Exhibit 10.1
 
OPTION EXERCISE AGREEMENT

OPTION EXERCISE AGREEMENT, dated as of August 25, 2010, and effective as of July
1, 2010, between Advanced Automation Group, LLC, a Delaware limited liability
company (“Company”), Harbin Electric, Inc., a Nevada corporation (“HRBN”),
Shelton Technology, LLC, a Michigan limited liability company (“Shelton”), and
the persons listed on Schedule A (“Shelton Personnel”).

Pursuant to an letter agreement, dated April 9, 2007, between HRBN and Shelton,
as amended December 11, 2008, April 21, 2009, and December 7, 2009 (“Letter
Agreement”), HRBN has the right (“Option”) to require Shelton to contribute to
Company the Licensed Assets and the Customer Accounts, as defined in the Letter
Agreement (“the Contributed Assets”), in consideration for a limited liability
company interest entitling Shelton to a 49% share of Company’s profits, losses,
and distributions of its assets, in accordance with Company’s Limited Liability
Company Agreement in the form of Exhibit A.

The parties accordingly agree as follows:

 
ARTICLE I
EXERCISE OF OPTION
 
1.1           Exercise.  HRBN hereby exercises the Option.
 
ARTICLE II
CONTRIBUTION BY SHELTON
 
2.1           Contribution.  Shelton hereby contributes to Company all right,
title, and interest in and to all of the Contributed Assets, free and clear of
any adverse claim, covenant not to compete or similar agreement, encumbrance,
license right, lien, security interest, transfer restriction, royalty or similar
obligation, or other claim or right of any third party
(“Encumbrance”).  Shelton, at its expense, shall execute all such further
documents and instruments, including assignments of ownership or title or of any
registered copyright, mask work right, patent, trademark or service mark, or
Internet domain name or application therefor (“Registered IP”) included in the
Contributed Assets, in form sufficient to register same in Company’s name or the
name of any Company designee, with the United States Patent and Trademark Office
or like authority of the United States, any state, territory, or other
jurisdiction of the United States, or any foreign government, and take such
further action, including payment of transfer fees, as Company shall reasonably
request from time to time to effectuate the intentions hereof.
 
ARTICLE III
REPRESENTATIONS AND WARRANTIES
 
Shelton and the Shelton Personnel hereby jointly and severally represent and
warrant to Company as follows:
 
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3.1           Shelton’s Formation, etc.  Shelton is a limited liability company
organized and in good standing under the laws of Michigan.  Shelton previously
has delivered to Company complete and accurate copies of its certificate of
formation and operating agreement, including all amendments, all of which are in
effect as of the date hereof.

 
3.2           Proper Proceedings, etc.  All limited liability action and other
proceedings required to be taken or conducted by or on behalf of Shelton or its
members or managers to authorize Shelton to enter and carry out this Agreement
have been duly taken or conducted, and this Agreement constitute a legal, valid
and binding obligation of Shelton and each of the Shelton Personnel, enforceable
against each in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors’ rights generally and to the extent that equitable
remedies, such as injunctive relief or specific performance are within the
discretion of courts of competent jurisdiction.
 
 
3.3           No Conflict.  The execution and delivery of this Agreement, and
the consummation of the transactions contemplated hereby will not conflict with,
or result in any violation of, or default or loss of a benefit under or permit
the acceleration of any obligation under Shelton’s organizational documents, any
contract, agreement, or commitment of Shelton, or any permit, concession, grant
franchise, license, judgment, order, decree, statute, law, ordinance, rule, or
regulation applicable to Shelton or to its properties, including any of the
Contributed Assets.
 
 
3.4           Government Authorization.  No consent, approval, order, or
authorization of or registration, declaration or filing with, any governmental
or regulatory authority is required in connection with the execution and
delivery of this Agreement or the consummation by Shelton or any of the Shelton
Personnel of the transactions contemplated hereby or thereby.
 
 
3.5            Shelton Personnel.  All of Shelton’s members and managers are
identified on Schedule A, which accurately sets forth each member’s membership
percentage and each manager’s management position with Shelton.  Each former
Shelton member or manager and each other technician, engineer, or other
professional currently or formerly employed by Shelton is identified on Schedule
3.5. Shelton has previously delivered to Company complete and accurate copies,
including all amendments, of each confidentiality or intellectual property
assignment agreement signed by each such person in Shelton’s favor.
 
3.6           Contributed Assets.
 
(a)           Schedule 3.6(a) lists all of the Contributed Assets.  Company has
at all times owned, and is transferring good and marketable title to, each item
of the Contributed Assets, free and clear of any Encumbrance.  The title, serial
or registration number, date of filing, expiration date, and relevant
jurisdiction with respect to each item of Registered IP is set forth on Schedule
3.6(a).  Schedule 3.6(a) also identifies each invention or unregistered mask
work right or copyright included in the Contributed Assets as to which Shelton
is contemplating filing an application for a patent or registration that has not
been filed.
 
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(b)           Each Person not listed on Schedule A or Schedule 3.5 that
developed in whole or part, alone or jointly with any other person, or otherwise
at any time had any ownership right, claim, or interest to or in, any item of
Contributed Asset is identified on Schedule 3.6(b), together with each agreement
between such person and Shelton with respect to such Contributed Asset.  Shelton
has previously delivered to Company complete and accurate copies, including all
amendments, of each such agreement.
 
(c)           None of the Contributed Assets has violated, infringed, or
misappropriated or is now violating, infringing, or misappropriating any
copyright, logo, mask work right, patent, trademark, service mark, trade secret,
or other proprietary right belonging to any other person, and no person has made
any assertion inconsistent with the foregoing.  To the knowledge of the Shelton
Personnel, no person has violated, infringed, or misappropriated or is now
violating, infringing, or misappropriating any Contributed Asset or threatened
to do so.  None of the Contributed Assets is, or on account of the transactions
contemplated hereby would become, subject to any contractual restriction on any
use or disclosure thereof.
 
(d)           None of Shelton’s confidential information included in the
Contributed Assets has been used, divulged or appropriated for the benefit of
any person, other than Shelton or Company or to the detriment of
Company.  Shelton has taken reasonable security measures to protect the secrecy,
confidentiality, and value of its confidential information.
 
ARTICLE IV
INDEMNIFICATION
 
4.1           Shelton and the Shelton Personnel (“Indemnitors”), jointly and
severally, shall indemnify Company and its affiliates and representatives
(“Indemnitees”) from and hold Indemnitees harmless with respect to any claim,
cost, damage, expense, liability, or loss, including attorneys’ fees and other
legal costs or expenses, arising out of any breach by any Indemnitor of any
representation, warranty, agreement, or covenant made by it or him or herein.
Indemnitees shall give prompt notice to Indemnitors of any claim or condition to
which the foregoing indemnification covenant relates.  At their election,
Indemnitors may control the defense of such claim, at their expense, and
Indemnitees will not settle any such claim without the consent of Indemnitors.
 
ARTICLE V
 
5.1           Entire Agreement.  This Agreement sets forth the entire agreement
of the parties with respect to the subject matter hereof.  No provision of this
Agreement may be explained or qualified by any prior or contemporaneous
understanding, negotiation, discussion, conduct, or course of conduct, and,
except as otherwise expressly stated herein, there is no condition precedent to
the effectiveness of any provision hereof.  No party has relied on any
representation, warranty, or agreement of any person in entering this Agreement,
except those expressly stated herein.
 
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5.2           Counterparts; Facsimile Signatures.  This Agreement may be
executed in counterparts, each of which shall constitute an original, but all of
which shall constitute one agreement.  This Agreement shall become effective
upon delivery to each party of an executed counterpart or the earlier delivery
to each party of original or signature pages transmitted electronically that
together (but need not individually) bear the signatures of all other parties.
 
5.3           Notices.  Any notice hereunder shall be sent in writing, addressed
as specified below, and shall be deemed given:  if by hand or recognized courier
service, by 4:00PM on a business day, addressee’s day and time, on the date of
delivery, and otherwise on the first business day after such delivery; if by
telecopier, on the date that transmission is confirmed electronically, if by
4:00PM on a business day, addressee’s day and time, and otherwise on the first
business day after the date of such confirmation; or five days after mailing by
certified or registered mail, return receipt requested.  Notices shall be
addressed to the respective parties as follows (excluding telephone numbers,
which are for convenience only), or to such other address as a party shall
specify to the others in accordance with these notice provisions (telephone
numbers are for convenience only):
 
To AEM,
 
ATTN: Tianfu Yang
No. 9 Ha Ping Xi Lu, Harbin Kai Fa Qu, Harbin, China 150060
Telecopier: 86-0451-8611-6769
Telephone: 86-0451-8611-6787
 
To Shelton
 
ATTN: Julie Chen
1685 W. Hamlin Road, Rochester Hills, MI 48309
Telecopier: 248-233-6725
Telephone: 248-703-2091
 
5.4           Amendments; Waivers; Remedies.
 
(a)           This Agreement cannot be amended, except by writing signed by
Company, Shelton, and a majority of the Shelton Personnel, or terminated orally
or by course of conduct.  No provision hereof can be waived, except by a writing
signed by the party against whom such waiver is to be enforced, and any such
waiver shall apply only in the particular instance in which such waiver shall
have been given.
 
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(b)           Neither any failure or delay in exercising any right or remedy
hereunder or in requiring satisfaction of any condition herein nor any course of
dealing shall constitute a waiver of or prevent any party from enforcing any
right or remedy or from requiring satisfaction of any condition.  No notice to
or demand on a party waives or otherwise affects any obligation of that party or
impairs any right of the party giving such notice or making such demand,
including any right to take any action without notice or demand not otherwise
required by this Agreement.  No exercise of any right or remedy with respect to
a breach of this Agreement shall preclude exercise of any other right or remedy,
as appropriate to make the aggrieved party whole with respect to such breach, or
subsequent exercise of any right or remedy with respect to any other breach.
 
(c)           Except as otherwise expressly provided herein, no statement herein
of any right or remedy shall impair any other right or remedy stated herein or
that otherwise may be available.
 
5.5           Governing Law.  This Agreement shall be governed by and construed,
interpreted, and enforced in accordance with the laws of the State of Delaware,
without regard to choice or conflict of laws principles that would result in the
application of the substantive laws of any other jurisdiction.
 
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IN WITNESS WHEREOF, the Members have executed this Agreement, effective as of
the date first written above.

 
 
     Julie Chen (fka: Julie Xie)          

       
 
 
     Shaotang Chen                  

 
ADVANCED ELECTRIC MOTORS, INC.
                 
 
By:
Tianfu Yang       Title: Chairman of the Board                  

  SHELTON TECHNOLOGY LLC                
 
By:
Julie Chen (fka: Julie Xie)       Title: Managing Director          

 
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SCHEDULE A
 
Names, Addresses, and Percentages of the Members
With Shelton Technology LLC
 
As of July 1, 2010
 

Name, Address, Telecopier
Number and Telephone Number
 
Percentage
       
Julie Chen (fka: Julie Xie)
1685 W. Hamlin Road
Rochester Hills, MI 48309
Telecopier: 248-233-6725
Telephone: 248-703-2091
 
 
100%

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SCHEDULE 3.5
 
Former Shelton Member or Manager and Technician, Engineer, or Other Professional
Currently or Formerly Employed by Shelton
 
As of July 1, 2010
 

Julie Chen (fka: Julie Xie)
1685 W. Hamlin Road
Rochester Hills, MI 48309
Telecopier: 248-233-6725
Telephone: 248-703-2091
 
 
 
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