Exhibit 10.1

FORM OF SHARE TRANSFER AGREEMENT

Transferor (hereinafter referred to as “Party A”):                         

ID Number:                         

Transferee (hereinafter referred to as “Party B”): RAE Systems Asia (Hong Kong)
Ltd.

Legal representative: Mr. Robert I. Chen

Assenting Party: Beijing Ke Li New Technologies Development Company

Legal representative: Mr. Xie Wei

RAE-KLH Technologies (Beijing) Company Limited (the “RAE-KLH”) has a registered
capital of RMB 90,000,000. For the ease of formulation, such registered capital
is herein divided into 90,000,000 shares with the value of RMB 1.00 per share.
The undersigned Party A and Party B are both shareholders to RAE-KLH. Party A
holds                 % of the total shares of RAE-KLH representing
                 shares, and Party B holds 64% of the total shares of RAE-KLH
representing 57,600,000 shares.

Party A intends to transfer his RAE-KLH shares to Party B, and Party B agrees to
accept such transfer. Beijing Ke Li New Technologies Development Company, as the
investor of RAE-KLH, has become fully aware of, and informed about, the matters
pertaining to the transfer between Party A and Party B of the capital
contribution amount and the related rights and interests under the terms of this
Agreement. Upon a decision by its policy-making body, Beijing Ke Li New
Technologies Development Company assents to the execution of this Agreement by
Party A and Party B, and hereby waives its right of first refusal to purchase
the capital contribution amount and the related rights and interest as
contemplated by this Agreement.

After consultation, Party A and Party B hereby agree to the following in respect
of the share transfer:

 

  1. Share transfer price, payment terms, and related matters

 

  1.1 As of the date of effectiveness of this Agreement, Party A shall transfer
to Party B all of his                  non-employee shares in RAE-KLH and 50% of
his                  employee shares in RAE-KLH, i.e.,                  shares,
at a price in cash of RMB 2.2 (or, if the price is calculated in US dollars, the
exchange rate as of the date of closing shall prevail, same hereinafter) per
share, with an aggregate of RMB                 .

 

  1.2

Party A and Party B hereby agree that the remaining employee shares in RAE-KLH
held under the name of Party A shall be transferred in its entirety to Party B
at a price in cash of RMB 2.2 per share within five (5) years after the
completion of the transfer hereunder. Party A shall transfer 40% of the total
number of such remaining shares, representing

 

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                 shares, in the 3rd year (i.e., 2009) after the transfer
hereunder, 30% of the total number of such remaining shares, representing
                 shares, in the 4th year (i.e., 2010), and 30% of the total
number of such remaining shares, representing                  shares, in the
5th year (i.e., 2011).

 

  1.3 Upon the completion of the transfer contemplated hereunder, the employee
shares of RAE-KLH held by Party A not transferred hereunder shall bear the
nature of convertible preferred shares. Regardless of the operation results of
RAE-KLH, the dividend yield rate shall be fixed at 3% single interest rate per
annum (which interest shall be payable by RAE Systems Asia (Hong Kong) Ltd.),
and the dividends shall be paid together with the corresponding payments of the
transfer prices. Such shares shall bear no more voting right.

 

  1.4 If RAE-KLH conducts an IPO in China, and Party A still holds convertible
preferred shares not yet transferred upon the consummation of the IPO, then
Party A shall have the right to request the shares be transferred to Party B at
the price of RMB 2.2 per share, or be converted into original issue shares in
proportion to the ratio of its equity interest, or be transferred in part and
converted to original issue shares in part. The specific matters shall be
subject to separate negotiations and agreement between Party A and Party B on
the occasion.

 

  1.5 In the event that RAE-KLH voluntarily dismisses Party A or any employee of
RAE-KLH represented by Party A from employment before all the shares of Party A
have been transferred to Party B, Party B must acquire all the remaining shares
then held by Party A at the price of RMB 2.2 per share.

 

  1.6 In the event of a transfer, liquidation, or other circumstance on the part
of RAE-KLH which affects Party A’s interest, Party B shall acquire all the
remaining shares then held by Party A at the price of RMB 2.2 per share.

 

  1.7 Within thirty (30) days of the date of effectiveness of this Agreement,
Party B shall pay the share transfer price to Party A in cash and in single lump
sum according to the type of currency and amount set forth in Clause 1 of this
Article.

 

  1.8 The transfer prices for the shares to be transferred within five (5) years
as contemplated under Clause 2 of this Article shall be paid by Party B to Party
A, together with the interest accrued thereon, in single lump sum prior to
June 30 of the applicable year during which the pertinent transfer shall occur.

 

  2.

Party A shall guarantee that it has the full and absolute disposal right to the
shares to be transferred to Party B hereunder as well as the shares to be
transferred to Party B within five years after the transfer hereunder. Party A
shall also guarantee that all such shares are clear of and free from any pledge
or other encumbrance of any kind whatsoever, and are not subject to any
attachment or any recourse of any third party; otherwise, Party A shall bear all
the economic

 

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and legal liabilities arising therefrom.

 

  3. Upon the completion of closing of the share transfer hereunder, the
transferee shall enjoy the shareholder’s rights and interests and undertake the
shareholder’s obligations in proportion to the ratio of its equity interest in
RAE-KLH, and the transferor shall relinquish its shareholder’s status and its
shareholder’s rights and interests in the same proportion.

 

  4. Disposition of undistributed profit generated before the commencement of
operation of RAE-KLH as an equity joint venture:

 

  4.1 For the disposition of the undistributed profit of RAE-KLH before the
commencement of its operation as an equity joint venture, the provisions
stipulated in the Joint Venture Contract for RAE-KLH and appendixes annexed
thereto shall be applicable. The share transfer hereunder shall not affect the
ongoing distribution of the undistributed profit.

 

  5. When Party B handles the procedures for the change of shareholders, equity
interest, and articles of association of the company and for the amendment of
the industrial and commercial registration, in connection with the share
transfer, Party A shall provide to Party B with its active assistance and
cooperation.

 

  6. Liabilities for breach of contract

 

  6.1 Upon the effectiveness of this Agreement, each of the Parties shall
perform all its obligations hereunder and fully comply with all terms and
conditions hereof. If either Party fails to fully perform its obligations
hereunder, it shall bear the liabilities according to law and this Agreement.

 

  6.2 If the share transfer fails to be consummated on schedule due to any
reason on the part of Party A, Party A shall pay to Party B 30% of the total
value of the shares then remaining held by Party A (calculated at RMB 2.2 per
share) as a default penalty. If Party B sustains any loss due to the breach by
Party A and the actual loss exceeds the amount of the default penalty payable by
Party A, then Party A shall provide an additional compensation.

 

  6.3 If Party B fails to pay the transfer price to Party A on schedule, Party B
shall pay to Party A 30% of the total value of the shares then remaining held by
Party B (calculated at RMB 2.2 per share) as a default penalty. If Party A
sustains any loss due to the breach by Party B and the actual loss exceeds the
amount of the default penalty payable by Party B, then Party B shall provide an
additional compensation.

 

  6.4 RAE-KLH hereby provides a guarantee for RAE Systems Asia (Hong Kong)
Ltd.’s performance of this Agreement.

 

  7. Modification or termination of this Agreement

 

      

This Agreement may be modified or terminated upon mutual agreement of Party A
and Party B, in which case, Party A and Party B shall enter into a separate

 

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modification or termination agreement.

 

  8. Dispute resolution

 

       Any dispute arising from or in connection with this Agreement shall be
solved through friendly consultation between the Parties. Any dispute which is
unable to be solved through consultation shall be settled through arbitration by
an arbitration commission.

 

  9. This Agreement shall have three counterparts and shall take effect upon
signature and seal by Party A and Party B.

 

  10. Chinese version of this Agreement shall prevail.

 

  11. The Nominee Shareholding Agreement as the annexed hereto shall take effect
simultaneously with this Agreement.

 

Transferor:                         

June 9, 2006

Transferee: RAE Systems Asia (Hong Kong) Ltd.

July 12, 2006

Assenting Party: Beijing Ke Li New Technologies Development Company

Legal Representative: Mr. Xie Wei

Date:

 

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Summary

Selling Stockholders

Stock Shares to be Sold

 

Name of Proxy Holder

   Total Shares    July 2006
Sales    July 2009
Sales    July 2010
Sales    July 2011
Sales

Li Changwu

   6,785,676    3,973,075    1,125,040    843,780    843,781

Lv Guiyun

   5,762,951    4,179,267    633,473    475,105    475,106

Qui Wenfeng

   7,151,965    3,872,159    1,311,922    983,942    983,942

Zhu Gang

   8,822,186    5,444,697    1,350,996    1,013,247    1,013,246               
         

Total Stock Sold to RAE Systems

   28,522,778    17,469,198    4,421,431    3,316,074    3,316,075             
           

 

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