**Exhibit10.1**

**SEPARATIONAGREEMENT AND MUTUAL RELEASE**

ThisSeparation Agreement and Release (the “Agreement”) is made and entered into asof January 19, 2007 (the “Effective Date”) by and between SPACEHAB, Inc. (“SPACEHAB”or the “Company”) and Michael E. Bain (“Bain”).

**RECITALS**

Bainis the Chief Operating Officer of the Company. Other than this Agreement, Bain and the Company are parties to thefollowing, and only the following, agreements (collectively, the “AncillaryAgreements”):

a.                       EmploymentAgreement, dated as of May 12, 2005 (the “Employment Agreement”), and attachedas Exhibit A; and

b.                      IndemnificationAgreement, dated as of May 12, 2005 (the “Indemnification Agreement”), whichthe parties agree to be a valid, binding and enforceable agreement between themand the provisions of which are not waived, modified or otherwise impaired bythis Agreement in any respect, and attached as Exhibit B;

Undereach of the Indemnification Agreement, the Amended and Restated Articles ofIncorporation of the Company (the “Articles Indemnification”) and the Amendedand Restated Bylaws of the Company (the “Bylaws Indemnification”)(collectively, the “Existing Indemnification Arrangements”) the Company isobligated, under certain circumstances, to indemnify Bain under the terms andconditions therein stated. Notwithstanding any provision of this Agreement to the contrary, theExisting Indemnification Arrangements shall remain in effect and be enforceablein accordance with their respective terms and conditions, except as expresslymodified or supplemented by this Agreement.

Onthe terms hereinafter set forth, the parties agree that Bain’s status as anofficer and employee of the Company is terminated as of the Effective Date.

**AGREEMENT TERMS**

Therefore,in consideration of the promises and mutual agreements set forth in thisAgreement, the receipt and sufficiency of which is hereby acknowledged by allparties, the Company and Bain agree as follows:

1.             **Termination of Employment Agreement.**  As of the Effective Date, the EmploymentAgreement between Bain and the Company listed in Agreement Recital a. iscancelled and terminated and will be of no further force or effect except asprovided for in this Agreement.  TheExisting Indemnification Arrangements shall remain binding and enforceable asbetween the parties in accordance with their terms.  Therefore, Bain agrees and acknowledges thatany rights he may have to any payments, benefits, or other perquisites of anykind whatsoever under the Employment Agreement (except as provided for as partof routine termination of employment in accordance with company policy)including, without limitation, compensation, salary, vacation and sick pay, andtravel and car allowances, if any, are extinguished by this Agreement and Bain’sright to any claim or cause of action whatsoever to

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reimbursement, payments, benefits, or other perquisites under theEmployment Agreement are released and forever waived under Agreement paragraph5.

2.             **Severance**.  Contingentupon Bain’s compliance with each of the terms and conditions of this Agreement,the Company will pay Bain the amount of One Hundred Thousand Dollars($100,000.00) *minus* all lawful tax withholdings(the “Payment”), payable in one lump sum within five days after expiration ofthe seven-day Revocation Period described in Agreement paragraph 17.  Bain understands and agrees that the Paymentis in addition to anything of value to which Bain is already entitled toreceive.

3.             **Resignation.**  Bainhereby irrevocably resigns all positions as an officer and employee of theCompany as of the Effective Date

4.             **SPACEHAB Released Parties**.**** The “SPACEHAB Released Parties” are defined asSPACEHAB, Inc., each of SPACEHAB subsidiaries and each of SPACEHAB and itssubsidiaries predecessors, successors, parents, joint ventures, holdingcompanies, subsidiaries, divisions, affiliates, assigns, partnerships, agents,directors, officers, employees, consultants, committees, employee benefitcommittees, fiduciaries, representatives, attorneys, and all persons andentities acting by, through, under or in concert or in any such capacity withany of them.  Under this Agreement, Bainis excluded from the definition of “SPACEHAB Released Parties”.

5.             **Mutual Release of Claims**. Bain, on behalf of himself, his heirs, executors, successors andassigns, irrevocably and unconditionally releases, waives, and foreverdischarges SPACEHAB and the SPACEHAB Released Parties, excluding Bain himself,from any and all claims, demands, actions, causes of action, costs, fees,attorneys’ fees, and all liability whatsoever, whether known or unknown, fixedor contingent, which Bain has, had, or may have against SPACEHAB or any of theSPACEHAB Released Parties, from the beginning of time and up to and includingthe date of execution of this Agreement other than as may exist, or hereafterarise, under this Agreement, the Ancillary Agreements, or the ExistingIndemnification Arrangements, except as expressly modified or supplemented bythis Agreement.  This Agreement includes,without limitation, claims at law or equity or sounding in contract, express orimplied, or in tort, claims arising under any federal, state, or local laws ofany jurisdiction that prohibit age, sex, race, national origin, color,disability, religion, veteran, military status, sexual orientation, or anyother form of discrimination, harassment, or retaliation (including, withoutlimitation, the Age Discrimination in Employment Act, the Older Workers BenefitProtection Act, the Americans with Disabilities Act, Title VII of the 1964 CivilRights Act, the Civil Rights Act of 1991, 42 U.S.C. § 1981, the RehabilitationAct, the Family and Medical Leave Act, the Sarbanes-Oxley Act of 2002, theEmployee Polygraph Protection Act, the Financial Institutions Reform, Recoveryand Enforcement Act (or any other employment-related banking statute orregulation), the Uniformed Services Employment and Reemployment Rights Act of1994, the Texas Commission on Human Rights Act, any federal, state, local ormunicipal whistleblower protection or anti-retaliation statute or ordinance, orany other federal, state, local, or municipal laws of any jurisdiction), claimsarising under the Employee Retirement Income Security Act, or any otherstatutory or common law claims related to Bain’s employment or separation fromemployment with SPACEHAB.

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SPACEHAB,on behalf of itself and its employees, officers, agents, directors,  affiliates and subsidiaries, irrevocably andunconditionally releases, waives, and forever discharges BAIN and his heirs,executors, successors and assigns (the “Bain Released Parties”), from any andall claims, demands, actions, causes of action, costs, fees, attorneys’ fees,and all liability whatsoever, whether known or unknown, fixed or contingent,which Bain has, had, or may have against Bain or any of the Bain ReleasedParties, from the beginning of time and up to and including the date ofexecution of this Agreement other than as may exist, or hereafter arise, underthis Agreement, the Ancillary Agreements, or the Existing Indemnification Arrangements,except as expressly modified or supplemented by this Agreement.  This Agreement includes, without limitation,claims at law or equity or sounding in contract, express or implied, or intort, claims arising under any federal, state, or local laws of anyjurisdiction, or any other statutory or common law claims.

6.             **No Admission of Liability/Confidentiality of Release.**  Bain understands and agrees that thisAgreement shall not in any way be construed as an admission by SPACEHAB or theSPACEHAB Released Parties of any unlawful or wrongful acts whatsoever againstBain or any other person, and SPACEHAB and the SPACEHAB Released Partiesspecifically disclaim any liability to or wrongful acts against Bain or anyother person.  Similarly, the Company acknowledgesand agrees that this Agreement shall not in any way be construed as anadmission by Bain of any unlawful or wrongful acts against SPACEHAB, theSPACEHAB Released Parties or any other person, and Bain specifically disclaimsany liability to or wrongful acts against SPACEHAB, the SPACEHAB ReleasedParties or any other person.  Bain agreesto keep this Agreement, its terms, and the amount of the Payment in thisAgreement completely confidential unless publicly-disclosed by the Company;however, Bain may disclose the terms of this Agreement and the amount of thePayment to his spouse, attorneys, financial advisors, or as otherwise requiredby law.  Accordingly, nothing in thisAgreement is intended to preclude Bain or SPACEHAB from disclosing informationin response to a subpoena issued by a court of law or upon the request of agovernment agency having jurisdiction or power to compel the disclosure.  Bain, however, agrees, as required byAgreement paragraph 9, to provide SPACEHAB prompt written notice beforeresponding to any subpoena.  Further,Bain acknowledges and agrees that nothing in this Agreement prevents SPACEHABfrom disclosing the terms of this Agreement and filing a copy of this Agreement(i) in response to a subpoena issued by a court of law or a government agencyhaving jurisdiction or power to compel the disclosure, (ii) in response to arequest by a governmental law enforcement agency or federal or state agencyhaving jurisdiction over the acts or activities of SPACEHAB or any of its subsidiaries,or (iii) as required by the applicable federal or state law, including, withoutlimitation, the provisions, rules or regulations of the Securities Exchange Actof 1934 ,as amended.

7.             **No Re-employment.** Bain agrees that he relinquishes any right to re-employment with theCompany or its subsidiaries after the Effective Date.  He further agrees that he will not seek,apply for, accept, or otherwise pursue employment with the Company or any ofits subsidiaries.  Bain acknowledges thatif he re-applies for or seeks employment with the Company or its subsidiaries,the Company’s or its subsidiaries’ refusal to hire him based on this provisionwill provide a complete defense to any claims arising from his attempt to applyfor employment.

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8.             **Mutual Non-Disparagement.**

(a) Bain agrees that he will not, directly or indirectly, disclose,communicate, or publish any disparaging information concerning the Company, itsofficers and directors, operations, products, services, employees, technology,proprietary or technical information, or software whatsoever, or cause othersto disclose, communicate, or publish any disparaging information concerning thesame.  Bain further agrees that he willnot disclose, directly or indirectly, communicate, or publish any disparaginginformation concerning the terms of his employment with the Company, any othercircumstance that arose from his employment with the Company or separation fromemployment, or any action or event that occurred during his employment with theCompany, or cause others to disclose, communicate, or publish any disparaginginformation concerning the same;

(b)  The Company agrees that itwill not, in any way intentionally disparage or intentionally embarrass Bain byany written or oral statements that reflect negatively on Bain; and

(c) Nothing in this Agreement shall, however, be deemed to prevent Bainor the Company from testifying fully and truthfully in response to a subpoenafrom any court or from responding to investigative inquiries from anygovernmental agency.

9.             **Cooperation. **Afterhis separation from employment with SPACEHAB, Bain agrees to cooperatereasonably with SPACEHAB in connection with the defense or prosecution of anyclaims, causes of action, investigations, hearings, proceedings, arbitrationsor other tribunals now in existence or which may be brought in the futureagainst or on behalf of SPACEHAB or any of the other SPACEHAB Released Partiesthat relate to events or occurrences that transpired while he was employed withSPACEHAB.  Bain’s full cooperation inconnection with this Paragraph 9 shall include, without limitation, makinghimself reasonably available to meet with counsel to prepare for discovery ortrial, to act as a witness on behalf of SPACEHAB or the other SPACEHAB ReleasedParties at convenient times, and to provide true, accurate, and completetestimony regarding any such matters. SPACEHAB agrees to compensate Bain for actual and reasonable expensesincurred in providing the cooperation contemplated by this paragraph 9.  If Bain is subpoenaed or contacted tocooperate in any manner by a non-governmental party concerning any matterrelated to SPACEHAB or any of the other SPACEHAB Released Parties, he shallimmediately notify SPACEHAB, through the notice procedures identified in Agreementparagraph 18(a), before responding or cooperating.

10.           **Confidentiality of Company Information.**** **Bain agrees to continue to abide bySPACEHAB’s confidentiality policies. Further, the parties agree that while Bain’s Employment Agreement isextinguished by this Agreement, the covenants and promises concerningsafeguarding SPACEHAB Confidential Information, namely, paragraph 7 of theEmployment Agreement, are not extinguished and are incorporated into thisAgreement by reference.  Further, Bainacknowledges that, during his SPACEHAB employment, SPACEHAB provided him withinformation and materials that are considered Confidential Information, asdefined below.  Bain agrees that he willnot at any time disclose to anyone, including, without limitation, any person,firm, corporation, or other entity, or publish, or use for any purpose, anyConfidential Information, except as SPACEHAB directs and authorizes.  Bain agrees that he shall take all

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reasonable measures to protect the secrecy of and avoid disclosure andunauthorized use of the Confidential Information and agrees to immediatelynotify SPACEHAB in the event of any unauthorized use or disclosure of theConfidential Information.  ConfidentialInformation includes, without limitation, all of SPACEHAB’s technical andbusiness information, which is of a confidential, trade secret or proprietarycharacter; engineering plans; drawings; specifications, studies or relateddocuments; bids or bid proposals; computer programs, ideas or concepts;business forms or procedures developed by SPACEHAB; financial informationregarding SPACEHAB or its clients; client lists; identity of customers;identity of prospective customers; contract terms; bidding information andstrategies; pricing methods or information; photographs; internal policies,procedures, communications and reports; computer software; computer softwaremethods and documentation; graphic designs; hardware; SPACEHAB or SPACEHABReleased Parties’ methods of operation; the procedures, forms and techniquesused in servicing accounts; and other information or documents that SPACEHABrequires to be maintained in confidence for SPACEHAB’s continued businesssuccess.  Confidential Information doesnot include any information that is disclosed to the public or, upon reasonableinvestigation, is readily ascertainable in the public domain.

11.           **Obligations RegardingTransfer of Patents or Inventions**. Bain agrees to continue to abide by SPACEHAB’s confidentiality policiesregarding disclosure and transfer of patents or inventions.  Further, the parties agree that while Bain’sEmployment Agreement is extinguished by this Agreement, the covenants andpromises concerning disclosure and assignment of inventions and patents,namely, paragraph 9 of the Employment Agreement, are not extinguished and areincorporated into this Agreement by reference. Accordingly, Bain agrees and acknowledges that will promptly disclose toSPACEHAB all products, processes, hardware and software inventions, designs,computer programs and related documentation, other works of authorship anddevelopments relating to SPACEHAB’s business which Bain may have madeindividually or jointly with others, during his SPACEHAB employment.

12.**           Agreementto Return Company Property/Documents.**  Bain understands and agrees that his last dayof active work as an officer and employee of SPACEHAB shall be January 19,2007.  Accordingly, Bain agrees that: (i)he did not and will not take with him, copy, alter, destroy, or delete anyfiles, documents, electronically stored information, or other materials whetheror not embodying or recording any Confidential Information, including copies,without obtaining in advance the written consent of an authorized SPACEHABrepresentative; and (ii) he will promptly return to SPACEHAB all ConfidentialInformation, documents, files, records and tapes (written or electronicallystored) that have been in his possession or control regarding SPACEHAB or anySPACEHAB Released Party, and he will not use or disclose such materials in anyway or in any format, including written information in any form, informationstored by electronic means, and any and all copies of these materials.  Bain further agrees that upon or before theexecution of this Agreement, he will return to SPACEHAB all SPACEHAB orSPACEHAB Released Party property, including, without limitation, all papers,notebooks, reports, manuals, computer files, software, vehicle, tools, keys,credit authorizations, apparatus, computer user identifiers, passwords andother property furnished to Bain by SPACEHAB or any SPACEHAB Released Party, orother property which was prepared or made in whole or in part by Bain inconnection with his SPACEHAB employment.

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13.           **Knowing and Voluntary Agreement.**  Bain understands it is his choice whether ornot to enter into this Agreement and that his decision to do so is voluntaryand is made knowingly.  Bain acknowledgesthat he has been advised by SPACEHAB to seek legal counsel to review thisAgreement.

14.           **Survival of Certain Restrictive Covenants**.  While Bain acknowledges that his May 12, 2005Employment Agreement has expired by operation of this Agreement, the partiesagree that paragraphs 8(a)(ii) and 10 of the Employment Agreement, concerningnon-solicitation and definition of the term Restricted Period, shall survivethe termination of the Employment Agreement. Therefore, the restrictive periods preventing solicitation will begin torun as of the Effective Date as explained in paragraphs 8(a)(ii) and 10 of theEmployment Agreement.  Accordingly,paragraphs 8(a)(ii) and 10 of the Employment Agreement are incorporated intothis Agreement by reference.

15.           **Forfeiture of SeveranceBenefits for Breach of Restrictive Covenants**. If, during the oneyear Restricted Period following the Effective Date, as specified in Agreementparagraph 14 and paragraphs 8(a)(ii) and 10 of the Employment Agreement, Bainfails to fulfill his obligations, SPACEHAB may: (a) terminate this Agreement;(b) terminate any remaining Payment as set forth in Agreement paragraph 2 andBain will forfeit any remaining Payment from and after the date of his breachof Agreement paragraph 14; (c) recover attorneys’ fees SPACEHAB incurs for anybreach of the restrictive covenant in Agreement paragraph 14; and (d) recoverall other damages to which SPACEHAB may be entitled.  The remaining terms of this Agreement shallcontinue in full force and effect.

16.           **Time to Consider Agreement.** Bain acknowledges that he has been advised in writing by the Companythat he should consult an attorney before executing this Agreement, and hefurther acknowledges that he has been given a period of twenty-one (21)calendar days within which to review and consider the provisions of thisAgreement.  Bain understands that he isnot required to take the full twenty-one (21) days to consider this Agreementbut if he does not sign this Agreement before the 21 calendar day periodexpires, this Agreement offer will be withdrawn automatically.

17.           **Revocation Period.** Bain understands and acknowledges that he has seven (7) calendar daysfollowing the execution of this Agreement to revoke his acceptance of thisAgreement.  This Agreement will notbecome effective or enforceable, and the Payment in Agreement paragraph 2 willnot become payable until after this revocation period has expired without Bain’srevocation.  If Bain does not revoke thisAgreement within the revocation period, the Company will comply with Agreementparagraph 2 and will send Bain the Payment within five (5) days after therevocation period’s expiration date.

18.           **Miscellaneous Provisions and Enforcement.**

(a)           **Notices**.  Any notice or other communication required,permitted or desired to be given under this Agreement shall be deemeddelivered; when personally delivered, if delivered by overnight courier; thesame day, if transmitted by facsimile on a business day before noon, CentralStandard Time; the next business day, if otherwise transmitted by facsimile;and the third business

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day after mailing, if mailed by prepaid certified mail, return receiptrequested, as addressed or transmitted as follows (as applicable):

If to Bain:

Michael E. Bain

14818Elk Hill Court

Houston, Texas 77062

 

If to the Company:

SPACEHAB, Inc.

Attention: Chief Financial officer

12130 Highway 3, Bldg. 1

Webster, Texas 77598-1504

 

With a copy (which shall not constitute notice) to:

Arthur S. Berner

Haynes and Boone, LLP

1221 McKinney, Suite 2100

Houston, Texas 77010

Fax: (713) 236-5652

ConcerningBain’s notice in response to subpoenas (Agreement paragraph 6) or requests tocooperate with any non-governmental party or entity regarding any claims orcauses of action concerning SPACEHAB or any of the other SPACEHAB ReleasedParties (Agreement paragraph 9), Bain or his attorney must contact and speakwith the President of SPACEHAB or his or her designee.  This telephone conversation must occur nolater than three business days after receiving the subpoena or request for Bain’scooperation.

(b)           **Choice ofLaw**.** **THISAGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THESTATE OF TEXAS, WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS (RULES) OR CHOICEOF LAWS (RULES) THEREOF.  THE EXCLUSIVEVENUE FOR ALL SUITS AND PROCEEDINGS ARISING FROM OR RELATED TO THIS AGREEMENTSHALL BE IN A COURT OF COMPETENT JURISDICTION IN HOUSTON, TEXAS.

(c)           **Limitationson Assignment.**  Except asprovided in this Agreement, Bain may not assign this Agreement or any of therights or obligations set forth in this Agreement without the explicit writtenconsent of SPACEHAB.  Any attemptedassignment by Bain in violation of this paragraph 18(c) shall be void *ab initio*..  Except asprovided in this Agreement, nothing in this Agreement entitles any person,other than the parties to the Agreement, to any claim, cause of action, remedy,or right of any kind, including, without limitation, the right of continuedemployment.

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(d)           **Waiver**.  A party’s waiver of any breach or violationof any Agreement provisions shall not operate as, or be construed to be, awaiver of any later breach of the same or other Agreement provision.

(e)           **Severability**.  If any provision or provisions of thisAgreement are held to be invalid, illegal, or unenforceable for any reasonwhatsoever, (i) the validity, legality, and unenforceability of the remainingprovisions of this Agreement (including, without limitation, all portions ofany Agreement paragraphs containing any provision held to be invalid, illegal,or unenforceable, that are not themselves invalid, illegal, or unenforceable),will not in any way be affected or impaired thereby, and (ii) the provision orprovisions held to be invalid, illegal, or unenforceable will be limited ormodified in its or their application to the minimum extent necessary to avoidthe invalidity, illegality, or unenforceability, and, as so limited or modified,the provision or provisions and the balance of this Agreement will beenforceable in accordance with their terms.

(f)            **Headings**.  TheAgreement headings are for reference purposes only and will not affect in anyway the meaning or interpretation of this Agreement.

(g)           **Counterparts**.  This Agreement and amendments to it will bein writing and may be executed in counterparts. Each counterpart will be deemed an original, but both counterpartstogether will constitute one and the same instrument.

(h)           **Entire Agreement**,**Amendment, Binding Effect**.** **This Agreement andthe Ancillary Agreements (as the same may be expressly amended, supplemented orsuperseded by this Agreement) constitute the entire agreement between theparties concerning the subject matter in this Agreement and the AncillaryAgreements.  No oral statements or otherprior written material not specifically incorporated in this Agreement shall beof any force and effect, and no changes in or additions to this Agreement shallbe recognized, unless incorporated in this Agreement by written amendment, suchamendment to become effective on the date stipulated in it.  Bain acknowledges and represents that inexecuting this Agreement, he did not rely, and has not relied, on anycommunications, promises, statements, inducements, or representation(s), oralor written, by SPACEHAB or any SPACEHAB Released Party, except as expresslycontained in this Agreement.  Anyamendment to this Agreement must be signed by all parties to thisAgreement.  This Agreement will be bindingon and inure to the benefit of the parties hereto and their respectivesuccessors, heirs, legal representatives, and permitted assigns (if any).  This Agreement supersedes (a) any prioragreements between Bain and SPACEHAB concerning the subject matter of thisAgreement and (b) all other agreements between Bain and SPACEHAB, as explainedin Agreement paragraph 1, unless specifically modified by this Agreement.  Unless otherwise specified in this Agreement,SPACEHAB and Bain agree that to the extent the terms of this Agreement

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conflictwith any terms of the Employment Agreement, the terms of this Agreement shallsupersede and govern the terms of the Employment Agreement.

(i)            **Injunctive Relief***.*  Bain and the Company acknowledge and agreethat the covenants, obligations and agreements contained in this Agreementconcern special, unique and extraordinary matters and that a violation of anyof the terms of these covenants, obligations or agreements will causeirreparable injury for which adequate remedies at law are not available.  These injunctive remedies are cumulative andin, addition to any other rights and remedies the parties may have. SPACEHABand Bain irrevocably submit to the exclusive jurisdiction of the state courtsand federal courts in the city of SPACEHAB’s headquarters (Houston, Texas)regarding the injunctive remedies set forth in this paragraph and theinterpretation and enforcement of this paragraph (i) solely insofar as theinterpretation and enforcement relate to an application for injunctive reliefin accordance with the provisions of this Agreement. Further, the partiesirrevocably agree that (i) the sole and exclusive appropriate venue for anysuit or proceeding relating to injunctive relief shall be in the courts listedin this paragraph (i), (ii) all claims with respect to any application forinjunctive relief shall be heard and determined exclusively in these courts,(iii) these courts will have exclusive jurisdiction over the parties to thisAgreement and over the subject matter of any dispute relating to applicationfor injunctive relief, and (iv) each party waives all objections and defensesbased on service of process, forum, venue, or personal or subject matterjurisdiction, as these defenses may relate to an application for injunctiverelief in a suit or proceeding under the provisions of this paragraph (i).

**PLEASE READ CAREFULLYAS THIS DOCUMENT INCLUDES A RELEASE OF CLAIMS.**

As evidenced by my signaturebelow, I certify that I have read the above Agreement and agree to its terms.

 
|                     | ** ** | **SPACEHAB, INCORPORATED**                     |
|---------------------|------------|------------------------------------------------|
|                |       |                                           |
| /s/Michael E.  Bain |       | By: /s/Brian K. Harrington                     |
| Michael E. Bain     |       | Brian K. Harrington, Senior Vice President and |
|                |       | Chief Financial Officer                        |
| January 19, 2007    |       | January 19, 2007                               |

 

 

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