China Medicine Corporation (OTC Bulletin Board: CHME) ("China Medicine" or "the Company"), primarily a leading distributor and a developer of Western pharmaceuticals, traditional Chinese medicines ("TCM"), and other nutriceuticals today announced that it has entered into a Stock Subscription Agreement for an equity private placement (the "Subscription Agreement") with One Equity Partners ("OEP"), the global private equity investment arm of JPMorgan Chase & Co.
China Medicine is OEP\'s first investment in Greater China and reflects the firm\'s commitment to back aspirational management teams to accelerate the growth of their businesses.
Subject to certain closing conditions, OEP has agreed to purchase 4,000,000 of the Company\'s common shares at $3.00 per share and 1,920,000 of the Company\'s redeemable convertible preferred shares at $30 per share, for an aggregate purchase price of $69.6 million. Each redeemable convertible preferred share is initially convertible into ten common shares. At closing, the Company will receive $12 million in proceeds while the remaining $57.6 million in proceeds will be placed in escrow until released to fund additional capital expenditures and acquisition projects.
China Medicine expects to use the net proceeds of the financing for capital expenditures relating to its recent acquisition of Life Tech Pharmaceuticals Co. Ltd. ("LifeTech"), for working capital purposes, and for future expansion and/or acquisition projects subject to approval from OEP and the Company\'s board of directors.
"We are delighted by OEP\'s endorsement of our business strategy as we move higher in the pharmaceutical value chain by combining manufacturing capabilities with our nationwide distribution network and exciting new products," said Mr. Senshan Yang, Chairman and CEO of China Medicine. "These include our proprietary recombinant Aflatoxin Detoxifizyme (rADTZ), a novel product for removing aflatoxins found in food and animal feed that we believe holds significant potential for future growth. Going forward, our strategy is to focus on developing and building brand recognition nationally to enhance the value of our enterprise."
Ryan Shih, resident partner for OEP based in Hong Kong, said, "OEP is very impressed with China Medicine\'s management team. With the Life Tech acquisition, the Company is transforming into a vertically integrated distributor and developer of compelling products with attractive growth potential. The Company has established a leading position in China\'s fast-growing pharmaceutical market, and we believe that the management team has the vision to capitalize on an extensive distribution network for medicines as well as develop innovative new products including new medicines and other products such as rADTZ."
Under the Subscription Agreement, the Company has set a target of achieving $25 million in earnings before taxes, interests, depreciation and amortization (EBITDA) assuming that the Company completes certain other acquisitions in fiscal 2010. If such acquisitions are not completed during fiscal year 2010, then the Company will target a correspondingly lower EBITDA.
The common shares, including the common shares issuable upon the conversion of the redeemable convertible preferred shares that will be offered in the private placement have not been registered under the Securities Act of 1933, as amended, or state securities laws, and may not be offered or sold in the United States without being registered with the Securities and Exchange Commission ("SEC") or through an applicable exemption from SEC registration requirements.