Document:

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                                                                   Exhibit 10.10

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                               SECURITY AGREEMENT

                                      among

                     PACIFIC AEROSPACE & ELECTRONICS, INC.,

                             AEROMET AMERICA, INC.,

                           BALO PRECISION PARTS, INC.,

                        CASHMERE MANUFACTURING CO., INC.,

                             CERAMIC DEVICES, INC.,

                        ELECTRONIC SPECIALTY CORPORATION,

                      NORTHWEST TECHNICAL INDUSTRIES, INC.,

                        PACIFIC COAST TECHNOLOGIES, INC.,

                            PA&E INTERNATIONAL, INC.,

                          SEISMIC SAFETY PRODUCTS, INC.

                                       and

                    SKAGIT ENGINEERING & MANUFACTURING, INC.,
                                  each a Debtor

                                       and

                           FIRST UNION NATIONAL BANK,
                               as Collateral Agent

                           Dated as of March 25, 2002

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<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                 Page
                                                                                 ----
<S>                                                                              <C>
SECTION 1. DEFINITIONS...........................................................  1

SECTION 2. ASSIGNMENT; SECURITY INTERESTS; INSURANCE PROCEEDS....................  2

     2.01  Assignment; Grant of Security Interests...............................  2
     2.02  Power of Attorney.....................................................  3
     2.03  Costs of Enforcement..................................................  4

SECTION 3. GENERAL REPRESENTATIONS AND WARRANTIES................................  5

     3.01  Location of Collateral................................................  5
     3.02  Debtor Organization...................................................  5
     3.03  Enforceability........................................................  5
     3.04  Ownership.............................................................  5
     3.05  Business..............................................................  5
     3.06  Control...............................................................  5
     3.07  Liens.................................................................  6
     3.08  Consents..............................................................  6

SECTION 4. SPECIAL PROVISIONS CONCERNING ACCOUNTS; INSTRUMENTS; CHATTEL PAPER;
           COMMERCIAL TORT CLAIMS................................................  6

     4.01  Additional Representations and Warranties.............................  6
     4.02  Maintenance of Records................................................  6
     4.03  Direction to Account Debtors; Contracting Parties; etc................  6
     4.04  Collection............................................................  7
     4.05  Instruments and Chattel Paper.........................................  7
     4.06  Commercial Tort Claims................................................  7

SECTION 5. SPECIAL PROVISIONS CONCERNING PATENTS, COPYRIGHTS AND TRADEMARKS......  7

     5.01  Additional Representations and Warranties.............................  7
     5.02  Infringements.........................................................  7
     5.03  Other Patents, Copyrights and Trademarks..............................  8

SECTION 6. PROVISIONS CONCERNING ALL COLLATERAL; INSURANCE.......................  8

     6.01  Protection of the Collateral Agent's Interests........................  8
     6.02  Further Actions.......................................................  8
     6.03  Financing Statements..................................................  8
  </TABLE>

                                       i
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<TABLE>
<S>                                                                              <C>
     6.04  Location..............................................................  9
     6.05  Adverse Claims........................................................  9
     6.06  Taxes.................................................................  9
     6.07  Tangible Property..................................................... 10
     6.08  No Other Liens........................................................ 10
     6.09  Access................................................................ 10

SECTION 7. REMEDIES UPON OCCURRENCE OF EVENT OF DEFAULT.......................... 10

     7.01  Remedies; Obtaining the Collateral Upon Default....................... 10
     7.02  Remedies; Disposition of the Collateral............................... 12
     7.03  Waiver of Claims...................................................... 12
     7.04  Application of Proceeds............................................... 13
     7.05  Remedies Cumulative................................................... 13
     7.06  Discontinuance of Proceedings......................................... 14

SECTION 8. INDEMNITY............................................................. 14

SECTION 9. MISCELLANEOUS......................................................... 14

     9.01  Notices............................................................... 14
     9.02  Waiver; Amendment..................................................... 14
     9.03  Obligations Absolute.................................................. 14
     9.04  Successors and Assigns................................................ 15
     9.05  Headings Descriptive, etc............................................. 15
     9.06  GOVERNING LAW; SUBMISSION TO JURISDICTION AND VENUE; WAIVER OF
           JURY TRIAL............................................................ 15
     9.07  The Debtors' Duties................................................... 16
     9.08  Termination; Release.................................................. 16
     9.09  Counterparts.......................................................... 16
     9.10  Severability.......................................................... 16
     9.11  Applicability of Note Purchase Agreement.............................. 17
     PATENT STATUS CHART.........................................................  8
</TABLE>

SCHEDULE I      COMMERCIAL TORT CLAIMS
SCHEDULE II     DEBTOR AND COLLATERAL DETAILS
SCHEDULE III    PATENTS, COPYRIGHTS AND TRADEMARKS
SCHEDULE IV     ADDRESSES OF THE DEBTORS

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                               SECURITY AGREEMENT

        SECURITY AGREEMENT, dated as of March 25, 2002 (this "Agreement"), by
and among Pacific Aerospace & Electronics, Inc., a Washington corporation (the
"Company"), and Aeromet America, Inc., Balo Precision Parts, Inc., Cashmere
Manufacturing Co., Inc., Ceramic Devices, Inc., Electronic Specialty
Corporation, Northwest Technical Industries, Inc., Pacific Coast Technologies,
Inc., PA&E International, Inc., Seismic Safety Products, Inc. and Skagit
Engineering & Manufacturing, Inc. (each a "Subsidiary Guarantor"; each
Subsidiary Guarantor and the Company are referred to herein individually as a
"Debtor" and collectively as the "Debtors"), and First Union National Bank, a
national banking association, in its capacity as Collateral Agent for the
Secured Parties (as hereinafter defined) (in such capacity, the "Collateral
Agent"),

                              W I T N E S S E T H :
                              - - - - - - - - - -

        WHEREAS, each Subsidiary Guarantor is a wholly-owned Subsidiary (as
hereinafter defined) of the Company;

        WHEREAS, the Company, the Initial Purchaser (as hereinafter defined) and
the Collateral Agent have entered into that certain Note Purchase Agreement,
dated as of March 19, 2002 (as such agreement may be amended, restated, modified
or supplemented from time to time, the "Note Purchase Agreement");

        WHEREAS, as a condition precedent to the obligations of the Initial
Purchaser under the Note Purchase Agreement, each Debtor is required to execute
and deliver this Agreement and to grant to the Collateral Agent for the benefit
of the Secured Parties (as hereinafter defined) a continuing security interest
in all of the Collateral (as hereinafter defined) in which it has an interest;

        NOW, THEREFORE, in consideration of the benefits to each Debtor, the
receipt and sufficiency of which are hereby acknowledged, each Debtor hereby
makes the following assignments, representations and warranties to the
Collateral Agent and hereby covenants and agrees with the Collateral Agent as
follows:

        SECTION 1. DEFINITIONS

        For all purposes of this Agreement, (i) capitalized terms not otherwise
defined herein shall have the meanings set forth in the Note Purchase Agreement,
(ii) the following terms, which are defined in the UCC (as hereinafter defined)
are used herein as so defined: Accession, Account, Chattel Paper, Copyrights,
Commercial Tort Claim, Deposit Account, Document, Equipment, Fixtures, General
Intangible, Goods, Instrument, Inventory, Investment Property, Letter-of-Credit
Right, Patent, Proceeds, Supporting Obligation, Tangible Chattel Paper, and
Trademark, and (iii) the principles of construction set forth in the Note
Purchase Agreement shall apply.

        In addition, the following terms shall have the meanings herein
specified:

        "Collateral" has the meaning provided in Section 2.01(a).

        "Collateral Agent" has the meaning specified in the preamble hereto.

<PAGE>

        "Collateral Proceeds" shall mean, with respect to a Debtor, "proceeds"
as such term is defined in the UCC or under other relevant law and, in any
event, shall include, but shall not be limited to, (i) any and all proceeds of
any insurance, indemnity, warranty or guaranty payable to the Collateral Agent
or such Debtor from time to time, and claims for insurance, indemnity, warranty
or guaranty effected or held for the benefit of such Debtor, with respect to any
of the Collateral, (ii) any and all payments (in any form whatsoever) made or
due and payable to such Debtor from time to time in connection with any
requisition, confiscation, condemnation, seizure or forfeiture of all or any
part of the Collateral by any Governmental Authority (or any person acting under
color of Governmental Authority) and (iii) any and all other amounts from time
to time paid or payable under or in connection with any of the Collateral.

        "Company" has the meaning specified in the preamble hereto.

        "Debtor" has the meaning provided in the preamble of this Agreement.

        "Note Purchase Agreement" has the meaning provided in the second whereas
clause of this Agreement.

        "Secured Obligations" shall mean all obligations, fees, charges,
liabilities and indebtedness of every nature of each Debtor from time to time
owing to the Collateral Agent and/or the Secured Parties under the Note Purchase
Agreement and/or any other Operative Agreement to which such Debtor is a party.

        "Secured Party" shall mean the Collateral Agent, the Initial Purchaser
and each other Holder of the Notes.

        "Subsidiary Guarantor" has the meaning specified in the preamble hereto.

        "UCC" shall mean the Uniform Commercial Code as in effect in the State
of New York on the date hereof; provided, however, in the event that, by reason
of mandatory provisions of law, any or all of the attachment, perfection or
priority of the security interest in any Collateral is governed by the Uniform
Commercial Code as in effect in a jurisdiction other than the State of New York,
the term "UCC" shall mean the Uniform Commercial Code as in effect in such other
jurisdiction for purposes of the provisions hereof relating to such attachment,
perfection or priority and for purposes of definitions related to such
provisions.

        SECTION 2. ASSIGNMENT; SECURITY INTERESTS; INSURANCE PROCEEDS

        2.01    Assignment; Grant of Security Interests.

        (a)     Each Debtor, as security for the prompt and complete payment and
performance when due of the Secured Obligations of such Debtor, does hereby
assign, pledge, convey, set over and transfer unto the Collateral Agent for the
benefit of the Secured Parties, and does hereby grant to the Collateral Agent
for the benefit of the Secured Parties a continuing security interest of first
priority in, all of the right, title and interest of such Debtor in, to and
under all of the following, whether now existing or hereafter from time to time
acquired (collectively, the "Collateral"):

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                (i)     all Equipment, Inventory, Fixtures and Goods of such
        Debtor;

                (ii)    all Accounts, Deposit Accounts, Investment Property and
        all other cash and currency of such Debtor;

                (iii)   all General Intangibles of such Debtor;

                (iv)    all Chattel Paper, Documents and Instruments owned by
        such Debtor;

                (v)     all property and interests in property of such Debtor
        now or hereafter coming into the actual possession, custody or control
        of the Collateral Agent or any Secured Party in any way and for any
        purpose (whether for safe keeping, deposit, custody, pledge,
        transmission, collection or otherwise);

                (vi)    all books and records of such Debtor relating to any
        Collateral;

                (vii)   all other property and interests in property of such
        Debtor constituting personal property;

                (viii)  all Commercial Tort Claims of such Debtor, as specified
        on Schedule I;

                (ix)    all Letter-of-Credit Rights of such Debtor;

                (x)     all Supporting Obligations of such Debtor; and

                (xi)    all Accessions and all Collateral Proceeds and products
        of any and all of the foregoing.

        (b)     The Collateral pledged and the security interest granted by each
of the Debtors secures the prompt and complete payment and performance of all
the Secured Obligations owed by such Debtor, and the security interest of the
Collateral Agent held under this Agreement extends to all Collateral which any
Debtor may acquire at any time during the continuation of this Agreement.

        2.02    Power of Attorney.

        Each Debtor hereby irrevocably appoints the Collateral Agent as its
attorney-in-fact with right of substitution, so that the Collateral Agent or any
other Person empowered by the Collateral Agent shall be authorized, without need
of further authorization from such Debtor, at any time upon the occurrence of
and during the continuance of an Event of Default, in the Collateral Agent's
discretion to take any and all actions authorized or permitted to be taken by
the Collateral Agent under this Agreement or by law, including but not limited
to the power:

                (i)     to effect the sale of any of the Collateral in one or
more transactions to the extent permitted by law and in such other manner as may
be determined by the attorney-in-fact, including the direct sale without public
auction of

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        any such Collateral at such price, and upon such terms as may be
        determined by the attorney-in-fact;

                (ii)    to enter upon any premises where the Collateral or any
        part thereof may be located without the need for a court order or other
        form of authority otherwise than upon the authority granted herein;

                (iii)   to take and retain actual possession and control of any
        such Collateral as receivers without bond or otherwise, and transport
        any of it to any location as determined by such attorney-in-fact;

                (iv)    to make any repairs, additions and improvements on the
        Collateral as such attorney-in-fact shall deem proper or necessary;

                (v)     to administer, manage and use any of the Collateral;

                (vi)    to conclude any agreement and collect any monies
        thereunder or otherwise due to any Debtor in respect of, or generated
        through the usage of, any of the Collateral;

                (vii)   to institute and maintain such suits and proceedings as
        such attorney-in-fact shall deem expedient to prevent any impairment of
        the Collateral or to preserve and protect such attorney-in-fact's
        interest therein;

                (viii)  to execute and deliver such deeds of conveyance or sale
        as may be necessary or proper for the purpose of conveying full title
        and ownership, free from any claims and rights of any Debtor, to any of
        the Collateral, after foreclosure thereof; and

                (ix)    in general, to sign such agreements and documents and
        perform such acts and things required, necessary or, in the opinion of
        such attorney-in-fact, advisable, to fully accomplish the purpose
        hereof.

        Each Debtor hereby confirms and ratifies any and all actions and things
performed or done by the Collateral Agent as the Debtor's attorney-in-fact or
any of its representatives in each case pursuant to the powers granted
hereunder.

        This special power of attorney shall be deemed coupled with an interest,
and cannot be revoked by any Debtor until all of the Secured Obligations have
been paid in full.

        2.03    Costs of Enforcement.

        All reasonable costs, expenses, charges and fees paid or incurred by the
Collateral Agent in the exercise of any of the rights, remedies or powers
granted under this Agreement shall be for the account of the Debtors, and each
Debtor undertakes promptly on demand to pay the same or, as the case may be, to
reimburse the Collateral Agent therefor.

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        SECTION 3. GENERAL REPRESENTATIONS AND WARRANTIES

        Each Debtor represents and warrants, which representations and
warranties shall survive execution and delivery of this Agreement and the
payment in full of the Secured Obligations, as follows:

        3.01    Location of Collateral.

        All of the Inventory and Equipment is located at the places specified on
Schedule II. The office where each Debtor keeps its records concerning Accounts
and other Collateral is located at the address specified on Schedule II for such
Debtor. None of the Accounts is evidenced by an Instrument or by Chattel Paper
which have not been delivered to the Collateral Agent.

        3.02    Debtor Organization.

        Each Debtor's exact legal name, state of incorporation or formation,
principal place of business and chief executive office are (and for the four
months prior to the date hereof has been) as set forth on Schedule II. Each
Debtor is qualified to do business and in good standing in all states and other
jurisdictions in which the failure to be so qualified and in good standing would
have a Material Adverse Effect or a material adverse effect on the ability of
such Debtor to enforce the collection of Accounts due from customers residing in
such locations.

        3.03    Enforceability.

        This Agreement has been duly executed and delivered by each Debtor and
constitutes a legal, valid and binding obligation of such Debtor enforceable in
accordance with its terms, except to the extent that such enforcement may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' rights generally and by general principles of
equity (whether enforcement is sought by proceedings in equity or at law).

        3.04    Ownership.

        Each Debtor is the legal, record and beneficial owner of, and has good
and marketable title to, the Collateral which it owns, free and clear of any
Lien whatsoever, except (i) for the Lien created hereby and any other Liens
permitted to be created pursuant to the Note Purchase Agreement, (ii) for the
Lien on patent no. 4,925,607 in favor of James C. Kyle and (iii) that the
assignments of patent nos. 4,925,607 and EP 0 522 687 B1 to Pacific Coast
Technologies, Inc. have not been recorded with the appropriate Governmental
Authorities. No financing statement or other security instrument is on file in
any jurisdiction covering any of the Collateral, other than such as have been
filed with respect to (i) the Lien created hereby or (ii) any other Liens
permitted to be created pursuant to the Note Purchase Agreement.

        3.05    Business.

        None of the Debtors conducts any business under any name or trade name
other than its proper legal name, which is the name set forth on Schedule II.
The taxpayer identification number of each Debtor is set forth on Schedule II.

        3.06    Control.

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<PAGE>

        Except for Inventory in transit in the ordinary course of each Debtor's
business, such Debtor has exclusive possession and control of the Inventory and
Equipment.

        3.07    Liens.

        This Agreement creates a continuing Lien in the Collateral, securing the
payment of the Secured Obligations.

        3.08 Consents.

        No consent or authorization of, filing with, notice to, or other act by
or in respect of, any Governmental Authority or any other Person is required
with respect to each Debtor in connection with either (i) the grant by such
Debtor of the Lien created hereby or the execution, delivery or performance of
this Agreement by such Debtor or (ii) for the perfection of or the exercise by
the Collateral Agent of its rights and remedies hereunder, other than the filing
of financing statements and continuation statements with the Secretary of State
of the State of Washington.

        SECTION 4. SPECIAL PROVISIONS CONCERNING ACCOUNTS; INSTRUMENTS; CHATTEL
                   PAPER; COMMERCIAL TORT CLAIMS

        4.01    Additional Representations and Warranties.

        As of the time when each Account arises, each Debtor shall be deemed to
have represented and warranted, to the best of its knowledge and belief and
unless otherwise disclosed by such Debtor in writing to the Collateral Agent,
that such Account, and all records, papers and documents relating thereto (if
any) are genuine and in all respects what they purport to be, will evidence true
and valid obligations, enforceable in accordance with their respective terms and
will be in compliance and will conform with all applicable law.

        4.02    Maintenance of Records.

        Each Debtor will keep and maintain at its own cost and expense
satisfactory and complete records of the Accounts, including, but not limited
to, the originals of all documentation with respect thereto, records of all
payments received, all credits granted thereon (subject to customary record
retention policies) and all other dealings therewith, and such Debtor will make
the same available to the Collateral Agent and the Secured Parties and their
respective representatives for inspection, at such Debtor's own cost and
expense, at all reasonable times upon reasonable prior written notice. Each
Debtor shall, at its own cost and expense, deliver all tangible evidence of the
Accounts (including, without limitation, all documents evidencing the Accounts)
and such books and records to the Collateral Agent or to its representatives
(copies of which evidence and books and records may be retained by such Debtor)
upon its demand at any time after the occurrence of and during the continuance
of an Event of Default. If the Collateral Agent so directs, each Debtor shall
legend, in form and manner reasonably satisfactory to the Collateral Agent, the
Accounts, as well as books, records and documents of such Debtor evidencing or
pertaining to the same with an appropriate reference to the fact that the
Accounts have been assigned to the Collateral Agent and that the Collateral
Agent has a security interest therein.

        4.03    Direction to Account Debtors; Contracting Parties; etc.

                                       6
<PAGE>

        Each Debtor agrees that upon the occurrence of and during the
continuance of an Event of Default, the Collateral Agent may, at its option,
directly notify the obligors with respect to any Accounts to make payments with
respect thereto as directed by the Collateral Agent and (ii) the Collateral
Agent may apply, without notice to or assent by such Debtor, any or all such
amounts in the manner provided in the Note Purchase Agreement.

        4.04    Collection.

        Each Debtor shall endeavor to cause to be collected from the account
debtor named in such Debtor's Accounts, as and when due (including, without
limitation, amounts which are delinquent, such amounts to be collected in
accordance with generally accepted lawful collection procedures) any and all
amounts owing under or on account of such Account, and apply forthwith upon
receipt thereof all such amounts as are so collected to the outstanding balance
of such Account, except that, unless an Event of Default shall have occurred and
be continuing (and shall not have been waived by an appropriate vote or other
action by the Secured Parties), such Debtor may, subject to compliance with the
Note Purchase Agreement and other Operative Agreements, allow in the ordinary
course of business as adjustments to amounts owing under such Debtor's Accounts
(i) an extension or renewal of the time or times of payment, or settlement for
less than the total unpaid balance, which such Debtor finds appropriate in
accordance with sound business judgment and (ii) a refund or credit due as a
result of returned or damaged merchandise or improperly performed services.

        4.05    Instruments and Chattel Paper.

        If any Collateral shall be evidenced by any Instrument or Chattel Paper,
each Debtor shall within 10 days thereof either (i) deliver or pay over or
otherwise credit to the account of the Collateral Agent such Instrument or
Chattel Paper; or (ii) notify the Collateral Agent thereof, and shall upon
request by the Collateral Agent promptly deliver such Instrument or Chattel
Paper to the Collateral Agent appropriately endorsed to the order of the
Collateral Agent as further security hereunder.

        4.06    Commercial Tort Claims.

        If any Debtor becomes involved, or becomes aware of a reasonable
likelihood of becoming involved, in a Commercial Tort Claim, such Debtor shall
within 10 days thereof provide the Collateral Agent with reasonable details
thereof such that Schedule I may be appropriately updated.

        SECTION 5. SPECIAL PROVISIONS CONCERNING PATENTS, COPYRIGHTS AND
                   TRADEMARKS

        5.01    Additional Representations and Warranties.

        Each Debtor represents and warrants that as of the Closing Date, such
Debtor owns the Patents, Copyrights and Trademarks set forth on Schedule III.

        5.02    Infringements.

                                       7
<PAGE>

        Promptly upon learning thereof, each Debtor shall notify the Collateral
Agent in writing of all pertinent details available thereto, with respect to any
infringement or other violation of such Debtor's rights in any Patent, Copyright
or Trademark that could reasonably be expected to have a Material Adverse
Effect, whether or not such right is presently held by such Debtor. As to each
such instance, to the extent deemed appropriate by such Debtor in its
commercially reasonable judgement, and to the extent permitted by all
requirements of law, such Debtor shall diligently pursue a remedy. Promptly upon
learning thereof, such Debtor shall notify the Collateral Agent in writing of
any claim that any activity of such Debtor infringes or otherwise violates the
right of any third party with respect to any Patent, Copyright or Trademark.

        5.03    Other Patents, Copyrights and Trademarks.

        If any Debtor hereafter acquires rights in any material Patent,
Copyright or Trademark, such Debtor shall deliver to the Collateral Agent within
30 days, a copy of such Patent, Copyright or Trademark.

        SECTION 6. PROVISIONS CONCERNING ALL COLLATERAL; INSURANCE

        6.01    Protection of the Collateral Agent's Interests.

        Each Debtor will do nothing to impair the rights of the Collateral Agent
in the Collateral; provided, however, that nothing herein shall prevent such
Debtor, prior to the exercise by the Collateral Agent of any such rights, from
undertaking such Debtor's operations in the ordinary course of business. Each
Debtor assumes all liability and responsibility in connection with the
Collateral which it owns and the liability of such Debtor with respect to the
Secured Obligations shall in no way be affected or diminished by reason of the
fact that such Collateral may be lost, destroyed, stolen, damaged or for any
reason whatsoever be unavailable to such Debtor.

        6.02    Further Actions.

        Each Debtor will, at its own expense, make, execute, endorse,
acknowledge, file and/or deliver to the Collateral Agent from time to time such
lists, descriptions and designations of the Collateral, warehouse receipts,
receipts in the nature of warehouse receipts, bills of lading, documents of
title, vouchers, invoices, schedules, confirmatory assignments, conveyances,
financing statements, transfer endorsements, powers of attorney, certificates,
reports and other assurances or instruments and take such further steps relating
to the Collateral and other property or rights covered by the interests hereby
granted, which the Collateral Agent, upon written direction, deems reasonably
appropriate or advisable to perfect, preserve or protect its security interests
in the Collateral.

        6.03    Financing Statements.

        Each Debtor agrees to file such financing statements as are necessary to
establish and maintain the security interests contemplated hereunder as valid,
enforceable, first priority security interests as provided herein, and to sign
and deliver to the Collateral Agent such financing statements (or similar
statement or instrument of registration under the law of any jurisdiction), in
form reasonably acceptable to the Collateral Agent as it may from time to time
reasonably request or as are necessary or desirable in its reasonable opinion to
establish and maintain the security interests contemplated hereunder as valid,
enforceable first priority security interests as provided herein and the other
rights and security contemplated herein, all in accordance with the UCC or any
other

                                       8
<PAGE>

applicable law. Each Debtor will pay any applicable filing fees and related
reasonable expenses in connection with such financing statements (or similar
statement or instrument of registration). Each Debtor authorizes the Collateral
Agent to file any such financing statements without the signature of such Debtor
to the extent permitted by law. In addition, each Debtor hereby irrevocably
makes, constitutes and appoints Collateral Agent (and all Persons designated by
the Collateral Agent for that purpose) such Debtor's true and lawful
attorney-in-fact to sign the name of such Debtor on any financing statement or
other writing necessary or requested by the Collateral Agent to perfect its Lien
on or in any of the Collateral or to maintain the perfection thereof. The
Collateral Agent agrees to provide the relevant Debtor with a copy of any
financing statement filed by it without the signature of such Debtor promptly
after the filing thereof.

        6.04    Location.

        Each Debtor shall not (i) change the location of its chief executive
office or principal place of business from the address specified on Schedule II
or remove its books and records from the location specified on Schedule II, (ii)
change its name (including the adoption of any new trade name), jurisdiction of
incorporation, identity or corporate structure, or (iii) change the location of
any other Collateral to a location not listed on Schedule II, unless, in any
such case, it shall have provided at least thirty (30) days' prior written
notice to the Collateral Agent of any such change; provided, however, this
Section 6.04 shall not restrict the Debtors from disposing of or removing any
Collateral for repairs or similar purposes in the ordinary course of its
business and in accordance with the terms of the Note Purchase Agreement. Each
Debtor shall from time to time notify the Collateral Agent of each location at
which any material portion of the Collateral or such books and records are to be
kept for temporary processing, storage, repair or similar purposes. No action
requiring notice to the Collateral Agent under this paragraph shall be effected
until such filings and other measures as may be required under applicable law to
continue uninterrupted the perfected Lien of the Collateral Agent on and in the
Collateral affected thereby shall have been taken, and until the Collateral
Agent shall have received such opinions of counsel with respect thereto as it
may have reasonably requested.

        6.05    Adverse Claims.

        Each Debtor shall defend the Collateral against all claims and demands
of all Persons (other than the Collateral Agent, the Secured Parties and holders
of Liens permitted to be created pursuant to the Note Purchase Agreement)
claiming an interest therein. Each Debtor shall pay promptly when due all
property and other taxes, assessments and governmental charges or levies imposed
upon, and all claims (including claims for labor, materials and supplies)
against, the Collateral, except to the extent that (i) such Debtor is, in good
faith and by appropriate proceedings, contesting the validity thereof and (ii)
the Collateral that is the subject thereof is not in imminent risk of seizure,
levy, sale, execution or other process.

        6.06    Taxes.

        Each Debtor confirms to the Collateral Agent that any and all taxes or
fees relating to its business, including, but not limited to, the Accounts and
all goods relating thereto, are its sole responsibility and shall be paid by
such Debtor when due; provided, however, that unless such taxes or fees
represent a Lien on the Collateral of such Debtor, no such tax need be paid if
the same is being contested, in good faith, by appropriate proceedings promptly
instituted and diligently conducted and if an adequate reserve or other
appropriate provision shall have been made therefor as reflected on the audited
financial statements for the relevant fiscal year in accordance with GAAP,

                                       9
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and, to the extent such reserves shall be taken thereafter, consistent with such
Debtor's practices. Each Debtor shall maintain its status as a validly existing
legal entity, and shall remain qualified to do business and in good standing in
all states and other jurisdictions in which the failure to be so qualified and
in good standing would have a Material Adverse Effect or a material adverse
effect on the ability of such Debtor to enforce collection of the Accounts due
from customers residing in such locations.

        6.07    Tangible Property.

        Each Debtor agrees that all Collateral consisting of tangible property
is now and shall remain personal property, notwithstanding the manner in which
such Collateral or any part thereof shall now or hereafter be affixed or annexed
to real estate. Each Debtor shall use commercially reasonable efforts to obtain
and deliver to the Collateral Agent such instruments as may reasonably be
requested by the Collateral Agent pursuant to which any Person with an interest
in any real property upon which all or any part of the tangible Collateral is
now or may hereafter be located consents to the Liens created hereby, disclaims
any Lien on or other interest in the tangible Collateral, waives in favor of the
Collateral Agent all right to distrain or levy upon such Collateral for rent or
other payments due or to become due to such Person, and authorizes the
Collateral Agent to enter upon the relevant premises at any time to remove such
Collateral.

        6.08    No Other Liens.

        No Debtor shall grant, create or permit to exist any Lien upon all or
any portion of the Collateral, or any proceeds thereof, in favor of any other
Person other than the Collateral Agent and shall not create, or permit to exist,
any obligations, other than those secured by Liens permitted to be created
pursuant to the Note Purchase Agreement, that are secured thereby.

        6.09    Access.

        Each Debtor shall permit the Collateral Agent, or its representatives,
to have access to the Inventory and the Equipment, and other tangible Collateral
for purposes of inspection during normal business hours and upon reasonable
notice to such Debtor; and shall promptly notify the Collateral Agent in writing
of any material loss or damage to the Inventory, Equipment or other Collateral.

        SECTION 7. REMEDIES UPON OCCURRENCE OF EVENT OF DEFAULT

        7.01    Remedies; Obtaining the Collateral Upon Default.

        Each Debtor agrees that, if any Event of Default shall have occurred and
be continuing, subject to applicable cure periods, (and shall not have been
waived by an appropriate vote or other action by the Secured Parties), then and
in every such case, subject to the terms and provisions of the Note Purchase
Agreement and any applicable law, the Collateral Agent, in addition to any
rights now or hereafter existing under any applicable law, shall have all rights
as a secured creditor under the UCC or other any applicable law in all relevant
jurisdictions and may, acting pursuant to and in accordance with the terms of
the Note Purchase Agreement and other Operative Agreements:

                                       10
<PAGE>

        (a)     personally, or by agents or attorneys, immediately retake
possession of the Collateral or any part thereof, from such Debtor or any other
Person who then has possession of any part thereof with or without notice or
process of law, and for that purpose may enter upon such Debtor's premises where
any of the Collateral is located and remove the same and use in connection with
such removal any and all services, supplies, aids and other facilities of such
Debtor; and

        (b)     instruct the obligor or obligors on any agreement, instrument or
other obligation, and the Accounts constituting the Collateral to make any
payment required by the terms of such instrument or agreement directly to the
Collateral Agent; and

        (c)     sell, assign or otherwise liquidate, or direct such Debtor to
sell, assign or otherwise liquidate, any or all of the Collateral or any part
thereof, and take possession of the proceeds of any such sale or liquidation;
and

        (d)     take possession of the Collateral or any part thereof, by
directing such Debtor in writing to deliver the same to the Collateral Agent at
any place or places designated by the Collateral Agent, in which event such
Debtor shall at its own expense:

                (i)     forthwith cause the same, to the extent reasonably
        feasible, to be moved to the place or places so designated by Collateral
        Agent and there delivered to the Collateral Agent,

                (ii)    store and keep any Collateral so delivered to the
        Collateral Agent (to the extent not physically delivered to the
        Collateral Agent) at such place or places pending further action by the
        Collateral Agent as provided in Section 7.02, and

                (iii)   while such Collateral shall be so stored and kept,
        provide such guards and maintenance services as shall be necessary to
        protect the same and to preserve and maintain them in good condition;

        it being understood that such Debtor's obligation to so deliver the
        Collateral is of the essence of this Agreement and that, accordingly,
        upon application to a court having jurisdiction, the Collateral Agent
        shall be entitled to a decree requiring specific performance by such
        Debtor of such obligation; and

        (e)     take and practice or use or sell any or all of such Patents,
Copyrights or Trademarks, or take and use or sell each Debtor's rights in such
Patents, Copyrights or Trademarks, along with the goodwill and all other
elements of such Debtor's ongoing business symbolized by such assets and secured
under this Agreement, and the right to carry on the business of the Debtors in
connection with which such assets have been used; and

        (f)     direct the Debtors to refrain, in which event the Debtors shall
refrain, from practicing under such Patent and Copyright rights directly or
indirectly, or from using the Trademarks in any manner, directly or indirectly,
and if requested by the Collateral Agent, the Debtors shall change their
respective names to eliminate therefrom any use of any Trademarks, and execute
any other and further documents which the Collateral Agent may request further
to confirm the foregoing and to permit the Collateral Agent to enforce its
remedies relating to such Trademarks, Patents and/or Copyrights.

                                       11
<PAGE>

        7.02    Remedies; Disposition of the Collateral.

        Any Collateral repossessed by the Collateral Agent under or pursuant to
Section 7.01, and any other Collateral whether or not so repossessed by the
Collateral Agent, may be sold, assigned, leased or otherwise disposed of under
one or more contracts or as an entirety, and without the necessity of gathering
at the place of sale the property to be sold, and in general in such manner, at
such time or times, at such place or places and on such terms as the Collateral
Agent may, upon written direction in compliance with all applicable law,
determine to be commercially reasonable. Any of the Collateral may be sold,
leased or otherwise disposed of, in the condition in which the same existed when
taken by the Collateral Agent or after any overhaul or repair which the
Collateral Agent shall determine to be commercially reasonable. Any such
disposition which shall be a private sale or other private proceeding permitted
by such requirements shall be made upon not less than ten days' written notice
to the relevant Debtor specifying the time at which such disposition is to be
made and the intended sale price or other consideration therefor, and shall be
subject, for the ten days after the giving of such notice, to the right of such
Debtor or any nominee of such Debtor to acquire the Collateral involved at a
price or for such other consideration at least equal to the intended sale price
or other consideration so specified. To the extent permitted by all requirements
of law, the Collateral Agent may bid for and become the purchaser of the
Collateral or any item thereof, offered for sale in accordance with this Section
7.02. If, under any applicable law, the Collateral Agent shall be required to
make disposition of the Collateral within a period of time which does not permit
the giving of notice to the relevant Debtor as hereinabove specified, the
Collateral Agent shall give such Debtor only such notice of disposition as shall
be reasonably practicable in view of such applicable law.

        7.03    Waiver of Claims.

        Except as otherwise provided in this Agreement, EACH DEBTOR HEREBY
WAIVES, TO THE EXTENT PERMITTED BY ALL REQUIREMENTS OF LAW, NOTICE AND JUDICIAL
HEARING IN CONNECTION WITH THE COLLATERAL AGENT TAKING POSSESSION OR THE
COLLATERAL AGENT'S DISPOSITION OF ANY OF THE COLLATERAL, IN EACH CASE IF AND AS
PERMITTED BY ALL REQUIREMENTS OF LAW, INCLUDING, WITHOUT LIMITATION, ANY AND ALL
PRIOR NOTICE AND HEARING FOR ANY PREJUDGMENT REMEDY OR REMEDIES AND ANY SUCH
RIGHT WHICH SUCH DEBTOR WOULD OTHERWISE HAVE UNDER THE CONSTITUTION OR ANY
STATUTE OF THE UNITED STATES OR ANY POLITICAL SUBDIVISION THEREOF, and each
Debtor hereby further waives, to the extent permitted by all applicable law:

                (i)     all damages occasioned by such taking of possession
        except any damages which are the direct result of the gross negligence
        or willful misconduct of the Collateral Agent or any Person acting on
        its behalf or instruction;

                (ii)    all other requirements as to the time, place and terms
        of sale or other requirements with respect to the enforcement of the
        Collateral Agent's rights hereunder; and

                (iii)   all rights of redemption, appraisement, valuation, stay,
        extension or moratorium now or hereafter in force under any applicable
        law in order to prevent or delay the enforcement of this Agreement
        (including, without limitation, any right to claim that such enforcement
        should be stayed pending the outcome of any other

                                       12
<PAGE>

        action or proceeding (including any arbitration proceeding)) or the
        absolute sale of the Collateral or any portion thereof, and such Debtor,
        for itself and all who may claim under it, insofar as it or they now or
        hereafter lawfully may, hereby waives the benefit of all such applicable
        of law.

Any sale of, or the grant of options to purchase, or any other realization upon,
any Collateral shall operate to divest all right, title, interest, claim and
demand, either at law or in equity, of the relevant Debtor therein and thereto,
and shall be a perpetual bar both at law and in equity against such Debtor and
against any and all Persons claiming or attempting to claim the Collateral so
sold, optioned or realized upon, or any part thereof, from, through and under
such Debtor.

        7.04    Application of Proceeds.

        The proceeds of any Collateral obtained pursuant to Section 7.01 or
disposed of pursuant to Section 7.02 shall be applied in the following order:

                FIRST, to the payment of all reasonable out-of-pocket fees and
        costs and expenses (including without limitation reasonable attorneys'
        fees) of the Collateral Agent under the Operative Agreements, including,
        but not limited to, those incurred in connection with enforcing the
        rights of Collateral Agent and the Holders under the Operative
        Agreements;

                SECOND, to the payment of all reasonable out-of-pocket costs and
        expenses (including without limitation, reasonable attorneys' fees) of
        each of the Holders in connection with enforcing its rights under the
        Operative Agreements or otherwise with respect to the Obligations owing
        to such Holder;

                THIRD, to the payment of all accrued interest and fees on or in
        respect of the Obligations;

                FOURTH, to the payment of the outstanding principal amount of
        the Obligations;

                FIFTH, to all other obligations which shall have become due and
        payable under the Operative Agreements or otherwise and not repaid
        pursuant to clauses "FIRST" through "FOURTH" above; and

                SIXTH, to the payment of the surplus, if any, to whoever may be
        lawfully entitled to receive such surplus.

        Each Debtor irrevocably waives the right to direct the application of
such payments and proceeds and acknowledges and agrees that the Collateral Agent
shall have the continuing and exclusive right to apply and reapply any and all
such payments and proceeds in the Collateral Agent's sole discretion,
notwithstanding any entry to the contrary upon any of its books and records.

        7.05    Remedies Cumulative.

        No failure or delay on the part of the Collateral Agent in exercising
any right, power or privilege hereunder or under any other Operative Agreement
and no course of dealing between any Debtor and the Collateral Agent shall
operate as a waiver thereof; nor shall any single or partial

                                       13
<PAGE>

exercise of any right, power or privilege hereunder or under any other Operative
Agreement preclude any other or further exercise thereof or the exercise of any
other right, power or privilege hereunder or thereunder. The rights, powers and
remedies herein or in any other Operative Agreement expressly provided are
cumulative and not exclusive of any rights, powers or remedies which the
Collateral Agent or any Secured Party would otherwise have. No notice to or
demand on a Debtor in any case shall entitle the Debtor to any other or further
notice or demand in similar or other circumstances or constitute a waiver of the
rights of the Collateral Agent or any Secured Party to any other or further
action in any circumstances without notice or demand.

        7.06    Discontinuance of Proceedings.

        In case the Collateral Agent shall have instituted any proceeding to
enforce any right, power or remedy under this Agreement by foreclosure, sale,
entry or otherwise, and such proceeding shall have been discontinued or
abandoned for any reason or shall have been determined adversely to the
Collateral Agent, then and in every such case, the Debtor, Collateral Agent and
the Secured Parties shall be restored to their former positions and rights
hereunder with respect to the Collateral subject to the security interest
created under this Agreement, and all rights, remedies and powers of the
Collateral Agent shall continue as if no such proceeding had been instituted.

        SECTION 8. INDEMNITY

        The provisions of Section 15(b) of the Note Purchase Agreement are
incorporated herein by reference.

        SECTION 9. MISCELLANEOUS

        9.01    Notices.

        All notices and other communications hereunder shall be given in the
manner specified in Section 18 of the Note Purchase Agreement to the parties
hereto at their respective addresses specified in the Note Purchase Agreement
or, with respect to the Subsidiary Guarantors, at their respective addresses set
forth on Schedule IV hereto.

        9.02    Waiver; Amendment.

        This Agreement may be amended, restated, waived, discharged, or (except
as provided in Section 9.08) terminated only by an instrument in writing
executed by all of the parties hereto. Promptly after the execution of any and
all amendments , supplements and waivers, of and to the Collateral, originals,
if reasonably available and, if not, copies of such amendments, supplements and
waivers shall be delivered to the Collateral Agent.

        9.03    Obligations Absolute.

        The obligations of each Debtor under this Agreement shall be absolute
and unconditional and shall remain in full force and effect without regard to,
and shall not be released, suspended, discharged, terminated or otherwise
affected by, any circumstance or occurrence whatsoever, including, without
limitation: (i) any renewal, extension, amendment or modification of, or
addition or supplement to or deletion from, the Note Purchase Agreement or any
of the Operative Agreements or any other instrument or agreement referred to
therein, or any assignment or transfer of

                                       14
<PAGE>

any thereof; (ii) any waiver, consent, extension, indulgence or other action or
inaction under or in respect of any such instrument or agreement or this
Agreement or any exercise or non-exercise of any right, remedy, power or
privilege under or in respect of this Agreement or any other Operative
Agreements; (iii) any furnishing of any additional security (including, without
limitation, any assets, whether now owned or hereafter acquired, upon which a
Lien is created or granted from time to time) to the Collateral Agent or any
acceptance thereof or any sale, exchange, release, surrender or realization of
or upon any security by the Collateral Agent; or (iv) any invalidity,
irregularity or unenforceability of all or part of the Secured Obligations or of
any security therefor. In the event of any inconsistency between this Agreement
and the Note Purchase Agreement, the Note Purchase Agreement shall govern.

        9.04    Successors and Assigns.

        This Agreement shall be binding upon and inure to the benefit of and be
enforceable by the respective successors and assigns of the parties hereto and
shall inure to the benefit of the Secured Parties; provided, however, that each
Debtor may not assign or transfer any of its rights or obligations hereunder
without the prior written consent of the Collateral Agent and the Secured
Parties. The Collateral Agent may transfer, assign or grant all or such relevant
part of its rights hereunder in accordance with the provisions of the Note
Purchase Agreement. All agreements, statements, representations and warranties
made by each Debtor herein or in any certificate or other instrument delivered
by such Debtor or on its behalf under this Agreement shall be considered to have
been relied upon by the Collateral Agent and the Secured Parties and shall
survive the execution and delivery of this Agreement, the Note Purchase
Agreement and the other Operative Agreements regardless of any investigation
made by the Collateral Agent and the Secured Parties or on their behalf.

        9.05    Headings Descriptive, etc.

        The headings of the several sections and subsections of this Agreement
are inserted for convenience only and shall not in any way affect the meaning or
construction of any provision of this Agreement.

        9.06    GOVERNING LAW; SUBMISSION TO JURISDICTION AND VENUE; WAIVER OF
JURY TRIAL.

        THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW
PRINCIPLES THEREOF (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL
OBLIGATIONS LAW), EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE
SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR
COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF
NEW YORK.

        (a)     Each Debtor and the Collateral Agent, to the extent that they
may lawfully do so, hereby consent to service of process, and to be sued, in the
Borough of Manhattan, City and State of New York, and consent to the
nonexclusive jurisdiction of the courts of the State of New York located in such
Borough and the United States District Court for the Southern District of New
York, as well as to the jurisdiction of all courts to which an appeal may be
taken from such courts, for the

                                       15
<PAGE>

purpose of any suit, action, or other proceeding arising out of any of their
obligations hereunder or with respect to the transactions contemplated hereby,
and expressly waive any and all objections they may have as to venue in any such
courts.

        (b)     EACH PARTY HERETO HEREBY KNOWINGLY, VOLUNTARILY, AND
INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS
AGREEMENT OR ANY OTHER OPERATIVE AGREEMENT, OR ANY COURSE OR CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS OF THE DEBTORS OR
THE COLLATERAL AGENT. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES TO
ENTER INTO THIS AGREEMENT.

        9.07    The Debtors' Duties.

        It is expressly agreed, anything herein contained to the contrary
notwithstanding, that each Debtor shall remain liable to perform all of the
obligations, if any, assumed by it with respect to the Collateral and the
Collateral Agent shall have no obligations or liabilities with respect to any
Collateral by reason of or arising out of or in connection with this Agreement,
nor shall the Collateral Agent or the Secured Parties be required or obligated
in any manner to perform or fulfill any of the obligations of any Debtor under
or with respect to any Collateral.

        9.08    Termination; Release.

        This Agreement shall terminate when all Secured Obligations have been
paid in full, and the Collateral Agent, at the written request and expense of
the relevant Debtor, will promptly execute and deliver to such Debtor the proper
instruments (which shall include UCC termination statements on form UCC-3 or
such other similar form which may then be required by law to terminate such
security interest) acknowledging the termination of this Agreement, and will
promptly duly assign, transfer and deliver to such Debtor (without recourse and
without any representation or warranty) free from any interest of the Collateral
Agent or Lien granted hereunder such of the Collateral as may be in possession
of the Collateral Agent and has not theretofore been sold or otherwise applied
or released pursuant to this Agreement together with such notices to third
parties as may be necessary to countermand any notices previously sent to them
pursuant hereto.

        9.09    Counterparts.

        This Agreement may be executed in any number of counterparts and by the
different parties hereto on separate counterparts, each of which when so
executed and delivered shall be an original, but all of which shall together
constitute one and the same instrument.

        9.10    Severability.

        In case any one or more of the provisions contained in this Agreement
shall be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not in any way be affected and/or impaired thereby. In addition, each Debtor and
the Collateral Agent undertake to negotiate in good faith with a view to
replacing such invalid, illegal or unenforceable provision with another
provision not so invalid, illegal or unenforceable with the same or similar
effect.

                                       16
<PAGE>

        9.11    Applicability of Note Purchase Agreement.

        In amplification of, and notwithstanding any other provisions of this
Agreement, in connection with its obligations hereunder, the Collateral Agent
has all of the rights, powers, privileges, exculpations, protections and
indemnities as are provided for or referred to in the Note Purchase Agreement.

                            [SIGNATURE PAGE FOLLOWS]

                                       17
<PAGE>

        IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their respective duly authorized officers as of the
date first above written.

                                        PACIFICE AEROSPACE & ELECTRONICS, INC.

                                        By: /s/ Donald A. Wright
                                           -------------------------------------
                                           Name:  Donald A. Wright
                                           Title: Chief Executive Officer
                                                  and President

                                        AEROMET AMERICA, INC.

                                        By: /s/ Donald A. Wright
                                           -------------------------------------
                                           Name:  Donald A. Wright
                                           Title: Executive Vice President

                                        BALO PRECISION PARTS, INC.

                                        By: /s/ Donald A. Wright
                                           -------------------------------------
                                           Name:  Donald A. Wright
                                           Title: Executive Vice President

                                        CASHMERE MANUFACTURING CO., INC.

                                        By: /s/ Donald A. Wright
                                           -------------------------------------
                                           Name:  Donald A. Wright
                                           Title: Executive Vice President

                                        CERAMIC DEVICES, INC.

                                        By: /s/ Donald A. Wright
                                           -------------------------------------
                                           Name:  Donald A. Wright
                                           Title: Executive Vice President

                                        ELECTRONIC SPECIALTY CORPORATION

                                        By: /s/ Donald A. Wright
                                           -------------------------------------
                                           Name:  Donald A. Wright
                                           Title: Executive Vice President

<PAGE>

                                        NORTHWEST TECHNICAL INDUSTRIES, INC.

                                        By: /s/ Donald A. Wright
                                           -------------------------------------
                                           Name: Donald A. Wright
                                           Title: Executive Vice President

                                        PACIFIC COAST TECHNOLOGIES, INC.

                                        By: /s/ Donald A. Wright
                                           -------------------------------------
                                           Name: Donald A. Wright
                                           Title: Executive Vice President

                                        PA&E INTERNATIONAL, INC.

                                        By: /s/ Donald A. Wright
                                           -------------------------------------
                                           Name: Donald A. Wright
                                           Title: President

                                        SEISMIC SAFETY PRODUCTS, INC.

                                        By: /s/ Donald A. Wright
                                           -------------------------------------
                                           Name: Donald A. Wright
                                           Title: Executive Vice President

                                        SKAGIT ENGINEERING & MANUFACTURING, INC.

                                        By: /s/ Donald A. Wright
                                           -------------------------------------
                                           Name: Donald A. Wright
                                           Title: Executive Vice President

<PAGE>

                                        FIRST UNION NATIONAL BANK, not in its
                                        individual capacity, but solely as
                                        Collateral Agent

                                        By: /s/ Paul Thompson
                                           -------------------------------------
                                           Name:  Paul Thompson
                                           Title: Vice President

<PAGE>

                                                                      SCHEDULE I

                             COMMERCIAL TORT CLAIMS

None.

<PAGE>

                                                                     SCHEDULE II

                          DEBTOR AND COLLATERAL DETAIL

<TABLE>
<CAPTION>
    COMPANY                           LOCATION                          USE
    -------                           --------                          ---
<S>                          <C>                               <C>
1.  PA&E                     430 Olds Station Road             PA&E headquarters
                             Wenatchee, WA 98801

2.  Northwest Technical      2249 Diamond Point Road           Bonded Metals Div. operations
    Industries, Inc.         Sequim, WA 98382

3.  Cashmere                 Port of Chelan                    Mach. Div. Operations
    Manufacturing Co.,       432 Olds Station Rd.
     Inc.                    Wenatchee, WA  98801

4.  Pacific Coast            Port of Chelan                    Electr. Group Operations
    Technologies, Inc.       434 Olds Station Rd.
                             Wenatchee, WA  98801

5.  PA&E                     Port of Chelan                    Mach. Div. Operations
                             200 Olds Station Rd.
                             Wenatchee, WA  98801

6.  PA&E                     Port of Chelan                    Mach. Div. Operations
                             2605 Chester Kimm Road
                             Wenatchee, WA  98801

7.  Electronic Specialty     Erickson Realty, Ltd.             Display Div. Operations
    Corporation              14511 NE 13th Ave.                (not in use)
                             Vancouver, WA  98685

8.  Skagit Engineering &     Sea-Land Development              Eng. & Fab. Div. Operations
    Manufacturing, Inc.      500 Metcalf Street                (not in use.
                             Sedro-Woolley, WA  98284          Partially terminated)
</TABLE>

<PAGE>

<TABLE>
<S>                          <C>                              <C>
9.  Skagit Engineering &     220th Street LLC                 Eng. & Fab. Office
    Manufacturing, Inc.      6808 220th St. SW                (subleased)
                             Suite 200
                             Mountlake Terrace, WA  98043

10. Northwest Technical      Rayonier, Inc.                   Remote blasting site
    Industries, Inc.         (site has no address)
</TABLE>

<PAGE>

                                                                    SCHEDULE III

                       PATENTS, COPYRIGHTS AND TRADEMARKS

                        PACIFIC COAST TECHNOLOGIES, INC.

                               PATENT STATUS CHART

<TABLE>
<CAPTION>
       APPLICANT/
       PATENTEE/
        ASSIGNEE
        COUNTRY           ATTORNEY DOCKET NO.  INVENTORS         SERIAL NO.     FILING DATE      PATENT NO.       ISSUE DATE
----------------------    -------------------  -------------     ----------     -----------      ----------       ----------
<S>                       <C>                  <C>               <C>            <C>              <C>              <C>
       PCT, Inc.                42474/5        James C. Kyle                     07.16.81        4,507,522         03.26.85

          USA                   Kyle 12
----------------------    -------------------  -------------     ----------     -----------      ----------       ----------
       PCT, Inc.                42474/5        James C. Kyle                     05.02.84        4,512,791         04.23.85

          USA                   Kyle 13
----------------------    -------------------  -------------     ----------     -----------      ----------       ----------
       PCT, Inc.                42474/5        James C. Kyle                     05.02.84        4,514,207         04.30.85

          USA                   Kyle 14
----------------------    -------------------  -------------     ----------     -----------      ----------       ----------
       PCT, Inc.                42474/5        James C. Kyle                     10.08.82        4,514,590         04.30.85

          USA                   Kyle 15

----------------------    -------------------  -------------     ----------     -----------      ----------       ----------
      PCT, Inc.                42474/5        James C. Kyle                     11.04.82        4,518,820         05.21.85

          USA                   Kyle 16
----------------------    -------------------  -------------     ----------     -----------      ----------       ----------
       PCT, Inc.                42474/5        James C. Kyle                     05.02.84        4,593,758         06.10.86

          USA                   Kyle 17
----------------------    -------------------  -------------     ----------     -----------      ----------       ----------
</Table>

<TABLE>
<CAPTION>
       APPLICANT/
       PATENTEE/
        ASSIGNEE
        COUNTRY                EXPIRATION DATE          TITLE                STATUS             MAINTENANCE FEE DUE DATES
----------------------         ---------------    -------------------------  -----------------  ----------------------------------
<S>                            <C>                <C>                        <C>                <C>
       PCT, Inc.                   03.26.02       TERMINAL ASSEMBLY          IN FORCE           No further fees due

          USA
----------------------         ---------------    -------------------------  -----------------------------------------------------
       PCT, Inc.                   04.23.02       HERMETICALLY SEALED        IN FORCE           No further fees due
                                                  INSULATING ASSEMBLY

          USA
----------------------         ---------------    -------------------------  -----------------------------------------------------
       PCT, Inc.                   04.30.02       METHOD FOR MAKING          IN FORCE           No further fees due
                                                  TERMINAL ASSEMBLY FOR
                                                  HEART PACEMAKER
          USA
----------------------         ---------------    -------------------------  -----------------------------------------------------
       PCT, Inc.                   10.08.02       ELECTRICAL TERMINAL        IN FORCE           No further fees due
                                                  ASSEMBLY

          USA

----------------------         ---------------    -------------------------  -----------------------------------------------------
      PCT, Inc.                   11.04.02       TERMINAL ASSEMBLY FOR      IN FORCE           No further fees due
                                                  HEART PACEMAKER

          USA
----------------------         ---------------    -------------------------  -----------------------------------------------------
       PCT, Inc.                   06.10.03       HERMETICALLY SEALED        IN FORCE           No further fees due
                                                  INSULATING ASSEMBLY

          USA
----------------------         ---------------    -------------------------  -----------------------------------------------------

</TABLE>
<PAGE>

<TABLE>
<CAPTION>
       APPLICANT/
        PATENTEE/
        ASSIGNEE
        COUNTRY           ATTORNEY DOCKET NO.      INVENTORS      SERIAL NO.    FILING DATE    PATENT NO.    ISSUE DATE
----------------------    -------------------    -------------    ----------    -----------    ----------    ----------
<S>                       <C>                    <C>              <C>           <C>            <C>           <C>
       PCT, Inc.                42474/5          James C. Kyle                    12.04.84     4,654,752     03.31.87

          USA                   Kyle 18

----------------------    -------------------    -------------    ----------    -----------    ----------    ----------
       PCT, Inc.                42474/5          James C. Kyle                    06.29.84     4,657,337     04.14.87

          USA                   Kyle 19

----------------------    -------------------    -------------    ----------    -----------    ----------    ----------
      PCT, Inc.(1)              42474/5          James C. Kyle                    10.20.83     4,925,607     5.15.90

          USA                   Kyle 20

----------------------    -------------------    -------------    ----------    -----------    ----------    ----------
      PCT, Inc.                 42474/5          James C. Kyle                    09.20.82     4,935,583     06.19.90

          USA                   Kyle 21

----------------------    -------------------    -------------    ----------    -----------    ----------    ----------
      PCT, Inc.                 42474/6          Edward A.                        01.07.92     5,298,683     03.29.94
                                                 Taylor
          USA                   Taylor 1

----------------------    -------------------    -------------    ----------    -----------    ----------    ----------
</TABLE>

<TABLE>
<CAPTION>
       APPLICANT/
       PATENTEE/
        ASSIGNEE
        COUNTRY           EXPIRATION DATE              TITLE                  STATUS            MAINTENANCE FEE DUE DATES
----------------------    ---------------    -------------------------    ----------------    -----------------------------
<S>                       <C>                <C>                          <C>                 <C>
       PCT, Inc.              12.04.04       TERMINAL ASSEMBLY            IN FORCE            No further fees due
                                             AND METHOD OF MAKING
         USA                                 TERMINAL ASSEMBLY

----------------------    ---------------    -------------------------    ----------------    -----------------------------
       PCT, Inc.              06.29.04       ELECTRICAL CONNECTOR &       IN FORCE            No further fees due
                                             METHOD OF PRODUCING
         USA                                 ELECTRICAL CONNECTOR

----------------------    ---------------    -------------------------    ----------------    -----------------------------
      PCT, Inc.(1)            05.15.07       ELECTRICAL INSULATING        IN FORCE            Release of Sec'y Int. sent to
                                             MATERIAL FORMED FROM AT                          Kyle for signature 01.02.
         USA                                 LEAST ONE FLUX AND A                             Sec'y Int. not yet released;
                                             CRYSTALLINE STUFFING                             need to correct fee payment.
                                             MATERIAL
----------------------    ---------------    -------------------------    ----------------    -----------------------------
       PCT, Inc.              06.19.07       INSULATED CONDUCTOR WITH     IN FORCE            No further fees due
                                             CERAMIC-CONNECTED
         USA                                 ELEMENTS

----------------------    ---------------    -------------------------    ----------------    -----------------------------
       PCT, Inc.              01.07.12       DISSIMILAR METAL             IN FORCE            09.29.05
                                             CONNECTORS
         USA

----------------------    ---------------    -------------------------    ----------------    -----------------------------
</TABLE>

----------------------
1    Assignment to PCT, Inc. included security interest to Kyle. Obligation to
     Kyle has been satisfied. Requested and have not yet received the executed
     release of the security interest.
<PAGE>

<TABLE>
<CAPTION>
       APPLICANT/
        PATENTEE/
        ASSIGNEE
        COUNTRY           ATTORNEY DOCKET NO.      INVENTORS      SERIAL NO.    FILING DATE    PATENT NO.    ISSUE DATE
----------------------    -------------------    -------------    ----------    -----------    ----------    ----------
<S>                       <C>                    <C>              <C>           <C>            <C>           <C>
       PCT, Inc.              42474/7            Edward A.                       06.02.94      5,433,260     07.18.95
                                                 Taylor
          USA                 Taylor 2

----------------------    -------------------    -------------    ----------    -----------    ----------    ----------
       PCT, Inc.              42474/7            Edward A.                       06.19.95      5,675.122     10.07.97
                                                 Taylor
          USA                 Taylor 3

----------------------    -------------------    -------------    ----------    -----------    ----------    ----------
       PCT, Inc.              42474/19c1         Edward           09/006,696      01.14.98     5,986,208     11.16.99
                                                 A.Taylor;
          USA                 Taylor 5           Marshall Neal
                                                 Hulbert

----------------------    -------------------    -------------    ----------    -----------    ----------    ----------
       PCT, Inc.              42474/801          Brian Lasater    09/076,230      05.12.98     6,221,513     04.24.01

          USA                 Lasater 1

----------------------    -------------------    -------------    ----------    -----------    ----------    ----------
       PCT, Inc.             42474/801 PCT       Brian Lasater      99 921        Priority
                                                                     874.6          Date
        EUROPE            Lasater 1 PCT Int'l                                     05.11.99

                                                                                 PCT/US99/
                                                                                   10313

                                                                                 Published
                                                                                 11.18.09
                                                                                   as WO
                                                                                 99/58322.
</TABLE>

<TABLE>
<CAPTION>
       APPLICANT/
       PATENTEE/
        ASSIGNEE
        COUNTRY           EXPIRATION DATE              TITLE                   STATUS           MAINTENANCE FEE DUE DATES
----------------------    ---------------    -------------------------    ----------------    -----------------------------
<S>                       <C>                <C>                          <C>                 <C>
       PCT, Inc.              07.27.12       SEALABLE ELECTRONIC          IN FORCE            01.18.03, 01.18.07
                                             PACKAGES & METHODS OF
         USA                                 PRODUCING & SEALING SUCH
                                             PACKAGES
----------------------    ---------------    -------------------------    ----------------    -----------------------------
       PCT, Inc.              07.27.12       SEALABLE ELECTRONIC          IN FORCE            04.07.05
                                             PACKAGES
         USA                                                                                  04.07.09

----------------------    ---------------    -------------------------    ----------------    -----------------------------
       PCT, Inc.              03.19.16       WAVEGUIDE WINDOW             IN FORCE            05.16.03, 05.16.07, 05.16.11
                                             ASSEMBLY AND MICROWAVE
         USA                                 ELECTRONICS PACKAGE

----------------------    ---------------    -------------------------    ----------------    -----------------------------
       PCT, Inc.              05.12.18       METHODS FOR HERMETICALLY     IN FORCE            BROADENING REISSUE DEADLINE
                                             SEALING CERAMIC TO                               04.24.03; MAINT. FEES DUE:
         USA                                 METALLIC SURFACES AND                            10.24.04, 10.24.08, 10.24.12
                                             ASSEMBLIES
                                             INCORPORATING SUCH SEALS
----------------------    ---------------    -------------------------    ----------------    -----------------------------
       PCT, Inc.                             METHODS AND MATERIALS        Pending;            Maintenance fee due annually.
                                             FOR SEALING CERAMIC TO       Designated
        EUROPE                               METALLIC SURFACES            countries are:
                                                                          Switzerland-
                                                                          Liechtenstein,
                                                                          Germany; Denmark,
                                                                          France, Great
                                                                          Britain, Italy,
                                                                          Netherlands and
                                                                          Sweden;
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
       APPLICANT/
       PATENTEE/
        ASSIGNEE
        COUNTRY           ATTORNEY DOCKET NO.  INVENTORS         SERIAL NO.     FILING DATE      PATENT NO.       ISSUE DATE
----------------------    -------------------  -------------     ----------     -----------      ----------       ----------
<S>                       <C>                  <C>               <C>            <C>              <C>              <C>

----------------------    -------------------  -------------     ----------     -----------      ----------       ----------
       PCT, Inc.          42474/802aLasater 4  Brian Lasater     09/235,223      01.22.99        6,232,004         05.15.01

          USA

----------------------    -------------------  -------------     ----------    --------------    ----------       ----------
       PPCT, Inc.            42474/802PCT      Brian Lasater    99 920 345.8     Priority
                                                                               Date 05.05.99
         EUROPE                Lasater 3
                                                                               PCT/US99/09819

                                                                               Published
                                                                               11.18.99 as
                                                                               WO 99/58690.
----------------------    -------------------  -------------     ----------    --------------    ----------       ----------
         PCT, Inc.            42474/17-5        Edward J.                      07.09.91           5,110,307         05.05.92
           USA                                  Rapoza
                              Rapoza

</TABLE>

<TABLE>
<CAPTION>
       APPLICANT/
       PATENTEE/
        ASSIGNEE
        COUNTRY           EXPIRATION DATE          TITLE               STATUS             MAINTENANCE FEE DUE DATES
----------------------    ---------------   -------------------------  --------------------------------------------------------
<S>                       <C>               <C>                        <C>                <C>

----------------------    --------------    -------------------------  ---------------------------------------------------------
       PCT, Inc.            05.06.18        METHODS FOR TREATING       IN FORCE           BROADENING REISSUE DEADLINE 05.15.03;
                                            CERAMIC MATERIALS AND                         MAINT. FEES DUE:  11.15.04;
          USA                               CERAMIC MATERIALS                             11.15.08; 11.15.12
                                            PRODUCED THEREBY
                                            (Zirconia treatment
                                            with metals)
----------------------    --------------    -------------------------  ---------------------------------------------------------
       PPCT, Inc.                           METHODS FOR TREATING       Pending;           Maintenance fee due annually
                                            CERAMIC MATERIALS AND      Switzerland-
         EUROPE                             IMPROVED TREATED CERAMIC   Liechtenstein,
                                            MATERIALS PRODUCED         Germany; Denmark
                                            THEREBY (Zirconia          France, Great
                                            staining with titanium)    Britain, Italy,
                                                                       Netherlands and
                                                                       Sweden
----------------------    --------------    -------------------------  ---------------------------------------------------------
         PCT, Inc.          07.09.11        LASER                      IN FORCE           11.05.03
                                            WELDABLE
           USA                              HERMETIC
                                            CONNECTOR
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
       APPLICANT/
       PATENTEE/
        ASSIGNEE
        COUNTRY           ATTORNEY DOCKET NO.  INVENTORS         SERIAL NO.     FILING DATE      PATENT NO.       ISSUE DATE
----------------------    -------------------  -------------     ----------     -----------      ----------       ----------
<S>                       <C>                  <C>               <C>            <C>              <C>              <C>
       PCT, Inc.               42474/17        Edward J.                         05.04.92        5,405,272        04.11.95
                                               Rapoza

          USA                  Rapoza 2

----------------------    -------------------  -------------     ----------     ------------     ----------       ----------
                               42474/17        Edward J.         92303983.8      05.01.92        EP 0 522         03.05.97
                                               Rapoza                                            687 B1

        UK(2)                  Rapoza 3
----------------------    -------------------  -------------     ----------     -----------      ----------       ----------
    PCT, Inc.                  42474/17        Edward J.         Can.            04.30.92        2,067,667         12.25.01
    CANADA                                     Rapoza            20676671

                               Rapoza 4
----------------------    -------------------  -------------     ----------     -----------      ----------       ----------
       PCT, Inc.               42474/17        William F.                        11.01.90        5,041,019         08.20.91
                                               Sharp, et al.

          USA                   Sharp 1
----------------------    -------------------  -------------     ----------     -----------      ----------       ----------
       PCT, Inc.               42474/17        William F.                        03.18.91        5,109,594         05.05.92
                                               Sharp, et al.

          USA                   Sharp 2
----------------------    -------------------  -------------     ----------     -----------      ----------       ----------
       PCT, Inc.               42474/17        Wayne R. Snow,                    09.26.85        4,690,480         09.01.87
                                               et. al.

          USA                   Snow 1
----------------------    -------------------  -------------     ----------     -----------      ----------       ----------
</TABLE>

<TABLE>
<CAPTION>
       APPLICANT/
       PATENTEE/
       ASSIGNEE
        COUNTRY            EXPIRATION DATE              TITLE                STATUS            MAINTENANCE FEE DUE DATES
----------------------    ------------------   ------------------------   ----------------   -----------------------------
<S>                       <C>                  <C>                        <C>                <C>
       PCT, Inc.
                               04.11.12          LASER WELDABLE HERMETIC     IN FORCE          10.11.02, 10.11.06
                                                  CONNECTOR
          USA
----------------------    ------------------   ------------------------   ----------------   -----------------------------
                               05.01.12          LASER WELDABLE HERMETIC     EU patent         ANNUALLY ON MAY 3RD
        UK(2)                                     CONNECTOR                enforceable in
                                                                                UK
----------------------    ------------------   ------------------------   ----------------   -----------------------------
    PCT, Inc.                  04.30.12          LASER WELDABLE HERMETIC     IN FORCE          ANNUALLY ON APRIL 30TH
    CANADA                                        CONNECTOR

----------------------    -----------------   -------------------------   ---------------   -----------------------------
       PCT, Inc.               11.01.10          TRANSITION JOINT FOR        IN FORCE          02.20.03
                                                  MICROWAVE PACKAGE
          USA
----------------------    ------------------   ------------------------   ----------------   -----------------------------
       PCT, Inc.               11.01.10          METHOD OF MAKING SEALED     IN FORCE          11.05.03
                                                  TRANSITION JOINT
          USA
----------------------    ------------------   ------------------------   ----------------   -----------------------------
       PCT, Inc.               09.26.05          TUBULAR                     IN FORCE          No further fees due
                                                  BI-METAL CONNECTOR
          USA
----------------------    ------------------   ------------------------   ----------------   -----------------------------
</TABLE>

__________________

(2) Assignment to PCT, Inc. not yet recorded in UK; we are the following up to
    record.

<PAGE>

                      PACIFIC AEROSPACE & ELECTRONICS, INC.
                               PATENT STATUS CHART

<TABLE>
<CAPTION>
      APPLICANT/          ATTORNEY DOCKET
   ASSIGNEE COUNTRY             NO.         INVENTORS               SERIAL NO.          FILE DATE       PATENT NO.
   ------------------     ---------------   -------------------     ---------           ---------       ----------
<S>                       <C>               <C>                     <C>                 <C>             <C>
  Pacific Aerospace &        42474/900      David N. Crane          09/200,204          11.25.98        6,150,772
   Electronics, Inc.

          USA

   ------------------     ---------------   -------------------     ---------           ---------       ----------
  Pacific Aerospace &        42474/901      Herman L. ("Jack")      09/302,590          04.30.99
Electronics, Inc.(3)                        Jones; Edward A.
                                            Taylor
          USA

   ------------------     ---------------   -------------------     ---------           ---------       ----------
  Pacific Aerospace &        42474/902      Herman L. ("Jack")      09/303,196          04.30.99        6,284,389
   Electronics, Inc.                        Jones; Edward A.
                                            Taylor
          USA

   ------------------     ---------------   -------------------     ---------           ---------       ----------
</TABLE>

<TABLE>
<CAPTION>
      APPLICANT/
   ASSIGNEE COUNTRY       ISSUE DATE       EXPIRATION DATE         TITLE                           STATUS
   ------------------     ----------       ---------------  ----------------------------           ----------------
<S>                        <C>             <C>              <C>                                    <C>
  Pacific Aerospace &      11.21.00        11.25.18         GAS DISCHARGE LAMP CONTROLLER          IN FORCE
   Electronics, Inc.

          USA
   ------------------     ----------       ---------------  ----------------------------           ----------------
 Pacific Aerospace &                                        ELECTRONICS PACKAGES HAVING A          PENDING; Claims
Electronics, Inc.(3)                                        COMPOSITE STRUCTURE AND METHODS FOR    allowed; Issue Fee
                                                            MANUFACTURING SUCH ELECTRONICS         paid and formal
          USA                                               PACKAGES                               drawings submitted.
   ------------------     ----------       ---------------  ----------------------------           ----------------
  Pacific Aerospace &      09.04.01           04.30.19      COMPOSITE MATERIALS AND METHODS FOR    IN FORCE
   Electronics, Inc.                                        MANUFACTURING COMPOSITE MATERIALS

          USA
   ------------------     ----------       ---------------  ----------------------------           ----------------
</TABLE>

<TABLE>
<CAPTION>
      APPLICANT/            MAINTENANCE
   ASSIGNEE COUNTRY         FEE DUE DATES
   ------------------       ----------------------
<S>                         <C>
  Pacific Aerospace &       BROADENING REISSUE
   Electronics, Inc.        DEADLINE 11.21.02;
                            MAINT. FEES DUE:

                            05.21.04,

          USA               05.21.08,
                            05.21.12

   ------------------       ----------------------
  Pacific Aerospace &
Electronics, Inc.(3)

          USA

   ------------------       ----------------------
  Pacific Aerospace &       BROADENING REISSUE
   Electronics, Inc.        DEADLINE 09.04.03;
                            MAINT. FEES DUE:
          USA               03.04.05
                            03.04.09
                            03.04.13
   ------------------       ----------------------
</Table>

      (3)   Mr. Jones holds a Security Interest in these applications but has
consented to the granting by the Company of a second priority perfected security
interest in these applications in favor of the Collateral Agent.

<PAGE>

<TABLE>
<CAPTION>
      APPLICANT/          ATTORNEY DOCKET
   ASSIGNEE COUNTRY             NO.         INVENTORS               SERIAL NO.          FILE DATE       PATENT NO.
   ------------------     ---------------   -------------------     ---------           ---------       ----------
<S>                       <C>               <C>                     <C>                 <C>             <C>
  Pacific Aerospace &         42474/        Herman L. ("Jack")           EP 00          11.15.01
   Electronics, Inc.                        Jones; Edward A.           `928'580.0
                             901-2.EP       Taylor                    Nat'l phase
                                                                           of
                                                                     PCT/US00/11579
        EUROPE

------------------------ ------------------ ----------------------- ----------------- -------------- -----------------
</TABLE>

<TABLE>
<CAPTION>
      APPLICANT/                                                                                       MAINTENANCE
   ASSIGNEE COUNTRY       ISSUE DATE       EXPIRATION DATE         TITLE                  STATUS       FEE DUE DATES
   ------------------     ----------       ---------------  ----------------------------  -----------  -------------
<S>                        <C>             <C>              <C>                           <C>          <C>
  Pacific Aerospace &                                       COMPOSITE ELECTRONICS         PENDING.
   Electronics, Inc.                                        PACKAGES AND METHODS FOR
                                                            MANUFACTURE
        EUROPE
   ------------------     ----------       ---------------  ----------------------------  -----------  -------------
</TABLE>

<PAGE>

                          SEISMIC SAFETY PRODUCTS, INC.
                               PATENT STATUS CHART

<TABLE>
<CAPTION>
   APPLICANT/
   PATENTEE/          ATTORNEY DOCKET
ASSIGNEE COUNTRY           NO.           INVENTORS         SERIAL NO.        FILE DATE        PATENT NO.      ISSUE DATE
------------------    ---------------  --------------      ----------        ---------        ---------       ----------
<S>                   <C>              <C>                 <C>               <C>              <C>             <C>
Seismic Safety           42474/28      James C. McGill                       03.07.88         4,903,720        02.27.90
Prods., Inc.

USA                      McGill 1
------------------    ---------------  --------------      ----------        ---------        ---------       ----------
Seismic Safety           42474/28      James C. McGill                       02.26.91         5,119,841        06.09.92
Prods., Inc.
                          McGill 2
USA
------------------    ---------------  --------------      ----------        ---------        ---------       ----------
Seismic Safety           42474/28      James C. McGill,                      11.09.93         5,409,031       04.25.95
Prods., Inc.                           Antonio F.
                                       Fernandez
                          McGill 3
USA
------------------    ---------------  --------------      ----------        ---------        ---------       ----------
Seismic Safety           42474/28      James C. McGill,                      03.13.95         5,704,385       01.06.98
Prods., Inc.                           Antonio F.
                                       Fernandez

                          McGill 4
USA
------------------    ---------------  --------------      ----------        ---------        ---------       ----------
</TABLE>

<TABLE>
<CAPTION>
   APPLICANT/
   PATENTEE/                                                                                   MAINTENANCE FEE
ASSIGNEE COUNTRY           EXPIRATION DATE              TITLE                     STATUS          DUE DATES
------------------         ---------------    ---------------------------        ---------     ---------------
<S>                        <C>                <C>                                <C>           <C>
Seismic Safety             03.07.08            SAFETY SHUTOFF DEVICE             IN FORCE      All fees paid
Prods., Inc.

USA
------------------         ---------------    ---------------------------        --------      ---------------
Seismic Safety             02.26.11           SAFETY SHUT OFF APPARATUS          IN FORCE      12.09.03
Prods., Inc.

USA
------------------         ---------------    ---------------------------        --------      ---------------
Seismic Safety             04.25.12           SAFETY SHUT OFF VALVE              IN FORCE      10.25.02,
Prods., Inc.                                                                                   10.25.06

USA
------------------         ---------------    ---------------------------        --------      ---------------
Seismic Safety             01.06.15           AUTOMATIC AND MANUALLY             IN FORCE      07.06.05,
Prods., Inc.                                  OPERABLE SAFETY SHUTOFF
                                              VALVE
                                                                                               07.06.09
USA
------------------         ---------------    ---------------------------        --------      ---------------
</TABLE>

<PAGE>

                            AEROMET INTERNATIONAL PLC
                               PATENT STATUS CHART

<TABLE>
<CAPTION>
     APPLICANT/
     PATENTEE/
     ASSIGNEE         ATTORNEY DOCKET
     COUNTRY                NO.             INVENTORS          SERIAL NO.       FILING DATE       PATENT NO.      ISSUE DATE
------------------    ---------------       ---------          ----------       -----------       ----------      ----------
<S>                   <C>                   <C>                <C>              <C>               <C>             <C>
 Aeromet Int'l PLC                                             9804599.0        03.05.98
                                                               (initial)
         UK
                                                               9904741.7
                                                                (final)
------------------    ---------------       ---------          ----------       -----------       ----------      ----------
 Aeromet Int'l PLC                                             99104277.1

       EUROPE

------------------    ---------------       ---------          ----------       -----------       ----------      ----------
 Aeromet Int'l PLC                                              2264214

       CANADA
------------------    ---------------       ---------          ----------       -----------       ----------      ----------
   Aeromet Int'l         A00009359           Butler            09/262,446         03.04.99        6,126,898        10.03.00
                         US

        USA                                                                     priority to
                                                                                  03.05.98
------------------    ---------------       ---------          ----------       -----------       ----------      ----------
   Aeromet Int'l                                                11-57989

       JAPAN
------------------    ---------------       ---------          ----------       -----------       ----------      ----------
</TABLE>

<TABLE>
<CAPTION>
     APPLICANT/
     PATENTEE/
     ASSIGNEE                                                                                               MAINTENANCE FEE DUE
     COUNTRY               EXPIRATION DATE              TITLE                       STATUS                  DATES
------------------         ---------------    --------------------------        -------------------         --------------------
<S>                        <C>                <C>                               <C>                         <C>
 Aeromet Int'l PLC                            CAST ALUMINUM-COPPER ALLOY        PENDING; no further
                                                                                information.
         UK

------------------         ---------------    --------------------------        -------------------         --------------------
 Aeromet Int'l PLC                            CAST ALUMINUM-COPPER ALLOY        PENDING; no further
                                                                                information.

       EUROPE

------------------         ---------------    --------------------------        -------------------         --------------------
 Aeromet Int'l PLC                            CAST ALUMINUM-COPPER ALLOY        PENDING; no further
                                                                                information.
       CANADA
------------------         ---------------    --------------------------        -------------------         --------------------
   Aeromet Int'l               03.04.19       CAST ALUMINUM-COPPER ALLOY        IN FORCE                    BROADENING REISSUE
                                                                                                            DEADLINE 10.03.02;
                                                                                                            MAINT. FEES DUE:
        USA                                                                                                 04.03.04, 04.03.08,
                                                                                                            04.03.12
------------------         ---------------    --------------------------        -------------------         --------------------
   Aeromet Int'l                              CAST ALUMINUM-COPPER ALLOY        PENDING; no further
                                                                                information.

       JAPAN
------------------         ---------------    --------------------------        -------------------         --------------------
</TABLE>

<PAGE>

                           TRADEMARK STATUS REPORT FOR
                      PACIFIC AEROSPACE & ELECTRONICS, INC.

<TABLE>
<CAPTION>
                        CLIENT/
    ASSIGNMENT         MATTER NO.            MARK              COUNTRY      SERIAL NO.       FILING DATE
--------------------  ------------   ----------------------  -----------  ---------------  ---------------
<S>                   <C>            <C>                     <C>          <C>              <C>
PCT, Inc.               42174/10     KRYOFLEX                USA          73/117,580        03.01.77

--------------------  ------------   ----------------------  -----------  ---------------  ---------------
PCT, Inc.               42174/11     HERMETIC ADVANTAGE      USA          74/521,789        05.03.94

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

PCT, Inc.               42174/12     PARTNERS WITH           USA          74/522,844        05.03.94
                                     TOMORROW

--------------------  ------------   ----------------------  -----------  ---------------  ---------------
Seismic Safety          42174/16     NORTHRIDGE VALVE        USA          75/169,974        09.23.96
Products, Inc.

--------------------  ------------   ----------------------  -----------  ---------------  ---------------
</TABLE>

<TABLE>
<CAPTION>
                           REGISTRATION                                      INT'L
     ASSIGNMENT              NO./DATE             GOODS /SERVICES            CLASS                     STATUS
--------------------      --------------    ---------------------------   -----------   -------------------------------------
<S>                       <C>               <C>                           <C>           <C>
PCT, Inc.                 1,114,452         CERAMIC MATERIALS SOLD        10; 21        REGISTERED;
                                            AS A COMPONENT OF HEART
                          Mar. 6, 1979      PACEMAKERS                                  Next renewal due 03.06.09
--------------------      --------------    ---------------------------   -----------   ------------------------------------
PCT, Inc.                 1,998,984         ELECTRONIC COMPONENTS,         9            REGISTERED;
                                            NAMELY ELECTRONIC
                                            CONNECTORS AND                              SEC. 8/15 DECL due 9.10.01 - 9.10.02;
                          Sept. 10, 1996    HER-METIC SEALING                           Renewal due 3.10.06 - 9.10.06
                                            DEVICES
--------------------      --------------    ---------------------------   -----------   ------------------------------------

PCT, Inc.                 1,998,986         ELECTRONIC COMPONENTS,         9            REGISTERED;
                                            NAMELY ELECTRONIC
                                            CON-NECTORS AND
                          Sept. 10, 1996    HERMETIC SEALING                            Sec 8/15 Decl due 9.10.01 - 9.10.02;
                                            DEVICES FOR ELEC-TRONIC
                                            PACKAGES AND CONNECTORS
                                                                                        Renewal due 3.10.06 - 9.10.06
--------------------      --------------    ---------------------------   -----------   ------------------------------------
Seismic Safety            2,119,389         VALVES FOR NATURAL GAS         7            REGISTERED;
Products, Inc.                              DISTRIBUTION SYSTEMS
                          Dec. 9, 1997                                                  Sec 8/15 Decl due 12.9.02 - 12.9.03;

                                                                                        RENEWAL due 6.9.07 - 12.9.07
--------------------      --------------    ---------------------------   -----------   ------------------------------------
</TABLE>

<PAGE>
                                                                    SCHEDULE IV

                            ADDRESSES OF THE DEBTORS

<TABLE>
<CAPTION>
         NAME OF DEBTOR                          STATE OF INCORPORATION              PRINCIPAL PLACE OF BUSINESS
         --------------                          ----------------------          ----------------------------------
<S>                                                <C>                          <C>
Pacific Aerospace & Electronics, Inc.                 Washington                 430 Olds Station Road, Third Floor
                                                                                 Wenatchee, Washington 98801

Aeromet America, Inc.                                 Washington                 430 Olds Station Road
                                                                                 Wenatchee, Washington 98801

Balo Precision Parts, Inc.                            Washington                 430 Olds Station Road
                                                                                 Wenatchee, Washington 98801

Cashmere Manufacturing Co., Inc.                      Washington                 432 Olds Station Road
                                                                                 Wenatchee, Washington 98801

Ceramic Devices, Inc.                                 Washington                 434 Olds Station Road
                                                                                 Wenatchee, Washington 98801

Electronic Specialty Corporation                      Washington                 14511 NE 13th Avenue
                                                                                 Vancouver, WA 98685

Northwest Technical Industries, Inc.                  Washington                 2249 Diamond Point Road
                                                                                 Sequim, WA 98382

Pacific Coast Technologies, Inc.                      Washington                 434 Olds Station Road
                                                                                 Wenatchee, Washington 98801

PA&E International Inc.                               Washington                 430 Olds Station Road
                                                                                 Wenatchee, Washington 98801

Seismic Safety Products, Inc.                         Washington                 430 Olds Station Road
                                                                                 Wenatchee, Washington 98801

Skagit Engineering & Manufacturing, Inc.              Washington                 500 Metcalf Street
                                                                                 Sedro-Woolley, WA 98284
</TABLE><PAGE>
                                                                   Exhibit 10.11
--------------------------------------------------------------------------------

                             STOCK PLEDGE AGREEMENT

                                      among

                      PACIFIC AEROSPACE & ELECTRONICS, INC.

                                       and

                            PA&E INTERNATIONAL, INC.,
                                 each a Pledgor,

                                       and

                           FIRST UNION NATIONAL BANK,
                               as Collateral Agent

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

                           Dated as of March 25, 2002

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

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

<PAGE>

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                  Page
                                                                                  ----
<S>            <C>                                                                <C>
SECTION 1.     DEFINITIONS.........................................................1

SECTION 2.     THE PLEDGE..........................................................2

SECTION 3.     SECURITY FOR OBLIGATIONS............................................3

SECTION 4.     REPRESENTATIONS AND WARRANTIES......................................3

SECTION 5.     COVENANTS...........................................................4

SECTION 6.     ADVANCES BY LENDERS.................................................5

SECTION 7.     VOTING RIGHTS; DIVIDENDS............................................5

SECTION 8.     CONTINUED PERFECTION OF SECURITY INTEREST...........................6

SECTION 9.     OBLIGATIONS OF THE PLEDGORS AND RIGHTS OF THE COLLATERAL AGENT......6

SECTION 10.    REMEDIES OF THE COLLATERAL AGENT....................................6

SECTION 11.    COLLATERAL AGENT APPOINTED ATTORNEY-IN-FACT.........................8

SECTION 12.    SECURITY INTEREST ABSOLUTE..........................................9

SECTION 13.    AMENDMENTS; ETC.....................................................9

SECTION 14.    NOTICES.............................................................9

SECTION 15.    CONTINUING ASSIGNMENT; PLEDGE AND SECURITY INTEREST; RELEASE.......10

SECTION 16.    APPLICATION OF PROCEEDS............................................10

SECTION 17.    SEVERABILITY.......................................................11

SECTION 18.    HEADINGS...........................................................11

SECTION 19.    GOVERNING LAW......................................................11

SECTION 20.    CONSENT TO JURISDICTION............................................11

SECTION 21.    WAIVER OF JURY TRIAL...............................................12

SECTION 22.    EXECUTION IN COUNTERPARTS..........................................12

SECTION 23.    APPLICABILITY OF NOTE PURCHASE AGREEMENT...........................12
</TABLE>

                                       i
<PAGE>

Annex 1-A - Certificates of Stock of the Domestic Subsidiaries

Annex 1-B - Certificates of Stock of the Foreign Subsidiaries

<PAGE>

                             STOCK PLEDGE AGREEMENT

               STOCK PLEDGE AGREEMENT, dated as of March 25, 2002 (this
"Agreement"), among PACIFIC AEROSPACE & ELECTRONICS, INC., a Washington
corporation (the "Company"), and PA&E INTERNATIONAL, INC. and each other
Subsidiary (as hereinafter defined) of the Company that may become a "pledgor"
hereunder (collectively, the "Pledgor Subsidiaries"; the Company and the Pledgor
Subsidiaries are referred to herein individually as a "Pledgor" and
collectively, as the "Pledgors"), and FIRST UNION NATIONAL BANK, acting in its
capacity as collateral agent (the "Collateral Agent") for the Holders (as
hereinafter defined),

                              W I T N E S S E T H:

               WHEREAS, the Company, the Initial Purchaser (as hereinafter
defined) and the Collateral Agent have entered into that certain Note Purchase
Agreement, dated as of March 19, 2002 (as such agreement may be amended,
restated, modified or supplemented from time to time, the "Note Purchase
Agreement"); and

               WHEREAS, it is a condition precedent to the obligations of the
Initial Purchaser under the Note Purchase Agreement, that the Pledgors execute
and deliver this Agreement pursuant to which, among other things, the Pledgors
shall grant to the Collateral Agent, for the benefit of the Holders, a
continuing security interest in all of the Collateral (as hereinafter defined)
to secure all of the Obligations (as hereinafter defined);

               NOW, THEREFORE, in consideration of the agreements and covenants
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, each Pledgor hereby makes the
following assignments, representations and warranties to the Collateral Agent
and hereby covenants and agrees with the Collateral Agent as follows:

               SECTION 1.    Definitions

               Except as otherwise indicated herein, as used in this Agreement,
the following terms have the following meanings:

               "Domestic Subsidiaries" means each Subsidiary that is a
corporation incorporated under the laws of the United States of America or any
State or territory thereof.

               "Foreign Subsidiaries" means each Subsidiary that is a
corporation incorporated under the laws of any jurisdiction other than the
United State of America or any State or territory thereof.

               "UCC" means the Uniform Commercial Code, as in effect in any
applicable jurisdiction.

<PAGE>

               (a) Capitalized terms used and not otherwise defined herein shall
have the meanings set forth in the Note Purchase Agreement, and the principles
of construction set forth in the Note Purchase Agreement shall apply.

               (b) Except for the terms defined in this Agreement or in the Note
Purchase Agreement, all terms defined in Article 8 or 9 of the UCC of the State
of New York which are used in this Agreement shall have the meanings specified
in such Articles.

               SECTION 2.    The Pledge.

               Each Pledgor hereby pledges and hypothecates to the Collateral
Agent for the benefit of the Holders, and hereby grants to the Collateral Agent
for the benefit of the Holders a continuing security interest in and to, all of
its presently owned or hereafter acquired right, title and interest in and to
the following (the "Collateral"):

               (a) (i) the shares of common stock of each of the Domestic
Subsidiaries, identified in Annex 1-A hereto, representing 100% of the issued
and outstanding common stock of each of the Domestic Subsidiaries, and all other
shares of Capital Stock of whatever class of each of the Domestic Subsidiaries
now or hereafter owned by such Pledgor, in each case together with the
certificates evidencing the same, and (ii) the shares of common stock of each of
the Foreign Subsidiaries, identified in Annex 1-B hereto, representing 65% (or,
if as a result of a change in applicable law, such Pledgor can pledge a greater
percentage without causing adverse tax consequences to the Pledgor, such greater
percentage) of the issued and outstanding voting stock (within the meaning of
Treas. Reg. Section 1.956-2(c)(2)) and 100% of any nonvoting classes of stock
(within the meaning of Treas. Reg. Section 1.956-2(c)(2)) of each of the Foreign
Subsidiaries, and all other shares of Capital Stock of whatever class, now or
hereafter owned by such Pledgor, necessary to maintain the security interest
created hereby in 65% (or, if as a result of a change in applicable law, such
Pledgor can pledge a greater percentage without causing adverse tax consequences
to such Pledgor, such greater percentage) of the voting stock and 100% of the
nonvoting stock of each of the Foreign Subsidiaries, in each case together with
the certificates representing the same (the shares of stock referred to in
clauses (i) and (ii), collectively, the "Pledged Shares");

               (b) all shares, securities, moneys or property representing a
dividend on any of the Pledged Shares, or representing a distribution or return
of capital upon or in respect of the Pledged Shares, or resulting from a
split-up, revision, reclassification or other like change of the Pledged Shares
or otherwise received in exchange therefor, and any Stock Equivalents issued to
the holders of, or otherwise in respect of, the Pledged Shares;

               (c) all securities in substitution for or in addition to any of
the foregoing, any certificates representing or evidencing such securities, and
all cash, securities, distributions and other property at any time and from time
to time received, receivable or otherwise distributed in respect of or in
exchange for any or all of the foregoing; and

                                       2
<PAGE>

               (d) all Proceeds of and to any of the property of such Pledgor
described in the preceding clauses of this Section 2.

               SECTION 3.    Security for Obligations.

               The Collateral secures the prompt and complete payment and
performance of all the Obligations.

               SECTION 4.    Representations and Warranties.

               Each Pledgor represents and warrants as follows:

               (a) No consent of any other Person and no authorization,
approval, or other action by, or notice to or filing with, any Person is
required (i) for the pledge and assignment by such Pledgor of the Collateral
pursuant to this Agreement, (ii) for the validity, perfection or maintenance of
the first priority security interest created hereby or (iii) for the exercise by
the Collateral Agent of the voting or other rights provided for in this
Agreement or the remedies in respect of such Collateral pursuant to this
Agreement or as provided by law, except in each case for those which have been
duly obtained or made, which are in full force and effect and as may be required
in connection with any disposition of any portion of the Collateral by laws
affecting the offering and sale of securities generally.

               (b) Each Pledgor is the legal and beneficial owner of, and has
good title to, the Collateral of such Pledgor free and clear of all Liens,
except for the security interest created by this Agreement and Liens for taxes,
assessments, governmental charges or levies not yet due or which are being
contested in good faith and by appropriate proceedings if adequate reserves with
respect thereto are maintained on the books of the Company and each of its
Subsidiaries, as the case may be, in accordance with GAAP (such Liens,
"Governmental Liens").

               (c) Each Pledgor owns all of the issued and outstanding Capital
Stock of the Domestic Subsidiaries and the Foreign Subsidiaries of such Pledgor.

               (d) This Agreement creates a valid security interest in and to
all of the Collateral securing the payment of all the Obligations. The Pledged
Shares pledged by each Pledgor hereunder are, and any securities pledged in
substitution therefor or in addition thereto will be duly and validly pledged
hereunder in accordance with all applicable Requirements of Law.

               (e) Each Pledgor has the right to pledge the Pledged Shares owned
by it as herein provided.

               (f) Any certificate evidencing the Pledged Shares pledged by a
Pledgor hereunder is, and any certificate pledged hereunder in substitution
therefor or in addition thereto will be, issued in the name of such Pledgor and
the form of transfer applicable to each such certificate has been, or when
issued will then have been duly executed in blank or is, or when issued will
then be, the subject of a duly executed

                                       3
<PAGE>

transfer duly signed in blank by or under the authority of the appropriate
officer of such Pledgor. Each such transfer will give the Collateral Agent the
rights and authority it purports to give.

               (g) Prior to or concurrently with the execution and delivery of
this Agreement, each Pledgor shall have delivered to the Collateral Agent or its
agent all certificates evidencing the Pledged Shares owned by it and any related
instrument of transfer, duly endorsed by such Pledgor, evidencing any pledge of
Pledged Shares made by such Pledgor to the Collateral Agent.

               (h) None of the Collateral pledged by the Pledgors hereunder
constitutes margin stock, as defined in Regulation U of the Board of Governors
of the Federal Reserve System.

               (i) No Pledgor owns any Capital Stock in any Subsidiary other
than as set forth on Annex 1-A and Annex 1-B attached hereto.

               (j) No Pledgor is a party to any outstanding agreement, option or
contract to sell or otherwise transfer all or any portion of the Collateral. No
part of the Collateral is subject to the terms of any agreement restricting the
sale or transfer of such Collateral. No Person has any right to purchase or
terminate any or all of the interests of any Pledgor in the Pledged Shares of
the Subsidiaries.

               SECTION 5.    Covenants.

               Each Pledgor agrees that so long as any of the Secured
Obligations remains outstanding:

               (a) Books and Records. It will mark its books and records (and
cause the issuer of the Pledged Shares of such Pledgor to mark its books and
records) to reflect the security interest granted to the Collateral Agent
pursuant to this Agreement.

               (b) Defense of Collateral. It will defend the Collateral against
all claims and demands of all Persons (other than the Collateral Agent, the
Holders claiming an interest in any of the Collateral and the holders of
Governmental Liens). It will discharge or cause to be discharged all Liens on
any or all of the Collateral, except for the security interest created by this
Agreement and Governmental Liens.

               (c) Location of Office. It shall keep its principal place of
business and chief executive office and the office where it keeps its records
concerning the Collateral at the address specified in the Note Purchase
Agreement; or, upon thirty (30) days' prior written notice to the Collateral
Agent, at such other location in a jurisdiction where all action required by
Section 8 shall have been taken with respect to the Collateral.

               (d) Disposition of Collateral. It shall not transfer, sell,
assign (by operation of law or otherwise) or otherwise dispose of any of the
Collateral owned by it or create or suffer to exist any Lien upon or with
respect to any of the Collateral owned

                                       4
<PAGE>

by it, except for (i) the pledge, hypothecation and security interest created by
this Agreement and (ii) as otherwise expressly permitted by the Note Purchase
Agreement.

               SECTION 6.    Advances by Lenders.

               On failure of any Pledgor to perform any of the covenants and
agreements contained herein, the Collateral Agent may, at its sole option and in
its sole discretion, perform the same and in so doing may expend such sums as
the Collateral Agent may reasonably deem advisable in the performance thereof,
including, without limitation, the payment of any insurance premiums, the
payment of any Taxes, a payment to obtain a release of a Lien or potential Lien,
expenditures made in defending against any adverse claim and all other
expenditures which the Collateral Agent or the Holders may make for the
protection of the security hereof or which may be compelled to make by operation
of law. All such sums and amounts so expended shall be repayable by the Pledgors
on a joint and several basis promptly upon timely notice thereof and demand
therefor, shall constitute additional Secured Obligations and shall bear
interest from the date said amounts are expended at the default rate of 8.0%. No
such performance of any covenant or agreement by the Collateral Agent or the
Holders on behalf of any Pledgor, and no such advance or expenditure therefor,
shall relieve the Pledgors of any default under the terms of this Agreement, the
other Operative Agreements or any other documents relating to the Secured
Obligations. The Collateral Agent and the Holders may make any payment hereby
authorized in accordance with any bill, statement or estimate procured from the
appropriate public office or holder of the claim to be discharged without
inquiry into the accuracy of such bill, statement or estimate or into the
validity of any tax assessment, sale, forfeiture, tax lien, title or claim
except to the extent such payment is being contested in good faith by a Pledgor
in appropriate proceedings and against which adequate reserves are being
maintained in accordance with GAAP.

               SECTION 7.    Voting Rights; Dividends.

               So long as no Default or Event of Default shall have occurred and
be continuing, subject to applicable cure periods (or, in the case of clause (a)
of this Section, as long as no notice thereof shall have been given by the
Collateral Agent to the relevant Pledgor):

               (a) Each Pledgor shall be entitled to exercise any and all
management, voting and other consensual rights pertaining to the Collateral in a
manner consistent with the terms of this Agreement and the other Operative
Agreements; provided, however, that such Pledgor shall not exercise, or refrain
from exercising, any such right if such action or inaction would have a Material
Adverse Effect;

               (b) Each Pledgor shall be entitled to receive and retain any and
all dividends paid in respect of the Collateral owned by it (other than any and
all dividends paid or payable other than in cash in respect of, and instruments
and other property received, receivable or otherwise distributed in respect of,
or in exchange for, any Collateral, all of which shall be forthwith delivered to
the Collateral Agent to hold as Collateral and shall, if received by such
Pledgor, be received in trust for the benefit of the

                                       5
<PAGE>

Collateral Agent, be segregated from the other property or funds of such
Pledgor, and be forthwith delivered to the Collateral Agent as Collateral in the
same form as so received (with any necessary indorsement)); provided that if any
of the Pledgors' Subsidiaries are dissolved or liquidated in accordance with the
terms and conditions of the Note Purchase Agreement, each such Pledgor shall be
entitled to receive and retain any and all dividends paid in respect of such
liquidation or dissolution.

               (c) The Collateral Agent shall execute and deliver (or cause to
be executed and delivered) to the Pledgors all such proxies and other
instruments as any Pledgor may reasonably request for the purpose of enabling
such Pledgor to exercise the voting and other rights which it is entitled to
exercise pursuant to paragraph (a) above and to receive the dividends which it
is authorized to receive and retain pursuant to paragraph (b) above.

               SECTION 8. Continued Perfection of Security Interest.

               Each Pledgor agrees that it will not take any actions or fail to
perform any of its duties or obligations under this Agreement so that after
giving effect to such action or inaction the Collateral Agent will not then, or
with the passage of time cease to have, a first priority perfected security
interest in and to any of the Collateral owned by it.

               Each Pledgor agrees that from time to time, at the expense of
such Pledgor, it will promptly execute and deliver all further instruments and
documents, and take all further action that may be necessary or that the
Collateral Agent may reasonably request, in order to perfect and protect the
pledge, hypothecation and security interest granted or purported to be granted
hereby or to enable the Collateral Agent to exercise and enforce its rights and
remedies hereunder with respect to any Collateral owned by such Pledgor. In
connection with the foregoing, each Pledgor agrees to file, and further hereby
authorizes the Collateral Agent to file, at any time and from time to time
Financing Statements in any jurisdiction that may be necessary, or that the
Collateral Agent deems necessary to create, perfect and protect the pledge,
hypothecation and security interest granted or purported to be granted hereby.

               SECTION 9. Obligations of the Pledgors and Rights of the
Collateral Agent.

               The powers conferred on the Collateral Agent hereunder are solely
to protect the interest in the Collateral for the benefit of the Holders and
shall not impose any duty upon it to exercise any such powers. Except for the
safe custody of any Collateral in its possession and the accounting for moneys
actually received by it hereunder, the Collateral Agent shall have no duty as to
any Collateral or as to the taking of any necessary steps to preserve rights
against prior parties or any other rights pertaining to any Collateral and no
such duties shall be implied as arising hereunder. The Collateral Agent shall
not be required to take steps necessary to preserve any rights against prior
parties to any of the Collateral.

               SECTION 10. Remedies of the Collateral Agent.

                                       6
<PAGE>

               At any time after an Event of Default has occurred and so long as
it is continuing, subject to applicable cure periods, the Collateral Agent has
the right to do any or all of the following:

               (a) The Collateral Agent may exercise any and all rights and
remedies of the Pledgors under or in connection with the Pledged Shares or
otherwise in respect of the Collateral.

               (b) Subject to compliance with applicable law, the Collateral
Agent shall have the right in its discretion and without prior notice to the
relevant Pledgor, to transfer to or to register in the name of the Collateral
Agent or any of its nominees any or all of the Collateral owned by such Pledgor.

               (c) Upon receipt of written notice of such Event of Default,
subject to applicable cure periods, from the Collateral Agent or any Holder, all
rights of the Pledgors to receive the dividends and distributions which they
would otherwise be authorized to receive and retain, shall cease for so long as
such Event of Default is continuing, and all such rights shall thereupon become
vested in the Collateral Agent who shall thereupon have the sole right to
receive and hold as Collateral such dividends and distributions. All dividends
and distributions which are received by any Pledgor contrary to the provisions
of this paragraph shall be received in trust for the benefit of the Collateral
Agent as security for the Obligations, shall be segregated from other funds of
the relevant Pledgor and shall be forthwith paid over to the Collateral Agent or
its agent as Collateral in the same form as so received (with any necessary
indorsement).

               (d) The Collateral Agent may file any claims, commence, maintain,
settle or discontinue any actions, suits or other proceedings deemed by the
Collateral Agent in its sole discretion necessary or advisable for the purpose
of collecting upon the Collateral and execute any instrument and do all other
things deemed necessary and proper by the Collateral Agent in its sole
discretion to protect and preserve and permit the Collateral Agent to realize
upon the Collateral and the other rights contemplated thereby.

               (e) The Collateral Agent may exercise in respect of the
Collateral, in addition to other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of a secured party upon
default under the UCC, and may also, without notice except as specified below,
sell the Collateral or any part thereof in one or more parcels at public or
private sale, at any exchange, broker's board or at any of the Collateral
Agent's offices or elsewhere, for cash, on credit or for future delivery, and
upon such other terms as the Collateral Agent may deem commercially reasonable.
Each Pledgor agrees that, to the extent notice of sale shall be required by law,
at thirty (30) Business Days' notice to such Pledgor of the time and place of
any public sale or the time after which any private sale is to be made shall
(subject to applicable law) constitute reasonable notification. The Collateral
Agent shall not be obligated to make any sale of Collateral regardless of notice
of sale having been given. The Collateral Agent may adjourn any public or
private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time and
place to which it was so adjourned.

                                       7
<PAGE>

               (f) In view of the position of each Pledgor in relation to the
Collateral owned by it, or because of other current or future circumstances, a
question may arise under the Securities Act of 1933, as amended, as now or
hereafter in effect, any rules or regulations promulgated thereunder, or any
similar statute hereafter enacted analogous in purpose or effect (such Act, such
rules and regulations and any such similar statute as from time to time in
effect being called the "Federal Securities Laws") with respect to any
disposition of the Collateral permitted hereunder. Each Pledgor understands that
compliance with the Federal Securities Laws may strictly limit the course of
conduct of the Collateral Agent if the Collateral Agent were to attempt to
dispose of all or any part of the Collateral owned by such Pledgor, and may also
limit the extent to which or the manner in which any subsequent transferee of
any Collateral could dispose of the same. Similarly, there may be other legal
restrictions or limitations affecting the Collateral Agent in any attempt to
dispose of all or part of the Collateral under applicable "Blue Sky" or other
state securities laws or the securities laws of countries other than the United
States or similar laws analogous in purpose or effect. Each Pledgor recognizes
that, in light of the foregoing restrictions and limitations, the Collateral
Agent may, with respect to any sale of Collateral owned by such Pledgor, to the
extent commercially reasonable, limit the purchasers to those who will agree,
among other things, to acquire Collateral for their own account, for investment,
and not with a view to the distribution or resale thereof. Each Pledgor
acknowledges and agrees that, in light of the foregoing restrictions and
limitations, the Collateral Agent, in a commercially reasonable manner, (i) may
proceed to make such a sale whether or not a registration statement for the
purpose of registering the Collateral or part thereof shall have been filed
under the Federal Securities Laws and (ii) may approach and negotiate with any
one or more possible purchasers to effect such sale. Each Pledgor acknowledges
and agrees that any such sale may result in prices and other terms less
favorable to the seller than if such sale were a public sale without such
restrictions. In the event of any such sale, the Collateral Agent shall incur no
responsibility or liability for selling all or any part of the Collateral at a
price that the Collateral Agent, in a commercially reasonable manner, may in
good faith deem reasonable under the circumstances, notwithstanding the
possibility that a substantially higher price might have been realized if the
sale were deferred until after registration as aforesaid or if more purchasers
were approached. The provisions of this paragraph will apply notwithstanding the
existence of a public or private market upon which the quotations or sales
prices may exceed substantially the price at which the Collateral Agent sells
the Pledged Shares. Each Pledgor agrees that sales made in accordance with this
paragraph in all respects will be made in a commercially reasonable manner.

               (g) All payments made under or in connection with the Pledged
Shares or otherwise in respect of the Collateral and received by the Collateral
Agent as Collateral in accordance with the provisions hereof may, in the
discretion of the Collateral Agent, be held by the Collateral Agent as
collateral for, and then or as soon thereafter as is reasonably practicable
applied in whole or in part by the Collateral Agent for the benefit of the
Holders against all or any part of the Obligations in accordance with the terms
of the Note Purchase Agreement.

               SECTION 11. Collateral Agent Appointed Attorney-in-Fact.

                                       8
<PAGE>

               Each Pledgor hereby appoints the Collateral Agent such Pledgor's
attorney-in-fact, with full authority in the place and stead of such Pledgor and
in the name of such Pledgor or otherwise, upon the occurrence of and during the
continuance of an Event of Default in the Collateral Agent's discretion, to take
any and all actions authorized or permitted to be taken by the Collateral Agent
under this Agreement or by law, including but not limited to the power to take
any action and to execute any instrument which the Collateral Agent may deem
necessary or advisable to accomplish the purposes of this Agreement, including,
without limitation, to ask for, demand, collect, sue for, recover, compound,
receive and give acquittance and receipts for moneys due and to become due under
or in connection with the Collateral, to receive, indorse, and collect any
drafts or other instruments, documents and chattel paper in connection
therewith, and to file any claims or take any action or institute any
proceedings which the Collateral Agent may deem to be necessary or desirable for
the collection thereof. Such appointment of the Collateral Agent as the
Pledgors' attorney-in-fact is coupled with an interest and is irrevocable.

               SECTION 12. Security Interest Absolute.

               The obligations of each Pledgor under this Agreement shall be
absolute and unconditional, and shall remain in full force and effect without
regard to, and shall not be released, suspended, discharged, terminated or
otherwise affected by, any circumstance or occurrence whatsoever, including,
without limitation: (a) any renewal, extension, amendment or modification of, or
addition or supplement to or deletion from, the Note Purchase Agreement or any
other Operative Agreement or any other instrument or agreement referred to
therein, or any assignment or transfer of any thereof; (b) any waiver, consent,
extension, indulgence or other action or inaction under or in respect of any
such instrument or agreement or this Agreement or any exercise or non-exercise
of any right, remedy, power or privilege under or in respect of this Agreement
or any other Operative Agreement; (c) any furnishing of any additional security
(including, without limitation, any assets, whether now owned or hereafter
acquired, upon which a Lien is created or granted from time to time pursuant to
the other Collateral Documents) to the Collateral Agent or any acceptance
thereof or any sale, exchange, release, surrender or realization of or upon any
security by the Collateral Agent; or (d) any invalidity, irregularity or
unenforceability of all or part of the Obligations or of any security therefor.
In the event of any inconsistency between this Agreement and the Note Purchase
Agreement, the Note Purchase Agreement shall govern.

               SECTION 13. Amendments; Etc.

               This Agreement may be amended, restated, changed, waived,
discharged or terminated only (i) by an instrument in writing executed by the
parties hereto and (ii) in accordance with Section 17 of the Note Purchase
Agreement.

               SECTION 14. Notices.

               All notices and other communications hereunder shall be given (in
the manner specified in the Note Purchase Agreement) to the parties hereto at
their respective

                                       9
<PAGE>

addresses specified in the Note Purchase Agreement (or, if any party hereto is
not a party to the Note Purchase Agreement, at its address set forth under its
name on the signature page hereto).

               SECTION 15. Continuing Assignment; Pledge and Security Interest;
Release.

               This Agreement shall create a continuing pledge, assignment of,
hypothecation of and security interest in the Collateral and shall (a) remain in
full force and effect until the indefeasible payment in full of the Obligations
(other than contingent surviving obligations) and (b) inure to the benefit of,
and be enforceable by, the Collateral Agent, the Holders and their respective
successors, transferees and assigns. Without limiting the generality of the
foregoing clause (b), any Holder may assign or otherwise transfer all or any
portion of its rights in the Obligations to the extent and in the manner
provided in the Note Purchase Agreement, and such assignee shall thereupon
become vested with all the benefits in respect thereof granted to such Holder
herein or otherwise. Upon the indefeasible payment in full of the Obligations
(other than contingent surviving obligations), the security interest granted
hereby shall terminate and all rights to the Collateral shall revert to the
Pledgor. Upon any such termination, the Collateral Agent will, at the Pledgors'
expense, execute and deliver to the Pledgors such documents as the Pledgors
shall reasonably request to evidence such termination.

               SECTION 16. Application of Proceeds.

               Upon the occurrence and during the continuation of an Event of
Default, any payments in respect of the Obligations and any proceeds of the
Collateral, when received by the Collateral Agent or any of the Holders in cash
or its equivalent, will be applied in reduction of the Obligations in the
following order:

                      FIRST, to the payment of all reasonable out-of-pocket fees
        and costs and expenses (including without limitation reasonable
        attorneys' fees) of the Collateral Agent under the Operative Agreements,
        including, but not limited to, those incurred in connection with
        enforcing the rights of Collateral Agent and the Holders under the
        Operative Agreements;

                      SECOND, to the payment of all reasonable out-of-pocket
        costs and expenses (including without limitation, reasonable attorneys'
        fees) of each of the Holders in connection with enforcing its rights
        under the Operative Agreements or otherwise with respect to the
        Obligations owing to such Holder;

                      THIRD, to the payment of all accrued interest and fees on
        or in respect of the Obligations;

                      FOURTH, to the payment of the outstanding principal amount
        of the Obligations;

                                       10
<PAGE>

                      FIFTH, to all other obligations which shall have become
        due and payable under the Operative Agreements or otherwise and not
        repaid pursuant to clauses "FIRST" through "FOURTH" above; and

                      SIXTH, to the payment of the surplus, if any, to whoever
        may be lawfully entitled to receive such surplus.

               Each Debtor irrevocably waives the right to direct the
application of such payments and proceeds and acknowledges and agrees that the
Collateral Agent shall have the continuing and exclusive right to apply and
reapply any and all such payments and proceeds in the Collateral Agent's sole
discretion, notwithstanding any entry to the contrary upon any of its books and
records.

               SECTION 17. Severability.

               If any provision of this Agreement shall be held, or deemed to be
or shall, in fact, be illegal, inoperative or unenforceable, the same shall not
affect any other provision or provisions herein contained or render the same
invalid, inoperative or unenforceable to any extent whatever.

               SECTION 18. Headings.

               The headings of the various sections and paragraphs of this
Agreement are for convenience of reference only, do not constitute a part hereof
and shall not affect the meaning or construction of any provision hereof.

               SECTION 19. GOVERNING LAW.

               THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICT OF
LAW PRINCIPLES THEREOF (EXCEPT SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK
GENERAL OBLIGATIONS LAW), EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION
OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY
PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE
STATE OF NEW YORK.

               SECTION 20. CONSENT TO JURISDICTION.

               EACH PLEDGOR (I) IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE
JURISDICTION OF ANY NEW YORK STATE COURT OR FEDERAL COURT SITTING IN THE
SOUTHERN DISTRICT OF NEW YORK IN ANY ACTION ARISING OUT OF THIS AGREEMENT, (II)
AGREES THAT ALL CLAIMS IN SUCH ACTION MAY BE DECIDED IN SUCH COURT, (III)
WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO, THE DEFENSE OF AN
INCONVENIENT FORUM AND (IV) CONSENTS TO THE SERVICE OF PROCESS BY MAIL. A FINAL
JUDGMENT IN ANY SUCH ACTION SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER
JURISDICTIONS.

                                       11
<PAGE>

               NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE COLLATERAL AGENT TO
SERVE LEGAL PROCESS IN ANY MANNER PERMITTED BY LAW OR AFFECT ITS RIGHT TO BRING
ANY ACTION IN ANY OTHER COURT.

               SECTION 21. WAIVER OF JURY TRIAL.

               EACH PLEDGOR HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY
IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS
AGREEMENT.

               SECTION 22. Execution in Counterparts.

               This Agreement may be executed in counterparts and by different
parties hereto in separate counterparts, each of which when so executed shall be
deemed to be an original and all of which taken together shall constitute one
and the same instrument.

               SECTION 23. Applicability of Note Purchase Agreement.

               In amplification of, and notwithstanding any other provisions of
this Agreement, in connection with its obligations hereunder, the Collateral
Agent has all of the rights, powers, privileges, exculpations, protections and
indemnities as are provided for or referred to in the Note Purchase Agreement.

                            [SIGNATURE PAGE FOLLOWS]

                                       12
<PAGE>

               IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and delivered by their duly authorized officers as of the
date first above written.

                                       PACIFIC AEROSPACE & ELECTRONICS, INC.,
                                       as Pledgor

                                       By: /s/ Donald A. Wright
                                          -----------------------------
                                          Name: Donald A. Wright
                                          Title: Chief Executive Officer and
                                                 President

                                       PA&E INTERNATIONAL, INC., as Pledgor

                                       By: /s/ Donald A. Wright
                                          -----------------------------
                                          Name: Donald A. Wright
                                          Title: President

                                       Address:

                                       c/o Pacific Aerospace & Electronics, Inc.
                                       430 Olds Station Road
                                       Wenatchee, Washington  98801

<PAGE>

                                       FIRST UNION NATIONAL BANK, not in its
                                       individual capacity, but solely as
                                       Collateral Agent

                                        By: /s/ Paul Thompson
                                           -----------------------------
                                           Name: Paul Thompson
                                           Title: Vice President

<PAGE>

                                                                       ANNEX 1-A

                      CERTIFICATES OF DOMESTIC SUBSIDIARIES

<TABLE>
<CAPTION>
                                                                                            Number of
                                                                 Percentage   Certificate  Outstanding
Pledgor                     Issuing Corporation                  Ownership      Number       Shares
-------                     -------------------                  ---------    -----------  -----------
<S>                         <C>                                  <C>          <C>          <C>
Pacific Aerospace &         Aeromet America, Inc.                  100.0%         3          100,000
Electronics, Inc.

Pacific Aerospace &         Balo Precision Parts, Inc.             100.0%         3          100,000
Electronics, Inc.

Pacific Aerospace &         Cashmere Manufacturing Co., Inc.       100.0%        38            1,000
Electronics, Inc.

Pacific Aerospace &         Ceramic Devices, Inc.                  100.0%         2            1,000
Electronics, Inc.

Pacific Aerospace &         Electronic Specialty Corporation       100.0%         2            100,000
Electronics, Inc.

Pacific Aerospace &         Northwest Technical Industries,        100.0%         2            100,000
Electronics, Inc.           Inc.

Pacific Aerospace &         Pacific Coast Technologies, Inc.,      100.0%        67         10,714,726
Electronics, Inc.

Pacific Aerospace &         PA&E International, Inc.,              100.0%         1            100,000
Electronics, Inc.

Pacific Aerospace &         Seismic Safety Products, Inc.          100.0%         3            100,000
Electronics, Inc.

Pacific Aerospace &         Skagit Engineering &                   100.0%        002               100
Electronics, Inc.           Manufacturing, Inc.

Pacific Aerospace &         PA&E Engineering, Inc.                 100.0%         1            100,000
Electronics, Inc.
</TABLE>

<PAGE>

                                                                       ANNEX 1-B

                      CERTIFICATES OF FOREIGN SUBSIDIARIES

<TABLE>
<CAPTION>
                                                                                            Number of
                                                                 Percentage   Certificate  Outstanding
Pledgor                     Issuing Corporation                  Ownership      Number       Shares
-------                     -------------------                  ---------    -----------  -----------
<S>                         <C>                                  <C>          <C>          <C>
PA&E International, Inc.    Pacific A & E Limited                100.0%           1                 1
</TABLE>

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