FIELDS AIRCRAFT SPARES INC, 10KSB/A, 1998-04-30

FIELDS AIRCRAFT SPARES INC
10KSB/A, 1998-04-30
AIRCRAFT & PARTS

Previous: TRANSAMERICA VARIABLE INSURANCE FUND INC, 485BPOS, 1998-04-30

Next: ZORAN CORP DE, DEF 14A, 1998-04-30

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-KSB/A

AMENDMENT NO. 1

[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-21818

FIELDS AIRCRAFT SPARES, INC.
----------------------------
(Name of small business issuer as specified in its charter)

Utah 95-4218263
---- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

2251-A Ward Avenue
Simi Valley, California 93065
-----------------------------
(Address of principal executive offices)
Issuer's telephone number, including area code: (805) 583-0080

Securities registered pursuant to Section 12(b) of the Exchange Act: None

Securities registered pursuant to Section 12(g) of the Exchange Act:
Common shares, par value $.05 per share

Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
--- ---
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. X
---
The issuer's revenues for the fiscal year ended December 31, 1997 were
$12,101,000.

As of December 31, 1997, 2,079,571 of the issuer's common shares were
issued and outstanding, approximately 1,295,404 of which were held by
non-affiliates. As of March 31, 1998, the aggregate market value of shares held
by non-affiliates was approximately $12,630,189. The issuer believes that three
shareholders, who as of March 31, 1998 are deemed to be greater than 5%
shareholders, are not affiliates of the issuer because they do not participate
in management decisions. See "Security Ownership of Certain Beneficial Owners
and Management."

DOCUMENTS INCORPORATED BY REFERENCE: NONE

Transitional Small Business Disclosure Format: Yes No X
--- ---

<PAGE>

PART I.

The following Item 1 "BUSINESS" includes statements that relate to future plans,
financial results or projections, events or performance, including statements
with respect to future business potential. These are forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Such statements
are subject to risks and uncertainties that could cause actual results to differ
materially. Actual results may differ from such forward-looking statements as a
result of a number of factors, including but not limited to competitive factors
and pricing pressures, ability to obtain necessary capital or financing, the
price and availability of aircraft parts and other materials, successful
execution of Fields Aircraft Spares, Inc.'s (the "Company") expansion plans
including combining the business of the completed acquisition with the Company's
business and successful completion of additional acquisitions, failure to
maintain existing customer or vendor relationships, shifts in market demand,
general economic conditions and other risks and uncertainties discussed in this
and other periodic reports filed by the Company with the Securities and Exchange
Commission.

ITEM 1. BUSINESS
- -----------------
Development of the Company
- --------------------------

The primary business of the Company is the distribution and stocking of
factory new spare parts applicable to various commercial aircraft models and the
brokerage of a wide variety of new and reconditioned aircraft parts through its
subsidiary Fields Aircraft Spares Incorporated, a California corporation
("FAS"). The Company has, through a subsidiary acquired in January 1998, begun
to manufacture, on a selected basis, certain aircraft spare parts. Flightways
Manufacturing, Inc. ("Flightways"), which the Company acquired, manufactures
plastic replacement parts for aircraft cabin interiors. In April 1998, the
Company acquired Skylock Industries ("Skylock"), a manufacturer of hardware and
retaining devices for aircraft interiors, and intends to acquire other aircraft
cabin interior parts manufacturing companies.

In 1984, the Company was organized as FEP Resources, Inc., under the
laws of the State of Utah. In 1985, the Company was renamed Fields Industrial
Group, Inc. and acquired Fields Industrial Supply, Inc., a California
corporation that was engaged in the sale of cutting tools and supplies. As of
1990, that business was discontinued. In 1987, the Company began distributing
aircraft parts. In 1988, the Company incorporated FAS as a wholly owned
subsidiary. In 1995, McDonnell Douglas Corporation (together with its affiliates
and/or divisions, "MDC") acquired Series A Convertible Preferred Stock of FAS
which converted to common shares of the Company in 1997. In 1995, the Company
changed its name to Fields Aircraft Spares, Inc.

On March 29, 1995, the Company's shareholders authorized the reverse
split of the Company's common shares on the basis of 50 old shares for one new
share. The reverse split was effective as of November 20, 1995.

All material aspects of the Company's business other than manufacturing
are conducted through FAS. Manufacturing is currently conducted through
Flightways and future manufacturing is expected to be conducted in subsidiaries.
The business of the Company as conducted through FAS and Flightways is referred
to in this document as the Company's business. References in this document to

2
<PAGE>

the Company, where appropriate, shall be deemed to be references to the Company
and its subsidiaries, collectively.

The Industry
- ------------

According to The Boeing Company ("Boeing"), in their 1997 Current
Market Outlook, the world jetliner fleet is projected to grow from 11,500
airplanes at the end of 1996 to nearly 17,000 airplanes in 2006. Boeing expects
this increase to be driven by an expected 5.5% per year growth in air travel and
6.6% in air cargo.

In its 23rd annual aviation forecast, the Federal Aviation
Administration (the "FAA") projects that U.S. airline passenger traffic will
increase 3.5% in 1998 and that it will continue to grow at an average rate of
3.7% through 2009. Further, the FAA projects international traffic to and from
the United States by foreign and domestic carriers will increase by 5.5% in 1998
with an average growth rate of 5.8% through 2009.

Industry analysts have estimated that 70% of cargo growth will be met
by converting aging passenger fleets to cargo configurations. Management
believes the number of 10 year and older planes in service continues to climb as
cost considerations in an intensely competitive environment favor the "used and
convert instead of new" purchase decision. This has contributed to the
absorption of surplus aircraft parts and inventories at a faster rate as
airlines extend aircraft utilization and convert aircraft into alternative uses.

The Company believes that all of these trends provide the underpinnings
to the long-term growth of the aircraft spare parts industry.

Business of the Company

Through December 31, 1997, the primary business of the Company was the
distribution and stocking of factory new spare parts applicable to various
commercial aircraft models and the brokerage of a wide variety of new and
reconditioned aircraft parts through FAS. The Company's business has been
concentrated in the distribution and stocking, as an authorized factory
distributor for various manufacturers, of cabin interior replacement parts for a
wide variety of commercial aircraft models. The Company also distributes from
what it believes to be the largest inventory, outside of MDC, of factory new
parts for DC-8, DC-9, DC-10 and MD-80 aircraft. It also purchases and
distributes both new and used parts and related equipment from aircraft
manufacturers for Boeing, McDonnell Douglas and Airbus aircraft. The Company
sells, exchanges or leases parts to commercial aircraft operators servicing both
the passenger and cargo markets, to overhaul facilities and to brokers
throughout the world.

In January 1998, the Company, through the acquisition of Flightways,
expanded into the business of manufacturing aircraft cabin interior parts. The
Company acquired Skylock in April 1998 and intends to acquire additional
strategic manufacturing entities that will enhance the Company's ability to
compete. In 1998, the Company expects that its business will be concentrated in
the manufacturing and the distribution and stocking, as an authorized factory
distributor for various manufacturers, of cabin interior replacement parts for a
wide variety of commercial aircraft models.

3
<PAGE>

Distributorships
----------------

The Company provides distribution services for manufacturers ("OEM") of
aircraft aftermarket replacement spare parts. The Company concentrates on the
stocking and distributing of interior cabin parts and is an authorized
distributor for a number of OEMs providing replacement parts for lavatories,
galleys, seats, interior latches, tray tables, lighting and cleaning products.
The Company primarily sells these parts to major air carriers and overhaul
facilities. In some cases, the Company has agreements or purchasing arrangements
designating it as the sole or primary source for specific replacement parts. The
Company's acquisition strategy as set forth below is also focused on acquiring
selected manufacturers and distributing its own manufactured parts.

The Company provides inventory management and supply services to air
carriers and aircraft overhaul facilities. By working closely with customers and
aircraft maintenance records, the Company forecasts replacement part demand,
purchases estimated demand from the OEMs, inventories the parts pending the
order, and then supplies the parts to the customers on a just-in-time basis.
This service allows the customers to reduce the cost of carrying and managing
inventory. Further, by consolidating orders, the Company is able to purchase
from OEMs at favorable prices, allowing it to sell to its customers at prices
often below those available to the customer when buying direct from the OEM.

During 1997, the Company served as the exclusive source of specific
replacement parts for galleys, lavatories and seats for two major airlines and
one regional carrier. The Company is in varying stages of negotiations with a
number of other airlines to become their exclusive source of various interior
replacements parts. No formal agreements have been reached with other airlines.

As of December 31, 1997, backlog of distributorship orders for shipment
in 1998, which the Company believes to be firm, was approximately $2.3 million.
There was backlog of approximately $1.6 million of distributorship orders as of
December 31, 1996.

McDonnell Douglas Components and Parts
--------------------------------------

The Company believes that it has the largest factory new inventory of
DC-8, DC-9, DC- 10 and MD-80 parts outside of MDC. This inventory consists of
over $70 Million, catalog value, of factory new spare parts and components
purchased directly from MDC in 1989 and 1991. MDC inventory is generally sold at
a discount to catalog value. The total future discount to catalog value cannot
be quantified at this time.

An important factor in the aircraft spare parts distribution market is
the documentation or traceability that is supplied with an aircraft spare part.
MDC has re-certified the Company's MDC inventory as directly traceable to their
production certificate, and it is the only inventory known to the Company
outside of MDC's direct control that has been certified to allow MDC to
repurchase and ship to customers without having to go through their quality
control department for a source inspection.

Based upon its market research, the Company believes that in many cases
parts in this inventory are the only new material and in many cases are the only
material available in any condition.

4
<PAGE>

Once the Company's MDC inventory is depleted, this segment of business
will no longer be a revenue source for the Company.

Brokerage Activities
--------------------

The Company receives inquiries from its customers for parts that are
not currently held in its inventory. The salesperson receiving this request
checks a computerized industry database known as the Inventory Locator Service
("ILS") and utilizes the knowledge of the Company and its staff to locate a
suitable part. Once located, a purchase price is agreed with the owner of the
part. At that time, the sales person contacts the customer and extends a quote.
If the quote is accepted by the customer, the part is purchased and shipment to
the Company's warehouse is arranged. When received at the warehouse, both the
part and its accompanying paperwork are inspected. After inspection and
acceptance, the part is shipped to the customer.

Because of government and industry group guidelines, aircraft operators
have become increasingly careful from whom they buy parts. The Company has had
its quality control systems and procedures audited and evaluated by MDC as well
as by a number of major airlines and freight operators. Almost every major U.S.
airline, freight operator and overhaul facility has designated the Company as
either an approved or preferred vendor. This preferred status has enabled the
Company to act as a broker to purchase parts for airlines when the Company does
not have the parts in stock.

Because parts for brokerage are not purchased until a corresponding
sale has been made, it is less capital intensive than the purchase and sale of
inventory. Brokerage allows incremental increases in sales without corresponding
increases in overhead.

New Material Acquisition
------------------------

The Company uses information provided by its customers and industry
research to identify new parts and materials that customers have difficulty in
obtaining on short notice. The Company then stocks inventories of these items
and makes them available to its customers on a just-in-time basis as well as
through the ILS.

Manufacturing
-------------

Through Flightways, acquired in 1998, the Company manufacturers high
quality plastic replacement components for commercial aircraft seats and
interiors, including foodtrays, latches, shrouds, panels, armcaps, bumper
strips, escutcheons, and components for lavatories, galleys, cockpits, windows
and overhead units. The Company sells new parts to aircraft manufacturers and to
airlines and aircraft repair facilities. Also, through its repair station, the
Company overhauls and repairs seats, seating components, carts and modules.

The customers of Flightways include U.S. domestic airlines as well as
an increasing number of international carriers. The Company intends to initially
operate Flightways out of its Van Nuys, California, facility. The Company may
eventually consolidate its corporate headquarters with that of Flightways into a
larger facility. The Company will deliver the products and services of
Flightways through the Company's distribution system.

5
<PAGE>

In April 1998, the Company acquired 100% of the outstanding shares of
Skylock. Skylock is a designer and manufacturer of hardware and retaining
devices for aircraft interiors. Skylock focuses on using advanced technologies
and manufacturing methods to optimize such critical elements as appearance,
weight, ease of use and security.

Consignments
------------

In 1995, the Company entered into a three-year consignment arrangement
to warehouse and market spare parts for Airweld of Kentucky, Inc. Other
consignment arrangements are currently under negotiation, although no assurances
can be made that the Company will be successful in completing those
negotiations. Under such consignment arrangements, the consignor retains
ownership and the Company arranges the sales for the consignor.

Parts warehoused by the Company under consignment arrangements are also
listed by the Company in the SPEC 2000 and the ILS computerized databanks. In
addition, the Company adds the consignment inventories to the inventory listings
that it provides its customers in computer readable form.

Business Growth Strategy
- ------------------------

The Company intends to pursue the following areas of growth:

Obtain Additional Distributorships. The Company intends to pursue and
secure additional distributorships with other aircraft cabin interior
manufacturers. In addition, the Company intends to expand its distributorship
activities to other aircraft parts and systems.

Acquisitions. The aircraft industry is populated by a large number of
small manufacturing companies providing a variety of parts and services. With
the worldwide demand for aircraft increasing and the growth in outsourcing by
air carriers, along with their desire to reduce the number of vendors they deal
with, the Company believes there is significant opportunity to grow through
acquisition.

Capitalize on Authorized Vendor Status. The Company has been authorized
as a vendor of record by most major air carriers and aircraft overhaul
facilities. This provides the opportunity to expand sales with existing
customers, as those customers work to reduce the number of vendors they deal
with. Also, as the owner of what management believes to be the largest inventory
of factory new MDC parts outside of MDC, customers would be reluctant to remove
the Company as a vendor, which gives the Company a marketing advantage over the
competition.

Brokerage. The increasing population of aircraft in service is expected
to increase the demand for parts. With its relationships in the industry, its
status as a vendor to most major air carriers and its reputation for quality and
service, the Company intends to take advantage of this growing segment of the
market.

Expand new parts and material sales. The Company intends to increase
inventories of parts that customers have trouble obtaining on a timely basis
with the goal of providing complete inventory management and supply services to
air carriers.

6
<PAGE>

Operations
- ----------

The Company maintains an inventory consisting primarily of factory new
aircraft spare parts in its warehouse in Fillmore, California. The Company's
inventory is listed in two computerized data banks that are available to the
airline industry: SPEC 2000 and the ILS. The Company pays a fee to be listed on
such systems and continually updates the Company information listed on the
systems to keep them current. In addition, the Company provides an inventory
listing in computer readable form to many of its major customers. The Company
receives orders for spare parts from commercial aircraft operators servicing
both the passenger and cargo markets, from overhaul facilities and from brokers.
The Company currently has seven full-time inside salespersons and six full-time
outside salespersons. Additionally, the Company is represented on an
international basis by a number of independent outside general sales agents.

Orders for parts in inventory are filled and shipped, 24 hours per day,
F.O.B. from the warehouse, generally within five hours of the receipt of the
order. The Company believes that a quick turn-around time, between an order
being taken and the part being delivered, is a key service for which the
customer is willing to pay. Reducing the time that an aircraft is on the ground
is a major advantage the Company offers to its customers. The Company's
warehouse is 60 minutes from Los Angeles International Airport and has a
delivery service to the airport. In addition, the Company utilizes commercial
cargo carriers to deliver spare parts to the Los Angeles airport and around the
world. The Company emphasizes its ability to respond quickly in obtaining parts
for its customers.

The Company's business exposes it to possible claims for personal
injury or death which may result from the failure of an aircraft spare part sold
or manufactured by it. While the Company maintains what it believes to be
adequate liability insurance to protect it from such claims, and while no
material claims have, to date, been made against the Company no assurance can be
given that claims will not arise in the future or that such insurance coverage
will be adequate.

Pricing
- -------

The price at which the Company sells parts is based upon market
competition.

Marketing
- ---------

The Company currently concentrates its marketing efforts in the
following areas:

(i) commercial airlines servicing the passenger market; (ii)
commercial airlines servicing the cargo market; (iii) aircraft
leasing companies; and (iv) overhaul facilities.

As the Company expands into manufacturing, it intends to continue its
marketing efforts in these areas and to add marketing efforts aimed directly at
OEM's.

7
<PAGE>

The Company has not conducted any formal market studies to determine
the actual size of each of its current and any proposed markets, and relies upon
the experience of its officers and key employees for such judgments.

The Company sells its products through three primary methods:

1. The use of its own sales staff which currently includes 13
salespersons. This staff calls on customers and potential customers to determine
the needs of such customers and responds to incoming calls. Once the need is
determined, the order is then sent to the Company's warehouse.

2. The use of computerized parts database systems.

3. The use of exclusive and non-exclusive general sales agency
agreements.

The Company has developed literature and advertising material
describing the Company's products and services. The literature is distributed by
the Company's sales staff and agents, as well as by mail, to previous and
current customers, persons who have responded to previous advertising, and
companies believed to be engaged in the relevant market.

The Company also uses media advertising, such as trade journals and
technical publications, directed toward specific market segments. In addition,
the Company attends trade shows and puts on exhibitions directed to specific
market segments.

During the fiscal year ended December 31, 1997, two customers of the
Company each accounted for more than 10% of sales. No other single customer
accounted for more than 10% of the Company's sales. During the 1996 fiscal year,
one of the Company's customers accounted for more than 10% of sales.

In an effort to increase foreign sales, the Company intends to engage
additional independent representatives to serve foreign markets.

Competition
- -----------

The Company competes with a number of large and small sellers of
aircraft spare parts in the aviation after-market. These competitors include
OEM's such as Boeing, aircraft service companies and aircraft spare parts
redistributors. The major aircraft service companies and aircraft spares parts
redistributors with which the Company competes include AAR Corp., AGES, Aviation
Sales and The Memphis Group. For many of the Company's competitors, the sale of
aircraft spare parts is only a part of larger sales operations. The
manufacturing segments of the aviation industry in which Flightways and Skylock
operate are considered to be highly fragmented and competitive. Many of the
Company's competitors are larger and more established than the Company and have
greater financial resources and larger facilities and marketing forces. The
Company's increased emphasis during the past two years on distributorships and
its current expansion into manufacturing has exposed the Company to new
competitors.

Although the Company has not performed any market survey studies, it
believes that industry competition is based primarily upon service, price and

8
<PAGE>

reputation of the supplier. The Company believes that it is competitive and that
it enjoys a good reputation. There can be no assurance, however, that the
Company has, or can maintain, a significant competitive advantage in any of
these areas.

Government Regulation
- ---------------------

The Company's business is regulated in the United States by the FAA.
The FAA has numerous regulations that must be complied with by the Company.

The Company is subject to U.S. federal governmental regulation on
foreign sales of its products. Depending on the type of product, the Company may
be subject to review by various federal agencies for a determination of whether
the specific product is a high technology product subject to restriction. Export
licenses may be denied for certain high technology products. If such a decision
is rendered, the Company may experience substantial time delays and expense in
the application and approval of export licenses. If export licenses are not
granted, the Company would be precluded from selling such products in certain
foreign markets.

The Company's sales in foreign countries are subject to various
applicable foreign governmental regulations. To date, compliance with such
regulations has not had a material adverse effect on the Company's operations.

Financing Arrangements
- ----------------------

McDonnell Douglas Corporation Contracts
---------------------------------------

In 1995, the Company and MDC entered into a Debt Restructure Agreement
and related agreements (collectively the "MDC Agreement") pursuant to which MDC
canceled $7,658,500 of debt owed by the Company in exchange for 586,862 shares
of Series A Convertible Preferred Stock of FAS (the "Series A Shares") and a
cash payment of $850,000.

In connection with the MDC Agreement, the Company and MDC entered into
a Securities Exchange Agreement of even date with the MDC Agreement (the
"Exchange Agreement"). The Exchange Agreement provided for the mandatory
exchange of the Series A Shares for 25% of the issued and outstanding common
shares of the Company on a fully diluted basis within 10 days following the date
on which the common shares were approved for quotation, and were quoted for
trading on, The Nasdaq Stock Market(SM) as a SmallCap issue. The Company
exchanged the MDC Series A Shares for 564,194 common shares on April 4, 1997.
The Exchange Agreement further provided for the Company to register the common
shares issued to MDC in connection with the Exchange Agreement under certain
circumstances.

Peter Frohlich, Alan Fields and Lawrence Troyna (each an affiliate of
the Company and collectively referred to as the "Fields' Group") and the Company
and MDC entered into a Voting Agreement of even date with the MDC Agreement (the
"Voting Agreement"). The Voting Agreement provides that MDC will vote the common
shares owned by MDC in favor of directors proposed by the Fields' Group,
provided MDC has the right to designate up to 25% of the directors proposed if
MDC so elects.

9
<PAGE>

Credit Arrangements
-------------------

In 1995, the Company, through FAS, entered into a line of credit
arrangement (the "Credit Agreement") with Norwest Business Credit Inc.
("Norwest") providing originally for a line of credit in the amount of
$10,000,000 with interest payable monthly at 2.5% over the prime rate. In March
1997, an Eighth Amendment to the Credit Agreement was entered into which
permitted the Company to have outstanding $6,131,000.

On April 18, 1997, the Company's wholly owned subsidiaries entered into
separate Loan and Security Agreements for an aggregate of up to $10,000,000 with
NationsCredit Commercial Funding ("NationsCredit") at an annual interest rate of
prime plus 3%. All assets of the Company and its subsidiaries are pledged as
collateral. NationsCredit advanced $6,717,000 on April 18, 1997 which was used
to repay the obligations owed to Norwest and other fees incurred in connection
with the NationsCredit loan facility. In connection with the NationsCredit loan
facility, the Company issued NationsCredit an option to acquire 40,000 common
shares of the Company at a price of $6.25 per share.

In September 1997, the NationsCredit loan facility was amended to allow
the Company to issue 8.5% Subordinated Redeemable Debentures Due 2000 in the
principal amount of $10,000,000.

In connection with the Norwest and NationsCredit credit facilities, the
Company retained a financial advisor to assist the Company in obtaining and
closing the credit facilities. At the closing of each facility, the Company paid
the financial advisor a fee of $200,000. The Company also entered into a
contract with the financial advisor in February 1995 whereby the financial
advisor would provide ongoing consulting to the Company. The contract provided
for the Company to pay the financial advisor a non-refundable retainer of
$150,000, which was payable over the period of the contract. The agreement with
the financial advisor lapsed in February 1998.

Employees
- ---------

At December 31, 1997, the Company had approximately 33 full-time
employees. Following the acquisition of Flightways in January 1998, the number
of employees increased to approximately 138 full-time employees. None of the
employees are unionized. Management is of the opinion that its relationship with
its employees is good. Management believes that, although unemployment has
dropped substantially in the aviation industry, persons with requisite training
and experience are available to meet Company needs if and when necessary.

10
<PAGE>

ITEM 2. DESCRIPTION OF PROPERTY
- --------------------------------

The executive offices of the Company are located at 2251-A Ward Avenue,
Simi Valley, California and its telephone number is (805) 583-0080. The
executive office space consists of approximately 5,000 square feet of office
space located in a two-story building. The offices are leased on a month to
month basis.

The Company's warehouse is located at 341 "A" Street, Fillmore,
California. The warehouse building was leased by the Company in 1988. In 1991,
the Company exercised an option to purchase the building. The warehouse is an
older produce-packing building of wood and concrete construction with a
high-ceiling upper floor and a concrete lower/basement floor, all clear span
except for wooden pillar supports. The total storage area for both floors is
83,600 sq. ft. Exterior open-air storage area (secured) is approximately 18,700
sq. ft. A modern fire-prevention system with a ceiling water pressure sprinkler
system is installed on both floors. A visual/aural monitoring security system
operates inside the building and in all the exterior property contained within
the fenced area.

On January 16, 1998, the Company completed its acquisition of
Flightways. Flightways operates in a manufacturing facility located at 7660
Densmore Avenue, Van Nuys, California. The manufacturing facilities consist of
approximately 3,000 square feet of office space and 12,000 square feet of
manufacturing space. The lease on the property expires July 31, 1999.

Flightways also leases approximately 5,000 square feet of warehouse
space located at 16153 Covello, Van Nuys, California. The space is leased on a
month to month basis.

On March 21, 1997, the Company signed a lease effective August 1, 1997
for executive offices and warehousing space. Subsequently, the Company
determined that these premises were too small for the Company and the premises
were sublet to a third party at a rent resulting in a small profit to Company.

The Company maintains an executive office located in London, England.
The office is leased from a third party by Belgravia Sales Financial Services
Limited, an entity owned and controlled by certain officers of the Company, and
is sublicensed to the Company on a month to month basis at a monthly rental to
the Company of $2,150. The underlying lease expires September of 1999. See
"Certain Relationships and Related Transactions."

11
<PAGE>
<TABLE>
<CAPTION>

The following chart provides more detailed information concerning the
Company's properties as of March 31, 1998:

Approximate Size
in
Location Sq. Ft. of Facility Lease Expiration Primary Use
- -------- ------------------- ---------------- -----------

<S> <C> <C> <C>
Simi Valley, California 5,000 month to month Executive Offices

Fillmore, California 83,600(1) owned Warehouse

Van Nuys, California 15,000 1999 Manufacturing

Van Nuys, California 5,000 month to month Warehouse

London, England 1,000 month to month Executive Offices

Simi Valley, California 24,000 2002 Sublet to Third
Party
</TABLE>

(1) Located on two acres.

ITEM 3. LEGAL PROCEEDINGS

The Company is currently not a party to any known litigation.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted during the fourth quarter of the year ended
December 31, 1997 to a vote of the Company's shareholders.

PART II.

ITEM 5. MARKET FOR common shares AND RELATED SHAREHOLDER MATTERS

Market Information
- ------------------

Until May 17, 1996, there was no market for the Company's common
shares. The common shares were quoted over-the-counter under the symbol FASS
until March 25, 1997. Commencing March 26, 1997, the common shares were quoted
on The Nasdaq Stock Market(SM) as a SmallCap issue under the symbol FASI.

The Nasdaq Stock Market(SM), which began operation in 1971, is the
world's first electronic securities market and the fastest growing stock market
in the U.S. Nasdaq utilizes today's information technologies--computers and
telecommunications--to unite its participants in a screen-based, floorless
market. It enables market participants to compete with each other for investor
orders in each Nasdaq security and, through the use of Nasdaq Workstation II(TM)
and other automated systems, facilitates the trading and surveillance of
thousands of securities. This competitive marketplace, along with the many

12
<PAGE>

products and services available to issuers and their shareholders, attracts
today's largest and fastest growing companies to Nasdaq. These include industry
leaders in computers, pharmaceuticals, telecommunications, biotechnology, and
financial services. More domestic and foreign companies list on Nasdaq than on
all other U.S. stock markets combined.

The following table sets forth, for the fiscal quarters indicated, the
high and low bid quotations as reported by the National Quotation Bureau until
March 25, 1997 and thereafter by The Nasdaq Stock Market(SM). The quotations
quoted by the National Quotation Bureau reflect inter-dealer prices without
retail mark-up, mark-down or commission, and may not represent actual
transactions. <TABLE> <CAPTION>

Period 1996 1997

High Bid Low Bid High Closing Price Low Closing Price
-------- ------- ------------------ -----------------
<S> <C> <C> <C> <C>
First Quarter --- --- $6.00** $2.50**

Second Quarter $6.50* $2.50* 6.75 5.00

Third Quarter 5.00 4.00 11.50 4.75

Fourth Quarter 5.00 2.50 14.00 8.00
</TABLE>

* Beginning May 17, 1996
** From January 1, 1997 to March 25, 1997 prices represent the
high and low bid. Thereafter price represents the closing
price on The Nasdaq Stock Market(SM)

Shareholders
- ------------

At December 31, 1997, the number of record holders of the Company's
common shares was approximately 260. The Company believes it has in excess of
300 round lot shareholders of beneficial interest of the Company's common
shares. The Company has no outstanding preferred shares.

Dividends
- ---------

The Company utilizes all available funds for working capital purposes
and has never paid a dividend. Management does not anticipate paying dividends
in the foreseeable future on common shares. In addition, the Company's loan
arrangements restrict the payment of dividends by the subsidiaries of the
Company. There are no preferred shares currently outstanding. In the future, the
Company may issue preferred shares which may pay dividends.

Issuance of Shares Without Registration
- ---------------------------------------

During the fourth quarter of the year ended December 31, 1997, the
Company issued the following securities without registration under the
Securities Act of 1933:

As of September 30, 1997, the Company closed a private placement of
$10,000,000 principal amount of 8.5% Subordinated Redeemable Debentures Due 2000
(the "Debentures") to non-United States persons pursuant to Regulation S. The
holders of Debentures have a one-time right at any time after December 29, 1997,
through September 27, 2000, subject to prior redemption or repurchase, to

13
<PAGE>

convert up to 30% (less any amounts converted pursuant to the Mandatory
Conversion described below) of the principal amount of Debentures into common
shares. The conversion price (the "Conversion Price") is equal to 85% of the
average closing price of the Company's common shares during the 20-trading day
period ending on the date of notice of conversion, but in no event less than
$12.00 per share, subject to certain adjustments. In the event that during any
20-trading day period, the average closing price of the common shares equals or
exceeds $12.00 per share, the Company may require the conversion of up to 20% of
the principal amount of outstanding Debentures at the Conversion Price
("Mandatory Conversion"). Etablissement Pour le Placement Prive, Zurich
Switzerland ("EPP") acted as the Company's placement agent in connection with
the offering. In addition to its commissions of 8% of the offering price, EPP
also received placement fee of $175,000 and 15,000 common shares, valued at
$172,500. After brokerage and issuance costs, the sale of the Debentures
resulted in a net infusion of capital of approximately $8,850,000.

On October 13, 1997 the Company issued 5,000 common shares to EPP at an
agreed on value of $11.50 per share as part payment for consulting services.

Pursuant to its Mandatory Conversion right, the Company converted
approximately $2,000,000 principal amount of Debentures at the Conversion Price
of $12.00 per share. Accordingly, on November 14, 1997, 166,666 common shares,
at $12.00 per share, were issued to Debentureholders and approximately
$2,000,000 principal amount of Debentures were cancelled.

As of February 20, 1998, the Company entered into a First Supplemental
Indenture (the "Supplement") to the Indenture, dated as of September 30, 1997
(the "Indenture"), between the Company and EPP, as Trustee, relating to the
Company's Debentures. The Supplement provides that, solely at the holder's
option, (a) from February 20, 1998 to June 30, 1998, 20% of each holder's
original principal amount of Debentures may be converted into common shares at a
conversion price of $9.75 per common share; (b) from February 20, 1998 to
September 30, 1998, an additional 20% of each holder's original principal amount
of Debentures may be converted into common shares at a conversion price of
$11.00 per common share; and (c) from February 20, 1998 to December 31, 1998, an
additional 20% of each holder's original principal amount of Debentures may be
converted into common shares at a conversion price of $13.00 per common share.
EPP shall receive a fee equal to 3% of all amounts converted pursuant to the
Supplement.

These additional conversion amounts are in addition to the Mandatory
Conversion. Pursuant to the Indenture, an additional 10% of the original
principal amount of Debentures may be converted, at the option of the holders,
prior to September 27, 2000.

14
<PAGE>

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Management's Discussion and Analysis of Financial Condition and Results of
Operations

The following discussion should be read in conjunction with the
consolidated financial statements and related notes thereto set forth elsewhere
in this Annual Report. The following tables illustrate certain selected
financial information regarding the Company and its subsidiaries:
<TABLE>
<CAPTION>

FOR THE YEAR ENDED DECEMBER 31,
Statement of Operations Data: 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Sales $12,101,000 $5,734,000 $5,589,000
Net (loss) income $(147,000) $(242,000) $4,547,000
Net (loss) income per common share $(.07) $(0.13) $3.47

Balance Sheet Data: December 31, 1997 1996 1995
---- ---- ----
Total Assets $22,181,000 $11,499,000 $10,934,000
Current Liabilities $1,535,000 $7,418,000 $8,533,000
Long Term Liabilities $15,047,000 $268,000 -0-
Minority Interest - 0 - -0- $2,050,000
Shareholders' Equity $5,599,000 $3,813,000 $351,000
</TABLE>

Results of Operations
- ---------------------

To date, the Company has not achieved sustained profitable operations
for a full fiscal year. The Company has, however, been profitable in each of the
last three quarters of 1997. The Company may incur losses in the future. If such
losses do occur, the Company may be required to reduce its inventory and its
marketing efforts and seek additional financing.

15
<PAGE>
<TABLE>
<CAPTION>

The following table sets forth the Company's consolidated statement of
operations for the periods indicated:

Fiscal Year
-------------------------------------------------------------------------------------------
1997 1996 1995
---- ---- ----
Statement of Operations (Dollars in
Thousands)
<S> <C> <C> <C> <C> <C> <C>
Net Sales $12,101 100% $5,734 100% $5,589 100%
Cost of Sales 7,214 60 2,975 52 2,462 44
------ --- ----- --- ----- ---
Gross Profit 4,887 40 2,759 48 3,127 56
Operating Expenses 3,349 27 2,608 45 2,414 43
------ --- ----- --- ----- ---
Income From Operations 1,538 13 151 3 713 13
Other Income (Expense)
Casualty Gain - - 949 16 - -
Gain on Exchange of Debt - - - - 4,759 85
Gain on Sale of Subsidiary - - - - 183 3
Interest Expense, Net (1,676) (14) (1,338) (23) (1,163) (21)
------- ---- ------- ---- ------- ----
Total Other Income (Expense) (1,676) (14) (389) (7) 3,779 67
------- ---- ------- ---- ------- ----
(Loss) Income Before Taxes (138) (1) (238) (4) 4,492 80
Income Tax (Credit) 9 - 4 - (55) (1)
------- ----- ------- ----- ------- -----
Net (Loss) Income $ (147) (1%) $ (242) (4%) $ 4,547 81%
======= ===== ======= ===== ======= =====
</TABLE>

Operations of the Company and its subsidiaries for the year ended
December 31, 1997 generated operating income of $1,538,000, up by 918% from
$151,000 for 1996. The increase in operating income for the year is attributable
to an increase in sales and the resulting increase in gross profit.

Sales for the year ended December 31, 1997 were $12,101,000 compared
to $5,734,000 for 1996, an increase of approximately 111%. The increase in sales
was made up of an increase in after-market aircraft inventory management and
supply sales and brokerage sales of 164% and an increase in MDC inventory sales
of 29%.

Costs of goods sold for the year ended December 31, 1997 and 1996 were
$7,214,000 and $2,975,000, respectively (approximately 60% and 52% of sales,
respectively). The reduction in the gross margin percentage is a result of a
change in the product mix of sales.

Operating expenses increased to $3,349,000 for the year ended December
31, 1997 from $2,608,000 for the year ended December 31, 1996. This was
principally attributable to the increase in sales activity.

During the year ended December 31, 1996, the Company recognized a
nonrecurring gain of $949,000 in connection with a certain casualty insurance
claim. There were no nonrecurring gains in 1997. Interest expense increased to
$1,676,000 from $1,338,000 for the years ended December 31, 1997 and December
31, 1996, respectively. The increase is entirely attributable to an accelerated
amortization of original loan costs and other fees associated with the
refinancing of the Company's primary loan with Norwest. See "Liquidity" below.
Without the approximately $340,000 representing amortization of loan costs and
other fees associated with the repayment of the Norwest loan, which was
recognized in the first quarter of 1997, the Company would have been profitable
for the year ended December 31, 1997.

16
<PAGE>

The Company had a net loss in 1997 of $147,000, as compared to a net
loss in 1996 of $242,000, a decrease in loss of $95,000. The net loss for the
year ended December 31, 1997 was entirely due to the nonrecurring accelerated
amortization of loan costs described in the prior paragraph. Any comparison
between the two periods should also take into consideration the 1996
nonrecurring income as described above.

Years Ended December 31, 1996 and 1995
- --------------------------------------

Sales for the year ended December 31, 1996 increased by $145,000, or
3%, to $5,734,000 as compared to $5,589,000 for the year ended December 31,
1995. The increase in net sales was attributable to a 71% increase in
distributorship and brokerage sales offset by a decrease of 36% in MDC inventory
gross sales. The trend of overall increasing net sales and the shift to
distributorship and brokerage sales is evidenced by 1997 sales as described
above.

Cost of goods sold for 1996 increased by $513,000, or 21%, to
$2,975,000 from $2,462,000 in 1995. Cost of goods sold were 52% of sales in 1996
compared to 44% of net sales in 1995. The reduction in the gross margin
percentage is a result of the increasing proportion of total sales represented
by brokerage and distributorship transactions as opposed to MDC inventory where
the margins are larger.

Operating expenses for 1996 increased by $194,000, or 8% to $2,608,000
as compared to $2,414,000 for 1995. Operations of the Company and its
subsidiaries for 1996 generated a profit of $151,000, as compared to $713,000 in
the prior year. The reduction of $562,000 in the profit from operations in 1996
is attributable to an increase in operating expenses and a reduction in gross
margin as a result of the shift in sales mix. Interest expense increased
$175,000 or 15% from $1,163,000 in 1995 as compared with $1,338,000 in 1996. The
major portion of the increase in general and administrative expenses resulted
from additional staffing costs incurred to generate the increased
distributorship and brokerage sales. Interest expense increased because of an
increase in the rate charged by the Company's primary lender and because of the
fees associated with several amendments to the Credit Agreement.

During 1996, the Company recognized a nonrecurring gain of $949,000
from the recovery of a casualty insurance claim as a result of the 1994
earthquake. During 1995, the Company recognized a $4,759,000 gain on exchange of
debt as a result of the exchange of preferred stock of a subsidiary for
$6,809,000 of debt of that subsidiary. In addition, the Company recognized a
nonrecurring gain of $183,000 from the sale of a subsidiary.

As a result of the foregoing, the Company had a net loss in 1996 of
$242,000, as compared to net income in 1995 of $4,547,000, a decrease of
$4,789,000.

Liquidity
- ---------

At December 31, 1997 the Company had working capital (current assets in
excess of current liabilities) of $17,740,000 compared to working capital of
$2,434,000 on December 31, 1996. The increase in liquidity is attributable
principally to obtaining the NationsCredit credit facility and an increase in
cash as a result of the Company's receipt of the proceeds of a sale of
$10,000,000 principal amount of Debentures. See "Market For common shares and

17
<PAGE>

Related Shareholder Matters -- Issuance of Shares Without Registration." These
changes, coupled with an increase in distributorship inventory, were partially
offset by an increase in accounts payable and accrued liabilities.

Operating activities used $2,681,000 and $350,000 of the Company's cash
flow for the year ended December 31, 1997 and the prior year, respectively. The
major usage of cash resulted in increases in inventory of $2,950,000 and
accounts receivable of $448,000 and these were only partly offset by an increase
in accounts payable of $375,000.

As of January 1, 1997, the Company's outstanding amount on its Credit
Agreement with Norwest was $6,232,000 at an interest rate of 15.25%.

On April 18, 1997, the Company's wholly owned subsidiaries entered into
separate Loan and Security Agreements for an aggregate of up to $10,000,000 with
NationsCredit at an annual interest rate of prime plus 3%. NationsCredit
advanced $6,717,000 on April 18, 1997 which was used to repay the obligations
owed to Norwest and other fees incurred in connection with the NationsCredit
loan facility. In connection with the NationsCredit loan facility, the Company
issued NationsCredit an option to acquire 40,000 common shares of the Company at
a price of $6.25 per share.

As of November 14, 1997, approximately $2,000,000 principal amount of
Debentures were converted to 166,666 common shares at a price of $12.00 per
share, leaving approximately $8,000,000 principal amount of Debentures
outstanding on December 31, 1997.

Capital Resources
- -----------------

The Company's operations to date have been primarily funded through
bank loans, sales of equity and debentures, and vendors deferred purchase notes.

During 1996, the Company began a private placement transaction to
non-United States persons pursuant to Regulation S of the Securities Act.
164,283 units (the "Units") representing 328,566 common shares and warrants to
acquire 164,283 common shares at $6.25 per share (the "Warrants") were sold for
$2,135,685 between September 1996 and March 1997. The Warrants are exercisable
at anytime prior to the second anniversary of their issuance. Etablissement Pour
le Placement Prive, Zurich Switzerland ("EPP"), acted as the Company's placement
agent in connection with the offering. After brokerage and issuance costs, the
sales resulted in a net infusion of capital of approximately $1,654,000 at
December 31, 1996 and approximately $1,724,000 through March 1997. In connection
with that offering, the Company issued, on or about June 26, 1997, additional
warrants to acquire 32,857 common shares at $6.25 per share (the "Agent
Warrants") pursuant to the terms of the Placement Agent Agreement, dated July
22, 1996, between the Company and EPP, as amended. The Agent Warrants are
exercisable at any time prior to the second anniversary of their issuance. The
Company has also agreed to pay EPP a fee of 5% of amounts received by the
Company from the exercise of the Warrants.

18
<PAGE>

owed to Norwest and other fees incurred in connection with the NationsCredit
loan facility. In connection with the NationsCredit loan facility, the Company
issued NationsCredit an option to acquire 40,000 common shares of the Company at
a price of $6.25 per share. At December 31, 1997, approximately $7,047,000 of
credit had been extended under the credit line.

On or about June 27, 1997, the Company sold 15,774 common shares and
warrants to acquire 2,881 common shares at $6.25 per share, for approximately
$98,780. The warrants are exercisable at any time prior to the second
anniversary of their issuance. The securities were sold to EPP in a private
transaction in reliance on Regulation S under the Securities Act.

On September 30, 1997, the Company completed the sale of $10,000,000
principal amount of its Debentures issued under an Indenture (the "Indenture")
dated as of September 30, 1997, between the Company and EPP as Trustee. In
connection with this sale, the Company issued, on September 30, 1997, 15,000
common shares, valued at $172,500, to EPP, to partially pay the Placement Fees.
The Indenture was amended on February 20, 1998. See "Market for common shares
and Related Shareholder Matters -- Issuance of Shares Without Registration."

Effective October 13, 1997, the Company issued 5,000 common shares to
EPP and agreed to pay a corporate development fee of $125,000 to EPP in
connection with a future equity raising transaction. The common shares were
issued in reliance on Regulation S under the Securities Act.

As of November 14, 1997, pursuant to its Mandatory Conversion right,
approximately $2,000,000 principal amount of Debentures were converted to
166,666 common shares at a price of $12.00 per share. On February 20, 1998, the
Company amended the Debentures as set forth under "Market for common shares and
Related Shareholder Matters -- Issuance of Shares Without Registration."

In January 1998, the Company acquired Flightways by purchasing
substantially all of the issued and outstanding shares of Flightways. The
Company paid approximately $2,900,000 in cash and retired approximately
$1,100,000 in Flightways debt by refinancing such debt using the Company's
credit facility.

In April 1998, the Company acquired 100% of the issued and outstanding
shares of Skylock by paying approximately $750,000 in cash, retiring
approximately $100,000 in Skylock debt and issuing approximately 60,000 common
shares of the Company. Eighty percent of the cash amount was paid and
approximately 80% of the shares were issued at the closing. The remainder will
be paid in one year, with the cash amount to be paid and the number of shares to
be issued based on Skylock's customer order volume between April 28, 1998 and
April 27, 1999.

As of February 20, 1998, the Company received and accepted
subscriptions for the sale of 26,333 units (the "1998 Units"), representing
210,664 common shares and warrants to acquire 52,666 common shares at $13.00 per
share (the "1998 Warrants") for approximately $2,054,000. The 1998 Units were
sold to accredited non-United States persons in reliance on Regulation S under
the Securities Act. The 1998 Warrants are exercisable at any time prior to
February 20, 2000.

EPP acted as placement agent in connection with the offering of the
1998 Units and received a commission of 9% of the sale price of the Units sold,
or approximately $185,000.

19
<PAGE>

EPP also received a corporate development fee of approximately $61,620, which
was based on the number of Units sold.

On April 2, 1997, the Board of Directors authorized and issued share
option contracts to purchase 100,000 common shares at $6.25 per share to
officers and certain key employees of the Company. On August 7, 1997, share
option contracts to purchase an additional 270,000 common shares at $10.00 per
share were issued to certain officers of the Company. On August 28, 1997, the
Board of Directors authorized the issuance of options to certain directors,
executive officers and employees to purchase 89,500 common shares at $8.25 per
share pursuant to the Company's 1997 Omnibus Stock Option Plan. On January 16,
1998, as a part of the Flightways acquisition and in order to retain key
management personnel and employees, the Company issued options to purchase
50,000 common shares, 10,000 of which were issued under the 1997 Omnibus Stock
Option Plan, at $8.35 per share to key employees. On February 13, 1998, the
Board of Directors adopted the 1998 Nonqualified Share Option Plan, (the "1998
Option Plan") authorizing the issuance of options to purchase 167,600 common
shares and issued options to purchase 119,600 common shares to certain
directors, executive officers and employees of the Company and Flightways.
Additional options have been reserved for attracting and rewarding nonexecutive
employees and employees of acquisition targets. On March 16, 1998, the Company
issued options to purchase 5,000 common shares under the 1998 Option Plan to an
employee.

The commitment to issue the August 7, 1997 options and the board of
directors resolution was adopted at that time, but the actual issuance of the
options did not occur until 1998. The final option agreements, as issued,
included provisions that the options vest as to 50% of the total options on the
last business day prior to the first anniversary of the grant date if the
participant is an employee, consultant or director, and the remaining 50% vest
on the last business day prior to the second anniversary of the grant date if
the participant is still an employee, consultant or director. This provision
will impact footnote 7 of the Company's financial statements in that net loss
pro forma is decreased from $1,136,000 to $754,000; primary loss per share pro
forma is decreased from $.55 to $.33 and fully diluted losses, pro forma is
decreased from $.49 to $.32. For a description of the terms of the option plans
and option contracts, see "Executive Compensation -- Share Option Plans" below.

The Company will seek to acquire other companies in similar or allied
businesses. Any such acquisition will only be undertaken following a careful
analysis of the potential acquisition, any potential synergism with the
Company's existing business and the capital needs of the acquired products
compared to the capital needs and resources of the Company. There is no
assurance that any acquisitions will be successfully completed.

The Company will continue to actively seek equity capital infusions.
There is no assurance the Company will be successful in securing additional
capital.

Forward-Looking Statements
- --------------------------

Statements regarding the Company's expectations as to its capital
resources and certain other information presented in this Form 10-KSB constitute
forward looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Although the Company believes that its
expectations are based on reasonable assumptions within the bounds of its
knowledge of its business and operations, there can be no assurance that actual
results will not differ materially from its expectations. In addition to matters
affecting the economy and the Company's industry generally, factors that could
cause actual results to differ from expectations include, but are not limited
to, the following: (i) the Company's ability to obtain future debt financing may
be adversely affected by its uncertainty of future profitability; (ii) the
Company's ability to acquire other businesses in similar or allied businesses
may be adversely affected if the Company is not able to raise additional capital
and obtain any necessary debt financing; (iii) the Company's ability to raise
additional capital may be adversely affected by its lack of trading volume and
the Company's uncertainty of future profitability; (iv) regulation by
governmental authorities; (v) growth or lack of growth of the commercial airline
industry; (vi) the price and availability of aircraft parts and other materials;

20
<PAGE>

(vii) the Company's ability to maintain existing customer and vendor
relationships; (viii) successful execution of the Company's expansion plans;
(ix) the Company's ability to service its debt financing; and (x) competition
and pricing pressures.

ITEM 7. FINANCIAL STATEMENTS
- ----------------------------

The financial statements, supplementary data and report of independent
public accountants are filed as part of this report on pages F-1 through F-16.

The following financial statements of the Company are included beginning at page
F-1.

Independent Auditors' Report F-1

Consolidated Balance Sheets as of December 31, 1997 and 1996 F-2

Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995 F-3

Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1997, 1996 and 1995 F-4

Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 F-5

Notes to the Consolidated Financial Statements F-6 through F-16

21
<PAGE>

[Letterhead]

MOORE STEPHENS FRAZER AND TORBET, LLP
CERTIFIED PUBLIC ACCOUNTANTS

OFFICE: 1199 South Fairway Drive, Walnut, California 91789
MAIL: Post Office Box 3949, City of Industry, California 91744
Telephone: (909) 595-4624 Facsimile: (909) 594-2357
e-mail: 75444,[email protected]
- --------------------------------------------------------------------------------

The Board of Directors
Fields Aircraft Spares, Inc.
Fillmore, California

Independent Auditors' Report

We have audited the accompanying consolidated balance sheets of Fields
Aircraft Spares, Inc., formerly known as Fields Industrial Group, Inc., as of
December 31, 1997 and 1996 and the related consolidated statements of
operations, shareholders' equity and cash flows for the years ended December 31,
1997, 1996 and 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Fields Aircraft
Spares, Inc. as of December 31, 1997 and 1996, and the results of its operations
and its cash flows for the years ended December 31, 1997, 1996 and 1995 in
conformity with generally accepted accounting principles.

/s/ Moore Stephens Frazer and Torbet, LLP

Certified Public Accountants

February 20, 1998

MS An independently owned and operated member of Moore Stephens North America,
Inc. - members in principal cities throughout North America Moore Stephens
North America, Inc. is a member of Moore Stephens International Limited -
members in principal cities throughout the world.

F-1
<PAGE>
<TABLE>
<CAPTION>
FIELDS AIRCRAFT SPARES, INC.

CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31,
------------------

ASSETS 1997 1996
---- ----
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 6,071,000 $ 88,000
Accounts receivable, net of allowance for
doubtful accounts of $100,000 in 1997 and
$50,000 in 1996 1,955,000 1,507,000
Inventory 11,058,000 8,108,000
Prepaid expenses 191,000 149,000
----------------- ----------------
Total current assets $ 19,275,000 $ 9,852,000
----------------- ----------------

LAND, BUILDING AND EQUIPMENT:
Land $ 210,000 $ 210,000
Building and building improvements 1,065,000 1,061,000
Furniture and equipment 565,000 548,000
----------------- ----------------

Totals $ 1,840,000 $ 1,819,000
Less accumulated depreciation and amortization 830,000 734,000
----------------- ----------------

Total land, building and equipment, net $ 1,010,000 $ 1,085,000
----------------- ----------------

OTHER ASSETS:
Debt issuance costs, net of accumulated
amortization of $192,000 in 1997 and
$388,000 in 1996 $ 1,267,000 $ 300,000
Other assets 629,000 262,000
----------------- ----------------
Total other assets $ 1,896,000 $ 562,000
----------------- ----------------

Total assets $ 22,181,000 $ 11,499,000
================= ================

LIABILITIES AND SHAREHOLDERS' EQUITY
1997 1996
---- ----
CURRENT LIABILITIES:
Accounts payable $ 1,239,000 $ 864,000
Accrued liabilities 241,000 230,000
Income taxes payable 1,000
Current portion of notes payable 55,000 6,323,000
----------------- -----------------
Total current liabilities $ 1,535,000 $ 7,418,000
----------------- -----------------

LONG-TERM LIABILITIES:
Notes payable, net of current portion $ 15,047,000 $ 268,000
----------------- -----------------

SHAREHOLDERS' EQUITY:
Common stock $ 351,000 $ 312,000
Additional paid-in capital 6,959,000 5,065,000
Retained deficit (1,711,000) (1,564,000)
----------------- -----------------

Total shareholders' equity $ 5,599,000 $ 3,813,000
----------------- -----------------

Total liabilities and shareholders' equity $ 22,181,000 $ 11,499,000
================= =================
</TABLE>

The accompanying notes are an integral part of this statement.

F-2
<PAGE>
<TABLE>
<CAPTION>
FIELDS AIRCRAFT SPARES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------

1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
NET SALES $ 12,101,000 $ 5,734,000 $ 5,589,000

COST OF SALES 7,214,000 2,975,000 2,462,000
------------ --------------- ---------------
GROSS PROFIT $ 4,887,000 $ 2,759,000 $ 3,127,000
------------ --------------- ---------------
OPERATING EXPENSES $ 3,349,000 $ 2,608,000 $ 2,414,000
------------ --------------- ---------------
INCOME FROM OPERATIONS $ 1,538,000 $ 151,000 $ 713,000
------------ --------------- ---------------
OTHER INCOME (EXPENSE):
Casualty gain $ $ 949,000 $ -
Gain on exchange of debt - 4,759,000
Gain on sale of subsidiary - 183,000
Interest expense, net (1,676,000) (1,338,000) (1,163,000)
------------ --------------- ---------------
Total other income (expense) $ (1,676,000) $ (389,000) $ 3,779,000
------------ --------------- ---------------
(LOSS) INCOME BEFORE PROVISION (CREDIT) FOR INCOME TAXES $ (138,000) $ (238,000) $ 4,492,000

PROVISION (CREDIT) FOR INCOME TAXES 9,000 4,000 (55,000)
------------ --------------- ---------------
NET (LOSS) INCOME $ (147,000) $ (242,000) $ 4,547,000
============ =============== ===============
NET (LOSS) INCOME PER SHARE (fully-diluted basis) $ (.06) $ (.13) $ 3.47
============ =============== ===============
NET (LOSS) INCOME PER SHARE (primary basis) $ (.07) $ (.13) $ 3.47
============ =============== ===============
</TABLE>

The accompanying notes are an integral part of this statement.

F-3
<PAGE>
<TABLE>
<CAPTION>
FIELDS AIRCRAFT SPARES INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------

COMMON STOCK
----------------------------
NUMBER ADDITIONAL TOTAL
OF SHARES PAID-IN RETAINED SHAREHOLDERS'
OUTSTANDING AMOUNT CAPITAL DEFICIT EQUITY (DEFICIT)
----------- ------ ------- ------- ----------------
<S> <C> <C> <C> <C> <C>
BALANCES, December 31, 1994 944,352 $ 47,000 $ 1,376,000 $ (5,869,000) $ (4,446,000)

Issuance of common stock 40,000 250,000 250,000

Net income 4,547,000 4,547,000
--------- ----------- ------------- -------------- -------------
BALANCES, December 31, 1995 984,352 $ 297,000 $ 1,376,000 $ (1,322,000) $ 351,000

Additional paid-in capital 2,050,000 2,050,000

Issuance of common stock 317,785 15,000 1,639,000 1,654,000

Net loss (242,000) (242,000)
--------- ----------- ------------- -------------- -------------
BALANCES, December 31, 1996 1,302,137 $ 312,000 $ 5,065,000 $ (1,564,000) $ 3,813,000

Issuance of common stock 777,434 39,000 1,894,000 1,933,000

Net loss (147,000) (147,000)
--------- ----------- ------------- -------------- -------------
BALANCES, December 31, 1997 2,079,571 $ 351,000 $ 6,959,000 $ (1,711,000) $ 5,599,000
========= =========== ============= ============== =============
</TABLE>
The accompanying notes are an integral part of this statement.

F-4
<PAGE>
<TABLE>
<CAPTION>
FIELDS AIRCRAFT SPARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------

1997 1996 1995
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net (loss) income $ (147,000) $ (242,000) $ 4,547,000
Adjustments to reconcile net (loss) income to net cash used in operating
activities:
Depreciation 99,000 120,000 89,000
Amortization of debt issuance costs 422,000 211,000 177,000
Loss on sale of assets 51,000
Gain on exchange of debt (4,759,000)
Gain on sale of subsidiary (183,000)
Increase in accounts receivable (448,000) (226,000) (925,000)
(Increase) decrease in inventory (2,950,000) (456,000) 84,000
Increase in prepaid expenses (42,000) (3,000) (93,000)
Increase in other assets (272,000) (81,000)
Decrease in income tax refund receivable 711,000
Increase (decrease) in accounts payable 375,000 376,000 (225,000)
Increase (decrease) in other accrued liabilities 11,000 91,000 (127,000)
Decrease in income taxes payable (1,000) (35,000)
------------- ------------ ------------
Net cash used in operating activities $ (2,681,000) $ (350,000) $ (820,000)
------------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of land, building and equipment $ (24,000) $ (13,000) $ (156,000)
------------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) borrowings on line of credit $ (6,232,000) $ (1,195,000) $ 1,250,000
Principal payments on notes payable (2,094,000) (193,000) (64,000)
Borrowings on notes payable 18,837,000 74,000 64,000
Costs associated with issuance of notes payable (1,782,000) (424,000)
Net proceeds from issuance of common stock 352,000 1,654,000 250,000
Costs associated with the issuance of common stock (393,000)
------------- ------------ ------------
Net cash provided by financing activities $ 8,688,000 $ 340,000 $ 1,076,000
------------- ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 5,983,000 $ (23,000) $ 100,000

CASH AND CASH EQUIVALENTS, beginning of year 88,000 111,000 11,000
------------- ------------ ------------
CASH AND CASH EQUIVALENTS, end of year $ 6,071,000 $ 88,000 $ 111,000
============= ============ ============
</TABLE>
The accompanying notes are an integral part of this statement.

F-5
<PAGE>

FIELDS AIRCRAFT SPARES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------

1. Summary of significant accounting policies
------------------------------------------

a. Principles of consolidation and company background
--------------------------------------------------

The consolidated Group financial statements include the
accounts of Fields Aircraft Spares, Inc. (FASI), a Utah corporation, and its
wholly-owned subsidiaries Fields Aircraft Spares Incorporated (FASC), a
California corporation and Fields Aero Management, Inc. All significant
intercompany accounts and activity have been eliminated.

The Group distributes new aircraft parts and equipment for use
on international and domestic commercial and military aircraft and purchases and
sells parts on a brokerage basis.

b. Concentration of credit risk
----------------------------

Substantially all of the Group's trade accounts receivables
are due from companies in the aviation industry located throughout the United
States and internationally. The Group performs periodic credit evaluations of
its customers' financial condition and does not require collateral. Credit
losses relating to customers in the airline industry have consistently been
within management's expectations.

c. Concentration of sales
----------------------

The Group had sales to foreign companies that amounted to 12%,
17% and 32% of total sales for the years ended December 31, 1997, 1996 and 1995,
respectively.

For the year ended December 31, 1997, two customers accounted
for sales of $1,706,000 and $1,395,000. For the year ended December 31, 1996,
two customers accounted for sales of $657,000 and $351,000. For the year ended
December 31, 1995, two customers accounted for sales of $801,000 and $790,000.

d. Cash and cash equivalents
-------------------------

For purposes of the statement of cash flows, the Group
considers all highly liquid investments purchased with a maturity of three
months or less to be a cash equivalent.

The Group currently maintains cash in bank deposit accounts
which exceeds federally insured limits. The Company has not experienced any
losses in such accounts and believes it is not exposed to any significant risks
on cash in bank deposit accounts. Uninsured balances are approximately
$4,575,000 as of December 31, 1997.

F-6
<PAGE>
FIELDS AIRCRAFT SPARES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------

1. Summary of significant accounting policies (continued)
------------------------------------------------------

e. Inventory
---------

Inventory is valued at the lower of cost or market value using
the first-in, first-out method. Where a group of parts were purchased together
as a lot, the cost of the lot was allocated to the individual parts by
management pro rata to the list selling price at the time of purchase.
Consistent with industry practice, inventory is carried as a current asset but
all inventory is not expected to be sold within one year.

f. Land, building and equipment
----------------------------

Land, building and equipment are recorded at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets which range from 3 to 25 years.

The cost and related accumulated depreciation and amortization
of assets sold or otherwise retired are eliminated from the accounts and any
gain or loss is included in the statement of operations. The cost of maintenance
and repairs is charged to income as incurred, whereas significant renewals and
betterments are capitalized. Depreciation expense for the years ended December
31, 1997, 1996 and 1995 amounted to $99,000, $120,000 and $89,000, respectively.

g. Debt issuance costs
-------------------

Gross debt issuance costs of $1,459,000 less amortization of
$192,000 relate to the issuance of new financing. Amortization of debt issuance
costs for the years ended December 31, 1997, 1996 and 1995 amounted to $422,000,
$211,000 and $177,000, respectively. The costs are amortized using the
straight-line method over the life of the respective loans.

h. Revenue recognition
-------------------

The Group recognizes revenue from all types of sales under
the accrual method of accounting when title transfers. Title transfers at the
Group's facility.

i. Earnings per share
------------------

In March 1995, FASI's shareholders authorized the reverse
split of its common stock on the basis of fifty old shares for one new share.
This reverse split was effective as of November 1995. All references herein to
the number of shares are after the reverse split.

F-7
<PAGE>
FIELDS AIRCRAFT SPARES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------

1. Summary of significant accounting policies (continued)
------------------------------------------------------

i. Earnings per share, (continued)
-------------------------------

Fully-diluted earnings per share was computed using 2,325,078,
1,840,543 and 1,312,469 shares for the years ended December 31, 1997, 1996 and
1995, respectively.

j. Income taxes
------------

The Group files consolidated income tax returns. Deferred
income taxes relate to temporary differences between financial statement and
income tax reporting of certain accrued expenses, state income taxes, bad debts,
inventory, and depreciation.

The Group adopted Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes". SFAS 109 requires the recognition of
deferred tax liabilities and assets for the expected future tax consequences of
temporary differences between tax basis and financial reporting basis of assets
and liabilities. The income tax effect of the temporary differences as of
December 31, 1997 and 1996 consisted of the following:
<TABLE>

1997 1996
---- ----
<S> <C> <C>
Deferred tax liability resulting from
taxable temporary differences for
accounting for inventory $ (314,000) $ (314,000)
Deferred tax asset resulting from
deductible temporary differences
for allowance for doubtful accounts 6,000 4,000
Deferred tax asset resulting from
deductible temporary differences
for utilization of net operating loss
carryforwards for income tax purposes 1,078,000 1,344,000
Valuation allowance resulting from the
potential nonutilization of net operating
loss carryforwards for income tax
purposes (770,000) (1,034,000)
-------- ----------

Total deferred income taxes $ - $ -
============ ===========
</TABLE>

F-8
<PAGE>
FIELDS AIRCRAFT SPARES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------

1. Summary of significant accounting policies (continued)
------------------------------------------------------

k. Employee benefit plan
---------------------

FASC has a 401(k) Plan under Section 401(k) of the Internal
Revenue Code. The Plan allows all employees who are not covered by a collective
bargaining agreement to defer up to 25% of their compensation on a pre-tax basis
through contributions to the Plan. Contributions to the Plan by FASC are
discretionary and are determined by the Board of Directors. No contributions
were made to the Plan during the years ended December 31, 1997, 1996 and 1995.

l. Use of estimates
----------------

The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Management believes that the estimates utilized in preparing
its financial statements are reasonable and prudent. Actual results could differ
from these estimates.

2. Shareholders' equity
--------------------

FASI has 50,000 shares authorized of its $.001 par value
preferred stock. At December 31, 1997 and 1996, there were no shares of
preferred stock issued or outstanding.

FASI has the following common stock as of December 31, 1997
and 1996:

1997 1996
---- ----

Authorized 5,000,000 2,000,000
Issued and outstanding 2,079,571 1,302,137
Par value $.05 $.05

In February 1995, the Group owed $7,658,000 to McDonnell
Douglas Corporation (MDC). MDC canceled the debt in exchange for $850,000 plus
586,862 shares of Series A convertible preferred stock of FASC. This constituted
full and complete satisfaction of the MDC debt. The agreement provided for the
mandatory exchange of the Series A preferred stock of FASC for 25% of the total
outstanding common stock of FASI within 10 days following the date the common
stock is approved for quotation on, and is quoted for trading on, the Nasdaq
Stock Market.

F-9
<PAGE>
FIELDS AIRCRAFT SPARES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------

2. Shareholders' equity
--------------------

FASI's common shares began quotation on the Nasdaq SmallCap
Market on March 26, 1997. On April 4, 1997 the MDC Series A shares were
exchanged by MDC for 564,194 common shares of FASI.

In 1996, FASI sold 317,785 shares of common stock and 158,893
warrants. Each warrant allows the holder to purchase one share of common stock
for $6.25. The net proceeds were $1,654,000 after deducting costs of $481,000
for underwriting and issuance.

In April 1997, the Group's wholly-owned subsidiaries entered
into separate Loan and Security Agreements for an aggregate of up to $10,000,000
with NationsCredit Commercial Funding ("NationsCredit") at an interest rate of
prime plus 3%. In connection with the NationsCredit loan facility, FASI issued
NationsCredit an option to acquire 40,000 common shares of FASI at a price of
$6.25 per share.

In addition, during 1997, FASI issued 31,574 shares of common
stock and 41,128 warrants. Each warrant allows the holder to purchase one share
of common stock for $6.25. FASI issued another 15,000 of common stock in
association with the issue of $10,000,000 at 8.50% subordinated debentures.

In September 1997, FASI closed the sale of these $10,000,000
Subordinated Redeemable Debentures due 2000 issued under an Indenture with
Etablissement Pour le Placement Prive as Trustee. The Securities were sold in
reliance on Regulation S of the Securities Act of 1933 to entities which
represented to FASI to be accredited non-U.S. persons.

The Debenture holders have a one-time right at any time
between December 29, 1997 and September 27, 2000, subject to prior redemption or
repurchase, to convert up to 30% of the principal amount of such holder's
Debentures into Common Shares at a conversion price equal to 85% of the average
closing price of the Common Shares during the 20-trading day period ending on
the date of notice of conversion, but in no event less than $12.00 per share. In
the event that during any 20-day trading period, the average closing price of
the Common Shares equals or exceeds $12.00 per share, FASI may require the
conversion of up to 20% of the principal amount of outstanding Debentures at the
Conversion Price. Pursuant to this, in November 1997, FASI required the
conversion of $2,000,000 of Debentures in exchange for 166,666 of common shares
at $12.00 per share.

The Debentures are redeemable, in whole or in part, at the
option of the Group, at any time on or after March 31, 1999 at 100% of the
principal amount plus accrued interest.

F-10
<PAGE>
FIELDS AIRCRAFT SPARES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------

3. Notes payable
-------------

The notes payable at December 31, 1997 and 1996 consisted of
the following:
<TABLE>

1997 1996
---- ----
<S> <C> <C>
Subordinated debenture with fixed interest at 8.50%
per annum, payable semi-annually, due 2000 $ 8,000,000 $ -
Note payable to NationsCredit, secured by all
assets of the Group, interest at prime plus 3.0%
(11.5% at December 31, 1997), payable monthly,
due 2000 7,047,000
Line of credit from Norwest, secured by all assets
of the Group, interest at prime plus 7.0%
(15.25% at December 31, 1996), payable monthly 6,232,000
Note payable to bank, secured by land and building,
payable monthly at $2,396 plus interest at prime
plus 2% (10.25% at December 31, 1996) 331,000
Other notes payable 55,000 28,000
---------------- -----------------
Total notes payable $ 15,102,000 $ 6,591,000
Less current portion 55,000 6,323,000
---------------- -----------------
Notes payable, net of current portion $ 15,047,000 $ 268,000
================ =================
</TABLE>

Principal payment requirements on all notes payable based on terms
explained above are as follows:

YEAR ENDING
DECEMBER 31, AMOUNT
------------ ------

1998 $ 55,000
1999 -
2000 15,047,000
Thereafter -

Total interest expense including the amortization of debt
issuance costs for the years ended December 31, 1997, 1996 and 1995 amounted to
$1,676,000, $1,338,000 and $1,163,000, respectively. Total interest paid for the
years ended December 31, 1997, 1996 and 1995 amounted to $1,048,000, $1,706,000
and $936,000, respectively.

F-11
<PAGE>
FIELDS AIRCRAFT SPARES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------

4. Provision (credit) for income taxes
-----------------------------------

The provision (credit) for income taxes for the years ended December 31
consisted of the following:
1997 1996 1995
---- ---- ----
CURRENT:
Federal $ $ $ (55,000)
State 9,000 4,000
-------- -------- ----------
Total provision (credit) for
income taxes $ 9,000 $ 4,000 $ (55,000)
======== ======== ==========
Total income taxes paid in 1997, 1996 and 1995 amounted to
$3,000 each year. The Group has net operating loss carryovers available to
offset future taxable income. The amount and expiration date of the carryovers
are as follows:

YEAR ENDING
DECEMBER 31, FEDERAL STATE
------------ ------- -----

1998 $ $ 750,000
1999 580,000
2000 126,000
2001 110,000
2008 942,000 70,000
2009 1,161,000
2010 255,000
2011 225,000
2012 140,000

5. Commitments
-----------

The Group leases a warehouse and office facility under an
operating lease. The minimum lease payments required under operating leases as
of December 31, 1997 are as follows:

YEAR ENDING
DECEMBER 31, AMOUNT
------------ ------

1998 $160,000
1999 144,000
2000 144,000
2001 144,000
2002 84,000
Thereafter -

F-12
<PAGE>
FIELDS AIRCRAFT SPARES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------

5. Commitments (continued)
-----------------------

The Group subleases the warehouse and office facility under an
operating lease. As of December 31, 1997, the minimum lease payments to be
received under this agreement total $687,500.

Lease expense for the years ended December 31, 1997, 1996 and 1995 was
$150,000, $102,000 and $84,000, respectively. Lease income for the year ended
December 31, 1997 was $34,000.

6. Related party transactions
--------------------------

The Group leases a small overseas office facility on a month to month
basis from an entity owned by certain officers of the Group.

7. Stock option plans
------------------

In November 1995, FASI adopted a Management Stock Option Plan
("Management Plan") and Employee Stock Option Plan ("Employee Plan"). Pursuant
to the Management Plan, FASI has issued options to five individuals involved in
the management of FASI to acquire up to 69,025 common shares of FASI at a
purchase price of $3.00 per share subject to vesting requirements, which
includes FASI obtaining sales during a 12-month period of $7,500,000 and an
average closing price for FASI's Common Shares for a three-month period of
$6.00, $9.00 and $12.00, respectively, for each one-third of the options to
vest. The options must vest by November 1998 and must be exercised within three
years of vesting. Pursuant to the Employee Plan, FASI has issued options to
acquire 13,500 common shares of FASI to 20 employees of FASI at a purchase price
of $3.00 per share subject to vesting requirements, which include FASI obtaining
sales during a 12-month period of $7,500,000 and at least one year continued
employment after the grant of the option. The options must vest by November 1998
and must be exercised within two years of vesting.

In April 1997, FASI issued options to employees of the Group to acquire
up to 100,000 common shares of FASI at an exercise price of $6.25 per share.
Half of the options will vest in April 1998 and the remaining half will vest in
April 1999. The options expire in April 2000.

On August 7, 1997 FASI issued options to employees of the Group to
acquire up to 270,000 common shares of FASI at an exercise price of $10.00 per
share. The options will vest if the Group meets the following two conditions;

F-13
<PAGE>
FIELDS AIRCRAFT SPARES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------

7. Stock options plans (continued)
-------------------------------

the Group must raise at least $7,500,000 in additional debt or equity capital
and the Group must have sales of at least $14,000,000 in any 12-month period.
The options must vest by June 30, 1999 and will expire three years after the
vesting date.

On August 28, 1997, FASI issued options to employees of the Group to
acquire up to 89,500 common shares of FASI at an exercise price of $8.25 per
share. Half of the options will vest in August 1998 and the remaining half will
vest in August 1999. The options expire in August 2002.

The Group accounts for stock options under the provision of APB Opinion
25 "Accounting for Stock Issued to Employees". Accordingly, no compensation cost
has been recognized for its stock option grants. Had compensation cost for the
Group's stock option grants been determined based on the fair value at the grant
dates consistent with the method of FASB Statement 123 "Accounting for
Stock-Based Compensation", the Group's net income and earnings per share would
have been reduced to the pro forma amounts indicated below:

For the year ended
December 31, 1997
-----------------

Net loss As reported $ (147,000)
==============
Pro forma $ (1,136,000)
==============
Primary earnings
per share As reported $ (.07)
==============
Pro forma $ (.55)
==============
Fully-diluted earnings
per share As reported $ (.06)
==============
Pro forma $ (.49)
==============

The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions for
the April 1997, August 7, 1997 and August 28, 1997 grants, respectively:
risk-free interest rates of 6.4%, 5.7% and 6.0%; expected lives of two years for
all three grants; and volatility of 78% for all three grants.

F-14
<PAGE>
FIELDS AIRCRAFT SPARES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------

7. Stock options plans (continued)
-------------------------------

The first condition for vesting of the August 7, 1997 option grant was
met in September 1997. The Group anticipates meeting the second vesting
conditions of sales of $14,000,000 in any 12-month period in March 1998.
Accordingly, the effect of these options on the above pro forma amounts was
determined under the assumption that the options will vest in March 1998.

The fair value of the November 1995 option grant was determined to be
immaterial. Accordingly, the effect of these options on income is not included
in the above pro forma amounts.

8. Contingency
-----------

In the event of the death of a Director or Officer of the Group, the
Group is obligated to pay up to 100% of the Director's or Officer's annual
compensation to their beneficiary within the twelve months subsequent to their
death.

9. Casualty gain
-------------

In April 1996, the Group reached a final settlement with its insurance
company. Management elected to record a casualty gain as a result of the January
1994 earthquake. A gain of $949,000 was recorded in the financial statements in
1996 as a result of this transaction.

10. Subsequent events
-----------------

In January 1998, the Group completed the acquisition of Flightways
Manufacturing, Inc. Flightways Manufacturing, Inc. is a manufacturer of plastic
replacement components for commercial aircraft seats and interiors.

Each share of Flightways Manufacturing, Inc. tendered into the offer
was exchanged for cash. The total cost of the acquisition excluding liabilities
assumed was approximately $2,866,000.

The acquisition will be accounted for as a purchase in 1998. The
purchase price will be allocated to the assets acquired and liabilities assumed
based on their estimated fair values. Results of operations for Flightways
Manufacturing, Inc. will be included with those of the Group for periods
subsequent to the date of acquisition.

F-15
<PAGE>

FIELDS AIRCRAFT SPARES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------

10. Subsequent events (continued)
-----------------------------

The excess of the purchase price over net assets acquired,
which is expected to exceed $2,500,000, will be amortized over a period not
exceeding 15 years.

The following unaudited pro forma data presents the
consolidated results of operations as if the acquisition had been completed at
January 1, 1997 and does not purport to be indicative of what would have
occurred had the acquisition actually been made of that date or of results which
may occur in the future.

(UNAUDITED) 1997
----------- ----

Net sales $ 16,091,000
Net income $ 123,000
Earnings per share:
Fully diluted $ .05
Primary $ .06

On February 20, 1998, the Group received and accepted subscription
agreements for the sale of 210,664 shares of common stock and 52,666 warrants
for approximately $2,054,000. Each warrant allows the holder to purchase one
share of common stock for $13.00. The Securities were sold in reliance on
Regulation S of the Securities Act of 1933 to entities which represented to FASI
to be accredited non-U.S. persons.

On February 20, 1998, the Group entered into a Supplemental Indenture
to the Indenture with Etablissement Pour le Placement Prive as trustee, relating
to the 8.5% Subordinated Redeemable Debenture due 2000 described in Note 2. The
Supplemental Indenture provides that the Debenture holders have the following
additional rights: at any time between February 20, 1998 and June 30, 1998, each
holder may convert 20% of the original principal amount of such holder's
Debentures into Common Shares at a conversion price of $9.75 per share; at any
time between February 20, 1998 and September 30, 1998, each holder may convert
an additional 20% of the original principal amount of such holder's Debentures
into Common Shares at a conversion price of $11.00 per share; at any time
between February 20, 1998 and December 31, 1998, each holder may convert an
additional 20% of the original principal amount of such holder's Debentures into
Common Shares at a conversion price of $13.00 per share.

F-16

<PAGE>

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
- ---------------------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
- ------------------------------------
None.

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
- ----------------------------------------------------
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
- ------------------------------------------------------------------

The following table lists all Directors and executive officers of the Company
and their ages as of March 31, 1998:

NAME AGE POSITION
- ---- --- --------
Peter Frohlich 56 Chairman of the Company;
Chairman of FAS

Alan M. Fields 46 President, Chief Executive Officer and
Director of the Company; President,
Director and Chief Executive Officer of FAS

Lawrence J. Troyna 54 Chief Financial Officer, Secretary and
Director of the Company; Chief Financial
Officer, Secretary and Director of FAS

Leonard I. Fields 79 Director of the Company;
Director of FAS

Mary L. Sprouse 49 Director of the Company

The Rt. Hon. Sir 52 Director of the Company
Jeremy Hanley KCMG

Neil E. O'Hara 44 Vice President of the Company; Senior Vice
President of FAS

Christian J. Luhnow 33 President of Flightways

All current Directors of the Company other than The Rt. Hon. Sir Jeremy
Hanley KCMG were elected at the annual meeting of the shareholders held August
7, 1997. In July 1997, Carlos Sedillo, a Director and Secretary of the Company,
died. The Directors appointed The Rt. Hon. Sir Jeremy Hanley KCMG as a new
Director to fill the vacancy created by the death of Mr. Sedillo effective
February 14, 1998.

The Company's bylaws provide for staggered terms of Directors by
dividing the Board of Directors into three groups, designated as Class I, Class
II and Class III. Class I consists of two Directors, each to hold office until
the annual meeting of shareholders in 1998; Class II consists of two Directors,
each to hold office until the annual meeting of shareholders in 1999; Class III
consists of two Directors, each to hold office until the annual meeting of

22
<PAGE>

shareholders in 2000; and in each case, until their successors are duly elected
or until their earlier resignation, removal from office, or death. The Directors
of each class are as follows:

Class I Class II Class III

The Rt. Hon. Sir Jeremy Lawrence J. Troyna Peter Frohlich
Hanley KCMG

Mary L. Sprouse Leonard I. Fields Alan M. Fields

Officers serve at the will of the Board of Directors. Independent
Directors receive a monthly fee of $1,000 and Independent Committee Members
receive $750 per month for serving on both the Audit and Compensation
Committees. Leonard Fields receives a monthly fee of $1,000 for serving as a
Director and a salary for services rendered as a part-time employee of the
Company. Other Directors of the Company that are presently salaried employees of
the Company are not otherwise compensated as Directors by payment of fees other
than reimbursement for expenses related to their activities. The Company has
granted options to Directors and paid Directors for services rendered in their
capacities other than as Directors.

Peter Frohlich is Chairman of the Company and Chairman of FAS. Mr.
Frohlich is a chartered Certified Accountant in the United Kingdom. Mr. Frohlich
was appointed Chairman of the Company in 1987. He resigned as Chairman in 1989
but remained as a Director until resigning as a Director in February 1991. Mr.
Frohlich was re-appointed a Director and Chairman of the Company in March of
1992. From 1992 to 1997, Mr. Frohlich served as Chief Executive Officer of the
Company.

Alan M. Fields is President, Chief Executive Officer and a Director of
the Company, Director and Chief Executive Officer and President of FAS and has
served in various capacities since 1992. Mr. Fields filed personal bankruptcy in
1992. Mr. Fields is the son of Leonard I. Fields.

Lawrence J. Troyna has served since 1992 as a Director and Chief
Financial Officer of the Company and Chief Financial Officer, Secretary and
Director of FAS. In 1997, he was appointed Secretary of the Company. Mr. Troyna
has a law degree and is a Chartered Accountant.

Leonard I. Fields has been a Director of the Company and a Director of
FAS since January 1992. At various times since 1985, he has served in other
capacities for the Company and its subsidiaries. Mr. Fields has a B.S. degree in
Engineering. Mr. Fields is the father of Alan M. Fields.

Mary L. Sprouse has been a Director of the Company since 1997. She has
practiced law for 21 years and specializes in tax and business matters. Ms.
Sprouse is the author of six books about taxes and personal finance and is a tax
editor, columnist, or consultant to various business publications and to Intuit,
a computer software firm. Ms. Sprouse has made numerous appearances on
television and radio, and has been interviewed by and received publicity from
several major newspapers and magazines. Ms. Sprouse has been in private practice
as a business and tax attorney since 1981.

23
<PAGE>

The Rt. Hon. Sir Jeremy Hanley KCMG was appointed in February of 1998
as a Director of the Company to fill the vacancy created by the death of Carlos
Sedillo in 1997. He became a Knight Commander of the Order of St. Michael and
St. George in August 1997. Sir Jeremy Hanley is currently a director of
Christchurch Group plc, a group of insurance companies; a director of ITE Group
plc; an international exhibits company; chairman of International Trade and
Investment Missions Ltd.; a director of Brass Tacks Publishing Group, Ltd., a
contract publisher; chairman of Adval Group, Ltd., a training, consultancy and
multi-media company; and a consultant on trade in the Far and Middle East. From
1983 to 1997, Sir Jeremy Hanley served as a member of Parliament in the United
Kingdom. From 1995 to 1997, he was the Minister of State at the Foreign and
Commonwealth Office. From 1994 to 1995, he served as a Cabinet Minister without
Portfolio to the Prime Minister of the United Kingdom and as Chairman of the
Conservative Party. He was also appointed Privy Counsellor in 1994. From 1993 to
1994, Sir Jeremy Hanley served as Minister of State for the Armed Forces,
Ministry of Defense in the United Kingdom. From 1990 to 1993, he served as
Parliamentary Under Secretary of State at the Northern Ireland Office.

Neil E. O'Hara has served as Vice President of the Company since
October 1993 and served as Senior Vice President of FAS since January 1998. He
has concentrated on marketing and sales of the Company. Mr. O'Hara has over 18
years of management experience in aerospace. Mr. O'Hara worked eight years for
American Airlines, rising to the position of Senior Manager of Purchasing and
Material. In that position he oversaw all purchases of interior class I
equipment. He then spent eight years at Weber Aircraft, where at various times
he held the positions of Manager of Marketing & Sales, Manager of New Product
Development, and finally Director of Customer Services and Program Management.
While in that position, Mr. O'Hara was responsible for all spare parts sales and
pricing and had total management control over new programs and new product
development.

Christian J. Luhnow has served as President of Flightways since March
1994. Prior to his employment at Flightways, Mr. Luhnow became in 1992 a
principal at Beowulf Holdings Corporation, a venture capital firm.

Board of Committees and Meetings
- --------------------------------

In February 1998, the Board of Directors created an audit committee and
a compensation committee. The audit committee currently consists of Lawrence J.
Troyna, The Rt. Hon. Sir Jeremy Hanley KCMG and Mary L. Sprouse. Sir Jeremy
Hanley and Ms. Sprouse are both Independent Directors. The compensation
committee currently consists of Alan M. Fields, The Rt. Hon. Sir Jeremy Hanley
KCMG and Mary L. Sprouse.

COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES EXCHANGE ACT OF 1934

Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers, Directors, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission and the National Association of Securities Dealers. Executive
officers, Directors and greater than ten-percent shareholders are required by
Securities and Exchange Commission regulations to furnish the Company with
copies of all Section 16(a) forms they file.

Based solely on a review of the copies of such forms furnished to the
Company, the Company believes that all required applicable 16(a) reports were
timely filed during 1997.

24
<PAGE>

ITEM 10. EXECUTIVE COMPENSATION
- -----------------------------------

EXECUTIVE COMPENSATION

The following table sets forth the aggregate cash compensation paid by
the Company for services rendered during the last three full fiscal years to the
Company's Chief Executive Officer and to each of the Company's four other most
highly compensated executive officers whose annual salary and bonus for the
fiscal year 1997 exceeded $100,000 (the "Named Executive Officers").
<TABLE>
<CAPTION>

Summary Compensation Table
--------------------------

Annual Compensation Long-Term Compensation
------------------- ----------------------

Securities
Name and Principal Other Annual Underlying All other
Position Year Salary($) Bonus($) Compensation($) Options(#) Compensation
- ------------------ ---- --------- -------- --------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Peter Frohlich(1) 1997(2) $142,250 $10,000 137,000(3)
Chairman 1996(4) $130,000 22,500 --
1995 $130,000 -- 19,800

Alan M. Fields(1) 1997(2) $141,950 $10,000 $1,748 137,000(3)
President and Chief 1996(4) $130,000 $22,500 $2,800 --
Executive Officer 1995 $130,000 -- $2,800 19,800

Lawrence J. Troyna 1997(2) $142,250 $10,000 137,000(3)
Chief Financial 1996(4) $130,000 $22,500 --
Officer 1995 $130,000 -- 19,800

Neil O'Hara 1997(5) $ 88,200 $40,617 $6,000 23,000(6)
Vice President 1996(7) $ 83,252 $29,838 $6,000 --
1995 $ 78,000 $23,625 $6,000 7,125

</TABLE>

(1) Mr. Frohlich resigned as Chief Executive Officer on August 7, 1997 and
Mr. Fields was made Chief Executive Officer on the same date.

(2) Does not include salary of $7,500 earned by Mr. Fields in 1996 and
$10,000 earned by each of Mr. Frohlich and Mr. Troyna in 1996, which
was paid in 1997. Does not include $10,000 bonus to each of Messrs.
Frohlich, Fields and Troyna that was earned in 1996 but paid in 1997.
Includes $10,000 bonus to each of Messrs. Frohlich, Fields and Troyna
that was earned in 1997 but paid in 1998.

(3) Does not include options to acquire 20,000 common shares at $10.00 per
share granted in 1998 to each of Messrs. Frohlich, Fields and Troyna,
which are not qualified stock options for federal tax purposes.

(4) Does not include $15,773 paid to Mr. Fields in 1996 and $2,500 paid to
each of Mr. Frohlich and Mr. Troyna in 1996 for amounts earned in 1995.
Includes salary of $7,500 earned by Mr. Fields in 1996 and $10,000
earned by each of Mr. Frohlich and Mr. Troyna in 1996, which was paid
in 1997. Includes $10,000 bonus to each of Messrs. Frohlich, Fields and
Troyna that was earned in 1996 but paid in 1997.

(5) Does not include $5,000 bonus that was earned in 1996 but paid in 1997.
Includes $10,000 bonus that was earned in 1997 but paid in 1998.

(6) Does not include options to acquire 20,000 common shares at $10.00 per
share granted in 1998, which are not qualified stock options for
federal tax purposes.

(7) Includes $5,000 bonus that was earned in 1996 but paid in 1997.

The Company through FAS has a 401(k) plan and a retirement trust but no
other retirement, pension or profit sharing plans for the benefit of the
Company's officers, Directors and employees. Each of the 401(k) plan and the
retirement trust are defined contribution plans. The Company may, at its
discretion, make matching contributions to the 401(k) plan. However, to date, no
matching contributions have been made. The Company is studying the feasibility
of making matching contributions in order to enhance its ability to attract and
retain employees. The Company does provide health insurance and life and
disability insurance for its employees.

25
<PAGE>

The Board of Directors may recommend and adopt additional programs in the future
for the benefit of officers, Directors and employees.

Option Grants and Exercises in Fiscal Year 1997
- -----------------------------------------------

The following tables set forth information with respect to the stock
options granted to the Named Executive Officers under the Company's stock option
plans and the options exercised by such Named Executive Officers during the
fiscal year ended December 31, 1997 and the options held by the Named Executive
Officers at December 31, 1997. See "Executive Compensation -- Share Option
Plans" for description of the terms of the options.
<TABLE>
<CAPTION>

OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants

Number of
Securities Percent of Total
Underlying Options/SARs Exercise or
Options Granted Granted to Base Price Expiration
Name in Fiscal Year Employees ($/share) Date
- ---- -------------- --------- --------- ----
<S> <C> <C> <C> <C>
Peter Frohlich 30,000(1) $6.25 04/02/2000
87,000(2) 30% $10.00 (3)
20,000(4) $8.25 08/28/2002

Alan M. Fields 30,000(1) $6.25 04/02/2000
87,000(2) 30% $10.00 (3)
20,000(4) $8.25 08/28/2002

Lawrence J. Troyna 30,000(1) $6.25 04/02/2000
87,000(2) 30% $10.00 (3)
20,000(4) $8.25 08/28/2002

Neil O'Hara 4,000(1) $6.25 04/02/2000
9,000(2) 5% $10.00 (3)
10,000(4) $8.25 08/28/2002
</TABLE>

(1) 50% of the options have vested and are exercisable and 50% vest April
1, 1999.

(2) 50% of the options vest August 6, 1998 and 50% vest August 6, 1999
subject to satisfaction of performance conditions.

(3) 50% of the options expire August 6, 2001 and 50% expire August 6, 2002
subject to satisfaction of performance conditions.

(4) 50% of the options vest on August 27, 1998 and 50% vest August 27,
1999.

Aggregated Option Exercises and Year-End Option Values in 1997
- --------------------------------------------------------------

The following table summarizes for the Named Executive Officers of the
Company the number of stock options, if any, exercised during Fiscal Year 1997,
the aggregate dollar value realized upon exercise, the total number of

26
<PAGE>

unexercised options held at December 31, 1997 and the aggregate dollar value of
in-the-money unexercised options, if any, held at December 31, 1995. Value
realized upon exercise is the difference between the fair market value of the
underlying stock on the exercise date and the exercise price of the option. The
value of unexercised, in-the-money options at December 31, 1997 is the
difference between its exercise price and the fair market value of the
underlying stock on December 31, 1997. The underlying options have not been, and
may never be, exercised; and actual gains, if any, on exercise will depend on
the value of the common shares on the actual date of exercise. There can be no
assurance that these values will be realized. See "-Stock Option Plan" below for
a description of the terms of the options. <TABLE> <CAPTION>

Aggregate Option Exercises in Fiscal Year 1997
and Fiscal Year-End Option Values

Number of Unexercised Options at Value of Unexercised In-The-Money
12/31/97 Options at 12/31/97(1)

Shares
Acquired Value
Name on Exercise(#) Realized($) # Exercisable # Unexercisable $ Exercisable $ Unexercisable
---- -------------- ----------- ------------- --------------- ------------- ---------------

<S> <C> <C> <C> <C> <C> <C>
Peter Frohlich None N/A 13,200 143,600 $74,250(2) $115,875(3)

Alan M. Fields None N/A 13,200 143,600 $74,250(2) $115,875(3)

Lawrence J. Troyna None N/A 13,200 143,600 $74,250(2) $115,875(3)

Neil O'Hara None N/A 4,750 25,375 $26,719(2) $ 26,609(4)

</TABLE>

(1) The closing bid price of the common shares on December 31, 1997 was $8.625.

(2) The exercise price of the options is $3.00.

(3) The exercise price of 6,600 options is $3.00, of 30,000 options is $6.25,
of 20,000 options is $8.25 and of 87,000 options is $10.00.

(4) The exercise price of 2,375 options is $3.00, of 4,000 options is $6.25, of
10,000 options is $8.25 and of 9,000 options is $10.00.

Employment Contracts and Termination of Employment and Change-In-Control
- ------------------------------------------------------------------------
Arrangements.
- -------------

In late January of 1998 and effective January 1, 1998, the Company
entered into three-year Employment Agreements ("Agreements") with each of Peter
Frohlich, Lawrence J. Troyna and Alan M. Fields (the "Current Executive
Officers"), which are automatically renewable for additional one-year periods
unless terminated by either the Current Executive Officer or the Company as
provided in the Agreements. The terms of employment provide for a base salary to
each of the Current Executive Officers of $190,000 per year other than Mr.
Fields who receives $240,000 per year. Base salaries commence February 1, 1998
and escalate at a rate based on the Consumer Price Index (All Urban Consumers)
but in no event less than 5% per year. In addition, the Current Executive
Officers are entitled to bonuses each year of an amount equal to 3% of the
Company's net income before taxes in any fiscal year not to exceed $40,000
(adjusted by the Consumer Price Index but not less than 5%). Additional bonuses
may be paid at the discretion of the Company and a bonus of one week's salary
shall be paid at the end of the year. A monthly automobile allowance of $700 is
paid to Current Executive Officers other than Mr. Fields who is provided a Lexus
LS400 or comparable auto with all expenses paid. The Current Executive Officers
receive all benefits available to other employees of the Company. Any
termination of the Agreements other than for cause requires the Company to pay

27
<PAGE>

the employee the greater of two years annual salary at the employee's then rate
of compensation or the annual salary at the employee's then current rate for the
remaining term of the Agreement. Upon death or disability of the employee, the
Company is required to pay one year of annual salary to the employee's estate
(or in the case of disability, less the amount actually paid pursuant to a
disability policy).

Share Option Plans
- ------------------

In November 1995, the Company adopted a Management Stock Option Plan
("Management Plan") and an Employee Stock Option Plan ("Employee Plan").
Pursuant to the Management Plan, the Company issued options to five individuals
involved in the management of the Company to acquire up to 69,025 common shares
of the Company at a purchase price of $3.00 per share subject to vesting
requirements, which included the Company obtaining sales during a 12-month
period of $7,500,000 and an average closing price for the Company's common
shares for a three-month period of $6.00, $9.00 and $12.00, respectively, for
each one-third of the options to vest. The options must vest by November 1998
and must be exercised within three years of vesting. The first one-third of
these options vested as of June 1, 1997 and the second one-third vested as of
November 1, 1997. Pursuant to the Employee Plan, the Company issued options to
acquire 13,500 common shares of the Company to 20 employees of the Company at a
purchase price of $3.00 per share subject to vesting requirements, which
included the Company obtaining sales during a 12-month period of $7,500,000 and
at least one year continued employment after the grant of the option. These
options vested as of June 1, 1997 and must be exercised by June 1, 1999. Neither
the Management Plan nor the Employee Plan provide for any further options to be
issued.

On April 2, 1997, the Board of Directors authorized and granted share
options to key employees (including the Named Executive Officers) and Directors
providing for options to acquire an aggregate of 100,000 common shares at a
price of $6.25 per share subject to vesting requirements, which include the
Company obtaining sales of $10,000,000 in any 12-month period. Half of the
options have vested and the remainder vest April 1, 1999. The options expire on
April 2, 2000.

On August 7, 1997, the Board of Directors granted share options to the
Named Executive Officers providing for options to acquire an aggregate of
270,000 common shares at a price of $10.00 per share subject to vesting
requirements, which include the Company obtaining sales of $14,000,000 in any
12-month period and raising $7,500,000 in additional capital. Subject to
satisfaction of these performance conditions, half of the options will vest on
August 6, 1998 and the remainder will vest on August 6, 1999. The options expire
three years after vesting.

In 1997, the Company adopted the 1997 Omnibus Stock Option Plan (the
"Omnibus Option Plan") to enable the Company to issue up to 100,000 common
shares to key employees, directors and consultants. On August 28, 1997, the
Board of Directors authorized and granted share options pursuant to the Omnibus
Option Plan to key employees (including the Named Executive Officers) and
Directors providing for options to acquire an aggregate of 89,500 common shares
at a price of $8.25 per share. Half of the options will vest on August 27, 1998,
and the remainder will vest on August 27, 1999. The options expire on August 28,
2002.

On January 16, 1998, the Board authorized and granted share options
pursuant to the Omnibus Option Plan to Mr. Luhnow providing for options to

28
<PAGE>

acquire an aggregate of 10,000 common shares at a price of $8.35 per share. Half
of the options will vest on January 15, 1999, and the remainder will vest on
January 14, 2000. The Options will expire January 16, 2003. In addition, the
Board authorized and issued to Mr. Luhnow and key employees of Flightways
additional options to acquire 40,000 common shares at a price of $8.35 per share
subject to vesting requirements, which include Flightways sales of $5,000,000 in
any 12-month period prior to January 16, 2000. Subject to satisfaction of these
performance conditions, half of the options vest on January 15, 1999, and the
remainder vest on January 15, 2000. The options expire three years after
vesting.

On February 13, 1998, the Board adopted the Company's 1998 Nonqualified
Share Option Plan (the "1998 Option Plan") to enable the Company to issue up to
167,600 common shares to employees, Directors and consultants. On February 13,
1998, the Board authorized and granted options pursuant to the 1998 Option Plan
to employees (including the Named Executive Officers) and directors providing
for options to acquire an aggregate of 119,600 common shares at a price of
$10.00 per share subject to vesting requirements, which include, if the grantee
is an employee, Director or consultant of the parent or FAS, sales of
$20,000,000 in any 12-month period prior to February 13, 2000, or if the grantee
is an employee, Director or consultant of Flightways, sales of $5,000,000 in any
12-month period prior to February 13, 2000. Subject to satisfaction of these
performance conditions, half of the options vest on February 12, 1999, and the
remainder vest on February 11, 2000. The options expire on February 13, 2003.

On March 16, 1998, the Board authorized and granted 5,000 options to an
employee pursuant to the 1998 Option Plan. Half of the options vest on March 15,
1999, and the remainder vest on March 15, 2000, subject to the performance of
the Company as set forth in the previous paragraph, and expire March 16, 2003.

29
<PAGE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------

The following table sets forth the ownership of the Company's common
shares by each person who owned of record, or was known to own beneficially,
more than 5% as of March 31, 1998. As of March 31, 1998, there were 2,290,235
common shares and no preferred shares outstanding. The table also sets forth the
holdings of common shares by all Directors, each of the Named Executive Officers
and by all Directors and current executive officers as a group.
<TABLE>
<CAPTION>

Names and Addresses Number of Common Percent of
Principal Shareholders Shares Owned* Class**
- ---------------------- ------------- -------
<S> <C> <C>
McDonnell Douglas Corporation 564,194 24.6%
P.O. Box 516
McDonnell Blvd. at Airport Road
St. Louis, MO 63166-0516

Swiss Bank Corporation(1) 540,636*** 21.1%
Max Hoeggerstrasse 80
8010 Zurich, Switzerland

Faro Invest Vermoegensberatung AG(2) 296,546*** 11.7%
Austrasse 49
FL-9495 Triesen, Liechenstein

Centrum Bank AG(3) 177,943*** 7.3%
Heiligkreuz 8
Postfach 1168
FL-9490 Vaduz, Leichtenstein

Names and Addresses of
Executive Officers and Directors

Peter Frohlich (4) 83,127 3.6%
128 Mount Street
London W1Y5HA, U.K.

Alan M. Fields (5) 94,153 4.1%
341 "A" Street
Fillmore, CA 93015-1931

Lawrence J. Troyna (6) 85,126 3.7%
128 Mount Street
London W1Y5HA, U.K.

Leonard I. Fields (7) 32,245 1.4%
341 "A" Street
Fillmore, CA 93015-1931

The Rt. Hon. Sir Jeremy Hanley KCMG (8) -- --
128 Mount Street
London W1Y5HA, U.K.

30
<PAGE>

Mary Sprouse (9) 12,508 +
341 "A" Street
Fillmore, CA 93015-1931

Neil E. O'Hara (10) 14,751 +
341 "A" Street
Fillmore, CA 93015-1931

All current executive officers and Directors as a 311,822 13.1%
group (8 persons)
</TABLE>

* Shares are held beneficially and of record and each shareholder has
sole voting and investment power unless otherwise noted. A person is
deemed to be the beneficial owner of securities that can be acquired by
such person within 60 days from the record date upon the exercise of
options or warrants or conversion of convertible securities.

** Each beneficial owner's percentage ownership is determined by assuming
that options, warrants or convertible debentures that are held by such
person (but not those held by any other person) and exercisable or
convertible in such period have been exercised.

*** Shares are held of record. The Company has no knowledge whether such
shareholder is also the beneficial owner or has sole voting and
investment power.

+ Less than 1%.

(1) The 540,636 shares reported by Swiss Bank Corporation include:

a. warrants to acquire 70,000 shares at $6.25 per share, which
are currently exercisable until September 30, 1998;

b. warrants to acquire 18,000 shares at $13.00 per share, which
are currently exercisable until February 20, 2000; and

c. the $2,100,000 principal amount of Debentures currently
convertible into 187,236 shares at the following prices:
$600,000 at $9.75 per share until June 30, 1998; $600,000 at
$11.00 per share until September 30, 1998; $600,000 at $13.00
per share until December 31, 1998; and $300,000 at the greater
of 85% of the 20-day average close or $12.00 per share until
September 27, 2000.

(2) The 296,546 shares reported for Faro Invest Vermoegensberatung AG
include the $2,625,000 principal amount of Debentures currently
convertible into 234,046 shares at the following prices: 750,000 at
$9.75 per share until June 30, 1998; 750,000 at $11.00 per share until
September 30, 1998; 750,000 at $13.00 per share until December 31,
1998; and 375,000 at the greater of 85% of the 20-day average close or
$12.00 per share until September 27, 2000.

(3) The 177,943 shares reported by Centrum Bank AG include:

a. warrants to acquire 14,000 shares at $6.25 per share, which
are currently exercisable until October 14, 1998;

31
<PAGE>

b. warrants to acquire 3,846 shares at $13.00 per share, which
are currently exercisable until February 20, 2000; and

c. the $1,281,000 principal amount of Debentures currently
convertible into 114,213 shares at the following prices:
$366,000 at $9.75 per share until June 30, 1998; $366,000 at
$11.00 per share until September 30, 1998; $366,000 at $13.00
per share until December 31, 1998; and $183,000 at the greater
of 85% of the 20-day average close or $12.00 per share until
September 27, 2000.

(4) Includes 19,927 shares held by Mr. Frohlich's spouse, Sylvia Frohlich.
In addition, Mr. Frohlich has the following options to acquire common
shares:

a. 19,800 shares, 13,200 of which have vested, are exercisable
and are included in the table, and 6,600 of which are subject
to vesting upon an average closing price for the Company's
common shares for a three-month period of $12.00 per share
prior to November 29, 1998;

b. 30,000 shares, 15,000 of which have vested, are exercisable
and are included in the table, and 15,000 of which vest April
1, 1999;

c. 87,000 shares, none of which have vested and which vest 43,500
on August 6, 1998 and 43,500 on August 6, 1999 subject to
satisfaction of performance conditions;

d. 20,000 shares, none of which have vested and which vest 10,000
on August 27, 1998 and 10,000 on August 27, 1999; and

e. 20,000 shares, none of which have vested and which vest 10,000
on February 12, 1999 and 10,000 on February 11, 2000 subject
to the Company having sales of $20 million in any 12-month
period prior to February 13, 2000.

(5) Includes 12,000 shares owned by Alan Fields' spouse, Nancy Fields. Also
includes 26,486 shares held beneficially but not of record by Alan
Fields. Does not include 13,488 shares owned by Alan Fields's children
through trusts created and funded by Leonard Fields and shares owned by
his father Leonard Fields. In addition, Alan Fields has the following
options to acquire common shares:

b. 30,000 shares, 15,000 of which have vested, are exercisable
and are included in the table, and 15,000 of which vest April
1, 1999;

c. 87,000 shares, none of which have vested and which vest 43,500
on August 6, 1998 and 43,500 on August 6, 1999 subject to
satisfaction of performance conditions;

d. 20,000 shares, none of which have vested and which vest 10,000
on August 27, 1998 and 10,000 on August 27, 1999; and

32
<PAGE>

(6) Includes 20,000 shares owned by Mr. Troyna's spouse, Susan Troyna. In
addition, Mr. Troyna has the following options to acquire common
shares:

b. 30,000 shares, 15,000 of which have vested, are exercisable
and are included in the table, and 15,000 of which vest April
1, 1999;

c. 87,000 shares, none of which have vested and which vest 43,500
on August 6, 1998 and 43,500 on August 6, 1999;

d. 20,000 shares, none of which have vested and which vest 10,000
on August 27, 1998 and 10,000 on August 27, 1999 subject to
satisfaction of performance conditions; and

(7) Includes 13,488 shares owned by Alan Fields' children through trusts
created and funded by Leonard Fields. Mr. Fields disclaims beneficial
ownership of such shares. Includes 3,000 shares held beneficially but
not of record. Does not include 24,486 shares held of record but not
beneficially. Does not include shares owned by relatives of Leonard
Fields, including his son Alan Fields, an officer and director of the
Company. In addition, Mr. Fields has the following options to acquire
common shares:

a. 1,000 shares, 500 of which have vested, are exercisable and
are included in the table, and 500 of which vest April 1,
1999;

b. 2,000 shares, none of which have vested and which vest 1,000
on August 27, 1998 and 1,000 on August 27, 1999; and

c. 2,000 shares, none of which have vested and which vest 1,000
on February 12, 1999 and 1,000 on February 11, 2000 subject to
serving six months as a Director and the Company having sales
of $20 million in any 12-month period prior to February 13,
1999.

(8) Sir Jeremy Hanley was granted in February 1998 an option to acquire
2,000 shares, none of which have vested and which vest 1,000 on
February 12, 1999 and 1,000 on February 11, 2000 subject to the Company
having sales of $20 million in any 12-month period prior to February
13, 2000.

33
<PAGE>

(9) Includes 10,088 shares owned by Alan Fields' children through a trust
created and funded by Leonard Fields. Such shares have also been
reported as being under the control of Leonard Fields. Ms. Sprouse has
voting control of such shares. In addition, Ms. Sprouse has the
following options to acquire common shares:

a. 2,000 shares, none of which have vested and which vest 1,000
on August 27, 1998 and 1,000 on August 27, 1999; and

b. 2,000 shares, none of which have vested and which vest 1,000
on February 12, 1999 and 1,000 on February 11, 2000 subject to
the Company having sales of $20 million in any 12-month period
prior to February 13, 2000.

(10) In addition, Mr. O'Hara has the following options to acquire common shares:

a. 7,125 shares, 4,750 of which have vested, are exercisable and
are included in the table, and 2,375 of which are subject to
vesting upon an average closing price for the Company's common
shares for a three month period of $12.00 per share prior to
November 29, 1998;

b. 4,000 shares, 2,000 of which have vested, are exercisable and
are included in the table, and 2,000 of which vest April 1,
1999 based on employment;

c. 9,000 shares, none of which have vested and which vest 4,500
on August 6, 1998 and 4,500 on August 6, 1999 subject to
satisfaction of performance conditions;

d. 10,000 shares, none of which have vested and which vest 5,000
on August 27, 1998 and 5,000 on August 27, 1999; and

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------

Except as set forth below, the Company has not entered into any
transactions with officers and directors of the Company or their affiliates that
may involve conflicts of interest or were other than arms' length transactions.

The Company paid approximately $32,533 and $39,000 (on an estimated
average conversion rate of $1.60 and $1.67, respectively, to each British Pound)
during calendar years 1996 and 1997, respectively, to Belgravia Financial
Services Limited for rent, telephone and medical insurance expenses in
connection with a sales office in London, England during 1996 and 1997. Amounts
paid to Belgravia Financial Services Limited represent its actual costs, except
that Belgravia Financial Services Limited pays a portion of rent expenses in
London without reimbursement from the Company. Peter Frohlich and Lawrence
Troyna are officers, directors and shareholders of Belgravia Financial Services
Limited.

34
<PAGE>

ITEM 13. EXHIBITS, AND REPORTS ON FORM 8-K
- ------------------------------------------

(a) Index to Exhibits

The following documents are included as exhibits.

Exhibit
SEC No. No. Description
------- --- -----------
2 2.1 Stock Purchase Agreement by and among the Company and
Sellers listed in Exhibit A to the agreement dated
January 2, 1998 (Incorporated by reference to Exhibit 2.1
to the Company's Current Report on Form 8-K dated January
16, 1998 (the "January 1998 8-K"))
3 3.1 Articles of Incorporation, as amended (Incorporated by
reference to Exhibit 2.1 to the Company's Registration
Statement on Form 10-SB, filed October 30, 1995 (the
"Form 10-SB") and Exhibit 3.1.3 to the Company's
Quarterly Report on Form 10-QSB for the fiscal quarter
ended June 30, 1997)
3 3.2 Amended and Restated By-laws
4 4.1 Form of Warrant Agreement (1996-97 Regulation S Private
Placement) (Incorporated by reference to Exhibit 4.1 to
Amendment No. 1 to the Company's Annual Report on Form
10-KSB/A for the fiscal year ended December 31, 1996 (the
"1996 10-KSB/A"), filed April 29, 1997)
4 4.2 Form of Option Agreement to NationsCredit Commercial
Funding (Incorporated by reference to Exhibit 4.2 to the
1996 10-KSB/A)
4 4.3 Indenture for the 8.5% Subordinated Redeemable Debentures
Due 2000, dated as of September 30, 1997, between the
Company and Etablissement Pour le Placement Prive, as
Trustee (the "Indenture"). (Incorporated by reference to
Exhibit 4.1 to the Company's Current Report on Form 8-K
dated September 30, 1997 (the "September 1997 8-K"))
4 4.4 Form of 8.5% Subordinated Redeemable Debentures Due 2000
(included in Exhibit A to Exhibit 4.3 above)
(Incorporated by reference to Exhibit 4.2 to the
September 1997 8-K)
4 4.5 First Supplemental Indenture, dated February 20, 1998, to
the Indenture (Incorporated by reference to Exhibit 4.1
to the Company's Current Report on Form 8-K dated
February 20, 1998)
4 4.6 Form of Warrant Agreement (1998 Regulation S Private
Placement) (Incorporated by reference to Exhibit 4.6 to
the 1997 10-KSB.)
9 9.1 Voting Agreement dated February 7, 1995, among McDonnell
Douglas Corporation, the Registrant, Peter Frohlich, Alan
Fields, and Lawrence Troyna (Incorporated by reference to
Exhibit 5.1 to the Form 10-SB)

35
<PAGE>

Exhibit
SEC No. No. Description
------- --- -----------
10 10.1 Debt Restructure Agreement dated February 7, 1995 between
McDonnell Douglas Corporation and the Registrant
(Incorporated by reference to Exhibit 6.1 to the Form
10-SB)
10 10.2 Securities Exchange Agreement dated February 7, 1995,
between McDonnell Douglas Corporation and the Registrant
(Incorporated by reference to Exhibit 6.2 to the Form
10-SB)
10 10.3 Discretionary Revolving Credit Facility and Credit and
Security Agreement dated February 9, 1995, between Fields
Aircraft Spares, Inc., a California corporation and
Norwest Business Credit, Inc. (Incorporated by reference
to Exhibit 6.3 to the Form 10-SB)
10 10.4 First Amendment to Credit Agreement, dated November 20,
1995 (Incorporated by reference to Exhibit 6.4 to
Amendment No. 1 to the Company's Registration Statement
on Form 10-SB ("Form 10-SB/A"), filed January 29, 1996)
10 10.5 Second Amendment to Credit Agreement, dated February 19,
1996 (Incorporated by reference to Exhibit 10.5 to the
Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1996 (the "1996 10-KSB), filed
March 28, 1997)
10 10.6 Third Amendment to Credit Agreement, dated June 30, 1996
(Incorporated by reference to Exhibit 10.6 to the 1996
10-KSB)
10 10.7 Fourth Amendment to Credit Agreement, dated August 1996
(Incorporated by reference to Exhibit 10.7 to the 1996
10-KSB)
10 10.8 Fifth Amendment to Credit Agreement, dated January 1,
1997 (Incorporated by reference to Exhibit 10.8 to the
1996 10-KSB)
10 10.9 Sixth Amendment to Credit Agreement, dated February 1,
1997 (Incorporated by reference to Exhibit 10.9 to the
1996 10-KSB)
10 10.10 Seventh Amendment to Credit Agreement, dated March 1,
1997 (Incorporated by reference to Exhibit 10.10 to the
1996 10-KSB)
10 10.11 Eighth Amendment to Credit Agreement, dated March 1997
(Incorporated by reference to Exhibit 10.11 to the 1996
10-KSB)
10 10.12 1995 Management Stock Option Plan (Incorporated by
reference to Exhibit 6.5 to Form 10-SB/A)
10 10.13 1995 Employee Stock Option Plan (Incorporated by
reference to Exhibit 6.6 to Form 10-SB/A)
10 10.14 Lease dated May 16, 1994, by and between Harold Pease and
Flightways Manufacturing, Inc. (Incorporated by reference
to Exhibit 10.14 to the 1997 10-KSB.)
10 10.15 Loan Agreement between Fields Aircraft Spares
Incorporated and NationsCredit Commercial Funding, dated
April 18, 1997 (Incorporated by reference to Exhibit
10.14 to 1996 Form 10-KSB/A)

36
<PAGE>

Exhibit
SEC No. No. Description
------- --- -----------
10 10.16 Loan Agreement between Fields Aero Management, Inc. and
NationsCredit Commercial Funding, dated April 18, 1997
(Incorporated by reference to Exhibit 10.15 to 1996 Form
10-KSB/A)
10 10.17 Covenant not to Compete dated as of January 2, 1998, by
and among the Company, Flightways Manufacturing, Inc. and
Yung Ford (Incorporated by reference to Exhibit 10.1 to
January 1998 8-K)
10 10.18 Covenant not to Compete dated as of January 2, 1998, by
and among the Company, Flightways Manufacturing, Inc. and
Frank Scalise (Incorporated by reference to Exhibit 10.2
to January 1998 8-K)
10 10.19 Covenant not to Compete dated as of January 2, 1998, by
and among the Company, Flightways Manufacturing, Inc. and
Christian J. Luhnow (Incorporated by reference to Exhibit
10.3 to January 1998 8-K)
10 10.20 Form of Share Option Contract dated April 2, 1997
10 10.21 Form of Share Option Contract dated August 7, 1997
10 10.22 1997 Omnibus Stock Option Plan (Incorporated by reference
to Exhibit B to the Company's Definitive Proxy Statement
for the August 7, 1997 Annual Meeting, filed June 26,
1997)
10 10.23 Form of Share Option Contract issued pursuant to 1997
Omnibus Stock Option Plan
10 10.24 Form of Share Option Contract dated January 16, 1998
10 10.25 1998 Nonqualified Share Option Plan
10 10.26 Form of Share Option Contract issued pursuant to 1998
Nonqualified Share Option Plan
10 10.27 Employment Agreement dated as of January 1, 1998 by and
among the Company, Fields Aircraft Spares Incorporated,
Fields Aero Management, Inc. and Peter Frohlich
10 10.28 Employment Agreement dated as of January 1, 1998 by and
among the Company, Fields Aircraft Spares Incorporated,
Fields Aero Management, Inc. and Alan M. Fields
10 10.29 Employment Agreement dated as of January 1, 1998 by and
among the Company, Fields Aircraft Spares Incorporated,
Fields Aero Management, Inc. and Lawrence J. Troyna
11 11.1 Statement re: Computation of Per Share Earnings
(Incorporated by reference to Exhibit 11.1 of the 1997
10- KSB)
21 21.1 Subsidiaries of Registrant (Incorporated by reference to
Exhibit 21.1 of the 1997 10-KSB)
27 27.1 Financial Data Schedule (Incorporated by reference to
Exhibit 27.1 of the 1997 10-KSB)

37
<PAGE>

(b) Reports on Form 8-K

The Company filed a Report on Form 8-K, dated November 13, 1997,
covering Item 5, Other Events, with respect to the mandatory conversion of
approximately $2,000,000 principal amount of its 8.5% Subordinated Redeemable
Debentures Due 2000.

The Company filed a Report on Form 8-K, dated January 16, 1998,
covering Item 2, Acquisition or Disposition of Assets.

The Company filed a Report on Form 8-K, dated February 20, 1998,
covering Item 9, Sales of Equity Securities Pursuant to Regulation S.

The Company filed a Report on Form 8-K, dated March 30, 1998, covering
Item 8, Change in Fiscal Year.

38
<PAGE>

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Company
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

Dated: April 29, 1998

FIELDS AIRCRAFT SPARES, INC.

By /s/ Alan M. Fields
---------------------
Alan M. Fields
President

AMENDED AND RESTATED
BYLAWS
OF
FIELDS AIRCRAFT SPARES, INC.

ARTICLE I. OFFICES

Section 1. Principal Office. The principal office of the
corporation shall be as designated by the board of directors. The corporation
may from time to time change the location of its principal office, within or
without the State of Utah. The corporation may have such other offices, either
within or without the State of Utah, as the business of the corporation may
require from time to time.

Section 2. Registered Office. The registered office of the
corporation required by the Utah Revised Business Corporation Act (the "Act") to
be maintained in the State of Utah may be, but need not be, identical with the
principal office in the State of Utah, and the address of the registered office
may be changed from time to time by the board of directors.

ARTICLE II. SHAREHOLDERS

Section 1. Annual Meeting. The annual meeting of the
shareholders shall be held on the first Monday in the month of February in each
year at the hour of 10:00 o'clock a.m., or at such other time on such other day
within such month as shall be fixed by the board of directors, for the purpose
of electing directors and for the transaction of such other business as may come
before the meeting. If the day fixed for the annual meeting shall be a legal
holiday in the State of Utah, such meeting shall be held on the next succeeding
business day. If the election of directors shall not be held on the day
designated herein or any annual meeting of the shareholders, or at any
adjournment thereof, the board of directors shall cause the election to be held
at a special meeting of the shareholders as soon thereafter as is convenient.

Section 2. Special Meetings. Special meetings of the
shareholders, for any purpose or purposes described in the meeting notice,
unless otherwise prescribed by statute, may be called by the president, the
chairman of the board of directors, or by the board of directors, and shall be
called by the president at the request of the holders of outstanding shares of
the corporation representing at least ten percent of all the votes entitled to
be cast on any issue proposed to be considered at the special meeting, if such
shareholders sign, date, and deliver to the corporation's secretary one or more
written demands for the meeting, stating the purpose or purposes for which it is
to be held.

<PAGE>

Section 3. Place of Meeting. The board of directors may
designate any place, either within or without the State of Utah, as the place of
meeting for any annual meeting or for any special meeting called by the board of
directors. If the special meeting is called by the president or the chairman of
the board of directors, the officer calling the special meeting may designate
any place, either within or without the State of Utah, as the place for that
special meeting. If a special meeting is called by the president at the request
of shareholders, the board of directors, or, if the board of directors fails to
act, the president, may designate a place, either within or without the State of
Utah, as the place of meeting for any special meeting. A waiver of notice signed
by all shareholders entitled to vote at a meeting may designate any place,
either within or without the State of Utah, as the place for the holding of such
meeting. If no designation is made, or if a special meeting be otherwise called,
the place of meeting shall be the principal office of the corporation.

Section 4. Notice of Meeting.

(a) Required Notice. Written notice stating the place, day,
and time of the meeting and, in case of a special meeting, the purpose or
purposes for which the meeting is called, shall, unless otherwise prescribed by
statute, be delivered not less than ten (10) or more than sixty (60) days before
the date of the meeting, either personally or by mail, by or at the direction of
the President, or the Secretary, or the persons calling the meeting, to each
shareholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail,
addressed to the shareholder at his address as it appears on the stock transfer
books of the corporation, with postage thereon prepaid.

(b) Adjourned meetings. If an annual or special meeting is
adjourned to a different date, time or place, notice need not be given of the
new date, time, or place if the new date, time, or place is announced at the
meeting prior to adjournment. If a new record date is or must be fixed under the
Utah Revised Business Corporation Act, new notice of the adjourned meeting must
be given to all shareholders of record who are entitled to vote at the meeting.

(c) Waiver of Notice. The shareholder may waive notice of the
meeting (or any notice required by the Utah Revised Business Corporation Act,
articles of incorporation, or bylaws), by a writing signed by the shareholder
entitled to the notice, which is delivered to the corporation (either before or
after the date and time stated in the notice) for inclusion in the minutes or
filing with the corporate records.

A shareholder's attendance at a meeting:

(1) waives objection to lack of notice or
defective notice of the meeting, unless the
shareholder at the beginning of the meeting
objects to holding the meeting or
transacting business at the meeting because
of lack of notice or defective notice; and

- 2 -
<PAGE>

(2) waives objection to consideration of a
particular matter at the meeting that is not
within the purpose or purposes described in
the meeting notice, unless the shareholder
objects to considering the matter when it is
presented.

(d) Contents of Notice. The notice of each special shareholder
meeting shall include a description of the purpose or purposes for which the
meeting is called. Except as provided in this Article II, Section 4(d), the
corporation's articles of incorporation, or otherwise in the Utah Revised
Business Corporation Act, the notice of an annual shareholder meeting need not
include a description of the purpose or purposes for which the meeting is
called.

If a purpose of any shareholder meeting is to consider either:
(1) a proposed amendment to the articles of incorporation (including any
restated articles requiring shareholder approval); (2) a plan of merger or share
exchange; (3) the sale, lease, exchange or other disposition of all, or
substantially all of the corporation's property outside the ordinary course of
business; (4) if all or substantially all of the corporation's assets consists
of its interest in an entity it controls, the sale, lease, exchange or other
disposition of all or substantially all of the property owned by that entity,
outside the ordinary course of business; (5) the dissolution of the corporation;
or (6) the removal of a director, the notice must so state and be accompanied by
respectively a copy or summary of the: (1) articles of amendment; (2) plan of
merger or share exchange; and (3) transaction for disposition of the
corporation's property. If the proposed corporate action creates dissenters'
rights, the notice must state that shareholders are, or may be, entitled to
assert dissenters' rights, and must be accompanied by a copy of Part 13 of the
Utah Revised Business Corporation Act.

Section 5. Fixing of Record Date.

(a) By Board of Directors. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or shareholders entitled to receive payment of any
dividend, or in order to make a determination of shareholders for any other
proper purpose, the board of directors of the corporation may fix in advance a
date as the record date. Such record date shall not be more than 70 days prior
to the day on which the meeting is held or on which the action is taken.

(b) By Operation of Bylaw. If no record date is so fixed by
the board for the determination of shareholders entitled to notice of, or to
vote at a meeting of shareholders, or shareholders entitled to receive a share
dividend or distribution, the record date for determination of such shareholders
shall be at the close of business on:

(1) With respect to an annual shareholder
meeting or any special shareholder meeting
called by the board or any person
specifically authorized by the board or
these bylaws to call a meeting, the day
before the first notice is delivered to
shareholders;

- 3 -
<PAGE>

(2) With respect to a special shareholder's
meeting demanded by the shareholders, the
president shall fix in advance a date as the
record date, which record date shall not be
more than 70 days prior to the date on which
the meeting is held;

(3) With respect to the payment of a share
dividend, the date the board authorizes the
share dividend;

(4) With respect to actions taken in writing
without a meeting, the date the first
shareholder signs a consent;

(5) And with respect to a distribution to
shareholders, (other than one involving a
repurchase or reacquisition of shares), the
date the board authorizes the distribution.

(c) Record Date Following Adjournment. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made as
provided in this section, such determination shall apply to any adjournment
thereof unless the board of directors fixes a new record date which it must do
if the meeting is adjourned to a date more than 120 days after the date fixed
for the original meeting.

Section 6. Shareholder Lists. After a record date for a
shareholders' meeting has been fixed, the officer or agent having charge of the
transfer books for shares of the corporation shall make a complete list of the
shareholders entitled to be given notice of that meeting, arranged in
alphabetical order, with the address of and the number of shares held by each.
The list must be arranged by voting group and within each voting group by class
or series of shares. The shareholder list must be available for inspection by
any shareholder, beginning on the earlier of ten days before the meeting for
which the list was prepared or two business days after notice of the meeting is
given and continuing through the meeting, and any meeting adjournments. The list
shall be available at the corporation's principal office or at a place
identified in the meeting notice in the city where the meeting is to be held. A
shareholder, his agent, or attorney is entitled on written demand to inspect
and, subject to the requirements of Section 14 of this Article II, to copy the
list at his or her expense during regular business hours and during the period
it is available for inspection. The corporation shall maintain the shareholder
list in written form or in another form capable of conversion into written form
within a reasonable time.

Section 7. Shareholder Quorum and Voting Requirements.

(a) Action by Separate Voting Group. If the articles of
incorporation or the Act provides for voting by a single voting group on a
matter, action on that matter is taken when voted upon by that voting group.

- 4 -
<PAGE>

(b) Quorum Requirements for Voting Groups. Shares entitled to
vote as a separate voting group may take action on a matter at a meeting only if
a quorum of those shares exists with respect to that matter. Unless the articles
of incorporation or the Act provide otherwise, 40% of the votes entitled to be
cast on the matter by the voting group constitutes a quorum of that voting group
for action on that matter.

(c) Action by Two or More Voting Groups. If the articles of
incorporation or the Act provide for voting by two or more voting groups on a
matter, action on that matter is taken only when voted upon by each of those
voting groups counted separately. Action may be taken by one voting group on a
matter even though no action is taken by another voting group entitled to vote
on the matter.

(d) Share Presence. Once a share is represented for any
purpose at a meeting, it is deemed present for quorum purposes for the remainder
of the meeting and for any adjournment of that meeting unless a new record date
is or must be set for that adjourned meeting.

(e) Voting Requirements. If a quorum exists, action on a
matter (other than the election of directors) by a voting group is approved if
the votes cast within the voting group favoring the action exceed the votes cast
opposing the action, unless the articles of incorporation or the Act require a
greater number of affirmative votes.

Section 8. Proxies. At all meetings of shareholders, a
shareholder may vote in person or by proxy. A shareholder may appoint a proxy to
vote or otherwise act for that shareholder by signing an appointment form either
personally or by its duly authorized attorney-in-fact. The shareholder may
appoint a proxy by transmitting or authorizing the transmission of telegram,
teletype, or other electronic transmission, provided that the transmitted
appointment shall set forth or be transmitted with evidence from which it can be
determined that the shareholder transmitted or authorized the transmission of
the appointment. Such proxy shall be filed with the secretary of the corporation
before or at the time of the meeting. No proxy shall be valid after eleven
months from the date of its execution, unless otherwise provided in the proxy.

Section 9. Voting of Shares.

(a) One Share One Vote. Unless otherwise provided in the
articles of incorporation, each outstanding share entitled to vote shall be
entitled to one vote upon each matter submitted to a vote at a meeting of
shareholders.

(b) Shares Held by Another Corporation. Except as provided by
specific court order, no shares held by another corporation, if a majority of
the shares entitled to vote for the election of directors of such other
corporation are held by the corporation, shall be voted at any meeting or
counted in determining the total number of outstanding shares at any given time
for purposes of any meeting. Provided, however, the prior sentence shall not

- 5 -
<PAGE>

limit the power of the corporation to vote any shares, including its own shares,
held by it in a fiduciary capacity.

(c) Voting of Redeemable Shares. Redeemable shares are not
entitled to vote after notice of redemption is mailed to the holders and a sum
sufficient to redeem the shares has been deposited with a bank, trust company,
or other financial institution under an irrevocable obligation to pay the
holders the redemption price on surrender of the shares.

Section 10. Corporation's Acceptance of Votes.

(a) Shareholder's Name Signed. If the name signed on a vote,
consent, waiver, proxy appointment or proxy revocation corresponds to the name
of a shareholder, the corporation if acting in good faith, is entitled to accept
the vote, consent, waiver, proxy appointment or proxy revocation and give it
effect as the act of the shareholders.

(b) Other Than Shareholder's Name Signed. If the name signed
on a vote, consent, waiver, proxy appointment or proxy revocation does not
correspond to the name of a shareholder, the corporation, if acting in good
faith, is nevertheless entitled to accept the vote, consent, waiver, proxy
appointment or proxy revocation and give it effect as the act of the shareholder
if:

(1) the shareholder is an entity as defined in
the Act and the name signed purports to be
that of an officer or agent of the entity;

(2) the name signed purports to be that of an
administrator, executor, guardian, or
conservator representing the shareholder
and, if the corporation requests, evidence
of fiduciary status acceptable to the
corporation has been presented with respect
to the vote, consent, waiver, proxy
appointment or proxy revocation;

(3) the name signed purports to be that of a
receiver or trustee in bankruptcy of the
shareholder and, if the corporation
requests, evidence of this status acceptable
to the corporation has been presented with
respect to the vote, consent, wavier proxy
appointment or proxy revocation;

(4) the name signed purports to be that of a
pledgee, beneficial owner, or
attorney-in-fact of the shareholder and, if
the corporation requests, evidence
acceptable to the corporation of the
signatory's authority to sign for the
shareholder has been presented with respect
to the vote, consent, waiver, proxy
appointment or proxy revocation; or

- 6 -
<PAGE>

(5) two or more persons are the shareholder as
co-tenants or fiduciaries and the name
signed purports to be the name of at least
one of the co-owners and the person signing
appears to be acting on behalf of all the
co-owners.

(c) Rejection. The corporation is entitled to reject a vote,
consent, waiver proxy appointment or proxy revocation if the secretary or other
officer or agent authorized to tabulate votes, acting in good faith, has
reasonable basis for doubt about the validity of the signature on it or about
the signatory's authority to sign for the shareholder.

(d) No Liability for Accepting or Rejecting. The corporation
and its officer or agent who accepts or rejects a vote, consent, waiver, proxy
appointment or proxy revocation in good faith and in accordance with the
standards of this section are not liable in damages to the shareholder for the
consequences of the acceptance or rejection.

(e) Action Presumed Valid. Corporate action based on the
acceptance or rejection of a vote, consent, waiver, proxy appointment or proxy
revocation under this section is valid unless a court of competent jurisdiction
determines otherwise.

Section 11. Informal Action by Shareholders.

(a) Written Consents. Any action required to be taken at a
meeting of the shareholders, or any action which may be taken at a meeting of
the shareholders, may be taken without a meeting and without prior notice if a
consent in writing, setting forth the action so taken, shall be signed by the
holders of outstanding shares having not less than the minimum number of votes
that would be necessary to take the action at a meeting at which all shares
entitled to vote thereon were present and voted, and delivered to the
corporation for inclusion in the minute book.

(b) Notice When Not Unanimous. Unless the written consents of
all shareholders entitled to vote have been obtained, notice of any shareholder
approval without a meeting shall be given at least ten days before the
consummation of the action authorized by the approval to:

(1) those shareholders entitled to vote who have
not consented in writing; and

(2) those shareholders not entitled to vote and
to whom the Act requires that notice of the
proposed action be given.

(c) Contents of Notice. The notice must contain or be
accompanied by the same material that would have been required to be sent in a
notice of meeting at which the proposed action would have been submitted to the
shareholders for action.

- 7 -
<PAGE>

(d) Revocation of Consent. Any shareholder giving a written
consent, or the shareholder's proxy holder, or a transferee of the shares or a
personal representative of the shareholder or their respective proxy holder, may
revoke the consent by a signed writing describing the action and stating that
the shareholder's prior consent is revoked, if the writing is received by the
corporation prior to the effectiveness of the action.

(e) Time Limitation. An action taken pursuant to this Section
is not effective unless all written consents on which the corporation relies are
received within a sixty (60) day period and not revoked.

(f) Effective Date of Action by Consent. An action taken
pursuant to this Section is effective as of the date the last written consent
necessary to effect the action is received by the corporation unless all of the
consents necessary to effect the action specify a later date as the effective
date and that date is not more than 70 days after the date the first shareholder
signed the written consent.

(g) Election of Directors. Directors may not be elected by
written consent except by unanimous written consent of all shares entitled to
vote for the election of directors.

Section 12. Voting for Directors. Unless otherwise provided in
the articles of incorporation, directors are elected by a plurality of the votes
cast by the shares entitled to vote in the election at a meeting at which a
quorum is present.

Section 13. Shareholder's Rights to Inspect Corporate Records.

(a) Minutes and Accounting Records. The corporation shall keep
as permanent records minutes of all meetings of its shareholders and board of
directors, a record of all actions taken by the shareholders or board of
directors without a meeting, and a record of all actions taken by a committee of
the board of directors in place of the board of directors on behalf of the
corporation, and a record of all waivers of notices of meetings of shareholders,
meetings of the board of directors, or any meetings of committees of the board
of directors. The corporation shall maintain appropriate accounting records.

(b) Absolute Inspection Rights of Records Required at
Principal Office. If a shareholder gives the corporation written notice of the
shareholder's demand at least five business days before the date on which the
shareholder wishes to inspect and copy, a shareholder (or the shareholder's
agent or attorney) has the right to inspect or copy, during regular business
hours any of the following records, all of which the corporation is required to
keep at its principal office:

(1) its articles or restated articles of
incorporation and all amendments to them
currently in effect;

- 8 -
<PAGE>

(2) its bylaws or restated bylaws and all
amendments to them currently in effect;

(3) all financial statements prepared for the
periods ending during the last three years
that show in reasonable detail the
corporation's assets and liabilities and the
results of its operations;

(4) the minutes of all shareholders' meetings,
and records of all action taken by
shareholders without a meeting, for the past
three years;

(5) all written communications within the past
three years to shareholders as a group or to
the holders of any class or series of shares
as a group;

(6) a list of the names and business addresses
of its current directors and officers; and

(7) its most recent annual report delivered to
the Department of Commerce, Division of
Corporations and Commercial Code.

(c) Conditional Inspection Right. In addition, if a
shareholder gives the corporation a written demand made in good faith and for a
proper purpose at least five business days before the date on which the
shareholder wishes to inspect a copy, the shareholder describes with reasonable
particularity the shareholder's purpose or purposes and the records the
shareholder desires to inspect, and the records are directly connected with the
shareholder's purposes, a shareholder of the corporation (or the shareholder's
agent or attorney) is entitled to inspect and copy, during regular business
hours at a reasonable location specified by the corporation, any of the
following records of the corporation:

(1) excerpts from minutes of any meeting,
records of any action taken by the board of
directors, or of a committee of the board of
directors while acting on behalf of the
corporation in place of the board of
directors, minutes of any meeting of the
shareholders, and records of action taken by
the shareholders without a meeting, and
waivers of notices of any meeting of the
shareholders, or any meeting of the board of
directors, or of any meeting of a committee
of the board of directors;

(2) accounting records of the corporation; and

(3) the record of shareholders (compiled no
earlier than the date of the shareholder's
demand.)

- 9 -
<PAGE>

(d) Copy Costs. The right to copy records includes, if
reasonable, the right to receive copies made by photographic, xerographic, or
other means. The corporation may impose a reasonable charge, covering the costs
of labor and material, for copies of any documents provided to the shareholder.
The charge may not exceed the estimated cost of production or reproduction of
the records.

(e) Shareholder Includes Beneficial Owner. For purposes of
this Section 13, the term "shareholder" shall include a beneficial owner whose
shares are held in a voting trust or by a nominee on his behalf.

Section 14. Financial Statements. Upon the written request of
any shareholder, the corporation shall mail to him or her, its most recent
annual or quarterly financial statements showing in reasonable detail its assets
and liabilities and the results of its operations.

ARTICLE III. BOARD OF DIRECTORS

Section 1. General Powers. Unless the articles of
incorporation or a shareholder agreement executed by all shareholders pursuant
to Section 16-10a-732 of the Act have dispensed with or limited the authority of
the board of directors by describing who will perform some or all of the duties
of a board of directors, all corporate powers shall be exercised by or under the
authority of, and the business and affairs of the corporation shall be managed
under the direction of the board of directors.

Section 2. Number, Tenure and Qualifications. The number of
directors of the corporation shall be not less than the number of shareholders
entitled to vote for the election of directors, if the corporation has fewer
than three such shareholders, nor more than seven (7) as determined, from time
to time, by the shareholders or the board of directors. Each director shall hold
office until their term has expired or until removed. If a director's term
expires, he or she shall continue to serve until his successor shall have been
elected and qualified or until there has been a decrease in directors. Directors
need not be residents of the State of Utah or shareholders of the corporation.
The board of directors may elect from its own number a chairman of the board,
who shall preside at all meetings of the board of directors, and shall perform
such other duties as may be prescribed from time to time by the board of
directors.

Section 3. Regular Meetings. A regular meeting of the board of
directors shall be held without other notice than this by-law immediately after,
and at the same place as, the annual meeting of shareholders. The board of
directors may provide, by resolution, the time and place, either within or
without the State of Utah, for the holding of additional regular meetings
without other notice than such resolution. Such meetings may be held by
telephone or by any other means of communication by which all directors
participating may hear each other during the meeting.

Section 4. Special Meetings. Special meetings of the board
of directors may be called by or at the request of the president or the chairman
of the board of directors or any two directors. The person or persons authorized

- 10 -
<PAGE>

to call special meetings of the board of directors may fix any place, either
within or without the State of Utah, as the place for holding any special
meeting of the board of directors called by them. Such meetings may also be held
by telephone or by any other means of communication by which all directors
participating may hear each other during the meeting.

Section 5. Notice.

(a) General Provisions. Regular meetings of the board of
directors may be held without notice of the date, place, time and purpose of the
meeting. Notice of any special meeting, however, shall be given at least two
days previously thereto by written notice delivered personally or mailed to each
director at his business address, or by telegram or telephonic facsimile. If
mailed, such notice shall be deemed to be effective at the earlier of: (1) when
received; (2) five days after deposited in the United States mail, addressed to
the director's business office, with postage thereon prepaid; or (3) the date
shown on the return receipt if sent by registered or certified mail, return
receipt requested, and the receipt is signed by or on behalf of the director. If
notice is given by telegram such notice shall be deemed to be effective when the
telegram is delivered to the telegraph company. If notice is given by telephonic
facsimile, such notice shall be deemed to be effective when the transmission is
confirmed by or on behalf of the director. If notice is given by private
courier, such notice shall be deemed to be effective when acknowledgement of
delivery is signed by or on behalf of the director.

(b) Waiver. Any director may waive notice of any meeting.
Except as provided in this section 5(b), the waiver must be in writing, signed
by the director entitled to the notice and filed with the minutes or corporate
records. The attendance of a director at a meeting shall constitute a waiver of
notice of such meeting, except where a director attends a meeting for the
express purpose of objecting to the transaction of any business and at the
beginning of the meeting, or promptly upon the director's arrival, objects to
holding the meeting or transacting business at the meeting because of lack of
notice or defective notice, and does not thereafter vote for or assent to action
taken at the meeting.

(c) Content. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the board of directors need be
specified in the notice or waiver of notice of such meeting.

Section 6. Quorum. A majority of the number of directors fixed
pursuant to Section 2 of this Article III shall constitute a quorum for the
transaction of business at any meeting of the board of directors, but if less
than such majority is present at a meeting, a majority of the directors present
may adjourn the meeting from time to time without further notice.

- 11 -
<PAGE>

Section 7. Manner of Acting.

(a) Voting Requirements. The affirmative vote of a majority of
the directors present at a meeting at which a quorum is present shall be the act
of the board of directors, unless the articles of incorporation, these bylaws,
or the Act require a greater percentage.

(b) Appropriate Means of Communication. Unless the articles of
incorporation provide otherwise, any or all directors may participate in a
regular or special meeting by, or conduct the meeting through the use of, any
means of communication by which all directors participating may simultaneously
hear each other during the meeting. A director participating in a meeting by
this means is deemed to be present in person at the meeting.

(c) Effect of Presence at Meeting. A director who is
present at a meeting of the board of directors or a committee of the
board of directors when corporate action is taken is deemed to have
assented to the action taken unless: (1) he objects at the beginning of
the meeting (or promptly upon his arrival) to holding it or transacting
business at the meeting; or (2) his dissent or abstention from the
action taken is entered in the minutes of the meeting; or (3) he
delivers written notice of his dissent or abstention to the presiding
officer of the meeting before its adjournment or to the corporation
immediately after adjournment of the meeting. This right of dissent or
abstention is not available to a director who votes in favor of the
action taken.

Section 8. Director Action Without a Meeting. Unless the
articles of incorporation, these bylaws, or the Act provide otherwise, any
action required or permitted to be taken by the board of directors at a meeting
may be taken without a meeting if all directors consent to the action in
writing. Action taken by consents is effective when the last director signs a
writing describing the action taken, unless, prior to that time, any director
has revoked a consent by a writing signed by the director and received by the
secretary or other person authorized by the board of directors to receive a
revocation, or unless the consent specifies a different effective date. A signed
consent has the effect of a meeting vote and may be described as such in any
document.

Section 9. Removal of Directors. The shareholders may remove
one or more directors at a meeting called for that purpose if notice has been
given that a purpose of the meeting is such removal. The removal may be with or
without cause unless the articles provide that directors may only be removed
with cause. If a director is elected by a voting group of shareholders, only the
shareholders of that voting group may participate in the vote to remove him. If
cumulative voting is authorized, a director may not be removed if the number of
votes sufficient to elect him under cumulative voting is voted against his
removal. If cumulative voting is not authorized, a director may be removed only
if the number of votes cast to remove him exceeds the number of votes cast not
to remove him.

- 12 -
<PAGE>

Section 10. Vacancies.

(a) Who May Fill Vacancy. Unless the articles of incorporation
provide otherwise, if a vacancy occurs on the board of directors, including a
vacancy resulting from an increase in the number of directors:

(1) the shareholders may fill the vacancy;

(2) the board of directors may fill the vacancy;
or

(3) if the directors remaining in office
constitute fewer than a quorum of the board,
they may fill the vacancy by the affirmative
vote of a majority of all the directors
remaining in office.

(b) Directors Elected by a Voting Group. Unless otherwise
provided in the articles of incorporation, if the vacant office was held by a
director elected by a voting group of shareholders:

(1) if one or more directors are elected by the
same voting group, only they are entitled to
vote to fill the vacancy if it is filled by
the directors; and

(2) only the holders of shares of that voting
group are entitled to vote to fill the
vacancy if it is filled by the shareholders.

(c) Filling Future Vacancies. A vacancy that will occur at a
specific later date, by reason of a resignation effective at a later date or
otherwise, may be filled before the vacancy occurs, but the new director may not
take office until the vacancy occurs.

(d) Term of New Director. The term of a director elected to
fill a vacancy expires at the next shareholders' meeting at which directors are
elected. However, if his term expires, he shall continue to serve until his
successor is elected and qualifies or until there is a decrease in the number of
directors.

Section 11. Compensation. By resolution of the board of
directors, each director may be paid his expenses, if any, of attendance at each
meeting of the board of directors, and may be paid a stated salary as director
or a fixed sum for attendance at each meeting of the board of directors or both.
No such payment shall preclude any director from serving the corporation in any
other capacity and receiving compensation therefor.

- 13 -
<PAGE>

Section 12. Director Committees.

(a) Creation of Committees. The board of directors may create
one or more committees and appoint members of the board of directors to serve on
them. Each committee must have two or more members, who serve at the pleasure of
the board of directors.

(b) Selection of Members. The creation of a committee and
appointment of members to it must be approved by the greater of (1) a majority
of all the directors in office when the action is taken or (2) the number of
directors required by the articles of incorporation or bylaws to take such
action.

(c) Required Procedures. Provisions of this Article III, which
govern meetings, action without meetings, notice and waiver of notice, quorum
and voting requirements of the board of directors, apply to committees and their
members.

(d) Authority. Each Committee may exercise those aspects of
the authority of the board of directors which the board of directors confers
upon such committee in the resolution creating the committee.

ARTICLE IV. OFFICERS

Section 1. Number. The officers of the corporation shall be a
president and a secretary, each of whom shall be elected by the board of
directors. Such other officers and assistant officers, including a chairman of
the board, treasurer and any vice presidents, as may be deemed necessary may be
elected or appointed by the board of directors. If specifically authorized by
the board of directors, an officer may appoint one or more officers or assistant
officers. Any two or more offices may be held simultaneously by the same person.

Section 2. Appointment and Term of Office. The officers of the
corporation shall be appointed by the board of directors for a term as
determined by the board of directors. The designation of a specified term grants
to the officer no contract rights, and the board can remove the officer at any
time prior to the termination of such term. If no term is specified, they shall
hold office until they resign, die, or until they are removed in the manner
provided hereafter.

Section 3. Removal. Any officer or agent may be removed by the
board of directors at any time, with or without cause. Such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
Appointment of an officer or agent shall not of itself create contract rights.

Section 4. Resignation. An officer may resign at any time by
giving written notice of the resignation to the corporation. The resignation is
effective when the notice is received by the corporation, unless a later
effective date is specified. If the resignation is effective at a later date,

- 14 -
<PAGE>

the board of directors may remove the officer at any time before the effective
date and fill the resulting vacancy, or the board may allow the officer to
remain in office until the effective date and fill the pending vacancy before
the effective date if the board provides that the successor does not take office
until the effective date.

Section 5. Vacancies. A vacancy in any office because of
death, resignation, removal, disqualification or otherwise, may be filled by the
board of directors for the unexpired portion of the term.

Section 6. Chief Executive Officer. The board of directors may
designate one of the officers as chief executive officer. He shall have, subject
to the supervision and direction of the board of directors, general supervision
of the business, property, and affairs of the corporation and the powers vested
in him by the board of directors, by law or by these Bylaws or which usually
attach or pertain to such office.

Section 7. Chairman of the Board. If appointed, the chairman
of the board shall have the powers and duties vested in him by the board of
directors, by law or by these Bylaws. He shall preside at meetings of the board
of directors.

Section 8. The President. The president shall be the principal
executive officer of the corporation and, subject to the control of the board of
directors and the Chief Executive Officer, shall in general supervise and
control all of the business and affairs of the corporation. He shall, when
present, preside at all meetings of the shareholders. He may sign, with the
secretary or any other proper officer of the corporation thereunto authorized by
the board of directors, certificates for shares of the corporation, any deeds,
mortgages, bonds, contracts, or other instruments which the board of directors
has authorized to be executed, except in cases where the signing and execution
thereof shall be expressly delegated by the board of directors or by these
bylaws to some other officer or agent of the corporation, or shall be required
by law to be otherwise signed or executed; and in general shall perform all
duties incident to the office of president and such other duties as may be
prescribed by the board of directors from time to time.

Section 9. The Vice-President. If appointed, in the absence of
the president or in the event of his death, inability or refusal to act, the
vice-president (or in the event there be more than one vice-president, the
vice-presidents in the order designated at the time of their appointment, or in
the absence of any designation, then in the order of their appointment) shall
perform the duties of the president, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the president. Any
vice-president may sign, with the secretary or an assistant secretary,
certificates for shares of the corporation; and shall perform such other duties
as from time to time may be assigned to him by the president or by the board of
directors.

Section 10. The Secretary. The secretary shall: (a) keep the
minutes of the proceedings of the shareholders and of the board of directors in
one or more books provided for that purpose; (b) see that all notices are duly

- 15 -
<PAGE>

given in accordance with the provisions of these bylaws or as required by law;
(c) be custodian of the corporate records and of the seal of the corporation and
see that the seal of the corporation is affixed to all documents the execution
of which on behalf of the corporation under its seal is duly authorized; (d)
when requested or required, authenticate any records of the corporation, (e)
keep a register of the post office address of each shareholder; (f) sign with
the president, or a vice-president, certificates for shares of the corporation,
the issuance of which shall have been authorized by resolution of the board of
directors; (g) have general charge of the stock transfer books of the
corporation; and (h) in general perform all duties incident to the office of
secretary and such other duties as from time to time may be assigned to him by
the President or by the board of directors; provided that the Secretary may
delegate the responsibilities set forth in clauses (e) and (g) above to the duly
appointed stock transfer agent of the corporation.

Section 11. The Treasurer. If appointed, the treasurer shall:
(a) have charge and custody of and be responsible for all funds and securities
of the corporation; (b) receive and give receipts for moneys due and payable to
the corporation from any source whatsoever, and deposit all such moneys in the
name of the corporation in such banks, trust companies or other depositories as
shall be selected in accordance with the provisions of Article V; (c) in general
perform all of the duties incident to the office of treasurer and such other
duties as from time to time may be assigned to him by the president or by the
board of directors; and (d) if there is no vice-president, then the Treasurer
shall perform such duties of the president. If required by the board of
directors, the treasurer shall give a bond for the faithful discharge of his
duties in such sum and with such surety or sureties as the board of directors
shall determine.

Section 12. Assistant Secretaries and Assistant Treasurers.
The assistant secretaries, when authorized by the board of directors, may sign
with the president or a vice-president certificates for shares of the
corporation the issuance of which shall have been authorized by a resolution of
the board of directors. The assistant treasurers shall, respectively, if
required by the board of directors, give bonds for the faithful discharge of
their duties in such sums and with such sureties as the board of directors shall
determine. The assistant secretaries and assistant treasurers, in general, shall
perform such duties as shall be assigned to them by the secretary or the
treasurer, respectively, or by the president or the board of directors.

Section 13. Salaries. The salaries of the officers shall be
fixed from time to time by the board of directors and no officer shall be
prevented from receiving such salary by reason of the fact that he is also a
director of the corporation.

ARTICLE V. CONTRACTS, LOANS, CHECKS AND DEPOSITS

Section 1. Contracts. The board of directors may authorize any
officer or officers, agent or agents to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the corporation, and such
authority may be general or confined to specific instances.

- 16 -
<PAGE>

Section 2. Loans. No loans shall be contracted on behalf of
the corporation and no evidences of indebtedness shall be issued in its name
unless authorized by a resolution of the board of directors. Such authority may
be general or confined to specific instances.

Section 3. Checks, Drafts, Etc. All checks, drafts or other
orders for the payment of money, notes or other evidences of indebtedness issued
in the name of the corporation shall be signed by such officer or officers,
agent or agents of the corporation and in such manner as shall from time to time
be determined by resolution of the board of directors.

Section 4. Deposits. All funds of the corporation not
otherwise employed shall be deposited from time to time to the credit of the
corporation in such banks, trust companies or other depositaries as the board of
directors may select.

ARTICLE VI. INDEMNIFICATION

Section 1. Indemnification. To the extent allowed by law, the
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit, or
proceeding, whether civil, criminal, administrative, or investigative by reason
of the fact that he is or was a director or officer of the Corporation, or is or
was a director or officer of the Corporation serving at the request of the
Corporation as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses,
(including attorney's fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with the action, suit or
proceeding, except in relation to matters as to which he shall be finally
adjudged in such action, suit or proceeding to be liable for willful misconduct
in the performance of his duties. Indemnification under this Section 1 shall be
considered a contractual right of the indemnified parties.

Section 2. General Terms of Indemnification. The
indemnification and advancement of expenses provided by this Article may not be
construed to be exclusive of any of the rights to which a person seeking
indemnification or advancement of expenses may be entitled under any law,
by-law, agreement, vote of shareholders or disinterested directors or otherwise,
both as to an action in his official capacity and as to an action in another
capacity while holding office.

Section 3. Advances. Expenses incurred in defending a civil or
criminal action, suit or proceeding shall be paid by the Corporation in advance
of the final disposition of the action, suit or proceeding upon receipt of an
undertaking by or on behalf of the director or officer that he shall repay the
amount advanced if it is ultimately determined by a court of competent
jurisdiction that he is not entitled to be indemnified by the Corporation as
authorized by this Article.

- 17 -
<PAGE>

Section 4. Scope of Indemnification. The indemnification and
advancement of expenses authorized by this Article shall apply to all present
and future directors and officers of the Corporation and shall continue as to
such persons who cease to be directors or officers of the Corporation and shall
inure to the benefit of the heirs, executors, and administrators of all such
persons and shall be in addition to all other indemnification and advancement of
expenses provided by law.

Section 5. Insurance. The Corporation may purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee, or agent of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him in any such capacity or
arising out of his status in any such capacity, whether or not the Corporation
would have the power to indemnify him against any such liability under the
provisions of this Article or the laws of the State of Utah as the same may
hereafter be amended or modified.

Section 6. Severability. If any provision of this Article or
the application of such provision to any person or circumstance shall be found
by a court of competent jurisdiction to be invalid or unenforceable the
remainder of this Article or the application of such provision to persons or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby. It is the intent of the Corporation to indemnify
all parties set forth in this Article to the full extent provided by law.

ARTICLE VII. CERTIFICATES FOR SHARES AND THEIR TRANSFER

Section 1. Certificates for Shares.

(a) Content. Certificates representing shares of the
corporation shall at minimum, state on their face the name of the issuing
corporation and that it is formed under the laws of Utah, the name of the person
to whom issued; and the number and class of shares and the designation of the
series, if any, the certificate represents; and be in such form as determined by
the board of directors. Such certificates shall be signed (either manually or,
if countersigned by the duly appointed stock transfer agent of the corporation,
by facsimile) by the president or a vice-president and by the secretary or an
assistant secretary and may be sealed with a corporate seal or a facsimile
thereof. Each certificate for shares shall be consecutively numbered or
otherwise identified.

(b) Legend as to Class or Series. If the corporation is
authorized to issue different classes of shares or different series within a
class, the designations, relative rights, preferences and limitations applicable
to each class and the variations in relative rights, preferences and limitations
determined for each series (and the authority of the board of directors to
determine variations for any existing or future class or series) must be
summarized on the front or back of each certificate. Alternatively, each

- 18 -
<PAGE>

certificate may state conspicuously on its front or back that the corporation
will furnish the shareholder this information on request in writing and without
charge.

(c) Restrictions on Transfer. Any restriction on the transfer
or registration of transfer of shares must be noted conspicuously on the front
or back of the share certificate.

(d) Shareholder List. The name and address of the person to
whom the shares represented thereby are issued, with the number of shares and
date of issue, shall be entered on the transfer books of the corporation.

(e) Transferring Shares. All certificates surrendered to the
corporation for transfer shall be cancelled and no new certificate shall be
issued until the former certificate for a like number of shares shall have been
surrendered and cancelled, except that in case of a lost, destroyed, or
mutilated certificate a new one may be issued therefor upon such terms and
indemnity to the corporation as the board of directors may prescribe.

Section 2. Registration of the Transfer of Shares.
Registration of the transfer of shares of the corporation shall be made only on
the transfer books of the corporation. To register a transfer, the record owner
shall surrender the shares to the corporation for cancellation, properly
endorsed by the appropriate person or persons with reasonable assurances that
the endorsements are genuine and effective. Unless the corporation has
established a procedure by which a beneficial owner of shares held by a nominee
is to be recognized by the corporation as the owner, the person in whose name
shares stand on the books of the corporation shall be deemed by the corporation
to be the owner thereof for all purposes.

Section 3. Restrictions on Transfer of Shares.

(a) Restrictions Permitted. The board of directors (or
shareholders) may impose restrictions on the transfer or registration of
transfer of shares (including any security convertible into, or carrying a right
to subscribe for or acquire shares). A restriction does not affect shares issued
before the restriction was adopted unless the holders of the shares are parties
to the restriction agreement or voted in favor of the restriction.

(b) Authorized Purposes for Restrictions. A restriction on the
transfer or registration of transfer of shares may be authorized:

(1) to maintain the corporation's status when it
is dependent on the number or identity of
its shareholders;

(2) to preserve entitlements, benefits, or
exemptions under federal, state or local
laws;

(3) to provide continuity in the ownership and
management of the corporation; or

- 19 -
<PAGE>

(4) for any other reasonable purpose.

(1) obligate the shareholder first to offer the
corporation or other persons (separately,
consecutively, or simultaneously) an
opportunity to acquire the restricted
shares;

(2) obligate the corporation or other persons
(separately, consecutively, or
simultaneously) to acquire the restricted
shares;

(3) require the corporation, any of its
shareholders or any one or more persons to
approve the transfer or registration of
transfer of the restricted shares, if the
requirement is not manifestly unreasonable;

(4) require the shareholder to establish
compliance with federal and state laws
regarding registration of the offer and sale
of securities; or

(5) prohibit the transfer or the registration of
a transfer of the restricted shares to
designated persons or classes of persons, if
the prohibition is not manifestly
unreasonable.

(d) Disclosure of Restrictions Required. A restriction on the
transfer or registration of transfer of shares is valid and enforceable against
the holder or a transferee of the holder if the restriction is authorized by
this section or the Act and its existence is noted conspicuously on the front or
back of the share certificate or is contained in the information statement
required by Section 2 of this Article VII with regard to shares issued without
certificates. Unless so noted, a restriction is not enforceable against a person
without knowledge of the restriction.

Section 4. Corporation's Acquisition of Shares.

(a) Acquisition Authorized. Subject to the restrictions
contained in Utah Code Ann. ss.16-10a-640(3), the corporation may acquire its
own shares and the shares so acquired constitute authorized but unissued shares.

(b) When Amendment of Articles Required. If the articles of
incorporation prohibit the reissue of acquired shares, the number of authorized
shares is reduced by the number of shared acquired, effective upon amendment of
the articles of incorporation, which amendment shall be adopted by the board of
directors without shareholder action. The articles of amendment must be
delivered to the Utah Department of Commerce, Division of Corporations and
Commercial Code and must set forth:

- 20 -
<PAGE>

(1) the name of the corporation;

(2) the reduction in the number of authorized
shares, itemized by class and series;

(3) the total number of authorized shares,
itemized by class and series, remaining
after reduction of the shares; and

(4) a statement that the amendment was adopted
by the board of directors without
shareholder action and that shareholder
action was not required.

ARTICLE VIII. FISCAL YEAR

The fiscal year of the corporation shall be a 52- or 53-week
year ending on Friday of the week (commencing on Monday and ending on Sunday)
which contains the last business day of December.

ARTICLE IX. DISTRIBUTIONS

The board of directors may authorize, and the corporation may
make, distributions (including dividends on its outstanding shares) in the
manner, and upon the terms and conditions provided by law and the corporation's
articles of incorporation.

ARTICLE X. CORPORATE SEAL

The board of directors may in its discretion provide a
corporate seal.

ARTICLE XI. AMENDMENTS

Section 1. Restrictions on Amendments. The corporation's
board of directors may amend or repeal the corporation's bylaws unless:

(a) the articles of incorporation or the Act reserve this
power exclusively to the shareholders in whole or in part; or

(b) the shareholders in adopting, amending, or repealing a
particular bylaw provide expressly that the board of directors may not amend or
repeal that bylaw.

Section 2. Amendment by Shareholders. The corporation's
shareholders may amend or repeal the corporation's bylaws even though the bylaws
may also be amended or repealed by its board of directors.

- 21 -
<PAGE>

ARTICLE XII. EMERGENCY BYLAWS

The following provisions shall be effective during an
emergency which is defined as when a quorum of the corporation's directors
cannot be readily assembled because of some catastrophic event.

During such emergency:

(a) Notice of Board Meetings. Any one member of
the board of directors or any one of the following officers: president, any
vice-president, secretary, or treasurer, may call a meeting of the board of
directors. Notice of such meeting need to given only to those directors whom it
is practicable to reach, and may be given in any practical manner, including by
publication and radio. Such notice shall be given at least six hours prior to
commencement of the meeting.

(b) Temporary Directors and Quorum. One or more
officers of the corporation present at the emergency board meeting, as is
necessary to achieve a quorum, shall be considered to be directors for the
meeting, and shall so serve in order of rank, and within the same rank, in order
of seniority. In the event that less than a quorum of the directors are present
(including any officers who are to serve as directors for the meeting), those
directors present (including the officers serving as directors) shall constitute
a quorum.

(c) Actions Permitted to be Taken. The board as
constituted in paragraph (b), and after notice as set forth in paragraph (a)
may:

(1) Officers' Powers. Prescribe emergency powers
to any officer of the corporation;

(2) Delegation of Any Power. Delegate to any
officer or director, any of the powers of
the board of directors;

(3) Lines of Succession. Designate lines of
succession of officers and agents, in the
event that any of them are unable to
discharge their duties;

(4) Relocate Principal Place of Business.
Relocate the principal place of business, or
designate successive principal places of
business;

(5) All Other Action. Take any other action,
convenient, helpful, or necessary to carry
on the business of the corporation.

- 22 -
<PAGE>

ARTICLE XIII. PROCEDURE FOR CONDUCTING MEETINGS

All shareholder and director meetings shall be conducted in
accordance with the rules and procedures set forth in the most current edition
of Roberts' Rules of Order, unless otherwise specified by the Chairman of the
Board or other presiding officer.

Amended and Restated June 9, 1997
Further Amended February 13, 1998

- 23 -

FIELDS AIRCRAFT SPARES, INC.

SHARE OPTION CONTRACT
Option No. 1 - ______

This SHARE OPTION CONTRACT ("Contract") is entered into as of
April 2, 1997 ("Grant Date") by and between ___________ (hereinafter called the
"Participant") and FIELDS AIRCRAFT SPARES, INC., a Utah corporation (hereinafter
called the "Company").

WHEREAS, Participant is an employee and/or director of the
Company or its subsidiaries; and

WHEREAS, the grant of this Contract to the Participant and the
execution of a Contract in the form hereof has been duly authorized by the Board
of Directors of the Company.

NOW, THEREFORE, the parties hereto, in consideration of the
mutual covenants contained herein and other good and valuable considerations,
agree as follows:

1. Grant. The Company hereby grants Participant an option (the
"Options") to purchase _____ common shares, no par value, of the Company
("Option Shares"), at a price of Six Dollars and Twenty-Five Cents ($6.25) per
share (the "Option Price"), and agrees to cause certificates for any Option
Shares purchased hereunder to be delivered to the Participant upon payment of
the aggregate Option Price in full, all subject, however, to the terms and
conditions hereinafter set forth.

2. Vesting.

(a) The Options shall vest and become fully exercisable as to
the Option Shares upon all of the following conditions being met:

(i) the Company shall have sales of at least
$10,000,000 in any 12-month period subsequent to the Grant
Date;

(ii) condition (i) must have occurred if at all by
June 30, 1999; and

(iii) the Options shall vest as to 50% of the total
number of Option Shares, or _____ shares, on the last business
day prior to the first anniversary of the Grant Date if the
Participant is still an employee or director, and as to the
remaining 50% of the total number of Option Shares, or
_____ shares, on the last business day prior to the second
anniversary of the Grant Date if the Participant is still an
employee or director.

(b) In the event of a Change of Control, the Options that have
not otherwise terminated pursuant to the terms of this Contract shall
become fully vested on the date of such Change of Control. For purposes
of this Contract, "Change of Control" shall mean the occurrence of any
one of the following:

(i) the Company enters into an agreement or
reorganization, merger or consolidation pursuant to which the
Company is not the surviving corporation;

<PAGE>

(ii) the Company sells substantially all of its
assets;

(iii) in excess of 75% of the outstanding securities
of the Company are acquired, in one transaction or a series of
transactions, by a single purchaser or group of related
purchasers; or

(iv) in excess of 50% of the outstanding securities
of the Company are acquired in one transaction or a series of
transactions, by a single purchaser or group of related
purchasers, and the Company's Board of Directors, within 90
days before or after such acquisition, deems such acquisition
to be a "Change of Control" for purposes of this Contract.

3. Term. The term in which the Options are exercisable shall
commence upon the vesting of the Options and shall expire on the third
anniversary of the Grant Date. The Participant may exercise the Options at any
time during such period. If the Participant's employment or directorship with
the Company or its subsidiaries is terminated either voluntarily by the
Participant or for cause by the Company or its subsidiaries, any Option held by
such Participant on the date of such termination of employment or directorship
will terminate thirty (30) days after such date of termination, or on the
expiration of the stated term of such Option if earlier, and may not be
exercised thereafter.

For purposes of this paragraph, the following shall constitute
"cause":

(i) Participant shall have committed an intentional act or
acts of fraud, embezzlement or theft constituting a felony and
resulting or intended to result directly or indirectly in gain or
personal enrichment for Participant at the expense of the Company or
its subsidiaries; or

(ii) The Participant's intentional and willful refusal to
perform the duties associated with Participant's position with the
Company or its subsidiaries.

If the Participant's employment or directorship with the Company or its
subsidiaries is terminated by the Company or its subsidiaries for other than
"cause", Participant will retain the Options granted under this Contract subject
to the same vesting requirements and exercise period as set forth herein.

In the event of a Participant's termination of employment or
directorship by reason of death and provided Participant has been an employee or
director for 6 months from the Grant Date, and provided that the conditions set
forth in 2(a)(i) and (ii) are met, 50% of all Options held by such Participant
shall vest prorata based on the total months of service rendered since the Grant
Date compared to 12 months and 50% of all Options held by such Participant shall
vest prorata based on the total months of service rendered since the Grant Date
compared to 24 months. Options may thereafter be exercised by the legal
representative of the Participant's estate until the earlier of one year after
the date of death or the stated term of the Option.

2
<PAGE>

In the event of a Participant's disability, any Option held by such
Participant will continue to vest during the period of time that the disabled
Participant receives disability benefits from the Company, its insurance carrier
or the state and is not gainfully employed elsewhere. When the Participant
becomes totally and permanently disabled and disability benefits cease, all
Options which have not vested shall immediately vest in full as to passage of
time conditions only and may be exercised by the Participant until the earlier
of one year after such date or the satisfactions of vesting conditions other
than the passage of time or the expiration of the stated term of such Option. If
the Participant dies during any such one-year period, any unexercised Options
shall be subject to the provisions of the previous paragraph.

4. Exercise Procedure.

(a) Subject to the terms and conditions set forth herein,
Options may be exercised in whole or in part, by giving written notice
of exercise to the Company specifying the number of Option Shares to be
purchased and the Option Price therefor. The Options may be exercised
only in multiples of 100 Option Shares unless such exercise is as to
the remaining balance of the Options.

(b) Payment of the Option Price may be made in one of the
following ways:

(i) in cash or by check payable to the Company;

(ii) to the extent determined by the Board of
Directors of the Company in their sole discretion in common
shares duly owned by the Participant (and for which the
Participant has good title, free and clear of any liens and
encumbrances); or

(iii) to the extent determined by the Board of
Directors of the Company in their sole discretion, by
reduction in the number of common shares issuable upon such
exercise, based, in each case, on the fair market value of the
common shares on the last business day preceding the date of
exercise.

(c) Upon payment in full of the Option Price and satisfaction
of the other conditions provided herein, a stock certificate
representing the number of common shares to which the Participant is
entitled shall be issued and delivered to the Participant.

5. Restricted Securities. Participant acknowledges that the
Options have not been registered under the Securities Act of 1933 or applicable
state "blue sky" laws, and the Option Shares, if and when issued, will be
"restricted securities" or unregistered securities. Participants are acquiring
the Options and will acquire the Option Shares for investment purposes and not
with a view towards distribution. The Company may require each person acquiring
Option Shares pursuant to an Option under this Contract to represent to the
Company in writing that the Participant is acquiring the Option Shares without a
view to distribution thereof.

3
<PAGE>

All certificates representing Option Shares delivered under
this Contract shall be subject to stop transfer orders and other restrictions as
the Company may deem advisable under the rules, regulations and other
requirements of the Securities and Exchange Commission, any stock exchange or
stock market upon which the Option Shares are then listed or traded, any
applicable Federal or state securities law, and any applicable corporate law.
The certificates representing the Option Shares may include any legend that the
Company deems appropriate to reflect any restrictions on transfer.

6. Tax Matters. The Options are intended to be non-qualified
stock options under applicable tax laws and regulations.

7. Subsequent Adjustments. If all or any portion of the
Options shall be exercised subsequent to any share dividend, split-up,
recapitalization, merger, consolidations, combination or exchange of shares,
separation, reorganization, or liquidation of the Company occurring after the
date hereof, as a result of which shares of any class shall be issued in respect
to outstanding common shares of the Company or such common share shall be
changed into the same or a different number of shares of the same or another
class or classes, Participant, upon exercise of the Options, or portion thereof,
shall receive, for the aggregate price upon such exercise of the Options, the
aggregate number and class of shares which, if common share as authorized at the
date hereof had been purchased or awarded at the date hereof for the same
aggregate price (on the basis of the per share Option Price of the Options set
forth herein) and had not been disposed of, such person or persons would be
holding, at the time of such exercise, as a result of such share dividends,
split-ups, capitalization, mergers, consolidations, combinations, or exchanges
of shares, separations, reorganizations, or liquidation; provided, however, that
no fractional shares shall be issued upon any such exercise and the aggregated
price paid shall be appropriately reduced for any fractional share not issued.
This section does not give Participant any right to receive additional options
as a result of the issuance of additional shares of the Company or the increase
in the authorized capital of the Company.

8. Delivery of Option Shares. Upon each exercise of the
Options, or portion thereof, the Company as promptly as practicable shall mail
or deliver to the Participant a share certificate or certificates representing
the shares then purchased or awarded, and shall pay all stamp taxes payable in
connection therewith. The issuance of such shares and delivery of the
certificate or certificates therefor shall, however, be subject to any delay
necessary to complete (a) the listing of such shares on any stock exchange upon
which shares of the same class are then listed and (b) such registration or
qualification of such shares under any state or Federal law, rule or regulation
as the Company may determine to be necessary or advisable.

9. Transferability. Except as otherwise provided in this
Contract, Options granted hereunder and the rights and privileges conferred
thereby shall not be sold, transferred, assigned, or otherwise disposed of in
any way (whether by operation of law or otherwise) other than to the estate of
Participant as a result of the death of Participant, and shall not be subject to
execution, attachment, or similar process. Upon any attempt to transfer, assign,
or otherwise dispose of such Option, right, or privilege contrary to the
provisions hereof, or upon the levy of any attachment or similar process

4
<PAGE>

thereon, such Option and the rights and privileges conferred hereby shall
immediately terminate and the Option shall immediately be forfeited to the
Company.

10. Rights. Participant shall have no rights as a shareholder
with respect to any Option Shares to be issued upon exercise of any portion of
the Options until the Options, or portion thereof, have been exercised and
Option Shares issued to Participant. No adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities, or other property) or
distributions or other rights for which the record date is prior to the date
such Option Shares are issued, except as provided above.

11. Governing Law. This Contract shall be governed by and
construed in accordance with the laws of the State of Utah.

12. Tax Liabilities. Participant is responsible for payment of
all state, local and federal income and any other taxes in connection with the
issuance and/or exercise of the Options. Participant hereby authorizes the
Company to withhold from the Participant's wages or salary for application to
payment of such taxes any amounts the Company deems necessary to comply with
Federal, state or local tax law. In the event Participant sells any common
shares issued pursuant to the Options within one year from the date of exercise
or within two years after the Date of Grant, participant agrees to notify the
Company promptly of the amount of taxable compensation realized by reason of
such sale for income tax purposes.

13. Effect on Retirement. No Option under this Contract shall
be deemed compensation for purposes of computing benefits under any retirement
plan nor affect any benefits under any other benefit plan now or hereafter in
effect under which the availability or amount of benefits is related to the
level of compensation.

14. Miscellaneous. If any part of this Contract shall be
determined to be invalid or void in any respect, such determination shall not
affect, impair, invalidate, or nullify the remaining provisions of this Contract
which shall continue in full force and effect.

This Contract shall be binding upon and inure to the benefit
of any successor or successors of the Company.

This Contract may be executed in one or more counterparts. All
of such counterparts shall constitute one and the same agreement and shall
become effective when one or more counterparts of this Contract have been signed
by the Company and the Participant.

5
<PAGE>

EXECUTED as of the date first above written.

FIELDS AIRCRAFT SPARES, INC.

By:__________________________________

The undersigned Participant hereby acknowledges receipt of an
executed original of this Share Option Contract and accepts the Options granted
thereunder.

--------------------------------------
___________________, Participant

Address:_______________________________
--------------------------------------

FIELDS AIRCRAFT SPARES, INC.

SHARE OPTION CONTRACT
Option No. 2 - ______

This SHARE OPTION CONTRACT ("Contract") is entered into as of
August 7, 1997 ("Grant Date") by and between ___________ (hereinafter called the
"Participant") and FIELDS AIRCRAFT SPARES, INC., a Utah corporation (hereinafter
called the "Company").

WHEREAS, Participant is an employee and/or director of the
Company or its subsidiaries; and

WHEREAS, the grant of this Contract to the Participant and the
execution of a Contract in the form hereof has been duly authorized by the Board
of Directors of the Company.

NOW, THEREFORE, the parties hereto, in consideration of the
mutual covenants contained herein and other good and valuable considerations,
agree as follows:

1. Grant. The Company hereby grants Participant an option (the
"Options") to purchase _____ common shares, no par value, of the Company
("Option Shares"), at a price of Ten Dollars ($10.00) per share (the "Option
Price"), and agrees to cause certificates for any Option Shares purchased
hereunder to be delivered to the Participant upon payment of the aggregate
Option Price in full, all subject, however, to the terms and conditions
hereinafter set forth.

2. Vesting.

(a) The Options shall vest and become fully exercisable as to
the Option Shares upon all of the following conditions being met:

(i) the Company shall raise at least $7,500,000 in
additional debt or equity capital subsequent to the Grant
Date;

(ii) the Company shall have sales of at least
$14,000,000 in any 12-month period subsequent to the Grant
Date;

(iii) conditions (i) and (ii) must have occurred if
at all by June 30, 1999; and

(iv) the Options shall vest as to 50% of the total
number of Option Shares, or _____ shares, on the last business
day prior to the first anniversary of the Grant Date if the
Participant is still an employee or a director of the Company,
and as to the remaining 50% of the total number of Option
Shares, or _____ shares, on the last business day prior to the
second anniversary of the Grant Date if the Participant is
still an employee or a director of the Company.

<PAGE>

(i) the Company enters into an agreement or
reorganization, merger or consolidation pursuant to which the
Company is not the surviving corporation;

(ii) the Company sells substantially all of its
assets;

(iii) in excess of 75% of the outstanding securities
of the Company are acquired, in one transaction or a series of
transactions, by a single purchaser or group of related
purchasers; or

3. Term. The term in which the Options are exercisable shall
commence upon the vesting of the Options and shall expire on the third
anniversary of the date of vesting. The Participant may exercise the Options at
any time during such period. If the Participant's employment or directorship
with the Company or its subsidiaries is terminated either voluntarily by the
Participant or for cause by the Company or its subsidiaries, any Option held by
such Participant on the date of such termination of employment or directorship
will terminate thirty (30) days after such date of termination, or on the
expiration of the stated term of such Option if earlier, and may not be
exercised thereafter.

For purposes of this paragraph, the following shall constitute
"cause":

(ii) The Participant's intentional and willful refusal to
perform the duties associated with Participant's position with the
Company or its subsidiaries.

2
<PAGE>

In the event of a Participant's termination of employment or
directorship by reason of death, and provided Participant has been an employee
or director for 6 months from the Grant Date, and provided that the conditions
set forth in 2(a)(i), (ii) and (iii) are met, 50% of all Options held by such
Participant shall vest prorata based on the total months of service rendered
since the Grant Date compared to 12 months and 50% of all Options held by such
Participant shall vest prorata based on the total months of service rendered
since the Grant Date compared to 24 months. Options may thereafter be exercised
by the legal representative of the Participant's estate until the earlier of one
year after the date of death or the stated term of the Option.

In the event of a Participant's disability, any Option held by
such Participant will continue to vest during the period of time that the
disabled Participant receives disability benefits from the Company, its
insurance carrier or the state and is not gainfully employed elsewhere. When the
Participant becomes totally and permanently disabled and disability benefits
cease, all Options which have not vested shall immediately vest in full as to
passage of time conditions only and may be exercised by the Participant until
the earlier of one year after such date or the satisfactions of vesting
conditions other than the passage of time or the expiration of the stated term
of such Option. If the Participant dies during any such one-year period, any
unexercised Options shall be subject to the provisions of the previous
paragraph.

4. Exercise Procedure.

(b) Payment of the Option Price may be made in one of the
following ways:

(i) in cash or by check payable to the Company;

3
<PAGE>

6. Tax Matters. The Options are intended to be non-qualified
stock options under applicable tax laws and regulations.

4
<PAGE>

11. Governing Law. This Contract shall be governed by and
construed in accordance with the laws of the State of Utah.

5
<PAGE>

This Contract shall be binding upon and inure to the benefit
of any successor or successors of the Company.

6
<PAGE>

EXECUTED as of the date first above written.

FIELDS AIRCRAFT SPARES, INC.

By:__________________________________

The undersigned Participant hereby acknowledges receipt of an
executed original of this Share Option Contract and accepts the Options granted
thereunder.

--------------------------------------
___________________, Participant

Address:_______________________________
--------------------------------------

FIELDS AIRCRAFT SPARES, INC.

SHARE OPTION CONTRACT
Option No. 3 - _____

This SHARE OPTION CONTRACT ("Contract") is entered into as of
, 19 ("Grant Date") by and between ___________ (hereinafter called the
"Participant") and FIELDS AIRCRAFT SPARES, INC., a Utah corporation (hereinafter
called the "Company").

WHEREAS, Participant is an employee [consultant] [director] of
the Company or its subsidiaries;

WHEREAS, the grant of this Contract to the Participant and the
execution hereof has been duly authorized pursuant to the terms of the Company's
1997 Omnibus Stock Option Plan (the "Plan") as of the Grant Date; and

WHEREAS, the grant of this Contract to the Participant and the
execution of a Contract in the form hereof has been duly authorized by the Board
of Directors of the Company.

NOW, THEREFORE, the parties hereto, in consideration of the
mutual covenants contained herein and other good and valuable considerations,
agree as follows:

1. Grant. The Company hereby grants Participant an [Incentive
Stock Option] [Non-Qualified Stock Option] (the "Options") pursuant to the Plan
to purchase _____ common shares, no par value, of the Company ("Option Shares"),
at a price of Eight Dollars and Twenty-Five Cents ($8.25) per share (the "Option
Price"), and agrees to cause certificates for any Option Shares purchased
hereunder to be delivered to the Participant upon payment of the aggregate
Option Price in full, all subject, however, to the terms and conditions
hereinafter set forth and set forth in the Plan.

2. Vesting.

(a) The Options shall vest and become fully exercisable as to
50% of the total number of Option Shares, or _____ shares, on the last
business day prior to the first anniversary of the Grant Date if the
Participant is still an [employee] [consultant] [director], and as to
the remaining 50% of the total number of Option Shares, or ______
shares, on the last business day prior to the second anniversary of the
Grant Date if the Participant is still an [employee] [consultant]
[director].

(i) the Company enters into an agreement or reorganization,
merger or consolidation pursuant to which the Company is not the
surviving corporation;

<PAGE>
(ii) the Company sells substantially all of its assets;

(iii) in excess of 75% of the outstanding securities of the
Company are acquired, in one transaction or a series of transactions,
by a single purchaser or group of related purchasers; or

(iv) in excess of 50% of the outstanding securities of the
Company are acquired in one transaction or a series of transactions, by
a single purchaser or group of related purchasers, and the Company's
Board of Directors, within 90 days before or after such acquisition,
deems such acquisition to be a "Change of Control" for purposes of this
Contract.

3. Term. The term in which the Options are exercisable shall
commence upon the vesting of the Options and shall expire on the fifth
anniversary of the Grant Date. The Participant may exercise the Options at any
time during such period. If the Participant's [employment] [consulting]
[directorship] with the Company or its subsidiaries is terminated either
voluntarily by the Participant or for cause by the Company or its subsidiaries,
any Option held by such Participant on the date of such termination of
[employment] [consulting] [directorship] will terminate thirty (30) days after
such date of termination, or on the expiration of the stated term of such Option
if earlier, and may not be exercised thereafter.

For purposes of this paragraph, the following shall constitute
"cause":

(ii) The Participant's intentional and willful refusal to
perform the duties associated with Participant's position with the
Company or its subsidiaries.

If the Participant's [employment] [directorship] [consulting] with the
Company or its subsidiaries is terminated by the Company or its subsidiaries for
other than "cause", Participant will retain the Options granted under this
Contract subject to the same vesting requirements and exercise period as set
forth herein.

In the event of a Participant's termination of [employment]
[directorship] [consulting] by reason of death, and provided Participant has
been an employee, director or consultant for 6 months from the Grant Date, 50%
of all Options held by such Participant shall vest prorata based on the total
months of service rendered since the Grant Date compared to 12 months and 50% of
all Options held by such Participant shall vest prorata based on the total
months of service rendered since the Grant Date compared to 24 months. Options
may thereafter be exercised by the legal representative of the Participant's
estate until the earlier of one year after the date of death or the stated term
of the Option.

2
<PAGE>

4. Exercise Procedure.

(b) Payment of the Option Price may be made in one of the
following ways:

(i) in cash or by check payable to the Company;

3
<PAGE>

6. Tax Matters. The Options are intended to be an Incentive
Stock Option [Non-Qualified Stock Option]. The Participant acknowledges that the
date of the exercise of the Options or the sale of shares issued on exercise of
the Options could affect his or her individual tax treatment with respect to the
Options. [The Options shall only vest to the extent that the aggregate Fair
Market Value, as defined in the Plan, as of the respective date of grant of all
Incentive Stock Options granted to Participant under the Plan and/or any other
stock option plan of the Company or any subsidiary or parent corporation (within
the meaning of Section 424 of the Internal Revenue Code, 1986, as amended)
becoming exercisable in that calendar year do not exceed $100,000.

In the event that the aggregate Fair Market Value, as defined
in the Plan, of all Incentive Stock Options granted to Participant under the
Plan and/or any other stock option plan of the Company or any subsidiary or
parent corporation (within the meaning of Section 424 of the Internal Revenue
Code, 1986, as amended) becoming exercisable in that calendar year exceeds
$100,000 (the "Threshold"), the following conditions shall apply:

(i) The portion of any Options under this Share
Option Contract becoming exercisable in that calendar year and
causing Participant to exceed the Threshold shall not vest
until the following calendar year, unless Participant agrees
to treat such Options as non-qualified to the extent the
Options exceed the Threshold.

(ii) The expiration date of the Options shall be
extended until the earlier of (a) the day prior to the seventh
anniversary of the Grant Date, or (b) one year after all of
the Options become fully exercisable.]

4
<PAGE>

shall receive, for the aggregate price upon such exercise of the Options, the
aggregate number and class of shares which, if common share as authorized at the
date hereof had been purchased or awarded at the date hereof for the same
aggregate price (on the basis of the per share Option Price of the Options set
forth herein) and had not been disposed of, such person or persons would be
holding, at the time of such exercise, as a result of such share dividends,
split-ups, capitalization, mergers, consolidations, combinations, or exchanges
of shares, separations, reorganizations, or liquidation; provided, however, that
no fractional shares shall be issued upon any such exercise and the aggregated
price paid shall be appropriately reduced for any fractional share not issued.
This section does not give Participant any right to receive additional options
as a result of the issuance of additional shares of the Company or the increase
in the authorized capital of the Company.

9. Transferability. Transferability of Options granted
hereunder is limited as set forth in the Plan.

11. Governing Law. This Contract shall be governed by and
construed in accordance with the laws of the State of Utah.

13. Effect on Retirement. No Option under this Contract shall
be deemed compensation for purposes of computing benefits under any retirement

5
<PAGE>

plan nor affect any benefits under any other benefit plan now or hereafter in
effect under which the availability or amount of benefits is related to the
level of compensation.

This Contract shall be binding upon and inure to the benefit
of any successor or successors of the Company.

15. Definitions. Capitalized terms used in this Contract and
that are not otherwise defined herein shall have the meaning set forth in the
Plan. The terms and conditions of the Plan are incorporated herein by reference.
In the event of any inconsistency between this Contract and the Plan, the terms
of the Plan shall govern within the terms permitted by the Plan.

6
<PAGE>

EXECUTED as of the date first above written.

FIELDS AIRCRAFT SPARES, INC.

By:__________________________________

The undersigned Participant hereby acknowledges receipt of an
executed original of this Share Option Contract and accepts the Options granted
thereunder.

--------------------------------------
___________________, Participant

Address:_______________________________
--------------------------------------

FIELDS AIRCRAFT SPARES, INC.

SHARE OPTION CONTRACT
Option No. 4 - _______

This SHARE OPTION CONTRACT ("Contract") is entered into as of
January 16, 1998 ("Grant Date") by and between ___________ (hereinafter called
the "Participant") and FIELDS AIRCRAFT SPARES, INC., a Utah corporation
(hereinafter called the "Company").

WHEREAS, Participant is an employee of the Company's
subsidiary Flightways Manufacturing, Inc. (hereinafter called "FMI"); and

WHEREAS, the grant of this Contract to the Participant and the
execution of a Contract in the form hereof has been duly authorized by the Board
of Directors of the Company.

NOW, THEREFORE, the parties hereto, in consideration of the
mutual covenants contained herein and other good and valuable considerations,
agree as follows:

1. Grant. The Company hereby grants Participant an option (the
"Options") to purchase _____ common shares, no par value, of the Company
("Option Shares"), at a price of Eight Dollars and Thirty-Five Cents ($8.35) per
share (the "Option Price"), and agrees to cause certificates for any Option
Shares purchased hereunder to be delivered to the Participant upon payment of
the aggregate Option Price in full, all subject, however, to the terms and
conditions hereinafter set forth.

2. Vesting.

(a) The Options shall vest and become fully exercisable as to
the Option Shares upon all of the following conditions being met:

(i) the Company shall have actual sales of at least
$5,000,000 to third party customers, whether shipped directly
or indirectly, in any 12-month period subsequent to the Grant
Date;

(ii) condition (i) must have occurred if at all by
January 16, 2000; and

(iii) the Options shall vest as to 50% of the total
number of Option Shares, or ______ shares, on the last
business day prior to the first anniversary of the Grant Date
if the Participant is still an employee or director, and as to
the remaining 50% of the total number of Option Shares, or
_____ shares, on the last business day prior to the second
anniversary of the Grant Date if the Participant is still an
employee or director.

(i) the Company enters into an agreement or reorganization,
merger or consolidation pursuant to which the Company is not the
surviving corporation;

<PAGE>

(ii) the Company sells substantially all of its assets;

(iii) in excess of 75% of the outstanding securities of the
Company are acquired, in one transaction or a series of transactions,
by a single purchaser or group of related purchasers; or

(iv) in excess of 50% of the outstanding securities of the
Company are acquired in one transaction or a series of transactions, by
a single purchaser or group of related purchasers, and the Company's
Board of Directors, within 90 days before or after such acquisition,
deems such acquisition to be a "Change of Control" for purposes of this
Contract.

3. Term. The term in which the Options are exercisable shall
commence upon the vesting of the Options and shall expire on the third
anniversary of the date of vesting. The Participant may exercise the Options at
any time during such period. If the Participant's employment with FMI is
terminated either voluntarily by the Participant or for cause by FMI, any Option
held by such Participant on the date of such termination of employment will
terminate thirty (30) days after such date of termination, or on the expiration
of the stated term of such Option if earlier, and may not be exercised
thereafter.

For purposes of this paragraph, the following shall constitute
"cause":

(ii) The Participant's intentional and willful refusal to
perform the duties associated with Participant's position with FMI.

If the Participant's employment with FMI is terminated by FMI for other
than "cause", Participant will retain the Options granted under this Contract
subject to the same vesting requirements and exercise period as set forth
herein.

In the event of a Participant's termination of employment by reason of
death and provided Participant has been an employee for 6 months from the Grant
Date, and provided that the conditions set in 2(a)(i) and (ii) are met, 50% of
all Options held by such Participant shall vest prorata based on the total
months of service rendered since the Grant Date compared to 12 months and 50% of
all Options held by such Participant shall vest prorata based on the total
months of service rendered since the Grant Date compared to 24 months. Options
may thereafter be exercised by the legal representative of the Participant's
estate until the earlier of one year after the date of death or the stated term
of the Option.

2
<PAGE>

When the Participant becomes totally and permanently disabled and disability
benefits cease, all Options which have not vested shall immediately vest in full
as to passage of time conditions only and may be exercised by the Participant
until the earlier of one year after such date or the satisfactions of vesting
conditions other than the passage of time or the expiration of the stated term
of such Option. If the Participant dies during any such one-year period, any
unexercised Options shall be subject to the provisions of the previous
paragraph.

4. Exercise Procedure.

(b) Payment of the Option Price may be made in one of the
following ways:

(i) in cash or by check payable to the Company;

3
<PAGE>

applicable Federal or state securities law, and any applicable corporate law.
The certificates representing the Option Shares may include any legend that the
Company deems appropriate to reflect any restrictions on transfer.

6. Tax Matters. The Options are intended to be non-qualified
stock options under applicable tax laws and regulations.

4
<PAGE>

Option Shares issued to Participant. No adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities, or other property) or
distributions or other rights for which the record date is prior to the date
such Option Shares are issued, except as provided above.

11. Governing Law. This Contract shall be governed by and
construed in accordance with the laws of the State of Utah.

This Contract shall be binding upon and inure to the benefit
of any successor or successors of the Company.

5
<PAGE>

EXECUTED as of the date first above written.

FIELDS AIRCRAFT SPARES, INC.

By:__________________________________

The undersigned Participant hereby acknowledges receipt of an
executed original of this Share Option Contract and accepts the Options granted
thereunder.

--------------------------------------
___________________, Participant

Address:_______________________________
--------------------------------------

FIELDS AIRCRAFT SPARES, INC.

1998 NONQUALIFIED SHARE OPTION PLAN

ARTICLE 1
Name and Purpose

The purpose of the 1998 Nonqualified Share Option Plan (the "Plan") is
to enhance the profitability and value of Fields Aircraft Spares, Inc., a Utah
corporation, and its subsidiaries (collectively hereinafter the "Company"), for
the benefit of its shareholders by providing equity ownership opportunities and
performance based incentives to better align the interests of officers,
directors and key employees with those of shareholders. The Plan is also
designed to enhance the profitability and value of the Company for the benefit
of the shareholders by providing share awards to attract, retain and motivate
key consultants employees, directors, and officers who make important
contributions to the success of the Company.

ARTICLE 2
Definitions

For purposes of the Plan, the following terms shall have the following
meanings:

2.1. "Administrator" shall mean the Board or, if the Board has
delegated its responsibility to administer the Plan pursuant to Section 3.1, the
committee of the Board to which such responsibility has been delegated.

2.2. "Board" shall mean the Board of Directors of the Company.

2.3. "Change of Control" shall mean the occurrence of any one
of the following:

(a) the Company enters into an agreement or reorganization,
merger or consolidation pursuant to which the Company is not the
surviving corporation;

(b) the Company sells substantially all of its assets;

(c) in excess of 75% of the outstanding securities of the
Company are acquired, in one transaction or a series of transactions,
by a single purchaser or group of related purchasers; or

(d) in excess of 50% of the outstanding securities of the
Company are acquired in one transaction or a series of transactions, by
a single purchaser or group of related purchasers, and the Company's

<PAGE>

Board, within 90 days before or after such acquisition deems such
acquisition to be a "Change in Control" for purposes of this Contract.

2.4. "Code" shall mean the Internal Revenue Code of 1986, as
amended.

2.5. "Common Shares" shall mean the common shares, $.05 par
value per share, of the Company.

2.6. "Disability" shall mean a disability that results in a
Participant receiving disability benefits from the Company, its insurance
carrier or the State and provided that the Participant is not gainfully employed
elsewhere.

2.7. "Effective Date" shall mean the date on which the Plan
is adopted by the Board.

2.8. "Fair Market Value" for purposes of the Plan, unless
otherwise required by any applicable provision of the Code or any regulations
issued thereunder, shall mean, as of any date, the average closing price per
Common Share for the 20 days immediately preceding the date of grant, as said
closing prices are reported on the principal national securities exchange on
which the Common Shares are listed or admitted to trading, or, if not listed or
traded on any such exchange, on the Nasdaq SmallCap Market ("Nasdaq"), or, if
such closing prices are not available, the average of the bid and asked prices
per share reported on Nasdaq, or, if such quotations are not available, the fair
market value as determined by the Board, which determination shall be
conclusive.

2.9. "Participant" shall mean an officer, employee, including
temporary employees, director or consultant of the Company or a subsidiary of
the Company to whom an Option has been granted under the Plan.

2.10. "Share Option Contract" shall mean the contract
evidencing the Option granted to a Participant.

2.11. "Option" shall mean any option to purchase Common Shares
granted pursuant to Article 6 of the Plan. Options are not qualified under
Section 422 or 423 of the Code.

2.12. "Termination for Cause" shall mean a Termination of
Employment that has been designated as a "termination for cause" pursuant to
standard Company procedures.

2.13. "Termination of Employment" shall mean, as appropriate,
termination from all of the following:

(a) the termination of a Participant's employment with the
Company and its subsidiaries for reasons other than a military or
personal leave of absence granted by the Company,

- 2 -
<PAGE>

(b) termination of a Participant's consulting relationship
with the Company, or

Termination of Employment has not occured so long as any employment,
consulting relationship or board service is in force and shall occur on the date
that the last of such three positions is held.

ARTICLE 3
Administration

3.1. The Administrator. The Plan shall be administered and
interpreted by the Board; provided, however, that the Board may delegate this
responsibility to a committee comprised of two or more members of the Board.

3.2. Awards. The Administrator shall have full authority to
grant, pursuant to the terms of the Plan, Share Options to persons eligible
under Article 5. In particular, the Administrator shall have the authority:

(a) to select the Participants to whom Options
may from time to time be granted;

(b) to determine the number of Common Shares to
be covered by each Option granted pursuant to Article 6; and

(c) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any Option granted under Article 6
(including, but not limited to, the option price, the option term, installment
exercise or waiting period provisions and provisions relating to the waiver or
acceleration thereof).

3.3. Guidelines. Subject to Article 7 hereof, the
Administrator shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable; to interpret the terms and provisions of the
Plan and any Option granted under the Plan (and any agreements relating
thereto); and to otherwise supervise the administration of the Plan. The
Administrator may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or in any Option in the manner and to the extent it
shall deem necessary to carry the Plan into effect. Notwithstanding the
foregoing, no action of the Administrator under this Section 3.3 shall impair
the rights of any Participant without the Participant's consent, unless
otherwise required by law.

3.4. Decisions Final. Any decision, interpretation or other
action made or taken in good faith by the Administrator arising out of or in
connection with the Plan shall be final, binding and conclusive on the Company,
all Participants and their respective heirs, executors, administrators,
successors and assigns.

- 3 -
<PAGE>

ARTICLE 4
Share Limitation

4.1. Shares. The maximum aggregate number of Common Shares
that may be issued under the Plan is 167,600 (subject to increase or decrease
pursuant to Section 4.2), which may be either authorized and unissued Common
Shares or issued Common Shares reacquired by the Company. If any Option granted
under the Plan shall expire, terminate or be cancelled for any reason without
having been exercised in full, the number of unpurchased shares shall again be
available for the purposes of the Plan.

4.2. Changes. In the event of any merger, reorganization,
consolidation, recapitalization, dividend (other than a regular cash dividend),
share split, or other change in corporate structure affecting the Common Shares,
such substitution or adjustment shall be made in the maximum aggregate number of
shares which may be issued under the Plan, the maximum number of shares with
respect to which Options may be granted to any individual during any year, and
the number and option price of shares subject to outstanding Options, as may be
determined to be appropriate by the Board, in its sole discretion, provided that
the number of shares subject to any Option shall always be a whole number.

ARTICLE 5
Eligibility

Participants are eligible to be granted Options under the Plan.

ARTICLE 6
Grant of Share Options

6.1. Grants. The Administrator shall have the authority to
grant to any person, to the extent eligible under Article 5, one or more
Options.

6.2. Terms of Options. Options granted under the Plan shall be
subject to the following terms and conditions and shall contain such additional
terms and conditions, not inconsistent with the terms of the Plan, as the
Administrator shall deem desirable:

(a) Each Option shall be evidenced by, and
subject to the terms of, a Share Option Contract executed by the Company. The
Share Option Contract shall specify the number of Common Shares subject to the
Option, the option price, the option term, and the other terms and conditions
applicable to the Option.

(b) The option price per Common Share purchasable
upon exercise of a Option shall be determined by the Administrator at the time
of grant, but shall not be less than 100% of the Fair Market Value of the Common
Shares on the date of grant.

- 4 -
<PAGE>

(c) The term of each Option shall be fixed by the
Administrator at the time of grant, but no Share Option shall be exercisable
more than ten years after the date it is granted.

(d) Options shall be exercisable at such time or
times and subject to such terms and conditions as shall be determined by the
Administrator at the time of grant, and subject to Section 6.2(k); provided,
however, that the Administrator may waive any installment exercise or waiting
period provisions, in whole or in part, at any time after the date of grant,
based on such factors as the Administrator shall deem appropriate in its sole
discretion.

(e) Subject to such installment exercise and
waiting period provisions as may be imposed by the Administrator, Options may be
exercised in whole or in part at any time during the option term by delivering
to the Company written notice of exercise specifying the number of Common Shares
to be purchased and the aggregate option price therefor. The notice of exercise
shall be accompanied by payment in full of the option price and, if requested by
the Company, by the representation described in Section 8.2. Payment of the
option price may be made in one of the following ways:

(i) in cash or by check payable to the Company;

(ii) to the extent determined by the Administrator on
or after the date of grant, in Common Shares duly owned by the
Participant (and for which the Participant has good title,
free and clear of any liens and encumbrances); or

(iii) to the extent determined by the Administrator
on or after the date of grant, by reduction in the number of
Common Shares issuable upon such exercise, based, in each
case, on the Fair Market Value of the Common Shares on the
last business day preceding the date of exercise. Upon payment
in full of the option price and satisfaction of the other
conditions provided herein, a stock certificate representing
the number of Common Shares to which the Participant is
entitled shall be issued and delivered to the Participant.

(f) Unless otherwise determined by the
Administrator on or after the date of grant, in the event of a Participant's
Termination of Employment by reason of death, all Options held by such
Participant shall fully vest as to passage of time conditions only on the date
of death, and may thereafter be exercised by the legal representative of the
Participant's estate until the earlier of one year after the date of death or
the expiration of the stated term of such Option, provided that the vesting
conditions have been met as established in the Share Option Contract.

(g) On or after the date of grant, in the event
of a Participant's Disability, any Option held by such Participant will continue
to vest during the period of time that the disabled Participant receives
Disability benefits from the Company, its insurance carrier or the State, and is
not gainfully employed elsewhere. When the Participant becomes totally and
permanently Disabled and Disability benefits cease, all Options which have not

- 5 -
<PAGE>

vested shall immediately vest in full as to passage of time conditions only and
may be exercised by the Participant until the earlier of one year after such
date or the satisfaction of vesting conditions other than the passage of time or
the expiration of the stated term of such Option. If the Participant dies during
any such one-year period, any unexercised Options shall be subject to the
provisions of Section 6.2(f) above.

(h) Unless otherwise determined by the
Administrator on or after the date of grant, in the event of a Participant's
Termination of Employment by reason of retirement or for any reason other than
death, Disability, or Termination for Cause, any Option exercisable on the date
of such Termination of Employment shall become fully exercisable, and may
thereafter be exercised by the Participant until the earlier of 30 days after
such date or the expiration of the stated term of such Option, and any Option
not exercisable on the date of Termination of Employment shall be forfeited.

(i) In the event of a Termination for Cause, any
Option held by the Participant that was not exercised prior to the date of such
Termination for Cause shall be forfeited.

(j) In the event of a Change of Control, all
outstanding Options shall immediately vest and become fully exercisable during
the period of one hundred twenty (120) days following the date upon which the
Company obtained actual knowledge of such Change of Control of the Company.

(k) No Option shall be transferrable by the
Participant otherwise than by will or by the laws of descent and distribution,
to the extent consistent with the terms of the Plan and the Option, and all
Options shall be exercisable, during the Participant's lifetime, only by the
Participant.

6.3. Rights as Shareholder. A Participant shall not be deemed
to be the holder of Common Shares, or to have any of the rights of a holder of
Common Shares, with respect to shares subject to an Option, unless and until the
Option is exercised and a share certificate representing such Common Shares is
issued to the Participant.

ARTICLE 7
Termination or Amendment

7.1. Termination or Amendment of Plan. The Board may at any
time amend, discontinue or terminate the Plan or any part thereof (including any
amendment deemed necessary to ensure that the Company may comply with any
regulatory requirement); provided, however that, unless otherwise required by
law, the rights of a Participant with respect to Options granted prior to such
amendment, discontinuance or termination may not be impaired without the consent
of such Participant and, provided further, that the Company will seek the
approval of the Company's shareholders for any amendment if such approval is
necessary to comply with the Code, Federal or state securities law or any other
applicable rules or regulations.

- 6 -
<PAGE>

7.2. Amendment of Options. The Board may amend the terms of
any Option previously granted, prospectively or retroactively, but, subject to
Article 4, no such amendment or other action by the Board shall impair the
rights of any holder without the holder's consent.

ARTICLE 8
General Provisions

8.1. Nonassignment. Except as otherwise provided in the Plan,
any Option granted hereunder and the rights and privileges conferred thereby may
not be sold, transferred, assigned, pledged or hypothecated in any way (whether
by operation of law or otherwise), and shall not be subject to execution,
attachment or similar process. Upon any attempt to transfer, assign, pledge,
hypothecate or otherwise dispose of an Option, right or privilege contrary to
the provisions hereof, or upon the levy of any attachment or similar process
thereon, such Option and the rights and privileges conferred thereby shall
immediately terminate and the Option shall immediately be forfeited to the
Company.

8.2. Legend. The Company may require each person acquiring
Common Shares upon exercise of an Option to represent to the Company in writing
that the Participant is acquiring the shares without a view to the distribution
thereof. The certificates representing such shares may include any legend which
the Company deems appropriate to reflect any restrictions on transfer. All
certificates representing Common Shares delivered under the Plan shall be
subject to such share transfer orders and other restrictions as the Company may
deem advisable under the rules, regulations and other requirements of the
Securities and Exchange Commission, any stock exchange or stock market upon
which the Common Shares are then listed or traded, any applicable Federal or
state securities law, and any applicable corporate law. The Company may cause a
legend or legends to be put on any such certificates to make appropriate
reference to such restrictions.

8.3. Other Plans. Nothing contained in the Plan shall prevent
the Company from adopting other or additional compensation arrangements, and
such arrangements may be either generally applicable or applicable only in
specific cases.

8.4. No Right to Employment. Neither the Plan nor the grant of
any Option shall give any Participant or other employee, consultant or director
any right with respect to continuance of employment, consulting relationship or
directorship, as the case may be, with the Company or any subsidiary, nor shall
the Plan impose any limitation on the right of the Company or any subsidiary by
which a Participant is employed to terminate a Participant's employment or
consulting relationship at any time. Neither the Plan nor the grant of any
Option shall give any director the right to continue as a member of the Board or
obligate the Company to nominate any director for reelection by the Company's
shareholders.

8.5. Withholding of Taxes. The Company shall have the right to
reduce the number of Common Shares otherwise deliverable upon exercise of an
Option by an amount that would have a Fair Market Value equal to the amount of
all Federal, state and local taxes required to be withheld, or to deduct the

- 7 -
<PAGE>

amount of such taxes from any cash payment otherwise to be made to the
Participant, pursuant to the Plan or otherwise. In connection with such
withholding, the Company may make such arrangements as are consistent with the
Plan as it may deem appropriate.

8.6. Listing and Other Conditions.

(a) If the Common Shares are listed on a
national securities exchange or Nasdaq, the issuance of any Common Shares upon
exercise of an Option shall be conditioned upon such shares being listed on such
exchange or Nasdaq. The Company shall have no obligation to issue any Common
Shares unless and until such shares are so listed, and the right to exercise any
Option shall be suspended until such listing has been effected.

(b) If at any time counsel to the Company shall
be of the opinion that any sale or delivery of Common Shares upon exercise of an
Option is or may in the circumstances be unlawful or result in the imposition of
excise taxes under the statutes, rules or regulations of any applicable
jurisdiction, the Company shall have no obligation to make such sale or
delivery, or to make any application or to effect or to maintain any
qualification or registration under the Securities Act of 1933, as amended, or
otherwise with respect to Common Shares or Options, and the right to exercise
any Option shall be suspended until, in the opinion of such counsel, such sale
or delivery shall be lawful or shall not result in the imposition of excise
taxes.

(c) Upon termination of any period of suspension
under this Section 8.6, any Option affected by such suspension which shall not
then have expired or terminated shall be reinstated as to all shares available
before such suspension and as to shares which would otherwise have become
available during the period of such suspension, and such suspension shall extend
the term of any Option for the period of such suspension.

8.7. Governing Law. The Plan and actions taken in connection
herewith shall be governed and construed in accordance with the laws of the
State of Utah without regard to the conflict of law principles thereof.

8.8. Construction. Wherever any words are used in the Plan in
the masculine gender they shall be construed as though they were also used in
the feminine gender in all cases where they would so apply, and wherever any
words are used herein in the singular form they shall be construed as though
they were also used in the plural form in all cases where they would so apply.

8.9. Liability of the Board. No member of the Board nor any
employee of the Company or any of its subsidiaries shall be liable for any act
or action hereunder, whether of omission or commission, by any other member of
the Board or employee or by any agent to whom duties in connection with the
administration of the Plan have been delegated or, except in circumstances
involving bad faith, gross negligence or fraud, for anything done or omitted to
be done by himself.

- 8 -
<PAGE>

8.10. Costs. The Company shall bear all expenses incurred in
administering the Plan, including expenses related to the issuance of Common
Shares upon exercise of Options.

8.11. Severability. If any part of the Plan shall be
determined to be invalid or void in any respect, such determination shall not
affect, impair, invalidate or nullify the remaining provisions of the Plan which
shall continue in full force and effect.

8.12. Successors. The Plan shall be binding upon and inure
to the benefit of any successor or successors of the Company.

8.13. Headings. Article and section headings contained in
the Plan are included for convenience only and are not to be used in construing
or interpreting the Plan.

ARTICLE 9
Term of Plan

9.1. Effective Date. The Plan shall be effective as of the
Effective Date.

9.2. Termination Date. Unless sooner terminated, the Plan
shall terminate ten years after the Effective Date and no Options may be granted
thereafter. Termination of the Plan shall not affect Options granted before such
date.

APPROVED AND ADOPTED EFFECTIVE AS OF 13 FEBRUARY 1998.

______________________________
President of the Company

- 9 -

FIELDS AIRCRAFT SPARES, INC.

SHARE OPTION CONTRACT
Option No. 5 - ______

This SHARE OPTION CONTRACT ("Contract") is entered into as of
, 1998 ("Grant Date") by and between ___________ (hereinafter called the
"Participant") and FIELDS AIRCRAFT SPARES, INC., a Utah corporation (hereinafter
called the "Company").

WHEREAS, Participant is an employee, consultant, or director
of the Company or its subsidiaries;

WHEREAS, the grant of this Contract to the Participant and the
execution hereof has been duly authorized pursuant to the terms of the Company's
1998 Nonqualified Share Option Plan (the "Plan") as of the Grant Date; and

WHEREAS, the grant of this Contract to the Participant and the
execution of a Contract in the form hereof has been duly authorized by the Board
of Directors of the Company.

NOW, THEREFORE, the parties hereto, in consideration of the
mutual covenants contained herein and other good and valuable considerations,
agree as follows:

1. Grant. The Company hereby grants Participant an option (the
"Options") pursuant to the Plan to purchase _____ common shares, no par value,
of the Company ("Option Shares"), at a price of ______ Dollars and _____ Cents
($ ) per share (the "Option Price"), and agrees to cause certificates for any
Option Shares purchased hereunder to be delivered to the Participant upon
payment of the aggregate Option Price in full, all subject, however, to the
terms and conditions hereinafter set forth and set forth in the Plan.

2. Vesting.

(a) The Options shall vest and become fully exercisable as to
the Option Shares upon all of the following conditions being met:

(i) [the Company shall have sales of at least
$20,000,000 in any 12- month period subsequent to the Grant
Date;]

[Flightways Manufacturing, Inc. shall have actual sales of at
least $5,000,000 to third party customers, whether shipped
directly or indirectly, in any 12-month period subsequent to
the Grant Date;]

[Skylock Industries shall have actual sales of at least
$3,000,000 to third party customers, whether shipped directly
or indirectly, in any 12-month period subsequent to the Grant
Date;]

(ii) the condition set forth in (i) must have
occurred if at all within two years from the Grant Date; and

<PAGE>

(iii) the options shall vest as to 50% of the total
number of Option Shares, or _____ shares, on the last business
day prior to the first anniversary of the Grant Date if the
Participant is still an [employee] [consultant] [director],
and as to the remaining 50% of the total number of Option
Shares, or ______ shares, on the last business day prior to
the second anniversary of the Grant Date if the Participant is
still an [employee] [consultant] [director].

(i) the Company enters into an agreement or reorganization,
merger or consolidation pursuant to which the Company is not the
surviving corporation;

(ii) the Company sells substantially all of its assets;

(iii) in excess of 75% of the outstanding securities of the
Company are acquired, in one transaction or a series of transactions,
by a single purchaser or group of related purchasers; or

(iv) in excess of 50% of the outstanding securities of the
Company are acquired in one transaction or a series of transactions, by
a single purchaser or group of related purchasers, and the Company's
Board of Directors, within 90 days before or after such acquisition,
deems such acquisition to be a "Change of Control" for purposes of this
Contract.

For purposes of this paragraph, the following shall constitute
"cause":

2
<PAGE>

(ii) The Participant's intentional and willful refusal to
perform the duties associated with Participant's position with the
Company or its subsidiaries.

In the event of a Participant's termination of [employment]
[directorship] [consulting] by reason of death, and provided Participant has
been an employee, director or consultant for 6 months from the Grant Date and
provided that the conditions set forth in 2(a)(i) and (ii) are met, 50% of all
Options held by such Participant shall vest prorata based on the total months of
service rendered since the Grant Date compared to 12 months and 50% of all
Options held by such Participant shall vest prorata based on the total months of
service rendered since the Grant Date compared to 24 months. Options may
thereafter be exercised by the legal representative of the Participant's estate
until the earlier of one year after the date of death or the stated term of the
Option.

In the event of a Participant's disability, any Option held by
such Participant will continue to vest during the period of time that the
disabled Participant receives disability benefits from the Company, its
insurance carrier or the state and is not gainfully employed elsewhere. When the
Participant becomes totally and permanently disabled and disability benefits
cease, all Options which have not vested shall immediately vest in full as to
passage of time conditions only and may be exercised by the Participant until
the earlier of one year after such date or the satisfactions of vesting
conditions other than the passage of time or the expiration of the stated term
of such Option. If the Participant dies during any such one-year period, any
unexercised Options shall be subject to the provisions of the previous
paragraph.

4. Exercise Procedure.

(b) Payment of the Option Price may be made in one of the
following ways:

(i) in cash or by check payable to the Company;

3
<PAGE>

6. Tax Matters. The Options are intended to be non-qualified
options under applicable tax laws and regulations.

4
<PAGE>

This section does not give Participant any right to receive additional options
as a result of the issuance of additional shares of the Company or the increase
in the authorized capital of the Company.

9. Transferability. Transferability of Options granted
hereunder is limited as set forth in the Plan.

11. Governing Law. This Contract shall be governed by and
construed in accordance with the laws of the State of Utah.

5
<PAGE>

This Contract shall be binding upon and inure to the benefit
of any successor or successors of the Company.

EXECUTED as of the date first above written.

FIELDS AIRCRAFT SPARES, INC.

By:__________________________________

The undersigned Participant hereby acknowledges receipt of an
executed original of this Share Option Contract and accepts the Options granted
thereunder.

--------------------------------------
___________________, Participant

Address:_______________________________
--------------------------------------

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into and effective
as of January 1, 1998, by and between FIELDS AIRCRAFT SPARES, INC., a Utah
corporation ("Fields"), FIELDS AERO MANAGEMENT, INC., a California corporation
("FAM") and FIELDS AIRCRAFT SPARES INCORPORATED, a California corporation
("FASI"), jointly and severally (Fields, FAM and FASI are hereinafter sometimes
collectively referred to as the "Company") and PETER FROHLICH (hereinafter
"Employee").

W I T N E S S E T H:

In consideration of the mutual covenants and obligations herein set
forth, the parties hereto agree as follows:

1. Engagement; Nature of Duties. Company hereby engages Employee, for
the period hereinafter set forth, to serve as and hold the office of Chairman of
the Board of the Company, or another executive office, such as President or CEO,
and to perform the duties of such office as provided in the Bylaws of the
Company. Employee agrees to serve in such capacity and to do and perform the
services, acts, or things necessary to carry out the duties of such office, and
such other duties, not inconsistent with such office and Employee's position as
an executive officer of the Company as Company and Employee may mutually agree.
Employee expressly acknowledges and agrees that such additional duties may
include, but shall not be limited to, serving as an officer and/or director of
any and all subsidiaries of the Company, expressly including, but not limited
to, FAM or FASI. Employee shall report only to the Board of Directors of the
Company. It is expressly agreed and acknowledged that employment as the
aforementioned officer was a material inducement to Employee to enter into this
Agreement, and notwithstanding any rights the Company may have at law or
pursuant to the Bylaws of the Company to remove Employee from or fail to
maintain Employee in such office, any such failure or removal shall be deemed a
material breach of this Agreement by the Company, unless Employee shall be
appointed to another reasonably acceptable executive position, as described
above.

2. Term. The term of employment pursuant to this Agreement shall be for
a period commencing the date hereof through and including December 31, 2000,
unless sooner terminated in accordance with the provisions hereof. Company and
Employee further agree that, unless either party shall give written notice, not
less than sixty (60) days prior to the anniversary date of this Agreement, to
the other party of its intention not to so extend the term of this Agreement,
the term of this Agreement shall be extended, on each anniversary date hereof,
for an additional one (1) year period. For example, unless either party shall
have given written notice of its intention not to renew not less than sixty (60)
days prior to January 1, 1999, the term of this Agreement shall, as of that
date, be automatically extended to December 31, 2001.

1
<PAGE>

3. Performance of Duties. Employee shall devote such time and attention
to Employee's duties as may be reasonably necessary to perform and carry out
such duties. Except for such activities and other business dealings as do not,
in the reasonable judgement of Employee, unreasonably interfere with the
performance of Employee's duties hereunder, Employee's services shall be
exclusive to the Company during the term hereof, and Employee shall not accept
any other employment or position, of any nature, without the prior written
consent of Company.

Employee shall perform his duties hereunder primarily in the
Los Angeles, California and London, England areas, and shall not be required to
perform such duties, on a regular basis, at any other location. Employee shall
not be required to relocate without his consent.

4. Compensation.

(a) Company shall pay to Employee an annual
salary in the amount of One Hundred Ninety Thousand Dollars ($190,000) per year,
payable in periodic installments in accordance with Company's prevailing policy
for compensating personnel, but not less often than semi-monthly.
Notwithstanding the foregoing, Employee agrees and acknowledges that this rate
of compensation shall commence as of February 1, 1998.

(b) The Board of Directors of the Company shall
review the annual salary of Employee not less often than once each fiscal year.
Company and Employee agree that the foregoing annual salary shall be increased,
on each anniversary date of this Agreement, by an amount equal to the increase
in the Consumer Price Index (All Urban Consumers) during the prior twelve (12)
months; provided, however, that in no event shall such increase be less than
five percent (5%). The Board of Directors of the Company may elect, in its sole
discretion, and based upon a review of the business and financial performance of
the Company, overall industry performance, and other factors, to increase the
annual salary by a greater amount.

(c) In addition to the foregoing salary, and any
and all other compensation, profit-sharing participation, benefits, bonuses or
other amounts due to or receivable by Employee pursuant to this Agreement or any
plan or program maintained by the Company, in the event that the Company has net
income, before taxes, for any fiscal year of the Company during the term hereof,
Employee shall receive an annual bonus, as of the end of such fiscal year, equal
to Three and Three Tenths Percent (3.3%) of such net income before taxes, not to
exceed a total of Forty Thousand Dollars ($40,000.00). Such maximum bonus shall
be increased, on each anniversary date of this Agreement, by an amount equal to
the increase in the Consumer Price Index (All Urban Consumers) during the prior
twelve (12) months; provided, however, that in no event shall such increase be
less than five percent (5%). Such net income before taxes shall be determined by
the independent auditors normally retained by the Company for the preparation of
its financial statements, based upon such financial statements. Such bonus shall
be paid, if due, not later than ninety (90) days following the end of the fiscal
year.

2
<PAGE>

(d) In addition to the foregoing annual salary
and bonus, the Board of Directors of the Company shall, in its discretion, have
the right and power, but not the obligation, to award Employee additional
amounts as a bonus for services performed. In addition, Employee shall receive
an additional amount equal to one (1) week's salary each year at Christmas, in
accordance with the Company's established practice for all employees.

5. Expense Reimbursement; Automobile Allowance. The services required
of Employee by this Agreement shall include the responsibility and duty of
entertaining business associates and others with whom Company is, desires to be,
or may become engaged in business or with whom it seeks, now or in the future,
to develop or expand business relationships, or with whom it is otherwise to the
benefit of the Company to establish or maintain communications. It may also be
necessary for Employee to travel from time to time on behalf of and for the
benefit of the Company, or in furtherance of the Company's business. It is
Company's belief that the performance of the Employee's duties in such travel
and entertainment activities will be productive of the maximum benefits which
Company expects to derive from Employee's services. Accordingly, Company shall
pay, or if Employee shall have paid, shall reimburse to Employee, any and all
expenses incurred by him or for his account in the performance of his duties
hereunder, including all expenses for business, entertainment, promotion and
travel by Employee, subject only to Employee providing appropriate documentation
for such expenses. It is expressly agreed, in connection therewith, that
Employee shall be provided or reimbursed for executive-level travel and
accommodations.

The services required of Employee by this Agreement shall
include the responsibility and duty of traveling to various locations on a
regular basis by automobile, and Company acknowledges that Employee shall be
required to use Employee's personal automobile for such purposes. Company shall,
therefore, pay to Employee a monthly automobile allowance in the amount of Seven
Hundred Dollars ($700), payable on or before the tenth (10th) day of each month
during the term hereof.

6. Medical and Life Insurance; Pension Benefits. Employee shall have
the right to participate in any and all group, life, disability income, health
or accident insurance programs applicable to any personnel of Company, and in
effect at any time during the period of Employee's employment hereunder, subject
only to any eligibility restrictions of such programs. Employee shall also have
the right to participate in any and all employee retirement benefits plan or
profit-sharing plan which Company maintains for its personnel, and in effect at
any time during the period of Employee's employment hereunder, subject only to
any eligibility restrictions of such plans. In the event that, as a result of
any eligibility restrictions of any such plans or programs, at Employee's
option, provide Employee with equivalent benefits to those which would be
available to Employee under such plan or program, at the Company's sole cost and
expense.

3
<PAGE>

7. Vacation. During each year of the term, Employee shall be entitled
to a vacation of not less than four (4) weeks, without deduction of salary. Such
vacation shall be taken at such time or times during the applicable year as may
be mutually determined by Employee and Company. Any additional vacation period
shall be determined by Company consistent with the general customs and practices
of the Company applicable to its personnel. In the event that, in any fiscal
year, Employee utilizes less than four (4) weeks of vacation, any accrued and
unused vacation shall carry over to the following year, and may be used during
such year; provided, however, that Employee shall not be permitted to carry over
more than four (4) weeks of vacation to any year, and any vacation accrued and
unused in excess of four (4) weeks at the end of any fiscal year shall be
forfeited. Upon the expiration or termination of this Agreement, for any reason,
Employee shall be compensated for all accrued and unused vacation.

8. Termination. This Agreement may be terminated by Company only for
cause. As used herein, "cause" shall mean:

(a) Employee's willful breach of Employee's duties
hereunder, which breach remains uncured for thirty (30) days after written
notice of such breach to Employee; or

(b) Employee's conviction of a felony involving moral
turpitude.

In addition, this Agreement shall automatically terminate upon
Employee's death or permanent disability. As used herein, "permanent disability"
shall mean Employee's complete inability to perform Employee's duties hereunder,
as determined by Employee's physician, which inability continues for more than
Ninety (90) consecutive days, or for more than One Hundred Twenty (120) days in
any one fiscal year.

In the event that this Agreement is terminated by the Company
for any reason other than for cause as defined above, the Company shall be
obligated to pay Employee an amount equal to the greater of (i) two (2) years of
annual salary at Employee's then-current rate of compensation, or (ii) annual
salary at Employee's then-current rate for the then remaining term of this
Agreement, as severance. In connection therewith, the Company expressly agrees
and acknowledges that Employee shall have no duty or obligation to seek or
accept other employment, or otherwise mitigate Employee's damages resulting from
such termination. The Company further agrees and acknowledges that, in the event
Employee does obtain other employment following the Company's termination of
this Agreement, the Company shall not be entitled to any set off or reduction in
the amounts payable to Employee hereunder as a result of any compensation paid
to Employee with respect to such new employment.

In the event of any termination of this Agreement due to the
death of Employee, the Company shall pay to Employee's estate an amount equal to
one (1) year of annual salary at Employee's then-current rate of compensation,
as a death benefit. In the event of any termination of this Agreement due to the

4
<PAGE>

permanent disability of Employee, the Company shall pay to Employee an amount
equal to one (1) year of annual salary at Employee's then-current rate of
compensation, less the amount of any disability income benefits actually paid
during such year pursuant to any Company-maintained disability income policy.

9. Indemnification. The Company shall indemnify, defend and hold
Employee harmless from and against any and all claims, demands, suits,
obligations, liabilities, actions, losses, costs, expenses, fines or penalties
which may now or hereafter be pending, threatened or commenced against or
incurred by Employee relating to or in any way resulting from Employee's
performance of his duties hereunder, or any action or failure to act of Employee
in connection with such duties. Employee's rights under this Section 9 shall be
in addition to, and not in lieu of, any and all other rights of Employee under
applicable law or any agreement with the Company regarding indemnification.

10. Notices. Any and all notices which are required or permitted to be
given by any party to any the other party hereunder shall be given in writing,
sent by registered or certified mail, electronic communications (including
telegram or facsimile) followed by a confirmation letter sent by registered or
certified mail, postage prepaid, return receipt requested, or delivered by hand
or messenger service, with the charges therefor prepaid, addressed to such party
as follows:

(a) Notices to the Employee:

Peter Frohlich
128 Mount Street
London, W1, UK

(b) Notices to the Company:

Fields Aircraft Spares, Inc.
2251-A Ward Avenue
Simi Valley, CA 93005
Attn: Alan Fields

or to such other address as the parties shall from time to time give notice of
in accordance with this Section. Notices sent in accordance with this Section
shall be deemed effective on the date of dispatch, and an affidavit of mailing
or dispatch, executed under penalty of perjury, shall be deemed presumptive
evidence of the date of dispatch.

11. Entire Agreement and Modifications. This Agreement, including the
exhibits hereto and the agreements expressly referred to herein, constitutes the
entire understanding between the parties pertaining to the subject matter hereof
and supersedes all prior agreements, understandings, negotiations and
discussions, whether oral or written.

5
<PAGE>

There are no warranties, representations or other agreements between the
parties, in connection with the subject matter hereof, except as specifically
set forth herein. No supplement, modification, waiver or termination of this
Agreement shall be binding unless made in writing and executed by the party
thereto to be bound.

12. Waivers. No term, condition or provision of this Agreement may be
waived except by an express written instrument to such effect signed by the
party to whom the benefit of such term, condition or provision runs. No such
waiver of any term, condition or provision of this Agreement shall be deemed a
waiver of any other term, condition or provision, irrespective of similarity, or
shall constitute a continuing waiver of the same term, condition or provision,
unless otherwise expressly provided. No failure or delay on the part of any
party in exercising any right, power or privilege under any term, condition or
provision of this Agreement shall operate as a waiver thereof, nor shall a
single or partial exercise thereof preclude any other or further exercise of any
other right, power or privilege.

13. Survival of Agreement Provisions. All terms, conditions,
provisions, covenants, agreements, representations and warranties made herein
shall survive the performance by the parties hereto of their obligations
hereunder, and the termination or expiration of this Agreement.

14. Severability. In the event any one or more of the terms, conditions
or provisions contained in this Agreement should be found in a final award or
judgement rendered by any court or arbitrator or panel of arbitrators of
competent jurisdiction to be invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining terms, conditions and
provisions contained herein shall not in any way be affected or impaired
thereby, and this Agreement shall be interpreted and construed as if such term,
condition or provision, to the extent the same shall have been held invalid,
illegal, or unenforceable, had never been contained herein, provided that such
interpretation and construction is consistent with the intent of the parties as
expressed in this Agreement.

15. Headings. The headings of the Articles and Sections contained in
this Agreement are included herein for reference purposes only, solely for the
convenience of the parties hereto, and shall not in any way be deemed to affect
the meaning, interpretation or applicability of this Agreement or any term,
condition or provision hereof.

16. Applicable Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of California, notwithstanding the fact
that one or more counterparts hereof may be executed outside of the state, or
one or more of the obligations of the parties hereunder are to be performed
outside of the state.

17. Attorneys' Fees. In the event that any party to this Agreement
shall commence any suit, action, arbitration or other proceeding to interpret
this Agreement, or determine or enforce any right or obligation created hereby,

6
<PAGE>

including but not limited to any action for rescission of this Agreement or for
a determination that this Agreement is void or ineffective ab initio, the
prevailing party in such action shall recover such party's costs and expenses
incurred in connection therewith, including attorney's fees and costs of appeal,
if any. Any court, arbitrator or panel of arbitrators shall, in entering any
judgement or making any award in any such suit, action, arbitration or other
proceeding, in addition to any and all other relief awarded to such prevailing
party, include in such judgement or award such party's costs and expenses as
provided in this Section 17.

18. Execution and Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed an original, and such counterparts together shall constitute only one
instrument. Any or all of such counterparts may be executed within or outside
the state of California. Any one of such counterparts shall be sufficient for
the purpose of proving the existence and terms of this Agreement, and no party
shall be required to produce an original or all of such counterparts in making
such proof.

19. Covenant of Further Assurances. All parties to this Agreement
shall, upon request, perform any and all acts and execute and deliver any and
all certificates, instruments and other documents that may be necessary or
appropriate to carry out any of the terms, conditions and provisions hereof or
to carry out the intent of this Agreement.

20. Remedies Cumulative. Each and all of the several rights and
remedies provided for in this Agreement shall be construed as being cumulative
and no one of them shall be deemed to be exclusive of the others or of any right
or remedy allowed by law or equity, and pursuit of any one remedy shall not be
deemed to be an election of such remedy, or a waiver of any other remedy.

21. Binding Effect. Subject to the restrictions in Section 27 hereof
respecting assignments, this Agreement shall inure to the benefit of and be
binding upon all of the parties hereto and their respective executors,
administrators, successors and permitted assigns.

22. Compliance with Laws. Nothing contained in this Agreement shall be
construed to require the commission of any act contrary to law, and whenever
there is a conflict between any term, condition or provision of this Agreement
and any present or future statute, law, ordinance or regulation contrary to
which the parties have no legal right to contract, the latter shall prevail, but
in such event the term, condition or provision of this Agreement affected shall
be curtailed and limited only to the extent necessary to bring it within the
requirement of the law, provided that such construction is consistent with the
intent of the parties as expressed in this Agreement.

7
<PAGE>

23. Gender. As used in this Agreement, the masculine, feminine or
neuter gender, and the singular or plural number, shall be deemed to include the
others whenever the context so indicates.

24. No Third Party Benefit. Nothing contained in this Agreement shall
be deemed to confer any right or benefit on any person who is not a party to
this Agreement.

25. Construction; Representation by Counsel. The parties hereby
represent that they have each been advised by independent counsel with respect
to their rights and obligations hereunder. This Agreement shall be construed and
interpreted in accordance with the plain meaning of its language, and not for or
against either party, and as a whole, giving effect to all of the terms,
conditions and provisions hereof.

8
<PAGE>

26. Assignment. Neither party may assign this Agreement, or any rights
hereunder, without the prior express consent of the other party.

IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the day and year first above written.

"Company"

FIELDS AIRCRAFT SPARES, INC.,
a Utah corporation

By:/s/ Alan Fields
---------------------
Its: President

FIELDS AERO MANAGEMENT, INC.,
a California corporation

By: /s/ Alan Fields
---------------------
Its: President

FIELDS AIRCRAFT SPARES INCORPORATED,
a California corporation

By: /s/ Alan Fields
------------------
Its: President

"Employee"

/s/ Peter Frohlich
----------------------
PETER FROHLICH

EMPLOYMENT AGREEMENT

W I T N E S S E T H:

In consideration of the mutual covenants and obligations herein set
forth, the parties hereto agree as follows:

1. Engagement; Nature of Duties. Company hereby engages Employee, for
the period hereinafter set forth, to serve as and hold the office of Chief
Executive Officer of the Company, or another executive office, such as President
or Chairman of the Board, and to perform the duties of such office as provided
in the Bylaws of the Company. Employee agrees to serve in such capacity and to
do and perform the services, acts, or things necessary to carry out the duties
of such office, and such other duties, not inconsistent with such office and
Employee's position as an executive officer of the Company as Company and
Employee may mutually agree. Employee expressly acknowledges and agrees that
such additional duties may include, but shall not be limited to, serving as an
officer and/or director of any and all subsidiaries of the Company, expressly
including, but not limited to, Fields Aircraft Spares Incorporated, a California
corporation, the wholly-owned subsidiary of the Company. Employee shall report
only to the Board of Directors of the Company. It is expressly agreed and
acknowledged that employment as the aforementioned officer was a material
inducement to Employee to enter into this Agreement, and notwithstanding any
rights the Company may have at law or pursuant to the Bylaws of the Company to
remove Employee from or fail to maintain Employee in such office, any such
failure or removal shall be deemed a material breach of this Agreement by the
Company, unless Employee shall be appointed to another reasonably acceptable
executive position, as described above.

1
<PAGE>

Employee shall perform his duties hereunder primarily in the
Los Angeles, California area, and shall not be required to perform such duties,
on a regular basis, at any other location. Employee shall not be required to
relocate without his consent.

4. Compensation.

(a) Company shall pay to Employee an annual
salary in the amount of Two Hundred Forty Thousand Dollars ($240,000) per year,
payable in periodic installments in accordance with Company's prevailing policy
for compensating personnel, but not less often than semi-monthly.
Notwithstanding the foregoing, Employee agrees and acknowledges that this rate
of compensation shall commence as of February 1, 1998.

2
<PAGE>

5. Expense Reimbursement; Automobile. The services required of Employee
by this Agreement shall include the responsibility and duty of entertaining
business associates and others with whom Company is, desires to be, or may
become engaged in business or with whom it seeks, now or in the future, to
develop or expand business relationships, or with whom it is otherwise to the
benefit of the Company to establish or maintain communications. It may also be
necessary for Employee to travel from time to time on behalf of and for the
benefit of the Company, or in furtherance of the Company's business. It is
Company's belief that the performance of the Employee's duties in such travel
and entertainment activities will be productive of the maximum benefits which
Company expects to derive from Employee's services. Accordingly, Company shall
pay, or if Employee shall have paid, shall reimburse to Employee, any and all
expenses incurred by him or for his account in the performance of his duties
hereunder, including all expenses for business, entertainment, promotion and
travel by Employee, subject only to Employee providing appropriate documentation
for such expenses. It is expressly agreed, in connection therewith, that
Employee shall be provided or reimbursed for executive-level travel and
accommodations.

The services required of Employee by this Agreement shall
include the responsibility and duty of traveling to various locations on a
regular basis by automobile, and Company acknowledges that Employee shall
require the use of a suitable automobile for such purposes. Company shall,
therefore, obtain and provide to Employee a luxury automobile, such as a Lexus
LS400 or comparable automobile, for use by Employee in performing his duties
hereunder. The Company shall pay directly, or, if paid by Employee, shall
promptly reimburse Employee for, all costs of ownership and operation of such
automobile.

3
<PAGE>

8. Termination. This Agreement may be terminated by Company only for
cause. As used herein, "cause" shall mean:

(a) Employee's willful breach of Employee's duties
hereunder, which breach remains uncured for thirty (30) days after written
notice of such breach to Employee; or

(b) Employee's conviction of a felony involving moral
turpitude.

4
<PAGE>

(a) Notices to the Employee:

Alan Fields
690 Los Angeles Ave, #310
Simi Valley, CA 93065

(b) Notices to the Company:

Fields Aircraft Spares, Inc.
2251-A Ward Avenue
Simi Valley, CA 93005
Attn: Lawrence Troyna

5
<PAGE>

17. Attorneys' Fees. In the event that any party to this Agreement
shall commence any suit, action, arbitration or other proceeding to interpret

6
<PAGE>

this Agreement, or determine or enforce any right or obligation created hereby,
including but not limited to any action for rescission of this Agreement or for
a determination that this Agreement is void or ineffective ab initio, the
prevailing party in such action shall recover such party's costs and expenses
incurred in connection therewith, including attorney's fees and costs of appeal,
if any. Any court, arbitrator or panel of arbitrators shall, in entering any
judgement or making any award in any such suit, action, arbitration or other
proceeding, in addition to any and all other relief awarded to such prevailing
party, include in such judgement or award such party's costs and expenses as
provided in this Section 17.

7
<PAGE>

23. Gender. As used in this Agreement, the masculine, feminine or
neuter gender, and the singular or plural number, shall be deemed to include the
others whenever the context so indicates.

24. No Third Party Benefit. Nothing contained in this Agreement shall
be deemed to confer any right or benefit on any person who is not a party to
this Agreement.

8
<PAGE>

26. Assignment. Neither party may assign this Agreement, or any rights
hereunder, without the prior express consent of the other party.

IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the day and year first above written.

"Company"

FIELDS AIRCRAFT SPARES, INC.,
a Utah corporation

By: /s/ Lawrence J. Troyna
------------------------------
Its: Chief Financial Officer

FIELDS AERO MANAGEMENT, INC.,
a California corporation

By: /s/ Lawrence J. Troyna
------------------------------
Its: Chief Financial Officer

FIELDS AIRCRAFT SPARES INCORPORATED,
a California corporation

By: /s/ Lawrence J. Troyna
------------------------------
Its: Chief Financial Officer

"Employee"

/s/ Alan Fields
----------------------
ALAN FIELDS

EMPLOYMENT AGREEMENT

W I T N E S S E T H:

In consideration of the mutual covenants and obligations herein set
forth, the parties hereto agree as follows:

1. Engagement; Nature of Duties. Company hereby engages Employee, for
the period hereinafter set forth, to serve as and hold the office of Secretary
and Chief Financial Officer of the Company, or another executive office, and to
perform the duties of such office as provided in the Bylaws of the Company.
Employee agrees to serve in such capacity and to do and perform the services,
acts, or things necessary to carry out the duties of such office, and such other
duties, not inconsistent with such office and Employee's position as an
executive officer of the Company as Company and Employee may mutually agree.
Employee expressly acknowledges and agrees that such additional duties may
include, but shall not be limited to, serving as an officer and/or director of
any and all subsidiaries of the Company, expressly including, but not limited
to, Fields Aircraft Spares Incorporated, a California corporation, the
wholly-owned subsidiary of the Company. Employee shall report only to the Board
of Directors of the Company. It is expressly agreed and acknowledged that
employment as the aforementioned officer was a material inducement to Employee
to enter into this Agreement, and notwithstanding any rights the Company may
have at law or pursuant to the Bylaws of the Company to remove Employee from or
fail to maintain Employee in such office, any such failure or removal shall be
deemed a material breach of this Agreement by the Company, unless Employee shall
be appointed to another reasonably acceptable executive position, as described
above.

1
<PAGE>

4. Compensation.

2
<PAGE>

3
<PAGE>

8. Termination. This Agreement may be terminated by Company only for
cause. As used herein, "cause" shall mean:

(a) Employee's willful breach of Employee's duties
hereunder, which breach remains uncured for thirty (30) days after written
notice of such breach to Employee; or

(b) Employee's conviction of a felony involving moral
turpitude.

4
<PAGE>

(a) Notices to the Employee:

Lawrence J. Troyna
128 Mount Street
London, W1, UK

(b) Notices to the Company:

Fields Aircraft Spares, Inc.
2251-A Ward Avenue
Simi Valley, CA 93005
Attn: Alan Fields

5
<PAGE>

17. Attorneys' Fees. In the event that any party to this Agreement
shall commence any suit, action, arbitration or other proceeding to interpret

6
<PAGE>

7
<PAGE>

23. Gender. As used in this Agreement, the masculine, feminine or
neuter gender, and the singular or plural number, shall be deemed to include the
others whenever the context so indicates.

24. No Third Party Benefit. Nothing contained in this Agreement shall
be deemed to confer any right or benefit on any person who is not a party to
this Agreement.

8
<PAGE>

26. Assignment. Neither party may assign this Agreement, or any rights
hereunder, without the prior express consent of the other party.

IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the day and year first above written.

"Company"

FIELDS AIRCRAFT SPARES, INC.,
a Utah corporation

By: /s/ Alan Fields
------------------------------
Its: President

FIELDS AERO MANAGEMENT, INC.,
a California corporation

By: /s/ Alan Fields
------------------------------
Its: President

FIELDS AIRCRAFT SPARES INCORPORATED,
a California corporation

By: /s/ Alan Fields
------------------------------
Its: President

"Employee"

/s/ Lawrence J. Troyna
---------------------------
LAWRENCE J. TROYNA