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Electromedical Products International, Inc. (EPI) prides itself on the caliber of its distributor network. We owe this in part to the loyalty engendered by the support programs we have in place. But it is also strengthened by a strict distributor policy which is designed to protect our distributors and recognize those who consistently build markets for Alpha-Stim® technology. 1. It is EPI's policy to distribute the Alpha-Stim® line of precision medical devices through fully trained and qualified distributors who actively service the medical community and consumer markets in their country, local area, or market segment. The epitome of this is represented by the category of Authorized Alpha-Stim® Distributor in the USA or Exclusive International Distributor outside the USA (sometimes collectively referred to herein as the "Distributor"). Although we cannot legally define and grant exclusivity in a given geographic territory or market segment in the USA, once an Authorized Alpha-Stim® Distributor is appointed in an area, as long as they remain "active" we will not appoint new distributors in that area as defined by population blocks (in major market areas, demographics determine the number and type of Authorized Alpha-Stim® Distributors). Also, we will not reinstate distributors in these areas who have become "inactive". It is typical once an Authorized Alpha-Stim® Distributor develops a market for smaller distributors who have not aggressively marketed our technology to then want to capitalize on this success. The fastest way to lose the privilege of marketing the Alpha-Stim® line of quality medical devices is to let another distributor do all the groundwork and then "steal" the sale. If you approach an account who has been presented the Alpha-Stim® by another active distributor the account belongs to the first active distributor who sells to them. We have severed business relationships with some of the largest distributors in this country for stealing another distributor's business and not supporting the account. Sales to other distributors or wholesalers, except for healthcare practices dispensing to their patients and School programs selling to students enrolled in healthcare degree programs, is prohibited and grounds for termination without the possibility of reinstatement. Outside the USA, exclusivity in a country, region, or market segment is granted only upon execution of EPI's International Distribution Agreement, which indicates purchase quantities required to maintain the exclusivity. Although we cannot prevent unauthorized sales into a territory, we manage this through our written distributor policy. Non-exclusive distributors are considered "active" as long as they purchase a minimum of 5 units per month. If a distributor becomes inactive by not purchasing the required quantities, they may be reinstated by purchasing the required amount, as long as an exclusive agreement has not been entered into or an Authorized Alpha-Stim® Distributor appointed while they were inactive, in which case there is no possibility of reinstatement. 2. Sales of Alpha-Stim® products outside the distributor's assigned country without written permission is strictly prohibited under EPI's Distributor policy. EPI has contractual obligations to its international distribution network that could be seriously damaged by unauthorized sales into these market areas. Violation of this policy is grounds for immediate termination of your Alpha-Stim® distributorship. 3. It is our policy to distribute through full service distributors who are aggressively marketing Alpha-Stim® technology. We have established in our program literature minimum quantities required to remain "active" and/or qualified as an Authorized Alpha-Stim® Distributor. As EPI is still very much in a growth stage with large areas of the country and the world not yet represented, we have made these minimum quantities very reasonable in order to give distributorships the opportunity to grow into our premier categories, the Authorized Alpha-Stim® Distributor in the USA and Exclusive International Alpha-Stim® Distributor outside the USA. For established Alpha-Stim® Distributors to remain "active" the minimum required purchase level is only 15 units per quarter. This is less than many individual doctors prescribe! To remain "active" for an Authorized Alpha-Stim® Distributor or non exclusive international distributor, the required minimum purchase is 30 units per quarter. Once an account has become "inactive" by not purchasing the qualifying minimums, providing another distributor has not earned protection in the territory, they can re-qualify by purchasing the minimum 15 units order for Alpha-Stim® Distributors or 30 units for Authorized Alpha-Stim® Distributors (blanket orders qualify). Please note that most of our qualified distributors purchase far in excess of these minimum requirements and, as our distribution network fills up in major market areas, these minimum quantity requirements may be raised to protect those who are aggressively building their markets. Also, as our Authorized Alpha-Stim® Distributors expand their business they may wish to expand their territories. In determining allocation of these territories, those distributors whose purchase patterns are more consistent, based on population density within their existing territory, will take priority. It is EPI's goal to serve the medical community and consumer markets internationally through fully trained full service Authorized Alpha-Stim® Distributors and Exclusive International Alpha-Stim® Distributors. 4. One of the requirements to qualify as an Authorized Alpha-Stim® Distributor or Exclusive International Alpha-Stim® Distributor is that you carry no competing products. The reason for this is that we have had experiences where distributors conned their customers with "bait and switch" tactics, demonstrating the Alpha-Stim® and then selling a cheaper device. Distributors discovered using this or any other unethical selling tactic will summarily lose the privilege of representing Alpha-Stim® products with no opportunity for reinstatement. EPI prides itself on being an extremely ethical company and will not tolerate unethical business practices in its distribution network. In addition, any distributor who sells a competing cranial electrotherapy stimulator will be terminated without possibility of reinstatement. 5. Authorized Alpha-Stim® Distributors and international distributors are required to sell only Alpha-Stim® brand replenishable supplies. EPI has gone to great lengths to research and procure the highest quality electrodes available. They cost us more than some cheaper brands sell for at retail. However, the benefits in terms of efficacy are well demonstrated. It does not make sense to represent a quality instrument like the Alpha-Stim® and then supply inferior accessories. 6. Distributor may not use any trademarks owned by EPI in any manner without the prior written consent of EPI except that Authorized Alpha-Stim® Distributors may maintain listings under the name "Alpha-Stim®" in telephone books and yellow pages and other recognized business directories in their geographic market and on their business cards as "Authorized Alpha-Stim® Distributor." EPI hereby grants Distributor (and its sales representatives) a non-exclusive, non-assignable right and license without the right to sublicense, to use the trademark "Alpha-Stim®" in such listings and in connection with the sale of Products but for no other purpose. Such right and license shall terminate upon the termination of any distributorship. Upon such termination Distributor shall withdraw all such listings and cease to use such trademark for any purpose whatsoever. 7. In some select market areas, EPI offers credit terms to Alpha-Stim® Distributors with whom it has a long-standing relationship. To remain "active" and qualify for all of EPI's distributor support programs, distributors must keep their accounts current. EPI is in an aggressive international growth phase and is utilizing significant financial resources to better serve our distributors. We have been lenient in some cases due to extenuating circumstances only to be taken advantage of. Therefore, effective immediately, any past due accounts will be assessed finance charges as indicated in our published pricing. Payments apply to finance charges first, then to unpaid balances. No advertising accruals, bonuses or rebates are available while an amount is delinquent and quantities on delinquent invoices will not be applied toward required minimums for maintenance of distributor status. Delinquent accounts will be assessed a surcharge on all subsequent orders until the past due amount is paid. Credit terms are not available in all market areas and then, only at EPI's discretion. 8. The maximum credit line granted to any account is $10,000 and all credit lines depend upon payment history and initial credit approval. If an order brings the distributor's account above their allowed maximum, the account must be paid down to accommodate the excess or the order must be paid for in advance. If an account has insufficient credit history to obtain credit under our existing programs, at the discretion of EPI's Chief Financial Officer, an active distributor may be granted an initial credit line based upon one-third down on orders until a credit history is established to EPI's satisfaction. On NET 30 pricing, we will accept 1/3 down with the balance due in 30 days, after which you will have established a credit line for the full amount. All balances must be paid prior to utilizing the increased credit line. EPI may require that any open balances be paid prior to granting additional credit until such history is established. Any account more than 60 days past due will automatically lose their credit line, be put on C.O.D. or cash terms and subsequent orders will not be shipped without an additional payment of at least 10% against past due amounts. Any payment with a check that is returned for non-sufficient funds (NSF) will be required to pay in advance and future orders will not be released for shipment until the funds hav