SHE SPDR MSCI USA Gender Diversity ETF

SCHEDULE 14C

(RULE 14C-101)

Information Statement Pursuant to Section 14(c) of the Securities Exchange Act of 1934

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x            Preliminary Information Statement

¨            Definitive Information Statement

¨            Confidential, for Use of the Commission Only (as permitted by Rule 14c-5(d)(2))

SHENGKAI INNOVATIONS, INC.

(Name of Registrant As Specified In Its Charter)

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¨            Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.

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(4)          Proposed maximum aggregate value of transaction:

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(4)           Date Filed:

SHENGKAI INNOVATIONS, INC.

No. 27, Wang Gang Road,

Jin Nan (Shuang Gang) Economic and

Technology Development Area

Tianjin, People’s Republic of China 300350  

INFORMATION STATEMENT

February __, 2010

GENERAL

This Information Statement is being distributed to the holders of record of the common stock, par value $.001 per share (“Common Stock”), of Shengkai Innovations, Inc., a Florida corporation (the “Company”), at the close of business on February __, 2010 (the “Record Date”) under Rule 14c-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Information Statement advises shareholders of actions taken and approved on February 8, 2010 by Wang Chen, Guo Wei, Michael Marks, Leng Jun and Mu Ruizhu, who comprise the Board of Directors, and ratified on February 8, 2010 by Long Sunny Limited, the holder of a majority of the Company’s outstanding shares of Common Stock (the “Majority Shareholder”), to approve and adopt the Company’s 2010 Incentive Stock Plan (the “Plan”).

 

The adoption of the Plan will not become effective until at least twenty (20) days after the date of the mailing of this Information Statement to the Company’s shareholders.

 

THIS IS NOT A NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS AND NO SHAREHOLDER MEETING WILL BE HELD TO CONSIDER ANY MATTER WHICH WILL BE DESCRIBED HEREIN. WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.

COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS

Compensation of Executive Officers

 

The following is a summary of the compensation we paid to our Chief Executive Officer and former Chief Executive Officers, John Vogel and Robert Jordan, for the two years ended June 30, 2009 and 2008. No executive officer received compensation in excess of $100,000 for any of those years.   

 

(1)	Wang Chen was appointed CEO and director of the Company on June 9, 2008. The compensation disclosed in this table represents salary received in his capacity as CEO of Tianjin Shengkai Industrial Technology Development Co., Ltd. (“Shengkai”).

(2)

John Vogel was appointed CEO of the Company on March 19, 2008 and director on February 14, 2008 and resigned from the position of CEO effective June 9, 2008. On June 9, 2008, Mr. Vogel received 6,000 shares of our common stock as consideration for services, and on June 9, 2008, the closing price for our common stock was $1.85.

(3)	Robert Jordan was appointed director and CEO of the Company in December 2004. He resigned from his position as director effective February 14, 2008 and from his position as CEO effective March 19, 2008.

The following is a summary of the compensation paid by Shengkai to Wang Chen, its Chief Executive Officer, and Guo Wei, its Chief Financial Officer, for the two years ended June 30, 2009 and 2008, respectively. No other executive officer of Shengkai received compensation in excess of $100,000 for any of those years.    

(1)	Wang Chen has been Chief Executive Officer of Shengkai since June 1994. He received $18,000 in the fiscal year ended June 30, 2009 and received no compensation in the fiscal year ended June 30, 2008.

(2)	Guo Wei was appointed Chief Financial Officer of Shengkai in February 2007. She received $15,000 in the fiscal year ended June 30, 2009 and received no compensation in the fiscal year ended June 30, 2008.

Employment Agreements

We have no employment agreements with any of our executive officers, except for an employment agreement entered into between Wang Chen and Shengkai effective as of December 1, 2000 and a confidentiality and non-compete agreement effective as of June 7, 2001. Pursuant to these agreements, Mr. Wang receives no set salary compensation for his services as Chief Executive Officer of Shengkai, but Shengkai provides for his government-mandated social security insurance fees and certain dormitory expenses. In the event that Mr. Wang leaves his position at Shengkai, he stands to receive a monthly confidentiality and noncompete payment of RMB 2,000 (approximately $293).

 

Outstanding Equity Awards at Fiscal Year End

 

During the year ended June 30, 2009, we did not grant any options to any officer.

Compensation of Directors for the Fiscal Year ended June 30, 2009

 

Our executive director, Wang Chen, and our director, Guo Wei, are not compensated for their service as directors.

On November 5, 2009, the Company increased the size of the board to five members and appointed Michael Marks, Leng Jun, and Mu Ruizhu to serve as independent directors of the Company.

Compensation for our independent director Michael Marks is set forth in an appointment letter with the Company dated November 5, 2009. He will be paid an annual fee of $40,000, payable on a quarterly basis. He will also be granted an option to purchase 150,000 shares of common stock of Company at a fixed exercise price of $3.00 per share. Such option shall be exercisable in three equal installments, the first being on the first anniversary of the date of grant.

Compensation for our independent director Leng Jun is set forth in an appointment letter with the Company dated November 5, 2009. He will be paid an annual fee of $25,000, payable on a quarterly basis. He will also be granted an option to purchase 80,000 shares of common stock of Company at a fixed exercise price of $3.00 per share. Such option shall be exercisable in four equal installments, the first being on the first anniversary of the date of grant.

Compensation for our independent director Mu Ruizhu is set forth in an appointment letter with the Company dated November 5, 2009. He will be paid an annual fee of $25,000, payable on a quarterly basis. He will also be granted an option to purchase 80,000 shares of common stock of Company at a fixed exercise price of $3.00 per share. Such option shall be exercisable in four equal installments, the first being on the first anniversary of the date of grant.

APPROVAL OF THE 2010 INCENTIVE STOCK PLAN

The board of directors believes that in order to attract and retain the services of executive and other key employees, it is necessary for us to have the ability and flexibility to provide a compensation package which compares favorably with those offered by other companies. Accordingly, in February 2010, the board of directors adopted, subject to stockholder approval, the 2010 incentive stock plan (the “2010 Plan”), covering 2,211,250 shares of common stock. Set forth below is a summary of the 2010 Plan, as amended, but this summary is qualified in its entirety by reference to the full text of the 2010 Plan, a copy of which is included as Appendix A to this information statement.

The 2010 Plan provides for the grant of incentive and non-qualified options and stock grants to employees, including officers, directors and consultants. The 2010 Plan is to be administered by a committee of not less than three directors, each of whom is to be an independent director.  The board has granted the compensation committee the authority to administer the 2010 Plan.

In February 2010, the compensation committee granted, subject to stockholder approval of the 2010 Plan, 2,211,250 shares to be issued under the 2010 Plan. Pursuant to the terms of their appointment letters, Michael Marks, Leng Jun, Mu Ruizhu, our independent directors are entitled to receive options to purchase common stock as follows: Michael Marks is entitled to purchase 150,000 shares of common stock of Company at a fixed exercise price of $3.00 per share, exercisable in three equal installments, the first being on the first anniversary of the date of grant. Leng Jun is entitled to purchase 80,000 shares of common stock of Company at a fixed exercise price of $3.00 per share, exercisable in four equal installments, the first being on the first anniversary of the date of grant. Mu Ruizhu is entitled to purchase 80,000 shares of common stock of Company at a fixed exercise price of $3.00 per share, exercisable in four equal installments, the first being on the first anniversary of the date of grant. These options will be made pursuant to the 2010 Plan, subject to stockholder approval of the 2010 Plan.

Federal Income Tax Consequences

The following is a brief summary of the federal income tax consequences as of the date hereof with respect to awards under the 2010 Plan for participants who are both citizens and residents of the United States.  This description of the federal income tax consequences is based upon law and Treasury interpretations in effect on the date of this information statement (including proposed and temporary regulations which may be changed when finalized), and it should be understood that this summary is not exhaustive, that the law may change and further that special rules may apply with respect to situations not specifically discussed herein, including federal employment taxes, foreign, state and local taxes and estate or inheritance taxes. Accordingly, participants are urged to consult with their own qualified tax advisors.

Non-Qualified Options

No taxable income will be realized by the participant upon the grant of a non-qualified option. On exercise, the excess of the fair market value of the stock at the time of exercise over the option price of such stock will be compensation and (i) will be taxable at ordinary income tax rates in the year of exercise, (ii) will be subject to withholding for federal income tax purposes and (iii) generally will be an allowable income tax deduction to us. The participant's tax basis for stock acquired upon exercise of a non-qualified option will be equal to the option price paid for the stock, plus any amounts included in income as compensation. If the participant pays the exercise price of an option in whole or in part with previously-owned shares of common stock, the participant's tax basis and holding period for the newly-acquired shares is determined as follows: As to a number of newly-acquired shares equal to the number of previously-owned shares used by the participant to pay the exercise price, no gain or loss will be recognized by the participant on the date of exercise and the participant's tax basis and holding period for the previously-owned shares will carry over to the newly-acquired shares on a share-for-share basis, thereby deferring any gain inherent in the previously-owned shares. As to each remaining newly acquired share, the participant's tax basis will equal the fair market value of the share on the date of exercise and the participant's holding period will begin on the day after the exercise date. The participant's compensation income and our deduction will not be affected by whether the exercise price is paid in cash or in shares of common stock. Special rules, discussed below under "Incentive Stock Options - Disposition of Incentive Option Shares," will apply if a participant surrenders previously-owned shares acquired upon the exercise of an incentive option that have not satisfied certain holding period requirements in payment of any or all of the exercise price of a non-qualified option.

Disposition of Option Shares

When a sale of the acquired shares occurs, a participant will recognize capital gain or loss equal to the difference between the sales proceeds and the tax basis of the shares. Such gain or loss will be treated as capital gain or loss if the shares are capital assets. The capital gain or loss will be long-term capital gain or loss treatment if the shares have been held for more than twelve months. There will be no tax consequences to us in connection with a sale of shares acquired under an option.

Incentive Stock Options

The grant of an ISO will not result in any federal income tax to a participant. Upon the exercise of an incentive option, a participant normally will not recognize any income for federal income tax purposes. However, the excess of the fair market value of the shares transferred upon the exercise over the exercise price of such shares (the "spread") generally will constitute an adjustment to income for purposes of calculating the alternative minimum tax of the participant for the year in which the option is exercised. As a result of the exercise a participant's federal income tax liability may be increased. If the holder of an incentive stock option pays the exercise price, in full or in part, with shares of previously acquired common stock, the exchange should not affect the incentive stock option tax treatment of the exercise. No gain or loss should be recognized on the exchange and the shares received by the participant, equal in number to the previously acquired shares exchanged therefor, will have the same basis and holding period as the previously acquired shares. The participant will not, however, be able to utilize the old holding period for the purpose of satisfying the incentive stock option holding period requirements described below. Shares received in excess of the number of previously acquired shares will have a basis of zero and a holding period, which commences as of the date the common stock is issued to the participant upon exercise of the incentive option. If an exercise is effected using shares previously acquired through the exercise of an incentive stock option, the exchange of the previously acquired shares will be considered a disposition of such shares for the purpose of determining whether a disqualifying disposition has occurred.

Disposition of Incentive Option Shares . If the incentive option holder disposes of the stock acquired upon the exercise of an incentive stock option (including the transfer of acquired stock in payment of the exercise price of another incentive stock option) either within two years from the date of grant or within one year from the date of exercise, the option holder will recognize ordinary income at the time of such disqualifying disposition to the extent of the difference between the exercise price and the lesser of the fair market value of the stock on the date the incentive option is exercised or the amount realized on such disqualifying disposition. Any remaining gain or loss is treated as a short-term or long-term capital gain or loss, depending on how long the shares were held prior to the disqualifying disposition. In the event of such disqualifying disposition, the incentive stock option alternative minimum tax treatment described above may not apply (although, where the disqualifying disposition occurs subsequent to the year the incentive stock option is exercised, it may be necessary for the participant to amend his return to eliminate the tax preference item previously reported).

Our Deduction . We are not entitled to a tax deduction upon either exercise of an incentive option or disposition of stock acquired pursuant to such an exercise, except to the extent that the option holder recognized ordinary income in a disqualifying disposition.

Stock Grants

A participant who receives a stock grant under the 2010 Plan generally will be taxed at ordinary income rates on the fair market value of shares when they vest, if subject to vesting or other restrictions, or, otherwise, when received. However, a participant who, within 30 days after receiving such shares, makes an election under Section 83(b) of the Code, will recognize ordinary income on the date of issuance of the stock equal to the fair market value of the shares on that date. If a Section 83(b) election is made, the holding period for the shares will commence on the day after the shares are received and no additional taxable income will be recognized by the participant at the time the shares vest. However, if shares subject to a Section 83(b) election are forfeited, no tax deduction is allowable to the participant for the forfeited shares. Taxes are required to be withheld from the participant at the time and on the amount of ordinary income recognized by the participant. We will be entitled to a deduction at the same time and in the same amount as the participant recognizes income.

New Plan Benefits

The following table sets forth information relating to the benefits that will be received by the following classes of persons.

The dollar value is based on the exercise price of the common stock options to be granted to the non-executive directors, subject to stockholder approval of the 2010 Plan.

Michael Marks, our independent director, is entitled to purchase 150,000 shares of common stock of Company at a fixed exercise price of $3.00 per share, exercisable in three equal installments, the first being on the first anniversary of the date of grant. Leng Jun, our independent director, is entitled to purchase 80,000 shares of common stock of Company at a fixed exercise price of $3.00 per share, exercisable in four equal installments, the first being on the first anniversary of the date of grant. Mu Ruizhu, our independent director, is entitled to purchase 80,000 shares of common stock of Company at a fixed exercise price of $3.00 per share, exercisable in four equal installments, the first being on the first anniversary of the date of grant.

Purpose of the Information Statement

This information statement is being furnished to you pursuant to Section 14 of the Exchange Act to notify the Company's shareholders as of the close of business on the Record Date of the 2010 Plan approved by the Board of Directors and ratified by the Majority Shareholder.

As outlined in this Information Statement, shareholders holding a majority of the Company's outstanding Common Stock have voted in favor of the 2010 Plan, which action is expected to take effect on or around March 10, 2010.

Notice

Each shareholder of Common Stock as of the Record Date will be entitled to notice of the 2010 Plan that has been approved by the Board of Directors and ratified by the requisite number of shareholders. The Majority Shareholder which held, as of the close of business on February 8, 2010, in excess of fifty percent (50%) of the Company's outstanding shares of Common Stock, has indicated that it has voted in favor of the 2010 Plan. Under Chapter 607.0704, Title XXXVI of the Florida Statutes, all the activities requiring shareholder approval may be taken by obtaining the written consent and approval of more than 50% of the holders of voting stock in lieu of a meeting of the shareholders. No action by the minority shareholders in connection with the 2010 Plan is required.

Outstanding Shares and Voting Rights

As of the Record Date, the Company's authorized capitalization consisted of 50,000,000 shares of Common Stock, of which [  ] shares were issued and outstanding.  Holders of Common Stock of the Company have no preemptive rights to acquire or subscribe to any of the additional shares of Common Stock.

Each share of Common Stock entitles its holder to one vote on each matter submitted to the shareholders.

Authorization by the Directors and the Majority Shareholder

Under Chapter 607.0205, Title XXXVI of the Florida Statutes and the Company’s Articles of Incorporation, any action required or permitted to be taken at a meeting of the board of directors or of a committee thereof may be taken without a meeting if, before or after the action, a written consent thereto is signed by all the members of the board or of the committee. Further, under Chapter 607.0704, Title XXXVI of the Florida Statutes and the Company’s Articles of Incorporation, any action that can be taken at an annual or special meeting of shareholders may be taken without a meeting, without prior notice and without a vote if the holders of outstanding stock having not less than the minimum number of votes that will be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted consent to such action in writing. Under Chapter 607.0725, Title XXXVI of the Florida Statutes and the Company’s Articles of Incorporation, as amended, the approval of the abovementioned 2010 Plan requires the affirmative vote or written consent of a majority of the issued and outstanding shares of Common Stock. Each share is entitled to one vote per share on any matter which may properly come before the shareholders.

On February 8, 2010, the Board of Directors unanimously authorized the 2010 Plan by Written Consent of the Board of Directors as set forth in Exhibit A to this Information Statement.

On February 8, 2010, the Majority Shareholder of the Company and holder of 76.274% of the total outstanding Common Stock and 17,400,000 votes, ratified the Board of Directors’ Written Consent and further authorized the 2010 Plan by Written Consent of the Majority Shareholder as set forth in Exhibit B to this Information Statement. As of the close of business on February 8, 2010, the Company had outstanding 22,812,500 shares of Common Stock, 6,987,368 shares of Series A Convertible Preferred Stock (the “Preferred Shares”) and warrants to purchase a total of 9,748,934 shares of Common Stock (the “Warrants”).

Accordingly, the Company has obtained all necessary corporate approvals in connection with the 2010 Plan and is furnishing this Information Statement solely for the purpose of informing shareholders of the 2010 Plan, in the manner required under the Exchange Act, before the 2010 Plan may be adopted.

Effective Date

Pursuant to Rule 14c-2 under the Exchange Act, the 2010 Plan will become effective no earlier than twenty (20) days after the date on which this Information Statement has been mailed to the shareholders. The Company anticipates that the action contemplated herein will be effected on or about the close of business on March 10, 2010.

This Information Statement will serve as written notice to shareholders pursuant to the Chapter 607, Title XXXVI of the Florida Statutes.

 

Absence of Dissenters’ Rights of Appraisal

Neither the adoption by the Board of Directors nor the ratification by the Majority Shareholder of the 2010 Plan provides shareholders any right to dissent and obtain appraisal of or payment for such shareholder’s shares under the Florida Statutes, the Articles of Incorporation or the Bylaws.

Distribution and Costs

The Company will pay the cost of preparing, printing and distributing this Information Statement. Only one Information Statement will be delivered to multiple shareholders sharing an address, unless contrary instructions are received from one or more of such shareholders. Upon receipt of a written request at the address noted above, the Company will deliver a single copy of this Information Statement and future shareholder communication documents to any shareholders sharing an address to which multiple copies are now delivered.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

AND RELATED STOCKHOLDER MATTERS

The following table sets forth certain information with respect to the beneficial ownership of our voting securities by (i) any person or group owning more than 5% of any class of voting securities, (ii) each director, (iii) our chief executive officer and president and (iv) all executive officers and directors as a group as of February 8, 2010.

 

(1)   In determining beneficial ownership of our common stock as of a given date, the number of shares shown includes shares of common stock which may be acquired on exercise of warrants or options or conversion of convertible securities within 60 days of that date. In determining the percent of common stock owned by a person or entity on February 8, 2010, (a) the numerator is the number of shares of the class beneficially owned by such person or entity, including shares which may be acquired within 60 days on exercise of warrants or options and conversion of convertible securities, and (b) the denominator is the sum of (i) the total shares of common stock outstanding on February 8, 2010 (22,812,500), and (ii) the total number of shares that the beneficial owner may acquire upon conversion of the preferred and on exercise of the warrants and options, subject to limitations on conversion and exercise as more fully described in note 13 below. Unless otherwise stated, each beneficial owner has sole power to vote and dispose of its shares.

 

(2)   An aggregate of 7,887,368 Preferred Shares were issued in two private placement financings in 2008 (collectively, the “Private Placements”), of which 5,915,926 shares were issued to Vision Opportunity China LP in a financing in June 2008 (the “June 2008 Financing”) and 1,971,842 shares were issued to Blue Ridge Investments, LLC, in a financing in July 2008 (the “July 2008 Financing”). Each Preferred Share is initially convertible, at the option of the holder, into one share of our common stock. Accordingly, in total, as of June 21, 2008, all of the outstanding Preferred Shares are convertible into a total of 7,887,368 shares of our common stock, subject to a 9.9% limitation on beneficial ownership of common stock as more fully described in note 13 below.

 

(3)   The purchasers in the Private Placements have also been issued Warrants to purchase up to a total of 9,464,843 shares of our common stock at $3.52 per share (subject to a 9.9% limitation on beneficial ownership of common stock as more fully described in note 13 below), of which 7,098,632 shares underlie the Warrant issued to Vision Opportunity China LP in the June 2008 Financing and 2,366,211 shares underlie the Warrant issued to Blue Ridge Investments, LLC, in the July 2008 Financing. The Warrants have a term of five years.

 

(4)   As of February 8, 2010, we had outstanding (i) 22,812,500 shares of common stock, (ii) 6,987,368 Preferred Shares, which were issued to purchasers in the Private Placements, and (iii) Warrants to purchase an aggregate of 9,748,934 shares of common stock at $3.52 per share, including 9,464,843 shares attributable to the purchasers and 284,091 shares attributable to Warrants issued as consideration for certain consulting services.

 

(5)   Vision Opportunity China LP acquired Preferred Shares convertible into 5,915,526 shares of common stock and Warrants to purchase up to 7,098,632 shares of common stock (each subject to a 9.9% limitation on beneficial ownership of common stock as more fully described in note 12 below) in the June 2008 Financing that closed on June 11, 2008. Vision Opportunity China LP owns Preferred Shares convertible into 5,015,526 shares and Warrants to purchase up to 7,098,632 shares of common stock as of February 8, 2010. Adam Benowitz has sole voting power and sole dispositive power over the shares.

 

(6)   Blue Ridge Investments, LLC acquired Preferred Shares convertible into 1,971,842 shares of common stock and Warrants to purchase up to 2,366,211 shares of common stock in the July 2008 Financing that closed on July 18, 2008. Blue Ridge Investments, LLC’s ownership is subject to a 9.9% limitation on beneficial ownership of common stock as more fully described in note 13 below.  Peter Santry has sole voting and dispositive power over the shares of Blue Ridge Investments, LLC. Mr. Santry disclaims beneficial ownership of these shares.

 

(7)   On June 9, 2008, we acquired Shen Kun in a reverse merger transaction (the “Reverse Merger Transaction”) with Long Sunny Limited and other Shen Kun Shareholders. In the Reverse Merger Transaction, as merger consideration for the Shen Kun shares we received from the Shen Kun Shareholders we issued and delivered to the Shen Kun shareholders 20,550,000 of our newly-issued shares of common stock, of which Long Sunny Limited received 17,400,000 shares.

 

 (8)  Zhao Yanqiu, the sole owner of Groom Profit Holdings Limited, has the sole power to vote and dispose of the shares owned by Groom Profit Holdings Limited.

 

(9)  Ji Haihong, the sole owner of Right Idea Holdings Limited, has the sole power to vote and dispose of the shares owned by Right Idea Holdings Limited.

 

(10)   The address of each of the officers and directors named in the table is No. 27, Wang Gang Road, Jin Nan (Shuang Gang) Economic and Technology Development Area, Tianjin, People’s Republic of China 300350.

 

(11)   Mr. Wang, our director and CEO and the longstanding chairman and CEO of Shengkai, beneficially owns 17,400,000 shares of our common stock through his 100% interest in our controlling shareholder, Long Sunny Limited.

 

Prior to August 5, 2009, Mr. Wang beneficially owned 6,960,000 shares through his 40% interest in Long Sunny Limited and 10,440,000 shares of our common stock pursuant to an agreement that gave him the right to own 100% of Long Sunny Limited, the controlling shareholder of our common stock. That agreement is a call option agreement between Mr. Wang and Mr. Li Shaoqing, who previously held 60% of the stock of our controlling shareholder, Long Sunny Limited. Under the agreement, Mr. Wang was granted an option to purchase all of Mr. Li’s stock in Long Sunny Limited at an exercise price of $.01 or $.001 per share, in seven installments over the course of approximately seven months, provided that Shengkai, SK Ceramic Valves and Shen Kun generate a gross revenue of at least RMB 1,500,000 per month during the period commencing June 1, 2008 through December 31, 2008. As of August 5, 2009, Mr. Wang had exercised his option to purchase all of Mr. Li’s stock in Long Sunny Limited, making Mr. Wang the 100% owner of Long Sunny Limited and the indirect beneficial owner of a total of 17,400,000 shares of our common stock owned by Long Sunny Limited.

 

(12)   Guo Wei is a director as of June 24, 2008. Wang Chen and Ms. Guo are husband and wife. Ms. Guo’s beneficial ownership in the Company is based upon Mr. Wang’s respective interest in Long Sunny Limited.

 

(13)   Pursuant to the terms of the Warrants and the certificate of designation for the Preferred Shares, at no time may a purchaser of Preferred Shares or Warrants convert or exercise such purchaser’s Preferred Shares or Warrants into shares of our common stock if the conversion or exercise would result in such purchaser beneficially owning (as determined in accordance with Section 13(d) of the Exchange Act and the rules thereunder) more than 9.9% of our then issued and outstanding shares of common stock; provided, however, that upon a purchaser providing us with sixty-one (61) days’ notice that such purchaser wishes to waive the cap, then the cap will be of no force or effect with regard to all or a portion of the preferred shares referenced in the waiver notice. The 9.9% beneficial ownership limitation does not prevent a shareholder from selling some of its holdings and then receiving additional shares. Accordingly, each shareholder could exercise and sell more than 9.9% of our common stock without ever at any one time holding more than this limit.

 

(14)  Pursuant to his appointment letter with the Company on November 5, 2009, Michael Marks was granted an option to purchase 150,000 shares of common stock of Company at a fixed exercise price of $3.00 per share. Such option shall be exercisable in three equal installments, the first being on the first anniversary of the date of grant.

 

(15) Pursuant to his appointment letter with the Company on November 5, 2009, Leng Jun was granted an option to purchase 80,000 shares of common stock of Company at a fixed exercise price of $3.00 per share. Such option shall be exercisable in four equal installments, the first being on the first anniversary of the date of grant.

 

(16) Pursuant to his appointment letter with the Company on November 5, 2009, Mu Ruizhu was granted an option to purchase 80,000 shares of common stock of Company at a fixed exercise price of $3.00 per share. Such option shall be exercisable in four equal installments, the first being on the first anniversary of the date of grant.

 

* Under 1 percent of the issued and outstanding shares as of February 8, 2010.

WHERE YOU CAN FIND MORE INFORMATION ABOUT THE COMPANY

The Company files annual, quarterly and current reports, information statements and other information with the SEC. You can read and copy any materials that the Company files with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You can obtain information about the operation of the SEC’s Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a Web site that contains information the Company files electronically with the SEC, which you can access over the Internet at http://www.sec.gov. Copies of these materials may also be obtained by mail from the Public Reference Section of the SEC, 100 F Street, N.E., Washington, D.C. 20549 at prescribed rates.

RECOMMENDATION OF THE BOARD OF DIRECTORS

The Board of Directors has recommended approval of the Plan to the Majority Shareholder.

 

February 8, 2010

Appendix A