Exhibit 10.9

[GRAPHIC OMITTED]



                                 LOAN AGREEMENT

<TABLE>
<CAPTION>
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    Principal         Loan Date     Maturity      Loan No.     Call     Collateral     Account      Officer    Initials
Up to 3,500,000.00    06-30-1997    09-05-1998    1009501      016         302          357577      JCT02
<S>                   <C>           <C>           <C>          <C>         <C>          <C>         <C>          <C>
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    References in the shaded area are for Lender's use only and do not limit
       the applicability of this document to any particular loan or item.
=======================================================================================================================


BORROWER:  PACIFIC AEROSPACE & ELECTRONICS, INC.         LENDER:  KEY BANK NATIONAL ASSOCIATION
           434 OLD STATION ROAD                                   WEN/ML COMMERCIAL BANKING CENTER
           WENATCHEE, WA 99116                                    102 SOUTH WENATCHEE AVENUE
                                                                  P.O. BOX 1301          WA-31-35-0163
                                                                  WENATCHEE, WA  98807
</TABLE>


THIS LOAN AGREEMENT between PACIFIC AEROSPACE & ELECTRONICS, INC. ("Borrower")
and KEYBANK NATIONAL ASSOCIATION ("Lender") is made and executed on the
following terms and conditions. Borrower has received prior commercial loans
from Lender or has applied to Lender for a commercial loan or loans and other
financial accommodations, including those which may be described on any exhibit
or schedule attached to this Agreement. All such loans and financial
accommodations, together with all future loans and financial accommodations from
Lender to Borrower, are referred to in this Agreement individually as the "Loan"
and collectively as the "Loans." Borrower understands and agrees that: (a) in
granting, renewing, or extending any Loan, Lender is relying upon Borrower's
representations, warranties, and agreements, as set forth in this Agreement; (b)
the granting, renewing, or extending of any Loan by Lender at all times shall be
subject to Lender's sole judgment and discretion; and (c) all such Loans shall
be and shall remain subject to the following terms and conditions of this
Agreement.

TERM. This Agreement shall be effective as of June 30, 1997, and shall continue
thereafter until all Indebtedness of Borrower to Lender has been performed in
full and the parties terminate this Agreement in writing.

DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.

     Agreement. The word "Agreement" means this Loan Agreement, as this Loan
     Agreement may be amended or modified from time to time together with all
     exhibits and schedules attached to this Loan Agreement from time to time.

     Account. The word "Account" means a trade account, account receivable, or
     other right to payment for goods sold or services rendered owing to
     Borrower (or to a third party grantor acceptable to Lender).

     Account Debtor. The words "Account Debtor" mean the person or entity
     obligated upon an Account.

     Advance. The word "Advance" means a disbursement of Loan funds under this
     Agreement.

     Borrower. The word "Borrower" means PACIFIC AEROSPACE & ELECTRONICS, INC.
     The word "Borrower" also includes, as applicable, all subsidiaries and
     affiliates of Borrower as provided below in the paragraph titled
     "Subsidiaries and Affiliates."

     Borrowing Base. The words "Borrowing Base" mean, as determined from time to
     time, the lessor of: (a) $3,500,000.00; or (b) 80% of Invoice to 90 day
     accounts less any foreign or intercompany/related accounts and any cross
     agings/remainders over 50%.

     Business Day. The words "Business Day" mean a day on which commercial banks
     are open for business in the State of Washington.

     CERCLA. The word "CERCLA" means the Comprehensive Environmental Response,
     Compensation, and Liability Act of 1980, as amended.

     Cash Flow. The words "Cash Flow" mean net income after taxes, and exclusive
     of extraordinary gains and income, plus depreciation and amortization.

     Collateral. The word "Collateral" means and includes without limitation all
     property and assets granted as collateral security for a Loan, whether real
     or personal property, whether granted directly or indirectly, whether
     granted now or in the future, and whether granted in the form of a security
     interest, mortgage, deed of trust, assignment, pledge, chattel mortgage,
     chattel trust, factor's lien, equipment trust, conditional sale, trust
     receipt lien,
<PAGE>
6-30-97                          LOAN AGREEMENT                           Page 2
Loan No. 1009501                  (Continued)
================================================================================


     charge, lien or title retention contract, lease or consignment intended as
     a security device, or any other security or lien interest whatsoever
     whether created by law, contract, or otherwise. The word "Collateral"
     includes without limitation all collateral described below in the section
     titled "COLLATERAL."

     Debt. The word "Debt" means all of Borrower's liabilities excluding
     Subordinated Debt.

     Eligible Accounts. The words "Eligible Accounts" mean, at any time, all of
     Borrower's Accounts which contain selling terms and conditions acceptable
     to Lender. The net amount of any Eligible Account against which Borrower
     may borrow shall exclude all returns, discounts, credits and offsets of any
     nature. Unless otherwise agreed to by Lender in writing, Eligible Accounts
     do not include:

     (a)  Accounts with respect to which the Account Debtor is an officer, an
          employee or agent of Borrower.

     (b)  Accounts with respect to which the Account Debtor is a subsidiary of,
          or affiliated with or related to Borrower or its shareholders,
          officers or directors.

     (c)  Accounts with respect to which goods are placed on consignment,
          guaranteed sale, or other terms by reason of which the payment by the
          Account Debtor may be conditional.

     (d)  Accounts with respect to which the Account Debtor is not a resident of
          the United States, except to the extent such Accounts are supported by
          insurance, bonds or other assurances satisfactory to Lender.

     (e)  Accounts with respect to which Borrower is or may become liable to the
          Account Debtor for goods sold or services rendered by the Account
          Debtor to Borrower.

     (f)  Accounts which are subject to dispute, counterclaim, or setoff.

     (g)  Accounts with respect to which the goods have not been shipped or
          delivered, or the services have not been rendered, to the Account
          Debtor.

     (h)  Accounts with respect to which Lender, in its sole discretion, deems
          the creditworthiness or financial condition of the Account Debtor to
          be unsatisfactory.

     (i)  _________________________________________________________ provision of
          any state or federal bankruptcy, insolvency, or debtor-in-relief acts;
          or who has had appointed a trustee, custodian, or receiver for the
          assets of such Account Debtor; or who has made an assignment for the
          benefit of creditors or has become insolvent or fails generally to pay
          its debts (including its payrolls) as such debts become due.

     (j)  Accounts with respect to which the Account Debtor is the United States
          government or any department or agency of the United States.

     (k)  Accounts which have not been paid in full within 90 days from the
          invoice date.

     (l)  Accounts which are subject to retainages and accounts which include
          dated items.

Eligible Inventory. The words "Eligible Inventory" mean, at any time, all of
Borrower's inventory as defined below except:

     (a)  Inventory which is not owned by Borrower free and clear of all
          security interests, liens, encumbrances, and claims of third parties.

     (b)  Inventory which Lender, in its sole discretion, deems to be obsolete,
          unsalable, damaged, defective, or unfit for further processing.

     (c)  Work in progress.

     (d)  Inventory which is held or maintained out-of-state.

     ERISA. The word "ERISA" means the Employee Retirement Income Security Act
     of 1974, as amended.

     Event of Default. The words "Event of Default" mean and include without
     limitation any of the Events of Default set forth below in the section
     titled "EVENTS OF DEFAULT."

     Expiration Date. The words "Expiration Date" mean the date of termination
     of Lender's commitment to lend under this Agreement.
<PAGE>
6-30-97                          LOAN AGREEMENT                           Page 3
Loan No. 1009501                  (Continued)
================================================================================


     Grantor. The word "Grantor" means and includes without limitation each and
     all of the persons or entities granting a Security Interest in any
     Collateral for the Indebtedness, including without limitation all Borrowers
     granting such a Security Interest.

     Guarantor. The word "Guarantor" means and includes without limitation all
     Loans, together with all other obligations, debts and liabilities of
     Borrower to Lender, or any one or more of them, as well as all claims by
     Lender against Borrower, or any one or more of them; whether now or
     hereafter existing, voluntary or involuntary, due or not due, absolute or
     contingent, liquidated or unliquidated; whether Borrower may be liable
     individually or jointly with others; whether Borrower may be obligated as a
     guarantor, surety, or otherwise; whether recovery upon such indebtedness
     may be or hereafter may become barred by any statute of limitations; and
     whether such Indebtedness may be or hereafter may become otherwise
     unenforceable.

     Inventory. The word "Inventory" means all of Borrower's raw materials, work
     in process, finished goods, merchandise, parts and supplies, of every kind
     and description, and goods held for sale or lease or furnished under
     contracts of service in which Borrower now has or hereafter acquires any
     right, whether held by Borrower or others, and all documents of title,
     warehouse receipts, bills of lading, and all other documents of every type
     covering all or any part of the foregoing. Inventory includes inventory
     temporarily out of Borrower's custody or possession and all returns on
     Accounts.

     Lender. The word "Lender" means KEYBANK NATIONAL ASSOCIATION, its
     successors and assigns.

     Line of Credit. The words "Line of Credit" mean the credit facility
     described in the Section titled "LINE OF CREDIT" below.

     Liquid Assets. The words "Liquid Assets" mean Borrower's cash on hand plus
     Borrower's readily marketable securities.

     Loan. The word "Loan" or "Loans" means and includes without limitation any
     and all commercial loans and financial accommodations from Lender to
     Borrower, whether now or hereafter existing, and however evidenced,
     including without limitation those loans and financial accommodations
     described herein or described on any exhibit or schedule attached to this
     Agreement from time to time.

     Note. The word "Note" means and includes without limitation Borrower's
     promissory note or notes, if any, evidencing Borrower's Loan obligations in
     favor of Lender, as well as any substitute, replacement or refinancing note
     or notes therefor.

     Permitted Liens. The words "Permitted Liens" mean: (a) liens and security
     interests securing Indebtedness owed by Borrower to Lender; (b) liens for
     taxes, assessments, or similar charges either not yet due or being
     contested in good faith; (c) liens of materialmen, mechanics, warehousemen,
     or carriers, or other like liens arising in the ordinary course of business
     and securing obligations which are not yet delinquent; (d) purchase money
     liens or purchase money security interests upon or in any property acquired
     or held by Borrower in the ordinary course of business to secure
     indebtedness outstanding on the date of this Agreement or permitted to be
     incurred under the paragraph of this Agreement titled "Indebtedness and
     Liens"; (e) liens and security interests which, as of the date of this
     Agreement, have been disclosed to and approved by the Lender in writing;
     and (f) those liens and security interests which in the aggregate
     constitute an immaterial and insignificant monetary amount with respect to
     the net value of Borrower's assets.

     Related Documents. The words "Related Documents" mean and including without
     limitation all promissory notes, credit agreements, loan agreements,
     environmental agreements, guaranties, security agreements, mortgages, deeds
     of trust, and all other instruments, agreements and documents, whether now
     or hereafter existing, executed in connection with the Indebtedness.

     Security Agreement. The words "Security Agreement" mean and include without
     limitation any agreements, promises, covenants, arrangements,
     understandings or other agreements, whether created by law, contract, or
     otherwise, evidencing, governing, representing, or creating a Security
     Interest.

     SARA. The word "SARA" means the Superfund Amendments and Reauthorization
     Act of 1986 as now or hereafter amended.

     Subordinated Debt. The words "Subordinated Debt" mean indebtedness and
     liabilities of Borrower which have been subordinated by written agreement
     to indebtedness owed by Borrower to Lender in form and substance acceptable
     to Lender.

     Tangible Net Worth. The words "Tangible Net Worth" mean Borrower's total
     assets excluding all intangible assets (i.e., goodwill, trademarks,
     patents, copyrights, organizational expenses, and similar items, but
     including leaseholds and leasehold improvements) less total Debt.

     Working Capital. The words "Working Capital" mean Borrower's current
     assets, excluding prepaid expenses, less Borrower's current liabilities.

LINE OF CREDIT. Lender agrees to make Advances to Borrower from time to time
from the date of this Agreement to the Expiration Date, provided the aggregate
amount of such Advances outstanding at any time does not exceed the Borrowing
Base. Within the foregoing limits, Borrower may borrow, partially or wholly
prepay, and reborrow under this Agreement as follows.
<PAGE>
6-30-97                          LOAN AGREEMENT                           Page 4
Loan No. 1009501                  (Continued)
================================================================================


     Conditions Precedent to Each Advance. Lender's obligation to make any
     Advance to or for the account of Borrower under this Agreement is subject
     to the following conditions precedent, with all documents, instruments,
     opinions, reports, and other items required under this Agreement to be in
     form and substance satisfactory to Lender.

     (a)  Lender shall have received evidence that this Agreement and all
          Related Documents have been duly authorized, executed, and delivered
          by Borrower to Lender.

     (b)  Lender shall have received such opinions of counsel, supplemental
          opinions, and documents as Lender may request.

     (c)  The security interests in the Collateral shall have been duly
          authorized, created, and perfected with first lien priority and shall
          be in full force and effect.

     (d)  All guaranties required by Lender for the Line of Credit shall have
          been executed by Guarantor, delivered to Lender, and be in full force
          and effect.

     (e)  Lender, at its option and for its sole benefit, shall have conducted
          an audit of Borrower's Accounts, Inventory, books, records, and
          operations, and Lender shall be satisfied as to their condition.

     (f)  Borrower shall have paid to Lender all fees, costs, and expenses
          specified In this Agreement and the Related Documents as are then due
          and payable.

     (g)  There shall not exist at the time of any Advance a condition which
          would constitute an Event of Default under this Agreement, and
          Borrower shall have delivered to Lender the compliance certificate
          called for in the paragraph below titled "Compliance Certificate."

     Making Loan Advances. Advances under the Line of Credit may be requested
     orally by authorized persons. Lender may, but need not, require that all
     oral requests be confirmed in writing. Each Advance shall be conclusively
     deemed to have been made at the request of and for the benefit of Borrower
     (a) when credited to any deposit account of Borrower maintained with Lender
     or (b) when advanced in accordance with the instructions of an authorized
     person. Lender, at its option, may set a cutoff time, after which all
     requests for Advances will be treated as having been requested on the next
     succeeding Business Day.

     Mandatory Loan Repayments. If at any time the aggregate principal amount of
     the outstanding Advances shall exceed the applicable Borrowing Base,
     Borrower, immediately upon written or oral notice from Lender, shall pay to
     Lender an amount equal to the difference between the outstanding principal
     balance of the Advances and the Borrowing Base. On the Expiration Date,
     Borrower shall pay to Lender in full the aggregate unpaid principal amount
     of all Advances then outstanding and all accrued unpaid interest, together
     with all other applicable fees, costs and charges, if any, not yet paid.

     Loan Account. Lender shall maintain on its books a record of account in
     which Lender shall make entries for each Advance and such other debits and
     credits as shall be appropriate in connection with the credit facility.
     Lender shall provide Borrower with periodic statements of Borrower's
     account, which statements shall be considered to be correct and
     conclusively binding on Borrower unless Borrower notifies Lender to the
     contrary within thirty (30) days after Borrower's receipt of any such
     statement which Borrower deems to be incorrect.

COLLATERAL. To secure payment of the Line of Credit and performance of all other
Loans, obligations and duties owed by Borrower to Lender. Borrower (and others,
if required) shall grant to Lender Security Interests in such property and
assets as Lender may require (the "Collateral"), including without limitation
Borrower's present and future Accounts, general intangibles, and Inventory.
Lander's Security Interests in the Collateral shall be continuing liens and
shall include the proceeds and products of the Collateral, including without
limitation the proceeds of any insurance. With respect to the Collateral,
Borrower agrees and represents and warrants to Lender:

     Perfection of Security Interests. Borrower agrees to execute such financing
     statements and to take whatever other actions are requested by Lender to
     perfect and continue Lender's Security Interests in the Collateral. Upon
     request of Lender, Borrower will deliver to Lender any and all of the
     documents evidencing or constituting the Collateral, and Borrower will note
     Lender's Interest upon any and all chattel paper if not delivered to Lender
     for possession by Lender. Contemporaneous with the execution of this
     Agreement, Borrower will execute one or more UCC financing statements and
     any similar statements as may be required by applicable law, and will file
     such financing statements and all such similar statements in the
     appropriate location or locations. Borrower hereby appoints Lender as its
     irrevocable attorney-in-fact for the purpose of executing any documents
     necessary to perfect or to continue any Security Interest. Lender may at
     any time, and without further authorization from Borrower, file a carbon,
     photograph, facsimile, or other reproduction of any financing statement for
     use as a financing statement. Borrower will reimburse Lender for all
     expenses for the perfection, termination, and the continuation of the
     perfection of Lender's security interest in the Collateral. Borrower
     promptly will notify Lander of any change in Borrower's name including any
     change to the assumed business names of Borrower. Borrower also promptly
     will notify Lender of any change in Borrower's Social Security Number of
     Employer Identification Number. Borrower further agrees to notify Lender in
     writing prior to any change in address or location of Borrower's principal
     governance office or should Borrower merge or consolidate with any other
     entity.
<PAGE>
6-30-97                          LOAN AGREEMENT                           Page 5
Loan No. 1009501                  (Continued)
================================================================================


     Collateral Records. Borrower does now, and at all times hereafter shall,
     keep correct and accurate records of the Collateral, all of which records
     shall be available to Lender or Lender's representative upon demand for
     inspection and copying at any reasonable time. With respect to the
     Accounts, Borrower agrees to keep and maintain such records as Lender may
     require, including without limitation information concerning Eligible
     Accounts and Account balances and agings. With respect to Inventory,
     Borrower agrees to keep and maintain such records as Lender may require,
     including without limitation information concerning Eligible Inventory and
     records itemizing and describing the kind, type, quality, and quantity of
     inventory, Borrower's Inventory costs and selling prices, and the daily
     withdrawal and additions to Inventory.

     Collateral Schedules. Concurrently with the execution and delivery of this
     Agreement, Borrower shall execute and deliver to Lender schedules of
     Accounts and Inventory and Eligible Accounts and Eligible Inventory, in
     form and substance satisfactory to the Lender. Thereafter and at such
     frequency as Lender shall require, Borrower shall execute and deliver to
     Lender such supplemental schedules of Eligible Accounts and Eligible
     Inventory and such other matters and information relating to the Accounts
     and Inventory as Lender may request.

     Representations and Warranties Concerning Accounts. With respect to the
     Accounts, Borrower represents and warrants to Lender: (a) Each Account
     represented by Borrower to be an Eligible Account for purposes of this
     Agreement conforms to the requirements of the definition of an Eligible
     Account; (b) All Account information listed on schedules delivered to
     Lender will be true and correct, subject to immaterial variance; and (c)
     Lender, its assigns, or agents shall have the right at any time and at
     Borrower's expense to inspect, examine, and audit Borrower's records and to
     confirm with Account Debtors the accuracy of such Accounts.

     Representations and Warranties Concerning Inventory. With respect to the
     Inventory, Borrower represents and warrants to Lender: (a) All Inventory
     represented by Borrower to be Eligible Inventory for purposes of this
     Agreement conforms to the requirements of the definition of Eligible
     Inventory; (b) All Inventory values listed on schedules delivered to Lender
     will be true and correct, subject to immaterial variance; (c) The value of
     the Inventory will be determined on a consistent accounting basis; (d)
     Except as agreed to the contrary by Lender in writing, all Eligible
     Inventory is now and at all times hereafter will be in Borrower's physical
     possession and shall not be held by others on consignment, sale on
     approval, o___ ____________________________________________ of good and
     merchantable quality, free from defects; (f) Eligible Inventory is not now
     and will not at any time hereafter be stored with a bailee, warehouseman,
     or similar party without Lender's prior written consent, and, in such
     event, Borrower will concurrently at the time of bailment cause any such
     bailee, warehouseman, or similar party to issue and deliver to Lender, in
     form acceptable to Lender, warehouse receipts in Lender's name evidencing
     the storage of Inventory; and (g) Lender, its assigns, or agents shall have
     the right at any time and at Borrower's expense to inspect and examine the
     Inventory and to check and test the same as to quality, quantity, value and
     condition.

     Remittance Account. Borrower agrees that Lender may at any time require
     Borrower to institute procedures whereby the payments and other proceeds of
     the Accounts shall be paid by the Account Debtors under a remittance
     account or lock box arrangement with Lender, or Lender's agent, or with one
     or more financial institutions designated by Lender. Borrower further
     agrees that, if no Event of Default exists under this Agreement, any and
     all of such funds received under such a remittance account or lock box
     arrangement shall, at Lender's sole election and discretion, either be (a)
     paid or turned over to Borrower; (b) deposited into one or more accounts
     for the benefit of Borrower (which deposit accounts shall be subject to a
     security assignment in favor of Lender); (c) deposited into one or more
     accounts for the joint benefit of Borrower and Lender (which deposit
     accounts shall likewise be subject to a security assignment in favor of
     Lender); (d) paid or turned over to Lender to be applied to the
     Indebtedness in such order and priority as Lender may determine within its
     sole discretion; or (e) any combination of the foregoing as Lender shall
     determine from time to time. Borrower further agrees that, should one or
     more Events of Default exist, any and all funds received under such a
     remittance account or lock box arrangement shall be paid or turned over to
     Lender to be applied to the Indebtedness, again in such order and priority
     as Lender may determine within its sole discretion.

REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any Indebtedness exists:

     Organization. Borrower is a corporation which is duly organized, validly
     existing, and in good standing under the laws of the State of Washington
     and is validly existing and in good standing in all states in which
     Borrower is doing business. Borrower has the full power and authority to
     own its properties and to transact the businesses in which it is presently
     engaged or presently proposes to engage. Borrower also is duly qualified as
     a foreign corporation and is in good standing in all states in which the
     failure to so qualify would have a material adverse effect on its
     businesses or financial condition.

     Authorization. The execution, delivery, and performance of this Agreement
     and all Related Documents by Borrower, to the extent to be executed,
     delivered or performed by Borrower, have been duly authorized by all
     necessary action by Borrower, do not require the consent or approval of any
     other person, regulatory authority or governmental body; and do not
     conflict with, result in a violation of, or constitute a default under (a)
     any provision of its articles of incorporation or organization, or bylaws,
     or any agreement or other instrument binding upon Borrower or (b) any law,
     governmental regulation, court decree, or order applicable to Borrower.

     Financial Information. Each financial statement of Borrower supplied to
     Lender truly and completely disclosed Borrower's financial condition as of
     the date of the statement, and there has been no material adverse change in
     Borrower's financial condition subsequent to the date of the most recent
     financial statement supplied to Lender. Borrower has no material contingent
     obligations except as disclosed in such financial statements.
<PAGE>
6-30-97                          LOAN AGREEMENT                           Page 6
Loan No. 1009501                  (Continued)
================================================================================


     Legal Effect. This Agreement constitutes, and any instrument or agreement
     required hereunder to be given by Borrower when delivered will constitute,
     legal, valid and binding obligations of Borrower enforceable against
     Borrower in accordance with their respective terms.

     Properties. Except for Permitted Liens, Borrower owns and has good title to
     all of Borrower's properties free and clear of all Security interests, and
     has not executed any security documents, or financial statements relating
     to such properties. All of Borrower's properties are titled in Borrower's
     legal name, and Borrower has not used, or filed a financing statement
     under, any other name for at least the last five (5) years.

     Hazardous Substances. The terms "hazardous waste," hazardous substance,"
     "disposal," "release," and "threatened release," as used in this Agreement,
     shall have the same meanings as set forth in the "CERCLA," "SARA," the
     Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq.,
     the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et
     seq., or other applicable state or Federal laws, rules, or regulations
     adopted pursuant to any of the foregoing. Except as disclosed to and
     acknowledged by Lender in writing, Borrower represents and warrants that:
     (a) During the period of Borrower's ownership of the properties, there has
     been no use, generation, manufacture, storage, treatment, disposal, release
     or threatened release of any hazardous waste or substance by any person on,
     under, about or from any of the properties. (b) Borrower has no knowledge
     of, or reason to believe that there has been (i) any use, generation,
     manufacture, storage, treatment, disposal, release, or threatened release
     of any hazardous waste or substance on, under, about or from the properties
     by any prior owners or occupants of any of the properties, or (ii) any
     actual or threatened litigation or claims of any kind by any person
     relating to such matters. (c) Neither Borrower nor any tenant, contractor,
     agent or other authorized user of any of the properties shall use,
     generate, manufacture, store, treat, dispose of, or release any hazardous
     waste or substance on, under, about or from any of the properties; and any
     such activity shall be conducted in compliance with all applicable federal,
     state, and local laws, regulations, and ordinances, including without
     limitation those laws, regulations and ordinances described above. Borrower
     authorizes Lender and its agents to enter upon the properties to make such
     inspections and tests as Lender may deem appropriate to determine
     compliance of the properties with this section of the Agreement. Any
     inspections or tests made by Lender shall be at Borrower's expense and for
     Lender's purposes only and shall not be construed to create any
     responsibility or liability on the part of Lender to Borrower or to any
     other person. The representations and warranties contained herein are based
     on Borrower's due diligence in investigating the properties for hazardous
     waste and hazardous substances. Borrower hereby (a) releases and waives any
     future claims against Lender for indemnity or contribution in the event
     Borrower becomes liable for cleanup or other costs under any such laws, and
     (b) agrees to indemnify and hold harmless Lender against any and all
     claims, losses, liabilities, damages, penalties, and expenses which Lender
     may directly or indirectly sustain or suffer resulting from a breach of
     this section of the Agreement or as a consequence of any use, generation,
     manufacture, storage, disposal, release or threatened release occurring
     prior to Borrower's ownership or interest in the properties, whether or not
     the same was or should have been known to Borrower. The provisions of this
     section of the Agreement, including the obligation to indemnify, shall
     survive the payment of the Indebtedness and the termination or expiration
     of this Agreement and shall not be affected by Lender's acquisition of any
     interest in any of the properties, whether by foreclosure or otherwise.

     Litigation and Claims. No litigation, claim, investigation, administrative
     proceeding or similar action (including those for unpaid taxes) against
     Borrower is pending or threatened, and no other event has occurred which
     may materially adversely affect Borrower's financial condition or
     properties, other than litigation, claims, or other events, if any, that
     have been disclosed to and acknowledged by Lender in writing.

     Taxes. To the best of Borrower's knowledge, all tax returns and reports of
     Borrower that are or were required to be filed, have been filed, and all
     taxes, assessments and other governmental charges have been paid in full,
     except those presently being or to be contested by Borrower in good faith
     in the ordinary course of business and for which adequate reserves have
     been provided.

     Lien Priority. Unless otherwise previously disclosed to Lender in writing,
     Borrower has not entered into or granted any Security Agreements, or
     permitted the filing or attachment of any Security Interests in or
     affecting any of the Collateral directly or indirectly securing repayment
     of Borrower's Loan and Note, that would be prior or that may in any way be
     superior to Lender's Security Interests and rights in and to such
     Collateral.

     Binding Effect. This Agreement, the Note, all Security Agreements directly
     or indirectly securing repayment of Borrower's Loan and Note and all of the
     Related Documents are binding upon Borrower as well as upon Borrower's
     successors, representatives and assigns, and are legally ____________.

     Commercial Purposes. Borrower intends to use the Loan proceeds solely for
     business or commercial related purposes.

     Employee Benefit Plans. Each employee benefit plan as to which Borrower may
     have any liability complies in all material respects with all applicable
     requirements of law and regulations, and (i) no Reportable Event nor
     Prohibited Transaction (as defined in ERISA) has occurred with respect to
     any such plan, (ii) Borrower has not withdrawn from any such plan or
     initiated steps to do so, (iii) no steps have been taken to terminate any
     such plan, and (iv) there are no unfunded liabilities other than those
     previously disclosed to Lender in writing.

     Location of Borrower's Offices and Records. Borrower's place of business,
     or Borrower's Chief executive office, if Borrower has more than one place
     of business, is located at 434 OLDS STATION ROAD, WENATCHEE, WA 98001.
     Unless Borrower has designated otherwise in writing this location is also
     the office or offices where Borrower keeps its records concerning the
     Collateral.

     Information. All information heretofore or contemporaneously herewith
     furnished by Borrower to Lender for the purposes of or in connection with
     this Agreement or any transaction contemplated hereby is, and all
     information hereafter furnished by or on behalf of Borrower to Lender will
     be true
<PAGE>
6-30-97                          LOAN AGREEMENT                           Page 7
Loan No. 1009501                  (Continued)
================================================================================


     and accurate in every material respect on the date as of which such
     information is dated or certified; and none of such Information is or will
     be incomplete by omitting to state any material fact necessary to make such
     information not misleading.

     Survival of Representations and Warranties. Borrower understands and agrees
     that Lender, without independent investigation, is relying upon the above
     representations and warranties in extending Loan Advances to Borrower.
     Borrower further agrees that the foregoing representations and warranties
     shall be continuing in nature and shall remain in full force and effect
     until such time as Borrower's Indebtedness shall be paid in full or until
     this Agreement shall be terminated in the manner provided above, whichever
     is the last to occur.

AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:

     Litigation. Promptly inform Lender in writing of (a) all material adverse
     changes in Borrower's financial condition, and (b) all existing and all
     threatened litigation, claims, investigations, administrative proceedings
     or similar actions affecting Borrower or any Guarantor which could
     materially affect the financial condition of Borrower or the financial
     condition of any Guarantor.

     Financial Records. Maintain its books and records in accordance with
     generally accepted accounting principles, applied on a consistent basis,
     and permit Lender to examine and audit Borrower's books and records at all
     reasonable times.

     Financial Statements. Furnish Lender with, as soon as available, but in no
     event later than ninety (90) days after the end of each fiscal year,
     Borrower's balance sheet and income statement for the year ended, audited
     by a certified public accountant satisfactory to Lender, and, as soon as
     available, but in no event later than sixty (60) days after the end of each
     fiscal quarter, Borrower's balance sheet and profit and loss statement for
     the period ended, prepared and certified as correct to the best knowledge
     and belief by Borrower's chief financial officer or other officer or person
     acceptable to Lender. All financial reports required to be provided under
     this Agreement shall be prepared in accordance with generally accepted
     accounting principles, applied on a consistent basis, and certified by
     Borrower as being true and correct.

     Additional Information. Furnish such additional information and statements,
     lists of assets and liabilities, agings of receivables and payables,
     inventory schedules, budgets, forecasts, tax returns, and other reports
     with respect to Borrower's financial condition and business operations as
     Lender may request from time to time.

     Financial Covenants and Ratios. Comply with the following covenants and
     ratios:

          Tangible Net Worth. Maintain a minimum Tangible Net Worth of not less
          than $18,000,000.00.

          Net Worth Ratio. Maintain a ratio of Total Liabilities to Tangible Net
          Worth of less than 0.75 to 1.00.

          Working Capital. Maintain Working Capital in excess of $7,500,000.00.

          Current Ratio. Maintain a ratio of Current Assets to Current
          Liabilities, in excess of 2.00 to 1.00. Except as provided above, all
          computations made to determine compliance with the requirements
          contained in this paragraph shall be made in accordance with generally
          accepted accounting principles, applied on a consistent basis, and
          certified by Borrower as being true and correct.

          Insurance. Maintain fire and other risk insurance, public liability
          insurance, and such other insurance as Lender may require with respect
          to Borrower's properties and operations, in form, amounts, coverages
          and with insurance companies reasonably acceptable to Lender.
          Borrower, upon request of Lender, will deliver to Lender from time to
          time the policies or certificates of insurance in form satisfactory to
          Lender, including stipulations that coverages will not be cancelled or
          diminished without at least ten (10) days' prior written notice to
          Lender. Each insurance policy also shall include an endorsement
          providing that coverage in favor of Lender will not be impaired in any
          way by any act, omission or default of Borrower or any other person.
          In connection with all policies covering assets in which Lender holds
          or is offered a security interest for the Loans, Borrower will provide
          Lender with such loss payable or other endorsements as Lender may
          require.

     Insurance Reports. Furnish to Lender, upon request of Lender, reports on
     each existing insurance policy showing such information as Lender may
     reasonably request, including without limitation the follow: (a) the name
     of the insurer; (b) the risks insured; (c) the amount of the policy; (d)
     the properties insured; (e) the then current property values on the basis
     of which insurance has been obtained, and the manner of determining those
     values; and (f) the expiration date of the policy. In addition, upon
     request of Lender (however not more often than annually), Borrower will
     have an independent appraiser satisfactory to Lender determine, as
     applicable, the actual cash value or replacement cost of any Collateral.
     The cost of such appraisal shall be paid by Borrower.

     Guaranties. Prior to disbursement of any Loan proceeds, furnish executed
     guaranties of the Loans in favor of Lender, executed by the guarantors
     named below, on Lender's forms, and in the amounts and under the conditions
     spelled out in those guaranties.
<PAGE>
6-30-97                          LOAN AGREEMENT                           Page 8
Loan No. 1009501                  (Continued)
================================================================================


     Guarantors                                          Amounts
     ----------                                          -------

     PACIFIC COAST TECHNOLOGIES, INC.                    Unlimited
     CASHMERE MANUFACTURING CO., INC.                    Unlimited
     CERAMIC DEVICES, INC.                               Unlimited
     SEISMIC SAFETY PRODUCTS, INC.                       Unlimited
     MOREL INDUSTRIES, INC.                              Unlimited
     NTI, INC.                                           Unlimited

     Other Agreements. Comply with all terms and conditions of all other
     agreements, whether now or hereafter existing, between Borrower and any
     other party and notify Lender immediately in writing of any default in
     connection with any other such agreements.

     Loan Proceeds. Use all Loan proceeds solely for the following specific
     purposes: SHORT TERM OPERATING.

     Taxes, Charges and Liens. Pay and discharge when due all of its
     indebtedness and obligations, including without limitation all assessments,
     taxes, governmental charges, levies and liens, of every kind and nature,
     imposed upon Borrower or its properties, income, or profits, prior to the
     date on which penalties would attach, and all lawful claims that, if
     unpaid, might become a lien or charge upon any of Borrower's properties
     _____________________________ books adequate reserves with respect to such
     contested assessment, tax, charge, levy, lien, or claim in accordance with
     generally accepted accounting practices. Borrower, upon demand of Lender,
     will furnish to Lender evidence of payment of the assessments, taxes,
     charges, levies, liens and claims and will authorize the appropriate
     governmental official to deliver to Lender at any time a written statement
     of any assessments, taxes, charges, levies, liens and claims against
     Borrower's properties, income, or profits.

     Performance. Perform and comply with all terms, conditions, and provisions
     set forth in this Agreement and in the Related Documents in a timely
     manner, and promptly notify Lender if Borrower learns of the occurrence of
     any event which constitutes an Event of Default under this Agreement or
     under any of the Related Documents.

     Operations. Maintain executive and management personnel with substantially
     the same qualifications and experience as the present executive and
     management personnel; provide written notice to Lender of any change in
     executive and management personnel; conduct its business affairs in a
     reasonable and prudent manner and in compliance with all applicable
     federal, state and municipal laws, ordinances, rules and regulations
     respecting its properties, charters, businesses and operations, including
     without limitation, compliance with the Americans With Disabilities Act and
     with all minimum funding standards and other requirements of ERISA and
     other laws applicable to Borrower's employee benefit plans.

     Inspection. Permit employees or agents of Lender at any reasonable time to
     inspect any and all Collateral for the Loan or Loans and Borrower's other
     properties and to examine or audit Borrower's books, accounts, and records
     and to make copies and memoranda of Borrower's books, accounts, and
     records. If Borrower now or at any time hereafter maintains any records
     (including without limitation computer generated records and computer
     software programs for the generation of such records) in the possession of
     a third party, Borrower, upon request of Lender, shall notify such party to
     permit Lender free access to such records at all reasonable times and to
     provide Lender with copies of any records it may request, all at Borrower's
     expense.

     Compliance Certificate. Unless waived in writing by Lender, provide Lender
     at least annually and at the time of each disbursement of Loan proceeds
     with a certificate executed by Borrower's chief financial officer, or other
     officer or person acceptable to Lender, certifying that the representations
     and warranties set forth in this Agreement are true and correct as of the
     date of the certificate and further certifying that, as of the date of the
     certificate, no Event of Default exists under this Agreement.

     Environmental Compliance and Reports. Borrower shall comply in all respects
     with all environmental protection, federal, state and local laws, statutes,
     regulations and ordinances; not cause or permit to exist, as a result of an
     intentional or unintentional action or omission on its part or on the part
     of any third party, on property owned and/or occupied by Borrower, any
     environmental activity where damage may result to the environment, unless
     such environmental activity is pursuant to and in compliance with the
     conditions of a permit issued by the appropriate federal, state or local
     governmental authorities; shall furnish to Lender promptly and in any event
     within thirty (30) days after receipt thereof a copy of any notice,
     summons, lien, citation, directive, letter or other communication from any
     governmental agency or instrumentality concerning any intentional or
     unintentional action or omission on Borrower's party in connection with any
     environmental activity whether or not there is damage to the environment
     and/or other natural resources.

     Additional Assurances. Make, execute and deliver to Lender such promissory
     notes, mortgages, deeds of trust, security agreements, financing
     statements, instruments, documents, and other agreements as Lender or its
     attorney may reasonably request to evidence and secure and Loans and to
     perfect all Security Interests.

NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:
<PAGE>
6-30-97                          LOAN AGREEMENT                           Page 9
Loan No. 1009501                  (Continued)
================================================================================


     Indebtedness and Liens. (a) Except for trade debt incurred in the normal
     course of business and indebtedness to Lender contemplated by this
     Agreement, create, incur or assume indebtedness for borrowed money,
     including capital leases, (b) except as allowed as a Permitted Lien, sell,
     transfer, mortgage, assign, pledge, lease, grant a security interest in, or
     encumber any of Borrower's assets, or (c) sell with recourse any of
     Borrower's accounts, except to Lender.

     Continuity of Operations. (a) Engage in any business activities
     substantially different than those in which Borrower is presently engaged,
     (b) cease operations, liquidate, merge, transfer, acquire or consolidate
     with any other entity, change ownership, change its name, dissolve or
     transfer or sell Collateral out of the ordinary course of business, (c) pay
     any dividends on Borrower's stock (other than dividends payable in its
     stock), provided, however that notwithstanding the foregoing, but only so
     long as no Event of Default has occurred and is continuing or would result
     from the payment of dividends, if Borrower is a "Subchapter S Corporation"
     (as defined in the Internal Revenue Code of 1986, as amended), Borrower may
     pay cash dividends on its stock to its shareholders from time to time in
     amounts necessary to enable the shareholders to pay income taxes and make
     estimated income tax payments to satisfy their liabilities under federal
     and state law which arise solely from their status as Shareholders of a
     Subchapter S Corporation because of their ownership of shares of stock of
     Borrower, or (d) purchase or retire any of Borrower's outstanding shares or
     alter or amend Borrower's capital structure.

     Loans, Acquisitions and Guaranties. (a) Loan, invest in or advance money or
     assets, (b) purchase, create or acquire any interest in any other
     enterprise or entity, or (c) incur any obligation as surety or guarantor
     other than in the ordinary course of business.

CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(a) Borrower or any Guarantor is in default under the terms of this Agreement or
any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (b) Borrower or any Guarantor becomes insolvent,
files a petition in bankruptcy or similar proceedings, or is adjudged a
bankrupt; (c) there occurs a material adverse change in Borrower's financial
condition, in the financial condition of any Guarantor, or in the value of any
Collateral securing any Loan; or (d) any Guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any
other loan with Lender.

DISPOSITION OF CASH COLLATERAL ACCOUNT PROCEEDS.
      Account proceeds will be deposited to cash collateral account
      #_________________________ as follows: ______ all proceeds ______ Proceeds
      of accounts or invoices assigned ______ Other (specify)
      ______________________________________________________

      Cash Collateral account funds will be applied to note balance as follows:
      _______________________ and _______________________ of each week (day of
      week); or ____________________ days after deposit; or ____________________
      business days after deposit.

PAYMENT OF INTEREST.
      Interest is to be paid as follows:

      _______ First from each payment;
      _______ Monthly per billing statement;
      _______ By charging account #________________________;

COLLATERAL SCHEDULE TIMETABLES.
     Borrower shall execute and deliver to Lender the following schedules:
     Accounts Receivable Agings __X__ Monthly ______ Quarterly _______ Other
     _______ within ______ days of period end Accounts Payable Agings __X__
     Monthly ______ Quarterly _______ Other _______ within ______ days of period
     end Inventory Schedules __X__ Monthly ______ Quarterly _______ Other
     _______ within ______ days of period end Certificate for Borrowing ______
     Each Advance __X__ Monthly _______ Other (Specify) ________________. Other
     Schedules ___________________________________________________.

ADDITIONAL PROVISIONS. MINIMUM DEBT SERVICE COVERAGE RATIO OF 1.50 TO 1.00
BORROWING CERTIFICATES TO BE SUBMITTED MONTHLY. A/R & A/P AGEINGS MONTHLY.

EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:

     Default on Indebtedness. Failure of Borrower to make any payment when due
     on the Loans.
<PAGE>
6-30-97                          LOAN AGREEMENT                          Page 10
Loan No. 1009501                  (Continued)
================================================================================


     Other Defaults. Failure of Borrower or any Grantor to comply with or to
     perform when due any other term, obligation, covenant or condition
     contained in this Agreement or in any of the Related Documents, or failure
     of Borrower to comply with or to perform any other term, obligation,
     covenant or condition contained in any other agreement between Lender and
     Borrower.

     Default in Favor of Third Parties. Should Borrower or any Grantor default
     under any loan, extension of credit, security agreement, purchase or sales
     agreement, or any other agreement, in favor of any other creditor or person
     that may materially affect any of Borrower's property of Borrower's or any
     Grantor's ability to repay the Loans or perform their respective
     obligations under this Agreement or any of the Related Documents.

     False Statements. Any warranty, representation or statement made or
     furnished to Lender by or on behalf of Borrower or any Grantor under this
     Agreement or the Related Documents is false or misleading in any material
     respect at the time made or furnished, or becomes false or misleading at
     any time thereafter.

     Defective Collateralization. This Agreement or any of the Related Documents
     ceases to be in full force and effect (including failure of any Security
     Agreement to create a valid and perfected Security Interest) at any time
     and for any reason.

     Insolvency. The dissolution or termination of Borrower's existence as a
     going business, the insolvency of Borrower, the appointment of a receiver
     for any part of Borrower's property, any assignment for the benefit of
     creditors, any type of creditor workout, or the commencement of any
     proceeding under any bankruptcy or insolvency laws by or against Borrower.

     Creditor or Forfeiture Proceedings. Commencement of foreclosure or
     forfeiture proceedings, whether by judicial proceeding, self-help,
     repossession or any other method, by any creditor of Borrower, any creditor
     of any Grantor against any collateral securing the Indebtedness, or by any
     governmental agency. This includes a garnishment, attachment, or levy on or
     of any of Borrower's deposit accounts with Lender. However, this Event of
     Default shall not apply if there is a good faith dispute by Borrower or
     Grantor, as the case may be, as to the validity or reasonableness of the
     claim which is the basis of the creditor or forfeiture proceeding, and if
     Borrower or Grantor gives Lender written notice of the creditor or
     forfeiture proceeding and furnishes reserves or a surety bond for the
     creditor or forfeiture proceeding satisfactory to Lender.

     Events Affecting Guarantor. Any of the preceding events occurs with respect
     to any Guarantor of any of the Indebtedness or any Guarantor dies or
     becomes incompetent, or revokes or disputes the validity of, or liability
     under, any Guaranty of the indebtedness. Lender, at its option, may, but
     shall not be required to, permit the Guarantor's estate to assume
     unconditionally the obligations arising under the guaranty in a manner
     satisfactory to Lender, and, in doing so, cure the Event of Default.

     Change in Ownership. Any change in ownership of twenty-five percent (25%)
     or more of the common stock of Borrower.

     Adverse Change. A material adverse change occurs in Borrower's financial
     condition, or Lender believes the prospect of payment or performance of the
     Indebtedness is impaired.

     Right to Cure. If any default, other than a Default on Indebtedness, is
     curable and if Borrower or Grantor, as the case may be, has not been given
     a notice of a similar default within the preceding twelve (12) months, it
     may be cured (and no Event of Default will have occurred) if Borrower or
     Grantor, as the case may be, after receiving written notice from Lender
     demanding cure of such default: (a) cures the default within fifteen (15)
     days; or (b) if the cure requires more than fifteen (15) days, immediately
     initiates steps which Lender deems in Lender's sole discretion to be
     sufficient to cure the default and thereafter continues and completes all
     reasonable and necessary steps sufficient to produce compliance as soon as
     reasonably practical.

EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where
otherwise provided in this Agreement or the Related Documents, all commitments
and obligations of Lender under this Agreement or the Related Documents or any
other agreement immediately will terminate (including any obligation to make
Loan Advances or disbursements), and, at Lender's option, all Indebtedness
immediately will become due and payable, all without notice of any kind to
Borrower, except that in the case of an Event of Default of the type described
in the "Insolvency" subsection above, such acceleration shall be automatic and
not optional. In addition, Lender shall have all the rights and remedies
provided in the Related Documents or available at law, in equity, or otherwise.
Except as may be prohibited by applicable law, all of Lender's rights and
remedies shall be cumulative and may be exercised singularly or concurrently.
Election by Lender to pursue any remedy shall not exclude pursuit of any other
remedy, and an election to make expenditures or to take action to perform an
obligation of Borrower or of any Grantor shall not affect Lender's right to
declare a default and to exercise its rights and remedies.

MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:

     Amendments. This Agreement, together with any Related Documents,
     constitutes the entire understanding and agreement of the parties as to the
     matters set forth in this Agreement. No alteration of or amendment to this
     Agreement shall be effective unless given in writing and signed by the
     party or parties sought to be charged or bound by the alteration or
     amendment.
<PAGE>
6-30-97                          LOAN AGREEMENT                          Page 11
Loan No. 1009501                  (Continued)
================================================================================


     Applicable Law. This Agreement has been delivered to Lender and accepted by
     Lender in the State of Washington. It there is a lawsuit, Borrower agrees
     upon Lender's request to submit to the jurisdiction of the courts of King
     or Pierce County, the State of Washington. Lender and Borrower hereby waive
     the right to any jury trial in any action, proceeding, or counterclaim
     brought by either Lender or Borrower against the other. This Agreement
     shall be governed by and construed in accordance with the laws of the State
     of Washington.

     Caption Headings. Caption headings in this Agreement are for convenience
     purposes only and are not to be used to interpret or define the provisions
     of this Agreement.

     Multiple Parties; Corporate Authority. All obligations of Borrower under
     this Agreement shall be joint and several, and all references to Borrower
     shall mean each and every Borrower. This means that each of the persons
     signing below is responsible for all obligations in this Agreement.

     Consent to Loan Participation. Borrower agrees and consents to Lender's
     sale or transfer, whether now or later, of one or more participation
     relating to the Loan, and Borrower hereby waives any rights to privacy it
     may have with respect to such matters. Borrower additionally waives any and
     all notices of sale of participation interests, as well as all notices of
     any repurchase of such participation interests. Borrower also agrees that
     the purchasers of any such participation interests will be considered as
     the absolute owners of such interests in the Loans and will have all the
     rights granted under the participation agreement or agreements governing
     the sale of such participation interests. Borrower further waives all
     rights of offset or counterclaim that it may have now or later against
     Lender or against any purchaser of such a participation interest and
     unconditionally agrees that either Lender or such purchaser may enforce
     Borrower's obligation under the Loans irrespective of the failure or
     insolvency of any holder of any interest in the Loans. Borrower further
     agrees that the purchaser of any such participation interests may enforce
     its interests irrespective of any personal claims or defenses that Borrower
     may have against Lender.

     Costs and Expenses. Borrower agrees to pay upon demand all of Lender's
     expenses, including without limitation attorneys' fees, incurred in
     connection with the preparation, execution, enforcement, modification and
     collection of this Agreement or in connection with the Loans made pursuant
     to this Agreement. Lender may pay someone else to help collect the Loans
     and to enforce this Agreement, and Borrower will pay that amount. This
     includes, subject to any limits under applicable law, Lender's attorneys'
     fees and Lender's legal expenses, whether or not there is a lawsuit,
     including attorneys' fees for bankruptcy proceedings (including efforts to
     modify or vacate any automatic stay or injunction), appeals, and any
     anticipated post-judgment collection services. Borrower also will pay any
     court costs, in addition to all other sums provided by law.

     Notices. All notices required to be given under this Agreement shall be
     given in writing, may be sent by telefacsimile, and shall be effective when
     actually delivered or when deposited with a nationally recognized overnight
     courier or deposited in the United States mail, first class, postage
     prepaid, addressed to the party to whom the notice is to be given at the
     address shown above. Any party may change its address for notices under
     this Agreement by giving formal written notice to the other parties,
     specifying that the purpose of the notice is to change the party's address.
     To the extent permitted by applicable law, if there is more than one
     Borrower, notice to any Borrower will constitute notice to all Borrowers.
     For notice purposes, Borrower will keep Lender informed at all times of
     Borrower's current address(es).

     Severability. If a court of competent jurisdiction finds any provision of
     this Agreement to be invalid or unenforceable as to any person or
     circumstance, such finding shall not render that provision invalid or
     unenforceable as to any other persons or circumstances. If feasible, any
     such offending provision shall be deemed to be modified to be within the
     limits of enforceability or validity; however, if the offending provision
     cannot be so modified, it shall be stricken and all other provisions of
     this Agreement in all other respects shall remain valid and enforceable.

     Subsidiaries and Affiliates of Borrower. To the extent the context of any
     provisions of this Agreement makes it appropriate, including without
     limitation any representation, warranty or covenant, the word "Borrower" as
     used herein shall include all subsidiaries and affiliates of Borrower.
     Notwithstanding the foregoing however, under no circumstances shall this
     Agreement be construed to require Lender to make any Loan or other
     financial accommodation to any subsidiary or affiliate of Borrower.

     Successors and Assigns. All covenants and agreements contained by or on
     behalf of Borrower shall binds its successors and assigns and shall inure
     to the benefit of Lender, its successors and assigns. Borrower shall not,
     however, have the right to assign its rights under this Agreement or any
     interest therein, without the prior written consent of Lender.

     Survival. All warranties, representations, and covenants made by Borrower
     in this Agreement or in any certificate or other instrument delivered by
     Borrower to Lender under this Agreement shall be considered to have been
     relied upon by Lender and will survive the making of the Loan and delivery
     to Lender of the Related Documents, regardless of any investigation made by
     Lender or on Lender's behalf.

     Waiver. Lender shall not be deemed to have waived any rights under this
     Agreement unless such waiver is given in writing and signed by Lender. No
     delay or omission on the part of Lender in exercising any right shall
     operate as a waiver of such right or any other right. A waiver by Lender of
     a provision of this Agreement shall not prejudice or constitute a waiver of
     Lender's right otherwise to demand strict compliance with that provision or
     any other provision of this Agreement. No prior waiver by Lender, nor any
     course of dealing between Lender and Borrower, or between Lender and any
     Grantor, shall constitute a waiver of any of Lender's rights or of any
     obligations of Borrower or of any Grantor as to any future transactions.
     Whenever the consent of Lender is required under this Agreement, the
     granting of such consent by Lender in any instance shall not constitute
<PAGE>
6-30-97                          LOAN AGREEMENT                          Page 12
Loan No. 1009501                  (Continued)
================================================================================

     continuing consent in subsequent instances where such consent is required,
     and in all cases such consent may be granted or withheld in the sole
     discretion of Lender.

BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS LOAN AGREEMENT, AND
BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF JUNE 30, 1997.

BORROWER:

PACIFIC AEROSPACE & ELECTRONICS, INC.


     /s/ Donald A. Wright, Pres/CEO
-------------------------------------
      Authorized Officer

LENDER:

KEYBANK NATIONAL ASSOCIATION


By:         /s/
-------------------------------------
      Authorized Officer