<PAGE>

                                                                    EXHIBIT 10.2

                 [LETTERHEAD OF PACIFIC AEROSPACE & ELECTRONICS]

                                February 27, 2002

Werner Hafelfinger
141 Ironwood Pl.
East Wenatchee, WA 98801

Dear Werner:

        This letter is to advise you that, in connection with the proposed
restructuring of Pacific Aerospace & Electronics, Inc. (the "Company"), your
employment with the Company will be terminated effective May 17, 2002 (the
"Termination Date"). This letter, when signed by you, reflects your agreement to
the terms and conditions stated herein.

        In lieu of the eighteen-month severance obligation contained in the
employment agreement between you and the Company, dated as of March 1, 1999, as
amended (the "Employment Agreement"), you will receive, as severance pay, an
amount equal to twelve months of your annual base salary of $210,000.00. This
amount will be paid in accordance with the Company's normal payroll practices,
including deductions, withholdings, and collections required by law, in
installments on regular payroll days over a period of twelve months, beginning
with the first payroll date after the Termination Date. The Company will also
maintain, at its sole expense, your health, dental and vision insurance for
twelve months after the Termination Date (the "Coverage Period"). If continued
participation in these plans during the Coverage Period is not permitted, the
Company will reimburse you each month for your coverage continuation premiums
under the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") or
for the cost of obtaining substantially equivalent coverage. If, as a result of
subsequent employment, you become eligible for coverage under another employer's
benefit plans that confer substantially similar benefits, you must promptly
notify us, and this insurance benefit will cease.

        In the event that the Company discontinues substantially all of its
business, files for or is placed into bankruptcy, is acquired by or merged into
another company, or experiences a Change in Control, as defined in the
Employment Agreement, prior to the date on which all amounts owing to you in
accordance with the preceding paragraph have been paid, all unpaid amounts that
would otherwise have been payable over a period of twelve months in accordance
with the preceding paragraph, including without limitation reimbursement for
your continued insurance coverage as described above, will automatically be
accelerated and become due and payable to you in a lump sum as wages upon the
effective date of the relevant event. Notwithstanding the foregoing, by signing
below you agree that the proposed restructuring substantially in


<PAGE>

Werner Hafelfinger
February 27, 2002
Page 2



accordance with the Second Amended and Restated Agreement dated as of January
11, 2002, as amended, between PA&E and certain of its noteholders (except as it
pertains to your continued employment and benefits), shall not be deemed to be a
Change in Control.

        You agree that all amounts due to you pursuant to this letter agreement,
plus any compensation payable under the Employment Agreement through the
Termination Date, including payment for accrued and unused vacation time, will
constitute PA&E's sole obligation to pay you in connection with the termination
of your employment. You further agree that except for the covenants contained in
Article 6 of the Employment Agreement, which by their terms will survive
termination of your employment, the Employment Agreement will be deemed to be
null and void as of the Termination Date. Your outstanding stock options will
remain in effect in accordance with the terms of the applicable option
agreements and plans. Your rights under any other benefit plans in which you are
a participant will be determined by law and the terms of the plans.

        On or before the Termination Date, please return to me all information
and physical property made or compiled by you during your employment with the
Company that contains or relates to "Protected Information," as that term is
defined in Section 6.1.5 of the Employment Agreement. Please also return to me
on the Termination Date your Company credit card, building keys, vehicle and
keys, computer equipment and software, and any other property in your possession
or control that belongs to the Company. If you have any outstanding reimbursable
business expenses as of the Termination Date, please submit an expense report to
me for approval within one week after the Termination Date.

        In accordance with Company policy, we will confirm your dates of
employment and your position with the Company to prospective future employers.
You agree not to make any derogatory or disparaging statements, either written
or verbal, to any third party regarding the Company or any of its affiliates,
including any of its officers, directors, employees, or agents. The Company
agrees to allow you to have input on any formal internal and/or external
announcements of your departure from the Company.

        In the event that the Company requests your services at any time after
the Termination Date, the Company will pay you a reasonable hourly rate for
those services. If you are employed at the time in a capacity for which you
routinely bill for your services, the Company will pay for your services at your
then current hourly rate. If you are not employed at the time or do not
routinely bill for your services at an hourly rate, the hourly rate will be a
mutually agreeable rate not less than your last hourly rate at the Company. In
addition, the Company will reimburse you for reasonable out-of-pocket expenses
that you incur in connection with those services.


<PAGE>

Werner Hafelfinger
February 27, 2002
Page 3


        Thank you for your assistance over the past several years. I wish you
the best of luck in your future endeavors.

                                            Very truly yours,

                                            /s/ Donald A. Wright

                                            Donald A. Wright


Offer Received: February 27, 2002


   /s/ Werner Hafelfinger
--------------------------------------
Werner Hafelfinger

Offer Accepted: February 28, 2002


   /s/ Werner Hafelfinger
--------------------------------------
Werner Hafelfinger