FIRST AVIATION SERVICES INC, S-1/A, 1997-02-24

FIRST AVIATION SERVICES INC
S-1/A, 1997-02-24
AIRCRAFT ENGINES & ENGINE PARTS

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 24, 1997

REGISTRATION NO. 333-18647
================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

AMENDMENT NO. 3

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

FIRST AVIATION SERVICES INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
DELAWARE 3724 06-1419064
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>

ONE OMEGA DRIVE
STAMFORD, CONNECTICUT 06907
(203) 359-7733
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)

MICHAEL C. CULVER
ONE OMEGA DRIVE
STAMFORD, CONNECTICUT 06907
(203) 359-7733
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

COPIES TO:

<TABLE>
<S> <C>
J. JAY HERRON, ESQ. DAVID J. JOHNSON, ESQ.
KAREN CRAIG POLTROCK, ESQ. CHARLES G. KLINK, ESQ.
O'MELVENY & MYERS LLP ANDREWS & KURTH L.L.P.
610 NEWPORT CENTER DRIVE, SUITE 1700 601 SOUTH FIGUEROA STREET, SUITE 4200
NEWPORT BEACH, CALIFORNIA 92660 LOS ANGELES, CALIFORNIA 90017
(714) 760-9600 (213) 896-3100
</TABLE>

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2

FIRST AVIATION SERVICES INC.

CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING LOCATION IN
PROSPECTUS OF INFORMATION REQUIRED BY PART 1 OF FORM S-1

<TABLE>
<CAPTION>
REGISTRATION STATEMENT ITEM AND HEADING PROSPECTUS CAPTION OR LOCATION
------------------------------------------------ ------------------------------------------
<C> <S> <C>
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus................ Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus.................................... Inside Front and Outside Back Cover Pages
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges..................... Prospectus Summary; Risk Factors
4. Use of Proceeds................................. Use of Proceeds
5. Determination of Offering Price................. Risk Factors; Underwriting
6. Dilution........................................ Dilution
7. Selling Security Holders........................ Principal and Selling Stockholder
8. Plan of Distribution............................ Outside Front and Inside Front Cover
Pages; Underwriting
9. Description of Securities to be Registered...... Description of Capital Stock
10. Interests of Named Experts and Counsel.......... *
11. Information with Respect to the Registrant...... Outside Front and Inside Front Cover
Pages; Prospectus Summary; The Company;
The Offering; Summary Historical and Pro
Forma Financial Data; Risk Factors; API
Combs Acquisition; Use of Proceeds;
Dividend Policy; Dilution;
Capitalization; Unaudited Pro Forma
Combined Financial Information; Selected
Financial Information; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Management; Certain
Transactions; Principal Stockholders;
Description of Capital Stock; Shares
Eligible for Future Sale; Underwriting;
Legal Matters; Experts; Additional
Information; Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................... *
</TABLE>

- ---------------
* Not Applicable
<PAGE> 3

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED FEBRUARY 24, 1997

PROSPECTUS
3,900,000 SHARES

FIRST AVIATION SERVICES INC.
COMMON STOCK
------------------

All of the 3,900,000 shares of common stock ("Common Stock") offered hereby
(the "Offering") are being sold by First Aviation Services Inc. ("First
Aviation" or the "Company"). Prior to the Offering, there has been no public
market for the Common Stock of the Company. It is currently estimated that the
initial public offering price of the Common Stock will be between $10.00 and
$12.00 per share. See "Underwriting" for information relating to the factors
considered in determining the initial public offering price.

The Common Stock has been approved for quotation on the Nasdaq National
Market under the trading symbol "FAVS."

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

SEE "RISK FACTORS" BEGINNING ON PAGE 7 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY (2)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
Per Share $ $ $
- ------------------------------------------------------------------------------------------------
Total(3) $ $ $
================================================================================================
</TABLE>

(1) For information regarding indemnification of the Underwriters, see
"Underwriting."
(2) Before deducting expenses payable by the Company, estimated at
$ .
(3) The minority stockholder of First Aviation (the "Selling Stockholder")
has granted the Underwriters a 30-day option to purchase up to 585,000
additional shares of Common Stock solely to cover over-allotments, if
any. See "Underwriting." If such option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions, Proceeds to the
Company and Proceeds to the Selling Stockholder will be $ ,
$ , $ and $ , respectively.

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

The shares of Common Stock are offered by the several Underwriters named
herein, subject to prior sale, when, as and if accepted by them and subject to
certain conditions. It is expected that certificates for the shares of Common
Stock offered hereby will be available for delivery on or about ,
1997, at the offices of Smith Barney Inc., 333 West 34th Street, New York, New
York 10001.

SMITH BARNEY INC. DILLON, READ & CO. INC.

, 1997
<PAGE> 4

[A total of 4 pages of photographs appear. Twenty-two photographs in total
displaying individuals performing maintenance or services, products or
components and product applications. The photographs and their captions are as
follows: (1) photograph of workshop floor with caption reading "NAC overhauls
some of the most popular turbine engines in military, cargo, industrial,
helicopter and general aviation applications;" (2) photograph of computer screen
with caption reading "NAC utilizes its proprietary CARS advanced integrated
computer system for the management and scheduling of its overhaul and
remanufacturing process;" (3) photograph of airplane with caption reading "NAC
overhauls the T-56 turbine engine on such aircraft as the C-130 "Hercules", one
of the most widely used cargo aircraft in the world;" (4) photograph of workman
with caption reading "Restoration of high value components to specified
tolerance is maximized through the application of flame spray coatings;" (5)
photograph of workman conducting product inspection with caption reading "NAC's
technicians inspect components to ensure the highest level of safety and
reliability;" (6) photograph of workman with caption reading "A compressor
section is carefully torqued during final assembly on a 501DT56 engine
compressor assembly;" (7) photograph of shop floor with caption reading "The
Company's extensive remanufacturing capabilities enable it to provide its
customers with complete maintenance and repair programs with reduced turnaround
times;" (8) photograph of portion of turbine engine with caption reading "A
501-K rear turbine bearing and support assembly is inspected prior to rotor
installation and final assembly;" (9) photograph of computer controlled boring
machine with caption reading "Computer controlled boring is just one of many
capabilities at NAC's Oakland facility;" (10) photograph of two persons
inspecting a part with caption reading "The Company has developed FAA approved
proprietary repair schemes that can maintain or increase the quality of work and
reduce cost and turnaround times;" (11) photograph of offshore natural gas
pumping station with caption reading "One of NAC's major businesses is the
overhaul of industrial gas turbine engines used for such applications as
offshore natural gas pumping;" (12) photograph of API representative with
caption reading "API representatives provide 24 hours per day, seven days a week
service to their customers;" (13) photograph of part with caption reading "API
carries a wide variety of replacement brakes for piston and turbine aircraft and
is a distributor for BF Goodrich, Cleveland and ABS;" (14) photograph of workman
with caption reading "API overhauls brakes for customers in under three days and
offers overnight exchange units for many models;" (15) photograph of plane with
caption reading "API is an FAA Certified Repair Station for the overhaul of
starter/generators for turbine powered aircraft;" (16) photograph of part with
caption reading "Quick response to customer needs is a primary component of
API's service reputation;" (17) photograph of workman with caption reading "API
has over 80,000 parts readily available for general aviation repair facilities
throughout the United States;" (18) photograph of three workman with caption
reading "Model 250 turboshaft and turboprop engine's exterior components are
installed in preparation for post-overhaul/repair test and shipment to the
operator;" (19) photograph of helicopter with caption reading "NAC is a leader
in the overhaul of Allison 250 helicopter engines. It has also expanded into the
Pratt & Whitney PT6 helicopter engine market;" (20) photograph of workman with
caption reading "Use of the coordinate measuring machine permits three axis
dimensional inspection of parts to a very high degree of accuracy;" (21)
photograph of workman with caption reading "Quality control is built into every
facet of NAC's production;" and (22) photograph of workman with caption reading
"The final quality stamp of approval does not go on the product until
satisfactory completion of acceptance testing." Logos shown include FAVS, NAC
and API - AMR COMBS.]

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET, OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.

2
<PAGE> 5

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by and should be read in
conjunction with the more detailed information, including "Risk Factors" and
Financial Statements and Notes thereto, appearing elsewhere in this Prospectus.
Unless otherwise indicated, all references in this Prospectus to the "Company"
are to First Aviation Services Inc. ("First Aviation") and its subsidiaries,
National Airmotive Corporation ("NAC") and Aircraft Parts International Combs,
Inc. ("API Combs"). "Old API" refers to the assets of Aircraft Parts
International, a division of AMR Combs, Inc. ("AMR Combs") to be acquired by API
Combs concurrently with the closing of the Offering (the "API Combs
Acquisition"). All references to "Allison" refer to the Allison Engine Company,
a subsidiary of Rolls Royce USA. Unless otherwise indicated, the information in
this Prospectus (i) reflects a 6.4549 to 1 stock split to be effected as a stock
dividend in February 1997, (ii) assumes all currently outstanding warrants to
purchase the Company's Common Stock have been exercised in full, (iii) gives
effect to the API Combs Acquisition, and (iv) assumes no exercise of the
Underwriters' over-allotment option.

THE COMPANY

First Aviation is a worldwide leader in providing services to aircraft
operators of some of the most widely used military, commercial, and general
aviation aircraft engines in the world. The Company's operations include repair
and overhaul of gas turbine engines and accessories, remanufacturing of engine
components and accessories and redistribution of new and remanufactured parts.
The Company is one of the leading suppliers of aircraft engine and other
aircraft parts to the general aviation industry in the U.S. On a pro forma
basis, including the API Combs Acquisition, the Company had net sales of $105.9
million and income before extraordinary item of $4.4 million for the nine month
period ended October 31, 1996, and net sales of $122.6 million and income before
extraordinary item of $0.8 million for the twelve month period ended January 31,
1996. See " -- Summary Historical and Pro Forma Financial Data."

Through NAC, the Company provides repair and overhaul services for several
engine types, including: (i) the Allison engines that power the Lockheed Martin
C-130 "Hercules" cargo aircraft, the most popular cargo aircraft in the world;
(ii) the engines employed on most light helicopters; and (iii) industrial
turbine engines primarily used for power cogeneration and gas transmission.
Management believes that the Company has also established itself as an industry
leader in the remanufacturing of serviceable engine parts and components for use
in engine overhauls.

The API Combs Acquisition is an initial step in meeting the Company's goal
of participating in the consolidation of the aviation services industry. See
"Business -- Industry Trends." The API Combs Acquisition expands the Company's
services by focusing on supplying aircraft parts to the general aviation market,
thereby allowing the Company to leverage its repair and overhaul and
remanufacturing expertise through new product lines and new customer base and by
expanding API Combs' geographic coverage.

The four principal components of the Company's growth strategy are to: (i)
increase net sales and operating income through the successful marketing of its
products and services to its new customers, cross-selling of its product lines
to new and existing customers and the extension of its product lines; (ii)
capitalize on consolidation trends within the industry by pursuing strategic
acquisitions of companies with a customer base, product line or technology which
complements or expands those of the Company; (iii) increase the amount of
remanufacturing of accessories and engine components that it performs since this
work typically generates higher margins; and (iv) focus on profitable earnings
growth through the implementation of strategic initiatives which include
continued cost management and the addition of significant throughput in its
repair and overhaul services without substantial capital investment.

The Company believes it is positioned to benefit from certain industry
trends that favor independent repair and overhaul and aircraft providers
including:

- Increased outsourcing of repair and overhaul services by engine operators
as engine operators seek to reduce operating costs and turnaround time

- Increasing consolidation among repair and overhaul and parts providers as
engine operators reduce the number of providers used for these services

- Increased emphasis on the traceability of aircraft parts which has, in
turn, increased the required sophistication of information systems used
by parts distributors

- Growing demand for remanufactured parts as engine operators seek to lower
costs of repair and overhaul services

- Increasing aviation activity which, in turn, increases the demand for
repair and overhaul services

- Increased demand by aircraft operators for third parties to manage and
maintain parts inventories so that aircraft operators may reduce their
parts inventory

3
<PAGE> 6

NAC

NAC is a world leader in the servicing of certain types of engines and
components. The Company believes that it has developed this leading position in
the aircraft gas turbine engine repair and overhaul market based largely upon
the fact that it has: (i) more than 30 years of experience in the aircraft
engine repair and overhaul market; (ii) superior technical expertise and
turnaround time; (iii) a customer base comprised of more than 300 corporate and
government aircraft operators located in over 45 countries; (iv) extensive
experience in the production of remanufactured components, which deliver
performance comparable to new parts at much lower cost; and (v) a proprietary,
state-of-the-art computer system critical to managing the multitude of
simultaneous and sequential tasks necessary to repair and overhaul engines.

Since the Company's acquisition of NAC in June 1995 and the installation of
new management, NAC has initiated certain changes to its operations to improve
its financial performance. Some of these changes implemented by new management
include:

- Expansion of a foreign and domestic direct sales effort

- Rationalization of its operations under its cost containment program

- Increased efficiency through leveling of production schedules

The first elements of these changes have been implemented and further
efforts are ongoing. The Company believes that the benefits of these changes are
reflected in its improved financial performance during the nine months ended
October 31, 1996, during which overhaul and repair revenues increased 26.6%,
gross profit increased 46.0% and operating income increased 377.0%, to $5.0
million, as compared to the corresponding period in the prior year.

API COMBS

API Combs was formed to acquire Old API. API Combs signed a definitive Asset
Purchase Agreement with AMR Combs on November 25, 1996 to purchase certain
assets of and assume certain liabilities of Old API. Based upon the September
30, 1996 balance sheet of Old API, the purchase price of the specific net assets
acquired, as defined in the Asset Purchase Agreement, is estimated to be $9.7
million. The Company will make a cash payment to AMR Combs equal to 90% of the
purchase price for Old API, or $8.8 million, while the remaining 10% of the
purchase price will be satisfied through the issuance to AMR Combs of 9,727
shares of API Combs' Series A Cumulative Convertible Preferred Stock (the "API
Combs Preferred Stock"). The final purchase price is subject to adjustment based
upon the closing balance sheet and the appraisal of the fair value of certain
assets acquired. See "API Combs Acquisition."

With API Combs, the Company will have acquired an aircraft parts distributor
with more than 100 major product lines. Old API's centralized distribution
facility is located in Memphis, Tennessee. Old API provides aircraft parts and
services to more than 3,000 customers per year, including fixed base operators
("FBOs"), certified repair stations, engine and component overhaulers, fleet
operators, government agencies, air cargo operators, regional air carriers and
major airlines primarily located in North America. Old API's licensed repair
station offers brake and starter generator overhaul services and is an
authorized hose assembly manufacturing facility.

The Company believes that Old API is an attractive acquisition because of a
number of characteristics and opportunities the Company believes that Old API
provides, including:

- An efficient centralized parts distribution system

- Historically high revenue growth

- Opportunities to cross-market NAC's and Old API's products and services
both domestically and internationally

First Aviation is headquartered at One Omega Drive, Stamford, Connecticut
06907. Its telephone number is 203/359-7733. In March 1997, the Company will
relocate its headquarters to 15 Riverside Avenue, Westport, Connecticut 06880.
THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company................. 3,900,000 shares
Common Stock to be outstanding after the Offering... 8,900,000 shares(1)
Use of Proceeds..................................... To repay indebtedness, to fund the cash portion of the
API Combs Acquisition, to pay accumulated and unpaid
dividends on the Series A Preferred Stock and for
general corporate purposes. See "Use of Proceeds."
Risk Factors........................................ For a discussion of certain material factors that
should be considered in connection with an investment
in the Common Stock, see "Risk Factors."
Proposed Nasdaq National Market symbol.............. FAVS
</TABLE>

- ---------------
(1) Excludes 150,000 shares of Common Stock of the Company which are subject to
options granted to Rajesh Sharma, the Chief Operating Officer of NAC, which
are exercisable as of the date hereof, 250,000 shares reserved for future
grants under the Company's Stock Option Plan, and 250,000 shares reserved
for future grants under the Company's Employee Stock Purchase Plan.

4
<PAGE> 7

SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
(Amounts in thousands, except per share amounts)

The Company's fiscal year end is January 31. The Company acquired NAC on
June 1, 1995 and, consequently, the Statement of Operations Data for the ten
months ended January 31, 1996 and the nine months ended October 31, 1995 include
two months and four months, respectively, during which NAC was owned and
operated by its former sole shareholder (the "Predecessor"). The Statement of
Operations Data for the fiscal years ended March 27, 1992 through March 31, 1995
cover periods during which NAC was owned and operated by the Predecessor. The
Statement of Operations Data for the twelve months ended January 31, 1996 are
presented to facilitate comparisons with the prior fiscal years and include four
months during which NAC was owned by the Predecessor and eight months by the
Company. The results of Old API are not included in the historical financial
information of the Company presented below. See "Unaudited Pro Forma Combined
Financial Information," "Selected Financial Information," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Financial Statements and Notes thereto, appearing elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
TWELVE MONTHS ENDED JANUARY 31, 1996 NINE MONTHS ENDED OCTOBER 31, 1996
------------------------------------------ -------------------------------------------
PRO FORMA(1) PRO FORMA(1)
HISTORICAL --------------------- HISTORICAL ---------------------
------------------- AS -------------------- AS
COMPANY(2) OLD API ADJUSTMENTS ADJUSTED COMPANY OLD API ADJUSTMENTS ADJUSTED
---------- ------- ----------- -------- ---------- ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales................ $ 92,857 $29,676 $ 99 $122,632 $ 76,776 $29,078 $ 49 $105,903
Cost of sales............ 81,199 24,748 -- 105,947 65,606 24,333 -- 89,939
Gross profit............. 11,658 4,928 99 16,685 11,170 4,745 49 15,964
Selling, general and
administrative
expenses............... 8,578 4,836 545 13,959 6,163 4,258 669 11,090
Income (loss) from
operations............. 3,080 92 (446) 2,726 5,007 487 (620) 4,874
Income (loss) before
extraordinary item..... $ (1,060) $ (548) $ 2,438 $ 830 $ 2,388(4) $ (61) $ 2,122 $ 4,449
Income before
extraordinary item per
common share(3)........ $ 0.09 $ 0.43 $ 0.49
Weighted average number
of shares.............. 9,044(5) 5,291 9,044(5)
</TABLE>

<TABLE>
<CAPTION>
COMPANY
------------------------------------------------------------------------------------------
TEN MONTHS NINE MONTHS ENDED
FISCAL YEAR ENDED TWELVE MONTHS ENDED
-------------------------------------------- ENDED JANUARY OCTOBER 31,
MARCH 27, APRIL 2, APRIL 1, MARCH 31, JANUARY 31, 31, -----------------
1992 1993 1994 1995 1996(2) 1996(2) 1995(2) 1996
--------- -------- -------- --------- ------------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales................ $88,600 $ 97,427 $ 92,513 $83,091 $92,857 $ 79,415 $67,171 $76,776
Cost of sales............ 81,249 86,006 79,315 72,796 81,199 67,853 59,522 65,606
Gross profit............. 7,351 11,421 13,198 10,295 11,658 11,562 7,649 11,170
Selling, general and
administrative
expenses............... 9,528 9,721 8,536 9,362 8,578 6,509 6,600 6,163
Income (loss) from
operations............. (2,177) 1,700 4,662 933 3,080 5,053 1,049 5,007
Income (loss) before
extraordinary item..... (5,620) (3,023)(6) 2,021 (1,291) (1,060) 861 (1,699) 2,388(4)
Net income (loss)(3)..... $(5,620) $ (2,690) $ 2,021 $(1,291) $(1,060) $ 861 $(1,699) $ 1,524
</TABLE>

5
<PAGE> 8

<TABLE>
<CAPTION>
OCTOBER 31, 1996
------------------------
PRO FORMA
ACTUAL AS ADJUSTED(7)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................................ $38,770 $ 47,500
Total assets............................................................... 59,036 72,002
Current portion of long-term debt.......................................... 1,105 --
Long-term debt, less current portion....................................... 33,643 5,912
API Combs Preferred Stock.................................................. -- 973
Series A Preferred Stock................................................... 1,650 --
Total stockholders' equity................................................. $ 5,710 $ 43,086
</TABLE>

- ---------------
(1) On November 25, 1996, API Combs entered into a definitive agreement to
acquire Old API for cash and API Combs Preferred Stock. See "API Combs
Acquisition," "Use of Proceeds," "Unaudited Pro Forma Combined Financial
Information" and "Business." The pro forma operating data gives effect to
the Offering and the application of net proceeds therefrom, the API Combs
Acquisition, and the exchange of the Company's Series A Preferred Stock,
face value $1,650, for shares of Common Stock at an exchange rate equal to
the initial public offering price per share (the "Series A Preferred Stock
Exchange Price") (150,000 shares assuming an initial public offering price
of $11.00 per share, the midpoint of the estimated initial public offering
price range) as if each had occurred as of the first day of the period
presented. Such pro forma financial information is not necessarily
indicative of the results of operations as they may be in the future or as
they might have been had the API Combs Acquisition been effected on the
assumed date.

(2) The financial information presented for the twelve months ended January 31,
1996, the ten months ended January 31, 1996 and the nine months ended
October 31, 1995 include four months, two months and four months,
respectively, during which NAC was owned by the Predecessor. This
information also includes the eight months, eight months and five months,
respectively, during which NAC was owned by the Company. The results of
operations for these periods are as follows:

<TABLE>
<CAPTION>
TWELVE MONTHS ENDED TEN MONTHS ENDED NINE MONTHS ENDED
JANUARY 31, 1996 JANUARY 31, 1996 OCTOBER 31, 1995
--------------------------- ----------------------------- ----------------------------
FIRST FIRST FIRST
NAC AVIATION NAC AVIATION NAC AVIATION
2/1/95- 6/1/95- 4/1/95- 6/1/95- 2/1/95- 6/1/95-
5/31/95 1/31/96 TOTAL 5/31/95 1/31/96 TOTAL 5/31/95 10/31/95 TOTAL
------- ------- ------- -------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............................. $24,338 $68,519 $92,857 $10,896 $68,519 $79,415 $24,338 $42,833 $67,171
Cost of sales......................... 23,809 57,390 81,199 10,463 57,390 67,853 23,809 35,713 59,522
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit.......................... 529 11,129 11,658 433 11,129 11,562 529 7,120 7,649
Selling general and administrative
expenses............................ 3,229 5,349 8,578 1,160 5,349 6,509 3,229 3,371 6,600
------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from operations......... (2,700) 5,780 3,080 (727) 5,780 5,053 (2,700) 3,749 1,049
Interest expense...................... 644 2,605 3,249 287 2,605 2,892 644 1,659 2,303
Other income (expense)................ (801) -- (801) -- -- -- (801) -- (801)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income (loss) before tax.......... (4,145) 3,175 (970) (1,014) 3,175 2,161 (4,145) 2,090 (2,055)
Income tax expense (benefit).......... (1,210) 1,300 90 -- 1,300 1,300 (1,210) 854 (356)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)..................... $(2,935) $ 1,875 $(1,060) $(1,014) $ 1,875 $ 861 $(2,935) $ 1,236 $(1,699)
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>

(3) Due to the change in ownership and equity structure, income (loss) per share
data for these periods cannot be presented meaningfully.

(4) Excludes (i) the effect of an extraordinary charge of $864 due to the
write-off of prepaid financing costs and early extinguishment charges
incurred in connection with the early extinguishment of debt and (ii)
dividends of $99 on the Company's outstanding Series A Preferred Stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

(5) Excludes warrants to purchase 538,890 shares of Common Stock that were
cancelled in June 1996 in connection with the repayment of a portion of the
subordinated debt held by the warrant holder.

(6) Excludes the effect of an extraordinary benefit of $333 due to the
utilization of net operating loss carry forwards.

(7) Gives effect to (i) the sale of shares offered hereby by the Company at an
assumed initial public offering price of $11.00 per share and the
application of the estimated net proceeds therefrom; (ii) the API Combs
Acquisition as if it had occurred as of October 31, 1996; and (iii) the
exchange of the Company's Series A Preferred Stock, $1,650 for 150,000
shares of Common Stock based on the Series A Preferred Stock Exchange Price.
See "API Combs Acquisition," "Use of Proceeds" and "Unaudited Pro Forma
Combined Financial Information."

6
<PAGE> 9

RISK FACTORS

Investment in the shares of Common Stock offered hereby involves a high
degree of risk. In addition to the other information contained in this
Prospectus, prospective investors should consider carefully the following
factors in evaluating the Company and its business before purchasing any Common
Stock offered hereby.

RELIANCE ON ALLISON ENGINE COMPANY, A SUBSIDIARY OF ROLLS ROYCE U.S.A.

NAC principally services gas turbine engines manufactured by Allison and
derived more than 92% of its revenues from the repair and overhaul of Allison
engines and Allison part sales in each of the last five years. NAC is an Allison
Authorized Maintenance Center ("AMC") and pursuant to the three Authorized
Maintenance Center Agreements (the "AMC Agreements") with Allison, NAC is
authorized to purchase parts from Allison and service designated Allison Model
501 flight engines, Model 250 engines and Model 501/570/571-K industrial
engines. Allison ceased the production of new Model 501 flight engines at the
end of 1996 but will continue to manufacture the engine on a special order
basis. The Company has had contracts or AMC Agreements with Allison since 1970.
The AMC Agreements with Allison each expire by their terms on December 31, 1997,
except that the 570/571 AMC Agreement expires December 31, 1998. The AMC
Agreements, other than the 570/571 agreement, provide that qualifying AMCs will
be permitted to renew the agreements for an additional three year period.
Renewal of the 570/571 agreement is subject to Allison's sole unilateral
decision. The Company has no reason to believe that the current AMC Agreements
with Allison will not be renewed or extended. The failure of Allison to renew or
extend the AMC Agreements would, however, have a material adverse effect on the
Company's business, financial condition and results of operations. See
"-- Substantial Competition" and "Business -- Relationship with Allison."

NAC has from time to time, including during 1995 and 1996, experienced
difficulty in obtaining certain parts from Allison because of parts shortages
and inventory fluctuations at Allison. The shortage or unavailability of Allison
parts can and has from time to time caused delays in the timely completion of
repair and overhaul production schedules. Such delays may adversely affect the
Company's relationship with its customers and could adversely affect the
Company's commitments to customers and its work-in-process inventory levels. An
inability to maintain timely access to Allison parts and components on
commercially reasonable terms for any reason, including any Allison labor force
dispute or interruption, would have a material adverse effect on the Company's
business, financial condition and results of operations. On February 23, 1997,
Allison completed negotiations for a new three year agreement with its principal
union, the United Auto Workers (the "UAW"). The agreement is subject to
ratification by local UAW members. See "Business -- Relationship with Allison."

RELIANCE ON OTHER SUPPLIERS

NAC services certain McDonnell Douglas helicopter components and recently
commenced the servicing of Pratt & Whitney Canada PT6 engines. In addition, the
Company may commence the servicing of other gas turbine engines in the future.
Although the Company has an agreement with McDonnell Douglas, it does not have
an agreement with Pratt & Whitney Canada and is dependent on such parties for
parts required to work on their respective parts and engines. The Company,
through API Combs, purchases aircraft parts for resale from a wide range of
manufacturers. An inability to maintain timely access to parts for resale and to
parts and components on any such other engines serviced by the Company could
have a material adverse effect on the Company's business, financial condition,
and results of operations. API Combs' single largest supplier is The New Piper
Aircraft Company ("Piper"). The sale of new Piper parts accounted for
approximately 7.0% and 17.0% of API Combs' revenues in 1995 and the first nine
months of 1996, respectively. API Combs maintains an inventory of Piper parts
equivalent to approximately two month's sales. Upon the completion of the API
Combs Acquisition, API Combs will distribute Piper parts under the existing
distribution agreement between Piper and AMR Combs. AMR Combs is not obligated
to maintain or renew its Piper distribution agreement and there is no assurance
that, in the event that the agreement between Piper and AMR Combs is terminated
or not renewed for any reason, API Combs would be able to obtain a distribution
agreement from Piper. The loss of the Piper distributorship or a decline in the
availability of Piper parts would have a material adverse effect on the
Company's business, financial condition and results of operation.

7
<PAGE> 10

GROWTH STRATEGY AND RISKS RELATING TO ACQUISITIONS

A key element of the Company's strategy involves growth through the
acquisition of other independent service and parts providers whose assets or
product lines would complement or expand the Company's existing repair and
overhaul and spare parts businesses. The API Combs Acquisition is an example of
such an acquisition. The Company's ability to grow by acquisition is dependent
upon, and may be limited by, the availability of suitable acquisition candidates
and capital resources available to the Company. In addition, acquisitions
involve risks that could adversely affect the Company's operating results,
including the assimilation of the operations and personnel of acquired
companies, the potential amortization of acquired intangible assets and the
potential loss of key employees of acquired companies. In addition, costs and
charges, including legal and accounting fees and reserves and write-downs
relating to the actual acquisition, may be incurred by the Company or may be
reported in connection with any such acquisition, including the API Combs
Acquisition. There can be no assurance that the Company will be able to
consummate acquisitions on satisfactory terms or that the Company will be
successful in integrating any such acquisitions, including that of Old API, into
its operations. The Company evaluates acquisition opportunities from time to
time but no commitments or binding agreements have been entered into to date,
except with respect to the API Combs Acquisition. No assurance can be given that
any acquisitions will be consummated by the Company. See "Business -- Company
Strategy."

RISKS REGARDING THE COMPANY'S INVENTORY

The Company's inventory consists principally of new, overhauled,
serviceable and repairable aircraft engine parts and other aircraft parts that
are purchased principally from Allison and from parts resellers and customers.
Before any part may be installed in an aircraft, such part must meet certain
standards of condition established by the U.S. Federal Aviation Administration
("FAA"), the U.S. Department of Defense ("DOD"), or the equivalent regulatory
agencies in other countries. Specific regulations vary from country to country,
although regulatory requirements in other countries generally coincide with
applicable U.S. requirements. Parts must also be traceable to sources deemed
acceptable by such agencies. Parts owned or acquired by the Company may not meet
applicable standards or standards may change in the future, causing parts which
are already contained in the Company's inventory to be scrapped or modified.
Aircraft engine manufacturers may also develop new parts to be used in lieu of
parts already contained in the Company's inventory. In all such cases, to the
extent that the Company has such parts in its inventory, their value may be
reduced.

CUSTOMER CONCENTRATION

NAC has historically derived approximately 70% of its revenues from the
repair and overhaul of engines. Of the $64.1 million, $59.7 million, and $63.3
million of repair and overhaul revenues generated in fiscal 1995, the ten month
period ended January 31, 1996, and the nine month period ended October 31, 1996,
19.7%, 33.4%, and 15.6%, respectively, were attributable to military contracts
with agencies of the U.S. government, including work performed for foreign
militaries through the U.S. government's military support of its allies through
the Foreign Military Services ("FMS") program. A majority of the U.S. government
revenues in the periods identified above were attributable to a five year FMS
contract for the support of Allison Model 501 engines that expired in October
1995. Work performed by NAC for the U.S government as a percentage of its total
revenues has declined and is expected to decline further in future periods. See
"-- Defense Spending Reductions."

Apart from the U.S. government, NAC's top five customers accounted for
22.2%, 10.3%, and 34.9% of NAC's revenues from the repair and overhaul of
engines during fiscal 1995, the ten month period ended January 31, 1996, and the
nine month period ended October 31, 1996, respectively. The identity and mix of
NAC's customers changes as significant contracts are obtained and fulfilled. The
majority of NAC's revenues are derived from short-term contracts with its
customers.

8
<PAGE> 11

DEFENSE SPENDING REDUCTIONS

There has been and there continues to be a reduction in defense spending by
the U.S. government. These reductions, including reductions in the DOD's
military support of U.S. allies, may adversely affect demand for the Company's
services. While recent closings of U.S. military aircraft bases and reductions
in military personnel have led to decisions by the military to outsource, in
certain instances, engine repairs and overhauls to commercial suppliers, which
may increase the number of military gas turbine engines available to be serviced
by independent contractors such as the Company, there can be no assurance that
such outsourcing will take place or that the Company will be successful in
obtaining any such work. Moreover, the Company cannot predict whether reductions
in defense and government spending in general will adversely affect the
Company's results of operations in the future.

SUBSTANTIAL COMPETITION

Engine Repair and Overhaul. The Company is subject to substantial
competition in providing engine repair and overhaul services on the engine lines
that it currently services from other Allison AMCs and, with respect to
McDonnell Douglas helicopter components and Pratt & Whitney Canada engines,
numerous other domestic and foreign manufacturers and independent service
centers, many of which competitors have substantially greater capital and other
resources than the Company. In addition to NAC, there are eight other Allison
Model 501 AMCs, twenty-five other Model 250 AMCs and one other Allison Model
570/571 AMC, each of which is unrestricted in geographic territory and each of
which may purchase parts for resale and use in engine repair from Allison on
substantially the same terms as the Company. The Company's agreements with
Allison do not restrict Allison from increasing the number or geographic
location of AMCs authorized by it. In addition, certain foreign competitors have
a monopoly on their country's military contracts for repair and overhaul of
engines such as those serviced by the Company. These monopolies limit the
potential market for the Company's services in these jurisdictions. Neither
Rolls Royce nor Allison is, at present, a significant factor in the repair and
overhaul of Allison gas turbine engines. Rolls Royce has publicly stated that
its future strategy for competing in the aircraft engine business includes
active competition in the aftermarket. In addition, other major aircraft engine
companies, such as General Electric and Pratt & Whitney, are beginning to
compete aggressively in the aftermarket. There can be no assurance that Rolls
Royce, its affiliates, or perhaps another engine manufacturer, all of which have
greater size and financial resources than the Company, will not enter or
substantially increase their presence in the aftermarket in the Company's
product lines.

Allison Engine Parts Sales. Prior to 1994, Allison maintained a more
limited system of authorized distributors of its parts. Under the old system,
independent overhaul centers that were not authorized distributors of Allison
engine parts were required to purchase needed parts from an authorized
distributor, such as the Company. Under the current system, independent overhaul
centers may purchase parts directly from Allison for resale instead of being
obligated to purchase parts from an authorized distributor. As a result, the
Company's parts sales of Allison engine parts over-the-counter has declined.
During fiscal 1995, the ten months ended January 31, 1996 and the nine months
ended October 31, 1996, parts sales, excluding parts embodied in overhaul
operations, were $18.0 million, $17.6 million and $11.2 million, respectively.
The Company expects the level of its over-the-counter Allison parts sales to
continue at reduced levels. See "Business -- Relationship with Allison."

Other Parts Sales. API Combs competes with several aviation parts
distributors who, in the aggregate, offer most of the same product lines to the
same customers. Most aviation manufacturers appoint between two and fifteen
distributors. Such appointments are typically contracted on an annual basis, can
be terminated at any time, and, in many cases, are not evidenced by a formal
contract. There is little or no exclusivity given by manufacturers and no
assurance of contract renewals and no assurance that any such contract or
relationship will not be terminated with little or no notice to the Company. The
loss or non-renewal of one or more product lines could have a material adverse
effect on the Company's business, financial condition and results of operations.

9
<PAGE> 12

GOVERNMENT REGULATION AND RELATED LEGAL PROCEEDINGS

FAA regulations require that aircraft engines operated commercially in the
U.S. be serviced by a certified provider such as NAC. NAC is also required to
maintain certifications from foreign governments in order to service their
aircraft engines. Although the Company believes that NAC possesses all required
domestic and foreign governmental certifications, including FAA certifications
entitling it to service all gas turbine aircraft engine lines and models and
aircraft currently serviced by NAC, the revocation or limitation of its FAA
certification would have a material adverse effect on the Company's operations.
The DOD requires that parties servicing aircraft engines and aircraft for
branches of the U.S. armed services comply with applicable government
regulations and the DOD continually reviews operations for compliance with
applicable regulations. See "Business -- Government Regulation" and "-- Legal
Proceedings."

In June 1993, prior to the acquisition by the Company, NAC entered into an
Administrative Settlement Agreement (the "Settlement Agreement") with the U.S.
Air Force as lead agency for the DOD. The Settlement Agreement arose from an
investigation conducted by the U.S. Department of Justice ("DOJ") and DOD
concerning the dealings of certain defense contractors, including NAC, with
representatives of the Israeli Air Force. Under the terms of the Settlement
Agreement, NAC pleaded guilty to allegations of fraud and false claims
submissions and paid $3 million in fines and penalties to the U.S. government
and agreed to a higher level of reporting regarding compliance with NAC's ethics
program and an increased level of scrutiny of its operations by the DOD for
three years. Under the Settlement Agreement, the DOD agreed not to limit NAC's
ability to obtain government contracts or subcontracts on account of NAC's past
dealings with the Israeli Air Force. The Settlement Agreement has expired.

In April 1994, NAC acquired certain assets of Heli-Dyne, Inc.
("Heli-Dyne"). In October 1994, NAC made a formal voluntary disclosure to the
DOD Inspector General concerning apparent impermissible product substitutions
made by employees of Heli-Dyne prior to NAC's acquisition of its assets and very
limited product substitutions made after the acquisition but prior to NAC's
identification of the problem. While the government may assert otherwise, the
Company does not believe it is responsible for the conduct of Heli-Dyne that
occurred prior to the acquisition of its assets. To date, there has not been any
disposition of this matter. See "Business -- Government Regulation" and
"-- Legal Proceedings."

Since 1993, the U.S. government, through the DOD and other agencies, has
questioned other matters concerning the operations of NAC. In 1995 and during
1996, the Office of Special Investigations of the U.S. Air Force has conducted
an investigation concerning NAC's use of government surplus parts without prior
government approval in repairing aircraft engines pursuant to FMS contracts with
the U.S. Air Force from 1987 through 1995 in violation of the FMS contracts. The
Company does not believe that any Company employee knowingly violated the FMS
contracts and the Company believes that the U.S. Air Force knew of NAC's
utilization of surplus parts and in some cases requested that the Company use
certain government surplus parts under the FMS contracts. To date, there has not
been any disposition of this matter. See "Business -- Government Regulation" and
"-- Legal Proceedings."

The U.S. government has considerable discretion regarding compliance with
its rules, regulations and procedures. Although the Company undertakes to comply
with all applicable government rules, regulations and procedures, the U.S.
government and its agencies have substantial latitude in determining whether
their regulations and policies have been upheld. The operations of the Company
have and may continue to come under the close scrutiny of the U.S. government
and its agencies, and U.S. government approvals of the Company's operations and
output may be given or withheld based upon subjective criteria. If any of the
pending matters described above is determined in a manner adverse to the
Company, such determination could have a material adverse impact on the
Company's business, financial condition or results of operations. See
"Business -- Government Regulation" and "-- Legal Proceedings."

FLUCTUATIONS IN QUARTERLY RESULTS; PRICE VOLATILITY

The Company may experience significant fluctuations in future quarterly
operating results due to a number of factors, including, among others, the
timing and receipt of orders for the repair and overhaul of engines and
fulfillment of such contracts, parts shortages that delay completion of work in
progress, general

10
<PAGE> 13

economic conditions or other factors. These factors or market conditions in
general may cause the market price of the Common Stock to fluctuate, perhaps
substantially. In addition, in recent years, the stock market has experienced
significant price and volume fluctuations. These fluctuations, which are often
unrelated to the operating performances of specific companies, have had a
substantial effect on the market price of stocks, particularly for many lower
capitalization companies. Factors such as those cited above, as well as other
factors may be unrelated to the operating performance of the Company, and may
adversely affect the price of the Common Stock.

ENVIRONMENTAL REGULATION

The Company's business operations and facilities are subject to a number of
federal, state and local environmental laws and regulations including
requirements under the Clean Air Act Amendments of 1990 relating to the
discharge of air pollutants into the environment and the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"). NAC
has been designated as a potentially responsible party by the Environmental
Protection Agency for costs associated with the cleanup of a superfund site, and
as such as with each of the other potentially responsible parties, is
potentially liable on a joint and severable basis for the entire clean-up cost
of the superfund site. NAC has denied any responsibility in such action, and the
Company believes that its current operations and facilities are in material
compliance with all federal, state and local environmental laws and regulations.
However, no assurance can be given that changes in such laws, regulations or
interpretations thereof or in the nature of the Company's operations will not
require the Company to make significant additional capital expenditures in order
to maintain or effect compliance. See "Business -- Environmental Matters and
Proceedings."

RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS

Revenues attributable to foreign customers represented approximately 31.6%
and 34.8% of total revenues for the ten month period ended January 31, 1996 and
the nine month period ended October 31, 1996, respectively. The Company's
contracts are all denominated in U.S. dollars and all of such revenues were paid
in U.S. dollars. International sales are subject to inherent risks, including
variations in local economies, fluctuating exchange rates which may tend to make
the Company's services more expensive to foreign customers, greater difficulty
in accounts receivable collection, costs and risks associated with changes in
tariffs and other trade barriers, adverse foreign tax consequences, cultural
differences and burdens of complying with a variety of foreign laws. There is no
assurance that these factors will not have a material adverse impact on the
Company's ability to maintain or increase the level of its international
revenues.

AVIATION INDUSTRY RISKS

A substantial percentage of the Company's revenues and operating income is
derived from services and parts it provides to its customers in the aviation
industry, including the U.S. and foreign governments and militaries. Therefore,
the Company's business is directly affected by economic factors and other trends
that affect its customers in the aviation industry, including a possible
decrease in outsourcing by aircraft operators or projected market growth that
may not materialize or continue. When such economic and other factors adversely
affect the aviation industry, they tend to reduce the overall customer demand
for the Company's products and services, thereby decreasing the Company's
revenues and operating income. There can be no assurance that economic and other
factors that might affect the aviation industry will not adversely affect the
Company's results of operations. See "Business -- Industry Overview" and
"-- Industry Trends."

PRODUCT LIABILITY RISKS

The Company's business exposes it to possible claims for personal injury,
death or property damage which may result from the failure or malfunction of
engines serviced by the Company or aircraft spare parts sold by the Company. The
Company currently has in force aviation products, premises and hangarkeepers
insurance, which the Company believes provides coverage in amounts and on terms
that are generally consistent with industry practice. The Company also has
insurance coverage for liability in connection with the industrial or marine gas
turbine engines that it services. During the last five years, the Company has
not

11
<PAGE> 14

experienced any material product liability claims related to its products.
However, the Company is subject to a material loss to the extent that a claim is
made against the Company which is not covered in whole or in part by insurance
and for which any third-party indemnification is not possible. In addition,
there can be no assurance that insurance coverages can be maintained in the
future at an acceptable cost.

DEPENDENCE ON KEY PERSONNEL

The continued success of the Company is dependent to a significant degree
upon the services of its executive officers and upon the Company's ability to
attract and retain qualified personnel experienced in the various phases of the
Company's business. Loss of the services of such employees, particularly Michael
Culver, Chief Executive Officer of the Company and API Combs; John F. Risko,
Chief Operating Officer of the Company and Chief Executive Officer of NAC; or
John A. Marsalisi, Chief Financial Officer of the Company and NAC could
adversely affect the operations of the Company. The Company does not maintain
key man life insurance for any of its executive officers or key employees.

RELIANCE ON SKILLED PERSONNEL

From time to time the Company has experienced difficulty in attracting and
retaining skilled personnel to perform some of its repair and overhaul
operations on sophisticated engines and components. The ability of the Company
to operate and grow successfully could be jeopardized if the Company is unable
to attract and retain a sufficient number of skilled personnel.

CONCENTRATION OF SHARE OWNERSHIP AND CONTROL OF COMPANY

Approximately 73.3% of the Company's outstanding Common Stock is owned by
FAS Inc. ("FAI"), an indirect subsidiary of First Equity Group, Inc. ("First
Equity Group"), which, in turn, owns First Equity Development, Inc., an
aerospace investment and advisory firm ("First Equity"). Upon consummation of
the Offering, FAI will own in the aggregate approximately 41.6% of the
outstanding Common Stock, and by virtue of such ownership will have effective
control over all matters requiring a vote of stockholders, including the
election of directors. See "Principal Stockholders" and "Description of Capital
Stock."

BENEFITS OF OFFERING TO EXISTING STOCKHOLDERS; IMMEDIATE AND SUBSTANTIAL
DILUTION

The existing stockholders of the Company will receive certain benefits from
the sale of the Common Stock offered hereby. The Offering will establish a
public market for the Common Stock and provide increased liquidity to the
existing stockholders for the shares of Common Stock they will own after the
Offering, subject to certain limitations. See "Shares Eligible For Future Sale."
The Company intends to use $1.9 million of the net proceeds from the Offering to
repay the outstanding balance of 15% subordinated debt owed to the Selling
Stockholder, $231,000 in payment of accumulated and unpaid dividends on the
outstanding Series A Preferred Stock of the Company held by FAI, $350,000 to pay
a fee to First Equity for assistance with the Offering and $250,000 to pay a fee
to First Equity for assistance rendered in connection with the API Combs
Acquisition. See "Use of Proceeds." Assuming that the over-allotment option
granted to the Underwriters is exercised in full, the Selling Stockholder will
sell 585,000 shares of Common Stock in the Offering and will receive
approximately $6.0 million in net proceeds, based upon an initial public
offering price of $11.00 per share (the midpoint of the estimated initial public
offering price range) and after deducting the estimated underwriting discounts
and commission, reflecting a net gain of $10.18 per share over the original cost
of the shares and an aggregate net gain of approximately $6.0 million. See
"Principal Stockholders." Additionally, immediately following the Offering, the
existing stockholders will have an average unrealized gain over the original
cost of the shares that will continue to be held by them of $10.55 per share,
based upon the assumed initial public offering price of $11.00 per share, or an
aggregate unrealized gain of approximately $52.7 million. In addition, Mr.
Sharma, the Chief Operating Officer of NAC, will have fully vested options to
purchase 150,000 shares of the Company's Common Stock with an exercise price of
$.01 per share. Such options will, based on an assumed initial public offering
price of $11.00 per share, represent an aggregate unrealized gain of $1,648,500.
In connection with the closing of the Offering, the Company's Series A Preferred
Stock, face value $1,650,000, held by FAI will be exchanged for 150,000 shares
of Common Stock

12
<PAGE> 15

based on the Series A Preferred Stock Exchange Price. See "Dilution" and
"Principal Stockholders." Purchasers of the Common Stock offered hereby will
incur immediate and substantial dilution of $6.16 in the net tangible book value
per share of Common Stock. See "Dilution."

ANTI-TAKEOVER PROTECTIONS; BLANK CHECK PREFERRED STOCK

The Company's Certificate of Incorporation and Bylaws contain provisions
that may have the effect of discouraging certain transactions involving an
actual or threatened change of control of the Company. See "Description of
Capital Stock -- Certain Provisions of the Certificate and Bylaws" for a
description of these provisions. In addition, the Board of Directors of the
Company has the authority to issue up to 5,000,000 shares of preferred stock in
one or more series and to fix the preferences, rights and limitations of any
such series without stockholder approval. See "Description of Capital
Stock -- Preferred Stock." The ability to issue preferred stock could have the
effect of discouraging unsolicited acquisition proposals or making it more
difficult for a third party to gain control of the Company, or otherwise could
adversely affect the market price of the Common Stock.

OFFERING PRICE DETERMINATION; ABSENCE OF PUBLIC MARKET

Prior to the Offering, there has been no public market for the shares of
Common Stock offered hereby and there can be no assurance that an active trading
market will develop or be sustained subsequent to the Offering. The initial
public offering price of the Common Stock will be determined in negotiations
among the Company, the Selling Stockholder and the representatives of the
Underwriters and may not be indicative of the prices that may prevail in the
public market. See "Underwriting" for a discussion of the factors considered in
determining the initial public offering price. There can be no assurance that
the market price of the Common Stock will not decline below the initial public
offering price.

ABSENCE OF DIVIDENDS

The Company does not anticipate paying any cash dividends on its Common
Stock in the foreseeable future. Except with respect to the dividends on the
preferred stock of API Combs to be issued in connection with the API Combs
Acquisition, the Company intends to retain profits, if any, to fund growth and
expansion. The terms of NAC's bank credit facility currently prohibit its
payment of cash dividends except with the lender's consent. See "Dividend
Policy" and "Description of Capital Stock."

13
<PAGE> 16

API COMBS ACQUISITION

API Combs was formed to acquire Old API. API Combs signed a definitive
Asset Purchase Agreement with AMR Combs on November 25, 1996 to purchase certain
assets and assume certain liabilities of Old API. The closing of the acquisition
will occur concurrent with the closing of the Offering.

The purchase price for Old API is $11,000,000, subject to further payment
or reduction on a dollar-for-dollar basis depending upon whether the net value
of assets as of the acquisition closing (as determined in accordance with GAAP
principles) is greater or less than $10,500,000, respectively. Ninety percent of
the purchase price is payable to AMR Combs in cash, and 10% by means of the
issuance to AMR Combs of API Combs Preferred Stock at a face value of $100 per
share. The shares of API Combs Preferred Stock will be entitled to an annual
dividend of $4.00 per share, payable quarterly.

If the API Combs Acquisition had occurred as of September 30, 1996, based
upon Old API's net asset value as of that date, the purchase price would have
been $9.7 million, of which $8.8 million would have been payable in cash and the
balance by the issuance of 9,727 shares of API Combs Preferred Stock. The actual
purchase price will be determined within 90 days after the consummation of the
API Combs Acquisition, and may be more or less than the amount set forth above.

In connection with the API Combs Acquisition, First Aviation, API Combs and
AMR Combs will enter into a Stockholders Agreement. Pursuant to the Stockholders
Agreement, AMR Combs will agree that it will not sell the shares of API Combs
Preferred Stock received by AMR Combs or the shares of API Combs common stock
into which such shares are convertible (collectively the "API Combs Acquisition
Shares") for a minimum period of three years. API Combs has the right to redeem
the API Combs Acquisition Shares at any time and AMR Combs has the right to
cause the Company to redeem the API Combs Acquisition Shares commencing three
years after the closing of the API Combs Acquisition. The redemption price is
equal to the fair market value of the API Combs Acquisition Shares as determined
by independent appraisal. In accordance with generally accepted accounting
principles, the Company will be required to estimate the fair market value of
the API Combs Acquisition Shares on a quarterly basis. As a result, the Company
may be required to adjust net earnings available to common stockholders to
reflect any change in the value of such shares. The Stockholders Agreement will
also contain certain other rights including: (i) a right of first refusal on the
part of First Aviation with respect to any proposed sale of the API Combs
Acquisition Shares; (ii) the right of First Aviation to require AMR Combs to
participate, on a pro rata basis, with it in the sale of the capital stock of
API Combs to a third party; (iii) the right of AMR Combs to elect to
participate, on a pro rata basis, in the sale of the capital stock of API Combs
to a third party; and (iv) piggyback and demand registration rights granted to
AMR Combs with respect to the API Combs Acquisition Shares. The demand
registration rights are not exercisable until three years after the closing of
the API Combs Acquisition, and, if API Combs has not previously closed an
underwritten public offering of its common stock at the time AMR Combs elects to
exercise its demand registration rights, API Combs may elect to treat the demand
as an exercise by AMR Combs of its put option with respect to the API Combs
Acquisition Shares. There are no plans to cause API Combs to conduct a public
offering of its securities.

Old API had total sales of $39.5 million and gross profit of $6.7 million
for the year ended December 31, 1996 as compared to $29.7 million and $4.9
million, respectively, for the year ended December 31, 1995. Old API's income
from operations for the year ended December 31, 1996 was $642,300 as compared to
$92,300 for the same period in the prior year. The net loss for the year ended
December 31, 1996 was $60,600 as compared to a net loss of $548,300 for the same
period in 1995.

14
<PAGE> 17

USE OF PROCEEDS

The net proceeds to the Company from the sale of 3,900,000 shares of Common
Stock offered hereby, assuming an offering price of $11.00 per share (the
midpoint of the estimated initial public offering price range), are estimated to
be $37.9 million, after deducting underwriting discounts and commissions and
estimated offering expenses payable by the Company, including a $350,000 fee
payable to First Equity for assistance rendered in connection with the Offering
and a $250,000 fee payable to First Equity for assistance rendered in connection
with the API Combs Acquisition. See "Certain Transactions." Concurrently with
the closing of the Offering, the Selling Stockholder will be exercising warrants
for 1,293,335 shares of Common Stock at a price of $0.05 per share.

The Company intends to use $8.8 million (subject to adjustment) of the net
proceeds to acquire Old API, $1.9 million to repay the outstanding balance of
15% subordinated debenture owed to the Selling Stockholder, Canpartners
Investments IV, LLC ("Canpartners"), $2.8 million to repay term debt outstanding
under NAC's credit facility and $231,000 in payment of accumulated and unpaid
dividends on the Company's Series A Preferred Stock held by FAI. See "API Combs
Acquisition" and "Certain Transactions." Approximately $24.2 million will be
used to reduce the outstanding balance under NAC's credit facility. The total
balance outstanding under the credit facility was $32.9 million as of October
31, 1996. Advances under the revolving portion of the credit facility bear
interest at the LIBOR rate plus 3.0% and on the term debt portion of the credit
facility bear interest at the LIBOR rate plus 3.5% and 4.5%, and have been used
primarily to finance inventory purchases and accounts receivable.

The Company intends to use any remaining net proceeds for working capital
and general corporate purposes, including the possible investment in or
strategic acquisition of other complementary businesses. Although the Company is
continually evaluating potential acquisitions, the Company currently has no
agreements, understandings or commitments with respect to any acquisition other
than Old API, nor is the Company engaged in negotiations with respect to any
acquisition.

Proceeds not immediately required for the purposes described above will be
invested principally in U.S. Government securities, short term certificates of
deposit, money market funds or other short term, interest bearing securities.

DIVIDEND POLICY

The Company has not declared or paid any cash dividends or distributions on
its Common Stock since its inception. The Company anticipates that, for the
foreseeable future, all earnings will be retained for use in the Company's
business and no cash dividends will be paid on the Common Stock. Any payment of
cash dividends in the future on the Common Stock will be dependent upon the
Company's financial condition, results of operations, current and anticipated
cash requirements, plans for expansions, the ability of its subsidiaries to pay
dividends or otherwise make cash payments or advances to it and restrictions, if
any, under any future debt obligations, as well as other factors that the Board
of Directors deems relevant. NAC's credit facility prohibits the payment of cash
dividends by it except with the lender's consent.

15
<PAGE> 18

DILUTION

The difference between the public offering price per share of Common Stock
and the net tangible book value per share of the Company after the Offering
constitutes the dilution to investors in the Offering. Net tangible book value
per share is determined by dividing the net tangible book value of the Company
(tangible assets less total liabilities) by the applicable number of shares of
Common Stock.

At October 31, 1996, the net tangible book value of the Company
attributable to its Common Stock was $5,189,000, or $1.04 per share of Common
Stock. See footnote (1) below. After giving effect to the sale by the Company of
the 3,900,000 shares of Common Stock offered by the Company in the Offering
(less underwriting discounts and commissions and estimated expenses of the
Offering) at an assumed initial public offering price per share of $11.00 (the
midpoint of the estimated initial public offering price range), the net tangible
book value of the Company attributable to its Common Stock at October 31, 1996,
as adjusted for the Offering, would have been $43,086,000 or $4.84 per share,
representing an immediate increase in net tangible book value of $3.80 per share
to existing stockholders and an immediate dilution of $6.16 per share to new
investors.

The following table illustrates the foregoing information with respect to
dilution to new investors on a per share basis:

<TABLE>
<S> <C> <C>
Public offering price............................................. $11.00
Net tangible book value before the Offering..................... $1.04(1)
Increase in net tangible book value attributable to new
investors.................................................... 3.80
-----
Pro forma net tangible book value after the Offering............ 4.84
-----
Dilution to new investors......................................... $ 6.16
=====
</TABLE>

- ---------------
(1) Computed by reducing total assets of $59,036,000 at October 31, 1996 by
$360,000 (the amount of intangible assets), subtracting total liabilities of
$53,326,000, assuming the exchange of the Company's Series A Preferred
Stock, face value $1,650,000, for 150,000 shares of Common Stock based on
the Series A Preferred Stock Exchange Price, subtracting the accumulated and
unpaid dividends on the Series A Preferred Stock of $231,000, adding the
proceeds from the exercise of the outstanding warrants, $70,000, and then
dividing by 5,000,000 (the number of shares outstanding immediately prior to
the Offering).

The following table sets forth, with respect to existing stockholders and
new investors, a comparison of the number of shares of Common Stock acquired
from the Company, the percentage ownership of such shares, the total
consideration paid, the percentage of total consideration paid and the average
price per share. The calculations are based on an assumed initial public
offering price of $11.00 per share.

<TABLE>
<CAPTION>
SHARES TOTAL
PURCHASED CONSIDERATION AVERAGE
------------------ -------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ----- ----------- ----- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(2)......... 5,000,000 56.2% $ 2,271,000 5.0% $ 0.45
New investors.................... 3,900,000 43.8% 42,900,000 95.0% $ 11.00
--------- ----- ----------- -----
Total.................. 8,900,000 100.0% $45,171,000 100.0%
========= ===== =========== =====
</TABLE>

- ---------------
(2) Includes 150,000 shares of Common Stock to be issued in exchange for the
Company's Series A Preferred Stock, face value $1,650,000.

The foregoing table assumes no exercise of the 150,000 outstanding stock
options. If all such options had been exercised, there would have been an
immediate dilution of $6.24 per share. See "Management -- Executive Compensation
and Employment Agreements."

16
<PAGE> 19

CAPITALIZATION

The following table sets forth, as of October 31, 1996: (i) the actual
capitalization of the Company as of such date; and (ii) the capitalization of
the Company on a pro forma as adjusted basis, giving effect to (a) the API Combs
Acquisition; (b) the sale by the Company of 3,900,000 shares of Common Stock in
the Offering at an assumed offering price of $11.00 per share (the midpoint of
the estimated initial public offering price range) and the application of the
net proceeds therefrom; and (c) the exchange of the Company's Series A Preferred
Stock, face value $1,650,000 for 150,000 shares of Common Stock based on the
Series A Preferred Stock Exchange Price, as if each had occurred on October 31,
1996. See "Use of Proceeds." This table assumes that all outstanding warrants to
purchase the Company's Common Stock have been exercised in full. The number of
outstanding shares of Common Stock reflected in the table excludes 150,000
shares of Common Stock of the Company which are subject to options exercisable
as of the date hereof, 250,000 shares reserved for future grants under the
Company's Stock Option Plan, and 250,000 shares reserved for future grants under
the Company's Employee Stock Purchase Plan. This table should be read in
conjunction with information contained under the caption "Unaudited Pro Forma
Combined Financial Information" and the Financial Statements and the Notes
thereto of each of the Company and API Combs included elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
OCTOBER 31, 1996
---------------------
PRO FORMA
ACTUAL AS ADJUSTED
------- -----------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Current portion of long-term debt................................ $ 1,105 $ --
Long-term debt, less current portion............................. 33,643 5,912
API Combs Preferred Stock........................................ -- 973
Stockholders' equity:
Preferred Stock, $0.01 par value, 5,000,000 shares authorized;
33,000 shares issued and outstanding actual; none
outstanding,
pro forma as adjusted....................................... 1,650 --
Common Stock, $0.01 par value; 25,000,000 shares authorized,
4,850,000 shares issued and outstanding actual; 8,900,000
shares
issued and outstanding, pro forma as adjusted............... 49 89
Additional paid-in capital....................................... 612 40,189
Retained earnings................................................ 3,399 2,808
------- -------
Total stockholders' equity..................................... 5,710 43,086
------- -------
Total capitalization........................................ $40,458 $49,971
======= =======
</TABLE>

17
<PAGE> 20

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

The following sets forth the Company's Unaudited Pro Forma Combined Income
Statement for the twelve months ended January 31, 1996, and the nine months
ended October 31, 1996, and the Company's Unaudited Pro Forma Combined Balance
Sheet at October 31, 1996, in each case giving effect to: (i) the API Combs
Acquisition using the "purchase" method of accounting; (ii) the Offering and the
application of the net proceeds therefrom assuming an initial public offering
price of $11.00 per share (the midpoint of the estimated initial public offering
price range); and (iii) the exchange of the Company's Series A Preferred Stock,
face value $1,650,000, for 150,000 shares of Common Stock based on the Series A
Preferred Stock Exchange Price. The Company's Unaudited Pro Forma Combined
Income Statements present such events in each case, as if each had been
consummated at the beginning of the periods presented. The Company's Unaudited
Pro Forma Combined Balance Sheet presents such events in each case, as if each
had been consummated on October 31, 1996. The Unaudited Pro Forma Combined
Financial Information of the Company is presented for illustrative purposes
only, and does not purport to present the financial position or results of
operations of the Company had the API Combs Acquisition, the Offering and such
exchange occurred on the dates indicated, nor are they necessarily indicative of
the results of operations which may be expected to occur in the future.

The results of Old API are not included in the historical financial
information of the Company presented below. The pro forma adjustments relating
to allocation of the purchase price of Old API represent the Company's
preliminary determinations of the purchase accounting and other adjustments and
are based upon available information and certain assumptions the Company
considers reasonable under the circumstances. Final amounts could differ from
those set forth therein.

The following unaudited pro forma combined financial information should be
read in connection with the more detailed information, including the Financial
Statements and Notes thereto, included elsewhere in this Prospectus.

18
<PAGE> 21

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

INCOME STATEMENT
TWELVE MONTHS ENDED JANUARY 31, 1996
(Amounts in thousands, except per share amounts)

<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL(1) -------------------------
------------------------------------------- ACQUISITION,
FIRST OFFERING
NAC AVIATION AND
2/1/95- 6/1/95- EXCHANGE AS
5/31/95 1/31/96 COMPANY OLD API ADJUSTMENTS ADJUSTED
------- -------- ----------- ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Net sales...................... $24,338 $68,519 $92,857 $29,676 $ 99(2a) $122,632
Cost of sales.................. 23,809 57,390 81,199 24,748 -- 105,947
------- ------- ------- -------- ------- ---------
Gross profit................... 529 11,129 11,658 4,928 99 16,685
Selling, general and
administrative expenses...... 3,229 5,349 8,578 4,836 545(2b) 13,959
------- ------- ------- -------- ------- ---------
Income (loss) from
operations................... (2,700) 5,780 3,080 92 (446) 2,726
------- ------- ------- -------- ------- ---------
Other (income) expense:
Interest expense............. 644 2,605 3,249 643 (3,222)(2c) 670
Other........................ 801 -- 801 (3) -- 798
------- ------- ------- -------- ------- ---------
Total other (income)
expense.............. 1,445 2,605 4,050 640 (3,222) 1,468
------- ------- ------- -------- ------- ---------
Income (loss) before provision
for income taxes............. (4,145) 3,175 (970) (548) 2,776 1,258
Income tax expense (benefit)... (1,210) 1,300 90 -- 338(2d) 428
------- ------- ------- -------- ------- ---------
Income (loss) before
extraordinary item........... $(2,935) $ 1,875 $(1,060) $ (548) $ 2,438 $ 830
======= ======= ======= ======== ======= =========
Income per share............... $ 0.09
=========
Shares used in computation of
net income per share......... 9,044
=========
</TABLE>

See Notes to Unaudited Pro Forma Combined Financial Information.

19
<PAGE> 22

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

INCOME STATEMENT
NINE MONTHS ENDED OCTOBER 31, 1996
(Amounts in thousands, except per share amounts)

<TABLE>
<CAPTION>
PRO FORMA
-------------------------------
ACQUISITION,
OFFERING
HISTORICAL(1) AND
------------------- EXCHANGE
COMPANY OLD API ADJUSTMENTS AS ADJUSTED
------- ------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales................................... $76,776 $29,078 $ 49(2a) $105,903
Cost of sales............................... 65,606 24,333 -- 89,939
------- ------- ------- --------
Gross profit................................ 11,170 4,745 49 15,964
Selling, general and administrative
expenses.................................. 6,163 4,258 669(2b) 11,090
------- ------- ------- --------
Income from operations...................... 5,007 487 (620) 4,874
------- ------- ------- --------
Other expense:
Interest expense.......................... 2,619 548 (2,742)(2c) 425
Other..................................... -- -- -- --
------- ------- ------- --------
Total other expense............... 2,619 548 (2,742) 425
------- ------- ------- --------
Income (loss) before provision for income
taxes..................................... 2,388 (61) 2,122 4,449
Income tax expense.......................... -- -- -- --
------- ------- ------- --------
Income (loss) before extraordinary item..... $ 2,388 $ (61) $ 2,122 $ 4,449
======= ======= ======= ========
Income per share............................ $ 0.49
========
Shares used in computation of net income per
share..................................... 9,044
========
</TABLE>

See Notes to Unaudited Pro Forma Combined Financial Information.

20
<PAGE> 23

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

BALANCE SHEET
OCTOBER 31, 1996
(Amounts in thousands)

<TABLE>
<CAPTION>
PRO FORMA
-----------------------------
ACQUISITION,
OFFERING
HISTORICAL AND
----------------------- EXCHANGE
COMPANY OLD API(1) ADJUSTMENTS AS ADJUSTED
-------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................. $ -- $ 3,699 $ (3,553)(3a) $ 146
Restricted cash........................... 544 -- -- 544
Trade and other receivables, net.......... 17,937 6,676 -- 24,613
Inventories............................... 34,645 4,273 (300)(3b) 38,618
Deferred income taxes..................... 1,036 -- -- 1,036
Prepaid expenses and other................ 1,763 418 (135)(3c) 2,046
------- ------- -------- -------
Total current assets.............. 55,925 15,066 (3,988) 67,003
Other assets.............................. 282 -- (225)(3c) 57
Plant and equipment, net.................. 2,829 653 75(3b) 3,557
Excess of cost over net assets acquired... -- -- 1,385(3b) 1,385
------- ------- -------- -------
Total assets...................... $59,036 $15,719 $ (2,753) $72,002
======= ======= ======== =======

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................... $11,729 $ 2,592 $ -- $14,321
Accrued liabilities....................... 4,321 448 413(3b) 5,182
Due to affiliates......................... -- 14,340 (14,340)(3d) --
Current portion of long-term debt......... 1,105 -- (1,105)(3e) --
------- ------- -------- -------
Total current liabilities......... 17,155 17,380 (15,032) 19,503
------- ------- -------- -------
Long-term debt less current portion......... 33,643 -- (27,731)(3e) 5,912
Other long-term liabilities................. 2,528 -- -- 2,528
------- ------- -------- -------
Total liabilities................. 53,326 17,380 (42,763) 27,943
API Combs Preferred Stock................... -- -- 973(3f) 973
AMR Combs' net investment in Old API........ -- (1,661) 1,661(3g) --

Stockholders' equity:
Preferred stock........................... 1,650 -- (1,650)(3f) --
Common stock.............................. 36 -- 53(3f) 89
Additional paid-in capital................ 625 -- 39,564(3f) 40,189
Retained earnings (deficit)............... 3,399 -- (591)(3h) 2,808
------- ------- -------- -------
Total stockholders' equity........ 5,710 -- 37,376 43,086
------- ------- -------- -------
Total liabilities and
stockholders' equity............ $59,036 $15,719 $ (2,753) $72,002
======= ======= ======== =======
</TABLE>

See Notes to Unaudited Pro Forma Combined Financial Information.

21
<PAGE> 24

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
(Amounts in thousands, except share and per share data)

1. The pro forma periods for the twelve months ended January 31, 1996 and
for the nine months ended October 31, 1996 are the Company's historical
financial reporting periods. For the pro forma period ended January 31, 1996,
Old API has been included for the twelve months ended December 31, 1995 because
as a division of AMR Combs it had historically reported on a calendar year end.
Historical financial information of Old API for the nine months ended September
30, 1996 is included in the pro forma financial information for the nine months
ended October 31, 1996. The Company believes the effect of the difference in
these reporting periods is not significant and it is not reflected in the
Unaudited Pro Forma Combined Financial Information. The final purchase price of
the assets to be acquired in the API Combs Acquisition will be determined based
upon the balance sheet at the date of closing. Based upon Old API's September
30, 1996 balance sheet, the purchase price would be $9,727 and the allocation
would be:

<TABLE>
<S> <C>
Current assets..................................................... $11,078
Plant and equipment................................................ 728
Excess of purchase price over net assets acquired.................. 1,385
Accounts payable and accrued expenses.............................. (3,464)
-------
Total purchase price..................................... $ 9,727
=======
</TABLE>

Total cash consideration paid by the Company will be 90% of the total
purchase price or $8,754. The remaining 10% of the purchase price will be
reflected by the Company as a minority interest in the form of API Combs
Preferred Stock issued to AMR Combs. The foregoing purchase price and
allocations are based on the September 30, 1996 Old API balance sheet and
preliminary estimates of fair value. The final purchase price determination and
amount of preferred stock to be issued and cash to be paid are contingent upon
final assessment or appraisal of the fair value of certain assets to be
acquired.

2. The Company's pro forma income statement adjustments for the twelve
months ended January 31, 1996 and the nine months ended October 31, 1996 present
the effects on the historical combined financial statements of: the API Combs
Acquisition; the Offering and the application of the net proceeds therefrom; and
the exchange of the Company's Series A Preferred Stock, face value $1,650, for
150,000 shares of Common Stock based on the Series A Preferred Stock Exchange
Price, in each case as if they occurred as of the beginning of such periods,
including:

(a) To reflect sales made by Old API to an affiliated company at
intercompany prices that management believes were not reflective
of third party sales. The adjustments are calculated to reflect
the difference between such intercompany sales and the gross
margin stipulated in the Asset Purchase Agreement for such sales
during the periods reflected.

(b) To include certain amounts, aggregating $825 and $634 for the
twelve months ended January 31, 1996 and the nine months ended
October 31, 1996, respectively, for selling, general and
administrative expenses to properly reflect costs the company
would have borne as a public entity. Selling, general and
administrative expenses for the twelve months ended January 31,
1996 have been reduced by $326 to reflect the reduced depreciation
expense resulting from the write-down of fixed assets in the NAC
acquisition as if it had occurred at the beginning of the year. In
addition, the adjustment reflects amortization of $46 and $35 for
the twelve months ended January 31, 1996 and the nine months ended
October 31, 1996, respectively, calculated on a straight line
basis over thirty years of the $1,385 excess of cost over net
assets acquired in the API Combs Acquisition.

(c) To record the reduction in interest expense totalling $3,222 and
$2,742 for the periods ended January 31, 1996 and October 31, 1996,
respectively, reflecting the application of the net proceeds from
the Offering, consisting of: (i) $192 and $160, respectively,
related to the repayment of $2,800 of the Company's term debt; (ii)
$503 and $315, respectively, related to the repayment of $1,845 of
subordinated debt; (iii) $1,850 and $1,690, respectively, related to

22
<PAGE> 25

the repayment of $24,191 of NAC's credit facility; (iv) $637 and $547,
respectively related to interest paid by Old API to AMR Combs, and includes $40
and $30 related to dividends on the API Combs Preferred Stock, .

(d) To record the income tax provision arising from the pro forma
adjustments discussed above based on the Company's estimated
effective tax rate of 34% for the twelve months ended January 31,
1996.

3. For purposes of preparing the Unaudited Pro Forma Combined Balance
Sheet, Old API's assets and liabilities acquired or assumed have been recorded
at their estimated fair values. A final determination of the required purchase
price accounting adjustments and of the fair value of the assets acquired or
assumed has not yet been finalized. Accordingly, the purchase accounting
adjustments made in connection with the development of the unaudited pro forma
financial information reflects the Company's best estimate based upon currently
available information.

(a) Adjustments reflect: (i) net cash proceeds generated from the sale
of 3,900,000 shares at $11.00 per share, net of expenses and
underwriting discounts and commissions of approximately $5,003;
(ii) cash generated from the exercise of warrants for 1,293,335
shares of Common Stock at $0.05 per share; (iii) the repayment of
$2,800 of term debt, the repayment of $1,845 of subordinated debt,
and the pay down of $24,191 of NAC's credit facility; (iv) the
repayment of accumulated and unpaid dividends on the Series A
Preferred Stock of $231; (v) the $8,800 cash consideration for the
API Combs Acquisition; and (vi) cash not contractually acquired in
the API Combs Acquisition.

(b) The historical financial position of Old API has been adjusted to
include: (i) the write-up of fixed assets of $75 to estimated fair
value; (ii) $1,385 relating to the excess of cost over net assets
acquired; (iii) $300 relating to the write-down of inventory; and
(iv) the increase in accrued liabilities to record costs related
to the acquisition.

(d) Reflects liabilities not contractually assumed in the API Combs
Acquisition.

(e) Adjustments to long-term debt reflect: (i) the repayment of the
Company's term debt by $2,800; (ii) the repayment of the Company's
subordinated debt by $1,845; and (iii) the pay down of NAC's
credit facility by $24,191.

(f) Adjustments reflect: (i) the exchange by FAI of the Company's
Series A Preferred Stock owned by FAI, face value $1,650 for
150,000 shares of Common Stock based on the Series A Preferred
Stock Exchange Price; (ii) the issuance of API Combs Preferred
Stock to AMR Combs, which represents 10% of the purchase price of
Old API, resulting in a minority interest of $973; (iii) the
effect of the sale of 3,900,000 shares of Common Stock at $11.00
per share, net of expenses and underwriting discounts and
commissions of approximately $5,003; and (iv) the exercise of
warrants for 1,293,335 shares of Common Stock at $0.05 per share.

(g) Adjustment to reflect the elimination of $1,661 of AMR Combs
investment in and advances to Old API.

(h) Adjustments to retained earnings reflect (i) the write-off of $360
for deferred financing costs and (ii) the $231 of accumulated
dividends paid to FAI as the holder of the Company's Series A
Preferred Stock.

23
<PAGE> 26

SELECTED FINANCIAL INFORMATION
(Amounts in thousands, except per share amounts)

The selected financial data set forth below should be read in conjunction
with the Financial Statements and related Notes, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and other financial
information included herein.

The selected financial data of the Company as of and for the ten month
period ended January 31, 1996 has been derived from the consolidated financial
statements of First Aviation, audited by Ernst & Young LLP, independent
accountants. These financial statements and the notes thereto appear elsewhere
in this Prospectus.

The selected financial data of the Company for the nine month periods ended
October 31, 1995 and October 31, 1996 has been derived from unaudited financial
statements. The unaudited financial statements include all adjustments,
consisting of normal recurring accruals, which the Company considers necessary
for the fair presentation of the financial position and results of operations
for those periods. These financial statements and the notes thereto appear
elsewhere in this Prospectus. Results of operations for the nine month period
ended October 31, 1996 are not necessarily indicative of the results that may be
expected for the entire year ending January 31, 1997.

The selected financial data as of and for the years ended March 27, 1992,
April 2, 1993, April 1, 1994 and March 31, 1995 has been derived from the
financial statements of NAC, audited by Price Waterhouse LLP, independent
accountants. The NAC balance sheet as of March 31, 1995 and the related
statements of operations and cash flows for the two years then ended and notes
thereto appear elsewhere in this Prospectus.

The historical data of NAC and the Company are not comparable in all
respects. The results of Old API are not included in the financial information
of the Company presented below.

<TABLE>
<CAPTION>
COMPANY
------------------------------------------------------------------------------------------------
TWELVE TEN
FISCAL YEAR ENDED MONTHS MONTHS NINE MONTHS
---------------------------------------------- ENDED ENDED ENDED OCTOBER 31,
MARCH 27, APRIL 2, APRIL 1, MARCH 31, JANUARY 31, JANUARY 31, ------------------
1992 1993 1994 1995 1996(1) 1996(1) 1995(1) 1996
--------- ----------- -------- --------- ----------- ----------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................... $88,600 $97,427 $92,513 $83,091 $92,857 $79,415 $67,171 $76,776
Cost of sales................ 81,249 86,006 79,315 72,796 81,199 67,853 59,522 65,606
------- ------- ------- ------- ------- ------- ------- -------
Gross profit................. 7,351 11,421 13,198 10,295 11,658 11,562 7,649 11,170
Selling, general and
administrative expenses.... 9,528 9,721 8,536 9,362 8,578 6,509 6,600 6,163
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations................. (2,177) 1,700 4,662 933 3,080 5,053 1,049 5,007
Interest expense............. 2,857 1,390 1,076 1,807 3,249 2,892 2,303 2,619
Other income (expense)....... (1,307) (3,000) (519) (1,302) (801) -- (801) --
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before taxes
and extraordinary items.... (6,341) (2,690) 3,067 (2,176) (970) 2,161 (2,055) 2,388
Income tax expense
(benefit).................. (721) 333 1,046 (885) 90 1,300 (356) --
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
extraordinary item......... (5,620) (3,023) 2,021 (1,291) (1,060) 861 (1,699) 2,388
Extraordinary item........... -- 333(2) -- -- -- -- -- (864)(3)
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)............ $(5,620) $(2,690) $ 2,021 $(1,291) $(1,060) $ 861 $(1,699) $ 1,524
======= ======= ======= ======= ======= ======= ======= =======
Dividend on preferred
stock(4)................... 99
-------
Net income (loss) applicable
to common stockholder...... 1,425
=======
Net income per common share:
Income before extraordinary
item per common share.... $ 0.43
Extraordinary item per
common share............. $ (0.16)(3)
-------
Net income per common
share.................... $ 0.27
=======
Weighted average number of
shares..................... 5,291
</TABLE>

24
<PAGE> 27

<TABLE>
<CAPTION>
COMPANY
-------------------------------------------------------------------------
MARCH 27, APRIL 2, APRIL 1, MARCH 31, JANUARY 31, OCTOBER 31,
1992 1993 1994 1995 1996 1996
--------- --------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.......................... $43,138 $ 37,739 $ 30,379 $35,560 $31,413 $38,770
Total assets............................. 77,231 69,649 65,059 64,074 60,384 59,036
Current portion of long-term
debt................................... 151 244 289 379 1,970 1,105
Long-term debt, less current portion..... 24,011 21,005 10,963 18,660 27,005 33,643
Other long-term liabilities.............. 1,681 1,322 2,243 2,168 3,601 2,528
Series A Preferred Stock................. -- -- -- -- 1,650 1,650
Total stockholders' equity............... 36,984 34,294 36,315 35,024 4,186 5,710
</TABLE>

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

(1) The financial information presented for the twelve months ended January 31,
1996, the ten months ended January 31, 1996 and the nine months ended
October 31, 1995 include four months, two months and four months,
respectively, during which NAC was owned by the Predecessor. This
information also includes the eight months, eight months and five months,
respectively, during which NAC was owned by the Company. The results of
operations for these periods are as follows:

<TABLE>
<CAPTION>
TWELVE MONTHS ENDED TEN MONTHS ENDED NINE MONTHS ENDED
JANUARY 31, 1996 JANUARY 31, 1996 OCTOBER 31, 1995
----------------------------- ----------------------------- ----------------------------
FIRST FIRST FIRST
NAC AVIATION NAC AVIATION NAC AVIATION
2/1/95- 6/1/95- 4/1/95- 6/1/95- 2/1/95- 6/1/95-
5/31/95 1/31/96 TOTAL 5/31/95 1/31/96 TOTAL 5/31/95 10/31/95 TOTAL
------- --------- ------- -------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales........................... $24,338 $68,519 $92,857 $10,896 $68,519 $79,415 $24,338 $42,833 $67,171
Cost of sales....................... 23,809 57,390 81,199 10,463 57,390 67,853 23,809 35,713 59,522
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit........................ 529 11,129 11,658 433 11,129 11,562 529 7,120 7,649
Selling general and administrative
expenses.......................... 3,229 5,349 8,578 1,160 5,349 6,509 3,229 3,371 6,600
------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from operations....... (2,700) 5,780 3,080 (727) 5,780 5,053 (2,700) 3,749 1,049
Interest expense.................... 644 2,605 3,249 287 2,605 2,892 644 1,659 2,303
Other income (expense).............. (801) -- (801) -- -- -- (801) -- (801)
------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before tax and
extraordinary item................ (4,145) 3,175 (970) (1,014) 3,175 2,161 (4,145) 2,090 (2,055)
Income tax expense (benefit)........ (1,210) 1,300 90 -- 1,300 1,300 (1,210) 854 (356)
------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before extraordinary
item.............................. $(2,935) $ 1,875 $(1,060) $(1,014) $ 1,875 $ 861 $(2,935) $ 1,236 $(1,699)
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>

Due to the change in ownership and equity structure, income (loss) per
share data for these periods cannot be presented meaningfully.

(2) Represents an extraordinary benefit of $333 due to the utilization of net
operating loss carry forwards.

(3) Represents an extraordinary charge of $864, or $0.16 per share, due to the
write-off of prepaid financing costs and early extinguishment charges
incurred in connection with the early extinguishment of debt. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

(4) The calculation of net income per common share requires the deduction from
net income of cumulative but undeclared preferred stock dividends.
Accumulated but undeclared preferred stock dividends were $88 during each of
the twelve months and ten months ended January 31, 1996 respectively. Net
income per common share for all periods, except as shown, cannot be
presented meaningfully due to the change in ownership and equity structure.

25
<PAGE> 28

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The following analysis of the financial condition and results of operations
of the Company should be read in conjunction with the Company's Consolidated
Financial Statements, including the Notes thereto, pro forma financial
information and selected financial data of the Company included elsewhere in
this Prospectus. The results of Old API are not included in the financial
information of the Company presented and discussed below.

OVERVIEW

First Aviation was formed in March 1995 to acquire the stock of NAC. The
acquisition of NAC was completed on June 1, 1995 and has been accounted for
under the purchase method of accounting. Net sales for NAC consist of revenues
derived from the overhaul and repair of aircraft engines, engine components and
industrial turbines as well as the sales of parts and components. Net sales are
generally recorded when repaired or overhauled engines and components are
completed, tested and shipped. In the ten month period ended January 31, 1996
and the nine month period ended October 31, 1996, revenues from the servicing,
repair and overhaul of gas turbine engines and original aircraft components
accounted for approximately 74.6% and 82.4% of net sales, respectively, with
revenue from the sale of spare parts accounting for the remaining 25.4% and
17.6%, respectively.

On November 25, 1996, API Combs signed a definitive agreement to acquire
Old API, a division of AMR Combs, which acquisition will close concurrently with
the closing of the Offering. Old API is an aircraft parts distributor of more
than 100 major product lines of aircraft parts. API Technologies, Old API's
licensed repair station, offers brake and starter generator overhaul services
and is an authorized hose assembly manufacturing facility. Net sales for Old API
represent the sales of parts and components, which are recorded when products
are shipped.

The API Combs Acquisition is an initial step in meeting the Company's goal
of participating in the consolidation of the aviation services industry. The API
Combs Acquisition expands the Company's services by focusing on supplying
aircraft parts to the general aviation market, thereby allowing the Company to
leverage its repair and overhaul and remanufacturing expertise through new
product lines and a new customer base and by expanding API Combs' geographic
coverages.

Since the acquisition of NAC in June 1995 and the installation of new
senior management, NAC has initiated certain changes to its operations to
improve its financial performance. The first elements of these changes,
including expansion of its foreign and domestic direct sales effort,
rationalization of its operations under its cost containment program and
increasing efficiency through the leveling of production schedules, have been
implemented and further efforts are ongoing. The Company believes that the
benefits of these changes are reflected in its improved financial performance
during the nine months ended October 31, 1996 as compared to the comparable
period in the prior fiscal year.

The Company analyzes its profit margins by, among other methods, product
line, and in doing so excludes certain other costs of goods sold, including
inventory obsolescence, warranty and related costs, production variances and
scrap costs. These other costs of goods sold are included in determining the
Company's total gross profit. Beginning in 1994, when Allison changed its
authorized distribution agreements, Allison significantly reduced the discounts
off of list price, both for parts for over-the-counter sales and parts embedded
in overlands and repairs. As a result, the Company's profit margins for parts
for a portion of 1995 and 1996 have been adversely impacted. Nonetheless, the
Company's profit margins increased for overhauls and repairs during these
periods.

The Company intends to pursue tax planning and related strategies,
including the formation of a Foreign Sales Corporation through which the Company
will make certain of its export sales. As a result of the anticipated
implementation of these strategies, the Company believes that it can reduce its
effective tax rate from statutory levels. No assurance can be given that the
Company's tax planning strategies will be successful.

The Company's fiscal year ends January 31. Prior to its acquisition, NAC's
fiscal year ended on the Saturday closest to March 31.

26
<PAGE> 29

RESULTS OF OPERATIONS-FIRST AVIATION

The following table sets forth, for the periods indicated, the percentages
of the Company's net sales that certain income and expense items represent. The
results of Old API are not included in the financial information presented and
discussed below. For information relating to the results of operations and
financial condition of Old API, see the Financial Statements and Notes thereto
included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
TWELVE MONTHS ENDED, NINE MONTHS ENDED,
---------------------------------- -------------------------
APRIL 1, MARCH 31, JANUARY 31, OCTOBER 31, OCTOBER 31,
1994 1995 1996 1995 1996
-------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales..................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................................. 85.7 87.6 87.4 88.6 85.5
----- ----- ----- ----- -----
Gross profit.................................. 14.3 12.4 12.6 11.4 14.5
Selling, general and administrative
expenses.................................... 9.2 11.3 9.2 9.8 8.0
----- ----- ----- ----- -----
Income from operations........................ 5.1 1.1 3.4 1.6 6.5
Interest expense.............................. 1.2 2.2 3.5 3.4 3.4
Other income (expense)........................ (0.6) (1.6) (0.9) (1.2) --
----- ----- ----- ----- -----
Income (loss) before taxes and extraordinary
item........................................ 3.3 (2.7) (1.0) (3.0) 3.1
Income tax expense (benefit).................. 1.1 (1.1) 0.1 (0.5) --
----- ----- ----- ----- -----
Net income (loss) before extraordinary item... 2.2% (1.6)% (1.1)% (2.5)% 3.1%
===== ===== ===== ===== =====
</TABLE>

Nine months ended October 31, 1996 compared with nine months ended October 31,
1995

Net sales for the nine months ended October 31, 1996 increased $9.6
million, or 14.3%, to $76.8 million from $67.2 million during the comparable
period ended October 31, 1995. The growth in net sales was primarily due to the
$13.2 million, or 26.6%, increase in revenue from repair and overhaul. This
increase was offset in part by a $3.6 million, or 21.4%, decrease in the level
of parts sold directly to customers due primarily to larger than normal parts
orders from one customer in the nine months ended October 31, 1995.

Cost of sales increased $6.1 million during the nine months ended October
31, 1996 due to the increase in sales during that period. As a percentage of net
sales, cost of sales decreased 3.1% to 85.5% during the nine months ended
October 31, 1996 from 88.6% during the comparable period in the prior year. This
decrease was due primarily to charges incurred during the nine months ended
October 31, 1995 of $1.0 million for inventory obsolescence and $0.9 million for
warranty and other accruals. Additionally, cost of sales for the nine months
ended October 31, 1996 reflect $0.5 million reduced depreciation expense as
compared to the same period in the prior year, due to purchase accounting
adjustments for the acquisition of NAC by the Company in June 1995.

The Company's total gross profit increased $3.5 million, or 46%, to $11.2
million for the nine months ended October 31, 1996. As a percentage of sales,
total gross profit increased 3.1% from 11.4% to 14.5% for the nine months ended
October 31, 1996. The profit margins of the repair and overhaul product line
increased from 14.6% to 16.4% for the nine months ended October 31, 1996, while
profit margins on part sales declined from 16.2% to 14.7%. Profit margins for
the nine months ended October 31, 1996 for repair and overhaul and part sales
product lines reflect the full implementation of changes in Allison's
arrangements with its AMCs. For parts ordered after September 1994, Allison
reduced the Company's discount off of list price on over-the-counter parts sales
from 25% to 10% for the 501 product line and from 40% to 15% on the 250 product
line. For parts embodied in overhauls, Allison reduced the discount off of list
price from 25% to 20% for the 501 engine, and from 40% to 32% for the 250
engine. The decrease in profit margins on over-the-counter part sales for the
nine months ended October 31, 1996 was largely due to the change in Allison's
arrangements with its AMCs. Profit margins of the repair and overhaul product
line increased during the nine months ended October 31, 1996 despite the adverse
effect of the change in Allison's parts pricing.

The Company's total gross profit margins for the nine months ended October
31, 1996 reflect a reduction of $1.3 million of other cost of goods sold
compared to the same period in the prior year, primarily due to $1.0 million
inventory obsolescence charge and $0.9 million recorded for warranty and related
expenses

27
<PAGE> 30

incurred in the nine months ended October 31, 1995. Additionally, total gross
margins for the nine months ended October 31, 1996 reflect $0.5 million reduced
depreciation expense as compared to the same period in the prior year, due to
purchase accounting adjustments for the acquisition of NAC by the Company in
June 1995.

Selling, general and administrative expenses for the nine months ended
October 31, 1996 decreased $0.4 million, or 6.6%, to $6.2 million from $6.6
million for the comparable period ended October 31, 1995. As a percentage of
sales, selling, general and administrative expenses decreased from 9.8% to 8.0%.
The reduction was due primarily to a one-time charge of $0.6 million incurred in
1995 for the lump sum settlement to eliminate longevity pay to certain
personnel.

Interest expense for the nine month period ended October 31, 1996 increased
$0.3 million to $2.6 million from $2.3 million for the nine months ended October
31, 1995. This increase was due to an increase in the average borrowings under
the Company's credit facilities as a result of the Company's need for increased
working capital and indebtedness incurred in connection with the acquisition of
NAC in June 1995.

Other expenses decreased $0.8 million for the nine months ended October 31,
1996. During the nine months ended October 31, 1995, the Company incurred $0.8
million of expenses, representing the write-off of a marine gas turbine engine
joint venture investment, including related advances, and professional fees
incurred in connection with the sale of NAC by the Predecessor.

Net income increased by $3.2 million to $1.5 million for the nine months
ended October 31, 1996, compared to a loss of $1.7 million for the nine months
ended October 31, 1995.

Twelve months ended January 31, 1996 compared to the Fiscal Year ended March
31, 1995

The twelve months ended January 31, 1996 is comprised of three separate
periods of time and operation. The initial two months of the period, February
and March of 1995, are also reported as part of fiscal year ended March 31,
1995. During these two months, NAC incurred after tax losses of $1.9 million.
April and May of 1995 represent the two months immediately preceding the
acquisition of NAC by the Company. Under the ownership management of the
Predecessor, NAC incurred after tax losses of $1.0 million during this two month
period. The Company acquired NAC on June 1, 1995 and installed new senior
management during the last eight months of this period. During this period, the
Company generated net income of $1.9 million.

Net sales for the twelve months ended January 31, 1996 were $92.9 million,
an increase of $9.8 million, or 11.8%, over the fiscal year ended March 31,
1995. Repair and overhaul revenues were $70.0 million in the twelve months ended
January 31, 1996, an increase of $5.6 million, or 8.7%, over fiscal 1995. The
increase was due largely to increased sales under the FMS contract. During the
twelve months ended January 31, 1996, parts sales were $22.9 million as compared
to $18.7 million during the fiscal year 1995.

Cost of sales increased $8.4 million, or 11.5%, to $81.2 million during the
twelve months ended January 31, 1996. As a percentage of net sales, cost of
sales for the twelve months ended January 31, 1996 decreased slightly to 87.4%
compared to 87.6% in fiscal 1995.

Total gross profit for the twelve months ended January 31, 1996 increased
$1.4 million, or 13.2%, to $11.7 million from $10.3 million for the fiscal year
ended March 31, 1995. As a percentage of net sales, gross profits increased
slightly to 12.6% from 12.4% in the fiscal year ended March 31, 1995. Profit
margins of the repair and overhaul product line for the twelve months ended
January 31, 1996 increased to 14.7% from 13.6%. Profit margins of the parts
sales product line increased to 16.1% from 14.0% during fiscal 1995, due largely
to higher margin sales on greater than normal part sales to one customer during
the twelve months ended January 31, 1996. These improvements in both profit
margins of the repair and overhaul and parts products lines for the twelve
months ended January 31, 1996 were largely offset by an increase of $1.7 million
of other cost of sales during that period compared to fiscal 1995, primarily
relating to inventory obsolescence and warranty and related expenses. In
addition, profit margins were negatively affected by the change in Allison's
arrangements with its AMCs as discussed above under "- Results of
Operations - First Aviation - Nine months ended October 31, 1996 compared with
nine months ended October 31, 1995."

28
<PAGE> 31

Selling, general and administrative expenses for the twelve months ended
January 31, 1996 were $8.6 million, a decrease of $0.8 million, or 8.4%, from
the $9.4 million incurred during fiscal 1995. The Company's selling, general and
administrative expenses are primarily associated with its repair and overhaul
activities. As a percentage of net sales, selling, general and administrative
expenses decreased to 9.2% from 11.3% in fiscal 1995. This decrease was
primarily due to the freezing of NAC's pension plan, a reduction in management
fees and a company-wide effort to lower controllable costs, partially offset by
increased contributions to NAC's 401(k) plan and greater direct sales and
marketing efforts and related costs.

Interest expense during the twelve months ended January 31, 1996 increased
by $1.4 million from $1.8 million to $3.2 million as compared to the fiscal year
ended March 31, 1995. The increase was due to the increase in the level of
borrowings under NAC's credit facility and subordinated debenture and term loan
indebtedness incurred in connection with the acquisition of NAC in June 1995.

Other expenses declined during the twelve months ended January 1996 by $0.5
million, or 38.5%, to $0.8 million compared to $1.3 million incurred during
fiscal 1995. Both periods include the write-off of a marine gas turbine engine
joint venture investment, including related advances. During fiscal 1995, the
Company also incurred $0.7 million in professional fees incurred in connection
with efforts to sell NAC by its former shareholder.

The loss before taxes for the twelve months ended January 31, 1996 was $1.0
million, a $1.2 million improvement compared to the loss of $2.2 million
incurred during the fiscal year ended March 31, 1995. During the last eight
months of the period ended January 31, 1996, when NAC was under current
management, the Company earned $3.2 million on a pretax basis. The pretax loss
for the four months immediately preceding the ownership change was $4.2 million.

Income taxes for the twelve months ended January 31, 1996 were $0.1 million
compared to a tax benefit of $0.9 million for fiscal 1995. The charge for the
twelve months ended January 31, 1996 is due to the incurrence of state franchise
taxes.

As a result of the factors described above, the net loss of $1.1 million
incurred during the twelve months ended January 31, 1996 represents a decline of
$0.2 million from the $1.3 million loss reported during the fiscal year ended
March 31, 1995.

Fiscal 1995 compared to Fiscal 1994

Net sales for fiscal 1995 declined 10.2%, or $9.4 million, to $83.1 million
from $92.5 million for fiscal 1994. Overhaul revenues declined 4.5% to $64.1
million in fiscal 1995 due primarily to $13.0 million in reduced revenues under
the FMS contract offset to a large extent by increased revenues in most of the
Company's product lines. Parts sales decreased 25.2%, or $6.3 million, due to a
shortage of parts supplied by Allison and weak industry conditions.

Cost of sales declined $6.5 million from $79.3 million for fiscal 1994 to
$72.8 million for fiscal 1995, due primarily to the decrease in sales. As a
percentage of net sales, cost of sales increased to 87.6% in fiscal 1995 from
85.7% in fiscal 1994.

Total gross profit decreased $2.9 million to $10.3 million for fiscal 1995.
As a percentage of sales, the Company's gross profit declined to 12.4% in fiscal
1995 from 14.3% in fiscal 1994. Profit margins of the repair and overhaul
product line decreased from 19.6% to 13.6% in fiscal 1995 due primarily to a
33.8% decline in revenue in the Company's largest product line, the 501 flight
engine. Profit margins of parts sales increased from 13.2% to 14.0% in fiscal
1995. Other cost of goods sold decreased from $3.3 million in fiscal 1994 to
$1.1 million in fiscal 1995 due primarily to large production variances in
fiscal year 1994.

Selling, general and administrative expenses increased $0.9 million to $9.4
million for fiscal 1995 from $8.5 million for fiscal 1994. The increase was due
to several factors including increases in management fees, the termination of a
lease and increased investments in business development programs.

Interest expenses increased $0.7 million in fiscal 1995 to $1.8 million
from $1.1 million in fiscal 1994. The increase was due to increased borrowing
under NAC's credit facility in order to finance a dividend to the

29
<PAGE> 32

Predecessor. In addition, interest rates paid on the credit lines increased from
an average of 7.185% to 9.625% in fiscal 1995.

Other expenses increased in fiscal 1995 by $0.8 million to $1.3 million
from $0.5 million in fiscal 1994. This was due to the write-off of a joint
venture investment in connection with a marine gas turbine engine joint venture
investment, including related advances, and professional fees incurred in
connection with efforts to sell NAC by the Predecessor.

Income before taxes declined from $3.1 million in fiscal 1994 to a loss of
$2.2 million for fiscal 1995 due to the factors discussed above.

In fiscal 1995, NAC had an income tax benefit of $0.9 million compared to
income taxes of $1.0 million for fiscal 1994. The tax benefit resulted from the
Company's loss from operations in fiscal 1995.

NAC incurred a loss of $1.3 million in fiscal 1995 compared to income of
$2.0 million in fiscal 1994.

LIQUIDITY AND CAPITAL RESOURCES

First Aviation's aggregate capital expenditures for fiscal 1995, the ten
months ended January 31, 1996, and the first nine months ended October 31, 1996
were $2.5 million, $1.1 million and $0.8 million, respectively. Management
anticipates that capital expenditures for the balance of fiscal 1997 and fiscal
1998 will be, in the aggregate, approximately $3.5 million, exclusive of the
costs of acquiring Old API. These expenditures will be used to fund the purchase
of tooling, test equipment, and data processing equipment. Management expects to
fund these capital expenditures from cash flow from operations and, if
necessary, from borrowings.

The Company's cash flow (deficit) from operations for the nine months ended
October 31, 1996, the eight months ended January 31, 1996, the fiscal year ended
March 31, 1995 and the two months ended May 31, 1995 was $(4.2) million, $0.8
million, $(3.9) million and $1.8 million, respectively. Cash used for investing
during these same periods was $1.0 million, $13.6 million, $3.3 million and $0.3
million, respectively. Cash generated (utilized) by financing activities during
these same periods was $5.2 million, $12.9 million, $7.2 million and $(1.5)
million, respectively.

Concurrently with the consummation of the Offering, the Company will use
the net proceeds from the Offering to complete the API Combs Acquisition and to
pay down a portion of the credit facility presently in place at NAC. The Company
will also retire the $1.9 million of 15% subordinated debenture due to
Canpartners and will use $231,000 in payment of accumulated and unpaid dividends
on the Series A Preferred Stock. The balance of the funds will be held for
general corporate purposes including potential acquisitions.

In June 1996, NAC entered into a new credit facility. Borrowings under this
$40.0 million credit facility were used to retire the outstanding debt under
NAC's then-existing $30.0 million revolving credit line and term loan.
Additionally, the new facility provided funds needed to finance the Company's
expansion plans by enabling the Company to acquire an adequate supply of
inventory and to finance receivables. In connection with the refinancing, the
Company recorded an extraordinary charge of $864,000 for prepayment penalties
and the write-off of the unamortized balance of loan fees.

The new credit facility provides NAC with a revolving credit facility that
allows for borrowings of up to $37.0 million and $3.0 million of term loans.
Advances under the revolving portion of the credit facility bear interest at
LIBOR plus 3.0%. The revolving portion of the credit facility also allows for
the issuance of letters of credit up to an aggregate of $1.5 million. At October
31, 1996, borrowings under the revolving portion of the credit facility,
including outstanding letters of credit, amounted to $30.1 million and carried
an interest rate of 8.38%. The credit facility expires on May 15, 1999.

As part of the credit facility, NAC has borrowed $1.0 million and $2.0
million, respectively, under two term loans. The term loans bear interest at a
variable rate of LIBOR plus 3.50% and 4.50%, respectively. At October 31, the
interest rates on these two term loans were 8.88% and 9.88%, respectively.

30
<PAGE> 33

This new credit facility contains a number of covenants, including
restrictions on mergers, consolidations and acquisitions, the incurrence of
indebtedness, transactions with affiliates, the creation of liens, capital
expenditures and management fees. The covenants also require NAC to maintain
defined minimum levels of net worth as well as certain interest coverage ratios
and minimum backlog levels. The Company is currently in compliance with all such
covenants. However, there can be no assurance that the Company will continue to
be in compliance with such covenants, or that such covenants will not restrict
the types of business or level of growth the Company can undertake.

At October 31, 1996, letters of credit issued under the prior credit
facility and still outstanding amounted to $494,000. These letters of credit are
currently collateralized by cash in the amount of $0.5 million. Of this amount,
$468,000 will expire prior to March 3, 1997, at which time, the cash collateral
will be returned to NAC. One letter of credit in the amount of $26,000 does not
expire until October 1999.

In connection with the acquisition of Old API, API Combs will issue 9,727
shares of API Combs Preferred Stock. Such preferred stock is convertible solely
into common stock of API Combs. The API Combs Preferred Stock will carry a $4.00
per share annual dividend, payable quarterly.

Based upon current and anticipated levels of operations and plans for
integrating Old API's business, the Company believes that its cash flow from
operations, combined with borrowings available under the existing line of
credit, will be sufficient to meet its current and anticipated cash operating
requirements, including scheduled interest and principal payments, capital
expenditures, preferred dividends requirements and working capital needs through
the end of fiscal 1997.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS 121
requires recognition of impairment of long-lived assets in the event the net
book value of such assets exceeds the future undiscounted cash flows
attributable to such assets. SFAS 121 is effective for fiscal years beginning
after December 31, 1995. The Company adopted SFAS 121 on February 1, 1996 and
there was no effect of adoption.

31
<PAGE> 34

BUSINESS

GENERAL

First Aviation is a worldwide leader in providing services to aircraft
operators of some of the most widely used military, commercial, and general
aviation aircraft engines in the world. The Company's operations include repair
and overhaul of gas turbine engines and accessories, remanufacturing of engine
components and accessories, and redistribution of new and remanufactured parts.
With the API Combs Acquisition, the Company will be one of the leading suppliers
of aircraft engine and other aircraft parts to the general aviation industry
worldwide. On a pro forma basis, including the API Combs Acquisition, the
Company had net sales of $105.9 million and income before extraordinary item of
$4.4 million for the nine month period ended October 31, 1996, and net sales of
$122.6 million and income before extraordinary item of $0.8 million for the
twelve month period ended January 31, 1996.

Through NAC, the Company provides repair and overhaul services for several
engine types, including: (i) the Allison engines that power the Lockheed Martin
C-130 "Hercules" cargo aircraft, the most popular cargo aircraft in the world;
(ii) the engines employed on most light helicopters; and (iii) industrial
turbine engines primarily used for power cogeneration and gas transmission. The
Company has also established itself as an industry leader in the remanufacturing
of serviceable engine parts and components for use in engine overhauls.

The Company believes it is positioned to benefit from certain industry
trends that favor independent repair and overhaul and aircraft providers
including: (i) increased outsourcing of repair and overhaul services by engine
operators as engine operators seek to reduce operating costs and turnaround
time; (ii) increasing consolidation among repair and overhaul and parts
providers as engine operators reduce the number of providers used for these
services; (iii) increased emphasis on the traceability of aircraft parts which
has, in turn, increased the required sophistication of information systems used
by parts distributors; (iv) growing demand for remanufactured parts as engine
operators seek to lower costs of repair and overhaul services; (v) increasing
aviation activity which, in turn, increases the demand for repair and overhaul
services; and (vi) increased demand by aircraft operators for third parties to
manage and maintain parts inventories so that aircraft operators may reduce
their parts inventory.

INDUSTRY OVERVIEW

Engine Repair and Overhaul. The Company believes that the current annual
worldwide market for gas turbine engine repair and overhaul services is
approximately $6.5 billion. Gas turbine engines are used to power aircraft and
marine vessels and to generate electricity for industrial applications. Repair
and overhaul services are performed by engine operators, engine manufacturers,
and independent operators such as the Company. The engine repair and overhaul
market is highly fragmented with over 1,800 service providers, competing
primarily on the basis of price, quality and turnaround time. The repair and
overhaul of aircraft engines and engine components is regulated by governmental
agencies throughout the world, including the FAA and the DOD, and is
supplemented by engine manufacturers' guidelines which generally require that
engines be overhauled and certain engine components be replaced after a certain
number of flight hours and/or cycles (take-offs and landings).

Aviation Parts Sales. The Company believes that the current annual
worldwide market for new and used spare engine parts and spare aircraft engines
is approximately $10.0 billion of which $1.3 billion is supplied by the
aftermarket. The aviation parts market is highly-fragmented with a limited
number of large, well-capitalized companies selling a broad range of aircraft
spare parts and numerous smaller competitors serving niche markets. Through API
Combs, the Company serves the general aviation sector of this market, which
includes regional airlines, business aviation and helicopter and recreational
operators. In the general aviation sector FBOs play an integral role in aircraft
servicing and maintenance by providing a broad range of

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<PAGE> 35

services to general aviation aircraft operators on an as needed basis. FBOs and
other maintenance operators continue to consolidate and are dependent on a
limited number of aftermarket suppliers to provide the parts and customer
service necessary to support general aviation aircraft.

INDUSTRY TRENDS

Increased Outsourcing of Repair and Overhaul Services. In recent years,
many engine operators have recognized outsourcing of repair and overhaul
services as an opportunity to reduce operating costs and turnaround time.
Outsourcing allows engine operators to benefit from the expertise of service
providers such as the Company who have developed proprietary repair schemes and
achieved economies of scale unavailable to individual operators. Additionally,
outsourcing allows engine operators to limit their capital investment in
infrastructure and personnel by eliminating the need for the remanufacturing
equipment, sophisticated information systems technology and inventory required
to effectively repair and overhaul engines. As engine operators continue to
become more cost and value conscious, and as modern aircraft engines become
increasingly more sophisticated, the Company expects the trend to outsourcing to
continue.

Increasing Consolidation. The Company believes that customers are
increasingly seeking the services of larger, more sophisticated and better
capitalized service providers. In order to reduce costs, satisfy increased
governmental regulatory scrutiny, streamline buying decisions and assure
quality, engine operators are seeking to reduce the number of providers that are
used both for repair and overhaul and parts supply services. As modern aircraft
engines become more sophisticated, so do the repairs and parts requirements for
such engines. At the same time, engine operators have become more sensitive to
quick turnaround times. As a result, the Company believes that engine operators
increasingly select those service providers which have made a significant
capital commitment toward developing proprietary repair schemes and acquiring
remanufacturing equipment and inventories, and therefore are capable of
providing higher quality and more timely services than under-capitalized
competitors can offer. Additionally, the increasing costs of technology and
inventory levels required to compete effectively has made entry into and
continued success in the industry more difficult and expensive. The Company
believes that well-capitalized, technologically sophisticated providers capable
of offering a wide breadth of services will benefit from this consolidation
trend.

Greater Emphasis on Traceability. Due to concerns regarding unapproved
aircraft spare parts, regulatory authorities have increased the level of
documentation which must be maintained on aircraft spare parts. This requirement
has, in turn, been extended by end-users to the vendors of the parts. The
sophistication required to track the history of an inventory consisting of
thousands of aircraft spare parts is considerable and has required companies to
invest significantly in information systems technology.

Growing Demand for Remanufactured Parts. During the course of an engine
overhaul or a repair, engine components are replaced using either new parts or
aftermarket parts that are of FAA-certified "overhauled" or "serviceable"
condition. As engine operators seek to lower costs related to overhaul and
repair services, they have focused on engine component costs, which comprise a
majority of the engine overhaul expense. Increasingly, these operators are using
high quality remanufactured parts instead of new parts supplied by the original
equipment manufacturer since aftermarket parts are frequently sold at a 30-40%
discount to new parts.

Increasing Aviation Activity. Aviation activity is expected to increase
significantly over the next ten years. According to the 1996 Boeing Current
Market Outlook, global commercial air travel is expected to increase 70% through
the year 2005, while the number of passenger and cargo aircraft deliveries is
expected to increase by 47%. According to the FAA, U.S. turbine powered general
and business aviation will increase 28% by the year 2006. Production of general
aviation aircraft has risen by 10% in the first half of 1996, after a 16%
increase in 1995. The Company believes that the growth in aviation activity will
result in increased utilization of existing aircraft and increase the demand for
repair and overhaul services and aircraft and engine components.

Inventory Management by Third Parties. Aircraft operators, FBOs and other
maintenance providers are increasingly seeking to lower costs through the
reduction of their parts inventory. The Company believes that these parties seek
well-capitalized and technologically sophisticated parts redistributors who have
a broad availability of inventory which can be delivered on a next-day basis to
reduce their inventory carrying needs.

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<PAGE> 36

COMPETITIVE STRENGTHS

The Company believes that it is well positioned to take advantage of
positive trends in the marketplace based upon the following competitive
strengths:

Worldwide Leader. The Company is the worldwide leader in engine repair,
overhaul and support for each of the Allison engines that it services, which
includes the engine that powers the C-130 "Hercules," and has more than 30 years
of experience. The Company provides repair and overhaul services to more than
300 customers located in more than 45 countries. The Company believes that its
customers select it based on its quality of service, superior turnaround time
and price competitiveness.

Remanufacturing and Engineering Expertise. Through the development of
proprietary remanufacturing and repair techniques, the Company is able to
provide its customers with low cost overhaul and repair services. The Company
believes that its ability to provide in-house remanufacturing capabilities
enables it to offer complete maintenance programs while maintaining higher
quality standards and faster turnaround times than other service providers who
rely on third party providers to remanufacture parts. To demonstrate its
commitment to excellence in the quality of its services, the Company is seeking
to have its repair and overhaul processes and inspection procedures certified to
internationally recognized ISO 9001 Quality Standards and expects certification
to be completed in 1997. The Company believes that it will be the only engine
repair and overhaul provider in the world designated at this highest ISO
standard, a standard generally reserved for manufacturing concerns.

Computer-based Advanced Remanufacturing System ("CARS"). The Company has
developed a proprietary, advanced integrated computer system for the management
and scheduling of the sequential and simultaneous tasks that are required to
overhaul engines and components. CARS substantially reduces engine and parts
inspection time, reduces required inventory levels and expedites preparation of
customer work orders and cost estimates. Moreover, the system provides real-time
information that permits management to optimize and automate the daily
deployment of personnel and materials among the Company's product lines, manage
inventory, perform costs analysis and prepare customer estimates, reports and
billing.

Unique Approach to Aviation Parts Distribution. API Combs seeks to
differentiate itself to customers through the combination of superior customer
service, just-in-time delivery and broad product offerings at competitive
prices. By maintaining a single warehouse and shipping center in Memphis,
Tennessee, API Combs is able to provide real-time quotes and next day delivery
for over 100 product lines and 80,000 parts and the Company believes it is able
to receive and fulfill customer orders later in the day than any other national
competitor. API Combs' centralized distribution center further allows it to
eliminate the duplication of inventories, branch overhead expenses prevalent
with competitors which operate in multiple locations and offer its products at
competitive prices. API Combs' extensive inventory and same-day shipping
capabilities enable customers to reduce their inventory by relying on API Combs
to be their third party inventory manager.

Sophisticated Information Systems. API Combs' management information
systems track inventory on a real-time basis and capture and report data
regarding customer records, quotations, lost sales, inventory traceability,
pricing, market availability, payment performance, shipping records, and other
critical information relating to both inventory and customers. This data is used
to forecast demand, maximize inventory turns, provide quick and accurate
customer service and to assist in marketing strategies.

Partnership Approach to Customers. API Combs enjoys substantial repeat
sales to established customers and actively seeks opportunities to develop
closer linkages with its customers. While API Combs maintains a central
warehouse, it fields a national and international network of field
representatives to maintain and develop relationships. Common practices at API
Combs include stocking specially requested items, providing customized price
books, and locating hard-to-find parts. API Combs also offers an extensive
cooperative marketing program designed to help API Combs customers attract
business to their facilities.

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<PAGE> 37

BUSINESS STRATEGY

The Company is committed to providing total maintenance solutions to its
customers. The Company believes that its competitive strengths place it in a
unique position to capitalize on the industry trend toward expanded outsourcing
of repair and overhaul work and increased use of remanufactured parts to reduce
maintenance costs. In addition, the centralized distribution structure of API
Combs allows it to focus resources into a more efficient, lower cost
distribution center that provides high order fill rates and superior customer
service so that it can compete favorably with traditional distributors that
service customers through branch operations. The key components of the Company's
business strategy include the following:

Internal Growth. The Company's strategy is to increase net sales and
operating income through the successful marketing of its products and services
to new customers, cross-selling of its product lines to new and existing
customers and the extension of its product lines. The Company believes its
commitment to an increased direct sales effort will play an integral role in
generating internal growth. An example of the Company's success in developing
new product lines is the Pratt & Whitney Canada PT6 engine, used to power
aircraft and helicopters, for which the Company has recently signed two new
contracts scheduled to commence in early 1997. The Company's new contracts for
repair and overhaul of the PT6 engine are with AGES (relating to overhaul of PT6
engines for the U.S. Government's C-12 program) and the Saudi Ministry of
Defense, and are for terms of five and three years, respectively, although there
are no minimum volume commitments from the respective customers in either
contract. The Company seeks to demonstrate to its customers and potential
customers how the Company is able to provide total maintenance solutions for
their engines by combining technical support, inventory pools, customized
engineering services and assistance in arranging financing. The Company believes
that providing a total maintenance solution will lead to closer and longer term
relationships with customers that should provide a more predictable flow of
business.

Growth by Acquisitions. In order to capitalize on the consolidation trends
within the industry, the Company pursues strategic acquisitions of companies
with a customer base, product line or technology which complements or expands
the Company's existing operations. The API Combs Acquisition is an example of an
acquisition which allows the Company to expand its product and service lines.
The Company believes that strategic acquisitions will help the Company achieve
its goal of providing total maintenance support to its customers as a large,
sophisticated, fully-integrated service provider.

Expand Accessory and Component Remanufacturing. The Company is committed
to increasing the amount of remanufacturing of accessories and engine components
that it performs since this work typically generates higher margins for the
Company. The Company's remanufacturing business serves both the Company's
existing repair and overhaul customers, where embodied engine parts are
remanufactured at a significantly lower cost than the cost of new parts, as well
as third party customers which do not possess the capability to remanufacture
serviceable parts. The Company has experienced significant customer demand for
its remanufacturing services and has dedicated a portion of its production
capacity and plans to dedicate additional production capacity to the
remanufacturing of accessories and engine components.

Operating Efficiencies. The Company's management will continue to focus on
profitable earnings growth through the continued implementation of several
strategic initiatives which include continued cost management and the addition
of significant throughput in its repair and overhaul services without
substantial capital investment. An example of the Company's ability to manage
operating efficiencies is API Combs' centralized distribution center, which
allows the Company to eliminate the duplication of inventories and branch
overhead expenses prevalent with competitors which operate in multiple
locations.

OPERATIONS

NAC Repair and Overhaul. The three primary reasons for removing an engine
from an aircraft for servicing are: (i) the number of engine hours since its
last overhaul have reached the engine's "life limit" and its parts must be
replaced; (ii) the engine has been damaged; and (iii) the aircraft
instrumentation system indicates that the engine is not performing optimally in
its operating environment. The cost of servicing an engine that has been removed
varies depending upon the age, size and model of engine and the extent of the
repairs being performed.

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<PAGE> 38

The following table sets forth: (i) the lines of gas turbine engines and
components the Company services; (ii) the Company's estimate of the number of
such engines produced; (iii) the typical cost of the overhaul of such engines;
(iv) the estimated cost of a new engine/component, and (v) the principal
applications of such engines.

<TABLE>
<CAPTION>
TYPICAL COST ESTIMATED
NUMBER OF COMPLETE COST OF NEW
LINES PRODUCED OVERHAUL ENGINE/COMPONENTS PRINCIPAL ENGINE APPLICATIONS
- ------------------------ -------- ------------------- ------------------ -------------------------------------
<S> <C> <C> <C> <C>
ALLISON ENGINE COMPANY
Model 501/T56 15,660 $450,000 $1.2-$1.7 million Fixed wing commercial and military
aircraft, including the Lockheed
C-130 "Hercules," Lockheed Electra,
Lockheed P3, Convair 580, and Grumman
C2/E2
Model A250 23,860 $90,000 $240,000-$400,000 Rotary and fixed wing commercial and
military aircraft, including Bell
helicopter models 206, 407 and 430,
and McDonnell Douglas MD500 and MD600
helicopters
Model 501, 570/571-K 1,800 $350,000 $750,000+ Industrial and electric power,
cogeneration, marine propulsion and
gas compression
PRATT & WHITNEY CANADA
PT6 25,960 $100,000-$180,000 $250,000-$400,000 Beech King Air, Beech 1900, Cessna
Caravan and other fixed wing and
helicopter applications
MCDONNELL DOUGLAS
MD-500 (Helicopter
components) 4,650 Varies depending Varies depending Not applicable
upon specific upon specific
components components
</TABLE>

Description of an Overhaul -- Model 501 Flight Engine Example. The
following discussion describes the range of work hours and procedures scheduled
for the repair and overhaul of a representative Model 501 engine. The repair and
overhaul process for other engine types which the Company services are broadly
similar to those of the Model 501.

<TABLE>
<CAPTION>
RANGE OF HOURS
SCHEDULED
ACTIVITY FOR COMPLETION
---------------------------------------------------------------------- -----------------
<S> <C> <C> <C>
Disassemble, clean and reassemble..................................... 300 - 450
Inspection............................................................ 300 - 450
Remanufacturing....................................................... 650 - 850
----- -----
Total hours per engine........................................... 1,250 - 1,750
===== =====
</TABLE>

Each overhaul can involve 8,000 or more parts and 150 separate work orders.
Nonetheless, the Company currently performs some Model 501 overhauls in less
than 30 days. In order to achieve this throughput, many parallel processes must
be performed, with numerous components coming together just before final
assembly. The nature of this overhaul process requires a highly managed
systems-driven environment, which is facilitated by the Company's specialized
object-oriented software described in more detail below.

Disassembly, Cleaning and Inspection. Upon the receipt of an engine or
module, technicians disassemble the unit into its components. In the case of a
complete flight engine, the unit is initially broken down into its three major
modules: the turbine, the compressor and the gearbox. These modules are then
disassembled further into their components, a process which requires special
tooling and expertise. Each component and part is completely cleaned to allow
for comprehensive inspection. The inspection involves testing and evaluating
part size, structural integrity and material tolerances. There are thousands of
individual parts in an Allison Model 501 flight engine, all of which are subject
to inspection. A detailed checklist and reporting procedure is used to create a
"condition report" documenting the state of each part inspected. Inspectors tag
all parts which need to be replaced or reworked, and electronically prepare, but
do not submit at this stage, work orders and requisitions to the Company's parts
and production departments for inventory and scheduling purposes. The Company
utilizes its CARS system throughout this process to significantly reduce the
amount of detailed inspection time required. See "Computer-based Advanced
Remanufacturing System."

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<PAGE> 39

As a result of the work completed in the disassembly and inspection
process, the Company obtains detailed information concerning which engine parts
can be reused or repaired and which must be replaced, as well as the approximate
labor needed to complete the job. The inspector and the sales and customer
support personnel covering the customer account evaluate the parts and
production orders, prepare a detailed cost estimate and send the price estimate
with the condition report to the customer typically within a week. Upon receipt
of the customer's approval of the estimate, the Company releases the
requisitions and work orders into the workflow. The Company's computer system
identifies and tracks the parts and associated work orders from each individual
engine throughout the overhaul process in order to maintain the integrity of the
engines it services. During the overhaul process, if additional repairs or work
are deemed necessary, the Company's customer support personnel become actively
involved in negotiating pricing, scheduling and logistical issues with the
customer.

Parts Remanufacturing, Replacement and Reassembly. The parts
remanufacturing process involves reworking existing parts to original
specifications. This entails a combination of machining, parts coating, welding,
heat treatment, metalizing, metal reshaping and deposition. Although the Company
subcontracts a limited number of functions, such as plating, to outside parties,
the majority of work is done in the Company's facilities. The Company has
developed significant expertise in performing Allison authorized repairs and
modifications and has also developed, with appropriate oversight of the FAA or
DOD, its own proprietary repair schemes, sometimes referred to as Engineering
Authorizations or "EAs." The development of EAs is important to the Company's
competitive position because the use of a proprietary repair scheme can maintain
or increase the quality of work performed and significantly reduce cost and
turnaround time relative to the Company's competitors. If a part cannot be
reclaimed, the Company may install either a new part or a previously-reworked
part from inventory. The Company maintains an inventory of serviceable parts
that it has reworked for this purpose. By either remanufacturing parts or using
serviceable parts from inventory in lieu of new parts the Company is generally
able to lower customer costs for parts by more than 25% in comparison to an
overhaul in which only new parts are used. After the engine is completely
reassembled, it is ready for diagnostic testing and shipping.

Engine Testing and Shipping. The reassembled engine is taken to one of the
Company's seven test cell facilities adjacent to the main plant. At these
facilities, the engine is mounted in a stand and run in order to test for
functionality, seal leaks, fuel efficiency, operating temperature ranges and
maximum horsepower. At this stage, the engine must meet the manufacturer's
original performance and safety specifications. The result is a "zero time"
engine which is the performance equivalent of a new engine. Upon successful
completion of testing, the engine is rated for horsepower and specific fuel
consumption, and is then packaged and shipped back to the customer.

Pricing. NAC offers its customers two alternative arrangements for pricing
of repair and overhaul services: time and material based arrangements and flat
rate fixed price arrangements. Under the time and materials fee arrangement,
customers receive a detailed price estimate and condition report from NAC after
completion of the disassembly, cleaning and initial inspection process, at which
time NAC has substantial information about the extent of necessary repair and
replacement and the amount of labor needed to complete such work. Pursuant to
this arrangement, following approval from the customer of the estimate, NAC
releases work orders and requisitions into the work flow and continues the
overhaul process. NAC's customer support personnel involve themselves in the
overhaul process and negotiate with the customer any additional pricing,
scheduling and logistical issues which arise during the overhaul process.

Under the flat rate fixed pricing contracts, NAC establishes a set price
prior to undertaking an overhaul based upon estimates made either before or
after inspection of a unit. NAC's flat rate fixed price estimates made prior to
inspection of a unit are based upon standard labor and materials requirements
and typically include provisions for adjustments based upon conditions of the
engine. Under flat rate fixed price arrangements, NAC benefits to the extent
that efficiencies in labor hours and material usage can be achieved relative to
the estimate on which the flat rate price was based.

The entire overhaul and repair process typically takes about two to six
weeks from the receipt of engine to final testing, depending on the type of
engine and extent of work required.

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<PAGE> 40

API Combs Component Overhaul and Assembly. API Combs operates an FAA
certified repair station which provides component overhaul, assembly and
maintenance services to its customers nationwide. This division, API Combs
Technologies, currently offers three lines of service: hose assembly,
starter/generator overhauls and brake overhauls. More than 90% of API Combs
Technologies' work is performed on components for piston and turbine powered
general aviation aircraft and the balance is related to helicopters and
scheduled air carriers. API Combs maintains an inventory of overhauled units
ready for immediate shipment.

Parts Distribution

General. Aircraft spare parts conditions are classified within the
industry as (i) factory new, (ii) new surplus, (iii) remanufactured, (iv)
serviceable, and (v) as removed. A factory new or new surplus part is one that
has never been installed or used. Factory new parts are purchased from
manufacturers or their authorized distributors. New surplus parts are purchased
from excess stock of airlines, repair facilities or other redistributors. A
remanufactured part has been disassembled, inspected, repaired, reassembled and
tested by a licensed repair facility. An aircraft spare part is classified
serviceable if it is repaired by a licensed repair facility rather than
completely disassembled as in an overhaul. A part may also be classified
serviceable if it is removed by the operator from an aircraft or engine while
operating under an approved maintenance program and is functional and meets any
manufacturer or time and cycle restrictions applicable to the part. A factory
new, new surplus, remanufactured or serviceable part designation indicates that
the part can be immediately utilized on an aircraft. A part in as removed
condition requires functional testing, repair or overhaul by a licensed facility
prior to being returned to service in an aircraft.

API Combs Parts Sales. API Combs sells new and factory reconditioned parts
representing more than 100 product lines and 80,000 parts to professional
aircraft maintenance organizations. The parts are all FAA approved and are
acquired from small, specialized manufacturers as well as major original
equipment manufacturers such as Champion Aviation Products, Goodyear, Michelin,
B.F. Goodrich, General Electric, Textron Lycoming, Teledyne Continental, Parker
Hannifin, AlliedSignal, Piper and Cessna. Most of API Combs' suppliers are
committed to servicing aftermarket customers solely through wholesale
distributors such as API Combs. The distributors add value to commonly available
products by offering immediate availability, broad product lines, technical
assistance and additional services. API Combs does not have any long-term
agreements or commitments from the original equipment manufacturers from whom it
purchases parts and is dependent on these manufacturers for access to parts for
resale.

NAC Sales of Remanufactured Engine Components and Accessories. The
Company's expertise in remanufacturing aircraft engine components as an element
of performing engine overhauls has positioned it to take advantage of the
increasing demand for remanufactured components and accessories. As described
earlier, one-half of the hours spent in overhauling a Model 501 engine may be
dedicated to remanufacturing components in the engine so that their performance
is equivalent to that of a new part. Traditionally, overhaul companies have used
these techniques to repair components from a particular engine for reinsertion
into the same engine. In recent years, however, a market for rotable
remanufactured parts has emerged, due primarily to engine owners becoming more
price-sensitive and more willing to purchase a remanufactured part at a 30-40%
discount to the cost of a new part. The Company has, because of the developments
described above, increased its focus on the remanufacture of components and
accessories as a separate segment of its business, apart from its overhaul
business. The Company currently is dedicating shop capacity and labor to
remanufacturing operations for third party sales.

NAC Sale of Allison New Parts. The Company sells new Allison spare parts
to engine owners and independent overhaulers. The Allison spare parts
distributed by the Company are Allison approved and source controlled parts, and
the Company maintains an inventory of complete Allison engines, components and
accessories ready for immediate delivery around the world. The sale of Allison
spare parts represents a diminishing portion of the Company's business. NAC
intends to focus its efforts on the sale of remanufactured parts.

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<PAGE> 41

COMPUTER-BASED ADVANCED REMANUFACTURING SYSTEM

The Company has made substantial expenditures to develop CARS. CARS has
been in use for approximately two years to shorten turnaround times for customer
orders, increase output, improve inventory management and reduce costs by
eliminating duplication of work and reducing errors in ordering of parts. The
system consists of two parts: an automated inspection and routing system; and a
remanufacturing variable control system.

CARS enables NAC to shorten lead times, increase output and improve
inventory management by allowing NAC to manage and control the process of
detailed parts inspection, material requisitioning, and work order scheduling
and release. The system's database contains much of the information required to
perform engine inspection activities, including illustrated parts catalogues.
This has largely eliminated the need to manually update parts catalogues and
allows an engine inspector using a personal computer located at his workstation
to (i) refer to computer based parts manuals and catalogues to identify needed
parts, (ii) access and check on the availability in inventory of needed parts,
(iii) requisition needed parts from inventory and schedule the time for delivery
of the parts to repair and overhaul mechanics and (iv) create and record an
audit trail for all inspected parts and processes. These features of the system
have substantially reduced total detailed engine inspection time required in the
overhaul process.

Using the system, all materials and labor associated with the work order is
recorded using bar code scanners located throughout NAC's Oakland and Long Beach
facilities. This function allows NAC to provide more accurate cost and timing
estimates to customers and the faster and more accurate preparation of customer
invoices. In addition, planners (shoploading and material requisition personnel)
receive more accurate planning data. Using the system, management can plan based
upon sales forecasts and actual orders, and optimize on a daily basis manpower
and material utilization.

RELATIONSHIP WITH ALLISON

NAC's relationship with Allison began over 30 years ago when NAC expanded
its overhaul and repair operations to include support of the Allison turbine
engine. In 1970, NAC became a direct service dealer franchise for the Model 501
flight engine and the Model 501-K industrial engine, and thereafter grew to
become one of the largest independent commercial overhaul facilities in the
world for Allison engines. In 1982, NAC was appointed as an Authorized
Distributor for the Model 250, pursuant to which it was given an exclusive
territory in which to operate.

Allison modified its aftermarket support system for the Model 250 and Model
501 engines in 1994. Under the current system, Allison appoints as AMCs
independent service providers, such as the Company, who satisfy Allison's
technical and quality standards and pay a one-time "technical fee" for such
appointment. Although each AMC is assigned a non-exclusive region of
responsibility in which such AMC undertakes to provide repair and overhaul
services, component repair, warranty work and other customer support functions,
Allison permits all AMCs to market such services throughout the world. All AMCs
are permitted to purchase parts directly from Allison rather than having to
purchase parts from an Authorized Distributor, as was required under the
previous system. The AMC Agreements restrict the establishment of an AMC's
repair and marketing facilities to specific sites identified in its AMC
Agreement. As of September 30, 1996, in addition to NAC, there are eight other
AMCs for the Model 501, 25 other AMCs for the Model 250, and one other AMC for
the Model 570/571-K industrial engine. In addition, for parts ordered after
September 1994, Allison reduced the Company's discounts off list prices on parts
other than with respect to certain specified items, including the FMS Contract,
as to which reductions in discounts were phased in over time. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

The Company is party to an AMC Agreement with Allison for each of the three
Allison model lines it services. Each of the AMC Agreements between Allison and
NAC: (i) entitles NAC to purchase engine parts from Allison or certain approved
vendors; (ii) specifies the terms on which the Company purchases engines and
engine parts from Allison, which include a discount from list price and the
ability to attain credits upon embodiment of parts into a customer's engine;
(iii) requires NAC to provide aftermarket support for the Allison engines in
specified regions identified in the AMC Agreement; (iv) delineates the permitted
physical

39
<PAGE> 42

sites at which NAC is permitted to perform repair and overhaul services, store
parts and inventory and maintain marketing offices; and (v) defines the working
relationship between the two companies in a number of areas, including technical
training, quality systems, inventory planning and management, exchange of
customer and marketing information, and other administrative matters.

The AMC Agreements with Allison for the Model 501 and Model 250 each expire
by their terms on December 31, 1997 except that the AMC Agreement for the Model
570/571-K expires by its terms on December 31, 1998. The AMC Agreements for the
Model 501 and Model 250 provide, however, that qualifying AMCs who have adhered
to the terms and conditions of their AMC Agreements and who have the "ability
and desire" to continue through a three year renewal period may renew the AMC
agreements for an additional three year period for a renewal fee of $1. Renewal
of the 570/571 AMC Agreement is subject to Allison's sole unilateral decision.
The Company has no reason to believe that these agreements with Allison will not
be extended. The failure of Allison to renew or extend the contracts would have
an adverse and material impact on the Company and its operations.

SALES AND MARKETING

Overhaul and Repair. Since the acquisition of NAC in June 1995, the
Company's new management team has implemented several sales and marketing
initiatives, including the expansion of its direct sales effort, aimed at
increasing the Company's net sales from its existing customer base as well
attracting new customers. The Company believes that the implementation of these
initiatives contributed significantly to its ability to generate 26.6% growth in
overhaul and repair revenues for the nine months ended October 31, 1996 versus
the comparable period in the prior year.

The Company uses direct sales personnel for all product lines. The Vice
President of Sales and Marketing supervises the Company's sales professionals,
whose sales efforts are supported by the quality assurance and engineering
departments to aid in customer support. Additionally, as a result of the
initiatives implemented by the Company's new management, senior management plays
an active role in marketing several of the Company's product lines. The sales
and marketing efforts of the Company differ for each of its business segments
and within each of the engine lines it services.

The Company's sales professionals work closely with engineering and
customer support to provide cost effective solutions to maintaining engines,
stressing the Company's repair and overhaul engineering expertise, turnaround
times and component remanufacturing capabilities.

The Company actively participates in many of the major industry gatherings
and air shows globally, as well as hosts group of engine operators at technical
and other meetings. In certain instances, the Company actively bids on
government contracts for certain lines through a separate government contracts
department, which coordinates with the sales and marketing team.

NAC Parts Distribution. New and serviceable parts are sold primarily to
existing overhaul customers and parts resellers. These sales are handled by the
Company's material department, and in the case of accessories and components, a
separate sales group.

API Combs Parts Distribution. API Combs uses regional sales managers,
inside salespersons, outbound telephone salespersons, independent contract
representative and associated distributors in its sales and marketing efforts.

CUSTOMERS

NAC. NAC provides repair and overhaul services to more than 300 customers,
which include militaries (both foreign and U.S.), air cargo carriers, major
industrial corporations and others. During the ten month period ended January
31, 1996 and the nine month period ended October 31, 1996, NAC's top 10
customers accounted for approximately 45% of operating revenues. During the ten
month period ended January 31, 1996, revenues from the FMS program administered
by the U.S. government represented 18% of NAC's operating revenues. During the
nine month period ended October 31, 1996, revenues from System Control
Technologies represented 15% of NAC's operating revenues. System Control
Technologies administers contracts on behalf of many of the same foreign
governments for which NAC previously did work under NAC's contract with the

40
<PAGE> 43

U.S. government pursuant to the FMS program prior to the expiration of the
contract in October 1995. Except for the aforementioned, no single customer
accounted for more than 10% of its net sales.

API Combs. API Combs services over 3,000 customers per year representing
almost every segment of the aviation industry including: FBOs, certified repair
stations, engine and component overhaulers, fleet operators, government
agencies, air cargo operators, regional air carriers and major airlines. During
the first nine months of 1996, API Combs' top 10 and top 100 customers accounted
for approximately 12.0% and 38.0%, respectively, of its operating revenues, and
no single customer accounted for more than 3.0% of its operating revenues.

COMPETITION

Repair and Overhaul. In the repair and overhaul market for Allison Models
250 or 501, NAC competes primarily with other independent operators, including
the other Allison AMCs, located throughout the world. Management believes that
its most significant competitors in this market include: UNC Incorporated and
Dallas Airmotive in the United States; Standard Aero of Winnipeg, Canada;
Hunting of Manchester, United Kingdom; and Singapore Aerospace of Singapore,
each of which is an AMC in one or more product lines. Certain international
competitors of the Company have the advantage of a monopoly on their country's
military contracts for repair and overhaul of the engines serviced by the
Company. In the market for repair and overhaul of other lines serviced by the
Company, including Pratt & Whitney Canada and McDonnell Douglas, the Company
competes against the original equipment manufacturers as well as other
independent operators. Many of the Company's competitors have financial
resources substantially greater than those of the Company, and have a longer and
more extensive record of repair and overhaul work on the Pratt & Whitney Canada
engine lines and McDonnell Douglas helicopter lines relative to the Company.

Spare Parts. Competition in the parts distribution market is generally
based on price, availability of product and quality, including traceability.
NAC's major competitors include Allison, Rolls Royce and other AMCs. API Combs'
major competitors include Aviall, Inc., Aviation Service Corporation ("Avsco"),
Cooper Aviation Industries, Inc. and Cessna Aircraft Company (a subsidiary of
Textron). There is also substantial competition, both domestically and overseas,
from larger and smaller companies who focus on regional/niche markets or on
market segments of secondary interest. Examples of these companies include AAR
Corp., Aviation Sales Company, Satair A/S, Superior Air Parts, Inc., Avteam and
Omaha Aircraft Supply.

Accessory and Engine Component Remanufacturing. NAC's significant
competitors in this market include Standard Aero, Dallas Airmotive and UNC
Incorporated. The Company believes that the primary competitive factors in this
marketplace are price, quality, engineering and customer service. The Company
has engineered and developed a significant number of EAs, which are proprietary
in nature. Due to its advanced systems, technology and years of expertise in
Allison component remanufacturing, the Company believes its competes favorably
with regard to such factors.

BACKLOG

As of October 31, 1996, the total contract price of the backlog of orders
for repair and overhaul services, was approximately $38.3 million and
approximately $17.0 million of the orders represented thereby are expected to be
filled in fiscal 1997.

REGULATION

Governments around the world, through regulatory bodies such as the FAA and
DOD, require all aircraft and engines to follow a defined maintenance program to
ensure airworthiness and safety. Such programs are developed by the original
equipment manufacturer in coordination with the regulatory body. The DOD's
regulatory program for engines used by the armed services is separate and apart
from the FAA procedures. The maintenance of industrial engines used in power
plants is relatively unregulated, except when such maintenance is performed for
the government. The Company has certificates from the FAA and the Joint Aviation
Authority (the European regulatory body similar to the FAA) covering its repair
and overhaul facilities. Under the authority of these certifications, the
Company is permitted to service all Allison engine

41
<PAGE> 44

lines, the Pratt & Whitney Canada PT6 and its other product lines. The DOD
requires that parties servicing aircraft engines for branches of the U.S. armed
services comply with applicable government regulations, and the DOD continually
reviews the operations for compliance with applicable regulations.

All aircraft must be maintained under a continuous condition monitoring
program and must periodically undergo thorough inspection and maintenance. The
inspection, maintenance and repair procedures for the various types of aircraft
and equipment are prescribed by regulatory authorities and can be performed only
by certified repair facilities and/or certified technicians. Certification and
conformance is required prior to installation of any part on an aircraft.
Presently, whenever necessary with respect to a particular part, the Company
utilizes FAA certified repair stations to repair and certify parts to ensure
marketability. The operations of the Company may in the future be subject to new
and more stringent regulatory requirements. In that regard, the Company closely
monitors the FAA and industry trade groups in an attempt to better understand
how possible future regulations might impact the Company. See "Risk
Factors-Risks Regarding the Company's Inventory" and "-- Government Regulation."
The documentation or traceability that is supplied with an aircraft spare part
is an important factor in the aircraft spare parts distribution market. The
Company requires all of its suppliers to provide adequate documentation as
dictated by the appropriate regulatory authority.

The U.S. government has considerable discretion regarding compliance with
its rules, regulations and procedures. Although the Company undertakes to comply
with all applicable government rules, regulations and procedures, the U.S.
government and its agencies have substantial latitude in determining whether
their regulations and policies have been upheld. The operations of the Company
have and may continue to come under the close scrutiny of the U.S. government
and its agencies, and U.S. government approvals of the Company's operations and
output may be given or withheld based upon subjective criteria. See "Risk
Factors -- Government Regulations." The Company believes it is in material
compliance with applicable regulations. See "-- Legal Proceedings."

EMPLOYEES

As of October 31, 1996, approximately 492 persons were employed on a
full-time basis by the Company of which 91 were employed by API Combs. None of
the Company's employees are covered by collective bargaining agreements. The
Company believes that its relations with its employees are good.

PROPERTIES

The Company leases the following facilities:

<TABLE>
<CAPTION>
SQUARE LEASE
LOCATION ENTITY DESCRIPTION FOOTAGE EXPIRATION
- -------------------- --------------- ------------------------------------------ ------- ----------
<S> <C> <C> <C> <C>
Stamford, CT(1) First Aviation Executive offices 1,000 1997
Oakland, CA(2) NAC Allison engine repair and overhaul shop 157,000 2015
and offices
Long Beach, CA NAC Allison engine and Pratt & Whitney PT6 28,500 1999
repair and overhaul
Long Beach, CA NAC Maintenance of McDonnell Douglas 3,000 1997
helicopter components
San Leandro, CA NAC Warehouse 8,900 1999
Houston, TX NAC Repair of industrial engines 5,800 monthly
Indianapolis, IN(3) NAC Overhaul center 12,800 1998
Indianapolis, IN(3) NAC Overhaul center 12,300 1999
Indianapolis, IN(3) NAC Overhaul center 19,200 1998
Memphis, TN API Combs Distribution/sales 30,250 monthly
</TABLE>

42
<PAGE> 45

- ---------------
(1) On December 13, 1996, the Company entered into a new sublease for
approximately 2,000 square feet of office space in Westport, Connecticut,
commencing on approximately March 1, 1997. This sublease will replace the
current lease. See "Certain Transactions."

(2) NAC owns the buildings at this location but leases the land on which the
structures are located.

(3) Pursuant to the agreement between Allison and NAC under which these
facilities are made available to Allison, Allison has "deemed it necessary
to overhaul and repair some products in Indianapolis for the purpose of
maturing the product sooner, reducing direct operating cost to the customer,
gaining product knowledge more rapidly, improving engineering awareness,
providing improved reliability data and reducing warranty, policy and
campaign cost." This agreement limits the number of personnel that are to be
employed at the facility. NAC is reimbursed its direct cost for the
facilities as well as the labor pool provided.

ENVIRONMENTAL MATTERS AND PROCEEDINGS

The Company's operations are subject to extensive, and frequently changing,
federal, state and local environmental laws and substantial related regulation
by government agencies, including the United States Environmental Protection
Agency (the "EPA"), the California Environmental Protection Agency (the "Cal
EPA") and the United States Occupational Safety and Health Administration. Among
other matters, these regulatory authorities impose requirements that regulate
the operation, handling, transportation, and disposal of hazardous materials,
the health and safety of workers, and require the Company to obtain and maintain
licenses and permits in connection with its operations. This extensive
regulatory framework imposes significant compliance burdens and risks on the
Company. Notwithstanding these burdens, the Company believes that it is in
material compliance with all federal, state, and local laws and regulations
governing its operations.

The Company is principally subject to the requirements of the Clean Air Act
of 1970 (the "CAA"), as amended in 1990, the Clean Water Act of 1977; CERCLA;
the Resource Conservation Recovery Act of 1976 (the "RCRA"); and the Hazardous
and Solid Waste Amendments of 1984 ("HSWA"). The following is a summary of the
material regulations that are applicable to the Company:

The CAA imposes significant requirements upon owners and operators of
facilities that discharge air pollutants into the environment. The CAA mandates
that facilities which emit air pollutants comply with certain operational
criteria and secure appropriate permits. Additionally, authorized states such as
California develop their own regulations for air pollution control.

CERCLA, as amended by the Superfund Amendments and Reauthorization Act of
1986 ("SARA"), is designed to respond to the release of hazardous substances.
CERCLA's most notable objectives are to provide criteria and funding for the
cleanup of sites contaminated by hazardous substances and impose strict
liability on parties responsible for such contamination namely, owners and
operators of facilities or vessels from which such releases or threatened
releases occur, and persons who generated, transported, or arranged for the
transportation of hazardous substances to a facility from which such release or
threatened release occurs. California law is similar to CERCLA in that it
imposes strict liability for releases of hazardous substances on owners and
operators of contaminated sites. RCRA and the EPA's implementing regulations
establish the basic framework for federal regulation of hazardous waste. RCRA
governs the generation, transportation, treatment, storage and disposal of
hazardous waste through a comprehensive system of hazardous waste management
techniques and requirements. RCRA requires facilities such as the Company's that
treat, store, or dispose of hazardous waste to comply with enumerated operating
standards. The Company believes that its facilities are in material compliance
with all currently applicable RCRA requirements, hold all applicable permits
required under RCRA, and are operating in material compliance with the terms of
all such permits. California law concerning the control of hazardous waste
parallels, and is in some ways stricter than, RCRA. Cal EPA has been authorized
to implement portions of RCRA on behalf of the EPA.

As part of the HSWA which amended RCRA, Congress enacted federal
regulations governing the underground storage of petroleum products and
hazardous substances. The federal underground storage tank

43
<PAGE> 46

("UST") regulatory scheme mandates that the EPA establish requirements for leak
detection, construction standards for new USTs, reporting of releases,
corrective actions, on-site practices and record-keeping, closure standards, and
financial responsibility. Some states, including California, have promulgated
their own performance criteria for new USTs, including requirements for spill
and overfill protection, UST location, as well as primary and secondary
containment. The Company believes that its facilities are in material compliance
with the federal and state UST regulatory requirements and performance criteria.

The Company is also subject to a variety of environmental-related worker
and community safety laws. The Occupational Safety and Health Act of 1970
("OSHA") mandates general requirements for safe workplaces for all employees. In
particular, OSHA provides special procedures and measures for the handling of
certain hazardous and toxic substances. In addition, specific safety standards
have been promulgated for workplaces engaged in the treatment, disposal or
storage of hazardous waste. Requirements under state law, in some circumstances,
may mandate additional measures for facilities handling materials specified as
extremely dangerous. The Company believes that its operations are in material
compliance with OSHA's health and safety requirements.

In October 1995, a committee comprised of a group of companies and
individuals responsible for the cleanup of the Petroleum Products corporation
Superfund Site in Pembroke Park, Florida (the "Superfund Site") contacted NAC
and alleged that NAC was responsible for a share of the clean-up costs pursuant
to CERCLA. NAC has been designated as a potentially responsible party by the EPA
for costs associated with cleanup of the Superfund Site, and as such, as with
each of the other potentially responsible parties, is potentially liable on a
joint and several basis for the entire clean-up cost for the Superfund Site. The
committee demanded that NAC pay approximately $70,000 to join the committee
handling the clean-up and threatened to add NAC as a defendant to an existing
lawsuit regarding the site if NAC declined to pay. The committee alleges that
NAC is responsible to pay a portion of the cleanup costs due to its status as
the successor of Design Engineering Company ("DEC"), which the committee alleges
sent waste oil to the Petroleum Products Superfund Site between approximately
1969 and 1973 from property located in Miami, Florida (the "Miami Property").
The committee alleges that DEC sent approximately 194,500 gallons of waste oil
to the Petroleum Products Superfund Site and has estimated that total clean-up
costs for the Petroleum Products Superfund Site allocable to the Company could
range from $.75 to $1.25, per gallon. At this time, the Company is unable to
determine the accuracy of the committee's clean-up cost estimates or the
likelihood that NAC will be required to contribute a portion of such clean-up
costs. NAC has not joined the committee and intends to vigorously contest the
committee's allegations regarding the amount of waste oil allegedly shipped by
DEC to the Petroleum Products Superfund Site.

In February 1996, NAC and several other past and present owners/operators
of the Miami Property were served with a complaint filed in the Florida District
Court of the 11th Judicial Circuit in and for Dade County, Florida, wherein the
owners of certain property adjacent to the Miami Property allege that
contamination at the Miami Property has migrated to and/or impacted their
adjacent property. The complaint seeks unspecified damages for cleanup costs,
loss of property value and attorneys' fees. Although NAC believes it divested
all its interest in the Miami Property in June 1975, at this time, it is unclear
if and to what extent any contamination was caused or present during the time
that it owned the property. NAC has answered the complaint and is vigorously
contesting the plaintiffs' allegations.

In October 1994, NAC entered into a Stipulation with the office of the
District Attorney for the County of Alameda resulting in the entry of a civil
Consent Order by the Superior Court of California for the County of Alameda.
This Consent Order resolved issues arising out of an investigation by various
agencies of the State of California involving environmental compliance at the
Company's Oakland facility. This investigation focused primarily on three
issues: (i) a spill of approximately 1,100 gallons of Jet-A fuel at NAC's
Oakland test cell facility in September 1992, (ii) the historical discharge of
wastewater from the test cell facility to adjacent fields owned by the Port of
Oakland, and (iii) the circumstances and effect of an alleged discharge of
materials into a storm drain opening at NAC's headquarters. Pursuant to the
Consent Order, NAC has made payments and incurred related expenses aggregating
approximately $425,000 including payment of fines and fees of approximately
$221,000 to certain agencies of the State of California, and payment for
remediation projects enumerated in the Consent Order at a cost of approximately
$161,000. These projects include

44
<PAGE> 47

investigation and monitoring of soil and groundwater conditions in various areas
on or adjacent to NAC's facilities, completion of an environmental compliance
audit, and implementation of an environmental training program for employees.
Pursuant to the terms of the Consent Order, the Court retains jurisdiction to
ensure NAC's compliance with and completion of the obligations specified in the
Consent Order. NAC believes that it is in compliance with the terms and
conditions of the Consent Order. In connection with these events, NAC has become
a zero discharge facility at its site in Oakland.

LEGAL PROCEEDINGS

The Company's business exposes it to possible claims for personal injury,
death or property change which may result from a failure of engines serviced by
the Company or spare parts sold by it. The Company takes what it believes to be
adequate precautions to ensure the quality of the work it performs and the
traceability of the aircraft spare parts which it sells. The Company maintains
what it believes is adequate liability insurance to protect it from such claims.
In 1995 and early 1996, the Office of Special Investigations ("OSI") of the U.S.
Air Force conducted an investigation concerning NAC's use of government surplus
parts in repairing aircraft engines pursuant to FMS contracts with the Air Force
from 1987 through 1995. OSI investigated whether NAC used government surplus
parts, knowing that doing so was in violation of the FMS contracts. Such a
knowing and intentional violation of a government contract could constitute a
criminal false statement or a criminal or civil false claim. The Company does
not believe that any Company employee knowingly violated the FMS contracts and
the Company believes that the U.S. Air Force knew of NAC's utilization of
surplus parts and in some cases requested that the Company use certain
government surplus parts under the FMS contracts. Although NAC has been informed
that the government has determined not to pursue this matter criminally, it is
not clear whether or to what extent the government will pursue a civil
complaint. The U.S. Air Force also may claim a breach of contract if government
surplus parts were used in violation of the FMS contracts, even if it was not a
knowing violation. It is unclear what, if any, damages would be awarded for such
a breach. The Company believes, however, that the amount of damages, if any,
that might be awarded for such a breach would not have a material adverse effect
on the Company's business, financial condition or results of operations.

In November 1994, NAC made a formal voluntary disclosure to the DOD
Inspector General concerning apparent product substitution by employees of
Heli-Dyne prior to the Company's acquisition of the assets of Heli-Dyne in April
1994. NAC was accepted into the voluntary disclosure program and in early 1995
executed a written agreement with the DOD Inspector General and DOJ. In August
1995, NAC submitted a written report to the DOD Inspector General concerning the
relevant facts and detailing the corrective actions taken. On behalf of the DOD
Inspector General, the Defense Contract Audit Agency and the Army Criminal
Investigative Division conducted audit and verification investigations
concerning the Company's written report, and NAC believes that the results of
such investigations were forwarded to the civil division of the DOJ for a
determination of whether NAC bears any financial responsibility for damages
caused by Heli-Dyne. It is management's position that NAC bears no
responsibility for such damages. Management believes that the damages, if any,
that might be awarded in connection with this matter would not be material to
the Company's business, financial condition or results of operations. See "Risk
Factors -- Governmental Regulations."

The Company is also involved in various matters relating to compliance with
DOD regulations governing services performed for U.S. military aircraft and
environmental regulations. See "-- Environmental Matters and Proceedings."

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<PAGE> 48

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers (the "Named Executive Officers") and directors of
the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ------------------------- --- ---------------------------------------------------------
<S> <C> <C>
Aaron P. Hollander....... 40 Chairman of the Board
Michael C. Culver........ 46 Chief Executive Officer and Director of the Company;
Chief Executive Officer of API Combs
John F. Risko............ 45 Chief Operating Officer and Director of the Company;
President and Chief Executive Officer of NAC
John A. Marsalisi........ 41 Chief Financial Officer, Secretary and Director of the
Company; Chief Financial Officer of NAC
Joshua S. Friedman....... 40 Director(1)
Robert L. Kirk........... 67 Director(1)
Charles Ryan............. 46 Director(1)
</TABLE>

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

(1) Messrs. Friedman, Kirk and Ryan have agreed to become Directors effective
the day after consummation of the Offering.

Aaron P. Hollander has served as Chairman of the Company since March 1995.
Mr. Hollander became a director of NAC in June 1995. Mr. Hollander co-founded
First Equity, an aerospace investment and advisory firm, in 1985 and has served
as Co-Managing Director since that time.

Michael C. Culver became a Director of the Company and has served as Chief
Executive Officer of the Company since March 1995. Mr. Culver became a director
of NAC in June 1995 and Chairman in August 1996. Following the consummation of
the API Combs Acquisition, Mr. Culver will serve as Chairman and Chief Executive
Officer of API Combs. Mr. Culver co-founded First Equity, an aerospace
investment and advisory firm, in 1985 and has served as Co-Managing Director
since that time.

John F. Risko became a Director and has served as Chief Operating Officer
of the Company since March 1995 and has served as Chief Executive Officer of NAC
since January 1996 and as its President since August 1996. From July 1995 to
August 1996, Mr. Risko served as Chairman of NAC. Since 1993, he has been and is
an officer of First Equity, an aerospace investment and advisory firm. From 1990
to 1993, Mr. Risko was Managing Director and a member of the Board of Directors
of Burns Fry, Ltd. of Toronto, an investment banking firm. From 1988 to 1990, he
was a Managing Director at Bankers Trust Company. From 1980 to 1988, Mr. Risko
was with Morgan Stanley & Co. Incorporated, where he was a Principal in Mergers
and Acquisitions.

John A. Marsalisi became a Director and has served as Chief Financial
Officer and Secretary of the Company since March 1995. Mr. Marsalisi has served
as a director of NAC since June 1995 and as its Chief Financial Officer and
Secretary since August 1996. Since 1996, he has been and is an officer of First
Equity. From 1991 to May 1996, Mr. Marsalisi was Director of Taxes for Omega
Engineering. Prior to joining Omega Engineering, Mr. Marsalisi was Director of
Taxes for the Entrepreneurial Services Group of Ernst & Young's Stamford,
Connecticut office. Mr. Marsalisi is a Certified Public Accountant.

Joshua S. Friedman is and has been a Director of NAC since June 1995. Since
its inception in 1990, Mr. Friedman has been an executive officer of Canyon
Partners Incorporated, a merchant banking and money management firm which Mr.
Friedman co-founded and which is an affiliate of Canpartners, a subordinated
creditor and warrant holder of the Company. See "Certain Transactions." From
1984 to 1990, Mr. Friedman was Executive Vice President and Co-Director, Capital
Markets of Drexel Burnham Lambert Incorporated. Mr. Friedman currently serves as
a member of the Board of Directors of Signature Resorts, Inc., a publicly traded
developer and operator of timeshare resorts, and several privately held
companies and charitable organizations.

Robert L. Kirk is and has been since 1992 the Chairman of British Aerospace
Holdings, Inc., an international aerospace corporation. Mr. Kirk served as
Chairman and Chief Executive Officer of CSX

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<PAGE> 49

Transportation, Inc., the railroad subsidiary of CSX Corporation, from 1990 to
1992, and was Chairman and Chief Executive Officer of Allied-Signal Aerospace
Co. from 1986 to 1989. Mr. Kirk is a director of United Defense L.P., a defense
contractor, and Harsco Corporation, a diversified industrial company.

Charles Ryan is and has been since 1986 the President and Chief Operating
Officer, of Nordam Group Inc., a manufacturer and overhaul agency of airframes,
nacelles and thrust reversers. Mr. Ryan has been associated with Nordam Group
Inc. since 1976.

The officers of the Company are elected by the Board of Directors to serve
until their successors are elected and qualified. The directors of the Company
are elected at the annual meeting of the stockholders. The Certificate of
Incorporation and Bylaws of the Company provide for a Board of Directors divided
into three classes, as nearly equal in size as possible, with staggered terms of
three years. As a result, approximately one-third of the Board will be elected
each year. Messrs. Hollander and Kirk will serve until the 1997 Annual Meeting
of Stockholders, Messrs. Culver and Friedman will serve until the 1998 Annual
Meeting of Stockholders, and Messrs. Marsalisi, Ryan and Risko will serve until
the 1999 Annual Meeting of Stockholders. If the Company issues a series of
preferred stock, the holders thereof may be entitled to elect additional
directors who shall not be divided into classes.

Additional officers of NAC and API Combs are set forth below:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- ------------------------------------------------------
<S> <C> <C>
Lorne C. Dyke................. 38 Vice President, Remanufacturing, Engineering and
Test Facility -- NAC
Joseph E. Ghantous............ 51 Vice President, Sales, Marketing and
Customer Support -- NAC
Peter LaSalle................. 38 President -- API Combs
Rajesh Sharma................. 38 Chief Operating Officer -- NAC
</TABLE>

Lorne C. Dyke has been NAC's Vice President, Remanufacturing, Engineering
and Test Facility since January 1996. Mr. Dyke joined NAC in December 1995,
initially serving as Vice President Quality and Engineering. Prior to joining
NAC, Mr. Dyke held progressive engineering and operations management positions
with Aviall Inc. and its successor in general aviation engines, Dallas Airmotive
Inc., from 1990 to 1995, culminating in the position of Director of Engineering.
From 1983 through 1990, Mr. Dyke was with Standard Aero Ltd. of Canada, in
senior engineering and product line management positions.

Joseph E. Ghantous has served as NAC's Vice President, Sales, Marketing and
Customer Support since 1992. Prior to joining NAC, Mr. Ghantous worked at Aviall
Inc. and Ryder Airline Services from 1972 to 1992 during which time he held the
positions of Program Manager, Customer Support Manager and Customer Service
Manager.

Peter LaSalle has been Old API's Vice President and General Manager since
August 1993, and will serve as President of API Combs following the consummation
of the API Combs Acquisition. Prior to joining Old API, Mr. LaSalle was
Executive Vice President and General Manager of Edge Productions, Inc. from 1991
to 1993. Mr. LaSalle was a Manager in the Dallas Management Consulting Practice
of Price Waterhouse from 1990 to 1991. Prior to that time, Mr. LaSalle was the
President of Aviation Systems and Programs, a division of Duncan Aviation, Inc.,
from 1985 to 1988, and served as the Executive Vice President and General
Manager of Pelican Aviation Corporation from 1981 to 1985.

Rajesh Sharma has been NAC's Chief Operating Officer since January 1996.
From 1994 to August 1996, he also served as NAC's Chief Financial Officer. From
April 1994 to December 1995, Mr. Sharma was Vice President-Finance and
Operations for NAC. Between September 1991 and April 1994, Mr. Sharma served as
Controller of NAC.

BOARD COMMITTEES

In December 1996, the Board of Directors established an Audit Committee, a
Compensation Committee and an Executive Committee. The Audit Committee will be
initially composed of Messrs. Hollander, Friedman and Ryan. The Audit Committee
reviews the Company's annual audit and meets with the

47
<PAGE> 50

Company's independent auditors to review the Company's internal controls and
financial management practices. The Compensation Committee will be initially
composed of Messrs. Friedman, Hollander and Kirk. The primary function of the
Compensation Committee is to review and make recommendations to the Board with
respect to the compensation, including bonuses, of the Company's officers. The
Company's Executive Committee is composed of Messrs. Culver, Hollander and
Risko. The Executive Committee has and may exercise all of the powers and
authority of the Board of Directors in the management of the business affairs of
the Company except that it does not have the power and authority to: (i) amend
the Certificate of Incorporation or Bylaws of the Company; (ii) adopt an
agreement of merger or consolidation or to recommend to stockholders the sale,
lease or exchange of all or substantially all of the Company's property and
assets; (iii) recommend to stockholders a dissolution of the Company or a
revocation of the dissolution; or (iv) declare a dividend or authorize the
issuance of stock of the Company unless expressly authorized by a resolution of
the Board of Directors.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

No member of the Compensation Committee is or has been an employee of the
Company.

DIRECTOR COMPENSATION

Each of the Company's non-employee directors is entitled to receive an
annual fee of $20,000 in cash or stock. No director of the Company receives any
directors' fees for attendance at meetings of the Board of Directors or
committees thereof, although non-employee members of the Board do receive
reimbursement for actual expenses of such attendance.

STOCK PLANS

Stock Option Plan. The Company has adopted a Stock Option Plan (the
"Plan") which will become effective upon the closing of the Offering. The Plan
is intended to provide a means to attract and retain key employees (including
officers, whether or not directors) of the Company and its subsidiaries and
promote the success of the Company.

Under the Plan, awards may consist of any combination of stock options
(incentive or nonqualified), restricted stock, stock appreciation rights
("SARs") and performance share awards. The number of shares of Common Stock that
may be issued under the Plan is 400,000. Awards under the Plan may be made to
any director, officer, or key employee of the Company, including directors who
serve on the Compensation Committee of the Board of Directors.

Participants in the Plan are selected by the Compensation Committee. The
Compensation Committee is appointed by the Board of Directors and is empowered
to determine the terms and conditions of each award made under the Plan, subject
to the limitations that the exercise price of incentive stock options cannot be
less than the fair market value of the Common Stock on the date of grant (110%
if granted to an employee who owns 10% or more of the Common Stock), and no
incentive stock option can be granted to anyone other than a full-time employee
of the Company or its subsidiaries. Non-qualified stock options may be granted
under the Plan with an exercise price determined by the Compensation Committee.
Options granted under the Plan may be exercised as determined by the
Compensation Committee, but in no event after ten years from the date of grant.

Restricted stock awards may be granted on the basis of such factors as the
Compensation Committee deems appropriate. Each restricted stock award agreement
shall specify the number of shares of Common Stock to be issued, the date of
such issuance, the price, if any, to be paid for such shares by the participant,
whether and to what extent the cash consideration paid for such shares shall be
returned upon a forfeiture and the restrictions imposed on such shares. Shares
subject to restricted stock awards are nontransferable until such shares have
vested and are subject to a risk of forfeiture unless certain conditions are
satisfied.

SARs may be granted in connection with stock options or separately. SARs
granted in connection with stock options will provide for payments to the holder
based upon increases in the price of the Common Stock over the exercise price of
the related option on the exercise date. The SARs may provide that the holder of
the

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<PAGE> 51

SARs may exercise the SARs or the option in whole or in part. The Compensation
Committee may elect to pay SARs in cash or in Common Stock or in a combination
of cash and Common Stock.

Performance share awards may be granted on the basis of such factors as the
Compensation Committee deems appropriate. Generally, these awards will be based
upon specific agreements and will specify the number of shares of Common Stock
subject to the award, the price, if any, to be paid for such shares by the
participant and the conditions upon which the issuance to the participant will
be based.

Options and SARs which have not yet become exercisable will lapse upon the
date a participant is no longer employed by the Company for any reason. Options
and SARs which have become exercisable must be exercised within 30 days after
such date if the termination of employment was for any reason other than
retirement, total disability, death or discharge for cause. In the event a
participant is discharged for cause, all options and SARs shall lapse
immediately upon such termination of employment. If the termination of
employment was due to retirement, total disability or death, the options and
SARs, which are exercisable on the date of such termination, must be exercised
within three months of the date of such termination or such shorter period
provided in the award agreement. Shares subject to restricted stock awards that
have not become vested upon the date a participant is no longer employed by the
Company for any reason will be forfeited in accordance with the terms of the
related award agreements. Shares subject to performance share awards that have
not been issued or become issuable upon the date a participant is no longer
employed by the Company for any reason shall similarly be forfeited.

In the event the stockholders of the Company approve the dissolution or
liquidation of the Company, certain mergers or consolidations, or the sale of
substantially all of the business assets of the Company, unless prior to such
event the Board of Directors determines that there shall be either no
acceleration or limited acceleration of awards, each option and related SAR
shall become immediately exercisable, restricted stock shall immediately vest
and the number of shares covered by each performance share award shall be issued
to the participant.

Section 423 Plan. The Company has adopted an Employee Stock Purchase Plan
(the "Stock Purchase Plan") effective as of May 1, 1997. Under the Stock
Purchase Plan, 250,000 shares of the Company's Common Stock would be available
for purchase by eligible employees of the Company and its subsidiaries electing
to participate in the Stock Purchase Plan. Such employees would be entitled
semi-annually to purchase Common Stock of the Company, by means of payroll
deductions, at a 15% discount from the market price of the Company's Common
Stock. The Stock Purchase Plan provides incentive to employees (i) to achieve
business goals of the Company that would increase stock values and (ii) to
remain in the employment of the Company.

Under the Stock Purchase Plan, Qualified Employees (as such term is defined
below) are given the opportunity prior to each January 1 and July 1 (May 1, 1997
only in the case of calendar 1997) to participate in the Stock Purchase Plan by
designating a certain amount of their after-tax base salary to be set aside over
the next six (eight in the case of calendar 1997) months (the "Offering Period")
to purchase the Company's Common Stock. On the last day of each Offering Period
(the "Exercise Date"), the total amount set aside by each participant is used to
purchase Common Stock. The purchase price of each share of Common Stock is 85%
of the closing price of a share of Common Stock on the Nasdaq National Market on
the first day of the Offering Period or the Exercise Date, whichever is lower.

Only Qualified Employees are eligible to participate in the Stock Purchase
Plan. The Stock Purchase Plan defines a "Qualified Employee" as an employee of
the Company or any of its subsidiaries who has completed twelve months of
continuous service with the Company or such subsidiary as of the grant date and
who is customarily employed for more than twenty hours per week and more than
five months in a calendar year. Employees of API Combs will receive service
credit for their tenure as employees of Old API. The term "Qualified Employee"
does not include any employee who, after giving effect to his or her
participation in the Stock Purchase Plan, owns or would own stock representing
5% or more of the total combined voting power or value of all classes of stock
of the Company or any of its subsidiaries or any employee covered a collective
bargaining agreement. As of November 30, 1996, there were approximately 400
Qualified Employees eligible to participate in the Stock Purchase Plan.

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<PAGE> 52

The fair market value of stock purchased by any participant cannot exceed
$25,000 in any calendar year. In addition, the maximum amount that a participant
may elect to set aside under the Stock Purchase Plan in each Offering Period is
10% of his or her base salary. The minimum amount that a participant may elect
to set aside each pay period is $10.00.

The Stock Purchase Plan has no definite term and will terminate when all of
the shares subject to the Stock Purchase Plan have been purchased unless
terminated sooner by the Board of Directors. The Stock Purchase Plan does not
restrict the Company's right to terminate the employment of participants. The
Stock Purchase Plan provides that upon termination of a participant's employment
for any reason, or (ii) receive a refund of the balance of the participant's
account. Upon termination of employment for a reason other than death,
disability or retirement, the participant will be deemed to have withdrawn from
the Stock Purchase Plan and all amounts credited to his or her account will be
refunded to him or her without interest. Termination of employment has no effect
on shares previously purchased under the Stock Purchase Plan.

Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger, or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation,
or upon a sale of all or substantially all of the property of the Company to
another corporation, the Stock Purchase Plan will terminate and the rights of
participants to purchase shares under the Stock Purchase Plan will terminate and
the Company thereupon will refund the balance of a participant's accounts to the
participant, without interest, unless (i) the administrating committee of the
Board of Directors determines that the rights of participants to purchase shares
should accelerate or (ii) provision is made in connection with such transaction
for the assumption of the Stock Purchase Plan or the substitution of rights to
purchase the Company's Common Stock with rights to purchase stock of a successor
employer corporation or an affiliate thereof, with appropriate adjustments as to
number and kind of shares and prices.

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

The Company has adopted provisions in its Certificate of Incorporation that
limit the liability of its directors for monetary damages arising from a breach
of their fiduciary duty as directors to the fullest extent permitted by Delaware
law as it now exists or may in the future be amended. The Company's Bylaws
provide that indemnification will not extend in the event that the person's
conduct was intentional or was a knowing and culpable violation of the law.
Moreover, the right to indemnification conferred by the Company includes the
right to be paid by the Company for any expenses incurred in defending any
proceeding in advance of its final disposition.

EXECUTIVE COMPENSATION AND EMPLOYMENT AGREEMENTS

The Company was formed in March 1995 to acquire NAC and each of the
executive officers of the Company became an officer at the time of its
formation. None of the executive officers of the Company received any employment
compensation from the Company or NAC during the ten month period ended January
31, 1996, except Mr. Risko. Mr. Risko has been paid a salary at the rate of
$180,000 per annum by NAC since becoming its President and Chief Executive
Officer in January 1996. The salary payments to Mr. Risko have reduced, dollar
for dollar, the amount of the $300,000 annual management fee NAC pays to First
Equity for management services. The obligation to pay a management fee to First
Equity terminates upon consummation of the Offering. See "Certain Transactions."

In December 1996, First Aviation entered into employment agreements with
Michael C. Culver, John F. Risko, and John A. Marsalisi. Mr. Culver's, Mr.
Risko's and Mr. Marsalisi's employment agreements are each for terms of three
years which expire on December 31, 1999, and provide for an annual base salary
of $180,000, $180,000 and $155,000, respectively. In addition, each of the three
employment agreements provides for: (i) benefits which are also generally
available to other employees of First Aviation in similar employment positions;
(ii) reimbursement of reasonable business related expenses; (iii) three weeks
paid

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<PAGE> 53

vacation a year; and (iv) a severance payment, upon termination without cause or
for death or disability, equal to six months base salary. Each of the agreements
may be terminated by First Aviation without cause at any time upon 30 days
notice or by the executive for any reason upon 30 days notice.

Mr. Culver, Mr. Risko and Mr. Marsalisi each have, as part of their
respective employment agreements, agreed not to compete with First Aviation for
a period of six months following the end of their employment by First Aviation
and not to solicit employees or customers of First Aviation for a period of six
months following the end of their employment with First Aviation.

NAC has entered into a Post-Employment Consulting Agreement with Mr.
Sharma. The agreement requires Mr. Sharma to provide specified consulting
services to NAC following a termination of Mr. Sharma's employment by (i) NAC
without "Cause" or (ii) by Mr. Sharma for "Good Reason" (either, a "Qualifying
Termination") as these terms are defined. "Cause" is defined to include
misappropriation of funds, acts of fraud or gross misconduct, conviction of a
felony, disclosure of confidential information, misappropriation of business
opportunities and competitive behavior against NAC. "Good Reason" is defined as
a reduction in Mr. Sharma's base salary or benefits other than in connection
with an across-the-board reduction in salaries and/or benefits for similarly
situated employees of the Company or pursuant to the Company's standard
retirement policies. The agreement provides that following a Qualifying
Termination, Mr. Sharma shall thereafter provide consulting services to NAC for
12 months, or if sooner, until such date as Mr. Sharma is entitled to receive
full retirement benefits under NAC's applicable retirement plans. In exchange
for his services, Mr. Sharma is entitled to receive a fee, payable in equal
monthly installments, equal to his annual base salary as in effect prior to the
Qualifying Termination. The agreement also obligates NAC to continue medical,
dental, vision and life insurance for Mr. Sharma to the extent such were
provided to him prior to his termination of employment. Mr. Sharma is obligated
to pay 50% of NAC's cost for all such insurance. If Mr. Sharma enters into new
employment during the consulting period, the agreement provides that the
consulting fee and benefits otherwise payable to Mr. Sharma shall be reduced or
terminated by specified amounts depending upon the terms and conditions of his
new employment.

The Company has granted to Mr. Sharma, the Chief Operating Officer of NAC,
options to purchase 3% of the outstanding capital stock of NAC. Subject to
consummation of the Offering, these options will be deemed to have been granted
under the Company's Plan and may be exercised to purchase 150,000 shares of the
Company's Common Stock at an exercise price of $.01 per share. Mr. Sharma has
agreed that he will not sell any shares of Common Stock acquired upon the
exercise of his options for a period of 180 days following the Offering and
that, thereafter, he will not, during any three month period sell a number of
shares that exceeds (i) 1% of the number of shares of Common Stock then
outstanding (approximately 89,000 shares immediately after the Offering) or (ii)
the average weekly trading volume of the Company's Common Stock in the NASDAQ
National Market during the four weeks preceding the sale. The Company will pay
Mr. Sharma a bonus of $200,000 upon consummation of the Offering.

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<PAGE> 54

CERTAIN TRANSACTIONS

On June 1, 1995, in connection with the acquisition of NAC by the Company
from Triton Group Ltd., the Company issued 33,000 shares of its Series A
Preferred Stock to FAI for an aggregate price of $1,650,000 and 3,556,665 shares
of its Common Stock at an aggregate price of $551,000. In connection with the
closing of the Offering, the Company's Series A Preferred Stock, face value
$1,650,000, held by FAI will be exchanged for 150,000 shares of Common Stock
based on the Series A Preferred Stock Exchange Price. Messrs. Culver, Hollander
and Risko beneficially own substantially all of the equity interests in FAI, and
each of them, as well as Mr. Marsalisi, is an officer of FAI.

On June 1, 1995, NAC entered into the Loan and Security Agreement (the
"Loan Agreement") between NAC and Canpartners (as assignee of Canpartners
Investments III, L.P.). Mr. Friedman, a director of the Company, is affiliated
with Canpartners. See "Management -- Executive Officers and Directors." Pursuant
to the Loan Agreement, Canpartners made a $3,000,000 loan (the "Subordinated
Debt") to NAC which is subordinated in right of payment to NAC's credit
facility. The Subordinated Debt bears interest at the rate of 15% per year,
requires scheduled prepayments of principal and interest, and initially was due
no later than July 5, 1997. On June 13, 1996, in connection with a refinancing
of NAC's credit facility, NAC repaid $1,000,000 in principal to Canpartners and
made certain modifications to the Loan Agreement, including an extension of the
final maturity date of the Subordinated Debt to June 13, 1999. In connection
with the execution of the Loan Agreement, NAC and Canpartners entered into a
Warrant Agreement (the "Warrant Agreement"), pursuant to which NAC issued
warrants to purchase 1,832,225 shares of its Common Stock at an exercise price
of $0.05 per share to Canpartners. In connection with the repayment of
$1,000,000 of the Subordinated Debt in June 1996, 538,890 of the warrants held
by Canpartners were cancelled. Pursuant to the Second Amendment to Warrant
Agreement, dated December 20, 1996, the remaining NAC warrants held by
Canpartners became exercisable for and are deemed to be exercised for shares of
the Company's Common Stock at an exercise price of $0.05 per share in the event
of a "Qualified IPO" as defined therein. A "Qualified IPO" is defined as an
initial public offering of the Company's Common Stock pursuant to a registration
statement filed with the Securities and Exchange Commission, that yields at
least $10.0 million in net proceeds to the Company. The Company granted
Canpartners certain registration rights. See "Use of Proceeds" and "Description
of Capital Stock -- Registration Rights."

Pursuant to a Shareholders Agreement entered into among NAC, the Company
and Canpartners in connection with the execution of the Loan Agreement (the
"Shareholders Agreement"), NAC agreed to pay a management fee to the Company (or
First Equity) in the amount of $300,000 per year, payable quarterly. NAC reduces
payment of this management fee to the Company by the amount of compensation paid
to Mr. Risko in connection with his services as an officer of the Company and
NAC. The obligation to pay a management fee to First Equity terminates upon
consummation of the Offering. Pursuant to the Shareholders Agreement, NAC agreed
to pay an annual management fee of $50,000 per year to Canpartners for each of
the four years commencing June 1, 1995, which fee is payable quarterly. The
Shareholders Agreement provides for accelerated payment to Canpartners of all
remaining annual management fees upon the occurrence of certain events specified
in the Warrant Agreement, including: (i) the consummation of a public offering
of the Company's Common Stock or the common stock of NAC; (ii) the transfer by
the Company of any of its stock in NAC to an entity not controlled by, under
common control with, or controlling the Company; and (iii) the sale of
substantially all of the assets of NAC.

On September 30, 1996, the Company entered into two agreements with First
Equity whereby First Equity is to provide certain investment advisory services
in connection with the Offering as well as to provide advice with respect to and
negotiate for the API Combs Acquisition. Upon the closing of the Offering, First
Equity will be paid a fee of $350,000 for assistance rendered in connection with
the Offering and $250,000 for its services with regard to the API Combs
Acquisition. First Equity may render other investment advisory services to the
Company in the future. If it does so, any investment advisory fees paid to it
would not exceed customary fees for such services.

On December 20, 1996, the Company and First Equity entered into an
agreement allocating potential investment and acquisition opportunities in the
global aircraft engine repair and overhaul market. Pursuant to

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<PAGE> 55

the agreement, First Equity has agreed that commencing with the consummation of
the Offering, neither First Equity nor any of its majority-owned subsidiaries
will, as a principal, consummate any acquisition of a majority interest in any
business that is engaged in the repair and overhaul of military and commercial
aircraft engines anywhere in the world (a "Covered Acquisition"), without first
notifying the Company and providing the Company with the opportunity to choose
to effect the Covered Acquisition for its own account. The Company's decision as
to whether to effect the Covered Acquisition will be made by the directors of
the Company that have no affiliation with First Equity. The agreement will
remain in effect for a five-year term, subject to earlier termination in the
event First Equity reduces its ownership interest in the Company to less than
10% of the Company's outstanding voting securities. In addition, the agreement
does not apply to any proposed acquisition by First Equity of any business that
generates less than 15% of its aggregate net sales from the repair and overhaul
of military and commercial aircraft engines nor to any advisory services
performed by First Equity on behalf of third parties.

The Company leases approximately 1,000 square feet of office space from
First Equity under a month to month sublease. Monthly payments under the
sublease are $2,500. On December 13, 1996, the Company entered into a new
sublease with First Equity which will replace the current lease. Under the new
sublease, the Company will lease approximately 2,000 square feet of office space
in Westport, Connecticut for a period of ten years with options for two
additional five year periods commencing on approximately March 1, 1997. Monthly
payments under this sublease currently are $5,000, subject to increase on an
annual basis.

The Company believes that the terms of the two advisory services agreements
and the sublease agreement between the Company and First Equity are at least as
favorable as the terms which would have been obtained by the Company from an
unaffiliated third-party.

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<PAGE> 56

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of November 30, 1996, and as adjusted
to give effect to the sale of shares offered hereby (i) by each person who is
known by the Company to own beneficially 5% or more of the outstanding shares of
Common Stock, (ii) each of the Company's directors, (iii) each of the Named
Executive Officers, and (iv) all directors and executive officers as a group.
Except as indicated in the footnotes to the table, the persons named in the
table have sole voting and investment power with respect to all shares of Common
Stock shown as beneficially owned by them, subject to community property laws
where applicable, and are located at One Omega Drive, Stamford, Connecticut
06907.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING NUMBER OF OFFERING(1)
-------------------------- SHARES ----------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT(2) BEING OFFERED NUMBER PERCENT(2)
- ---------------------------------------- --------- ---------- ------------- --------- ----------
<S> <C> <C> <C> <C> <C>
FAS Inc., an indirect subsidiary of
First Equity Group, Inc............... 3,556,665(3) 73.3% -- 3,706,665 41.6%
One Omega Drive
Box 4660
Stamford, Connecticut 06907
Canpartners Investments IV, LLC......... 1,293,335 26.7% --(1) 1,293,335 14.5%
9665 Wilshire Boulevard
Suite 200
Beverly Hills, California 90212
Aaron P. Hollander...................... --(3) -- -- -- --
Michael C. Culver....................... --(3) -- -- -- --
John F. Risko........................... --(3) -- -- -- --
John A. Marsalisi....................... -- -- -- -- --
Joshua S. Friedman...................... --(4) -- -- -- --
Robert L. Kirk.......................... -- -- -- -- --
Charles Ryan............................ -- -- -- -- --
All directors and executive officers as
a group
(7 persons)........................... --(3)(4) -- -- -- --
</TABLE>

- ---------------
(1) Assumes no exercise of the Underwriters' over-allotment option. If the
Underwriters' over-allotment option is exercised in full, Canpartners will
sell 585,000 shares of Common Stock, thereby reducing its holdings to
708,335 shares, or 8.0%. Canyon Partners Incorporated is the Managing Member
of Canpartners. Mr. Friedman, Mitchell R. Julis and R. Christian B. Evenson
are the sole shareholders and directors of Canyon Partners Incorporated and
such individuals may be deemed to share beneficial ownership of the shares
shown as owned by Canpartners. Such persons disclaim beneficial ownership of
such shares.

(2) Percentage calculation is based upon 4,850,000 shares outstanding (8,900,000
shares following the Offering, based on the proposed issuance of 3,900,000
shares by the Company in the Offering and the exchange of the Company's
Series A Preferred Stock, face value $1,650,000, for 150,000 shares of
Common Stock based on the Series A Preferred Stock Exchange Price).

(3) Messrs. Culver and Hollander own, in the aggregate, substantially all of the
outstanding shares of First Equity Group and First Equity Group and Mr.
Risko own substantially all of the outstanding shares of First Equity.

(4) Excludes 1,293,335 shares shown as owned by Canpartners. Mr. Friedman is a
Vice President of Canpartners and is a shareholder and director of Canyon
Partners Incorporated, the Managing Member of Canpartners, and, as such, may
be deemed to have voting and investment power over such shares. Mr. Friedman
disclaims any beneficial ownership of such shares.

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<PAGE> 57

DESCRIPTION OF CAPITAL STOCK

Upon the completion of the Offering, the Company's authorized capital stock
will consist of 25,000,000 shares of Common Stock, par value $0.01 per share,
and 5,000,000 shares of undesignated preferred stock, par value $0.01 per share
(the "Preferred Stock") after giving effect to the redemption of the Series A
Preferred Stock which will occur upon the consummation of the Offering.

COMMON STOCK

Prior to the Offering, there were 3,556,665 shares of Common Stock issued
and outstanding, held by one entity. Canpartners owns warrants to purchase up to
1,293,335 shares of Common Stock at $0.05 per share. Canpartners will exercise
the warrants concurrent with the closing of the Offering. See "Certain
Transactions." Accordingly, total shares outstanding immediately prior to the
Offering are 4,850,000 before giving effect to the exchange of the Company's
Series A Preferred Stock for 150,000 shares of Common Stock.

Each holder of Common Stock is entitled to one vote for each share held of
record on all matters presented to stockholders, including the election of
directors. In the event of a liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to share equally and ratably
in the assets of the Company, if any, remaining after paying all debts and
liabilities of the Company and the liquidation preferences of any outstanding
Preferred Stock. The Common Stock has no preemptive rights or cumulative voting
rights and no redemption, sinking fund or conversion provisions.

Holders of Common Stock are entitled to receive dividends if, as and when
declared by the Board of Directors out of funds legally available therefore,
subject to the dividend and liquidation rights of any Preferred Stock that may
be issued and outstanding and subject to any dividend restrictions in any of the
Company's outstanding debt and credit facilities. See "Dividend Policy."

All of the shares offered hereby, when issued and sold, will be validly
issued, fully paid and nonassessable.

PREFERRED STOCK

The Board of Directors is authorized, without further stockholder action,
to issue any or all shares of the authorized Preferred Stock in one or more
series and to fix and determine the designations, preferences and relative
rights and qualifications, limitations or restrictions thereon of any series so
established, including voting powers, dividend rights, liquidation preferences,
redemption rights and conversion privileges. The issuance of Preferred Stock
with voting rights or conversion rights may adversely affect the voting power of
the Common Stock, including the loss of voting control to others. The issuance
of Preferred Stock may have the effect of delaying, deferring or preventing a
change of control of the Company. The Company presently has no plans, agreements
or understandings for the authorization or issuance of any shares of Preferred
Stock.

CERTAIN PROVISIONS OF THE CERTIFICATE AND BYLAWS

General. A number of provisions of the Company's Restated Certificate of
Incorporation ("Certificate") and Bylaws ("Bylaws") concern matters of corporate
governance and the rights of stockholders. These provisions, among other things,
(i) classify those members of the Board of Directors elected by the holders of
Common Stock into three classes of directors with each class serving staggered
three-year terms, with the initial Class I, Class II and Class III directors'
terms ending in 1997, 1998 and 1999, respectively, and (ii) grant the Board of
Directors the right to issue shares of Preferred Stock and to set the voting
rights, preference and other terms thereof. These provisions may be deemed to
have an anti-takeover effect and may discourage takeover attempts not first
approved by the Board of Directors (including takeovers which certain
stockholders may deem to be in their best interests). To the extent takeover
attempts are discouraged, temporary fluctuations in the market price of the
Common Stock, which may result from actual or rumored takeover attempts, may be
inhibited. These provisions, together with the classified Board of Directors and
the ability of the Board to issue Preferred Stock without further stockholder
action, also could delay or frustrate the removal of incumbent directors or the
assumption of control by stockholders, even if such removal or assumption would
be beneficial to stockholders of the Company. These provisions also could
discourage or

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<PAGE> 58

make more difficult a merger, tender offer or proxy contest, even if they could
be favorable to the interests of stockholders, and could potentially depress the
market price of the Common Stock. The Board of Directors believes that these
provisions are appropriate to protect the interests of the Company and all of
its stockholders.

Meetings of Stockholders. The Certificate provides that a special meeting
of stockholders may be called only by the Board of Directors. The Bylaws provide
that only those matters set forth in the notice of a special meeting may be
considered or acted upon at that special meeting, unless otherwise provided by
law. In addition, the Bylaws set forth certain advance notice and informational
requirements and time limitations on any director nomination or any new business
which a stockholder wishes to propose for consideration at an annual meeting of
stockholders.

No Stockholder Action by Written Consent. The Certificate provides that
any action required or permitted to be taken by the stockholders of the Company
at an annual or special meeting of stockholders must be effected at a duly
called meeting and may not be taken or effected by a written consent of
stockholders in lieu thereof.

Indemnification and Limitation of Liability. The Bylaws provide that
directors of the Company shall be, and, in the discretion of the Board of
Directors, officers and non-officer employees may be, indemnified by the Company
to the fullest extent authorized by Delaware law, as it now exists or may in the
future be amended, against all expenses and liabilities reasonably incurred in
connection with service for or on behalf of the Company. The Bylaws also provide
that the right of directors to indemnification shall be a contract right and
shall not be exclusive of any other right possessed or hereafter acquired under
any bylaw, agreement, vote of stockholders or otherwise. The Certificate
contains a provision permitted by Delaware law that generally eliminates the
personal liability of directors for monetary damages for breaches of their
fiduciary duty, including breaches involving negligence or gross negligence in
business combinations, unless the director has breached his or her duty of
loyalty, failed to act in good faith, engaged in intentional misconduct or a
knowing violation of law, paid a dividend or approved a stock repurchase in
violation of the Delaware General Corporation Law or obtained an improper
personal benefit. This provision does not alter a director's liability under the
federal securities laws. In addition, this provision does not affect the
availability of equitable remedies, such as an injunction or rescission, for
breach of fiduciary duty.

STATUTORY BUSINESS COMBINATION PROVISION

Section 203 of the Delaware General Corporation Law ("Section 203")
provides, with certain exceptions, that a Delaware corporation may not engage in
any of a broad range of business combinations with a person or affiliate, or
associate of such person, who is an "interested stockholder" for a period of
three years from the date that such person became an interested stockholder
unless: (i) the transaction resulting in a person becoming an interested
stockholder, or the business combination, is approved by the board of directors
of the corporation before the person becomes an interested stockholder; (ii) the
interested stockholder acquired 85% or more of the outstanding voting stock of
the corporation in the same transaction that makes it an interested stockholder
(excluding shares owned by persons who are both officers and directors of the
corporation, and shares held by certain employee stock ownership plans); or
(iii) on or after the date the person becomes an interested stockholder, the
business combination is approved by the corporation's board of directors and by
the holders of at least 66 2/3% of the corporation's outstanding voting stock at
an annual or special meeting, excluding shares owned by the interested
stockholder. Under Section 203, an "interested stockholder" is defined (with
certain limited exceptions) as any person that is (i) the owner of 15% or more
of the outstanding voting stock of the corporation or (ii) an affiliate or
associate of the corporation and was the owner of 15% or more of the outstanding
voting stock of the corporation at any time within the three-year period
immediately prior to the date on which it is sought to be determined whether
such person is an interested stockholder.

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<PAGE> 59

REGISTRATION RIGHTS

Pursuant to an Amended and Restated Registration Rights Agreement, dated
February 21, 1997, between the Company and FAI, FAI was granted certain
registration rights with respect to the 3,706,665 shares of Common Stock it will
hold immediately after the Offering. Specifically, if the Company proposes to
register any of its securities under the Securities Act, either for its own
account or for the account of other securityholders, FAI is entitled to include
its shares of Common Stock in the registration statement, subject to certain
conditions and limitations. This right to include shares of Common Stock will
not apply to registration statements of the Company relating to certain stock
option, purchase or incentive plans, any dividend reinvestment plan, or certain
merger or exchange transactions. In addition, FAI has the right at any time
subsequent to the consummation of the Offering, to require the Company to
register its shares of Common Stock under the Securities Act. FAI is entitled to
four such requested registrations. The right of FAI to sell securities
immediately after the Offering is subject to the lock-up agreement restricting
sale for 180 days after the date of this Prospectus. See "Shares Eligible For
Future Sale" and "Underwriting."

Pursuant to a Registration Rights Agreement, dated February 21, 1997,
between the Company and Canpartners, Canpartners was granted certain
registration rights with respect to the shares of Common Stock issuable upon
exercise of its 1,293,335 common stock purchase warrants (the "Registrable
Securities"). Specifically, if the Company proposes to register any of its
securities under the Securities Act, either for its own account or for the
account of other securityholders, Canpartners is entitled to include the
Registrable Securities in the registration statement, subject to certain
conditions and limitations. This right to include the Registrable Securities
will not apply to registration statements of the Company relating to certain
stock option, purchase or incentive plans, any dividend reinvestment plan, or
certain merger or exchange transactions. In addition, Canpartners has the right
at any time subsequent to the consummation of the Offering, to require the
Company to register the Registrable Securities under the Securities Act.
Canpartners is entitled to two such requested registrations. The right of
Canpartners to sell securities immediately after the Offering is subject to the
lock-up agreement restricting sale for 180 days after the date of this
Prospectus. See "Shares Eligible for Future Sale."

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is American Stock
Transfer and Trust Company.

LISTING

The Company's Common Stock has been approved for quotation on the Nasdaq
National Market under the trading symbol "FAVS."

57
<PAGE> 60

SHARES ELIGIBLE FOR FUTURE SALE

Sales of substantial amounts of Common Stock in the public market could
adversely affect the market price of the Common Stock and could impair the
Company's future ability to raise capital through the sale of its equity
securities. Upon the closing of the Offering, the Company will have outstanding
8,900,000 shares of Common Stock. Of these shares, the 3,900,000 shares sold in
the Offering will be freely tradeable without restriction under the Securities
Act, unless purchased by "affiliates" of the Company.

The remaining 5,000,000 shares of Common Stock held by existing
stockholders will be "restricted" shares under the Securities Act (the
"Restricted Shares"). Upon the expiration of lock-up agreements between the
stockholders and the Underwriters, which will occur 180 days after the effective
date of this Prospectus (the "Effective Date"), the 3,706,665 Restricted Shares
held by FAI will become eligible for sale under Rule 144, subject to the volume
limitations described below, and the 1,293,335 Restricted Shares held by
Canpartners will become eligible for sale under Rule 144 upon the first
anniversary of the consummation of the Offering.

An aggregate of 150,000 shares of Common Stock are subject to outstanding
options granted to Mr. Sharma. See "Management -- Executive Compensation and
Employment Agreements." Pursuant to Rule 701 promulgated under the Securities
Act, the shares of Common Stock currently subject to such options will be
available for sale in the public market upon exercise. Mr. Sharma has, however,
agreed that he will not sell any shares of Common Stock acquired upon the
exercise of his options to purchase shares of the Company's Common Stock for a
period of 180 days following the Offering and that, thereafter, he will not,
during any three month period sell a number of shares that exceeds (i) 1% of the
number of shares of Common Stock then outstanding (approximately 89,000 shares
immediately after the Offering) or (ii) the average weekly trading volume of the
Company's Common Stock in the Nasdaq National Market during the four weeks
preceding the sale.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for at
least one year, will be entitled to sell in any three-month period a number of
shares that does not exceed the greater of: (i) 1% of the number of shares of
Common Stock then outstanding (approximately 89,000 shares immediately after the
Offering) or (ii) the average weekly trading volume of the Company's Common
Stock in the Nasdaq National Market during the four calendar weeks immediately
preceding the date on which notice of the sale is filed with the Securities and
Exchange Commission. Sales pursuant to Rule 144 are subject to certain
requirements relating to manner of sale, notice and availability of current
public information about the Company. A person (or persons whose shares are
aggregated) who is not deemed to have been an affiliate of the Company at any
time during the 90 days immediately preceding the sale and who has beneficially
owned Restricted Shares for at least two years is entitled to sell such shares
pursuant to Rule 144(k) without regard to the limitations and requirements
described above.

The Company, its executive officers, directors and stockholders have agreed
that, for a period of 180 days from the Effective Date, they will not, without
the prior written consent of Smith Barney Inc., sell, offer to sell, solicit an
offer to buy, contract to sell, grant any option to purchase or otherwise
transfer or dispose of, any shares of Common Stock or any securities convertible
into, or exercisable or exchangeable for, shares of Common Stock, subject to
certain exceptions. See "Underwriting."

58
<PAGE> 61

UNDERWRITING

Upon the terms and subject to the conditions of the Underwriting Agreement,
dated the date hereof, each of the Underwriters named below has severally agreed
to purchase from the Company, and the Company has agreed to sell to such
Underwriter, the respective number of shares of Common Stock set forth opposite
the name of such Underwriter.

<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- ----------------------------------------------------------------------------------- ---------
<S> <C>
Smith Barney Inc. .................................................................
Dillon, Read & Co. Inc. ...........................................................

---------
Total....................................................................
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to approval of certain legal matters by their counsel
and to certain other conditions. The Underwriters are obligated to take and pay
for all shares of Common Stock offered hereby (other than those covered by the
over-allotment option described below) if any such shares are purchased.

The Underwriters propose to offer part of the shares of Common Stock
directly to the public at the public offering price set forth on the cover page
of this Prospectus and part of the shares to certain dealers at a price that
represents a concession not in excess of $ per share under the public
offering price. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per share to certain other dealers. Smith
Barney Inc, and Dillon, Read & Co. Inc., as representatives of the several
underwriters (the "Representatives"), have advised the Company that the
Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.

Canpartners has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to 585,000 shares of the
Common Stock at the price to public set forth on the cover page of this
Prospectus minus the underwriting discount and commissions. The Underwriters may
exercise such option solely for the purpose of covering over-allotments, if any,
in connection with the Offering of the shares of Common Stock offered hereby. To
the extent such option is exercised, each Underwriter will be obligated, subject
to certain conditions, to purchase approximately the same percentage of such
additional shares as the number of shares set forth opposite each Underwriter's
name in the preceding table bears to the total number of shares listed in such
table.

The Company, its executive officers, directors and stockholders have agreed
with the Representatives that until 180 days after the Effective Date they will
not sell, offer to sell, contract to sell or otherwise sell, dispose of, loan,
pledge or grant any rights with respect to any shares of Common Stock, any
options or grants to purchase shares of Common Stock, or any securities
convertible or exchangeable for shares of Common Stock owned directly by such
holders or with respect to which they have power of disposition. The Company has
also agreed not to sell, offer to sell, contract to sell, grant any option to
purchase or otherwise dispose of any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or any rights
to acquire Common Stock for a period of 180 days after the Effective Date
without the prior written consent of Smith Barney Inc., subject to certain
limited exceptions including grants of options and sales of shares under the
Company's stock benefit plans. The lock-up agreements with the Representatives
may be released at any time as to all or any portion of the shares subject to
such agreements at the sole discretion of Smith Barney Inc.

59
<PAGE> 62

The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act.

Upon consummation of the Offering, the Company will pay First Equity a fee
of $350,000 for assistance rendered in connection with the Offering. Under the
rules of the National Association of Securities Dealers, Inc., such amount is
considered to be compensation received in connection with the Offering. See
"Certain Transactions."

Prior to the Offering, there has not been any public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
shares of Common Stock included in the Offering has been determined by
negotiations among the Company and the Representatives. Among the factors
considered in determining such price were the history of and prospects for the
Company's business and the industry in which it competes, an assessment of the
Company's management and the present state of the Company's development, the
past and present revenues and earnings of the Company, the prospects for the
growth of the Company's revenues and earnings, the current state of the economy
in the United States and the current level of economic activity in the industry
in which the Company competes and in related or comparable industries, and
currently prevailing conditions in the securities markets, including current
market valuations of publicly traded companies that are comparable to the
Company.

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by O'Melveny & Myers LLP. Andrews & Kurth L.L.P., Los Angeles,
California will act as counsel to the Underwriters.

EXPERTS

The consolidated balance sheets of First Aviation Services Inc. at January
31, 1996 and July 31, 1996, and the consolidated statements of operations,
stockholders' equity, and cash flows for the two-month period ended May 31,
1995, the eight-month period ended January 31, 1996 and the six-month period
ended July 31, 1996 appearing in this Prospectus and Registration Statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.

The financial statements of NAC as of March 31, 1995 and for each of the
two years in the period ended March 31, 1995 included in this Prospectus and
Registration Statement have been so included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.

The balance sheet of Aircraft Parts International at September 30, 1996 and
December 31, 1995 and the Statements of Operations and Division Equity for the
nine month period ended September 30, 1996, and the year ended December 31, 1995
appearing in this Prospectus and the Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.

60
<PAGE> 63

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission"), in Washington, D.C., a Registration Statement on Form S-1 under
the Securities Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits thereto. Certain items are omitted in accordance with
the rules and regulations of the Commission. For further information with
respect to the Company and the Common Stock offered hereby, reference is made to
the Registration Statement and the exhibits filed as a part thereof. Statements
contained in this Prospectus as to the contents of any contract or any other
document referred to are not necessarily complete, and, in each instance, if
such contract or document is field as an exhibit, reference is made to the copy
of such contract or document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference to such
exhibit. Upon completion of the Offering, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended,
and in accordance therewith, will file reports and other information with the
Commission. The Registration Statement, including exhibits thereto, as well as
the reports and other information filed by the company with the Commission, may
be inspected without charge at the Public Reference Room of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices at Seven World Trade Center, 13th Floor, New York, New York 10048, and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such materials can also be obtained at prescribed rates from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Electronic filings made through the Electronic Data
Gathering Analysis and Retrieval System are publicly available thought the
Commission's Web Site (http://www.sec.gov).

The Company will issue to its stockholders annual reports and unaudited
quarterly reports for the first three quarters of each fiscal year. Annual
reports will include audited financial statements and a reports of its
independent auditors with respect to the examination of such financial
statements.

61
<PAGE> 64

INDEX TO FINANCIAL STATEMENTS

FIRST AVIATION SERVICES INC.

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors..................................... F-2
Consolidated Balance Sheets........................................................... F-3
Consolidated Statements of Operations................................................. F-4
Consolidated Statements of Stockholders' Equity....................................... F-5
Consolidated Statements of Cash Flows................................................. F-6
Notes to Consolidated Financial Statements............................................ F-7

NATIONAL AIRMOTIVE CORPORATION
Report of Price Waterhouse LLP, Independent Accountants............................... F-18
Balance Sheet......................................................................... F-19
Statement of Operations............................................................... F-20
Statement of Stockholder's Equity..................................................... F-21
Statement of Cash Flows............................................................... F-22
Notes to Financial Statements......................................................... F-23

AIRCRAFT PARTS INTERNATIONAL
Report of Ernst & Young LLP, Independent Auditors..................................... F-34
Balance Sheets........................................................................ F-35
Statements of Operations and Division Equity.......................................... F-36
Statement of Cash Flows............................................................... F-37
Notes to Financial Statements......................................................... F-38
</TABLE>

F-1
<PAGE> 65

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
First Aviation Services Inc.

We have audited the accompanying consolidated balance sheets of First
Aviation Services Inc. as of January 31, 1996 and July 31, 1996, and the
consolidated statements of operations, stockholders' equity, and cash flows for
the two month period ended May 31, 1995, the eight month period ended January
31, 1996 and the six month period ended July 31, 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
First Aviation Services Inc. as of January 31, 1996 and July 31, 1996, and the
consolidated results of its operations and its cash flows for the two month
period ended May 31, 1995, the eight month period ended January 31, 1996 and the
six month period ended July 31, 1996 in conformity with generally accepted
accounting principles.

ERNST & YOUNG LLP

San Francisco, California
September 12, 1996,
except Note 12, as to which the date is

December 20, 1996

F-2
<PAGE> 66

FIRST AVIATION SERVICES INC.

CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)

<TABLE>
<CAPTION>
JANUARY 31, JULY 31, OCTOBER 31,
1996 1996 1996
----------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Trade receivables, net of allowance for doubtful accounts of
$278 at January 31, 1996, $316 at July 31, 1996 and $259
at October 31, 1996....................................... $23,388 $19,553 $17,937
Inventories.................................................. 31,207 33,245 34,645
Restricted cash.............................................. -- 1,039 544
Deferred income taxes........................................ 1,036 1,036 1,036
Prepaid expenses and other................................... 1,374 1,354 1,763
------- ------- -------
Total current assets........................................... 57,005 56,227 55,925
Plant and equipment, net....................................... 2,706 2,776 2,829
Other assets................................................... 673 392 282
------- ------- -------
$60,384 $59,395 $59,036
======= ======= =======

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................. $18,167 $10,987 $11,729
Accrued compensation and related expenses.................... 1,116 1,235 1,178
Accrued reorganization expenses.............................. 1,021 511 459
Accrued liabilities.......................................... 2,685 2,589 2,558
Income taxes payable......................................... 507 4 --
Due to stockholders.......................................... 126 126 126
Current portion of long-term debt............................ 1,970 1,100 1,105
------- ------- -------
Total current liabilities...................................... 25,592 16,552 17,155
Long-term debt, less current portion........................... 27,005 35,087 33,643
Other noncurrent liabilities................................... 3,601 2,723 2,528
------- ------- -------
Total liabilities.............................................. 56,198 54,362 53,326
------- ------- -------
Stockholders' equity:
Preferred stock, $0.01 par value, liquidation preference of
$330, $660 and $660 at January 31, 1996, July 31, 1996 and
October 31, 1996, respectively, 5,000,000 shares
authorized, 33,000 shares issued and outstanding.......... 1,650 1,650 1,650
Common stock, $0.01 par value, 25,000,000 shares authorized,
3,556,665 shares issued and outstanding................... 36 36 36
Additional paid-in capital................................... 625 625 625
Retained earnings............................................ 1,875 2,722 3,399
------- ------- -------
Total stockholders' equity..................................... 4,186 5,033 5,710
------- ------- -------
$60,384 $59,395 $59,036
======= ======= =======
</TABLE>

See accompanying notes.

F-3
<PAGE> 67

FIRST AVIATION SERVICES INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)

<TABLE>
<CAPTION>
PREDECESSOR PREDECESSOR
------------ -----------
TWO-MONTH EIGHT-MONTH SIX-MONTH FOUR-MONTH FIVE-MONTH NINE-MONTH
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
MAY 31, JANUARY 31, JULY 31, MAY 31, OCTOBER 31, OCTOBER 31,
1995 1996 1996 1995 1995 1996
------------ ------------ ------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net sales............................. $10,896 $ 68,519 $ 52,354 $24,338 $ 42,833 $ 76,776
Cost of sales......................... 10,463 57,390 44,608 23,809 35,713 65,606
------- --------- --------- ------- --------- ---------
Gross profit.......................... 433 11,129 7,746 529 7,120 11,170
Selling, general and administrative
expenses............................ 1,160 5,349 4,186 3,229 3,371 6,163
------- --------- --------- ------- --------- ---------
Income (loss) from operations......... (727) 5,780 3,560 (2,700) 3,749 5,007
Interest expenses..................... 287 2,605 1,849 644 1,659 2,619
Other expenses........................ -- -- -- 801 -- --
------- --------- --------- ------- --------- ---------
Income (loss) before provision
(benefit) for income taxes and
extraordinary item.................. (1,014) 3,175 1,711 (4,145) 2,090 2,388
Provision (benefit) for income
taxes............................... -- 1,300 -- (1,210) 854 --
------- --------- --------- ------- --------- ---------
Income (loss) before extraordinary
item................................ (1,014) 1,875 1,711 (2,935) 1,236 2,388
Extraordinary item:
Loss on early extinguishment of
debt............................. -- -- (864) -- -- (864)
------- --------- --------- ------- --------- ---------
Net income (loss)..................... (1,014) 1,875 847 (2,935) 1,236 1,524
Dividends on preferred stock.......... -- 88 66 -- 55 99
------- --------- --------- ------- --------- ---------
Net income (loss) applicable to common
stockholders........................ $(1,014) $ 1,787 $ 781 $(2,935) $ 1,181 $ 1,425
======= ========= ========= ======= ========= =========
Net income (loss) per common share:
Income (loss) before extraordinary
item applicable to common
stockholders..................... $ 0.32 $ 0.30 $ 0.21 $ 0.43
Extraordinary item.................. -- (0.16) -- (0.16)
--------- --------- --------- ---------
Net income (loss) applicable to
common stockholders.............. $ 0.32 $ 0.14 $ 0.21 $ 0.27
========= ========= ========= =========
Shares used in computation of net
income (loss) applicable to common
stockholders........................ 5,529,721 5,440,349 5,529,721 5,291,395
========= ========= ========= =========
</TABLE>

See accompanying notes.

F-4
<PAGE> 68

FIRST AVIATION SERVICES INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share amounts)

<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
------------------ -------------------- ADDITIONAL
NUMBER NUMBER PAID-IN RETAINED
OF SHARES AMOUNT OF SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- ------ ---------- ------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at April 1, 1995
(predecessor)................... -- $ -- 4,750,000 $ 4,750 $ 27,385 $ 2,889 $ 35,024
Net loss for the two-month
period ended May 31, 1995.... -- -- -- -- -- (1,014) (1,014)
------ ------ ---------- ------- -------- ------- --------
Balances at May 31, 1995
(predecessor)................... -- -- 4,750,000 4,750 27,385 1,875 34,010
Elimination of predecessor
divisional equity upon
acquisition on June 1,
1995......................... -- -- (4,750,000) (4,750) (27,385) (1,875) (34,010)
Common stock and preferred stock
issued for cash on June 1,
1995......................... 33,000 1,650 3,556,665 36 515 -- 2,201
Warrants issued in connection
with subordinated note
payable...................... -- -- -- -- 110 -- 110
Net income for the eight-month
period ended January 31,
1996......................... -- -- -- -- -- 1,875 1,875
------ ------ ---------- ------- -------- ------- --------
Balances at January 31, 1996...... 33,000 1,650 3,556,665 36 625 1,875 4,186
Net income for the six-month
period ended July 31, 1996... -- -- -- -- -- 847 847
------ ------ ---------- ------- -------- ------- --------
Balances at July 31, 1996......... 33,000 1,650 3,556,665 36 625 2,722 5,033
Net income for the three-month
period ended October 31, 1996
(unaudited).................. -- -- -- -- -- 677 677
------ ------ ---------- ------- -------- ------- --------
Balances at October 31, 1996
(unaudited)..................... 33,000 $1,650 3,556,665 $ 36 $ 625 $ 3,399 $ 5,710
====== ====== ========== ======= ======== ======= ========
</TABLE>

See accompanying notes.

F-5
<PAGE> 69

FIRST AVIATION SERVICES INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

<TABLE>
<CAPTION>
PREDECESSOR PREDECESSOR
------------ EIGHT-MONTH -----------
TWO-MONTH PERIOD SIX-MONTH FOUR-MONTH FIVE-MONTH NINE-MONTH
PERIOD ENDED ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
MAY 31, JANUARY 31, JULY 31, MAY 31, OCTOBER 31, OCTOBER 31,
1995 1996 1996 1995 1995 1996
------------ ----------- ------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................... $ (1,014) $ 1,875 $ 847 $ (2,935) $ 1,236 $ 1,524
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization........... 400 947 577 1,056 612 800
Extraordinary item, loss on early
extinguishment of debt................ -- -- 864 -- -- 864
Deferred income taxes................... 129 664 -- (911) 282 --
Termination of executive defined benefit
plan.................................. -- (548) -- -- (548) --
Changes in assets and liabilities:
Receivables........................... 1,860 (13,460) 3,835 3,236 (10,518) 5,451
Inventories........................... (605) (1,744) (2,038) 2,081 (2,522) (3,438)
Prepaid expenses and other assets..... (341) 947 (691) 630 1,044 (758)
Accounts payable...................... 821 12,587 (7,180) (1,843) 11,107 (6,438)
Accrued liabilities................... 578 58 (990) 403 752 (1,134)
Other noncurrent liabilities.......... (10) (567) (878) 358 (664) (1,073)
-------- --------- -------- -------- -------- ---------
Net cash provided by (used in) operating
activities.............................. 1,818 759 (5,654) 2,075 781 (4,202)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of assets from former owners
including acquisition costs............. -- (12,397) -- -- (12,397) --
Purchase of plant and equipment........... (282) (862) (519) (442) (688) (777)
Payment for license rights................ -- (375) -- -- (375) (250)
Proceeds from disposal of plant and
equipment............................... 6 13 -- 6 -- --
-------- --------- -------- -------- -------- ---------
Net cash used in investing activities..... (276) (13,621) (519) (436) (13,460) (1,027)
CASH FLOWS FROM FINANCING ACTIVITIES:
Restricted cash........................... -- -- (1,039) -- -- (544)
Borrowings on long-term debt.............. 10,703 103,891 95,351 24,489 28,737 121,138
Payments on long-term debt................ (12,191) (92,955) (87,979) (26,000) (18,091) (115,267)
Sale of preferred stock................... -- 1,650 -- -- 1,650 --
Sale of common stock...................... -- 551 -- -- 551 --
Repayment of other noncurrent
liabilities............................. (54) (275) (160) (128) (168) (98)
-------- --------- -------- -------- -------- ---------
Net cash (used in) provided by financing
activities.............................. (1,542) 12,862 6,173 (1,639) 12,679 5,229
-------- --------- -------- -------- -------- ---------
Net change in cash........................ -- -- -- -- -- --
Cash, beginning of period................. -- -- -- -- -- --
-------- --------- -------- -------- -------- ---------
Cash, end of period....................... $ -- $ -- $ -- $ -- $ -- $ --
======== ========= ======== ======== ======== =========
Supplemental cash flow disclosures:
Cash paid for:
Interest.............................. $ 154 $ 2,322 $ 1,513 $ 631 $ 982 $ 2,330
======== ========= ======== ======== ======== =========
Income taxes.......................... $ -- $ 129 $ 545 $ -- $ 108 $ 545
======== ========= ======== ======== ======== =========
</TABLE>

See accompanying notes.

F-6
<PAGE> 70

FIRST AVIATION SERVICES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share amounts)

(Information at October 31, 1996 and for the four month period ended May 31,
1995, the five month

period ended October 31, 1995 and the nine month period ended October 31, 1996
is unaudited)

1. BUSINESS AND BASIS OF PRESENTATION

First Aviation Services Inc. ("First Aviation" or the "Company") through
its wholly owned subsidiary, National Airmotive Corporation ("NAC") repairs and
overhauls commercial and military aircraft engines, and industrial turbines and
parts. The Company is headquartered in Stamford, Connecticut. Customers of the
Company include airlines, foreign governments, U.S. and foreign military
services and industrial companies.

The accompanying consolidated financial statements include the accounts of
First Aviation and its wholly owned subsidiary, NAC.

First Aviation was formed in March 1995 to acquire the capital stock of
NAC. On June 1, 1995, Triton Group, Ltd. ("Triton"), former parent company of
NAC, sold its ownership interest in the capital stock of the NAC to First
Aviation pursuant to the Agreement and Plan of Merger dated March 3, 1995. The
acquisition has been accounted for under the purchase method of accounting as of
the closing date. The gross purchase price of $30,355 includes debt assumed of
$17,958, transaction-related fees and expenses amounting to $1,147, and a net
cash payment to Triton of $11,250. The purchase price, including acquisition
costs, was allocated to the assets and liabilities of the NAC based on their
relative fair values.

In connection with the allocation of the purchase price and in order to
implement plans and actions designed to streamline operations, the Company
recorded a reorganization accrual to cover the estimated costs of employee
separations and other employee incentive programs. The Company incurred and
charged against accrued reorganization costs was $1,400 and $500 during the
eight month period ended January 31, 1996 and the six month period ended July
31, 1996, respectively. The Company also recorded accruals for various
liabilities including pension plan termination (Note 9), environmental matters
(Note 11) and legal matters. The remaining accruals as of July 31, 1996 total
$2,948 and are included in accrued liabilities and other noncurrent liabilities
in the accompanying balance sheet.

The financial statements for the two month period ended May 31, 1995,
represent the operations of the NAC when NAC was owned by Triton
("Predecessor"). The financial statements of the Company since June 1, 1995
("Successor Business") reflect the impact of indebtedness incurred in the
acquisition of the Company as well as the impact of the purchase price
allocation. Accordingly, the financial statements of the Successor Business are
not directly comparable to those of the Predecessor.

The following summary, prepared on a pro forma basis, combines the
consolidated results of operations as if the Predecessor had been acquired as of
April 1, 1995 and 1994, after including the impact of certain adjustments, such
as reduced depreciation expense due to asset write-downs, increased interest
expense due to acquisition financing and the tax benefit resulting from
utilization of the Predecessor net operating loss:

<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED APRIL 1, 1995 TO
MARCH 31, 1995 JANUARY 31, 1996
-------------- ----------------
<S> <C> <C>
Sales............................................ $ 83,091 $ 79,415
Net income....................................... 1,517 1,156
Net income applicable to common stockholders..... 1,517 1,068
Net income per common share...................... 0.30 0.21
</TABLE>

The pro forma results are not necessarily indicative of what actually would
have occurred if the acquisition had been in effect for the entire period
presented and is not intended to be a projection of future results.

F-7
<PAGE> 71

FIRST AVIATION SERVICES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(amounts in thousands, except share amounts)

(Information at October 31, 1996 and for the four month period ended May 31,
1995, the five month

period ended October 31, 1995 and the nine month period ended October 31, 1996
is unaudited)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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. Actual results could differ from those estimates.

Revenues

Revenue related to the repair and overhaul of engines is recorded upon
completion of repair and overhaul services. Revenue for parts and engine
components sold is recorded when the product is shipped.

The Company provides credit in the form of trade accounts receivable to its
customers. The Company generally does not require collateral to support domestic
customer receivables. Receivables arising from export activities are supported
by letters of credit or foreign credit insurance. The Company performs ongoing
credit evaluations of its customers and maintains allowances which management
believes are adequate for potential credit losses.

Combined sales to agencies of the U.S. government represented 25%, 27% and
16% of net sales for the two month period ended May 31, 1995, the eight month
period ended January 31, 1996 and the six month period ended July 31, 1996,
respectively. The combined accounts receivable from agencies of the United
States Government represented 13%, 17% and 25% of total accounts receivable for
the two month period ended May 31, 1995, the eight month period ended January
31, 1996 and the six month period ended July 31, 1996, respectively. Sales to
one customer who acts as agent for a number of foreign governments accounted for
11.8% of total net sales for the six month period ended July 31, 1996.

The Company has no foreign operations; however, export sales were
approximately 26%, 32% and 35% of net sales in the two month period ended May
31, 1995, the eight month period ended January 31, 1996 and the six month period
ended July 31, 1996, respectively. The majority of export sales activities were
to the following geographic areas: Central America, Middle East, Far East,
Canada, and Europe.

Inventories

Inventories are stated at the lower of cost or market with cost determined
using the first-in, first-out ("FIFO") and specific identification methods.
Costs include direct material, direct labor and applicable manufacturing
overhead.

The Company's inventory consists principally of new, overhauled,
serviceable and repairable aircraft engine parts that are purchased principally
from Allison Engine Company ("Allison"), a subsidiary of Rolls Royce Ltd., and
from parts resellers and customers. Before any part may be installed in an
aircraft, it must meet certain standards of condition established by the Federal
Aviation Administration, the U.S. Department of Defense, or the equivalent
regulatory agencies in other countries whose engines are being serviced by the
Company. Specific regulations vary from country to country, although regulatory
requirements in other countries generally coincide with applicable U.S.
requirements. Parts must also be traceable to sources deemed acceptable by such
agencies. Parts owned or acquired by the Company may not meet applicable
standards prior to remanufacturing or standards may change in the future,
causing parts which are already contained in the Company's inventory to be
scrapped or modified. Aircraft engine manufacturers may also develop new parts
to be used in lieu of parts already contained in the Company's inventory.

F-8
<PAGE> 72

FIRST AVIATION SERVICES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(amounts in thousands, except share amounts)

(Information at October 31, 1996 and for the four month period ended May 31,
1995, the five month

period ended October 31, 1995 and the nine month period ended October 31, 1996
is unaudited)

Provisions are made in each period for the estimated effect of excess and
obsolete inventories. Actual excess and obsolete inventories may differ
significantly from such estimates and such differences could be material to the
financial statements.

Plant and Equipment

Plant and equipment are stated at cost, less allowance for accumulated
depreciation. Additions and improvements that materially increase the productive
capacity or extend the useful life of an asset are added to its cost.
Expenditures for normal maintenance and repairs are charged to expense as
incurred.

Depreciation of plant and equipment is computed using the straight-line
method over the estimated lives of the assets which range from 3 to 30 years.
Leasehold improvements are amortized over the shorter of the estimated life of
the improvement or the terms of the related lease.

In 1995, the Financial Accounting Standards Board issued the Statement of
Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
SFAS 121 requires recognition of impairment of long-lived assets in the event
the net book value of such assets exceeds the future undiscounted cash flows
attributable to such assets. SFAS 121 is effective for fiscal years beginning
after December 15, 1995. The Company adopted SFAS 121 on February 1, 1996 and
there was no effect of adoption.

Income Taxes

The Company uses the liability method to account for income taxes. Under
this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.

Major Suppliers

Historically, the Company's primary supplier has been Allison. The Company
is an Authorized Maintenance Center for Allison's product lines. During the six
month period ended July 31, 1996, the Company purchased $21,870 in parts and
engine components from Allison and at July 31, 1996 accounts payable to Allison
totaled $4,447. The Company is also an authorized distributor for Bendix, AC and
several suppliers of accessories that compliment the Allison commercial engine.
The Company is an authorized service center for both Lockheed Hercules QEC's and
McDonnell Douglas Helicopter Systems' dynamic components.

NAC has from time to time, experienced difficulty in obtaining certain
parts because of parts shortages and inventory fluctuations at Allison. The
shortage or unavailability of Allison parts can and has from time to time caused
delays in the timely completion of repair and overhaul production schedules.
Such delays may adversely affect the Company's relationship with its customers
and could adversely affect the Company's commitments to customers and its
work-in-process inventory levels. An inability to maintain timely access to
Allison parts and components on commercially reasonable terms would have a
material adverse effect on the Company's business, financial condition and
results of operations.

Net Income (Loss) Per Common Share

Except as noted below, net income (loss) per common share has been computed
based upon the weighted average number of common shares outstanding including
dilutive common equivalent shares from stock warrants, using the treasury stock
method. Common shares to be issued in exchange for the Company's Series A
Preferred Stock have been excluded from the calculation of net income (loss) per
common share as

F-9
<PAGE> 73

FIRST AVIATION SERVICES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(amounts in thousands, except share amounts)

(Information at October 31, 1996 and for the four month period ended May 31,
1995, the five month

period ended October 31, 1995 and the nine month period ended October 31, 1996
is unaudited)

the effect of their inclusion would be anti-dilutive. Pursuant to Securities and
Exchange Commission Staff Accounting Bulletins rules, common and common
equivalent shares issued by the Company at prices below the anticipated public
offering price during the twelve months immediately preceding the Company's
proposed initial public offering are included in the calculation (using the
treasury stock method and the anticipated initial public offering price) as if
they were outstanding for all periods prior to the offering date.

Net income (loss) per common share is not presented for the two month
period ended May 31, 1995 and the four month period ended May 31, 1995 since
such amounts are not deemed meaningful as a result of the change in ownership
and capital stock structure of NAC that occurred on June 1, 1995.

Interim Financial Information (Unaudited)

The balance sheet as of October 31, 1996 and statements of operations and
cash flows for the nine month period ended October 31, 1996, the four month
period ended May 31, 1995 and the five month period ended October 31, 1995, as
well as the statement of stockholders' equity for the three month period ended
October 31, 1996 are unaudited but include all adjustments (consisting only of
normal, recurring adjustments) which, in the opinion of the management of the
Company, are considered necessary for a fair presentation of the financial
position at such dates and the operating results and cash flows for those
periods. The results for the interim periods are not necessarily indicative of
results for the entire year.

3. INVENTORIES

Inventories consist of the following:

<TABLE>
<CAPTION>
JULY
JANUARY 31, 31, OCTOBER 31,
1996 1996 1996
----------- ------- -----------
<S> <C> <C> <C>
Raw materials...................................... $16,493 $14,900 $16,993
Work-in-process.................................... 8,958 12,585 10,674
Finished goods..................................... 5,756 5,760 6,978
------- ------- -------
$31,207 $33,245 $34,645
======= ======= =======
</TABLE>

4. PLANT AND EQUIPMENT

The cost and accumulated depreciation of plant and equipment are as
follows:

<TABLE>
<CAPTION>
JULY
JANUARY 31, 31, OCTOBER 31,
1996 1996 1996
----------- ------ -----------
<S> <C> <C> <C>
Machinery and equipment............................. $ 1,338 $1,456 $ 1,546
Building and other leasehold improvements........... 976 976 1,027
Office furniture, fixtures and equipment............ 575 725 797
Construction-in-process............................. 551 586 619
------ ------ -------
3,440 3,743 3,989
Less accumulated depreciation....................... (734) (967) (1,160)
------ ------ -------
$ 2,706 $2,776 $ 2,829
====== ====== =======
</TABLE>

5. RELATED PARTIES

The Company has agreed to pay a management fee to a stockholder in the
amount of $300,000 per year, payable quarterly. The Company reduces payment of
this management fee by the amount of compensation paid to certain employees in
connection with their services as officers of the Company and its subsidiaries.
The Company has also agreed to pay an annual management fee of $50,000 per year
to the subordinated

F-10
<PAGE> 74

FIRST AVIATION SERVICES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(amounts in thousands, except share amounts)

(Information at October 31, 1996 and for the four month period ended May 31,
1995, the five month

period ended October 31, 1995 and the nine month period ended October 31, 1996
is unaudited)

debtholder for each of the four years commencing June 1, 1995, which fee is
payable quarterly. This agreement with the subordinated debtholder also provides
for accelerated payment of all remaining annual management fees upon the
occurrence of certain events, including the consummation of a public offering of
the Company's Common Stock; and the sale of substantially all of the assets of
the Company.

Fees under the agreement totalling $133 and $85 were included in selling,
general and administrative expenses in the accompanying statements of operations
for the eight month period ended January 31, 1996 and the six month period ended
July 31, 1996, respectively. There were no such fees for the two month period
ended May 31, 1995.

The Company leases office space from a stockholder under a month to month
sublease. Monthly payments under the lease are three thousand dollars.

6. LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
JULY
JANUARY 31, 31,
1996 1996
----------- -------
<S> <C> <C>
Borrowings under revolving line of credit...................... $24,123 $31,285
Term loans..................................................... 1,767 2,950
Subordinated note payable...................................... 2,925 1,952
Note payable................................................... 160 --
------- -------
Total.......................................................... 28,975 36,187
Less current portion........................................... (1,970) (1,100)
------- -------
$27,005 $35,087
======= =======
</TABLE>

On June 13, 1996, the Company entered into a new credit facility.
Borrowings under this facility were used to retire the outstanding borrowings
under the Company's existing revolving line of credit and term loan and also to
reduce the Company's subordinated note by $1,000. In connection with this
refinancing, the Company recorded an extraordinary charge of $864, for
prepayment penalty fees and the write-off of unamortized loan fees.

This new credit agreement consists of a revolving credit facility that
allows for borrowings of up to $37,000 and two term loans in the amounts of
$2,000 and $1,000, respectively. Borrowings under the revolving credit facility
are further limited to specified percentages of eligible accounts receivable and
inventories. The revolving line of credit expires May 15, 1999. Management
believes that the borrowing base under this credit facility will exceed the
outstanding borrowings for at least the next twelve months, and has classified
these outstanding borrowings as long-term debt in the accompanying balance
sheet. Borrowings under the revolving credit facility bear interest at the LIBOR
rate plus 3.0% (8.45% at July 31, 1996). The credit agreement also allows for
the issuance of letters of credit not to exceed an aggregate of $1,500. Such
letters of credit reduce the availability of borrowings under the facility. At
July 31, 1996, standby letters of credit totaling $944 were outstanding on the
prior credit agreement against which the Company has provided $1,039 in cash
collateral. This deposit is included in restricted cash in the accompanying
balance sheet at July 31, 1996.

The term loans mature May 15, 1999 and bear interest at a variable rate of
the LIBOR rate plus either 3.50% or 4.50% (8.95% and 9.95% at July 31, 1996,
respectively).

The credit agreement contains a number of covenants, including among other
provisions restrictions on mergers, consolidations and acquisitions, the
incurrence of indebtedness, transactions with affiliates, the creation of liens,
capital expenditures, and management fees. The credit agreement also requires
the Company

F-11
<PAGE> 75

FIRST AVIATION SERVICES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(amounts in thousands, except share amounts)

(Information at October 31, 1996 and for the four month period ended May 31,
1995, the five month

period ended October 31, 1995 and the nine month period ended October 31, 1996
is unaudited)

to maintain minimum levels of net worth and requires certain interest expense
coverage ratios and minimum backlog levels. The terms of the Company's credit
agreement currently restrict the payment of dividends except with the lender's
consent.

The subordinated note bears interest at 15%, payable monthly and is due in
quarterly installments through June 1999. The subordinated note agreement
requires the Company to maintain certain levels of net worth, limits capital
expenditures and requires certain interest expense coverage ratios.

The revolving line of credit, term loans and subordinated debt are
collateralized by substantially all of the Company's assets.

Aggregate annual maturities of long-term debt are as follows:

<TABLE>
<S> <C>
August 1, 1996 to January 31, 1997................................. $ 524
Fiscal year 1998................................................... 1,078
Fiscal year 1999................................................... 1,100
Fiscal year 2000................................................... 33,485
-------
$36,187
=======
</TABLE>

Management believes that the carrying amounts of the Company's borrowings
under its revolving credit facility and term loans approximate their fair values
because the interest rate is variable and resets frequently. Management also
believes that the carrying value of the Company's subordinated notes
approximates its fair value based upon the Company's current incremental
borrowing rates for similar types of borrowing arrangements.

7. STOCKHOLDERS' EQUITY

The preferred stock bears cumulative annual dividends of $4.00 per share,
has a liquidation preference that increases annually in $10.00 per share
increments up to $50.00 per share in 1999, and has no voting rights. No
dividends shall be paid on common shares until all preferred stock dividends
have been paid. All preferred stock dividends shall be paid in shares of
preferred stock until the subordinated debt has been fully repaid. Total
cumulative dividends earned but not yet declared at October 31, 1996 were $187.

In connection with the issuance of the subordinated note on June 1, 1995,
the Company issued to the debtholder warrants to purchase up to 1,832,225 shares
of the Company's common stock at $.05 per share. In connection with the debt
transactions discussed in Note 6, the number of shares eligible for purchase
under this warrant was reduced to 1,293,335. The warrants were valued at the
time of issuance by management at $110 and the resulting discount on the
subordinated debt is being amortized over the term of the debt. The Company has
reserved 1,293,335 shares of common stock for the exercise of these warrants.

F-12
<PAGE> 76

FIRST AVIATION SERVICES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(amounts in thousands, except share amounts)

(Information at October 31, 1996 and for the four month period ended May 31,
1995, the five month

period ended October 31, 1995 and the nine month period ended October 31, 1996
is unaudited)

8. INCOME TAXES

The provision for income taxes is as follows:

<TABLE>
<CAPTION>
TWO MONTH EIGHT MONTH SIX MONTH
PERIOD ENDED PERIOD ENDED PERIOD ENDED
MAY 31, JANUARY 31, JULY 31,
1995 1996 1996
------------ ------------- ------------
<S> <C> <C> <C>
Current tax provision:
Federal......................................... $ -- $ 523 $ --
State........................................... -- 113 --
------ ------ ------
-- 636 --
Deferred tax provision:
Federal......................................... -- 529 --
State........................................... -- 135 --
------ ------ ------
-- 664 --
------ ------ ------
$ -- $ 1,300 $ --
====== ====== ======
</TABLE>

A reconciliation between income tax provisions computed at the U.S. federal
statutory rate and the effective rate reflected in the statements of operations
is as follows:

<TABLE>
<CAPTION>
TWO MONTH EIGHT MONTH SIX MONTH
PERIOD ENDED PERIOD ENDED PERIOD ENDED
MAY 31, JANUARY 31, JULY 31,
1995 1996 1996
------------ ------------- ------------
<S> <C> <C> <C>
Provision (benefit) at statutory rate............. 34.0% 34.0% 34.0%
State tax provision, net of Federal benefit....... 6.6 6.6 6.6
Effect of losses of predecessor business.......... (41.0) -- --
Change in valuation allowance..................... -- -- (41.0)
Other............................................. 0.4 0.4 0.4
------ ------- -------
0.0% 41.0% 0.0%
====== ======= =======
</TABLE>

Deferred tax assets and liabilities result from temporary differences in
the recognition of income and expenses for tax and financial statement purposes.
The principal sources of these differences include state net

F-13
<PAGE> 77

FIRST AVIATION SERVICES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(amounts in thousands, except share amounts)

(Information at October 31, 1996 and for the four month period ended May 31,
1995, the five month

period ended October 31, 1995 and the nine month period ended October 31, 1996
is unaudited)

operating loss carryforwards, financial accruals, and differences in the income
tax and financial statement asset bases due to purchase accounting. These
differences are set forth below:

<TABLE>
<CAPTION>
JANUARY 31, JULY 31,
1996 1996
----------- --------
<S> <C> <C>
Financial statement accruals not currently deductible for
income tax purposes.......................................... $ 4,755 $ 4,046
Differences in the financial statement and income tax basis of
fixed assets................................................. 2,441 2,304
Attributes subject to IRC sec. 382............................. 503 377
Net operating loss carryforwards............................... 251 191
Other.......................................................... 222 210
------ ------
8,172 7,128
Valuation allowance............................................ (7,136) (6,092)
------ ------
Net deferred tax assets........................................ $ 1,036 $ 1,036
====== ======
</TABLE>

The Company has net operating loss carryforwards available for California
state tax reporting purposes of approximately $2,700 which will expire in the
years 1997 through 1999. Because of the "change of ownership" provision of the
Tax Reform Act of 1986, and applicable state statutes, utilization of the
Company's federal and state tax "net unrealized built-in losses" and state net
operating loss carryforwards which existed as of the acquisition date are
subject to an annual limitation in current and future periods. As a result of
the annual limitation, a portion of the net operating loss carryforwards may
expire unused.

The Company believes that based on a number of factors, including its
recent history of operating losses, substantial uncertainty exists as to the
realization of its deferred tax assets. Accordingly, a valuation allowance has
been provided on the deferred tax assets. The Company will continue to assess
the realizability of the deferred tax assets in future periods and make such
adjustments to the valuation allowance as it considers appropriate. The
valuation allowance was unchanged in the eight month period ended January 31,
1996, and decreased $1,044 in the six month period ended July 31, 1996.

The Company files a consolidated federal tax return with its parent
company, First Equity Group, Inc. The Company's federal income tax provision has
been based on the tax sharing agreement between the companies which stipulates
that the Company is liable for federal taxes as if it filed on a separate
company basis subject to certain limitations and adjustments. The federal taxes
payable account primarily relates to the intercompany liability under the tax
sharing agreement.

Prior to June 1, 1995, the Company was a party to a tax sharing agreement
with Triton. In accordance with the terms of the tax sharing agreement, federal
income taxes for the two month period ended May 31, 1995 were calculated on a
stand-alone basis. For the two month period ended May 31, 1995, a valuation
allowance was established for the Company's net operating loss carryforwards due
to uncertainties as to the realization of these amounts and as a result, no
income tax benefit or expense was recorded.

9. EMPLOYEE BENEFIT PLANS

Profit Sharing

The Company maintains a discretionary non-qualified profit sharing plan
covering substantially all of its employees. The Company expensed approximately
$216 and $214 in the eight month period ended

F-14
<PAGE> 78

FIRST AVIATION SERVICES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(amounts in thousands, except share amounts)

(Information at October 31, 1996 and for the four month period ended May 31,
1995, the five month

period ended October 31, 1995 and the nine month period ended October 31, 1996
is unaudited)

January 31, 1996 and the six month period ended July 31, 1996, respectively,
related to this plan. The Company recorded no profit sharing expense for the two
month period ended May 31, 1995.

The Company maintains a 401(k) savings plan that covers substantially all
full-time employees. The plan allows employees to defer up to 15 percent of
their salary. In addition, the Company partially matches employee contributions.
The Company's contributions to the plan were $13, $236 and $270, in the two
month period ended May 31, 1995, the eight month period ended January 31, 1996
and the six month period ended July 31, 1996, respectively.

Pension Plans

On June 1, 1995, the Company decided to terminate its qualified defined
benefit retirement plan. In connection with the termination of the plan, the
Company amended the plan agreement to provide 100% vesting for all participants,
and freeze further benefit accruals for participants. At that date, the Company
recorded $1,000 in other noncurrent liabilities to cover the cost of settling
the obligations under this plan. Prepaid pension costs of $287 and $451 at
January 31, 1996 and July 31, 1996, respectively, are netted against this
accrued pension obligation in the accompanying balance sheets.

Substantially all employees of the Company are covered by this
noncontributory retirement plan. The Company's funding policy was to contribute
annually the amount required by ERISA as determined by the plan's actuaries. All
of the qualified plan's assets are held by, and invested in, investment funds of
Principal Mutual Life Insurance Company, a qualified insurance company.

F-15
<PAGE> 79

FIRST AVIATION SERVICES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(amounts in thousands, except share amounts)

(Information at October 31, 1996 and for the four month period ended May 31,
1995, the five month

period ended October 31, 1995 and the nine month period ended October 31, 1996
is unaudited)

Net periodic pension cost for the retirement plan calculated under the
projected unit credit cost method includes the following components:

<TABLE>
<CAPTION>
TWO MONTH EIGHT MONTH SIX MONTH
PERIOD ENDED PERIOD ENDED PERIOD ENDED
MAY 31, JANUARY 31, JULY 31,
1995 1996 1996
------------ ------------- ------------
<S> <C> <C> <C>
Service cost -- benefits earned during the
period........................................... $ 115 $ -- $ --
Interest cost on projected benefit obligation...... 133 448 390
Actual return on plan assets....................... (123) (845) (317)
Net amortization and deferral...................... 22 240 (237)
----- ----- -----
Net periodic pension cost (credit)................. $ 147 $ (157) $ (164)
===== ===== =====
</TABLE>

The following table sets forth the plan's funded status:

<TABLE>
<CAPTION>
JANUARY 31, JULY 31,
1996 1996
----------- --------
<S> <C> <C>
Vested accumulated benefit obligation......................... $ (10,212) $(10,350)
==== =========
Projected benefit obligation for service rendered to date..... $ (10,212) $(10,350)
Plan assets at fair value -- listed debt securities........... 10,867 10,940
---- ---------
Funded status................................................. 655 590
Unrecognized net loss subsequent to transition................ (368) (139)
---- ---------
Prepaid pension cost-netted against accrued pension
obligation.................................................. $ 287 $ 451
==== =========
Significant actuarial assumptions:
Discount rate............................................... 6.75% 6.75%
==== =========
Rates of increase in compensation levels.................... 5.40% 5.40%
==== =========
Expected long-term rate of return on plan assets............ 9.00% 9.00%
==== =========
</TABLE>

At June 1, 1995, the Company had an accrued liability of $870 for a
nonqualified defined benefit pension plan that was terminated in January 1991.
In July 1995, annuities were purchased for $870 to settle vested benefits in the
nonqualified defined benefit pension plan.

10. COMMITMENTS AND CONTINGENCIES

Commitments

The Company leases certain land, plant facilities, and equipment. Many of
the Company's operating leases have options which allow the Company, at the end
of the initial lease term, to renew the leases for periods ranging from three to
five years. Certain lease agreements also contain escalation clauses which are

F-16
<PAGE> 80

FIRST AVIATION SERVICES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(amounts in thousands, except share amounts)

(Information at October 31, 1996 and for the four month period ended May 31,
1995, the five month

period ended October 31, 1995 and the nine month period ended October 31, 1996
is unaudited)

based on the consumer price index. Future minimum rental payments under
operating leases that have initial noncancellable lease terms in excess of one
year as of July 31, 1996 are as follows:

<TABLE>
<S> <C>
August 1 to January 31, 1997...................................... $ 533
Fiscal year 1998.................................................. 1,052
Fiscal year 1999.................................................. 894
Fiscal year 2000.................................................. 796
Fiscal year 2001.................................................. 637
Fiscal year 2002 and thereafter................................... 2,569
------
$6,481
======
</TABLE>

Rental expense under all short-term and noncancellable operating leases
amounted to $79, $316 and $450, net of sublease rental income of $39, $193 and
$133 for the two month period ended May 31, 1995, the eight month period ended
January 31, 1996 and the six month period ended July 31, 1996, respectively.

The Company has post-employment consulting agreements with certain of its
management personnel which may require the Company to make post-employment
payments of up to $254 in the event that employment is terminated under
specified circumstances.

Contingencies

In the ordinary course of business, the Company is involved in many levels
of governmental inquiry and investigation. Among the agencies which oversee the
Company's business activities are: the Federal Aviation Administration, the
Department of Defense, the Department of Justice, the Environmental Protection
Agency and the Defense Contract Audit Agency. The Company does not anticipate
that any action as a result of such inquiries and investigations would have a
material adverse affect on its financial position, results of operations or its
ability to conduct business. In the normal conduct of its business, the Company
is also involved in various claims and lawsuits, none of which, in the opinion
of the Company's management, will have a material adverse impact on the
Company's financial position or results of operations. However, depending on the
amount and timing, unfavorable resolution of these matters could have a material
effect on the Company's financial position and results of operations in a
particular period.

11. ENVIRONMENTAL

Liabilities are recorded when environmental claims for remedial efforts are
probable and the cost can be reasonably estimated. As of July 31, 1996, the
Company has provided for environmental remediation costs in the amount of $307
and such amounts are included in other noncurrent liabilities in the
accompanying consolidated balance sheet. Environmental expenditures that relate
to current operations are expensed.

The Company is a potentially responsible party to certain properties that
are contaminated and will require remediation. The exact extent of the Company's
liability, if any, has not yet been determined but, in the opinion of
management, these matters will not have a material adverse impact on the
Company's financial position or results of operations. However, depending on the
amount and timing, unfavorable resolution of these matters could have a material
effect on the Company's financial position and results of operations in a
particular period.

F-17
<PAGE> 81

FIRST AVIATION SERVICES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(amounts in thousands, except share amounts)

(Information at October 31, 1996 and for the four month period ended May 31,
1995, the five month

period ended October 31, 1995 and the nine month period ended October 31, 1996
is unaudited)

12. EVENTS (UNAUDITED) SUBSEQUENT TO THE DATE OF THE REPORT OF INDEPENDENT
AUDITORS

On October 15, 1996, the Company announced the termination of its qualified
defined benefit retirement plan (the "Qualified Plan"). The settlement will be
conducted in accordance with the requirements of ERISA, upon regulatory approval
of the Qualified Plan's termination. In addition, on October 7, 1996, an
agreement was signed by the Company to purchase annuities for retirees who were
receiving benefits from the Qualified Plan.

On November 25, 1996, Aircraft Parts International Combs, Inc. ("API
Combs"), a subsidiary of the Company, entered into an agreement to acquire
certain assets and liabilities of Aircraft Parts International ("Old API"), a
division of AMR Combs, Inc. ("AMR Combs"). The acquisition of Old API (the "API
Combs Acquisition"), is expected to close concurrently with the closing of the
Company's proposed initial public offering of its common stock. Based upon the
September 30, 1996 balance sheet of API Combs, the purchase price of the
specific net assets acquired as defined in the contract is estimated to be
$9,727. The Company will make a cash payment equal to 90% of the purchase price,
while the remaining 10% will be settled via the issuance of 9,727 shares of API
Combs Series A cumulative convertible redeemable preferred stock. The final
purchase price is contingent upon the closing balance sheet and, if necessary,
the appraisal of the fair value of certain assets acquired.

On December 20, 1996, the Board of Directors authorized management of the
Company to file a Registration Statement with the Securities and Exchange
Commission permitting the Company to sell shares of its common stock in an
initial public offering.

On December 20, 1996, the Board of Directors approved a 6.4549 to 1 stock
split of issued and outstanding common stock effected as a stock dividend. All
common shares in the accompanying consolidated financial statements have been
retroactively adjusted to reflect the stock split.

On December 20, 1996, a Stock Option Plan was adopted by the Board of
Directors. The Plan provides for the grant of incentive stock options,
nonqualifying stock options, stock appreciation rights and stock purchase
rights. A total of 400,000 shares of common stock have been reserved for
issuance under the plan.

On December 20, 1996, an Employee Stock Purchase Plan was adopted by the
Board of Directors. Under the Plan, 250,000 shares of common stock have been
reserved for issuance. The Plan allows for eligible employees to purchase stock
at 85% of the lower of the fair market value of the Company's common stock as of
the first day of each semi-annual offering period or the fair market value of
the stock at the end of the offering period. The initial offering period will
commence concurrent with its initial public offering of common stock.

On September 30, 1996, the Company entered into two agreements with a
stockholder whereby the stockholder is to provide certain investment advisory
services in connection with the proposed public offering as well as to provide
advice and negotiate for the Old API acquisition. Upon closing of the proposed
public offering, the stockholder will be paid a fee of $350 for assistance
rendered in connection with the offering and $250 for its services with regard
to the Old API acquisition.

In January 1997, the Company expects to grant a key employee of NAC,
options to acquire 150,000 shares of NAC's common stock. Subject to consummation
of an initial public offering by the Company, these options may be exercised to
acquire 150,000 shares of the Company's common stock. The options carry an
exercise price of $.01 per share, vest immediately, and expire ten years from
the date of grant. In addition to the option grant, the employee will also
receive a bonus of $200 upon consummation of an initial

F-18
<PAGE> 82

FIRST AVIATION SERVICES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(amounts in thousands, except share amounts)

(Information at October 31, 1996 and for the four month period ended May 31,
1995, the five month

period ended October 31, 1995 and the nine month period ended October 31, 1996
is unaudited)

public offering. The Company expects to record a pre-tax charge of approximately
$1,850 in January 1997 as a result of the above transaction.

On January 31, 1997, the Company and the holder of the Series A Preferred
Stock agreed to exchange the Company's Series A Preferred Stock, face value
$1,650, for shares of Common Stock at an exchange rate equal to the initial
public offering price per share. Assuming an initial public offering price of
$11.00 per share, the midpoint of the estimated initial public offering price
range, 150,000 shares of common stock would be issued. Cumulative dividends with
respect to the Series A Preferred Stock at the date of the public offering will
be paid in cash.

F-19
<PAGE> 83

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholder of
National Airmotive Corporation

In our opinion, the accompanying balance sheet and the related statements
of operations, of shareholder's equity and of cash flows present fairly, in all
material respects, the financial position of National Airmotive Corporation, a
wholly-owned subsidiary of Triton Group Ltd. ("Triton"), at March 31, 1995 and
the results of its operations and its cash flows for each of the two years in
the period then ended in conformity with generally accepted accounting
principles. 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 of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.

These financial statements are presented under the historical cost basis
and as discussed in Notes 1 and 11 do not give effect to the adjustments
recorded by Triton in connection with its emergence from bankruptcy in fiscal
year 1994 or purchase accounting adjustments resulting from Triton's sale of its
ownership interest in the Company on June 1, 1995.

PRICE WATERHOUSE LLP

San Francisco, California
June 14, 1995

F-20
<PAGE> 84

NATIONAL AIRMOTIVE CORPORATION

BALANCE SHEET
(in thousands, except share amounts)

<TABLE>
<CAPTION>
MARCH
31,
1995
-------
<S> <C>
ASSETS
Current assets:
Trade receivables, net of allowance for doubtful accounts of $460................ $11,788
Inventories...................................................................... 28,858
Prepaid expenses and other....................................................... 1,490
Deferred income taxes............................................................ 1,447
Advances to parent............................................................... 199
-------
Total current assets..................................................... 43,782
Plant and equipment, net........................................................... 10,362
Excess of cost over net assets acquired, net....................................... 6,920
Other assets....................................................................... 3,010
-------
$64,074
=======

LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable................................................................. $ 4,758
Accrued liabilities.............................................................. 3,085
Current portion of capital lease obligation...................................... 379
-------
Total current liabilities................................................ 8,222

Note payable to bank............................................................... 18,499
Capital lease obligation, less current portion..................................... 161
Deferred income taxes.............................................................. 1,124
Other long-term liabilities........................................................ 1,044
-------
Total liabilities........................................................ 29,050
-------
Commitments and contingencies: (Note 9)

Shareholder's equity:
Common stock, $1 par value, 10,000,000 shares authorized, 4,750,000 shares issued
and outstanding............................................................... 4,750
Additional paid-in capital....................................................... 27,385
Retained earnings................................................................ 2,889
-------
Total shareholder's equity.................................................... 35,024
-------
$64,074
=======
</TABLE>

The accompanying notes to financial statements are an integral part of these
financial statements.

F-21
<PAGE> 85

NATIONAL AIRMOTIVE CORPORATION

STATEMENT OF OPERATIONS
(in thousands, except share and per share amounts)

<TABLE>
<CAPTION>
YEAR ENDED
-----------------------
APRIL 1, MARCH 31,
1994 1995
--------- ---------
<S> <C> <C>
Net sales (Note 10)................................................... $ 92,513 $ 83,091
Cost of sales......................................................... 79,315 72,796
--------- ---------
Gross profit.......................................................... 13,198 10,295
Selling, general and administrative expenses (Note 5)................. 8,536 9,362
--------- ---------
Income from operations................................................ 4,662 933
Interest expense...................................................... 1,076 1,807
Other expense (Note 5)................................................ 519 1,302
--------- ---------
Income (loss) before income taxes..................................... 3,067 (2,176)
(Provision) benefit for income taxes.................................. (1,046) 885
--------- ---------
Net income (loss)..................................................... $ 2,021 $ (1,291)
========= =========
Net income (loss) per common share.................................... $ 0.43 $ (0.27)
========= =========
Weighted average common shares outstanding............................ 4,750,000 4,750,000
========= =========
</TABLE>

The accompanying notes to financial statements are an integral part of these
financial statements.

F-22
<PAGE> 86

NATIONAL AIRMOTIVE CORPORATION

STATEMENT OF SHAREHOLDER'S EQUITY
(in thousands, except share amounts)

<TABLE>
<CAPTION>
COMMON STOCK
------------------ ADDITIONAL
NUMBER OF PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- ------ ---------- -------- -------
<S> <C> <C> <C> <C> <C>
Balance at April 2, 1993......................... 4,750,000 $4,750 $ 27,385 $2,159 $34,294
Net income....................................... -- -- -- 2,021 2,021
--------- ------ ------- ------ -------
Balance at April 1, 1994......................... 4,750,000 4,750 27,385 4,180 36,315
Net loss......................................... -- -- -- (1,291) (1,291)
--------- ------ ------- ------ -------
Balance at March 31, 1995........................ 4,750,000 $4,750 $ 27,385 $2,889 $35,024
========= ====== ======= ====== =======
</TABLE>

The accompanying notes to financial statements are an integral part of these
financial statements.

F-23
<PAGE> 87

NATIONAL AIRMOTIVE CORPORATION

STATEMENT OF CASH FLOWS
(in thousands)

<TABLE>
<CAPTION>
YEAR ENDED
------------------------
APRIL 1, MARCH 31,
1994 1995
-------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss).................................................... $ 2,021 $(1,291)
Adjustments to net income (loss):
Depreciation and amortization...................................... 2,394 2,508
Deferred income taxes.............................................. 718 (1,041)
Net (gain) loss on disposal of plant and equipment................. (41) 123
Accrued interest on long-term debt................................. (177) --
Changes in other assets and liabilities:
Receivables..................................................... (1,800) 6,902
Inventories..................................................... 7,346 (4,457)
Prepaid expenses and other assets............................... (933) 493
Accounts payable................................................ 6,367 (6,822)
Accrued liabilities and other long-term liabilities............. (3,885) (319)
-------- -------
Net cash flows from operating activities................... 12,010 (3,904)
-------- -------

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of plant and equipment................................. (1,794) (2,469)
Payment for license rights and other intangibles................... -- (800)
Proceeds from disposal of plant and equipment...................... 52 --
-------- -------
Net cash flows from investing activities................... (1,742) (3,269)
-------- -------

CASH FLOWS FROM FINANCING ACTIVITIES
Payment of capital lease obligation.................................. (191) (359)
Advances to parent................................................... (212) (4)
Net borrowings (repayments) of note payable to bank.................. (9,865) 7,536
-------- -------
Net cash flows from financing activities................... (10,268) 7,173
-------- -------
Net change in cash and cash equivalents.............................. -- --
Cash and cash equivalents, beginning of year......................... -- --
-------- -------
Cash and cash equivalents, end of year............................... $ -- $ --
======== =======

Supplemental cash flow disclosures
Amounts paid for:
Interest paid................................................... $ 869 $ 1,745
Income taxes.................................................... 524 160

Acquisition of equipment under capital lease obligation............ -- 303
</TABLE>

The accompanying notes to financial statements are an integral part of these
financial statements.

F-24
<PAGE> 88

NATIONAL AIRMOTIVE CORPORATION

NOTES TO FINANCIAL STATEMENTS

1. FORMATION, HISTORY AND OPERATIONS

Formation and History

National Airmotive Corporation ("Company"), a California corporation, was
incorporated in 1960. In 1969, the Company's outstanding shares of common stock
were sold to Republic Corporation ("Republic"). On January 31, 1985, Triton
Group Ltd. ("Old Triton"), a majority-owned subsidiary of Intermark, Inc.
("Intermark"), acquired Republic in a transaction which was accounted for as a
purchase. Consequently, the net assets of Republic (including its investment in
the Company) were revalued to reflect the Old Triton purchase price. On August
30, 1990, Old Triton became a wholly-owned subsidiary of Intermark pursuant to
an Agreement and Plan of Merger dated March 2, 1990.

On October 19, 1992, Intermark and Old Triton filed separate voluntary
petitions in the United States Bankruptcy Court for the Southern District of
California seeking protection under Chapter 11 of the U.S. Bankruptcy Code. On
June 25, 1993, Intermark and Old Triton emerged from bankruptcy as a single
restructured company known as Triton Group Ltd. ("Triton").

In connection with its emergence from bankruptcy, Triton announced a plan
to liquidate its assets within a targeted two year time frame. In accordance
with that plan, Triton sold its ownership interest in the Company on June 2,
1995 to First Aviation Services, Inc., a holding company owned by First Equity
Development, Inc. (Note 11).

Operations

The Company specializes in overhaul, repair, service, and parts support for
the entire Allison Engine Company ("Allison") commercial engine line including
the 501/T56, 250, 501K and 570/571 models. Based in Oakland, California, the
Company was one of only three companies worldwide approved by Allison to repair
and overhaul the Allison prop-jet 501/T56 engine, which is used on thousands of
Lockheed C130's and several other aircraft. The Company was the sole distributor
for Allison's largest turbine engine, the 570/571, used in marine and industrial
applications. Substantially all of fiscal 1995 and 1994 revenues relate to the
Allison products. Customers of the Company include airlines, foreign
governments, U.S. and foreign military services and industrial companies. In
addition to Allison, the Company is an authorized distributor for Bendix, AC and
several suppliers of accessories that complement the Allison commercial engine.
The Company is also an authorized Lockheed Hercules QEC Repair Center.

In April 1994, the Company acquired the net assets of Heli-Turbine
International ("Heli-Turbine") and Heli-Dyne Incorporated ("Heli-Dyne"), both of
Long Beach, California, for $1,300,000 in cash. Heli-Turbine is an authorized
overhaul and maintenance center for Allison 250 Engines as well as a service
center of the Turbomeca/Arriel engines. Heli-Dyne is a service center for both
McDonnell Douglas and Schweizer Helicopters, specializing in the overhaul and
sale of dynamic components. As a result of this acquisition, the Company
transferred its operations located in LaVerne, California to the Heli-Dyne and
Heli-Turbine operations in Long Beach, California (Note 5). Pro forma
information for fiscal year 1994 related to revenues and net income is not
presented since the acquisition was not material.

The Company's T56/501D Flight Distributor, 501K Major Repair Center
Agreement and 250 Allison Distributor agreements with Allison ("Allison
Agreements") expired September 30, 1994. In November 1994 the Allison Agreements
and other existing agreements related to the Company's Allison business were
replaced with the Authorized Maintenance Center ("AMC") agreement. The new AMC
network, among other things, expands the opportunities for some of the Company's
existing customers to become an AMC and purchase parts directly from Allison and
it also reduces the Company's discounts provided by Allison for parts sold over
the counter and the parts embodied in the overhaul, repair and service
activities. Management anticipates a reduction in parts sales and increased cost
of sales from that historically experienced by the Company as a result of these
changes in Allison business arrangements. In March 1995, Allison was acquired

F-25
<PAGE> 89

NATIONAL AIRMOTIVE CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

by Rolls-Royce. Although there can be no assurance, management believes the AMC
agreements will not be materially affected as a result of this change in
ownership.

Liquidity and capital resources

Management believes that the Company's equity contributions obtained, and
financing arrangements executed, in connection with the change in ownership
transaction, discussed more fully in Note 11, will provide sufficient funds to
finance the Company's working capital and capital resource requirements
throughout fiscal 1996.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The financial statements of the Company have been prepared on an historical
cost basis based on Old Triton's purchase price and its related investment in
the Company. As permitted under generally accepted accounting principles, these
stand-alone financial statements of a wholly-owned subsidiary do not reflect
adjustments which were made by Triton to adjust the carrying values of its
consolidated assets and liabilities in connection with its emergence from
bankruptcy. The adjustments made by Triton adjusted the historical cost amounts
of consolidated assets and liabilities to reorganization value (also referred to
as "fresh start accounting"). Reorganization value is defined as the amount of
value available, and to become available, for the satisfaction of postpetition
liabilities and allowed claims and interest, as negotiated or litigated between
the debtor-in-possession or trustee and the creditors and holders of equity
interests.

Fiscal year

The Company's fiscal year is a fifty-two or fifty-three week period ending
the Friday nearest March 31. This resulted in a fifty-two week year in both
fiscal 1994 and fiscal 1995.

Revenue recognition

Revenue for engines and parts sold is recorded when the product is shipped.
Revenue related to the repair and overhaul of engines is recorded after
completion and upon shipment.

Inventories

Inventories are stated at the lower of cost or market, cost being
determined using the first-in, first-out ("FIFO") and specific identification
methods. Costs include direct material, direct labor and applicable
manufacturing overhead.

Plant and equipment

Plant and equipment includes the cost of machinery and equipment,
buildings, furniture and fixtures, leasehold improvements and that amount of Old
Triton's purchase price that was allocated to plant and equipment based upon
estimated fair values at the date of acquisition. Additions and improvements
that materially increase the productive capacity or extend the useful life of an
asset are added to its cost. Expenditures for normal maintenance and repairs are
charged to expense as incurred.

When properties are retired or otherwise disposed of, the cost and
accumulated depreciation are removed from the accounts and any resulting gain or
loss is included in the determination of income.

F-26
<PAGE> 90

NATIONAL AIRMOTIVE CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Depreciation of plant and equipment is computed using the straight-line
method over the estimated lives of the assets which range from four to thirty
years. Leasehold improvements are amortized over the shorter of the estimated
life of the improvement or the term of the related lease.

Excess of cost over net assets acquired

The excess of Old Triton's purchase price for the Company over the fair
value of the net assets acquired has been included in the balance sheet under
the caption "Excess of cost over net assets acquired, net" and is being
amortized under the straight-line method over a forty year period. The
accumulated amortization was $2,250,000 at March 31, 1995.

Impairment of long-lived assets

Management of the Company assesses the recoverability of its long-lived
assets by determining whether the amortization of the asset's balance over its
remaining life can be recovered through projected undiscounted future cash
flows. Management of the Company continually evaluates the existence of
impairment of its long-lived assets and takes into consideration operating
results, trends and prospects of the Company, including comparison to the
Company's competitors, and the impact of potential changes to its distribution
and repair center agreements. Management of the Company believes no impairment
of the Company's intangible and tangible assets has occurred and, for purposes
of fairly presenting the Company's financial position under the historical cost
basis of accounting, adjustments to the amortization period or the unamortized
balance of intangible and other long-lived assets are not required.

The Company's methodology is substantially consistent with the provisions
of Statement of Financial Accounting Standards No. 121 ("FAS 121"), "Accounting
for the Impairment of Long-Lived Assets and Assets to be Disposed of" which must
be adopted in fiscal year 1996. The adoption of FAS 121 is therefore not
expected to have any material effect to the Company's results of operations or
financial position.

License rights

The cost of license rights purchased from Allison is amortized using the
straight-line method over the period of minimum expected benefit of fifteen
years.

Income taxes

The Company uses the asset and liability method of accounting for income
taxes in accordance with Statement of Financial Accounting Standards No. 109
("FAS 109"), "Accounting for Income Taxes." The asset and liability approach
requires the recognition of deferred tax liabilities and assets for the expected
future tax consequences of temporary differences between the carrying amounts
and the tax bases of assets and liabilities.

Accounts payable

The Company has reclassified checks outstanding in excess of bank balances
of $1,498,000 to accounts payable at March 31, 1995.

Concentration of credit risk

The Company provides credit in the form of trade accounts receivable to its
customers. The Company generally does not require collateral to support customer
receivables although letters of credit may be required prior to shipment. The
Company performs ongoing credit evaluations of its customers and maintains
allowances which management believes are adequate for potential credit losses.

F-27
<PAGE> 91

NATIONAL AIRMOTIVE CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Earnings (loss) per share

Earnings (loss) per share is computed based upon the weighted average
number of common shares outstanding. There were no common stock equivalents
required to be included in the calculation.

3. INVENTORIES

Inventories consist of the following (in thousands):

<TABLE>
<CAPTION>
MARCH 31,
1995
---------
<S> <C>
Raw materials...................................................... $14,932
Work-in-process.................................................... 7,874
Finished goods..................................................... 6,052
-------
$28,858
=======
</TABLE>

4. PLANT AND EQUIPMENT

The cost and accumulated depreciation of plant and equipment are as follows
(in thousands):

<TABLE>
<CAPTION>
MARCH 31,
1995
---------
<S> <C>
Machinery and equipment............................................ $16,846
Building and other leasehold improvements.......................... 6,610
Furniture and fixtures............................................. 677
-------
24,133
Less accumulated depreciation and amortization..................... 14,261
-------
9,872
Construction-in-progress........................................... 490
-------
$10,362
=======
</TABLE>

Depreciation and amortization expense for plant and equipment was
$2,162,000 and $2,240,000 for the years ended April 1, 1994 and March 31, 1995.
At March 31, 1995, plant and equipment includes assets under capital lease (Note
9) of approximately $1,644,000 with accumulated amortization of $1,122,000 at
March 31, 1995.

F-28
<PAGE> 92

NATIONAL AIRMOTIVE CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

5. ACCRUED LIABILITIES

Accrued liabilities consist of the following (in thousands):

<TABLE>
<CAPTION>
MARCH 31,
1995
---------
<S> <C>
Accrued wages and employee benefits................................ $ 907
Accrued vacation................................................... 591
Accrued license rights............................................. 375
Accrued warranty................................................... 151
Customer and vendor deposits....................................... 148
Accrued severance.................................................. 134
Accrued insurance.................................................. 73
Other.............................................................. 706
------
$ 3,085
======
</TABLE>

In connection with the new AMC agreement with Allison, the Company agreed
to pay $1,500,000 to Allison to become an AMC for a period of up to fifteen
years (including renewal options). The Company paid $750,000 of this amount in
fiscal 1995, with the remaining balance due in two installments of $375,000 each
in November 1995 and November 1996. Accrued license rights represents the
current portion of this obligation. The long-term portion at March 31, 1995 of
$375,000 is included in "Other long-term liabilities."

"Other expenses" in the fiscal 1995 statement of operations include
approximately $636,000 for fees and other expenses paid to investment bankers in
connection with the Company's efforts to locate a buyer of Triton's equity
interest in the Company. "Selling, general and administrative expenses" in
fiscal 1995 include early lease termination charges aggregating $329,000
applicable to the relocation of the La Verne facilities to Long Beach.

During fiscal 1994, the Company pursued an acquisition of selected net
assets of the Business Aviation Division of Aviall, Inc., a subsidiary of Ryder
System, Inc. ("Ryder"). Ryder did not accept the Company's offer and all
acquisition due diligence costs and expenses incurred by the Company
(approximately $443,000) are included in "Other expenses" in the fiscal 1994
statement of operations. In addition, "Selling, general and administrative
expenses" in the fiscal 1995 and 1994 statements of operations include
approximately $125,000 and $287,000, respectively, of severance and other
related costs and expenses incurred in connection with a reduction in workforce.

6. LONG-TERM DEBT

Until June 1, 1995, the Company had a $30,000,000 senior secured credit
facility with a bank consisting of a $25,000,000 revolving line-of-credit and a
loan commitment of $5,000,000 for the purchase of new equipment ("Credit
Facility"). The Credit Facility was replaced in June 1995 in connection with the
change in ownership (Note 11) and amounts outstanding were repaid. The Credit
Facility, as amended, would have expired in November 1997 and was renewable
annually thereafter. Advances under the revolving line-of-credit were limited to
the lesser of $25,000,000 or a stipulated percentage of eligible accounts
receivable and inventory and were payable the earlier of five years from the
date of funding or the expiration date of the Credit Facility. Under these
limitations, advances available under the revolving line-of-credit were
$20,959,000 at March 31, 1995, while actual outstanding borrowings under the
revolving line-of-credit amounted to $18,499,000 at March 31, 1995. Outstanding
letters of credit issued in favor of the Company were approximately $184,000 at
March 31, 1995. Under the equipment loan commitment, the Company could fund 75%
of the equipment's purchase price to a maximum of $2,800,000 in any one fiscal
year. There were no outstanding borrowings under the equipment loan commitment
at March 31, 1995.

F-29
<PAGE> 93

NATIONAL AIRMOTIVE CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Interest on all outstanding borrowings was based on LIBOR plus 3.5%, or
9.625%, at March 31, 1995 and 7.185% at April 1, 1994 and was payable monthly.
Outstanding borrowings under the Credit Facility were collateralized by
substantially all the assets of the Company and were guaranteed by Triton.

The Credit Facility included certain financial covenants with respect to
net worth, limitations on borrowings and leases, working capital, and
profitability, among others. Although the Company was not in compliance with
certain of these financial covenants at March 31, 1995, for purposes of the
historical cost, stand-alone financial statement presentation, this debt amount
has been classified as a non-current liability since it was refinanced with
another long-term credit facility in connection with the change in ownership
transaction discussed in Note 11.

7. INCOME TAXES

The Company and Triton are parties to a tax sharing agreement. The
agreement was amended for fiscal 1994 only to provide that the Company (whose
income is consolidated with that of Triton for federal and, to the extent
permitted, state income tax reporting purposes) record amounts representing
federal and state income taxes calculated on a "stand-alone basis." In
connection with this amendment, the Company agreed to reimburse Triton in the
event of any adjustment (including interest or penalties) to its consolidated
federal and state income tax returns based upon the Company's obligations with
respect thereto. Accordingly, amounts paid could exceed the Company's actual tax
liability on a "stand-alone basis."

In fiscal 1995, federal income taxes are calculated on a stand-alone basis
and all refundable income taxes are calculated on an "incremental" basis in
accordance with the terms of the original tax sharing agreement. The Company is
not required to pay state income taxes if Triton has a consolidated net
operating loss or utilizes a consolidated net operating loss carryforward that
eliminates Triton's consolidated state taxable income. Refundable federal and
state income taxes can be recorded by the Company related to its net operating
losses only when the net operating losses of the Company are utilized by Triton
to reduce the consolidated federal or state tax liability of the Group. In
connection with Triton's emergence from bankruptcy, consolidated net operating
losses and other tax benefit attributes of Triton and its subsidiaries were
substantially reduced and/or eliminated pursuant to statutory limitations for
both federal and state income tax reporting purposes.

Under the tax sharing agreement and solely for purposes of calculating the
Company's federal income tax provision on a stand-alone basis, all deductible
temporary differences which were eliminated with Triton's emergence from
bankruptcy remain available to reduce the Company's taxable income. Accordingly,
these temporary differences have been included as a reduction of the calculated
deferred income tax liability at March 31, 1995. Because of the extent of these
limitations, the tax sharing agreement results in the Company recording a tax
benefit for temporary differences that are not available to Triton. In addition,
these limitations, and potentially further limitations, would carry-over in the
event of a change in ownership.

The income tax provision and related deferred tax assets and liabilities do
not give effect to the limitations applicable to the future deductibility of
related temporary differences resulting from the change in ownership discussed
in Note 11.

F-30
<PAGE> 94

NATIONAL AIRMOTIVE CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

The (provision) benefit for income taxes consists of the following (in
thousands):

<TABLE>
<CAPTION>
APRIL
1, MARCH 31,
1994 1995
------- ---------
<S> <C> <C>
Federal:
Current............................................... $ (292) $(135)
Deferred.............................................. (442) 815
------- -----
(734) 680
------- -----
State:
Current............................................... (36) (21)
Deferred.............................................. (276) 226
------- -----
(312) 205
------- -----
$(1,046) $ 885
======= =====
</TABLE>

The gross deferred tax assets and liabilities at March 31, 1995 consist of
the following (in thousands):

<TABLE>
<CAPTION>
MARCH 31,
1995
---------
<S> <C>
Gross deferred tax assets:
Inventory reserve.................................................. $ 2,092
Accrued liabilities................................................ 474
Provision for doubtful accounts.................................... 199
Other.............................................................. 275
------
3,040
------
Gross deferred tax liabilities:
Prepaid expenses................................................... 219
Depreciation and amortization...................................... 1,042
Other assets....................................................... 426
Other.............................................................. 1,030
------
2,717
------
Net deferred tax asset............................................... $ 323
======
</TABLE>

There were no valuation allowances on deferred tax assets as future taxable
income on a stand-alone basis as determined under the tax sharing arrangement
was expected to be sufficient to allow realization of recorded tax assets.

A reconciliation of the federal statutory rate to the effective rate
follows (in percent):

<TABLE>
<CAPTION>
APRIL 1, MARCH 31,
1994 1995
-------- ---------
<S> <C> <C>
Federal statutory rate................................... 34.0 (34.0)
State taxes, net of federal benefit...................... 6.7 (6.2)
Department of Justice settlement liability............... (9.6) 3.9
Goodwill amortization.................................... 2.6 (3.6)
Other, net............................................... .4 (.8)
---- -----
Effective rate........................................... 34.1 (40.7)
==== =====
</TABLE>

F-31
<PAGE> 95

NATIONAL AIRMOTIVE CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

8. EMPLOYEE BENEFIT PLANS

Profit Sharing and Bonus Plans

The Company has contractual and discretionary profit sharing and bonus
arrangements with certain officers and key employees. The Company charged to
expense approximately $857,000 and $451,000 in the years ended April 1, 1994 and
March 31, 1995, respectively, for these arrangements.

The Company established a 401(k) salary deferral savings plan on November
1, 1987. The plan covers all full time employees. The plan allows employees to
defer up to fifteen percent of their salary with partially matching Company
contributions. The Company's contributions to the plan were $201,000 and
$185,000 in the years ended April 1, 1994 and March 31, 1995, respectively.

Pension plans

Substantially all employees of the Company are covered by a qualified
noncontributory defined benefit pension plan. The Company also had an unfunded,
nonqualified defined benefit pension plan for certain management employees which
supplemented the qualified pension plan. Benefits under the plans become fully
vested after 5 years of service. The Company's funding policy is to contribute
annually the amount required by ERISA as determined by the Plans' actuaries. All
of the qualified plan's assets are held by, and invested in various investment
funds of Principal Mutual Life Insurance Company, a qualified insurance company.

In January 1991, the Company terminated participation by nonretired
participants in the nonqualified defined benefit pension plan. These nonretired
participants now participate in a defined contribution plan in which the Company
contributes amounts equal to the premiums on participants' life insurance
policies. There was no material settlement/curtailment gain (loss) from this
transaction. The Company's contribution related to the defined contribution plan
totaled $102,000 in fiscal 1994 and $103,000 in fiscal 1995.

Net periodic pension cost for the defined benefit plans calculated under
the projected unit credit cost method for the years ended April 1, 1994 and
March 31, 1995 included the following components (in thousands):

<TABLE>
<CAPTION>
APRIL 1, MARCH 31,
1994 1995
-------- ---------
<S> <C> <C>
Qualified Plan
Service cost -- benefits earned during the period............. $ 613 $ 677
Interest cost on projected benefit obligation................. 694 818
Actual return on plan assets.................................. (1,085) 61
Net amortization and deferral................................. 643 (738)
------- ----
Net periodic pension cost..................................... $ 865 $ 818
======= ====
Nonqualified Plan
Service cost -- benefits earned during the period............. $ -- $ --
Interest cost on projected benefit obligation................. 56 56
Net amortization and deferral................................. 9 9
------- ----
Net periodic pension cost..................................... $ 65 $ 65
======= ====
</TABLE>

Amortization of prior service cost included in net periodic pension cost
was calculated using the straight-line method over the average remaining service
period of participants expected to receive benefits under the plans.

F-32
<PAGE> 96

NATIONAL AIRMOTIVE CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

The following table sets forth the defined benefit plans' funded status and
amounts recognized in the Company's balance sheet at March 31, 1995 (in
thousands):

<TABLE>
<CAPTION>
MARCH 31,
1995
---------
<S> <C>
Qualified Plan
Accumulated benefit obligation:
Vested.................................................................. $ (8,929)
Not yet vested.......................................................... (164)
--------
$ (9,093)
========
Projected benefit obligation for service rendered to date................. $ (13,088)
Plan assets at fair value -- listed debt securities....................... 9,526
--------
Excess of projected benefit obligation over plan assets................... (3,562)
Unrecognized net loss subsequent to transition............................ 4,979
Prior service costs not recognized in net periodic pension costs.......... (44)
Unrecognized net asset at February 1, 1988 being amortized over 15
years................................................................... (367)
--------
Prepaid pension cost included in prepaid expenses and other assets........ $ 1,006
========
Nonqualified Plan
Accumulated benefit obligation:
Vested.................................................................. $ (775)
========
Projected benefit obligation for service rendered to date................. $ (726)
Plan assets............................................................... --
--------
Accrued pension cost included in accrued liabilities and other long-term
liabilities............................................................. $ (726)
========
</TABLE>

Significant Actuarial Assumptions

<TABLE>
<CAPTION>
APRIL 1, MARCH 31,
1994 1995
-------- ---------
<S> <C> <C>
Qualified Plan:
Discount rate.................................................. 6.75% 7.25%
----- -----
Rates of increase in compensation levels....................... 5.50% 5.36%
----- -----
Expected long-term rate of return on plan assets............... 9.00% 9.00%
----- -----
Nonqualified Plan:
Discount rate.................................................. 6.75% 7.50%
----- -----
Rates of increase in compensation levels....................... N/A N/A
----- -----
Expected long-term rate of return on plan assets............... 9.00% 9.00%
----- -----
</TABLE>

During fiscal 1995, the discount rate used to determine the projected
benefit obligation was increased from 6.75% to 7.25% for the qualified plan and
from 6.75% to 7.50% for the non-qualified plan, in order to more closely
approximate rates on high-quality, long-term obligations. Additionally,
actuarial assumptions with respect to rates of salary increase and withdrawal,
disability and spouse's age were revised for the qualified plan to more closely
reflect the actual status of the plan's participants. During fiscal 1994,
actuarial assumptions with respect to mortality were revised to consider the
longer life expectancy of the plan participants. The effect to the accumulated
and projected benefit obligations as a result of these assumption changes for
both plans is included in "Unrecognized net loss subsequent to transition" and
will be amortized

F-33
<PAGE> 97

NATIONAL AIRMOTIVE CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

as a component of net periodic pension cost. Accordingly, the net effect of
these changes in actuarial assumptions on the Company's results of operations
and financial condition was not material.

The fiscal 1994 workforce reductions discussed in Note 5 resulted in a
curtailment of plan benefits with a corresponding reduction in the projected
benefit obligation of approximately $669,000. This curtailment gain was recorded
as a reduction in "Unrecognized net loss subsequent to transition" and will be
amortized as a component of periodic pension cost. Accordingly, there was no
effect to the Company's fiscal 1994 results of operations.

Subsequent to March 31, 1995 and the June 1, 1995 change in ownership
transaction discussed in Note 11, the Company's new parent announced its
intention to terminate the qualified defined benefit pension plan. In connection
with the termination of the plan, the Company will amend the plan agreement to
provide 100% vesting for all participants, freeze further benefit accruals for
participants and settle the related obligations upon regulatory approval of the
plan's termination. The Company anticipates a material curtailment gain and
settlement loss from this termination event. The determination of the amount of
the curtailment gain and settlement loss is to be made by the Company's actuary
and the related calculation has not been performed.

9. COMMITMENTS AND CONTINGENCIES

Commitments

The Company leases certain land, plant facilities and equipment under
operating leases and certain equipment under capital leases. Many of the
Company's operating leases have options which allow the Company, at the end of
the initial lease term, to renew the leases for periods ranging from three to
five years. The lease agreements contain certain escalation clauses which are
based on the consumer price index. Future minimum rental payments under
operating leases, before sublease rental income, that have initial or remaining
noncancellable lease terms in excess of one year and future minimum payments for
capital leases as of March 31, 1995 are as follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDING: CAPITAL OPERATING
---------------------------------------------------------- ------- ---------
<S> <C> <C>
1996.................................................... $ 427 $ 578
1997.................................................... 99 504
1998.................................................... 93 485
1999.................................................... -- 273
2000.................................................... -- 181
2001 and thereafter..................................... -- 2,691
---- -----
619 $ 4,712
=====
Less amounts representing interest........................ 79
----
Net present value of future minimum lease payments........ 540
Less current portion...................................... 379
----
$ 161
====
</TABLE>

Rental expense under all short-term and noncancellable operating leases
amounted to $405,000 and $509,000, net of sublease rental income of $165,000 and
$226,000, for the years ended April 1, 1994 and March 31, 1995, respectively.

F-34
<PAGE> 98

NATIONAL AIRMOTIVE CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Contingencies

In the ordinary course of business, the Company is subject to many levels
of governmental inquiry and investigation. Among the agencies which oversee the
Company's business activities are: the Federal Aviation Administration, the
Department of Defense, the Department of Justice, the Environmental Protection
Agency and the Defense Contract Audit Agency. The Company does not anticipate
that any action as a result of such inquiries and investigations would have a
material adverse affect on its financial position, results of operations or its
ability to conduct business. In the normal conduct of its business, the Company
is also subject to various claims and lawsuits, none of which, in the opinion of
the Company's management, will have a material adverse affect on the Company's
financial position or results of operations.

10. SIGNIFICANT CUSTOMERS AND EXPORT SALES

The Company operates in one industry (Note 1). Combined sales to agencies
of the United States Government represented 28% and 15% of total net sales for
the years ended April 1, 1994 and March 31, 1995, respectively.

The Company has no foreign operations. However, export sales were
approximately $31,000,000 or 33% of total net sales in the year ended April 1,
1994 and $26,000,000 or 31% of total net sales in the year ended March 31, 1995.
The majority of export activities for the years ended April 1, 1994 and March
31, 1995 were to the following geographic areas: United Kingdom, Middle East,
Far East and Canada.

11. SUBSEQUENT EVENTS

On June 1, 1995, Triton sold its ownership interest in the capital stock of
the Company for cash of $11,250,000 to First Aviation Services Inc. ("First
Aviation"). First Aviation and its parent company, First Equity Development,
Inc. ("First Equity"), funded this acquisition with the proceeds from the sale
of common and preferred stock (approximately $1,700,000 and $550,000,
respectively) and borrowings under a credit facility (see below). The
transaction is to be accounted for as a purchase. The amount paid by First
Equity is less than the historical cost basis of the assets acquired and
liabilities assumed.

First Aviation and its parent, First Equity, obtained debt financing for
the acquisition of the Company, and to provide additional funds for working
capital purposes pursuant to a senior credit facility with a bank and a
subordinated term loan from an investment group. The Company's outstanding
advances under its Credit Facility were repaid with a portion of the proceeds of
these credit facilities.

The senior credit facility aggregates $30,000,000 and consists of revolving
lines-of-credit of $28,000,000 and a term loan of $2,000,000. Advances under the
revolving line-of-credit are limited to a stipulated percentage of eligible
accounts receivable and inventory and are payable at the expiration of the
agreement on June 1998 or one year renewal periods thereafter. The senior term
loan is payable monthly over a five year period. Borrowings under the credit
facility bear interest at the Company's option of either the lending bank's
prime rate plus 1.25% per annum or the Eurodollar rate plus 3.5% per annum, and
are secured by substantially all assets of the Company. The subordinated term
loan amounts to $3,000,000 and is payable quarterly over a two year period, with
interest accruing at an annual rate of 15%.

F-35
<PAGE> 99

REPORT OF INDEPENDENT AUDITORS

The Shareholder
AMR Combs, Inc.

We have audited the accompanying balance sheets of Aircraft Parts International
(the "Company"), a division of AMR Combs, Inc., as of December 31, 1995, and
September 30, 1996, and the related statements of operations and division equity
and cash flows for the year and nine months then ended, respectively. 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 audit.

We conducted our audit 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 audit provides 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 the Company as of December 31,
1995, and September 30, 1996, and the results of its operations and its cash
flows for the year and nine months then ended, respectively, in conformity with
generally accepted accounting principles.

ERNST & YOUNG LLP

Dallas, Texas
November 15, 1996, except for Note 7, as
to which the date is November 25, 1996

F-36
<PAGE> 100

AIRCRAFT PARTS INTERNATIONAL
(A DIVISION OF AMR COMBS, INC.)

BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Current assets:
Cash............................................................ $ -- $ 3,698,800
Accounts receivable, net of allowance for doubtful accounts..... 5,327,100 6,222,000
Accounts receivable from affiliates............................. 534,500 454,400
Inventories, net of allowance for excess and obsolete
inventory.................................................... 6,099,400 4,272,600
Prepaid expenses and other...................................... 86,900 418,100
------------ -------------
Total current assets.............................................. 12,047,900 15,065,900
Plant and equipment, net.......................................... 674,500 652,700
------------ -------------
$ 12,722,400 $ 15,718,600
========== ==========

LIABILITIES AND DIVISION EQUITY
Current liabilities:
Accounts payable................................................ $ 2,215,800 $ 2,591,600
Accrued liabilities............................................. 329,200 219,600
Accrued compensation and related benefits....................... 142,900 228,900
Amounts due affiliates.......................................... 11,634,600 14,339,700
------------ -------------
Total current liabilities......................................... 14,322,500 17,379,800
------------ -------------
Division equity................................................... (1,600,100) (1,661,200)
------------ -------------
$ 12,722,400 $ 15,718,600
========== ==========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-37
<PAGE> 101

AIRCRAFT PARTS INTERNATIONAL
(A DIVISION OF AMR COMBS, INC.)

STATEMENTS OF OPERATIONS AND DIVISION EQUITY

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Sales:
Non-affiliates.................................................. $ 27,896,100 $ 27,813,700
Affiliates...................................................... 1,779,800 1,263,900
------------ -------------
Total sales....................................................... 29,675,900 29,077,600
Cost of sales..................................................... 24,748,000 24,332,900
------------ -------------
Gross profit...................................................... 4,927,900 4,744,700
Selling, general and administrative expenses...................... 4,835,600 4,257,900
------------ -------------
Income from operations............................................ 92,300 486,800
Interest expense.................................................. 643,000 547,800
Other (income) expense, net....................................... (2,400) 100
------------ -------------
Loss before income taxes.......................................... (548,300) (61,100)
Provision for income taxes........................................ -- --
------------ -------------
Net loss.......................................................... (548,300) (61,100)
Division equity at the beginning of the period.................... (1,051,800) (1,600,100)
------------ -------------
Division equity at the end of the period.......................... $ (1,600,100) $ (1,661,200)
========== ==========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-38
<PAGE> 102

AIRCRAFT PARTS INTERNATIONAL
(A DIVISION OF AMR COMBS, INC.)

STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss.......................................................... $ (548,300) $ (61,100)
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities:
Depreciation.................................................... 154,000 154,900
Provision for doubtful accounts................................. 114,800 13,100
Provision for excess and obsolete inventory..................... 132,900 87,500
Changes in assets and liabilities:
Accounts receivable.......................................... (1,564,600) (827,900)
Inventories.................................................. (955,600) 1,739,300
Prepaid expenses and other assets............................ (52,900) (331,200)
Accounts payable............................................. 764,100 375,800
Accrued liabilities.......................................... 163,400 (23,600)
Other, net................................................... -- 2,000
------------ -------------
Net cash flows provided by (used in) operating activities......... (1,792,200) 1,128,800

INVESTING ACTIVITIES:
Acquisition of plant and equipment................................ (475,700) (156,900)
Proceeds from disposal of plant and equipment..................... -- 21,800
------------ -------------
Net cash flows used in investing activities....................... (475,700) (135,100)

FINANCING ACTIVITIES:
Change in amounts due affiliates.................................. 2,267,900 2,705,100
------------ -------------
Net change in cash................................................ -- 3,698,800
Cash at the beginning of the period............................... -- --
------------ -------------
Cash at the end of the period..................................... $ -- $ 3,698,800
========== ==========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-39
<PAGE> 103

AIRCRAFT PARTS INTERNATIONAL
(A DIVISION OF AMR COMBS, INC.)

NOTES TO FINANCIAL STATEMENTS

YEAR ENDED DECEMBER 31, 1995 AND

NINE MONTHS ENDED SEPTEMBER 30, 1996

1. BUSINESS AND BASIS OF PRESENTATION

Aircraft Parts International (the "Company") is a division of AMR Combs,
Inc. ("AMR Combs"), a wholly-owned subsidiary of AMR Services Corporation ("AMR
Services"), and has no separate legal status or existence. Transactions with AMR
Services, American Airlines, Inc. ("American"), and AMR Eagle, Inc. ("AMR
Eagle"), all wholly owned subsidiaries of AMR Corporation ("AMR"), are described
in Note 3. The financial position, results of operations, and cash flows
reflected in the accompanying financial statements are not necessarily
indicative of the financial position, results of operations, or cash flows that
would have been obtained had the Company operated as a separate legal entity.

The Company is an aircraft parts distributor for more than 100 major
product lines of aircraft parts. API Technologies, the Company's licensed repair
station, offers brake and starter generator overhaul services and is an
authorized hose assembly manufacturing facility. The Company's centralized
distribution facility is located in Memphis, Tennessee.

The Company provides aircraft parts and services to over 3,000 customers
per year, including fixed base operators, certified repair stations, engine and
component overhaulers, fleet operators, government agencies, air cargo
operators, regional air carriers, and major airlines, primarily located in North
America. The Company is not dependent upon any single customer.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Inventories

Inventories are stated at the lower of average cost or market, cost being
determined using first-in, first-out ("FIFO") method. Provisions are made in
each period for the estimated effect of excess and obsolete inventories. The
allowance for excess and obsolete inventory was $350,700, and $429,700 as of
December 31, 1995, and September 30, 1996, respectively. Such allowance was
based on management's best estimate, which is subject to change. Actual results
could differ significantly from this estimate.

Component Inventory Sales

The Company, through its licensed repair station, API Technologies, and
arrangements with third-party vendors, provides overhaul services on certain
core aircraft components, including brake and starter generator components. As
part of these services, a customer generally sends to the Company a used core
component of the same type that the customer is purchasing from the Company.

The Company records a sale for the value of the core and build-up of the
component at the time the component is shipped to the customer. No profit margin
is recognized on the sale of the core portion of the component sale as the
customer is granted a credit on return of a used core component. Profit is
recognized on any core sold when it is determined that the customer will not
send the Company a used core in exchange.

Plant and Equipment

Plant and equipment is stated at original cost less allowance for
accumulated depreciation. Plant and equipment transferred from affiliates is
recorded at the affiliate's net book value on the date of the transfer.
Expenditures for normal maintenance and repairs are charged to expense as
incurred.

F-40
<PAGE> 104

AIRCRAFT PARTS INTERNATIONAL
(A DIVISION OF AMR COMBS, INC.)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

YEAR ENDED DECEMBER 31, 1995 AND

NINE MONTHS ENDED SEPTEMBER 30, 1996

Depreciation of plant and equipment is computed using the straight-line
method over the estimated lives of the assets which range from three to ten
years. Equipment and property transferred from affiliates is depreciated over
the remainder of its original estimated useful life. Leasehold improvements are
amortized over the estimated life of the improvement.

Income Taxes

AMR Combs is included in AMR's consolidated United States federal income
tax return. Under the terms of AMR's tax-sharing policy, income taxes are
allocated to AMR subsidiaries and divisions as if the subsidiaries and divisions
were separate taxable entities. As such, amounts due affiliates would be charged
an amount equal to the income tax payments that the Company would have been
obligated to pay if it had filed separate income tax returns.

The Company computes its provision for deferred income taxes using the
liability method as if it were a separate taxpayer. Under this method, deferred
tax assets and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse.

Advertising Costs

Advertising costs are expensed as incurred. Advertising expense was
$234,000 and $108,800 for the year ended December 31, 1995, and the nine months
ended September 30, 1996, respectively.

Use of Estimates

3. TRANSACTIONS WITH RELATED PARTIES

As a result of its relationship with AMR and its affiliates, including AMR
Combs and American, the Company has extensive related party transactions. These
transactions have been recognized on a basis determined by the parties, which
may not be representative of the terms the Company might have negotiated with
third parties.

The Company generally does not maintain separate cash deposits. American
funds disbursements on behalf of the Company and cash receipts by the Company
are generally transferred to American immediately, with a corresponding increase
or decrease in amounts due affiliates. In addition, amounts due affiliates is
immediately credited or charged upon the recording of certain transactions,
including the recognition of certain sales to affiliates and the payment of
certain expenses on behalf of the Company by American. Accordingly, no
receivables or payables for these transactions are reflected on the Company's
balance sheet. To the extent that American has provided funds to the Company and
paid expenses on behalf of the Company in excess of the amounts transferred to
American, the Company is charged interest at the average rate that American
earns on its short-term investments portfolio. The interest rate, which is reset
monthly, was 5.9% and 5.7% as of December 31, 1995, and September 30, 1996,
respectively.

F-41
<PAGE> 105

AIRCRAFT PARTS INTERNATIONAL
(A DIVISION OF AMR COMBS, INC.)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

YEAR ENDED DECEMBER 31, 1995 AND

NINE MONTHS ENDED SEPTEMBER 30, 1996

Interest expense on the amounts due affiliates was $636,600, and $546,600
for the year ended December 31, 1995, and the nine months ended September 30,
1996, respectively, and was charged directly to amounts due affiliates.

Sales to affiliates consist of aircraft parts sales to AMR Combs, AMR
Eagle, and American. Sales to affiliated companies are typically made on terms
and conditions similar to those of transactions with non-affiliates, except for
sales to AMR Combs which are made on a cost plus basis. Accounts receivable from
affiliates represent amounts owed to the Company for aircraft parts sales and
consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Accounts receivable from:
AMR Combs....................................... $277,500 $ 196,500
AMR Eagle....................................... 101,400 64,900
American........................................ 62,800 85,600
Others.......................................... 92,800 107,400
------------ -------------
$534,500 $ 454,400
========== ==========
</TABLE>

The Company is covered under the general and product liability insurance
programs of AMR Combs. The Company is allocated a portion of the premiums paid
by AMR Combs under its insurance programs utilizing a formula based on sales and
determined by AMR Combs. During the year ended December 31, 1995, and the nine
months ended September 30, 1996, the Company recognized expenses of $144,700 and
$112,800, respectively, related to its coverage under the AMR Combs general and
product liability insurance programs.

The Company's employees are covered under the AMR Services group health
insurance plan. The costs associated with the Company's participation in the AMR
Services group health plan are reimbursed to AMR Services by the Company. During
the year ended December 31, 1995, and the nine months ended September 30, 1996,
the Company recognized expenses of $143,300, and $111,300, respectively, related
to its participation in the AMR Services health plan.

The Company's employees are eligible for business travel on American and
AMR Eagle at rates stipulated by American and AMR Eagle. During the year ended
December 31, 1995, and the nine months ended September 30, 1996, the Company
recognized expenses of $53,500 and $45,400, respectively, for travel charges
from American and AMR Eagle.

The rates for a significant portion of the Company's shipping and
distribution costs are based on American's contracts with certain shipping and
distribution providers. During the year ended December 31, 1995, and the nine
months ended September 30, 1996, charges for such services totaled $1,101,300
and $1,226,200, respectively, of which $525,500 and $662,100 were billed to
customers. There can be no assurances that the Company would be able to obtain
similar rates for these services were it to cease being covered under American's
agreements.

4. CONCENTRATIONS OF RISK

The Company does not believe it has significant concentrations of credit
risk in its accounts receivable, which are unsecured. The Company performs
ongoing credit evaluations of its customers and maintains

F-42
<PAGE> 106

AIRCRAFT PARTS INTERNATIONAL
(A DIVISION OF AMR COMBS, INC.)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

YEAR ENDED DECEMBER 31, 1995 AND

NINE MONTHS ENDED SEPTEMBER 30, 1996

allowances which management believes are adequate for potential credit losses.
The allowance for doubtful accounts was $275,900 and $283,100 as of December 31,
1995, and September 30, 1996, respectively.

The Company's single largest supplier is The New Piper Aircraft Company
("Piper"). The Company has direct access to Piper parts because AMR Combs is one
of thirteen factory authorized domestic distributors of Piper parts. The sale of
Piper parts accounted for approximately seventeen percent of the Company's sales
to non-affiliates during the nine months ended September 30, 1996. The loss of
the Piper distributorship by AMR Combs or a decline in the availability of Piper
parts could have a material adverse impact on the Company's business, financial
condition, and results of operations.

The Company competes with several aviation parts distributors who, in the
aggregate, offer most of the same product lines to the same customers. Most
aviation manufacturers appoint two to fifteen parts distributors. Such
appointments are typically contracted on an annual basis and most can be
terminated at any time. There is little or no exclusivity given by manufacturers
and there are no assurances of contract renewals.

The Company has no foreign operations; however, export sales were
$3,590,100 and $2,485,600 for the year ended December 31, 1995, and the nine
months ended September 30, 1996, respectively. Accounts receivable from foreign
customers, all denominated in U.S. dollars, were $1,148,600 and $960,200 as of
December 31, 1995, and September 30, 1996, respectively. The majority of export
sales activities were in Canada and Central and South America.

5. PLANT AND EQUIPMENT

The cost and accumulated depreciation of plant and equipment were:

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Office furniture, fixtures and equipment.......... $ 583,900 $ 641,900
Machinery and equipment........................... 502,100 534,000
Leasehold improvements............................ 205,200 205,200
------------ -------------
1,291,200 1,381,100
Less accumulated depreciation..................... 616,700 728,400
------------ -------------
$ 674,500 $ 652,700
========== ==========
</TABLE>

Rent expense was $167,100 and $128,400 for the year ended December 31,
1995, and the nine months ended September 30, 1996, respectively. The lease on
the Company's distribution facility contains a three year renewal option at
rates consistent with those paid during the nine months ended September 30,
1996.

6. INCOME TAXES

The Company has been included in AMR's consolidated United States federal
income tax return since its inception. Under the terms of AMR's tax sharing
policy, the Company computes its provision for income taxes as if it were a
separate taxpayer. Accordingly, the deferred tax assets and liabilities included
in these financial statements may not represent the deferred tax assets and
liabilities that the Company would retain were it to cease being included in the
consolidated federal income tax return of AMR.

The Company did not record an income tax provision for the year ended
December 31, 1995 or the nine months ended September 30, 1996, as the Company
incurred net operating losses in each period and recorded a valuation allowance
for the benefit of those net operating losses. As of September 30, 1996, the
Company

F-43
<PAGE> 107

AIRCRAFT PARTS INTERNATIONAL
(A DIVISION OF AMR COMBS, INC.)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

YEAR ENDED DECEMBER 31, 1995 AND

NINE MONTHS ENDED SEPTEMBER 30, 1996

had available under the terms of AMR's tax sharing policy approximately $667,000
of net operating loss carryforwards expiring in the years 2004 through 2110
available to reduce future federal taxable income.

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts reported for income tax purposes. Significant
components of the Company's deferred tax assets and liabilities were:

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................ $ 234,800 $ 226,600
Provision for excess and obsolete inventory..... 119,200 146,100
Accounts receivable............................. 97,500 58,400
Allowance for doubtful accounts................. 93,800 96,300
Accrued liabilities............................. 23,100 55,000
Other........................................... 43,700 46,500
Valuation allowance............................. (575,600) (589,000)
------------ -------------
Total deferred tax assets......................... 36,500 39,900
Deferred tax liability -- depreciation............ (36,500) (39,900)
------------ -------------
Net deferred tax asset............................ $ -- $ --
========== ==========
</TABLE>

During the year ended December 31, 1995, and the nine months ended
September 30, 1996, the Company's valuation allowance for deferred tax assets
increased by $161,700 and $13,400 respectively.

7. SUBSEQUENT EVENT

On November 25, 1996, AMR Combs and First Aviation Services Inc. ("First
Aviation") entered into an asset purchase agreement providing for the
acquisition of certain assets and liabilities of the Company by a subsidiary of
First Aviation. The closing of the transaction will occur simultaneously with
the completion of an initial public offering by First Aviation of its Common
Stock.

F-44
<PAGE> 108

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

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES
OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THOSE TO WHICH IT
RELATES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER
IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT
THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
The Company........................... 3
Summary Historical and Pro Forma
Financial Data...................... 5
Risk Factors.......................... 7
API Combs Acquisition................. 14
Use of Proceeds....................... 15
Dividend Policy....................... 15
Dilution.............................. 16
Capitalization........................ 17
Unaudited Pro Forma Combined Financial
Information......................... 18
Selected Financial Information........ 24
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 26
Business.............................. 32
Management............................ 46
Certain Transactions.................. 52
Principal Stockholders................ 54
Description of Capital Stock.......... 55
Shares Eligible for Future Sale....... 58
Underwriting.......................... 59
Legal Matters......................... 60
Experts............................... 60
Additional Information................ 61
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>

UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THE DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------------------------------------
------------------------------------------------------

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

3,900,000 SHARES

FIRST AVIATION
SERVICES INC.

COMMON STOCK

[LOGO]

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

PROSPECTUS

, 1997
------------

SMITH BARNEY INC.

DILLON, READ & CO. INC.

------------------------------------------------------
------------------------------------------------------
<PAGE> 109

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the expenses, other than underwriting
discounts and commissions, payable by the Company in connection with the
issuance and distribution of the Common Stock being registered. All amounts are
estimates except the Securities and Exchange Commission registration fee, the
NASD filing fee and the Nasdaq National Market listing fee.

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee...................... $ 16,310
NASD filing fee.......................................................... 5,880
Nasdaq listing fee....................................................... 39,750
Accounting fees and expenses............................................. 400,000
Legal fees and expenses.................................................. 375,000
Blue Sky qualification fees and expenses................................. 6,000
Printing and engraving expenses.......................................... 215,000
Transfer agent and registrar fees........................................ 2,000
D&O Insurance............................................................ 399,000
Miscellaneous............................................................ 1,060
----------
Total.......................................................... $1,460,000
==========
</TABLE>

- ---------------
* Estimated.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Pursuant to the provisions of Section 145(a) of the Delaware General
Corporation Law, the Company has the power to indemnify anyone made or
threatened to be made a party to any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative, or investigative
(other than an action by or in the right of the Company) because such person is
or was a director or officer of the Company against expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement actually and
reasonably incurred in the defense or settlement of such action, suit, or
proceeding, provided that (i) such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the Company's best interest and
(ii) in the case of a criminal proceeding such person had no reasonable cause to
believe his conduct was unlawful.

With respect to an action or suit by or in the right of the Company to
procure a judgment in its favor, Section 145(b) of the Delaware General
Corporation Law provides that the Company shall have the power to indemnify
anyone who was, is, or is threatened to be made a party to any threatened,
pending, or completed action or suit brought by or in the right of the Company
to procure a judgment in its favor because such person is or was a director or
officer of the Company against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit, provided that such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the Company's best interests,
except that no indemnification shall be made in a case in which such person
shall have been adjudged to be liable to the Company unless and only to the
extent that the Court of Chancery or the court in which such action or suit was
brought shall have determined upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnification for such expenses.

Indemnification as described above shall only be granted in a specific case
upon a determination that indemnification is proper under the circumstances
using the applicable standard of conduct which is made by (a) a majority of a
quorum of directors who were not parties to such proceeding, (b) independent
legal counsel in a written opinion if such quorum cannot be obtained or if a
quorum of disinterested directors so directs, or (c) the shareholders of the
Company.

II-1
<PAGE> 110

Section 145(g) of the Delaware General Corporation Law permits the purchase
and maintenance of insurance to indemnify directors and officers against any
liability asserted against or incurred by them in any such capacity, whether or
not the Company itself would have the power to indemnify such director or
officer against such liability. The Company has obtained such insurance and the
premiums therefor are paid by the Company.

The Certificate of Incorporation of the Company provides for the
indemnification of directors of the Company to the fullest extent permitted by
Section 145 of the Delaware General Corporation Law, as the same may be amended
or supplemented. The Certificate of Incorporation further provides that the
indemnification provided for therein shall not be exclusive of any rights to
which those indemnified may be entitled under any bylaw, agreement, vote of
shareholders or disinterested directors, or otherwise.

The Certificate of Incorporation also contains a provision that eliminates
the personal liability of the Company's directors to the Company or its
shareholders for monetary damages for breach of fiduciary duty as a director.
The provision does not limit a director's liability for (i) breaches of duty of
loyalty to the Company or its shareholders, (ii) acts or omissions not in good
faith, involving intentional misconduct or involving knowing violations of law,
(iii) the payment of unlawful dividends or unlawful stock repurchases or
redemptions under Section 174 of the Delaware General Corporation Law, or (iv)
transactions in which the director received an improper personal benefit.
Depending on judicial interpretation, the provision may not affect liability for
violations of the federal securities laws.

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

The Company has entered into indemnification agreements with certain of its
directors that require the Company to indemnify such directors to the fullest
extent permitted by applicable provisions of law, provided that any settlement
of a third party action against a director or officer is approved by the
Company, and subject to limitations for actions initiated by the director or
officer, penalties paid by insurance and violations of Section 16(b) of the
Securities Exchange Act of 1934, as amended, and similar laws.

The Form of Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement provides for indemnification by the Underwriters of the
Company and its directors and officers for certain liabilities arising under the
Securities Act or otherwise.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

Set forth below is a summary of transactions by the Company during the last
three years preceding the date hereof involving sales of the Company's
securities that were not registered under the Act.

In March 1995, the Company made the following issuances:

1) 5 shares of its then-existing Series A Common Stock to First Equity
at a price of $200 per share; and

2) 500 shares of its then-existing Series A Preferred Stock to
Holladay-Tyler Printing Inc. ("Holladay") at a price of $500 per share.

In May 1995, the Company issued 500 shares of its then-existing Series A
Preferred Stock to Holliday at a price of $500 per share.

II-2
<PAGE> 111

In June 1995, the Company made the following issuances:

1) 2,495 shares of its then-existing Series A Common Stock to Holladay
at $200.40 per share;

2) 1,800 shares of its then-existing Series A Preferred Stock to
Holladay at $500 per share; and

3) 500 shares of its then-existing Series A Preferred Stock to First
Equity at $500 per share.

In connection with a recapitalization of the Company on December 20, 1996,
all of the Company's outstanding shares of Series A Common Stock and Series A
Preferred Stock were contributed to FAI, who then exchanged 2,500 shares of
then-existing Series A Common Stock and 3,300 shares of Series A Preferred Stock
for 551,000 shares of new Common Stock and 33,000 shares of new Series A
Preferred.

The Company relied on Section 4(2) of the Securities Act of 1933 with
respect to the private sales of its Series A Common Stock and Series A Preferred
Stock for the exemption from the registration requirements of such Act. The
Company relied on Section 3(a)(9) of the Securities Act of 1933 for the
exemption from the registration requirements of such Act with respect to the
recapitalization of the Company.

In June 1995, NAC issued warrants to purchase its common stock to
Canpartners. On December 20, 1996, the Company authorized an amendment to the
Warrant Agreement between NAC and Canpartners providing that the subject
warrants to purchase shares of NAC's Common Stock will become exercisable for
shares of the Company's Common Stock in the event of a public offering of the
Company's Common Stock which yields at least $10 million in proceeds to the
Company.

The Company relied on Section 4(2) of the Securities Act of 1933 for the
exemption from the registration requirements of such act with respect to the
warrants.

On January 31, 1997, the Company and the holder of the Company's
outstanding shares of Series A Preferred Stock agreed to the exchange of such
shares for shares of the Company's Common Stock concurrent with the closing of
an initial public offering at an exchange rate equal to the initial public
offering price per share of Common Stock. The Company is relying on Section
3(a)(9) of the Securities Act of 1933 for the exemption from the registration
requirements of such act with respect to the exchange of the Series A Preferred
Stock for shares of Common Stock.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) EXHIBITS.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
3.1 + Restated Certificate of Incorporation of the Company
3.2 + Restated Bylaws of the Company
4.1 Specimen stock certificate
5.1 Opinion of O'Melveny & Myers LLP
10.1 + Form of Director Indemnification Agreement between the Company and each of its
directors
10.2 + Loan and Security Agreement, dated June 13, 1996, by and between NAC and Fleet
Capital Corporation
10.3 + Amendment Number One to Loan and Security Agreement, dated September 1, 1996, by
and between NAC and Fleet
10.4 + Loan and Security Agreement, dated June 1, 1995, by and between NAC and
Canpartners Investments IV, LLC (as successor in interest to Canpartners
Investments III, L.P.) ("Canpartners")
10.5 + First Amendment to Loan and Security Agreement, dated June 13, 1996, by and
between NAC and Canpartners
10.6 + Warrant Agreement, dated June 1, 1995, by and between NAC and Canpartners
10.7 + First Amendment to Warrant Agreement, dated June 13, 1996, by and between NAC and
Canpartners
</TABLE>

II-3
<PAGE> 112

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------------------------------------------------------------------
<C> <S>
10.8 + Second Amendment to Warrant Agreement, dated December 20, 1996, by and between NAC
and Canpartners
10.9 + Asset Purchase Agreement, dated November 25, 1996, by and between AMR Combs and
API Combs.
10.10+ Authorized Maintenance Center Agreement, effective as of November 14, 1994, by and
between NAC and Allison Engine Company (Model 501)
10.11+ Employment Agreement, dated as of December 20, 1996, by and between John F. Risko
and the Company
10.12+ Employment Agreement, dated as of December 20, 1996, by and between John Marsalisi
and the Company
10.13+ Post-Employment Consulting Agreement, dated January 17, 1992, by and between
Rajesh Sharma and NAC
10.14 Stock Option Plan
10.15 Employee Stock Purchase Plan
10.16+ Lease, dated January 23, 1991, by and between NAC and the City of Oakland (main
building lease)
10.17+ First Supplement to lease, dated November 22, 1991, by and between NAC and the
City of Oakland (main building lease)
10.18+ Lease, dated January 23, 1991, by and between NAC and the City of Oakland (test
cells lease)
10.19+ Standard Industrial Lease-Net, dated November 26, 1996, by and between NAC (as
assignee) and Pacific Energy Resources, as amended
10.20+ Employment Agreement, dated as of December 20, 1996, by and between Michael C.
Culver and the Company
10.21+ Investment Advisory Services Agreement Relating to the API Combs Acquisition,
dated as of September 30, 1996, by and between First Equity and First Aviation
10.22+ Investment Advisory Services Agreement Relating to the Offering, dated as of
September 30, 1996, by and between First Equity and First Aviation
10.23+ Letter, dated as of December 20, 1996, by and between First Equity and First
Aviation regarding pursuit of acquisition opportunities
10.24 Amended and Restated Registration Rights Agreement, dated as of February 21, 1996,
by and between the Company and FAI
10.25+ Agreement and Plan of Merger, dated as of March 3, 1995, by and among the Company,
FE Acquisition Subsidiary, Triton Group Ltd. and NAC
10.26+ Amendment No. 1 to Agreement and Plan of Merger, dated as of June 1, 1995, by and
among the Company, FE Acquisition Subsidiary, Triton Group Ltd. and NAC
10.27+ Authorized Maintenance Center Agreement, effective as of November 30, 1994, by and
between NAC and Allison Engine Company (Model 250)
10.28+ Authorized Maintenance Center Agreement, effective as of December 31, 1995, by and
between NAC and Allison Engine Company (Model 570/571)
10.29 Registration Rights Agreement, dated as of February 21, 1997, by and between the
Company and Canpartners
10.30 Sublease Agreement, dated as of December 31, 1996, between First Equity and the
Company
10.31 Letter Agreement between FAI and the Company regarding the exchange of Series A
Preferred Stock for Common Stock of the Company
</TABLE>

II-4
<PAGE> 113

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------------------------------------------------------------------
<C> <S>
11.1 + Statement re: Computation of Earnings Per Share
21.1 + List of Subsidiaries
23.1 Consent of Ernst & Young LLP
23.2 Consent of Price Waterhouse LLP
23.3 Consent of O'Melveny & Myers LLP (included in Exhibit 5.1)
24.1 + Power of Attorney
27.1 + Financial Data Schedule
</TABLE>

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

+ Previously filed.

(b) FINANCIAL STATEMENT SCHEDULES.

Set forth below is the financial statement schedule included as part of the
Registration Statement:

Schedule II

All other schedules are omitted because they are not required, are not
applicable, or the information is included in the Consolidated Financial
Statements or notes thereto.

ITEM 17. UNDERTAKINGS

(a) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement
certificates in such denominations and registered in such names as required
by the Underwriters to permit prompt delivery to each purchaser.

(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.

(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part
of a registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of
the registration statement as of the time it was declared effective.

(2) For purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-5
<PAGE> 114

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 3 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Stamford, County of Fairfield, State of Connecticut, on the 24th day of
February, 1997.

FIRST AVIATION SERVICES INC.

By: /s/ JOHN A. MARSALISI

--------------------------------------
John A. Marsalisi
Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 3 to Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
----------------------------------- --------------------------------------------------------
<S> <C> <C>

* Chairman of the Board February 24, 1997
-----------------------------------
Aaron P. Hollander

/s/ MICHAEL C. CULVER Chief Executive Officer and Director February 24, 1997
----------------------------------- (Principal Executive Officer)
Michael C. Culver

* Chief Operating Officer and Director February 24, 1997
-----------------------------------
John F. Risko

/s/ JOHN A. MARSALISI Chief Financial Officer and Director February 24, 1997
----------------------------------- (Principal Financial and Accounting
John A. Marsalisi Officer)

*By: /s/ JOHN A. MARSALISI
-----------------------------------
John A. Marsalisi
Attorney-in-Fact
</TABLE>

II-6
<PAGE> 115

SCHEDULE II

FIRST AVIATION SERVICES INC.

VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
BALANCE AS OF CHARGES TO CHARGES TO BALANCE
BEGINNING COSTS AND OTHER AS OF END
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
------------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
DESCRIPTION
Year ended April 1, 1994
Allowance for Doubtful Trade
Receivables.......................... $500,000 $ 30,600 -- $ 30,600 $500,000
Year ended March 31, 1995
Allowance for Doubtful Trade
Receivables.......................... 500,000 132,000 -- 172,000 460,000
Two months ended May 31, 1995
Allowance for Doubtful Trade
Receivables.......................... 460,000 -- -- -- 460,000
Eight months ended January 31, 1996
Allowance for Doubtful Trade
Receivables.......................... 460,000 55,000 -- 237,000 278,000
Six months ended July 31, 1996
Allowance for Doubtful Trade
Receivables.......................... 278,000 38,000 -- -- 316,000
</TABLE>

S-1
<PAGE> 116

EXHIBIT INDEX

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
------- ------------------------------------------------------------------------- ------------
<C> <S> <C>
1.1 Form of Underwriting Agreement...........................................
3.1 + Restated Certificate of Incorporation of the Company.....................
3.2 + Restated Bylaws of the Company...........................................
4.1 Specimen stock certificate...............................................
5.1 Opinion of O'Melveny & Myers LLP.........................................
10.1 + Form of Director Indemnification Agreement between the Company and each
of its directors.........................................................
10.2 + Loan and Security Agreement, dated June 13, 1996, by and between NAC and
Fleet Capital Corporation................................................
10.3 + Amendment Number One to Loan and Security Agreement, dated September 1,
1996, by and between NAC and Fleet.......................................
10.4 + Loan and Security Agreement, dated June 1, 1995, by and between NAC and
Canpartners Investments IV, LLC (as successor in interest to Canpartners
Investments III, L.P.) ("Canpartners")...................................
10.5 + First Amendment to Loan and Security Agreement, dated June 13, 1996, by
and between NAC and Canpartners..........................................
10.6 + Warrant Agreement, dated June 1, 1995, by and between NAC and
Canpartners..............................................................
10.7 + First Amendment to Warrant Agreement, dated June 13, 1996, by and between
NAC and Canpartners......................................................
10.8 + Second Amendment to Warrant Agreement, dated December 20, 1996, by and
between NAC and Canpartners..............................................
10.9 + Asset Purchase Agreement, dated November 25, 1996, by and between AMR
Combs and API Combs. ....................................................
10.10+ Authorized Maintenance Center Agreement, effective as of November 14,
1994, by and between NAC and Allison Engine Company (Model 501)..........
10.11+ Employment Agreement, dated as of December 20, 1996, by and between John
F. Risko and the Company.................................................
10.12+ Employment Agreement, dated as of December 20, 1996, by and between John
Marsalisi and the Company................................................
10.13+ Post-Employment Consulting Agreement, dated January 17, 1992, by and
between Rajesh Sharma and NAC............................................
10.14 Stock Option Plan........................................................
10.15 Employee Stock Purchase Plan.............................................
10.16+ Lease, dated January 23, 1991, by and between NAC and the City of Oakland
(main building lease)....................................................
10.17+ First Supplement to lease, dated November 22, 1991, by and between NAC
and the City of Oakland (main building lease)............................
10.18+ Lease, dated January 23, 1991, by and between NAC and the City of Oakland
(test cells lease).......................................................
10.19+ Standard Industrial Lease-Net, dated November 26, 1996, by and between
NAC (as assignee) and Pacific Energy Resources, as amended...............
10.20+ Employment Agreement, dated as of December 20, 1996, by and between
Michael C. Culver and the Company........................................
</TABLE>

<PAGE> 117

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
------- ------------------------------------------------------------------------- ------------
<C> <S> <C>
10.21+ Investment Advisory Services Agreement Relating to the API Combs
Acquisition, dated as of September 30, 1996, by and between First Equity
and First Aviation.......................................................
10.22+ Investment Advisory Services Agreement Relating to the Offering, dated as
of September 30, 1996, by and between First Equity and First Aviation....
10.23+ Letter, dated as of December 20, 1996, by and between First Equity and
First Aviation regarding pursuit of acquisition opportunities............
10.24 Amended and Restated Registration Rights Agreement, dated as of February
21, 1996, by and between the Company and FAI.............................
10.25+ Agreement and Plan of Merger, dated as of March 3, 1995, by and among the
Company, FE Acquisition Subsidiary, Triton Group Ltd. and NAC............
10.26+ Amendment No. 1 to Agreement and Plan of Merger, dated as of June 1,
1995, by and among the Company, FE Acquisition Subsidiary, Triton Group
Ltd. and NAC.............................................................
10.27+ Authorized Maintenance Center Agreement, effective as of November 30,
1994, by and between NAC and Allison Engine Company (Model 250)..........
10.28+ Authorized Maintenance Center Agreement, effective as of December 31,
1995, by and between NAC and Allison Engine Company (Model 570/571)......
10.29 Registration Rights Agreement, dated as of February 21, 1997, by and
between the Company and Canpartners......................................
10.30 Sublease Agreement, dated as of December 31, 1996, between First Equity
and the Company
10.31 Letter Agreement between FAI and the Company regarding the exchange of
Series A Preferred Stock for Common Stock of the Company
23.1 Consent of Ernst & Young LLP.............................................
23.2 Consent of Price Waterhouse LLP..........................................
23.3 Consent of O'Melveny & Myers LLP (included in Exhibit 5.1)...............
24.1 + Power of Attorney........................................................
27.1 + Financial Data Schedule..................................................
</TABLE>

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

+ Previously filed.

<PAGE> 1
EXHIBIT 1.1

A&K Draft
01/29/97

3,900,000 Shares

First Aviation Services Inc.

Common Stock
($0.01 par value)

UNDERWRITING AGREEMENT

o, 1997

SMITH BARNEY INC.
DILLON, READ & CO. INC.
As Representatives of the Several Underwriters

c/o SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013

Dear Sirs:

First Aviation Services Inc., a Delaware corporation (the "Company"),
proposes to issue and sell 3,900,000 shares of its Common Stock to the several
Underwriters named in Schedule II hereto (the "Underwriters"). The Company's
common stock, $0.01 par value, is herein referred to as the "Common Stock" and
the 3,900,000 shares of Common Stock to be issued and sold to the Underwriters
by the Company are hereinafter referred to as the "Firm Shares". The minority
stockholder of the Company listed in Schedule I hereto (the "Selling
Stockholder ") also proposes to sell to the Underwriters, upon the terms and
conditions set forth in Section 2 hereof, up to an additional 585,000 shares
(the "Additional Shares") of Common Stock. The Company and the Selling
Stockholder are hereinafter sometimes referred to as the "Sellers ". The Firm
Shares and the Additional Shares are hereinafter collectively referred to as
the "Shares".

The Company and the Selling Stockholder wish to confirm as follows
their respective agreements with you (the "Representatives") and the other
several Underwriters on whose behalf you are acting, in connection with the
several purchases of the Shares by the Underwriters.

1. Registration Statement and Prospectus. The Company has
prepared and filed with the Securities and Exchange Commission (the
"Commission") in accordance with the provisions of the Securities Act of 1933,
as amended, and the rules and regulations of the Commission thereunder
(collectively, the "Act"), a registration statement (No. 333-18647) on Form S-1
under the Act (the "registration statement"), including a prospectus subject to
completion

1
<PAGE> 2
relating to the Shares. The term "Registration Statement" as used in this
Agreement means the registration statement (including all financial schedules
and exhibits), as amended at the time it becomes effective, or, if the
registration statement became effective prior to the execution of this
Agreement, as supplemented or amended prior to the execution of this Agreement.
If it is contemplated, at the time this Agreement is executed, that a
post-effective amendment to the registration statement will be filed and must
be declared effective before the offering of the Shares may commence, the term
"Registration Statement" as used in this Agreement means the registration
statement as amended by said post-effective amendment. The term "Prospectus"
as used in this Agreement means the prospectus in the form included in the
Registration Statement, or, if the prospectus included in the Registration
Statement omits information in reliance on Rule 430A under the Act and such
information is included in a prospectus filed with the Commission pursuant to
Rule 424(b) under the Act, the term "Prospectus" as used in this Agreement
means the prospectus in the form included in the Registration Statement as
supplemented by the addition of the Rule 430A information contained in the
prospectus filed with the Commission pursuant to Rule 424(b). The term
"Prepricing Prospectus" as used in this Agreement means the prospectus subject
to completion in the form included in the registration statement at the time of
the initial filing of the registration statement with the Commission, and as
such prospectus shall have been amended from time to time prior to the date of
the Prospectus.

2. Agreements to Sell and Purchase. Subject to such adjustments
as you may determine in order to avoid fractional shares, the Company hereby
agrees, subject to all the terms and conditions set forth herein, to issue and
sell to each Underwriter and, upon the basis of the representations, warranties
and agreements of the Company and the Selling Stockholder herein contained and
subject to all the terms and conditions set forth herein, each Underwriter
agrees, severally and not jointly, to purchase from the Company, at a purchase
price of $o per Share (the "purchase price per share"), the number of Firm
Shares which bears the same proportion to the aggregate number of Firm Shares
to be issued and sold by the Company as the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule II hereto (or such number of
Firm Shares increased as set forth in Section 12 hereof) bears to the aggregate
number of Firm Shares to be sold by the Company.

The Selling Stockholder agrees, subject to all the terms and
conditions set forth herein, to sell to the Underwriters, and, upon the basis
of the representations, warranties and agreements of the Selling Stockholder
herein contained and subject to all the terms and conditions set forth herein,
the Underwriters shall have the right to purchase from the Selling Stockholder,
at the purchase price per share, pursuant to an option (the "over-allotment
option") which may be exercised at any time and from time to time prior to 9:00
p.m., New York City time, on the 30th day after the date of the Prospectus (or,
if such 30th day shall be a Saturday or Sunday or a holiday, on the next
business day thereafter when the New York Stock Exchange is open for trading),
up to an aggregate of 585,000 Additional Shares from the Selling Stockholder.
Additional Shares may be purchased only for the purpose of covering
over-allotments made in connection with the offering of the Firm Shares. The
number of Additional Shares which the Underwriters elect to purchase upon any
exercise of the over-allotment option shall be provided by the Selling
Stockholder up to the maximum number of Additional Shares which the Selling
Stockholder has agreed to sell. Upon any exercise of the over-allotment
option, each

2
<PAGE> 3
Underwriter, severally and not jointly, agrees to purchase from the Selling
Stockholder the number of Additional Shares (subject to such adjustments as you
may determine in order to avoid fractional shares) which bears the same
proportion to the number of Additional Shares to be sold by the Selling
Stockholder as the number of Firm Shares set forth opposite the name of such
Underwriter in Schedule II hereto (or such number of Firm Shares increased as
set forth in Section 12 hereof) bears to the aggregate number of Firm Shares to
be sold by the Selling Stockholder.

Certificates in transferable form for the Additional Shares which the
Selling Stockholder agrees to sell pursuant to this Agreement have been placed
in custody with o (the "Custodian") for delivery under this Agreement pursuant
to a Custody Agreement and Power of Attorney (the "Custody Agreement") executed
by the Selling Stockholder appointing o as agent and attorney-in-fact (the
"Attorney-in-Fact"). The Selling Stockholder agrees that (i) the Additional
Shares represented by the certificates held in custody pursuant to the Custody
Agreement are subject to the interests of the Underwriters and the Company,
(ii) the arrangements made by the Selling Stockholder for such custody are,
except as specifically provided in the Custody Agreement, irrevocable, and
(iii) the obligations of the Selling Stockholder hereunder and under the
Custody Agreement shall not be terminated by any act of the Selling Stockholder
or by operation of law, whether by the death or incapacity of the Selling
Stockholder or the occurrence of any other event. If the Selling Stockholder
shall be incapacitated pursuant to bankruptcy or otherwise or if any other
event shall occur before the delivery of the Additional Shares hereunder,
certificates for the Additional Shares shall be delivered to the Underwriters
by the Attorney-in-Fact in accordance with the terms and conditions of this
Agreement and the Custody Agreement as if such incapacity or other event had
not occurred, regardless of whether or not the Attorney-in-Fact or any
Underwriter shall have received notice of such incapacity or other event. The
Attorney-in-Fact is authorized, on behalf of the Selling Stockholder, to
execute this Agreement and any other documents necessary or desirable in
connection with the sale of the Additional Shares to be sold hereunder by the
Selling Stockholder, to make delivery of the certificates for such Additional
Shares, to receive the proceeds of the sale of such Additional Shares, to give
receipts for such proceeds, to pay therefrom any expenses to be borne by the
Selling Stockholder in connection with the sale and public offering of such
Additional Shares, to distribute the balance thereof to the Selling
Stockholder, and to take such other action as may be necessary or desirable in
connection with the transactions contemplated by this Agreement. The
Attorney-in-Fact agrees to perform his duties under the Custody Agreement.

3. Terms of Public Offering. The Sellers have been advised by
you that the Underwriters propose to make a public offering of their respective
portions of the Shares as soon after the Registration Statement and this
Agreement have become effective as in your judgment is advisable and initially
to offer the Shares upon the terms set forth in the Prospectus.

4. Delivery of the Shares and Payment Therefor. Delivery to the
Underwriters of and payment for the Firm Shares shall be made at the office of
Smith Barney Inc., 388 Greenwich Street, New York, NY 10013, at 10:00 a.m., New
York City time, on o, 1997 (the "Closing Date"). The place of closing for the
Firm Shares and the Closing Date may be varied by agreement among you, the
Company and the Attorney-in-Fact.

3
<PAGE> 4
Delivery to the Underwriters of and payment for any Additional Shares
to be purchased by the Underwriters shall be made at the aforementioned office
of Smith Barney Inc. at such time on such date (the "Option Closing Date"),
which may be the same as the Closing Date but shall in no event be earlier than
the Closing Date nor earlier than two nor later than ten business days after
the giving of the notice hereinafter referred to, as shall be specified in a
written notice from you on behalf of the Underwriters to the Company and the
Attorney-in-Fact of the Underwriters' determination to purchase a number,
specified in such notice, of Additional Shares. The place of closing for any
Additional Shares and the Option Closing Date for such Shares may be varied by
agreement among you, the Company and the Attorney-in-Fact.

Certificates for the Firm Shares and for any Additional Shares to be
purchased hereunder shall be registered in such names and in such denominations
as you shall request prior to 9:30 a.m., New York City time, on the second
business day preceding the Closing Date or any Option Closing Date, as the case
may be. Such certificates shall be made available to you in New York City for
inspection and packaging not later than 9:30 a.m., New York City time, on the
business day next preceding the Closing Date or the Option Closing Date, as the
case may be. The certificates evidencing the Firm Shares and any Additional
Shares to be purchased hereunder shall be delivered to you on the Closing Date
or the Option Closing Date, as the case may be, against payment of the purchase
price therefor in immediately available funds.

5. Agreements of the Company. The Company agrees with the
several Underwriters as follows:

(a) If, at the time this Agreement is executed and delivered, it
is necessary for the Registration Statement or a post-effective amendment
thereto to be declared effective before the offering of the Shares may
commence, the Company will endeavor to cause the Registration Statement or such
post-effective amendment to become effective as soon as possible and will
advise you promptly and will confirm such advice in writing, when the
Registration Statement or such post-effective amendment has become effective.

(b) The Company will advise you promptly and, if requested by you,
will confirm such advice in writing: (i) of any request by the Commission for
amendment of or a supplement to the Registration Statement, any Prepricing
Prospectus or the Prospectus or for additional information; (ii) of the
issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement or of the suspension of qualification of the Shares
for offering or sale in any jurisdiction or the initiation of any proceeding
for such purpose; and (iii) within the period of time referred to in paragraph
(f) below, of any change in the Company's condition (financial or other),
business, prospects, properties, net worth or results of operations, or of the
happening of any event, which makes any statement of a material fact made in
the Registration Statement or the Prospectus (as then amended or supplemented)
untrue or which requires the making of any additions to or changes in the
Registration Statement or the Prospectus (as then amended or supplemented) in
order to state a material fact required by the Act or the regulations
thereunder to be stated therein or necessary in order to make the statements
therein not misleading, or of the necessity to amend or supplement the
Prospectus (as then amended or supplemented) to comply with the Act or any
other law. If at any time the

4
<PAGE> 5
Commission shall issue any stop order suspending the effectiveness of the
Registration Statement, the Company will make every reasonable effort to obtain
the withdrawal of such order at the earliest possible time.

(c) The Company will furnish to you, without charge, three signed
copies of the registration statement as originally filed with the Commission
and of each amendment thereto, including financial statements and all exhibits
thereto, and will also furnish to you, without charge, such number of conformed
copies of the registration statement as originally filed and of each amendment
thereto, but without exhibits, as you may request.

(d) The Company will not (i) file any amendment to the
Registration Statement or make any amendment or supplement to the Prospectus of
which you shall not previously have been advised or to which you shall object
after being so advised or (ii) so long as, in the opinion of counsel for the
Underwriters, a prospectus is required to be delivered in connection with sales
by any Underwriter or dealer, file any information, documents or reports
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
Act") without delivering a copy of such information, documents or reports to
you, as Representatives of the Underwriters, prior to or concurrently with such
filing.

(e) Prior to the execution and delivery of this Agreement, the
Company has delivered to you, without charge, in such quantities as you have
requested, copies of each form of the Prepricing Prospectus. The Company
consents to the use, in accordance with the provisions of the Act and with the
securities or Blue Sky laws of the jurisdictions in which the Shares are
offered by the several Underwriters and by dealers, prior to the date of the
Prospectus, of each Prepricing Prospectus so furnished by the Company.

(f) As soon after the execution and delivery of this Agreement as
possible and thereafter from time to time for such period as in the opinion of
counsel for the Underwriters a prospectus is required by the Act to be
delivered in connection with sales by any Underwriter or dealer, the Company
will expeditiously deliver to each Underwriter and each dealer, without charge,
as many copies of the Prospectus (and of any amendment or supplement thereto)
as you may request. The Company consents to the use of the Prospectus (and of
any amendment or supplement thereto) in accordance with the provisions of the
Act and with the securities or Blue Sky laws of the jurisdictions in which the
Shares are offered by the several Underwriters and by all dealers to whom
Shares may be sold, both in connection with the offering and sale of the Shares
and for such period of time thereafter as the Prospectus is required by the Act
to be delivered in connection with sales by any Underwriter or dealer. If
during such period of time any event shall occur that in the judgment of the
Company or in the opinion of counsel for the Underwriters is required to be set
forth in the Prospectus (as then amended or supplemented) or should be set
forth therein in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is necessary
to supplement or amend the Prospectus to comply with the Act or any other law,
the Company will forthwith prepare and, subject to the provisions of paragraph
(d) above, file with the Commission an appropriate supplement or amendment
thereto, and will expeditiously furnish to the Underwriters and dealers a
reasonable number of copies thereof. In the event that the Company and you, as

5
<PAGE> 6
Representatives of the several Underwriters, agree that the Prospectus should
be amended or supplemented, the Company, if requested by you, will promptly
issue a press release announcing or disclosing the matters to be covered by the
proposed amendment or supplement.

(g) The Company will cooperate with you and with counsel for the
Underwriters in connection with the registration or qualification of the Shares
for offering and sale by the several Underwriters and by dealers under the
securities or Blue Sky laws of such jurisdictions as you may designate and will
file such consents to service of process or other documents necessary or
appropriate in order to effect such registration or qualification; provided
that in no event shall the Company be obligated to qualify to do business in
any jurisdiction where it is not now so qualified or to take any action which
would subject it to service of process in suits, other than those arising out
of the offering or sale of the Shares, in any jurisdiction where it is not now
so subject.

(h) The Company will make generally available to its security
holders a consolidated earnings statement, which need not be audited, covering
a twelve-month period commencing after the effective date of the Registration
Statement and ending not later than 15 months thereafter, as soon as
practicable after the end of such period, which consolidated earnings statement
shall satisfy the provisions of Section 11(a) of the Act.

(i) During the period of five years hereafter, the Company will
furnish to you (i) as soon as available, a copy of each report of the Company
mailed to stockholders or filed with the Commission, and (ii) from time to time
such other information concerning the Company as you may reasonably request.

(j) If this Agreement shall terminate or shall be terminated after
execution pursuant to any provisions hereof (otherwise than pursuant to the
second paragraph of Section 12 hereof or by notice given by you terminating
this Agreement pursuant to Section 12 or Section 13 hereof) or if this
Agreement shall be terminated by the Underwriters because of any failure or
refusal on the part of the Company or the Selling Stockholder to comply with
the terms or fulfill any of the conditions of this Agreement, the Company
agrees to reimburse the Representatives for all out-of-pocket expenses
(including fees and expenses of counsel for the Underwriters) incurred by you
in connection herewith.

(k) The Company will apply the net proceeds from the sale of the
Shares to be sold by it hereunder in accordance with the description set forth
under the caption "Use of Proceeds" in the Prospectus.

(l) If Rule 430A of the Act is employed, the Company will timely
file the Prospectus pursuant to Rule 424(b) under the Act and will advise you
of the time and manner of such filing.

(m) Except as provided in this Agreement with respect to the
over-allotment option, the Company and except for grants of options and sales
of shares under the Company's stock benefit plans, as set forth in the
Prospectus, the Company will not sell, offer to sell, contract to sell, grant
any option to purchase or otherwise dispose of shares of Common Stock or any

6
<PAGE> 7
securities convertible into or exercisable or exchangeable for shares of Common
Stock or any rights to acquire Common Stock for a period of 180 days after the
effective date of the Prospectus without the prior written consent of Smith
Barney Inc.

(n) The Company has furnished or will furnish to you "lock-up"
letters having substantially the same terms set forth in clause (m) above, in
form and substance satisfactory to you, signed by each of its current officers
and directors and each of its stockholders designated by you.

(o) Except as stated in this Agreement and in the Prepricing
Prospectus and Prospectus, the Company has not taken, nor will it take,
directly or indirectly, any action designed to or that might reasonably be
expected to cause or result in stabilization or manipulation of the price of
the Common Stock to facilitate the sale or resale of the Shares.

(p) The Company will use its best efforts to have the Common Stock
approved for quotation, subject to notice of issuance, on the Nasdaq National
Market concurrently with the effectiveness of the registration statement.

6. Agreements of the Selling Stockholder. The Selling
Stockholder agrees with the several Underwriters as follows:

(a) The Selling Stockholder will cooperate to the extent necessary
to cause the registration statement or any post-effective amendment thereto to
become effective at the earliest possible time.

(b) The Selling Stockholder will pay all Federal and other taxes,
if any, on the transfer or sale of the Shares being sold by such Selling
Stockholder to the Underwriters.

(c) The Selling Stockholder will do or perform all things required
to be done or performed by the Selling Stockholder prior to the Closing Date or
any Option Closing Date, as the case may be, to satisfy all conditions
precedent to the delivery of the Shares pursuant to this Agreement.

(d) The Selling Stockholder has executed or will execute a
"lock-up" letter as provided in Section 5(n) above and will not sell, offer to
sell, contract to sell or otherwise sell dispose of, loan, pledge or grant any
rights with respect to any shares of Common Stock, any options or grants to
purchase shares of Common Stock or any securities convertible into or
exercisable or exchangeable for shares of Common Stock owned directly by the
Selling Stockholder or with respect to which it has power of disposition,
except for the sale of Additional Shares to the Underwriters pursuant to this
Agreement, prior to the expiration of 180 days after the date of the
Prospectus, without the prior written consent of Smith Barney Inc.

(e) Except as stated in this Agreement and in the Prepricing
Prospectus and the Prospectus, the Selling Stockholder will not take, directly
or indirectly, any action designed to

7
<PAGE> 8
or that might reasonably be expected to cause or result in stabilization or
manipulation of the price of the Common Stock to facilitate the sale or resale
of the Shares.

(f) The Selling Stockholder will advise you promptly and, if
requested by you, will confirm such advice in writing, within the period of
time referred to in Section 5(f) hereof, of any change in the Company's
condition (financial or other), business, prospects, properties, net worth or
results of operations or of any change in information relating to the Selling
Stockholder or the Company or any new information relating to the Company or
relating to any matter stated in the Prospectus or any amendment or supplement
thereto which comes to the attention of the Selling Stockholder that suggests
that any statement made in the Registration Statement or the Prospectus (as
then amended or supplemented, if amended or supplemented) is or may be untrue
in any material respect or that the Registration Statement or Prospectus (as
then amended or supplemented, if amended or supplemented) omits or may omit to
state a material fact or a fact necessary to be stated therein in order to make
the statements therein not misleading in any material respect, or of the
necessity to amend or supplement the Prospectus (as then amended or
supplemented, if amended or supplemented) in order to comply with the Act or
any other law.

7. Representations and Warranties of the Company. The Company
represents and warrants to each Underwriter that:

(a) Each Prepricing Prospectus included as part of the
registration statement as originally filed or as part of any amendment or
supplement thereto, or filed pursuant to Rule 424 under the Act, complied when
so filed in all material respects with the provisions of the Act. The
Commission has not issued any order preventing or suspending the use of any
Prepricing Prospectus.

(b) The registration statement in the form in which it became or
becomes effective and also in such form as it may be when any post-effective
amendment thereto shall become effective and the Prospectus and any supplement
or amendment thereto when filed with the Commission under Rule 424(b) under the
Act, complied or will comply in all material respects with the provisions of
the Act and did not or will not at any such times contain an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, except that
this representation and warranty does not apply to statements in or omissions
from the registration statement or the Prospectus made in reliance upon and in
conformity with information relating to any Underwriter furnished to the
Company in writing by or on behalf of any Underwriter through you expressly for
use therein.

(c) All the outstanding shares of Common Stock of the Company have
been duly authorized and validly issued, are fully paid and nonassessable and
are free of any preemptive or similar rights; the Shares to be issued and sold
by the Company have been duly authorized and, when issued and delivered to the
Underwriters against payment therefor in accordance with the terms hereof, will
be validly issued, fully paid and nonassessable and free of any preemptive or
similar rights; and the capital stock of the Company conforms to the
description thereof in the registration statement and the Prospectus.

8
<PAGE> 9
(d) The Company is a corporation duly organized and validly
existing in good standing under the laws of the State of Delaware with full
corporate power and authority to own, lease and operate its properties and to
conduct its business as described in the Registration Statement and the
Prospectus, and is duly registered and qualified to conduct its business and is
in good standing in each jurisdiction or place where the nature of its
properties or the conduct of its business requires such registration or
qualification, except where the failure so to register or qualify does not have
a material adverse effect on the condition (financial or other), business,
prospects, properties, net worth or results of operations of the Company and
the Subsidiaries (as hereinafter defined) taken as a whole.

(e) All of the Company's subsidiaries, which, for purposes of this
Agreement, unless otherwise specified, shall include National Airmotive
Corporation ("NAC") and Aircraft Parts International Combs, Inc. ("API Combs"
and, together with NAC, the "Subsidiaries") are listed in an exhibit to the
Registration Statement. The Company has no subsidiaries other than the
Subsidiaries. Each Subsidiary is a corporation duly organized, validly
existing and in good standing in the jurisdiction of its incorporation, with
full corporate power and authority to own, lease and operate its properties and
to conduct its business as described in the Registration Statement and the
Prospectus, and is duly registered and qualified to conduct its business and is
in good standing in each jurisdiction or place where the nature of its
properties or the conduct of its business requires such registration or
qualification, except where the failure so to register or qualify does not have
a material adverse effect on the condition (financial or other), business,
prospects, properties, net worth or results of operations of such Subsidiary;
all the outstanding shares of capital stock of each of the Subsidiaries have
been duly authorized and validly issued, are fully paid and nonassessable, and,
except for those shares of capital stock of API Combs which are owned, directly
or indirectly, by AMR Corporation, as set forth in the Prospectus, are owned by
the Company directly, or indirectly through one of the other Subsidiaries, free
and clear of any lien, adverse claim, security interest, equity or other
encumbrance.

(f) There are no legal or governmental proceedings pending or, to
the knowledge of the Company, threatened, against the Company or any of the
Subsidiaries, or to which the Company or any of the Subsidiaries, or to which
any of their respective properties is subject, that are required to be
described in the Registration Statement or the Prospectus but are not described
as required, and there are no agreements, contracts, indentures, leases or
other instruments that are required to be described in the Registration
Statement or the Prospectus or to be filed as an exhibit to the Registration
Statement that are not described or filed as required by the Act, and the
descriptions thereof are, in each case, correct in all material respects.

(g) Neither the Company nor any of the Subsidiaries is in
violation of its certificate or articles of incorporation or by-laws, or other
organizational documents, or of any law, ordinance, administrative or
governmental rule or regulation applicable to the Company or any of the
Subsidiaries or of any decree of any court or governmental agency or body
having jurisdiction over the Company or any of the Subsidiaries, or in default
in any material respect in the performance of any obligation, agreement or
condition contained in any bond, debenture, note or any other evidence of
indebtedness or in any material agreement, indenture, lease or

9
<PAGE> 10
other instrument to which the Company or any of the Subsidiaries is a party or
by which any of them or any of their respective properties may be bound.

(h) Neither the issuance and sale of the Shares, the execution,
delivery or performance of this Agreement by the Company nor the consummation
by the Company of the transactions contemplated hereby or by the Asset Purchase
Agreement (A) requires any consent, approval, authorization or other order of
or registration or filing with, any court, regulatory body, administrative
agency or other governmental body, agency or official (except such as may be
required for the registration of the Shares under the Act and the Exchange Act
and compliance with the securities or Blue Sky laws of various jurisdictions,
all of which have been or will be effected in accordance with this Agreement)
or conflicts or will conflict with or constitutes or will constitute a breach
of, or a default under, the certificate or articles of incorporation or bylaws,
or other organizational documents, of the Company or any of the Subsidiaries or
(B) conflicts or will conflict with or constitutes or will constitute a breach
of, or a default under, any agreement, indenture, lease or other instrument to
which the Company or any of the Subsidiaries is a party or by which any of them
or any of their respective properties may be bound, or violates or will violate
any statute, law, regulation or filing or judgment, injunction, order or decree
applicable to the Company or any of the Subsidiaries or any of their respective
properties, or will result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any of the
Subsidiaries pursuant to the terms of any agreement or instrument to which any
of them is a party or by which any of them may be bound or to which any of the
property or assets of any of them is subject.

(i) The accountants, Ernst & Young LLP and Price Waterhouse LLP,
who have certified the financial statements included in the Registration
Statement and the Prospectus (or any amendment or supplement thereto) are or
were, as applicable, independent public accountants as required by the Act.

(j) The financial statements, together with related schedules and
notes, included in the Registration Statement and the Prospectus (and any
amendment or supplement thereto), present fairly the consolidated financial
position, results of operations and changes in financial position of the
Company and the Subsidiaries on the basis stated in the Registration Statement
at the respective dates or for the respective periods to which they apply; such
statements and related schedules and notes have been prepared in accordance
with generally accepted accounting principles consistently applied throughout
the periods involved, except as disclosed therein; the pro forma financial
information of the Company and its Subsidiaries and the related notes thereto
included in the Registration Statement have been prepared in accordance with
the Commission's rules and guidelines with respect to pro forma financial
statements, have been properly compiled on the bases described therein and, in
the opinion of the Company, the assumptions used in the preparation thereof are
reasonable and the adjustments used therein are appropriate to give effect to
the transactions and circumstances referred to therein and the other financial
and statistical information and data included in the Registration Statement and
the Prospectus (and any amendment or supplement thereto) are accurately
presented and prepared on a basis consistent with such financial statements and
the books and records of the Company and the Subsidiaries.

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<PAGE> 11
(k) The execution and delivery of, and the performance by the
Company of its obligations under, this Agreement have been duly and validly
authorized by the Company, and this Agreement has been duly executed and
delivered by the Company.

(l) Except as disclosed in the Registration Statement and the
Prospectus (or any amendment or supplement thereto), subsequent to the
respective dates as of which such information is given in the Registration
Statement and the Prospectus (or any amendment or supplement thereto), neither
the Company nor any of the Subsidiaries has incurred any liability or
obligation, direct or contingent, or entered into any transaction, not in the
ordinary course of business, that is material to the Company and the
Subsidiaries taken as a whole, and there has not been any change in the capital
stock, or material increase in the short-term debt or long-term debt, of the
Company or any of the Subsidiaries, or any material adverse change, or any
development involving or which may reasonably be expected to involve, a
prospective material adverse change, in the condition (financial or other),
business, prospects, properties, net worth or results of operations of the
Company and the Subsidiaries taken as a whole.

(m) Each of the Company and the Subsidiaries has good and
marketable title to all property (real and personal) described in the
Prospectus as being owned by it, free and clear of all liens, claims, security
interests or other encumbrances except such as are described in the
Registration Statement and the Prospectus or in a document filed as an exhibit
to the Registration Statement and all the property described in the Prospectus
as being held under lease by each of the Company and the Subsidiaries is held
by it under valid, subsisting and enforceable leases.

(n) The Company has not distributed and, prior to the later to
occur of (i) the Closing Date and (ii) completion of the distribution of the
Shares, will not distribute any offering material in connection with the
offering and sale of the Shares other than the Registration Statement, the
Prepricing Prospectus, the Prospectus or other materials, if any, permitted by
the Act.

(o) The Company and each of the Subsidiaries has such permits,
licenses, franchises and authorizations of governmental or regulatory
authorities ("permits") as are necessary to own its respective properties and
to conduct its business in the manner described in the Prospectus, subject to
such qualifications as may be set forth in the Prospectus; the Company and each
of the Subsidiaries has fulfilled and performed all its material obligations
with respect to such permits and no event has occurred which allows, or after
notice or lapse of time would allow, revocation or termination thereof or
results in any other material impairment of the rights of the holder of any
such permit, subject in each case to such qualification as may be set forth in
the Prospectus; and, except as described in the Prospectus, none of such
permits contains any restriction that is materially burdensome to the Company
or any of the Subsidiaries.

(p) Each of the Company and its subsidiaries maintains a system of
internal accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (iii) access
to assets is permitted

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<PAGE> 12
only in accordance with management's general or specific authorization; and
(iv) the recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.

(q) To the Company's knowledge, neither the Company nor any of its
Subsidiaries nor any employee or agent of the Company or any Subsidiary has
made any payment of funds of the Company or any Subsidiary or received or
retained any funds in violation of any law, rule or regulation, which payment,
receipt or retention of funds is of a character required to be disclosed in the
Prospectus.

(r) The Company and each of the Subsidiaries have filed all tax
returns required to be filed, which returns are complete and correct, and
neither the Company nor any Subsidiary is in default in the payment of any
taxes which were payable pursuant to said returns or any assessments with
respect thereto.

(s) No holder of any security of the Company has any right to
require registration of shares of Common Stock or any other security of the
Company because of the filing of the registration statement or consummation of
the transactions contemplated by this Agreement, and there are no outstanding
subscriptions, rights, warrants, options, calls, convertible securities,
commitments of sale or liens related to or entitling any person to purchase or
otherwise to acquire any shares of the capital stock of, or other ownership
interest in, the Company or any subsidiary thereof except as otherwise
disclosed in the Registration Statement.

(t) The Company and the Subsidiaries own or possess all patents,
trademarks, trademark registrations, service marks, service mark registrations,
trade names, copyrights, licenses, inventions, trade secrets and rights
described in the Prospectus as being owned by them or any of them or necessary
for the conduct of their respective businesses, and the Company is not aware of
any claim to the contrary or any challenge by any other person to the rights of
the Company and the Subsidiaries with respect to the foregoing.

(u) The Company is not now, and after sale of the Shares to be
sold by it hereunder and application of the net proceeds from such sale as
described in the Prospectus under the caption "Use of Proceeds", including
without limitation, the acquisition of the assets of Aircraft Parts
International ("Old API"), a division of AMR Combs, Inc., as described in the
Prospectus, will not be, an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.

(v) The Company and its subsidiaries are (i) in compliance with
any and all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (ii) have received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct their
respective businesses and (iii) and are in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required permits,
licenses or other approvals or failure to comply with the terms and conditions

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<PAGE> 13
of such permits, licenses or approvals would not, singly or in the aggregate,
have a material adverse effect on the Company and its subsidiaries, taken as a
whole. Except as set forth in the Prospectus, neither the Company nor any of
the subsidiaries has been named as a "potentially responsible party" under the
Comprehensive Environmental Response Compensation and Liability Act of 1980, as
amended ("CERCLA").

(w) In the ordinary course of its business, the Company conducts a
periodic review of, and in connection with the acquisition of the assets of Old
API, as described in the Prospectus, has conducted a review of, the effect of
Environmental Laws on the business, operations and properties of the Company
and its Subsidiaries, in the course of which the Company identifies and
evaluates, and in connection with Old API, has identified and executed,
associated costs and liabilities (including, without limitation, any capital or
operating expenditures required for clean-up, closure of properties or
compliance with Environmental Laws or any permit, license or approval, any
related constraints on operating activities and any potential liabilities to
third parties). On the basis of such review, the Company has reasonably
concluded that such associated costs and liabilities would not, singly or in
the aggregate, have a material adverse effect on the Company and its
Subsidiaries, taken as a whole.

(x) The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are customary in the businesses in which they are
engaged; all policies or insurance and fidelity or surety bonds insuring the
Company or any of its subsidiaries or their respective businesses, assets,
employees, officers and directors are in full force and effect; the Company and
its subsidiaries are in compliance with the terms of such policies and
instruments in all material respects; and there are no claims by the Company or
any of its subsidiaries under any such policy or instrument as to which any
insurance company is denying liability or defending under a reservation of
rights clause.

(y) Except as disclosed in the Prospectus, there are no business
relationships or related party transactions required to be disclosed therein by
Item 404 of Regulation S-K of the Commission.

(z) In the last five years there has not been and there is not any
action to organize a labor union at any of the Company's or its Subsidiaries'
facilities, or any strike, labor dispute, slowdown or stoppage pending against
the Company or any of its Subsidiaries or, to the best knowledge of the
Company, threatened against it or any of its subsidiaries except for such
actions as have been described in the Registration Statement.

(aa) The Asset Purchase Agreement, dated November 25, 1996, between
API Combs and AMR Combs, Inc., has been duly authorized, executed and delivered
by or on behalf of each of the parties thereto and is the valid and binding
agreement of each of the parties thereto, enforceable against each of the
parties thereto in accordance with its terms. The Asset Purchase Agreement
provides for the acquisition of such assets of Old API as described in the
Prospectus or the terms described therein.

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<PAGE> 14
(bb) The capitalization of the Company (including the API Combs'
Series A Cumulative Convertible Preferred Stock to be issued in connection with
the acquisition of the assets of Old API) is as described in the Prospectus
under the caption "Capitalization" and "Description of Capital Stock."

(cc) The Company has complied with all provisions of Florida Statutes,
Section 517.075, relating to issuers doing business with Cuba.

8. Representations and Warranties of the Selling Stockholder.
The Selling Stockholder represents and warrants to each Underwriter that:

(a) The Selling Stockholder now has, and on the Closing Date and
any Option Closing Date will have, valid and marketable title to the Additional
Shares to be sold by the Selling Stockholder, free and clear of any lien,
claim, security interest or other encumbrance, including, without limitation,
any restriction on transfer.

(b) The Selling Stockholder now has, and on the Closing Date and
any Option Closing Date will have, full legal right, power and authorization,
and any approval required by law, to sell, assign transfer and deliver such
Additional Shares in the manner provided in this Agreement, and upon delivery
of and payment for such Additional Shares hereunder, the several Underwriters
will acquire valid and marketable title to such Additional Shares free and
clear of any lien, claim, security interest, or other encumbrance.

(c) This Agreement and the Custody Agreement have been duly
authorized, executed and delivered by or on behalf of the Selling Stockholder
and the Custody Agreement is the valid and binding agreement of the Selling
Stockholder enforceable against the Selling Stockholder in accordance with its
terms.

(d) Neither the execution and delivery of this Agreement or the
Custody Agreement by or on behalf of the Selling Stockholder nor the
consummation of the transactions herein or therein contemplated by or on behalf
of the Selling Stockholder requires any consent, approval, authorization or
order of, or filing or registration with, any court, regulatory body,
administrative agency or other governmental body, agency or official (except
such as may be required under the Act or such as may be required under state
securities or Blue Sky laws governing the purchase and distribution of the
Shares) or conflicts or will conflict with or constitutes or will constitute a
breach of, or default under, or violates or will violate, any agreement,
indenture or other instrument to which the Selling Stockholder is a party or by
which the Selling Stockholder is or may be bound or to which any of the Selling
Stockholder's property or assets is subject, or any statute, law, rule,
regulation, ruling, judgment, injunction, order or decree applicable to the
Selling Stockholder or to any property or assets of the Selling Stockholder.

(e) The Registration Statement and the Prospectus, insofar as they
relate to the Selling Stockholder, do not and will not contain an untrue
statement of a material fact or omit to state

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<PAGE> 15
any material fact required to be stated therein or necessary to make the
statements therein not misleading.

(f) The Selling Stockholder does not have any knowledge or any
reason to believe that the Registration Statement or the Prospectus (or any
amendment or supplement thereto) contains any untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.

(g) The sale of the Additional Shares is not prompted by the
actual knowledge of the Selling Stockholder of any material non- public
information concerning the Company.

(h) The representations and warranties of the Selling Stockholder
in the Custody Agreement are, and on the Closing Date and any Option Closing
Date will be, true and correct.

(i) The Selling Stockholder has not taken, directly or indirectly,
any action designed to or that might reasonably be expected to cause or result
in stabilization or manipulation of the price of the Common Stock to facilitate
the sale or resale of the Shares, except for the lock-up arrangements described
in the Prospectus.

9. Indemnification and Contribution. (a) The Company and the
Selling Stockholder, jointly and severally, agree to indemnify and hold
harmless each of you and each other Underwriter and each person, if any, who
controls any Underwriter within the meaning of Section 15 of the Act or Section
20(a) the Exchange Act from and against any and all losses, claims, damages,
liabilities and expenses (including reasonable costs of investigation) arising
out of or based upon any untrue statement or alleged untrue statement of a
material fact contained in any Prepricing Prospectus or in the Registration
Statement or the Prospectus or in any amendment or supplement thereto, or
arising out of or based upon any omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or expenses arise out of or are based upon any untrue
statement or omission or alleged untrue statement or omission which has been
made therein or omitted therefrom in reliance upon and in conformity with the
information relating to such Underwriter furnished in writing to the Company by
or on behalf of any Underwriter through you expressly for use in connection
therewith; provided, however, that the indemnification contained in this
paragraph (a) with respect to any Prepricing Prospectus shall not inure to the
benefit of any Underwriter (or to the benefit of any person controlling such
Underwriter) on account of any such loss, claim, damage, liability or expense
arising from the sale of the Shares by such Underwriter to any person if,
during the period of time a prospectus is required by the Act to be delivered
in connection with sales, a copy of the Prospectus shall not have been
delivered or sent to such person within the time required by the Act and the
regulations thereunder, and the Company shall sustain the burden of proof that
the untrue statement or alleged untrue statement or omission or alleged
omission of a material fact contained in such Prepricing Prospectus was
corrected in the Prospectus, provided that the Company has delivered the
Prospectus to the several Underwriters in requisite quantity on a timely basis
to permit such delivery or sending. The foregoing

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<PAGE> 16
indemnity agreement shall be in addition to any liability which the Company or
the Selling Stockholder may otherwise have.

(b) If any action, suit or proceeding shall be brought against any
Underwriter or any person controlling any Underwriter in respect of which
indemnity may be sought against the Company or the Selling Stockholder, such
Underwriter or such controlling person shall promptly notify the parties
against whom indemnification is being sought (the "indemnifying parties"), and
such indemnifying parties shall assume the defense thereof, including the
employment of counsel and payment of all fees and expenses. Such Underwriter
or any such controlling person shall have the right to employ separate counsel
in any such action, suit or proceeding and to participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Underwriter or such controlling person unless (i) the indemnifying parties
have agreed in writing to pay such fees and expenses, (ii) the indemnifying
parties have failed to assume the defense and employ counsel, or (iii) the
named parties to any such action, suit or proceeding (including any impleaded
parties) include both such Underwriter or such controlling person and the
indemnifying parties and such Underwriter or such controlling person shall have
been advised by its counsel that representation of such indemnified party and
any indemnifying party by the same counsel would be inappropriate under
applicable standards of professional conduct (whether or not such
representation by the same counsel has been proposed) due to actual or
potential differing interests between them (in which case the indemnifying
party shall not have the right to assume the defense of such action, suit or
proceeding on behalf of such Underwriter or such controlling person). It is
understood, however, that the indemnifying parties shall, in connection with
any one such action, suit or proceeding or separate but substantially similar
or related actions, suits or proceedings in the same jurisdiction arising out
of the same general allegations or circumstances, be liable for the reasonable
fees and expenses of only one separate firm of attorneys (in addition to any
local counsel) at any time for all such Underwriters and controlling persons
not having actual or potential differing interests with you or among
themselves, which firm shall be designated in writing by Smith Barney Inc., and
that all such fees and expenses shall be reimbursed as they are incurred. The
indemnifying parties shall not be liable for any settlement of any such action,
suit or proceeding effected without their written consent, but if settled with
such written consent, or if there be a final judgment for the plaintiff in any
such action, suit or proceeding, the indemnifying parties agree to indemnify
and hold harmless any Underwriter, to the extent provided in the preceding
paragraph, and any such controlling person from and against any loss, claim,
damage, liability or expense by reason of such settlement or judgment.

(c) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who sign
the Registration Statement, the Selling Stockholder, and any person who
controls the Company within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, to the same extent as the foregoing indemnity from
the Company and the Selling Stockholder to each Underwriter, but only with
respect to information relating to such Underwriter furnished in writing by or
on behalf of such Underwriter through you expressly for use in the Registration
Statement, the Prospectus or any Prepricing Prospectus, or any amendment or
supplement thereto. If any action, suit or proceeding shall be brought against
the Company, any of its directors, any such officer, the

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<PAGE> 17
Selling Stockholder, or any such controlling person based on the Registration
Statement, the Prospectus or any Prepricing Prospectus, or any amendment or
supplement thereto, and in respect of which indemnity may be sought against any
Underwriter pursuant to this paragraph (c), such Underwriter shall have the
rights and duties given to the Company by paragraph (b) above (except that if
the Company shall have assumed the defense thereof such Underwriter shall not
be required to do so, but may employ separate counsel therein and participate
in the defense thereof, but the fees and expenses of such counsel shall be at
such Underwriter's expense), and the Company, its directors, any such officer,
the Selling Stockholder, and any such controlling person shall have the rights
and duties given to the Underwriters by paragraph (b) above. The foregoing
indemnity agreement shall be in addition to any liability which any Underwriter
may otherwise have.

(d) If the indemnification provided for in this Section 9 is
unavailable to an indemnified party under paragraphs (a) or (c) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses (i) in
such proportion as is appropriate to reflect the relative benefits received by
the Company and the Selling Stockholder on the one hand and the Underwriters on
the other hand from the offering of the Shares, or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company and the
Selling Stockholder on the one hand and the Underwriters on the other in
connection with the statements or omissions that resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Company and
the Selling Stockholder on the one hand and the Underwriters on the other shall
be deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Company and the Selling
Stockholder bear to the total underwriting discounts and commissions received
by the Underwriters, in each case as set forth in the table on the cover page
of the Prospectus; provided that, in the event that the Underwriters shall have
purchased any Additional Shares hereunder, any determination of the relative
benefits received by the Company, the Selling Stockholder or the Underwriters
from the offering of the Shares shall include the net proceeds (before
deducting expenses) received by the Company and the Selling Stockholder, and
the underwriting discounts and commissions received by the Underwriters, from
the sale of such Additional Shares, in each case computed on the basis of the
respective amounts set forth in the notes to the table on the cover page of the
Prospectus. The relative fault of the Company and the Selling Stockholder on
the one hand and the Underwriters on the other hand shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company or the Selling
Stockholder on the one hand or by the Underwriters on the other hand and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.

(e) The Company, the Selling Stockholder and the Underwriters
agree that it would not be just and equitable if contribution pursuant to this
Section 9 were determined by a pro rata

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<PAGE> 18
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in paragraph (d) above. The amount paid
or payable by an indemnified party as a result of the losses, claims, damages,
liabilities and expenses referred to in paragraph (d) above shall be deemed to
include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating any claim or defending any such action, suit or proceeding.
Notwithstanding the provisions of this Section 9, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price of the Shares underwritten by it and distributed to the public exceeds
the amount of any damages which such Underwriter has otherwise been required to
pay by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations to contribute pursuant to this Section 9 are several in proportion
to the respective numbers of Firm Shares set forth opposite their names in
Schedule II hereto (or such numbers of Firm Shares increased as set forth in
Section 12 hereof) and not joint.

(f) No indemnifying party shall, without the prior written consent
of the indemnified party, effect any settlement of any pending or threatened
action, suit or proceeding in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such action, suit or proceeding.

(g) Any losses, claims, damages, liabilities or expenses for which
an indemnified party is entitled to indemnification or contribution under this
Section 9 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 9 and the
representations and warranties of the Company and the Selling Stockholder set
forth in this Agreement shall remain operative and in full force and effect,
regardless of (i) any investigation made by or on behalf of any Underwriter or
any person controlling any Underwriter, the Company, its directors or officers
or the Selling Stockholder or any person controlling the Company, (ii)
acceptance of any Shares and payment therefor hereunder, and (iii) any
termination of this Agreement. A successor to any Underwriter or any person
controlling any Underwriter, or to the Company, its directors or officers, or
any person controlling the Company, shall be entitled to the benefits of the
indemnity, contribution and reimbursement agreements contained in this Section
9.

10. Conditions of Underwriters' Obligations. The several
obligations of the Underwriters to purchase the Firm Shares hereunder are
subject to the following conditions:

(a) If, at the time this Agreement is executed and delivered, it
is necessary for the registration statement or a post-effective amendment
thereto to be declared effective before the offering of the Shares may
commence, the registration statement or such post-effective amendment shall
have become effective not later than 5:30 p.m., New York City time, on the

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<PAGE> 19
date hereof, or at such later date and time as shall be consented to in writing
by you, and all filings, if any, required by Rules 424 and 430A under the Act
shall have been timely made; no stop order suspending the effectiveness of the
registration statement shall have been issued and no proceeding for that
purpose shall have been instituted or, to the knowledge of the Company or any
Underwriter, threatened by the Commission, and any request of the Commission
for additional information (to be included in the registration statement or the
prospectus or otherwise) shall have been complied with to your satisfaction.

(b) Subsequent to the effective date of this Agreement, there
shall not have occurred (i) any change, or any development involving a
prospective change, in or affecting the condition (financial or other),
business, properties, prospects, net worth, or results of operations of the
Company or the Subsidiaries not contemplated by the Prospectus, which in your
opinion, as Representatives of the several Underwriters, would materially,
adversely affect the market for the Shares, or (ii) any event or development
relating to or involving the Company or any officer or director of the Company
or any Selling Stockholder which makes any statement made in the Prospectus
untrue or which, in the opinion of the Company and its counsel or the
Underwriters and their counsel, requires the making of any addition to or
change in the Prospectus in order to state a material fact required by the Act
or any other law to be stated therein or necessary in order to make the
statements therein not misleading, if amending or supplementing the Prospectus
to reflect such event or development would, in your opinion, as Representatives
of the several Underwriters, materially adversely affect the market for the
Shares. As used in this Section 10(b), the term "Prospectus" shall refer to
the Prospectus in the form first delivered to the Underwriters for use in
confirming sales of the Shares.

(c) You shall have received on the Closing Date, an opinion of
O'Melveny & Myers LLP, counsel for the Company, dated the Closing Date and
addressed to you as Representatives of the several Underwriters, to the effect
that:

(i) The Company is a corporation duly incorporated and
validly existing in good standing under the laws of the State of
Delaware; the Company has full corporate power and authority to enter
into this Agreement and to issue, sell and deliver the Shares to be
sold by it to the Underwriters as provided herein, and to own, lease
and operate its properties and to conduct its business as described in
the Registration Statement and the Prospectus (and any amendment or
supplement thereto), and is duly registered and qualified to conduct
its business and is in good standing in each jurisdiction or place
where the nature of its properties or the conduct of its business
requires such registration or qualification, except where the failure
so to register or qualify does not have a material adverse effect on
the condition (financial or other), business, properties, net worth or
results of operations of the Company and the Subsidiaries taken as a
whole;

(ii) Each of the Subsidiaries is a corporation duly
organized and validly existing in good standing under the laws of the
jurisdiction of its organization, with full corporate power and
authority to own, lease, and operate its properties and to conduct its
business as described in the Registration Statement and the Prospectus
(and any amendment or supplement thereto); and all the outstanding
shares of capital stock of each

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<PAGE> 20
of the Subsidiaries have been duly authorized and validly issued, are
fully paid and nonassessable, and are owned of record by the Company
directly, or indirectly through one of the other Subsidiaries, free
and clear of any perfected security interest, or, to the best
knowledge of such counsel after due inquiry, any other security
interest, lien, adverse claim, equity or other encumbrance;

(iii) The authorized and outstanding capital stock of the
Company (including the API Combs Series A Cumulative Convertible
Preferred Stock to be issued in connection with the acquisition of the
assets of Old API) is as set forth under the caption "Capitalization"
in the Prospectus; and the authorized capital stock of the Company
conforms in all material respects as to legal matters to the
description thereof contained in the Prospectus under the caption
"Description of Capital Stock";

(iv) All the shares of capital stock of the Company
outstanding prior to the issuance of the Shares to be issued and sold
by the Company hereunder, have been duly authorized and validly
issued, and are fully paid and nonassessable;

(v) The Shares to be issued and sold to the Underwriters
by the Company hereunder have been duly authorized and, when issued
and delivered to the Underwriters against payment therefor in
accordance with the terms hereof, will be validly issued, fully paid
and nonassessable and free of any preemptive rights pursuant to the
Company's certificate of incorporation, bylaws or by operation of the
Delaware General Corporation Law, or to the best knowledge of such
counsel after due inquiry, similar rights that entitle or will entitle
any person to acquire any Shares upon the issuance thereof by the
Company;

(vi) The form of certificates for the Shares conforms to
the requirements of the Delaware General Corporation Law;

(vii) The Registration Statement and all post-effective
amendments, if any, have become effective under the Act and, to the
best knowledge of such counsel after due inquiry, no stop order
suspending the effectiveness of the Registration Statement has been
issued and no proceedings for that purpose are pending before or
contemplated by the Commission; and any required filing of the
Prospectus pursuant to Rule 424(b) has been made in accordance with
Rule 424(b);

(viii) This Agreement has been duly authorized, executed and
delivered by the Company;

(ix) Neither the Company nor any of the Subsidiaries is in
violation of its respective certificate or articles of incorporation
or bylaws, or other organizational documents, or to the best knowledge
of such counsel after due inquiry, is in default in the performance of
any material obligation, agreement or condition contained in any bond,
debenture, note or other evidence of indebtedness, except as may be
disclosed in the Prospectus;

20
<PAGE> 21
(x) Neither the offer, sale or delivery of the Shares,
the execution, delivery or performance of this Agreement, compliance
by the Company with the provisions hereof, nor consummation by the
Company of the transactions contemplated hereby or by the Asset
Purchase Agreement conflicts or will conflict with or constitutes or
will constitute a breach of, or a default under, the certificate or
articles of incorporation or bylaws, or other organizational
documents, of the Company or any of the Subsidiaries or any agreement,
indenture, lease or other instrument to which the Company or any of
the Subsidiaries is a party or by which any of them or any of their
respective properties is bound that is an exhibit to the Registration
Statement, or is known to such counsel after due inquiry, or will
result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any of the
Subsidiaries, nor will any such action result in any violation of any
existing law, regulation, ruling (assuming compliance with all
applicable state securities and Blue Sky laws), judgment, injunction,
order or decree known to such counsel after reasonable inquiry,
applicable to the Company, the Subsidiaries or any of their respective
properties;

(xi) No consent, approval, authorization or other order
of, or registration or filing with, any court, regulatory body,
administrative agency or other governmental body, agency, or official
is required on the part of the Company (except as have been obtained
under the Act and the Exchange Act or such as may be required under
state securities or Blue Sky laws governing the purchase and
distribution of the Shares) for the valid issuance and sale of the
Shares to the Underwriters as contemplated by this Agreement;

(xii) The Registration Statement and the Prospectus and any
supplements or amendments thereto (except for the financial statements
and the notes thereto and the schedules and other financial and
statistical data included therein, as to which such counsel need not
express any opinion) comply as to form in all material respects with
the requirements of the Act;

(xiii) To the best knowledge of such counsel after due
inquiry, (A) other than as described or contemplated in the Prospectus
(or any supplement thereto), there are no legal or governmental
proceedings pending or threatened against the Company or any of the
Subsidiaries, or to which the Company or any of the Subsidiaries, or
any of their property, is subject, which are required to be described
in the Registration Statement or Prospectus (or any amendment or
supplement thereto) and (B) there are no agreements, contracts,
indentures, leases or other instruments, that are required to be
described in the Registration Statement or the Prospectus (or any
amendment or supplement thereto) or to be filed as an exhibit to the
Registration Statement that are not described or filed as required, as
the case may be;

(xiv) To the best knowledge of such counsel after due
inquiry, neither the Company nor any of the Subsidiaries is in
violation of any law, ordinance, administrative or governmental rule
or regulation applicable to the Company or any of

21
<PAGE> 22
the Subsidiaries or of any decree of any court or governmental agency
or body having jurisdiction over the Company or any of the
Subsidiaries;

(xv) The statements in the Registration Statement and
Prospectus, insofar as they are descriptions of contracts, agreements
or other legal documents or proceedings, or refer to statements of law
or legal conclusions, are accurate and present fairly the information
required to be shown and described therein; and

(xvi) The Company and each of the Subsidiaries has full
corporate power and authority, and all necessary governmental
authorizations, approvals, orders, licenses, certificates, franchises
and permits of and from all governmental regulatory officials and
bodies (except where the failure so to have any such authorizations,
approvals, orders, licenses, certificates, franchises or permits,
individually or in the aggregate, would not have a material adverse
effect on the business, properties, operations or financial condition
of the Company and the Subsidiaries taken as a whole), to own their
respective properties and to conduct their respective businesses as
now being conducted, as described in the Prospectus.

(d) You shall have received on the Closing Date, an opinion of
Sidley & Austin, counsel for the Selling Stockholder, dated the Closing Date
and addressed to you as Representative of the Several Underwriters, to the
effect that:

(i) The Selling Stockholder is a limited liability
company duly organized and validly existing in good standing under the
laws of its state of organization;

(ii) This Agreement and the Custody Agreement have each
been duly executed and delivered by or on behalf of each of the
Selling Stockholder and the Custody Agreement is a valid and binding
agreement of the Selling Stockholder enforceable against the Selling
Stockholder in accordance with its terms;

(iii) The Selling Stockholder has full legal right, power
and authorization, and to the best knowledge of such counsel after due
inquiry, and the Selling Stockholder has all approvals required by
law, to execute, deliver and perform its obligations under this
Agreement and the Custody Agreement and to sell, assign, transfer and
deliver good and marketable title to the Additional Shares which the
Selling Stockholder has agreed to sell pursuant to this Agreement;

(iv) The execution and delivery of this Agreement and the
Custody Agreement by the Selling Stockholder and the consummation of
the transactions contemplated hereby and thereby will not conflict
with, violate, result in a breach of or constitute a default under the
terms or provisions of any agreement, indenture, mortgage or other
instrument known to such counsel after due inquiry to which the
Selling Stockholder is a party or by which any of them or any of their
assets or property is bound, or any court order or decree or any law,
rule, or regulation applicable to the Selling Stockholder or to any of
the property or assets of the Selling Stockholder; and

22
<PAGE> 23
(v) Upon delivery of the Additional Shares pursuant to
this Agreement and payment therefor as contemplated herein the
Underwriters will acquire good and marketable title to the Additional
Shares free and clear of any lien, claim, security interest, or other
encumbrance, restriction on transfer or other defect in title.

In rendering their opinions as aforesaid, counsel may rely upon an
opinion or opinions, each dated the Closing Date, of other counsel retained by
them or the Company as to laws of any jurisdiction other than the United States
or the States of California, or the General Corporation Law of the State of
Delaware, provided that (1) each such local counsel is acceptable to the
Representatives, (2) such reliance is expressly authorized by each opinion so
relied upon and a copy of each such opinion is delivered to the Representatives
and is, in form and substance satisfactory to them and their counsel, and (3)
counsel shall state in their opinions that they believe that they and the
Underwriters are justified in relying thereon.

(e) You shall have received on the Closing Date an opinion of
Andrews & Kurth L.L.P., counsel for the Underwriters, dated the Closing Date
and addressed to you, as Representatives of the several Underwriters, with
respect to the matters referred to in the first clause of paragraphs (i) and
(v) and paragraphs (vii), (viii) and (xii) of the foregoing paragraph (c) and
such other related matters as you may request.

(f) In addition, each of O'Melveny & Meyers LLP and Andrews &
Kurth L.L.P. shall state that, although counsel has not undertaken, except as
otherwise indicated in their opinion, to determine independently, and does not
assume any responsibility for, the accuracy or completeness of the statements
in the Registration Statement, such counsel has participated in the preparation
of the Registration Statement and the Prospectus, including review and
discussion of the contents thereof, and nothing has come to the attention of
such counsel that has caused it to believe that the Registration Statement at
the time the Registration Statement became effective or as of the Closing Date
or the Option Closing Date, as the case may be, contained an untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or that the
Prospectus, as of its date (or the date of any amendment or supplement to the
Prospectus,) and as of the Closing Date or the Option Closing Date, as the case
may be, contained any untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading (it being
understood that such counsel need make any statement with respect to the
financial statements and the notes thereto and the schedules and other
financial and statistical data included in the Registration Statement or the
Prospectus).

(g) You shall have received letters addressed to you, as
Representatives of the several Underwriters, and dated the date hereof and the
Closing Date from Ernst & Young LLP and Price Waterhouse LLP, independent
certified public accountants, substantially in the forms heretofore approved by
you.

(h)(i) No stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall have
been taken or, to the knowledge of

23
<PAGE> 24
the Company, shall be contemplated by the Commission at or prior to the Closing
Date; (ii) there shall not have been any change in the capital stock of the
Company nor any material increase in the short-term or long-term debt of the
Company (other than in the ordinary course of business) from that set forth or
contemplated in the Registration Statement or the Prospectus; (iii) there shall
not have been, since the respective dates as of which information is given in
the Registration Statement and the Prospectus, except as may otherwise be
stated in the Registration Statement and Prospectus, any material adverse
change in the condition (financial or other), business, prospects, properties,
net worth or results of operations of the Company and the Subsidiaries taken as
a whole; (iv) the Company and the Subsidiaries shall not have any liabilities
or obligations, direct or contingent (whether or not in the ordinary course of
business), that are material to the Company and the Subsidiaries, taken as a
whole, other than those reflected in the Registration Statement or the
Prospectus; and (v) all the representations and warranties of the Company
contained in this Agreement shall be true and correct on and as of the date
hereof and on and as of the Closing Date as if made on and as of such date, and
you shall have received a certificate, dated the Closing Date or the Option
Closing Date, as the case may be, and signed by the chief executive officer and
the chief financial officer of the Company (or such other officers as are
acceptable to you), to the effect set forth in this Section 10(h) and in
Section 10(i) hereof. As used in this Section 10(h), the term "Registration
Statement" means the registration statement as declared effective by the
Commission as amended by the prospectus filed therewith pursuant to Rules 430A
and 424(b) of the Act, and the term "Prospectus" means the Prospectus in the
form first delivered to the Underwriters for use in completing sales.

(i) The Company shall not have failed at or prior to the Closing
Date to have performed or complied with any of its agreements herein contained
and required to be performed or complied with by it hereunder at or prior to
the Closing Date.

(j) All the representations and warranties of the Selling
Stockholder contained in this Agreement shall be true and correct on and as of
the date hereof and on and as of the Closing Date as if made on and as of the
Closing Date or the Option Closing Date, as the case may be, and you shall have
received a certificate, dated the Closing Date and signed by or on behalf of
the Selling Stockholder to the effect set forth in this Section 10(j) and in
Section 10(k) hereof.

(k) The Selling Stockholder shall not have failed at or prior to
the Closing Date to have performed or complied with any of their agreements
herein contained and required to be performed or complied with by them
hereunder at or prior to the Closing Date.

(l) The Shares shall have been listed or approved for quotation,
on notice of issuance, on the Nasdaq National Market.

(m) The Sellers shall have furnished or caused to be furnished to
you such further certificates and documents as you shall have requested.

All such opinions, certificates, letters and other documents will be
in compliance with the provisions hereof only if they are satisfactory in form
and substance to you and your counsel.

24
<PAGE> 25
Any certificate or document signed by any officer of the Company or
any Attorney-in-Fact or the Selling Stockholder and delivered to you, as
Representatives of the Underwriters, or to counsel for the Underwriters, shall
be deemed a representation and warranty by the Company or the Selling
Stockholder, as the case may be, to each Underwriter as to the statements made
therein.

The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the satisfaction on and as of any Option
Closing Date of the conditions set forth in this Section 10, except that, if
any Option Closing Date is other than the Closing Date, the certificates,
opinions and letters referred to in paragraphs (c) through (j) of this Section
10 shall be dated the Option Closing Date in question, the opinions called for
by paragraphs (c), (d), (e) and (f) of this Section 10 and the certificates and
letters referred to in paragraphs (h) through (k) of this Section 10 shall be
revised to reflect the sale of Additional Shares.

11. Expenses. The Sellers (in proportion to the number of Shares
being offered by each of them, including any Additional Shares which the
Underwriters shall have elected to purchase) agree to pay the following costs
and expenses and all other costs and expenses incident to the performance by
them of their obligations hereunder: (i) the preparation, printing or
reproduction, and filing with the Commission of the registration statement
(including financial statements and exhibits thereto), each Prepricing
Prospectus, the Prospectus, and each amendment or supplement to any of them;
(ii) the printing (or reproduction) and delivery (including postage, air
freight charges and charges for counting and packaging) of such copies of the
registration statement, each Prepricing Prospectus, the Prospectus, and all
amendments or supplements to any of them as may be reasonably requested for use
in connection with the offering and sale of the Shares; (iii) the preparation,
printing, authentication, issuance and delivery of certificates for the Shares,
including any stamp taxes in connection with the original issuance and sale of
the Shares; (iv) the printing (or reproduction) and delivery of this Agreement,
the preliminary and supplemental Blue Sky Memoranda and all other agreements or
documents printed (or reproduced) and delivered in connection with the offering
of the Shares; (v) the registration of the Shares under the Exchange Act and
the listing of the Shares on the Nasdaq National Market; (vi) the registration
or qualification of the Shares for offer and sale under the securities or Blue
Sky laws of the several states as provided in Section 5(g) hereof (including
the reasonable fees, expenses and disbursements of counsel for the Underwriters
relating to the preparation, printing or reproduction, and delivery of the
preliminary and supplemental Blue Sky Memoranda and such registration and
qualification); (vii) the filing fees and the fees and expenses of counsel for
the Underwriters in connection with any filings required to be made with the
National Association of Securities Dealers, Inc.; (viii) the transportation and
other expenses incurred by or on behalf of Company representatives in
connection with presentations to prospective purchasers of the Shares; and (ix)
the fees and expenses of the Company's accountants and the fees and expenses of
counsel (including local and special counsel) for the Company and the Selling
Stockholder. Nothing contained herein shall affect any agreement among the
Sellers with respect to such expenses.

12. Effective Date of Agreement. This Agreement shall become
effective: (i) upon the execution and delivery hereof by the parties hereto; or
(ii) if, at the time this Agreement is

25
<PAGE> 26
executed and delivered, it is necessary for the registration statement or a
post-effective amendment thereto to be declared effective before the offering
of the Shares may commence, when notification of the effectiveness of the
registration statement or such post-effective amendment has been released by
the Commission. Until such time as this Agreement shall have become effective,
it may be terminated by the Company, by notifying you, or by you, as
Representatives of the several Underwriters, by notifying the Company and the
Selling Stockholder.

If any one or more of the Underwriters shall fail or refuse to
purchase Shares which it or they are obligated to purchase hereunder on the
Closing Date, and the aggregate number of Shares which such defaulting
Underwriter or Underwriters are obligated but fail or refuse to purchase is not
more than one-tenth of the aggregate number of Shares which the Underwriters
are obligated to purchase on the Closing Date, each non-defaulting Underwriter
shall be obligated, severally, in the proportion which the number of Firm
Shares set forth opposite its name in Schedule II hereto bears to the aggregate
number of Firm Shares set forth opposite the names of all non-defaulting
Underwriters or in such other proportion as you may specify in accordance with
Section 20 of the Master Agreement Among Underwriters of Smith Barney Inc., to
purchase the Shares which such defaulting Underwriter or Underwriters are
obligated, but fail or refuse, to purchase. If any one or more of the
Underwriters shall fail or refuse to purchase Shares which it or they are
obligated to purchase on the Closing Date and the aggregate number of Shares
with respect to which such default occurs is more than one-tenth of the
aggregate number of Shares which the Underwriters are obligated to purchase on
the Closing Date and arrangements satisfactory to you and the Company for the
purchase of such Shares by one or more non- defaulting Underwriters or other
party or parties approved by you and the Company are not made within 36 hours
after such default, this Agreement will terminate without liability on the part
of any non-defaulting Underwriter or the Company. In any such case which does
not result in termination of this Agreement, either you or the Company shall
have the right to postpone the Closing Date, but in no event for longer than
seven days, in order that the required changes, if any, in the Registration
Statement and the Prospectus or any other documents or arrangements may be
effected. Any action taken under this paragraph shall not relieve any
defaulting Underwriter from liability in respect of any such default of any
such Underwriter under this Agreement. The term "Underwriter" as used in this
Agreement includes, for all purposes of this Agreement, any party not listed in
Schedule II hereto who, with your approval and the approval of the Company,
purchases Shares which a defaulting Underwriter is obligated, but fails or
refuses, to purchase.

Any notice under this Section 12 may be given by telegram, telecopy or
telephone but shall be subsequently confirmed by letter.

13. Termination of Agreement. This Agreement shall be subject to
termination in your absolute discretion, without liability on the part of any
Underwriter to the Company or any Selling Stockholder, by notice to the
Company, if prior to the Closing Date or any Option Closing Date (if different
from the Closing Date and then only as to the Additional Shares), as the case
may be, (i) trading in securities generally on the New York Stock Exchange,
American Stock Exchange or the Nasdaq National Market shall have been suspended
or materially limited,

26
<PAGE> 27
(ii) a general moratorium on commercial banking activities in the States of New
York or California shall have been declared by either federal or state
authorities, or (iii) there shall have occurred any outbreak or escalation of
hostilities or other international or domestic calamity, crisis or change in
political, financial or economic conditions, the effect of which on the
financial markets of the United States is such as to make it, in your judgment,
impracticable or inadvisable to commence or continue the offering of the Shares
at the offering price to the public set forth on the cover page of the
Prospectus or to enforce contracts for the resale of the Shares by the
Underwriters. Notice of such termination may be given to the Company by
telegram, telecopy or telephone and shall be subsequently confirmed by letter.

14. Information Furnished by the Underwriters. The statements set
forth in the last paragraph on the cover page, the stabilization legend on the
inside cover page, and the statements in the first and third paragraphs under
the caption "Underwriting" in any Prepricing Prospectus and in the Prospectus,
constitute the only information furnished by or on behalf of the Underwriters
through you as such information is referred to in Sections 7(b) and 9 hereof.

15. Miscellaneous. Except as otherwise provided in Sections 5, 12
and 13 hereof, notice given pursuant to any provision of this Agreement shall
be in writing and shall be delivered (i) if to the Company, at the office of
the Company at One Omega Drive, Stamford, Connecticut 06097, Attention: Michael
C. Culver; or (ii) if to the Selling Stockholder, at o , Attention: o, or (iii)
if to you, as Representatives of the several Underwriters, care of Smith Barney
Inc., 388 Greenwich Street, New York, New York 10013, Attention: Manager,
Investment Banking Division.

This Agreement has been and is made solely for the benefit of the
several Underwriters, the Company, its directors and officers, and the other
controlling persons referred to in Section 9 hereof and their respective
successors and assigns, to the extent provided herein, and no other person
shall acquire or have any right under or by virtue of this Agreement. Neither
the term "successor" nor the term "successors and assigns" as used in this
Agreement shall include a purchaser from any Underwriter of any of the Shares
in his status as such purchaser.

16. Applicable Law; Counterparts. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
applicable to contracts made and to be performed within the State of New York.

This Agreement may be signed in various counterparts which together
constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.

27
<PAGE> 28
Please confirm that the foregoing correctly sets forth the agreement
among the Company, the Selling Stockholder and the several Underwriters.

Very truly yours,

FIRST AVIATION SERVICES INC.

By:
----------------------------

The Selling Stockholder named in
Schedule I hereto

CANPARTNERS INVESTMENTS IV, LLC

By:
----------------------------
Attorney-in-Fact

Confirmed as of the date first
above mentioned on behalf of
themselves and the other several
Underwriters named in Schedule II
hereto.

SMITH BARNEY INC.
DILLON, READ & CO. INC.
As Representatives of the Several Underwriters
By: SMITH BARNEY INC.

By:
-------------------------

28
<PAGE> 29
SCHEDULE I

FIRST AVIATION SERVICES INC.

<TABLE>
<CAPTION>
Number of
Selling Stockholder Additional Shares
- ------------------- -----------------
<S> <C>
Canpartners Investments IV, LLC . . . . . . . . . . . . . 585,000
</TABLE>

1
<PAGE> 30
SCHEDULE II

FIRST AVIATION SERVICES INC.

<TABLE>
<CAPTION>
Number of
Underwriter
Firm Shares
-----------
<S> <C>
Smith Barney Inc . . . . . . . . . . . . . . . . . . . . . . .

Dillon, Read & Co. Inc . . . . . . . . . . . . . . . . . . . .

Total . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>

<PAGE> 1
Exhibit 4.1

NUMBER SHARES
- ----------- ------------

[FAVS LOGO]

- ----------- ------------
SEE REVERSE FOR
CERTAIN DESIGNATIONS
CUSIP 31865U 10 8
FIRST AVIATION SERVICES INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE

This Certifies that

is the record holder of

FULLY PAID AND NON-ASSESSABLE SHARES OF THE $.01 PAR VALUE COMMON STOCK OF

FIRST AVIATION SERVICES INC.

transferable on the books of the Corporation in person or by duly authorized
attorney on surrender of this certificate properly endorsed.
This certificate is not valid unless countersigned by the Transfer Agent
and registered by the Registrar.
Witness the facsimile corporate seal of the Corporation and the facsimile
signatures of the Corporation's duly authorized officers.

Dated:

/s/ Aaron Hollander
CHAIRMAN OF THE BOARD

[FIRST AVIATION SERVICES INC. SEAL]

/s/ John A. Marsalisi /s/ Michael C. Culver
CHIEF FINANCIAL OFFICER AND SECRETARY PRESIDENT

COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR

AUTHORIZED SIGNATURE

<PAGE> 2
The Corporation will furnish without charge to each stockholder who
so requests the powers, designations, preferences and relative, participating,
optional or other rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights.
Any such request should be directed to the Corporation, attention of its
Secretary at the Corporation's principal executive offices.

The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable law or regulations:

<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
TEN ENT - as tenants by the entireties ---------------- ---------------
JT TEN - as joint tenants with right of (Cust) (Minor)
survivorship and not as tenants under Uniform Gifts to Minors
in common Act
-------------------------------------
(State)
UNIF TRF MIN ACT - Custodian (until age )
-------------- --------
(Cust)
under Uniform Transfer
--------------------
(Minor)
to Minors Act
----------------------------
(State)

Additional abbreviations may also be used though not in the above list

For value received, hereby sell, assign and transfer unto
-------------------------------------------------------

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------

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

- ----------------------------------------------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)

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

Shares
- ---------------------------------------------------------------------------------------------------------------
of the Common Stock represented by the within Certificate, and do hereby irrevocably constitute and appoint
Attorney
- -------------------------------------------------------------------------------------------------------------
to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises.

Dated
--------------------------------------

--------------------------------------------------------------------------------------
THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE
NOTICE: FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER.

Signature(s) Guaranteed:

- ------------------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED MEDALLION
SIGNATURE GUARANTEE PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
</TABLE>

<PAGE> 1
EXHIBIT 5.1

February
24th
1 9 9 7

613,257-8

First Aviation Services Inc.
One Omega Drive
Stamford, Connecticut 06907

Re: First Aviation Services Inc. Registration
Statement on Form S-1 (Registration No. 333-18647)

Ladies and Gentlemen:

At your request, we have examined the Registration Statement
on Form S-1 (Registration No. 333-18647) filed by you with the Securities and
Exchange Commission (in connection with the registration under the Securities
Act of 1933, as amended, of 3,900,000 shares of Common Stock, $0.01 par value
(the "Shares"), of First Aviation Services, a Delaware corporation (the
"Corporation"). We are familiar with the proceedings taken and proposed to be
taken by you in connection with the authorization and proposed issuance and
sale of the Shares.

It is our opinion that, subject to said proceedings being duly
taken and completed by you as now contemplated prior to the issuance of the
Shares, the Shares will, upon issuance and sale thereof in the manner referred
to in the Registration Statement, be validly issued, fully paid and
nonassessable shares of Common Stock of the Corporation.

The law covered by this opinion is limited to the present
General Corporation Law of the State of Delaware. We express no opinion as to
the laws of any other jurisdiction and no opinion regarding the statutes,
administrative decisions, rules, regulations or requirements of any county,
municipality, subdivision or local authority of any jurisdiction.
<PAGE> 2
Page 2 - First Aviation Services Inc. - February 24, 1997

We consent to your filing this opinion as an exhibit to the
Registration Statement and to the reference to us in the Registration Statement
under the heading "Legal Matters."

Respectfully submitted,

/s/ O'MELVENY & MYERS LLP
----------------------------------

<PAGE> 1
EXHIBIT 10.14

FIRST AVIATION SERVICES INC.
STOCK INCENTIVE PLAN

<PAGE> 2

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Administration and Authorization; Power and Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.4 Shares Available for Awards; Share Limits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.5 Grant of Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.6 Award Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.7 Limitations on Exercise and Vesting of Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.8 No Transferability; Limited Exception to Transfer Restrictions . . . . . . . . . . . . . . . . . . . . . . 5

2. OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.1 Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 Option Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.3 Limitations on Grant and Terms of Incentive Stock Options . . . . . . . . . . . . . . . . . . . . . . . . 7
2.4 Limits on 10% Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.5 Options and Rights in Substitution for Stock Options Granted by Other Corporations . . . . . . . . . . . . 7

3. STOCK APPRECIATION RIGHTS (INCLUDING LIMITED STOCK APPRECIATION RIGHTS) . . . . . . . . . . . . . . . . . 8
3.1 Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.2 Exercise of Stock Appreciation Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.3 Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.4 Limited Stock Appreciation Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

4. RESTRICTED STOCK AWARDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.1 Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.2 Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.3 Return to the Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

5. PERFORMANCE SHARE AWARDS AND STOCK BONUSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.1 Grants of Performance Share Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.2 Special Performance-Based Share Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.3 Grants of Stock Bonuses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.4 Deferred Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

6. OTHER PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.1 Rights of Eligible Persons, Participants and
Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.2 Adjustments; Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.3 Effect of Termination of Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.4 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.5 Tax Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>

i
<PAGE> 3
<TABLE>
<S> <C> <C>
6.6 Plan Amendment, Termination and Suspension . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.7 Privileges of Stock Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.8 Effective Date of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.9 Term of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.10 Governing Law/Construction/Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.11 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.12 Effect of Change of Subsidiary Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.13 Non-Exclusivity of Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

7. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
</TABLE>

<PAGE> 4
FIRST AVIATION SERVICES INC.
STOCK INCENTIVE PLAN

1. THE PLAN

1.1 Purpose

The purpose of this Plan is to promote the success of the
Company by providing an additional means through the grant of Awards to
attract, motivate, retain and reward key employees, including officers, whether
or not directors, of the Company with awards and incentives for high levels of
individual performance and improved financial performance of the Company and to
attract, motivate and retain experienced and knowledgeable independent
directors. "Corporation" means First Aviation Services Inc., a Delaware
corporation, and "Company" means the Corporation and its Subsidiaries,
collectively. These terms and other capitalized terms are defined in Article
7.

1.2 Administration and Authorization; Power and Procedure.

(a) Committee. This Plan shall be administered by and all
Awards to Eligible Persons shall be authorized by the Committee. Action of the
Committee with respect to the administration of this Plan shall be taken
pursuant to a majority vote or by written consent of its members.

(b) Plan Awards; Interpretation; Powers of Committee.
Subject to the express provisions of this Plan, the Committee shall have the
authority:

(i) to determine from among those persons eligible the
particular Eligible Persons who will receive any Awards;

(ii) to grant Awards to Eligible Persons, determine the
price at which securities will be offered or awarded and the amount of
securities to be offered or awarded to any of such persons, and
determine the other specific terms and conditions of such Awards
consistent with the express limits of this Plan, and establish the
installments (if any) in which such Awards shall become exercisable or
shall vest, or determine that no delayed exercisability or vesting is
required, and establish the events of termination or reversion of such
Awards;
<PAGE> 5
(iii) to approve the forms of Award Agreements (which need
not be identical either as to type of award or among Participants);

(iv) to construe and interpret this Plan and any
agreements defining the rights and obligations of the Company and
Participants under this Plan, further define the terms used in this
Plan, and prescribe, amend and rescind rules and regulations relating
to the administration of this Plan;

(v) to cancel, modify, or waive the Corporation's rights
with respect to, or modify, discontinue, suspend, or terminate any or
all outstanding Awards held by Eligible Persons, subject to any
required consent under Section 6.6;

(vi) to accelerate or extend the exercisability or extend
the term of any or all such outstanding Awards within the maximum
ten-year term of Awards under Section 1.6; and

(vii) to make all other determinations and take such other
action as contemplated by this Plan or as may be necessary or
advisable for the administration of this Plan and the effectuation of
its purposes.

Notwithstanding the foregoing, the provisions of Article 8 relating to
Non-Employee Director Awards shall be automatic and, to the maximum extent
possible, self-effectuating.

(c) Binding Determinations. Any action taken by, or
inaction of, the Corporation, any Subsidiary, the Board or the Committee
relating or pursuant to this Plan shall be within the absolute discretion of
that entity or body and shall be conclusive and binding upon all persons. No
member of the Board or Committee, or officer of the Corporation or any
Subsidiary, shall be liable for any such action or inaction of the entity or
body, of another person or, except in circumstances involving bad faith, of
himself or herself. Subject only to compliance with the express provisions
hereof, the Board and Committee may act in their absolute discretion in matters
within their authority related to this Plan.

(d) Reliance on Experts. In making any determination or
in taking or not taking any action under this Plan, the Committee or the Board,
as the case may be, may obtain and may rely upon the advice of experts,
including professional advisors to the Corporation. No director, officer or
agent of the Company shall be liable for any such action or determination taken
or made or omitted in good faith.

2
<PAGE> 6
(e) Delegation. The Committee may delegate ministerial,
non-discretionary functions to individuals who are officers or employees of the
Company.

1.3 Participation.

Awards may be granted by the Committee only to those persons
that the Committee determines to be Eligible Persons. An Eligible Person who
has been granted an Award may, if otherwise eligible, be granted additional
Awards if the Committee shall so determine.

1.4 Shares Available for Awards; Share Limits.

(a) Shares Available. Subject to the provisions of
Section 6.2, the capital stock that may be delivered under this Plan shall be
shares of the Corporation's authorized but unissued Common Stock and any shares
of its Common Stock held as treasury shares. The shares may be delivered for
any lawful consideration.

(b) Share Limits. The maximum number of shares of Common
Stock that may be delivered pursuant to Awards (including Incentive Stock
Options) granted to Eligible Persons under this Plan shall not exceed 400,000
shares (the "Share Limit"). The maximum number of shares of Common Stock that
may be delivered pursuant to options qualified as Incentive Stock Options
granted under this Plan is 400,000 shares. The maximum number of shares
subject to those Options and Stock Appreciation Rights that are granted during
any calendar year to any individual shall be limited to 150,000 and the maximum
individual limit on the number of shares in the aggregate subject to all Awards
that during any calendar year are granted under this Plan shall be 150,000.
Each of the four foregoing numerical limits shall be subject to adjustment as
contemplated by this Section 1.4 and Section 6.2.

(c) Share Reservation; Replenishment and Reissue of
Unvested Awards. No Award may be granted under this Plan unless, on the date
of grant, the sum of (i) the maximum number of shares issuable at any time
pursuant to such Award, plus (ii) the number of shares that have previously
been issued pursuant to Awards granted under this Plan, other than reacquired
shares available for reissue consistent with any applicable legal limitations,
plus (iii) the maximum number of shares that may be issued at any time after
such date of grant pursuant to Awards that are outstanding on such date, does
not exceed the Share Limit. Shares that are subject to or underlie Awards
which expire or for any reason are cancelled or terminated, are forfeited, fail
to vest, or for any other reason are not paid or delivered under this Plan, as
well as reacquired shares, shall again, except to the extent prohibited by law,

3
<PAGE> 7
be available for subsequent Awards under the Plan. Except as limited by law,
if an Award is or may be settled only in cash, such Award need not be counted
against any of the limits under this Section 1.4.

1.5 Grant of Awards.

Subject to the express provisions of this Plan, the Committee
shall determine the number of shares of Common Stock subject to each Award, the
price (if any) to be paid for the shares or the Award and, in the case of
Performance Share Awards, in addition to matters addressed in Section 1.2(b),
the specific objectives, goals and performance criteria (such as an increase in
sales, market value, earnings or book value over a base period, the years of
service before vesting, the relevant job classification or level of
responsibility or other factors) that further define the terms of the
Performance Share Award. Each Award shall be evidenced by an Award Agreement
signed by the Corporation and, if required by the Committee, by the
Participant.

1.6 Award Period.

Each Award and all executory rights or obligations under the
related Award Agreement shall expire on such date (if any) as shall be
determined by the Committee, but in the case of Options or other rights to
acquire Common Stock not later than ten (10) years after the Award Date.

1.7 Limitations on Exercise and Vesting of Awards.

(a) Provisions for Exercise. Unless the Committee
otherwise expressly provides, no Award shall be exercisable or shall vest until
at least six months after the initial Award Date, and once exercisable an Award
shall remain exercisable until the expiration or earlier termination of the
Award.

(b) Procedure. Any exercisable Award shall be deemed to
be exercised when the Secretary of the Corporation receives written notice of
such exercise from the Participant, together with any required payment made in
accordance with Section 2.2(a).

(c) Fractional Shares/Minimum Issue. Fractional share
interests shall be disregarded, but may be accumulated. The Committee, however,
may determine in the case of Eligible Persons that cash, other securities, or
other property will be paid or transferred in lieu of any fractional share
interests. No fewer than [100] shares may be purchased on exercise of any
Award at one time unless the number purchased is the total number at the time
available for purchase under the Award.

4
<PAGE> 8
1.8 No Transferability; Limited Exception to Transfer
Restrictions.

(a) Limit On Exercise and Transfer. Unless
otherwise expressly provided in (or pursuant to) this Section 1.8, by
applicable law and by the Award Agreement, as the same may be amended, (i) all
Awards are non-transferable and shall not be subject in any manner to sale,
transfer, anticipation, alienation, assignment, pledge, encumbrance or charge;
Awards shall be exercised only by the Participant; and (ii) amounts payable or
shares issuable pursuant to an Award shall be delivered only to (or for the
account of) the Participant.

(b) Exceptions. The Committee may permit Awards
to be exercised by and paid only to certain persons or entities related to the
Participant, including but not limited to members of the Participant's
immediate family, charitable institutions, or trusts or other entities whose
beneficiaries or beneficial owners are members of the Participant's immediate
family and/or charitable institutions, or to such other persons or entities as
may be approved by the Committee, pursuant to such conditions and procedures as
the Committee may establish. Any permitted transfer shall be subject to the
condition that the Committee receive evidence satisfactory to it that the
transfer is being made for estate and/or tax planning purposes on a gratuitous
or donative basis and without consideration (other than nominal consideration).
Notwithstanding the foregoing, Incentive Stock Options and Restricted Stock
Awards shall be subject to any and all additional transfer restrictions under
the Code.

(c) Further Exceptions to Limits On Transfer.
The exercise and transfer restrictions in Section 1.8(a) shall not apply to:

(i) transfers to the Corporation,

(ii) the designation of a beneficiary to receive benefits
in the event of the Participant's death or, if the
Participant has died, transfers to or exercise by the
Participant's beneficiary, or, in the absence of a
validly designated beneficiary, transfers by will or
the laws of descent and distribution,

(iii) transfers pursuant to a QDRO order if approved or
ratified by the Committee,

(iv) if the Participant has suffered a disability,
permitted transfers or exercises on behalf of the
Participant by his or her legal representative, or

5
<PAGE> 9
(v) the authorization by the Committee of "cashless
exercise" procedures with third parties who provide
financing for the purpose of (or who otherwise
facilitate) the exercise of Awards consistent with
applicable laws and the express authorization of the
Committee.

Notwithstanding the foregoing, Incentive Stock Options and Restricted Stock
Awards shall be subject to any and all additional transfer restrictions under
the Code.

2. OPTIONS.

2.1 Grants.

One or more Options may be granted under this Article to any
Eligible Person. Each Option granted shall be designated in the applicable
Award Agreement, by the Committee as either an Incentive Stock Option, subject
to Section 2.3, or a Non-Qualified Stock Option; provided, however, that
Incentive Stock Options may only be granted to Eligible Persons who are
employees of the Company.

2.2 Option Price.

(a) Pricing Limits. The purchase price per share of the
Common Stock covered by each Option shall be determined by the Committee at the
time of the Award, but in the case of Incentive Stock Options shall not be less
than 100% (110% in the case of a Participant described in Section 2.4) of the
Fair Market Value of the Common Stock on the date of grant.

(b) Payment Provisions. The purchase price of any shares
purchased on exercise of an Option granted under this Article shall be paid in
full at the time of each purchase in one or a combination of the following
methods: (i) in cash or by electronic funds transfer; (ii) by check payable to
the order of the Corporation; (iii) if authorized by the Committee or
specified in the applicable Award Agreement, by a promissory note of the
Participant consistent with the requirements of Section 1.8; (iv) by notice and
third party payment in such manner as may be authorized by the Committee; or
(v) by the delivery of shares of Common Stock of the Corporation already owned
by the Participant, provided, however, that the Committee may in its absolute
discretion limit the Participant's ability to exercise an Award by delivering
such shares, and provided further that any shares delivered which were
initially acquired upon exercise of a stock option must have been owned by the
Participant at least six months as of the date of delivery. Shares of Common
Stock used to satisfy the exercise price of

6
<PAGE> 10
an Option shall be valued at their Fair Market Value on the date of exercise.

2.3 Limitations on Grant and Terms of Incentive Stock Options.

(a) $100,000 Limit. To the extent that the aggregate
"Fair Market Value" of stock with respect to which incentive stock options
first become exercisable by a Participant in any calendar year exceeds
$100,000, taking into account both Common Stock subject to Incentive Stock
Options under this Plan and stock subject to incentive stock options under all
other plans of the Company [or any parent corporation], such options shall be
treated as Nonqualified Stock Options. For this purpose, the "Fair Market
Value" of the stock subject to options shall be determined as of the date the
options were awarded. In reducing the number of options treated as incentive
stock options to meet the $100,000 limit, the most recently granted options
shall be reduced first. To the extent a reduction of simultaneously granted
options is necessary to meet the $100,000 limit, the Committee may, in the
manner and to the extent permitted by law, designate which shares of Common
Stock are to be treated as shares acquired pursuant to the exercise of an
Incentive Stock Option.

(b) Option Period. Each Option and all rights thereunder
shall expire no later than 10 years after the Award Date.

(c) Other Code Limits. Incentive Stock Options may only
be granted to Eligible Employees of the Corporation or a Subsidiary that
satisfies the other eligibility requirements of the Code. There shall be
imposed in any Award Agreement relating to Incentive Stock Options such other
terms and conditions as from time to time are required in order that the Option
be an "incentive stock option" as that term is defined in Section 422 of the
Code.

2.4 Limits on 10% Holders.

No Incentive Stock Option may be granted to any person who, at
the time the Option is granted, owns (or is deemed to own under Section 424(d)
of the Code) shares of outstanding Common Stock possessing more than 10% of the
total combined voting power of all classes of stock of the Corporation, unless
the exercise price of such Option is at least 110% of the Fair Market Value of
the stock subject to the Option and such Option by its terms is not exercisable
after the expiration of five years from the date such Option is granted.

2.5 Options and Rights in Substitution for Stock Options Granted
by Other Corporations. Options and Stock

7
<PAGE> 11
Appreciation Rights may be granted to Eligible Persons under this Plan in
substitution for employee stock options granted by other entities to persons
who are or who will become Eligible Persons in respect of the Company, in
connection with a distribution, merger or reorganization by or with the
granting entity or an affiliated entity, or the acquisition by the Company,
directly or indirectly, of all or a substantial part of the stock or assets of
the other entity.

3. STOCK APPRECIATION RIGHTS (INCLUDING LIMITED STOCK
APPRECIATION RIGHTS).

3.1 Grants.

In its discretion, the Committee may grant Stock Appreciation
Rights to any Eligible Person either concurrently with the grant of another
Award or in respect of an outstanding Award, in whole or in part, or
independently of any other Award. Any Stock Appreciation Right granted in
connection with an Incentive Stock Option shall contain such terms as may be
required to comply with the provisions of Section 422 of the Code and the
regulations promulgated thereunder, unless the holder otherwise agrees.

3.2 Exercise of Stock Appreciation Rights.

(a) Exercisability. Unless the Award Agreement or the
Committee otherwise provides, a Stock Appreciation Right related to another
Award shall be exercisable at such time or times, and to the extent, that the
related Award shall be exercisable.

(b) Effect on Available Shares. To the extent that a
Stock Appreciation Right is exercised, the number of underlying shares of
Common Stock theretofore subject to a related Award shall be charged against
the maximum amount of Common Stock that may be delivered pursuant to Awards
under this Plan. The number of shares subject to the Stock Appreciation Right
and the related Option of the Participant shall, however, be reduced by the
number of underlying shares as to which the exercise related, unless the Award
Agreement otherwise provides.

(c) Stand-Alone SARs. A Stock Appreciation Right granted
independently of any other Award shall be exercisable pursuant to the terms of
the Award Agreement.

8
<PAGE> 12
3.3 Payment.

(a) Amount. Unless the Committee otherwise provides,
upon exercise of a Stock Appreciation Right and the attendant surrender of an
exercisable portion of any related Award, the Participant shall be entitled to
receive payment of an amount determined by multiplying

(i) the difference obtained by subtracting the
exercise price per share of Common Stock under the related Award (if
applicable) or the initial share value specified in the Award from the
Fair Market Value of a share of Common Stock on the date of exercise
of the Stock Appreciation Right, by

(ii) the number of shares with respect to which
the Stock Appreciation Right shall have been exercised.

(b) Form of Payment. The Committee, in its sole
discretion, shall determine the form in which payment shall be made of the
amount determined under paragraph (a) above, either solely in cash, solely in
shares of Common Stock (valued at Fair Market Value on the date of exercise of
the Stock Appreciation Right), or partly in such shares and partly in cash,
provided that the Committee shall have determined that such exercise and
payment are consistent with applicable law. If the Committee permits the
Participant to elect to receive cash or shares (or a combination thereof) on
such exercise, any such election shall be subject to such conditions as the
Committee may impose.

3.4 Limited Stock Appreciation Rights.

The Committee may grant to any Eligible Person Stock
Appreciation Rights exercisable only upon or in respect of a change in control
or any other specified event ("Limited SARs") and such Limited SARs may relate
to or operate in tandem or combination with or substitution for Options, other
Stock Appreciation Rights or other Awards (or any combination thereof), and may
be payable in cash or shares based on the spread between the base price of the
Stock Appreciation Right and a price based upon the Fair Market Value of the
Shares during a specified period or at a specified time within a specified
period before, after or including the date of such event.

9
<PAGE> 13
4. RESTRICTED STOCK AWARDS.

4.1 Grants.

The Committee may, in its discretion, grant one or more
Restricted Stock Awards to any Eligible Person. Each Restricted Stock Award
Agreement shall specify the number of shares of Common Stock to be issued to
the Participant, the date of such issuance, the consideration for such shares
(but not less than the minimum lawful consideration under applicable state law)
by the Participant, the extent (if any) to which and the time (if ever) at
which the Participant shall be entitled to dividends, voting and other rights
in respect of the shares prior to vesting, and the restrictions (which may be
based on performance criteria, passage of time or other factors or any
combination thereof) imposed on such shares and the conditions of release or
lapse of such restrictions. Stock certificates evidencing shares of Restricted
Stock pending the lapse of the restrictions ("Restricted Shares") shall bear a
legend making appropriate reference to the restrictions imposed hereunder and
shall be held by the Corporation or by a third party designated by the
Committee until the restrictions on such shares shall have lapsed and the
shares shall have vested in accordance with the provisions of the Award and
Section 1.7. Upon issuance of the Restricted Stock Award, the Participant may
be required to provide such further assurance and documents as the Committee
may require to enforce the restrictions.

4.2 Restrictions.

(a) Pre-Vesting Restraints. Except as provided in
Section 4.1 and 1.8, restricted shares comprising any Restricted Stock Award
may not be sold, assigned, transferred, pledged or otherwise disposed of or
encumbered, either voluntarily or involuntarily, until the restrictions on such
shares have lapsed and the shares have become vested.

(b) Dividend and Voting Rights. Unless otherwise
provided in the applicable Award Agreement, a Participant receiving a
Restricted Stock Award shall be entitled to cash dividend and voting rights for
all shares issued even though they are not vested, provided that such rights
shall terminate immediately as to any Restricted Shares which cease to be
eligible for vesting.

(c) Cash Payments. If the Participant shall have paid or
received cash (including any dividends) in connection with the Restricted Stock
Award, the Award Agreement shall specify whether and to what extent such cash
shall be returned (with or without an earnings factor) as to

10
<PAGE> 14
any restricted shares which cease to be eligible for vesting.

4.3 Return to the Corporation.

Unless the Committee otherwise expressly provides, Restricted
Shares that remain subject to restrictions at the time of termination of
employment or are subject to other conditions to vesting that have not been
satisfied by the time specified in the applicable Award Agreement shall not
vest and shall be returned to the Corporation in such manner and on such terms
as the Committee shall therein provide.

5. PERFORMANCE SHARE AWARDS AND STOCK BONUSES.

5.1 Grants of Performance Share Awards.

The Committee may, in its discretion, grant Performance Share
Awards to Eligible Persons based upon such factors as the Committee shall deem
relevant in light of the specific type and terms of the award. An Award
Agreement shall specify the maximum number of shares of Common Stock (if any)
subject to the Performance Share Award, the consideration (but not less than
the minimum lawful consideration) to be paid for any such shares as may be
issuable to the Participant, the duration of the Award and the conditions upon
which delivery of any shares or cash to the Participant shall be based. The
amount of cash or shares or other property that may be deliverable pursuant to
such Award shall be based upon the degree of attainment over a specified period
of not more than 10 years (a "performance cycle") as may be established by the
Committee of such measure(s) of the performance of the Company (or any part
thereof) or the Participant as may be established by the Committee. The
Committee may provide for full or partial credit, prior to completion of such
performance cycle or the attainment of the performance achievement specified in
the Award, in the event of the Participant's death, Retirement, or Total
Disability, a Change in Control Event or in such other circumstances as the
Committee.

5.2 Special Performance-Based Share Awards.

Without limiting the generality of the foregoing, and in
addition to Options and Stock Appreciation Rights granted under other
provisions of this Plan which are intended to satisfy the exception for
"performance-based compensation" under Section 162(m) of the Code (with such
Awards hereinafter referred to as a "Qualifying Option" or a "Qualifying Stock
Appreciation Right," respectively), other performance-based awards within the
meaning of Section 162(m) of the Code ("Performance-Based Awards"), whether in
the form of restricted stock, performance stock,

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<PAGE> 15
phantom stock or other rights, the grant, vesting, exercisability or payment of
which depends on the degree of achievement of the Performance Goals relative to
preestablished targeted levels for the Corporation or the Corporation and one
or more of its Subsidiaries, may be granted under this Plan. Any Qualifying
Option or Qualifying Stock Appreciation Right shall be subject only to the
requirements of subsections (a) and (c) below in order for such Awards to
satisfy the requirements for Performance-Based Awards under this Section 5.2.
With the exception of any Qualifying Option or Qualifying Stock Appreciation
Right, an Award that is intended to satisfy the requirements of this Section
5.2 shall be designated as a Performance-Based Award at the time of grant.

(a) Eligible Class. The eligible class of persons for
Performance-Based Awards under this Section shall be the executive officers of
the Corporation.

(b) Performance Goal Alternatives. The specific
performance goals for Performance-Based Awards granted under this Section
(other than Qualifying Options and Qualifying Stock Appreciation Rights) shall
be, on an absolute or relative basis, one or more of the Performance Goals, as
selected by the Committee in its sole discretion. The Committee shall
establish in the applicable Award Agreement the specific performance target(s)
relative to the Performance Goal(s) which must be attained before the
compensation under the Performance-Based Award becomes payable. The specific
targets shall be determined within the time period permitted under Section
162(m) of the Code (and any regulations issued thereunder) so that such targets
are considered to be preestablished and so that the attainment of such targets
is substantially uncertain at the time of their establishment. The applicable
performance measurement period may not be less than one nor more than 10 years.

(c) Maximum Performance-Based Award. Notwithstanding any
other provision of the Plan to the contrary, the maximum number of shares of
Common Stock which may be delivered pursuant to options, stock appreciation
rights, restricted stock or other share-based awards that are granted as
Performance-Based Awards to any Participant in any calendar year shall not
exceed 150,000 shares, either individually or in the aggregate, subject to
adjustment as provided in Section 6.2. Awards that are cancelled during the
year shall be counted against this limit to the extent required by Section
162(m) of the Code. In addition, the aggregate amount of compensation to be
paid to any Participant in respect of any Cash-Based Awards that are granted
during any calendar year as Performance-Based Awards shall not exceed $150,000.

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<PAGE> 16
(d) Committee Certification. Before any
Performance-Based Award under this Section 5.2 (other than Qualifying Options
or Qualifying Stock Appreciation Rights) is paid, the Committee must certify in
writing that the Performance Goal(s) and any other material terms of the
Performance-Based Award were satisfied; provided, however, that a
Performance-Based Award may be paid without regard to the satisfaction of the
applicable Performance Goal in the event of a Change in Control Event in
accordance with Section 6.2(d).

(e) Terms and Conditions of Awards. The Committee will
have the discretion to determine the restrictions or other limitations of the
individual Awards granted under this Section 5.2 including the authority to
reduce Awards, payouts or vesting or to pay no Awards, in its sole discretion,
if the Committee preserves such authority at the time of grant by language to
this effect in its authorizing resolutions or otherwise.

(f) Adjustments for Changes in Capitalization and other
Material Changes. In the event of a change in corporate capitalization, such
as a stock split or stock dividend, or a corporate transaction, such as a
merger, consolidation, spinoff, reorganization or similar event, or any partial
or complete liquidation of the Corporation, or any similar event consistent
with regulations issued under Section 162(m) of the Code including, without
limitation, any material change in accounting policies or practices affecting
the Corporation and/or the Performance Goals or targets, then the Committee may
make adjustments to the Performance Goals and targets relating to outstanding
Performance-Based Awards to the extent such adjustments are made to reflect the
occurrence of such an event; provided, however, that adjustments described in
this subsection may be made only to the extent that the occurrence of an event
described herein was unforeseen at the time the targets for a Performance-Based
Award were established by the Committee.

5.3 Grants of Stock Bonuses.

The Committee may grant a Stock Bonus to any Eligible Person
to reward exceptional or special services, contributions or achievements in the
manner and on such terms and conditions (including any restrictions on such
shares) as determined from time to time by the Committee. The number of shares
so awarded shall be determined by the Committee. The Award may be granted
independently or in lieu of a cash bonus.

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<PAGE> 17
5.4 Deferred Payments.

The Committee may authorize for the benefit of any Eligible
Person the deferral of any payment of cash or shares that may become due or of
cash otherwise payable under this Plan, and provide for accredited benefits
thereon based upon such deferment, at the election or at the request of such
Participant, subject to the other terms of this Plan. Such deferral shall be
subject to such further conditions, restrictions or requirements as the
Committee may impose, subject to any then vested rights of Participants.

6. OTHER PROVISIONS.

6.1 Rights of Eligible Persons, Participants and Beneficiaries.

(a) Employment Status. Status as an Eligible Person
shall not be construed as a commitment that any Award will be made under this
Plan to an Eligible Person or to Eligible Persons generally.

(b) No Employment Contract. Nothing contained in this
Plan (or in any other documents related to this Plan or to any Award) shall
confer upon any Eligible Person or other Participant any right to continue in
the employ or other service of the Company or constitute any contract or
agreement of employment or other service, nor shall interfere in any way with
the right of the Company to change such person's compensation or other benefits
or to terminate the employment of such person, with or without cause, but
nothing contained in this Plan or any document related hereto shall adversely
affect any independent contractual right of such person without his or her
consent thereto.

(c) Plan Not Funded. Awards payable under this Plan
shall be payable in shares or from the general assets of the Corporation, and
(except as provided in Section 1.4) no special or separate reserve, fund or
deposit shall be made to assure payment of such Awards. No Participant,
Beneficiary or other person shall have any right, title or interest in any fund
or in any specific asset (including shares of Common Stock, except as expressly
otherwise provided) of the Company by reason of any Award hereunder. Neither
the provisions of this Plan (or of any related documents), nor the creation or
adoption of this Plan, nor any action taken pursuant to the provisions of this
Plan shall create, or be construed to create, a trust of any kind or a
fiduciary relationship between the Company and any Participant, Beneficiary or
other person. To the extent that a Participant, Beneficiary or other person
acquires a right to receive payment pursuant to any Award hereunder,

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<PAGE> 18
such right shall be no greater than the right of any unsecured general creditor
of the Company.

6.2 Adjustments; Acceleration.

(a) Adjustments. If there shall occur any extraordinary
dividend or other extraordinary distribution in respect of the Common Stock
(whether in the form of cash, Common Stock, other securities, or other
property), or any reclassification, recapitalization, stock split (including a
stock split in the form of a stock dividend), reverse stock split,
reorganization, merger, combination, consolidation, split-up, spin-off,
combination, repurchase, or exchange of Common Stock or other securities of the
Corporation, or there shall occur any similar, unusual or extraordinary
corporate transaction or event in respect of the Common Stock or a sale of
substantially all the assets of the Corporation as an entirety, then the
Committee shall, in such manner and to such extent (if any) as it deems
appropriate and equitable (1) proportionately adjust any or all of (a) the
number and type of shares of Common Stock (or other securities) which
thereafter may be made the subject of Awards (including the specific maxima and
numbers of shares set forth elsewhere in this Plan), (b) the number, amount and
type of shares of Common Stock (or other securities or property) subject to any
or all outstanding Awards, (c) the grant, purchase, or exercise price of any or
all outstanding Awards, (d) the securities, cash or other property deliverable
upon exercise of any outstanding Awards, or (e) the performance standards
appropriate to any outstanding Awards, or (2) in the case of an extraordinary
dividend or other distribution, recapitalization, reclassification, merger,
reorganization, consolidation, combination, sale of assets, split up, exchange,
or spin off, make provision for a cash payment or for the substitution or
exchange of any or all outstanding Awards or the cash, securities or property
deliverable to the holder of any or all outstanding Awards based upon the
distribution or consideration payable to holders of the Common Stock of the
Corporation upon or in respect of such event; provided, however, in each case,
that with respect to Awards of Incentive Stock Options, no such adjustment
shall be made which would cause the Plan to violate Section 424(a) of the Code
or any successor provisions thereto without the written consent of holders
materially adversely affected thereby. In any of such events, the Committee
may take such action sufficiently prior to such event if necessary to permit
the Participant to realize the benefits intended to be conveyed with respect to
the underlying shares in the same manner as is available to shareholders
generally.

(b) Possible Early Termination of Awards. If any Award
or other right to acquire Common Stock has not been exercised or has not become
vested or exercisable prior to

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<PAGE> 19
(i) a dissolution of the Corporation or (ii) a reorganization event described
in Section 6.2(a) that the Corporation does not survive, and no provision has
been made for the substitution, exchange or other settlement of such Award,
such Award shall thereupon terminate.

(c) Possible Early Termination of Accelerated Awards. If
any Option or other right to acquire Common Stock under this Plan (other than
under Article 8) has been fully accelerated as permitted by Section 6.2(b) but
is not exercised prior to (i) a dissolution of the Corporation, or (ii) an
event described in Section 6.2(a) that the Corporation does not survive, or
(iii) the consummation of an event described in Section 6.2(a) that results in
a Change of Control approved by the Board, such Option or right shall thereupon
terminate, subject to any provision that has been expressly made by the
Committee for the survival, substitution, exchange or other settlement of such
Option or right.

6.3 Effect of Termination of Employment.

(a) Options - Resignation or Dismissal. If the
Participant's employment by (or other service specified in the Award Agreement
to) the Company terminates for any reason (the date of such termination being
referred to as the "Severance Date") other than Retirement, Total Disability or
death, or "for cause" (as determined in the discretion of the Committee), the
Participant shall have, unless otherwise provided in the Award Agreement and
subject to earlier termination pursuant to or as contemplated by Section 1.6 or
6.2, three months after the Severance Date to exercise any Option to the extent
it shall have become exercisable on the Severance Date. In the case of a
termination "for cause", the Option shall terminate on the Severance Date. In
other cases, the Option, to the extent not exercisable on the Severance Date,
shall terminate.

(b) Options - Death or Disability. If the Participant's
employment by (or specified service to) the Company terminates as a result of
Total Disability or death, the Participant, Participant's Personal
Representative or his or her Beneficiary, as the case may be, shall have,
unless otherwise provided in the Award Agreement and subject to earlier
termination pursuant to or as contemplated by Section 1.6 or 6.2, until 3
months after the Severance Date to exercise any Option to the extent it shall
have become exercisable by the Severance Date. Any Option to the extent not
exercisable on the Severance Date shall terminate.

(c) Options - Retirement. If the Participant's
employment by (or specified service to) the Company terminates as a result of
Retirement, the Participant, Participant's Personal Representative or his or
her

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<PAGE> 20
Beneficiary, as the case may be, shall have, unless otherwise provided in the
Award Agreement and subject to earlier termination pursuant to or as
contemplated by Section 1.6 or 6.2, until 3 months after the Severance Date to
exercise any Nonqualified Stock Option (three months after the Severance Date
in the case of an Incentive Stock Option) to the extent it shall have become
exercisable by the Severance Date. The Option, to the extent not exercisable
on the Severance Date, shall terminate.

(d) Certain SARs. Any SAR granted concurrently or in
tandem with an Option shall have the same post-termination provisions and
exercisability periods as the Option to which it relates, unless the Committee
otherwise provides.

(e) Other Awards. The Committee shall establish in
respect of each other Award granted hereunder the Participant's rights and
benefits (if any) in the event of a termination of employment and in so doing
may make distinctions based upon the cause of termination and the nature of the
Award.

(f) Committee Discretion. Notwithstanding the foregoing
provisions of this Section 2.6, in the event of, or in anticipation of, a
termination of employment with the Company for any reason, other than discharge
for cause, the Committee may, in its discretion, increase the portion of the
Participant's Award available to the Participant, or Participant's Beneficiary
or Personal Representative, as the case may be, or, subject to the provisions
of Section 1.6, extend the exercisability period upon such terms as the
Committee shall determine and expressly set forth in or by amendment to the
Award Agreement.

6.4 Compliance with Laws.

This Plan, the granting and vesting of Awards under this Plan
and the offer, issuance and delivery of shares of Common Stock and/or the
payment of money under this Plan or under Awards granted hereunder are subject
to compliance with all applicable federal and state laws, rules and regulations
(including but not limited to state and federal securities law and federal
margin requirements) and to such approvals by any listing, regulatory or
governmental authority as may, in the opinion of counsel for the Corporation,
be necessary or advisable in connection therewith. Any securities delivered
under this Plan shall be subject to such restrictions, and the person acquiring
such securities shall, if requested by the Corporation, provide such assurances
and representations to the Corporation as the Corporation may deem necessary or
desirable to assure compliance with all applicable legal requirements.

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<PAGE> 21
6.5 Tax Withholding.

Upon any exercise, vesting, or payment of any Award or upon
the disposition of shares of Common Stock acquired pursuant to the exercise of
an Incentive Stock Option prior to satisfaction of the holding period
requirements of Section 422 of the Code, the Company shall have the right at
its option to (i) require the Participant (or Personal Representative or
Beneficiary, as the case may be) to pay or provide for payment of the amount of
any taxes which the Company may be required to withhold with respect to such
Award event or payment or (ii) deduct from any amount payable in cash the
amount of any taxes which the Company may be required to withhold with respect
to such cash payment. In any case where a tax is required to be withheld in
connection with the delivery of shares of Common Stock under this Plan, the
Committee may in its sole discretion grant (either at the time of the Award or
thereafter) to the Participant the right to elect, pursuant to such rules and
subject to such conditions as the Committee may establish, to have the
Corporation reduce the number of shares to be delivered by (or otherwise
reacquire) the appropriate number of shares valued at their then Fair Market
Value, to satisfy such withholding obligation.

6.6 Plan Amendment, Termination and Suspension.

(a) Board Authorization. The Board may, at any time,
terminate or, from time to time, amend, modify or suspend this Plan, in whole
or in part. No Awards may be granted during any suspension of this Plan or
after termination of this Plan, but the Committee shall retain jurisdiction as
to Awards then outstanding in accordance with the terms of this Plan.

(b) Shareholder Approval. Any amendment that would (i)
materially increase the benefits accruing to Participants under this Plan, (ii)
materially increase the aggregate number of securities that may be issued under
this Plan, or (iii) materially modify the requirements as to eligibility for
participation in this Plan, shall be subject to shareholder approval only to
the extent then required by Section 422 of the Code or applicable law, or
deemed necessary or advisable by the Board.

(c) Amendments to Awards. Without limiting any other
express authority of the Committee under but subject to the express limits of
this Plan, the Committee by agreement or resolution may waive conditions of or
limitations on Awards to Eligible Persons that the Committee in the prior
exercise of its discretion has imposed, without the consent of a Participant,
and may make other changes to the terms and conditions of Awards that do not
affect in any

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<PAGE> 22
manner materially adverse to the Participant, his or her rights and benefits
under an Award.

(d) Limitations on Amendments to Plan and Awards. No
amendment, suspension or termination of this Plan or change of or affecting any
outstanding Award shall, without written consent of the Participant, affect in
any manner materially adverse to the Participant any rights or benefits of the
Participant or obligations of the Corporation under any Award granted under
this Plan prior to the effective date of such change. Changes contemplated by
Section 6.2 shall not be deemed to constitute changes or amendments for
purposes of this Section 6.6.

6.7 Privileges of Stock Ownership.

Except as otherwise expressly authorized by the Committee or
this Plan, a Participant shall not be entitled to any privilege of stock
ownership as to any shares of Common Stock not actually delivered to and held
of record by him or her. No adjustment will be made for dividends or other
rights as a shareholders for which a record date is prior to such date of
delivery.

6.8 Effective Date of the Plan.

This Plan shall be effective as of January 24, 1997, the date
of Board approval, subject to shareholder approval within 12 months thereafter.

6.9 Term of the Plan.

No Award shall be granted under this Plan after more than ten
years after the effective date of this Plan (the "termination date"). Unless
otherwise expressly provided in this Plan or in an applicable Award Agreement,
any Award granted prior to the termination date may extend beyond such date,
and all authority of the Committee with respect to Awards hereunder, including
the authority to amend an Award, shall continue during any suspension of this
Plan and in respect of Awards outstanding on the termination date.

6.10 Governing Law/Construction/Severability.

(a) Choice of Law. This Plan, the Awards, all documents
evidencing Awards and all other related documents shall be governed by, and
construed in accordance with the laws of the state of incorporation of the
Corporation.

(b) Severability. If any provision shall be held by a
court of competent jurisdiction to be invalid and unenforceable, the remaining
provisions of this Plan shall continue in effect.

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(c) Plan Construction.

(1) Rule 16b-3. It is the intent of the
Corporation that transactions in and affecting Awards in the case of
Participants who are or may be subject to Section 16 of the Exchange Act
satisfy any then applicable requirements of Rule 16b-3 so that such persons
(unless they otherwise agree) will be entitled to the benefits of Rule 16b-3 or
other exemptive rules under Section 16 of the Exchange Act in respect of those
transactions and will not be subjected to avoidable liability thereunder. If
any provision of this Plan or of any Award would otherwise frustrate or
conflict with the intent expressed above, that provision to the extent possible
shall be interpreted as to avoid such conflict. If the conflict remains
irreconcilable, the Committee may disregard the provision if it concludes that
to do so furthers the interest of the Corporation and is consistent with the
purposes of this Plan as to such persons in the circumstances.

(2) Section 162(m). It is the further intent of
the Company that Options or SARs with an exercise or base price not less than
Fair Market Value on the date of grant and performance awards under Section 5.2
of this Plan that are granted to or held by a Section 16 Person shall qualify
as performance-based compensation under Section 162(m) of the Code, and this
Plan shall be interpreted consistent with such intent.

6.11 Captions.

Captions and headings are given to the sections and
subsections of this Plan solely as a convenience to facilitate reference. Such
headings shall not be deemed in any way material or relevant to the
construction or interpretation of this Plan or any provision thereof.

6.12 Effect of Change of Subsidiary Status.

For purposes of this Plan and any Award hereunder, if an
entity ceases to be a Subsidiary a termination of employment and service shall
be deemed to have occurred with respect to each Eligible Person in respect of
such Subsidiary who does not continue as an Eligible Person in respect of
another entity within the Company.

6.13 Non-Exclusivity of Plan.

Nothing in this Plan shall limit or be deemed to limit the
authority of the Board or the Committee to grant awards or authorize any other
compensation, with or without reference to the Common Stock, under any other
plan or authority.

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7. DEFINITIONS.

7.1 Definitions.

(a) "Award" shall mean an award of any Option, Stock
Appreciation Right, Restricted Stock, Stock Bonus, Performance Share Award,
dividend equivalent or deferred payment right or other right or security that
would constitute a "derivative security" under Rule 16a- 1(c) of the Exchange
Act, or any combination thereof, whether alternative or cumulative, authorized
by and granted under this Plan.

(b) "Award Agreement" shall mean any writing setting
forth the terms of an Award that has been authorized by the Committee.

(c) "Award Date" shall mean the date upon which the
Committee took the action granting an Award or such later date as the Committee
designates as the Award Date at the time of the Award or, in the case of Awards
under Article 8, the applicable dates set forth therein.

(d) "Award Period" shall mean the period beginning on an
Award Date and ending on the expiration date of such Award.

(e) "Beneficiary" shall mean the person, persons, trust
or trusts designated by a Participant or, in the absence of a designation,
entitled by will or the laws of descent and distribution, to receive the
benefits specified in the Award Agreement and under this Plan in the event of a
Participant's death, and shall mean the Participant's executor or administrator
if no other Beneficiary is designated and able to act under the circumstances.

(f) "Board" shall mean the Board of Directors of the
Corporation.

(g) "Cash Flow" shall mean cash and cash equivalents
derived from either (i) net cash flow from operations or (ii) net cash flow
from operations, financings and investing activities, as determined by the
Committee at the time an Award is granted.

(h) "Change in Control Event" shall mean any of the
following:

(1) Approval by the shareholders of the
Corporation of the dissolution or liquidation of the Corporation;

(2) Approval by the shareholders of the
Corporation of an agreement to merge or consolidate, or

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otherwise reorganize, with or into one or more entities that are not
Subsidiaries or other affiliates, as a result of which less than 50%
of the outstanding voting securities of the surviving or resulting
entity immediately after the reorganization are, or will be, owned,
directly or indirectly, by shareholders of the Corporation immediately
before such reorganization (assuming for purposes of such
determination that there is no change in the record ownership of the
Corporation's securities from the record date for such approval until
such reorganization and that such record owners hold no securities of
the other parties to such reorganization), but including in such
determination any securities of the other parties to such
reorganization held by affiliates of the Corporation);

(3) Approval by the shareholders of the
Corporation of the sale of substantially all of the Corporation's
business and/or assets to a person or entity which is not a Subsidiary
or other affiliate; or

(4) Any "person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act but excluding any person
described in and satisfying the conditions of Rule 13d-1(b)(1)
thereunder), other than a person who is the beneficial owner (as
defined in Rule 13d-3 under the Exchange Act) of more than 25% of the
outstanding Shares of Common Stock at the time of adoption of this
Plan, (or an affiliate, successor, heir, descendant or related party
of or to any such person, becomes the beneficial owner (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Corporation representing more than 50% of the
combined voting power of the Corporation's then outstanding securities
entitled to then vote generally in the election of directors of the
Corporation; or

(5) During any period not longer than two
consecutive years, individuals who at the beginning of such period
constituted the Board cease to constitute at least a majority thereof,
unless the election, or the nomination for election by the
Corporation's shareholders, of each new Board member was approved by a
vote of at least three-fourths of the Board members then still in
office who were Board members at the beginning of such period
(including for these purposes, new members whose election or
nomination was so approved).

(i) "Code" shall mean the Internal Revenue Code of 1986,
as amended from time to time.

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(j) "Commission" shall mean the Securities and Exchange
Commission.

(k) "Committee" shall mean the Board or a committee
appointed by the Board to administer this Plan, which committee shall be
comprised only of two or more directors or such greater number of directors as
may be required under applicable law, each of whom, (i) in respect of any
decision at a time when the Participant affected by the decision may be subject
to Section 162(m) of the Code, shall be an "outside director" within the
meaning of Section 162(m) of the Code, and/or (ii) in respect of any decision
at a time when the Participant affected by the decision may be subject to
Section 16 of the Exchange Act, shall be a "Non-Employee Director" within the
meaning of Rule 16b- 3(b)(3).

(l) "Common Stock" shall mean the Common Stock of the
Corporation and such other securities or property as may become the subject of
Awards, or become subject to Awards, pursuant to an adjustment made under
Section 6.2 of this Plan.

(m) "Company" shall mean, collectively, the Corporation
and its Subsidiaries.

(n) "Corporation" shall mean First Aviation Services
Inc., a Delaware corporation, and its successors.

(o) "EBITDA" shall mean earnings before interest, taxes,
depreciation and amortization.

(p) "Eligible Employee" shall mean an officer (whether or
not a director) or other employee of the Company.

(q) "Eligible Person" means an Eligible Employee, or any
Other Eligible Person, as determined and selected by the Committee, in its
discretion, for participation in this Plan.

(r) "EPS" shall mean earnings per common share on a fully
diluted basis determined by dividing (i) net earnings, less dividends on
preferred stock of the Corporation by (ii) the weighted average number of
common shares and common shares equivalents outstanding.

(s) "EVA" shall mean net income of the business unit in
excess of the required rate of return on capital employed.

(t) "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended from time to time.

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(u) "Fair Market Value" on any date shall mean (i) if the
stock is listed or admitted to trade on a national securities exchange, the
closing price of the stock on the Composite Tape, as published in the Western
Edition of The Wall Street Journal, of the principal national securities
exchange on which the stock is so listed or admitted to trade, on such date,
or, if there is no trading of the stock on such date, then the closing price of
the stock as quoted on such Composite Tape on the next preceding date on which
there was trading in such shares; (ii) if the stock is not listed or admitted
to trade on a national securities exchange, the last price for the stock on
such date, as furnished by the National Association of Securities Dealers, Inc.
("NASD") through the NASDAQ National Market Reporting System or a similar
organization if the NASD is no longer reporting such information; (iii) if the
stock is not listed or admitted to trade on a national securities exchange and
is not reported on the National Market Reporting System, the mean between the
bid and asked price for the stock on such date, as furnished by the NASD or a
similar organization; or (iv) if the stock is not listed or admitted to trade
on a national securities exchange, is not reported on the National Market
Reporting System and if bid and asked prices for the stock are not furnished by
the NASD or a similar organization, the value as established by the Committee
at such time for purposes of this Plan.

(v) "Incentive Stock Option" shall mean an Option which
is intended, as evidenced by its designation, as an incentive stock option
within the meaning of Section 422 of the Code, the award of which contains such
provisions (including but not limited to the receipt of shareholder approval of
this Plan, if the Award is made prior to such approval) and is made under such
circumstances and to such persons as may be necessary to comply with that
section.

(w) "Nonqualified Stock Option" shall mean an Option that
is designated as a Nonqualified Stock Option and shall include any Option
intended as an Incentive Stock Option that fails to meet the applicable legal
requirements thereof. Any Option granted hereunder that is not designated as
an incentive stock option shall be deemed to be designated a nonqualified stock
option under this Plan and not an incentive stock option under the Code.

(x) "Non-Employee Director" shall mean a member of the
Board of Directors of the Corporation who is not an officer or employee of the
Company.

(y) "Non-Employee Director Participant" shall mean a
Non-Employee Director who holds an outstanding Award under the provisions of
Article 8.

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<PAGE> 28
(z) "Option" shall mean an option to purchase Common
Stock granted under this Plan. The Committee shall designate any Option
granted to an Eligible Person as a Nonqualified Stock Option or an Incentive
Stock Option.

(aa) "Other Eligible Person" shall mean any Non-Employee
Director or any individual consultant or advisor who renders or has rendered
bona fide services (other than services in connection with the offering or sale
of securities of the Company in a capital raising transaction) to the Company,
and who is selected to participate in this Plan by the Committee.

(ab) "Participant" shall mean an Eligible Person who has
been granted an Award under this Plan and a Non-Employee Director who has been
received an Award under this Plan.

(ac) "Performance Goal" shall mean EBITDA or EPS or EVA or
Return on Assets or ROE or Cash Flow or Total Stockholder Return, and
"Performance Goals" means any combination thereof.

(ad) "Performance Share Award" shall mean an Award of a
right to receive shares of Common Stock or other compensation (including cash)
under Section 5.2, the issuance or payment of which is contingent upon, among
other conditions, the attainment of performance objectives specified by the
Committee.

(ae) "Personal Representative" shall mean the person or
persons who, upon the disability or incompetence of a Participant, shall have
acquired on behalf of the Participant, by legal proceeding or otherwise, the
power to exercise the rights or receive benefits under this Plan and who shall
have become the legal representative of the Participant.

(af) "Plan" shall mean this Stock Incentive Plan.

(ag) "QDRO" shall mean a qualified domestic relations
order.

(ah) "Restricted Shares" or "Restricted Stock" shall mean
shares of Common Stock awarded to a Participant under this Plan, subject to
payment of such consideration, if any, and such conditions on vesting (which
may include, among others, the passage of time, specified performance
objectives or other factors) and such transfer and other restrictions as are
established in or pursuant to this Plan and the related Award Agreement, for so
long as such shares remain unvested under the terms of the applicable Award
Agreement.

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<PAGE> 29
(ai) "Retirement" shall mean retirement with the consent
of the Company or, from active service as an employee or officer of the Company
on or after attaining age 55 with 10 or more years of service or after age 65
or, in the case of a Non-Employee Director, a retirement or resignation as a
director after at least five years service as a director.

(aj) "Return on Assets" shall mean consolidated net income
of the Corporation, divided by the average total assets for the period.

(ak) "ROE" shall mean consolidated net income of the
Corporation (less preferred dividends), divided by the average consolidated
common shareholders equity.

(al) "Rule 16b-3" shall mean Rule 16b-3 as promulgated by
the Commission pursuant to the Exchange Act, as amended from time to time.

(am) "Section 16 Person" shall mean a person subject to
Section 16(a) of the Exchange Act.

(an) "Securities Act" shall mean the Securities Act of
1933, as amended from time to time.

(ao) "Stock Appreciation Right" shall mean a right authorized
under this Plan to receive a number of shares of Common Stock or an amount of
cash, or a combination of shares and cash, the aggregate amount or value of
which is determined by reference to a change in the Fair Market Value of the
Common Stock.

(ap) "Stock Bonus" shall mean an Award of shares of Common
Stock granted under this Plan for no consideration other than past services and
without restriction other than such transfer or other restrictions as the
Committee may deem advisable to assure compliance with law.

(aq) "Subsidiary" shall mean any corporation or other
entity a majority of whose outstanding voting stock or voting power is
beneficially owned directly or indirectly by the Corporation.

(ar) "Total Disability" shall mean a "permanent and total
disability" within the meaning of Section 22(e)(3) of the Code and such other
disabilities, infirmities, afflictions or conditions as the Committee by rule
may include.

(as) "Total Stockholder Return" shall mean with respect to
the Corporation or other entities (if measures on a relative basis), the (i)
change in the market price of its common stock (as quoted in the principal
market on which it

26
<PAGE> 30
is traded as of the beginning and ending of the period) plus dividends and
other distributions paid, divided by (ii) the beginning quoted market price,
all of which is adjusted for any changes in equity structure, including but not
limited to stock splits and stock dividends.

<PAGE> 1
EXHIBIT 10.15

FIRST AVIATION SERVICES INC.

EMPLOYEE STOCK PURCHASE PLAN

1. DEFINITIONS.

(a) "Base Pay" means a Qualified Employee's gross pay for a
40-hour week, including overtime payments, bonuses and sales commission, but
excluding relocation or attributed types of compensation, and other special
payments, fees or allowances.

(b) "Board" means the Board of Directors of the Company.

(d) "Committee" has the meaning set forth in Section 13 hereof.

(e) "Common Stock" means the Common Stock of the Company, $0.01
par value per share.

(f) "Company" means First Aviation Services Inc., a Delaware
corporation, and its successors.

(g) "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and as it may be amended from time to time.

(h) "Exercise Date" has the meaning set forth in Section 4(a)
hereof.

(i) "Fair Market Value" means the average of the high and low
price of the Common Stock on the NASDAQ National Market System as reported and
published in the Eastern Edition of The Wall Street Journal, or if there is no
trading of the Common Stock on the date in question, then the average of the
high and low price of the Common Stock, as so reported and published, on the
next preceding date on which there was trading in the Common Stock; provided,
however, that the Committee, in determining such Fair Market Value, may utilize
such other exchange, market or other factors affecting value of the Common
Stock as it may deem appropriate.

(j) "Grant Date" has the meaning set forth in Section 4(a) hereof.

(k) "Offering Period" means the six month term of options under
this Plan, commencing on January 1 and July 1 of each year; provided, however
that the first

1
<PAGE> 2
Offering Period shall be an eight month term commencing on May 1, 1997 and
ending on December 31, 1997.

(l) "Option Price" has the meaning set forth in Section 5(b)
hereof.

(m) "Participant" means a Qualified Employee who elects to
participate in this Plan during an Offering Period.

(n) "Personal Representative" means the person or persons who,
upon the death or Total Disability of a Participant, shall have acquired, on
behalf of the Participant by legal proceeding or under the laws of descent and
distribution or otherwise, the right to exercise the Participant's rights
under, or to receive the benefits specified in, this Plan.

(o) "Plan" means this First Aviation Services Inc. Employee Stock
Purchase Plan, as it may be amended from time to time.

(p) "Qualified Employee" means any employee of the Company or any
Subsidiary who has completed 12 months of continuous service with the Company
or a Subsidiary as of the Grant Date and who is customarily employed for more
than 20 hours per week and more than five months in a calendar year.
Notwithstanding the foregoing, the term "Qualified Employee" does not include
any employee who, immediately after the option is granted, owns (within the
meaning of Sections 423(b)(3) and 424(d) of the Code) stock representing 5% or
more of the total combined voting power or value of all classes of stock of the
Company or a Subsidiary.

With respect to employees of Aircraft Parts International
("API") who became employees of the Company upon the Company's acquisition of
API from AMR Combs, Inc., continuous service with the Company or a Subsidiary
shall include, for purposes of determining an individual's status as a
Qualified Employee only, such individual's continuous employment with API prior
to becoming employed by the Company.

(q) "Subsidiary" means any corporation or other entity, at least a
majority of whose outstanding voting stock or voting power is beneficially
owned directly or indirectly by the Company.

All references herein to the masculine shall also be references to the
feminine or neuter as appropriate.

2. PURPOSE, SUMMARY. The purpose of this Plan is to assist
Qualified Employees in acquiring a stock ownership interest in the Company
pursuant to a plan which is intended to qualify as an "employee stock purchase
plan" under Section 423 of the Code. Under this Plan, Participants are deemed
to have been granted options to purchase shares of Common Stock. Participants
designate a certain amount of their

2
<PAGE> 3
Base Pay to be set aside during the Offering Period for the purpose of
purchasing Common Stock. At the end of the Offering Period, the Participants
are deemed to have exercised their options using the funds set aside for them
and the Company issues share certificates to them. The Plan is intended, among
other things, to provide an additional incentive to Participants, through the
ownership of Common Stock, to achieve business goals that would increase stock
values and to remain in the employ of the Company or a Subsidiary.

3. STOCK SUBJECT TO THIS PLAN. Subject to the provisions of
Section 10 hereof (relating to adjustments upon changes in capitalization), the
total number of shares available under this Plan is 250,000 shares of Common
Stock. Such shares may be authorized but unissued shares.

4. GRANT OF OPTIONS.

(a) IN GENERAL. Commencing May 1, 1997 and continuing
while this Plan remains in force, the Company will offer options to purchase
shares of Common Stock under this Plan to all Participants. The options will
be deemed to have been granted as of January 1 and July 1 (or, with respect to
the 1997 calendar year, as of May 1 only) of each year (each, a "Grant Date").
The term of each option shall be six months (eight months for the 1997 calendar
year), the last day of which shall be either June 30 or December 31, as
applicable, (the "Exercise Date"). The number of shares subject to each option
and deemed to be purchased by each Participant shall be the quotient, rounded
down to the nearest whole number, of (i) the aggregate payroll deductions
authorized by each Participant in accordance with Section 4(b) below made
during the Offering Period, divided by (ii) the Option Price. The grant of
options hereunder is subject to the approval of the Plan by the stockholders of
the Company. If stockholder approval is not received by or before December 15,
1997, this Plan shall be deemed to be terminated and the options granted
hereunder shall have no effect but instead shall be null and void.

(b) ELECTION TO PARTICIPATE; PAYROLL DEDUCTION
AUTHORIZATION. Except as provided in Section 4(d) below, a Qualified Employee
may participate in this Plan only by means of payroll deductions. Each
Qualified Employee who elects to participate in this Plan shall deliver to the
Company, no later than 15 days next preceding a Grant Date (or April 10 for the
1997 calendar year), or the next business day following the 15th day preceding
a grant date if such day is not a business day, a written payroll deduction
authorization in a form approved by the Company pursuant to which he gives
notice of his election to participate in this Plan as of the next following
Grant Date, and whereby he designates a stated amount to be deducted from his
Base Pay on each payday during the next Offering Period and credited to his
bookkeeping account under this Plan ("Account"). The stated amount to be
deducted from a Participant's Base Pay may not be less than $10.00 per pay
period. The aggregate stated amount for any Offering Period may not exceed
either of the following: (i) ten percent of the Participant's Base Pay during
the Offering Period; or (ii) an amount which will result in noncompliance

3
<PAGE> 4
with the $25,000 limitation stated in Section 4(c) below. Payroll deduction
authorizations may not be changed during the Offering Period. In the event the
number of shares of Common Stock subject to options during an Offering Period
exceeds the number of shares then available under this Plan, the available
shares shall be allocated among the Participants in proportion to the balance
of their Accounts at the end of the Offering Period, and any amounts credited
to their Accounts after giving effect to shares during purchased that Offering
Period shall be refunded to the Participants.

(c) $25,000 LIMITATION. No Participant shall be deemed
to have been granted an option under this Plan which would permit his rights to
purchase Common Stock under this Plan or any other employee stock purchase plan
of the Company or any Subsidiary to accrue at a rate which exceeds $25,000 of
Fair Market Value of Common Stock (determined as of the Grant Date of such
option) for each calendar year such option is outstanding. For purposes of
this subsection (c), the right to purchase Common Stock under an option accrues
when the option (or any portion thereof) becomes exercisable, and the right to
purchase Common Stock which has accrued during one Offering Period may not be
carried over to any subsequent Offering Period.

(d) LEAVES OF ABSENCE. During leaves of absence approved
by the Company and meeting the requirements of Treasury Regulation Section
1.421-7(h)(2), a Participant may continue participation in this Plan by making
cash payments to the Company on the Company's normal paydays equal to the
reduction in his payroll deduction attributable to his leave.

5. EXERCISE OF OPTIONS.

(a) IN GENERAL. On June 30 or December 31 of each
Offering Period, as applicable, each Participant automatically and without any
act on his part will be deemed to have exercised his option to the extent that
the balance then credited to his Account is sufficient to purchase whole shares
of Common Stock at the Option Price. The Company shall promptly refund to the
Participant any balance remaining in his Account, without interest thereon,
after giving effect to the purchase of such whole shares.

(b) "OPTION PRICE" DEFINED. The Option Price per share
to be paid by each Participant upon exercise of his option shall be an amount
equal to 85% of the Fair Market Value of Common Stock on the Grant Date or on
the Exercise Date, whichever amount is less.

(c) DELIVERY OF SHARE CERTIFICATES. Subject to Section
5(d) below, the Company will deliver to each Participant a certificate issued
in the Participant's name for the number of shares with respect to which his
option was exercised. The Company will deliver the certificate as soon as
practicable following the Exercise Date.

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<PAGE> 5
(d) GOVERNMENT REGULATIONS. This Plan, the granting of
options under this Plan and the issuance of Common Stock pursuant hereto are
subject to all applicable federal and state laws, rules and regulations and to
such approvals by any regulatory or governmental agency which may, in the
opinion of counsel for the Company, be necessary or advisable in connection
therewith. Without limiting the generality of the foregoing, no options may be
granted under this Plan, and no shares may be issued by the Company, unless and
until, in each such case, all legal requirements applicable to the grant or
issuance have, in the opinion of counsel to the Company, been complied with.
In connection with the issuance of Common Stock hereunder, the Participant
shall, if requested by the Company, give assurances satisfactory to counsel to
the Company in respect of such matters as the Company may deem desirable to
assure compliance with all applicable legal requirements.

6. WITHDRAWAL FROM THIS PLAN.

(a) IN GENERAL. Any Participant may completely withdraw
from this Plan at any time. A Participant who desires to withdraw from this
Plan must deliver to the Company a notice of withdrawal in a form approved by
the Company. Promptly following the time when the notice of withdrawal is
delivered, the Company will refund to the Participant the amount of the balance
of his Account, without interest thereon, and the Participant's payroll
deduction authorization, interest in this Plan and option under this Plan shall
thereupon terminate.

(b) ELIGIBILITY FOLLOWING WITHDRAWAL. A Participant who
has withdrawn from this Plan shall again be eligible to participate in this
Plan upon expiration of the Offering Period during which the Participant
withdrew.

7. TERMINATION OF EMPLOYMENT FOR ANY REASON. If the employment
of a Participant by the Company or a Subsidiary terminates during an Offering
Period for any reason, his participation in this Plan automatically and without
any act on his part shall terminate as of the date of the termination of the
Participant's employment. The Company promptly will refund to the Participant
the amount of the balance of his Account, without interest thereon, and
thereupon his interest in and option under this Plan shall terminate. Nothing
in this Plan shall prevent the Company or any Subsidiary from terminating any
Participant's employment.

8. RESTRICTION UPON ASSIGNMENT. An option granted under this
Plan shall not be transferable and is exercisable during the Participant's
lifetime only by the Participant. The Company will not recognize any
assignment or purported assignment by a Participant of his option or of any
rights under his option or under this Plan.

9. NO RIGHTS AS STOCKHOLDER. With respect to shares of Common
Stock subject to an option, a Participant shall not be deemed to be a
stockholder and shall not have any of the rights or privileges of a stockholder
until a certificate for shares of Common Stock has been issued to the
Participant following the exercise of his option.

5
<PAGE> 6
10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. If the
outstanding shares of Common Stock are increased, decreased or changed into, or
exchange for, a different number or kind of shares or securities of the Company
through a reorganization or merger in which the Company is the surviving
entity, or through a combination, recapitalization, reclassification, stock
split, stock dividend, stock consolidation or otherwise, an appropriate
adjustment shall be made in the number and kind of shares that may be issued
under this Plan.

Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger, or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation,
or upon a sale of all or substantially all of the property of the Company to
another corporation, this Plan shall terminate, and any outstanding options
shall terminate and the Company thereupon will promptly refund the balance of
the Participants' Accounts to the Participants, without interest thereon,
unless (i) the Committee shall determine, in its sole and absolute discretion,
that any or all options under this Plan shall accelerate and become immediately
exercisable or (ii) provision shall be made in connection with such transaction
for the assumption of options theretofore granted hereunder, or the
substitution for such options or new options covering the stock of a successor
employer corporation, or a parent or subsidiary thereof, with appropriate
adjustments as to number and kind of shares and prices. If the Committee
determines to accelerate any or all of the options, the acceleration date
designated by the Committee shall be deemed to be the Exercise Date for the
purpose of computing the option price of the accelerated option.

In so adjusting Common Stock to reflect such changes, or in
determining that no such adjustment is necessary, the Committee may rely upon
the advice of independent counsel and accountants of the Company, and the
determination of the Committee shall be conclusive. No fractional shares of
stock shall be issued under this Plan on account of any such adjustment.

11. USE OF FUNDS; NO INTEREST PAID. All amounts withheld from
Participants' paychecks hereunder and credited to their Accounts will be
included in the general funds of the Company free of any trust or other
restriction and may be used by the Company for any corporate purpose. Under no
circumstances shall interest on such amounts be paid to any Participant or
credited to his Account.

12. AMENDMENT OF THIS PLAN. The Board may amend, suspend or
terminate this Plan at any time and from time to time; provided, however, that,
if any amendment would (i) materially increase the benefits accruing to
Participants under this Plan, (ii) materially increase the aggregate number of
shares of Common Stock that may be issued under this Plan, or (iii) materially
modify the requirements as to eligibility for participation in this Plan, then
to the extent required under Section 423 of the Code or any other applicable
law, or deemed necessary or advisable by the Board, such amendment shall be
subject to stockholder approval. Notwithstanding anything else

6
<PAGE> 7
contained herein, the Board shall have the right to designate from time to time
the Subsidiaries whose employees may be eligible to participate in the Plan and
such designations shall not constitute an amendment to the Plan requiring
stockholder approval in accordance with Treasury Regulation Section
1.423-2(c)(4).

13. ADMINISTRATION BY COMMITTEE; RULES AND REGULATIONS. This Plan
shall be administered by a committee composed of not less than two directors of
the Company (the "Committee"), each of whom shall be a "non-employee" as such
term is defined in Rule 16b-3(b)(3) under the Exchange Act or any successor
provision of the Exchange Act so that the Committee members are qualified to
administer this Plan under such provision. Each member shall serve for a term
commencing on a date specified by the Board and continuing until he dies or
resigns or is removed from office by the Board. The Committee shall have the
power to make, amend and repeal rules and regulations for the interpretation
and administration of this Plan consistent with the qualification of this Plan
under Section 423 of the Code and consistent with Rule 16b-3 under the Exchange
Act.

14. TERM; APPROVAL BY STOCKHOLDERS. No option may be granted
during any period of suspension nor after termination of this Plan, and in no
event may any option be granted under this Plan after the date on which all of
the Common Stock available under this Plan has been purchased.

This plan shall be submitted for the approval of the Company's
stockholders within 12 months after the date of the Board's initial adoption of
this Plan and shall be effective upon its approval by the stockholders;
provided, however, effectiveness of this Plan shall be conditioned upon
consummation of a public offering of the Company's Common Stock on or before
March 15, 1997.

15. EFFECT UPON OTHER PLANS. The adoption of this Plan shall not
affect any other compensation or incentive plans in effect for the Company or
any Subsidiary. Nothing in this Plan shall be construed to limit the right of
the Company or any Subsidiary (a) to establish any other forms of incentives or
compensation for employees of the Company or any Subsidiary or (b) to grant or
assume options otherwise than under this Plan in connection with any proper
corporate purpose.

16. HEADINGS. Headings are provided herein for convenience only
and shall not serve as a basis for interpretation or construction of this Plan.

17. GOVERNING LAW. This Plan shall be governed by, and construed
and enforced in accordance with, the laws of the State of Connecticut. If any
provisions shall be held by a court of competent jurisdiction to be invalid and
unenforceable, the remaining provisions of this Plan shall continue to be fully
effective.

<PAGE> 1
EXHIBIT 10.24

AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT

THIS AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this
"AGREEMENT") which shall be effective as of February 21, 1997, is made and
entered into by and among First Aviation Services Inc., a Delaware corporation
(the "COMPANY"), and FAS Inc., a Delaware corporation (the "INVESTOR").

RECITALS

WHEREAS, the Investor is a substantial shareholder of the Company;
and

WHEREAS, the Company contemplates conducting an initial public
offering and in connection therewith, the Investor desires to have future
registration rights covering the "REGISTRABLE SECURITIES" (as such term is
defined in Section 1) of the Investor;

WHEREAS, the Company and the Investor entered into that certain
Registration Rights Agreement, dated as of December 20, 1996 (the "Initial
Registration Rights Agreement"), pursuant to which the Investor was granted
certain registration rights, and the parties now wish to amend and restate in
its entirety the Initial Registration Rights Agreement as set forth herein;

NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants and agreements herein contained, the parties, intending to be
legally bound, hereby agree as follows:

1. DEFINITIONS. For purposes of this Agreement:

(a) the term "BONA FIDE PUBLIC OFFERING" means an
underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended ("1933 ACT"),
covering the offer and sale of Common Stock of the Company in which
aggregate proceeds to the Company and the Investor exceed $10,000,000;

(b) the term "COMMON STOCK" means the Company's
authorized voting common stock, $.01 par value, and any class of
securities issued in exchange for the Common Stock or into which the
Common Stock is converted;
<PAGE> 2

(c) the term "HOLDER" means any person owning of
record Registrable Securities or any permitted assignee thereof in
accordance with Section 11 hereof;

(d) the term "INITIATING HOLDERS" means the Holders
of 10% or more of the Registrable Securities then outstanding;

(e) the term "REGISTRABLE SECURITIES" means: (i) the
551,000 shares of Common Stock of the Company owned by the Investor as
of the date hereof, and (ii) any Common Stock of the Company issued as
(or issuable upon the conversion or exercise of any warrant, right or
other security which is issued as) a dividend or other distribution
with respect to, or in exchange for or in replacement of, such Common
Stock, excluding in all cases, however, any shares of Common Stock that
are sold by a Holder in a transaction in which its rights under this
Agreement are not assigned;

(f) the term "REGISTRATION EXPENSES" means all
reasonable fees and disbursements of one counsel to the Holders
(selected by those holding a majority of the shares being registered)
and all expenses incurred by the Company in complying with Sections 2,
3 and 14 hereof, including, without limitation, all registration and
filing fees, underwriters' expense allowances, printing expenses, fees
and disbursements of counsel for the Company, blue sky fees and
expenses, and the expense of any special audits incident to or required
by any such registration (but not including the compensation of regular
employees of the Company which shall be paid in any event by the
Company);

(g) the terms "REGISTER," "REGISTERED" and
"REGISTRATION" refer to a registration effected by preparing and filing
a registration statement or similar document in compliance with 1933
Act, and the declaration or ordering of the effectiveness of such
registration statement or document by the Securities and Exchange
Commission;

(h) the term "SELLING EXPENSES" means all
underwriting discounts and selling commissions applicable to the sale
of Registrable Securities and the fees and disbursements of any
counsel, other than the primary counsel to the Holders, engaged by the
Holders; and

(i) the number of shares of Registrable Securities
"THEN OUTSTANDING" shall be the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock which
upon issuance of

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<PAGE> 3
then exercisable or convertible securities will be, Registrable
Securities.

2. DEMAND REGISTRATION RIGHTS.

(a) If the Company shall receive, at any time more
than 180 days after the consummation of the Company's initial bona fide
public offering, a written request from the Initiating Holders with
respect to the Registrable Securities, that the Company file a
registration statement under the 1933 Act covering the registration of
at least 5% of the Registrable Securities then outstanding (or any
lesser percentage if the anticipated aggregate offering price, net of
underwriting discounts and commissions, would exceed $5,000,000, the
Company shall promptly give written notice of such request (together
with a list of the jurisdictions in which the Initiating Holders intend
to attempt to qualify such securities under applicable state securities
laws) to all Holders and shall as soon as practicable, subject to the
limitations of this Section 2, effect the registration under the 1933
Act of all such Registrable Securities which the Initiating Holders
request to be registered, together with all of the Registrable
Securities of any other Holder or Holders who so request by notice to
the Company which is given within 30 days after the notice from the
Company described above. Notwithstanding the foregoing, if the Company
shall furnish to the Initiating Holders a certificate signed by the
Chief Financial Officer of the Company stating that in the good faith
judgment of the Board of Directors it would be seriously detrimental to
the Company for a registration statement to be filed in the near future
(based on the disclosure of non-public information material to the
Company that would be required by such registration statement), then
the Company's obligation to use its best efforts to file a registration
statement shall be deferred for a period not to exceed 60 days;
provided, however, that the Company shall not obtain such a deferral
more than once in any 12-month period.

(b) If the Initiating Holders intend to distribute
the Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Company as a part of their
request made pursuant to this Section 2 and the Company shall include
such information in the written notice referred to in Section 2(a). In
such event, the right of any Holder to include its Registrable
Securities in such registration shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's

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<PAGE> 4
Registrable Securities in the underwriting (unless otherwise mutually
agreed by a majority in interest of the Initiating Holders, by the
underwriter, by the Company, and by such Holder) to the extent provided
herein.

(c) All Holders proposing to distribute their
securities through such underwriting (together with the Company as
provided in Section 4(e)) shall enter into an underwriting agreement in
customary form with the representative of the underwriter or
underwriters selected for such underwriting by a majority in interest
of the Initiating Holders and reasonably acceptable to the Company.
Notwithstanding any other provisions of this Section 2, if the
underwriter advises the Company in writing that marketing factors
require a limitation of the number of shares to be underwritten, the
Company shall so advise all Holders of Registrable Securities, and the
number of shares of Registrable Securities that may be included in the
registration and underwriting shall be allocated among all Holders
thereof pro rata based on the number of shares for which registration
was requested. No Registrable Securities excluded from the underwriting
by reason of the underwriter's marketing limitation shall be included
in such registration. If any Holder of Registrable Securities
disapproves of the terms of the underwriting, such person may elect to
withdraw therefrom by written notice to the Company, the underwriter
and, unless otherwise provided, the Initiating Holders. The securities
so withdrawn shall also be withdrawn from registration. If the
underwriter has not limited the number of Registrable Securities to be
underwritten, the Company may include its securities for its own
account in such registration if the underwriter so agrees and if the
number of Registrable Securities which would otherwise have been
included in such registration and underwriting will not thereby be
limited.

(d) The Company is obligated to effect only four
demand registrations for the Holders pursuant to this Section 2.

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<PAGE> 5
investment plan; (c) a registration of securities proposed to be issued in
exchange for securities or assets of or in connection with a merger or
consolidation with, another corporation; or (d) a registration of securities
proposed to be issued in exchange for other securities of the Company), the
Company shall, each such time, promptly give each Holder written notice of such
registration together with a list of the jurisdictions in which the Company
intends to attempt to qualify such securities under applicable state securities
laws. Upon the written request of any Holder given within 30 days after receipt
of such written notice from the Company in accordance with Section 18, the
Company shall, subject to the provisions of Section 7 (in the case of an
underwritten offering), cause to be registered under the 1933 Act all of the
Registrable Securities that each such Holder has requested to be registered.

4. OBLIGATIONS OF THE COMPANY. Whenever required under this
Agreement to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:

(a) Prepare and file with the Securities and Exchange
Commission ("SEC") a registration statement with respect to such
Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of
the Holders of a majority of the Registrable Securities registered
thereunder, keep such registration statement effective for up to 180
days;

(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to
comply with the provisions of the 1933 Act with respect to the
disposition of all securities covered by such registration statement;

(c) Furnish to the Holders such numbers of copies of
a prospectus, including a preliminary prospectus, in conformity with
the requirements of the 1933 Act, and such other documents as they may
reasonably request in order to facilitate the disposition of
Registrable Securities owned by them;

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<PAGE> 6
shall reasonably request, provided that the Company shall not be
required in connection therewith or as a condition thereto to qualify
to do business or to file a general consent to service of process in
any such jurisdiction; and

(e) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement
with terms generally satisfactory to the managing underwriter of such
offering. Each Holder participating in such underwriting shall also
enter into and perform its obligations under such an agreement.

5. FURNISH INFORMATION. It shall be a condition precedent to
the obligations of the Company to take any action pursuant to this Agreement
that the selling Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them, and the intended method of
disposition of such securities as shall be required to effect the registration
of their Registrable Securities. In that connection, each selling Holder shall
be required to represent to the Company that all such information which is given
is both complete and accurate in all material respects.

6. EXPENSES OF REGISTRATION. All Registration Expenses
incurred in connection with any registration, qualification or compliance
pursuant to this Agreement shall be borne by the Company, and all Selling
Expenses shall be borne by the Holders of the securities so registered pro rata
on the basis of the number of shares so registered.

7. UNDERWRITING REQUIREMENTS. The right of any Holder to
"piggyback" in an underwritten public offering of the Company's securities
pursuant to Section 3 shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities in
the underwriting to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall (together with the
Company and any other holders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for underwriting by the Company.
Notwithstanding any other provision of Section 3 and this Section 7, if the
underwriter determines that marketing factors require a limitation of the number
of shares to be underwritten, the underwriter may exclude some or all of the
Registrable Securities from such registration and underwriting, provided, that
the Holders are allowed to participate in the offering in the same proportion
(based on the total number of securities requested to be registered) as any
other shareholder or

6
<PAGE> 7
warrant holder of the Company existing as of the date of this Agreement
participating in the offering. Any reduction in the number of Registrable
Securities included in such registration shall be borne equally by the Holders
as a group pro rata based on the number of shares for which registration was
requested. If any Holder disapproves of the terms of any such underwriting, it
may elect to withdraw therefrom by written notice to the Company and the
underwriter. Any Registrable Securities excluded or withdrawn from such
underwriting shall be withdrawn from such registration.

8. DELAY OF REGISTRATION. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Agreement.

9. INDEMNIFICATION. If any Registrable Securities are included
in a registration statement under this Agreement:

(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, the officers, directors,
partners and representatives of each Holder, any underwriter (as
defined in the 1933 Act) for such Holder and each person, if any, who
controls such Holder or underwriter within the meaning of the 1933 Act
or the Securities Exchange Act of 1934, as amended (the "1934 ACT"),
against any losses, claims, damages, or liabilities (joint or several)
to which they or any of them may become subject under the 1933 Act, the
1934 Act or any other federal or state law, insofar as such losses,
claims, damages, or liabilities (or actions in respect thereof) arise
from or are based upon any of the following statements, omissions or
violations (collectively a "VIOLATION") (i) any untrue statement or
alleged untrue statement of a material fact contained in any
registration statement filed by the Company with the SEC and by which
Registrable Securities are registered for sale under the 1933 Act,
including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto; (ii) the omission or
alleged omission to state therein a material fact required to be stated
therein, or necessary to make the statements therein not misleading; or
(iii) any violation or alleged violation by the Company of the 1933
Act, the 1934 Act, any state securities law or any rule or regulation
promulgated under the 1933 Act, the 1934 Act or any state securities
law; and the Company will reimburse each such Holder, officer, director
or partner, underwriter or controlling person for any

7
<PAGE> 8
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the indemnity agreement contained in
this Section 9 shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is
effected without the consent of the Company (which consent shall not be
unreasonably withheld), nor shall the Company be liable in any such
case for any such loss, claim, damage, liability, or action to the
extent that it arises from or is based upon a violation which occurs in
reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by any such
Holder, underwriter or controlling person.

(b) To the extent permitted by law, each selling
Holder will indemnify and hold harmless the Company, each of its
directors, each of its officers who have signed the registration
statement, each person, if any, who controls the Company within the
meaning of the 1933 Act, any underwriter (within the meaning of the
1933 Act) for the Company, any person who controls such underwriter,
any other Holder selling securities in such registration statement or
any of its directors or officers or any person who controls such Holder
against any losses, claims, damages or liabilities (joint or several)
to which the Company or any such director, officer, controlling person,
or underwriter or other such Holder or director, officer or controlling
person may become subject, under the 1933 Act, the 1934 Act or any
other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereto) arise from or are based
upon any Violation, in each case to the extent (and only to the extent)
that such Violation occurs in reliance upon and in conformity with
written information furnished by such Holder expressly for use in
connection with such registration; and each such Holder will reimburse
any legal or other expenses reasonably incurred by the Company or any
such director, officer, controlling person, underwriter or controlling
person, other Holder, officer, director or controlling person in
connection with investigation or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity
agreement contained in this Section 9 shall not apply to amounts paid
in settlement of any such loss, claim damage, liability or action if
such settlement is effected without the consent of the Holder which
consent shall not be unreasonably withheld; provided, that in no event
shall any indemnity under this Section 9(b) exceed the gross proceeds
from the offering received by the Holder.

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<PAGE> 9
(c) In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for
in this Section 9 is applicable but for any reason is held to be
unavailable from the Company or any Holder, the Company and the Holders
participating in the registration shall contribute to the aggregate
losses, claims, damages and liabilities (including any investigation,
legal and other expenses incurred in connection with, and any amount
paid in settlement of, any action, suit or proceeding or any claims
asserted) to which the Company and the participating Holders may be
subject in such proportion so that the participating Holders are
responsible for that portion of the foregoing amount represented by the
ratio of the proceeds received by the participating Holders in the
offering to the total proceeds received from the offering by the
Company and all selling shareholders (other than participating Holders)
and the Company shall be responsible for the portion represented by the
ratio of proceeds received by the Company to the total proceeds
received by the Company and all selling shareholders (other than
participating Holders); provided, however, that no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. For purposes
of this Section 9(c), each person, if any, who controls the Company or
any Holder within the meaning of the Securities Act, each officer of
the Company who shall have signed the registration statement and each
director of the Company shall have the same rights to contribution as
the Company.

(d) No settlement shall be effected without the prior
written consent of the Holders participating in a registration unless
(i) the obligations of the Company for indemnification or contribution
pursuant to this Agreement survive and are not extinguished by reason
of the settlement and remain in full force and effect under applicable
federal and state laws, rules, regulations and orders or (ii) all
claims and actions against the participating Holders and each person
who controls a participating holder within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act are extinguished
by the settlement and the indemnifying party obtains a full release of
all claims and actions against the participating Holders and each such
control person, which release shall be to the reasonable satisfaction
of the participating Holders.

(e) Promptly after receipt by an indemnified party
under this Section 9 of notice of the commence-

9
<PAGE> 10
ment of any action (including any governmental action), such
indemnified party will, if a claim in respect thereof is to be made
against any indemnifying party under this Section 9, notify the
indemnifying party in writing of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof
with counsel mutually satisfactory to the parties; provided, however,
that an indemnified party shall have the right to retain its own
counsel, with the fees and expenses to be paid by the indemnifying
party, if representation of such indemnified party by the counsel
retained by the indemnifying party would be, in the reasonable judgment
of counsel to the indemnified party, inappropriate due to actual or
potential differing interests between such indemnified party and any
other party represented by such counsel in such proceeding. The failure
to notify an indemnifying party within a reasonable time of the
commencement of any such action, to the extent prejudicial to its
ability to defend such action, shall relieve such indemnifying party of
any liability to the indemnified party under this Section 9, but the
omission so to notify the indemnifying party will not relieve it of any
liability that it may have to any indemnified party otherwise than
under this Section 9.

(f) The obligations of the Company and the Holders
under this Section 9 shall survive through the completion of any
offering of Registrable Securities in a registration statement made
under the terms of this Agreement and otherwise.

10. REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view
toward making available to the Holders the benefits of Rule 144 promulgated
under the 1933 Act and any other rule or regulation of the SEC that may at any
time permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:

(a) use its best efforts to make and keep public
information available, as those terms are understood and defined in SEC
Rule 144, at all times beginning 90 days after the effective date of
the first underwritten public offering of equity securities of the
Company;

(b) use its best efforts to file with the SEC in a
timely manner all reports and other documents

10
<PAGE> 11
required of the Company under the 1933 Act and the 1934 Act;

(c) furnish to any Holder so long as the Holder owns
any Registrable Securities, forthwith upon request: (i) a written
statement by the Company that it has complied with the reporting
requirements of Rule 144 (at any time beginning 90 days after the
effective date of the first underwritten public offering of equity
securities of the Company), the 1933 Act and the 1934 Act (at any time
after it has become subject to such reporting requirements) or that it
qualifies as a Registrant where securities may be resold pursuant to
Form S-3 (at any time after it so qualifies); (ii) a copy of the most
recent annual or quarterly report of the Company and all other reports
and documents filed by the Company with the SEC; and (iii) such other
information as may be reasonably requested in availing any Holder of
any rule or regulation of the SEC which permits the selling of any such
securities without registration; and

(d) take such action, including the voluntary
registration of its common stock under Section 12 of the 1934 Act, as
is necessary to enable the Holders to use Form S-3 for the sale of
their Registrable Securities, such action to be taken as soon as
practicable after the end of the fiscal year in which the first
registration statement filed by the Company for the offering of its
equity securities to the general public is declared effective.

11. ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities pursuant to this Agreement may be
assigned by a Holder to a transferee or assignee of such securities to the
extent such transferee or assignee acquires at least 10% of the shares (as
presently constituted) of Registrable Securities held by the transferor provided
the Company is, within a reasonable time after such transfer, furnished with
written notice of the name and address of such transferee or assignee and the
securities with respect to which such registration rights are being assigned;
provided, however, that no such assignment shall be effective if, immediately
following the transfer, the transferee is free to dispose of all of such
securities without regard to any restrictions imposed under the 1933 Act
(including, without limitation, the volume limitations of Rule 144 promulgated
under the 1933 Act).

12. LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and
after the date of this Agreement, the Company shall not, without the prior
written consent of the

11
<PAGE> 12
Holders of at least a majority of the then outstanding Registrable Securities,
enter into any agreement with any holder or prospective holder of any securities
of the Company which would: (a) allow such holder or prospective holder to
include such securities in any registration filed under Section 2 hereof if such
inclusion would adversely affect the rights of any Holder of Registrable
Securities hereunder; or (b) permit such holder or prospective holder to require
the Company to initiate any registration of any securities of the Company prior
to the earliest date upon which the Holders may demand registration pursuant to
Section 2.

13. "MARKET STAND-OFF" AGREEMENT. Each Holder hereby agrees
that it shall not, to the extent requested by the Company and an underwriter of
Common Stock (or other securities) of the Company, sell or otherwise transfer or
dispose of any Registrable Securities in a market transaction during the 180-day
period following the effective date of a registration statement of the Company
filed under the 1933 Act; provided, however, that:

(a) such agreement shall be applicable only to the
first such registration statement of the Company which covers
securities to be sold on its behalf to the public in an underwritten
offering and to any registration in which any of the Holders of
Registrable Securities have rights to participate under the terms of
this Agreement (provided that such agreement shall not apply to any
shares which are included in any such registration); and

(b) all officers, directors and significant
shareholders (i.e., those shareholders who beneficially own greater
than 5% of the Company's outstanding stock) of the Company and all
other persons with registration rights (whether or not pursuant to this
agreement) enter into similar agreements.

In order to enforce the foregoing covenant, the Company may
impose stop-transfer instructions with respect to the Registrable Securities of
each Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such 180-day period.

14. FORM S-3 REGISTRATION. In case the Company shall receive
request or requests from the Initiating Holders that the Company effect a
registration on Form S-3 (or any similar successor form) and any related
qualification or compliance with respect to all or a part of the Registrable
Securities owned by such Holder or Holders, the Company will:

12
<PAGE> 13
(a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other
Holders; and

(b) as soon as practicable, effect such registration
and all such qualifications and compliance as may be so requested and
as would permit or facilitate the sale and distribution of all or such
portion of such Holder's or Holders' Registrable Securities as are
specified in such request, together with all or such portion of the
Registrable Securities of any other Holder or Holders joining in such
as are specified in a written request given within 15 days after
receipt of such written notice from the Company; provided, however,
that the Company shall not be obligated to effect any such
registration, qualification or compliance pursuant to this Section 14:
(i) if the Company is not qualified as a registrant entitled to use
Form S-3 (or the applicable successor form); or (ii) if the Holders,
together with the holders of any other securities of the Company
entitled to inclusion in such registration, propose to sell Registrable
Securities and any other securities at an aggregate price to the public
of less than $300,000; or (iii) if the Company has, within the 12-month
period preceding the date of such request, already effected two
registrations on Form S-3 (or applicable successor form) for the
Holders pursuant to this Section 14; or (iv) in any particular
jurisdiction in which the Company would be required to qualify to do
business or to execute a general consent to service of process in
effecting such registration, qualification or compliance.

Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Initiating Holders. Registrations effected pursuant
to this Section 14 shall not be counted as demands for registration effected
pursuant to Section 2.

15. ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES. The Company
will not take any action with respect to the Registrable Securities which would
adversely affect the ability of the Holders of Registrable Securities to include
such Registrable Securities in a registration undertaken pursuant to this
Agreement or which would adversely affect the marketability of such Registrable
Securities in any such registration, except when such adjustments are otherwise
required by law, including disclosure obligations under federal securities laws.

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<PAGE> 14
16. REMEDIES. Each Holder of Registrable Securities, in
addition to being entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under this Agreement. The Company agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of the
provisions of this Agreement and hereby agrees to waive the defense in any
action for specific performance that a remedy of law would be adequate.

17. AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the Company has obtained the written consent of Holders
of at least a majority of the then outstanding Registrable Securities.
Notwithstanding the foregoing, a waiver or consent to departure from the
provisions hereof with respect to a matter which relates exclusively to the
rights of Holders of Registrable Securities whose securities are being sold
pursuant to a registration statement and which does not directly or indirectly
affect the rights of other holders of Registrable Securities may be given by the
holders of a majority of the Registrable Securities being sold; provided,
however, that the provisions of this sentence may not be amended, modified or
supplemented except in accordance with the provisions of the immediately
preceding sentence.

18. NOTICES. All notices, demands and requests required by
this Agreement shall be in writing and shall be deemed to have been given for
all purposes (a) upon personal delivery, (b) one business day after being sent,
when sent by professional overnight courier service from and to locations within
the continental United States, or (c) five days after posting when sent by
registered or certified mail (return receipt requested), addressed to the
Company or an Investor at his, her or its address set forth on the signature
pages hereof. Any party hereto may from time to time by notice in writing served
upon the others as provided herein, designate a different mailing address or a
different person to which such notices or demands are thereafter to be addressed
or delivered.

19. SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein, this Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties, including, without limitation and
without the need for an express assignment, subsequent holders of Registrable
Securities to which the registration rights granted by this Agreement have been
assigned as permitted herein.

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<PAGE> 15
20. COUNTERPARTS. This Agreement may be executed in separate
counterparts, each of which shall be deemed to be an original, and when
executed, separately or together, shall constitute a single original instrument,
effective in the same manner as if the parties hereto had executed one and the
same instrument.

21. CAPTIONS. Captions are provided herein for convenience
only and they are not to serve as a basis for interpretation or construction of
this Agreement, nor as evidence of the intention of the parties hereto.

22. CROSS-REFERENCES. All cross-references in this Agreement,
unless specifically directed to another agreement or document, refer to
provisions within this Agreement.

23. GOVERNING LAW. This Agreement shall be governed by,
interpreted under, and construed and enforced in accordance with the internal
laws, and not the laws pertaining to conflicts or choice of laws, of the State
of Delaware applicable to agreements made and to be performed wholly within the
State of Delaware.

24. SEVERABILITY. The provisions of this Agreement are
severable. The invalidity, in whole or in part, of any provision of this
Agreement shall not affect the validity or enforceability of any other of its
provisions. If one or more provisions hereof shall be declared invalid or
unenforceable, the remaining provisions shall remain in full force and effect
and shall be construed in the broadest possible manner to effectuate the
purposes hereof. The parties further agree to replace such void or unenforceable
provisions of this Agreement with valid and enforceable provisions which will
achieve, to the extent possible, the economic, business and other purposes of
the void or unenforceable provisions.

25. ENTIRE AGREEMENT. This Agreement contains the entire
understanding among the parties hereto with respect to the subject matter hereof
and supersedes all prior written and oral agreements, understandings,
commitments and practices between the parties, including the Initial
Registration Rights Agreement and all other prior agreements with respect to
registration rights.

26. ATTORNEYS' FEES.

(a) In the event any party to this Agreement
initiates any action, suit, motion, application or other proceeding
which concerns the interpretation or enforcement of this Agreement, the
prevailing party in such action, suit, motion, application or
proceeding,

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<PAGE> 16
or judgment creditor, shall be entitled to recover its costs and
attorneys' fees from the non-prevailing party or judgment debtor,
including costs and fees on appeal, if any.

(b) Attorneys' fees and costs incurred by a
prevailing party in enforcing and collecting a judgment resulting from
a suit concerning this Agreement are also recoverable from the judgment
debtor as a separate item of recovery. Such post-judgment attorneys'
fees are a separate and distinct item of recovery, severable from all
other provisions of this Agreement, including the right to prejudgment
attorneys' fees as provided above in this Agreement, and this provision
shall survive any judgment and not be deemed merged into any judgment.

27. CONSIDERATION FOR APPROVALS OR WAIVERS. No consideration
shall be paid to any Holder to obtain such Holder's approval for or waiver of
any amendment of this Agreement or any matter requiring the approval or consent
of the Holders hereunder unless such consideration is also offered to all
Holders, pro rata based upon the number of Registerable Securities held by the
Holders.

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<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have executed this
Amended and Restated Registration Rights Agreement with the intent and agreement
that the same shall be effective as of the day and year first above written.

THE COMPANY:

FIRST AVIATION SERVICES INC.,
a Delaware corporation

By: /s/ MICHAEL C. CULVER
--------------------------------
Name: Michael C. Culver
Title: Chief Executive Officer

Address:
----------------------------
----------------------------
----------------------------

THE INVESTOR:

FAS INC.,
a Delaware corporation

By: /s/ AARON HOLLANDER
--------------------------------
Name: Aaron Hollander
Title:

Address:
----------------------------
----------------------------
----------------------------

<PAGE> 1
EXHIBIT 10.29

REGISTRATION RIGHTS AGREEMENT

THIS REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT") which shall
be effective as of February 21, 1997, is made and entered into by and among
First Aviation Services Inc., a Delaware corporation (the "COMPANY"), and
Canpartners Investments IV, LLC, a California limited liability company (the
"INVESTOR").

RECITALS

WHEREAS, the Investor is a substantial holder of equity in the
Company; and

NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants and agreements herein contained, the parties, intending to be
legally bound, hereby agree as follows:

1. DEFINITIONS. For purposes of this Agreement:

(a) the term "BONA FIDE PUBLIC OFFERING" means an underwritten
public offering pursuant to an effective registration statement under
the Securities Act of 1933, as amended ("1933 ACT"), covering the offer
and sale of Common Stock of the Company in which aggregate proceeds to
the Company and the Investor exceed $10,000,000;

(b) the term "COMMON STOCK" means the Company's authorized
voting common stock, $.01 par value, and any class of securities issued
in exchange for the Common Stock or into which the Common Stock is
converted;

(c) the term "HOLDER" means any person owning of record
Registrable Securities or any permitted assignee thereof in accordance
with Section 11 hereof;

(d) the term "INITIATING HOLDERS" means the Holders of 15% or
more of the Registrable Securities then outstanding;

<PAGE> 2
(e) the term "REGISTRABLE SECURITIES" means: (i) the shares
issuable upon exercise of the 200,364 (1,293,335 after taking into
account the 6.454927306-for-1 stock split authorized by the Company's
Board of Directors with a Record Date of February 20, 1997) warrants to
purchase Common Stock of the Company owned by the Investor as of the
date hereof, and (ii) any Common Stock of the Company issued as (or
issuable upon the conversion or exercise of any warrant, right or other
security which is issued as) a dividend or other distribution with
respect to, or in exchange for or in replacement of, such shares
described in clause (i), excluding in all cases, however, any shares of
Common Stock that are sold by a Holder in a transaction in which its
rights under this Agreement are not assigned;

(f) the term "REGISTRATION EXPENSES" means all reasonable fees
and disbursements of one counsel to the Holders (selected by those
holding a majority of the shares being registered) and all expenses
incurred by the Company in complying with Sections 2, 3 and 14 hereof,
including, without limitation, all registration and filing fees,
underwriters' expense allowances, printing expenses, fees and
disbursements of counsel for the Company, blue sky fees and expenses,
and the expense of any special audits incident to or required by any
such registration (but not including the compensation of regular
employees of the Company which shall be paid in any event by the
Company);

(g) the terms "REGISTER," "REGISTERED" and "REGISTRATION"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with 1933 Act, and the
declaration or ordering of the effectiveness of such registration
statement or document by the Securities and Exchange Commission;

(h) the term "SELLING EXPENSES" means all underwriting
discounts and selling commissions applicable to the sale of Registrable
Securities and the fees and disbursements of any counsel, other than
the primary counsel to the Holders, engaged by the Holders; and

(i) the number of shares of Registrable Securities "THEN
OUTSTANDING" shall be the number of shares of Common Stock outstanding
which are, and the number of shares of Common Stock which upon issuance
of then exercisable or convertible securities will be, Registrable
Securities.

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<PAGE> 3
2. DEMAND REGISTRATION RIGHTS.

(a) If the Company shall receive, at any time more than 180
days after the consummation of the Company's initial bona fide public
offering, a written request from the Initiating Holders with respect to
the Registrable Securities, that the Company file a registration
statement under the 1933 Act covering the registration of at least 15%
of the Registrable Securities then outstanding (or any lesser
percentage if the anticipated aggregate offering price, net of
underwriting discounts and commissions, would exceed $5,000,000, the
Company shall promptly give written notice of such request (together
with a list of the jurisdictions in which the Initiating Holders intend
to attempt to qualify such securities under applicable state securities
laws) to all Holders and shall as soon as practicable, subject to the
limitations of this Section 2, effect the registration under the 1933
Act of all such Registrable Securities which the Initiating Holders
request to be registered, together with all of the Registrable
Securities of any other Holder or Holders who so request by notice to
the Company which is given within 30 days after the notice from the
Company described above. Notwithstanding the foregoing, if the Company
shall furnish to the Initiating Holders a certificate signed by the
Chief Financial Officer of the Company stating that in the good faith
judgment of the Board of Directors it would be seriously detrimental to
the Company for a registration statement to be filed in the near future
(based on the disclosure of non-public information material to the
Company that would be required by such registration statement), then
the Company's obligation to use its best efforts to file a registration
statement shall be deferred for a period not to exceed 60 days;
provided, however, that the Company shall not obtain such a deferral
more than once in any 12-month period.

(b) If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Company as a part of their
request made pursuant to this Section 2 and the Company shall include
such information in the written notice referred to in Section 2(a). In
such event, the right of any Holder to include its Registrable
Securities in such registration shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually
agreed by a majority in interest of the Initiating Holders, by the
underwriter, by the Company, and by such Holder) to the extent provided
herein.

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<PAGE> 4
(c) All Holders proposing to distribute their securities
through such underwriting (together with the Company as provided in
Section 4(e)) shall enter into an underwriting agreement in customary
form with the representative of the underwriter or underwriters
selected for such underwriting by a majority in interest of the
Initiating Holders and reasonably acceptable to the Company.
Notwithstanding any other provisions of this Section 2, if the
underwriter advises the Company in writing that marketing factors
require a limitation of the number of shares to be underwritten, the
Company shall so advise all Holders of Registrable Securities, and the
number of shares of Registrable Securities that may be included in the
registration and underwriting shall be allocated among all Holders
thereof pro rata based on the number of shares for which registration
was requested. No Registrable Securities excluded from the underwriting
by reason of the underwriter's marketing limitation shall be included
in such registration. If any Holder of Registrable Securities
disapproves of the terms of the underwriting, such person may elect to
withdraw therefrom by written notice to the Company, the underwriter
and, unless otherwise provided, the Initiating Holders. The securities
so withdrawn shall also be withdrawn from registration. If the
underwriter has not limited the number of Registrable Securities to be
underwritten, the Company may include its securities for its own
account in such registration if the underwriter so agrees and if the
number of Registrable Securities which would otherwise have been
included in such registration and underwriting will not thereby be
limited.

(d) The Company is obligated to effect only two demand
registrations for the Holders pursuant to this Section 2.

3. PIGGY-BACK REGISTRATION RIGHTS. If, at any time the Company
proposes to register (including for this purpose a registration effected by the
Company for shareholders other than the Holders) any of its securities under the
1933 Act in connection with the public offering of such securities solely for
cash (other than a registration form relating to: (a) the Company's initial bona
fide public offering; (b) a registration of a stock option, stock purchase or
compensation or incentive plan or of stock issued or issuable pursuant to any
such plan, or a dividend investment plan; (c) a registration of securities
proposed to be issued in exchange for securities or assets of or in connection
with a merger or consolidation with, another corporation; or (d) a registration
of securities proposed to be issued in exchange for other securities of the
Company),

4
<PAGE> 5
the Company shall, each such time, promptly give each Holder written notice of
such registration together with a list of the jurisdictions in which the Company
intends to attempt to qualify such securities under applicable state securities
laws. Upon the written request of any Holder given within 30 days after receipt
of such written notice from the Company in accordance with Section 18, the
Company shall, subject to the provisions of Section 7 (in the case of an
underwritten offering), cause to be registered under the 1933 Act all of the
Registrable Securities that each such Holder has requested to be registered.

4. OBLIGATIONS OF THE COMPANY. Whenever required under this
Agreement to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:

(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other documents as they may
reasonably request in order to facilitate the disposition of
Registrable Securities owned by them;

(d) Use its best efforts to register and qualify the
securities covered by such registration statement under the securities
laws of such jurisdictions as the Company believes shall be reasonably
appropriate for the distribution of the securities covered by the
registration statement and such jurisdictions as the Holders
participating in the offering shall reasonably request, provided that
the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general
consent to service of process in any such jurisdiction; and

5
<PAGE> 6
(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement with
terms generally satisfactory to the managing underwriter of such
offering. Each Holder participating in such underwriting shall also
enter into and perform its obligations under such an agreement.

5. FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Agreement that
the selling Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them, and the intended method of
disposition of such securities as shall be required to effect the registration
of their Registrable Securities. In that connection, each selling Holder shall
be required to represent to the Company that all such information which is given
is both complete and accurate in all material respects.

6. EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to this
Agreement shall be borne by the Company, and all Selling Expenses shall be borne
by the Holders of the securities so registered pro rata on the basis of the
number of shares so registered.

6
<PAGE> 7
the terms of any such underwriting, it may elect to withdraw therefrom by
written notice to the Company and the underwriter. Any Registrable Securities
excluded or withdrawn from such underwriting shall be withdrawn from such
registration.

8. DELAY OF REGISTRATION. No Holder shall have any right to obtain
or seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Agreement.

9. INDEMNIFICATION. If any Registrable Securities are included in a
registration statement under this Agreement:

(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, the officers, directors, partners and
representatives of each Holder, any underwriter (as defined in the 1933
Act) for such Holder and each person, if any, who controls such Holder
or underwriter within the meaning of the 1933 Act or the Securities
Exchange Act of 1934, as amended (the "1934 ACT"), against any losses,
claims, damages, or liabilities (joint or several) to which they or any
of them may become subject under the 1933 Act, the 1934 Act or any
other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise from or are based
upon any of the following statements, omissions or violations
(collectively a "VIOLATION") (i) any untrue statement or alleged untrue
statement of a material fact contained in any registration statement
filed by the Company with the SEC and by which Registrable Securities
are registered for sale under the 1933 Act, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto; (ii) the omission or alleged omission to state
therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading; or (iii) any violation or
alleged violation by the Company of the 1933 Act, the 1934 Act, any
state securities law or any rule or regulation promulgated under the
1933 Act, the 1934 Act or any state securities law; and the Company
will reimburse each such Holder, officer, director or partner,
underwriter or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided,
however, that the indemnity agreement contained in this Section 9 shall
not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if

7
<PAGE> 8
such settlement is effected without the consent of the Company (which
consent shall not be unreasonably withheld), nor shall the Company be
liable in any such case for any such loss, claim, damage, liability, or
action to the extent that it arises from or is based upon a violation
which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such
registration by any such Holder, underwriter or controlling person.

(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of
its officers who have signed the registration statement, each person,
if any, who controls the Company within the meaning of the 1933 Act,
any underwriter (within the meaning of the 1933 Act) for the Company,
any person who controls such underwriter, any other Holder selling
securities in such registration statement or any of its directors or
officers or any person who controls such Holder against any losses,
claims, damages or liabilities (joint or several) to which the Company
or any such director, officer, controlling person, or underwriter or
other such Holder or director, officer or controlling person may become
subject, under the 1933 Act, the 1934 Act or any other federal or state
law, insofar as such losses, claims, damages, or liabilities (or
actions in respect thereto) arise from or are based upon any Violation,
in each case to the extent (and only to the extent) that such Violation
occurs in reliance upon and in conformity with written information
furnished by such Holder expressly for use in connection with such
registration; and each such Holder will reimburse any legal or other
expenses reasonably incurred by the Company or any such director,
officer, controlling person, underwriter or controlling person, other
Holder, officer, director or controlling person in connection with
investigation or defending any such loss, claim, damage, liability, or
action; provided, however, that the indemnity agreement contained in
this Section 9 shall not apply to amounts paid in settlement of any
such loss, claim damage, liability or action if such settlement is
effected without the consent of the Holder which consent shall not be
unreasonably withheld; provided, that in no event shall any indemnity
under this Section 9(b) exceed the gross proceeds from the offering
received by the Holder.

(c) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in this Section
9 is applicable but for any reason is held to be unavailable from the
Company or any Holder, the Company and the

8
<PAGE> 9
Holders participating in the registration shall contribute to the
aggregate losses, claims, damages and liabilities (including any
investigation, legal and other expenses incurred in connection with,
and any amount paid in settlement of, any action, suit or proceeding or
any claims asserted) to which the Company and the participating Holders
may be subject in such proportion so that the participating Holders are
responsible for that portion of the foregoing amount represented by the
ratio of the proceeds received by the participating Holders in the
offering to the total proceeds received from the offering by the
Company and all selling shareholders (other than participating Holders)
and the Company shall be responsible for the portion represented by the
ratio of proceeds received by the Company to the total proceeds
received by the Company and all selling shareholders (other than
participating Holders); provided, however, that no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. For purposes
of this Section 9(c), each person, if any, who controls the Company or
any Holder within the meaning of the Securities Act, each officer of
the Company who shall have signed the registration statement and each
director of the Company shall have the same rights to contribution as
the Company.

(d) No settlement shall be effected without the prior written
consent of the Holders participating in a registration unless (i) the
obligations of the Company for indemnification or contribution pursuant
to this Agreement survive and are not extinguished by reason of the
settlement and remain in full force and effect under applicable federal
and state laws, rules, regulations and orders or (ii) all claims and
actions against the participating Holders and each person who controls
a participating holder within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act are extinguished by
the settlement and the indemnifying party obtains a full release of all
claims and actions against the participating Holders and each such
control person, which release shall be to the reasonable satisfaction
of the participating Holders.

(e) Promptly after receipt by an indemnified party under this
Section 9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in
respect thereof is to be made against any indemnifying party under this
Section 9, notify the indemnifying party in writing of the commencement
thereof and the indemni-

9
<PAGE> 10
fying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume the defense thereof with counsel
mutually satisfactory to the parties; provided, however, that an
indemnified party shall have the right to retain its own counsel, with
the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be, in the reasonable judgment of counsel to
the indemnified party, inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to notify
an indemnifying party within a reasonable time of the commencement of
any such action, to the extent prejudicial to its ability to defend
such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 9, but the omission so to
notify the indemnifying party will not relieve it of any liability that
it may have to any indemnified party otherwise than under this Section
9.

(f) The obligations of the Company and the Holders under this
Section 9 shall survive through the completion of any offering of
Registrable Securities in a registration statement made under the terms
of this Agreement and otherwise.

(a) use its best efforts to make and keep public information
available, as those terms are understood and defined in SEC Rule 144,
at all times beginning 90 days after the effective date of the first
underwritten public offering of equity securities of the Company;

(b) use its best efforts to file with the SEC in a timely
manner all reports and other documents required of the Company under
the 1933 Act and the 1934 Act;

(c) furnish to any Holder so long as the Holder owns any
Registrable Securities, forthwith upon request: (i) a written statement
by the Company that

10
<PAGE> 11
it has complied with the reporting requirements of Rule 144 (at any
time beginning 90 days after the effective date of the first
underwritten public offering of equity securities of the Company), the
1933 Act and the 1934 Act (at any time after it has become subject to
such reporting requirements) or that it qualifies as a Registrant where
securities may be resold pursuant to Form S-3 (at any time after it so
qualifies); (ii) a copy of the most recent annual or quarterly report
of the Company and all other reports and documents filed by the Company
with the SEC; and (iii) such other information as may be reasonably
requested in availing any Holder of any rule or regulation of the SEC
which permits the selling of any such securities without registration;
and

(d) take such action, including the voluntary registration of
its common stock under Section 12 of the 1934 Act, as is necessary to
enable the Holders to use Form S-3 for the sale of their Registrable
Securities, such action to be taken as soon as practicable after the
end of the fiscal year in which the first registration statement filed
by the Company for the offering of its equity securities to the general
public is declared effective.

12. LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after
the date of this Agreement, the Company shall not, without the prior written
consent of the Holders of at least a majority of the then outstanding
Registrable Securities, enter into any agreement with any holder or prospective
holder of any securities of the Company which would: (a) allow such holder or
prospective holder to include such securities in any registration filed under
Section 2 hereof if such inclusion would adversely

11
<PAGE> 12
affect the rights of any Holder of Registrable Securities hereunder; or (b)
permit such holder or prospective holder to require the Company to initiate any
registration of any securities of the Company prior to the earliest date upon
which the Holders may demand registration pursuant to Section 2.

13. "MARKET STAND-OFF" AGREEMENT. Each Holder hereby agrees that it
shall not, to the extent requested by the Company and an underwriter of Common
Stock (or other securities) of the Company, sell or otherwise transfer or
dispose of any Registrable Securities in a market transaction during the 180-day
period following the effective date of a registration statement of the Company
filed under the 1933 Act; provided, however, that:

(a) such agreement shall be applicable only to the first such
registration statement of the Company which covers securities to be
sold on its behalf to the public in an underwritten offering and to any
registration in which any of the Holders of Registrable Securities have
rights to participate under the terms of this Agreement (provided that
such agreement shall not apply to any shares which are included in any
such registration); and

(b) all officers, directors and significant shareholders
(i.e., those shareholders who beneficially own greater than 5% of the
Company's outstanding stock) of the Company and all other persons with
registration rights (whether or not pursuant to this agreement) enter
into similar agreements.

In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such 180-day period.

(a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders; and

(b) as soon as practicable, effect such registration and all
such qualifications and compliance as

12
<PAGE> 13
may be so requested and as would permit or facilitate the sale and
distribution of all or such portion of such Holder's or Holders'
Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any other Holder
or Holders joining in such as are specified in a written request given
within 15 days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to effect
any such registration, qualification or compliance pursuant to this
Section 14: (i) if the Company is not qualified as a registrant
entitled to use Form S-3 (or the applicable successor form); or (ii) if
the Holders, together with the holders of any other securities of the
Company entitled to inclusion in such registration, propose to sell
Registrable Securities and any other securities at an aggregate price
to the public of less than $300,000; or (iii) if the Company has,
within the 12-month period preceding the date of such request, already
effected two registrations on Form S-3 (or applicable successor form)
for the Holders pursuant to this Section 14; or (iv) in any particular
jurisdiction in which the Company would be required to qualify to do
business or to execute a general consent to service of process in
effecting such registration, qualification or compliance.

Subject to the foregoing, the Company shall file a registration
statement covering the Registrable Securities and other securities so requested
to be registered as soon as practicable after receipt of the request or requests
of the Initiating Holders. Registrations effected pursuant to this Section 14
shall not be counted as demands for registration effected pursuant to Section 2.

15. ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES. The Company will
not take any action with respect to the Registrable Securities which would
adversely affect the ability of the Holders of Registrable Securities to include
such Registrable Securities in a registration undertaken pursuant to this
Agreement or which would adversely affect the marketability of such Registrable
Securities in any such registration, except when such adjustments are otherwise
required by law, including disclosure obligations under federal securities laws.

16. REMEDIES. Each Holder of Registrable Securities, in addition to
being entitled to exercise all rights granted by law, including recovery of
damages, will be entitled to specific performance of its rights under this
Agreement. The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a

13
<PAGE> 14
breach by it of the provisions of this Agreement and hereby agrees to waive the
defense in any action for specific performance that a remedy of law would be
adequate.

18. NOTICES. All notices, demands and requests required by this
Agreement shall be in writing and shall be deemed to have been given for all
purposes (a) upon personal delivery, (b) one business day after being sent, when
sent by professional overnight courier service from and to locations within the
continental United States, or (c) five days after posting when sent by
registered or certified mail (return receipt requested), addressed to the
Company or an Investor at his, her or its address set forth on the signature
pages hereof. Any party hereto may from time to time by notice in writing served
upon the others as provided herein, designate a different mailing address or a
different person to which such notices or demands are thereafter to be addressed
or delivered.

19. SUCCESSORS AND ASSIGNS. Except as otherwise provided herein,
this Agreement shall inure to the benefit of and be binding upon the successors
and assigns of each of the parties, including, without limitation and without
the need for an express assignment, subsequent holders of Registrable Securities
to which the registration rights granted by this Agreement have been assigned as
permitted herein.

20. COUNTERPARTS. This Agreement may be executed in separate
counterparts, each of which shall be deemed to be an original, and when
executed, separately or together, shall constitute a single original instrument,
effective in the same manner as if the parties hereto had executed one and the
same instrument.

14
<PAGE> 15
21. CAPTIONS. Captions are provided herein for convenience only and
they are not to serve as a basis for interpretation or construction of this
Agreement, nor as evidence of the intention of the parties hereto.

22. CROSS-REFERENCES. All cross-references in this Agreement,
unless specifically directed to another agreement or document, refer to
provisions within this Agreement.

23. GOVERNING LAW. This Agreement shall be governed by, interpreted
under, and construed and enforced in accordance with the internal laws, and not
the laws pertaining to conflicts or choice of laws, of the State of Delaware
applicable to agreements made and to be performed wholly within the State of
Delaware.

24. SEVERABILITY. The provisions of this Agreement are severable.
The invalidity, in whole or in part, of any provision of this Agreement shall
not affect the validity or enforceability of any other of its provisions. If one
or more provisions hereof shall be declared invalid or unenforceable, the
remaining provisions shall remain in full force and effect and shall be
construed in the broadest possible manner to effectuate the purposes hereof. The
parties further agree to replace such void or unenforceable provisions of this
Agreement with valid and enforceable provisions which will achieve, to the
extent possible, the economic, business and other purposes of the void or
unenforceable provisions.

25. ENTIRE AGREEMENT; EFFECTIVENESS. This Agreement contains the
entire understanding among the parties hereto with respect to the subject matter
hereof and supersedes all prior written and oral agreements, understandings,
commitments and practices between the parties, including that certain Warrant
Agreement of National Airmotive Corporation dated as of June 1, 1995, as amended
by that certain First Amendment to Warrant Agreement dated June 13, 1996, and
that certain Second Amendment to Warrant Agreement dated as of December 20,
1996, and all other prior agreements with respect to registration rights.
Notwithstanding anything to the contrary herein, this Agreement shall be
effective only upon the consummation of the Company's bona fide public offering.

26. ATTORNEYS' FEES.

(a) In the event any party to this Agreement initiates any
action, suit, motion, application or other proceeding which concerns
the interpretation or enforcement of this Agreement, the prevailing
party in such action, suit, motion, application or proceeding,

15
<PAGE> 16
or judgment creditor, shall be entitled to recover its costs and
attorneys' fees from the non-prevailing party or judgment debtor,
including costs and fees on appeal, if any.

(b) Attorneys' fees and costs incurred by a prevailing party
in enforcing and collecting a judgment resulting from a suit concerning
this Agreement are also recoverable from the judgment debtor as a
separate item of recovery. Such post-judgment attorneys' fees are a
separate and distinct item of recovery, severable from all other
provisions of this Agreement, including the right to prejudgment
attorneys' fees as provided above in this Agreement, and this provision
shall survive any judgment and not be deemed merged into any judgment.

27. CONSIDERATION FOR APPROVALS OR WAIVERS. No consideration shall
be paid to any Holder to obtain such Holder's approval for or waiver of any
amendment of this Agreement or any matter requiring the approval or consent of
the Holders hereunder unless such consideration is also offered to all Holders,
pro rata based upon the number of Registerable Securities held by the Holders.

16
<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have executed this
Registration Rights Agreement with the intent and agreement that the same shall
be effective as of the day and year first above written.

THE COMPANY:

FIRST AVIATION SERVICES INC.,
a Delaware corporation

By:___________________________
Name: ________________________
Title:________________________

Address: ____________________________
____________________________
____________________________

THE INVESTOR:

CANPARTNERS INVESTMENTS IV, LLC
a California limited liability company

By:___________________________
Name: ________________________
Title:________________________

Address: ____________________________
____________________________
____________________________

<PAGE> 1
EXHIBIT 10.30

SUB-LEASE

AGREEMENT

BETWEEN

FIRST EQUITY DEVELOPMENT, INC.

AND

FIRST AVIATION SERVICES, INC.
<PAGE> 2

SUB-LEASE AGREEMENT
BETWEEN
FIRST EQUITY DEVELOPMENT, INC.
AND
FIRST AVIATION SERVICES, INC.

TABLE OF CONTENTS
<TABLE>
<CAPTION>
Paragraph Page
<S> <C> <C>
1 Reference Data 1
2 Premises
3 Use
4 Term 4
5 Rent 5
4(a) Fixed Rent 5
4(b) Additional Rent 5
5 Taxes
5 Operating Expenses 6
6 Maintenance and Repair 9
8 Occupancy 10
9 10
10 Signs 11
</TABLE>

i
<PAGE> 3
<TABLE>
<S> <C> <C>
11 Repairs, Alterations and Maintenance 11
15 Insurance 16
16 Damage or Destruction of Premises 17
17 Eminent Domain 18
18 Default by Tenant 19
22 Attornment 22
24 Holdover 23
25 Certificates 23
26 Landlord's Right of Access to Demised
Premises 23
27 Additional Rights Reserved to Landlord 24
28 Safe Environment 26
29 Notice 27
30 Quiet Enjoyment 27
31 Waiver of Liability 27
32 No Representations 28
33 Occupancy 28
34 Successors and Assigns 28
35 Entire Agreement 28
36 Invalidation of Particular Provisions 28
37 Notice of Lease 28
</TABLE>

ii
<PAGE> 4
SUB-LEASE

This sub-lease is made as of December 13, 1996 between First Equity
Development, Inc. , a Connecticut Corporation with offices at One Omega Drive,
Stamford, CT. ,("Tenant") and First Aviation Services, Inc., a Delaware
Corporation with offices at One Omega Drive, Stamford, CT. ("Sub-lessee").
This sub-lease is in accordance with the lease dated October 24, 1996 between
William Leonard Gault and Julia Gault Sterling, ("Landlord"), and First Equity
Development, Inc. ("Primary Lease"). Tenant and sub-lessee agree to the terms
and conditions set forth in this sub-lease.

1 DEMISED PREMISES: The 2,000 square feet of the tenant's usable
space located at 15 Riverside Avenue, Westport, CT. as shown on Exhibit B
attached hereto (hereinafter referred to as "Demised Premises" or "Sub-leased
Premises").

2. TERM: The term of this sub-lease shall commence on the date that the
Tenant's lease with Landlord commences according to the terms of the Primary
Lease Agreement. The term of the sub-lease shall be ten years from the
commencement date. The first year of the sub-lease shall be the twelve month
period beginning on the commencement date. The sub-lessee shall have the
option to renew the lease for two additional successive five year periods
beyond the term of this sub-lease.

3. ACCELERATION OF TERM: Notwithstanding paragraph 2, this sub-lease
shall be cancelable six months after either party, sub-lessee or Tenant,
provides notice (the cancellation notice) to the other. The Sub-lessee agrees
to continue to make timely payments of rents, as per paragraph 4 and its
prorate share of expenses as per paragraph 5 during the six month period
following the issuance by either party of the cancellation notice.

4. RENT (A): Sub-lessee agrees to pay rent to Tenant as follows:

<TABLE>
<CAPTION>
Years Per Gross Square Foot
<S> <C> <C>
Annual Fixed Rent: 1,2 and 3 $25.00
4 and 5 $27.50
6 and 7 $28.50
8 and 9 $29.50
10 $31.50
</TABLE>
The above rent shall be payable in monthly installments in advance on the first
day of each month during the term of the sub-lease, prorated for any partial
month.

Security Deposit (b). Upon commencement of the lease, Sub-lessee will pay
Tenant a sum equal to one months' rent as a security deposit. The Sub-lessee
will increase the security deposit annually, including any optional period, so
that it remains a sum equal to one month of the new rent. The sum will be held
by Tenant as security for full performance by Sub-lessee the agreements in the
lease to be performed by him. The interest on such security deposit shall be
retained by Tenant. The security deposit

1
<PAGE> 5
without interest shall be returned to Sub-lessee after termination of the lease
provided Sub-lessee has complied with all its items.

PAST DUE ANNUAL FIXED RENT (C) If sub-lessee fails to pay any Rent before the
sixth day after such Rent is due, sub-lessee agrees to pay as Additional Rent
for each day after the sixth day that the Rent remains unpaid a late charge
which shall be the greater of (1) $50.00 per day or (2) 5% of the amount of
such unpaid Rent divided by 30. Sub-lessee agrees that such amounts are not a
penalty, but are a reasonable amount to reimburse Tenant for the loss of the
use of the money and the additional administrative costs resulting from late
payments.

5. TAXES, OPERATING EXPENSES AND UTILITIES

(a) DEFINITIONS. As used in this Sub-lease the following
definitions shall apply:
(i) "Real Estate Taxes" shall mean the total amount of
all taxes, charges and assessments levied or assessed against the Building and
any personal property of Landlord or Tenant used in the operation of the
Building, including, without limitation, real property taxes, assessments,
water and water assessments, sewer rentals, rates, taxes and charges, and any
other governmental charge, general, special, ordinary or extraordinary,
foreseen or unforeseen, of any kind and nature whatsoever which may at any time
prior or during the term of this Sub-lease become due and payable, or be
levied, assessed or imposed by any authority having power to do so, on, against
or with respect to the Building and any appurtenance thereof, but excluding,
however, any tax, levy or assessment against any income of Landlord or tenant,
and any income, franchise, transfer, inheritance and capital stock taxes of
Landlord or tenant. The said exclusions notwithstanding, Real Estate Taxes
shall include any tax, charge or other imposition levied by the State of
Connecticut or political subdivision thereof against Landlord's or Tenant's
interest in this Sub-Lease or the rents (whether gross or net) derived from
this Sub-Lease, and shall also include any other tax, fee or other excise,
however described, that may be levied or assessed as a substitute for, or as an
addition to, in whole or in part, any other Real Estate Taxes, whether or not
now customary or in the contemplation of the parties hereto as of the date of
this Sub-Lease.

(ii) " Operating Expenses and Utilities" shall mean costs,
actual and accrued, incurred in connection with the management, use, operation,
maintenance, repair, preservation and protection of the Building and adjacent
areas, including, without limitation, (1) cost of electricity, air
conditioning, ventilating, heating, mechanical, security protection and
elevator systems and all other utilities; (2) cost of water, supplies and
equipment, and maintenance, security and service contracts; (3) cost of
repairs, general maintenance, and cleaning; (4) cost of fire, extended
coverage, boiler, sprinklers, public liability, property damage, rent, umbrella
coverage, and other insurance; (5) wages, salaries, accident insurance, and
retirement, medical and other employee benefits and other labor costs; (6)
fees, charges, and other costs including management fees, consultant fees,
legal fees, and accounting fees of all independent contractors engaged by
Landlord or Tenant or reasonably charged by Landlord or Tenant to perform
services in connection with the operation of the Building; (7) cost of
maintaining Common Areas, public areas, lobbies, parking areas, and similar
areas adjacent to the Building; (8) amortized costs of improvements to the
Building or the real property on which the

2
<PAGE> 6
Building is located which are required by governmental law or regulation; and
(9) such other items as are customarily included in the cost of managing,
operating, and maintaining the Building in accordance with accepted accounting
or management principles or practice, including any charges incurred by
Landlord or Tenant for the engagement of a management firm or company for the
provision of such services. Notwithstanding anything to the contrary herein
contained, the term Operating Costs shall not include the cost of leasehold
improvements made for tenants or sub-lessee of the Building or made in order to
prepare space for occupancy by a new tenant or sub-lessee; the cost of capital
improvements (other than as stated above); debt service; or the cost of any
special services, goods or materials provided to any tenant or sub-lessee.

(iii) "Computation Year" shall mean each calendar year in
which occurs any part of the term of this Sub-lease.

(iv) "Base Year Costs" shall mean the Operating Expenses
attributable to the Demised Premises during the first calendar year in which
occurs the term.

(b) SUB-LESSEE'S SHARE OF OPERATING EXPENSES AND REAL ESTATE
TAXES. Sub-lessee shall pay to Tenant, Sub-lessee's Share of Operating
Expenses and Real Estate Taxes (hereinafter referred to collectively as
"Operating Expenses") at the times and in the manner provided below:

(i) Sub-lessee's Share of Operating Expenses for the
first year will be a pro-rata amount for the budget included at Schedule (see
Gault Lease). Commencing with the second year of the term of the sub-lease,
the sub-lessee shall pay it's proportionate share of any increases over the
previous year.

(ii) At the beginning of each Computation Year, Tenant
shall deliver to Sub-lessee an estimate of the amount to be paid by Sub-lessee
on it's Share of the Operating Costs for the appropriate Computation Year, and
without further notice Sub-lessee shall pay to Tenant, simultaneously with
Sub-lessee 's Monthly Fixed Rent during such Computation Year, monthly
installments of one-twelfth of such estimate.

(iii) The Sub-lessee's proportionate share of any increase in
operating expense, shall be payable in 12 equal monthly installments together
with the monthly rental. Tenant shall supply to Sub-lessee a detailed
computation and itemized statement as furnished by the Landlord.

6. OCCUPANCY OF DEMISED PREMISES.

Sub-lessee 's occupancy of all or part of the Demised Premises shall
be conclusive evidence that Sub-lessee accepts possession of the Demised
Premises in an "as is" condition, and that the Demised Premises is complete and
finished in every material respect. Sub-lessee relies on no warranties or
representations express or implied of Tenant or any agent or other party
associated with Tenant as to the nature, condition, repair or specific area of
the Demised Premises or the Building, except as otherwise expressly provided in
this Sub-Lease.

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<PAGE> 7
7. USE OF DEMISED PREMISES.

Sub-lessee shall use the Demised Premises for the conduct of
Sub-lessee 's business and for no other use or purpose without the prior
written consent of Tenant.

8. SUB-LESSEE 'S OPERATION OF BUSINESS.

(a) Sub-lessee shall use the Sub-Leased Premises solely for the
purpose set forth in Paragraph 7 as stated above.

(b) Sub-lessee shall comply with all laws, orders and regulations of
federal, state, county and municipal authorities, and with any direction of any
public officer or officers which shall impose any violation order or duty with
respect to the Sub-Leased Premises or the use or occupation thereof.

(c) Sub-lessee agrees that it shall not at any time during the
Sub-Lease do or permit to be done any act or practice which may tend to injure
or damage the Demised Premises or the Building.

(d) Sub-lessee shall not use or knowingly permit any part of the
Leased Premises to be used for any unlawful purpose; nor shall the Sub-lessee
use or occupy or permit the Leased Premises to be used or occupied, nor do or
permit anything to be done in or on the Leased Premises, in a manner which will
knowingly violate any certificate of occupancy affecting the Leased Premises;
or to make void or voidable any insurable then in force with respect thereto,
or which will make it impossible or uneconomical to obtain fire or other
insurance required to be furnished by the Landlord or the Tenant; or which will
cause or be likely to cause roof or structural damage to the Building or any
part thereof; or which will constitute a public or private nuisance; or which
will violate any laws or regulations of any governmental authority.

9. Not used

10. SIGNS.

Sub-lessee shall have the right at its expense, in conformity with all
applicable laws, ordinances and municipal regulations, and subject to the prior
written consent of Landlord, and Tenant to install interior signs in the
Leased Premises. All associated costs shall be borne by sub-lessee.

11. REPAIRS, ALTERATIONS AND MAINTENANCE.

(a) CARE OF DEMISED PREMISES. Sub-lessee, at its expense, shall take
proper and reasonable care of the Demised Premises, including all Building
equipment and systems, partitions, carpets, drapes, ceilings, lights, doors,
and other interior finish items. Sub-lessee shall maintain all such interior
finish items as necessary to preserve them in reasonably good order, condition
and appearance.

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<PAGE> 8
(b) SUB-LESSEE 'S REPAIRS. Sub-lessee shall make and be responsible
for all repairs, as and when needed, to preserve the Demised Premises and the
Building (except as provided for as Landlord's responsibility in the Primary
Lease), including Building equipment and systems and Sub-lessee 's property and
fixtures, in good working order and condition, if the need for which arises out
of or results from (1) the performance or existence of any alteration of or
modification to the Demised Premises made by Sub-lessee, (2) the installation,
use, or operation of Sub-lessee 's property or fixtures, (3) the moving of
Sub-lessee 's property or fixtures in or out of the Building or in and about
the Demised Premises, or (4) the acts, omission, negligence or misuse by
Sub-lessee, those holding under Sub-lessee or Sub-lessee 's employees, agents,
invitees, or licensees, or their use or occupancy or manner of use or occupancy
of the Demised Premises. All repairs shall conform to the provisions of
Paragraph 11(d) and shall be at least equal in quality and class to the
standards then applicable for the Building as established by Landlord and
Tenant. If Sub-lessee fails after ten days notice by Landlord or Tenant to
proceed with due diligence to make repairs required to be made by Sub-lessee
(except in an emergency, wherein Landlord or Tenant may proceed immediately if
Sub-lessee does not immediately proceed to repair) the same may be made by
Landlord or Tenant at the expense of Sub-lessee, and the reasonable expenses of
repairs incurred by Landlord or Tenant shall be reimbursed immediately as
Additional Rent after submission of a bill or statement for the repairs.

(i) Provided Sub-lessee has secured the prior written consent
of Landlord and Tenant, and subject to the provisions of Paragraph 11(e),
Sub-lessee may, at Sub-lessee 's expense, make installations and other
alterations to the Demised Premises which are non- structural and which do not
affect utility services or plumbing and electrical lines in or to the interior
of the Demised Premises, by using contractors first approved by Landlord and
Tenant. Sub-lessee shall, at its expense, obtain all permits, approvals and
certificates required by any governmental or quasi-governmental bodies, both
before initiating and upon completing the installations and other alterations,
as applicable, and Sub-lessee shall deliver promptly duplicates of all such
permits, approvals, and certificates to Landlord and Tenant. Sub- lessee
agrees to carry or will cause Sub-lessee 's contractors and subcontractors to
carry such workmen's compensation, general liability, and personal and property
damage insurance as Landlord may reasonably require. Certificates evidencing
such insurance coverage shall be delivered to Landlord and Tenant prior to
commencing any such installations or alterations. Any increase in any taxes as
a result of such installations and other alterations by Sub-lessee shall be
paid entirely by Sub-lessee.

(ii) All fixtures and all paneling, partitions, and like
installations and other alterations made in the Demised Premises at any time,
either by Sub-lessee or by Landlord or Tenant on Sub-lessee 's behalf, shall,
upon installation, become the property of Landlord and shall remain upon and be
surrendered with the Demised Premises, except as provided in this subparagraph
and subparagraph (iii) of this Paragraph 11 (d). With respect to improvements
made without Tenant's consent, Tenant shall have the right, by notice to
Sub-lessee no later than 20 days prior to the end of the Term, to elect to have
the improvements removed by Sub-lessee, and Sub-lessee shall remove the

5
<PAGE> 9
improvements and repair and restore the Demised Premises prior to the end of
the Term, at Sub-lessee 's expense.

(iii) Nothing in this paragraph shall be construed to give
Landlord or Tenant title to or to prevent Sub-lessee 's removal of trade
fixtures or movable office furniture and equipment, but upon removal of any
such equipment and fixtures from the Demised Premises or upon removal of other
installations as may be required by Landlord or Tenant, Sub-lessee shall
immediately and at its expense, repair and restore the Demised Premises to the
condition existing prior to installation, ordinary wear and tear excepted, and
Sub-lessee shall repair any damage to the Demised Premises or the Building due
to such removal.

(e) MECHANIC'S LIENS. Sub-lessee shall keep the title to the Building
free and clear of any lien or encumbrance in respect of any work ordered by
Sub-lessee in the Demised Premises. Sub-lessee shall indemnify and hold Tenant
and Landlord harmless against any claim, loss, cost, demand and legal or other
expense, whether in respect of any lien or otherwise, arising out of the supply
of material, services or labor for such work. Sub-lessee shall immediately
notify Tenant and Landlord of any such lien, claim of lien, or other action of
which it has or reasonably should have knowledge and which affects the title to
the Building and shall fully bond or at Landlord's or Tenant's request cause
the same to be removed within five days (or such additional time as Landlord or
Tenant may consent to in writing), failing which Landlord or Tenant may take
such action as Landlord or Tenant deems reasonably necessary to remove the
same, and the entire cost of removal shall be immediately due and payable by
Sub-lessee to Landlord or tenant. Such amount together with interest thereon
at the rate of 1-1/2% per month from the date Landlord or Tenant makes such
payment shall be payable as Additional Rent. At least five days prior to the
commencement of any work by Sub-lessee on the Building, Sub-lessee shall notify
Landlord and Tenant of the proposed work and the names and addresses of the
persons supplying labor and materials for the proposed work.

12. Not used

13. Not used

14. INDEMNIFICATION BY SUB-LESSEE.

(a) Sub-lessee shall indemnify Tenant and Landlord (and such other
persons who are in privity of estate with Tenant and Landlord) and save it
harmless from and against any and all claims, actions, damages, liability and
expense in connection with loss of life, personal injury and/or damage to
property arising from or out of any occurrence in, upon, at or about the Leased
Premises from or out of the occupancy or use by Sub-lessee of the Leased
Premises or any part thereof, or occasioned wholly or in part by any act or
omission of Sub-lessee, its agents, contractors, employees, lessees or
concessionaires. In case Landlord or Tenant (and such other persons who are in
privity of estate with Landlord or Tenant) shall, without fault on its part, be
made a party to any litigation commenced by or against Sub-lessee, then
Sub-lessee agrees to protect and hold Tenant and Landlord harmless. Sub-lessee
agrees also to pay all costs, expenses and reasonable attorney's fees that may
be incurred or paid by Tenant and Landlord in

6
<PAGE> 10
enforcing the covenants and agreements in this Lease, provided Tenant and
Landlord shall prevail in such enforcement proceeding.

(b) Sub-lessee shall store its property in and shall occupy and
operate in the Leased Premises and all other portions of the Demised Premises
at its own risk, and hereby releases Tenant and Landlord, its agents and
employees from any claims for damages or injury to the full extent permitted by
law.

15. INSURANCE.

(a) Sub-lessee shall at all times during the Sub-Lease Term obtain and
maintain in force at Sub-lessee 's sole cost and expense for the mutual benefit
of a comprehensive liability insurance policy with limits not less than
$3,000,000 per occurrence for combined bodily injury and not less than $250,000
for property damage liability. Tenant shall be included as an additional
insured. Sub-Lessee will furnish to Tenant, upon Tenant's request, a
Certificate of Insurance issued by such insurer certifying the existence of
said insurance and coverage with an obligation by the insurer that no
termination shall occur unless Tenant has been given by the insurer thirty (30)
days prior written notice. Sub-lessee also shall at all times during the
Sub-Lease Term maintain all workmen's compensation and disability benefits
insurance required by law and provide Tenant with satisfactory evidence of the
existence of such coverage.

(b) Tenant shall at all times during the Lease Term carry fire and
extended coverage insurance, and insurance against such other risks as Tenant
considers appropriate, including the leasehold improvements, but excluding
Sub-lessee 's merchandise, trade fixtures, furnishings, equipment and personal
property (collectively " Sub-lessee 's Property"). Sub-lessee shall be liable
for its proportionate share of the costs of such insurance which shall be
collectible as an item of Additional Rent as set forth in Paragraph 4(b)
hereof. Sub-lessee shall at its own expense carry fire and extended coverage
insurance on Sub-lessee 's Property.

16. DAMAGE OR DESTRUCTION OF PREMISES.

(a) The parties agree that if the Sub-Leased Premises are partially or
totally destroyed or damaged by fire or other hazard, Tenant may repair and
restore the Sub-Leased Premises, as soon as it is reasonably practicable, to
substantially the same condition in which the Sub- Leased Premises were before
such damage; provided however that Tenant shall not be obligated to repair or
restore the Sub-Leased Premises and at its option, may terminate this Lease by
giving written notice to that effect to Sub-lessee within sixty days after such
damage or destruction, if the estimated cost of said repairs and restorations
to the Building is in excess of $500,000.

(b) Tenant shall not be required to repair or restore any damage
caused by an act or omission of Sub-lessee, its agents, employees, customers,
contractors, or licensees unless Tenant has received insurance proceeds in an
amount sufficient to rebuild and restore the Sub- Leased Premises
(notwithstanding said act or omission of Sub-lessee, its agent, employee,
customer, contractor or licensee) and so long as Sub- Lessee pays Tenant the
amount of any deductible within Tenant's insurance coverage.

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<PAGE> 11
(c) The Rent shall be abated proportionately during any period in
which by reason of any such damage or destruction (according to the extent
which the Sub-lessee is unable to conduct its business), there is substantial
interference with the operation of the business of Sub- Lessee in the
Sub-Leased Premises, and such abatement shall continue for the period
commencing with such destruction or damage and ending with the substantial
completion by Tenant of such work or repair as Tenant undertakes to do.

(d) If repairs of the destruction or damage of the Sub-Leased Premises
by fire or other hazard have not been substantially completed by Tenant within
ninety (90) days after the date on which Tenant shall receive insurance
proceeds therefore, or one hundred eighty (180) days from the date of said
damage or destruction, whichever shall first occur, this Sub-Lease may be
terminated by the Tenant or Sub lessee so long as either party gives the other
not less than ninety (90) days written notice, which must be given within ten
(10) days of the expiration of such period.

17. EMINENT DOMAIN.

If any part of the Building in which the Demised Premises is located
or any of the parking areas is taken by eminent domain, this sub- lease shall
be deemed terminated.

18. DEFAULT BY SUB-LESSEE.

This Sub-Lease is subject to the limitation that if, at any time, any
one or more of the following events (herein called an "event of default") shall
occur, then Tenant in addition to the other rights and remedies it may have,
shall have the right to immediately declare this Sub-Lease terminated and all
of the right, title and interest of the Sub-lessee hereunder shall wholly cease
and expire upon receipt by Sub- lessee of a Notice of Termination from Tenant.
Sub-lessee shall then quit and surrender the Sub-Leased Premises to Tenant but
Sub-lessee shall remain liable to Tenant as hereinafter provided. The events
of default are:

(a) Violation of any portion of the Safe Environment provision as set
forth in Paragraph 28.

(b) If Sub-lessee shall make an assignment of all or a substantial
portion of its assets for the benefit of creditors; or

(c) If the leasehold estate hereby created in Sub-lessee shall be
taken by attachment, execution or by other process of law; or

(d) If any petition shall be filed against Sub-lessee in any Court,
whether or not pursuant to any statute of United States or of any state, in any
bankruptcy, reorganization, composition, extension, arrangement or insolvency
proceedings, and Sub-lessee shall thereafter be adjudicated bankrupt, or such
petition shall be approved by the Court, or the Court shall assume jurisdiction
of the subject matter and if such proceedings shall not be dismissed within
ninety (90) days after the institution of the same, or if any petition shall be
so filed by Sub- lessee; or

8
<PAGE> 12
(e) If, in any proceedings, a receiver or trustee shall be appointed
for Sub-lessee 's property and such receivership or trusteeship shall not be
vacated or set aside within ninety (90) days after the appointment of such
receiver or trustee; or

(f) If Sub-lessee shall fail to pay any installment of the Annual
Rental or Additional Rent or any part thereof when the same shall become due
and payable and such failure shall continue for ten (10) days after the date
due; or

(g) If Sub-lessee shall fail to pay any other charge required to be
paid by Sub-lessee hereunder, and such failure shall continue for ten (10) days
after mailing of written notice thereof from Tenant to Sub-lessee; or

(h) If Sub-lessee shall fail to perform or observe any other
requirement or condition of this Sub-Lease Agreement on the part of Sub- lessee
to be performed or observed and such failure shall continue for twenty (20)
days after mailing of written notice thereof from Tenant to Sub-lessee.

19. Not used

20. SUBLEASE.

(a) Sub-lessee shall not assign, mortgage, pledge or hypothecate its
leasehold interest or any part thereof, whether by operation of law or
otherwise. Sub-lessee may not sublease the Premises, or any portion thereof.

21. Not used

22. Not used

23. Not used

24. HOLDOVER.

Should Sub-lessee continue to occupy the Sub-Leased Premises after the
expiration of this Sub-Lease, or after a forfeiture, whether with or against
the consent of Tenant, such tenancy shall be from month to month.

25. Not used

26. Not used

27. ADDITIONAL RIGHTS RESERVED TO TENANT AND/OR LANDLORD.

Tenant shall have the following additional rights exercisable without
notice and without liability to Sub-lessee for damage or injury to property,
person or business, all claims for damage being hereby released, and without
effecting an eviction or disturbance of Sub-lessee's use or possession or
giving rise to any claim for setoffs, or abatement of Rent:

9
<PAGE> 13
(a) To make such changes in the Building, including the Building
equipment and systems, as well as to change the arrangement and/or location of
the cafeteria, conference facility, mechanical rooms, public entrances,
passageways, doors, doorways, corridors, elevators, stairs, toilets, parking
areas or other parts of the Building as Tenant may deem necessary or desirable,
and to change the name, number or designation by which the Building may be
known; provided that (i) Tenant or Landlord will repair any structural damage
caused to the Demised Premises, and (ii) any such changes shall not
unreasonably deprive Sub-lessee of a reasonable means of access to the Demised
Premises or interfere with the use of the Demised Premises for an unreasonable
length of time.

(b) To require all persons entering or leaving the Building during
such hours as Landlord or Tenant may from time to time reasonably determine to
identify themselves to a watchman by registration or otherwise and to establish
their right to enter or leave Building.

(c) To approve the weight, size and location of safes, computers and
other heavy articles in and about the Demised Premises and the Building. Such
approval not to be unreasonably withheld.

(d) To do or permit to be done any work in or about the Demised
Premises or the Building or any adjacent or nearby building, street, parking
area, land or alley.

(e) To grant to anyone the exclusive right to conduct any business or
render any services in the Building provided such exclusive right shall not
operate to exclude Sub-lessee Tenant from the use expressly permitted by
Paragraphs 7 or 8.

(f) To close the Building at any such reasonable times after Normal
Business Hours as Landlord or Tenant may determine, subject, however, to
Sub-lessee right to admittance under such rules and regulations as shall be
prescribed from time to time by Tenant.

(g) To install, operate, maintain, and employ any security devices,
systems and services in the Building and to include in the Operating Costs of
the Building the Cost of installing, employing, operating, and maintaining such
devices, services and systems.

(h) To change the name or street address of the Building.

(i) To install and maintain a sign or signs on the interior or
exterior of the Building.

(j) To have access for the Tenant, Landlord and other tenants of the
Building to any mail chutes located on the Demised Premises according to the
rules of the United States Post Office.

(k) To retain at all times pass keys and security or alarm system
access cards, keys or codes to or for the Demised Premises.

10
<PAGE> 14
(l) To exhibit the Demised Premises to others and to display "For
Rent" signs on the Demised Premises.

(m) To take any and all measures, including inspections, repairs,
alterations, decoration, additions and improvements to the Demised Premises or
to the Building, as may be necessary or desirable for the safety, protection or
preservation of the Demised Premises or the Building or the Landlord's
interests, or as may be necessary or desirable in the operation of the
Building.

(n) The Landlord or Tenant may enter upon the Demised Premises and may
exercise any or all of the foregoing rights hereby reserved without being
deemed guilty of an eviction or disturbance of the Sub-lessee's use or
possession and without being liable in any manner to the Sub-lessee's and
without abatement of rent or affecting any of the Sub-lessee's obligations
hereunder.

(o) Should any mortgage require a modification or modifications of
this Sub-Lease, which modification or modifications will not bring about any
increased cost or expense to Sub-lessee or in any other way substantially
change the rights and obligations of Sub-lessee hereunder, then and in such
event, Sub-lessee agrees that this Sub-Lease will be so modified.

(p) The Landlord's and Tenant's title or interest is and always shall
be paramount to the interest of the Sub-lessee, and nothing herein contained
shall empower the Sub-lessee to do any act which can, shall or may encumber
such title or interest.

(q) Upon prior notice to Sub-lessee, to perform any act, obligation or
other commitment reasonably required of or by Sub-lessee which Sub-lessee has
not performed for any reason whatsoever, and to charge Sub-lessee as Additional
Rent all reasonable costs and expenses incurred by Landlord or Tenant for such
performances.

28. SAFE ENVIRONMENT.

It is essential that all employees of Sub-lessee conduct themselves in
a manner that would not impact their safety or the safety of others or cause
damage to the building or grounds. Accordingly, Sub-lessee is responsible for
ensuring its employees, agents, invitees, licensees:

o o Adhere to rules regarding driving patterns, including but not
limited to, speed limits and one-way passageways.

o Notify Tenant when contractors have been employed by
Sub-lessee for use on the site.

o Notify Tenant of any situation that may endanger or cause harm
to employees of the Building.

Sub-lessee warrants and covenants to use best efforts to ensure compliance by
all of its employees and will take immediate corrective action if notified of a
breach by Tenant.

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<PAGE> 15
29. NOTICE.

Any notice, demand or request required or agreed to be given under
this Sub-Lease Agreement by either party shall be sufficiently given when
mailed by certified mail, return receipt requested, addressed to the party to
be notified as follows:

TO TENANT:
First Equity Development, Inc.
15 Riverside Avenue
Westport, CT 06880

with an informational copy to:
TO SUB-LESSEE

First Aviation Services, Inc.
15 Riverside Avenue
Westport, CT 06880

or such other address as either party may have furnished to the other in
writing in accordance herewith, except that the notices of changes in address
shall be effective only upon receipt.

30. QUIET ENJOYMENT.

Tenant covenants that upon Sub-lessee performing and observing all of
Sub-lessee 's obligations under the Sub-Lease Agreement, Sub- lessee may
quietly enjoy the Sub-Leased Premises for the Sub-Lease Term.

31. WAIVER OF LIABILITY.

Anything in this Sub-Lease Agreement to the contrary notwithstanding,
Sub-lessee agrees that it shall look solely to the estate and property of the
Tenant in the Demised Premises (subject to prior rights of any mortgagees of
the premises) for the collection of any judgment (or other judicial process)
requiring the payment of money by Tenant in the event of any default or breach
by Tenant with respect to any of the terms, covenants and conditions of this
Sub-Lease Agreement, and no other assets of Tenant or any partner, principal or
investor shall be subject to levy, execution, attachment or other procedure
for the satisfaction of the Sub-lessee 's remedies.

32. NO REPRESENTATIONS.

Neither Tenant nor Tenant's agents has made any representation,
warranty or promise with respect to the Sub-Lease Premises or the Building in
which they are a part except as herein expressly set forth.

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<PAGE> 16
33. OCCUPANCY.

Tenant reserves the right to establish reasonable rules and
regulations with regard to the occupancy and usage of the Demised Premises,
which shall be limited to the manner and schedule of maintaining the Building,
and Sub-lessee agrees to abide by all such rules and regulations.

34. SUCCESSORS AND ASSIGNS.

This Agreement is binding on the parties, their heirs, successors and
assigns, except as otherwise provided herein.

35. ENTIRE AGREEMENT.

This Sub-Lease Agreement contains the entire agreement between the
parties and it may not be changed orally or by any agreement between the
parties unless in writing, signed and acknowledged by the parties or their
successors.

36. INVALIDATION OF PARTICULAR PROVISIONS.

If any term or provision of this Sub-Lease Agreement shall be invalid
or unenforceable, the remainder of the Sub-Lease Agreement shall not be
affected and shall be valid and enforceable to the extent permitted by law.

37. NOTICE OF LEASE.

The parties agree, upon request of either party hereto, to execute a
Notice of Lease as described in Connecticut General Statutes Annotated S47-19.

This Sub-Lease agreement has been executed as follows:
In Witness Whereof:

TENANT
------------------------- FIRST EQUITY DEVELOPMENT, INC.
------------------------- By s/Aaron P. Hollander
------------------------------
Its Managing Director

SUB-LESSEE
-------------------------
------------------------- By s/John A. Marsalis
------------------------------
Its Chief Financial Officer

<PAGE> 1
EXHIBIT 10.31

FIRST AVIATION SERVICES INC.
One Omega Drive
Stamford, Connecticut 06907

January 31, 1997

Gentlemen:

This letter, when countersigned by you in the space indicated
below, will evidence the agreement of FAS Inc., ("FAI") and First Aviation
Services Inc. ("FASI") regarding the exchange by FAI of the shares of Series A
Preferred Stock of FASI (the "Series A Preferred") owned by FAI for shares of
common stock, par value $.01, of FASI (the "Common Stock"). For good and
valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, the parties agree as follows:

Concurrently with and contingent upon the closing of the initial
public offering (the "Closing") of FASI's Common Stock, FAI will exchange 33,000
shares of Series A Preferred (aggregate face value $1,650,000) for shares of
Common Stock at an exchange rate (based on the face value of the Series A
Preferred Stock) equal to the public offering price per share of Common Stock.
The shares of Common Stock of FASI will not be registered with the Securities
and Exchange Commission and accordingly will be restricted securities with the
meaning of Rule 144. All dividends accrued as of the Closing Date on the Series
A Preferred held by FAI shall be paid in cash to FAI at the Closing. This letter
agreement shall expire and be of no further force and effect if the Closing does
not occur on or before March 31, 1997.

This letter agreement shall be construed, interpreted and enforced
in accordance with the laws of the State of Connecticut.

If the foregoing correctly sets forth your understanding of our
agreement, please so indicate by signing in the place provided for below.

Very truly yours,

FIRST AVIATION SERVICES INC.

By: /s/ Michael C. Culver

ACCEPTED AND AGREED TO:

FAS INC.

By: /s/ Aaron Hollander

<PAGE> 1
EXHIBIT 23.1

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the reference of our Firm under the caption "Experts" and to the
use of our report on the financial statements of Aircraft Parts International
dated November 15, 1996 (except Note 7 as to which the date is November 25,
1996) in Amendment 3 to the Registration Statement (Form S-1, No. 333-18647)
and related Prospectus of First Aviation Services Inc. for the registration of
4,485,000 shares of its common stock.

We also consent to the reference of our Firm under the captions "Selected
Financial Data" and "Experts" and to the use of our report on the financial
statements of First Aviation Services Inc. dated September 12, 1996 (except Note
12 as to which the date is December 20, 1996), in Amendment 3 to the
Registration Statement (Form S-1, No. 333-18647) and related Prospectus of First
Aviation Services Inc. for the registration of 4,485,000 shares of its common
stock.

Our audits also included the financial statement schedule of First Aviation
Services Inc. listed in Item 16 of this Registration Statement. This schedule is
the responsibility of the Company's management. Our responsibility is to express
an opinion based on our audit. In our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the information set
forth therein.

Ernst & Young LLP

San Francisco, California
February 19, 1997

<PAGE> 1
EXHIBIT 23.2

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting part of this
Amendment No. 3 to the Registration Statement on Form S-1 of our report dated
June 14, 1995 relating to the financial statements of National Airmotive
Corporation, which appears in such Prospectus. We also consent to the
application of such report to the Financial Statement Schedule for the years
ended March 31, 1994 and 1995 listed under item 16(b) of this Registration
Statement when such schedule is read in conjunction with the financial
statements referred to in our report. The audits referred to in such report also
included this schedule. We also consent to the references to us under the
headings "Experts" and "Selected Financial Information" in such Prospectus.
However, it should be noted that Price Waterhouse LLP has not prepared or
certified such "Selected Financial Information."

/s/ PRICE WATERHOUSE LLP

San Francisco, California
February 19, 1997