EXHIBIT 10.7

                              EMPLOYMENT AGREEMENT


     THIS EMPLOYMENT AGREEMENT (the "Agreement") is made as of June 1, 1997, by
and between PACIFIC AEROSPACE & ELECTRONICS, INC., a Washington corporation
having its principal place of business at 434 Olds Station Road, Wenatchee,
Washington (the "Company"), and NICK A. GERDE, a resident of Washington (the
"Executive").

                                    RECITALS

     A. The Company desires to continue the services of the Executive, who is
presently an executive officer of the Company, and the Executive is willing to
continue rendering such services to the Company in accordance with the terms
hereinafter set forth; and

     B. The Compensation Committee of the Board of Directors of the Company, by
appropriate resolutions, has authorized the employment of the Executive as
provided for in this Agreement.

                                    AGREEMENT

     The Company and the Executive agree as follows:

                                   ARTICLE 1.
                               Employment; Duties

     1.1 Employment. The Company hereby employs the Executive as Vice President
Finance and Chief Financial Officer of the Company, and the Executive accepts
such employment, upon the terms and conditions of this Agreement.

     1.2 Duties. The duties to be performed by the Executive under this
Agreement are as specified in the Company's Bylaws and as may be reasonably
prescribed from time to time by the Board of Directors of the Company or the
Chief Executive Officer of the Company.

     1.3 Hours. During the Contract Term (as defined below), excluding any
periods of vacation, sick leave or disability to which the Executive is entitled
and without limiting the Executive's ability to participate in unrelated
business or other activities on his personal time, the Executive agrees to
devote his full attention and working time to the business and affairs of the
Company and, to the extent necessary to discharge his duties hereunder, to use
his best efforts to perform faithfully and efficiently such duties.

     1.4 Related Companies. At the discretion of the Board of Directors of the
Company, the Executive may be transferred or assigned to an equivalent
management-level position at the


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Company or one of its subsidiaries, provided that the Executive shall not be
required to change his place of residence without his consent in order to take
such a position. In such event, all other terms of this Agreement will continue
to apply during the Contract Term.

                                   ARTICLE 2.
                                Term of Agreement

     The term of this Agreement shall commence on the date of this Agreement and
end on May 31, 2000, or on such date as this Agreement may be earlier terminated
pursuant to Article 7 (the "Contract Term").

                                   ARTICLE 3.
                                  Compensation

     3.1 Annual Salary. For services rendered by the Executive under this
Agreement, the Company agrees to pay to the Executive, and the Executive agrees
to accept, an annual salary ("Annual Salary") for each year during the Contract
Term (a "Contract Year") as follows:

          Contract Year                               Annual Salary
          -------------                               -------------
          6/1/97 - 5/31/98                            $100,000

          6/1/98 - 5/31/99                            $110,000

          6/1/99 - 5/31/00                            $120,000

The Company shall pay the Executive's Annual Salary in installments not less
frequently than monthly, less all amounts required by law to be withheld,
deducted or collected, in accordance with the Company's normal payroll policies
for executive officers, as such policies may be changed from time to time.

     3.2 Optional Increases. The Company may from time to time increase the
Executive's Annual Salary, provided that it shall not be reduced after any such
increase, and the term Annual Salary as used in this Agreement shall refer to
the Annual Salary as so increased.

     3.3 Stock Options.

          3.3.1 Upon Execution of Agreement. Immediately after the execution of
this Agreement, the Executive shall be entitled to receive options to purchase
15,000 shares of Common Stock, $.001 par value, of the Company (the "Common
Stock").

          3.3.2 Annually. At the sole discretion of the Board of Directors of
the Company, or a committee of the Board of Directors of the Company, the
Executive may be entitled to receive, after completion of each Contract Year, a
bonus in the form of options to


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purchase up to 25,000 shares of Common Stock, based on the performance of the
Executive and the Company during the Contract Year just ended.

          3.3.3 Conditions. Any options granted pursuant to this Agreement shall
be subject to any vesting periods prescribed by the Board of Directors of the
Company or a committee thereof. All options shall be granted at an exercise
price equal to the fair market value of the Common Stock on the date of grant
and in accordance with, and subject to, the Company's Amended and Restated Stock
Incentive Plan, as amended from time to time (or any other stock plan adopted by
the Company for the benefit of employees). No options will be deemed to have
been granted until they are specifically authorized by the Board of Directors of
the Company or a committee thereof.

                                   ARTICLE 4.
                                 Other Benefits

     4.1 Savings and Retirement Plans. The Executive shall be entitled to
participate in all savings and retirement plans or programs applicable to other
executive officers of the Company.

     4.2 Welfare Benefits. The Executive and his family shall be eligible for
participation in, and shall receive all benefits under, welfare benefit plans,
practices, policies, and programs provided by the Company to other executive
officers of the Company. These may, but will not necessarily include medical,
prescription, dental, optical, disability, salary continuance, employee life,
group life, dependent life, accidental death, and travel accident insurance
plans and programs.

     4.3 Fringe Benefits. The Executive shall be entitled to fringe benefits
applicable to other executive officers of the Company.

     4.4 Expenses. The Executive shall be entitled to receive prompt
reimbursement for all reasonable employment-related expenses incurred by the
Executive upon the Company's receipt of accountings in accordance with
practices, policies, and procedures applicable to executive officers of the
Company.

     4.5 Office and Support Staff. The Executive shall be entitled to an office
or offices of a size and with furnishings and other appointments, and to
personal secretarial and other assistance, of the type provided to other
executive officers of the Company.

     4.6 Vacation. The Executive shall be entitled to paid vacation time in
accordance with the plans, policies, and programs applicable to other executive
officers of the Company.


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                                   ARTICLE 5.
                                Change of Control

     5.1 Definitions. For purposes of this Article 5, the following terms shall
have the meaning set forth below:

          5.1.1 Continuing Directors. "Continuing Directors" means those members
of the Board at any relevant time (a) who were directors on the effective date
of this Agreement or (b) are Approved Directors.

          5.1.2 Approved Directors. "Approved Directors" means those members of
the Board who were approved, after the relevant event, for nomination, election
or appointment to the Board by at least two-thirds of the Continuing Directors
on the Board at the time of such approval.

          5.1.3 Change in Control. "Change in Control" means:

               (a) during any period of two consecutive years, the members of
     the Board at the beginning of such period, together with any Approved
     Directors elected during such period, cease for any reason to constitute at
     least a majority of the Board;

               (b) any "person" (as such term is used in Sections 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 representing 30% or more of the combined voting power of the
     Company's then-outstanding voting securities. However, a Change in Control
     shall not be deemed to have occurred under this Section 5.1.3(b) if (i) a
     Change in Control under Section 5.1.3(a) has not occurred, and (ii) the
     Continuing Directors (by a vote of at least two-thirds of the Continuing
     Directors then on the Board) (1) approve in advance an acquisition
     resulting in beneficial ownership as described in Section 5.1.3(b), or (2)
     declare that a Change in Control under Section 5.1.3(b) has ceased if
     subsequently no person beneficially owns securities of the Company
     representing 30% or more of the combined voting power of the Company's
     then-outstanding securities; or

               (c) a change in control of beneficial ownership of the Company's
     voting securities of a nature that would be required to be reported
     pursuant to Item 6(e) of Schedule 14A of Regulation 14A under the
     Securities Exchange Act of 1934, as amended (the "Exchange Act") or any
     similar item on a successor or revised form.

          5.1.4 Good Reason "Good Reason," in connection with the termination by
the Executive of his employment with the Company subsequent to a Change in
Control, means:

               (a) A diminution in the responsibilities, title or office of the
     Executive such that he does not serve as Chief Financial Officer of the
     Company (which diminution


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     was not a result of the Executive's disability), or the assignment (without
     the Executive's express written consent) by the Company to the Executive of
     any significant duties that are inconsistent with the Executive's position,
     duties, responsibilities and status as President or Executive Vice
     President of the Company;

               (b) Any reduction by the Company in the Executive's Annual Salary
     as in effect on the date of a Change in Control or as the same may be
     increased from time to time thereafter in accordance with this Agreement;

               (c) The Company's transfer or assignment of the Executive,
     without the Executive's prior express written consent, to any location
     other than the Company's principal executive offices, except for required
     travel on Company business to an extent that does not constitute a
     substantial abrupt departure from the Executive's business travel
     obligations prior to the Change in Control; or

               (d) The failure by the Company to continue in effect any benefit
     or compensation plan, life insurance plan, health and medical benefit plan,
     disability plan or any other benefit plan in which the Executive is a
     participant at the time of a Change in Control, or the taking of any action
     by the Company that would adversely affect the Executive's right to
     participate in or materially reduce the Executive's benefits under any of
     such plans or benefits, or deprive the Executive of any material fringe
     benefit enjoyed by the Executive at the time of the Change in Control, or
     as the same may be increased from time to time thereafter.

          5.1.5 Parachute Payments. "Parachute Payments" and "Excess Parachute
Payments" shall each have the meanings attributed to them under Section 280G of
the Internal Revenue Code of 1986, as amended (the "Code"), or any successor
section, and any regulations which may be promulgated in connection with said
section.

     5.2 Severance Payments. If a Change of Control has occurred, and during the
Contract Term and within six months after such Change in Control occurs, the
Executive's employment is terminated:

               (a) by the Company for any reason, other than (i) for Cause (as
     defined below), (ii) as a result of the Executive's death or disability, or
     (iii) as a result of the Executive's retirement in accordance with the
     Company's general retirement policies; or

               (b) by the Executive for Good Reason;

then, within 30 days after termination of the Executive, the Company shall pay
to the Executive an amount equal to one-half his Annual Salary then in effect,
in cash (the "Severance Payment"). The Severance Payment, together with any
unpaid compensation owed to Executive under Article 3 for services rendered
through the effective date of termination, shall constitute the sole obligation
of the Company payable with respect to termination of the Executive.


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     5.3 Severance Benefits. If the Executive is entitled to a Severance
Payment, then the Company shall also maintain in full force and effect for six
months after termination of the Executive, all employee health and medical
benefit plans and programs in which the Executive or his family were
participants immediately prior to termination, provided that such continued
participation is possible under the general terms and provisions of such plans
and programs. However, if the Executive becomes eligible to participate in a
health and medical benefit plan or program of another employer which confers
substantially similar benefits, then the Executive shall cease to receive
benefits under this Section 5.3 in respect of such plan or program.

     5.4 Parachute Payment Limitation. Notwithstanding any other provision of
this Agreement, if any Parachute Payment or Payments are characterized as Excess
Parachute Payments, then the following rules shall apply:

          5.4.1 The Company shall compute the net value to the Executive of all
such severance payments after reduction for the excise taxes imposed by Section
4999 of the Code and for any normal income taxes that would be imposed on the
Executive if such severance payments constituted the Executive's sole taxable
income;

          5.4.2 The Company shall next compute the maximum amount of severance
payments that can be provided without any such payments being characterized as
Excess Parachute Payments, and reduce the result by the amount of any normal
income taxes that would be imposed on the Executive if such reduced severance
benefits constituted the Executive's sole taxable income;

          5.4.3 If the amount derived in Section 5.4.1 is greater than the
amount derived in Section 5.4.2, then the Company shall pay the Executive the
full the amount of severance payments without reduction. If the amount derived
in Section 5.4.1 is not greater than the amount derived in Section 5.4.2, then
the Company shall pay the Executive the maximum amount of severance payments
that can be provided without any such payments being characterized as Excess
Parachute Payments.

     5.5 No Mitigation. The Executive shall not be required to mitigate the
amount of the Parachute Payment by seeking other employment or otherwise, nor
shall the amount of the Parachute Payment be reduced by any compensation earned
by the Executive as a result of employment by another company, self-employment
or otherwise.

                                   ARTICLE 6.
                              Restrictive Covenants

     6.1 Protected Information.

          6.1.1 Covenant. Either during or after expiration of the Contract
Term, the Executive shall not, directly or indirectly, divulge, furnish or make
accessible to any person, firm, corporation, association or other entity, or use
in any manner, any Protected Information


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(as defined below), or cause any Protected Information to enter the public
domain, except as may be required in the regular course of the Executive's
employment by the Company.

          6.1.2 Access to Protected Information. The Company has advised the
Executive and the Executive has acknowledged that it is the policy of the
Company to maintain as secret and confidential all Protected Information, and
that Protected Information has been and will be developed at substantial cost
and effort to the Company. The Executive acknowledges that he will acquire
Protected Information with respect to the Company, which information is a
valuable, special, and unique asset of the Company's business and operations,
and that disclosure of such Protected Information would cause irreparable damage
to the Company.

          6.1.3 Employee-Created Protected Information. The Executive agrees to
promptly disclose to the Company all Protected Information developed in whole or
in part by the Executive during his employment with the Company and which
relates to the Company's business. Such Protected Information is, and shall
remain, the exclusive property of the Company. All writings created during the
Executive's employment with the Company (excluding writings unrelated to the
Company's business) are considered to be "works-for-hire" for the benefit of the
Company, and the Company shall own all rights in such writings. Washington law
requires the following notice to be given to the Executive:

     This Agreement does not require the Executive to assign to the Company
     any invention by the Executive for which no equipment, supplies,
     facility or trade secret information of the Company was used and which
     was developed entirely on the Executive's own time unless the
     invention related (i) directly to the Company's business, or (ii) to
     the Company's actual or demonstrably anticipated research or
     development, or (iii) the development results from any work performed
     by the Executive for the Company.

          6.1.4 Return of Confidential Records. All forms of information and all
physical property made or compiled by the Executive prior to or during the
Contract Term containing or relating in any way to Protected Information shall
be the Company's exclusive property. All such materials and any copies thereof
shall be held by the Executive in trust solely for the benefit of the Company
and shall be delivered to the Company upon expiration of the Contract Term, or
at any other time upon the Company's request.

          6.1.5 Protected Information. "Protected Information" means trade
secrets, confidential and propriety business information of the Company, any
information of the Company other than information which has entered the public
domain (unless the Executive caused such information to enter the public domain)
and all valuable and unique information and techniques acquired, developed or
used by the Company relating to its business, operations, employees, customers
and suppliers, which give the Company a competitive advantage over those who do
not know the information and techniques and which are protected by the Company
from unauthorized disclosure, including but not limited to, customer lists
(including potential customers), sources of supply, processes, patented or
proprietary technologies, plans, materials, pricing information, internal
memoranda, marketing plans, internal policies, and products and


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services which may be developed from time to time by the Company and its agents
or employees.

     6.2 Non-Competition.

          6.2.1 Covenant. The Executive agrees that, during the Contract Term
and for a period of two years after the expiration of the Contract Term (or for
such other period as may be applicable pursuant to Section 7.3), he will not (i)
directly or indirectly, in any capacity, engage or participate in, or become
employed by or render advisory or consulting or other services in connection
with any Prohibited Business, as defined below, or (ii) make any financial
investment, whether in the form of equity or debt, or own any interest, directly
or indirectly, in any Prohibited Business.

          6.2.2 Exception. Nothing in this Section 6.2 shall restrict the
Executive from making any investment in any company whose stock is listed on a
national securities exchange or actively traded in the over-the-counter market;
provided that (i) such investment does not give the Executive the right or
ability to control or influence the policy decisions of any Prohibited Business,
and (ii) such investment does not create a conflict of interest between the
Executive's duties hereunder and the Executive's interest in such investment.

          6.2.3 Prohibited Business. "Prohibited Business" means any business
entity whose activities or products are directly or indirectly competitive with
those of the Company and which has contact, or seeks to establish contact
(including without limitation by making or soliciting sales or submitting bids),
with any business or governmental entity in the United States that is, at any
time, a customer of the Company.

     6.3 Non-Interference with Employment Relationships. The Executive agrees
that during the Contract Term and for a period of two years after the expiration
of the Contract Term (or for such other period as may be applicable pursuant to
Section 7.3), he will not (i) directly or indirectly solicit, induce, or
encourage any employee of the Company to leave his or her employment with the
Company or interfere with any employment relationship between the Company and
any of its employees, or (ii) hire or encourage or assist any other person to
hire any person who has been an employee of the Company within the previous
three months.

     6.4 Disclosure of Business Opportunities. The Executive agrees to promptly
and fully disclose to the Company, and not to divert to his own use or benefit
or the use or benefit of others, any business opportunities involving any
existing or prospective line of business, supplier, product or activity of the
Company or any business opportunities that otherwise should be afforded to the
Company.

     6.5 Survival of Undertakings and Injunctive Relief.

          6.5.1 Survival. The provisions of Sections 6.1, 6.2, 6.3, and 6.4
shall survive the expiration of the Contract Term, irrespective of the reasons
therefor. In the event of any


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such violation of Sections 6.1, 6.2, 6.3, 6.4, the Executive further agrees that
the time periods set forth in such sections shall be extended by the period of
such violation.

          6.5.2 Injunctive Relief. The Executive acknowledges and agrees that
the restrictions imposed upon him by Sections 6.1, 6.2, 6.3, and 6.4 and the
purpose of such restrictions are reasonable and are designed to protect the
Protected Information and the continued success of the Company without unduly
restricting the Executive's future employment by others. Furthermore, the
Executive acknowledges that, in view of the Protected Information which the
Executive has or will acquire or has or will have access to, and in view of the
necessity of the restrictions contained in Sections 6.1, 6.2, 6.3, and 6.4, any
violation of any provision of Sections 6.1, 6.2, 6.3, and 6.4 hereof would cause
irreparable injury to the Company with respect to the resulting disruption in
their operations. By reason of the foregoing, the Executive consents and agrees
that if the Executive violates any of the provisions of Sections 6.1, 6.2, 6.3,
or 6.4, the Company shall be entitled, in addition to any other remedies that it
may have, including money damages, to an injunction to be issued by a court of
competent jurisdiction, restraining the Executive from committing or continuing
any violation of such sections of this Agreement.

     6.6 References to the Company. All references to the Company in this
Article 6 shall be deemed to include any subsidiary, parent, successor in
interest, or other affiliate of the Company.

                                   ARTICLE 7.
                                   Termination

     7.1 Termination of Employment. The Executive's employment may be terminated
at any time during the Contract Term by mutual agreement of the parties, or as
otherwise provided in this Article 7.

     7.2 Termination for Cause. The Company may terminate the Executive's
employment without notice at any time for Cause. For purposes of this Agreement,
the term "Cause" shall include: continued neglect, after notice thereof, or
willful misconduct by the Executive with respect to his duties and obligations
under this Agreement; unauthorized expenditure of the Company's funds; unethical
business practices in connection with the Company's business; misappropriation
of the Company's assets; any material breach by the Executive of any term or
provision of this Agreement; any act or action of the Executive during the
Contract Term involving embezzlement, dishonesty related to the Company or the
Company's business, or habitual use of alcohol or drugs; conviction of any
felony; or any similar or related act, insubordination, or failure to act by the
Executive. Upon termination for Cause, the Executive shall not be entitled to
payment of any compensation other than salary and accrued benefits under this
Agreement earned up to the date of such termination.

     7.3 Termination without Cause. The Company may terminate the Executive's
employment without notice at any time without Cause. In the event of any such
termination,


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the Executive shall be entitled to receive from the Company an amount equal to
one-half the Annual Salary then in effect, which shall be payable in cash in
accordance with the normal payroll practices of the Company for executive
officers, including deductions, withholdings, and collections as required by
law, in installments not less frequently than monthly. If the Executive's
employment is terminated pursuant to this Section 7.3, the Company shall be
obligated to maintain in full force and effect, for six months after
termination, all employee health and medical benefit plans and programs in which
the Executive or his family were participants immediately prior to termination,
if such continued participation is possible under the general terms and
provisions of such plans and programs. However, if the Executive becomes
eligible to participate in a health and medical benefit plan or program of
another employer which confers substantially similar benefits, the Executive
shall cease to receive benefits under this subparagraph in respect of such plan
or program. Any amount payable pursuant to this Section 7.3, together with any
compensation pursuant to Article 3 that is payable for services rendered through
the effective date of termination, shall constitute the sole obligation of the
Company payable with respect to the termination of the Executive as provided in
this Section 7.3. The Executive shall not be required to mitigate the amount of
any payment provided for in this Section 7.3 by seeking other employment or
otherwise, nor shall the amount of any payment provided for in Section 7.3 be
reduced by any compensation earned by the Executive as a result of employment by
another company, self-employment or otherwise. If the Executive's employment is
terminated pursuant to this Section 7.3, the time periods stated in Sections
6.2.1 and 6.3 shall be changed to six months.

                                   ARTICLE 8.
                                  Miscellaneous

     8.1 Assignment, Successors. The Company may freely assign its rights and
obligations under this Agreement to a successor of the Company's business,
without the prior written consent of the Executive. This Agreement shall be
binding upon and inure to the benefit of the Executive and the Executive's
estate and the Company and any assignee of or successor to the Company.

     8.2 Beneficiary. If the Executive dies prior to receiving all of the salary
otherwise payable during the full Contract Term, any salary owing to the
Executive for the period through the Executive's last actual day of employment,
plus a lump sum payment of three months' salary shall be paid to the beneficiary
designated in writing by the Executive ("Beneficiary") or, if no such
Beneficiary is designated, to the Executive's estate.

     8.3 Nonalienation of Benefits. Benefits payable under this Agreement shall
not be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, charge, garnishment, execution or levy of any
kind, either voluntary or involuntary, prior to actually being received by the
Executive, and any such attempt to dispose of any right to benefits payable
hereunder shall be void.


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     8.4 Severability. If all or any part of this Agreement is declared by any
court or governmental authority to be unlawful or invalid, such unlawfulness or
invalidity shall not serve to invalidate any portion of this Agreement not
declared to be unlawful or invalid. Any paragraph or part of a paragraph so
declared to be unlawful or invalid shall, if possible, be construed in a manner
which will give effect to the terms of such paragraph or part of a paragraph to
the fullest extent possible while remaining lawful and valid.

     8.5 Amendment and Waiver. This Agreement shall not be altered, amended or
modified except by written instrument executed by the Company and the Executive.
A waiver of any term, covenant, agreement or condition contained in this
Agreement shall not be deemed a waiver of any other term, covenant, agreement or
condition, and any waiver of any other term, covenant, agreement or condition,
and any waiver of any default in any such term, covenant, agreement or condition
shall not be deemed a waiver of any later default thereof or of any other term,
covenant, agreement or condition.

     8.6 Notices. All notices and other communications hereunder shall be in
writing and either hand delivered or delivered by overnight courier or first
class registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:

         If to the Company:       PACIFIC AEROSPACE & ELECTRONICS, INC.
                                  434 Olds Station Road
                                  Wenatchee, WA 98801
                                  Attn: President

         If to the Executive:     Nick A. Gerde
                                  1906 Rocklund Drive
                                  Wenatchee, WA 98801

Any party may from time to time designate a new address by notice given in
accordance with this section. Notice and communications shall be effective when
actually received by the addressee.

     8.7 Applicable Law. The provisions of this Agreement shall be interpreted
and construed in accordance with the laws of the State of Washington, without
regard to its choice of law principles.

     8.8 Effect on Other Agreements. This Agreement shall supersede all prior
agreements, promises, and representations regarding employment by the Company
and severance or other payments contingent upon termination of employment.
Notwithstanding the foregoing, the Executive shall be entitled to any other
severance plan generally applicable to other management-level employees of the
Company and its subsidiaries.


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     8.9 Counterpart Originals. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.

     8.10 Entire Agreement. This Agreement forms the entire agreement between
the parties hereto with respect to any severance payment and with respect to the
subject matter contained in the Agreement.


     Executed as of the date first written above.

                                       THE COMPANY:

                                       PACIFIC AEROSPACE & ELECTRONICS, INC.

                                       By: /s/ DONALD A. WRIGHT
                                           -------------------------------------
                                           Donald A. Wright, President & Chief
                                           Executive Officer


                                       THE EXECUTIVE:


                                       /s/ NICK A. GERDE
                                       -----------------------------------------
                                       NICK A. GERDE


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