China One Corporation
TSX VENTURE : CHO.P

China One Corporation

May 15, 2008 16:48 ET

China One Corporation Announces Acquisition of IND Lifetech Group Ltd. as Its Qualifying Transaction

VANCOUVER, BRITISH COLUMBIA--(Marketwire - May 15, 2008) - 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.

The TSX Venture Exchange has in no way passed upon the merits of the proposed transaction and has neither approved nor disapproved the contents of this news release. The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this release.

Contact Information

  • China One Corporation
    Jay Hussey
    Vice President, Corporate Finance
    (416) 482-1411
    (416) 869-1101 (FAX)
    Email: jayhussey@morganbridge.com
    or
    China One Corporation
    Paul Haber
    Director
    (416) 631-4829
    (416) 632-4829 (FAX)
    Email: ph@haberandco.com