China One Corporation ("China One") (TSX VENTURE:CHO.P) is pleased to announce
that it has entered into a letter of intent (the "LOI") dated effective May 7,
2008 with IND Lifetech Group Ltd. ("IND"), a Cayman Islands company, for the
acquisition of all the issued and outstanding securities of IND (the
"Acquisition"). IND is an emerging raw milk producer in China focused on
providing China's $10 billion dairy market with high quality raw milk.
It is anticipated that the Acquisition will constitute China One's Qualifying
Transaction under the applicable policies of the TSX Venture Exchange (the
"Exchange"). The principle elements of the Acquisition, which are described in
greater detail below, are:
- post-Acquisition, IND will become a wholly-owned subsidiary of China One and
the business of IND will become the business of China One;
- the closing of a concurrent private placement financing of IND of $20 million
with an over allotment option for an additional $5 million (the "Private
Placement");
- the consolidation of the issued and outstanding common shares of China One on
a three-for-one basis (the "Consolidation"); and
- the continuation of Mr. Guocai Liu, Chairman, President and Chief Executive
Officer of China One, as a board member and strategic advisor to China One.
- post-Acquisition and Private Placement, China One is expected to have between
121,153,333 and 126,486,667 common shares outstanding on a non-diluted basis,
which represents a 3.2% to 3.0% interest for existing China One shareholders (or
between 127,820,000 and 133,153,333 common shares if the over-allotment option
is exercised in full representing a 3.0% to 2.9% interest for existing China One
shareholders).
Commenting on the Acquisition, Mr. Guocai Liu stated "We have examined a
significant number of potential businesses opportunities over the last 10 months
and we are pleased to have successfully negotiated the LOI with IND. IND's
current business and future growth potential presents an exciting opportunity to
maximize value for the shareholders of China One."
IND has, through innovation and the use of advanced breeding techniques,
accumulated one of the largest herds of Canadian Holstein cows in China. Since
1999, IND has focused on adopting and improving in vitro fertilization ("IVF")
embryo transfer technology in bovine species with the sole purpose of exporting
IVF embryos with Canadian Holstein genetics to China. The exporting of IVF
embryos allows IND to circumvent the current restrictions placed on the
exportation of cattle from Canada to China. Using gender selection technology,
IND is able to produce female heifers at a 90+% success rate. This, in
combination with IND's multiple birth strategy, is expected to result in the
exponential growth in IND's herd.
China is the third largest dairy producer in the world. China's dairy market is
currently expected to nearly double from $10.7 billion in 2005 to $19.6 billion
in 2010. The majority of this growth is the result of increased demand for
higher value products (cheese, desserts and yogurt), which require higher
quality raw milk (i.e. higher fat and protein content) for their production.
Despite the relative size of the market, China's per capita dairy consumption
rates remain low relative to other developed nations. The Chinese government is
promoting dairy consumption and is providing significant support for this
industry in the form of consumption incentives, production incentives,
favourable tax treatment and increased focus on quality.
The supply of raw milk in China is highly fragmented, mostly being produced by
small scale local farmers who do not implement modern dairy practices and who
use the milk mainly as a supplemental source of income, which has lead to a
shortage of high quality milk. IND has focused on Canadian Holstein cows due to
their world recognized superior genetics and milk yields. Canadian Holstein cows
produce, on average, approximately 9,500 kg of raw milk per year versus the
average Chinese cow, which yields approximately 4,000 kg of raw milk per year.
Furthermore, Canadian Holstein cows produce milk of much higher quality, with
higher levels of fat and protein. IND's goal is to provide China with enough raw
milk to meet its present and future demands and to ensure that China's raw milk
quality is equal to worldwide standards.
Before the completion of the Acquisition, it is intended that IND will complete
a private placement of common shares (each, an "IND Share") at a price (the
"Private Placement Price"), subject to the approval of the Exchange, of $0.75
per IND Share for gross proceeds of approximately $20 million. Canaccord Capital
Corporation (the "Agent") has been retained as the lead agent for the Private
Placement. IND will also grant to the Agent an option (the "Over-Allotment
Option") exercisable in whole or in part to offer for sale up to an additional
$5 million of IND Shares. The net proceeds from the Private Placement will be
used by IND to: (a) fund IND's business plan, (b) pay for the transaction
expenses, and (C) for general working capital.
It is currently anticipated that, before the Acquisition, China One will
continue to the jurisdiction of the Cayman Islands (the "Continuation"). The
Acquisition will be completed by way of an amalgamation or share exchange with
China One or a wholly owned subsidiary of China One.
Subject to shareholder approval, China One will complete the Consolidation,
pursuant to which existing China One securities will be consolidated on a
three-for-one basis, such that existing China One shareholders will hold
approximately 3,820,000 post-Consolidation common shares immediately before the
Acquisition. Before the Consolidation, China One is expected to have outstanding
director and employee share options to acquire 1,130,000 common shares at an
exercise price of $0.10 per share (the "China One Options"). It is expected that
the holders of the China One Options will retain such options subsequent to the
completion of the Acquisition in accordance with the current share option plan.
In addition, before the Consolidation, China One is expected to have outstanding
agent's options to acquire 640,000 common shares at an exercise price of $0.10
per share that were issued in connection with China One's initial public
offering (the "China One Warrants"). Post-consolidation, there will be
outstanding, 376,667 China One Options and 213,333 China One Warrants, each with
an exercise price of $0.30.
The common shares of China One to be issued to the shareholders of IND will be
issued pursuant to exemptions from the prospectus requirements of the applicable
securities legislations, and may be subject to resale restrictions as required
under the applicable securities legislation and escrow conditions as required by
the Exchange.
Following the completion of the Acquisition and the Consolidation, China One is
expected to have between 121,153,333 and 126,486,667 common shares outstanding
on a non-diluted basis (or between 127,820,000 and 133,153,333 common shares if
the Over-Allotment Option is exercised in full). By the closing of the
Acquisition and subject to Exchange approval, China One intends to enter into an
agreement with Mr. Liu to retain Mr. Liu to act as a financial and strategic
advisor to China One (the "Financial and Strategic Advisor Agreement"). The
Financial and Strategic Advisor Agreement will be for a minimum of two years.
Mr. Liu is also the Chief Executive Officer of Migao Corporation ("Migao")
(TSX:MGO). Migao, through its wholly owned subsidiaries, owns and operates
fertilizer production plants in various strategic locations across China for the
production and sale of specialty potash fertilizer (potassium nitrate and
potassium sulphate) to China's agricultural market.
The completion of the Acquisition is subject to a number of conditions
including, but not limited to, the following:
1. the execution of a definitive agreement with respect to the Acquisition (the
"Definitive Agreement");
2. the approval of the Consolidation and Continuation by the shareholders of
China One at a properly constituted meeting of the common shareholders of China
One;
3. the approval of the Acquisition by the shareholders of IND at a properly
constituted meeting of the common shareholders of IND;
4. the completion of the Private Placement;
5. the entering into of the Financial and Strategic Advisor Agreement;
6. the receipt of all necessary regulatory, corporate and third party approvals,
including the approval of the Exchange, and compliance with all applicable
regulatory requirements and conditions in connection with the Acquisition;
7. the maintenance of China One's listing on the Exchange;
8. the confirmation of the representations and warranties of each party to the
Definitive Agreement as set out in such agreement;
9. the absence of any material adverse effect on the financial and operational
condition or the assets of each of the parties to the Definitive Agreement;
10. the delivery of standard completion documentation including, but not limited
to, legal opinions from Canadian and Chinese legal counsels, officers'
certificates and certificates of good standing; and
11. other conditions precedent customary for a transaction such as the Acquisition.
The completion of the Acquisition is intended to occur on the tenth business day
following the satisfaction or waiver of the conditions precedent or such other
date as is mutually agreed to by the parties, but in any event no later than
September 1, 2008. If the Acquisition is not completed on or before September 1,
2008, the terms of the LOI or the Definitive Agreement (if applicable) will be
terminated. Each of China One and IND will be responsible for the payment of its
own costs and expenses incurred in connection with the Acquisition. China One
will also be responsible for the payment of 50% of the work fee, sponsorship fee
and related costs and expenses of the Agent for the Private Placement and the
sponsor for the Qualifying Transaction.
China One has called a shareholders' meeting to be held in June 2008 to
consider, among other things, the Consolidation and the Continuation. It is
expected that the principal shareholders of China One, including Mr. Liu, Jay
Hussey, Paul Zhang, Paul Haber, Edmond Luke and Peter Stafford will enter into a
voting support agreement to approve the Consolidation and the Continuation at
the meeting of the China One shareholders.
It is the intention of China One and IND to establish and maintain a board of
directors with a combination of appropriate skill sets and is compliant with all
regulatory and corporate governance requirements, including any applicable
independence requirements. The board of directors of China One currently
consists of five members. Upon completion of the Transaction, the board of China
One will be increased to six members: four of the six members will be nominated
by IND, who are expected to be Mr. Jesse Zhu and three other nominees of IND;
two of the six members will be nominated by China One, who are expected to be
Mr. Liu and one other nominee of China One acceptable to IND, acting reasonably.
IND is majority owned and controlled by Mr. Zhu and associates and affiliates of
Mr. Zhu. Mr. Zhu is the founder, President and Chief Executive Officer of IND.
Mr. Zhu, graduated from Beijing Union Medical College with a master degree in
cell biology. He was one of the original founders of International Newtech
Development in 1991, and was primarily engaged in the product development for
immunology and diagnostics. He spearheaded the establishment of IND in 1999.
China One, a capital pool company within the meaning of the policies of the
Exchange, was incorporated in January 2007 and was listed on the Exchange in
July 2007. China One does not have any operations and has no assets other than
cash. China One's business is to identify and evaluate businesses and assets
with a view to completing a Qualifying Transaction under the policies of the
Exchange.
Trading in the common shares of China One has been halted on the Exchange since
May 12, 2008 and will resume trading on the completion of the Acquistion.
Except for statements of historical fact, all statements in this news release,
including, but not limited to, statements regarding future plans, objectives and
payments are forward-looking statements that involve various risks and
uncertainties.
Completion of the transaction is subject to a number of conditions, including
but not limited to, TSX Venture Exchange acceptance and, if applicable pursuant
to TSX Venture Exchange requirements, majority of the minority shareholder
approval. Where applicable, the transaction cannot close until the required
shareholder approval is obtained. There can be no assurance that the transaction
will be completed as proposed or at all.
Investors are cautioned that, except as disclosed in the management information
circular or filing statement to be prepared in connection with the transaction,
any information released or received with respect to the transaction may not be
accurate or complete and should not be relied upon. Trading in the securities of
a capital pool company should be considered highly speculative.
Canaccord Capital Corporation, has agreed to act as agent, and if required by
the TSX Venture Exchange as sponsor in connection with the transaction. An
agreement to sponsor should not be construed as any assurance with respect to
the merits of the transaction or the likelihood of completion.
FORWARD LOOKING INFORMATION
Certain information in this news release is forward-looking within the meaning
of certain securities laws, and is subject to important risks, uncertainties and
assumptions. This forward-looking information includes, among other things,
information with respect to China One's beliefs, plans, expectations,
anticipations, estimates and intentions, the completion of a private placement
of IND Shares by IND, China One's acquisition of IND Shares in exchange for
China One common shares pursuant to prospectus and registration exemptions, the
execution of a definitive agreement for the Acquisition, the establishment of a
new China One board of directors, and the activities of IND after the
Acquisition. The words "may", "could", "should", "would", "suspect", "outlook",
"believe", "anticipate", "estimate", "expect", "intend", "plan", "target" and
similar words and expressions are used to identify forward-looking information.
The forward-looking information in this news release describes China One's
expectations as of the date of this news release.
The results or events anticipated or predicted in such forward-looking
information may differ materially from actual results or events. Material
factors which could cause actual results or events to differ materially from
such forward-looking information include, among others, risks arising from
general economic conditions and adverse industry events, risks arising from
operations generally, reliance on contractual rights such as licences and leases
in the conduct of its business, reliance on third parties for sales of product,
fluctuations in raw milk prices in China, reliance on key personnel, market
acceptance of IND's raw milk, the need to protect intellectual property and
other proprietary rights, possible failure of the business model or business
plan or the inability to implement the business model or business plan as
planned, fluctuations in the cost of materials such a livestock feed,
fluctuations in the exchange rate, regulation of offshore or cross-border
transactions by the government of China, competition, environmental matters, and
insurance or lack thereof. Risks associated with doing business in China include
risks arising from state ownership, economic control measures instituted from
time to time by China, governmental intervention and influence over industry,
adequacy of infrastructure, regulations relating to capital projects and quality
standards, foreign investment, repatriation of profits and currency conversion,
income tax, land use rights, appropriation and expropriation, permits and
licences, as well as risks associated with a developing legal system,
shareholder rights and enforcement of judgments. Any requirement to obtain
Chinese governmental approvals prior to completion may delay the Acquisition and
a failure to obtain the approvals may create uncertainties for the Acquisition
or otherwise adversely affect China One. Also, the land occupied by one of the
facilities of IND is under a lease from a rural collective authority, is
collectively owned and is designated for agricultural or township collective
enterprise use only. The grant of industrial land use rights to IND by the rural
collective authority does not comply with Chinese land administration law and,
accordingly, the land use rights may not be enforceable.
China One cautions that the foregoing list of material factors is not
exhaustive. When relying on China One's forward-looking information to make
decisions, investors and others should carefully consider the foregoing factors
and other uncertainties and potential events. China One has assumed a certain
progression, which may not be realized. It has also assumed that the material
factors referred to in the previous paragraph will not cause such
forward-looking information to differ materially from actual results or events.
However, the list of these factors is not exhaustive and is subject to change
and there can be no assurance that such assumptions will reflect the actual
outcome of such items or factors.
THE FORWARD-LOOKING INFORMATION CONTAINED IN THIS NEWS RELEASE REPRESENTS THE
EXPECTATIONS OF CHINA ONE AS OF THE DATE OF THIS NEWS RELEASE AND, ACCORDINGLY,
IS SUBJECT TO CHANGE AFTER SUCH DATE. READERS SHOULD NOT PLACE UNDUE IMPORTANCE
ON FORWARD-LOOKING INFORMATION AND SHOULD NOT RELY UPON THIS INFORMATION AS OF
ANY OTHER DATE. WHILE CHINA ONE MAY ELECT TO, IT DOES NOT UNDERTAKE TO UPDATE
THIS INFORMATION AT ANY PARTICULAR TIME.
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