China Discovery: to Acquire Instant Noodle Maker Si Mei Te

Beijing / CN. (prn) China Discovery Acquisition Corporation and privately-held HeNan Smart Food Company (Si Mei Te) announced that they have entered into a definitive share exchange agreement whereby China Discovery will issue 14,7 million shares and cash consideration of 3,0 million USD in exchange for 100 percent of Si Mei Te, subject to China Discovery shareholder approval.

Si Mei Te is a leading instant noodle producer in China, the largest instant noodle market in the world. Si Mei Te produces and sells its products under several well-known brands and is ranked among the top five instant noodle producers in China based on market share.

The Transaction

Under the terms of the transaction, China Discovery will acquire 100 percent of Si Mei Te in exchange for 14,7 million USD newly issued shares of China Discovery and cash consideration of 3,0 million USD (representing total transaction consideration of approximately 87,4 million USD based upon the closing price for a China Discovery ordinary share of 5,74 on April 13, 2009). After the closing, China Discovery will have approximately 21,8 million USD basic shares outstanding and 24,4 million USD fully diluted shares outstanding. Si Mei Te current shareholders will own approximately 67,4 percent of the basic shares outstanding and 60,3 percent of the fully diluted shares outstanding in the pro-forma company.

In addition, pursuant to an earn-out provision in the share exchange agreement, China Discovery has agreed to issue to Si Mei Te´s shareholders up to 6,8 million USD additional shares if the following net income targets are achieved (calculated on a U.S. GAAP basis).

• Net income for the fiscal year ending December 31, 2009 of at least 30,0 million USD, the Si Mei Te´s shareholders will be issued an additional 1,8 million shares.
• Net income for the fiscal year ending December 31, 2010 of at least 40,0 million USD, Si Mei Te´s shareholders will be issued an additional 2,5 million shares.
• Net income for the fiscal year ending December 31, 2011 of at least 52,0 million USD, Si Mei Te´s shareholders will be issued an additional 2,5 million shares.

Si Mei Te´s shareholders will also be eligible to receive a cash payment of 5,0 million USD in the event that 75 percent or more of China Discovery´s publicly traded warrants are exercised prior to their expiration on June 17, 2011.

The transaction is subject to approval by the holders of China Discovery´s ordinary shares and other customary closing conditions. Upon the closing of the transaction, which is anticipated to occur by the end of the second quarter of 2009, China Discovery will change its name to Si Mei Te Corporation.

The senior management of Si Mei Te is expected to remain unchanged following the transaction. Under the definitive agreements Si Mei Te´s current shareholders have the right to designate four of seven Board members, China Discovery´s management has the right to designate two of seven Board members, and Si Mei Te´s current shareholders and the China Discovery´s management will have the right to collectively designate the one remaining Board member. A majority of the Board is expected to be composed of independent non-executive members.

Statements

Youli Wang, Chairman and Founder of Si Mei Te stated: «We are very excited about the transaction with China Discovery. We see many benefits from this combination. This transaction will allow us to augment our management team with broader international and industry experience. Moreover, with more flexible access to U.S. capital markets, we expect to rapidly strengthen our competitive position».

Beatrice Hom, Chief Operating Officer for China Discovery stated: «Among our investment criteria was finding a company with a great management team. The management team of Si Mei Te impressed us with their organizational skills, their understanding of the marketplace and their competitiveness. The company is very well positioned to grow. We are very fortunate to have the opportunity to work with Si Mei Te team».

Business Overview

Si Mei Te produces and sells its products under several well-known brands and is ranked among the top five instant noodle producers in China based on market share of 5,2 percent in 2007, according to China Merchant Security. Si Mei Te sold 1,7 billion packages of noodle products in 2008 through its extensive distribution network consisting of approximately 1’000 distributors in 22 provinces. The Company focuses its sales and marketing on secondary cities and counties, which account for approximately 70 percent of the noodle market in China. Si Mei Te currently has two production facilities consisting of 21 processing lines with a production capacity of 2,3 billion packages of noodles. Si Mei Te plans to acquire two additional production facilities after the completion of this transaction.

Si Mei Te markets its noodle products under seven distinct brands with varying tastes and formulas tailored to different demographic groups. The brands include: «Si Yuan», «Gou Wei», «Shi Shang», «Si Mei Te», «Zi Ran Yi Pai», «Super Si Mei Te», «Crispy Noodle».

China is the world´s largest instant noodle market, representing approximately 50 percent of the world´s consumption. Currently the market consists of many small instant noodle producers lacking significant scale and a well-recognized brand. Si Mei Te believes that there exists significant consolidation opportunities within the industry and plans to expand its production capacity and distribution capabilities through selective acquisitions. Additionally, Si Mei Te plans to expand its scale by building additional production and sales capacities and expanding into new food products.

About: China Discovery Acquisition Corporation, a Cayman Islands corporation, is a special purpose acquisition company formed for the purpose of acquiring an operating business having its principal operations located in the People´s Republic of China. China Discovery consummated its initial public offering on June 18, 2007 and generated aggregate gross proceeds of 34,5 million USD.