LOAN MODIFICATION AGREEMENT

     This Loan  Modification  Agreement is entered into as of March 14, 1997, by
and between Arizona  Instrument  Corporation  ("Borrower") whose address is 4114
East Wood  Street,  Phoenix,  AZ 85050,  and Silicon  Valley  Bank, a California
chartered bank  ("Lender")  whose address is 3003 Tasman Drive,  Santa Clara, CA
95054.

1.   DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which may be
owing by Borrower to Bank, Borrower is indebted to Bank pursuant to, among other
documents,  an Amended and Restated Loan and Security  Agreement  (the "Domestic
Loan  Agreement") and a Second Amended and Restated Loan and Security  Agreement
(the "Export Loan Agreement"), both dated March 15, 1995, as such agreements may
be amended from time to time, (collectively, the "Loan Agreement"). The Domestic
Loan  Agreement  provided  for,  among other  things,  a  Committed  Line in the
original  amount  of One  Million  Five  Hundred  Thousand  and  00/100  Dollars
($1,500,000.00)  (the "Domestic Line").  The Export Loan Agreement provided for,
among other things,  a Committed Line in the principal amount of One Million Two
Hundred Fifty Thousand and 00/100 Dollars  ($1,250,000.00)  (the "Export Line").
Borrower has also  executed a Promissory  Note,  dated  November 7, 1995, in the
original  principal  amount of One Million Two Hundred Fifty Thousand and 00/100
Dollars  ($1,250,000.00)  (the "Term Loan").  The Export Loan Agreement has been
modified pursuant to, among other documents, a Loan Modification Agreement dated
March 15, 1996,  pursuant to which,  among other things, the principal amount of
the   Committed   Line  was   decreased  to  One  Million  and  00/100   Dollars
($1,000,000.00).  Defined  terms used but not  otherwise  defined shall have the
same meaning as in the Loan Agreements.

Hereinafter,  all indebtedness  owing by Borrower to Lender shall be referred to
as the "Indebtedness".

2.   DESCRIPTION  OF COLLATERAL AND GUARANTIES.  Repayment of the  Indebtedness,
together with other promissory notes from Borrower to Lender,  is secured by the
Collateral as defined in each of the Loan Agreements,  a Collateral  Assignment,
Patent   Mortgage  and  Security   Agreement  dated  February  12,  1993  and  a
Reaffirmation of Collateral  Assignment,  Patent Mortgage and Security Agreement
dated March 15, 1995.  Additionally,  repayment of the Export  Committed Line is
guaranteed  by the  Export-Import  Bank of the United  States (the  "Guarantor")
pursuant to a Guarantee Agreement (the "Guaranty").

Hereinafter,  the  above-described  security documents and guaranties,  together
with  all  other  documents  securing  repayment  of the  Indebtedness  shall be
referred to as the "Security  Documents".  Hereinafter,  the Security Documents,
together with all other documents  evidencing or securing the Indebtedness shall
be referred to as the "Existing Loan Documents".

3.   DESCRIPTION OF CHANGE IN TERMS.

     A.   Modification(s) to the Loan Agreement.
          -------------------------------------

          1.   The term "Maturity Date" shall mean March 13, 1998.

          2.   Section 6.9 entitled  "Debt-Net Worth Ratio" is hereby amended in
               its entirety to read as follows:

               Borrower  shall  maintain as of the last day of each  quarter,  a
               ratio of Total Liabilities less Subordinated Debt to Tangible Net
               Worth plus Subordinated Debt of not more than 1.00 to 1.00.
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     B.   Modification(s) to the Domestic Loan Agreement.
          ----------------------------------------------

          1.   Subparagraph  (a) of  Section  2.3  entitled  "Interest  Rate" is
               hereby amended to read as follows:

               Except as set forth in Section  2.3(b),  any Advances  shall bear
               interest,  on the average Daily  Balance,  at a rate equal to one
               (1.000) percentage point over the Prime Rate.

     C.   Modification(s) to the Export Loan Agreement.
          --------------------------------------------

          1.   Subparagraph  (a) of  Section  2.3  entitled  "Interest  Rate" is
               hereby amended to read as follows:

               Except as set forth in Section  2.3(b),  any Advances  shall bear
               interest,  on the average Daily Balance, at a rate equal to three
               fourths of one (0.750) percentage point over the Prime Rate.

4.   CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever
necessary to reflect the changes described above.

5.   PAYMENT  OF LOAN FEES.  Borrower shall pay to Lender a fee for the Domestic
Loan in the amount of Seven Thousand Five Hundred and 00/100 Dollars ($7,500.00)
(the  "Domestic  Loan  Fee"),  and a fee for the  Export  Loan in the  amount of
Fifteen  Thousand  and  00/100  Dollars  ($15,000.00)  (the  "Export  Loan Fee")
(collectively, the "Loan Fees") plus all out-of-pocket expenses.

6.   NO  DEFENSES OF BORROWER.  Borrower (and each guarantor and pledgor signing
below) agrees that it has no defenses against the obligations to pay any amounts
under the Indebtedness.

7.   CONTINUING  VALIDITY.  Borrower  (and each  guarantor  and pledgor  signing
below)  understands  and agrees that in  modifying  the  existing  Indebtedness,
Lender is relying upon Borrower's  representations,  warranties, and agreements,
as set  forth in the  Existing  Loan  Documents.  Except as  expressly  modified
pursuant to this Loan  Modification  Agreement,  the terms of the Existing  Loan
Documents remain unchanged and in full force and effect.  Lender's  agreement to
modifications to the existing  Indebtedness  pursuant to this Loan  Modification
Agreement in no way shall obligate  Lender to make any future  modifications  to
the Indebtedness. Nothing in this Loan Modification Agreement shall constitute a
satisfaction of the Indebtedness.  It is the intention of Lender and Borrower to
retain as liable  parties all makers and endorsers of Existing  Loan  Documents,
unless the party is expressly released by Lender in writing. No maker, endorser,
or guarantor will be released by virtue of this Loan Modification Agreement. The
terms of this paragraph apply not only to this Loan Modification Agreement,  but
also to all subsequent loan modification agreements.

8.   CONDITIONS.  The  effectiveness  of this  Loan  Modification  Agreement  is
conditioned upon Borrower's payment of the Loan Fees.
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     This Loan  Modification  Agreement is executed as of the date first written
above.

BORROWER:                               LENDER:

ARIZONA INSTRUMENT CORPORATION          SILICON VALLEY BANK


By: /s/ George G. Hays                  By: /s/ Kevin Conway
   ---------------------------             ----------------------------
Name: GEORGE G. HAYS                    Name: Kevin Conway
     -------------------------               --------------------------
Title: VICE PRESIDENT                   Title: Vice President
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