PACIFIC AEROSPACE & ELECTRONICS INC, S-3, 1997-12-03

PACIFIC AEROSPACE & ELECTRONICS INC
S-3, 1997-12-03
ELECTRIC LIGHTING & WIRING EQUIPMENT

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As filed with the Securities and Exchange Commission on December 3, 1997.
Registration No. 333-________
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM S-3
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933

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PACIFIC AEROSPACE & ELECTRONICS, INC.
(Exact name of registrant as specified in its charter)

Washington 91-1744587
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification Number)

434 Olds Station Road, Wenatchee, Washington 98801
(509) 664-8000 (telephone)
(509) 664-6868 (facsimile)
(Address, telephone and facsimile number of registrant's
principal executive offices)

Donald A. Wright
Chief Executive Officer and President
434 Olds Station Road
Wenatchee, Washington 98801
(509) 664-8000
(Name, address, and telephone number of agent for service)

Copy to:

L. John Stevenson, Jr.
Eugenie D. Mansfield
Stoel Rives LLP
3600 Union Square, 600 University Street
Seattle, Washington 98101-3197
(206) 624-0900 (telephone)
(206) 386-7500 (facsimile)

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Approximate date of commencement of proposed sale to
the public: From time to time after this Registration
Statement becomes effective.

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If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE

======================================================================================================================
Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Amount to be Offering Price Aggregate Offering Registration Fee
Securities to be Registered Registered (1) Per Share (2) Price (2) (2)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock.................. 1,061,500 $6.2657 $6,650,987 $2,015.25

======================================================================================================================

(1) Including, up to a maximum of 1,061,500 shares of Common Stock:

(a) 524,000 shares of Common Stock issued by the Company to certain of the
Selling Shareholders in November 1997; and

(b) 537,500 shares of Common Stock issuable upon the exercise of Common
Stock Purchase Warrants (the "Warrants") issued by the Company to
certain of the Selling Shareholders in May 1996, June 1997 and
December 1997, assuming exercise of all of the Warrants.

(c) in accordance with Rule 416(a) under the Securities Act of 1933, as
amended, a presently indeterminable number of shares as may become
issuable upon conversion of the Warrants to prevent dilution resulting
from stock splits, stock dividends or similar transactions.

See "Selling Shareholders."

(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended, based
on 1,061,500 shares at an estimated exercise price of $6.2657 per share,
which was the average of the high and low prices of the Common Stock on the
Nasdaq National Market System on November 28, 1997, as reported by Nasdaq.
</TABLE>

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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment that specifically states that this Registration
Statement shall hereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
================================================================================

PROSPECTUS
Issued ______________, 1997

1,061,500 SHARES

PACIFIC AEROSPACE & ELECTRONICS, INC.

COMMON STOCK

This Prospectus relates to up to 1,061,500 shares of common stock, $.001
par value per share (the "Common Stock"), of Pacific Aerospace & Electronics,
Inc., a Washington corporation (the "Company"), offered by certain shareholders
of the Company (the "Selling Shareholders"). The offered shares are comprised of
(a) 524,000 shares of Common Stock (the "Shares") sold by the Company to certain
of the Selling Shareholders in a private placement in November 1997 (the "Fall
1997 Offering"), and (b) 537,500 shares of Common Stock (the "Warrant Shares")
issuable upon the exercise of Common Stock Purchase Warrants (the "Warrants")
issued by the Company to certain of the Selling Shareholders in three separate
transactions in May 1996, June 1997 and December 1997, respectively.

The Selling Shareholders may offer the Shares and the Warrant Shares
pursuant to this Prospectus (the "Offering") from time to time in transactions
(a) through the Nasdaq National Market System ("Nasdaq NMS"), (b) in privately
negotiated transactions, (c) through the writing of options on the Shares or
Warrant Shares, or (d) through a combination of such methods of sale, at fixed
prices that may be changed, at prevailing market prices, at prices relating to
such prevailing market prices, or at negotiated prices. The Company will not
receive any of the proceeds from the sale of the Shares or Warrant Shares by the
Selling Shareholders, although the Company will receive the proceeds from the
exercise of the Warrants, when and if they are exercised. See "Selling
Shareholders" and "Plan of Distribution."

All of the Shares and the Warrant Shares were "restricted securities" under
the Securities Act of 1933, as amended (the "Securities Act"), before their
registration under the Registration Statement of which this Prospectus is a part
(the "Registration Statement"). This Prospectus has been prepared so that future
sales of the Shares or Warrant Shares by the Selling Shareholders will not be
restricted under the Securities Act. In connection with any sales, the Selling
Shareholders and any brokers participating in such sales may be deemed to be
"underwriters" within the meaning of the Securities Act. See "Selling
Shareholders."

The Common Stock is quoted on the Nasdaq NMS under the symbol "PCTH." On
November 28, 1997, the closing sale price for the Common Stock, as reported on
the Nasdaq NMS, was $6.3438 per share.

SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR INFORMATION THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
No person is authorized in connection with any offering made by this Prospectus
to give any information or to make any representation not contained in this
Prospectus, and, if given or made, such information or representation must not
be relied upon as having been authorized by the Company or by any underwriter.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any security other than the Shares or Warrant Shares offered by
this Prospectus, nor does it constitute an offer to sell or a solicitation of an
offer to buy any of the Shares or Warrant Shares offered by this Prospectus to
any person in any jurisdiction in which it is unlawful to make any such offer or
solicitation to such person. Neither the delivery of this Prospectus nor any
sale made by this Prospectus shall under any circumstances imply that the
information contained in this Prospectus is correct as of any date subsequent to
the date hereof.

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TABLE OF CONTENTS

Page

Available Information..............................................3
Incorporation of Certain Documents by Reference....................3
Risk Factors.......................................................5
Selling Shareholders .............................................11
Plan of Distribution..............................................14
Indemnification for Securities Act Liabilities....................15
Legal Matters.....................................................15
Experts...........................................................15

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AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and files reports and
other information with the Securities and Exchange Commission (the "Commission")
in accordance with the Exchange Act. The Company has also filed with the
Commission a Registration Statement under the Securities Act with respect to the
Shares and the Warrant Shares. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Shares and Warrant Shares offered by this Prospectus, reference is made to the
Registration Statement, exhibits and schedules. Statements contained in this
Prospectus as to the contents of any contract or other document referred to are
not necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. A copy of the Registration Statement and the reports and other
information filed pursuant to the Exchange Act may be inspected and copied at
the offices of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549
and at regional offices of the Commission located at 7 World Trade Center, 13th
Floor, New York, New York 10048 and Suite 1400, 500 West Madison Street,
Chicago, Illinois 60661. Copies of all or any part of the Registration Statement
and the reports and other information filed pursuant to the Exchange Act may be
obtained from the Public Reference Section of the Commission, Washington, D.C.
20549 on the payment of the fees prescribed by the Commission. The Commission
maintains a Web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission, including the Company. Its address is http://www.sec.gov. Copies of
such documents may also be inspected at the offices of the National Association
of Securities Dealers, Inc., 1735 K Street N.W., Washington, D.C. 20006.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The Company will provide without charge to each person who receives a copy
of this Prospectus, on written or oral request, a copy of any and all of the
information that has been incorporated by reference in this Prospectus (not
including exhibits to the information that is incorporated by reference unless
such exhibits are specifically incorporated). Requests should be directed to
Pacific Aerospace & Electronics, Inc., 434 Olds Station Road, Wenatchee,
Washington 98801, Attention: Nick A. Gerde, (509) 664-8000.

The following documents filed with the Commission by the Company are
incorporated by reference into this Prospectus:

(1) the Company's Annual Report on Form 10-KSB for the fiscal year ended
May 31, 1997;

(2) the Company's current report on Form 8-K dated June 23, 1997;

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(3) the Company's Quarterly Report on Form 10-QSB for the three-month
period ended August 31, 1997;

(4) the Company's current report on Form 8-K dated December 2, 1997;

(5) all other reports filed by the Company pursuant to Section 13(a) or
15(d) of the Exchange Act since the end of the fiscal year ended May
31, 1997; and

(6) the description of the capital stock contained in the Company's
Registration Statement on Form 8-B filed with the Commission on
February 6, 1997.

All documents filed with the Commission by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus
and before the termination of this Offering shall be deemed incorporated by
reference into this Prospectus. Any statement contained in a document
incorporated or deemed to be incorporated by reference in this Prospectus shall
be deemed modified, superseded or replaced for purposes of this Prospectus to
the extent that a statement contained in this Prospectus or in any later-filed
document that also is or is deemed to be incorporated by reference in this
Prospectus modifies, supersedes or replaces such statement. Any statement so
modified, superseded or replaced shall not be deemed, except as so modified,
superseded or replaced, to constitute a part of this Prospectus.

The Company's principal offices are located at 434 Olds Station Road,
Wenatchee, Washington 98801, and its telephone number is (509) 664-8000.

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RISK FACTORS

Forward-looking statements in this Prospectus, or in the documents
incorporated by reference, are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. These forward-looking
statements are not guarantees of future performance and are subject to risks and
uncertainties related to the Company's operations. These risks and uncertainties
include, but are not limited to, the following risk factors, and actual results
could differ materially from those projected in the forward-looking statements
as a result of those risk factors.

Past History of Net Losses. While the Company reported net profit of
$811,000 in the first quarter of fiscal 1998 and $1,682,000 in fiscal 1997, it
reported net losses of $1,411,000 in fiscal 1995 and $999,000 in fiscal 1996,
and has not demonstrated a continuing ability to achieve substantial profitable
operations. The Company's ability to maintain profitable operations in the
future will depend on many factors, including the Company's ability to
assimilate its recent and proposed future acquisitions and to finance its
subsidiaries' production, the degree of market penetration of its products, its
ability to develop new products, the degree of market acceptance of new
products, and the level of competition in the markets in which the Company
operates. The Company's orders and backlog are growing, and the Company must
spend more to support a higher level of inventory and operations. These
requirements will affect cash flow and results of operations over the short term
and could result in significant future losses if expected growth is not
sustained.

Acquisition Risks. As part of its business strategy, the Company has
recently grown rapidly as a result of several acquisitions that have placed, and
will continue to place, a significant strain on its management, financial and
other resources. Past and future acquisitions may subject the Company to many
risks, including risks relating to integrating and managing the operations and
personnel of acquired companies, and maintaining and implementing uniform
standards, controls, procedures and policies. The success of future acquisitions
will depend, in part, upon the Company's ability to assess and manage the risks
typically associated with acquisitions, including the risks of assessing the
value, strengths, and weaknesses of acquisition candidates or new products,
possible diversion of management attention from the Company's existing
businesses, reduction of cash, disruption of product development cycles,
dilution of earnings per share, or other factors. A failure to achieve or
sustain the anticipated benefits of any acquisition could result in that
acquisition having a detrimental effect on the Company's results of operations,
cash flow and financial condition.

Collection of Bridge Loans. The Company recently announced that it would
not be forming its proposed information technology group and that it was
terminating letters of intent with the four companies proposed to be acquired to
form that group. As of November 28, 1997, the Company had provided an aggregate
of $5,722,772 in bridge financing to three of the companies originally under
consideration for inclusion in the proposed information technology group, and
had guaranteed a $1,300,000 bank line of credit to one of those companies.
Although each of those companies is currently pursuing alternative financing
sources, there is no assurance that the Company will be able to collect any or
all of those loans. The failure of

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one or more of those companies to repay its loans could have a detrimental
effect on the Company's cash flow and financial condition.

Dependence on Significant Customers. The Cashmere Manufacturing Co., Inc.
subsidiary of the Company ("Cashmere") depends almost entirely on sales to The
Boeing Company ("Boeing"). As a result of this dependence on Boeing, general
economic conditions and events affecting Boeing, all of which are outside the
Company's control, may have a significant impact on Cashmere's sales and
consequently on the Company's overall results of operations. Cashmere has
entered into contracts with Boeing that extend beyond one year to supply parts
at fixed prices. Accordingly, aluminum or other metal price increases or other
cost increases can adversely affect Cashmere's margins on the sale of those
parts. In addition, Boeing has considerable flexibility under its contract with
Cashmere to reduce its level of orders or to cease ordering products from
Cashmere. Similarly, the Company's Morel Industries, Inc. subsidiary ("Morel")
depends on sales to PACCAR Inc. and its Kenworth and Peterbilt divisions
(collectively, "PACCAR"). PACCAR has no contractual obligation to continue to
place orders for Morel's products. Both Cashmere and Morel have developed and
are implementing strategies intended to decrease their reliance on sales to
these primary customers. However, there is no assurance that either Cashmere or
Morel can successfully reduce its reliance on Boeing and PACCAR, respectively,
to a degree that will protect the Company if sales to these primary customers
decrease unexpectedly.

Possible Need for Additional Capital. The Company believes that the net
proceeds from its February 1997 private offering of Preferred Stock, its recent
convertible note offering, and the Fall 1997 Offering, together with its new
credit facility with Key Bank of Washington and internally generated funds, will
be sufficient to meet the Company's currently budgeted working capital
requirements for at least the next 12 months. The Company's actual capital
needs, however, will depend on many factors, including the amount of revenue
generated from operations, the cost of increasing the Company's sales and
marketing activities, the ability of third-party suppliers to meet product
commitments, future acquisitions, and the continuing availability of bank
financing, none of which can be predicted with certainty. The Company may
receive additional funds upon the exercise of outstanding warrants and stock
options, but there is no assurance that any such warrants or stock options will
be exercised. As a result of these factors, the Company is unable to predict
accurately the amount or timing of future capital that it will need. The
inability to obtain additional capital if and when needed could materially and
adversely affect the Company's business and results of operations.

Competition. The Company operates in highly competitive markets. Most of
its competitors have greater financial resources, broader experience, better
name recognition and more substantial marketing operations than does the
Company, and represent substantial long-term competition. The industries in
which the Company currently competes are characterized by ongoing product
development efforts and evolving technology, and success depends in part on the
ability to gain a competitive advantage through proprietary technology. Although
the Company believes that its proprietary technology may give it a competitive
advantage with respect to its technology-based products, new developments by
competitors are expected to continue. The Company's competitors may develop
products that are viewed by customers as more effective or more economic than
the Company's product lines. The Company may not be

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able to compete successfully against current and future competitors, and the
competitive pressures faced by the Company may materially adversely affect the
Company's business and results of operations.

Technological Change; Development of New Products. The market for the
Company's products is characterized by steadily evolving technology and industry
standards, changes in customer needs, and new product introductions. The
Company's success will depend on its ability to enhance its current products,
develop new products that meet changing customer needs, advertise and market its
products, and respond to evolving industry standards and other technological
changes on a timely and cost-effective basis. The Company may not succeed in
developing new products or enhancing its existing products on a timely basis,
and such new products or enhancements may not achieve market acceptance.
Furthermore, from time to time the Company and others may announce new products,
enhancements or technologies that have the potential to replace or render the
Company's existing products obsolete. Any failure by the Company to anticipate
or respond adequately to changes in technology and customer preferences, the
introduction of new products or enhancements by others, or any significant
delays in the development or introduction of new products by the Company, could
have a material adverse effect on the Company's business, results of operations
and financial condition.

Dependence on Key Personnel. The Company's success depends significantly on
Donald A. Wright, the Company's Chief Executive Officer and President, and a
small number of other senior management and operational personnel. The loss of
the services of any of these employees could have a material adverse effect on
the Company's ability to achieve its business objectives. The Company has key
man life insurance policies on the life of Mr. Wright in the total amount of $3
million. The Company's growth and future success will depend in large part on
its ability to attract and retain additional senior managers and highly skilled
personnel to provide management and technological depth and support, to enhance
and market its existing products and to develop new products. Competition for
skilled management, technical, marketing and sales personnel is intense. There
is no assurance that the Company will be successful in attracting and retaining
the key management, technical, marketing and sales personnel needed to support
its business and its recent and future acquisitions, and its failure to do so
would materially and adversely affect the Company's business and results of
operations.

Reliance on Proprietary Technology. The Company regards elements of its
technology as proprietary and relies primarily on a combination of patent, trade
secret, copyright and trademark laws, confidentiality procedures, and other
intellectual property protection methods to protect its proprietary technology.
The Company has 33 U.S. patents, one U.S. patent application allowed, two U.S.
patent applications pending, one Canadian patent application pending, and one
European patent application allowed relating to certain of its technology and
products.

Patent Issuance, Enforceability and Expiration. There is no assurance
that the Company's patent applications will result in issued patents, that the
Company's existing patents or any future patents will give the Company any
competitive advantages for its products or technology, or that, if challenged,
the Company's patents will be held valid and enforceable. The Company's issued
patents expire at various times over the next 18 years, with 17 patents

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expiring over the next five years. Although the Company believes that the
manufacturing processes of much of its patented technology, particularly the
technology used by the Company's Pacific Coast Technologies, Inc. subsidiary,
are sufficiently complex that competing products made with the same technology
are unlikely, there is no assurance that the Company's competitors will not
design competing products using the same or similar technology after these
patents have expired.

Limits on Protection. Despite the precautions taken by the Company,
unauthorized parties may attempt to copy aspects of the Company's products or
obtain and use information that the Company regards as proprietary, and existing
intellectual property laws give only limited protection. Policing violations of
such laws is difficult. The laws of certain countries in which the Company's
products are or may be distributed do not protect the Company's products and
intellectual property rights to the same extent as do the laws of the United
States. There is no assurance that these protections will be adequate or that
the Company's competitors will not independently develop similar technology,
gain access to the Company's trade secrets or other proprietary information, or
design around the Company's patents. In fiscal 1996, the Company settled patent
infringement litigation instituted by a competitor by purchasing two patents and
granting the competitor a license to use the patents. The Company may be
required to enter into other costly litigation to enforce its intellectual
property rights or to defend infringement claims by others. Such infringement
claims could require the Company to license the intellectual property rights of
third parties. There is no assurance that such licenses would be available on
reasonable terms, or at all.

Environmental Matters. The Company is subject to federal, state and local
laws, regulations and ordinances concerning solid waste disposal, hazardous
materials storage, use and disposal, air emissions, waste water disposal,
employee health and other environmental matters (together, "Environmental
Laws"). Proper waste disposal and environmental regulation are major
considerations for the Company because certain metals and chemicals used in its
manufacturing processes are classified as hazardous substances. As a generator
of hazardous materials, the Company is subject to financial exposure even if it
fully complies with these laws. Environmental Laws could become more stringent
over time, imposing greater compliance costs and increasing risks and penalties
associated with any violations. There is no assurance that any present or future
noncompliance with Environmental Laws will not have a material adverse effect on
the Company's results of operations or financial condition.

Morel. Since the Company acquired Morel in December 1995, the Company
has initiated an environmental compliance program for the Morel facility, which
includes obtaining all permits necessary for that facility to operate in
compliance with applicable Environmental Laws. As part of this program, in
January 1996 Morel obtained a permit to discharge air emissions and in April
1997, the State of Washington issued a temporary waste water and storm water
permit to Morel. Although the Company believes that final permits will be
issued, there is no assurance that final permits will be issued, and the failure
to obtain these permits would have a material adverse effect on the Company.

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NTI. Since the Company's acquisition of its Northwest Technical
Industries, Inc. subsidiary ("NTI") in April 1997, the Company has been
conducting an assessment of NTI's environmental compliance, including assessment
of the possible need for permits to discharge air emissions and storm water.

Effect of Non-Compliance. From time to time, the Company's operations
may result in noncompliance with Environmental Laws. If Environmental Laws are
violated, the Company could be liable for damages and for the costs of remedial
actions and could also be subject to revocation of permits needed to conduct its
business. Any such revocation could require the Company to cease or limit
production at one or more of its facilities, which could have a material adverse
effect on the Company.

Government Regulation. Certain of the Company's products are manufactured
and sold under United States government contracts or subcontracts. As with all
companies that provide products or services to the federal government, the
Company is directly and indirectly subject to various federal rules, regulations
and orders applicable to government contractors. Certain of these government
regulations relate specifically to the vendor-vendee relationship with the
government, such as the bidding and pricing rules. Under regulations of this
type, the Company must observe certain pricing restrictions, produce and
maintain detailed accounting data, and meet various other requirements. The
Company is also subject to many regulations affecting the conduct of its
business generally. For example, the Company must adhere to federal acquisition
requirements and standards established by the Occupational Safety and Health Act
relating to labor practices and occupational safety standards. Violation of
applicable government rules and regulations could result in civil liability, in
cancellation or suspension of existing contracts, or in ineligibility for future
contracts or subcontracts funded in whole or in part with federal funds.

Availability and Cost of Materials. The Company does not have fixed price
contracts or arrangements for all of the raw materials and other supplies it
purchases. The Company generally has readily available sources of raw materials
and other supplies it needs to manufacture its products and, where possible, the
Company maintains alternate sources of supply. However, shortages of, and price
increases for, certain raw materials and supplies used by the Company have
occurred in the past and may occur in the future. Future shortages or price
fluctuations could have a material adverse effect on the Company's ability to
manufacture and sell its products in a timely and cost-effective manner.

Product Liability. The Company is subject to the risk of product liability
claims and lawsuits for harm caused by products of the Company. The Company
maintains product liability insurance with a maximum coverage of $2 million.
However, there is no assurance that the Company's insurance will be sufficient
to cover any claims that may arise. A successful product liability claim in
excess of the Company's insurance coverage could have a material adverse effect
on the Company.

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Shares Eligible for Future Sale. The sale of substantial amounts of the
Company's Common Stock in the public market or the prospect of such sales could
materially and adversely affect the market price of the Company's Common Stock.
As of November 28, 1997, the Company had 12,143,305 shares of Common Stock
outstanding, which includes the 524,000 Shares sold in the Fall 1997 Offering.
Upon exercise of the Warrants, the Company will have a total of 12,680,805
outstanding shares of Common Stock, assuming that (a) the Warrants are fully
exercised into the total number of Warrant Shares, (b) none of the Company's
outstanding stock options or other warrants are exercised, and (c) no additional
shares of Common Stock are issued. Of that total, 11,656,815 shares will be
publicly traded or unrestricted, and 482,490 shares will be subject to certain
restrictions on resale or vesting, assuming no changes from their current
status.

Additionally, at November 28, 1997, the Company had:

a. up to 3,000,000 shares of Common Stock reserved for issuance under the
Company's Amended and Restated Stock Incentive Plan (as amended by Amendment No.
1), and registered for issuance on Form S-8 Registration Statements, under which
plan options to purchase 1,263,616 shares of Common Stock have been granted;

b. up to 160,000 shares of Common Stock issuable upon exercise of
outstanding non-public warrants held by employees, which have been registered
for issuance on a Form S-8 Registration Statement;

c. up to 258,195 shares of Common Stock issuable upon conversion of 9,011
outstanding shares of the Company's Series A Convertible Preferred Stock,
assuming an exercise price of $3.49 per share, the resale of which shares has
been registered on a Form S-3 Registration Statement;

d. up to 2,845,000 shares of Common Stock remaining issuable upon exercise
of the Company's publicly-traded warrants, and certain other warrants issued to
underwriters and a lender of the Company, and the resale of up to 370,900 of
those shares and certain of those warrants, covered by the Company's
Post-Effective Amendment No. 1 to a Registration Statement on Form SB-2;

e. up to 68,047 shares of Common Stock reserved but unissued under the
Company's Independent Director Stock Plan, which have been registered for
issuance on a Form S-8 Registration Statement;

f. up to 1,000,000 shares of Common Stock reserved for issuance under the
Company's 1997 Employee Stock Purchase Plan, of which no shares have been issued
to date; and

g. approximately 217,054 shares of Common Stock issuable in a private
placement upon the consummation of the Company's proposed acquisition of Olympic
Tool & Engineering, Inc.

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SELLING SHAREHOLDERS

The Selling Shareholders are offering 1,061,500 shares of Common Stock
under this Prospectus. Of these, (a) 524,000 shares of Common Stock (the
"Shares") were sold by the Company to certain of the Selling Shareholders in a
private placement in November 1997 (the "Fall 1997 Offering"), and (b) 537,500
shares of Common Stock (the "Warrant Shares") are issuable upon the exercise of
Common Stock Purchase Warrants (the "Warrants") issued to certain of the Selling
Shareholders in three separate transactions in May 1996, June 1997 and December
1997, respectively. The Fall 1997 Offering was made pursuant to the exemption
from registration contained in Rule 506 of Regulation D under the Securities
Act. The Warrants were issued, and the Warrant Shares are issuable upon
exercise, pursuant to Section 4(2) of the Securities Act. See "Description of
the Warrants - Issuance History." Of the Warrant Shares, (a) 125,000 shares are
exercisable at $3.75 per share, (b) 37,500 shares are exercisable at $4.80 per
share, and (c) 375,000 are exercisable at $4.6875 per share. As of the date of
this Prospectus, none of the Warrants had been exercised. See "Description of
the Warrants - Number; Exercise Price."

Each Selling Shareholder has represented to the Company that it purchased
the Shares, or accepted the Warrants, for investment purposes, with no present
intention of distribution. However, because the Selling Shareholders may wish to
be legally permitted to sell the Shares and Warrant Shares when they deem
appropriate, the Company has filed the Registration Statement with respect to
the resale of the Shares and Warrant Shares according to the plan of
distribution described in this Prospectus. See "Plan of Distribution."

After completion of this Offering, no Selling Shareholder will own any
shares of Common Stock if all of the Shares and Warrant Shares offered by this
Prospectus are sold, except as shown on the following chart, assuming that no
Selling Shareholder buys any other shares of Common Stock after the date of this
Prospectus. No Selling Shareholder has held any position or office or has had
any other material relationship with the Company or any of its affiliates within
the past three years, except that (a) Robert L. Smith was a director of the
Company until his death in May 1997 and provided short-term financing to the
Company in May 1996, (b) David A. Noyes & Company ("Noyes") and the Company are
parties to a June 1997 financial services agreement, (c) Gregory K. Smith was a
director of the Company from October 1996, until his resignation in June 1997,
and during a portion of such period was employed with Noyes, (d) Richard Cross
and Nestor Wiegand were employed with Noyes when their Warrants were issued, and
Mr. Cross is still employed with Noyes, and (e) Dominick & Dominick,
Incorporated ("Dominick") and the Company are parties to a August 1997 financial
services agreement.

The following table sets forth the names of the Selling Shareholders and
the number of Shares held by each of them or Warrant Shares issuable to each of
them, to the best of the Company's knowledge. The table also shows the maximum
number of Shares or Warrant Shares being offered by each of them under this
Prospectus and, to the best of the Company's knowledge, the number of shares of
Common Stock to be held by each of them, if any, after this Offering.

11
<PAGE>
<TABLE>
<CAPTION>
Beneficial Maximum Shares Beneficial
Name and Address of Ownership Before or Warrants Ownership After
Selling Shareholders the Offering (1) % (2) Shares Offered (1) % (2) the Offering %
=============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Pensionskasse der 320,000 2.64% 320,000 2.64% 0 --
Siemens-Gesellschaften
in der Schweiz
Freilagerstr. 40,
PO Box CH-8047
Zurich, Switzerland

Capital International 204,000 (3) 1.68% 200,000 1.65% 4,000 (3) *
Fund, Ltd.
c/o LYSYS AG
Gessnerallee 38
PO Box CH-8023
Zurich, Switzerland

Peter Richner 4,000 * 4,000 * 0 --
c/o LYSYS AG
Gessnerallee 38
PO Box CH-8023
Zurich, Switzerland

Estate of Robert L. 42,500 (4) * 37,500 * 5,000 --
Smith
c/o Richard Smith,
Executor
1232 Rucher
Everett, WA 98201

David A. Noyes & 50,000 (5) * 50,000 * 0 --
Company
208 South LaSalle St.
Chicago, IL 60604

Gregory K. Smith 52,900 (5)(6) * 50,000 * 2,900 *
208 South LaSalle St.
Chicago, IL 60604

Richard Cross 20,000 (5) * 20,000 * 0 --
208 South LaSalle St.
Chicago, IL 60604

Nestor Wiegand 5,000 (5) * 5,000 * 0 --
208 South LaSalle St.
Chicago, IL 60604

Dominick & Dominick, 375,000 (7) 3.09% 375,000 3.09% 0 --
Incorporated
Financial Square
32 Old Slip
New York, NY 10003
--------- --------- ---------
TOTAL 1,073,400 8.84% 1,061,500 8.74% 11,900 *

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

* Less than 1%.

12
<PAGE>
(1) Assumes exercise of all of the Warrant Shares at the applicable Exercise
Price.

(2) Based on total Common Stock of 12,143,305 shares outstanding on November
28, 1997.

(3) Includes 4,000 shares of Common Stock owned of record by Capital
International Fund, Ltd. before the Fall 1997 Offering.

(4) Comprised of (a) 5,000 shares of Common Stock issuable upon the exercise of
warrants issued to Mr. Smith in the Company's July 1996 registered public
offering and (b) the Warrant Shares issuable upon the exercise of the Smith
Warrant, which are being offered for resale under this Prospectus. See
"Description of the Warrants - Number; Exercise Price."

(5) Warrant Shares issuable upon the exercise of the Warrants held by Noyes,
Mr. Gregory Smith, Mr. Cross and Mr. Wiegand (collectively, the "Noyes
Warrants"), which Warrant Shares are being offered for resale under this
Prospectus. See "Description of the Warrants - Number; Exercise Price."

(6) Includes 2,900 shares of Common Stock issued to Gregory Smith under the
Company's Independent Director Plan when Mr. Smith was a director of the
Company, in addition to the Warrant Shares issuable upon the exercise of
the Noyes Warrant held by Mr. Smith. See "Description of the Warrants -
Number; Exercise Price."

(7) Warrant Shares issuable upon the exercise of the Dominick Warrant, which
are being offered for resale under this Prospectus. See "Description of the
Warrants - Number; Exercise Price."
</TABLE>

Description of the Warrants

Number; Exercise Price. The Selling Shareholders who hold Warrants, and who
elect to exercise their Warrants in full, will receive upon such exercise and
payment of the Exercise Price, the number of Warrant Shares shown below:

<TABLE>
<CAPTION>
Exercise
Proceeds
Date Warrant Exercise to the Expiration
Issued Warrant Holder Shares Price Company Date
- --------------- -------------------------------------- ------------ -------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
5/22/96 Estate of Robert L. Smith 37,500 $4.80 $180,000 5/22/01

6/3/97 David A. Noyes & 50,000 $3.45 $172,500 6/3/02
Company

6/3/97 Gregory K. Smith 50,000 $3.45 $172,500 6/3/02

6/3/97 Richard Cross 20,000 $3.45 $69,000 6/3/02

6/3/97 Nestor Wiegand 5,000 $3.45 $17,250 6/3/02

12/1/97 Dominick & Dominick, 375,000 $4.6875 $1,757,813 6/1/98
Incorporated
------------ -------------
Totals 537,500 $2,369,063
</TABLE>

13
<PAGE>
As of the date of this Prospectus, none of the Warrants had been exercised.

Issuance History. The Company issued the Warrant held by the Estate of
Robert L. Smith (the "Smith Warrant") to Mr. Smith in May 1996 in connection
with a bridge loan made to the Company by Mr. Smith prior to the Company's July
1996 registered public offering. The Company issued the Noyes Warrants to Noyes,
Mr. Gregory Smith, Mr. Cross and Mr. Wiegand in June 1997, pursuant to a June
1997 agreement for Noyes to provide financial services to the Company. The
Company issued the Warrant held by Dominick (the "Dominick Warrant") on December
1, 1997 pursuant to an August 1997 financial services agreement between Dominick
and the Company.

Certain Provisions. Each of the Warrants are subject to provisions that
protect the holders against dilution by adjustment of the number of shares that
may be purchased by the holders. Such adjustment will occur in the event, among
others, that the Company makes certain distributions to holders of its Common
Stock. The Company is not required to issue fractional shares upon the exercise
of the Warrants. No holder of the Warrants will possess any rights as a
shareholder of the Company until such holder exercises such warrant. The above
discussion of certain terms and provisions of the Warrants is qualified in its
entirety by reference to the detailed provisions of the applicable warrant
agreements and certificates, each of which has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part.

Use of Exercise Proceeds. The Company intends to use the proceeds from
exercise of the Warrants, when and if they are exercised, primarily in
connection with acquisitions, working capital or other corporate purposes. The
Company will receive no cash as the result of the registration of the Shares or
Warrant Shares, or from any subsequent resale of the Shares or Warrant Shares by
the Selling Shareholders

PLAN OF DISTRIBUTION

The Selling Shareholders may resell the Shares or Warrant Shares from time
to time in transactions (a) on the Nasdaq NMS, (b) in privately negotiated
transactions, (c) by writing options on the Shares or Warrant Shares, or (d) by
a combination of such methods, at fixed prices that may be changed, at market
prices prevailing at the time of sale, at prices relating to such prevailing
market prices, or at negotiated prices. The Selling Shareholders may sell the
Shares or Warrant Shares to or through broker-dealers, and such broker-dealers
may receive compensation in the form of discounts, concessions or commissions
from the Selling Shareholders or the buyers of the Shares or Warrant Shares for
whom such broker-dealers may act as agents or to whom they may sell as
principals, or both (which compensation as to a particular broker-dealer may be
in excess of customary commissions). Any broker-dealer may act as a
broker-dealer on behalf of the Selling Shareholders in connection with the
offering of certain of the Shares or Warrant Shares by the Selling Shareholders.

In addition, any of the Shares or Warrant Shares that qualify for sale
pursuant to Rule 144 under the Securities Act may be sold in transactions
complying with that Rule, rather than pursuant to this Prospectus. There is no
assurance (a) that the Selling Shareholders holding Shares will sell any or all
of the Shares, or (b) that the Selling Shareholders holding Warrant

14
<PAGE>
Shares will exercise any or all of the Warrants, or sell any or all of the
Warrant Shares, under this Prospectus.

The Selling Shareholders and any broker-dealers who act in connection with
the sale of the Shares or Warrant Shares under this Prospectus may be deemed to
be "underwriters" within the meaning of Section 2(11) of the Securities Act, and
any commissions received by them and profit on any resale of the Shares or
Warrant Shares as principals may be deemed to be underwriting discounts and
commissions under the Securities Act.

The Company will not receive any proceeds from sales of the Shares or the
Warrant Shares sold by the Selling Shareholders, although it will receive the
proceeds from the exercise of the Warrants, when and if they are exercised. See
"Selling Shareholders." The Company has agreed to pay all expenses (other than
any underwriting costs, selling commission and fees and certain expenses of
counsel and other advisors to the Selling Shareholders) in connection with the
registration of the Shares and Warrant Shares.

INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

The Company has agreed to indemnify the Selling Shareholders who hold the
Shares, and those Selling Shareholders have agreed to indemnify the Company,
against certain liabilities under the Securities Act. Insofar as indemnification
for liabilities arising under the Securities Act may be permitted to directors,
officers and controlling persons of the Company pursuant to the foregoing
provisions, or otherwise, the Company has been advised that, in the opinion of
the Commission, such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable.

LEGAL MATTERS

The validity of the issuance of the Shares, the validity of the issuance of
the Warrant Shares when and if the Warrants are exercised, and certain other
related legal matters, have been passed upon for the Company by Stoel Rives LLP
of Seattle, Washington.

EXPERTS

The Company's consolidated financial statements incorporated by reference
in this Prospectus and elsewhere in the Registration Statement have been audited
by Moss Adams LLP, independent public accountants, as indicated in their reports
with respect thereto, and are included in this Prospectus and the Registration
Statement in reliance upon the authority of said firm as experts in giving said
reports.

15
<PAGE>
PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 14. Other Expenses of Issuance and Distribution.

The Company will pay all expenses in connection with the issuance and
distribution of the securities being registered, excluding any underwriters'
commissions and fees and certain expenses of counsel and other advisors to the
Selling Shareholders. Below is an itemized statement of the estimated expenses.
All fees are estimated, except the Commission's registration fee and the
Nasdaq's listing fee.

Registration fee $2,015.25
Legal fees 8,000.00
Accounting fees 2,000.00
Nasdaq listing fee 17,500.00
Miscellaneous fees 500.00
----------
Estimated total $30,015.25

Item 15. Indemnification of Directors and Officers.

Article 8 of the Company's Articles of Incorporation authorizes the Company
to indemnify its directors to the fullest extent permitted by the Washington
Business Corporation Act through the adoption of bylaws, approval of agreements,
or by any other manner approved by the Board of Directors.

In accordance with such authorization, Section 10 of the Company's Bylaws
("Bylaws") requires indemnification, to the fullest extent permitted by
applicable law, of any person who is or has served as a director or officer of
the Company, as well as any person who, while serving as a director or officer
of the Company, served at the request of the Company as a director, officer,
employee or agent of another entity, against expenses reasonably incurred
because such person was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether formal or
informal, civil, criminal, administrative or investigative.

Notwithstanding these indemnification obligations, Section 10 of the Bylaws
states that no indemnification will be provided (a) to the extent that such
indemnification would be prohibited by the Washington Business Corporation Act
or other applicable law as then in effect, or (b) except with respect to
proceedings seeking to enforce rights to indemnification, to any director or
officer seeking indemnification in connection with a proceeding initiated by
such person unless such proceeding was authorized by the Board of Directors.

16
<PAGE>
Section 10 of the Bylaws also provides that expenses incurred in defending
any proceeding in advance of its final disposition shall be advanced by the
Company to the director or officer on receipt of an undertaking by or on behalf
of such person to repay such amount if it is ultimately determined that such
person is not entitled to be indemnified by the Company, except where the Board
of Directors adopts a resolution expressly disapproving such advancement.

Section 10 of the Bylaws also authorizes the Board to indemnify and advance
expenses to employees and agents of the Company on the same terms and with the
same scope and effect as the provisions thereof with respect to the
indemnification and advancement of expenses to directors and officers.

Item 16. Exhibits.

Exhibit
Number Description
------- -----------
4.1 Common Stock Purchase Warrant from PCT Holdings, Inc. to Robert L.
Smith dated as of May 22, 1996. (1)
4.2 Common Stock Purchase Warrant from Pacific Aerospace & Electronics,
Inc. to David A. Noyes & Company dated June 3, 1997. (2)
4.3 Common Stock Purchase Warrant from Pacific Aerospace & Electronics,
Inc. to Gregory K. Smith dated June 3, 1997. (2)
4.4 Common Stock Purchase Warrant from Pacific Aerospace & Electronics,
Inc. to Richard Cross dated June 3, 1997. (2)
4.5 Common Stock Purchase Warrant from Pacific Aerospace & Electronics,
Inc. to Nestor Wiegand dated June 3, 1997. (2)
4.6 Form of Stock Purchase Agreement for Fall 1997 Offering. (3)
4.7 Common Stock Purchase Warrant from Pacific Aerospace & Electronics,
Inc. to Dominick & Dominick, Incorporated dated as of December 1,
1997. (3)
5.1 Opinion of Stoel Rives LLP. (3)
23.1 Consent of Moss Adams LLP. (3)
23.2 Consent of Stoel Rives LLP. (Included in Exhibit 5.1.) (3)
24.1 Power of Attorney. (3)

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

(1) Incorporated by reference to the Company's Registration Statement on Form
SB-2 filed on May 31, 1996.

(2) Filed with the Company's Annual Report on Form 10-KSB for the fiscal year
ending May 31, 1997.

(3) Submitted with this Registration Statement.

17
<PAGE>
Item 17. Undertakings.

The Company hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement to include any
additional or changed material information on the plan of distribution.

(2) For determining liability under the Securities Act, to treat each such
post-effective amendment as a new registration statement of the securities
offered and the offering of the securities at that time to be the initial bona
fide offering.

(3) To file a post-effective amendment to remove from registration any of
the securities that remain unsold at the termination of the offering.

For determining liability under the Securities Act, each filing of the
Company's annual report pursuant to Section 13(a) or 15(d) of the Exchange Act
(and, where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Exchange Act), that is incorporated by
reference in the registration statement, shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

The Company has agreed to indemnify the Selling Shareholders holding the
Shares, and the Selling Shareholders holding the Shares have agreed to indemnify
the Company, against certain liabilities under the Securities Act. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to the foregoing provisions, or otherwise, the Company has been advised that in
the opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.

In the event that a claim for indemnification against such liabilities
(other than the payment by the Company of expenses incurred or paid by a
director, officer or controlling person of the Company in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.

18
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended,
PACIFIC AEROSPACE & ELECTRONICS, INC. certifies that it has reasonable grounds
to believe that it meets all of the requirements for filing on Form S-3 and has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Seattle, Washington, on December 3,
1997.

PACIFIC AEROSPACE & ELECTRONICS, INC.

By /s/ DONALD A. WRIGHT
--------------------------------------
Donald A. Wright
Chief Executive Officer and President

Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated on December 3, 1997:

Signature Title
--------- -----

/s/ Donald A. Wright* Chief Executive Officer, President
- -------------------------------------- and Director
Donald A. Wright (Principal Executive Officer)

/s/ Nick A. Gerde* Vice President Finance, Chief
- -------------------------------------- Financial Officer and Treasurer
Nick A. Gerde (Principal Financial and Accounting
Officer)

/s/ Donald B. Cotton* Director
- --------------------------------------
Donald B. Cotton

/s/ Allen W. Dahl, M.D.* Director
- --------------------------------------
Allen W. Dahl, M.D.

/s/ Urs Diebold* Director
- --------------------------------------
Urs Diebold

/s/ Dale L. Rasmussen* Director
- --------------------------------------
Dale L. Rasmussen

/s/ Roger P. Vallo* Director
- --------------------------------------
Roger P. Vallo

/s/ William A. Wheeler* Director
- --------------------------------------
William A. Wheeler

*By /s/ Donald A. Wright
------------------------------
Donald A. Wright
(Attorney-in-Fact)

19
<PAGE>
INDEX TO EXHIBITS

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

(1) Incorporated by reference to the Company's Registration Statement on Form
SB-2 filed on May 31, 1996.

(2) Filed with the Company's Annual Report on Form 10-KSB for the fiscal year
ending May 31, 1997.

(3) Submitted with this Registration Statement.

Exhibit 4.6

THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES
LAWS OF ANY STATE AND ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM
THE REGISTRATION REQUIREMENT OF THE ACT AND SUCH LAWS. THE SECURITIES OFFERED
HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION, ANY STATE SECURITIES COMMISSION OR OTHER REGULATORY AUTHORITY, NOR
HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THIS
OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. THE SECURITIES OFFERED
HEREBY CANNOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF TO ANY PERSON OR
ENTITY UNLESS SUBSEQUENTLY REGISTERED UNDER THE ACT, AND/OR THE LAWS OF CERTAIN
STATES, OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE AND THE
HOLDER HAS PROVIDED SELLER WITH A LEGAL OPINION ACCEPTABLE TO SELLER TO THAT
EFFECT.

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

STOCK PURCHASE AGREEMENT

This STOCK PURCHASE AGREEMENT ("Agreement") is made as of _________, 1997,
by and between PACIFIC AEROSPACE & ELECTRONICS, INC., a Washington corporation
("Seller"), and ____________________________ ("Purchaser").

RECITALS

A. Seller desires to sell to Purchaser, and Purchaser desires to purchase
from Seller, shares of the common stock, par value $.001 per share, of Seller
(the "Common Stock"), pursuant to the terms and conditions of this Agreement and
in reliance on Rule 506 under Regulation D ("Regulation D") promulgated under
the United States Securities Act of 1933, as amended (the "Securities Act").

B. The shares subject to this Agreement have not been registered under the
Securities Act, or under the state securities laws of any state of the United
States.

AGREEMENT

NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement and other good and valuable consideration, the receipt
and adequacy of which the parties acknowledge, the parties agree as follows:

-1-
<PAGE>
Article 1
Purchase and Sale

1.1 Purchase of Common Stock. On the terms and subject to the conditions
contained in this Agreement, Seller shall sell and deliver to Purchaser, and
Purchaser shall purchase from Seller ______________ shares of Common Stock (the
"Purchased Stock").

1.2 Purchase Price. Purchaser shall pay to Seller a per share purchase
price of U.S. $4.50, for a total purchase price of U.S.$ ____________ for the
Purchased Stock (the "Purchase Price"). Purchaser shall pay Seller the Purchase
Price by wire transfer in United States funds at Closing to:

ACCOUNT NAME: _________________________
_________________________

BANK: _________________________

BRANCH: _________________________
_________________________
_________________________

ABA ROUTING #: _________________________

ACCOUNT #: _________________________

CONTACT: _________________________
_________________________

1.3 Closing. The closing of the transaction contemplated by this Agreement
(the "Closing") shall be held on such date and at such time on or before
November 30, 1997, as the parties may agree, unless such date is extended by
agreement of the parties (the "Closing Date"). On the Closing Date, Seller will
cause its transfer agent to prepare a certificate or certificates representing
the Purchased Stock, which certificate(s) shall be delivered to Purchaser at an
address identified by Purchaser.

1.4 Registration. Seller agrees to use its best efforts to file a
registration statement on Form S-3 with the U.S. Securities and Exchange
Commission within 120 days after the Closing Date to register the resale of the
Purchased Stock by Purchaser. Purchaser agrees to provide Seller in a timely
manner any information required to be provided by Purchaser in connection with
the filing of the registration statement.

-2-
<PAGE>
Article 2
Representations, Warranties and Covenants of Seller

To induce Purchaser's execution of this Agreement and consummation of the
transaction contemplated by this Agreement, Seller represents, warrants and
covenants as follows:

2.1 Corporate Organization; Authorization. Seller is duly incorporated,
validly existing and in good standing as a corporation under the laws of the
State of Washington and has full corporate power and corporate authority to
enter into this Agreement and to issue and sell the Purchased Stock. This
Agreement has been duly authorized, executed, and delivered by Seller and
constitutes a valid and binding agreement of Seller, enforceable in accordance
with its terms.

2.2 Capital Stock. Seller has authorized capital stock consisting of
100,000,000 shares of Common Stock and 5,000,000 shares of Preferred Stock. As
of October 7, 1997, Seller had outstanding 11,415,155 shares of Common Stock and
10,585 shares of Series A Convertible Preferred Stock.

2.3 Reporting Compliance. Seller's Common Stock is registered pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and Seller has filed all materials required to be filed pursuant to
Section 13(a) or 15(d) of the Exchange Act for a period of at least 12 months
immediately preceding the date of this Agreement.

2.4 Information. Seller has instructed Lysys Ltd. to deliver to Purchaser
copies of Seller's Annual Report on Form 10-KSB for Seller's fiscal year ended
May 31, 1997 and Seller's Quarterly Report on Form 10-QSB for the quarter ended
August 31, 1997 (the "Offering Materials"). The information concerning Seller
set forth in this Agreement and the Offering Materials is, as of the date
thereof, complete and accurate in all material respects and, to the best of
Seller's knowledge, does not contain any untrue statement of a material fact or
omit to state a material fact required to make the statements made, in light of
the circumstances under which they were made, not misleading. Upon request,
Seller shall provide to Purchaser any additional reports filed with the SEC
after the date of this Agreement but prior to the Closing Date.

2.5 Characteristics of the Shares. The Purchased Stock, when issued and
delivered to Purchaser, will be duly and validly authorized and issued, fully
paid, and nonassessable. There are no preemptive rights to acquire Common Stock
of Seller.

Article 3
Representations, Warranties and Covenants of Purchaser

As an inducement to, and with the intent that Seller rely on the accuracy
thereof, Purchaser represents, warrants and covenants as follows:

-3-
<PAGE>
3.1 Organization. If Purchaser is an entity, it is duly organized and
validly existing under the laws of the jurisdiction of its organization.
Purchaser has the requisite power and is duly authorized under all applicable
laws, regulations and ordinances to acquire the Purchased Stock. The execution
and delivery of this Agreement will not violate any provision of Purchaser's
governing charter or any other contractual or legal obligation of Purchaser.

3.2 Approval of Agreement. Purchaser has taken all action required by
applicable law, its governing charter, or otherwise to authorize the execution
and delivery of this Agreement and the consummation of the transactions
contemplated by this Agreement. This Agreement is the legal, valid, and binding
obligation of Purchaser, enforceable in accordance with its terms. Purchaser is
not required to obtain the authorization, approval, consent, or order of, or
make a registration or filing, with any court or other regulatory or
governmental body in connection with the execution and delivery by Purchaser of
this Agreement and the consummation by Purchaser of the transactions
contemplated by this Agreement. The execution of this Agreement and the
consummation of the transactions contemplated by this Agreement, will not result
in the breach of any term or provision of, constitute an event of default under,
or require the consent or approval of any third-party pursuant to any material
contract, agreement, or instrument to which Purchaser is a party or to which any
of its properties or operations are subject.

3.3 Information. The information concerning Purchaser provided to Seller in
connection with this Agreement is complete and accurate in all material respects
and does not contain any untrue statements of a material fact or omit to state a
material fact required to make the statements made, in light of the
circumstances under which they were made, not misleading.

3.4 Risk Factors. Purchaser has been informed and fully understands that
there are risks associated with purchasing the Purchased Stock, including
without limitation those set forth in Article 4, which factors Purchaser has
considered carefully before executing this Agreement.

3.5 Purchaser's Financial Condition. Purchaser is an accredited investor,
as that term is defined in Regulation D promulgated under the Securities Act.
Purchaser is capable of bearing the economic risk and the burden of this
investment, including, but not limited to, the possibility of the complete loss
of the Purchase Price. Purchaser understands that there are substantial
restrictions on the transferability of the Purchased Stock, which may make the
liquidation of the Purchased Stock impossible for the immediate future.

3.6 Disclosure. Purchaser has received copies of the Offering Materials.
All documents requested by Purchaser have been made available for inspection and
copying. Purchaser has been supplied with all of the additional information
concerning the Purchased Stock and Seller that Purchaser has requested.

-4-
<PAGE>
3.7 No Registration. Purchaser acknowledges that the Shares are being
issued without being registered under the Securities Act, or under any
applicable securities acts. The Purchased Shares are being acquired by Purchaser
for its own account, for investment (and not on behalf of, or with a view toward
distribution to, any other person) under exemptions from the registration
provisions of the Securities Act. Purchaser acknowledges that it must therefore
hold the Purchased Shares indefinitely unless they are subsequently registered
under the Securities Act or an exemption from such registration is available,
and that Seller will place stop transfer instructions with respect to the
Purchased Shares. Seller is under no obligation to register the Purchased Shares
or take any other action which would make an exemption from registration
available, and Seller is under no obligation to cause or permit the Purchased
Shares to be transferred in the absence of such registration or an opinion
satisfactory to Seller's counsel that an exemption is available.

3.8 Exclusive Reliance on this Agreement; No Oral Representations. In
making the decision to purchase the Purchased Stock, Purchaser has relied
exclusively upon information provided by this Agreement, information in any
books, records or documents of Seller provided by Seller to Buyer in connection
with this Agreement, and any investigations made by Purchaser. Purchaser
confirms that it is not relying upon any oral representations or statements made
by Seller or by any other person in purchasing the Purchased Stock.

3.9 Rule 144. Purchaser acknowledges that the Purchased Shares are
restricted securities, as defined in Rule 144 under the Securities Act, that the
Purchased Shares may not be resold in reliance on Rule 144 for at least one year
after issuance, and that once the Purchased Shares are eligible for resale under
Rule 144, they will be subject to certain resale restrictions contained in Rule
144, including volume limitations and restrictions on the manner of resale,
until they have been held for two years as provided in Rule 144. If Purchaser is
an affiliate of Seller for purposes of Rule 144, Purchaser understands that
certain restrictions on resale would continue to apply under Rule 144 for so
long as Purchaser is an affiliate.

3.10 Legend. Purchaser acknowledges that the certificates representing the
Purchased Shares will bear substantially the following legend until such legend
can be removed under applicable securities laws:

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE AND WERE
OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENT OF
THE ACT AND SUCH LAWS. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR OTHER
REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR
ENDORSED THE MERITS OF THESE SECURITIES. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL. THESE SECURITIES CANNOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
TO ANY PERSON OR ENTITY UNLESS SUBSEQUENTLY REGISTERED UNDER THE ACT, AND/OR THE
LAWS OF CERTAIN STATES, OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS

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AVAILABLE AND THE HOLDER HAS PROVIDED THE COMPANY WITH A LEGAL OPINION
ACCEPTABLE TO THE COMPANY TO THAT EFFECT.

3.11 Further Actions. Purchaser shall execute and deliver to Seller, at or
prior to the Closing, such further letters of representation, acknowledgment,
suitability or the like, as Seller and its counsel may reasonably request in
connection with Seller's reliance on exemptions from registration under
Regulation D or any other securities laws.

3.12 No Other Assurances. Seller and Purchaser acknowledge that the basis
for relying on exemptions from registration or qualifications are factual,
depending on the conduct of the various parties, and that no legal opinion or
other assurance will be required or given to the effect that the transactions
contemplated hereby are in fact exempt from registration or qualification.

Article 4
Risk Factors

Purchaser acknowledges that there are risks associated with purchasing the
Purchased Stock, including without limitation, the following:

4.1 Risk of Dilution. Certain events, such as the issuance by Seller of its
equity securities, including Common Stock or other securities convertible into
or exercisable for Common Stock, in connection with any financing, as part of
the purchase price for any future acquisition of companies or technologies, as
part of any employee compensation, stock purchase, or incentive program,
pursuant to the exercise of warrants or stock options, or for any other
corporate purpose, may result in immediate and substantial book value dilution.

4.2 No Agency Approval. No federal or state agency has made any finding or
determination as to the fairness for investment or made any recommendation or
endorsement of the Purchased Stock.

4.3 Past History of Net Losses. While Seller reported net profit of
$811,000 for the first quarter of fiscal 1998 and $1,682,000 in fiscal 1997, it
reported losses of $1,411,000 in fiscal 1995 and $999,000 in fiscal 1996.
Seller's ability to maintain profitable operations in the future will depend on
many factors, including Seller's ability to assimilate its recent and proposed
future acquisitions and to finance its subsidiaries' production, the degree of
market penetration of its products, its ability to develop new products, the
degree of market acceptance of new products, and the level of competition in the
markets in which Seller operates.

4.4 Acquisition Risk Factors. As part of its business strategy, Seller has
recently grown rapidly as a result of several acquisitions that have placed, and
will continue to place, a significant strain on its management, financial and
other resources. Past and future acquisitions may subject Seller to many risks,
including risks relating to integrating and managing the operations and
personnel of acquired companies, and maintaining and

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implementing uniform standards, controls, procedures and policies. The success
of future acquisitions will depend, in part, upon Seller's ability to assess and
manage the risks typically associated with acquisitions, including the risks of
assessing the value, strengths, and weaknesses of acquisition candidates or new
products, possible diversion of management attention from Seller's existing
businesses, reduction of cash, disruption of product development cycles,
dilution of earnings per share, or other factors.

4.5 Dependence on Significant Customers. The Cashmere Manufacturing Co.,
Inc. subsidiary of Seller ("Cashmere") depends almost entirely on sales to The
Boeing Company. As a result of this dependence on Boeing, general economic
conditions and events affecting Boeing, all of which are outside Seller's
control, may have a significant impact on Cashmere's sales and consequently on
Seller's overall results of operations. Similarly, Seller's Morel Industries,
Inc. subsidiary ("Morel") depends on sales to PACCAR Inc. and its Kenworth and
Peterbilt divisions (collectively, "PACCAR"). Both Cashmere and Morel have
developed and are implementing strategies intended to decrease their reliance on
sales to these primary customers. However, there is no assurance that either
Cashmere or Morel can successfully reduce its reliance on Boeing and PACCAR,
respectively, to a degree that will protect Seller if sales to these primary
customers decrease unexpectedly.

4.6 Possible Need for Additional Long-Term Capital. Seller expects that its
existing capital resources and expected revenue from operations will be adequate
to satisfy its budgeted capital requirements for at least the next 12 months.
Seller's actual capital needs, however, will depend on many factors, including
the amount of revenue generated from operations, the cost of increasing Seller's
sales and marketing activities, the ability of third-party suppliers to meet
product commitments, future acquisitions, and the continuing availability of
bank financing, none of which can be predicted with certainty. As a result of
these factors, Seller is unable to predict accurately the amount or timing of
future capital that it will need.

4.7 Competition. Seller operates in highly competitive markets. The
industries in which Seller currently competes are characterized by ongoing
product development efforts and evolving technology, and success depends in part
on the ability to gain a competitive advantage through proprietary technology.
Although Seller believes that its proprietary technology may give it a
competitive advantage with respect to its technology-based products, new
developments by competitors are expected to continue. Seller's competitors may
develop products that are viewed by customers as more effective or more economic
than Seller's product lines. Seller may not be able to compete successfully
against current and future competitors, and the competitive pressures faced by
Seller may materially adversely affect Seller's business and results of
operations.

4.8 Technological Change; Development of New Products. The market for
Seller's products is characterized by steadily evolving technology and industry
standards, changes in customer needs, and new product introductions. Seller's
success will depend on its ability to enhance its current products, develop new
products that meet changing customer

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needs, advertise and market its products, and respond to evolving industry
standards and other technological changes on a timely and cost-effective basis.

4.9 Dependence on Key Personnel. Seller's success depends significantly on
Donald A. Wright, Seller's Chief Executive Officer and President, and a small
number of other senior management and operational personnel. The loss of the
services of any of these employees could have a material adverse effect on
Seller's ability to achieve its business objectives. Seller has key man life
insurance policies on the life of Mr. Wright in the total amount of $3 million.
Seller's growth and future success will depend in large part on its ability to
attract and retain additional senior managers and highly skilled personnel to
provide management and technological depth and support, to enhance and market
its existing products and to develop new products.

4.10 Limited Protection of Proprietary Technology. Seller regards elements
of its technology as proprietary and relies primarily on a combination of
patent, trade secret, copyright and trademark laws, confidentiality procedures,
and other intellectual property protection methods to protect its proprietary
technology. Seller has 31 U.S. patents, three U.S. patent applications pending,
and one international, one Canadian, and one European patent application pending
relating to certain of its technology and products. There is no assurance that
Seller's patent applications will result in issued patents, or that Seller's
existing patents or any future patents will give Seller any competitive
advantages for its products or technology, or that, if challenged, Seller's
patents will be held valid and enforceable. Despite the precautions taken by
Seller, unauthorized parties may attempt to copy aspects of Seller's products or
obtain and use information that Seller regards as proprietary, and existing
intellectual property laws give only limited protection. Policing violations of
such laws is difficult.

4.11 Environmental Matters. Seller is subject to federal, state and local
laws, regulations and ordinances concerning solid waste disposal, hazardous
materials storage, use and disposal, air emissions, waste water disposal,
employee health and other environmental matters (together, "Environmental
Laws"). Proper waste disposal and environmental regulation are major
considerations for Seller because certain metals and chemicals used in its
manufacturing processes are classified as hazardous substances. If Environmental
Laws are violated, Seller could be liable for damages and for the costs of
remedial actions and could also be subject to revocation of permits needed to
conduct its business.

4.12 Government Regulation. Certain of Seller's products are manufactured
and sold under United States government contracts or subcontracts. As with all
companies that provide products or services to the federal government, Seller is
directly and indirectly subject to various federal rules, regulations and orders
applicable to government contractors. Certain of these government regulations
relate specifically to the vendor-vendee relationship with the government, such
as the bidding and pricing rules. Under regulations of this type, Seller must
observe certain pricing restrictions, produce and maintain detailed accounting
data, and meet various other requirements. Violation of applicable government
rules and regulations could result in civil liability, in cancellation or
suspension of existing contracts,

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<PAGE>
or in ineligibility for future contracts or subcontracts funded in whole or in
part with federal funds.

4.13 Availability and Cost of Materials. Seller does not have fixed price
contracts or arrangements for all of the raw materials and other supplies it
purchases. Seller generally has readily available sources of raw materials and
other supplies it needs to manufacture its products and, where possible, Seller
maintains alternate sources of supply. However, shortages of, and price
increases for, certain raw materials and supplies used by Seller have occurred
in the past and may occur in the future. Future shortages or price fluctuations
could have a material adverse effect on Seller's ability to manufacture and sell
its products in a timely and cost-effective manner.

4.14 Product Liability. Seller is subject to the risk of product liability
claims and lawsuits for harm caused by products of Seller. Seller maintains
product liability insurance with a maximum coverage of $2 million. However,
there is no assurance that Seller's insurance will be sufficient to cover any
claims that may arise. A successful product liability claim in excess of
Seller's insurance coverage could have a material adverse effect on Seller.

Article 5
Indemnification

5.1 Indemnification by Purchaser. Purchaser will indemnify and hold
harmless Seller and its directors, officers, agents and employees, and each
person, if any, who controls Seller within the meaning of the Securities Act
("Affiliates"), from and against any and all claims, damages, expenses,
liabilities, or actions ("Claims") to which any of them may become subject under
applicable law (including the Securities Act and the Exchange Act) and will
reimburse them for any legal or other expenses reasonably incurred by them in
connection with the investigation or defense of any Claims arising out of or
based upon a misrepresentation or alleged misrepresentation of material fact
contained in any application or statement filed with a governmental body by
Seller or the omission or alleged omission of a material fact required to be
stated therein, or necessary in order to make the statements made therein not
misleading, but only insofar as any such misrepresentation or omission was made
in reliance upon and in conformity with information furnished in writing by
Purchaser. Purchaser agrees at any time upon the request of Seller to furnish a
written letter or statement confirming the accuracy of any information provided
to Seller by Purchaser. This Section 5.1 shall remain operative and in full
force and effect, regardless of any investigation, made by or on behalf of
Seller and shall survive the consummation of the transactions contemplated by
this Agreement.

5.2 Indemnification by Seller. Seller will indemnify and hold harmless
Purchaser and its Affiliates from and against any Claims to which any of them
may become subject under applicable law (including the Securities Act and the
Exchange Act) and will reimburse them for any legal or other expenses reasonably
incurred by them in connection with the investigation or defense of any Claims
arising out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in any proxy statement, report,

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<PAGE>
application or statement filed with a governmental body by Purchaser, or arising
out of or are based upon the omission or alleged omission of a material fact
required to be stated therein, or necessary in order to make the statements
therein not misleading, but only insofar as any such statement or omission was
made in reliance upon and in conformity with information furnished in writing by
Seller expressly for use therein. Seller agrees at any time upon the request of
Purchaser to furnish to it a written letter or statement confirming the accuracy
of the information with respect to Seller contained in any document referred to
in this Section 5.2.

Article 6
Conditions Precedent to Obligations

The obligations of each party to this Agreement are subject to the
satisfaction, at or before the Closing Date, of the following conditions:

6.1 Accuracy of Representations. The representations and warranties made by
each party in this Agreement were true when made and shall be true at the
Closing Date with the same force and effect as if such representations and
warranties were made at and as of the Closing Date (except for changes therein
permitted by this Agreement), and such party shall have performed or complied
with all covenants and conditions required by this Agreement to be performed or
complied with by such party prior to or at the Closing.

6.2 Other Items. Each party shall have received such further documents,
certificates or instruments relating to the transactions contemplated hereby as
the other party may reasonably request.

Article 7
General Provisions

7.1 Amendment or Waiver. Every right and remedy provided in this Agreement
shall be cumulative with every other right and remedy, whether conferred in this
Agreement, at law, or in equity, and may be enforced concurrently with any right
conferred by this Agreement, and no waiver by any party of the performance of
any obligation by the other shall be construed as a waiver of the same or any
other default then, theretofore, or thereafter occurring or existing. At any
time prior to the Closing Date, this Agreement may be amended by a writing
signed by the parties, with respect to any of the terms contained in this
Agreement, and any term or condition of this Agreement may be waived or the time
for performance thereof may be extended by a writing signed by the party or
parties for whose benefit the provision is intended.

7.2 Attorneys' Fees. In the event any party institutes and prevails in any
action or suit to enforce this Agreement or to secure relief from any default
under or breach of this Agreement, the defaulting or breaching party or parties
shall reimburse the nonbreaching party or parties for all costs, including
without limitation reasonable attorneys' fees incurred

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<PAGE>
in connection with such dispute and in enforcing or collecting any judgment
rendered pursuant to such dispute.

7.3 Governing Law. This Agreement shall in all respects, including all
matters of construction, validity, and performance, be governed by, and
construed and enforced in accordance with, the laws of the State of Washington,
without reference to any rules governing conflicts of laws.

7.4 No Brokers. Purchaser and Seller agree that no third person, except for
Lysys Ltd., has in any way brought the parties together or been instrumental in
the negotiation, execution, or consummation of this Agreement. Purchaser and
Seller each agree to indemnify the other against any claim by any third person,
other than Lysys Ltd., for any commission, brokerage, finders fee, or other
payment with respect to this Agreement or the transactions contemplated hereby
based upon any alleged agreement or understanding between such party and such
third person, whether expressed or implied, arising from the actions of such
party. The covenants set forth in this Section 7.4 shall survive the Closing
Date and the consummation of the transactions contemplated by this Agreement.

7.5 No Public Announcement. Neither of the parties to this Agreement shall,
without the approval of the other party, make any press release or other public
announcement concerning the transactions contemplated by this Agreement (a) in
the United States, or (b) outside the United States, unless that party has first
provided a copy of such press release or public announcement to the other party
at least five days prior to release. However, nothing contained in this
Agreement shall prohibit any party from making any public disclosure or
announcement which is required by law or shall prohibit Seller from making a
public announcement on or after the Closing Date with respect to the completion
of the offering.

7.6 Notices. All notices, demands, requests, or other communications
required or authorized under this Agreement shall be deemed given sufficiently
if in writing and if personally delivered; if sent by facsimile transmission,
confirmed with a written copy thereof sent by overnight express delivery; if
sent by registered mail or certified mail, return receipt requested and postage
prepaid; or if sent by overnight express delivery:

If to Seller, to: PACIFIC AEROSPACE & ELECTRONICS, INC.
Attention: Donald A. Wright
President and Chief Executive Officer
434 Olds Station Road
Wenatchee, Washington 98801
Facsimile Transmission: (509) 664-6868
Telephone: (509) 664-8000

If to Purchaser: To the address, telephone or facsimile numbers
set forth on the signature page

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<PAGE>
or such other addresses and facsimile numbers as shall be furnished in writing
by any party in the manner for giving notices hereunder. Any such notice,
demand, request, or other communication shall be deemed to have been given as of
the date personally delivered or on the first business day after a legible copy
sent by facsimile transmission is received, three days after the date mailed by
registered or certified mail, or on the first business day after the date sent
by overnight delivery.

7.7 Survival; Liability. The representations, warranties, and covenants of
the respective parties as set forth in this Agreement shall survive the Closing
and consummation of the transactions contemplated by this Agreement for a period
of two years from the date of this Agreement. Seller's cumulative liability to
Purchaser for breaches of this Agreement shall not exceed the Purchase Price.

7.8 Third-Party Beneficiaries. This Agreement is solely between Seller and
Purchaser, and no director, officer, stockholder, employee, agent, independent
contractor or any other person or entity shall be deemed to be a third-party
beneficiary of this Agreement.

7.9 Counterparts. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original and all of which taken together shall
be but a single instrument.

7.10 Entire Agreement. This Agreement, together with the documents to be
delivered pursuant to this Agreement, represents the entire agreement between
the parties relating to the subject matter of this Agreement. There are no other
courses of dealing, understanding, agreements, representations, or warranties,
written or oral, except as set forth in this Agreement.

Executed as of the date first set forth above.

SELLER:

PACIFIC AEROSPACE & ELECTRONICS, INC.

By: _____________________________________
Donald A. Wright
President and CEO

PURCHASER:

_________________________________________

By: _____________________________________
Its _________________________________

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<PAGE>
Purchaser's Address:
_________________________________________
_________________________________________
_________________________________________

Attention: ______________________________
Facsimile Transmission: _________________
Telephone: ________________

Exact Name(s) for Certificate:

_________________________________________

Address for Certificate Delivery:
_________________________________________
_________________________________________
_________________________________________

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Exhibit 4.7

THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN AND WILL NOT BE, AS OF THE TIME OF ISSUANCE, REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY COMPARABLE STATE LAW, AND MAY NOT BE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER
SUCH ACT. THIS WARRANT AND SUCH SHARES MAY BE TRANSFERRED ONLY IN COMPLIANCE
WITH THE CONDITIONS SPECIFIED IN THIS WARRANT.

PACIFIC AEROSPACE & ELECTRONICS, INC.

COMMON STOCK PURCHASE WARRANT
Expiring June 1, 1998

December 1, 1997

Pacific Aerospace & Electronics, Inc., a Washington corporation (the
"Company"), for value received, hereby certifies that Dominick & Dominick,
Incorporated, of Financial Square, 32 Old Slip, New York, NY 10003, or its
assigns, is entitled to purchase from the Company at any time from time to time
beginning on December 1, 1997 and, prior to 5:00 p.m., Pacific Standard time, on
June 1, 1998, 375,000 duly authorized shares (subject to adjustment pursuant to
Section 2 below) of the Company's common stock, $.001 par value per share (the
"Warrant Stock"), at a purchase price per share of $4.6875, all subject to the
terms, conditions, and possible adjustments set forth below.

1. Exercise of Warrant.

1.1 Manner of Exercise. The holder of this Warrant may exercise it, in
whole or in part, during normal business hours on any business day by
surrendering this Warrant to the Company at the Company's principal office,
accompanied by an executed subscription agreement in substantially the form
attached hereto as Exhibit A and by payment, in cash or by certified or official
bank check payable to the order of the Company, or by any combination of such
methods, in the amount obtained by multiplying (a) the number of shares of
Warrant Stock designated in such subscription by (b) $4.6875, whereupon such
holder shall be entitled to receive the number of duly authorized, validly
issued, fully paid and nonassessable shares of Warrant Stock as is indicated on
the subscription.

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<PAGE>
1.2 When Exercise Effective. Each exercise of this Warrant shall be
deemed to have been effected immediately prior to the close of business on the
business day on which this Warrant shall have been surrendered to the Company as
provided in Section 1.1 and, at such time, the person or persons in whose name
or names any certificate or certificates for shares of Warrant Stock shall be
issued upon such exercise shall be deemed for all corporate purposes to have
become the holder of record thereof.

1.3 Delivery of Stock Certificates. As soon as practicable after each
exercise of this Warrant, and in any event within five business days thereafter,
the Company, at its expense, will cause to be issued in the name of and
delivered to the holder hereof, or to the person or entity such holder may
direct (after payment by such holder of any applicable transfer taxes), a
certificate or certificates for the number of duly authorized, validly issued,
fully paid and nonassessable shares of Warrant Stock to which the holder or its
designee shall be entitled upon such exercise.

1.4 Partial Exercise.

1.4.1 Fractional Shares. In the event of any partial exercise of
this Warrant, the Company will not issue certificates for any fractional shares
of the Warrant Stock to which the holder otherwise may be entitled, and the
Company shall not be obligated to refund an amount of cash comprising the market
value of any fractional share of Warrant Stock for which the Company will not
issue a certificate.

1.4.2 Replacement Warrant. In the event of any partial exercise
of this Warrant, upon tender of this Warrant to the Company, the Company shall
issue a new Warrant containing the same terms and conditions as this Warrant but
calling on the face thereof for the number of shares of Warrant Stock equal to
the number of shares called for on the face of this Warrant minus the number of
shares of Warrant Stock issued upon the partial exercise of this Warrant.

2. Adjustment of Warrant Stock Issuable Upon Exercise. If the Company at
any time or from time to time after the date of this Warrant, but before
expiration, effects a split or subdivision of the outstanding shares of its then
outstanding common stock into a greater number of shares of common stock, or if
the Company effects a reverse split of the outstanding shares of its common
stock into a lesser number of shares of common stock (by reclassification or
otherwise than by payment of a dividend in common stock), then, and in each such
case, the number of shares called for on the face of this Warrant (or the face
of any replacement Warrant issued upon partial exercise) shall be adjusted
proportionally, and the exercise price with respect to such adjusted number of
shares also shall be adjusted proportionally.

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<PAGE>
3. Restrictions on Transfer.

3.1 Restrictive Legends. Each replacement Warrant issued upon partial
exercise or the transfer of any Warrant shall contain a legend in substantially
the following form:

THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT.
THIS WARRANT AND SUCH SHARES MAY BE TRANSFERRED ONLY IN COMPLIANCE
WITH THE CONDITIONS SPECIFIED IN THIS WARRANT.

Until such time as the Warrant Stock may be registered, each certificate for
Warrant Stock issued upon the exercise of any Warrant, and each certificate
issued upon the transfer of any such Warrant Stock, shall be stamped or
otherwise imprinted with a legend in substantially the following form:

THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES
LAWS OF ANY STATE. THESE SECURITIES MAY NOT BE OFFERED, SOLD, OR
TRANSFERRED IN THE ABSENCE OF REGISTRATION, OR THE AVAILABILITY OF AN
EXEMPTION FROM REGISTRATION, UNDER THE SECURITIES ACT OF 1933 AND
APPROPRIATE STATE SECURITIES LAWS. FURTHERMORE, NO OFFER, SALE, OR
TRANSFER, IS TO TAKE PLACE UNLESS THE COMPANY RECEIVES AN OPINION OF
COUNSEL, AT SHAREHOLDER'S EXPENSE, AND SATISFACTORY TO IT, THAT AN
EXEMPTION FROM REGISTRATION IS AVAILABLE.

3.2 Notice of Proposed Transfer. Prior to the transfer of any shares
of Warrant Stock, and during any period during which such shares of Warrant
Stock are not registered by the Company under an effective registration
statement filed pursuant to the Securities Act of 1933, as amended (the
"Securities Act"), the holder thereof shall give written notice to the Company,
which notice shall (a) state such holder's intention to transfer such restricted
shares and to comply in all other respects with the transfer requirements of
this Warrant; (b) describe the circumstances of the proposed transfer in
sufficient detail to enable counsel to render the opinions referred to below;
and (c) designate counsel for the holder giving such notice. The holder giving
such notice shall submit a copy thereof to the counsel

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<PAGE>
designated in such notice and the Company will promptly submit a copy thereof to
its counsel. The following provisions shall then apply:

3.2.1 If (a) in the opinion of counsel for the holder designated
in the notice the proposed transfer may be effected without registration of such
shares of Warrant Stock under the Securities Act and any applicable state
securities laws, and (b) counsel for the Company shall not have rendered an
opinion within 15 days after receipt by the Company of the notice required by
Section 3.2 that registration is required, the holder shall thereupon be
entitled to transfer such shares of Warrant Stock in accordance with the terms
of the notice delivered by such holder to the Company. Each Warrant or
certificate, if any, issued upon or in connection with such transfer shall bear
the appropriate restrictive legend set forth in Section 3.1, unless in the
opinion of each such counsel the legend is no longer required to insure
compliance with the Securities Act.

3.2.2 If in the opinion of either or both of such counsel the
proposed transfer may not legally be effected without registration of the shares
of Warrant Stock under the Securities Act or applicable state securities laws,
the Company will promptly so notify the holder thereof and the holder shall not
be entitled to transfer the shares of Warrant Stock until receipt of a further
notice from the holder under Section 3.2.1 above and opinions as to
transferability, or until registration of such shares of Warrant Stock under the
Securities Act or applicable state law has become effective (provided that the
Company has no obligation to register Warrant Stock other than pursuant to
Section 6 below).

4. Reservation of Shares. The Company will at all times reserve and keep
available, solely for issuance and delivery upon the exercise of the Warrants,
the number of shares of Warrant Stock that would be issuable upon the exercise
of all Warrants at the time outstanding. All such shares shall be duly
authorized and, when issued upon such exercise, shall be validly issued, fully
paid and nonassessable.

5. Ownership, Transfer and Substitution of Warrants.

5.1 Ownership of Warrants. The Company may treat the person in whose
name any Warrant is registered on the Company's records as the owner and holder
thereof for all purposes, notwithstanding any notice to the contrary.
Nevertheless, when a Warrant is properly assigned in blank, the holder thereof
may exercise the Warrant without first having a new Warrant issued.

5.2 Transfer and Exchange of Warrants. Upon the surrender of any
Warrant, properly endorsed, for registration of transfer or exchange at the
principal office of the Company, the Company will execute and (after payment by
the holder of any applicable transfer taxes) deliver to any person specified by
the holder of the Warrant a new Warrant or Warrants of like tenor.

5.3 Replacement of Warrants. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Warrant and,

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<PAGE>
in the case of any loss, theft or destruction of any Warrant, upon delivery of
indemnity reasonably satisfactory to the Company in form and amount or, in the
case of mutilation, upon surrender of the Warrant, the Company at its expense
will execute and deliver, in lieu thereof, a new Warrant of like tenor.

6. Registration Rights. For a period of one year following the final
exercise of rights to purchase Warrant Stock under this Warrant, if the Company
shall determine to register any of its common stock either for its own account
or the account of a security holder or holders, other than a registration
relating solely to (i) employee benefit plans, or (ii) registration on any
registration form that does not permit secondary sales, the Company will: (a)
promptly give written notice of the proposed registration to the holder of this
Warrant or any Warrant Stock issued or issuable upon the exercise of this
Warrant; and (b) with respect to any Warrant Stock that has not been held for a
two-year period, include in such registration (and any related qualification or
other compliance filing under applicable blue sky laws), and in any underwriting
involved therein, all or any portion of the Warrant Stock then issued or
issuable upon exercise of this Warrant as specified in a written request made by
such holders within 30 days after receipt of the written notice from the Company
described in clause (a) above. Notwithstanding the foregoing, this registration
right shall not apply to the Registration Statement on Form S-3 that has been
filed by the Company in connection with its convertible note offering. If the
registration of which the Company gives notice is for a registered public
offering involving an underwriting, the Company shall so advise the holders as
part of the written notice described in clause (a) above. In such event, the
holders' rights to registration pursuant to this Section 6 shall be conditioned
upon participation in the underwriting and the inclusion of stock in the
underwriting to the extent provided herein. Holders and the Company (and any
other security holders proposing to distribute their securities through the
underwriting) shall enter into an underwriting agreement in customary form with
the representatives of the underwriter or underwriters selected for such
underwriting by the Company. Notwithstanding any other provisions of this
Section 6, if the representatives of the underwriter or underwriters determine
in good faith that marketing factors make it advisable to impose a limitation on
the number of secondary shares to be included in the registration, the number of
such secondary shares, if any, that may be included in the registration and
underwriting on behalf of such holders, and any other security holders proposing
to distribute their securities of the Company through such underwriting shall be
allocated in proportion, as nearly as practicable, to the respective amounts of
securities that they had requested to be included in such registration at the
time of filing the registration statement. If such holders disapprove of the
terms of any such underwriting, they may elect to withdraw therefrom by written
notice to the Company and the representatives of the underwriter or
underwriters.

7. No Rights or Liabilities as Stockholder. Nothing herein shall give or
shall be construed to give the holder of this Warrant any of the rights of a
shareholder of the Company, including without limitation the right to vote on
matters requiring the vote of shareholders, the right to receive any dividend
declared and payable to the holders of common stock, or the right to a pro-rata
distribution upon the Company's dissolution.

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<PAGE>
8. Notices. All notices and other communications provided for herein shall
be delivered or mailed by first class mail, postage prepaid, addressed (a) if to
the holders of any Warrant, to the registered address of the holder as set forth
in the register kept at the principal office of the Company, or (b) if to the
Company, to: Sheryl A. Symonds, Vice President Administration & General Counsel,
Creekside Building, 24000 - 35th Ave S.E., Suite 200, Bothell, WA 98021, or to
the address of such other principal office of the Company as the Company shall
have furnished to each holder of any Warrants in writing; provided that the
exercise of any Warrants shall be effective only in the manner provided in
Section 1.

9. Miscellaneous. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought. This Warrant shall be governed by the laws of the State of Washington.
The headings of this Warrant are inserted for convenience only and shall not be
deemed to constitute a part hereof.

10. Expiration. The right to exercise this Warrant shall expire at 5:00
p.m., Pacific Standard time, on June 1, 1998.

PACIFIC AEROSPACE & ELECTRONICS,
INC.

By: /s/ DONALD A. WRIGHT
-------------------------------------
Donald A. Wright, President

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<PAGE>
Exhibit A

SUBSCRIPTION

(To be executed by the holder of the Warrant to exercise the right to
purchase common stock evidenced by the Warrant.)

To: Pacific Aerospace & Electronics, Inc.
c/o Vice President Administration & General Counsel
Creekside Building
24000 - 35th Ave S.E., Suite 200
Bothell, WA 98021

The undersigned hereby irrevocably subscribes for ________ shares of the
Common Stock, $.001 par value per share, of Pacific Aerospace & Electronics,
Inc., a Washington corporation, pursuant to and in accordance with the terms and
conditions of a Warrant dated December 1, 1997 (the "Warrant"), and tenders with
the Warrant and this Subscription Agreement payment of $_____________ as payment
for the shares, and requests that a certificate for such shares be issued in the
name of the undersigned and be delivered to the undersigned at the address
stated below.

_________________________________________
(Print name)

_________________________________________
(Signature)

By ______________________________________

Its _____________________________________

Address: ________________________________

_________________________________________

Taxpayer ID #:

_________________________________________

Date: _________________

-7-

Exhibit 5.1

December 3, 1997

Board of Directors
Pacific Aerospace & Electronics, Inc.
434 Olds Station Road
Wenatchee, WA 98801

Gentlemen:

We have acted as counsel to Pacific Aerospace & Electronics, Inc. (the
"Company") in connection with the filing of a Registration Statement on Form S-3
(the "Registration Statement") under the Securities Act of 1933, as amended,
relating to the issuance of up to 1,061,500 shares of Common Stock, comprised of
524,000 shares issued in connection with the Company's Fall 1997 Offering (the
"Shares"), and 537,500 shares issuable upon the exercise of common stock
purchase warrants issued to a lender to, and certain non-employee service
providers of, the Company (the "Warrant Shares"). Any capitalized term not
defined in this opinion shall have the meaning set forth in the Registration
Statement.

We have reviewed the corporate actions of the Company in connection with
this matter, and we have examined such corporate records and other documents as
we deemed necessary for the purposes of this opinion.

Based upon the foregoing, we are of the opinion that:

1. The Company is a corporation duly organized and validly existing under
the laws of the State of Washington.

2. The Shares have been duly authorized, and are validly issued, fully
paid, and nonassessable.

3. The Warrant Shares have been duly authorized and reserved for issuance
upon exercise of the Warrants, and, when issued upon such exercise,
will be validly issued, fully paid, and nonassessable.

We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.

Very truly yours,

/s/ STOEL RIVES LLP

Exhibit 23.1

INDEPENDENT AUDITOR'S CONSENT

We consent to the incorporation by reference in this Registration Statement
of Pacific Aerospace & Electronics, Inc. on Form S-3 of our report dated July 2,
1997, appearing in the Annual Report on Form 10-KSB of Pacific Aerospace &
Electronics, Inc. for the year ended May 31, 1997. We also consent to the
reference to us under the heading "Experts" in the Prospectus, which is part of
this Registration Statement.

Everett, Washington /s/ MOSS ADAMS LLP
December 2, 1997

Exhibit 24.1

POWER OF ATTORNEY FOR FORM S-3 REGISTRATION STATEMENT

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints DONALD A. WRIGHT, with full power to act, his
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement on Form S-3, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratify and
confirm all that said attorney-in-fact and agent, or his substitutes, may
lawfully do or cause to be done by virtue hereof. Pursuant to the requirements
of the Securities Act, this Power of Attorney has been signed by the following
persons in the capacities indicated on December 3, 1997:

Signature Title
--------- -----

/s/ DONALD A. WRIGHT Chief Executive Officer, President
- -------------------------------------- and Director
Donald A. Wright (Principal Executive Officer)

/s/ NICK A. GERDE Vice President Finance, Chief
- -------------------------------------- Financial Officer and Treasurer
Nick A. Gerde (Principal Financial and Accounting
Officer)

/s/ DONALD B. COTTON Director
- --------------------------------------
Donald B. Cotton

/s/ ALLEN W. DAHL, M.D. Director
- --------------------------------------
Allen W. Dahl, M.D.

/s/ URS DIEBOLD Director
- --------------------------------------
Urs Diebold

/s/ DALE L. RASMUSSEN Director
- --------------------------------------
Dale L. Rasmussen

/s/ ROGER P. VALLO Director
- --------------------------------------
Roger P. Vallo

/s/ WILLIAM A. WHEELER Director
- --------------------------------------
William A. Wheeler