**EXHIBIT 10.1**

WINLAND ELECTRONICS, INC.1950 EXCEL DRIVEMANKATO, MN  56001

May 11, 2001

Mr.W. Kirk Hankins 2113 Northridge DriveNorth Mankato, Minnesota 56003

Re:        SeparationAgreement and Release

Dear Kirk:

As we have discussed with you, your employment withWinland 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 andWinland dated January 1, 1999, as amended August 14, 2000, the purpose of thisSeparation Agreement and Release letter (“Agreement”) is to set forth theparties’ agreement concerning your separation from employment and the specificseparation pay and benefits that Winland will provide you in exchange for your agreementto the terms and conditions of this Agreement.

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

             1.          End of Employment.

                           a.          You agree to resign your employmentwith Winland effective May 31, 2001.  Inaddition, effective May 31, 2001, you agree to resign your position as a memberof Winland’s Board of Directors and your position as Chairman of Winland’sBoard of Directors.

                           b.          Upon your receipt of your finalpaycheck which includes payment for services through May 31, 2001, lessrequired deductions and withholding, you will have received all compensationand bonuses owed to you by virtue of your employment with Winland ortermination thereof.

                           c.          By signing this Agreement, youacknowledge that Winland has already paid you $10,856.22 as reimbursement forthe costs you incurred in buying-out the lease for the company automobile.  You acknowledge and agree that you are nowthe sole owner of the automobile and are responsible for all expenses relatedto such automobile including, but not limited to, any expenses for automobileinsurance, repairs and gas.                           d.          You are not eligible for any otherpayments 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 yoursigning this Agreement and subject to the limitations, obligations, and otherprovisions contained in this Agreement, Winland agrees as follows:

                           a.          To pay you One hundred Thirty-Eight ThousandSeven Hundred Twenty-Nine and 00/100 Dollars ($138,729.00), which is theequivalent of twelve (12) months of your base salary for the period June 1,2001 through May 31, 2002), less required deductions and withholding, to bepaid as follows according to Winland’s regular payroll procedures beginning onthe first regular payday after the expiration of the rescission periodsdescribed 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 November30, 2002 one hundred percent (100%) of the premiums for the family health,dental and life insurance coverage you were receiving under Winland’s groupplans as of your termination date. Winland will discontinue payments under this Paragraph 2.b. beforeNovember 30, 2002 if, and at such time as, you (1) are covered or eligible tobe 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 insuranceplans.  By your signature below, youacknowledge and agree that Winland may modify or terminate its group insuranceplans at any time and that you shall have the same right to participate inWinland’s group insurance plans only as is provided on an equivalent basis tothe company’s employees.  You furtheragree to promptly provide Winland notice if you become covered or eligible to becovered under the health, dental or life insurance policy of a newemployer.  Notwithstanding theforegoing, the COBRA period for continuation of your insurance coverage underWinland’s group plans will begin on August 1, 2002.  After November 30, 2002, and for the remainder of the 18-month COBRAperiod, you may elect to continue to participate in Winland’s group insuranceplans at your own cost. 

                           c.          To pay you $16,880.79, less requireddeductions and withholding, which represents payment for six (6) weeks (30business days) of paid vacation at your base salary.  Such payments will be made in substantially equal amountsaccording to Winland’s regular payroll procedures beginning on the firstregular payday following the completion of Winland’s full payment of theseverance pay described in Paragraph 2(a) above. 
             3.          Release of Claims.  Specifically in consideration of theseparation pay and benefits described in Paragraph 2, to which you would nototherwise be entitled, by signing this Agreement you, for yourself and anyonewho has or obtains legal rights or claims through you, agree to the following:

                           a.          You hereby do release, agree not tosue, and forever discharge Winland (as defined below) of and from any and allmanner 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 anykind whatsoever, you have or might have against them or any of them, whetherknown or unknown, in law or equity, contract or tort (including but not limitedto any claims for breach of contract arising under the Employment Agreementbetween you and Winland dated January 1, 1999, as amended August 14, 2000),arising out of or in connection with your employment with Winland, or thetermination of that employment, or otherwise, and however originating orexisting, from the beginning of time through the date of your signing thisAgreement.

                           b.          This release includes, withoutlimiting 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, improperdischarge (based on contract, common law, or statute, including any federal,state or local statute or ordinance prohibiting discrimination or retaliationin employment), alleged violation of the United States Constitution, theMinnesota Constitution, the Age Discrimination in Employment Act, 29 U.S.C. §621 etseq., the Minnesota Human Rights Act, Minn. Stat. § 363.01etseq., Title VII of the Civil Rights Act, 42 U.S.C. § 2000e etseq., the Americans with Disabilities Act, 42 U.S.C. § 12101 etseq.,the Employment Retirement Income Security Act of 1976, 29 U.S.C. § 1001 etseq., the Family and Medical Leave Act, 29 U.S.C. § 2601 etseq.,any claim arising under Minn. Stat. Chapters 177 and 181, and any claim fordiscrimination or retaliation based on sex, race, color, creed, religion, age,national origin, marital status, sexual orientation, disability, status withregard to public assistance, sexual harassment, or any other protected classstatus.  You hereby waive any and allrelief not provided for in this Agreement.

                           c.          You affirm that you have not caused orpermitted, and to the full extent permitted by law will not cause or permit tobe filed, any charge, complaint, or action of any nature or type againstWinland, including but not limited to any action or proceeding raising claimsarising in tort or contract, or any claims arising under federal, state, orlocal 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 completesatisfaction of any and all claims in connection with such charge.

                           d.          You are not, by signing thisAgreement, releasing or waiving (1) any vested interest you may have in any401(k), pension, or profit sharing plan by virtue of your employment withWinland, (2) any rights or claims that may arise after it is signed, (3) thepost-employment benefits and payments specifically promised to you under thisAgreement, or (4) the right to institute legal action for the purpose ofenforcing 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 andconsultants, and the successors and assigns of each, whether in theirindividual or official capacities, and the current and former trustees oradministrators of any pension or other benefit plan applicable to the employeesor former employees of Winland Electronics, Inc., in their official andindividual capacities.

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

             5.          Notification of Rights under theMinnesota Human Rights Act (Minn. Stat. Chapter 363) and the Federal AgeDiscrimination in Employment Act (29 U.S.C. § 621 et seq.).  You are hereby notified of your right torescind the release of claims contained in Paragraph 3 with regard to claimsarising under the Minnesota Human Rights Act, Minnesota Statutes Chapter 363,within fifteen (15) calendar days of your signing this Agreement, and withregard to your rights arising under the federal Age Discrimination inEmployment Act, 29 U.S.C. § 621 et seq., within seven (7) calendar daysof your signing this Agreement.  The tworescission 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 handor mail within the required period; and

                           c.          If delivered by mail, the rescissionmust be postmarked within the required period, properly addressed to theSecretary of Winland, as set forth above, and sent by certified mail, returnreceipt requested.

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

             6.          Return of Property.  By signing this Agreement, you acknowledgeand agree that all documents and materials relating to the business of, or theservices provided by Winland are the sole property of Winland.  By signing this Agreement you further agreeand represent that you have returned to Winland all of its property, includingbut 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 businessof, or the duties and services you performed on behalf of Winland.
             7.          Confidential and ProprietaryInformation.  By signing thisAgreement, you acknowledge and agree that you have had access in youremployment with Winland to confidential and proprietary information of Winlandand further acknowledge and agree that the release or disclosure of any confidentialor proprietary information of Winland will cause Winland irreparableinjury.  By signing this Agreement, youacknowledge that you have not used or disclosed, and agree that you will not atany time use or disclose, to any other entity or person, directly orindirectly, 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; andinformation about the personal or business affairs of Winland’s customers,vendors, or employees. 

             8.          Nondisparagement andConfidentiality.  You promise andagree not to disparage Winland.  Youalso promise and agree not to disclose or discuss, directly or indirectly, inany manner whatsoever, any information regarding either (1) the contents andterms of this Agreement, or (2) the substance and/or nature of any disputebetween Winland and any employee or former employee, including yourself.  You agree that the only people with whom youmay discuss this confidential information are your legal and financial advisorsand your spouse, provided they agree to keep the information confidential, oras 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 equitableremedies, including but not limited to suspending and recovering any and allpayments and benefits made or to be made under this Agreement.  If Winland seeks and/or obtains relief froman alleged breach of this Agreement, all of the provisions of this Agreementshall remain in full force and effect.

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

             11.        Successors and Assigns.  This Agreement is personal to you and maynot be assigned by you without the written agreement of Winland.  In the event of your death, this Agreementshall inure to the benefit of your heirs and legal representatives.  The rights and obligations of this Agreementshall inure to the successors and assigns of Winland.

             12.        Enforceability.  If a court finds any term of this Agreementto be invalid, unenforceable, or void, the parties agree that the court shallmodify such term to make it enforceable to the maximum extent possible.  If the term cannot be modified, the partiesagree that the term shall be severed and all other terms of this Agreementshall remain in effect.
             13.        Law Governing.  This Agreement shall be governed andconstrued in accordance with the laws of the State of Minnesota.

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

             15.        Acknowledgment of Reading andUnderstanding.  By signing thisAgreement, you acknowledge that you have read this Agreement, including therelease of claims contained in Paragraph 3, and understand that the release ofclaims is a **full and final release of all claims** you may have againstWinland and the other entities and individuals covered by the release.  By signing, you also acknowledge and agreethat you have entered into this Agreement knowingly and voluntarily.

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

Sincerely,

/s/ Lorin E. Krueger

Winland Electronics, Inc.By: Lorin E. KruegerIts: Secretary****ACKNOWLEDGMENT AND SIGNATURE**

             By signing below, I, W. KirkHankins, acknowledge and agree that I have read this Separation Agreement andRelease carefully.  I understand all ofits terms.  In signing this SeparationAgreement and Release I have not relied on any statements or explanations madeby Winland Electronics, Inc. except as specifically set forth in thisSeparation Agreement and Release.  Ihave had adequate time to consider whether to sign this Separation Agreementand Release and am voluntarily and knowingly releasing my claims againstWinland Electronics, Inc. as defined in this Separation Agreement andRelease.  I intend this SeparationAgreement 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 HankinsW.  Kirk Hankins
 **