EXHIBIT 10.1

WINLAND ELECTRONICS, INC.
1950 EXCEL DRIVE
MANKATO, MN  56001

May 11, 2001

Mr. W. Kirk Hankins
2113 Northridge Drive
North Mankato, Minnesota 56003

Re:        Separation Agreement and Release

Dear Kirk:

As we have discussed with you, your employment with Winland Electronics, Inc.
(“Winland”) will terminate effective May 31, 2001, due to the announcement of
your retirement.  Pursuant to Section 4.1(a) of the Employment Agreement between
you and Winland dated January 1, 1999, as amended August 14, 2000, the purpose
of this Separation Agreement and Release letter (“Agreement”) is to set forth
the parties’ agreement concerning your separation from employment and the
specific separation pay and benefits that Winland will provide you in exchange
for your agreement to the terms and conditions of this Agreement.

By your signature below, you agree to the following terms and conditions:

             1.          End of Employment.

                           a.          You agree to resign your employment with
Winland effective May 31, 2001.  In addition, effective May 31, 2001, you agree
to resign your position as a member of Winland’s Board of Directors and your
position as Chairman of Winland’s Board of Directors.

                           b.          Upon your receipt of your final paycheck
which includes payment for services through May 31, 2001, less required
deductions and withholding, you will have received all compensation and bonuses
owed to you by virtue of your employment with Winland or termination thereof.

                           c.          By signing this Agreement, you
acknowledge that Winland has already paid you $10,856.22 as reimbursement for
the costs you incurred in buying-out the lease for the company automobile.  You
acknowledge and agree that you are now the sole owner of the automobile and are
responsible for all expenses related to such automobile including, but not
limited to, any expenses for automobile insurance, repairs and gas.
                           d.          You are not eligible for any other
payments or benefits except for those expressly described in this Agreement,
provided that you sign and do not rescind this Agreement.

             2.          Separation Pay and Benefits.  Specifically in
consideration of your signing this Agreement and subject to the limitations,
obligations, and other provisions contained in this Agreement, Winland agrees as
follows:

                           a.          To pay you One hundred Thirty-Eight
Thousand Seven Hundred Twenty-Nine and 00/100 Dollars ($138,729.00), which is
the equivalent of twelve (12) months of your base salary for the period June 1,
2001 through May 31, 2002), less required deductions and withholding, to be paid
as follows according to Winland’s regular payroll procedures beginning on the
first regular payday after the expiration of the rescission periods described in
Paragraph 5 below:

  • $4,934.62, less required deductions and withholding, per pay period through
January 4, 2002 (15 total pay periods at this rate);   • $5,626.93, less
required deductions and withholding, per pay period from January 5, 2002 through
June 7, 2002 (11 total pay periods at this rate); and   • $2813.47, less
required deductions and withholding, on the pay period dated June 21, 2002 (1
total pay period at this rate).

                           b.          To continue to pay through November 30,
2002 one hundred percent (100%) of the premiums for the family health, dental
and life insurance coverage you were receiving under Winland’s group plans as of
your termination date.  Winland will discontinue payments under this Paragraph
2.b. before November 30, 2002 if, and at such time as, you (1) are covered or
eligible to be covered under the health, dental, or life insurance policy of a
new employer, or (2) cease to participate, for whatever reason, in Winland’s
group insurance plans.  By your signature below, you acknowledge and agree that
Winland may modify or terminate its group insurance plans at any time and that
you shall have the same right to participate in Winland’s group insurance plans
only as is provided on an equivalent basis to the company’s employees.  You
further agree to promptly provide Winland notice if you become covered or
eligible to be covered under the health, dental or life insurance policy of a
new employer.  Notwithstanding the foregoing, the COBRA period for continuation
of your insurance coverage under Winland’s group plans will begin on August 1,
2002.  After November 30, 2002, and for the remainder of the 18-month COBRA
period, you may elect to continue to participate in Winland’s group insurance
plans at your own cost.

                           c.          To pay you $16,880.79, less required
deductions and withholding, which represents payment for six (6) weeks (30
business days) of paid vacation at your base salary.  Such payments will be made
in substantially equal amounts according to Winland’s regular payroll procedures
beginning on the first regular payday following the completion of Winland’s full
payment of the severance pay described in Paragraph 2(a) above.

             3.          Release of Claims.  Specifically in consideration of
the separation pay and benefits described in Paragraph 2, to which you would not
otherwise be entitled, by signing this Agreement you, for yourself and anyone
who has or obtains legal rights or claims through you, agree to the following:

                           a.          You hereby do release, agree not to sue,
and forever discharge Winland (as defined below) of and from any and all manner
of claims, demands, actions, causes of action, administrative claims, liability,
damages, claims for punitive or liquidated damages, claims for attorney's fees,
costs and disbursements, individual or class action claims, or demands of any
kind whatsoever, you have or might have against them or any of them, whether
known or unknown, in law or equity, contract or tort (including but not limited
to any claims for breach of contract arising under the Employment Agreement
between you and Winland dated January 1, 1999, as amended August 14, 2000),
arising out of or in connection with your employment with Winland, or the
termination of that employment, or otherwise, and however originating or
existing, from the beginning of time through the date of your signing this
Agreement.

                           b.          This release includes, without limiting
the generality of the foregoing, any claims you may have for wages, bonuses,
commissions, penalties, deferred compensation, vacation pay, separation
benefits, defamation, invasion of privacy, negligence, improper discharge (based
on contract, common law, or statute, including any federal, state or local
statute or ordinance prohibiting discrimination or retaliation in employment),
alleged violation of the United States Constitution, the Minnesota Constitution,
the Age Discrimination in Employment Act, 29 U.S.C. § 621 et seq., the Minnesota
Human Rights Act, Minn. Stat. § 363.01 et seq., Title VII of the Civil Rights
Act, 42 U.S.C. § 2000e et seq., the Americans with Disabilities Act, 42 U.S.C. §
12101 et seq., the Employment Retirement Income Security Act of 1976, 29 U.S.C.
§ 1001 et seq., the Family and Medical Leave Act, 29 U.S.C. § 2601 et seq., any
claim arising under Minn. Stat. Chapters 177 and 181, and any claim for
discrimination or retaliation based on sex, race, color, creed, religion, age,
national origin, marital status, sexual orientation, disability, status with
regard to public assistance, sexual harassment, or any other protected class
status.  You hereby waive any and all relief not provided for in this Agreement.

                           c.          You affirm that you have not caused or
permitted, and to the full extent permitted by law will not cause or permit to
be filed, any charge, complaint, or action of any nature or type against
Winland, including but not limited to any action or proceeding raising claims
arising in tort or contract, or any claims arising under federal, state, or
local laws, including discrimination laws.  If you file, or have filed on your
behalf, a charge of discrimination, you agree that the payment described above
in Paragraph 2 is in complete satisfaction of any and all claims in connection
with such charge.

                           d.          You are not, by signing this Agreement,
releasing or waiving (1) any vested interest you may have in any 401(k),
pension, or profit sharing plan by virtue of your employment with Winland, (2)
any rights or claims that may arise after it is signed, (3) the post-employment
benefits and payments specifically promised to you under this Agreement, or (4)
the right to institute legal action for the purpose of enforcing the provisions
of this Agreement.

                           e.          Winland, as used in this Paragraph 3,
shall mean Winland Electronics, Inc., and its parent, subsidiaries, divisions,
affiliated entities, insurers, and its and their present and former officers,
directors, shareholders, trustees, employees, agents, representatives and
consultants, and the successors and assigns of each, whether in their individual
or official capacities, and the current and former trustees or administrators of
any pension or other benefit plan applicable to the employees or former
employees of Winland Electronics, Inc., in their official and individual
capacities.

             4.          Notice of Right to Consult Attorney and Twenty-One (21)
Day Consideration Period.  By signing this Agreement, you acknowledge and agree
that Winland has informed you by this Agreement that (1) you have the right to
consult with an attorney of your choice prior to signing this Agreement, and (2)
you are entitled to twenty-one (21) days from the receipt of this Agreement to
consider whether the terms are acceptable to you.  Winland encourages you to use
the full 21-day period to consider this Agreement but you have the right, if you
choose, to sign this Agreement prior to the expiration of the twenty-one (21)
day period.

             5.          Notification of Rights under the Minnesota Human Rights
Act (Minn. Stat. Chapter 363) and the Federal Age Discrimination in Employment
Act (29 U.S.C. § 621 et seq.).  You are hereby notified of your right to rescind
the release of claims contained in Paragraph 3 with regard to claims arising
under the Minnesota Human Rights Act, Minnesota Statutes Chapter 363, within
fifteen (15) calendar days of your signing this Agreement, and with regard to
your rights arising under the federal Age Discrimination in Employment Act, 29
U.S.C. § 621 et seq., within seven (7) calendar days of your signing this
Agreement.  The two rescission periods shall run concurrently.  In order to be
effective, the rescission must

                           a.          Be in writing; and

                           b.          Delivered to the Secretary of Winland,
Winland Electronics, Inc., 950 Excel Drive, Mankato, Minnesota 56001, by hand or
mail within the required period; and

                           c.          If delivered by mail, the rescission must
be postmarked within the required period, properly addressed to the Secretary of
Winland, as set forth above, and sent by certified mail, return receipt
requested.

This Agreement will be effective upon the expiration of the 15-day period
without rescission.  You understand that if you rescind this Agreement in
accordance with this Paragraph 5, you will not receive the separation pay or
benefits described in Paragraph 2 and you will be obligated to return any such 
payment(s) already received.

             6.          Return of Property.  By signing this Agreement, you
acknowledge and agree that all documents and materials relating to the business
of, or the services provided by Winland are the sole property of Winland.  By
signing this Agreement you further agree and represent that you have returned to
Winland all of its property, including but not limited to, all customer records
and other documents and materials, whether on computer disc, hard drive or other
form, and all copies thereof, within your possession or control, which in any
manner relate to the business of, or the duties and services you performed on
behalf of Winland.

             7.          Confidential and Proprietary Information.  By signing
this Agreement, you acknowledge and agree that you have had access in your
employment with Winland to confidential and proprietary information of Winland
and further acknowledge and agree that the release or disclosure of any
confidential or proprietary information of Winland will cause Winland
irreparable injury.  By signing this Agreement, you acknowledge that you have
not used or disclosed, and agree that you will not at any time use or disclose,
to any other entity or person, directly or indirectly, any confidential or
proprietary information of Winland.  For purposes of this Agreement, the term
“confidential or proprietary information” shall include, but not be limited to,
customer lists and information pertaining to customer lists; contact lists; and
information about the personal or business affairs of Winland’s customers,
vendors, or employees.

             8.          Nondisparagement and Confidentiality.  You promise and
agree not to disparage Winland.  You also promise and agree not to disclose or
discuss, directly or indirectly, in any manner whatsoever, any information
regarding either (1) the contents and terms of this Agreement, or (2) the
substance and/or nature of any dispute between Winland and any employee or
former employee, including yourself.  You agree that the only people with whom
you may discuss this confidential information are your legal and financial
advisors and your spouse, provided they agree to keep the information
confidential, or as otherwise required by law. 

             9.          Remedies.  If you breach any term of this Agreement,
Winland may commence legal action and pursue its available legal and equitable
remedies, including but not limited to suspending and recovering any and all
payments and benefits made or to be made under this Agreement.  If Winland seeks
and/or obtains relief from an alleged breach of this Agreement, all of the
provisions of this Agreement shall remain in full force and effect.

             10.        Non-Admission.  It is expressly understood that this
Agreement does not constitute, nor shall it be construed as, an admission by
Winland or you of any liability or unlawful conduct whatsoever.  Winland and you
specifically deny any liability or unlawful conduct.

             11.        Successors and Assigns.  This Agreement is personal to
you and may not be assigned by you without the written agreement of Winland.  In
the event of your death, this Agreement shall inure to the benefit of your heirs
and legal representatives.  The rights and obligations of this Agreement shall
inure to the successors and assigns of Winland.

             12.        Enforceability.  If a court finds any term of this
Agreement to be invalid, unenforceable, or void, the parties agree that the
court shall modify such term to make it enforceable to the maximum extent
possible.  If the term cannot be modified, the parties agree that the term shall
be severed and all other terms of this Agreement shall remain in effect.

             13.        Law Governing.  This Agreement shall be governed and
construed in accordance with the laws of the State of Minnesota.

             14.        Full Agreement.  This Agreement contains the full
agreement between you and Winland and may not be modified, altered, or changed
in any way except by written agreement signed by both parties.  The parties
agree that this Agreement supersedes and terminates any and all other written
and oral agreements and understandings between the parties, except for the
provisions of Article 5 of the Employment Agreement between you and Winland
dated January 1, 1999, as amended August 14, 2001, which shall remain in full
force and effect.

             15.        Acknowledgment of Reading and Understanding.  By signing
this Agreement, you acknowledge that you have read this Agreement, including the
release of claims contained in Paragraph 3, and understand that the release of
claims is a full and final release of all claims you may have against Winland
and the other entities and individuals covered by the release.  By signing, you
also acknowledge and agree that you have entered into this Agreement knowingly
and voluntarily.

             The offer contained in this Agreement shall expire at 5:00 p.m. on
June 4, 2001.  After you have reviewed this Agreement and obtained whatever
advice and counsel you consider appropriate regarding it, please evidence your
agreement to the provisions set forth in this Agreement by dating and signing
both copies.  Please then return one copy of this Agreement to me in the
envelope provided by no later than 5:00 p.m. on June 4, 2001.  You should keep
the other copy for your records.

Sincerely,

/s/ Lorin E. Krueger

Winland Electronics, Inc.
By: Lorin E. Krueger
Its: Secretary

ACKNOWLEDGMENT AND SIGNATURE

             By signing below, I, W. Kirk Hankins, acknowledge and agree that I
have read this Separation Agreement and Release carefully.  I understand all of
its terms.  In signing this Separation Agreement and Release I have not relied
on any statements or explanations made by Winland Electronics, Inc. except as
specifically set forth in this Separation Agreement and Release.  I have had
adequate time to consider whether to sign this Separation Agreement and Release
and am voluntarily and knowingly releasing my claims against Winland
Electronics, Inc. as defined in this Separation Agreement and Release.  I intend
this Separation Agreement and Release to be legally binding.

Date I received this Separation Agreement and Release:        May 11, 2001

 

Accepted this 12th day of May, 2001.

/s/ W. Kirk Hankins

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W. Kirk Hankins