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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