Document:

EMPLOYMENT AGREEMENT

         This Employment Agreement ("Agreement") is hereby entered into between
Zomax Incorporated, a Minnesota corporation (the "Company") and James T.
Anderson ("Executive").

                                    PREAMBLE

         Executive has been employed as President and Chief Executive Officer of
Zomax Incorporated since 1996. The Company desires to continue to have the
benefit of Executive's experience and loyalty, and Executive has indicated his
willingness to provide his services on the terms and conditions set forth below.

                                    AGREEMENT

1.       Definitions.

         The following capitalized terms used in this Agreement shall be defined
as follows:.

         Agreement shall mean this Agreement between the Company and Executive.

         Base Salary shall mean the annual base salary payable to Executive
pursuant to Section 4(a) hereof, and "monthly Base Salary" shall mean the Base
Salary divided by twelve (12).

         Board shall mean the Board of Directors of the Company.

         Cause shall mean termination of the Executive's employment with the
Company by the Board because of (1) gross misconduct, dishonesty or disloyalty;
(2) willful and material breach of this Agreement by Executive; or (3)
conviction or entry of a plea of guilty or nolo contendere to any felony or to
any misdemeanor involving fraud, misrepresentation or theft.

         A Change of Control shall be deemed to have occurred if (1) any
"person" (as such term is used in Section 13(d) and 14(d) of the Exchange Act)
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company representing
20% or more of the combined voting power (with respect to the election of
directors) of the Company's then outstanding securities; (2) at any time after
the execution of this Agreement, individuals who as of the date of the execution
of this Agreement constitute the Board (and any new director whose election to
the Board or nomination for election to the Board by the Company's stockholders
was approved by a vote of at least two-thirds (2/3) of the directors then still
inn office) cease for any reason to constitute a majority of the Board; (3) the
consummation of a merger or consolidation of the Company with or into any other
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than 70% of the combined
voting power (with respect to the election of directors) of the securities of

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the Company or of such surviving entity outstanding immediately after such
merger or consolidation; or (4) the consummation of a plan of complete
liquidation of the Company or of an agreement for the sale or disposition by the
Company of all or substantially all of the Company's business or assets.

         Change of Control Payments shall mean any payment (including any
benefit or transfer of property) in the nature of compensation to or for the
benefit of Executive under any arrangement which is partially or entirely
contingent on a Change of Control, or is deemed to be contingent on a Change of
Control for purposes of Section 280G of the Code. As used in this definition,
the term "arrangement" includes any agreement between Executive and the Company
and any and all of the Company's salary, bonus, incentive, compensation or
benefit plans, programs or arrangements, and shall include this Agreement.

         Code shall mean the Internal Revenue Code of 1986, as amended from time
to time.

         Company shall mean Zomax Incorporated, a Minnesota corporation, any
subsidiaries thereof, and any successors or assigns, including any Successor.

         Company Product means any product, product line or service (including
any component thereof or research to develop information useful in connection
with a product or service) that is being designed, developed, manufactured,
marketed or sold by the Company or with respect to which the Company has
acquired Confidential Information which it intends to use in the design,
development, manufacture, marketing or sale of a product or service.

         Competitive Product means any product, product line or service
(including any component thereof or research to develop information useful in
connection with a product or service) that is being designed, developed,
manufactured, marketed or sold by anyone other than the Company and is of the
same general type, performs similar functions, or is used for the same purposes
as a Company Product.

         Confidential Information means any information or compilation of
information that Executive learns or develops during the course of his
employment with the Company that derives independent economic value from not
being generally known, or readily ascertainable by proper means, by other
persons who can obtain economic value from its disclosure or use. It includes
but is not limited to trade secrets, inventions, discoveries, and may relate to
such matters as research and development, manufacturing processes, management
systems and techniques and sales and marketing plans and information.

         Good Reason shall mean (1) a substantial reduction in the nature or
status of Executive's responsibilities hereunder; (2) a reduction by the Company
in the Base Salary of Executive except to the extent permitted by this
Agreement; (3) failure by the Company to allow Executive to participate to the
full extent in all plans, programs or benefits in accordance with this
Agreement; and (4) relocation of Executive's principal office more than 20 miles
from its current location. Notwithstanding the foregoing, "Good Reason" shall be
deemed to occur only if such event enumerated in (1) through (4) above has not

<PAGE>

been corrected by the Company within two weeks of receipt of notice from
Executive of the occurrence of such event, which notice shall specifically
describe such event.

         Inventions means any inventions, discoveries, improvements, ideas or
works of authorship (whether patentable or not and including those which may be
subject to copyright protection) generated, conceived, authored or reduced to
practice by Executive alone or in conjunction with others, during or after
working hours, while an employee of the Company, and that:

                  (i)      are derived in whole or in part from, or use,
                           incorporate or represent any improvement to any
                           Invention or trade secret of the Company; or

                  (ii)     result from any work Executive performs for the
                           Company; or

                  (iii)    use any of the Company's equipment, supplies,
                           facilities or trade secret information; or

                  (iv)     otherwise relate to the Company's products or the
                           Company's present or possible future research or
                           development.

         Term shall mean the term of Executive's employment under Section 3
hereof.

         Permanently Disabled shall mean permanently disabled in accordance with
the disability policy (as defined by the Company's Long-Term Disability
Insurance Plan) of the Company as in effect on the date of this Agreement and as
evaluated by sufficient documentation including doctors' statements, etc. as
requested by the Company.

         Person shall mean an individual, partnership, corporation, estate or
trust or other entity.

         Successor shall be any entity acquiring substantially all of the assets
of the Company or a corporation into which the Company is merged or with which
it is consolidated.

2.       Employment and Duties.

         (a) General. The Company hereby agrees to employ Executive as its
President and Chief Executive Officer upon the terms and conditions set forth in
this Agreement and Executive agrees to serve as President and Chief Executive
Officer of the Company. Executive shall report directly to the Board of
Directors of the Company. Executive shall perform the duties and assume the
responsibilities and obligations contemplated by his title of President and
Chief Executive Officer and shall perform such other duties and undertake such
other responsibilities and obligations, consistent with his position, as the
Board of Directors shall determine from time to time.

         (b) Exclusive Services. The Executive shall (i) devote his full
business time and attention and best efforts to the business and affairs of the
Company and its affiliates, (ii) use his best efforts to promote and further the
interests of the Company, (iii) faithfully and diligently perform his

<PAGE>

responsibilities and duties hereunder; and (iv) conduct himself in a competent
and professional manner which reflects positively upon the Company.

         (c) No Other Employment. Throughout the Term, Executive shall not,
directly or indirectly, render services to any other person or organization for
which he receives compensation (excluding volunteer services or outside Board
activities with modest time commitments) without the consent of the Board or
otherwise engage in activities which would interfere significantly with the
performance of his duties hereunder.

3.       Term of Employment.

         (a) Commencement. The term of this Agreement shall be effective as of
January 1, 1999 and may not be terminated except as expressly provided herein.

         (b) Term. Unless extended by mutual consent or as provided in Section
3(c) below, this Agreement shall terminate on the first (1st) anniversary of the
Effective Date (such one-year period being hereinafter referred to as the
"Term").

         (c) Automatic Extension. Following the initial expiration date of the
Term, this Agreement shall be deemed extended from year to year ("Extension
Year") unless, no later than three (3) months prior to the end of the Term (or
any Extension Year) the Company or the Executive shall have notified the other
party in writing that it or he does not elect to extend the Term (or any
Extension Year) past its then expiration date.

4. Compensation and Other Benefits. Subject to the provisions of this Agreement,
the Company shall pay and provide the following compensation and other benefits
to Executive during the Term as compensation for services rendered hereunder.

         (a) Base Salary. The Company shall pay to Executive a Base Salary at
the rate of $400,000 per annum, payable in accordance with the Company's
standard payroll practices. The Company shall be entitled to deduct or withhold
all taxes and charges which the Company may be required to deduct or withhold
therefrom. The Base Salary will be reviewed not less than annually by the Board
and may be increased or reduced; provided, however, that any reduction shall be
permitted only if the Company then reduces the base compensation of its
executive employees generally and shall not exceed the average percentage
reduction for all such executive employees.

         (b) Incentive Compensation. During the term of this Agreement,
Executive will receive an annual bonus, consisting of a combination of cash and
stock options, based on his performance and the performance of the Company
against a business plan approved by the Board of Directors. The terms of the
incentive compensation award will be determined by the Board and communicated to
Executive no later than February 28 of each calendar year.

         (c) Other Plans. The Executive shall be entitled to participate in
additional Company stock option plans or other equity plans or programs, if any,
in which executives of the Company are eligible to participate generally as may

<PAGE>

be determined by the Board of Directors. No stock options granted to Executive
will vest later than four years after grant.

         (d) Executive Benefit Plans. At all times during the Term, Executive
shall, unless prohibited by the Code or other applicable law, be eligible to
participate in pension and welfare plans and programs of the Company for
executive employees, currently existing or subsequently adopted, including the
following:

                  (i)      all qualified benefit plans and programs (e.g.
                           defined contribution, supplemental retirement and
                           Section 401(k) plans, long-term disability and life
                           insurance plans and programs);

                  (ii)     all hospitalization and medical plans and programs;
                           and

                  (iii)    all retirement plans and programs.

5. Termination of Employment for Cause; Resignation Without Good Reason;
Resignation Not Following a Change of Control.

         (a) Compensation and Benefits. If Executive's employment is terminated
by the Company for Cause or if Executive resigns from his employment hereunder
other than for Good Reason or other than within one year after a Change of
Control, then Executive shall not be eligible to receive any compensation or
benefits, or to participate in any plans or programs under Section 4 hereof with
respect to future periods after the date of such termination or resignation
except for the right to receive benefits under any plan or program, to the
extent vested, in accordance with the terms of such plan or program and except
for benefits provided in accordance with customary practices of the Company at
Executive's expense (e.g., hospitalization and medical insurance). Except that
in the case of Resignation Without Good Reason, the Company will continue, for a
period of up to five years, after his resignation to provide to Executive and
his family at the Company's cost, comparable health care, hospital and medical
benefits, subject to termination of such benefits at such time as Executive
becomes entitled to reasonably comparable benefits upon subsequent employment.

         (b) Date of Termination. The date of termination of Executive's
employment by the Company under this Section 5 shall be effective immediately
after written notice of termination. The date of resignation by Executive under
this Section 5 shall be one (1) month after receipt by the Company of written
notice of resignation.

6.       Termination of Employment Without Cause; Resignation for Good Reason;
         Resignation Following Change of Control, and Failure to Extend
         Employment Agreement.

         (a) Compensation and Benefits. If Executive's employment is terminated
by the Company without Cause, Executive resigns from his employment hereunder
for good reason, Executive resigns from his employment hereunder for any reason

<PAGE>

within one (1) year after a Change of Control, or the Company fails to extend
this Agreement, Executive shall be entitled to receive the following from the
Company:

                  (i)      Executive shall receive from the Company within sixty
                           (60) days after such termination, resignation, or end
                           of Term without an extension by the Company an amount
                           equal to twice his Base Salary and all unused
                           vacation as in effect on the effective date of such
                           termination or resignation or as of the end of the
                           Term. The Company shall be entitled to deduct or
                           withhold all taxes and charges which the Company may
                           be required to deduct or withhold therefrom.

                  (ii)     Executive shall receive from the Company within sixty
                           (60) days after such termination, resignation or end
                           of Term without an extension by the Company an amount
                           equal to twice Executive's bonus payment(s) under
                           Section 4(b) above earned for the fiscal year of the
                           Company ending immediately prior to such termination
                           or resignation or twice the maximum amount Executive
                           is eligible to earn in the current fiscal year,
                           whichever is higher. The Company shall be entitled to
                           deduct or withhold all taxes and charges which the
                           Company may be required to deduct or withhold
                           therefrom.

                  (iii)    With respect to any stock options, SARs, restricted
                           stock awards or performance share awards granted to
                           Executive and outstanding immediately prior to such
                           termination, resignation or failure to extend this
                           Agreement, all restrictions on all shares of
                           restricted stock awards shall lapse immediately, all
                           outstanding options and SARs will become exercisable
                           immediately, and all performance share objectives
                           shall be deemed to be met.

                  (iv)     Executive and his family shall be entitled to
                           continued participation in hospital and medical plans
                           and programs of the Company at the Company's expense
                           for a five-year period following such termination,
                           resignation or end of Term subject to termination of
                           participation upon Executive becoming entitled to
                           comparable benefits on subsequent employment.

                  (v)      Executive shall be entitled to the payment in full,
                           upon the effective date of termination, of all unpaid
                           vacation allowances.

         (b) Date of Termination or Resignation. The date of termination of
Executive's employment by the Company under this Section 6 shall be one (1)
month after receipt by Executive of written notice of termination. The date of
resignation by Executive for Good Reason under this Section 6 shall be one (1)
month after receipt by the Company of written notice of resignation, provided
that the Good Reason specified in such notice shall not have been corrected by
the Company during such one (1) month period.

<PAGE>

         (c) Limitation on Change of Control Compensation. In the event that
Executive is a "disqualified individual" within the meaning of Section 280G of
the Code, the parties expressly agree that the payments described in this
Section 6 shall be considered together with all Change of Control Payments so
that, with respect to Executive, all Change of Control Payments are collectively
subject to an overall maximum limit. Such maximum limit shall be One Dollar
($1.00) less than the largest amount under which no portion of the Change of
Control Payments is considered a "parachute payment" within the meaning of
Section 280G of the Code. Accordingly, to the extent that the Change of Control
Payments would be considered a "parachute payment" with respect to Executive,
then the portions of such Change of Control payments shall be reduced or
eliminated in the following order until the remaining Change of Control Payments
with respect to Executive is One Dollar ($1.00) less than the maximum allowable
which would not be considered a "parachute payment" under the Internal Revenue
Code:

                  (i)      First, any cash payment to Executive;

                  (ii)     Second, any Change of Control Payments not described
                           in this Agreement; and

                  (iii)    Third, any forgiveness of indebtedness of Executive
                           to the Company.

Executive expressly and irrevocably waives any and all rights to receive any
Change of Control payments which would be considered a "parachute payment" under
the Code.

7.       Termination of Employment by Disability or Death.

         (a) Compensation and Benefits. If Executive becomes Permanently
Disabled prior to the expiration of the Term, the Company shall be entitled to
terminate Executive's employment subject to the Company's normal policies in
such matters as applied to all other salaried employees. In the event of such
termination of Executive's employment or termination of Executive's employment
by reason of the death of Executive prior to the expiration of the Term, the
Executive (or Executive's estate, as the case may be), shall be entitled to
receive from the Company the following:

                  (i)      In the event of termination after Executive has
                           become Permanently Disabled, Executive and his family
                           shall be entitled to continue participation in
                           hospital and medical plans and programs of the
                           Company at the Company's expense for the period of
                           said disability or until normal retirement age
                           subject to rules and practice of the plan(s).

                  (ii)     Executive (or, in the event of his death, Executive's
                           estate or his designated beneficiary) shall be
                           entitled to receive benefits under any other Company
                           plan or program (to the extent Executive is vested)
                           in accordance with the terms of such plan or program.
                           Executive shall be entitled to continued
                           contributions under the Company's qualified profit
                           sharing plan 401(k) to the extent permitted in said
                           Plan.

<PAGE>

         (b) Date of Termination. The date of termination of Executive's
employment under this Section 7 shall be the date Executive becomes Permanently
Disabled or the date of Executive's death, as the case may be.

8. Legal Fees and Expenses. The Company shall pay or reimburse Executive for all
reasonable legal fees and expenses incurred by Executive in seeking to obtain or
enforce any right or benefit provided by this Agreement from or against the
Company in a proceeding before a court of competent jurisdiction.

9. Assignment of Inventions. Executive agrees to promptly disclose to the
Company in writing all Inventions; and all such Inventions shall be the
exclusive property of the Company and are hereby assigned by Executive to the
Company. Further, Employee will, at the Company's expense, give the Company all
assistance it reasonably requires to perfect, protect, and use its rights to
Inventions. In particular, but without limitation, Executive will sign all
documents, do all things, and supply all information that the Company may deem
necessary or desirable to:

                  (i)      transfer or record the transfer of his entire right,
                           title and interest in Inventions; and

                  (ii)     enable the Company to obtain patent, copyright or
                           trademark protection for Inventions anywhere in the
                           world.

         The obligations of this Section shall continue beyond the termination
of employment with respect to Inventions conceived or made by Executive during
the period of his employment and shall be binding upon assigns, executors,
administrators and other legal representatives. For purposes of this Agreement,
any Invention relating to the business of the Company on which Executive files a
patent application within six (6) months after termination of employment with
the Company shall be presumed to cover Inventions conceived by Executive during
the term of his employment, subject to proof to the contrary by good faith,
written and duly corroborated records establishing that such Invention was
conceived and made following termination of employment.

         NOTICE: Pursuant to Minnesota Statutes ss. 181.78, Executive is hereby
notified that this Section 11 does not apply to any invention for which no
equipment, supplies, facility, or trade secret information of the Company was
used and which was developed entirely on Executive's own time, and (1) which
does not relate (a) directly to the business of the Company or (b) to the
Company's actual or demonstrably anticipated research or development, or (2)
which does not result from any work performed by the employee for the Company.

10. Confidential Information. Executive agrees not to directly or indirectly use
or disclose Confidential Information for the benefit of anyone other than the
Company, either during or after employment, for as long as the information
retains the characteristics of Confidential Information described in Section 1
above.

<PAGE>

11. Return of Documents and Property. All documents and tangible items provided
to Executive by the Company, or possessed by or created by Executive for use in
connection with his employment, are the property of the Company and shall be
promptly returned to the Company on termination of employment together with all
copies, recordings, abstracts, notes or reproductions of any kind made from or
about the documents and tangible items or the information they contain.

12. Noncompetition. In consideration of Executive's rights under this Agreement,
including without limitation Sections 5 through 7 hereof, Executive agrees that,
from and after the Effective Date and continuing until the one-year anniversary
of termination or cessation of Executive's employment with the Company,
Executive will not, alone or in any capacity with another legal entity:

                  (i)      directly or indirectly, own any interest in, control,
                           be employed by or associated with, or render services
                           to (including but not limited to services in
                           research), any person, entity, or subsidiary,
                           subdivision, division, or joint venture of such
                           entity in connection with the design, development,
                           manufacture, marketing, or sale of a Competitive
                           Product that is sold or intended for use or sale in
                           any geographic area in which the Company actively
                           markets a Company Product or intends to actively
                           market a Company Product of the same general type or
                           function;

                  (ii)     directly or indirectly, solicit any of the Company's
                           present or future employees for the purpose of hiring
                           them or inducing them to leave their employment with
                           the Company;

                  (iii)    directly or indirectly, solicit, attempt to solicit,
                           interfere, or attempt to interfere with the Company's
                           relationship with its customers or potential
                           customers, on behalf of himself or any other person
                           or entity engaged in the design, development,
                           manufacture, marketing, or sale of a Competitive
                           Product; or

                  (iv)     directly or indirectly design, develop, manufacture,
                           market, or sell any Competitive Product that is sold
                           or intended for use or sale in any geographic area in
                           which the Company actively markets a Company Product
                           or intends to actively market a Company Product of
                           the same general type or function.

In the event that Executive receives a payment from the Company pursuant to
Sections 6(a)(i) and 6(a)(ii) above, the reference to the "one-year anniversary"
in the first sentence of this Section shall be changed to the "two-year
anniversary".

13. Breach of Noncompetition Provisions of this Agreement. In addition to any
other relief or remedies afforded by law or in equity, if Executive breaches
Section 12 of this Agreement, Executive agrees that the Company shall be
entitled, as a matter of right, to injunctive relief in any court of competent
jurisdiction plus reasonable attorneys' fees for securing such relief. Executive

<PAGE>

recognizes and hereby admits that irreparable damage will result to the Company
if he violates or threatens to violate the terms of Section 12 of this
Agreement. This Section 13 shall not preclude the granting of any other
appropriate relief including, without limitation, money damages against
Executive for breach of Section 12 of this Agreement.

14. Effect of Other Obligations. It is intended that the obligation of the
parties to perform the terms of this Agreement is unconditional and does not
depend on the performance or non-performance of any terms, duties or obligations
not specifically recited in this Agreement.

15. Binding Agreement. This Agreement shall be binding upon, and inure to the
benefit of, the parties hereto, any Successor to or assigns of the Company, and
Executive's heirs and the personal representative of Executive's estate.

16. Severability. If the final determination of a court of competent
jurisdiction declares, after the expiration of the time within which judicial
review (if permitted) of such determination may be perfected, that any term of
provision hereof is invalid or unenforceable, (a) the remaining terms and
provisions hereof shall be unimpaired, and (b) the invalid or unenforceable term
or provision shall be deemed replaced by a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the invalid or
unenforceable term or provision.

17. Amendment; Waiver. This Agreement may not be modified, amended or waived in
any manner except by an instrument in writing signed by both parties hereto. The
waiver by either party of compliance with any provision of this Agreement by the
other party shall not operate or be construed as a waiver of any other provision
of this Agreement, or of any subsequent breach by such party of a provision of
this Agreement.

18. Governing Law. All matters affecting this Agreement, including the validity
thereof, are to be governed by, interpreted and construed in accordance with the
laws of the State of Minnesota.

19. Notices. Any notice hereunder by either party to the other shall be given in
writing by personal delivery or certified mail, return receipt requested. If
addressed to Executive, the notice shall be delivered or mailed to Executive at
the address specified under Executive's signature hereto, or if addressed to the
Company, the notice shall be delivered or mailed to the Company at its executive
offices to the attention of the Board of Directors of the Company. A notice
shall be deemed given, if by personal delivery, on the date of such delivery or,
if by certified mail, on the date shown on the applicable return receipt.

20. Supersedes Previous Agreements. This Agreement supersedes all prior or
contemporaneous negotiations, commitments, agreements and writings with respect
to the subject matter hereof, all such other negotiations, commitments,
agreements and writings will have no further force or effect, and the parties to
any such other negotiation, commitment, agreement or writing will have no
further rights or obligations thereunder.

21. Headings; Construction. The headings of Sections and paragraphs herein are
included solely for convenience of reference and shall not control the meaning

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or interpretation of any of the provisions of this Agreement. This Agreement
shall be construed without regard to any presumption or other rule requiring
construction hereof against the party causing this Agreement to be drafted.

22. Benefit. Nothing in this Agreement, expressed or implied, is intended to
confer on any person other than the parties hereto or their respective
successors or assigns, any rights, remedies, obligations or liabilities under or
by reason of this Agreement.

         IN WITNESS WHEREOF, the Company has caused this Agreement to be signed
by its Chairman of the Board pursuant to the authority of its Board, and
Executive has executed this Agreement, effective as of January 1, 1999.

                                     ZOMAX INCORPORATED

                                     By: /s/ Phillip T. Levin
                                         Chairman of the Board

                                     /s/ James T. Anderson
                                     James T. AndersonNORWEST BANK MINNESOTA SOUTH,
                              NATIONAL ASSOCIATION

                         TERM LOAN AND CREDIT AGREEMENT

THIS TERM LOAN AND CREDIT AGREEMENT (the "Agreement") dated as of July 31, 1998
(the "Effective Date") is between Norwest Bank Minnesota South, National
Association (the "Bank") and Winland Electronics, Incorporated (the "Borrower").

BACKGROUND

The Borrower and the Bank entered into a Credit Agreement dated as of January
31, 1995 pursuant to which the Bank extended to the Borrower, among other
things, a conditional revolving line of credit (the "Line"), which Credit
Agreement was amended by First Amendment dated October 21, 1996, by Second
Amendment dated July 7, 1997 and by Third Amendment dated September 18, 1997 (as
amended, the "Agreement"). The Borrower's obligation to the Bank under the Line
is currently evidenced by a Revolving Note dated September 18, 1997 (the "1997
Revolving Note").

The Borrower has asked the Bank to renew the Line in the amount of
$3,500,000.00, and has asked the Bank to loan it an additional $115,000.00 as an
advance on its existing Term Loan dated April 29, 1996 in the original amount of
$57,725.00 (the "Term Loan").

The Bank is agreeable to meeting the Borrower's requests, provided that the
Borrower agrees to the terms and conditions of this Agreement.

For purposes of this Agreement, all promissory notes that evidence indebtedness
of the Borrower to the Bank and which are documented under this Agreement and
defined below shall collectively be referred to as the "Notes."

The Notes, this Agreement, and all "Security Documents" described in Exhibit B,
and any modifications, amendment or replacement to such promissory notes or
agreements shall be referred to collectively as the "Documents."

In consideration of the above premises, the Bank and the Borrower agree as
follows:

1.       LINE OF CREDIT

1.1      Line of Credit Amount. During the Line Availability Period defined
         below, the Bank agrees to provide a conditional revolving line of
         credit (the "Line") to the Borrower. Outstanding amounts under the Line
         shall not, at any one time, exceed the lesser of the Borrowing Base or
         Three Million Five Hundred Thousand and 00/100 Dollars ($3,500,000.00).
         The Borrowing Base is defined in Exhibit A-1 to this Agreement. This is
         a conditional revolving line of credit and each advance under the Line,
         if made, shall be at the sole discretion of the Bank.

1.2      Line of Availability Period. The "Line Availability Period" shall mean
         the period of time from the Effective Date or the date on which all
         conditions precedent described in this Agreement have been met,
         whichever is later, to the Line Expiration Date of June 30, 1999.

1.3      The Revolving Note. The Borrower's obligation to repay advances under
         the Line shall be evidenced by a single promissory note (the "Revolving
         Note") dated as of the Effective Date, and in form and content
         acceptable to the Bank, which shall replace, but not be deemed to
         satisfy the 1997 Revolving Note. The initial balance of the Revolving
         Note shall be the balance of the 1997 Revolving Note as of the date of
         this Agreement. Reference is made to the Revolving Note for interest
         rate and repayment terms.

1.4      Mandatory Prepayment. If at any time the principal outstanding under
         the Revolving Note exceeds the lessor of the Borrowing Base or
         $3,500,000.00, the Borrower must immediately prepay the Revolving Note
         in an amount sufficient to eliminate the excess.

2.       TERM LOAN

2.1      Term Loan Amount. The Bank and the Borrower entered into a term loan
         agreement dated April 29, 1996, pursuant to which the Bank extended a
         $57,725.00 term loan to the Borrower (the "Term Loan"), which is
         evidenced by a term note of the same date in the amount (the "1996 Term
         Note"). The Bank agrees to advance the Borrower the additional sum of
         One Hundred Fifteen Thousand and 00/100 Dollars ($115,000.00) under the
         Term Loan facility, provided that all conditions precedent described in
         this Agreement have been met and that the Borrower is not otherwise in
         default as of the date of disbursement. The Bank and the Borrower agree
         that the unpaid principal amount of the Term Loan, following the
         referenced advance, is $168,368.75.

2.2      Disbursements. The additional advance of loan proceeds under the Term
         Loan is available in one disbursement on the Effective Date.

2.3      The Term Note. The Borrower will replace the 1996 Term Note by
         executing and delivery to the Bank a new promissory note in form and
         content acceptable to the Bank (the "Term Note"), which shall be dated
         as of the Effective Date, and which shall replace, but not be deemed to
         satisfy, the 1996 Term Note. The Term Note shall evidence the unpaid
         amount due to the Bank under the 1996 Term Note as of the date of this
         Agreement, plus the $115,000.00 advance provided for in this Agreement.
         Reference is made to the Term Note for terms relating to interest rate,
         repayment and other terms governing the Term Loan.

3.       FEES AND EXPENSES

3.1      Documentation Expense. The Borrower agrees to reimburse the Bank for
         its reasonable expenses relating to the preparation of the Documents
         and any possible future amendments to the Documents, which
         reimbursement may include, but shall not be limited to, reimbursement
         of reasonable attorneys' fees, including the allocated costs of the
         Bank's in-house counsel. Despite such reimbursement the Borrower
         acknowledges that the Bank's counsel is engaged solely to represent the
         Bank and does not represent the Borrower.

3.2      Collection Expenses. In the event the Borrower fails to comply with any
         covenant or condition of this Agreement or the Documents, or fails to
         pay the Bank any amounts due under this Agreement or under the
         Documents, the Borrower shall pay all costs of workout and collection,
         including reasonable attorneys' fees and legal expenses incurred by the
         Bank.

3.3      Miscellaneous Expense. The Borrower agrees to reimburse the Bank for
         its expenses incurred in perfecting any security interest in property
         granted by the Borrower to the Bank.

4.       PAYMENTS

4.1      Payments. All principal, interest and fees due under the Documents
         shall be paid in immediately available funds as contracted in this
         Agreement, and no later than the payment due date set forth in the
         statement mailed to the Borrower by the Bank. If a due date does not
         fail on a day on which the Bank is open for substantially all of its
         business (a "Banking Day", except as otherwise provided), the Bank
         shall debit the account on the next Banking Day, and interest shall
         continue to accrue during the extended period. If there are
         insufficient funds in the amount on the day the Bank enters any debit
         authorized by this Agreement, the debit will be reversed and the
         payment shall be due immediately without necessity of demand by direct
         remittance of immediately available funds. For amounts bearing interest
         at the LIBOR Rate (if any), a Banking Day is a day on which the Bank is
         open for business and on which dealings in U.S. dollar deposits are
         carried on in the London Interbank Market.

4.2      Performance Based Interest Rate Pricing. Following its review of the
         Borrower's Interim financial statements, the Bank shall change the
         margin applicable under the Revolving Note to the Base Rate based on
         the following performance criteria:

(a)      For each calendar quarter in which the Borrower's Debt Service Coverage
         Ratio, as defined in Section 8.2, is determined by the Bank to be 3.50
         to 1.0 or higher, the interest rate applicable to the Revolving Note
         shall automatically be changed, as of the date set forth in Subsection
         4.3, to a rate equal to the Bank's Base Rate as defined in the
         Revolving Note plus a margin of 1.00%, floating.

(b)      For each calendar quarter in which the Borrower's Debt Service Coverage
         Ratio is determined by the Bank to be between 3.00 to 1.0 and 3.49 to
         1.0, the interest rate applicable to the Revolving Note shall
         automatically be changed, as of the date set forth in Subsection 4.3,
         to a rate equal to the Bank's Base Rate as defined in the Revolving
         Note plus a margin of 0.75%, floating.

(c)      For each calendar quarter in which the Borrower's Debt Service Coverage
         Ratio is determined by the Bank to be between 2.75 to 1.0 and 2.99 to
         1.0, the interest rate applicable to the Revolving Note shall
         automatically be changed, as of the date set forth in Subsection 4.3,
         to a rate equal to the Bank's Base Rate as defined in the Revolving
         Note plus a margin of 0.50%, floating.

(d)      For each calendar quarter in which the Borrower's Debt Service Coverage
         Ratio is determined by the Bank to be between 2.25 to 1.00 and 2.74 to
         1.0, the Interest rate applicable to the Revolving Note shall
         automatically be changed, as of the date set forth in Subsection 4.3,
         to a rate equal to the Bank's Base Rate as defined in the Revolving
         Note plus a margin of 0.25%, floating.

(e)      For each calendar quarter in which the Borrower's Debt Service Coverage
         Ratio, as defined in Section 8.2, is determined by the Bank to be less
         than 2.25 to 1.0, the interest rate applicable to the Revolving Note
         shall automatically be changed, as of the date set forth in Subsection
         4.3, to a rate equal to the Bank's Base Rate as defined in the
         Revolving Note, floating.

4.3      Effective Date of Performance Based Pricing Changes. Any margin change
         described above shall become effective on the first day of the month
         following the month of the Bank's receipt of the Borrower's March,
         June, September and December interim financial statements, as provided
         in Section 9.1(a) and (b) of this Agreement. Following any event of
         default defined described in Section 0 of this Agreement, and
         regardless of whether or not the Revolving Note has been accelerated,
         the Revolving Note shall accrue interest at the rate described in
         Section 4.2(a) above.

5.       SECURITY

         During the time period that credit is available under this Agreement,
         and afterward until all amounts due under the Documents are paid in
         full, unless the Bank shall otherwise agree in Writing all amounts due
         under this Agreement and the Documents shall be secured at all times as
         provided in Exhibit B. The Borrower also hereby grants the Bank a
         security interest (independent of the Bank's right of set-off) in its
         deposit accounts at the Bank and in any other debt obligations of the
         Bank to the Borrower.

6.       CONDITIONS PRECEDENT

         The Borrower must deliver to the Bank the documents described in
         Exhibit B, properly executed and in form and content acceptable to the
         Bank, prior to the Bank's initial advance or disbursement under this
         Agreement. The Borrower must also deliver to the Bank, prior to the
         initial advance and any subsequent line advances under this Agreement,
         a Borrowing Base Certificate in the form of Exhibit A-2, at the
         intervals provided in Section 8.

7.       REPRESENTATIONS AND WARRANTIES

         To induce the Bank to enter into this Agreement, the Borrower, to the
         best of its knowledge and upon due inquiry, makes the representations
         and warranties contained in Exhibit C. Each request for an advance or a
         disbursement under this Agreement following the Effective Date
         constitutes a reaffirmation of these representations and warranties.

8.       COVENANTS

8.1      Financial Information and Reporting

         Except as otherwise stated in this Agreement, all financial information
         provided to the Bank shall be compiled using generally accepted
         accounting principles consistently applied.

         During the time period that credit is available under this Agreement,
         and afterward until all amounts due under the Documents are paid in
         full, unless the Bank shall otherwise agree in writing, the Borrower
         agrees to:

(a)      Annual Financial Statements. Provide the Bank within 120 days of the
         Borrower's fiscal year end, the Borrower's annual financial statements.
         The statements must be audited with an unqualified opinion by a
         certified public accountant acceptable to the Bank.

(b)      Interim Financial Statements. Provide the Bank within 45 days of each
         month end, the Borrower's interim financial statements for the interim
         period then ending. The statements must be current through the end of
         that period and must be certified as correct by an officer of the
         Borrower in form acceptable to the Bank.

(c)      Borrowing Base Certificate. Provide the Bank within 30 days of each
         month end, a Borrowing Base Certificate in the form of Exhibit A-2,
         current through the end of that period and certified as correct by an
         officer of the Borrower acceptable to the Bank.

         At the time of each request for an advance under this Agreement
         following the Effective Date, the Borrower shall deliver to the Bank a
         new Borrowing Base Certificate, unless the Bank is in possession of a
         Borrowing Base Certificate current within 30 days of the requested
         advance.

(d)      Accounts Receivable Aging. Provide the Bank within 45 days of each
         quarter end, an accounts receivable aging report in form acceptable to
         the Bank and certified as correct by an officer of the Borrower
         acceptable to the Bank.

(e)      Notices. Provide the Bank prompt written notice of (1) any event of
         default or any event which would, after the lapse of time or the giving
         of notice, or both, constitute an event of default under the Agreement
         or any of the Documents; or (2) any future event that would cause the
         representations and warranties contained in this Agreement to be untrue
         when applied to the Borrower's circumstances as of the date of such
         event.

(f)      Additional Information. Provide the Bank with such other information as
         it may reasonably request, and permit the Bank to visit and inspect its
         properties and examine its books and records.

8.2      Financial Covenants

During the time period that credit is available under this Agreement, and
afterward until all amounts due under the Documents are paid in full, unless the
Bank shall otherwise agree in writing, the Borrower agrees to comply with the
financial covenants described below, which shall be calculated using generally
accepted accounting principles consistently applied, except as they may be
otherwise modified by the following capitalized definitions:

"Current Assets" means current assets less receivables and investments in or
other amounts due from any shareholder, director, officer, employee or any
person or entity related to or affiliated with the Borrower.

"Current Liabilities" means current liabilities less any portion of such current
liabilities that constitute Subordinated Debt.

"Current Maturities or Long Term Debt" means that portion of the Borrower's long
term debt and capital leases payable within 12 months of the determination date.

"Tangible Net Worth" means total assets less total liabilities and less the
following types of assets: (1) leasehold improvements; (2) receivables and other
investments in or amounts due from any shareholder, director, officer, employee
or other person or entity related to or affiliated with the Borrower; and (3)
goodwill, patents, copyrights, mailing lists, trade names, trademarks, servicing
rights, organizational and franchise costs, bond underwriting costs and other
like assets property classified as intangible.

"Traditional Cash Flow" means the aggregate amount of the following: (1) net
income after taxes; (2) amortization expense; (3) depreciation and depletion
expenses; (4) deferred tax expense; and (5) similar non-cash charges against
income which the Bank determines in its discretion to be appropriate
"add-backs".

(a)      Debt Service Coverage Ratio. Maintain a ratio of Traditional Cash Flow
         to Current Maturities of Long Term Debt of a least 1.2 to 1.0 as of the
         fiscal year ending December 31, 1998.

(b)      Tangible Net Worth. Maintain a minimum Tangible Net Worth of at least
         $2,800,000.00 as of the fiscal year ending December 31, 1998.

(c)      Total Liabilities to Tangible Net Worth Ratio. Maintain a ration of
         total liabilities to Tangible Net Worth of less than 3.0 to 1.0 as of
         the end of fiscal year ending December 31, 1998.

(d)      Current Ratio. Maintain a ratio of Current Assets to Current
         Liabilities of at least 1.2 to 1.0 as of the end of the fiscal year
         ending December 31, 1998.

8.3      Other Covenants

         During the time period that credit is available under this Agreement,
         and afterward until all amounts due under the Documents are paid in
         full, unless the Bank shall otherwise agree in writing, the Borrower
         agrees to:

(a)      Additional Borrowing.  Refrain from incurring any indebtedness except:

         (1)      Trade credit incurred in the ordinary course of business.

         (2)      Indebtedness expressly subordinated to the Bank in a writing
                  acceptable to the Bank.

         (3)      Indebtedness in existence on the date of this Agreement and
                  disclosed in advance to the Bank in writing.

         (4)      Purchase money indebtedness (including capitalized leases) for
                  the acquisition of fixed assets, provided that the total
                  principal amount outstanding at any one time does not exceed
                  $30,000.00

(b)      Other Liens. Refrain from allowing any security interest on property it
         owns now or in the future, except:

         (1)      Liens in favor of the Bank,

         (2)      Liens for taxes not delinquent or which the Borrower is
                  contesting in good faith.

         (3)      Liens outstanding on the date of this Agreement and disclosed
                  in advance to the Bank in writing.

         (4)      Liens which secure purchase money indebtedness allowed under
                  this Agreement.

(c)      Insurance. Cause its properties to be adequately insured by a reputable
         insurance company against loss or damage and to carry such other
         insurance (including business interruption, flood, or environmental
         risk insurance) as is usually carried by persons engaged in the same or
         similar business. Such insurance must, with respect to the Bank's
         collateral security, include a lender's loss payable endorsement in
         favor of and in form acceptable to the Bank.

(d)      Nature of Business. Refrain from engaging in any line of business
         materially different from that presently engaged in by the Borrower.

(e)      Deposit Accounts. Maintain its principal deposit accounts with the
         Bank.

(f)      Form of Organization and Mergers. Refrain from changing the legal form
         of organization, or consolidating, merging, pooling, syndicating or
         otherwise combining with any other entity.

(g)      Maintenance of Properties. Make all repairs, renewals or replacements
         necessary to keep its plant, properties and equipment in good working
         condition.

(h)      Books and Records. Maintain adequate books and records, refrain from
         making any material changes in its accounting procedures for tax or
         other purposes, and permit the Bank to inspect same upon reasonable
         notice.

(i)      Compliance with Laws. Comply in all material respects with all laws
         applicable to its form of organization, business, and the ownership of
         its property.

(j)      Preservation of Rights. Maintain and preserve all permits, licenses,
         rights, privileges, charters and franchises that it now owns.

         These covenants were negotiated by the Bank and Borrower based on
         information provided to the Bank by the Borrower. A breach of a
         covenant is an indication that the risk of the transaction has
         increased. As consideration for any waiver or modification of these
         covenants, the Bank may require: additional collateral, guaranties or
         other credit support; higher fees or interest rates; and possible
         modifications to the Documents and the monitoring of the Agreement. The
         waiver or modification of any covenant that has been violated by the
         Borrower shall be made at the sole discretion of the Bank. These
         options do not limit the Bank's right to exercise its rights under
         Section 9 of this Agreement.

9.       EVENTS OF DEFAULT AND REMEDIES

9.1      Default

         The Revolving Line is a conditional line of credit, which means that
         the Bank is not obligated to make advances under the Line even if the
         Borrower is in compliance with the terms of this Agreement, and the
         Revolving Note evidencing borrowings under the Line shall be payable by
         the Borrower upon demand by the Bank. Despite this reservation of
         rights, upon the occurrence of any one or more of the following events
         of default, or at any time afterward unless the default has been cured,
         the Bank may declare the Line to be terminated and in its discretion
         accelerate and declare the unpaid principal, accrued interest and all
         other amounts payable under the Notes and the Documents to be
         immediately due and payable:

(a)      Failure by the Borrower to make any payment of principal or interest
         due under any of the Notes which continues for ten (10) days after its
         due date.

(b)      Default by the Borrower in the observance or performance of any
         covenant or agreement contained in this Agreement, and continuance for
         more than fifteen (15) days.

(c)      Default by the Borrower in the observance or performance of any
         covenant or agreement contained in any of the Documents (excepting
         defaults under this Agreement, which are addressed in the preceding
         paragraph), after giving effect to applicable grace periods, if any.

(d)      Default by the Borrower with respect to any indebtedness or obligation
         owed to the Bank, which is unrelated to any loan or facility subject to
         the terms of this Agreement, or to any third party creditor, which
         would allow the maturity of any such indebtedness or obligation to be
         accelerated.

(e)      Any representation or warranty made by the Borrower to the Bank in this
         Agreement, or any financial statement or report submitted to the Bank
         by or on behalf of the Borrower before or after the Effective Date is
         untrue or misleading in any material respect.

(f)      A garnishment, levy or writ of attachment, or any local, state, or
         federal notice of tax lien or levy is made or issues against the
         Borrower, or any post judgment process or procedure is commenced or any
         supplementary remedy for the enforcement of a judgment is employed
         against the Borrower or the Borrower's property.

(g)      A material adverse change occurs in the Borrower's financial condition
         or ability to repay its obligations to the Bank.

9.2      Immediate Default

         If, with or without the Borrower's consent, a custodian, trustee or
         receiver is appointed for any of the Borrower's properties, or if a
         petition is filed by or against the Borrower under the United States
         Bankruptcy Code, or the Borrower is dissolved, liquidated, or winds up
         its business then the Line shall immediately terminate without notice,
         and the unpaid principal, accrued interest, and all other amounts
         payable under the Notes and the Documents shall become immediately due
         and payable without notice or demand.

9.3      Supplementary Cross Default of Other Promissory Notes

         The Borrower agrees that each promissory note evidencing indebtedness
         of the Borrower to the Bank which is not otherwise documented in this
         Agreement, and regardless of whether delivered before or after the
         Effective Date, shall hereby be amended on a supplementary basis to
         provide that each such promissory note may be accelerated by the Bank
         in its discretion following the occurrence of any event of default
         described in Section 9, or shall be accelerated and become immediately
         due and payable without notice by the Bank following the occurrence of
         any event of default described in Section 9, which events of default
         and rights of acceleration are in addition to, and not exclusive of,
         any events of default and rights of acceleration agreed to in the
         promissory note itself.

10.      MISCELLANEOUS

(a)      No Waiver; Cumulative Remedies. No failure or delay by the Bank in
         exercising any rights under this Agreement shall be deemed a waiver of
         those rights. The remedies provided for in this Agreement and the
         Documents are cumulative and not exclusive of any remedies provided by
         law.

(b)      Amendments or Modifications. Any amendment or modification of this
         Agreement must be in writing and signed by the Bank and Borrower. Any
         waiver of any provision in this Agreement must be in writing and signed
         by the Bank.

(c)      Binding Effect Assignment. This Agreement and the Documents are binding
         on the successors and assigns of the Borrower and Bank. The Borrower
         may not assign its rights under this Agreement and the Documents
         without the Bank's prior written consent. The Bank may sell
         participations in or assign this Agreement and the Documents and
         exchange financial information about the Borrower with actual or
         potential participants or assignees.

(d)      Minnesota Law. This Agreement and the Documents shall be governed by
         the substantive laws (other than conflict of laws) of the State of
         Minnesota, and the Bank and Borrower consent to the personal
         jurisdiction of the state and federal courts located in the State of
         Minnesota.

(e)      Severability of Provisions. If any part of this Agreement or the
         Documents are unenforceable, the rest of this Agreement or the
         Documents may still be enforced.

(f)      Integration. This Agreement and the Documents describe the entire
         understanding and agreement of the parties and supersedes all prior
         agreements between the Bank and the Borrower relating to each credit
         facility subject to this Agreement, whether verbal or in writing, and
         may be executed in counterparts, each of which shall be deemed an
         original, and all of which together shall constitute one and the same
         instrument. In the event of any inconsistency between the Agreement and
         the Documents, inconsistent terms shall, where possible, be construed
         as conferring cumulative rights and remedies upon the Bank, and, to the
         extent that such construction is not possible, the terms of this
         Agreement shall govern.

Address for notices to Bank:              Address for notices to Borrower:

Norwest Bank Minnesota South,             Winland Electronics, Incorporated
  National Association                             1950 Excel Drive
Second and Hickory Street                 Mankato, Minnesota 56001
Mankato, MN 56002-0168                    Attention: W. Kirk Hankins, Sr.,
Attention:  Scott A. Ordahl,                                President
         Vice President

NORWEST BANK MINNESOTA SOUTH,             WINLAND ELECTRONICS, INCORPORATED
  NATIONAL ASSOCIATION

By: /s/ Scott Ordahl                               By: /s/ W. K. Hankins
Its:  Vice President                               Its: President

<PAGE>

                                   EXHIBIT A-1
                            BORROWING BASE DEFINITION

"Borrowing Base" means the sum of 80% of Eligible Accounts Receivable (as
defined below) plus 60% of Eligible Inventory (as defined below).

Eligible Accounts Receivable means all accounts receivable except those which
are:

         1) Greater than 90 days past the invoice date.
         2) Due from an account debtor, 10% or more of whose accounts owed to
         the Borrower are more than 90 days past the invoice date.
         3) Subject to offset or dispute.
         4) Due from an account debtor who is subject to any bankruptcy
         proceeding.
         5) Owed by a shareholder, subsidiary, affiliate, officer or employee of
         the Borrower.
         6) Not subject to a perfected first lien security interest in favor of
         the Bank.
         7) Due from an account debtor located outside the United States and not
         supported by a standby letter of credit acceptable to the Bank.
         8) Due from a unit of government, whether foreign or domestic.
         9) Otherwise deemed ineligible by the Bank in its reasonable
         discretion.

Eligible Inventory means all inventory of the Borrower, at the lower of cost or
market as determined by generally accepted accounting principals, except
inventory which is:

         1) In transit; or located at any warehouse not approved by the Bank.
         2) Covered by a warehouse receipt, bill of lading or other document of
         title.
         3) On consignment to or from any other person or subject to any
         bailment.
         4) Damaged, obsolete or not salable in the Borrower's ordinary course
         of business.
         5) Subject to a perfected first lien security interest in favor of any
         third party.
         6) Supplies or parts inventory.
         7) Otherwise deemed ineligible by the Bank in its reasonable
         discretion.

<PAGE>

                                    EXHIBIT B

                        CONDITIONS PRECEDENT AND SECURITY

Please Note: This Exhibit describes each Note, Security Document,
Authorizations, Organizational Documents, and all miscellaneous documents,
reports, certificates and other information required as a condition to each
advance or disbursement under the Agreement, whether or not they have previously
been delivered to the Bank. Please refer to the Closing Checklist for a complete
description of which of the following documents remain to be delivered to the
Bank.

Note

The Revolving Note

The Term Note

Security Documents

Each Security Document described below must continue in full force and effect at
all times in accordance with its terms during the time period that credit is
available under this Agreement, and afterward until all amounts due under the
Documents are paid in full. The failure of any Security Document to meet these
requirements may result in an event of default under the Agreement and the
acceleration of all of the Borrower's obligations to the Bank evidenced by the
Documents.

Security Agreement of Winland Electronics, Incorporated. A Security Agreement
dated January 31, 1996 signed by the Borrower, granting the Bank a first lien
security interest in the Borrower's accounts, inventory, equipment and general
intangibles, described in that Agreement, together with one or more UCC-1
Financing Statements sufficient to perfect the security interest granted to the
Bank in each jurisdiction where such property is located.

Mortgage of Winland Electronics, Incorporated. A Mortgage dated May 7, 1996,
signed by the Borrower as mortgagor, granting the Bank a second lien on certain
real property owned by the mortgagor and located in Blue Earth, Minnesota in the
sum of $57,725.00.

Mortgage Modification Agreement of Winland Electronics, Incorporated. A Mortgage
Modification Agreement in favor of the Bank signed by the Borrower, as
mortgagor, modifying the above-described mortgage to secure the additional
$115,000.00 advance of the Term Loan proceeds to the Borrower.

Authorization

Certificate of Authority of Borrower. A Certificate of Authority executed by
such person or persons authorized by the Borrower's organizational documents
and/or agreements to do so, certifying the incumbency and signatures of the
officers or other persons authorized to execute the Documents, and authorizing
the execution of the Documents and performance in accordance with their terms.

Organization

Articles of Incorporation and By-Laws. A recently certified copy of the
Borrower's Articles of Incorporation and By-laws, and any amendments, if
applicable.

Certificate of Good Standing. A recently certified copy of the Borrower's
Certificate of Good Standing.

Other

Arbitration Agreement. The Bank's standard form of Arbitration Agreement dated
January 31, 1996, signed by the Bank and Borrower, subjecting potential
controversies between them to binding arbitration, including but not limited to
those relating to the Documents and this Agreement.

Flood Hazard Determination Form. A Flood Hazard Determination for each parcel of
real property subject to a mortgage given to the Bank under the Agreement,
confirming whether or not the parcel is in a flood hazard area and whether or
not flood insurance must be obtained.

Evidence of Insurance. Evidence that the Borrower has obtained all insurance
coverage required by this Agreement, and that the Bank has been named as the
beneficiary of such policy or policies of insurance.

Agreement to Provide Property/Flood Insurance. An Agreement to Provide
Property/Flood Insurance signed by the Borrower, pursuant to which the Borrower
agrees to purchase and maintain property and/or flood insurance coverage on any
real property given as security under this Agreement.

<PAGE>

                                    EXHIBIT C

                         REPRESENTATIONS AND WARRANTIES

Organizational Status. The Borrower is a duly formed and in good standing under
the laws of the State of Minnesota.

Authorization. The execution and delivery of the Documents is within the
Borrower's powers, has been duly authorized by the Borrower and does not
conflict with any of the Borrower's organizational documents or any other
agreement by which the Borrower is bound, and has been signed by all persons
authorized and required to do so under its organizational documents.

Financial Reports. The Borrower has provided the Bank with its annual audited
financial statement dated December 31, 1997 and its unaudited interim financial
statement dated June 30, 1998, and these statements fairly represent the
financial condition of the Borrower as of their respective dates and were
prepared in accordance with generally accepted accounting principles
consistently applied.

Litigation. There is no litigation or governmental proceeding pending or
threatened against the Borrower which could have a material adverse effect on
the Borrower's financial condition or business.

Taxes.  The Borrower has paid when due all federal, state and local taxes.

No Default. There is no event which is, or with notice or the lapse of time or
would be, an event of default under this Agreement.

ERISA. The Borrower is in compliance in all material respects with the Employee
Retirement Income Security Act of 1974, as amended, and has received no notice
to the contrary from the Internal Revenue Service, the Department of Labor, the
Pension Benefit Guaranty Corporation or any other government entity or notice of
any claims or pending claims under ERISA.

Environmental Matters. 1) The Borrower is in compliance in all material respects
with all health and environmental laws applicable to the Borrower and its
operations and knows of no conditions or circumstances that could interfere with
such compliance in the future; 2) the Borrower has obtained all environmental
permits and approvals required by law for the operation of its business; and 3)
the Borrower has not identified any "recognized environmental conditions", as
that term is defined by the American Society for Testing and Materials in its
standards for environmental due diligence, which could subject the Borrower to
enforcement action if brought to the attention of appropriate governmental
authorities.

<PAGE>

                          NORWEST BANK MINNESOTA SOUTH,
                              NATIONAL ASSOCIATION

                                 FIRST AMENDMENT

This First Amendment (the "First Amendment") dated as of October 23, 1998 is
between Norwest Bank Minnesota South, National Association (the "Bank") and
Winland Electronics, Incorporated (the "Borrower").

BACKGROUND

The Borrower and the Bank entered into a term loan and credit agreement (the
"Agreement") dated as of July 31, 1998, pursuant to which the Bank extended to
the Borrower 1) a $3,500,000.00 revolving line of credit (the "Line") and 2) a
$168,368.75 term loan (the "Term Loan"). Borrowings under the Line are evidenced
by a revolving note (the "July 31, 1998 Revolving Note") dated the same date as
the Agreement. The Borrower's obligation to the Bank under the Term Loan is
evidenced by a Term Note dated the same date as the Agreement.

Following the Bank's review of the Borrower's interim financial statements, the
Borrower has requested that the Bank change the margin applicable under the July
31, 1998 Revolving Note. The Bank is willing to grant this request subject to
the terms and conditions of this First Amendment. Capitalized terms not
otherwise defined in this First Amendment shall have the meaning given them in
the Agreement.

In consideration of the premises, the Bank and the Borrower agree that the
Agreement is hereby amended as follows:

         1. Sections 4.2 and 4.3 of the Agreement are hereby deleted in their
entirety.

         2. Simultaneously with the execution of this First Amendment, the
Borrower shall execute and deliver to the Bank a revolving note the "Revolving
Note") in form and content acceptable to the Bank, which shall replace, but not
be deemed to satisfy, the July 31, 1998 Revolving Note. The initial balance of
the Revolving Note shall be the balance of the July 31, 1998 Revolving Note as
of the date of this First Amendment. Each reference in the Agreement to the
Revolving Note shall be deemed to refer to the Revolving Note dated as of the
date of this First Amendment.

         3. The Borrower hereby represents and warrants to the Bank as follows:

                  A. The Agreement as amended by this First Amendment remains in
         full force and effect.

                  B. The Borrower has no knowledge of any default under the
         terms of the Agreement or any note evidencing any of the obligations of
         the Borrower that are documented in the Agreement, or of any event that
         with notice or the lapse of time or both would constitute a default
         under the Agreement or any such notes.

                  C. The execution, delivery and performance of this First
         Amendment and the Revolving Note are within its corporate powers, have
         been duly authorized and are not in contravention of law or the terms
         of the Borrower's articles of incorporation or by-laws, or of any
         undertaking to which the Borrower is a party or by which it is bound.

                  D. The resolutions set forth in the Corporate Certificate of
         Authority dated March 26, 1997, and delivered by the Borrower to the
         Bank have not been amended or rescinded, and remain in full force and
         effect.

         4. Except as modified by this First Amendment, the Agreement remains
unchanged and in full force and effect.

IN WITNESS WHEREOF, the Bank and Borrower have executed this First Amendment as
of the date and year first above written.

NORWEST BANK MINNESOTA SOUTH,               WINLAND ELECTRONICS,
  NATIONAL ASSOCIATION                        INCORPORATED

By: /s/ Scott Ordahl                        By: /s/ W. K. Hankins

Its:  Vice President                        Its:  President

<PAGE>
                          NORWEST BANK MINNESOTA SOUTH,
                              NATIONAL ASSOCIATION
                                SECOND AMENDMENT

THIS SECOND AMENDMENT (the "Second Amendment") dated to be effective as of
September 29, 1999 is between Norwest Bank Minnesota South, National Association
(the "Bank") and Winland Electronics, Incorporated (the "Borrower").

BACKGROUND

The Borrower and the Bank entered into a Term Loan and Credit Agreement dated as
of July 31, 1998, which agreement was amended by First Amendment dated October
23, 1998 (as amended, the "Agreement"), pursuant to which the Bank extended to
the Borrower 1) a $3,500,000.00 revolving line of credit (the "Line") and 2) a
$168,368.75 term loan (the "Term Loan"). Borrowings under the Line are currently
evidenced by a revolving note dated October 23, 1998 (the "1998 Revolving
Note"). The Borrower's obligation to the Bank under the Term Loan is evidenced
by a Term Note dated July 31, 1998 (the "1998 Term Note").

The Borrower has requested that the Bank extend the Line Expiration Date to
August 31, 2000 and has further requested that the Bank loan it an additional
$363,726.00 on a term loan basis. The Bank is willing to grant these requests
subject to the terms and conditions of this Second Amendment. Capitalized terms
not otherwise defined in this Second Amendment shall have the meaning given them
in the Agreement.

In consideration of the above premises, the Bank and the Borrower agree that the
Agreement is hereby amended as of the date of this Second Amendment as follows:

1. Section 1.2 of the Agreement is hereby deleted in its entirety and restated
as follows:

         "1.2     Line Availability Period. The "Line Availability Period" will
                  mean the period of time from the Effective Date or the date on
                  which all conditions precedent described in this Agreement
                  have been met, whichever is later, to the Line Expiration Date
                  of August 31, 2000."

2. Section 2.1 of the Agreement is hereby deleted in its entirety and restated
as follows:

         "2.1     Term Loan Amount. In addition to the Term Loan as defined
                  above, the Bank agrees to advance to the Borrower the
                  additional sum of Three Hundred Sixty-Three Thousand Seven
                  Hundred Twenty-Six and 00/100 Dollars ($363,726.00) under the
                  Term Loan facility, provided that all conditions precedent in
                  this Agreement have been met and that the Borrower is not
                  otherwise in default as of the date of disbursement. The Bank
                  and the Borrower agree that the unpaid principal amount of the
                  Term Loan, following the additional advance, is $530,052.64."

3. To reflect the changes to the Line, the Borrower will replace the existing
promissory note by executing and delivering to the Bank a new promissory note in
form and content acceptable to the Bank (the "Revolving Note"), which shall
replace, but not be deemed to satisfy, the 1998 Revolving Note, and which shall
further reflect the same unpaid loan amount as the 1998 Revolving Note as of the
date of this Second Amendment. Each reference in the Agreement to the Revolving
Note shall be deemed to refer to the Revolving Note dated as of the date of this
Second Amendment.

4. To reflect the changes to the Term Loan and Mortgage, the Borrower will
execute a note and mortgage modification agreement which shall: (1) reflect the
same unpaid loan amount as the 1998 Term Note as of the date of this Second
Amendment, plus the $363,726.00 advance provided for in this Agreement; and (b)
modify the mortgage granting the Bank a second lien on real property owned by
the mortgagor and located in Blue Earth, Minnesota, to secure the additional
$363,726.00 advance of the Term Loan proceeds to the Borrower. Each reference in
the Agreement to the Term Note shall be deemed to refer to the 1998 Term Note as
modified by the Note and Mortgage Modification Agreement as of the date of this
Second Amendment.

5. Section 2.3 of the Agreement is hereby amended to reflect the additional
advance of $363,726.00 under the Term Loan facility.

6. Sections 8.2(b), 8.2(c), and 8.2(d) are hereby deleted and restated as
follows:

         "(b)     Tangible Net Worth. Maintain a minimum Tangible Net Worth of
                  at least $3,800,000.00 as of the end of fiscal year ending
                  December 31, 1999.

         (c)      Total Liabilities to Tangible Net Worth Ratio. Maintain a
                  ratio of total liabilities to Tangible Net Worth of less than
                  2.75 to 1.0 as of the end of fiscal year ending December 31,
                  1999.

         (d)      Current Ratio. Maintain a ratio of Current Assets to Current
                  Liabilities of at least 1.2 to 1.0 as of the end of fiscal
                  year ending December 31, 1999."

7. The Borrower hereby represents and warrants to the Bank as follows:

                  A. The Agreement as amended by this Second Amendment remains
         in full force and effect.

                  B. The Borrower has no knowledge of any default under the
         terms of the Agreement or any note evidencing any of the obligations of
         the Borrower that are documented in the Agreement, or of any event that
         with notice or the lapse of time or both would constitute a default
         under the Agreement or any such notes.

                  C. The execution, delivery and performance of this Second
         Amendment and all related documentation described in this Second
         Amendment are within its corporate powers, have been duly authorized
         and are not in contravention of law or the terms of the Borrower's
         articles of incorporation or by-laws, or of any undertaking to which
         the Borrower is a party or by which it is bound.

                  D. The resolutions set forth in the Corporate Certificate of
         Authority dated March 26, 1997and delivered by the Borrower to the Bank
         have not been amended or rescinded, and remain in full force and
         effect.

8. Except as modified by this Second Amendment, the Agreement remains unchanged
and in full force and effect.

IN WITNESS WHEREOF, the Bank and Borrower have executed this Second Amendment as
of the date and year first above written.

NORWEST BANK MINNESOTA SOUTH,               WINLAND ELECTRONICS,
  NATIONAL ASSOCIATION                        INCORPORATED

By:      /s/ Scott Ordahl                   By:      /s/ W. K. Hankins

Its:     VP                                 Its:     CEO

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