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
Exhibit
10.1
No.
9 Ha
Ping Xi Lu
Ha
Ping
Lu Xx Xxxxx
Qu
Xxxxxx
Xxx Xx Xx
Xxxxxx,
People’s Republic of China 150060
April
9,
2007
CONFIDENTIAL
Xxxxxxx
Technology, LLC
0000
X.
Xxxxxx Xxxx
Xxxxxxxxx
Xxxxx, XX 00000
Gentlemen:
1. General.
This
letter agreement shall set forth the terms on which Harbin Electric, Inc.
(“Harbin”) and Xxxxxxx Technology, LLC (“Xxxxxxx”) 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, Xxxxxxx 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, Xxxxxxx shall execute an
assignment agreement (the “Assignment”), assigning to the Venture for the Term
all of Xxxxxxx’x 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 Xxxxxxx 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 Xxxxxxx each hereby agree upon no less than 20 days written notice prior
to
the end of the Term by Harbin to Xxxxxxx, 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 Xxxxxxx, 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 Xxxxxxx 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 Xxxxxxx 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 Xxxxxxx. 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 Xxxxxxxx Xxxx
and Xxxxxxxx Xxx 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 Xxxxxxx 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 Xxxxxxxx Xxxx
and
Xxxxxxxx Xxx 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 Xxxxxxx may not dispose of its 49% interest in Newco without the
prior written consent of Harbin, and (z) that Harbin and Xxxxxxx 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 Xxxxxxxx Xxxx and Xxxxxxxx Xxx 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 Xxxxxxx. 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 Xxxxxxxx
Xxxx and Xxxxxxxx Xxx , 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 Xxxxxxx 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 Xxxxxxx
In order
to induce to Harbin to enter into this Agreement and to perform its obligations
hereunder, Xxxxxxx 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.
3
(b)
All
corporate and other proceedings required to be taken by or on behalf of Xxxxxxx
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 Xxxxxxx,
enforceable against Xxxxxxx 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 Xxxxxxx 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 Xxxxxxx
(ii) any contract, agreement or commitment of Xxxxxxx or (iii) any permit,
concession, grant franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Xxxxxxx 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 Xxxxxxx or the consummation by Xxxxxxx of the transactions contemplated
hereby or thereby.
(e)
Except for the transfer and purchase option granted by Xxxxxxx to Harbin and
Newco pursuant to Section 4 hereof, Xxxxxxx 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 Xxxxxxx’x 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 Xxxxxxx in and to any of the Licensed
Assets.
4
9. Representations
and Warranties of Harbin
In order
to induce to Xxxxxxx to enter into this Agreement and to perform its obligations
hereunder, Harbin hereby represents to Xxxxxxx 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 Xxxxxxx and
(e)
each of the representations and warranties set forth herein being true and
correct as of the Closing Date.
11. Expenses.
Harbin
and Xxxxxxx 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 Xxxxxxx 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 Xxxxxxx 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 Xxxxxxx.
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
Xxxxxxx.
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 Xxxxxxx 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, Xxxxxxxx Xxxx and Xxxxxxxx Xxx, as applicable, under
the
License, the Assignment and each of the Employment Agreements shall
automatically terminate.
6
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.
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Very
truly yours,
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| |
|
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| By: | /s/ Xxxxxx Xxxx | |
|
Name:
Xxxxxx Xxxx
Title:
Chairman and Chief
Executive Officer
|
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Agreed
and Accepted this
9th
day
of April, 2007
XXXXXXX
TECHNOLOGY, LLC
By:
/s/
Xxxxx Xxx
Name:
Xxxxx Xxx
Title:
Managing Director
By:
/s/
Xxxxxxxx Xxxx
Name: Xxxxxxxx Xxxx
By:
/s/
Xxxxxxxx Xxx
Name:
Xxxxxxxx Xxx
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