Exhibit
      10.1

     

    HARBIN
      ELECTRIC, INC.

    No.
      9 Ha
      Ping Xi Lu

    Ha
      Ping
      Lu Ji Zhong

    Qu
      Harbin
      Kai Fa Qu

    Harbin,
      People’s Republic of China 150060

     

    April
      9,
      2007

     

    CONFIDENTIAL

     

    Shelton
      Technology, LLC

    1685
      W.
      Hamlin Road

    Rochester
      Hills, MI 48309

     

    Gentlemen:

     

    1. General.
      This
      letter agreement shall set forth the terms on which Harbin Electric, Inc.
      (“Harbin”) and Shelton Technology, LLC (“Shelton”) have agreed to combine their
      strengths in order to establish a high-tech international company with research
      and development, design and manufacturing capabilities in the area of industrial
      automation controllers (such company shall be referred to herein as the
“Venture”). The parties intend that to combine U.S. strength in technology with
      China’s advantage in low cost manufacturing to develop precision servo motor
      controller products for Harbin’s intelligent motors and provide customized
      industrial automation controllers to OEMs in both the U.S. and
      China.

     

    2. Name.
      The
      name of the Venture will be Advanced Automation Group, LLC. 

     

    3. 
      Structure.
      (a) The
      Venture will be structured as a Delaware limited liability company in which
      Harbin, through its wholly-owned subsidiary, Advanced Electric Motors, Inc.
      (“AEM”), will own a 100% equity interest. Harbin, through AEM shall contribute
      to the Venture or Newco (as defined in Section 4 hereof), $3,000,000, in three
      (3) installments as follows: $1.2 million within ten (10) days of the execution
      of this Agreement (the “Closing Date”), $800,000 on or prior to May 1, 2008 and
      $1.0 million on or prior to March 31, 2009. On the Closing Date, Shelton and
      its
      members and technical team members, shall grant to the Venture an exclusive
      worldwide royalty-free license (the “License”) in the form attached hereto as
Exhibit
      A
      for a
      period beginning on the Closing Date and ending on August 31, 2008 (the “Term”),
      to the designs set forth on Exhibit
      B
      hereto
      as well as all of the technology owned by such persons or entities related
      to
      precision servo motor controllers for industrial automation, including research
      and development, design, manufacturing and testing (the “Licensed Assets”).
      Simultaneously with its execution of the License, Shelton shall execute an
      assignment agreement (the “Assignment”), assigning to the Venture for the Term
      all of Shelton’s existing customer accounts (the “Customer Accounts”). The
      parties agree that all customer accounts of the Venture created during the
      Term
      (the “New Customer Accounts”) shall be the property of the Venture. In
      consideration for the License and the Assignment, Harbin agrees that it shall
      cause the Venture to pay to Shelton 49% of the Profits (as herein after defined)
      realized by the Venture during the Term and the sale of any inventory of
      products existing as of the date of the termination of the Term. For purposes
      of
      this Agreement, the term “Profits” shall mean the Venture’s net income as
      determined in accordance with United States generally accepted accounting
      principles.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (b)
      Harbin hereby agrees that on or prior to March 31, 2009, it shall cause the
      Venture or Newco to invest $1,000,000 in cash to establish a wholly-owned
      subsidiary in Shanghai, China, which subsidiary will be responsible for the
      manufacturing and testing of the controller products 

     

    4. Transfer
      of Licensed Assets, Customer Accounts and New Customer Accounts
      Harbin
      and Shelton each hereby agree upon no less than 20 days written notice prior
      to
      the end of the Term by Harbin to Shelton, that (i) Harbin or the Venture shall
      be entitled to elect, effective upon the end of the Term to transfer or cause
      all of its business and assets, including the Licensed Assets, the Customer
      Accounts and the New Customer Accounts to be transferred from the Venture to
      a
      newly formed Delaware limited liability company (“Newco”) that is, at such time,
      a wholly-owned subsidiary of Shelton, in consideration for the issuance to
      the
      Venture or AEM of 51% of the outstanding equity of Newco and that (ii)
      simultaneously with and as a condition to the effectiveness of such transfer
      by
      the Venture of the Licensed Assets to Newco and such issuance of equity by
      Newco
      to the Venture or AEM that Shelton shall transfer and assign to Newco all of
      its
      right title and interest in and to the Licensed Assets and the Customer
      Accounts, free and clear of all Liens (as defined in Section 8(e) hereof) in
      consideration for the payment by Newco to Shelton of One Dollar ($1.00). In
      the
      event that Harbin or the Venture do not exercise the transfer option described
      in the preceding sentence, the parties acknowledge and agree that upon the
      expiration of the Term, all right, title and interest in and to the Licensed
      Assets and the Customer Accounts shall revert to Shelton. The parties agree
      that
      it shall be a condition to the transfer and assignment of the Licensed Assets,
      the Customer Accounts and the New Customer Accounts to Newco that Newco shall
      have entered into 3-1/2 year employment agreements with each of Shaotang Chen
      and Xiaogang Luo on substantially similar terms as those employment agreements
      entered into between the Venture and such individuals on the Closing Date,
      as
      described in Section 5 hereof, The parties further agree that in connection
      with
      any such transfer and assignment of the Licensed Assets, the Customer Account
      and the New Customer Accounts to Newco that they each will negotiate in good
      faith with respect to the preparation of an amendment of the operating agreement
      of Newco which agreement shall provide that (w) that Shelton shall be entitled
      to designate no fewer than two of five members of the Board of Directors,
      Management Committee or other governing body of Newco and Harbin shall be
      entitled to designate the remaining members of the Board of Directors,
      Management Committee or other governing body of Newco (x) that Shaotang Chen
      and
      Xiaogang Luo jointly shall be entitled to manage the day to day business
      operations of Newco for a period of at least 3-1/2 years, subject to similar
      restrictions on fundamental business decisions as set forth in Section 5 hereof
      , (y) that Shelton may not dispose of its 49% interest in Newco without the
      prior written consent of Harbin, and (z) that Harbin and Shelton shall each
      agree not to engage in research and development, design and sale of controllers
      that will compete with Newco.

     

    
      
         

      

      
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    5. Management
      of the Venture.
      Harbin
      agrees that during the Term that Shaotang Chen and Xiaogang Luo jointly shall
      serve as the manager[s] of the Venture with respect to its day to day business
      operations The Venture shall also have a Board of Managers (the “Board”) which
      shall be comprised of five managers, with three of which shall be appointed
      by
      Harbin and two of which shall be appointed by Shelton. All fundamental business
      decisions with respect to the Venture, which shall include, but not be limited
      to (a) the incurrence of indebtedness to third parties, (b) the acquisition
      or
      disposition of assets, (c) a material change in the business of the Venture,
      (d)
      the approval of the annual budget of the Venture, (e) the making of any
      distributions other than tax distributions, (f) any staffing additions and
      compensation of employees, (f) any capital expenditures or investment in excess
      of $50,000, (g) the hiring of and any change in the Venture’s auditors and (h)
      the establishment of the initial operating policies, procedures and reports
      of
      the Venture, will be made by the Board.

     

    6 Key
      Employees.
      The
      parties hereby agree that on or prior to the Closing Date that the Venture
      will
      have executed eighteen (18) month employment agreements which each of Shaotang
      Chen and Xiaogang Luo , each such agreement to be in substantially the form
      attached hereto as Exhibit
      C (the
      “Employment Agreements”). 

     

    7 Non-Competition.
      In
      order for the Venture to achieve maximum success in its business operations,
      Harbin and Shelton each agree not to engage in research and development, design
      and sale of controllers that will compete with the Venture at any time during
      the Term.

     

    8. Representations
      and Warranties of Shelton
      In order
      to induce to Harbin to enter into this Agreement and to perform its obligations
      hereunder, Shelton hereby represents to Harbin that 

     

    (a)
      It is
      a limited liability company duly organized and validly existing under the laws
      of the State of Michigan and has all power and authority necessary to carry
      on
      its business as it is now being conducted, to enter into this Agreement, the
      License and the Assignment to perform its obligations hereunder and
      thereunder.

     

    
      
         

      

      
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    (b)
      All
      corporate and other proceedings required to be taken by or on behalf of Shelton
      to authorize it to enter into and carry out this Agreement, the License and
      the
      Assignment have been duly taken, and this Agreement, the License and the
      Assignment each constitute a legal, valid and binding obligation of Shelton,
      enforceable against Shelton in accordance with their respective terms except
      (i)
      as such enforceability may be limited by bankruptcy, insolvency or other similar
      laws affecting the enforcement of creditors’ rights generally and (ii) to the
      extent that equitable remedies, such as injunctive relief or specific
      performance are within the discretion of courts of competent
      jurisdiction.

     

    (c)
      The
      execution and delivery of this Agreement, the License and the Assignment, the
      performance by Shelton of their respective terms, and the consummation of the
      transactions contemplated hereby and thereby 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 (i) the organizational documents of Shelton
      (ii) any contract, agreement or commitment of Shelton or (iii) any permit,
      concession, grant franchise, license, judgment, order, decree, statute, law,
      ordinance, rule or regulation applicable to Shelton or to its properties,
      including the Licensed Assets.

     

    (d)
      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, the License or the Assignment
      by Shelton or the consummation by Shelton of the transactions contemplated
      hereby or thereby. 

     

    (e)
      Except for the transfer and purchase option granted by Shelton to Harbin and
      Newco pursuant to Section 4 hereof, Shelton has good and valid title to each
      of
      the Licensed Assets, free and clear of all Liens (as hereinafter defined) and
      there is no claim, litigation, or other proceeding pending or threatened, which
      could impair, limit, diminish or otherwise impact upon Shelton’s right in the
      Licensed Assets or its ability to execute and deliver and perform its
      obligations hereunder or under the License. For purposes of this Agreement,
      the
      term “Liens” shall mean any lien, encumbrance, pledge, option, security
      interest, right of first refusal, mortgage, charge, of any kind (including
      any
      conditional sale agreement) or any subordination arrangement in favor of another
      person.

     

    (f)
      None
      of the Licensed Assets nor any of the elements thereof infringe or violate
      any
      rights of any person or entity.

     

    (g)
      None
      of the Licensed Assets are in the public domain.

     

    (h)
      No
      person is infringing on the rights if Shelton in and to any of the Licensed
      Assets.

     

    
      
         

      

      
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    9. Representations
      and Warranties of Harbin
      In order
      to induce to Shelton to enter into this Agreement and to perform its obligations
      hereunder, Harbin hereby represents to Shelton that 

     

    (a)
      It is
      a corporation duly incorporated and validly existing under the laws of the State
      of Nevada and has all corporate power and authority necessary to carry on its
      business as it is now being conducted, to enter into this Agreement, the License
      and each of the Employment Agreements and to perform its obligations hereunder
      and thereunder.

     

    (b)
      All
      corporate and other proceedings required to be taken by or on behalf of Harbin
      to authorize it to enter into and carry out this Agreement, the License and
      each
      of the Employment Agreements have been duly taken, and this Agreement, the
      License and each of the Employment Agreements constitute a legal, valid and
      binding obligation of Harbin, enforceable against Harbin in accordance with
      their respective terms except (i) as such enforceability may be limited by
      bankruptcy, insolvency or other similar laws affecting the enforcement of
      creditors’ rights generally and (ii) to the extent that equitable remedies, such
      as injunctive relief or specific performance are within the discretion of courts
      of competent jurisdiction.

     

    (c)
      The
      execution and delivery of this Agreement, the License and each of the Employment
      Agreements, the performance by Harbin of their respective terms, and the
      consummation of the transactions contemplated hereby and thereby 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 (i) the articles of
      incorporation or by-laws of Harbin (ii) any contract, agreement or commitment
      of
      Harbin or (iii) any permit, concession, grant franchise, license, judgment,
      order, decree, statute, law, ordinance, rule or regulation applicable to Harbin
      or to its properties.

     

    (d)
      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, the License and each of
      the
      Employment Agreements by Harbin or the consummation by Harbin of the
      transactions contemplated hereby or thereby. 

     

    10. Conditions.
      The
      consummation of the transactions contemplated by this agreement is conditioned
      on (a) the execution and delivery of the License (b) the execution and delivery
      of the Assignment, (c) the execution and delivery of the Employment Agreements,
      (d) the completion of satisfactory due diligence by Harbin and Shelton and
      (e)
      each of the representations and warranties set forth herein being true and
      correct as of the Closing Date.

     

    11. Expenses.
      Harbin
      and Shelton will each bear their respective expenses incurred in connection
      with
      the negotiation, preparation and consummation of the transactions contemplated
      hereby.

     

    
      
         

      

      
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    12. Confidentiality.
      Harbin
      and Shelton each agree to treat as confidential and not to disclose to any
      third
      party (other than such person’s legal and financial advisors) any non-public
      information provided by or on behalf of the other party in connection with
      the
      transactions contemplated hereby.

     

    13 Publicity.
      Neither
      Harbin nor Shelton nor any of their respective affiliates shall issue any press
      release or make any public statements about this transaction without the prior
      consent of the other party; provided,
      however,
      that
      any party hereto may make any disclosure required to be made by it under
      applicable law or by stock exchange regulations if it determines in good faith
      that it is appropriate to do so and gives prior written notice to the other
      party hereto, using reasonable efforts, given any time constraints, to reach
      the
      other party hereto and discuss such disclosure with the other
      party.

     

    14. Governing
      Law
      This
      Agreement shall be governed in accordance with the laws of the State of Delaware
      without regard to the principles of conflict of laws.

     

    15 Assignment 
      Neither
      party may assign its rights or obligations hereunder without the prior written
      consent of the other party, except that Harbin may transfer any of its rights
      or
      obligations hereunder to any affiliate of Harbin without the prior written
      consent of Shelton.

     

    16. Waivers
      and Amendments This
      Agreement may be amended, and the
      terms
      hereof may be waived only by a written instrument signed by both Harbin and
      Shelton. 

     

    17. Counterparts
      This
      Agreement may be executed in counterparts, each of which shall be an original
      and all of which shall together constitute one and the same
      instrument.

     

    18. No
      Agency The
      parties shall act solely as independent contractors and nothing contained herein
      shall be construed as creating an agency, partnership, joint venture, employment
      or other relationship between the parties other than one of independent
      contractors.

     

    19. Entire
      Agreement This
      Agreement, the License and the Employment Agreements constitute the entire
      agreement and understanding between the parties hereto with respect to the
      subject matter hereof and supersede all other prior agreements and
      understandings.

     

    20. Termination
      This
      Agreement may be terminated at any time by Harbin or Shelton upon no less than
      30 days prior written notice in the event of a material breach of this Agreement
      that has not been cured during such 30 day period. Notwithstanding any provision
      to the contrary set forth in the License Agreement and the Employment
      Agreements, upon any termination of this Agreement, all obligations of Harbin,
      Shelton, the Venture, Shaotang Chen and Xiaogang Luo, as applicable, under
      the
      License, the Assignment and each of the Employment Agreements shall
      automatically terminate. 

     

    
      
         

      

      
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    If
      the
      foregoing reflects our agreement, kindly sign and return the duplicate copy
      of
      this letter to us which will constitute our agreement as to the subject matter
      hereof. 

    
      	 	 	 
	 	
              Very
                truly yours,

            
	 	 
	 	
              HARBIN
                ELECTRIC, INC.

            
	 
 	 
 	 
 
	
            	By:  	/s/
              Tianfu Yang
	 	
              

              Name:
                Tianfu Yang

              Title:
                Chairman and Chief 

               
                Executive Officer

            


    

     

    Agreed
      and Accepted this 

    9th
      day
      of April, 2007

     

    SHELTON
      TECHNOLOGY, LLC

     

     

    By:
      /s/
      Julie Xie 

    
      

    

    Name:
      Julie Xie

    Title:
      Managing Director

     

     

    By:
      /s/
      Shaotang Chen

    
      
Name:
      Shaotang Chen

     

     

    By:
      /s/
      Xiaogang Luo

    
      

    


    Name:
      Xiaogang Luo

     

    
      
         

      

      
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