China Medicine Corporation (CHME)

[ratobranco]

CHME - Deal Yields Incoherent Result? No Dilution?

I really want to urge people to take a closer look at the share subscription agreeemnt between CHME and OEP. I know that it's painful for the brain, but there is a lot of money to be made here if the makegood aspect of the share subscription agreeement turns out to be uneforceable due to generating an incoherent result. With rATDZ, uplisting, and the Wall Street credibility that comes from being majority owned by JP Morgan, CHME is an easy one year double from here--long term probably a ten bagger. The only obstacle is the share subscription agreement, specifically, the possibility that current shareholders could suffer further dilution. And what I'm saying is that it might not be an enforceable agreeement.

The problem has to do with the interpretation of the following phrases:

(1) "Total Number of Equity Securities of the Company Issued and Oustanding on a Fully Diluted Basis"

(2) "Total Number of Common Shares on a Fully Diluted Basis"

The term "Company" is defined to mean China Medicine Corporation.

The phrase "Fully Diluted Basis" is defined as follows:

“Fully Diluted Basis” means (i) the number of Common Shares which would be outstanding if all securities convertible into or exchangeable for Common Shares held by all Person were converted or exchanged in full and (ii) as applied to a particular Person, the number of Common Shares which would be held by such Person if all securities convertible into, exchangeable for or exercisable for Common Shares held by such Person were converted or exchanged or exercised in full.

The question is, is there any difference between (1) and (2)? If so, what is the difference? How do we interpret these phrases?

I've written an excel spreadsheet that calculates the number of shares to be given to OEP upon various interpretations of phrases (1) and (2). The first interpretation only gives a coherent result if EBITDA falls below ~ $8M, which is 66% of 2009 EBITDA, hardly a concern at this point. I get incoherent results for the second and third interpretations. The fourth interpretation yields coherent results, but it doesn't make sense linguistically, and it involves a use of phrase (2) that is in conflict with the way the same phrase is used in other parts of the document.

http://webspace.utexas.edu/bdp366/CHME_OEP_Analysis.xls

I could easily be missing something obvious, so I need some backup here. I already have a position, but if this agreement is not going to mean anything, then I want a bigger position. At the current prices, much bigger.

I have an email in to Crocker Coulson, he's supposed to get back to me. I'll let people know what comes of this.