DEMAND PROMISSORY NOTE


Principal:  $1,000,000.00                                           Edmonds, WA
                                                                 August 5, 1999

1.   Promise to Pay. FOR VALUE RECEIVED, NOVA-TECH ENGINEERING, INC., a
     Washington corporation ("Borrower"), unconditionally promises to pay to the
     order of PACIFIC AEROSPACE & ELECTRONICS, INC., a Washington corporation
     ("Lender"), at 430 Olds Station Road, Wenatchee, Washington 98801, or at
     such other place as the holder hereof from time to time may designate in
     writing, the principal sum of ONE MILLION DOLLARS ($1,000,000.00), or so
     much thereof as may be advanced by Lender to Borrower and outstanding from
     time to time, plus interest on the unpaid outstanding principal balance of
     each advance and such other sums as are payable under the terms of this
     Note.

2.   Payments. All unpaid outstanding principal, interest and other sums owing
     under this Note shall be due and payable on demand. Borrower may completely
     or partially prepay this Note at any time or from time to time without
     penalty. Payments shall be applied first to accrued interest, costs and
     expenses payable under this Note and then to principal. Demand will not be
     made before December 15, 1999.

3.   Interest. Interest shall accrue on the unpaid principal balance of this
     Note from the date hereof at the rate of seven and one-half percent (7.5%)
     per annum until the date on which Lender demands payment ("Demand Date").
     If Borrower fails to pay all amounts due under this Note on the Demand
     Date, then interest shall accrue thereafter on the unpaid principal balance
     at the rate of twelve percent (12%) per annum until this Note is paid in
     full.

4.   Security. This Note is secured by a security interest in all Borrower's
     tangible and intangible assets, according to a security agreement (the
     "Security Agreement") dated April 26, 1999, executed by Borrower in favor
     of Lender and a UCC-1 Financing Statement filed with the Secretary of State
     of the State of Washington on May 11, 1999, in connection therewith.
     Additional rights and obligations of Lender and Borrower are set forth in
     the Security Agreement.

5.   Default; Acceleration. Borrower shall be in default under this Note if (i)
     Borrower fails to pay all amounts due hereunder on the Demand Date or (ii)
     if an event of default occurs under the terms of the Security Agreement.
     Upon an event of default under the Security Agreement, unless and until
     cure has been accomplished within time allowed for cure (if any), at the
     option of the holder of this Note and without notice to the Borrowers of
     the default, the entire indebtedness represented by this Note shall become
     immediately due and payable and interest shall thereafter accrue on the
     unpaid balance of principal due under this Note at the rate of twelve
     percent (12%) per annum. Upon

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     default under this Note, Lender may exercise any rights available to it
     under the Security Agreements or by applicable law.

6.   Attorneys' Fees. If any action, judicial or nonjudicial, is brought on this
     Note, or if it is placed in the hands of an attorney for collection or
     advice following the expiration of the cure period (if any) for any
     default, then Borrower promises to pay all of Lender's costs and expenses
     in connection therewith, including without limitation reasonable attorneys'
     fees incurred and paid by holder in connection herewith through any appeal
     or in bankruptcy. All such costs and attorneys' fees shall bear interest
     from the date incurred until paid at the default interest rate.

7.   Waivers. Borrower, all endorsers, and all persons liable or to become
     liable on this Note hereby waive presentment, demand, protest and notice of
     demand, protest and nonpayment, and any defense or claim that resort must
     first be had to any security or to any other person, and authorize the
     holder of this Note, without affecting its liability hereunder, from time
     to time, to renew, extend, or change the time for payment or the other
     terms of this Note, to take and hold security for the payment of this Note,
     to release or exchange the security therefor, to apply any such security to
     such obligations as the holder may determine in its sole discretion, and to
     release, substitute, or add to those liable or to become liable on this
     Note.

8.   Authorization. Borrower and the officer signing below on its behalf
     represent and warrant to Lender that: (a) Borrower is a corporation duly
     organized and validly existing under the laws of Washington; (b) Borrower
     has taken all corporate action necessary to authorize execution and
     delivery of this Note and performance of its obligations under this Note
     and the Security Agreement; (c) Borrower has duly executed and delivered
     this Note to Lender; and (d) this Note is the valid and binding obligation
     of Borrowers in accordance with its terms.

9.   Governing Law. This Note shall be governed by and construed in accordance
     with the laws of the State of Washington, United States of America, without
     regard to conflict of laws rules.

10.  Successors and Assigns. The provisions of this Note shall inure to the
     benefit of and be binding on any successor to Borrower and shall extend to
     any holder hereof.


                                       BORROWER:

                                       NOVA-TECH ENGINEERING, INC.


                                       By /s/ HANS H. HERRMANN
                                          --------------------------------------
                                          Its President
                                              ----------------------------------

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