Item 1.01 Entry into a Material Definitive Agreement.
On November 15, 2013, the Company’s subsidiary, Medican (Delta) Systems Inc. (“Medican Delta”) entered into a management services agreement (the “Management Services Agreement”) with IHL Medical Marijuana Inc. (“IHL”) and LFG Advisory Ltd. and LFG Advisory & Accounting Ltd. (“LFG”). Under the terms of the Management Services Agreement, the Company acquired the rights to certain services to be performed by IHL and LFG.
IHL and LFG agree to promote and develop the business of Medican Delta and assist Medican Delta with obtaining licensed producer status from Health Canada through a three-phase process. The period between November 15, 2013 and January 4, 2014 establishes the first phase of the Management Services Agreement (“Phase One”). During Phase One, LFG agrees to provide Medican Delta with consulting services for entering into formal relationships. IHL agrees to help Medican Delta obtain an application from Health Canada. Medican Delta agrees to pay IHL CAD$225,000 plus applicable taxes, and LFG CAD$50,000 plus applicable taxes during Phase One. To date, the Company has paid $100,000 under Phase One of the Agreement.
The period between January 4, 2014 and January 15, 2014 establishes the second phase of the Management Services Agreement (“Phase Two”). During Phase Two, LFG agrees to provide Medican Delta with consulting services to develop facilities and a business infrastructure necessary for the legal distribution of Medican Delta’s products. IHL agrees to assist in the development of a facility to produce and distribute Medican Delta’s products, hire employees, develop processes for profitability, ensure compliance with applicable laws, and prepare a site for final government approval. Medican Delta agrees to pay IHL CAD$225,000 plus applicable taxes, and LFG CAD$50,000 plus applicable taxes during Phase Two. The Company agreed on January 10, 2014 that in the event that any of the deadlines set forth in the Agreement pass without complete satisfaction of the payment or performance outlined in the Agreement, the parties will work in good faith to re-establish reasonable deadlines and work together to see the milestones outlined in the Agreement to fruition.
The third phase of the Management Services Agreement commences after the completion of Phase Two and runs until a date of completion to be agreed upon by the parties (“Phase Three”). During Phase Three, LFG will provide Medican Delta with consulting services to develop facilities and business infrastructure necessary to operate its business. IHL agrees to assist Medican Delta with the development of a strategic plan regarding all aspects of operating a lawful business. Medican Delta agrees to pay IHL CAD$9,500 per month plus applicable taxes, and LFG CAD$8,000 per month plus applicable taxes during Phase Three.
In addition to the payments mentioned above, during Phase One and Phase Two, Medican Delta agrees to pay IHL and LFG an amount equal to two percent (2%) of all money procured from investors, and IHL and LFG agree to share this money equally. In addition, LFG and Medican Delta agree to an independent contractor relationship between the parties.
2.01 Completion of Acquisition or Disposition of Assets
As stated in Item 1.01 above, on November 15, 2013, the Company acquired the rights to the services to be performed under the Management Services Agreement. As the acquisition of these rights has caused the Company to cease being a “shell company” (see Item 5.06 below), pursuant to Item 2.01(f), this Form 8-K includes the information required on a Form 10 registration statement.