Funtalk China Holdings (NASDAQ:FTLK)

In July 2009, pursuant to a merger agreement among the Company, Pypo Digital Company Limited ("Pypo Digital"), Arch, Capital Ally and certain other parties, the Company effected a business combination where Pypo Digital's then shareholders, Arch and Capital Ally, transferred all the issued and outstanding shares of Pypo Digital to the Company in exchange for 45,000,000 ordinary shares and 3,400,000 Class B warrants of the Company and the rights to receive up to an additional 23,000,000 ordinary shares under an earn-out provision in the merger agreement, based on the adjusted net income of the Company in the fiscal years 2010, 2011 and 2012. On June 30, 2010, Arch and Capital Ally signed a waiver letter to waive their rights to receive the earn-out shares under the merger agreement.

The 23,000,000 earn-out shares will be issued to the Pypo shareholders as follows:

10,000,000 earn-out shares will be issued to the Pypo shareholders if MK Cayman’s adjusted net income during either of the fiscal years ending March 31, 2010 or 2011 equals or exceeds $54,000,000; and

13,000,000 earn-out shares will be issued to the Pypo shareholders if MK Cayman’s adjusted net income during either of the fiscal years ending March 31, 2011 or 2012 equals or exceeds $67,000,000.

Note: The earn-out provision has been waived by Arch and Capital Ally.