation or

responsibility, express or implied, for, on behalf of or in the name

of RACOM, or to bind either RACOM, or any parent, subsidiary or

affiliate of either such party, in any way or manner whatsoever.



ARTICLE 9 - ASSIGNMENT OF AGREEMENT



9.1 Neither this Agreement nor any interest herein is assignable by any party

hereto, whether by way of assignment, operation of law or otherwise,

without the prior written consent of the other party hereto. Any attempted

assignment or transfer by any party hereto without the prior written

consent of the other shall be null and void. Transfer of a controlling

interest in any party hereto to a party not in control at the time of the

execution of this Agreement shall be deemed an assignment of this Agreement

for purposes of the restrictions set forth in this Article 9.



Notwithstanding the foregoing, RACOM may assign or delegate the performance

of part or all of its obligations under this Agreement to one or more of

its parent, subsidiary or sister companies or affiliates, provided that:



(a) Such assignment or delegation shall not relieve RACOM of primary

...