Document:

SECURITY AGREEMENT

         M&A West,  Inc. of 1519  Edgewood,  Liberty,  Texas 77575,  hereinafter
called "Debtor",  and Vanderkam & Sanders,  440 Louisiana,  Suite 475,  Houston,
Texas 77002, hereinafter called "Secured Party", agree as follows:

Section I.      Creation of Security Interest.

         1.1 Debtor  hereby  pledges,  grants a security  interest in mortgages,
assigns,  transfers,  delivers,  sets over and confirms  unto Secured  Party the
Collateral  described in Section II of this Agreement to secure  performance and
payment of all debts, obligations and liabilities of every kind and character of
Debtor  now or  hereafter  existing  in  writing  in  favor  of  Secured  Party,
including,  but not limited to, (1) that certain  promissory note (the "Note" or
"Promissory  Note") dated October 16, 2001  attached  hereto as Exhibit "A"; (2)
future  advances to be  evidenced  by like notes to be made by Secured  Party to
Debtor at Secured Party's  Option;  and (3) all liabilities of Debtor to Secured
Party  now  existing  or  later  incurred,  matured  or  unmatured,   direct  or
contingent,  and any renewals and  extensions  of, and  substitutions  for, such
liabilities.  All such indebtedness is hereinafter sometimes called the "secured
indebtedness" or the "indebtedness secured hereby."

Section II.     Collateral.

         2.1 The  Collateral  of this  Security  Agreement  consists  of  Eleven
Million Seven Hundred Twenty-Five Thousand Four Hundred Forty-Nine  (11,725,449)
shares of Venturelist.com,  Inc.  ("Venturelist") duly issued to Debtor, and all
other property previously, presently or in the future deposited with Vanderkam &
Sanders by Debtor.  Upon the  execution  of this  Agreement,  Debtor will have a
share  certificate  delivered to Secured Party as well as an  irrevocable  stock
power. The Collateral includes also, without  limitation,  all property this day
delivered to and deposited with Secured Party, and all money and property of the
Debtor  heretofore  delivered  to or to come  into the  possession,  custody  or
control of Secured  Party in any manner or for any purpose  whatever  during the
existence of this Agreement,  and whether held in a general or special  account,
or deposited for safekeeping or otherwise,  together with all dividends (cash or
otherwise),  rights to receive  dividends,  stock  dividends,  dividends paid in
stock,  distributions upon redemption or liquidation,  distributions as a result
of split-ups,  recapitalizations or rearrangements,  all stock rights, rights to
subscribe,  voting rights, rights to receive securities, and all new securities;
and all other property which Debtor may hereafter  become entitled to receive on
account of such securities or other  property,  and in the event Debtor receives
any such property,  Debtor will immediately  deliver same to Secured Party to be
held by Secured Party in the same manner as the property originally deposited as
Collateral.  The  Collateral of this Agreement also includes (i) the proceeds of
any and all property  described above and (ii) any and all cash dividends of and
from any and all property described above.

Section III.    Payment Obligations of Debtor.

         3.1 Debtor shall pay to Secured  Party any sum or sums due or which may
become due pursuant to any instrument or agreement  evidencing any  indebtedness
or obligation of Debtor to Secured Party,  now or hereafter  executed by Debtor,
in  accordance  with the terms of such  instrument or agreement and the terms of
this Agreement.

         3.2  Debtor  shall pay to  Secured  Party on demand  all  expenses  and
expenditures,  including  reasonable  attorneys'  fees and other legal  expenses
incurred or paid by Secured Party in exercising  or  protecting  its  interests,
rights and remedies under this Security  Agreement,  plus interest  thereon from
date of expenditure until paid at the maximum nonusurious rate from time to time
permitted by applicable law (the "Highest Lawful Rate").

         3.3  Debtor  shall  pay the  entire  unpaid  indebtedness  of Debtor to
Secured  Party,  whether  created or  incurred  pursuant  to this  Agreement  or
otherwise, upon Debtor's default under this Agreement.

<PAGE>

Section IV.     Representations and Warranties.

         4.1    Debtor represents and warrants that:

(a)      All information, reports, statements and other data furnished by Debtor
         to Secured Party prior to,  contemporaneously with or subsequent to the
         execution  of  this  Security  Agreement  or  in  connection  with  the
         indebtedness secured hereby are and shall be true, correct and complete
         and do not  and  shall  not  omit to  state  any  fact or  circumstance
         necessary to make the information contained therein not misleading.

(b)      All investment  securities  and any like property  delivered to Secured
         Party as  Collateral  are  genuine,  duly and  validly  authorized  and
         issued,  fully  paid  and  nonassessable,  free of all  liens,  claims,
         demands,  equities or other security interests, and are hereby duly and
         validly  pledged and  hypothecated  to Secured Party in accordance with
         law.

(c)      Debtor owns the  Collateral and has the right to pledge the same and to
         transfer any interest therein;  all consents required for the pledge of
         the Collateral  herein  provided have been obtained;  the Collateral is
         free and clear from all security interests and encumbrances  except the
         security  interest  evidenced hereby;  there is no financing  statement
         covering the  Collateral or its proceeds on file in any public  office;
         and so long as the  indebtedness  secured  hereby  remains  unpaid  the
         Debtor  will  warrant  and defend the title to the  Collateral  and its
         proceeds  against  the claims and  demands  of all  persons  whomsoever
         claiming or to claim the same or any party thereof.

(d)      The  execution,  delivery and  performance  by Debtor of this Agreement
         does not and will not  contravene  or violate any provision of any law,
         rule,   regulation,   order,  writ,   judgment,   injunction,   decree,
         determination  or award presently in effect and applicable to Debtor or
         result in a breach of or  constitute  a default  (with or  without  the
         giving of notice or the lapse of time or both) under any  indenture  or
         loan,  credit or other agreement to which Debtor is a party or by which
         Debtor or any of Debtor's property may be bound or affected.

(e)      This Agreement  constitutes the legal,  valid and binding obligation of
         Debtor enforceable against Debtor in accordance with its terms.

(f)      No authorization, consent, approval, license, order or exemption of, or
         filing or  registration  with,  any court or  governmental  department,
         commission,  board,  bureau,  agency or  instrumentality,  domestic  or
         foreign,  is or will be  necessary  to the valid  execution  deliver or
         performance by Debtor of this Agreement or to the enforcement hereof by
         Secured Party.

(g)      No  representation  or warranty  contained herein or made in connection
         with the indebtedness  secured hereby, and no certificate,  schedule or
         other  document  furnished  in  connection  herewith,  contains or will
         contain,  at the time so made or furnished,  a misstatement of material
         fact or omits or will  omit to state a  material  fact  required  to be
         stated  therein in order to make the statements  contained  therein not
         misleading.

Section V.      Covenants.

         5.1 Debtor  covenants and agrees during the term of this Agreement with
Secured Party as follows:

(a)      Debtor  shall  furnish  to Secured  Party  such stock  powers and other
         instruments  as  may  be  required  by  Secured  Party  to  assure  the
         transferability of the Collateral when and as often as may be requested
         by Secured Party.

(b)      Debtor  will  cause  to be paid  prior to  delinquency  all  taxes  and
         assessments  heretofore  or  hereafter  levied or assessed  against the
         Collateral, or any part thereof, or against the Secured Party for or on
         account of the  indebtedness  secured hereby or the interest created by
         this  Agreement,  and will furnish Secured Party with receipts or other
         satisfactory  evidence showing payment of such taxes and assessments at
         least ten (10) days prior to the applicable default date therefore.
<PAGE>

(c)  Debtor will, on request of Secured Party,  (i) promptly correct any obvious
     clerical defect,  error or omission which may be discovered in the contents
     of  this  Agreement  or in any  other  instrument  executed  in  connection
     herewith or in the  execution  or  acknowledgment  thereof;  (ii)  execute,
     acknowledge   and  deliver  to  Secured  Party  such  further   instruments
     (including  without  limitation  further  security  agreements,   financing
     statements and continuation  statements) and do such further acts as may be
     necessary,  desirable or proper to carry out more  effectively the purposes
     of this Agreement and such other instruments and to subject to the security
     interests hereof and thereof any property  intended by the terms hereof and
     thereof  to be covered  hereby and  thereby,  including  specifically,  but
     without limitation, any renewals, additions, substitutions, replacements or
     appurtenances  to the then Collateral;  and (iii) execute,  acknowledge and
     deliver to Secured Party any document or instrument (including specifically
     any financing  statement)  deemed advisable by Secured Party to protect the
     security  interest  hereunder  against  the  rights  or  interest  of third
     persons, and Debtor will pay all costs connected with any of the foregoing.

(d)  Notwithstanding  the security  interest in proceeds granted herein,  Debtor
     will not sell, exchange, lend, assign, transfer or otherwise dispose of all
     or any part of the Collateral or any interest therein, or permit any of the
     foregoing, without the prior written consent of the Secured Party.

(e)  Debtor shall  account  fully and  faithfully  for and, if Secured  Party so
     elects,  shall  promptly pay or turn over to Secured  Party the proceeds in
     whatever  form  received  from  disposition  in  any  manner  of any of the
     Collateral,  whether  the  indebtedness  secured  hereby  is mature or not.
     Debtor shall at all times keep the Collateral and its proceeds separate and
     distinct from other property of Debtor and shall keep accurate and complete
     records of the Collateral and its proceeds.

(f)  Debtor shall furnish  Secured Party all such  information  as Secured Party
     may reasonably request with respect to the Collateral.

         5.2 Debtor  agrees that,  if Debtor fails to perform any act or to take
any action which hereunder  Debtor is required to perform or take, or to pay any
money which hereunder Debtor is required to pay, Secured Party, in Debtor's name
or in its own name,  may but shall not be  obligated  to  perform or cause to be
performed  such act or take such action or pay such money,  and any  expenses so
incurred by Secured Party,  and any money so paid by Secured  Party,  shall be a
demand obligation owing by Debtor to Secured Party and Secured Party upon making
such  payment,  shall  be  subrogated  to  all  of the  rights  of  the  person,
corporation or other entity receiving such payment. Any amounts due and owing by
Debtor to Secured Party pursuant to this Agreement  shall bear interest from the
date such amount is expended by Secured  Party until paid at the Highest  Lawful
Rate and shall be a part of the  secured  indebtedness  and shall be  secured by
this Agreement and by any other instrument securing the secured indebtedness.

Section VI.     Events of Default.

         6.1 Debtor shall be in default under this Agreement upon the occurrence
of any Event of Default (as such term is defined in the Promissory  Note) or the
happening  of any of the  following  events or  conditions  (hereinafter  called
"Event of Default"):

(a)  Debtor  shall fail to pay any  principal  of or interest on the Note or any
     other indebtedness secured hereby as and when due; or

(b)  Debtor shall fail to pay at maturity,  or within any  applicable  period of
     grace,  any principal of or interest on any other  obligation or shall fail
     to observe or perform any term,  covenant  or  agreement  contained  in any
     agreement or  obligation by which Debtor is bound for such a period of time
     as would  accelerate,  or would permit the holder thereof to accelerate the
     maturity thereof; or
<PAGE>

(c)  Debtor or any other person  shall  claim,  or any court shall find or rule,
     that  Secured  Party does not have a valid lien on any  security  which may
     have been  provided  by Debtor or such other  person  for the  indebtedness
     secured hereby; or

(d)  The  occurrence  of an Event of Default under any other  instrument  now or
     hereafter securing or guaranteeing the indebtedness secured hereby.

Section VII.    Remedies In Event of Default.
---------------------------------------------

         7.1  Upon  the  occurrence  of an  Event  of  Default,  and at any time
thereafter,  Secured Party shall have the option of declaring, without notice to
any person, all indebtedness secured hereby,  principal and accrued interest, to
be immediately due and payable.

         7.2  Upon  the  occurrence  of an  Event  of  Default,  and at any time
thereafter,  Secured Party may, without notice except hereinafter provided, sell
the  Collateral or any part thereof at public or private sale or at any broker's
board or on any  securities  exchange  for  cash,  upon  credit,  or for  future
delivery,  and at such  price or prices as  Secured  Party  may deem  best,  and
Secured Party may be the purchaser of any and all of the  Collateral so sold and
may apply upon the purchase price therefor to any indebtedness secured hereby or
any part thereof and thereafter  hold the same absolutely free from any right or
claim of whatsoever  kind. Upon any such sale Secured Party shall have the right
to  deliver,  assign  and  transfer  tot he  broker  or  purchaser  thereof  the
Collateral.  Each  purchaser  at any such  sale  shall  hold the  property  sold
absolutely free from any claim or right of whatsoever kind, including any equity
or right of redemption, stay or appraisal which Debtor has or may have under any
rule of law or statute now existing or hereafter  adopted.  Secured  Party shall
give  Debtor ten (10) days  written  notice  mailed to Debtor at the address set
forth herein (which shall satisfy any requirement of notice or reasonable notice
in any applicable  statute) of Secured Party's intention to make any such public
or private sale. Such notice,  in case of public sale,  shall state the time and
place  fixed  for  such  sale,  and in case of sale at  broker's  board  or on a
securities exchange,  shall state the board or exchange at which such sale is to
be made and the day on which the  Collateral  or that  portion  thereof so being
sold will first be offered for sale at such board or  exchange.  Any such public
sale shall be held at such time or times, within the ordinary business hours and
at such place or places, as Secured Party may fix in the notice of such sale. At
any sale the  Collateral  may be sold in one lot as an  entirety  or in separate
parcels as Secured Party may determine.  Secured Party shall not be obligated to
make any sale pursuant to any such notice.  Secured Party may, without notice or
publication,  adjourn  any  public  or  private  sale or  cause  the  same to be
adjourned from time to time by  announcement at any time and place fixed for the
sale, and such sale may be made at any time or place to which the same may be so
adjourned;  provided, however that Secured Party shall give Debtor ten (10) days
written notice of the time and place of any such adjourned  sale. In case of any
sale of all or any part of the Collateral on credit or for future delivery,  the
Collateral so sold shall be retained by Secured Party until the selling price is
paid by the  purchaser  thereof,  but Secured  Party shall incur no liability in
case of the failure of such  purchaser to take up and pay for the  Collateral so
sold,  and in case of any such failure,  such  Collateral may again be sold upon
like  notice.  Each and every  method of  disposition  described in this Section
shall constitute  disposition in a commercially  reasonable manner. Debtor shall
remain  liable for any  deficiency.  Notwithstanding  anything  to the  contrary
contained herein because of the federal  Securities Act of 1933, as amended,  or
any other  applicable  laws or regulations,  there may be legal  restrictions or
limitations  affecting Secured Party's ability to dispose of certain portions of
the  Collateral in the  enforcement  of its rights and remedies  hereunder.  For
these reasons,  Secured Party is hereby authorized by Debtor, but not obligated,
upon the  occurrence  of any  Event of  Default,  to sell all or any part of the
Collateral at one or more private sales,  restricting the prospective bidders or
purchasers to persons who will  represent and agree that they are purchasing the
Collateral  for  their  own  account  or  investment  and not with a view to the
distribution  or resale of any of the Collateral or in any manner which will not
require the Collateral, or any part thereof, to be registered in accordance with
the Securities Act of 1933, as amended,  the rules and  regulations  promulgated
thereunder,  or any  other  law or  regulation,  at the  best  price  reasonably
obtainable by Secured Party at any such private sale or other disposition of any
of the  Collateral.  Debtor  clearly  understands  that Secured Party may in its
discretion approach a restricted number of potential  purchasers and that a sale
under such circumstances may yield a lower price for the Collateral, or any part
or parts thereof,  than would otherwise be obtainable if same were registered in
the open market.  Debtor agrees (i) that in the event Secured Party shall,  upon
the  occurrence  of any Event of Default,  sell the  Collateral,  or any portion
thereof,  at such private sale or sales,  Secured  Party shall have the right to
rely upon the advice and  opinion  of any member  firm of a national  securities
exchange as to the best price  reasonably  obtainable  upon such a private  sale
thereof,  and  (ii) in the  absence  of  fraud,  that  such  reliance  shall  be
conclusive  evidence  that  Secured  Party  disposed  of  the  Collateral  in  a
commercially reasonable manner under the Uniform Commercial Code of Texas.

<PAGE>

         7.3  Upon  the  occurrence  of an  Event  of  Default,  and at any time
thereafter,  Secured  Party  shall have all the rights of a secured  party after
default under the Uniform Commercial Code of Texas, and in conjunction with, and
in addition to those rights; and

(a)  written  notice mailed to Debtor as provided  herein ten (10) days prior to
     the date of public sale of the  Collateral or prior to the date after which
     private sale of the  Collateral  will be made shall  constitute  reasonable
     notice; and

(b)  it shall  not be  necessary  that the  Collateral  or any part  thereof  be
     present at the location of such sale; and

(c)  prior  to  the  application  of the  proceeds  of  any  disposition  of the
     Collateral to the secured  indebtedness,  such proceeds shall be applied to
     the expenses of retaking,  holding,  preparing for sale or lease,  selling,
     leasing and the like and the attorneys' fees and legal expenses incurred by
     the Secured Party, Debtor to remain liable for any deficiency; and

(d)  the sale by Secured  Party of less than the whole of the  Collateral  shall
     not exhaust the rights of Secured  Party  hereunder,  and Secured  Party is
     specifically empowered to make successive sale or sales hereunder until the
     whole of the Collateral shall be sold; and, if the proceeds of such sale of
     less than the whole of the  Collateral  shall be less than the aggregate of
     the indebtedness  security hereby, this Agreement and the security interest
     created  shall  hereby  remain in full  force and  effect as to the  unsold
     portion of the Collateral just as though no sale had been made;

(e)  in the event any sale  hereunder  is not  completed  or is defective in the
     opinion of Secured Party, such sale shall not exhaust the rights of Secured
     Party  hereunder  and  Secured  Party  shall  have  the  right  to  cause a
     subsequent sale or sales to be made hereunder; and

(f)  any and all  statements of fact or other  recitals made in any bill of sale
     or assignment or other instrument evidencing any foreclosure sale hereunder
     as to  nonpayment  of  the  indebtedness  or as to  the  occurrence  of any
     default, or as to Secured Party having declared all of such indebtedness is
     due and payable,  or as to notice of time,  place and terms of sale and the
     properties to be sold having been duly given,  as to any other thing having
     been duly done by Secured Party,  shall be taken as prima facie evidence of
     the truth of the facts so stated and recited; and

(g)  Secured  Party may appoint or delegate  any one or more persons as agent to
     perform any act or acts  necessary  or incident to any sale held by Secured
     Party, including the sending of notices and the conduct of sale, but in the
     name and on behalf of Secured Party.

         7.4 All remedies  herein  expressly  provided for are cumulative of any
and all other  remedies  existing at law or in equity and are  cumulative of any
and all other remedies provided for in any other instrument securing the payment
of the secured  indebtedness,  or any part  thereof,  or  otherwise  benefitting
Secured  Party,  and the  resort  to any  remedy  provided  for by law shall not
prevent the concurrent or subsequent  employment of any other appropriate remedy
or remedies.

         7.5 Secured Party may resort to any security given by this Agreement or
to any other  security now existing or hereafter  given to secure the payment of
the secured indebtedness,  in whole or in part, and in such portions and in such
order as may seem best to Secured Party in its sole and uncontrolled discretion,
and any such action shall not in any way be considered as a waiver of any of the
rights, benefits or security interests evidenced by this Agreement.

Section VIII.   Additional Agreements.

         8.1 If all of the secured  indebtedness is paid as the same becomes due
and  payable,  and  if  all  of  the  covenants,  warranties,  undertakings  and
agreements made in this Agreement are kept and performed, then and in that event
only, all rights under this Agreement shall  terminate and the Collateral  shall
become wholly clear of the security interest evidenced hereby, and such security
interest shall be released by Secured Party in due form at Debtor's cost.
<PAGE>

         8.2 Secured Party may waive any default without waiving any other prior
or subsequent default.  Secured Party may remedy any default without waiving the
default remedied.  The failure by Secured Party to exercise any right,  power or
remedy upon any default shall not be construed as a waiver of such default or as
a waiver of the right to  exercise  any such  right,  power or remedy at a later
date.  No single or partial  exercise  by Secured  Party of any right,  power or
remedy  hereunder  shall exhaust the same or shall preclude any other or further
exercise  thereof,  and  every  such  right,  power or remedy  hereunder  may be
exercised at any time and from time to time.  No  modification  or waiver of any
provision  hereof nor consent to any departure by Debtor  therefrom shall in any
event be  effective  unless the same  shall be in writing  and signed by Secured
Party and then such waiver or consent  shall be  effective  only in the specific
instances,  for the purpose for which given and to the extent therein specified.
No notice to nor demand on Debtor in any case shall of itself  entitle Debtor to
any  other or  further  notice  of demand  in  similar  or other  circumstances.
Acceptance  by Secured  Party of any payment in amount less than the amount then
due on any secured  indebtedness  shall be deemed an  acceptance on account only
and shall not in any way affect the existence of a default hereunder.

         8.3 Secured  Party may at any time and from time to time in writing (a)
waive compliance by Debtor with any covenant herein made by Debtor to the extent
and in the manner specified in such writing; (b) consent to Debtor doing any act
which hereunder Debtor is prohibited from doing, or consent to Debtor failing to
do any act which  hereunder  Debtor is  required to do, to the extent and in the
manner specified in such writing; (c) release any part of the Collateral, or any
interest  therein from the security  interest of this Agreement,  or (d) release
any party liable,  either directly or indirectly,  from the secured indebtedness
or from any covenant herein or in any other instrument now or hereafter securing
the payment of the secured indebtedness. No such act shall in any way impair the
rights of Secured  Party  hereunder  or impair or release the  liability  of any
party  except to the  extent  specifically  agreed to by  Secured  Party in such
writing.

         8.4 Any  notice,  request,  demand or other  communication  required or
permitted  hereunder  shall be given in writing by delivering  same in person to
the intended  addressee,  or by United States Postal Service,  postage  prepaid,
registered or certified mail, return receipt  requested,  or by prepaid telegram
(provided  that such  telegram  is  confirmed  by mail in the manner  previously
described),  sent  to the  intended  addressee  at the  address  shown  in  this
Agreement,  or to such different  address as the addressee shall have designated
by written notice sent in accordance herewith and actually received by the other
party at least ten (10) days in advance  of the date upon  which such  change of
address shall be effective.

         8.5 This  Agreement  shall  be  binding  upon  Debtor,  and the  heirs,
devisees,  administrators,   executors,  personal  representatives,   receivers,
trustees, successors and assigns of Debtor, including all successors in interest
of Debtor in and to all or any part of the  Collateral,  and shall  inure to the
benefit of Secured Party and the successors  and assigns of Secured  Party.  All
references  in this  Agreement  to Debtor or  Secured  Party  shall be deemed to
include all such parties.

         8.6  Secured  Party in its  discretion  may,  whether or not any of the
indebtedness  secured  hereby  be due,  in its name or in the name of  Debtor or
otherwise,  demand,  sue for,  collect or receive any money or other property at
any time  payable or  receivable  on account of or in exchange  for, or make any
compromise  settlement  deemed desirable with respect to, any of the Collateral,
but Secured Party shall be under no obligation to do so.

         8.7  Whenever  possible  each  provision  of this  Agreement  shall  be
interpreted in a manner as to be effective and valid. A  determination  that any
provision of this  Agreement in  unenforceable  or invalid  shall not affect the
enforceability or validity of any other provision,  and any  determination  that
the application of any provision of this Agreement to any person or circumstance
is illegal and unenforceable  shall not affect the enforceability or validity of
such provision as it may apply to other persons or circumstances.

         8.8 Secured  Party,  may by any employee or  employees  it  designates,
execute,  sign,  endorse,  transfer,  or deliver  in the name of Debtor,  notes,
checks, drafts or other instruments for the payment of money and receipts or any
other  documents  necessary to  evidence,  perfect and realize upon the security
interests and obligations of this Agreement.
<PAGE>

         8.9 Secured  Party's  duty with  reference to the  Collateral  shall be
solely to use reasonable care in the custody and  preservation of the Collateral
in Secured Party's possession. Secured Party shall not be responsible in any way
for  any  depreciation  in  value  of the  Collateral,  nor  shall  any  duty or
responsibility  whatsoever  rest upon Secured Party to take  necessary  steps to
preserve rights against prior parties or to enforce collection of the Collateral
by legal  proceedings  or  otherwise,  the sole duty of the Secured  Party,  its
successors and assigns,  being to receive collections,  remittances and payments
on such  Collateral  as and when made.  In the event  Debtor  instructs  Secured
Party, in writing or orally, to deliver any or all of the Collateral to a broker
or other  third  person,  and  Secured  Party  agrees  to do so,  the  following
conditions  shall  be  conclusively  deemed  to be a  part  of  Secured  Party's
agreement,  whether or not they are specifically mentioned to Debtor at the time
of such agreement. Secured Party shall assume no responsibility for checking the
genuiness or authenticity of any person  purporting to be a messenger,  employee
or  representative  of the  broker  or other  third  person to whom  Debtor  has
directed  Secured  Party  to  deliver  the  Collateral,   or  the  genuiness  or
authenticity  of any  document of  instructions  delivered  by any such  person.
Debtor will be considered  by  requesting  any such delivery to have assumed all
risk of loss as to the Collateral.  Secured Party's sole  responsibility will be
to deliver the  Collateral  to the person  purporting  to be the broker or third
person described by Debtor, or a messenger,  employee or representative thereof.
Secured Party and Debtor hereby  expressly  agree that the foregoing  actions by
Secured Party shall constitute reasonable care.

         8.10 The pronouns used in this  Agreement  are in the masculine  gender
but shall be construed as feminine or neuter as occasion may require.

         8.11  The  section  headings  appearing  in this  Agreement  have  been
inserted  for  convenience  only and shall be given no  substantive  meaning  or
significance  whatever in construing the terms and provisions of this Agreement.
Terms used in this Agreement  which are defined in the Texas Uniform  Commercial
Code are used with the meanings as therein defined.

         8.12 This  Agreement  shall be governed by and  construed in accordance
with the laws of the State of Texas and the United States of America.

         EXECUTED as of this 16th day of October.

                                                       "DEBTOR"

                                                       By: /s/ Patrick Greene
                                                          ----------------------
                                                       M&A WEST, INC.

                                                       "SECURED PARTY"

                                                       By: /s/ Hank Vanderkam
                                                          ----------------------
                                                       VANDERKAM & SANDERS<PAGE>

                                                                    EXHIBIT 4.12

                      SECOND AMENDED AND RESTATED AGREEMENT

     This Amended and Restated Agreement (as the same may be amended, modified
or supplemented from time to time in accordance with the terms hereof, the
"Agreement"), dated as of January 11, 2002, is entered into by and among Pacific
Aerospace & Electronics, Inc. (the "Company"), and each of the undersigned
holders (each, a "Consenting Noteholder") of the 11 1/4% Senior Subordinated
Notes due 2005 (the "Notes") issued pursuant to that certain indenture (the
"Indenture") dated as of July 30, 1998 by and among the Company, the Guarantors
(as defined therein) and The Bank of New York (as successor to IBJ Schroeder
Bank & Trust Company), as Trustee (the "Trustee").

                                    RECITALS

     WHEREAS the Company has failed to pay the interest payment on the Notes
which was due on August 1, 2001 (the "Default");

     WHEREAS by reason of the Default, the holders of the Notes have certain
rights under the Indenture to accelerate payment of the Notes;

     WHEREAS the Company and the Consenting Noteholders have engaged in good
faith negotiations with the objective of reaching a mutually acceptable
agreement for the exchange of the Notes for new notes (the "New Notes"), common
stock and preferred stock of the Company;

     WHEREAS the Consenting Noteholders have agreed to exchange their Notes to
the Company on the terms set forth in the term sheet attached hereto as Exhibit
A (the "Term Sheet") and incorporated into this Agreement as if fully set forth
herein (the "Exchange");

     WHEREAS to expedite and ensure implementation of the Exchange, (i) the
Company is prepared to propose the Exchange, seek the necessary approvals for
the Exchange as expeditiously as possible and perform its other obligations
hereunder and (ii) the Consenting Noteholders are prepared to commit, on the
terms and subject to the conditions of this Agreement and applicable law, to
exchange their Notes when solicited to do so and to perform their other
obligations hereunder; and

     WHEREAS, the Company and the Consenting Noteholders previously entered into
an Agreement dated September 7, 2001, that was amended and restated in full by
the Amended and Restated Agreement dated October 19, 2001 (the "Prior
Agreement") setting forth the terms of a restructuring and the parties hereto
now wish to amend and restate the Prior Agreement in full and replace it with
this Agreement.

     NOW THEREFORE, in consideration of the foregoing recitals, terms and
conditions set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and each
Consenting Holder (each a "party" or "Party" and collectively, the "parties" or
"Parties"), intending to be legally bound, agree as follows:

<PAGE>

     1. Any term defined in the description of the Parties above or in any of
the recitals hereto shall have the meaning given to it in the description or
recital, as the case may be.

     2. Means for Effecting the Exchange. The Company and the Consenting
Noteholders agree that the Exchange shall be in accordance with the terms of the
Term Sheet annexed hereto as Exhibit A and be accomplished by an out of court
exchange and consent solicitation in which 100% of the Notes participate (which
percentage may be waived by the holders of 95% in aggregate principal amount of
the Notes). The exchange offer will be conducted to conform with the
requirements of Section 3(a)(9) of the Securities Act of 1933 and Rule 150,
adopted thereunder, and Section 14(e) of the Exchange Act and Regulation 14E,
adopted thereunder, and all other applicable federal and state securities laws.

     3. Preparation of Exchange Documents. Promptly upon execution of this
Agreement by the holders of at least 97.5% of the outstanding principal amount
of the Notes, the Company shall instruct its counsel to prepare for the review
and approval of the Parties hereto all documents needed to effectuate the
Exchange as contemplated in this Agreement (collectively, the "Exchange
Documents"). The Company and the Consenting Noteholders shall coordinate with
one another in the preparation of the Exchange Documents.

     4. Conditions to the Exchange. The Exchange shall not close unless and
until 100% of the outstanding principal amount of the Notes have tendered their
Notes for exchange (which provision may be waived by the holders of 95% in
aggregate principal amount of the Notes).

     5. Support of the Exchange. Each of the Consenting Noteholders agrees that,
subject to the conditions that, and only for so long as, (i) each of the
Exchange Documents shall be reasonably satisfactory to it, (ii) the material
terms of the Exchange Documents are substantially identical (subject to the "Tax
Considerations" section of the Term Sheet) to the terms set forth on the Term
Sheet annexed hereto as Exhibit A, and (iii) no Noteholders Termination Event
(as defined below) shall have occurred and not have been waived in accordance
herewith, it (1) shall exchange its Notes (and tender its Notes for exchange in
accordance with the Term Sheet), (2) hereby consents to amendments to the
Indenture if carried out substantially in accordance with the Term Sheet, (3)
shall execute an agreement setting forth the shareholder arrangements set forth
in the section entitled "Post Restructuring Board Composition" contained in the
Term Sheet, (4) to the extent permitted under the Indenture, hereby waives any
default existing on or prior to the date of this Agreement thereunder, and (5)
to the extent permitted under the Indenture, hereby agrees to waive any default
arising after the date of this Agreement under the Indenture through the earlier
of consummation of the Exchange or termination of this Agreement in accordance
with the provisions hereof. Each of the Consenting Noteholders shall not: (a)
object to the consummation of the Exchange or otherwise commence any proceeding
to oppose the Exchange or any of the Exchange Documents so long as the Exchange
Documents contain terms and conditions substantially identical (subject to the
"Tax Considerations" section of the Term Sheet) with those contained in this
Agreement and the Term Sheet; (b) vote for, consent to, support or participate
in the formulation of any other out-of-court exchange for the Notes or
restructuring of the Company, or a plan of reorganization or liquidation under
applicable bankruptcy or insolvency laws, whether domestic or foreign, in
respect of the Company; (c) directly or indirectly seek, solicit, support or

                                       2

<PAGE>

encourage any other out-of-court exchange for the Notes or restructuring, plan,
proposal or offer of dissolution, winding up, liquidation, reorganization,
merger or restructuring of the Company (other than one agreed to in writing by
the Company and the Consenting Noteholders) that is inconsistent with this
Agreement; or (d) take any other action, including but not limited to initiating
any legal proceeding that is materially inconsistent with, or that would
materially delay consummation of, the Exchange; provided, however, that nothing
contained herein shall limit the ability of any Consenting Holder to consult
with the Company concerning any matter arising in connection with the Exchange
so long as such consultation is not inconsistent with such Consenting Holder's
obligations hereunder and the terms of the Exchange.

     6. Acknowledgment. This Agreement and the terms of the Exchange are the
product of negotiations between the Company and the Consenting Noteholders. This
Agreement is not and shall not be deemed to be a solicitation for consents to
amendments to the Indenture or a solicitation to tender or exchange the Notes.
Acceptance of the Exchange will not be solicited from any holder of the Notes
until it has received the disclosures required under applicable law.
Notwithstanding anything contained herein, the Consenting Noteholders shall be
under no requirement to consent to amendments to the Indenture or to exchange
their Notes, if the Exchange Documents presented to the Consenting Noteholders
provide for any terms that are materially inconsistent with this Agreement,
including, not limited to, the provisions of the Term Sheet. The Company
acknowledges and agrees that (i) the Indenture and all instruments and documents
executed in connection therewith constitute valid and binding agreements of the
Company and (ii) the Company does not possess and will not assert, any claim,
counterclaim setoff or defense of any kind or nature, which would in any way
affect the validity or enforceability of any claim arising from the Notes, or
which would in any way reduce or affect the absolute and unconditional
obligation of the Company to pay all of the obligations arising from the Notes.

     7. Company Agreements. The Company hereby agrees (i) to prepare all of the
Exchange Documents in a timely fashion, (ii) to ensure that all of the Exchange
Documents contain terms and conditions substantially identical (subject to the
"Tax Considerations" section of the Term Sheet) with those contained in this
Agreement and the Term Sheet, (iii) to file all applicable reports and other
documents as required under the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder within the time limits or periods specified
therein, (iv) to afford reasonable opportunity in advance of filing any such
reports, documents or the Exchange Documents to Dewey Ballantine LLP, on behalf
of the Consenting Noteholders, to review and comment upon such reports,
documents, Exchange Documents and any other material disclosure or press
releases, (v) to take all reasonable steps necessary and desirable to obtain
approval for the Exchange as expeditiously as possible under applicable law,
(vi) to use reasonable best efforts to obtain any and all requisite regulatory
and/or third party approvals for the Exchange and (vii) to take commercially
reasonable efforts to identify promptly any Noteholders that are not, as of the
date hereof, Consenting Noteholders.

     8. Termination of the Consenting Noteholders' Obligations. Each of the
Consenting Noteholders may terminate its obligations hereunder and rescind its
acceptance of the Exchange by giving written notice thereof to the other
Consenting Noteholders, if any, and the Company of the following (each, a
"Noteholders Termination Event"): (a) the Exchange Documents provide

                                       3

<PAGE>

or are modified to provide for any terms that are adverse to
or materially inconsistent with any of the terms or conditions of this Agreement
or the Term Sheet, (b) the Company materially breaches this Agreement or fails
to satisfy any of the terms or conditions of the Term Sheet in any material
respect, (c) the Exchange is not consummated by January 31, 2002, (d) the
Company shall file any proceeding under any provision of the Bankruptcy Code or
under any other state, federal or foreign bankruptcy law, (e) any person shall
commence any proceeding under any provision of the Bankruptcy Code or under any
other state, federal or foreign bankruptcy law against the Company, (f) the
Company shall withdraw or revoke the Exchange, or the Company shall publicly
announce its intention not to pursue the Exchange, (g) any other Consenting
Noteholder shall have materially breached any of its material obligations under
this Agreement, which breach shall not have been cured within 10 days of
receiving notice thereof or (h) DDJ Capital Management, LLC accelerates payment
of the Existing Senior Loans (as defined in the Term Sheet).

     9. Termination of the Company's Obligations. The Company shall have the
right to terminate this Agreement, by the giving of written notice thereof to
each of the Consenting Noteholders: (a) in the event of a material breach of
this Agreement by the Consenting Noteholders, (b) the failure to satisfy any
material term or condition of the Term Sheet by any Consenting Noteholder or (c)
the Exchange is not consummated by January 31, 2002 (a "Company Termination
Event").

     10. Effects of Termination. Subject to Paragraph 22 hereof and the
confidentiality provisions contained in the Term Sheet, upon the occurrence of a
Noteholders Termination Event or a Company Termination Event, unless such
Noteholders Termination Event or a Company Termination Event has been waived in
accordance with the terms hereof, in each case resulting in the termination of
the Consenting Noteholders' obligations or the Company's obligations (as the
case may be) under the terms of Paragraph 8 or Paragraph 9 above, this Agreement
shall terminate and no party hereto shall have any continuing liability or
obligation to any other party hereunder and each party shall have all of the
rights and remedies available to it under applicable law and/or any Indenture,
and any ancillary documents or agreements thereto, including under this
Agreement; provided, however, that no such termination shall relieve any party
from liability for its breach or non-performance of its obligations hereunder
prior to the date of such termination.

     11. Forbearance; Restrictions on Transfers. So long as obligations of the
Consenting Noteholders have not been terminated: (a) the Consenting Noteholders
will (i) not file a notice of default or sale or take any other action to
collect on the Notes, including, without limitation, instructing the Trustee on
how to proceed in the exercise of any and all remedies, and (ii) give
instructions to the Trustee, if and when reasonably appropriate, to desist from
taking action that is inconsistent with this Agreement or the Exchange, so long
as no indemnity of such Consenting Noteholders is required for such action to be
taken by the Trustee; and (b) each of the Consenting Noteholders will not,
directly or indirectly, sell, assign, transfer, hypothecate or otherwise dispose
of (i) any Notes beneficially owned by it or as to which it has investment
authority or discretion (including Notes acquired after the date hereof), (ii)
any claim (as that term is defined in section 101(5) of the Bankruptcy Code)
arising from, based on or related to the Notes, or (iii) any option, interest
in, or right to acquire any Notes or claim referred to in clauses

                                       4

<PAGE>

(i) and (ii) above, unless the transferee thereof agrees in writing for the
benefit of the other parties hereto to be bound by (y) all of the terms of this
Agreement and executes a counterpart signature page of this Agreement and (z) a
confidentiality agreement in substantially similar form to that executed with
the Company by the transferor, and the transferor provides each of the Company
and the Consenting Noteholders in accordance with Paragraph 13 below with copies
thereof, in which event each party shall be deemed to have acknowledged that its
obligations to the Consenting Holders hereunder shall be deemed to constitute
obligations in favor of such transferee.

     12. New Senior Secured Loan. Each of the Consenting Noteholders hereby
acknowledges that one or more of the Consenting Noteholders (or one or more
affiliates thereof) will make a new senior secured loan to the Company (by
purchasing newly-issued Senior Secured Notes) on substantially the terms set
forth in the term sheet attached hereto as Exhibit B (the "New Senior Secured
Loan") substantially concurrently with the Exchange and hereby consents to the
making of such New Senior Secured Loan by one or more of the Consenting
Noteholders (or one or more affiliates thereof).

     13. Notices. Notices given under this Agreement shall be to:

                                    For the Company:
                                    ---------------
                                    Kenneth J. Baronsky, Esq.
                                    Milbank, Tweed, Hadley & McCloy LLP
                                    601 South Figueroa Street, 30th Floor
                                    Los Angeles, California 90017

                                    Telephone:   (213) 892-4000
                                    Telecopy:    (213) 629-5063

                                    For the Consenting Noteholders:
                                    ------------------------------
                                    Michael J. Sage, Esq.
                                    Dewey Ballantine LLP
                                    1301 Avenue of the Americas
                                    New York, NY 10019

                                    Telephone:   (212) 259-8000
                                    Telecopy:    (212) 259-6333

     14. Reservation of Rights. Except as expressly provided in this Agreement,
nothing herein is intended to, or does, in any manner waive, limit, impair or
restrict the ability of each Consenting Noteholder and the Trustee to protect
and preserve its rights, remedies and interests, including without limitation,
its claims against the Company. Nothing herein shall be deemed an admission of
any kind. Nothing contained herein effects a modification of the Consenting
Noteholders' or the Trustee's rights under the Indenture, the Notes or other
documents and agreements unless and until the Exchange is consummated. If the
transactions contemplated herein are not consummated, or if this Agreement is
terminated for any reason, the parties hereto fully reserve any and all of their
rights. Pursuant to Federal Rule of Evidence 408, any applicable state rules of
evidence and any other applicable law, foreign or domestic, this

                                       5

<PAGE>

Agreement and all negotiations relating thereto shall not be admissible into
evidence in any proceeding other than a proceeding to enforce its terms.

     15. Good Faith Negotiations of Exchange Documents; Further Assurances. The
Company and each of the Consenting Noteholders hereby further covenant and agree
to negotiate the definitive documents relating to the Exchange, including,
without limitation, the Exchange Documents, in good faith. Furthermore, each of
the Parties shall take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement (provided that no Consenting
Holder shall be required to incur any expense, liability or other monetary
obligation), and shall refrain from taking any action which would frustrate the
purposes and intent of this Agreement.

     16. Effectiveness; Counterparts. This Agreement shall not become effective
and binding on the parties hereto unless and until counterpart signature pages
hereto shall have been executed and delivered by the Company and each
undersigned Consenting Noteholder. This Agreement may be executed by one of more
of the parties hereto in any number of counterparts, each of which shall be
deemed to be an original, but all such counterparts when taken together shall
constitute one and the same instrument. Except as expressly provided for herein,
no modification, amendment or waiver of any provision of this Agreement or the
Term Sheet shall be effective unless such modification, amendment or waiver is
in writing and signed by each of the parties hereto. The agreements,
representations and obligations of the Consenting Noteholders under this
Agreement are, in all respects, several and not joint.

     17. Representations and Warranties. Each Consenting Noteholder represents
and warrants to the Company and each other that it is an accredited investor and
owns the Notes that represent a beneficial interest in the total principal
amount (of record and/or beneficially) set forth next to its name on the
signature pages hereof, or as to which such holder or its Affiliates (as that
term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as
amended, and over whom the Consenting Noteholder exercises sufficient control to
ensure enforcement of the provisions of this Agreement) has investment authority
or discretion, and such Notes constitute all of such Notes so owned or
controlled by such holder and its Affiliates. Each party hereunder represents
and warrants that the following statements are true, correct and complete as of
the date hereof.

     (a) Power, Authority and Authorization. Execution, delivery and performance
of this Agreement by such party has been duly authorized by all necessary
corporate action on the part of such party, and the person executing this
Agreement on behalf of such party is duly authorized to do so;

     (b) No Conflicts. The execution, delivery and performance of this Agreement
by such party does not and shall not (i) violate any provision of law, rule or
regulation applicable to it or any of its subsidiaries or its organizational
documents or those of any of its subsidiaries or (ii) except to the extent
previously disclosed in writing to the Noteholders, conflict with, result in a
breach of or constitute (with due notice or lapse of time or both) a default
under any material contractual obligations to which it or any of its
subsidiaries is a party or under its organizational documents;

                                       6

<PAGE>

     (c) Governmental Consents. The execution, delivery and performance by it of
this Agreement do not and shall not require any registration or filing with,
consent or approval of, or notice to, or other action to, with or by, any
federal, state or other governmental authority or regulatory body, except such
filing as may be necessary and/or required for disclosure by the Securities and
Exchange Commission or pursuant to state securities or "blue sky" laws; and

     (d) Binding Obligation. This Agreement is the legally valid and binding
obligation of each of the undersigned, enforceable against it in accordance with
its terms, except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws, both foreign and domestic,
relating to or limiting creditors' rights generally or by equitable principles
relating to enforceability.

     18. Disclosure of Individual Holdings. Unless required by applicable law or
regulation, the Company shall not disclose (i) the amount of a Consenting
Noteholder's holdings of Notes, or (ii) the terms of this Agreement, without the
prior written consent of such Consenting Noteholder; and if such announcement or
disclosure is so required by law or regulation, the Company shall afford the
Consenting Noteholders a reasonable opportunity to review and comment upon any
such announcement or disclosure prior to such announcement or disclosure by the
Company. The foregoing shall not prohibit the Company from disclosing the
approximate aggregate holdings of Notes by the Consenting Noteholders or the
holders of the Notes as a group.

     19. Entire Agreement. This Agreement, including Exhibits A and B and the
Exchange Documents, constitutes the entire agreement among the parties
pertaining to the subject matter hereof and supersedes all prior agreements and
understandings of the parties in connection therewith.

     20. Representation by Counsel. Each party hereto acknowledges that it has
been represented by counsel (or had the opportunity to and waived its right to
do so) in connection with this Agreement and the transactions contemplated by
this Agreement. Accordingly, any rule of law or any legal decision that would
provide any party hereto with a defense to the enforcement of the terms of this
Agreement against such party based upon lack of legal counsel shall have no
application and is expressly waived. The provisions of this Agreement shall be
interpreted in a reasonable manner to effect the intent of the parties hereto.
None of the parties hereto shall have any term or provision construed against
such party solely by reason of such party having drafted the same.

     21. Specific Performance. It is understood and agreed by each of the
parties hereto that money damages would not be a sufficient remedy for any
breach of this Agreement by any party and each non-breaching party shall be
entitled to specific performance and injunctive or other equitable relief as a
remedy of any such breach.

     22. Prevailing Party. If any party brings an action against any other party
based upon a breach by such other party of its obligations hereunder, the
prevailing party shall be entitled to all reasonable expenses incurred,
including reasonable attorneys', accountants' and financial advisors' fees in
connection with such action.

                                       7

<PAGE>

     23. Survival. Notwithstanding the sale of the Notes in accordance with
Paragraph 11 hereof or the termination of the Consenting Noteholders'
obligations hereunder in accordance with Paragraph 8 hereto, the Company's
obligations and agreements set forth in Paragraph 18 (with respect to disclosure
of certain information) hereof shall survive such termination and shall continue
in full force and effect for the benefit of the Consenting Noteholders in
accordance with the terms hereof.

     24. Successors and Assigns. This Agreement is intended to bind and inure to
the benefit of the parties and their respective successors, assigns, heirs,
executors, administrators and representatives; provided, however, that nothing
contained in this Paragraph shall be deemed to permit sales, assignments or
transfers other than in accordance with Paragraph 11.

     25. No Third Party Beneficiaries. Unless expressly stated herein, this
Agreement shall be solely for the benefit of the parties hereto and no other
person or entity.

     26. Headings. The headings of the sections, paragraphs and subsections of
this Agreement are inserted for convenience only and shall not affect the
interpretation thereof.

     27. Further Acquisition of Notes. Any Consenting Holder may acquire
additional Notes to the extent permitted by applicable law. However, each such
Consenting Holder agrees that it shall exchange any such additional Notes, in
accordance with the terms hereof and for so long as such Consenting Holder is
obligated to exchange its Notes in accordance with the terms hereof.

     28. Amendments and Waivers. Once effective (unless otherwise provided
herein), this Agreement may not be modified, amended or supplemented, and none
of the Noteholders Termination Events may be waived, except in writing signed by
holders of at least 75% of the aggregate principal amount of Notes; provided,
however, it shall require the waiver, in writing, of all parties hereto to
extend any of the dates set forth in Sections 8 and 9 hereto by more than ten
(10) business days from the dates set forth in such Section; and further
provided, however, that any modification of, or amendment or supplement to, this
Section 28 or any material term or provision of the Term Sheet or the Exchange
shall require the written consent of all of the parties.

     29. GOVERNING LAW; JURISDICTION. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO ANY CONFLICTS OF LAW PROVISIONS WHICH WOULD REQUIRE THE APPLICATION OF
THE LAW OF ANY OTHER JURISDICTION. BY ITS EXECUTION AND DELIVERY OF THIS
AGREEMENT, EACH OF THE PARTIES HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES FOR
ITSELF THAT ANY LEGAL ACTION, SUIT OR PROCEEDING AGAINST IT WITH RESPECT TO ANY
MATTER UNDER OR ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR FOR
RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT RENDERED IN ANY SUCH ACTION, SUIT OR
PROCEEDING, MAY BE BROUGHT IN ANY FEDERAL OR STATE COURT IN THE BOROUGH OF
MANHATTAN, THE CITY OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS
AGREEMENT, EACH OF

                                       8

<PAGE>

THE PARTIES HEREBY IRREVOCABLY ACCEPTS AND SUBMITS ITSELF TO THE NONEXCLUSIVE
JURISDICTION OF EACH SUCH COURT, GENERALLY AND UNCONDITIONALLY, WITH RESPECT TO
ANY SUCH ACTION, SUIT OR PROCEEDING.

     30. Fees and Expenses. Notwithstanding anything contained herein to the
contrary, the Consenting Holders shall not be obligated to perform under this
Agreement unless the Company shall have fully discharged all of its obligations
then due and owing under that certain letter agreement heretofore entered into
by the Company and Dewey Ballantine LLP.

     31. Prior Negotiations; Prior Agreement. This Agreement and Exhibits A and
B annexed hereto supersede all prior negotiations with respect to the subject
matter hereof and replace in full the Prior Agreement, except that the parties
acknowledge that any confidentiality agreements heretofore executed between the
Company and each Consenting Holder shall continue in full force and effect. The
Prior Agreement is hereby terminated, and shall be of no further force or
effect.

     32. Consideration. It is hereby acknowledged by the parties that no
consideration shall be due or paid to the Consenting Holders for their agreement
to participate in the Exchange, in accordance with the terms and conditions of
this Agreement other than the obligations imposed upon the Company pursuant to
the terms of this Agreement and the Term Sheet, including, without limitation,
the obligation to take reasonable steps necessary and desirable to obtain
approval of the Exchange as expeditiously as possible under applicable law and
to use reasonable best efforts to obtain any and all requisite regulatory and/or
third party approvals for the Exchange in accordance with the terms and
conditions of this Agreement.

     33. Severability. If any provision of this Agreement is held to be invalid
or unenforceable in whole or in part, such invalidity or unenforceability shall
attach only to such provision or part thereof and the remaining part of such
provision hereof shall continue in full force and effect.

                                       9

<PAGE>

     IN WITNESS WHEREOF, each of the parties below have executed a counterpart
of this Agreement, the terms of which shall be effective upon execution by the
Company and the Consenting Noteholders.

Dated:  January 11, 2002               Pacific Aerospace & Electronics, Inc.

                                       By:    /s/ Donald Wright
                                              ---------------------------------
                                       Name:  Donald Wright
                                       Title: Chief Executive Officer

                                       10

<PAGE>

Dated:  January 11, 2002          GSCP Recovery, Inc.

                                  By:    /s/ Matthew Kaufman
                                         ---------------------------------
                                  Name:  Matthew Kaufman
                                  Title: Managing Director

                                  Address:  12 E. 49th Street
                                            New York, NY 10017

                                  Tel.:  (212) 884-6202
                                  Fax:   (212) 884-6184

                                  Principal amount of Notes held: $34.26 million

                                       11

<PAGE>

Dated:  January 11, 2002          Alliance Capital Management L.P., as
                                  investment advisor
                                  By:  Alliance Capital Management Corp

                                  By:    /s/ Michael E. Sohr
                                         --------------------------------------
                                  Name:  Michael E. Sohr
                                  Title: Vice President

                                  Address:  1345 Avenue of the Americas
                                            39th Floor
                                            New York, NY 10105

                                            Tel.:  (212) 969-6938
                                            Fax:   (212) 969-6820

                                  Principal amount of Notes held: $8.5 million

                                       12

<PAGE>

Dated:  January 11, 2002        M.W. Post Advisory Group L.L.C., as investment
                                advisor

                                By:    /s/ Lawrence Post
                                       ------------------------------------
                                Name:  Lawrence Post
                                Title: Managing Member

                                Address:  1880 Century Park East
                                          Suite 820
                                          Los Angeles, CA 90067

                                Tel.:  (310) 407-0945
                                Fax:   (310) 407-0951

                                Principal amount of Notes held: $17.145 million

                                       13

<PAGE>

Dated:  January 11, 2002          William E. Simon & Sons Special Situation
                                  Partners II, L.P.

                                  By:    /s/ John E. Klinge
                                         ------------------------------------
                                  Name:  John E. Klinge
                                  Title: Principal

                                  Address:  10990 Wilshire Blvd, Suite 500
                                            Los Angeles, CA 90024

                                  Tel.:  310-996-8740
                                  Fax:   310-996-9796

                                  Principal amount of Notes held: $2.5 million

                                       14

<PAGE>

                                    EXHIBIT A

                                   TERM SHEET

                      PACIFIC AEROSPACE & ELECTRONICS, INC.
                      Exchange of Senior Subordinated Notes

                               -------------------

The following constitutes the principal terms for an exchange (the "Exchange")
of the 11 1/4% Senior Subordinated Notes due 2005 (the "Notes") issued by
Pacific Aerospace & Electronics, Inc. (the "Company"), to be followed by (1) a
solicitation of the stockholders of the Company with respect to voting on an
amendment to the Company's Articles of Incorporation to increase the number of
authorized shares of common stock and (2) upon such amendment becoming
effective, an automatic conversion of the convertible preferred stock received
in the Exchange (collectively, with the Exchange, the "Transaction"). This term
sheet does not address any obligations of the Company to any other of its
creditors. The terms discussed herein are part of a comprehensive compromise,
each element of which is consideration for the other elements and an integral
aspect of the proposed restructuring. Except for the Confidentiality provision
below, this proposed term sheet does not constitute an offer or a legally
binding obligation of the Company or the Noteholders or any other party in
interest. This term sheet is proffered in the nature of a settlement proposal in
furtherance of settlement discussions, and is intended to be entitled to
protection from any use or disclosure to any party or person pursuant to Fed. R.
Evid. 408 or any other applicable rule of evidence.

OBJECTIVE:          The holders of the Company's Notes (the "Noteholders") will
                    exchange their Notes for a combination of new Pay-in-kind
                    notes ("PIK Notes"), common stock and convertible preferred
                    stock. Upon consummation of the Exchange and conversion of
                    the preferred stock issued hereunder, the pro forma
                    capitalization of the Company will be as follows:

                                                        Pro Forma percentage of
                    Holders:                            Common Stock:/1/

                    Participating Noteholders                    97.5%
                    Existing Common Shrs (including               2.5%
                      all currently outstanding
                      options and other securities
                      convertible into Common Stock)

                    /1/ Does not reflect 10% of the Company's pro forma common
                    stock reserved for issuance to management as set forth
                    herein.

                    The Exchange will be effected pursuant to Section 3(a)(9) of
                    the Securities Act of 1933, as amended.

<PAGE>

EXCHANGE            The Company will exchange all of the existing Notes,
CONSIDERATION:      together with accrued interest through the date of the
                    Exchange for the following package of securities:

                    1)   That number of shares of common stock that represents a
                         majority of the outstanding common shares of the
                         Company (the "Initial Common Issuance"), with signed
                         agreements of the CEO, COO and General Counsel locking
                         up such officers from exercising their issued and
                         outstanding options and other convertible securities of
                         the Company.

                    2)   1,000 shares of convertible preferred stock (the
                         "Preferred") with an aggregate liquidation preference
                         equal to $45 million. The Preferred will accrue
                         dividends cumulatively at a rate of 10% per annum from
                         the date of issuance (which dividend rate will increase
                         to 14% per annum if the Automatic Conversion (as
                         defined below) has not occurred on or prior to June 1,
                         2002). The Preferred shall be automatically converted
                         (the "Automatic Conversion") upon shareholder
                         authorization of a sufficient number of shares of
                         common stock to effect the conversion in full into that
                         number of shares of common stock that, when added to
                         the number of shares of common stock issued to the
                         Noteholders in the Initial Common Issuance, would equal
                         97.5% of the common stock of the Company on a
                         fully-diluted basis. The Preferred will rank senior to
                         all other classes of stock of the Company as to
                         liquidation, dissolution, distributions, etc. The
                         Preferred shall have the voting rights described under
                         the section entitled "Voting Rights" below.

                    3)   PIK Notes in an aggregate principal amount of $15
                         million with the following terms:

                              Interest rate: 10% per annum (increased to 14% if
                              the Automatic Conversion has not occurred on or
                              prior to June 1, 2002), interest payable
                              semi-annually

                              Maturity: Six months after the maturity of the
                              New Senior Secured Loan (see below).

                              Prepayment: Payable in full at any time without
                              penalty

                              Interest payment: Interest on the PIK Notes shall
                              be payable in additional PIK Notes until the date
                              of maturity.

<PAGE>

NEW SENIOR          GSCP Recovery, Inc. (or one or more of its affiliates),
FINANCING:          together with any other Consenting Noteholder electing to
                    participate, shall provide to the Company the New Senior
                    Secured Loan in the amount and substantially on the terms
                    set forth in the term sheet attached hereto as Exhibit B
                    (the "New Senior Secured Loan Term Sheet"). The Company
                    shall use the proceeds from the New Senior Secured Loan (i)
                    to repay the Company's existing senior secured notes (for
                    the holders of which DDJ Capital Management LLC acts as
                    agent for the Lenders pursuant to a Loan Agreement dated as
                    of March 1, 2001) (the "Existing Senior Loan") in full, (ii)
                    for working capital, (iii) to pay certain fees and expenses
                    and (iv) for general corporate purposes.

VOTING RIGHTS:      The Preferred shall be entitled to vote with the common
                    stock on all matters requiring such vote and shall be
                    entitled to the number of votes equal to the number of
                    shares into which it is convertible. The Preferred shall not
                    vote as a separate class for any matter except as required
                    by law.

TRANSFER:           The Preferred shall be transferable without the Company's
                    consent only if such transfer is in compliance with
                    applicable securities laws and the transferee thereof agrees
                    in writing for the benefit of all the parties to the
                    Exchange to be bound to the Lock-up Agreement to which this
                    Term Sheet is attached and the transferor provides notice to
                    the Company and Dewey Ballantine LLP, 1301 Avenue of the
                    Americas, New York, NY 10019, Attn: Michael J. Sage, Esq.,
                    Facsimile: (212) 259-6333. The common stock and the PIK
                    Notes shall be transferable without the Company's consent in
                    compliance with applicable securities laws.

MANAGEMENT          10% of the Company's common stock on a fully-diluted basis
INCENTIVES:         shall be reserved for issuance to management upon or after
                    consummation of the Exchange, allocated 50% to the Chief
                    Executive Officer, 25% to the Chief Operating Officer, and
                    25% to other senior management (in the discretion of the
                    Company's board of directors). Options shall vest over 3
                    years and shall be outstanding for ten years; 1/3 each
                    anniversary from the date of the Exchange. The percentage of
                    the outstanding common stock subject to the options will
                    increase based on increases in the enterprise value of the
                    Company pursuant to the following:

                    1)   2.5% of the outstanding common stock - based on a per
                         share strike price determined by an enterprise value of
                         $65 million

<PAGE>

                    2)   5% of the outstanding common stock - based on a per
                         share strike price determined by an enterprise value of
                         $80 million

                    3)   7.5% of the outstanding common stock - based on a per
                         share strike price determined by an enterprise value of
                         $95 million

                    4)   10% of the outstanding common stock - based on a per
                         share strike price determined by an enterprise value of
                         $110 million

COVENANTS:          1)   File a proxy or information statement with the SEC
                         regarding increase in authorized common
                         stock as soon as reasonably practicable.

                    2)   Hold a shareholders meeting to approve increase in
                         authorized common stock as soon as reasonably
                         practicable following SEC clearance to do so.

                    3)   File with the SEC, and transmit to all holders of
                         common stock of the Company as of the applicable record
                         date, the information contemplated by Rule 14f-1 under
                         the Securities Exchange Act of 1934, as amended, so as
                         to permit the Noteholders to achieve the composition of
                         the Board of Directors of the Company contemplated
                         under "Post Restructuring Board Composition"
                         simultaneously with the consummation of the Exchange.
                         The Noteholders will supply the information with
                         respect to their designees for membership on the Board
                         of Directors of the Company as is contemplated by Rule
                         14f-1.

                    4)   Obtain the New Senior Secured Loan substantially on the
                         terms set forth on the New Senior Secured Loan Term
                         Sheet attached hereto as Exhibit B. The Company shall
                         repay the Existing Senior Loan in full from the
                         proceeds of the New Senior Secured Loan.

CHOICE OF LAW:      New York as to contracts, but Washington as to corporate
                    matters.

<PAGE>

CONDITIONS TO       1)   Executed lock-up agreement (including required waivers
CLOSING:                 and forbearance) by Noteholders holding 100% of the
                         outstanding principal amount of Notes (which
                         requirement may be waived by the holders of 95% of the
                         outstanding principal amount of Notes) and exchange
                         agreement executed by each of such Noteholders, the
                         Company and the Company's CEO, COO and General Counsel
                         (solely, with respect to each such person, with respect
                         to the provisions thereof applicable to such person as
                         specified therein) (which will assure the majority vote
                         required by Washington law to approve the increase in
                         the authorized common stock).

                    2)   Tender of the Notes by holders of 100% of the
                         outstanding principal amount of Notes (which
                         requirement may be waived by the holders of 95% of the
                         outstanding principal amount of Notes) and execution
                         and delivery of an exit consent/supplemental indenture
                         amending the existing indenture governing the Notes to
                         remove all covenants except payment covenants.

                    3)   Opinion from a nationally recognized investment bank
                         other than Jefferies & Co., as to the fairness of the
                         Transaction as a whole to the Company and the Company's
                         existing shareholders not participating in the
                         Exchange.

POST RESTRUCTURING  Upon the issuance of the Common Stock and the Preferred
BOARD COMPOSITION:  Stock in the Exchange, the Noteholders shall be entitled to
                    appoint four of five board seats, with the fifth seat being
                    reserved for the Company's Chief Executive Officer. The
                    exchange agreement shall provide how such seats are to be
                    allocated among the Noteholders as well as certain other
                    customary agreements among the Company's shareholders.

<PAGE>

EXISTING            The Exchange and conversion of Preferred shall be deemed not
EMPLOYMENT          to constitute a change of control pursuant to existing
AGREEMENTS:         management agreements. Following the Exchange, the
                    Noteholders shall cause the Company to enter into new
                    employment agreements with Mr. Wright and Mr. Hafelfinger to
                    be effective upon the Initial Common Issuance date on
                    substantially the same terms as the existing employment
                    agreements, including, but not limited to, terms regarding
                    change of control and severance packages, except that the
                    guaranteed option grant provisions shall be eliminated. Such
                    new employment agreements shall have three year terms.

                    Any and all existing consulting agreements will be
                    terminated.

REGISTRATION        The Company shall grant the holders of new common stock
RIGHTS:             customary registration rights.  The terms of such
                    registration rights are to be determined, but will provide,
                    without limitation, that the Company shall (i) file with the
                    Securities and Exchange Commission ("SEC") within two weeks
                    following the date of the Exchange a registration statement
                    pursuant to which the Noteholders may resell any Common
                    Stock received in the Exchange or upon the Automatic
                    Conversion (the "Resale Registration Statement"), and (ii)
                    use its best efforts to have the Resale Registation
                    Statement declared effective by the SEC as promptly as
                    practicable following the date of the Exchange.

REVERSE STOCK       After the Exchange and subsequent conversion of the
SPLIT:              Preferred, the Company shall promptly consummate a reverse
                    stock split to improve the liquidity of the
                    post-restructuring common stock with a view to having, after
                    the reverse stock split, approximately 10 million to 15
                    million shares of Common Stock outstanding, with the exact
                    number of shares to be determined by the post-restructuring
                    board of directors. Any fractional shares resulting from the
                    reverse stock split shall be rounded up to one whole share,
                    to the extent permitted under Washington law.

TAX CONSIDERATIONS: Each of the Company and the Noteholders hereby agrees to
                    work in good faith to permit the Noteholders, in the case of
                    the Company, or the other Noteholders and the Company, in
                    the case of a Noteholder, to make economically neutral
                    changes to the structure and documentation of the
                    Transaction as necessary to enhance such party's respective
                    tax position, so long as no other party to the Transaction
                    is economically harmed by such change.

<PAGE>

CONFIDENTIALITY:    Neither this Term Sheet nor the subject matter hereof is to
                    be shared with parties (other than the parties to the
                    Lock-up Agreement to which this term sheet has been attached
                    as an exhibit, their respective counsel, their respective
                    accountants and their respective financial advisors) at any
                    time prior to or after execution, except as required by law.

<PAGE>

                                    EXHIBIT B

                       New Senior Secured Loan Term Sheet

                         Pacific Aerospace & Electronics
                         GSC Partners Financing Proposal
                                December 27, 2001

Issuer .......................     Pacific Aerospace & Electronics, Inc. (the
                                   "Company").

Purchaser ....................     GSC Partners, subject to Existing Bondholder
                                   Participation.

Issue ........................     $36.0 million face amount of Senior Secured
                                   Notes (the "Notes").

Price ........................     $61.08 per $100.00 of face amount of the
                                   Notes.

Gross Proceeds ...............     $22.0 million.

Use of Proceeds ..............     Repay existing DDJ Capital Term Loan and for
                                   general corporate purposes.

Maturity .....................     The Notes will mature on May 1st, 2007. On
                                   April 29th, 2007, the Company will be
                                   required to make a sinking fund payment equal
                                   to all unpaid amounts characterized as
                                   interest for federal income tax purposes.

Coupon .......................     5.0%, payable in cash semi-annually on
                                   May 1st/Nov 1st, starting with May 1st, 2002.

Rating Requirement ...........     The Company will be required to obtain a
                                   "shadow" rating on the Notes of at least
                                   B3/B-.

Excess Cash Flow Call ........     On each anniversary date, the Company shall
                                   offer to repurchase the aggregate principal
                                   amount of the Notes equal to Excess Cash Flow
                                   at prices shown below. Excess Cash Flow shall
                                   be defined as 50% of EBITDA less (a) capital
                                   expenditures, (b) cash interest expense and
                                   (c) cash income tax expense.

Optional Redemption ..........     The Notes will be redeemable at the option
                                   of the Company at any time pursuant to the
                                   following schedule:

<PAGE>

                                   Period              Premium to Accreted Value
                                   ------              -------------------------
                                   1/02-11/02                             104.0%
                                   12/02-11/03                            103.0%
                                   12/03-11/04                            102.0%
                                   12/04-Maturity                         100.0%

Change of Control Put ........     At prices shown above.

Mandatory Redemption .........     The Company will be required to repay the
                                   Notes with (a) the net proceeds from
                                   non-ordinary course asset sales (subject to
                                   reinvestment carveouts - TBD), (b) the net
                                   proceeds from insurance receipts or other
                                   casualty events (subject to reinvestment
                                   carveouts - TBD), and (c) issuances of equity
                                   and/or issuances of debt and other customary
                                   prepayment events (TBD).

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