EMPLOYMENT AGREEMENT
 
THIS EMPLOYMENT AGREEMENT (“Agreement”) is made and entered into by and between
China Electric Motor, Inc. (“Company”), a Delaware corporation, and Xinming Xiao
(“Employee”), effective on the date indicated below.  (Company and Employee are
sometimes referred to herein as “Party” or collectively as the “Parties.”)
 
RECITALS
 
WHEREAS, the Company wishes to employ Employee and the Employee has agreed to
supply his service in the capacity of Chief Operating Officer with duties
encompassing the operations of the Company and the Company’s subsidiaries, on
the terms and conditions set out in this Agreement.
 
NOW, THEREFORE, in consideration of the mutual promises and covenants contained
herein, and the continued employment of Employee by the Company under this
Agreement, the Parties agree as follows:
 
ARTICLE 1

EMPLOYMENT

Company hereby employs Employee and Employee hereby accepts employment from
Company, effective as of June 1, 2010 (the “Effective Date”).  Employee agrees
to perform the services and to comply faithfully with his obligations of
employment, under the terms and conditions specified in this Agreement, and
pursuant to the policies and procedures of the Company that may be issued from
time to time.

ARTICLE 2

 
TERM
 
Section 2.1         Initial Term and Renewal.  The initial term of this
Agreement shall be for a period of thirty-six (36) months commencing on the
Effective Date (the “Initial Term”), unless terminated earlier pursuant to the
provisions of Article 5 of this Agreement. This Agreement shall automatically
renew for an additional one (1) year period of employment on the expiration date
of the Initial Term (each, a “Subsequent Term”), and on each successive
anniversary date thereafter (each such date, an “Expiration Date”), unless
either party gives written notice to the other party at least ninety (90) days
prior to any Expiration Date that the Agreement is not being renewed and shall
terminate on that Expiration Date, unless terminated earlier pursuant to the
provisions of Article 5 of this Agreement.  The Initial Term and each successive
one year period thereafter during which Employee shall perform services pursuant
to this Agreement shall be referred to herein as the “Term.”
 
 
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ARTICLE 3

 
COMPENSATION AND BENEFITS
 
Section 3.1         Base Salary.  For all of the services to be rendered by
Employee hereunder, Company shall pay to Employee an monthly base salary of RMB
20,000.00  (“Salary”), beginning on the Effective Date of this Agreement.  Any
base Salary payable hereunder shall be paid in accordance with the Company’s
regular payroll practices, as in effect from time to time, and shall be subject
to standard payroll deductions and withholdings as required by applicable law.
 
Section 3.2         Adjustment to Salary.  Employee’s Salary may be changed from
time to time by mutual agreement of the Employee and the Company.  Any such
agreement shall be evidenced by a written amendment of this Agreement and signed
by both Parties.
 
Section 3.3         Stock Grant.  Within five (5) business days after the
approval of an equity incentive plan (the “Plan”) by the Company’s stockholders,
the Company agrees to grant to Employee Fifty Thousand (50,000) shares of Common
Stock of the Company (the “Shares”) pursuant to the Plan. Additional terms and
conditions of the Shares shall be determined by the Company’s Board of Directors
in accordance with the Plan at the time of the grant and set forth in a stock
grant agreement to be executed by the Company and the Employee.
 
Section 3.4          Medical and Dental Benefits.  Company shall reimburse
Employee for standard corporate-style healthcare insurance coverage.
 
Section 3.5          Company Paid Holidays.  Employee will be eligible for all
Company paid holidays that are provided to employees of the Company.
 
Section 3.6         Paid Leave.  Employee shall be entitled to accrue seven (7)
days of paid leave (vacation, sick, and personal) each year. In exercising paid
leave, Employee shall take into consideration his duties and shall take leave at
times mutually agreeable to Employee and the Company.
 
Section 3.7         Reimbursement of Expenses.  Employee shall be reimbursed for
reasonable travel, hotel, entertainment, and other business related expenses.
All reimbursement of expenses are subject to the Company’s policies in effect at
the time on pre-approval of certain business expenses and reimbursement
procedures. Employee shall produce satisfactory supporting vouchers, receipts,
and other documentation in connection with such expenses before such
reimbursement is made in accordance with applicable Company policy.
 
ARTICLE 4

 
DUTIES AND RESPONSIBILITIES
 
Section 4.1         Duties of Employee.  Employee agrees to serve as Chief
Operating Officer, and will report to the Chief Executive Officer and the
Company’s Board of Directors.  Employee shall perform the duties and functions
and have the responsibilities commensurate with such position as may be assigned
from time to time.  Employee’s duties as Chief Operating Officer shall encompass
the operations of the Company and the Company’s subsidiaries.  Employee shall
use his best skills and ability, consistent with sound business practices, to
faithfully and diligently perform his duties and responsibilities
hereunder.  Employee shall devote his full working time and attention to the
business of the Company and its related entities.
 
 
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During his employment with Company, Employee shall not (i) engage in any other
employment or business opportunity outside of his employment with the Company
that may interfere with his ability to perform his duties under this
Agreement, without the express written authorization of the Company; or (ii)
engage, directly or indirectly, in any other employment, business, commercial,
or professional activity (whether or not pursued for pecuniary advantage) that
is or may be competitive with, or that might create a conflict of interest with,
the business of Company or Company’s related entities or affiliates.

Section 4.2         Compliance with Law.  Employee agrees to comply with any and
all governmental laws, regulations, and policies in connection with his actions
as an employee of the Company.  Employee shall conduct himself in accordance
with the highest business standards as are reasonably and customarily expected
of such position.  Employee agrees to fully cooperate and participate in any
investigation conducted by the Company relating to its interests or as may be
required by applicable law.

Section 4.3         Policies and Procedures.  Employee agrees to abide by all
Company policies and procedures.  Company may issue policies, rules,
regulations, guidelines, procedures or other informational material, whether in
the form of handbooks, memoranda, or otherwise, relating to its employees and
Employee agrees to comply with all such policies applicable to Employee.

Section 4.4        Confidential Information and Trade Secrets.  Employee
acknowledges that, as a condition of his employment hereunder, Employee agrees
to execute and abide by the Company’s confidentiality, non-disclosure, invention
assignment, and similar agreements that are presented to Employee to protect the
Company’s trade secret, proprietary and business interests.  Employee hereby
acknowledges and agrees that such agreements shall survive termination of
employment and this Agreement and shall remain in force following such
termination regardless of the reason for the termination.
 
ARTICLE 5

TERMINATION
 
Employee’s employment relationship with the Company will terminate upon the
occurrence of one of the following defined events, which shall effect a
termination of this Agreement on the effective date of any such termination of
employment (the “Termination Date”):
 
Section 5.1          The Employee’s Right to Terminate.  The Employee may
terminate his obligations under this Agreement during the Term:
 
(i)           Termination by Employee for Convenience:  at any time upon
providing thirty (30) day notice in writing to the Company; or
 
 
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(ii)          Good Reason:  for “Good Reason.”  “Good Reason” means any of the
following, without the Employee’s written consent: (a) upon a material breach or
default of any term of this Agreement by the Company, or (b) any material
reduction in the Employee’s duties, position, authority or responsibilities with
the Company relative to the duties, position, authority or responsibilities in
effect immediately prior to such reduction; provided that Company has not cured
or remedied such Good Reason within fifteen (15) days after written notice of
the Good Reason from the Employee.
 
Section 5.2         The Company’s Right to Terminate for “Cause”.  The Company
may immediately terminate the Employee’s employment for “Cause” under this
Agreement at any time during the Term upon the occurrence of any of the
following events:
 
(i)          Employee commits an act or acts of dishonesty, fraud, embezzlement,
or misappropriation of funds or proprietary information in connection with his
employment duties or responsibilities; or
 
 (ii)        Employee’s conviction of, or plea of nolo contendere to, a felony
or a crime involving moral turpitude (other than minor traffic violations); or
 
(iii)        Employee materially breaches his obligations under this Agreement,
including failure to perform his job duties satisfactorily or failure to follow
Company policies or any directive of the Company, if such failure or refusal is
not cured by Employee within ten (10) days after receiving written notice of
such from the Company; or
 
(iv)        Employee’s willful or gross misconduct in connection with his
employment duties.

Section 5.3         Company’s Right to Terminate Without Cause. The Company may
terminate the Employee’s employment under this Agreement at any time during the
Term at the discretion of the Company, without Cause, after the Employee has
received thirty (30) days prior written notice from the Company.

Section 5.4          Death or Disability.  The Employee’s employment under this
Agreement shall also terminate upon the occurrence of the following:
 
(i)          the Employee’s employment under this Agreement shall automatically
terminate upon the occurrence of the death of the Employee during the Term of
this Agreement; or
 
(ii)         notice of termination from the Company after the Employee has
become permanently disabled, or disabled for a period exceeding 180 consecutive
days or 180 days calculated on a cumulative basis over any one year period
during the Term of this Agreement, such that Employee is no longer able to
perform the essential functions of his job even with reasonable accommodation
pursuant to applicable law.
 
Section 5.5         Compensation Due to the Employee on Termination. In the
event of the termination of the Employee’s employment under this Agreement
pursuant to any provision as set forth above, the Company shall pay to the
Employee on the date of termination only the amount of Salary pursuant to
Section 3.1 of this Agreement that is earned but unpaid as of the date of
termination, as well as any accrued but unused Paid Leave, and any unreimbursed
business expenses incurred as of the termination date pursuant to Section 3.7 of
this Agreement, but Employee shall not be entitled to receive any other
payments, compensation or benefits from the Company under this Agreement, except
as expressly set forth below:
 
 
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(i)           In the event of the termination of the Employee’s employment under
this Agreement pursuant Section 5.1(ii) (Good Reason) above, the Company shall
pay to the Employee a severance payment in an amount equal to three (3) months
of the Employee’s annual Salary at the time of termination pursuant to Section
3.1 of this Agreement, less applicable statutory deductions and withholdings, to
be paid, at the Company’s discretion, in a lump sum  or such regular intervals
over the 3 month period as shall be determined by the Company, provided that
Employee signs a standard release of all claims as presented by the Company.

(ii)           In the event of the termination of the Employee’s employment
under this Agreement pursuant Section 5.3 (Company’s Right to Terminate Without
Cause) above, the Company shall pay to the Employee a severance payment in an
amount equal to the Employee’s annual Salary at the time of termination pursuant
to Section 3.1 of this Agreement for remainder of the Initial Term or any
Subsequent Term, as applicable, less applicable statutory deductions and
withholdings, to be paid, at the Company’s discretion, in a lump sum or such
regular intervals over the period as shall be determined by the Company,
provided that Employee signs a standard release of all claims as presented by
the Company.

Section 5.6         Payment in Lieu of Notice.  Company reserves the right (but
is not obligated) to make a payment in lieu of any notice of termination of
employment which Company or Employee is required to give.
 
Section 5.7        Return of Company Property.  Upon the termination of
employment for any reason, Employee shall promptly return to Company any and all
equipment or property owned by Company including, but not limited to, any and
all client materials, copies of documents and photographs, models, prototypes,
tools, and supplies, as well as inventory, records, documents, manuals, reports,
customer lists, operations manuals, and any other written information, records,
or books relating in any manner whatsoever to the business of Company, whether
prepared by Company or otherwise coming into Employee’s possession.
 
ARTICLE 6

 
MISCELLANEOUS
 
Section 6.1          Notices.  Any notice given under this Agreement shall be
sufficient if given in writing and personally delivered or sent by registered or
certified mail, return receipt requested, postage prepaid, to the Company at its
principal place of business or to Employee at his last known residence address.
 
Section 6.2          Governing Law.  This Agreement shall be interpreted,
construed, and governed under and according to the laws of the People Republic
of  China.
 
 
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Section 6.3         Change, Modification, Waiver.  No change or modification of
this Agreement shall be valid unless it is in writing and signed by each of the
Parties hereto.  No waiver of any provision of this Agreement shall be valid
unless it is in writing and signed by the Party against whom the waiver is
sought to be enforced.  The failure of a Party of insist upon strict performance
of any provision of this Agreement in any one or more instances shall not be
construed as a waiver or relinquishment of the right to insist upon strict
compliance with such provision in the future.
 
Section 6.4         Entire Agreement.  This Agreement constitutes the entire,
final and complete and exclusive agreement between the Parties regarding the
subject matter hereof and supersedes all previous agreements or representations,
whether written, oral or implied, with respect to employment by the Company
provided, however, the Employee shall remain bound by any confidentiality,
nondisclosure, and invention assignment agreement(s) previously executed in
favor of the Company, to the extent such ancillary agreements exist.  There are
no terms, promises, representations, agreements, or understandings between the
Parties relating to the subject matter of this Agreement, which are not fully
expressed herein.
 
Section 6.5         Assignability.  This Agreement is personal in nature, and
neither this Agreement nor any part of any obligation herein shall be assignable
by Employee.  The Company shall be entitled to assign this Agreement to any
affiliate or successor of the Company that assumes the ownership or control of
the business of the Company, and the Agreement shall inure to the benefit of any
such successor or assign.
 
Section 6.6         Legal Construction.  If any one or more of the provisions
contained in this Agreement shall for any reason be held to be invalid, illegal,
or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provision hereof, and this Agreement
shall be construed as if such invalid, illegal, or unenforceable provision had
never been contained herein.  In addition, if any court of competent
jurisdiction determines that any of the provisions set forth herein are
unenforceable because of the duration or geographic scope of such provision,
such court shall have the power to reduce the duration or scope of such
provision as the case may be, to the extent necessary to render such provision
enforceable.
 
Section 6.7         Paragraph Headings.  The paragraph headings used in this
Agreement are included solely for convenience and shall not affect or be used in
connection with the interpretation of this Agreement.
 
Section 6.8         Legal Fees and Costs.  Except as otherwise provided herein,
in the event that any Party hereto shall institute any litigation or other
proceeding in order to construe or enforce this Agreement, the prevailing Party
therein shall be entitled to recover its reasonable attorney’s fees and costs
incurred in connection therewith.
 
Section 6.9         Interpretation.  This Agreement has been negotiated at arm’s
length and between and among parties sophisticated and knowledgeable in the
matters dealt with in this Agreement.  Accordingly, none of the Parties shall be
presumptively entitled to have any provisions of the Agreement construed against
any of the other Parties in accordance with any rule of law, legal decision, or
doctrine, such as the doctrine of contra proferentem, that would require
interpretation of any ambiguities in this Agreement against the party that has
drafted it.
 
[SIGNATURES ON FOLLOWING PAGE]

 
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WHEREFORE, the parties hereto have executed this Agreement on the dates
indicated below, to be effective as of the Effective Date, regardless of the
dates actually signed.
 
Dated:  May 29, 2010
CHINA ELECTRIC MOTOR, INC.
     
By:
   /s/ Yue Wang
 
   Name:
   Yue Wang
 
   Title:
Chief Executive Officer
   
Dated:  May 29, 2010
XINMING XIAO
     
   /s/ Xingming Xiao

 
 
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