EXHIBIT 10.1
EMPLOYMENT AGREEMENT
     This is an Employment Agreement (“Agreement”) between Winland Electronics,
Inc., a Minnesota corporation (the “Corporation”), and Terry Treanor
(“Employee”).
Recitals
     WHEREAS, Employee has been employed with the Corporation; and
     WHEREAS, Employee and the Corporation desire to continue the employment
relationship; and
     WHEREAS, Employee and the Corporation desire to state in writing the terms
and conditions of Employee’s continued employment by the Corporation; and
     WHEREAS, Employee and the Corporation agree to the terms and conditions of
Employee’s employment by the Corporation hereinafter set forth in this
Agreement;
     NOW, THEREFORE, in consideration of the mutual covenants and undertakings
set forth below, the parties agree as follows:
ARTICLE 1
EMPLOYMENT; TERM OF EMPLOYMENT
     1.1) Employment. The Corporation hereby agrees to continue to employ
Employee and Employee hereby agrees to continue employment with the Corporation
in the position of Vice President of Manufacturing upon the terms and conditions
hereinafter set forth in this Agreement effective as of the date on which
Employee executes this Agreement.
     1.2) Term. Employee’s employment with the Corporation shall continue until
terminated by Employee or the Corporation in accordance with Articles 4 or 6.
ARTICLE 2
DUTIES; EXTENT OF SERVICES
     2.1) Duties. During Employee’s employment with the Corporation, Employee
shall serve the Corporation faithfully and to the best of his ability. Except as
approved in writing by the Board of Directors or its designees, which approval
shall not be unreasonably withheld, Employee shall devote his full business and
professional time, energy, and diligence to the performance of the duties of
such office. Employee shall perform such duties for the Corporation (a) as are
customarily incident to his office and (b) as may be assigned or delegated to
him from time to time by the Board of Directors of the Corporation, the
Corporation’s President and Chief Executive Officer, and its/his designees.
During employment with the

 

--------------------------------------------------------------------------------

 

Corporation, Employee shall not engage in any other business activity that would
conflict or interfere with his ability to perform his duties under this
Agreement. Employee shall use his best efforts to promote the interests of the
Corporation.
     2.2) Compliance with Rules; Authority. Employee agrees to be subject to the
Corporation’s control, rules, regulations, policies and programs. Employee
further agrees that he shall carry on all correspondence, publicity and
advertising in the Corporation’s name and he shall not enter into any contract
on behalf of the Corporation except as expressly authorized by the Corporation.
ARTICLE 3
COMPENSATION
     3.1) Compensation for Services. As compensation for his services to the
Corporation, the Corporation will pay Employee as set forth in the attached
Exhibit A, which shall be reviewed by the Board of Directors and/or its designee
from time to time but no less than annually. All compensation paid to Employee
shall be inclusive of all applicable income, social security, and other taxes
and charges that are required by law to be withheld by the Corporation or that
are requested to be withheld by Employee. All regular compensation shall be
payable in accordance with the Corporation’s usual payroll schedule.
     3.2) Benefits. Employee shall be eligible to participate in or receive
benefits under the Corporation’s paid time off (PTO) policy, employee benefit
plans, health plans, or arrangements, if any, made available from time to time
by the Corporation to its employees as set forth in an employee manual or
otherwise including, but not limited to, medical, dental, and long-term
disability coverage, to the extent that Employee’s age, tenure, and title make
him eligible to receive those benefits. Nothing in this Agreement is intended to
or shall in any way restrict the Corporation’s right to amend, modify or
terminate any of its benefits or benefit plans during the term of Employee’s
employment.
     3.3) Business Expenses. During Employee’s employment, the Corporation shall
reimburse Employee for all ordinary and necessary business expenses incurred by
Employee in connection with the business of the Corporation and its subsidiaries
and consistent with the Corporation’s policies in effect from time to time with
respect to travel, entertainment and other business expenses. Payment or
reimbursement to Employee will be made upon submission by Employee of vouchers,
receipts or other evidence and documentation of such expense in a form
reasonably satisfactory to the Corporation and in compliance with applicable
requirements of taxing authorities. In the event the Corporation’s President and
Chief Executive Officer requests the services of Employee outside the Mankato
area, the Corporation will reimburse Employee for his reasonable transportation,
lodging, and meal expense incurred in compliance with such request.

2

--------------------------------------------------------------------------------

 

ARTICLE 4
TERMINATION
     4.1) Termination. Either Employee or the Corporation may terminate the
employment relationship at any time, for any or no reason, upon ninety
(90) days’ written notice to the other party. The Corporation shall have the
right, in its sole discretion, to provide Employee ninety (90) days’ pay and
benefits in lieu of written notice. Notwithstanding the foregoing, the
Corporation shall have the right to terminate Employee’s employment immediately
for “Cause” as defined in Section 4.4 below.
     4.2) Return of Property. Immediately upon termination (or at such earlier
time as requested by the Corporation’s Board of Directors and/or its President
and Chief Executive Officer or its/his designees), Employee shall deliver to the
Corporation all of its property, including but not limited to all work in
progress, research data, equipment, originals and copies of documents and
software, customer information and lists, financial information, and all other
material in Employee’s possession or control that belongs to the Corporation or
its customers or contains Confidential Information (as defined in Section 5.1(E)
below).
     4.3) Payment Upon Termination. Except as provided in Section 4.4 or
Article 6, after the effective date of termination, Employee shall not be
entitled to any compensation, benefits, or payments whatsoever except for
compensation earned through Employee’s last day of employment and any accrued
benefits.
     4.4) Severance. If Employee satisfies the conditions set forth in
Section 4.4(C) of this Agreement, the Corporation will provide Employee the
severance benefits described in this Section 4.4. Nothing in this provision is
intended to limit the Corporation’s right to provide Employee ninety (90) days’
pay and benefits in lieu of written notice or Employee’s right to receive such
pay and benefits, nor shall such pay and benefits in any way limit the severance
contemplated by Section 4.4 of this Agreement.
     A. Termination by Employer with Cause. For purposes of this Article 4,
“Cause” shall be defined to include, but not be limited to, the following:
     1. Employee’s neglect of any of his material duties or his failure to carry
out reasonable directives from the Board of Directors, the Corporation’s
President and Chief Executive Officer, or its/his designees, or failure to
comply with rules, regulations or policies of the Corporation or its Board of
Directors;
     2. Any willful or deliberate misconduct that is injurious to the
Corporation, its business reputation or its goodwill;
     3. Dishonesty in any dealings between Employee and the Corporation or
between Employee and vendors or customers of the Corporation;
     4. Employee’s commission of a felony, or other crime involving moral
turpitude or immoral conduct, whether or not against the Corporation and whether
or not committed during Employee’s employment;

3

--------------------------------------------------------------------------------

 

     5. Employee’s acting in a manner adverse to the best interests of the
Corporation including, but not limited to, being under the influence of alcohol
or illegal drugs while on the job; or
     6. Employee’s breach of any term of this Agreement.
     B. Termination by Employee for Good Reason. For purposes of this Article 4,
“Good Reason” shall be defined to include the following:
     1. The assignment to Employee, without Employee’s consent, of employment
responsibilities that are not of comparable responsibility and status to the
employment responsibilities described in this Agreement;
     2. The Corporation’s reduction of Employee’s base salary without Employee’s
consent except for any reduction implemented as part of a broad-based employee
cost reduction initiative; or
     3. The Corporation’s requiring Employee to be based anywhere other than
within fifty (50) miles of the Corporation’s principal location at the time of
Employee’s execution of this Agreement.
     C. Severance Benefits Upon Termination by the Corporation Without Cause or
Termination by Employee for Good Reason. If (1) Employee’s employment is
terminated by the Corporation without Cause in accordance with Section 4.1 or is
terminated by Employee for Good Reason in accordance with Section 4.4(B), and
(2) Employee executes and does not rescind a separation agreement supplied by
the Corporation, which will include, but not be limited to, a comprehensive
release of all legal claims, then the Corporation will (a) pay Employee in a
lump sum or at regular payroll intervals, at the Corporation’s option, an amount
equal to six (6) months of Employee’s then current base salary, subject to
required and authorized deductions and withholdings; and (b) continue to pay the
Corporation’s ordinary share of premiums for three (3) calendar months for
Employee’s COBRA continuation coverage in the Corporation’s group medical,
dental, and life insurance plans (as applicable), provided Employee elects such
continuation coverage and timely pays Employee’s share of such premiums, if any.

4

--------------------------------------------------------------------------------

 

ARTICLE 5
RESTRICTION AGAINST COMPETITION; CONFIDENTIALITY
     5.1) Restriction Against Competition. Employee acknowledges that he is
employed in a position of trust and confidence and has had and will continue to
have access to and become familiar with the unique methods, services and
procedures used by the Corporation and that, as part of Employee’s duties, he
has developed and will continue to develop and maintain close working
relationships with vendors, customers and employees of the Corporation and its
subsidiaries. Employee further acknowledges that the Corporation and its
subsidiaries, over the years, through goodwill, advertising, honest business
methods and aggressive promotion, have built a lucrative business and obtained
loyal vendors and customers. Employee further acknowledges that disclosure or
use of any of the Corporation’s Confidential Information relating to the
operation of the business of the Corporation or its subsidiaries (as defined in
Section 5.1(E) of this Agreement) could have a serious detrimental effect upon
the Corporation, the monetary loss from which would be difficult, if not
impossible, to measure. In consequence of the foregoing, and in consideration
for the Corporation’s agreement to provide severance rights and benefits to
Employee as set forth in Article 4 of this Agreement and the Change of Control
rights and benefits to Employee as set forth in Article 6 of this Agreement,
which Employee acknowledges and agrees are rights and benefits to which he is
otherwise not entitled, Employee agrees as follows:
     A. Noncompetition. During Employee’s employment and for the period
specified below following a termination, Employee agrees to the following
(referred to hereinafter as “Employee’s Noncompetition Obligations”):
     1. Not to directly or indirectly engage in, own, manage, operate, join,
control, consult with, participate in the ownership, operation or control of, be
employed by, perform services for, contract with or be connected with as a
director, officer, principal, shareholder, member, agent, consultant,
salesperson or otherwise, any person, corporation, partnership or other entity
that produces or markets any product or service competitive with the
Corporation’s environmental controls and sensors business, or conspire with
others to do so; and
     2. Not to directly or indirectly engage in, own, manage, operate, join,
control, consult with, participate in the ownership, operation or control of, be
employed by, perform services for, contract with or be connected with as a
director, officer, principal, shareholder, member, agent, consultant,
salesperson or otherwise, any person, corporation, partnership or other entity
that produces or markets any product or service competitive with the
Corporation’s electronic manufacturing services (“EMS”) business, or conspire
with others to do so, in any state where the Corporation markets its EMS
business or, as of Employee’s termination date, has articulable plans to
actively do so.
     3. Following a termination from employment, Employee’s Noncompetition
Obligations will continue in effect as follows:
     a. For the two-year period immediately following a Change of Control
Termination pursuant to Section 6.2 herein, or

5

--------------------------------------------------------------------------------

 

     b. For the one-year period immediately following any other termination of
his employment, whether voluntary or involuntary and regardless of the reason
for and timing of the termination.
     B. Exceptions to Noncompetition. The restrictions contained in
Section 5.1(A) will
     1. Not prevent Employee from the following:
     a. Owning up to three percent (3%) of a publicly held company that competes
with the Corporation and/or its subsidiaries, so long as Employee does not
otherwise violate the terms of this Article 5; or
     b. Accepting employment with a large diversified organization in a separate
and distinct division that does not compete, directly or indirectly, with the
Corporation on the following conditions: Prior to accepting such employment,
Employee provides the Corporation written assurance that he will not provide any
of the Corporation’s trade secrets or other Confidential Information to the new
employer, will not render any services, directly or indirectly, to any division
or business unit that competes, directly or indirectly, with the Corporation,
and that he will not violate any of the terms of Article 5 of this Agreement; or
     2. Have no force or effect if the circumstances of Employee’s termination
of employment trigger the Corporation’s obligation to pay severance pursuant to
Section 4.4 or Change of Control Termination amounts pursuant to Article 6
herein and the Corporation is unable to pay the amount due to Employee as a
result of the Corporation’s liquidation or insolvency.
     C. Nonsolicitation of Customers. Employee agrees he will not, during his
employment and for a two-year period immediately following termination of his
employment hereunder, regardless of the reason for and timing of the
termination, attempt to divert any business of the Corporation or its
subsidiaries by soliciting, contacting, or communicating with any customers of
the Corporation or its subsidiaries with whom Employee, or employees under his
supervision, had contacts during the year preceding termination of his
employment or any persons or entities who might reasonably be considered within
the class of customers actively solicited by the Corporation or its
subsidiaries.
     D. Nonsolicitation of Employees and Contractors. Employee agrees he will
not, during his employment and for a two-year period immediately following
termination of his employment, regardless of the reason for and timing of the
termination, solicit any then-current employee or contractor of the Corporation
or its subsidiaries for the purpose of hiring or attempting to hire such
employee or contractor, nor will Employee in any manner attempt to persuade or
encourage any of the then-current employees or contractors of the

6

--------------------------------------------------------------------------------

 

Corporation or its subsidiaries to discontinue their employment or contractual
engagement with the Corporation or its subsidiaries.
     E. Confidential Information. Employee will not, during or after the term of
this Agreement, directly or indirectly, use or disclose any of the Corporation’s
Confidential Information relating to the operation of the business of the
Corporation or its subsidiaries to any person, firm, corporation, association,
or other entity for any reason or purpose whatsoever except the furtherance of
the interests of the Corporation or its subsidiaries. For purposes of this
Agreement, “Confidential Information” includes but is not limited to the
following:
Information not generally known and which is proprietary to the Corporation
including, without limitation, use of or customization to computer application
programs; financial, management, or customer data that is provided, or to which
access is provided, in the course of employment by the Corporation; data or
conclusions or opinions formed by Employee in the course of employment; policies
and procedures; manuals; trade secrets; methods, procedures, or techniques
pertaining to the business of the Corporation or a customer of the Corporation;
specifications for products or services of the Corporation; systems; price
lists; marketing plans; sales or service analyses; financial information;
customer names or other information; vendor names or other information; employee
names or other information; research and development data; diagrams; drawings;
videotapes, audiotapes, or computerized media used as training regimens; notes,
memoranda, notebooks, and all other records or documents that are handled, seen,
or used by Employee in the course of employment; information not likely to be
available to the general public without the expenditure of time or expense; and
any other information designated as such by the Corporation in its sole
discretion as confidential. “Confidential Information” does not include
(i) information which is in the public domain, (ii) information which, through
no fault of Employee, hereafter comes into the public domain, or
(iii) information disclosed to Employee by third parties who do not violate
duties to the Corporation in disclosing that information.
     5.2 Copyrights.
     A. Employee hereby acknowledges and agrees that, to the extent any work
performed by Employee for the Corporation gives rise to the creation of any
copyrightable material (“Work”), all such Work, including all text, software,
source code, scripts, designs, diagrams, documentation, writings, visual works,
or other materials shall be deemed to be a work made for hire for the
Corporation.

7

--------------------------------------------------------------------------------

 

     B. To the extent that title to any Work may not, by operation of law, vest
in the Corporation or such Work may not be considered work made for hire for the
Corporation, all rights, title and interest therein were assigned and are hereby
irrevocably assigned to the Corporation, including but not limited to the right
to sue for past, present, and future infringement of any Work. All such Work
shall belong exclusively to the Corporation, with the Corporation having the
right to obtain and to hold in its own name, copyrights, registrations or such
other protection as may be appropriate to the subject matter, and any extensions
and renewals thereof.
     C. To the extent that title to any Work may not be assigned to the
Corporation, Employee hereby grants the Corporation a worldwide, nonexclusive,
perpetual, irrevocable, fully paid-up, royalty-free, unlimited, transferable,
sublicensable license, without right of accounting, in such Work.
     D. Employee agrees to execute and deliver without further consideration
such documents and to perform such other lawful acts as the Corporation, its
successors and assigns may deem necessary to fully secure the Corporation’s
rights, title or interest in all Works as set forth in this Agreement.
     5.3 Inventions.
     A. Employee agrees to communicate promptly and fully to the Corporation all
inventions, discoveries, improvements or designs conceived or reduced to
practice by Employee during the period of his employment with the Corporation
(alone or jointly with others), and, except as provided in Section 5.3(C),
Employee will and hereby does assign to the Corporation and/or its nominees all
of his right, title and interest in such inventions, discoveries, improvements
or designs and all of his right, title and interest in any patents, patent
applications or copyrights based thereon without obligation on the part of the
Corporation to pay any further compensation, royalty or payment to Employee.
     B. Employee further agrees to assist the Corporation and/or its nominee
(without charge but at no expense to Employee) at any time and in every proper
way to obtain and maintain for its and/or their own benefit, patents for all
such inventions, discoveries and improvements and copyrights for all such
designs.
     C. This Agreement does not obligate Employee to assign to the Corporation
any invention, discovery, improvement or design for which no equipment,
supplies, facility or trade secret information of the Corporation was used and
which was developed entirely on Employee’s own time, and (i) which does not
relate (A) directly to the business of the Corporation or (B) to the
Corporation’s actual or demonstrably anticipated research or development, or
(ii) which does not result from any work performed by Employee for the
Corporation.
     D. Employee shall keep complete, accurate and authentic accounts, notes,
data and records of all inventions, discoveries, improvements or designs in the
manner and form requested by the Corporation. Such accounts, notes, data and
records shall be

8

--------------------------------------------------------------------------------

 

the property of the Corporation, and upon its request Employee shall promptly
surrender the same to the Corporation.
     E. The obligations of this Section 5.3 shall continue beyond the
termination of Employee’s employment with respect to any invention, discovery,
improvement or design conceived or made by Employee during the period of
Employee’s employment with the Corporation and shall be binding upon Employee’s
assigns, executors, administrators, and other legal representatives. In the
event Employee is called upon to render assistance to the Corporation pursuant
to Section 5.3(B) after termination of Employee’s employment with the
Corporation, the Corporation shall pay Employee reasonable compensation for the
assistance rendered and shall call upon Employee for assistance at such
reasonable times so as not to interfere with Employee’s new employment or
business. For purposes of this Agreement, any invention, discovery, improvement
or design relating to the business of the Corporation upon which Employee files
a patent, trademark or copyright application within one (1) year after
termination of Employee’s employment with the Corporation shall be presumed to
have been made while Employee was employed by the Corporation, subject to proof
to the contrary by good faith, written and duly corroborated records
establishing that such invention, discovery, improvement or design was conceived
and made by Employee following termination of employment and without violation
of his continuing obligations under Section 5.1(E) hereof.
     5.4 Specific Performance and Injunctive Relief. Employee acknowledges that
the restrictions and covenants contained in this Article 5 are reasonable and
necessary to protect the legitimate interests of the Corporation. Employee
understands and agrees that the remedies at law for any violation of the
restrictions or covenants by this Article 5 may be inadequate, that such
violations may cause irreparable injury within a short period of time and that
the Corporation shall be entitled to preliminary injunctive relief and other
injunctive relief against such violation or threatened violation without the
necessity of proving actual damages. Such injunctive relief shall be in addition
to and not in limitation of any and all other remedies the Corporation shall
have in law and at equity for the enforcement of such restrictions and
covenants. Nothing herein provided shall be construed as prohibiting the
Corporation or Employee from pursuing any other remedies available in the event
of breach or threatened breach, including the recovery of damages. In the event
of a violation of any of the provisions of this Article 5, the successful party
shall have the right to collect a reasonable attorney’s fee for bringing such
legal or equitable action or otherwise enforcing the terms and conditions of
this Article.
     5.5 Acknowledgement. Employee acknowledges that he has carefully considered
the restrictions contained in this Article 5 and determined that the
restrictions in this Article 5 will not unduly restrict him in securing other
suitable employment in the event of the termination of his employment with the
Corporation.

9

--------------------------------------------------------------------------------

 

ARTICLE 6
CHANGE OF CONTROL
     6.1) Change of Control Right and Payment. In consideration for Employee
entering into the noncompetition, nonsolicitation, confidentiality, and other
obligations set forth in Article 5, the following Change of Control rights and
benefits will apply during the term of Employee’s employment with Corporation:
     A. For a period of two (2) years following a Change of Control, as defined
in Section 6.2., Employee shall have the right, within Employee’s sole
discretion, to terminate employment with the Corporation for a “Change of
Control Good Reason” as defined in Section 6.2. Such termination shall be
accomplished by Employee giving ninety (90) days’ written notice to the
Corporation of Employee’s decision to terminate.
     B. In the event of a Change of Control Termination, as defined in
Section 6.2., then, in lieu of any severance benefits payable under Section 4.4
and without further action by the Board of Directors, the Corporation shall pay
to Employee an amount equal to Employee’s compensation (including any (a) base
salary, and (b) annual bonuses, but excluding non-cash fringe benefits such as
insurance and perquisites) for the two (2) completed fiscal years preceding such
termination, which amount shall be paid by the Corporation in 24 equal monthly
installments beginning on the first day of the calendar month following the
calendar month in which such Change of Control Termination occurs with the
remaining payments made on the first day of each of the succeeding 23 months.
Notwithstanding the foregoing, in no event shall Employee receive any Change of
Control Action, as defined below, which would constitute a “parachute payment”
for purposes of Code Section 280G, or any successor provision, and the
regulations thereunder. In the event any Change of Control Actions would
constitute a “parachute payment,” Employee shall have the right to designate
those Change of Control Actions which would be reduced or eliminated so that
Employee will not receive a “parachute payment.” For purposes of this
Section 6.1, a “Change of Control Action” shall mean any payment, benefit or
transfer of property in the nature of compensation paid to or for the benefit of
Employee under any arrangement which is considered contingent on a Change of
Control for purposes of Code Section 280G, including, without limitation, any
and all of the Corporation’s salary, bonus, incentive, restricted stock, stock
option, compensation or benefit plans, programs or other arrangements, and shall
include any benefits payable under this Agreement.
     C. Interest. In the event the Corporation does not make timely payment of
the Change of Control Termination amounts described in Section 6.1, Employee
shall be entitled to receive interest on any unpaid amount at the prime rate of
interest (or such comparable index as may be adopted) published from time to
time by the Wall Street Journal.
     D. Attorneys’ Fees. In the event Employee prevails in an action against the
Corporation to enforce or defend his rights under Article 6 of this Agreement,
or to recover damages for breach thereof, Employee shall be entitled to recover
from the Corporation any reasonable expenses for attorneys’ fees and
disbursements incurred.
     6.2) Definitions. For purposes of this Article 6, the following definitions
shall be applied:

10

--------------------------------------------------------------------------------

 

     A. “Continuing Directors” shall mean the directors of the Corporation as of
the date of Employee’s execution of this Agreement and any new director whose
election to the Board of Directors or nomination for election to the Board of
Directors is approved by a vote of at least two-thirds (2/3) of the directors as
of the date of Employee’s execution of this Agreement who are then still in
office.
     B. “Change of Control” shall mean any of the following events unless
approved in advance by a majority of the Continuing Directors:
     1. The acquisition of direct or indirect beneficial ownership (as defined
in Rule 13d-3 under the Securities Exchange Act of 1934) in the aggregate of
securities of the Corporation representing twenty percent (20%) or more of the
total combined voting power of the Corporation’s then issued and outstanding
securities by any person or entity, or group of associated persons or entities
acting in concert, except for the officers and directors of the Corporation as
of the date this Agreement is executed; or
     2. A merger or consolidation to which the Corporation is a party if the
individuals and entities who were shareholders of the Corporation immediately
prior to the effective date of such merger or consolidation have beneficial
ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934)
of less than fifty percent (50%) of the total combined voting power for election
of directors of the surviving corporation following the effective date of such
merger or consolidation; or
     3. The sale of the properties and assets of the Corporation, substantially
as an entirety, to any person or entity which is not a wholly-owned subsidiary
of the Corporation; or
     4. A change in the composition of the Corporation’s Board of Directors at
any time after Employee’s execution of this Agreement such that the Continuing
Directors cease for any reason to constitute at least a fifty-one percent (51%)
majority of the Board.
     C. “Change of Control Termination” shall mean with respect to Employee any
of the following events occurring within two (2) years after a Change of
Control:
     1. Termination of Employee’s employment by the Corporation for any reason
other than pursuant to Section 4.4(A) (a “Cause” termination); or
     2. Termination of Employee’s employment by Employee pursuant to
Section 6.1. A Change of Control Termination by Employee shall not include
termination by reason of death or disability.
     D. “Change of Control Good Reason” shall mean a good faith determination by
Employee that one or more of the following events has occurred, without
Employee’s express written consent, after a Change of Control:

11

--------------------------------------------------------------------------------

 

     1. A change in Employee’s reporting responsibilities, titles or position as
in effect immediately prior to the Change of Control, or any removal of Employee
from, or any failure to re-elect Employee to, any of such positions, which has
the effect of materially diminishing Employee’s responsibility or authority;
     2. A material reduction by the Corporation in Employee’s total compensation
as in effect immediately prior to the Change of Control or as the same may be
increased from time to time;
     3. The Corporation requiring Employee to be based anywhere other than
within fifty (50) miles of Employee’s job location at the time of the Change of
Control;
     4. Without replacement by a plan, program, or arrangement providing
benefits to Employee of the Corporation and its subsidiaries equal to or greater
than those discontinued or adversely affected, the failure by the Corporation to
continue in effect, within its maximum stated term, any pension, bonus,
incentive, stock ownership, purchase, option, life insurance, health, accident,
disability, or any other employee compensation or benefit plan, program or
arrangement, in which Employee is participating immediately prior to a Change of
Control or the taking of any action by the Corporation that would adversely
affect Employee’s participation or materially reduce Employee’s benefits under
any of such plans, programs or arrangements;
     5. The taking of any action by the Corporation that would materially and
adversely affect the workplace environment existing at the time of the Change of
Control in or under which Employee performs his employment duties; or
     6. The taking of any action by the Corporation that would materially change
the Corporation’s business strategies or practices existing at the time of the
Change of Control including, but not limited to, changes in the types and brands
of products offered, advertising and promotion programs, employment policies,
and the segment to which the Corporation markets its products.

12

--------------------------------------------------------------------------------

 

ARTICLE 7
MISCELLANEOUS
     7.1) Severability. If any term or provision of this Agreement shall be held
to be invalid or unenforceable for any reason, such term or provision shall be
ineffective to the extent of such invalidity or unenforceability without
invalidating the remaining terms or provisions of this Agreement. Without in any
way limiting the generality of the foregoing, in the event that any provision of
Article 5 hereof is held invalid or unenforceable by a court of competent
jurisdiction, the Corporation and Employee agree that that part should modified
by the court to make it enforceable to the maximum extent possible. If the part
cannot be modified, then that part may be severed and the other parts of this
Agreement shall remain enforceable.
     7.2) Section 409A Requirements. The Corporation and Employee recognize and
agree that revisions to the post-termination payments and benefits provisions
contemplated by Section 4.4 and Article 6 may be necessary and desirable to
comply with the requirements of Internal Revenue Code Section 409A, and the
regulations, notices and other guidance of general application issued thereunder
(hereinafter, “409A Requirements”), in a manner intended to prevent any adverse
tax consequences to Employee and the Corporation as a result of any failure to
so comply. Any such revisions will be made only with the written consent of both
parties; and each of them agrees to cooperate in good faith to make any such
revisions in a manner that timely complies with the 409A Requirements.
     7.3) Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient, if given in person or if in writing, sent by
certified mail, return receipt requested, to the last known residence address in
the case of Employee or to its principal office in the case of the Corporation.
     7.4) Waiver of Breach. The failure of either party hereto to enforce its
rights under any provision of this Agreement shall not operate or be construed
as a waiver of such breach or of any subsequent breach by any party.
     7.5) Entire Agreement. This Agreement contains the entire agreement of the
parties concerning the employment of Employee by the Corporation and supersedes
and replaces any prior agreement or arrangement relative to Employee’s
employment by the Corporation, whether oral or written. Except as provided in
Section 7.1 of this Agreement, no modification, supplement, or amendment of any
provision hereof shall be valid unless made in writing and signed by the parties
against whom enforcement of any waiver, change, modification, extension or
discharge is sought.
     7.6) Governing Law. This Agreement shall be construed and interpreted
according to the laws of the State of Minnesota.
     7.7) Headings. The captions set forth in this Agreement are for convenience
only and shall not be considered a part of this Agreement or in any way limiting
or amplifying the terms or provisions hereof.

13

--------------------------------------------------------------------------------

 

     7.8) Obligations Which Survive Termination. The obligations and remedies of
Sections 4.2, 4.3, 4.4, and Articles 5, 6 and 7 of this Agreement shall survive
the termination of this Agreement or any successor relationship and the
termination of Employee’s employment for any reason, except as expressly
otherwise provided for in this Agreement.
     7.9) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon Corporation and Employee and their respective successors,
assigns, heirs, executors, and administrators, except that the services to be
performed by Employee are personal and are not assignable.
     7.10) Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year written below.

     
 
  WINLAND ELECTRONICS, INC.
 
   
February 5, 2007
  By: /s/ Lorin E. Krueger
Date
  Its President and CEO
 
   
 
  EMPLOYEE
 
   
February 5, 2007
  /s/ Terry Treanor
Date
  Terry Treanor

14

--------------------------------------------------------------------------------

 

EXHIBIT A
     In consideration of the mutual covenants and undertakings set forth in the
Employment Agreement between Winland Electronics, Inc., a Minnesota corporation
(the “Corporation”), and Terry Treanor (“Employee”), the parties agree as
follows:
     1. Base Salary. For each fiscal year of the Corporation during Employee’s
employment, the Corporation shall pay Employee an annual base salary (“Base
Salary”) in the amount determined by the Compensation Committee of the
Corporation’s Board of Directors, provided that such amount shall not be less
than the Base Salary for the immediately preceding fiscal year without the
consent of Employee unless such reduction is implemented as part of a
broad-based employee cost reduction initiative. For the fiscal year from
January 1, 2007 through December 31, 2007, Employee’s annual Base Salary shall
be $125,000, payable in accordance with the Corporation’s usual payroll
schedule.
     2. Bonus. The Corporation may, but is not obligated to, pay Employee an
annual bonus (“Annual Bonus”) consisting of stock options or a cash payment or
both, the amounts of which, if any, shall be determined by the Compensation
Committee of the Board of Directors. If any Annual Bonus is earned by Employee,
it shall be paid within ninety (90) days after the end of the Corporation’s
applicable fiscal year.
     3. Amendment. The Board of Directors and/or its designee reserves the right
to modify, supplement and/or amend the terms of this Exhibit A from time to time
with written notice to Employee.
     IN WITNESS WHEREOF, the parties hereto have caused this Exhibit A to be
duly executed and delivered as of the day and year written below.

     
 
  WINLAND ELECTRONICS, INC.
 
   
February 5, 2007
  By: /s/ Lorin E. Krueger
Date
  Its President and CEO
 
   
 
  EMPLOYEE
 
   
February 5, 2007
  /s/ Terry Treanor
Date
  Terry Treanor

15