Item 1.01 Entry into a Material Definitive Agreement
Exclusive Manufacturing, Marketing and Distribution Agreement
On February 6, 2008, CirTran Corporation (the "Company"), entered into
an Exclusive Manufacturing, Marketing and Distribution Agreement (the "Exclusive
Agreement") with Shaka Shoes, Inc., a Hawaii corporation ("Shaka").
Pursuant to the Exclusive Agreement, Shaka granted to the Company the
right to be the exclusive worldwide master manufacturer of Hawaiian footwear and
related accessories under the Shaka Gear brand (the "Products"). Shaka agreed
that it would not cause or permit any Product not manufactured by or under the
supervision of the Company to be manufactured, imported, sold or distributed,
nor would it permit its affiliate, Shaka Gear, Inc., to manufacture, sell or
distribute any footwear or related accessories not manufactured by or under the
supervision of the Company.
As compensation for its services rendered pursuant to Section 1(a) of
the Agreement, the Company will be reimbursed by Shaka for the cost of goods
sold ("COGS") together with an amount equal to 20% of COGS. Under the Exclusive
Agreement, "COGS" includes all actual and verifiable third party costs,
including the actual cost of Product payable to the manufacturing vendor, the
cost of any consultants requested by Shaka pursuant to the Exclusive Agreement,
any third party shipping, handling or fulfillment costs and other costs that
generally accepted accounting principles, consistently applied, require the
Company to classify as costs of goods sold as well as, without duplication, the
charges of all vendors and subcontractors (the "Vendors"). The parties agreed
that the Company shall retain from payments received from distributors and
customers (including itself with respect to the Territory) pursuant to the
Exclusive Agreement the amounts owing to the Company as compensation. The
Company also agreed to give Shaka a monthly report of COGS and gross proceeds
received as vendor of record ("Monthly Reports") within 30 days after the end of
each calendar month reporting COGS and gross proceeds for the calendar month
being reported upon.
Additionally, pursuant to the Exclusive Agreement, Shaka granted to the
Company the right to be the exclusive master distributor of all products sold in
the Territory, defined in the Exclusive Agreement as the United States of
America including its territories, possessions and protectorates. Under the
Exclusive Agreement, the Company will purchase Product from the vendor of record
and will resell the Products in the Territory on such terms as the Company in
its reasonable business judgment may determine.
In connection with sales and distribution of the Products, the Company
agreed to pay Shaka a monthly royalty (the "Royalty") on Gross Sales of Products
in the Territory. The Exclusive Agreement defines "Gross Sales" to mean the
gross amount received by the Company (in its capacity as master distributor) for
the sale of the Products but, with certain exceptions, does not include
separately stated charges for shipping, handling, insurance or taxes and in any
event is net of any returns, markdowns, charge backs, credit card discounts,
rebates, refunds and similar charges.
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The initial term of the Exclusive Agreement runs from February 1, 2008
(the "Effective Date") through December 31, 2010. The Agreement automatically
renews for two additional renewal terms of three years each unless Shaka
notifies the Company or the Company notifies Shaka in writing of its intent not
to renew by September 30 of the year in which the initial or additional term
will terminate. If the Agreement is not renewed by Shaka beyond the Initial Term
and the Renewal Terms, the parties agreed that the Company will continue to
receive a 10% commission on all Gross Sales after such initial term or renewal
term on all Products and any future products sold to any customer in the
Territory that was a customer of the Company for the Products on the date of
termination of the Agreement.
Under the Exclusive Agreement, the parties agreed that as Shaka
develops additional footwear and related accessories, the parties will mutually
agree to identify them as Products on an addendum to the Exclusive Agreement,
which addendum shall at the time of execution be deemed a part of the Exclusive
Agreement.
The foregoing summary of the terms and conditions of the Exclusive
Agreement does not purport to be complete and is qualified in its entirety by
reference to the full text of the agreement attached as an exhibit hereto, and
which is hereby incorporated herein by reference.