HAWKER PACIFIC AEROSPACE, S-1, 1998-08-19

HAWKER PACIFIC AEROSPACE
S-1, 1998-08-19
AIRCRAFT PARTS & AUXILIARY EQUIPMENT, NEC

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<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 19, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
HAWKER PACIFIC AEROSPACE

(Exact name of registrant as specified in charter)

<TABLE>
<S> <C> <C>
CALIFORNIA 3728 95-3528840
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of
incorporation or organization) Classification Code Number) Identification
No.)
</TABLE>

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

11240 SHERMAN WAY
SUN VALLEY, CALIFORNIA 91352
(818) 765-6201

(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------

DAVID L. LOKKEN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
HAWKER PACIFIC AEROSPACE
11240 SHERMAN WAY
SUN VALLEY, CALIFORNIA 91352
TEL: (818) 765-6201
FAX: (818) 765-8073

(Name, address and telephone number of agent for service)
------------------------------

COPIES TO:

YVONNE E. CHESTER, ESQ. FREDERIC A. RANDALL, JR., ESQ.
YOUNG J. KIM, ESQ. RICHARD A. FINK, ESQ.
Troy & Gould Professional Corporation Brobeck Phleger & Harrison LLP
1801 Century Park East, Suite 1600 38 Technology Drive
Los Angeles, California 90067 Irvine, California 92618
Tel. (310) 553-4441 Tel. (949) 790-6300
Fax. (310) 201-4746 Fax. (949) 790-6301

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO 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, as amended ("Securities Act"), 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 of the earlier effective registration statement for the
same offering. / /

If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
------------------------------

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AGGREGATE AMOUNT OF
TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE(2)
<S> <C> <C>
% Convertible Subordinated Notes Due 2005.......................... $57,500,000(3) $16,963
Common Stock, no par value............................................ (4) -- (5)
Total Registration Fee............................................ $16,963
</TABLE>

(1) Estimated solely for the purpose of calculating the registration fee.

(2) Computed in accordance with Rule 457(o).

(3) Includes an additional $7,500,000 aggregate principal amount of Notes which
the Underwriters have the option to purchase solely to cover
over-allotments, if any.

(4) Represents such indeterminate number of shares of Common Stock as shall be
issuable upon conversion of the Notes being registered hereunder, and such
additional securities issued as a result of the anti-dilution provisions
thereof.

(5) No registration fee is required pursuant to Rule 457(i).
------------------------------

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>
SUBJECT TO COMPLETION, DATED AUGUST , 1998
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.
<PAGE>
$50,000,000

[LOGO]

% CONVERTIBLE SUBORDINATED NOTES DUE 2005

The % Convertible Subordinated Notes due 2005 ("Notes") are convertible
at the option of the Holder at any time following the date of original issuance,
unless previously redeemed or repurchased, into shares of Common Stock, no par
value ("Common Stock"), of Hawker Pacific Aerospace ("Hawker Pacific" or the
"Company") at a conversion price of $ per share, subject to adjustment under
certain circumstances. See "Description of Notes--Conversion Rights." On August
, 1998, the last reported sale price of the Common Stock on the Nasdaq
National Market was $ per share.

Interest on the Notes is payable semi-annually on March 1 and September 1 of
each year, commencing March 1, 1999. The Notes will be redeemable, in whole or
in part, at the option of the Company, at any time on or after October 1, 2001,
at the redemption prices set forth herein, plus accrued and unpaid interest to
the date of redemption. See "Description of Notes--Redemption at the Option of
the Company." Each Holder of the Notes may require the Company to repurchase
such Holder's Notes, in whole or in part, in the event of a Change in Control
(as defined herein) at a purchase price equal to 100% of the principal amount of
such Notes plus accrued and unpaid interest to the date of repurchase.

The Notes will be general unsecured obligations of the Company and are
subordinate in right of payment to all Senior Indebtedness (as defined herein)
of the Company. The Indenture governing the Notes does not limit or prohibit the
Company or its subsidiaries from incurring additional indebtedness, including
Senior Indebtedness.

The Notes will be issued only in book entry form through The Depository
Trust Company. Interests in the Notes will be shown in, and transfer thereof
will be effected only through, records maintained by The Depository Trust
Company and its participants. Except as provided herein, Notes in definitive
form will not be issued. See "Description of Notes." Application has been made
to list the Notes on the Nasdaq National Market.
--------------------------

AN INVESTMENT IN THE NOTES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR CERTAIN INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS OF THE NOTES 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 Note............................................... $ $ $
Total(3)............................................... $ $ $
</TABLE>

(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."

(2) Before deducting expenses of the offering payable by the Company, estimated
to be $ .

(3) The Company has granted to the Underwriters a 30-day option to purchase up
to an aggregate of $7,500,000 principal amount of Notes at the price to the
public less underwriting discounts and commissions solely for the purpose of
covering over-allotments, if any. If the Underwriters exercise such option
in full, the total Price to Public, Underwriting Discounts and Commissions
and Proceeds to the Company will be $ , $ and $ ,
respectively. See "Underwriting."
--------------------------

The Notes are offered by the Underwriters named herein, subject to prior
sale, when, as and if issued by the Company and delivered to and accepted by the
Underwriters and subject to certain prior conditions including the right of the
Underwriters to reject any order in whole or in part. It is expected that
delivery of the Notes will be made at the offices of EVEREN Securities, Inc., or
through the facilities of The Depository Trust Company, New York, New York on or
about , 1998.

EVEREN SECURITIES, INC. ING BARING FURMAN SELZ LLC

The date of this Prospectus is , 1998.
<PAGE>
[ART WORK]

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

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

2
<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE FINANCIAL STATEMENTS AND RELATED NOTES THERETO APPEARING
ELSEWHERE IN THIS PROSPECTUS. SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN
RISKS ASSOCIATED WITH AN INVESTMENT IN THE NOTES.

THE COMPANY

Hawker Pacific Aerospace repairs and overhauls aircraft and helicopter
landing gear, hydromechanical components, and wheels, brakes and braking system
components for a diverse international customer base, including commercial
airlines, air cargo operators, domestic government agencies, aircraft leasing
companies, aircraft parts distributors and original equipment manufacturers
("OEMs"). In addition, the Company distributes and sells new and overhauled
spare parts and components for both fixed wing aircraft and helicopters. The
Company acquired British Airways plc's ("British Airways") landing gear repair
and overhaul operations (the "BA Assets") in the United Kingdom for
approximately $19.5 million in February 1998 (the "BA Acquisition") and entered
into a seven-year exclusive agreement to service British Airways' fleet of
approximately 250 jet aircraft. The BA Acquisition provided the Company with an
expanded operational base to service aircraft fleets on a worldwide basis from
its western United States, United Kingdom and Netherlands facilities. During the
twelve months ended June 30, 1998 the Company had in excess of 480 customers
worldwide. Approximately 58.5% of the Company's revenue during the six months
ended June 30, 1998 came from long-term contracts, compared to 31.8% for the
same period in 1997. Customers that have entered into long-term contracts with
the Company include American Airlines Inc. ("American Airlines"), British
Airways, British Midland Engineering Services ("British Midlands"), Canadian
Airlines International Ltd. ("Canadian Airlines"), Federal Express Corporation
("FedEx"), Scandinavian Airlines System ("SAS"), United Parcel Service Co.
("UPS"), the United States Coast Guard ("USCG") and US Airways Group, Inc. ("US
Airways").

The Company has achieved a significant market presence. Through its
predecessors, the Company has been providing aftermarket products and services
to the aviation industry for over 30 years and believes it has gained an
international reputation for superior quality of service, competitive pricing
and rapid turnaround time. The Company's senior executives have, on average,
over 20 years of industry experience and have served the Company for an average
of seven years. The Company has also developed proprietary software to manage
and schedule work flow and coordinate many aspects of shop flow operations when
tracking landing gear that can have up to 2,500 parts. The Company believes that
its management information systems are among the most advanced in its industry,
permitting the Company to achieve greater operating efficiencies, offer a higher
level of customer service than its competitors and provide complete traceability
of aircraft parts. The Company can also manufacture certain replacement parts
in-house, enabling it to reduce costs using proprietary or specialized equipment
and techniques.

The Company believes it is well positioned to benefit from the following
aviation industry trends that are driving increased demand for third-party
repair, overhaul and spare parts inventory management services:

INCREASED WORLDWIDE AIR TRAFFIC. The Boeing Co.'s ("Boeing") 1998 CURRENT
MARKET OUTLOOK (the "Boeing Outlook") estimates that the global aircraft fleet
will grow from approximately 12,300 aircraft at the end of 1997 to over 17,700
aircraft in 2007 and 26,200 aircraft in 2017.

OUTSOURCING BY AIRCRAFT OPERATORS. Industry analysts have forecasted the
commercial landing gear service market to grow from $258 million in 1995 to $638
million by 2005. According to these industry sources, the outsourced portion of
this market was $163 million in 1995, or 63% of the commercial market, and is
estimated to grow to $480 million by 2005, or 75% of the commercial market.
There has also been an increase in subcontracting of repair and overhaul
services by European aircraft operators which formerly participated in repair
consortiums.

3
<PAGE>
GREATER EMPHASIS ON TRACEABILITY. The Company believes that the increased
regulatory and consumer emphasis on the traceability of aircraft parts is
driving demand for more comprehensive third-party repair, overhaul and spare
parts inventory management services.

The Company's goal is to enhance its position as a leading worldwide
aviation aftermarket service provider specializing in the repair and overhaul of
landing gear, hydraulic systems and other componentry for aircraft, through the
following strategies:

EXPAND INTERNATIONAL OPERATIONS. The Company believes that the international
aviation aftermarket offers the greatest potential for substantial growth. With
service facilities in the western United States, the United Kingdom and the
Netherlands, the Company is strategically situated to service customers in North
America, Europe, Asia and the Middle East. Since the BA Acquisition in February
1998, the Company has successfully entered into long-term service agreements
with British Midlands, SAS and UPS to be serviced from its United Kingdom
facility.

INCREASE SERVICE OFFERINGS. The Company seeks continued growth by offering
landing gear repair and overhaul services to new and existing customers across a
growing variety of aircraft, while expanding hydromechanical product lines as
well as related wing and component services.

FOCUS ON LONG-TERM SERVICE AGREEMENTS. The Company intends to increase the
percentage of revenues derived from long-term service agreements. The Company's
success in this effort includes the Company's September 1997 seven-year
exclusive agreement with American Airlines to service landing gear on all Boeing
757 aircraft within its fleet and the February 1998 seven-year exclusive
agreement with British Airways. While long-term agreements are often terminable
on short notice, the Company believes that securing long-term service agreements
will generate a more predictable and consistent flow of business.

Hawker Pacific was incorporated in 1980 in California. Unless the context
otherwise requires, all references henceforth to the "Company" or "Hawker
Pacific" shall also include Hawker Pacific Aerospace Limited, a wholly-owned
United Kingdom subsidiary formed in November 1997 (the "Subsidiary"). The
Company's principal executive offices are located at 11240 Sherman Way, Sun
Valley, California 91352, and its telephone number is (818) 765-6201.

4
<PAGE>
THE OFFERING

<TABLE>
<S> <C>
Securities Offered................ $50,000,000 aggregate principal amount of %
Convertible Subordinated Notes due 2005 (the "Notes")
plus an additional $7,500,000 aggregate principal amount
of Notes if the over- allotment option is exercised in
full.

Interest Payment Dates............ March 1 and September 1 of each year, commencing March
1, 1999.

Maturity Date..................... October 1, 2005.

Conversion Rights................. The Notes are convertible, in whole or in part, at the
option of the Holder, at any time following the date of
original issuance, unless previously redeemed or
repurchased, into shares of Common Stock at a conversion
price of $ per share, subject to adjustments under
certain circumstances. See "Description of
Notes--Conversion Rights."

Optional Redemption............... The Notes are redeemable, in whole or in part, at the
Company's option, at any time on or after October 1,
2001, upon not less than 30 nor more than 60 days
notice. The Notes are redeemable in each case together
with accrued and unpaid interest and liquidated damages,
if any. See "Description of Notes--Redemption at the
Option of the Company."

Repurchase Events................. Each Holder of the Notes may require the Company to
repurchase such Holder's Notes, in whole or in part, in
the event of a Change in Control (as defined herein) at
a purchase price equal to 100% of the principal amount
of such Notes plus accrued and unpaid interest and
liquidated damages, if any, to the date of repurchase.
See "Description of Notes--Repurchase of Notes at the
Option of the Holder upon a Change of Control."

Subordination..................... The Notes are general unsecured obligations of the
Company and are subordinate in right of payment to all
existing and future Senior Indebtedness (as defined
herein) of the Company and effectively subordinated to
all obligations (including trade payables) of the
Company's subsidiaries. The Indenture governing the
Notes does not limit or prohibit the Company or its
subsidiaries from incurring additional indebtedness,
including Senior Indebtedness. See "Description of
Notes--Subordination of Notes."

Use of Proceeds................... The net proceeds to the Company from the sale of the
Notes offered hereby are expected to be $47.5 million.
The Company will use approximately $41.4 million of such
net proceeds to pay off indebtedness under its existing
credit facilities and long-term debt. The Company will
use the balance of the net proceeds for general
corporate purposes, including working capital for the
expansion of operations and potential acquisition of
complementary business. See "Use of Proceeds."
</TABLE>

5
<PAGE>

<TABLE>
<S> <C>
Trading........................... Application has been made to list the Notes on the
Nasdaq National Market. The Company's Common Stock is
quoted on the Nasdaq National Market under the symbol
"HPAC."

Risk Factors...................... See "Risk Factors" for a discussion of factors to be
considered before purchasing any Notes offered hereby.
</TABLE>

FORWARD-LOOKING STATEMENTS

This Prospectus contains forward-looking statements within the meaning of
the "safe harbor" provisions of the Private Securities Litigation Reform Act of
1995, such as statements of the Company's plans, objectives, expectations and
intentions, that involve risks and uncertainties that could cause actual results
to differ materially from those discussed in such forward-looking statements.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in the section entitled "Risk Factors" as well as
those discussed elsewhere in this Prospectus. Such forward-looking statements
speak only as of the date of this Prospectus. The Company expressly disclaims
any obligation or undertaking to release publicly any updates or revisions to
any forward-looking statement contained herein to reflect any change in the
Company's expectations with regard thereto or any change in events, conditions
or circumstances on which any such statement is based.

6
<PAGE>
SUMMARY OF CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE, PER SHARE DATA AND RATIOS)

<TABLE>
<CAPTION>
SUCCESSOR(1)
PREDECESSOR(1) -------------------------------------------------------------------
-------------------------- SIX MONTHS
YEAR TEN MONTHS TWO MONTHS YEAR ENDED
ENDED ENDED ENDED ENDED JUNE 30,
DECEMBER 31, OCTOBER 31, DECEMBER 31, DECEMBER 31, --------------------
1995(2) 1996(2) 1996 1997 1997 1998
------------- ----------- ------------ YEAR ------------ --------- ---------
ENDED
DECEMBER 31,
1996
-----------------
(PRO FORMA)(2)(3)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................... $ 35,012 $ 32,299 $ 6,705 $ 39,004 $ 41,042 $ 20,358 $ 31,039
Cost of revenues........... 28,993 27,027 4,599 31,799 31,430 15,680 24,102
------------- ----------- ------------ ----------------- ------------ --------- ---------
Gross profit............... 6,019 5,272 2,106 7,205 9,612 4,678 6,937
Selling, general and
administrative........... 4,837 5,044 1,059 6,161 5,897 2,794 4,090
Restructuring charges...... -- 1,196 -- 1,196 -- -- --
------------- ----------- ------------ ----------------- ------------ --------- ---------
Income (loss) from
operations............... 1,182 (968) 1,047 (152) 3,715 1,884 2,847
Interest expense, net...... (1,598) (1,609) (196) (2,305) (2,428) (1,171) (1,449)
Miscellaneous (net)........ -- -- -- -- (32) -- --
------------- ----------- ------------ ----------------- ------------ --------- ---------
(416) (2,577) 851 (2,457) 1,255 713 1,398
Income tax expense
(benefit)................ (680) (971) 382 (934) 467 265 5
------------- ----------- ------------ ----------------- ------------ --------- ---------
Net income (loss).......... $ 264 $ (1,606) $ 469 $ (1,523) $ 788 $ 448 $ 1,393
------------- ----------- ------------ ----------------- ------------ --------- ---------
------------- ----------- ------------ ----------------- ------------ --------- ---------
Net income (loss) per share
Basic.................... $ 0.15 $ (0.49) $ 0.25 $ 0.14 $ 0.26
------------ ----------------- ------------ --------- ---------
Diluted.................. $ 0.15 $ (0.49) $ 0.25 $ 0.14 $ 0.25
------------ ----------------- ------------ --------- ---------
Weighted average shares
outstanding
Basic.................... 3,120,603 3,120,603 3,145,079 3,120,603 5,420,012
Diluted.................. 3,120,603 3,120,603 3,145,079 3,120,603 5,573,074

EBITDA(4).................... $ 2,036 $ (149) $ 1,247 $ 1,098 $ 4,919 $ 2,491 $ 4,141
Adjusted EBITDA(4)(5)........ $ 2,663 $ 3,057 $ 1,247 $ 4,304 $ 4,919 $ 2,491 $ 4,141

Ratio of Adjusted EBITDA to
Interest Expense(4)(5)..... 1.7 1.9 6.4 1.8 2.0 2.1 2.9
Ratio of Earnings to Fixed
Charges(6)................. 0.8 -- 4.6 -- 1.5 1.6 1.8

STATEMENT OF CASH FLOWS DATA:
Cash provided by (used in)
operating activities..... $ (4,223) $ (230) $ 2,279 $ 1,663 $ 322 $ (586) $ (6,238)
Cash used in investing
activities............... $ (4,114) $ (1,199) $ (28,553) $ (29,752) $ (3,464) $ (534) $ (25,622)
Cash provided by financing
activities............... $ 8,010 $ 2,435 $ 27,329 $ 29,764 $ 2,247 $ 175 $ 32,274
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1998
--------------------------
ACTUAL AS ADJUSTED(7)
--------- ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................................................ $ 9,833 $ 28,279
Total assets........................................................................... 79,204 87,537
Total long-term debt (excluding current portion)....................................... 29,054 50,000
Total shareholders' equity............................................................. 23,997 23,684
</TABLE>

7
<PAGE>
- ------------------------------

(1) Predecessor information represents the historical financial data of the
Company when it was owned by BTR Dunlop, Inc. ("BTR"). Successor information
represents the historical financial data after the acquisition of the
Company by its existing shareholders (the "BTR Transaction"). See "Certain
Transactions" and Note 1 of Notes to Consolidated Financial Statements.

(2) Year ended December 31, 1995, the ten months ended October 31, 1996, and pro
forma year ended December 31, 1996 include non-recurring charges to cost of
revenues of $927,000, $1,063,000, and $1,063,000, respectively, relating to
the merger of certain operations of Dunlop Aviation, Inc., the shutdown of
certain of these operations and nonproductive inventory. Selling, general
and administrative expenses in year ended December 31, 1995 include a net
gain of $300,000, and in the ten months ended October 31, 1996 and pro forma
year ended December 31, 1996 include expenditures of $947,000, all relating
to an environmental claim and settlement. The foregoing shall be referred to
as the "non-recurring charges." See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

(3) The pro forma presentation gives effect to the BTR Transaction as though it
had occurred on January 1, 1996 and may not be indicative of what actual
results would have been.

(4) EBITDA is calculated as operating income before depreciation and
amortization. EBITDA is not a measurement determined under generally
accepted accounting principles ("GAAP") and does not represent cash
generated from operating activities in accordance with GAAP. EBITDA should
not be considered by the reader as an alternative to net income as an
indicator of financial performance or as an alternative to cash flows as a
measure of liquidity. In addition, the Company's definition of EBITDA may
not be identical to similarly titled measures used by other companies.

(5) Adjusted EBITDA is EBITDA prior to the non-recurring charges referred to in
Note (2) above and restructuring charges in 1996.

(6) For purposes of computing the ratio of earnings to fixed charges, "earnings"
consists of income from operations before income taxes and fixed charges.
"Fixed Charges" consist of interest expense plus an allocation of a portion
of rent expense representing interest. For fiscal 1995, the ten months ended
October 31, 1996 and pro forma 1996 earnings were inadequate to cover fixed
charges by $416,000, $2,577,000 and $2,457,000, respectively.

(7) Adjusted to give effect to the receipt of the net proceeds from the sale by
the Company of the Notes to be sold in this Offering, and the application of
the estimated net proceeds to working capital and repayment of all
outstanding debt.

8
<PAGE>
RISK FACTORS

IN ADDITION TO THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS, INVESTORS
SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS WHEN EVALUATING AN
INVESTMENT IN THE NOTES OFFERED HEREBY. THIS PROSPECTUS CONTAINS FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES, SUCH AS STATEMENTS OF THE
COMPANY'S PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS. THE COMPANY'S ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT COULD
CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE DISCUSSED BELOW, AS WELL
AS THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS.

SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE DEBT

As of June 30, 1998, after giving pro forma effect to the Offering and the
application of the net proceeds therefrom to repay outstanding borrowings under
the Amended and Restated Business Loan Agreement (the "Amended Loan Agreement")
with Bank of America National Trust and Savings Association ("Bank of America"),
the Company would have had $50.0 million of outstanding indebtedness and the
Company's total debt as a percentage of total capitalization would have been
67.9%. See "Capitalization." This level of indebtedness will have important
consequences to Holders of the Notes, including the following: (i) the ability
of the Company to obtain financing in the future, in addition to that available
under the Amended Loan Agreement for working capital, acquisitions, capital
expenditures, repayment of debt or other purposes may be impaired; (ii) a
significant amount of the Company's anticipated cash flow from operations will
be required for the payment of interest and principal; (iii) the Company is
required to comply with certain financial covenants and other restrictions
contained in the Amended Loan Agreement; and (iv) the Company may be more
vulnerable to downturns in general economic conditions or in the aviation
services industry.

The ability of the Company to meet its debt service obligations will depend
on the future operating performance, debt levels and financial results of the
Company, which will be subject in part to factors beyond the Company's control.
There can be no assurance that the Company will generate cash flow in the future
sufficient to cover its debt service requirements. If the Company is unable to
generate earnings in the future sufficient to cover its fixed charges and is
unable to borrow sufficient funds under either the Amended Loan Agreement or
from other sources, it may be required to refinance all or a portion of its
existing debt (including the Notes ) or to sell all or a portion of its assets.
There can be no assurance that a refinancing would be possible, nor can there be
any assurance as to the timing of any asset sales or the proceeds which the
Company could realize therefrom. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."

If, for any reason, the Company were unable to meet its debt service
obligations, it would be in default under the terms of its indebtedness. In the
event of such a default, the holders of such indebtedness could elect to declare
all such indebtedness immediately due and payable, including accrued and unpaid
interest, and to terminate their commitments (if any) with respect to future
funding obligations. Any default with respect to any of the Company's
indebtedness could result in a default under other indebtedness. Such defaults
could result in a default under the Indenture and could delay or preclude
payment of principal of, or interest on, the Notes. See "--Subordination" and
"Description of Notes--Subordination of Notes."

RESTRICTIONS IMPOSED BY INDEBTEDNESS

The Amended Loan Agreement contains a number of significant covenants that,
among other things, will restrict the ability of the Company and its
subsidiaries to dispose of assets, incur additional indebtedness, repay other
indebtedness, pay dividends, make certain investments or acquisitions,
repurchase or redeem capital stock, engage in mergers or consolidations, or
engage in certain transactions with subsidiaries and affiliates and otherwise
restrict certain corporate activities. There can be no assurance that such
restrictions will not adversely affect the Company's ability to finance its
future operations or capital needs or engage in other business activities that
may be in the best interest of the Company. In addition, the

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Amended Loan Agreement requires the Company to maintain compliance with certain
financial ratios. The ability of the Company to comply with such ratios may be
affected by events beyond the Company's control. A breach of any of these
covenants or the inability of the Company to comply with the covenants regarding
required financial ratios could result in an event of default under the Amended
Loan Agreement. In the event of any such default, Bank of America could elect to
declare all borrowings outstanding thereunder, together with accrued interest
and other fees, to be due and payable, to require the Company to apply all of
its available cash to repay such borrowings or to prevent the Company from
making debt service payments on the Notes. If the Company were unable to repay
any such borrowings when due, Bank of America could proceed against their
collateral. If the indebtedness under the Amended Loan Agreement or the Notes
were to be accelerated, there could be no assurance that the assets of the
Company would be sufficient to repay such indebtedness in full.

SUBORDINATION

The Notes are subordinated in the right of payment to all existing and
future Senior Indebtedness of the Company. As of June 30, 1998, after giving
effect to this Offering and the application of the net proceeds therefrom, the
Company would have no outstanding Senior Indebtedness but would have
approximately $20.0 million in available credit facilities under the Amended
Loan Agreement. The Company's Amended Loan Agreement is secured by substantially
all of the Company's assets, including the assets of the Subsidiary. Upon any
distribution to creditors of the Company in a liquidation or dissolution of the
Company, or in a bankruptcy, insolvency, receivership or similar proceeding
relating to the Company or its properties, the payment of the principal and
interest on the Notes will be subordinated to the prior payment in full of all
Senior Indebtedness. No payment of principal or interest may be made by the
Company, directly or indirectly, on the Notes at any time if a default in
payment of the principal or interest on Senior Indebtedness exists, unless and
until such default shall have been cured or waived. There are no restrictions in
the Indenture upon the creation of additional Senior Indebtedness by the
Company, or on the creation of any indebtedness by the Company or any of its
subsidiaries. See "Description of Notes--Subordination."

The Notes are obligations exclusively of the Company and not of the
Subsidiary or any future subsidiaries. The Company's cash flow and its ability
to service debt, including the Notes, are partially dependent upon the earnings
of the Subsidiary and the distribution of those earnings to the Company, or upon
other payments of funds by the Subsidiary to the Company. The Company's
Subsidiary is a separate and distinct legal entity and has no obligation,
contingent or otherwise, to pay any amounts due pursuant to the Notes or to make
any funds available therefrom, whether by dividends, loans or other payments.
During the three months ended June 30, 1998, the Company's Subsidiary accounted
for 20.6% of the Company's consolidated revenues. The payment of dividends and
making of loans and advances to the Company by the Subsidiary may be subject to
additional contractual restrictions or to statutory or other restrictions, are
dependent upon the earnings of the Subsidiary and are subject to various
business considerations. Claims of creditors of the Subsidiary, including trade
creditors, secured creditors and creditors holding indebtedness and guarantees
issued by the Subsidiary will generally have priority with respect to the assets
and earnings of the Subsidiary over the claims of creditors of the Company,
including Holders of the Notes, even if such obligations do not constitute
Senior Indebtedness. See "Description of Notes--Subordination."

LIMITATION ON CHANGE OF CONTROL

The Indenture requires the Company in the event of a Change of Control (as
defined) to make an offer to purchase all outstanding Notes at a price equal to
100% of the principal amount thereof, plus accrued interest to the date of
repurchase. The Amended Loan Agreement includes certain restrictions on payments
by the Company in respect of its subordinated indebtedness, including the Notes.
The Amended Loan Agreement provides that certain change of control events with
respect to the Company would

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constitute a default thereunder. Any future credit agreements or other
agreements relating to indebtedness to which the Company becomes a party may
contain similar restrictions and provisions. In the event that a Change of
Control occurs at a time when the Company is prohibited from repurchasing Notes,
the Company could seek the consent of the lenders to the repurchase of the Notes
or could attempt to refinance the borrowings that contain such prohibitions. If
the Company does not obtain such a consent or repay such borrowings, the Company
will remain prohibited from repurchasing the Notes. The Company's failure to
repurchase tendered Notes at a time when such repurchase is required by the
Indenture would constitute an event of default thereunder which, in turn, would
constitute a default under the Amended Loan Agreement. In such circumstances,
the subordination provisions in the Indenture would likely restrict payments to
the Holders of the Notes. There can be no assurance that the Company will have
the financial resources necessary to repurchase the Notes upon a Change of
Control. See "Description of Notes--Repurchase of Notes at the Option of the
Holder Upon a Change of Control."

AVIATION INDUSTRY RISKS

The Company derives all of its sales and operating income from the services
and parts that it provides to its customers in the aviation industry. 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 aviation activity, a decrease in outsourcing by aircraft operators
or a decrease in market growth. When such economic and other factors adversely
affect the aviation industry, they tend to reduce the overall demand for the
Company's products and services, thereby decreasing the Company's sales 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--Market and Industry Overview."

FLUCTUATIONS IN RESULTS OF OPERATIONS

The Company's operating results are affected by a number of factors,
including the timing of orders for the repair and overhaul of landing gear and
fulfillment of such contracts, the timing of expenditures to manufacture parts
and purchase inventory in anticipation of future services and sales, parts
shortages that delay work in progress, general economic conditions and other
factors. Although the Company has secured several long-term agreements to
service multiple aircraft, the Company receives sales under these agreements
only when it actually performs a repair or overhaul. Because the average time
between landing gear overhauls is seven years for an aircraft, the work orders
that the Company receives and the number of repairs or overhauls that the
Company performs in particular periods may vary significantly, causing the
Company's quarterly sales and results of operations to fluctuate substantially.
The Company is unable to predict the timing of the actual receipt of such orders
and, as a result, significant variations between forecasts and actual orders
will often occur. In addition, the Company's need to make significant
expenditures to support new aircraft in advance of generating revenues from
repairing or overhauling such aircraft may cause the Company's quarterly
operating results to fluctuate. Furthermore, the rescheduling of the shipment of
any large order, or portion thereof, or any production difficulties or delays by
the Company, could have a material adverse effect on the Company's quarterly
operating results.

ESTABLISHMENT OF UNITED KINGDOM OPERATIONS

In February 1998, the Company consummated the BA Acquisition and established
its operations in the United Kingdom. Before the BA Acquisition, the Company had
no history or experience operating in the United Kingdom. Accordingly,
establishing operations in the United Kingdom will subject the Company to all of
the risks inherent in the establishment of a new business enterprise. These
include, without limitation, the need to establish manufacturing, marketing and
administrative capabilities, the need to integrate the Company's United Kingdom
operations into the Company's existing operations, the need to implement the
Company's management information systems in its new location, the need to locate

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and move into a new facility, unanticipated marketing problems, new competitive
pressures and expenses. There can be no assurance that the risks inherent in
establishing the United Kingdom operations will not have a material adverse
effect on the Company's business, financial condition and results of operations.

SUBSTANTIAL COMPETITION

Numerous companies compete with the Company in the aviation services
industry. The Company primarily competes with various repair and overhaul
organizations, which include the service divisions of OEMs, the maintenance
departments or divisions of large commercial airlines (some of which also offer
maintenance services to third parties) and independent organizations such as the
Aerospace Division of B.F. Goodrich Company, the Landing Gear Division of AAR
Corporation ("AAR"), Revima, a company organized and operating under the laws of
France, and Dowty Aerospace Aviation Services ("Dowty"). The Company's major
competitors in its hydromechanical components business include AAR and OEMs such
as Sundstrand Corporation, Inc. ("Sundstrand"), Aeroquip Vickers, Inc.
("Vickers"), Parker-Hannifin Corporation ("Parker-Hannifin"), Messier-Bugatti
and Lucas. The Company expects that competition in its industry will increase
substantially as a result of industry consolidations and alliances in response
to the trend in the aviation industry toward outsourcing of repair and overhaul
services. In addition, as the Company moves into new geographic or product
markets it will encounter new competition.

The Company believes that the primary competitive factors in its marketplace
are quality, price, rapid turnaround time and industry experience. Certain of
the Company's competitors have substantially greater financial, technical,
marketing and other resources than the Company. These competitors may have the
ability to adapt more quickly to changes in customer requirements, may have
stronger customer relationships and greater name recognition and may devote
greater resources to the development, promotion and sale of their products than
the Company. There can be no assurance that competitive pressures will not
materially and adversely affect the Company's business, financial condition and
results of operations. See "Business--Competition."

RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS

The Company's growth strategy is based in part on the Company's ability to
expand its international operations, which will require significant management
attention and financial resources. The Company currently has divisions in the
United Kingdom and the Netherlands and plans to expand further its international
customer base. There can be no assurance that the Company's efforts to expand
operations internationally will be successful. Failure to increase revenue in
international markets could have a material adverse effect on the Company's
business, financial condition and operating results. In addition, international
operations are subject to a number of risks, including longer receivable
collection periods and greater difficulty in accounts receivable collections,
unexpected changes in regulatory requirements, foreign currency fluctuations,
import and export restrictions and tariffs, difficulties and costs of staffing
and managing foreign operations, potentially adverse tax consequences, political
instability, the burdens of complying with multiple, potentially conflicting
laws and the impact of business cycles and economic instability outside the
United States. Moreover, the Company's operating results could also be adversely
affected by seasonality of international sales, which are typically lower in
Asia in the first calendar quarter and in Europe in the third calendar quarter.
In addition, inflation in such countries could increase the Company's expenses.
These international factors could have a material adverse effect on future sales
of the Company's products to international end-users and, consequently, on the
Company's business, financial condition and results of operations.

FOREIGN CURRENCY RISKS

The Company's sales are principally denominated in United States dollars and
British pounds and to some extent in Dutch guilders. The Company makes
substantial inventory purchases in French francs from such suppliers as
Messier-Bugatti, Societe D'Applications Des Machines Motrices ("SAMM") and

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Eurocopter France. The Company's Netherlands facility's inventory purchases are
primarily United States dollar denominated, while sales and operating expenses
are partially denominated in Dutch guilders. To date, the Company's business has
not been significantly affected by currency fluctuations or inflation. However,
the Company conducts business in the Netherlands and in the United Kingdom, and
thus fluctuations in currency exchange rates could cause the Company's products
to become relatively more expensive in particular countries, leading to a
reduction in sales in that country. As a result of the BA Acquisition, the
Company may engage in additional foreign currency denominated sales or pay
material amounts of expenses in foreign currencies that may generate gains and
losses due to currency fluctuations. The Company's operating results could be
adversely affected by such fluctuations.

GOVERNMENT REGULATION

The Company is highly regulated worldwide by the Federal Aviation
Administration ("FAA"), the Joint Airworthiness Authority ("JAA"), a consortium
of European regulatory authorities, and various other foreign regulatory
authorities, including the Dutch Air Agency, which regulates the Company's
Netherlands' operations and the Civil Aviation Authority, which regulates the
Company's United Kingdom operations. These regulatory authorities require
aircraft to be maintained under continuous condition monitoring programs and to
periodically undergo thorough inspections. In addition, all parts must be
certified by the FAA and equivalent regulatory agencies in foreign countries and
conformed to regulatory standards before they are installed on an aircraft. The
Company is a certified FAA and JAA approved repair station and has been granted
Parts Manufacturer Approvals by the FAA Manufacturing Inspectors District
Office. In addition, the Company's operations are regularly audited and
accredited by the Coordinating Agency for Supplier Evaluation, formed by
commercial airlines to approve FAA approved repair stations and aviation parts
suppliers. If material authorizations or approvals were revoked or suspended,
the Company's operations would be materially and adversely affected. As the
Company attempts to commence operations in countries in which it has not
previously operated, it will need to obtain new certifications and approvals,
and any delay or failure in attaining such certifications or approvals could
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, if in the future new and more stringent
regulations are adopted by foreign or domestic regulatory agencies, the
Company's business may be materially and adversely affected.

DEPENDENCE ON KEY SUPPLIERS

The Company purchases landing gear spare parts and components for a variety
of fixed wing aircraft and helicopters. The Company has separate ten-year
agreements that each expires in October 2006 with (i) Dunlop Limited, Aviation
Division, (ii) Dunlop Limited, Precision Rubber and (iii) Dunlop Equipment
Division (collectively, "Dunlop"). Under two of these agreements, the Company is
entitled to purchase, at a discount from list price, Dunlop parts for resale and
for use in the repair and overhaul of a variety of fixed wing aircraft and
helicopters. For the years ended December 31, 1996 and 1997, the Company's
single largest supplier was Dunlop, accounting for approximately $5.6 million
(27.0%) and $4.3 million (19.3%), respectively, of the spare parts and
components that the Company purchased in such periods. During the six months
ended June 30, 1998, Boeing was the single largest supplier, accounting for $5.8
million (19.2%) of the spare parts and components that the Company purchased.
Dunlop was the second largest supplier, accounting for $2.3 million (7.7%) of
the spare parts and components that the Company purchased during the six months
ended June 30, 1998. Failure by any one of these divisions of Dunlop to renew
its agreement on similar terms when it expires could have a material adverse
affect on the Company's business, financial condition and results of operations.
In addition, the Company has agreements with Messier-Bugatti, SAMM and
Eurocopter France that enable the Company to purchase new aircraft parts at
discounts from list price. Many of the Company's supplier agreements, other than
its agreements with Dunlop, are short-term and can be terminated by the
suppliers upon providing 90 days prior written notice. A decision by any one of
these suppliers to terminate their agreements would eliminate the competitive
advantage the

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<PAGE>
Company derives therefrom and could have a material adverse effect on the
Company's business, financial condition and results of operations.

SHORTAGES OF SUPPLY; INVENTORY OBSOLESCENCE

The Company's inventory consists principally of new, overhauled, serviceable
and repairable aircraft landing gear parts and components that it purchases
primarily from OEMs, parts resellers and customers. The Company believes it
maintains a sufficient supply of inventory to meet its current and immediately
foreseeable production schedule. However, the Company may fail to order
sufficient parts in advance to meet its work requirements, a particular part may
be unavailable when the Company needs it from its suppliers or the Company
unexpectedly may receive one or more large orders simultaneously for repair and
overhaul services. As a result, the Company may on occasion face parts shortages
that delay its production schedule and prevent it from meeting required
turnaround times. Delays or failure to meet turnaround times could have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, regulatory standards may change in the
future, causing parts which are currently included in the Company's inventory to
be scrapped or modified. Aircraft 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 or excess parts in its
inventory, their value will be reduced, which would adversely affect the
Company's financial condition.

CUSTOMER CONCENTRATION; CONCENTRATION OF CREDIT RISKS

A small number of customers have historically accounted for a substantial
part of the Company's revenue in any given fiscal period. Sales derived from
FedEx and the USCG accounted for 18.4%, and 11.2%, respectively, of product
sales for the year ended December 31, 1996 and 19.3% and 6.5%, respectively, of
product sales for the year ended December 31, 1997. Sales derived from British
Airways, FedEx, American Airlines and the USCG accounted for 20.3%, 19.3%, 10.4%
and 5.2%, respectively, of the Company's total revenue during the six months
ended June 30, 1998. Some of the Company's long-term service agreements may be
terminated by the customers upon providing the Company with 90 days prior
written notice, and the Company's agreement with the USCG is subject to
termination at any time at the convenience of the government. In addition, the
Company's sales are made primarily on the basis of purchase orders rather than
long-term agreements. The Company expects that a small number of customers will
continue to account for a substantial portion of its sales for the foreseeable
future. As a result, the Company's business, financial condition and results of
operations could be materially adversely affected by the decision of a single
customer to cease using the Company's products. In addition, there can be no
assurance that sales from customers that have accounted for significant sales in
past periods, individually or as a group, will continue, or if continued, will
reach or exceed historical levels in any future period. See
"Business--Customers."

As of June 30, 1998, 16.7% and 27.2% of the Company's total accounts
receivable were associated with FedEx and British Airways, respectively. As a
result of the BA Acquisition, British Airways accounts for a significant
percentage of both the Company's product sales and accounts receivable. Although
the Company has not had any material difficulties in collecting its accounts
receivable during the past three years, the Company cannot ensure that it will
not have difficulty collecting receivables in the future. Any inability by the
Company to collect material amounts of receivables under its service agreements
could have a material adverse effect on the Company's business, financial
condition and results of operations.

RISKS RELATING TO ACQUISITION STRATEGY

In the future, the Company may attempt to grow by acquiring other service
and parts providers whose operations or inventories complement or expand the
Company's existing repair and overhaul businesses or whose strategic locations
enable the Company to expand into new geographic markets. The Company's ability
to grow by acquisition depends upon, and may be limited by, the availability of
suitable acquisition

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candidates and the Company's capital resources. 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. Although the Company investigates the
operations and assets that it acquires, there may be liabilities that the
Company fails or is unable to discover, and for which the Company as a successor
owner or operator may be liable. In addition, costs and charges, including legal
and accounting fees and reserves and write-downs relating to an acquisition, may
be incurred by the Company or may be reported in connection with any such
acquisition. There can be no assurance that the Company will be able to
consummate acquisitions on satisfactory terms, or at all, or that it will be
successful in integrating any such acquisitions into its operations.

ENVIRONMENTAL REGULATIONS

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 ("EPA"), the California Environmental Protection Agency 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 generated by the
Company during the normal course of its operations, govern the health and safety
of the Company's employees and require the Company to obtain and maintain
permits in connection with its operations. This extensive regulatory framework
imposes significant compliance burdens and risks on the Company and, as a
result, substantially affects its operational costs. In addition, the Company
may become liable for the costs of removal or remediation of certain hazardous
substances released on or in its facilities without regard to whether or not the
Company knew of, or caused, the release of such substances. The Company believes
that it currently is in material compliance with applicable laws and regulations
and is not aware of any material environmental problem at any of its current or
former facilities. There can be no assurance, however, that its prior activities
did not create a material problem for which the Company could be responsible or
that future uses or conditions (including, without limitation, changes in
applicable environmental laws and regulation, or an increase in the amount of
hazardous substances generated by the Company's operations) will not result in
any material environmental liability to the Company and materially and adversely
affect the Company's financial condition and results of operations. The
Company's plating operations, which use a number of hazardous materials and
generate a significant volume of hazardous waste, increase the Company's
regulatory compliance burden and compound the risk that the Company may
encounter a material environmental problem in the future. Furthermore,
compliance with laws and regulations in foreign countries in which the Company
locates its operations may cause future increases in the Company's operating
costs or otherwise adversely affect the Company's results of operations or
financial condition. See "Business--Environmental Matters and Proceedings."

In August 1997 and January 1998, two separate lawsuits were filed by various
individuals against Lockheed Martin Corporation and various other parties,
including the Company, in the Los Angeles Superior Court pleading various causes
of action in connection with certain alleged injuries caused by toxic and
carcinogenic chemicals allegedly released by the defendants in the Burbank and
Glendale areas of Los Angeles County, California. The individual plaintiffs seek
unspecified compensatory and punitive damages. The Company does not believe that
it caused the release of toxic and carcinogenic chemicals alleged in the
complaints and BTR has assumed the defense and has agreed to indemnify the
Company in connection with such claims.

PRODUCT AND SERVICE 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
landing gear, hydromechanical components or aircraft

15
<PAGE>
spare parts repaired or overhauled by the Company. Many factors beyond the
Company's control could lead to liability claims, including the failure of the
aircraft on which landing gear or hydromechanical components overhauled by the
Company is installed, the reliability of the customer's operators of the
aircraft and the maintenance of the aircraft by the customers. The Company
currently has in force aviation products liability and premises insurance in the
amount of $500 million, which the Company believes provides coverage in amounts
and on terms that are generally consistent with industry practice. The Company
has not experienced any material product liability claims related to its
products. However, the Company may be subject to a material loss to the extent
that a claim is made against the Company that is not covered in whole or in part
by insurance and for which any third-party indemnification is not available.
There can be no assurance that the amount of product liability insurance that
the Company carries at the time a product liability claim may be made will be
sufficient to protect the Company. A product liability claim in excess of the
amount of insurance carried by the Company could have a material adverse effect
on the Company's business, financial condition and results of operations. 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 depends to a large degree upon the
services of certain of its executive officers and upon the Company's ability to
attract and retain qualified managerial and technical personnel experienced in
the various operations of the Company's business. Loss of the services of such
employees, particularly David L. Lokken, President and Chief Executive Officer,
Brian S. Aune, Vice President and Chief Financial Officer, Brian S. Carr,
Managing Director of Sun Valley Operations, or Michael A. Riley, Vice President
Hydromechanical Business Unit, could adversely affect the operations of the
Company. The Company has entered into an employment agreement expiring October
31, 2001 with Mr. Lokken and into employment agreements expiring October 31,
1999 with Messrs. Aune, Carr and Riley. The Company has obtained key person
insurance on the life of Mr. Lokken in the amount of $1,000,000. There can be no
assurance that the proceeds of such insurance will be sufficient to compensate
the Company in the event that Mr. Lokken dies. Competition for qualified
technical personnel is intense and from time to time, the Company has
experienced difficulty in attracting and retaining personnel skilled in its
repair and overhaul operations. There can be no assurance that these individuals
will continue employment with the Company. The loss of certain key personnel
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Employees and Employee
Training" and "Management."

CONTROL BY EXISTING SHAREHOLDERS AND ANTI-TAKEOVER PROVISIONS

As of August 1, 1998, the five shareholders (the "Unique Shareholders") of
Unique Investment Corporation ("Unique") owned in the aggregate approximately
40.4% of the Company's Common Stock. The directors and executive officers of the
Company beneficially owned approximately 24.9% of the Company's Common Stock. By
virtue of such ownership, the Unique Shareholders together with the executive
officers of the Company will have effective control over all matters requiring a
vote of shareholders, including the election of a majority of directors. The
ownership positions of the existing shareholders, together with the
authorization of blank check preferred stock and the implementation, if certain
conditions are met, of a staggered board and elimination of cumulative voting in
the Company's Amended and Restated Articles of Incorporation and Amended and
Restated Bylaws, may have the effect of delaying, deferring or preventing a
change in control of the Company, may discourage bids for the Company's Common
Stock at a premium over the market price of the Common Stock, and may adversely
affect the market price of the Common Stock. See "Principal Shareholders" and
"Description of Capital Stock."

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ABSENCE OF PRIOR PUBLIC MARKET

There is currently no established market for the Notes. Although the Company
has applied to list the Notes on the Nasdaq National Market, there can be no
assurance as to the liquidity of the market for the Notes that may develop, the
ability of the Holders to sell their Notes or the prices at which Holders of the
Notes would be able to sell their Notes. If a market for the Notes does develop,
the Notes may trade at a discount from their initial public offering price,
depending on prevailing interest rates, the market for similar securities, the
performance of the Company, the market price of the Company's Common Stock and
other factors. No assurance can be given as to whether an active trading market
will develop or be maintained for the Notes.

BENEFITS OF OFFERING TO CERTAIN PARTIES

As a result of this Offering, the Company intends to repay in full the $5.0
million balance outstanding on its subordinated note with Unique, which will in
turn be used by Unique to repay in full the $5.0 million balance owed on the
note to Melanie L. Bastian, a principal shareholder of the Company. The five
shareholders of Unique owned in the aggregate 40.4% of the Company's outstanding
Common Stock. See "Certain Transactions."

YEAR 2000 COMPLIANCE

The year 2000 problem is the result of computer programs being written using
two digits (rather than four) to define the applicable year. Any of the
Company's programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000, which could result in
miscalculation or system failures. The Company believes that its mainframe
database and operating systems are year 2000 compliant. However, certain of the
Company's software applications currently are coded using two digits rather than
four to define the applicable year. The Company is systematically modifying such
software applications to be coded as four digits and anticipates such
modifications to be completed by March 1999. The Company plans to replace its
telephone system at an estimated cost of approximately $100,000 and any other
non-information technology systems, to the extent necessary, by July 1999 to be
year 2000 compliant. In addition, the Company is working with its external
suppliers, vendors and service providers to ensure that their systems will be
able to support and interact with the Company's server and network. The Company
has not quantified the total costs required to become year 2000 compliant, but
does not expect such costs to be material. As of June 30, 1998, the total costs
incurred to address the Company's year 2000 issues have not been material.
However, if the Company, its customers or vendors are unable to resolve such
processing issues in a timely manner, it could have a material adverse impact on
the Company's business, financial condition and results of operations.
Accordingly, the Company plans to devote the necessary resources to becoming
year 2000 compliant in a timely manner and is currently working to create a
contingency plan by July 1999 to handle any year 2000 problems.

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<PAGE>
USE OF PROCEEDS

The net proceeds to the Company from the sale of the Notes are estimated to
be approximately $47.5 million (approximately $54.7 million if the Underwriters'
over-allotment option is exercised in full) after deducting the estimated
underwriting compensation and offering expenses payable by the Company.

The Company intends to use approximately $36.4 million of the net proceeds
to repay in full the amount outstanding under the Amended Loan Agreement, which
as of June 30, 1998 consisted of $24.5 million outstanding under a seven-year
term loan, $1.4 million under a capital expenditure credit facility and $10.5
million under a revolving line of credit. Advances under the credit facility
bear interest at the Inter-bank Offer Rate ("IBOR") plus 1.75%. The term loan
and capital expenditure facilities mature in January 2005 and the revolving line
of credit matures in January 2001. Borrowings under the Amended Loan Agreement
have been used to fund the BA Acquisition, repay a portion of prior indebtedness
and for working capital. The Company also intends to repay in full the $5.0
million balance outstanding on its subordinated note with Unique plus any
accrued interest. The subordinated note bears interest at a fixed rate of 11.8%
per annum, requires the Company to make monthly payments of interest only, and
matures on the earlier of June 30, 2005 or 180 days after the termination of the
Amended Loan Agreement.

The Company intends to use the remaining net proceeds of approximately $6.1
million for working capital and general corporate purposes, including
acquisitions. The Company intends to evaluate and pursue strategic acquisitions
of, or alliances with, companies that complement or expand the Company's
services, geographic coverage or product lines. Prior to their eventual use, the
net proceeds will be invested in high quality, short-term investment instruments
such as short-term corporate investment grade or United States Government
interest-bearing securities.

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The Common Stock is quoted on the Nasdaq National Market under the symbol
"HPAC." The following table sets forth, for the periods indicated, the high and
low closing sale prices for the Common Stock as reported on the Nasdaq National
Market.

<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
YEAR ENDING DECEMBER 31, 1998
First Quarter (from January 29, 1998)................................. $ 11.125 $ 8.000
Second Quarter........................................................ $ 14.125 $ 10.000
Third Quarter (through August 7, 1998)................................ $ 13.500 $ 7.000
</TABLE>

On August 7, 1998, the closing price of the Common Stock on the Nasdaq
National Market was $9.25. As of June 18, 1998, there were 18 holders of record
of the Common Stock, which the Company believes held such shares for 710
holders.

The Company has not paid cash dividends on its Common Stock since its
inception and has no current plans to pay dividends on the Common Stock in the
foreseeable future. The Company intends to reinvest future earnings, if any, in
the development and expansion of its business. The Company's Amended Loan
Agreement prohibits the payment of dividends. Any future determination to pay
dividends will depend upon the Company's combined results of operations,
financial condition and capital requirements and such other factors deemed
relevant by the Company's Board of Directors.

18
<PAGE>
CAPITALIZATION

The following table sets forth the short-term debt and capitalization of the
Company (i) actual as of June 30, 1998 and (ii) as adjusted to give effect to
the issuance of $50,000,000 Convertible Subordinated Notes, and the application
by the Company of the net proceeds therefrom as described under "Use of
Proceeds."

<TABLE>
<CAPTION>
JUNE 30, 1998
----------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash.................................................................. $ 574 $ 6,720
--------- -----------
--------- -----------
Total short-term debt................................................. $ 12,300 $ --
--------- -----------
--------- -----------
Long-term debt, less current portion.................................. $ 29,054 $ 50,000
Shareholders' equity:
Preferred Stock, no par value;
5,000,000 shares authorized;
none issued and outstanding....................................... -- --
Common Stock, no par value;
20,000,000 shares authorized;
5,822,222 shares issued and outstanding........................... 21,108 21,108
Retained earnings................................................... 2,650 2,337
Currency translation adjustment....................................... 239 239
--------- -----------
Total shareholders' equity............................................ 23,997 23,684
--------- -----------
Total capitalization.................................................. $ 53,051 $ 73,684
--------- -----------
--------- -----------
</TABLE>

19
<PAGE>
SELECTED FINANCIAL DATA

The following sets forth certain financial data for the periods and the
dates indicated and should be read in conjunction with the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and the financial statements and notes thereto included elsewhere
herein. For the years ended December 31, 1993, 1994, 1995 and the ten months
ended October 31, 1996 the Company was a wholly-owned subsidiary of BTR Dunlop
Holdings, Inc. and is presented below as the "Predecessor." Effective November
1, 1996, the Company was acquired by the Unique Shareholders and the Company's
executive officers. All financial data subsequent to October 31, 1996 is
presented below as the "Successor" financial data.

The balance sheet data as of December 31, 1995, 1996 and 1997 and the
statement of operations data for the fiscal year ended December 31, 1995, the
ten months ended October 31, 1996, two months ended December 31, 1996 and year
ended December 31, 1997 are derived from the financial statements of the Company
which have been audited by Ernst & Young LLP, independent accountants, and are
included elsewhere herein. The balance sheet data as of December 31, 1993 and
1994 and the statement of operations data for the year ended December 31, 1993
and 1994 are derived from unaudited financial statements, which are not
presented elsewhere herein. The pro forma statements of operations data for the
year ended December 31, 1996 are derived from the unaudited pro forma statement
of operations data which are not presented elsewhere herein. The statement of
operations data for the six month periods ended June 30, 1997 and June 30, 1998
and the balance sheet data as of June 30, 1998 are derived from unaudited
financial statements included elsewhere herein. The results of operations for
the six months ended June 30, 1998 are not necessarily indicative of the results
for the full year or future periods. The unaudited financial statements have
been prepared by the Company on a basis consistent with the Company's audited
financial statements and, in the opinion of management, include all adjustments,
consisting only of normal recurring accruals, necessary for a fair presentation
of the Company's results of operations for the period.
<TABLE>
<CAPTION>
PREDECESSOR(1)
---------------------------------------------- SUCCESSOR(1)
------------------------------------------
YEAR ENDED DECEMBER 31, TEN MONTHS TWO MONTHS
ENDED ENDED YEAR ENDED DECEMBER 31,
--------------------------------- OCTOBER 31, DECEMBER 31, ----------------------------
1993 1994 1995(2) 1996(2) 1996 1997
--------- --------- ----------- ----------- ------------ 1996 ---------
-----------------
(PRO FORMA)(2)(3)
(IN THOUSANDS, EXCEPT SHARE, PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATION DATA:
Revenues......................... $ 29,757 $ 31,743 $ 35,012 $ 32,299 $ 6,705 $ 39,004 $ 41,042
Cost of revenues................. 25,055 24,825 28,993 27,027 4,599 31,799 31,430
--------- --------- ----------- ----------- ------------ ----------------- ---------
Gross profit..................... 4,702 6,918 6,019 5,272 2,106 7,205 9,612
Selling, general and
administrative................. 3,861 5,332 4,837 5,044 1,059 6,161 5,897
Restructuring charges............ -- -- -- 1,196 -- 1,196 --
--------- --------- ----------- ----------- ------------ ----------------- ---------
Income (loss) from operations.... 841 1,586 1,182 (968) 1,047 (152) 3,715
Interest expense, net............ (1,033) (507) (1,598) (1,609) (196) (2,305) (2,428)
Miscellaneous (net).............. -- -- -- -- -- -- (32)
--------- --------- ----------- ----------- ------------ ----------------- ---------
(192) 1,079 (416) (2,577) 851 (2,457) 1,255
Income tax expense (benefit)..... (24) 29 (680) (971) 382 (934) 467
--------- --------- ----------- ----------- ------------ ----------------- ---------
Net income (loss)................ $ (168) $ 1,050 $ 264 $ (1,606) $ 469 $ (1,523) $ 788
--------- --------- ----------- ----------- ------------ ----------------- ---------
--------- --------- ----------- ----------- ------------ ----------------- ---------
Net income (loss) per share
Basic.......................... $ 0.15 $ (0.49) $ 0.25
Diluted........................ $ 0.15 $ (0.49) $ 0.25
Weighted average shares
outstanding
Basic.......................... 3,120,603 3,120,603 3,145,079
Diluted........................ 3,120,603 3,120,603 3,145,079

EBITDA(4).......................... $ 2,036 $ (149) $ 1,247 $ 1,098 $ 4,919
Adjusted EBITDA(4)(5).............. $ 2,663 $ 3,057 $ 1,247 $ 4,304 $ 4,919

Ratio of Adjusted EBITDA to
Interest Expense(4)(5)........... 1.7 1.9 6.4 1.8 2.0
Ratio of Earnings to Fixed
Charges(6)....................... 0.8 2.3 0.8 -- 4.6 -- 1.5

STATEMENT OF CASH FLOWS DATA:
Cash provided by (used in)
operating activities........... $ (4,223) $ (230) $ 2,279 $ 1,663 $ 322
Cash used in investing
activities..................... $ (4,114) $ (1,199) $ (28,553) $ (29,752) $ (3,464)
Cash provided by financing
activities..................... $ 8,010 $ 2,435 $ 27,329 $ 29,764 $ 2,247

<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
STATEMENTS OF OPERATION DATA:
Revenues......................... $ 20,358 $ 31,039
Cost of revenues................. 15,680 24,102
--------- ---------
Gross profit..................... 4,678 6,937
Selling, general and
administrative................. 2,794 4,090
Restructuring charges............ -- --
--------- ---------
Income (loss) from operations.... 1,884 2,847
Interest expense, net............ (1,171) (1,449)
Miscellaneous (net).............. -- --
--------- ---------
713 1,398
Income tax expense (benefit)..... 265 5
--------- ---------
Net income (loss)................ $ 448 $ 1,393
--------- ---------
--------- ---------
Net income (loss) per share
Basic.......................... $ 0.14 $ 0.26
Diluted........................ $ 0.14 $ 0.25
Weighted average shares
outstanding
Basic.......................... 3,120,603 5,420,012
Diluted........................ 3,120,603 5,573,074
EBITDA(4).......................... $ 2,491 $ 4,141
Adjusted EBITDA(4)(5).............. $ 2,491 $ 4,141
Ratio of Adjusted EBITDA to
Interest Expense(4)(5)........... 2.1 2.9
Ratio of Earnings to Fixed
Charges(6)....................... 1.6 1.8
STATEMENT OF CASH FLOWS DATA:
Cash provided by (used in)
operating activities........... $ (586) $ (6,238)
Cash used in investing
activities..................... $ (534) $ (25,622)
Cash provided by financing
activities..................... $ 175 $ 32,274
</TABLE>

20
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR(1) SUCCESSOR(1)
------------------------------- --------------------
DECEMBER 31, DECEMBER 31,
------------------------------- --------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C>
Working capital.................................................... $ 4,070 $ 9,966 $ 13,289 $ 7,225 $ 3,744
Total assets....................................................... 22,802 25,865 35,455 35,178 40,898
Total long-term debt (excluding current portion)................... 13,754 21,404 27,310 19,150 17,700
Total shareholders' equity......................................... 266 (1,182) (917) 2,509 4,297

<CAPTION>
JUNE 30,
-----------
1998
-----------
BALANCE SHEET DATA:
<S> <C>
Working capital.................................................... $ 9,833
Total assets....................................................... 79,204
Total long-term debt (excluding current portion)................... 29,054
Total shareholders' equity......................................... 23,997
</TABLE>

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

(2) Year ended December 31, 1994, year ended December 31, 1995, the ten months
ended October 31, 1996, and pro forma year ended December 31, 1996 include
non-recurring charges to cost of revenues of $410,000, $927,000, $1,063,000,
and $1,063,000, respectively, relating to the merger of certain operations
of Dunlop Aviation, Inc., the shutdown of certain of these operations and
nonproductive inventory. Selling, general and administrative expenses in
year ended December 31, 1995 include a net gain of $300,000, and in the ten
months ended October 31, 1996 and pro forma year ended December 31, 1996
include expenditures of $947,000, all relating to an environmental claim and
settlement. The foregoing shall be referred to as the "non-recurring
charges." See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

(3) The pro forma presentation gives effect to the BTR Transaction as though it
had occurred on January 1, 1996 and may not be indicative of what actual
results would have been.

(5) Adjusted EBITDA is EBITDA prior to the non-recurring charges referred to in
Note (2) above.

(6) For purposes of computing the ratio of earnings to fixed charges, "earnings"
consists of income from operations before income taxes and fixed charges.
"Fixed Charges" consist of interest expense plus an allocation of a portion
of rent expense representing interest. For fiscal 1993, fiscal 1995, the ten
months ended October 31, 1996 and pro forma 1996 earnings were inadequate to
cover fixed charges by $192,000, $416,000, $2,577,000, and $2,457,000,
respectively.

21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S
FINANCIAL STATEMENTS AND THE RELATED NOTES THERETO AND THE OTHER FINANCIAL
INFORMATION INCLUDED ELSEWHERE IN THIS PROSPECTUS. WHEN USED IN THE FOLLOWING
DISCUSSIONS, THE WORDS "BELIEVES," "ANTICIPATES," "INTENDS," "EXPECTS" AND
SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH
STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES, WHICH COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED, INCLUDING, BUT NOT
LIMITED TO, THOSE SET FORTH IN "RISK FACTORS." READERS ARE CAUTIONED NOT TO
PLACE UNDUE RELIANCE ON FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE
DATE HEREOF.

OVERVIEW

CORPORATE HISTORY. The Company incorporated in August 1980 as a California
corporation to provide aircraft parts to the aviation industry and began
providing repair and overhaul services in 1987. In 1991, BTR acquired the
Company, and in January 1994, BTR merged the Company with the operations of
another wholly-owned subsidiary of BTR, Dunlop Aviation, Inc., which had
operations in Chatsworth, California and Miami, Florida. In November 1996, BTR
sold the Company for $29.8 million to Aqhawk, Inc. ("Aqhawk"), an entity
wholly-owned by the shareholders of Unique and the Company's executive officers.
See "Certain Transactions." The Company completed an initial public offering
(the "Initial Public Offering") in February 1998 and received net proceeds of
$18.1 million. The Company used $9.2 million of the net proceeds from the
Initial Public Offering together with the $9.2 million proceeds from the
Company's Amended Loan Agreement to acquire the BA Assets. The BA Assets
consisted of $1.9 million in inventory, $4.0 million in machinery and equipment
and $13.6 million in landing gear rotable assets. Transaction expenses of $1.1
million were capitalized as part of the rotable asset value. As part of the BA
Acquisition, the Company also acquired a 747-400 landing gear rotable asset for
$2.9 million in the second quarter of 1998, increasing the total purchase price
to $22.4 million. The balance of the net offering proceeds from the Initial
Public Offering was used to pay down existing indebtedness and for working
capital. See "Liquidity and Capital Resources."

EXPANSION INTO WIDE-BODY COMMERCIAL AIRCRAFT. The Company's operating
strategy has been to increase its revenues from higher margin wide-body landing
gear repair and overhaul services. From 1994 to 1995, the Company utilized $6.3
million to expand its landing gear repair capabilities for wide-body aircraft
such as the Boeing 747, 767, DC10, MD10 and MD11, as well as Airbus models A300
and A310. These expenditures included expenses for leasehold improvements,
purchase of machinery to handle larger landing gear and the acquisition of
landing gear rotable assets (i.e., landing gear shipsets for future exchange
with customers for a fee). As a result of these initiatives, landing gear repair
and overhaul revenues for the twelve months ended June 30, 1998, increased
103.7% over the twelve months ended June 30, 1997.

The Company's efforts to increase its wide-body business have led to a
number of key new contracts. On September 9, 1997, the Company signed a
seven-year exclusive contract to provide landing gear repair and overhaul
services to American Airlines to service landing gear on all Boeing 757 aircraft
within its fleet. Performance under this new contract began in February 1998. In
December 1997, the Company entered into an amendment to its existing contract
with FedEx to extend the term of the contract to 2007. This amendment expanded
the scope of the original contract to include FedEx's fleet of Airbus A310
aircraft and FedEx's program to convert DC10 passenger aircraft to MD10 cargo
carriers. In addition, the Company recently entered into long-term contracts
with several new customers, including British Midlands, Canadian Airlines, SAS
and UPS. The Company classifies long-term contracts as any contract that has an
initial term of one year or more.

22
<PAGE>
number of new or remanufactured spare parts used in the repair or overhaul and
the required turnaround time. For many of its customers, the Company exchanges a
previously overhauled shipset from its inventory for an as-removed shipset from
the customer's aircraft at which time the Company charges the customer a fixed
overhaul fee. Upon completing the overhaul, the Company charges the customer an
additional fee for spare parts or extra services required to overhaul the
landing gear to the customer's specifications. The Company typically receives
payment for the initial overhaul fee before completing the overhaul. When the
Company overhauls a shipset without exchanging an overhauled gear assembly from
its inventory, the Company charges one fee, which includes all parts and labor
charges, upon delivering the overhauled shipset to the operator. Pursuant to the
Company's standard payment terms, invoices are due within 30 days after receipt.
The Company typically offers a discount of up to 1.5% on payment made within 13
days of receipt of an invoice.

Certain of the Company's customers who regularly receive parts and services
on their entire fleets or large numbers of aircraft are billed a flat fee which
is typically set forth in a long-term service agreement. Pursuant to these
service agreements, the Company will perform repair and overhaul services on a
scheduled or as-needed basis. Pricing depends on the volume and type of aircraft
landing gear or hydromechanical component to be serviced and the required
turnaround time. Long-term service agreements enable the Company to plan in
advance for equipment and inventory requirements and achieve efficiencies in
labor hours and materials usage relative to the original estimates on which the
contract price was based.

The Company's other services, including fixed wing, flap track related or
hydromechanical overhaul services are billed upon completion of service.
Payments for parts or wheels, tires and brakes are received generally net 30
days after billing, or upon shipment.

QUARTERLY REVENUE FLUCTUATIONS

The Company's operating results are affected by a number of factors,
including the timing of orders for the repair and overhaul of landing gear and
fulfillment of such contracts, the timing of expenditures to manufacture parts
and purchase inventory in anticipation of future services and sales, parts
shortages that delay work in progress, general economic conditions and other
factors. Although the Company has secured several long-term agreements to
service multiple aircraft, the Company records sales under these agreements only
when it actually performs a repair or overhaul. Because the average time between
landing gear overhauls is seven years for an aircraft, the work orders that the
Company receives and the number of repairs or overhauls that the Company
performs in particular periods may vary significantly, causing the Company's
quarterly sales and results of operations to fluctuate substantially. The
Company is unable to predict the timing of the actual receipt of such orders
and, as a result, significant variations between forecasts and actual orders
will often occur. In addition, the Company's need to make significant
expenditures to support new aircraft in advance of generating revenues from
repairing or overhauling such aircraft may cause the Company's quarterly
operating results to fluctuate. Furthermore, the rescheduling of the shipment of
any large order, or portion thereof, or any production difficulties or delays by
the Company, could have a material adverse effect on the Company's quarterly
operating results.

23
<PAGE>
RESULTS OF OPERATIONS

The following table sets forth certain statement of operations data for the
periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------- SIX MONTHS
1996 ENDED JUNE 30,
-------------------- -------------------------------
1995 (PRO FORMA) 1997 1997 1998
-------------------- -------------------- -------------------- -------------------- ---------
$ % $ % $ % $ % $
--------- --------- --------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............... $ 35,012 100.0% $ 39,004 100.0% $ 41,042 100.0% $ 20,358 100.0% $ 31,039
Cost of revenues....... 28,993 82.8 31,799 81.5 31,430 76.6 15,680 77.0 24,102
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Gross profit........... 6,019 17.2 7,205 18.5 9,612 23.4 4,678 23.0 6,937
Selling general and
administrative
expenses............. 4,837 13.8 6,161 15.8 5,897 14.4 2,794 13.7 4,090
Restructuring charges
related to closure of
Dunlop Miami
operations........... -- -- 1,196 3.1 -- -- -- -- --
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Operating income
(loss)............... 1,182 3.4 (152) -0.4 3,715 9.0 1,884 9.3 2,847
Interest expense, net.. (1,598) -4.6 (2,305) -5.9 (2,428) -5.8 (1,171) -5.8 (1,449)
Other expense, net..... -- -- -- -- (32) -0.1 -- -- --
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) before
income taxes......... (416) -1.2 (2,457) -6.3 1,255 3.1 713 3.5 1,398
Income tax expense
(benefit)............ (680) -1.9 (934) -2.4 467 1.1 265 1.3 5
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss)...... $ 264 0.7% $ (1,523) -3.9% $ 788 2.0% $ 448 2.2% $ 1,393
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------

%
---------

<S> <C>
Revenues............... 100.0%
Cost of revenues....... 77.7
---------
Gross profit........... 22.3
Selling general and
administrative
expenses............. 13.2
Restructuring charges
related to closure of
Dunlop Miami
operations........... --
---------
Operating income
(loss)............... 9.2
Interest expense, net.. -4.7
Other expense, net..... --
---------
Income (loss) before
income taxes......... 4.5
Income tax expense
(benefit)............ 0.0
---------
Net income (loss)...... 4.5%
---------
---------
</TABLE>

SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997

REVENUES. Revenues increased 52.5% to $31.0 million for the six months
ended June 30, 1998 compared to $20.4 million for the same period in 1997.
Internal growth from new business accounted for 23.8% of this increase and
external growth from the acquisition of British Airways' landing gear operation
accounted for the remaining 28.7%. Landing gear repair services revenue, which
represented $9.4 million, or 46.1% of total revenues for the six months ended
June 30, 1997, increased 103.7% to $19.1 million, or 61.6% of total revenues for
the six months ended June 30, 1998. The increase in revenues was partially
generated from new long-term contracts with American Airlines, British Airways,
British Midlands, UPS and new MD10 and Airbus A310 services provided to FedEx.

Fixed wing aircraft and helicopter hydromechanical repair and overhaul
increased 8.0% in the six months ended June 30, 1998 to $8.8 million compared to
$8.1 million for the same period in 1997. This is primarily a result of
increased repair and overhaul revenues for regional jet aircraft landing gear
repair, constant speed drives and integrated drive generators. Hydromechanical
repair and overhaul accounted for 28.3% of total revenues in the six months
ended June 30, 1998 compared to 40.0% for the same period in 1997.

GROSS PROFIT. Gross profit increased 48.3% to $6.9 million for the six
months ended June 30, 1998 compared to $4.7 million for the same period in 1997.
Gross profit as a percent of revenues in the first half of 1998 was 22.3%
compared to 23.0% in the comparable period in 1997. The decline in gross profit
margins is primarily attributable to certain startup costs incurred at the new
United Kingdom facility, which began operations in February 1998. Startup
related costs included expenses incurred to outsource

24
<PAGE>
United Kingdom landing gear services to the Company's repair facility in
California, which significantly increased freight expenses, in addition to
increased subcontracted expenses with other United Kingdom landing gear repair
stations.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased 46.4% to $4.1 million for the six months ended June 30, 1998
compared to $2.8 million for the same period in 1997. As a percentage of
revenues, these expenses declined to 13.2% compared to 13.7% for the same period
in 1997. Expenses during the first six months of 1998 included expenses related
to the new United Kingdom operations and outside consultant costs relating to
the pending relocation of such operations to a new facility. The Company expects
to enter into a long-term lease agreement and begin construction on the new
facility in the third quarter of 1998. Completion and relocation is expected to
occur in the second quarter of 1999. In addition, the six months ended June 30,
1997 included approximately $150,000 of management fees paid to Unique that were
not incurred during the six months ended June 30, 1998.

OPERATING INCOME. Operating income increased 51.1% to $2.8 million for the
six months ended June 30, 1998 compared to $1.9 million for the same period in
1997. As a percentage of revenue, operating income declined slightly in the
first half of 1998 to 9.2% compared to 9.3% for the same period in 1997. The
decline is a result of increased expenses related to the startup of the new
United Kingdom operations offset by reductions in selling, general and
administrative expenses as a percentage of total revenue.

NET INTEREST EXPENSE. Net interest expense increased 23.7% to $1.4 million
for the six months ended June 30, 1998 compared to $1.2 million for the same
period in 1997. This increase is a result of increased borrowings to fund
expansion of existing business and to fund the acquisition of the British
Airways' landing gear operation. As a percentage of revenue, net interest
expense declined to 4.7% in the first half of 1998 compared to 5.8% in the
comparable period in 1997. Interest income was not significant for either
period.

INCOME TAXES. The tax provision in the six months ended June 30, 1998
included a reversal of $514,000 for a previously recorded deferred tax valuation
allowance. The effective tax rate, excluding this one-time tax benefit, was
37.1% compared to 37.2% for the same period in 1997. The deferred tax valuation
allowance was a previously provided allowance against the potential future
benefit of net operating loss carry-forwards and other deferred tax assets, net
of deferred tax liabilities. At June 30, 1998 there was no valuation allowance
remaining on deferred tax assets.

NET INCOME. Net income in the six months ended June 30, 1998 increased
210.9% to $1.4 million compared to $448,000 for the same period in 1997.
Excluding the one-time reversal of the previously recorded deferred tax
valuation allowance, net income would have increased 96.2% to $879,000 in the
first half of 1998 over the same period in 1997.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO PRO FORMA YEAR ENDED DECEMBER 31, 1996

REVENUES. Revenues for the year ended December 31, 1997 increased $2.0
million or 5.2% to $41.0 million from $39.0 million for the year ended December
31, 1996. The increase was a result of a 20.2% increase in landing gear repair
and overhaul services offset by reductions resulting from the Company's closure
of the Dunlop Miami operations and rationalization of unprofitable product
lines. Landing gear repair and overhaul revenues increased to $18.9 million and
accounted for 46.1% of total revenues for 1997, as compared to $15.7 million or
40.4% of total revenues for 1996. The increase in landing gear repair and
overhaul revenues was attributable to increases in business from FedEx's MD10
freighter conversion program and new wide-body repair and overhaul business from
British Airways and American Airlines.

Fixed wing aircraft and helicopter repair and overhaul declined 0.9% to
$13.2 million or 32.1% of total revenues for 1997 from $13.3 million or 34.1% of
total revenues for 1996. This decline was attributable to a reduction in
helicopter repair and overhaul business from the USCG, in part due to the
modifications performed by the Company in 1996 and 1997 to extend the time
between overhauls for the

25
<PAGE>
USCG fleet of Dauphin II helicopters. Wheels, brakes and braking system
component repair and overhaul increased 9.8% to $5.4 million or 13.1% of total
revenues for 1997 from $4.9 million or 12.6% of total revenues for 1996.

For the year ended December 31, 1997, repair and overhaul services accounted
for 92.5% of total revenues, as compared to 90.2% for 1996. Revenues from spare
parts distribution and sales accounted for 7.5% of total revenues for 1997, as
compared to 8.6% for 1996. This decline was a result of the Company's decision
to close the Dunlop Miami operations and discontinue the low margin Dunlop
aircraft tire distribution business.

GROSS PROFIT. Gross profit for the year ended December 31, 1997 increased
33.4% to $9.6 million from $7.2 million for 1996. Gross profit as a percent of
revenues increased to 23.4% for the year ended December 31, 1997 compared to
18.5% for 1996. This increase was primarily due to: (i) improved throughput and
economies of scale achieved from increased revenues in wide-body landing gear
repair and overhaul services, (ii) development of the Company's higher margin
fixed wing aircraft and helicopter hydromechanics products and (iii)
discontinuing the unprofitable Dunlop Miami operations, which adversely impacted
gross profit in 1996 as a result of charges to cost of revenues for
nonproductive inventory.

Gross profit for the year ended December 31, 1996 included a nonrecurring
charge of $489,000 to dispose of certain obsolete and non-productive inventory
related to closing Dunlop Miami and a charge of $574,000 primarily related to
other non-productive inventory at the Company's Sun Valley operations, including
inventory related to Dunlop Aviation. Excluding these charges, gross profit
would have been $8.3 million or 21.2% of revenues for the year ended December
31, 1996.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the year ended December 31, 1997 decreased $264,000
or 4.3% to $5.9 million from $6.2 million for the year ended December 31, 1996.
Selling, general and administrative expense decreased as a percent of revenues
to 14.4% from 15.8% for the prior year. This decrease was due to $947,000 of
costs related to the EPA Claim in 1996 that were not incurred in 1997. BTR
indemnified the Company for costs incurred in connection with the EPA Claim.
This decrease was offset by additional costs incurred in 1997 resulting from:
(i) the Company's efforts to expand its international market presence through
sales representatives located in Europe, the Middle East and China, (ii)
management fees paid to Unique and (iii) expenses incurred in connection with
developing the Company's relationship with British Airways. Excluding the
$947,000 charge, selling, general and administrative expenses would have been
$5.2 million or 13.4% of revenues for the year ended December 31, 1996.

OPERATING INCOME. Operating income for the year ended December 31, 1997
increased $3.9 million to $3.7 million or 9.1% of total revenues compared to an
operating loss of $152,000 for 1996. Operating income for the year ended
December 31, 1996 was negatively impacted by nonrecurring restructuring charges
of $1.2 million and charges to cost of revenues of $1.1 million related to the
closure of the Dunlop Miami and $947,000 in costs related to the EPA claim.
Excluding these charges, pro forma operating income for the year ended December
31, 1996 would have been $3.1 million or 7.8% of revenues.

NET INTEREST EXPENSE. Net Interest expense for the year ended December 31,
1997 increased 5.3% to $2.4 million from $2.3 million for 1996. Interest expense
for 1996 has been adjusted, on a pro forma basis, to give effect to the BTR
Transaction as if it happened on January 1, 1996. As a result of this pro forma
adjustment, interest expense was increased to give effect to the Company's
existing credit facilities, which are at higher interest rates than charged by
BTR for inter-company advances. Interest income was not significant in either
period.

INCOME TAXES. Income taxes for the year ended December 31, 1997 were
$467,000 compared to an income tax benefit of $934,000 for the year ended
December 31, 1996. The effective tax rate for the year ended December 31, 1997
was 37.2% compared to 38.0% for 1996. The effective tax rate for the periods

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differs from the federal statutory rate of 34.0% due to certain nondeductible
expenses. At December 31, 1997, the Company had net operating loss carryforwards
of $7.9 million. The utilization of these operating loss carryforwards is
limited due to changes in the Company's ownership in November 1996. At December
31, 1997, the Company had a valuation reserve of $659,000 for the deferred tax
assets. To the extent the Company generates sufficient income, the Company
anticipates that this reserve will be reversed in 1998 as a reduction to the tax
expense, thereby reducing the effective tax rate in 1998.

NET INCOME. As a result of the factors described above, net income for the
year ended December 31, 1997 of $788,000 represents an increase of $2.3 million
from the net loss of $1.5 million for the year ended December 31, 1996.

PRO FORMA YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995

REVENUES. Revenues for the year ended December 31, 1996 increased 11.4% to
$39.0 million from $35.0 million for 1995. Repair and overhaul service revenues
for 1996 accounted for 90.2% of revenues, as compared to 84.0% of revenues for
1995. Revenues for spare parts distribution and sales accounted for 8.6% of
total revenues for 1996, as compared to 13.8% for 1995. The increase in repair
revenue as a percentage of total revenue was a result of the Company's decision
to discontinue the low margin Dunlop Miami aircraft tire spare parts
distribution business in May 1996.

Revenues from landing gear repair and overhaul increased 51.5% to $15.7
million or 40.4% of total revenues in 1996, compared to $10.4 million or 29.7%
of total revenues for 1995. This increase in revenues for landing gear repair
and overhaul was attributable to increased volume from the Company's largest
customer, FedEx, and to new wide-body repair and overhaul business from other
customers including US Airways, Air Canada, Inc., Trans World Airlines, Inc. and
American Airlines.

Fixed wing aircraft and helicopter hydromechanics repair and overhaul
increased 12.7% to $13.3 million or 34.1% of total revenues for 1996, as
compared to $11.8 million or 33.7% of 1995 revenues. This increase in revenues
was attributable to increases in helicopter repair and overhaul business from
the U.S. Coast Guard for 1996. The Dunlop Miami operation, which operated at a
loss was closed in May 1996 and contributed $2.0 million or 5.3% of total
revenues for 1996 compared to $7.4 million or 21.1% of revenues for 1995.

GROSS PROFIT. Gross profit for 1996 increased 19.7% to $7.2 million for
1996 from $6.0 million for 1995. Gross profit increased as a percent of revenues
to 18.5% for 1996 compared to 17.2% for 1995. This increase was primarily due
to: (i) a 51.5% increase in revenues from landing gear repair and overhaul
services, (ii) further development of higher margin fixed wing aircraft and
helicopter hydromechanics products and (iii) discontinuing the unprofitable
Dunlop Miami operations.

Gross profit for 1996 included a nonrecurring charge of $489,000 to dispose
of certain obsolete and non-productive inventory related to closing the Dunlop
Miami operations and a charge of $574,000 primarily related to other obsolete
and non-productive inventory related to Dunlop Aviation at the Company's Sun
Valley operations. Excluding these charges, gross profit would have been $8.3
million or 21.2% of revenues for 1996.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for 1996 increased $1.3 million or 27.4% to $6.2 million
from $4.8 million for 1995. This was a result of the Company's efforts to expand
its international market presence through overseas representatives in Europe,
the Middle East and China. In addition, 1996 included $947,000 of costs related
to the EPA Claim, and 1995 included a net gain of approximately $300,000 due to
an insurance reimbursement of $1.0 million for legal defense costs related to
the EPA Claim, for which the Company has been fully indemnified by BTR. Selling,
general and administrative expense increased as a percent of revenues to 15.8%
for 1996 from 13.8% for 1995 as a result of the above items offset by increased
revenues in 1996 over 1995.

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OPERATING INCOME. Operating income for 1996 declined $1.3 million to a loss
of $152,000 or (0.4%) of revenues, as compared to an operating income of $1.2
million for 1995. Operating income for 1996 was negatively impacted by
nonrecurring restructuring charges of $1.2 million and charges to cost of
revenues of $1.1 million related to closing the Dunlop Miami operation and
$947,000 in costs related to the EPA Claim. Excluding these charges, pro forma
operating income for 1996 would have been $3.1 million or 7.8% of revenues.

NET INTEREST EXPENSE. Net interest expense for 1996 increased by 44.2% to
$2.3 million from $1.6 million for 1995. Interest expense for 1996 has been
adjusted, on a pro forma basis, to give effect to the BTR Transaction as if it
occurred on January 1, 1996. As a result of this pro forma adjustment, interest
expense was increased to give effect to the Company's existing credit
facilities, which are at higher interest rates than charged by BTR for
inter-company advances. Interest income was not significant in either period.

INCOME TAXES. The income tax benefit for 1996 was $934,000 compared to an
income tax benefit of $680,000 for 1995. The effective tax rate for 1996 was
38.0% compared to 163.5% for 1995. The effective tax rate for 1995 includes a
benefit of $525,000 from the reduction of a deferred tax valuation allowance
that was no longer required since the Company was part of a consolidated group,
and the deferred tax assets became recoverable.

NET INCOME. As a result of the factors described above, the net loss for
1996 of $1.5 million represented a decrease of $1.8 million from net income of
$264,000 for 1995.

LIQUIDITY AND CAPITAL RESOURCES

Working capital and funds for capital expenditures have been provided by
cash generated from operations, borrowings on the Company's credit facilities,
and cash generated from the sale of Common Stock. In November 1996, the Company
entered into a loan agreement with Bank of America for a $10.0 million revolving
line of credit, a $13.5 million term loan and a $3.0 million capital
expenditures facility. A portion of the credit facility and the entire term loan
were used to partially finance the acquisition of the Company from BTR. At the
Company's election, each of the facilities under the agreement bears interest at
a fixed bank reference rate or variable rate above IBOR.

Contemporaneously with the Initial Public Offering and the BA Acquisition,
the Company entered into the Amended Loan Agreement, which increased the maximum
amount of credit available to the Company from $26.5 million to $45.5 million.
The Company used approximately $9.2 million of the proceeds available under the
Amended Loan Agreement to fund a portion of the purchase price of the BA Assets.
The Amended Loan Agreement provides the Company with a $15.0 million revolving
line of credit, a $24.5 million term loan, and a $6.0 million capital
expenditure facility. The revolving line of credit matures in January 2001, and
the term loan and capital expenditure facilities mature in January 2005. The
Amended Loan Agreement is secured by a lien on all of the assets of the Company,
including the BA Assets. At the Company's election, the rate of interest on each
of the three facilities available under the Amended Loan Agreement is either
Bank of America's reference rate or the inter-bank eurodollar rates on either,
at the Company's option, the London market or the Cayman Islands market. As of
June 30, 1998, there was $36.4 million outstanding under the Amended Loan
Agreement.

On February 3, 1998, the Company completed its Initial Public Offering and
received net proceeds of $18.1 million. A portion of the net proceeds, together
with proceeds from the Amended Loan Agreement were used to acquire the BA
Assets. The balance of the net offering proceeds was used to pay down
indebtedness and for working capital.

Cash provided by (used in) the Company's operating activities amounted to
$(4.2 million), $(230,000), $2.3 million, $322,000 and $(6.2 million) for fiscal
1995, the ten months ended October 31, 1996, the two months ended December 31,
1996, fiscal 1997 and the six months ended June 30, 1998, respectively. The

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significant use of cash in operating activities for the six months ended June
30, 1998 as compared to previous periods is primarily due to investments in
working capital items such as increases in accounts receivable and inventory and
a decrease in accounts payable. Cash used by the Company in investing activities
amounted to $4.1 million, $1.2 million, $25.6 million, $3.5 million and $28.7
million for fiscal 1995, the ten months ended October 31, 1996, the two months
ended December 31, 1996, fiscal 1997 and the six months ended June 30, 1998,
respectively. Cash used in investing activities include the purchase of the BA
Assets, machinery, leasehold improvements and landing gear rotable assets, net
of proceeds received from the sale of equipment and rotable assets.

Occupancy costs under the Company's existing facilities in Sun Valley,
California, in the United Kingdom and in the Netherlands amount to approximately
$3.3 million per year. The service agreement with British Airways permits the
Company to occupy temporarily the premises in which the BA Assets are currently
housed through December 31, 1999. Rent payments aggregating L1.8 million ($2.9
million at June 30, 1998) for the period from June 1, 1998 through June 30, 1999
will be paid to British Airways on a monthly basis, whether or not the Company
continues to occupy the premises during such period. Beginning July 1, 1999,
rental expense will increase to L8,500 per day ($14,000 at June 30, 1998), which
amount will be proportionately reduced as the Company returns space to British
Airways. The Company believes it will be able to relocate a substantial portion
of the facilities during the second quarter of 1999, but that plating operations
as well as certain other areas will remain at the British Airways location for
at least the third quarter of 1999.

In connection with the BA Acquisition, the Company anticipates making
additional capital expenditures of approximately $3.3 million in fiscal 1999 to
relocate the United Kingdom operations to a new facility, which includes
expenditures for leasehold improvements, handling equipment and machinery. The
majority of the expense relates to the construction of an electro-plating shop.
Capital expenditures related to new facility leasehold improvements will be
financed by cash flow from operations and borrowings under the Amended Loan
Agreement. In addition, approximately $2.9 million is accrued and is scheduled
to be paid to British Airways during the third quarter of fiscal 1998 as part of
the BA Acquisition and will be funded by borrowings against the revolving credit
line and cash flow from operations.

The Company anticipates making capital expenditures of approximately $7.0
million during fiscal 1998 for rotable assets, machinery and equipment, and
leasehold improvements to expand the Company's repair and overhaul capacity. The
capacity expansion is a continuation of the Company's 1997 facilities expansion,
which included a significant increase in square footage primarily devoted to
landing gear repair and overhaul in addition to expansion of its Continuous
Speed Drive/Integrated Drive Generator shop. In fiscal 1999 the Company intends
to spend approximately $2.3 million to expand its electro-plating shop capacity
at its Sun Valley facility.

FOREIGN EXCHANGE

To date, the Company's business has not been significantly affected by
currency fluctuations. However, the Company conducts business in the Netherlands
and in the United Kingdom and thus fluctuations in currency exchange rates could
cause the Company's products to become relatively more expensive in particular
countries, leading to a reduction in revenues in that country.

The Company makes substantial inventory purchases in French francs from such
suppliers as Messier-Dowty, SAMM and Eurocopter France. During 1996 and 1997,
the United States dollar has strengthened against the French franc, creating a
favorable exchange rate variance for the Company. The Company's Netherlands
facility's transactions are primarily United States dollar denominated for
inventory purchases while revenues and operating expenses are partially
denominated in Dutch guilders. The Company's revenues are primarily denominated
in United States dollars and to some extent in Dutch guilders, and the Company
expects to make material sales in British pounds as a result of the recent BA
Acquisition.

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INFLATION

Although the Company cannot accurately anticipate the effect of inflation on
its operations, the Company does not believe that inflation has had, or is
likely in the foreseeable future to have, a material effect on its business,
financial condition or results of operations.

YEAR 2000 COMPLIANCE

The year 2000 problem is the result of computer programs being written using
two digits (rather than four) to define the applicable year. Any of the
Company's programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000, which could result in
miscalculation or system failures. The Company believes that its mainframe
database and operating systems are year 2000 compliant. However, certain of the
Company's software applications currently are coded using two digits rather than
four to define the applicable year. The Company is systematically modifying such
software applications to be coded as four digits and anticipates such
modifications to be completed by March 1999. The Company plans to replace its
telephone system at an estimated cost of approximately $100,000 and any other
non-information technology systems, to the extent necessary, by July 1999 to be
year 2000 compliant. In addition, the Company is working with its external
suppliers, vendors and service providers to ensure that their systems will be
able to support and interact with the Company's server and network to become
year 2000 compliant. The Company has not quantified the total costs required to
become year 2000 compliant, but does not expect such costs to be material. As of
June 30, 1998, the total costs incurred to address the Company's year 2000
issues have not been material. However, if the Company, its customers or vendors
are unable to resolve such processing issues in a timely manner, it could have a
material adverse impact on the Company's business, financial position and
results of operations. Accordingly, the Company plans to devote the necessary
resources to becoming year 2000 compliant in a timely manner and is currently
working to create a contingency plan by July 1999 to handle any year 2000
problems.

EUROPEAN MONETARY UNIT

A single currency called the euro will be introduced in Europe on January 1,
1999. The Company does not believe the introduction of the euro will have a
material effect on the Company's business, financial condition and results of
operations.

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BUSINESS

GENERAL

Hawker Pacific Aerospace repairs and overhauls aircraft and helicopter
landing gear, hydromechanical components, and wheels, brakes and braking system
components for a diverse international customer base, including commercial
airlines, air cargo operators, domestic government agencies, aircraft leasing
companies, aircraft parts distributors and OEMs. In addition, the Company
distributes and sells new and overhauled spare parts and components for both
fixed wing aircraft and helicopters. The Company acquired the BA Assets for
approximately $19.5 million in February 1998 and entered into a seven-year
exclusive agreement to service British Airways' fleet of approximately 250 jet
aircraft. The BA Acquisition provided the Company with an expanded operational
base to service aircraft fleets on a worldwide basis from its western United
States, United Kingdom and Netherlands facilities. During the twelve months
ended June 30, 1998 the Company had in excess of 480 customers worldwide.
Approximately 58.5% of the Company's revenue during the six months ended June
30, 1998 came from long-term contracts, compared to 31.8% for the same period in
1997. Customers that have entered into long-term contracts with the Company
include American Airlines, British Airways, British Midlands, Canadian Airlines,
FedEx, SAS, UPS, USCG and US Airways.

The Company has achieved a significant market presence. Through its
predecessors, the Company has been providing aftermarket products and services
to the aviation industry for over 30 years and believes it has gained an
international reputation for superior quality of service, competitive pricing
and rapid turnaround time. The Company's senior executives have, on average,
over 20 years of industry experience and have served the Company for an average
of seven years. The Company has also developed proprietary software to manage
and schedule work flow and coordinate many aspects of shop flow operations when
tracking landing gear that can have up to 2,500 parts. The Company believes that
its management information systems are among the most advanced in its industry,
permitting the Company to achieve greater operating efficiencies, offer a higher
level of customer service than its competitors and provide complete traceability
of aircraft parts. The Company also can manufacture certain replacement parts
in-house, enabling it to reduce costs using proprietary or specialized equipment
and techniques.

MARKET AND INDUSTRY OVERVIEW

The aviation aftermarket consists of the servicing and support of aircraft
after it has been delivered to operators by OEMs. Aftermarket landing gear
repair and overhaul services and related spare parts represent a growing segment
of the aviation industry. Generally the FAA requires aircraft landing gear to be
overhauled every seven to ten years. Demand for these types of services is also
driven by the following factors:

INCREASED WORLDWIDE AIR TRAFFIC. Increases in passenger travel, air cargo
services and the number of aircraft in service increase the demand for repair
and overhaul services. The Boeing Outlook forecasts global air travel growth to
average 5.0% per year through the year 2007. Average passenger seat miles flown
are also expected to increase significantly over the next few years. Further,
many new airlines are expected to commence operations in the United States and
abroad. In order to accommodate growing demand, aircraft operators will be
required to increase the size of their aircraft fleets. The global fleet of
commercial aircraft grew from approximately 4,300 aircraft at the end of 1984 to
12,300 aircraft at the end of 1997. The Boeing Outlook projects that the global
fleet of aircraft will grow to over 17,700 aircraft in 2007 and 26,200 aircraft
in 2017. The growth in the number of aircraft over the past 15 years is expected
to generate consistent demand for landing gear repair and overhaul services,
which will continue to grow as the number of new aircraft in service increases.

OUTSOURCING BY AIRCRAFT OPERATORS. While the overall air transportation
industry has grown significantly over the past decade, commercial airlines have
not experienced consistent earnings growth over the same period. As a result,
many aircraft operators have recognized outsourcing as an opportunity to reduce

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operating costs and working capital investment and increase turnaround time of
necessary repair and overhaul services. Further, because start-up airlines
generally do not invest in the infrastructure necessary to service their
aircraft, such airlines outsource all or most of their repair and overhaul
services. Industry analysts have forecasted the commercial landing gear service
market to grow from $258 million in 1995 to $638 million by 2005. According to
the same industry sources, the outsourced portion of this market was $163
million in 1995, or 63% of the commercial market, and is estimated to grow to
$480 million by 2005, or 75% of the commercial market. Outsourcing also allows
aircraft operators to benefit from the expertise of service providers such as
the Company who have developed specialized repair techniques and achieved
economies of scale unavailable to individual operators. Additionally,
outsourcing allows aircraft operators to limit their capital investment in
infrastructure and personnel by eliminating the need for the equipment,
sophisticated information systems technology and inventory required to repair
and overhaul landing gear and hydromechanical components effectively.

INCREASED OUTSOURCING BY EUROPEAN AIRCRAFT OPERATORS. Until recently,
European aircraft operators attempted to realize cost savings by forming repair
consortiums to provide maintenance, repair and overhaul services for their
aircraft. Within these repair consortiums, each member was responsible for
providing the consortium's other members with maintenance, repair and overhaul
services for certain specified aircraft components. Some of these members are
now sub-contracting their maintenance, repair and overhaul services to
independent service providers such as Hawker Pacific through a competitive
bidding process.

GREATER EMPHASIS ON TRACEABILITY. Due to concerns regarding unapproved
aircraft spare parts, regulatory authorities have focused on the level of
documentation which must be maintained. The Company believes that as a result,
aircraft operators increasingly demand that third-party service providers
provide complete traceability of all parts used in the repair and overhaul
process. The sophistication required to track the parts histories of an
inventory consisting of thousands of aircraft spare parts is considerable. For
example, an overhaul of a 747 aircraft shipset requires the handling and
tracking of over 2,500 parts. This has required companies to invest heavily in
information systems technology.

The Company believes that it is well positioned to take advantage of the
factors that are driving the landing gear repair and overhaul services and
related spare parts market. The Company was recently awarded large contracts for
outsourcing of repair and overhaul services, including contracts with American
Airlines and British Airways. As aircraft operators continue to become more cost
and value conscious, the Company expects the trend toward outsourcing to
continue. The Company believes that the trend towards the sub-contracting of
maintenance, repair and overhaul services by European aircraft operators and the
recent BA Acquisition will provide it with opportunities to expand substantially
its European customer base. The Company has developed and maintains a
proprietary management information system that enables it to comply with its
customers' contract specifications and enables its customers to comply with
governmental regulations concerning traceability of spare parts.

GROWTH STRATEGIES

EXPAND INTERNATIONAL OPERATIONS. The Company believes that the
international aviation aftermarket presents the greatest potential for
substantial growth. With the hydromechanical repair and overhaul services that
it performs from its Netherlands facility and the large air transport repair and
overhaul operations that it has established through the recent BA Acquisition,
the Company believes it will be able to provide customers with a full range of
repair and overhaul services in Europe. In addition, the Company believes that
the outsourcing by aircraft maintenance consortiums will create opportunities
for the Company to expand its European, Middle Eastern and Asian customer bases.
With facilities located in the

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United Kingdom and Western United States, the Company believes that it is
geographically positioned to pursue additional growth opportunities in both the
European and Asian aviation aftermarkets.

INCREASE SERVICE OFFERINGS. Hawker Pacific seeks to increase sales and
operating income by marketing its landing gear repair and overhaul services to
new and existing customers and expanding its hydromechanical component product
lines. The Boeing Outlook projects that the global fleet of aircraft will grow
from approximately 12,300 aircraft at the end of 1997 to over 17,700 aircraft in
2007 and 26,200 aircraft in 2017. The Company plans to expand its landing gear
repair and overhaul operations in order to capitalize on this growth trend.
Because the Company believes that improved profit margins in fixed wing
operations are primarily a function of increased volume, it plans to expand its
capacity to perform fixed wing landing gear repair and overhaul services. The
Company also intends to expand its hydromechanical component service offerings
particularly through increased capabilities resulting from the BA Acquisition.
The Company recently began to offer repair and overhaul of constant speed
drive-integrated drive generators after having expended minimal funds to
initiate these operations.

FOCUS ON LONG-TERM SERVICE AGREEMENTS. Through increased sales and
marketing efforts, the Company is actively seeking to enter into long-term
service agreements with its existing and potential customers to provide its
services for all of their respective aircraft. A recent example of the Company's
success in this area includes the Company's September 1997 seven-year exclusive
agreement with American Airlines to service landing gear on all Boeing 757
aircraft within its fleet. While long-term agreements are often terminable on
short notice, the Company believes that securing long-term service agreements
with customers will provide it with a more predictable and consistent flow of
business and enable it to improve its profit margins from fixed wing operations.

POTENTIAL GROWTH THROUGH ACQUISITIONS. The Company intends to evaluate and
pursue strategic acquisitions of, or alliances with, companies that complement
or expand the Company's services, geographic coverage or product lines. In
particular, the Company seeks to acquire companies that will enable it to expand
its international operations or to increase its product offerings.

OFFER BROAD ARRAY OF PRODUCTS AND SERVICES. The Company services and sells
a broad array of landing gear and hydromechanical components for fixed wing
aircraft and helicopters. The Company provides services and parts for several
large air transport aircraft, including the full line of Boeing, McDonnell
Douglas, Lockheed and Airbus jets, in addition to a variety of smaller fixed
wing aircraft and helicopters, including Embraer aircraft and Bell and
Eurocopter helicopters. The Company believes that this breadth of products and
services gives it a competitive advantage in winning business from new customers
and affords an opportunity to expand its business with existing customers. It
also positions the Company to respond to aircraft operators' desire to focus on
a select group of suppliers to control costs, increase quality and enhance the
timeliness of deliveries.

DEVELOP KEY RELATIONSHIPS. The Company actively seeks to develop close
relationships with its customers and suppliers. The Company has been providing
repair and overhaul services and spare parts to the USCG for its Dauphin II
helicopters since 1987. The Company believes that the long-term relationships
that it has developed with many of its customers provide it with an ongoing base
of business and a source of new business opportunities. In addition, the
Company's relationships with certain key parts suppliers and OEMs enable it to
purchase parts at discounts from list price. Under two of the Company's three
10-year agreements with Dunlop, each of which expires in October 2006, the
Company purchases Dunlop parts at a discount to list price for resale and for
use in the repair and overhaul of a variety of fixed wing aircraft and
helicopters. In addition, the Company has agreements with Messier-Bugatti, SAMM
and Eurocopter France that enable the Company to purchase new aircraft parts at
discounts from list price.

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COMPANY OPERATIONS

REPAIR AND OVERHAUL

The primary reasons for removing landing gear or hydromechanical components
from an aircraft for servicing are: (i) the number of takeoffs and landings or
years since a landing gear's last overhaul have reached the time between
overhaul limit or (ii) the landing gear or hydromechanical component has been
damaged or is not performing optimally. The cost of servicing landing gear or
hydromechanical components that have been removed varies depending upon the age
and type of aircraft and the extent of the repairs being performed.

Each overhaul of landing gear can involve numerous separate parts and work
orders. For example, the Boeing 737 nose landing gear calls for over 290 parts
and related work orders while the Boeing 747-200 nose gear calls for over 650
parts and related work orders. Generally, the Company performs these overhauls
in approximately six to eight weeks. Hydromechanical component overhauls can
involve 200 or more parts and over 25 separate work orders and are performed in
approximately two to four weeks. In order to achieve this throughput, the
Company must perform many parallel processes and integrate numerous components
just before final assembly. Completing this complex overhaul work within the
time constraints set by aircraft operators has led the Company to develop a
highly managed systems-driven process, which is facilitated by its highly
specialized management information systems described in more detail below. The
stages of the overhaul process include the following:

DISASSEMBLY, CLEANING AND INSPECTION. Upon receiving a landing gear shipset
or a hydromechanical component, the Company's technicians disassemble the unit
into its parts, a process which requires special tooling and expertise. Each
part is completely cleaned to allow for comprehensive inspection, testing and
evaluation of part size, structural integrity and material tolerances. The
Company uses a detailed checklist and reporting procedure to create a work order
documenting the state of each part inspected and indicating the extent of repair
or overhaul to be performed. Technicians tag all parts which need to be replaced
or reworked and electronically prepare bills of material and requisitions to the
Company's parts and production departments for inventory and scheduling
purposes. An internal sales order is created concurrently with the work order
for shipping, pricing, billing and delivery purposes. The Company utilizes its
management information system throughout this process to reduce the amount of
detailed inspection time required. See "--Management Information Systems and
Quality Assurance."

The work completed in the disassembly and inspection process enables the
Company to obtain detailed information concerning which parts can be reused or
repaired and which must be replaced, as well as the approximate labor needed to
complete the job. The Company's computer system identifies and tracks the parts
and associated work orders from each landing gear or hydromechanical component
throughout the overhaul process in order to maintain the integrity of the
landing gear or hydromechanical component the Company services. Shop travelers
provide a complete, detailed listing of all repair and overhaul work steps and
processes. Once disassembled, the individual parts are washed, visually
inspected for obvious damage and permanently identified using the internal work
order number assigned to that delivery order. Major and minor parts are then
processed for engineering evaluation and disposition of required repair work
steps.

PARTS REWORK, REPLACEMENT AND REASSEMBLY. The next phase of an overhaul
involves reworking existing parts to specifications set by the Company's
customers. This entails a combination of machining, plating, heat treatment,
metal reshaping, surface finishing and restoration of organic finish. At this
phase, each part is accompanied by the customized bar-coded traveler which
facilitates the computerized prioritization and tracking of a part through the
rework phase. Tight control is maintained over scheduling for each part,
enabling the Company to remain within its required turnaround time. The Company
performs the majority of the repair and overhaul procedures in its facilities
using proprietary or specialized repair techniques. In addition, the Company
utilizes in-house manufacturing capabilities to fabricate certain parts used in
the overhaul process that are otherwise difficult to obtain. If a part cannot be

34
<PAGE>
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. Overhauling parts or using serviceable
parts from inventory in lieu of new parts generally lowers customer costs and
increases the Company's margins in comparison to an overhaul that consists of
exclusively new spare parts. In addition, these manufacturing and service
capabilities are integral to the Company's competitive position because they
enable the Company to maintain or increase the quality of work performed and
significantly reduce cost and turnaround time relative to its competitors.

INSPECTION AND SHIPPING. After completing the rework phase of the
overhaul/repair process, each part is delivered to the assembly area where the
end unit is assembled, tested and final inspection is completed. Once the end
unit assembly has been accepted through final inspection it is moved to
shipping, where it is packaged and prepared for dispatch.

PRICING. The Company offers its customers different pricing arrangements
for its repair and overhaul services. Pricing generally depends on the volume
and complexity of the work performed, the kind and number of new or
remanufactured spare parts used in the repair or overhaul and the required
turnaround time. For many of its customers, the Company exchanges a previously
overhauled shipset from its inventory for an as-removed shipset from the
customer's aircraft upon which the Company charges the customer a fixed overhaul
fee. Upon completing the overhaul of the as-removed shipset, the Company charges
the customer an additional fee for spare parts or extra services required to
overhaul the landing gear to the customer's specifications. The Company
typically bills a substantial portion of the repair and overhaul fee to the
customer up-front upon receiving its as-removed shipset and generally receives
payment for this portion of the overhaul fee before completing the overhaul.
When the Company overhauls a shipset without exchanging an overhauled gear
assembly from its inventory, the Company charges one fee, which includes all
parts and labor charges, upon delivering the overhauled shipset to the operator.
Pursuant to the Company's standard payment terms, invoices are due within 30
days after receipt. The Company typically offers a discount of up to 1.5% on
payments made within 13 days of receipt of an invoice.

With certain of its customers for whom the Company regularly provides parts
and services on entire fleets or large numbers of aircraft, the Company utilizes
a flat fee fixed price arrangement which it typically sets forth in long-term
service agreements. Pursuant to the Company's service agreements, the Company
performs repair and overhaul services on a scheduled or as-needed basis. Pricing
depends on the volume and type of aircraft landing gear or hydromechanical
component to be serviced and the required turnaround time. Under its long-term
service agreements, the Company is able to plan in advance for equipment and
inventory requirements and can achieve efficiencies in labor hours and materials
usage relative to the estimate on which the contract price was based.

35
<PAGE>
The following table sets forth: (i) the type of aircraft landing gear the
Company overhauls; (ii) management's estimate of the cost to purchase new
landing gear which is not commonly purchased separately from an aircraft; (iii)
the typical charges by the Company to overhaul such landing gear; (iv)
management's estimate of the average time between overhauls; and (v) the
Company's primary customers for each type of aircraft:

<TABLE>
<CAPTION>
ESTIMATED COST TYPICAL
OF NEW COST AVERAGE TIME
TYPE OF LANDING GEAR OF COMPLETE BETWEEN
AIRCRAFT (IN MILLIONS) OVERHAUL OVERHAULS CUSTOMERS
- --------- ---------------- ----------- ------------ --------------------
<C> <C> <C> <C> <S>
727 Not Available $ 165,000 7 yrs. FedEx

737 $0.9 $ 130,000 6-8 yrs. British Airways
British Midlands

747 $7.4 $ 500,000 7-9 yrs. Air Canada
British Airways
UPS

757 $2.8 $ 250,000 7-9 yrs. American Airlines
British Airways
US Airways

767 $3.6 $ 360,000 7-9 yrs. British Airways
US Airways
SAS

MD80 $0.8 $ 180,000 7-8 yrs. Delta Airlines

DC10 $4.5 $ 400,000 7-10 yrs. British Airways
FedEx

A300 $5.5 $ 400,000 8-10 yrs. FedEx

A310 $4.5 $ 400,000 8-10 yrs. FedEx
</TABLE>

PARTS DISTRIBUTION

GENERAL. Aircraft spare parts are classified within the industry as (i)
factory new, (ii) new surplus, (iii) overhauled, (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 distributors. An overhauled 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,
overhauled 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.

PARTS SALES. The Company sells factory new, FAA-approved parts manufactured
by approximately 80 OEMs, including SAMM, Dunlop Equipment Division,
Parker-Hannifin and Messier-Bugatti and overhauled aircraft spare parts to a
diverse base of customers in the aviation industry. The Company believes that it
provides customers with value added parts distribution services by offering
immediate availability, broad product lines, technical assistance and additional
services.

36
<PAGE>
CUSTOMERS

COMMERCIAL. During the twelve months ended June 30, 1998, the Company
served a broad base of over 480 domestic and international customers in the
aviation industry. The Company's customers include Air Canada, American
Airlines, British Airways, British Midlands, Canadian Airlines, Continental
Airlines, Inc., Continental Express, Inc., Delta Airlines, FedEx, SAS, United
Air Lines, Inc., US Airways, and Westair Commuter Airlines, Inc. British Airways
is currently the Company's largest customer accounting for 20.3% of the
Company's total revenues for the six months ended June 30, 1998. The Company's
second largest customer, FedEx, accounted for approximately 18.4%, 19.3% and
19.3% of its sales for the years ended December 31, 1996 and 1997 and for the
six months ended June 30, 1998. In 1994, the Company entered into an agreement
with FedEx, which has been amended to extend the term to 2007 and to expand the
Company's services to include additional types of aircraft, to provide spare
parts and repair and overhaul services at a fixed price for most aircraft in
FedEx's fleet. The Company also has a seven-year exclusive agreement with
American Airlines, expiring in June 30, 2005, to service landing gear on all
Boeing 757 aircraft within its fleet on a flat-fee basis. The Company believes
that the long-term relationships that it has developed with many of its
customers provide the Company with an ongoing base of business and an excellent
source of new business opportunities.

GOVERNMENT CONTRACTS. Sales to the United States government and its
agencies were approximately $4.5 million (11.5% of revenues), $2.7 million (6.6%
of revenues) and $1.6 million (5.3% of revenues) for the years ended December
31, 1996 and 1997 and for the six months ended June 30, 1998, respectively. The
Company's largest government customer has been the USCG with which the Company
has an agreement to provide repair and overhaul services and spare parts on an
as-needed, fixed price basis for the USCG's Dauphin II helicopters. The
agreement is for a one-year term which the USCG may renew for additional
one-year terms through the year 2000. For the years ended December 31, 1996 and
1997 and the six months ended June 30, 1998, sales to the USCG accounted for
approximately 11.2%, 6.5% and 5.2%, respectively, of the Company's revenues.
Because government sales are subject to competitive bidding and government
funding, there can be no assurance that such sales will continue at previous
levels. Although the Company's government contracts are subject to termination
at the election of the government, in the event of such a termination, the
Company would be entitled to recover from the government all allowable costs
incurred by the Company through the date of termination.

MATERIAL CUSTOMERS. FedEx and the USCG were the only customers who
accounted for 10% or more of the Company's total revenues for the year ended
December 31, 1996 (pro forma), and FedEx was the only customer who accounted for
10% or more of the Company's total revenues for the year ended December 31,
1997. British Airways, FedEx and American Airlines were the only customers who
accounted for 10% or more of the Company's total revenues for the six months
ended June 30, 1998 and accounted for 20.3%, 19.3% and 10.4%, respectively, of
the Company's total revenues during such period. See "Risk Factors--Customer
Concentration; Concentration of Credit Risks."

The Company does not consider backlog meaningful to its business.

MANAGEMENT INFORMATION SYSTEMS AND QUALITY ASSURANCE

The Company utilizes its management information systems 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 an automated inspection and
routing system, a material resources planning module, a bar-coded shop floor
control module, an inventory control and parts tracing module, a tooling
calibration module and a general accounting module.

The system enables the Company to shorten lead times, increase output and
improve inventory management by allowing the Company to manage and control the
process of detailed parts inspection, materials requisitioning and work order
scheduling and release. The system's database contains much of

37
<PAGE>
the information required to perform landing gear inspection activities,
including illustrated parts catalogues, parts specifications and other technical
data. This has largely eliminated the need to update parts catalogues manually
and allows an 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 inventory to check on the availability of needed parts, (iii)
requisition needed parts from inventory and (iv) create and record an audit
trail for all inspected parts and processes. These features of the system have
substantially reduced total detailed inspection time required in the overhaul
process.

Using the system, all materials utilized and labor performed in connection
with a work order are recorded using bar code scanners located throughout the
Company's facility. Work order travelers are generated upon commencement of a
repair or overhaul and accompany the separate parts of each landing gear or
hydromechanical component throughout the overhaul process. After each stage of
the process is completed, the employee who performed the work records, using the
bar code system, the date of completion, his or her employee identification
number, critical dimensions and the quantity processed, accepted or rejected.
For each repair or overhaul that it performs, the Company records all essential
operations and tests conducted, inspection data on all components repaired,
overhauled or exchanged for new components and the sources of all materials
issued during the course of the work. This function allows the Company to
provide more accurate cost and timing estimates to customers, facilitates faster
and more accurate preparation of customer invoices and forms the basis of the
Company's comprehensive quality assurance program. In addition, shoploading and
material requisition personnel receive more accurate planning data. Using the
system, management can plan for material requirements in advance so that
required materials for a specific unit are on hand in time to facilitate on-time
delivery and based upon sales forecasts and actual orders can optimize daily
manpower and materials utilization.

The Company has installed a new system at its United Kingdom facilities and
is in the process of integrating this system to the Company's existing
management information system to maximize the efficiency and quality assurance
provided by a fully integrated, global management information system.

EQUIPMENT MAINTENANCE AND TOOLING

The Company performs all of the maintenance and repair on the equipment used
in the repair and overhaul process. The Company's maintenance personnel perform
various regularly scheduled maintenance procedures on the Company's equipment on
a weekly, monthly and annual basis, and shift operators perform daily preventive
maintenance. Precision measurement accessories installed on certain machines,
which require periodic calibration, are maintained and serviced by approved
vendors and closely monitored by the Company.

The Company invests significant material and resources to design and
construct tooling and fixtures to support its current product line and improve
the efficiency of the repair and overhaul process. Manufacturer-designed tooling
is typically limited to specialized tools to aid in the disassembly, assembly
and testing of a landing gear assembly, such as spanner wrenches and seal
installation tools. From time to time, the Company's employees may develop
modifications to existing tooling or ideas for new tooling and fixtures in order
to accomplish a specific machining or testing operation or to improve the
performance of the overhaul process. Tooling and fixtures used in machining and
plating operations are conceived, designed and fabricated in-house by the
technical personnel involved in the Company's daily operations to improve the
labor efficiency of a process and reduce the cost of performing a repetitive
process. The Company believes that its ability to design and fabricate tooling
used in its operations allows it to maximize efficiencies and enables its
customers to realize cost savings and improved turnaround time.

SUPPLIERS AND PROCUREMENT PRACTICES

The primary sources of parts and components for the Company's overhaul
operations and parts distribution business are domestic and foreign airlines,
OEMs and aircraft leasing companies. The supply

38
<PAGE>
of parts and components for the Company's aftermarket sales is affected by the
availability of excess inventories that typically become available for purchase
as a result of new aircraft purchases by commercial airlines, which reduce the
airline's need for spares supporting the aircraft that have been replaced.
Aftermarket supply is also affected by the availability of new parts from OEMs
and the availability of older, surplus aircraft that can be purchased for the
value of the major parts and components. Although the Company does not have
fixed agreements with the majority of its suppliers, it is frequently able to
obtain significant price discounts from many of its suppliers because of the
volume and regularity of its purchases. The Company has ten-year agreements with
Dunlop that enable it to purchase Dunlop parts at a discount from list price for
resale and for use in the repair and overhaul of a variety of fixed wing
aircraft and helicopters. For the years ended December 31, 1996 and 1997 and the
six months ended June 30, 1998, Dunlop accounted for approximately 27.0%, 19.3%
and 7.7%, respectively, of the total dollar amount of parts and components
purchased by the Company. Boeing was the single largest supplier during the six
months ended June 30, 1998, accounting for $5.8 million, or 19.2% of the total
dollar amount of parts and components purchased by the Company during such
period. The Company also has agreements with Messier-Bugatti, SAMM and
Eurocopter France that enable the Company to purchase new aircraft parts at
discounts from list price.

Although the Company does not have agreements with many of its suppliers and
competes with other parts distributors for production capacity, the Company
believes that its sources of supply and its relationships with its suppliers are
satisfactory. While the loss of any one supplier could have a material adverse
effect on the Company until alternative suppliers are located and have commenced
providing products, alternative suppliers exist for substantially all of the
parts purchased by the Company. See "Risk Factors--Dependence on Key Suppliers."

The Company has developed procurement practices to ensure that all supplies
received conform to contract specifications. For cost, quality control and
efficiency reasons, the Company generally purchases supplies only from vendors
with whom the Company has on-going relationships and/or whom the Company's
customers have previously approved. The Company has qualified second sources or
has identified alternate sources for all of its supplies. However, the inability
or delay in obtaining needed parts on a timely basis could have a material
adverse effect on the Company. The Company chooses it vendors primarily based on
the quality of the parts supplied and record for on-time performance. The
Company regularly evaluates and audits its approved vendors based on their
performance. Repeated failures to comply with the Company's quality and delivery
requirements may ultimately cause the Company to remove a vendor from its
approved vendor list.

SALES AND MARKETING

The Company's sales and marketing strategy is designed to target commercial
and government customers with large fleets of aircraft that require regular
repair and overhaul of landing gear parts and components. In recent years, the
Company has significantly expanded its direct sales efforts toward the goal of
increasing its sales from its existing customer base as well as attracting new
customers. In particular, the Company focuses its sales efforts on encouraging
its existing and prospective customers to enter into long-term agreements with
the Company for the repair and overhaul of landing gear on all aircraft within a
fleet, or alternatively, to engage the Company to perform repair and overhaul
services on several aircraft at once. In its sales and marketing efforts, the
Company emphasizes its competitive strengths, including its superior quality of
service, competitive pricing, rapid turnaround time and extensive industry
experience.

The Company markets and sells its products and services worldwide both
directly through an in-house sales staff and indirectly through a network of
independent sales representatives which at June 30, 1998 consisted of
approximately 11 employees and 13 sales representatives, respectively. Air
Resources, Inc. ("Air Resources"), an aviation sales representative agency,
markets and sells the Company's products and services to a number of domestic
airlines in return for a commission on sales made through Air Resources'
efforts. The Company's domestic sales are conducted primarily by Air Resources,
which focuses its efforts

39
<PAGE>
on major domestic commercial carriers, as well as the Company's in-house sales
force. The Company conducts its international sales and marketing through a
number of independent agencies based worldwide in such countries as France,
Sweden, Mexico and India. Additionally, senior management plays an active role
in marketing several of the Company's product lines. The Company's President and
Chief Executive Officer, David L. Lokken oversees its sales activities, while
the Company's indirect and direct sales representatives report directly to Brian
S. Carr, Managing Director of Sun Valley Operations, for landing gear sales and
Michael A. Riley, Vice President, Hydromechanical Business Unit, for
hydromechanical component sales. The Company's sales staff works closely with
engineering and customer support personnel to provide cost effective solutions
to maintaining landing gear, stressing the Company's repair and overhaul
engineering expertise, turnaround times and component overhauling capabilities.

In addition, the Company actively participates in many of the major aviation
industry gatherings and air shows and hosts groups of aircraft operators at
technical and other meetings. In certain instances, the Company bids on
government contracts for certain lines through its government contracts
department, which coordinates with the Company's sales and marketing team.

COMPETITION

Numerous companies compete with the Company in the aviation services
industry. The Company primarily competes with various repair and overhaul
organizations, which include the service divisions of OEMs, the maintenance
departments or divisions of large air carriers (some of which also offer
maintenance services to third-parties) and independent organizations such as the
Aerospace Division of B.F. Goodrich Company, AAR, Revima and Dowty. The
Company's major competitors in its hydromechanical components business include
AAR and OEMs such as Sundstrand, Aeroquip Vickers, Inc., Parker-Hannifin,
Messier-Bugatti and Lucas. The Company expects that competition in its industry
will increase substantially as a result of industry consolidations and alliances
in response to the trend in the aviation industry toward outsourcing of repair
and overhaul services. In addition, as the Company moves into new geographic or
product markets it will encounter new competition.

The Company believes that the primary competitive factors in its marketplace
are quality, price, the ability to perform repairs and overhauls within a rapid
and reliable turnaround time and industry experience. Certain of the Company's
competitors have substantially greater financial, technical, marketing and other
resources than the Company. These competitors may have the ability to adapt more
quickly to changes in customer requirements, may have stronger customer
relationships and greater name recognition and may devote greater resources to
the development, promotion and sale of their products than the Company. There
can be no assurance that competitive pressures will not materially and adversely
affect the Company's business, financial condition or results of operations. See
"Risk Factors--Substantial Competition."

GOVERNMENT REGULATION

The Company is highly regulated worldwide by the FAA, the JAA, a consortium
of European regulatory authorities, and various other foreign regulatory
authorities, including the Dutch Air Agency, which regulates the Company's
Netherlands' operations, and the Civil Aviation Authority, which regulates the
Company's United Kingdom operations. These regulatory authorities require all
aircraft to be maintained under continuous condition monitoring programs and
periodically to undergo thorough inspection. In addition, all parts must be
certified by the FAA and equivalent regulatory agencies in foreign countries and
conformed to regulatory standards before they are installed on an aircraft. The
Company is a certified FAA and JAA approved repair station and has been granted
Parts Manufacturer Approvals by the FAA Manufacturing Inspectors District
Office. In addition, the Company's operations are regularly audited and
accredited by the Coordinating Agency for Supplier Evaluation, formed by
commercial airlines to approve FAA approved repair stations and aviation parts
suppliers. If material authorizations or approvals were revoked or suspended,
the Company's operations would be materially and adversely

40
<PAGE>
affected. As the Company attempts to commence operations in countries in which
it has not previously operated, it will need to obtain new certifications and
approvals, and any delay or failure in attaining such certifications or
approvals could have a material adverse effect on the Company's business,
financial conditions and results of operations. In addition, if new and more
stringent regulations are adopted by foreign or domestic regulatory agencies or
oversight of the aviation industry is increased in the future the Company's
business may be materially and adversely affected. See "Risk Factors--Government
Regulation."

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 California Environmental Protection Agency 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 generated by the
Company during the normal course of its operations, govern the health and safety
of the Company's employees and require the Company to obtain and maintain
permits in connection with its operations. This extensive regulatory framework
imposes significant compliance burdens and risks on the Company and, as a
result, substantially affects its operational costs. In addition, the Company
may become liable for the costs of removal or remediation of certain hazardous
substances released on or in its facilities without regard to whether or not the
Company knew of, or caused, the release of such substances. The Company believes
that it currently is in material compliance with applicable laws and regulations
and is not aware of any material environmental problem at any of its current or
former facilities. There can be no assurance, however, that its prior activities
did not create a material problem for which the Company could be responsible or
that future uses or conditions (including, without limitation, changes in
applicable environmental laws and regulations, or an increase in the amount of
hazardous substances generated by the Company's operations) will not result in
any material environmental liability to the Company and materially and adversely
affect the Company's financial condition and results of operations. The
Company's plating operations, which use a number of hazardous materials and
generate significant hazardous waste, increase the Company's regulatory
compliance burden and compound the risk that the Company may encounter a
material environmental problem in the future. Furthermore, compliance with laws
and regulations in foreign countries in which the Company locates its operations
may cause future increases in the Company's operating costs or otherwise
adversely affect the Company's results of operations or financial condition. See
"Risk Factors--Environmental Regulations."

EMPLOYEES AND EMPLOYEE TRAINING

As of June 30, 1998 the Company had 385 employees of whom 25 are in
management, 83 are engineering and technical personnel, 231 are direct labor
personnel, 11 are in sales and marketing and 35 are administrative personnel.
The Company is not currently a party to any collective bargaining agreements;
however, in connection with the BA Acquisition, the Company is required to enter
into collective bargaining agreements in the United Kingdom. The Company
believes that its relationships with its employees are generally good.
Competition for employees in the Company's industry is intense and the

41
<PAGE>
Company cannot give any assurance that it will be able to attract or retain
highly qualified personnel in the future. See "Risk Factors--Dependence on Key
Employees."

Each of the Company's technical employees receives specific training in the
individual repair and overhaul functions that he or she performs in addition to
comprehensive general training in total quality management procedures,
statistical process control and material resource planning. The Company also
regularly conducts in-house training programs, which the Company's management
designs using standard industry practice manuals, for its technical and
engineering employees on a number of subjects, including materials handling,
corrosion prevention and control, surface tension etch inspection and shot
peening.

FACILITIES

The Company's principal executive offices and production facilities are
located in Sun Valley, California. The Company occupies the premises, comprising
approximately 193,000 square feet and nine buildings pursuant to various
long-term leases that expire on dates ranging between 2004 and 2010 and require
the Company to make monthly rent payments ranging from $4,727 to $38,200.

The Company also leases a facility comprising approximately 11,000 square
feet near Amsterdam, Netherlands from which it performs hydraulic repairs on
rotor and fixed wing aircraft. The lease expires in May 2008 and provides for
rent payments in the amount of $7,500 per month.

The Company believes that its facilities satisfy its current needs. The
Company plans to expand its plating operations at its Sun Valley facility during
1999. In addition, the Company expects to enter into a long-term lease and begin
construction of a new facility to house its United Kingdom operations in the
third quarter of 1998. Completion and relocation is scheduled to occur in the
second quarter of 1999. Any failure or delay in completing the expansion of
plating operations as currently planned, or the relocation of the United Kingdom
operations, however, could significantly impair the Company's ability to manage
its growth and could have a material adverse affect on the Company's business,
financial condition and results of operations. "Management's Discussion and
Analysis of Financial Conditions and Results of Operations--Liquidity and
Capital Resources."

42
<PAGE>
MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

Set forth below is certain information with respect to the directors and
executive officers of the Company:

<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ---------------------------------------------- --- ------------------------------------------------------------
<S> <C> <C>
Scott W. Hartman.............................. 35 Chairman of the Board(1)(2)(4)
David L. Lokken............................... 52 President, Chief Executive Officer and Director(2)(4)
Brian S. Aune................................. 42 Vice President and Chief Financial Officer
Brian S. Carr................................. 41 Managing Director of Sun Valley Operations
Richard Adey.................................. 39 Managing Director of United Kingdom Operations
Michael A. Riley.............................. 52 Vice President Hydromechanical Business Unit
Daniel J. Lubeck.............................. 36 Secretary and Director(2)
John G. Makoff................................ 35 Director
Joel F. McIntyre.............................. 59 Director(1)(3)
Daniel C. Toomey, Jr.......................... 35 Director(1)(3)
Mellon C. Baird............................... 67 Director(3)(4)
</TABLE>

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

(1) Member of Compensation Committee

(2) Member of Nominating Committee

(3) Member of Audit Committee

(4) Member of Executive Committee

SCOTT W. HARTMAN became a director of the Company in December 1996 and
became Chairman of the Board of the Company in March 1997. Since March 1995, Mr.
Hartman has served as Chief Operating Officer of Unique Investment Corporation.
From December 1993 until he joined Unique, Mr. Hartman served as Chief Executive
Officer of Nucor World Industries, a private holding company. From December 1991
until December 1993, Mr. Hartman served as a Vice President of Business
Development for City National Bank, and from May 1983 until he joined City
National Bank, he held various management positions with Emerson Electric
Company. Mr. Hartman earned a B.S. from Indiana University.

DAVID L. LOKKEN joined the Company in May 1989 as Executive Vice President
and Chief Operating Officer and has served as President and Chief Executive
Officer of the Company since June 1993. From November 1985 until he joined the
Company, Mr. Lokken served as Vice President and General Manager of Cleveland
Pneumatic's Product Service Division. Mr. Lokken holds a B.S. in Electrical
Engineering from North Dakota State University and an M.B.A. from Arizona State
University.

BRIAN S. AUNE joined the Company as Vice President of Finance and
Administration in 1992 and has served as Vice President and Chief Financial
Officer of the Company since August 1994. Before joining the Company, Mr. Aune
held various finance and management positions with Dunlop Aviation, BEI Motion
Systems Electronics and Eastman Kodak. Mr. Aune has a B.A. in Accounting from
Eastern Washington University and an M.B.A. from the University of San Diego.

BRIAN S. CARR became Managing Director of Sun Valley Operations in November
1997 after having served as Vice President--Landing Gear Business Unit since he
joined the Company in January 1993. From 1980 until he joined the Company, Mr.
Carr held various engineering, technical sales and management positions with
Cleveland Pneumatic's Product Service Division and Dowty Aerospace. Mr. Carr
holds a B.S. in Aerospace Engineering Technology from Kent State University.

43
<PAGE>
RICHARD ADEY became the Company's Managing Director of United Kingdom
Operations following the BA Acquisition in February 1998. From March 1996 until
the BA Acquisition, Mr. Adey had been a Senior Manager for British Airways
Engineering, in charge of overhauling landing gear, flap tracks and flap
carriages on British Airways' aircraft. From 1994 until he joined British
Airways Engineering, Mr. Adey served as Operations Director for Woodhead
Manufacturing Ltd. From 1984 through 1993, Mr. Adey served as a Senior
Consultant with Coopers & Lybrand, specializing in operations management and
process improvement within commercial organizations. Mr. Adey holds a BSc in
Production Engineering and Engineering Management from the University of
Nottingham and an MSc in Manufacturing Technology and Business Management from
Cranfield Institute.

MICHAEL A. RILEY joined the Company's predecessor as Vice President of
Marketing in October 1989 and has served as Vice President--Hydromechanical
Business Unit since January 1994. From 1982 until he joined the Company, Mr.
Riley held various positions in the aerospace/aircraft industry with Abex
Aerospace and Dunlop Aviation. Mr. Riley served as a helicopter pilot in the
United States Navy and received a B.S. in Engineering from the United States
Naval Academy, Annapolis, Maryland.

DANIEL J. LUBECK joined the Company as Secretary and a director in December
1996. Since July 1996, Mr. Lubeck has served as President of Unique. From March
1993 until he joined Unique, Mr. Lubeck was an attorney with McIntyre, Borges &
Burns LLP, a multi-service law firm, after having worked as an attorney with
Paul, Hastings, Janofsky & Walker from 1987 until 1992 and with Manatt, Phelps &
Philips, LLP from 1992 until 1993. Mr. Lubeck earned a J.D. from University of
Southern California and holds a B.A. from University of California, San Diego.

JOHN G. MAKOFF became a director of the Company in December 1996. Mr. Makoff
founded Unique in June 1993 and currently serves as its Chief Executive Officer.
From June 1991 until he founded Unique, Mr. Makoff served as Manager for
Computerland of Pasadena, Inc., a computer reseller. Mr. Makoff holds a B.A.
from Lewis & Clark University.

JOEL F. MCINTYRE became a director of the Company in February 1998. Since
August 1998, Mr. McIntyre has been engaged in the practice of business and
corporation law with offices in Los Angeles County and Orange County, California
where he maintains an of counsel relationship with the firm of Day, Campbell and
McGill. From February 1993 through July 1998, Mr. McIntyre served as Managing
Partner of McIntyre, Borges & Burns LLP and successor entities. From 1963
through 1993, Mr. McIntyre was an attorney with the law firm of Paul, Hastings,
Janofsky and Walker. Mr. McIntyre currently serves on the Board of Directors of
International Aluminum Corporation, a publicly-held company. Mr. McIntyre
received a B.A. from Stanford University in 1960 and a J.D. from University of
California, Los Angeles in 1963.

DANIEL C. TOOMEY, JR. became a director of the Company in February 1998.
Since January 1998, Mr. Toomey has served as the President and Chief Executive
Officer of Nomadix, LLC. Mr. Toomey served as Vice President and Chief Financial
Officer of Eltron International, Inc., a publicly-held company ("Eltron"), from
October 1992 until December 1997. From 1987 until he joined Eltron, Mr. Toomey
was employed with Arthur Andersen LLP, where he served as Manager in the
Enterprise Division of its Woodland Hills, California office. Mr. Toomey
received a B.A. from the University of California, Los Angeles in 1986.

MELLON C. BAIRD became a director of the Company in March 1998. Mr. Baird
has served as Chairman, President and Chief Executive Officer of Delfin Systems
since 1990. From 1987 to 1989, Mr. Baird served as President and Chief Executive
Officer of Tracor, Inc., a privately-held company ("Tracor"). From 1986 until
1987, Mr. Baird served as President, Chief Operating Officer and a director of
Tracor, a publicly-held company. Mr. Baird currently serves on the Board of
Directors of Software Spectrum, Inc. and EDO Corporation, which are both
publicly-held companies. Mr. Baird received a B.B.A. and an M.B.A. from
University of North Texas in 1956 and 1961, respectively.

44
<PAGE>
The Company's executive officers are appointed by, and serve at the
discretion of, the Board of Directors of the Company. See "--Employment
Arrangements." The Company's Directors serve until the next annual meeting of
shareholders or until successors are elected and qualified. There are no family
relationships among the officers or directors of the Company.

The Board of Directors has established an Audit Committee, Compensation
Committee, Nominating Committee and Executive Committee. The Audit Committee is
composed of Messrs. McIntyre, Toomey and Baird. The functions of the Audit
Committee include recommending to the Board of Directors the selection and
retention of independent auditors, reviewing the scope of the annual audit
undertaken by the Company's independent auditors and the progress and results of
their work and reviewing the financial statements of the Company and its
internal accounting and auditing procedures. The Compensation Committee is
composed of Messrs. Hartman, McIntyre and Toomey. The functions of the
Compensation Committee include establishing the compensation of the Chief
Executive Officer, reviewing and approving executive compensation policies and
practices, reviewing salaries and bonuses for certain executive officers of the
Company, administering the Company's employee stock option plans and considering
such other matters as may from time to time be delegated to the Compensation
Committee by the Board of Directors. The function of the Nominating Committee,
which consists of Messrs. Hartman, Lokken and Lubeck, is to select the slate of
directors to be presented to the shareholders for election at the annual meeting
of the shareholders of the Company. The Board of Directors has also established
an Executive Committee to advise the Company on strategic planning matters. The
Executive Committee is composed of Messrs. Hartman, Lokken and Baird. The
Company has no other committees of its Board of Directors.

EXECUTIVE COMPENSATION

The following table sets forth certain compensation earned or accrued during
the years ended December 31, 1995, 1996 and 1997 by the Company's Chief
Executive Officer and the Company's three other most highly compensated
executive officers whose total salary and bonus during the year ended December
31, 1997 exceeded $100,000 (collectively, the "Named Executive Officers"):

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) OTHER
- ----------------------------------------------------------------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
David L. Lokken........................................................ 1997 $ 233,147 $ 44,358 --
Chief Executive Officer 1996 192,566 67,125 $ 173,220(2)
1995 184,256 -- --

Brian S. Aune.......................................................... 1997 $ 117,302 $ 21,097 --
Chief Financial Officer.............................................. 1996 98,440 28,763 --
1995 100,509 -- --

Brian S. Carr.......................................................... 1997 $ 125,156 $ 21,097 --
Managing Director of Sun Valley Operations 1996 111,258 26,910 --
1995 104,785 -- --

Michael A. Riley....................................................... 1997 $ 113,430 $ 18,663 --
Vice President--Hydromechanical Business Unit 1996 95,584 23,550 --
1995 93,335 -- --
</TABLE>

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

(1) Bonus amounts are shown in the year accrued.

(2) Nonrecurring payment made for services rendered in connection with BTR
Dunlop, Inc.'s sale of the Company, of which 31% was paid in 1996 and 69%
was paid in 1997.

45
<PAGE>
EMPLOYMENT ARRANGEMENTS

In November 1996, the Company entered into an employment agreement with
David L. Lokken pursuant to which Mr. Lokken agreed to serve as the Company's
President and Chief Executive Officer. The employment agreement is for an
initial term of five years and as amended in 1997 provides for an annual base
salary of $205,000, a performance bonus to be awarded in accordance with the
terms and conditions of a separate Management Incentive Compensation Plan, and a
monthly automobile allowance of $1,500. Pursuant to the employment agreement,
the Company may terminate Mr. Lokken's employment with or without cause at any
time before its term expires upon providing written notice. In the event the
Company terminates Mr. Lokken's employment without cause, Mr. Lokken would be
entitled to receive a severance amount equal to his annual base salary for the
greater of two years or the balance of the term of his employment agreement and
a bonus for the year of termination. In the event of a termination by reason of
Mr. Lokken's death or permanent disability, his legal representative will be
entitled to receive his annual base salary for the remaining term of his
employment agreement.

In November 1996, the Company also entered into employment agreements with
each of Brian S. Aune, the Company's Vice President and Chief Financial Officer,
Brian S. Carr, the Company's Managing Director of Sun Valley Operations, and
Michael A. Riley, the Company's Vice President--Hydromechanical Business Unit.
The employment agreements are each for an initial term of three years and as
amended in 1997 provide for annual base salaries of $130,000, $130,000 and
$115,000, respectively, performance bonuses to be awarded in accordance with the
terms and conditions of a separate Management Incentive Compensation Plan, and
monthly automobile allowances of $750. In the event the Company terminates their
employment without cause, Messrs. Aune, Carr and Riley would each be entitled to
receive a severance amount equal to his respective annual base salary for the
greater of one year or the balance of the term of his employment agreement and a
bonus for the year of termination. In the event of a termination by reason of
Messrs. Aune's, Carr's or Riley's death or permanent disability, his legal
representative will be entitled to receive his annual base salary for the
remaining term of his employment agreement.

In addition, pursuant to each of their amended employment agreements, in the
event of, or termination following, a change in control of the Company, as
defined in the agreements, Mr. Lokken and each of Messrs. Aune, Carr and Riley
would be entitled to receive 18 and 12 months' salary, respectively, based on
the total annual salary then in effect paid according to a schedule to be
determined at the time such event occurs.

DIRECTOR COMPENSATION

Each non-employee director receives a cash fee of $1,500 per regular and
special Board meeting attended in person and $1,000 per telephonic Board meeting
and an additional $500 per month for being a member of one or more committees of
the Board. Each non-employee director is expected to receive, as additional
director compensation, such number of options as determined by the Board to
purchase shares of Common Stock per year at an exercise price equal to the fair
market value of the Common Stock on the date of grant. In January 1998, Daniel
C. Toomey, Jr. and Joel F. McIntyre were each granted five-year options to
purchase up to 14,861 shares, exercisable at $8.00 per share, vesting 33 1/3%
per year beginning on the first anniversary of the effective date of the
Offering. In March 1998, the Company granted Mellon C. Baird five-year options
to purchase up to 14,861 shares, exercisable at the then market price, vesting
33 1/3% per year beginning on the first anniversary of the date of grant. The
directors are also reimbursed for expenses incurred in connection with the
performance of services as directors.

46
<PAGE>
STOCK OPTIONS

The following table sets forth certain information with respect to stock
options granted by the Company to the Named Executive Officers during the fiscal
year ended December 31, 1997:

OPTION GRANT TABLE
OPTION GRANTS DURING THE FISCAL YEAR ENDED DECEMBER 31, 1997

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
---------------------------------------------------------------------------- ANNUAL RATES OF
NUMBER OF STOCK PRICE
SHARES OF % OF TOTAL APPRECIATION FOR
COMMON STOCK OPTIONS GRANTED EXERCISE OPTION TERM
UNDERLYING TO EMPLOYEES IN PRICE --------------------
NAME OPTIONS GRANTED FISCAL YEAR ($/SH)(3) EXPIRATION DATE 5% 10%
- ---------------------- --------------- ----------------- ----------- --------------------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
David L. Lokken....... 187,471(1) 50.0% $ 8.00 72,105 on November 14, 2002 159,370 352,167
115,366 on November 14,
2003 313,884 712,095

Brian S. Aune......... 43,261(2) 11.5% $ 8.00 14,420 on November 14, 2002 31,872 70,428
28,841 on November 14, 2003 78,470 178,021

Brian S. Carr......... 43,261(2) 11.5% $ 8.00 14,420 on November 14, 2002 31,872 70,428
28,841 on November 14, 2003 78,470 178,021

Michael A. Riley...... 43,261(2) 11.5% $ 8.00 14,420 on November 14, 2002 31,872 70,428
28,841 on November 14, 2003 78,470 178,021
</TABLE>

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

(1) Of these options, 72,105 were fully vested and exercisable on the date of
grant and are for a term of five years. Of these options, 115,366 are for a
term of six years, subject to earlier termination in certain events related
to termination of employment, and vest at the rate of 5% every three months
after the grant date so that all of the options will be fully vested and
exercisable on the fifth anniversary of the grant date.

(2) Of these options, 14,420 were fully vested and exercisable on the date of
grant and are for a term of five years. Of these options, 28,841 are for a
term of six years, subject to earlier termination in certain events related
to termination of employment, and vest at the rate of 5% every three months
after the grant date so that all of the options will be fully vested and
exercisable on the fifth anniversary of the grant date.

(3) The exercise price and tax withholding related to exercise may be paid by
delivery of already owned shares or by offset of the underlying shares,
subject to certain conditions. With respect to options granted under the
Company's 1997 Stock Option Plan, the stock option committee retains
discretion, subject to plan limits, to modify the terms of outstanding
options and to reprice the options.

47
<PAGE>
The following table sets forth certain information with respect to stock
option exercises by the Named Executive Officers during fiscal year 1997 and
held by them as of December 31, 1997:

OPTION EXERCISES AND YEAR-END VALUE TABLE
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
YEAR-END YEAR-END(1)
SHARES ---------------- -----------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
- ---------------------------------------- ------------- ------------- ---------------- -----------------
<S> <C> <C> <C> <C>
David L. Lokken......................... -- -- 72,105/115,366 0/0
Brian S. Aune........................... -- -- 14,420/ 28,841 0/0
Brian S. Carr........................... -- -- 14,420/ 28,841 0/0
Michael A. Riley........................ -- -- 14,420/ 28,841 0/0
</TABLE>

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

(1) Amounts are shown as the positive spread between the exercise price and the
fair market value (based on the initial public offering price of $8.00 per
share). At year-end the Company's Common Stock was not traded on an
established public trading market.

MANAGEMENT STOCK OPTIONS

In November 1997, the Board of Directors granted five-year management stock
options to purchase an aggregate of 115,365 shares of Common Stock to David L.
Lokken, Brian S. Aune, Brian S. Carr, and Michael A. Riley. These options are in
addition to those granted under the 1997 Stock Option Plan described below. All
of these options are vested and are exercisable at $8.00 per share.

STOCK OPTION PLAN

In November 1997, the Board of Directors adopted the Company's 1997 Stock
Option Plan (the "1997 Plan"). The 1997 Plan, which was approved by the
Company's shareholders in November 1997, provides for the grant of options to
directors, officers, other employees and consultants of the Company to purchase
up to an aggregate of 634,514 shares of Common Stock. The purpose of the 1997
Plan is to provide participants with incentives that will encourage them to
acquire a proprietary interest in, and continue to provide services to, the
Company. The 1997 Plan is to be administered by the Board of Directors, or a
committee of the Board, which has discretion to select optionees and to
establish the terms and conditions of each option, subject to the provisions of
the 1997 Plan. Options granted under the 1997 Plan may be "incentive stock
options" as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), or nonqualified options.

The exercise price of incentive stock options may not be less than the fair
market value of Common Stock as of the date of grant (110% of the fair market
value if the grant is to an employee who owns more than 10% of the total
combined voting power of all classes of capital stock of the Company). The Code
currently limits to $100,000 the aggregate value of Common Stock that may be
acquired in any one year pursuant to incentive stock options under the 1997 Plan
or any other option plan adopted by the Company. Nonqualified options may be
granted under the 1997 Plan at an exercise price of not less than 85% of the
fair market value of the Common Stock on the date of grant. Nonqualified options
may be granted without regard to any restriction on the amount of Common Stock
that may be acquired pursuant to such options in any one year. Options may not
be exercised more than ten years after the date of grant (five years after the
date of grant if the grant is an incentive stock option to an employee who owns
more than 10% of the total combined voting power of all classes of capital stock
of the Company). Options granted under the 1997 Plan generally are
nontransferable, but transfers may be permitted under certain circumstances in
the

48
<PAGE>
discretion of the administrator. Shares subject to options that expire
unexercised under the 1997 Plan will once again become available for future
grant under the 1997 Plan. The number of options outstanding and the exercise
price thereof are subject to adjustment in the case of certain transactions such
as mergers, recapitalizations, stock splits or stock dividends. The 1997 Plan is
effective for ten years, unless sooner terminated or suspended.

In November 1997, the Board of Directors of the Company granted six-year
options to purchase an aggregate of 259,572 shares of Common Stock under the
1997 Plan, of which 230,730 were granted to David L. Lokken, Brian S. Aune,
Brian S. Carr, Michael A. Riley and Richard Adey. All of these options are
exercisable at $8.00 per share. The options generally will be subject to vesting
and will become exercisable at a rate of 5% every three months from the date of
grant, subject to the optionee's continuing employment with the Company. Each of
the option agreements for Messrs. Lokken, Aune, Carr, Riley and Adey provides
that all options will become fully vested and exercisable upon a change in
control of the Company, as defined in the agreements.

In general, upon termination of employment of an optionee, all options
granted to such person which are not exercisable on the date of such termination
will immediately terminate, and any options that are exercisable will terminate
not less than three months (six months in the case of termination by reason of
death or disability) following termination of employment.

To the extent nonqualified options are granted under the 1997 Plan, the
Company intends to issue such options with an exercise price of not less than
the market price of the Common Stock on the date of grant.

EMPLOYEE DEFINED BENEFIT PLAN

GENERAL. On January 1, 1997 the Board of Directors adopted the Employee
Defined Benefit Pension Plan (the "Pension Plan") for the benefit of the
eligible employees of the Company. The primary purpose of the Pension Plan is to
provide a retirement benefit for participating employees. All employees of the
Company are eligible to participate in the Pension Plan on the January 1st next
following their date of hire. Employees who are covered by collective bargaining
units and whose retirement benefits are the subject of good faith bargaining,
however, are not eligible to participate in the Pension Plan.

ADMINISTRATION. The Pension Plan is administered by a committee (the "Plan
Committee") whose members are appointed by the Board of Directors of the
Company. The Plan Committee oversees the day-to-day administration of the
Pension Plan and has the authority to take action and make rules and regulations
necessary to carry out the purposes of the Pension Plan.

NORMAL RETIREMENT BENEFITS AND VESTING. The Pension Plan provides for
employer contributions only. Each year, the Company makes a contribution to the
pension plan equal to the minimum funding requirement sufficient to fund for the
benefits being accrued under the Pension Plan for the year. The Pension Plan
provides for a normal retirement benefit payable on a monthly basis for the
lifetime of the participant. The normal retirement benefit is equal to the
participant's credited benefit service (up to a maximum of 35 years) times the
sum of 0.75% of the participant's final average monthly compensation plus 0.65%
of such compensation in excess of the participant's average monthly wage.
However, the benefit actually payable from the Pension Plan will be reduced for
any benefits payable (or paid) with respect to service credited from the Defined
Benefit Pension Plan of the Company's predecessor.

For purposes of calculating a participant's normal retirement benefits,
average monthly compensation is defined in the Pension Plan as average monthly
compensation during the five consecutive plan years of the participant's
employment which yields the highest average compensation.

No maximum monthly benefit payable under the Pension Plan is to exceed the
applicable Internal Revenue Code Section 415 limit ($10,416.67 for 1997)
adjusted actuarially to reflect a participant's retirement age if the retirement
age is other than the social security retirement age. The monthly retirement
benefit payable by the Pension Plan is a benefit payable in the form of a
straight life annuity with no ancillary benefits. For a participant who is to
receive benefits other than in the form of a straight

49
<PAGE>
life annuity, the monthly retirement benefit will be adjusted to an equivalent
benefit in the form of a straight life annuity on an actuarial equivalent basis.

A participant becomes fully vested in his accrued benefits under the Pension
Plan upon attainment of normal retirement age (age 65), permanent disability,
death or the termination of the Pension Plan. If a participant terminates
employment with the Company prior to retirement, death or disability, the vested
interest he has in accrued benefits under the Pension Plan is based on years of
service, with 0% vesting for less than five years of service and 100% vesting
after five or more years of service.

PENSION PLAN INVESTMENTS. The Plan Committee selects vehicles for the
investment of plan assets. The Plan Committee then directs the trustee to invest
employer contributions in the investment option selected by the Plan Committee
under the Pension Plan.

PENSION PLAN AMENDMENT OR TERMINATION. Under the terms of the Pension Plan,
the Company reserves the right to amend or terminate the Pension Plan at any
time and in any manner. No amendment or termination, however, may deprive a
participant of any benefit accrued under the Pension Plan prior to the effective
date of the amendment or termination.

ESTIMATED MONTHLY BENEFITS. The following table sets forth the estimated
monthly benefits under the Pension Plan, without regard to any offsetting
benefit which may be payable from the Defined Benefit Pension Plans of the
Company's predecessors for service prior to January 1, 1997, based on the
current benefit structure and assuming the participant's current age is 50.

PENSION PLAN TABLE

<TABLE>
<CAPTION>
REMUNERATION 15 20 25 30 35
--------- --------- --------- --------- ---------
- --------------------------------------------- YEARS OF SERVICE
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
$125,000..................................... $ 1,743 $ 2,323 $ 2,904 $ 3,485 $ 4,066
150,000..................................... 2,180 2,907 3,633 4,360 5,087
175,000..................................... 2,355 3,140 3,925 4,710 5,495
200,000..................................... 2,355 3,140 3,925 4,710 5,495
225,000..................................... 2,355 3,140 3,925 4,710 5,495
250,000..................................... 2,355 3,140 3,925 4,710 5,495
300,000..................................... 2,355 3,140 3,925 4,710 5,495
400,000..................................... 2,355 3,140 3,925 4,710 5,495
450,000..................................... 2,355 3,140 3,925 4,710 5,495
500,000..................................... 2,355 3,140 3,925 4,710 5,495
</TABLE>

The compensation covered by the Pension Plan includes basic salary or wages,
overtime payments, bonuses, commissions and all other direct current
compensation but does not include contributions by the Company to Social
Security, benefits from stock options (whether qualified or not), contributions
to this or any other retirement plans or programs or the value of any other
fringe benefits provided at the expense of the Company. For benefit calculation
purposes, a "highest five-year" average of compensation is used. Benefits are
paid as straight-life annuities with no subsidies or effects. The compensation
covered by the Pension Plan for all of the Named Executive Officers was limited
to $160,000 in accordance with Section 401(a)(17) of the Code.

The years of credited service for each Named Executive Officer who
participates in the Pension Plan are as follows:

<TABLE>
<CAPTION>
NAME YEARS
- ----------------------------------------------------------------------------------- ---------
<S> <C>
David L. Lokken.................................................................... 9 years
Brian S. Aune...................................................................... 6 years
Brian S. Carr...................................................................... 5 years
Michael A. Riley................................................................... 8 years
</TABLE>

50
<PAGE>
LIMITATION ON DIRECTORS' LIABILITY

The Company's Amended and Restated Articles of Incorporation, as amended
("Amended Articles") provide that, pursuant to the California Corporations Code,
the liability of the directors of the Company for monetary damages shall be
eliminated to the fullest extent permissible under California law. This is
intended to eliminate the personal liability of a director for monetary damages
in an action brought by, or in the right of, the Company for breach of a
director's duties to the Company or its shareholders. This provision in the
Amended Articles does not eliminate the directors' fiduciary duty and does not
apply for certain liabilities: (i) for acts or omissions that involve
intentional misconduct or a knowing and culpable violation of law; (ii) for acts
or omissions that a director believes to be contrary to the best interest of the
Company or its shareholders or that involve the absence of good faith on the
part of the director; (iii) for any transaction from which a director derived an
improper personal benefit; (iv) for acts or omissions that show a reckless
disregard for the director's duty to the Company or its shareholders in
circumstances in which the director was aware, or should have been aware, in the
ordinary course of performing a director's duties, of a risk of serious injury
to the Company or its shareholders; (v) for acts or omissions that constitute an
unexcused pattern of inattention that amounts to an abdication of the director's
duty to the Company or its shareholders; (vi) with respect to certain
transactions or the approval of transactions in which a director has a material
financial interest; and (vii) expressly imposed by statute for approval of
certain improper distributions to shareholders or certain loans or guarantees.
This provision also does not limit or eliminate the rights of the Company or any
shareholder to seek non-monetary relief such as an injunction or rescission in
the event of a breach of a director's duty of care. The Company's Amended and
Restated Bylaws require the Company to indemnify its officers and directors to
the full extent permitted by law, including circumstances in which
indemnification would otherwise be discretionary. Among other things, the Bylaws
require the Company to indemnify directors and officers against certain
liabilities that may arise by reason of their status or service as directors and
officers and allows the Company to advance their expenses incurred as a result
of any proceeding against them as to which they could be indemnified.

The Company believes that it is the position of the Commission that insofar
as the foregoing provision may be invoked to disclaim liability for damages
arising under the Securities Act, the provision is against public policy as
expressed in the Securities Act and is therefore unenforceable. Such limitation
of liability also does not affect the availability of equitable remedies such as
injunctive relief or rescission.

The Company has entered into indemnification agreements ("Indemnification
Agreement(s)") with each of its directors and executive officers. Each such
Indemnification Agreement provides that the Company will indemnify the
indemnitee against expenses, including reasonable attorneys' fees, judgements,
penalties, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with any civil or criminal action or administrative
proceeding arising out of the performance of his duties as a director or
officer, other than an action instituted by the director or officer. Such
indemnification is available if the indemnitee acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Company, and, with respect to any criminal action, had no reasonable cause
to believe his conduct was unlawful. The Indemnification Agreements require that
the Company indemnify the director or other party thereto in all cases to the
fullest extent permitted by applicable law. Each Indemnification Agreement
permits the director or officer that is party thereto to bring suit to seek
recovery of amounts due under the Indemnification Agreement and to recover the
expenses of such a suit if he is successful. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to directors,
officers or persons controlling the Company pursuant to the foregoing
provisions, the Company has been informed that in the opinion of the Commission,
such indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable. The Company believes that its Amended Articles
and Bylaw provisions are necessary to attract and retain qualified persons as
directors and officers.

51
<PAGE>
CERTAIN TRANSACTIONS

Effective November 1, 1996, Aqhawk, an entity wholly-owned by the
shareholders of Unique and the Company's executive officers, purchased all of
the outstanding capital stock of the Company from BTR Dunlop, Inc. The purchase
price Aqhawk paid was $29.8 million, consisting of (i) $18.8 million obtained
through debt financing provided by Bank of America to the Company (the "Bank of
America Loan"), which then loaned such amount to Aqhawk, (ii) $6.5 million
obtained through a subordinated note (the "Subordinated Note") provided by
Melanie L. Bastian, a principal shareholder and the former Chairman of the
Company, to Unique which then loaned such amount to Aqhawk, (iii) $2.0 million
obtained in return for the issuance to Ms. Bastian of 400 shares of Preferred
Stock of Aqhawk, and (iv) cash provided by the Company. In December 1996, Aqhawk
was merged with the Company.

In connection with the BTR Transaction, BTR Dunlop, Inc. entered into an
Environmental Indemnity Agreement pursuant to which it agreed to indemnify
Aqhawk and the Company against losses arising from any finding that the Company
or Aqhawk is liable for the handling, storage and disposal of hazardous
substances on, around or originating from the Company's facilities that existed
on or before November 1, 1996, including any future amounts for which the
Company may be responsible in connection with certain lawsuits filed regarding
the groundwater in the San Fernando Valley Basin. BTR and its subsidiary also
agreed not to compete against the Company in the repair and overhaul of aircraft
landing gear for a period of three years following the BTR Transaction. In
addition, BTR granted the Company an exclusive, worldwide, royalty-free license
to use the Hawker Pacific logo and name, for as long as the Company continues to
use such marks, in connection with the repair and overhaul of aircraft landing
gear and a non-exclusive right to use the logo and name for the same period in
connection with all other operations of the Company.

To obtain a portion of the purchase price paid for the Company in connection
with the BTR Transaction, the Company issued the Subordinated Note which bore
interest at the rate of 11.8% per annum paid monthly and having a maturity date
of January 1, 2001. The Company used $1.5 million of the funds provided by the
Amended Loan Agreement to repay a portion of the Subordinated Note. The
remaining balance of the Subordinated Note was replaced by a new $5.0 million
promissory note. The new note bears interest at a fixed rate of 11.8% per annum,
requires the Company to make monthly payments of interest only, and matures on
the earlier of June 30, 2005 or 180 days after the termination of the Amended
Loan Agreement. The Company intends to repay in full the $5.0 million balance
outstanding under the new note from the net proceeds of this Offering.

Pursuant to a Limited Guaranty dated as of November 27, 1996 by Melanie L.
Bastian in favor of Bank of America, in connection with the Bank of America
Loan, Ms. Bastian guaranteed the Company's payment obligations, and the
shareholders of the Company pledged as collateral for the loan all of their
capital stock of the Company. Ms. Bastian's guarantee and the pledges were
released upon the consummation of the Initial Public Offering.

As of December 31, 1997, all of the Company's issued and outstanding shares
of preferred stock were held by Ms. Bastian. Upon the closing of the Initial
Public Offering all of the outstanding shares of preferred stock were converted
into 250,000 shares of Common Stock.

In September and October 1997, Ms. Bastian purchased an aggregate of 101,619
shares of Common Stock for $1,000,000 ($9.84 per share).

The Company and Unique entered into a management agreement dated March 1,
1997 (the "Old Management Agreement"), pursuant to which the Company paid Unique
management fees and reimbursable expenses totalling approximately $330,000
during the year ended December 31, 1997. In November 1997, the Company and
Unique entered into a new management services agreement (the "Management
Services Agreement") pursuant to which, upon the consummation of the Initial
Public Offering, the Old Management Agreement was terminated, and Unique became
entitled to receive $150,000 per year

52
<PAGE>
payable monthly commencing in January 1999 for certain management services to be
rendered to the Company. The Management Services Agreement will terminate upon
the Company's completing an additional underwritten public offering in which
selling shareholders offer 25% or more of the aggregate amount of securities
offered in such offering.

The Company also entered into a mergers and acquisitions agreement dated as
of September 2, 1997 with Unique pursuant to which Unique received $300,000 upon
the closing of the BA Acquisition for services provided in connection with such
acquisition. Amounts paid under the Old Management Agreement during 1998 were
credited against this $300,000.

During the 12 months ended December 31, 1997, the Company paid McIntyre,
Borges & Burns approximately $4,700 for legal services rendered. Joel F.
McIntyre is a director of the Company and was a member of the law firm of
McIntyre, Borges & Burns.

53
<PAGE>
PRINCIPAL SHAREHOLDERS

The following table sets forth the beneficial ownership of Common Stock as
of August 1, 1998 by: (i) each person known by the Company to beneficially own
5% or more of the outstanding shares of Common Stock, (ii) each director of the
Company, (iii) each Named Executive Officer of the Company, and (iv) all
directors and executive officers of the Company as a group.

<TABLE>
<CAPTION>
NUMBER OF SHARES OF PERCENTAGE OF
NAME AND ADDRESS(1) COMMON STOCK(2) OUTSTANDING(2)
- ----------------------------------------------------------------------------- ------------------- -----------------
<S> <C> <C>
Melanie L. Bastian........................................................... 961,252 16.5
John G. Makoff............................................................... 444,943 7.6
Daniel J. Lubeck............................................................. 330,120 5.7
Scott W. Hartman............................................................. 330,120 5.7
David L. Lokken(3)........................................................... 232,940 3.9
Brian S. Aune(4)............................................................. 47,452 *
Brian S. Carr(4)............................................................. 47,452 *
Michael A. Riley(4).......................................................... 47,452 *
Daniel C. Toomey, Jr......................................................... 2,000 *
Joel F. McIntyre(5).......................................................... 2,000 *
Mellon C. Baird.............................................................. 2,000 *
All directors and executive officers as a group
(11 persons)............................................................... 1,489,363 24.9
</TABLE>

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

* Less than 1%.

(1) The address for all persons is c/o the Company at 11240 Sherman Way, Sun
Valley, California 91352.

(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to the securities. Shares of Common Stock
subject to options currently exercisable, or exercisable within 60 days of
August 1, 1998, are deemed outstanding for computing the percentage of the
person holding such options but are not deemed outstanding for computing the
percentage of any other person. Except as indicated by footnote and subject
to community property laws where applicable, 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.

(3) Includes 89,410 shares issuable upon exercise of vested options to purchase
common stock and 143,530 shares held by the David L. Lokken and Susan M.
Lokken Revocable Trust Dated 3-20-98, of which Mr. Lokken is a co-trustee.

(4) Includes 18,746 shares issuable upon exercise of vested options to purchase
common stock.

(5) Consists of 2,000 shares held by Paul, Hastings, Janofsky & Walker for the
benefit of Joel F. McIntyre as a self-directed retirement account.

54
<PAGE>
DESCRIPTION OF NOTES

The Notes are to be issued under an Indenture, to be dated as of September
, 1998 (the "Indenture"), between the Company and [ ], as trustee
(the "Trustee"), a form of which is filed as an exhibit to the Registration
Statement of which this Prospectus is a part. The following summary of certain
provisions of the Indenture does not purport to be complete and is subject to,
and is qualified in its entirety by reference to, all the provisions of the
Indenture, including the definitions of certain capitalized terms used below and
not otherwise defined and those terms made a part thereof by the Trust Indenture
Act of 1939, as amended.

GENERAL

The Notes are unsecured general obligations of the Company, are subordinate
in right of payment to all existing and future Senior Indebtedness of the
Company and effectively structurally subordinate to all obligations of the
Company's subsidiaries, will mature on October , 2005 and will be limited to
$50,000,000 aggregate principal amount, plus an additional amount not in excess
of $7,500,000 as may be purchased by the Underwriters upon exercise of their
over-allotment option. The Notes will bear interest at the rate per annum stated
on the cover page of this Prospectus from the date of initial issuance of the
Notes, or from the most recent Interest Payment Date to which interest has been
paid or provided for, payable semiannually on March 1 and September 1 of each
year, commencing March 1, 1999, to the person in whose name such Note (or any
predecessor Note) is registered at the close of business on February 15 or
August 15 preceding such Interest Payment Date. Interest will be computed based
on a 360 day year comprised of twelve 30 day months.

Principal of and premium, if any, and interest on the Notes will be payable,
the Notes may be presented for conversion, and transfer of the Notes will be
registrable, at the office or agency of the Company maintained for such purpose.
In addition, payment of interest may be made, at the option of the Company, by
check mailed to the address of the person entitled thereto as shown on the
Security Register. The Notes are to be registered Notes, without coupons, in
denominations of $1,000 or any integral multiple thereof. No service charge will
be made for any conversion or registration of transfer or exchange of Notes,
except for any tax or other governmental charge that may be imposed in
connection therewith. Until otherwise designated by the Company, the Company's
office or agency will be the corporate trust office of the Trustee presently
located at .

CONVERSION RIGHTS

The Notes will be convertible, in whole or from time to time in part (in
denominations of $1,000 or integral multiples thereof), at the option of the
Holder thereof, into Common Stock of the Company, initially at the conversion
price stated on the cover page hereof (subject to adjustment as described
below), at any time prior to redemption, repurchase or maturity. The right to
convert Notes called for redemption will terminate at the close of business on
the tenth day prior to any Redemption Date for such Note (or, if such day is not
a Business Day, on the next succeeding Business Day) and will be lost if not
exercised prior to that time, unless the Company defaults in making the payment
due upon redemption. A note in respect of which a Holder is exercising its
option to require a repurchase upon a Change of Control may be converted only if
such Holder withdraws its election to exercise its option in accordance with the
terms of the Indenture prior to the close of business on the tenth day prior to
any Repurchase Date for such Note (or, if such day is not a Business Day, on the
next succeeding Business Day).

If the Company, by dividend or otherwise, declares or makes a distribution
on its Common Stock of the type referred to in clause (v) of the next paragraph,
the Holder of each Note, upon the conversion thereof if made subsequent to the
close of business on the date fixed for the determination of shareholders
entitled to receive such distribution and prior to the effectiveness of the
conversion price adjustment in respect of such distribution pursuant to clause
(v) below, will be entitled to receive for each share of

55
<PAGE>
Common Stock into which such Note is converted the portion of the cash so
distributed applicable to one share of Common Stock.

The conversion price will be subject to adjustment in certain events,
including: (i) the payment of dividends (and other distributions) in Common
Stock on any class of capital stock of the Company; (ii) the issuance to all
holders of Common Stock of rights, warrants or options entitling them to
subscribe for or purchase Common Stock at less than the current market price (as
determined in accordance with the Indenture); provided, however, that if certain
of such rights, warrants or options are only exercisable upon the occurrence of
certain triggering events, then the conversion price will not be adjusted until
such triggering events occur; (iii) subdivisions, combinations and
reclassifications of Common Stock; (iv) distributions to all holders of Common
Stock of evidences of indebtedness of the Company, shares of any class of
capital stock other than Common Stock, cash or other assets (including
securities, but excluding those dividends, rights, warrants, options and
distributions referred to in clauses (i) and (ii) above and excluding dividends
or distributions paid in cash out of the net profits of the Company for the
twelve full calendar months preceding the calendar month in which such dividend
or distribution is to be made); (v) distributions consisting exclusively of cash
(excluding any cash distributions for which an adjustment has been made pursuant
to a preceding clause of this paragraph) to all holders of Common Stock in an
aggregate amount that, together with (A) all other all-cash distributions made
within the preceding 12 months not triggering a conversion price adjustment and
(B) all Excess Tender Payments (as defined below) in respect of each tender or
exchange offer by the Company or any of its subsidiaries for Common Stock
concluded within the preceding 12 months not triggering a conversion price
adjustment, exceeds an amount equal to 20% of the Company's market
capitalization (defined as being the product of the then current market price
(as defined in the Indenture) of the Common Stock times the number of shares of
Common Stock then outstanding) on the record date of such distribution; and (vi)
payment of an Excess Tender Payment in respect of a tender offer or exchange
offer by the Company or any of its subsidiaries for Common Stock, if the
aggregate amount of such Excess Tender Payment, together with (A) the aggregate
amount of all-cash distributions made within the preceding 12 months not
triggering a conversion price adjustment and (B) all Excess Tender Payments in
respect of each tender or exchange offer by the Company or any of its
subsidiaries for Common Stock concluded within the preceding 12 months not
triggering a conversion price adjustment, exceeds an amount equal to 20% of the
Company's market capitalization on the expiration of such tender offer or
exchange offer. "Excess Tender Payment" means the excess of (A) the aggregate of
the cash and value of other consideration paid by the Company or any of its
subsidiaries with respect to the shares of Common Stock acquired in the tender
offer or exchange offer over (B) the market value of such acquired shares after
the completion of the tender or exchange offer. In addition to the foregoing
adjustments, the Company will be permitted to make such reductions in the
conversion price as it considers to be advisable in order that any event treated
for federal income tax purposes as a dividend of stock or stock rights will not
be taxable to the recipients.

The Company from time to time may decrease the conversion price by any
amount for any period of at least 20 days, in which case the Company shall give
at least 15 days' notice of such decrease. If the Company voluntarily reduces
the conversion price of the Notes for a period of time, Holders of the Notes
may, in certain circumstances, have taxable income equal to the value of the
reduction in the conversion price. If at any time (i) the Company makes a
distribution of property to its shareholders which would be taxable to such
shareholders as a dividend for Federal income tax purposes (e.g., distributions
of evidences of indebtedness or assets of the Company, but generally not stock
dividends or rights to subscribe for Common Stock) and, pursuant to the
anti-dilution provisions of the Indenture, the conversion price of the Note is
reduced or (ii) the conversion price of the Notes is reduced other than in
connection with certain anti-dilution adjustments, such reduction may be deemed
to be the payment of a taxable dividend to Holders of Notes. Holders of Notes
could therefore have taxable income as a result of an event pursuant to which
they receive no cash or property that could be used to pay the related tax.

56
<PAGE>
In case of certain consolidations, mergers or share exchanges to which the
Company is a party or the conveyance, transfer or lease of substantially all the
assets of the Company, each Note then outstanding would, without the consent of
any Holder of Notes, become convertible only into the kind and amount of
securities, cash and other property receivable upon such consolidation, merger,
share exchange, conveyance, transfer or lease by a holder of the number of
shares of Common Stock into which such Note was convertible immediately prior
thereto (assuming such holder of Common Stock is not a person with which the
Company consolidated or merged or to which such exchange, conveyance or transfer
or lease was made ("Constituent Person") or an Affiliate of a Constituent Person
and such holder failed to exercise any rights of election as to the kind or
amount of securities, cash and other property receivable upon such
consolidation, merger, share exchange, conveyance, transfer or lease, provided
that if the kind or amount of securities, cash and other property receivable
upon such consolidation, merger, share exchange, conveyance, transfer or lease
is not the same for each share of Common Stock held immediately prior to such
consolidation, merger, conveyance, transfer or lease by persons other than a
Constituent Person or Affiliate thereof and in respect of which such rights of
election shall not have been exercised ("nonelecting share"), then for purposes
of the provision described in this sentence the kind and amount of securities,
cash and other property receivable upon such consolidation, merger, share
exchange, conveyance, transfer or lease by each nonelecting share will be deemed
to be the kind or amount so receivable per share by a plurality of nonelecting
shares).

No adjustments in the conversion price are required for any dividend or
distribution referred to above if the Holders may participate in the dividend or
distribution (on a basis determined in good faith to be fair by the Board of
Directors) and receive the same consideration they would have received if they
had converted the Notes immediately prior to the record date with respect to
such dividend or distribution.

No adjustment of the conversion price will be required to be made until
cumulative adjustments amount to 1% or more of the conversion price as last
adjusted; provided, however, that any adjustment that would otherwise be
required to be made will be carried forward and taken into account in any
subsequent adjustment. Notwithstanding the foregoing, no adjustment to the
conversion price shall reduce the conversion price below the then par value per
share of the Common Stock, if any.

Fractional shares of Common Stock will not be issued upon conversion, but,
in lieu thereof, the Company will pay a cash adjustment based upon the market
price of the Common Stock (as determined in accordance with the Indenture).
Notes surrendered for conversion during the period from the close of business on
any Regular Record Date next preceding any Interest Payment Date to the opening
of business on such Interest Payment Date (except Notes or portions thereof
called for redemption on a redemption date within such period between and
including a Regular Record Date and a related Interest Payment Date) must be
accompanied by payment of an amount equal to the interest thereon that the
registered Holder is to receive. No other payment or adjustment for interest or
dividends is to be made upon conversion.

SUBORDINATION OF NOTES

The payment of principal of and premium, if any, and interest on the Notes,
and the payment in respect of any repurchase of Notes as described below under
"Repurchase of Notes at the Option of the Holder Upon a Change of Control" and
all other amounts payable with respect to the Notes are, to the extent set forth
in the Indenture, subordinated in right of payment to the prior payment in full
of all Senior Indebtedness (as defined below), whether now outstanding or
incurred in the future. Upon any payment or distribution of assets of the
Company to creditors upon any dissolution, winding up, liquidation or
reorganization, the holders of all Senior Indebtedness will be entitled to
receive payment in full of all amounts due or to become due thereon before the
Holders of the Notes will be entitled to receive any payment in respect of the
principal of or premium, if any, or interest on the Notes or other amounts
payable with respect to the Notes. However, the obligation of the Company to
make payments with respect to the Notes will not otherwise be affected.

57
<PAGE>
The Company conducts a portion of its operations through the Subsidiary.
Claims of creditors of the Subsidiary and any future subsidiary, including trade
creditors, secured creditors and creditors holding indebtedness and guarantees
issued by such subsidiary, will generally have priority with respect to the
assets and earnings of such subsidiary over the claims of creditors of the
Company, including Holders of the Notes, even if such obligations do not
constitute Senior Indebtedness.

No payment on account of principal of or premium, if any, or interest on the
Notes may be made, no repurchase of the Notes may be made as described herein
under "Repurchase of Notes at the Option of the Holder Upon a Change of
Control," and no redemption of the Notes or other payments with respect to the
Notes may be made at any time when there is a continuing default in any payment
of principal of or premium, if any, or interest or other payment obligation on
any Senior Indebtedness unless and until such payment default has been cured or
waived in writing. In addition, no payment on account of principal of or
premium, if any, or interest on the Notes may be made, no repurchase of the
Notes may be made as described herein under "Repurchase of Notes at the Option
of the Holder Upon a Change of Control," and no redemption of the Notes may be
made at any time when there shall have occurred and be continuing any event of
default (other than a payment default referred to in the immediately preceding
sentence) with respect to any Designated Senior Indebtedness, which default
would permit immediate acceleration thereof, for the period (a "Payment Blockage
Period") commencing on receipt of notice of such default by the Trustee from the
holders of Designated Senior Indebtedness or from the holders of an aggregate of
$5.0 million principal amount outstanding of other Senior Indebtedness (or any
representatives thereof) and ending on the earlier of (i) the date such event of
default has been cured or waived and (ii) the date 180 days after receipt of
such notice. Any number of such notices may be given; provided, however, that
during any 360-day period, the aggregate Payment Blockage Periods shall not
exceed 180 days and there shall be a period of at least 180 consecutive days
when no Payment Blockage Period is in effect.

Subject to the payment in full of the Senior Indebtedness, the Holders of
the Notes will be subrogated to the rights of the holders of Senior Indebtedness
to the extent of payments made on Senior Indebtedness upon any distribution of
assets in any such proceedings out of the distributive share of the Notes.

By reason of such subordination, in the event of the liquidation,
bankruptcy, reorganization, insolvency, receivership or similar proceeding or an
assignment for the benefit of the creditors of the Company or a marshalling of
assets or liabilities of the Company, Holders of the Notes may recover less,
ratably, than other creditors of the Company.

Senior Indebtedness is defined in the Indenture as the principal and
premium, if any, and unpaid interest and fees on, and any reasonable costs and
expenses related to, (a) indebtedness of the Company (including indebtedness of
others guaranteed by the Company) other than the Notes, whether outstanding on
the date of the Indenture or thereafter created, incurred, assumed or guaranteed
(i) for money owing to banks or their subsidiaries or their affiliates, (ii) for
money borrowed other than from banks evidenced by notes, bonds, debentures or
similar instruments or (iii) arising under a lease of property, equipment or
other assets, which indebtedness, pursuant to generally accepted accounting
principles then in effect, is classified upon the balance sheet of the Company
as a liability of the Company, unless, in each case, the instrument creating or
evidencing the same or pursuant to which the same is outstanding provides that
such indebtedness is not superior in right of payment to the Notes; (b) to the
extent not otherwise described in clause (a) above, any obligations under the
Amended Loan Agreement; and (c) renewals, extensions, modifications and
refundings of any such indebtedness; provided, however, that Senior Indebtedness
shall not include indebtedness to a subsidiary of the Company.

Designated Senior Indebtedness is defined in the Indenture as (i) any
indebtedness under the Amended Loan Agreement, as such may be amended,
supplemented or refinanced at any time, and (ii) any other Senior Indebtedness
of the Company which, at the date of determination, is specifically

58
<PAGE>
designated by the Company in the instrument evidencing or governing such Senior
Indebtedness as "Designated Senior Indebtedness" for purposes of the Indenture.

As of June 30, 1998, after giving pro forma effect to the Offering and the
application of the net proceeds therefrom, the Company would have had no Senior
Indebtedness outstanding. The Company expects from time to time to incur
additional indebtedness constituting Senior Indebtedness. The Indenture does not
prohibit or limit the incurrence of additional indebtedness by the Company.

REDEMPTION AT THE OPTION OF THE COMPANY

The Notes may not be redeemed by the Company prior to October 1, 2001, and
will be redeemable on such date or thereafter at the Company's option, in whole
or from time to time in part (in denominations of $1,000 or integral multiples
thereof) upon not less than 30 nor more than 60 days' notice mailed to the
registered Holders thereof at the Redemption Prices (expressed as a percentage
of the principal amount thereof) set forth below if redeemed during the
twelve-month period commencing on October 1 of the years indicated:

<TABLE>
<CAPTION>
YEAR REDEMPTION
- --------------------------------------------------------------------------------- -----------
<S> <C>
2001............................................................................. 104.00%
2002............................................................................. 103.00%
2003............................................................................. 102.00%
2004............................................................................. 101.00%
</TABLE>

plus, in each case, accrued unpaid interest thereon to the Redemption Date
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant Interest Payment Date).

The Notes are not subject to the provisions of any sinking fund.

REPURCHASE OF NOTES AT THE OPTION OF THE HOLDER UPON A CHANGE OF CONTROL

In the event of any Change of Control (as defined below), each Holder of
Notes will have the right, at the Holder's option, to require the Company to
repurchase all or any part of such Holder's Notes (provided, that the principal
amount of such Notes must be $1,000 or an integral multiple thereof) on the date
(the "Repurchase Date") that is 45 calendar days after the date the Company
gives notice of the Change of Control as described below at a cash price (the
"Repurchase Price") equal to 100% of the principal amount thereof, together with
accrued and unpaid interest to the Repurchase Date. On or prior to the
Repurchase Date, the Company shall deposit with the Trustee or a Paying Agent an
amount of money sufficient to pay the Repurchase Price of the Notes that are to
be repaid on the Repurchase Date.

Failure by the Company to repurchase the Notes when required under the
preceding paragraph would result in an Event of Default under the Indenture
whether or not such repurchase is permitted by the subordination provisions of
the Indenture.

On or before the 30th day after the Company knows or reasonably should know
a Change of Control has occurred, the Company is obligated to mail to all
Holders of Notes a notice of the event constituting and the date of such Change
of Control, the Repurchase Date, the date by which the repurchase right must be
exercised, the Repurchase Price for Notes and the procedures that the Holder
must follow to exercise this right. To exercise the repurchase right, the Holder
of a Note must deliver, on or before the 10th calendar day prior to the
Repurchase Date, written notice to the Company (or an agent designated by the
Company for such purpose) of the Holder's exercise of such right, together with
the certificates evidencing the Notes with respect to which the right is being
exercised, duly endorsed for transfer.

A "Change of Control" shall occur when: (i) all or substantially all the
Company's assets are sold as an entirety to any person or related group of
persons; (ii) there shall be consummated any consolidation or merger of the
Company (a) in which the Company is not the continuing or surviving corporation
(other

59
<PAGE>
than a consolidation or merger with a wholly owned subsidiary of the Company in
which all shares of Common Stock outstanding immediately prior to the
effectiveness thereof are changed into or exchanged for the same consideration)
or (b) pursuant to which the Common Stock is converted into cash, securities or
other property, in the case of both (a) and (b) other than a consolidation or
merger of the Company in which the holders of the Common Stock immediately prior
to the consolidation or merger hold, directly or indirectly, at least a majority
of the voting power of the continuing or surviving corporation immediately after
such consolidation or merger; (iii) any person, or any persons acting together
that would constitute a "group" for purposes of Section 13(d) of the Exchange
Act, other than Permitted Holders, together with any affiliates thereof, shall
beneficially own (as defined in Rule 13d-3 under the Exchange Act) at least 50%
of the total voting power of all classes of capital stock of the Company
entitled to vote generally in the election of directors of the Company; or (iv)
during any period of two consecutive years from and after the Issue Date,
individuals who at the beginning of such period constituted the Board of
Directors of the Company (together with any new directors whose election by such
Board of Directors or whose nomination for election by the shareholders of the
Company was approved by a vote of a majority of the directors of the Company
then still in office who were either directors at the beginning of such period
or whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the Board of Directors then in
office. Permitted Holders shall include all current officers and directors of
the Company, and Melanie Bastian and Sidney Makoff. Notwithstanding clause (iii)
of the foregoing definition, a Change of Control shall not be deemed to have
occurred solely by virtue of the Company, any subsidiary of the Company, any
employee stock purchase plan, stock option plan or other stock incentive plan or
program, retirement plan or automatic dividend reinvestment plan or any
substantially similar plan of the Company or any subsidiary of the Company or
any person holding securities of the Company for or pursuant to the terms of any
such employee benefit plan filing or becoming obligated to file a report under
or in response to Schedule 13D or Schedule 14D-1 (or any successor schedule,
form or report) under the Exchange Act disclosing beneficial ownership by it of
shares or securities of the Company, whether in excess of 50% or otherwise.

Notwithstanding the foregoing, a Change of Control as described in (i) or
(ii) above shall not be deemed to have occurred if (i) the average Closing Price
of the Common Stock for a ten consecutive trading day period immediately
preceding the transaction giving rise to such Change of Control is at least
equal to 105% of the conversion price of the Notes in effect immediately
preceding the closing date of such transaction, or (ii) all the consideration to
the holders of Common Stock (excluding cash payments for fractional shares) in
the transaction giving rise to such Change of Control consists of either cash or
shares of common stock, or a combination of cash and shares of common stock,
that are listed on a national securities exchange or quoted on the Nasdaq
National Market and, as a result of such transaction, the Notes become
convertible solely into such cash and shares of common stock, and the fair
market value of such consideration per share of Common Stock (based upon the
average of the daily Closing Prices of such consideration during a ten
consecutive trading day period immediately preceding the closing of the
transaction) is at least 105% of the conversion price of the Notes in effect on
the date immediately preceding the closing date of such transaction.

The Change of Control purchase feature of the Notes may in certain
circumstances make more difficult or discourage a sale or takeover of the
Company, and, thus, the removal of incumbent management. The Change of Control
repurchase feature is a result of negotiations between the Company and the
Underwriters and is not the result of management's knowledge of any specific
effort to accumulate shares of Common Stock of the Company or to obtain control
of the Company by means of a merger, tender offer, solicitation or otherwise, or
part of a plan by management to adopt a series of anti-takeover provisions.
Management has no present intention to engage in a transaction involving a
Change of Control, although it is possible that the Company would decide to do
so in the future. The Amended Loan Agreement prohibits the Company from
repurchasing any Notes, and also provides that the occurrence of certain change
of control events with respect to the Company would constitute a default
thereunder. In the event a Change of Control occurs at a time when the Company
is prohibited from repurchasing Notes, the

60
<PAGE>
Company could seek the consent of its lenders to the repurchase of Notes or
could attempt to refinance the borrowings that contain such prohibition. If the
Company does not obtain such a consent or repay such borrowings, the Company
will remain prohibited from repurchasing Notes. In such case, the Company's
failure to repurchase tendered Notes would constitute an Event to Default under
the Indenture which would, in turn, constitute a default under the Amended Loan
Agreement. In such circumstances, the subordination provisions in the Indenture
would likely restrict payment to the Holders of Notes. Except as described above
with respect to a Change of Control, the Indenture does not contain provisions
that permit the Holders of the Notes to require that the Company repurchase or
redeem the Notes in the event of a takeover, recapitalization or similar
restructuring. The Indenture also does not prohibit the Company from issuing
Senior Indebtedness that may include change of control payment or repurchase
obligations that must be satisfied prior to repurchase of the Notes. Future
indebtedness of the Company may contain prohibitions on the occurrence of
certain events that would constitute a Change of Control or require such
indebtedness to be repurchased upon a Change of Control. Moreover, the exercise
by the Holders of their right to require the Company to repurchase the Notes
could cause a default under such indebtedness, even if the Change of Control
itself does not, due to the financial effect of such repurchase on the Company.
Finally, the Company's ability to pay cash to Holders of Notes following the
occurrence of a Change of Control may be limited by the Company's then existing
financial resources. There can be no assurance that sufficient funds will be
available when necessary to make any required repurchases. The provisions of the
Indenture requiring the Company to make an offer to repurchase the Notes upon a
Change of Control may be waived or modified with the consent of the Holders of a
majority in principal amount of the outstanding Notes.

In the event a Change of Control occurs, the Indenture requires the Company
to comply with applicable tender offer rules under the Exchange Act, including
Rules 13e-4 and 14e-1, as then in effect, with respect to a repurchase of the
Notes.

LIMITATIONS ON CONSOLIDATIONS, MERGERS AND SALES OF ASSETS

The Company may, without the consent of the Holders of the Notes,
consolidate with or merge into any other entity or convey, transfer or lease all
or substantially all its assets to any person, provided, however, that (i) the
entity formed by such consolidation or into which the Company is merged or the
person that acquires by conveyance or transfer, or which leases, all or
substantially all its assets is a corporation, partnership or trust organized
and existing under the laws of the United States, any state thereof or the
District of Columbia, (ii) the successor entity shall expressly assume, by a
supplemental indenture executed and delivered to the Trustee, in form
satisfactory to the Trustee, the due and punctual payment of the principal of
and premium, if any, and interest on the Notes and the performance of every
covenant of the Indenture on the part of the Company to be performed or observed
and has provided for conversion rights in accordance with the Indenture and
(iii) immediately after giving effect to such transaction, no Event of Default,
and no event that, after notice or lapse of time or both, would become an Event
of Default, shall have occurred and be continuing.

Apart from the provisions described in the foregoing paragraph, the
Indenture does not contain any limitation on sales of assets by the Company.
There is no definitive test concerning what transactions would constitute a
transfer of "substantially all" the Company's assets. Rather, the question must
be analyzed in the context of a particular transaction taking into account all
relevant facts and circumstances, including the assets transferred and the
assets retained. Accordingly, enforcement of this covenant by the Trustee or the
Holders of the Notes could be difficult in the event of a dispute with the
Company concerning whether a transaction or series of transactions constitutes a
transfer of all or substantially all the Company's assets.

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MODIFICATION AND WAIVER

The Company and the Trustee, without the consent of the Holders of the
Notes, may amend the Indenture for certain specified purposes, including to cure
any ambiguities, correct any inconsistencies or make any other provision with
respect to matters arising under the Indenture that are not inconsistent with
the Indenture and do not adversely affect the interests of the Holders in any
material respect. In addition, modifications and amendments of the Indenture may
be made by the Company and the Trustee with the consent of the Holders of not
less than a majority in aggregate principal amount of the Outstanding Notes;
provided, however, that no such modification or amendment may, without the
consent of the Holder of each Outstanding Note affected thereby, (i) change the
Stated Maturity of the principal of, or any installment of interest on, any
Note, (ii) reduce the principal amount of, or the premium, if any, or interest
on, any Note or price payable upon repurchase or redemption or once a Repurchase
Notice has been sent following a Change of Control, the date on which the Notes
are subject to repurchase, (iii) change the place or currency of payment of
principal of, or premium, if any, or redemption or purchase price or interest
on, any Note, (iv) impair the right to institute suit for the enforcement of any
payment on or with respect to any Note, (v) adversely affect the right to
convert Notes, (vi) modify the subordination provisions in a manner adverse to
the Holders of the Notes or (vii) reduce the percentage of aggregate principal
amount of Outstanding Notes necessary for waiver or compliance with certain
provisions of the Indenture or for waiver of certain defaults.

The Holders of a majority in aggregate principal amount of the Outstanding
Notes may waive any past default under the Indenture, except that a default in
the payment of principal or premium, if any, or interest on the Notes or a
failure to comply with certain covenants of the Company may not be waived
without the consent of the Holder of each Outstanding Note.

EVENTS OF DEFAULT

The following will be Events of Default under the Indenture: (i) failure to
pay any interest on any Notes when due and continuance of such default for a
period of 30 days, whether or not such payment is prohibited by the
subordination provisions of the Indenture; (ii) failure to pay principal of or
premium, if any, on any Note when due, whether or not such payment is prohibited
by the subordination provisions of the Indenture; (iii) failure to pay the
Redemption Price on any Redemption Date and failure to repurchase the Notes as
provided in the Indenture, whether or not any such payment is prohibited by the
subordination provisions of the Indenture; (iv) failure to perform any other
covenant of the Company in the Indenture, which failure continues for 60 days
after written notice as provided in the Indenture; (v) default, beyond any
applicable grace period, if any, in the payment of amounts due under any
mortgage, indenture, instrument or agreement under which there is outstanding,
or by which there is secured or evidenced, any indebtedness for borrowed money
of the Company in excess of $10 million at its stated maturity or representing
any Designated Senior Indebtedness or default on any such indebtedness that
results in the actual acceleration of such indebtedness prior to its express
maturity; and (vi) certain events of bankruptcy, insolvency or reorganization of
the Company.

Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default shall occur and be continuing, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any of the Holders, unless such Holders
shall have offered to the Trustee reasonable indemnity. Subject to such
provisions for the indemnification of the Trustee, the Holders of a majority in
aggregate principal amount of the Outstanding Notes will have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee.

If an Event of Default shall occur and be continuing, other than an event of
bankruptcy, insolvency or reorganization of the Company, either the Trustee or
the Holders of at least 25% in principal amount of the Outstanding Notes may
accelerate the maturity of all Notes by notice in writing to the Company (and to
the Trustee if given by the Holders). If an Event of Default shall occur by
reason of an event of

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bankruptcy, insolvency or reorganization of the Company, the Notes shall
immediately become due and payable without any act on the part of the Trustee or
any Holder. After any such acceleration but before a judgement or decree based
on acceleration, the Holders of a majority in aggregate principal amount of
Outstanding Notes may, under certain circumstances, rescind or annul
acceleration if all Events of Default, other than the nonpayment of acceleration
principal, have been cured or waived as provided in the Indenture. For
information as to waiver of defaults, see "Modification and Waiver".

No Holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such Holder shall
have previously given to the Trustee written notice of a continuing Event of
Default and unless the Holders of at least 25% in principal amount of the
Outstanding Notes shall have made written request, and offered reasonable
indemnity, to the Trustee to institute such proceeding as trustee, and the
Trustee shall not have received from the Holders of a majority in principal
amount of the Outstanding Notes a direction inconsistent with such request and
shall have failed to institute such proceeding within 60 days. However, such
limitations do not apply to a suit instituted by a Holder of a Note for the
enforcement or payment of the principal or premium, if any, or interest on such
Note on or after the respective due dates expressed in such Note or of the
rights to convert such Note in accordance with the Indenture.

The Company will be required to furnish to the Trustee annually a statement
as to its performance of certain of its obligations under the Indenture and as
to any default in such performance.

DISCHARGE OF INDENTURE; DEFEASANCE

The Company may terminate all obligations under the Indenture at any time by
delivering all outstanding Notes to the Trustee for cancellation and paying any
other sums payable under the Indenture.

The Indenture also provides that the Company may elect:

(a) to defease and be discharged from any and all obligations with
respect to the Notes and that the provisions of the Indenture will no longer
be in effect with respect to the Notes, except for the obligations to
register the transfer or exchange of the Notes, to replace temporary or
mutilated, destroyed, lost or stolen Notes, to maintain an office or agency
in respect of the Notes and to punctually pay or cause to be paid the
principal of, and interest on, the Notes when due ("Defeasance"); or

(b) to be released from its obligations with respect to the Notes under
certain restrictive covenants of the Indenture, and that violation of such
covenants will not constitute an "Event of Default" under the Indenture
("Covenant Defeasance").

Such Defeasance or Covenant Defeasance will have no effect on the Company's
obligations under Article 12 of the Indenture, which relate to the conversion of
the Notes, at the option of the Holder thereof, into Common Stock of the
Company. Such Defeasance or Covenant Defeasance will take effect only upon the
deposit with the Trustee, in trust for such purpose, of money and/or U.S.
Government Obligations that, through the payment of principal and interest in
accordance with their terms, will provide money in an amount sufficient to pay
the principal of and premium, if any, and interest on the Notes on the dates
such payments are due, and certain other conditions are satisfied.

CONCERNING THE TRUSTEE

Cede & Co. is to be the Trustee under the Indenture and has been appointed
by the Company as Registrar and Paying Agent with regard to the Notes.

The Holders of a majority in aggregate principal amount of the outstanding
Notes will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that if an Event of Default occurs
(and is

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not cured), the Trustee will be required, in the exercise of its power, to use
the degree of care of a prudent person in the conduct of its own affairs.
Subject to such provisions, the Trustee will be under no obligation to exercise
any of its rights or powers under the Indenture at the request of any Holder of
Notes, unless such Holder shall have offered to the Trustee security and
indemnity satisfactory to it against any loss, liability or expense and then
only to the extent required by the terms of the Indenture.

NO PERSONAL LIABILITY OF STOCKHOLDERS, OFFICER, DIRECTORS

The Indenture will provide that no stockholder, employee, officer or
director, as such, past, present or future of the company or any successor
corporation shall have any personal liability in respect of the obligations of
the Company under the Indenture or the Notes by reason of his or its status as
such stockholder, employee, officer or director.

GOVERNING LAW

The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.

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DESCRIPTION OF CAPITAL STOCK

As of the date of this Prospectus, the authorized capital stock of the
Company consists of 20,000,000 shares of Common Stock and 5,000,000 shares of
preferred stock.

COMMON STOCK

As of June 18, 1998, 5,822,222 shares of Common Stock were outstanding, held
of record by 18 shareholders. The holders of Common Stock are entitled to one
vote for each share held of record on all matters submitted to a vote of the
shareholders and may cumulate their votes in the election of directors upon
giving notice required by law. Subject to preferences that may be applicable to
any shares of Preferred Stock issued in the future, holders of Common Stock are
entitled to receive ratably such dividends as may be declared by the Board of
Directors out of funds legally available therefore. See "Price Range of Common
Stock and Dividend Policy." The Company's shareholders currently may cumulate
their votes for the election of directors so long as at least one shareholder
has given notice at the meeting of shareholders prior to the voting of that
shareholder's desire to cumulate his or her votes. Cumulative voting means that
in any election of directors, each shareholder may give one candidate a number
of votes equal to the number of directors to be elected multiplied by the number
of shares held by such shareholder, or such shareholder may distribute such
number of votes among as many candidates as the shareholder sees fit. Cumulative
voting will no longer be required or permitted under the Amended Articles at
such time as (i) the Company's shares of Common Stock are listed on the Nasdaq
National Market and the Company has at least 800 holders of its equity
securities as of the record date of the Company's most recent annual meeting of
shareholders or (ii) the Company's shares of Common Stock are listed on the New
York Stock Exchange or the American Stock Exchange. At that time, the Company
may divide its Board into classes of directors. In the event of a liquidation,
dissolution or winding up of the Company, holders of the Common Stock are
entitled to share ratably with the holders of any then outstanding preferred
stock in all assets remaining after payment of liabilities and the liquidation
preference of any then outstanding preferred stock. Holders of Common Stock have
no preemptive rights and no right to convert their Common Stock into any other
securities. There are no redemption or sinking fund provisions applicable to the
Common Stock. All outstanding shares of Common Stock are fully paid and
nonassessable.

PREFERRED STOCK

The Board of Directors has authority to fix the rights, preferences,
privileges and restrictions, including voting rights, of preferred stock without
any future vote or action by the shareholders. The rights of the holders of the
Common Stock will be subject to, and may be adversely affected by, the rights of
the holders of any preferred stock that may be issued in the future. The
issuance of preferred stock could have the effect of making it more difficult
for a third party to acquire a majority of the outstanding voting stock of the
Company, thereby delaying, deferring or preventing a change in control of the
Company. Furthermore, such preferred stock may have other rights, including
economic rights senior to the common stock, and, as a result, the issuance
thereof could have a material adverse effect on the market value of the Common
Stock. The Company has no present plans to issue shares of preferred stock. No
shares of preferred stock are currently outstanding.

STOCK TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Company's Common Stock is U.S.
Stock Transfer Corporation, Glendale, California.

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MATERIAL FEDERAL INCOME TAX CONSEQUENCES

The following is a general summary of material United States federal income
tax considerations relating to an investment in the Notes and the Common Stock
issuable upon conversion thereof as of the date hereof. This discussion is based
on existing provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury regulations promulgated thereunder, judicial decisions now in
effect, and administrative rulings, all of which are subject to change or
alternative construction, possibly with retroactive effect. This summary does
not discuss other federal taxes (such as federal estate and gift taxes) that may
be important to Holders of the Notes or any state, local or foreign tax
considerations, nor does it purport to address all federal income tax
consequences applicable to all categories of investors, some of which may be
subject to special rules in light of their specific circumstances, such as life
insurance companies, tax-exempt organizations, dealers in securities or
currency, banks or other financial institutions, investors whose functional
currency is not the United States dollar, or investors that hold the Notes as
part of a hedge, straddle or conversion transaction. In addition, this summary
deals only with Notes and Common Stock into which the Notes are convertible that
are held as "capital assets" within the meaning of Section 1221 of the Code and
that are purchased by investors upon initial issuance at the initial offering
price. The Company will not seek a ruling from the Internal Revenue Service (the
"IRS") with regard to the United States federal income tax treatment relating to
an investment in the Notes or the Common Stock into which the Notes are
convertible and, therefore, there can be no assurance that the IRS will agree
with the conclusions set forth below.

For purposes of this summary, the term "U.S. Holder" means a beneficial
owner of a Note or Common Stock that is (i) a citizen or resident of the United
States, (ii) except to the extent otherwise provided in Treasury regulations, a
partnership, a corporation or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, (iii) an estate
the income of which is subject to United States federal income taxation
regardless of its source, and (iv) a trust if (a) a United States court is able
to exercise primary supervision over the trust's administration and (b) one or
more United States fiduciaries have the authority to control all of the trust's
substantial decisions. The term "Non-U.S. Holder" shall mean the beneficial
owner of a Note or Common Stock other than a U.S. Holder.

PERSONS CONSIDERING THE PURCHASE OF THE NOTES SHOULD CONSULT THEIR OWN TAX
ADVISORS CONCERNING THE APPLICATION OF UNITED STATES FEDERAL TAX LAWS, AS WELL
AS THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION, TO THEIR
PARTICIPATION IN THE OFFERING, OWNERSHIP AND DISPOSITION OF THE NOTES, INCLUDING
CONVERSION OF THE NOTES, AND THE EFFECT THAT THEIR PARTICULAR SITUATIONS MAY
HAVE ON SUCH TAX CONSIDERATIONS. THIS SUMMARY DOES NOT PURPORT TO ADDRESS ALL
ASPECTS OF FEDERAL, STATE, LOCAL OR FOREIGN TAXATION THAT MAY BE RELEVANT TO AN
INVESTOR'S DECISION TO PURCHASE THE NOTES.

TAXATION OF U.S. HOLDERS

ADJUSTMENTS TO CONVERSION PRICE. The Indenture provides that the conversion
price will be adjusted upon the occurrence of certain circumstances. Section 305
of the Code treats as a distribution taxable as a dividend (to the extent of the
Company's current or accumulated earnings and profits) certain actual or
constructive distributions of stock with respect to stock and convertible
securities. Applicable Treasury regulations treat holders of convertible
debentures as having received such a constructive distribution where the
conversion price is adjusted to reflect certain distributions with respect to
the stock into which such debentures are convertible. Thus, under certain
circumstances, an adjustment in the conversion price of the Notes may be taxable
to the U.S. Holders as a dividend distribution. In such a case, U.S. Holders may
recognize income as a result of an event pursuant to which they receive no cash
or property that could be used to pay the related income tax. Generally, a
Holder's tax basis in a Note will be increased by the amount of any such
constructive dividend. Holders of the Notes are advised to consult their tax
advisors with respect to potential taxable constructive dividend distributions
upon such conversion price modifications.

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PAYMENTS OF INTEREST. The payment of stated interest on the Notes will be
taxable to a U.S. Holder as ordinary interest income at the time it accrues or
is received in accordance with the Holder's usual method of accounting for
federal income tax purposes.

CONVERSION OF A NOTE INTO COMMON STOCK. In general, a U.S. Holder will not
recognize gain or loss on conversion of a Note solely into Common Stock of the
Company pursuant to the terms of the Notes, except with respect to cash received
in lieu of a fractional share. The holding period of the Common Stock received
by the U.S. Holder upon conversion of a Note generally will include the period
during which the Note was held prior to the conversion. The U.S. Holder's
aggregate tax basis in the Common Stock received upon conversion of a Note
generally will equal the U.S. Holder's aggregate tax basis in the Note
converted, reduced by the portion allocable to cash received in lieu of a
fractional share. A U.S. Holder generally will recognize capital gain or loss in
connection with any cash received in lieu of a fractional share in an amount
equal to the difference between the amount of cash received and the U.S.
Holder's tax basis in the fractional share. U.S. Holders should consult their
own tax advisors regarding the tax consequences of converting the Notes into
Common Stock, in particular in the case of the conversion of a Note into Common
Stock after a Regular Record Date for the payment of interest but prior to the
next succeeding Interest Payment Date.

DISPOSITION OF NOTES OR COMMON STOCK. A U.S. Holder of a Note or the Common
Stock into which it was converted generally will recognize capital gain or loss
upon the sale, exchange, retirement or other disposition of the Note or Common
Stock. The amount of capital gain or loss to be recognized will be measured by
the difference between (i) the amount realized (except to the extent the amount
is attributable to accrued interest income, which will generally be taxable as
ordinary income) and (ii) the U.S. Holder's tax basis in the Note or the Common
Stock. The gain or loss on such disposition will be taken into account in
determining the amount of the U.S. Holder's net capital gain, which for a
noncorporate taxpayer is taxed at a rate of 20% if the Note or Common Stock has
been held for more than 12 months at the time of such disposition.

MARKET DISCOUNT. The resale of Notes may be affected by the "market
discount" provisions of the Code. For this purpose, the market discount on a
Note generally will be equal to the amount, if any, by which the stated
redemption price at maturity of the Note immediately after its acquisition
exceeds the holder's tax basis in the Note. Subject to a DE MINIMIS exception,
these provisions generally require a holder of a Note acquired at a market
discount to treat as ordinary income any gain recognized on the disposition of
such Note to the extent of the "accrued market discount" on such Note at the
time of disposition. In general, market discount on a Note will be treated as
accruing on a straight-line basis over the term of such Note, or, at the
election of the holder, under a constant yield method. A holder of a Note
acquired at a market discount may be required to defer the deduction of a
portion of the interest on any indebtedness incurred or maintained to purchase
or carry the Note until the Note is disposed of in a taxable transaction, unless
the holder elects to include accrued market discount in income currently.

DISTRIBUTIONS WITH RESPECT TO COMMON STOCK. In general, distributions made
by the Company with respect to Common Stock will constitute dividends for
federal income tax purposes and will be taxable to a U.S. Holder as ordinary
income to the extent of the Company's undistributed current or accumulated
earnings and profits (as determined for federal income tax purposes).
Distributions in excess of the Company's current or accumulated earnings and
profits will be treated first as a nontaxable return of capital reducing the
U.S. Holder's tax basis in the Common Stock, thus increasing the amount of any
gain (or reducing the amount of any loss) which might be realized by such U.S.
Holder upon the sale, exchange or redemption of such Common Stock. Any such
distributions in excess of the U.S. Holder's tax basis in the Common Stock will
be treated as capital gain to the U.S. Holder (provided the Common Stock is held
as a capital asset), and will be either long-term (more than 12 months), or
short-term (not more than 12 months) capital gain depending upon the U.S.
Holder's federal income tax holding period for the Common Stock.

Subject to certain limitations, to the extent that distributions made by the
Company are treated as dividends, a U.S. Holder of Common Stock that is taxed as
a domestic corporation and that meets the

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applicable holding period and taxable income requirements of the Code may be
entitled to a deduction under Section 243 of the Code equal in amount to 70% of
the dividends paid out of such earnings and profits (the "Dividends Received
Deduction"). With respect to Common Stock considered to be "portfolio stock" as
defined in Section 246A of the Code, the Dividends Received Deduction will be
reduced to the extent that the Common Stock constitutes "debt financed portfolio
stock." In addition, under certain circumstances, the receipt of a dividend on
the Common Stock determined to be an "extraordinary dividend" may cause the
Holder's tax basis in the Common Stock to be reduced by the untaxed portion of
the dividend and could result in gain recognition pursuant to Section 1059 of
the Code.

TAXATION OF NON-U.S. HOLDERS

PAYMENTS OF INTEREST. The payment of stated interest on a Note by the
Company or any Paying Agent to a Non-U.S. Holder will qualify for the "portfolio
interest exemption" and, therefore, will not be subject to United States federal
income tax or withholding tax, provided that such interest income is not taxable
as "effectively connected" with a United States trade or business of the
Non-U.S. Holder and provided that tile Non-U.S. Holder (i) does not actually or
constructively own 10% or more of the combined voting power of all classes of
stock of the Company entitled to vote, (ii) is not a controlled foreign
corporation related to the Company actually or constructively through stock
ownership, (iii) is not a bank receiving interest on a loan entered into in the
ordinary course of business, and (iv) either (a) provides a Form W-8 (or
suitable substitute form) signed under penalties of perjury that includes its
name and address and certifies as to its non-United States status in compliance
with applicable law and regulations, or (b) deposits the Note with a securities
clearing organization, bank or financial institution that holds customers'
securities in the ordinary course of its trade or business and which holds the
Note and provides a statement to the Company or its agent under penalties of
perjury in which it certifies that such a Form W-8 (or a suitable substitute)
has been received by it from the Non-U.S. Holder or qualifying intermediary and
furnishes the Company or its agent with a copy thereof. For purposes of
determining whether a Non-U.S. Holder constructively owns more than 10% of the
Company's combined voting power of all classes of stock of the Company entitled
to vote, the Non-U.S. Holder will be treated as owning the number of shares of
Common Stock that it would acquire if it converted all of its Notes.

Recently finalized Treasury regulations (the "Regulations") provide
alternative methods for satisfying the certification requirement described in
clause (iv) above. These Regulations also generally will require, in the case of
Notes held by a foreign partnership, that (a) the certification described in
clause (iv) above be provided by the partners rather than by the foreign
partnership, and (b) the partnership provide certain information, including a
United States taxpayer identification number. A look-through rule will apply in
the case of tiered partnerships. These Regulations generally will be effective
January 1, 2000. Non-U.S. Holders of the Notes are advised to consult their tax
advisors with respect to their qualification for the portfolio interest
exemption and the steps necessary to comply with such exemption.

Except to the extent otherwise provided under an applicable tax treaty, a
Non-U.S. Holder generally will be taxed in the same manner as a U.S. Holder with
respect to interest on a Note if such interest income is effectively connected
with a United States trade or business of the Non-U.S. Holder. Effectively
connected interest received by a corporate Non-U.S. Holder may also, under
certain circumstances, be subject to an additional "branch profits tax" at a 30%
rate (or, if applicable, a lower treaty rate). A Non-U.S. Holder may be required
to satisfy certain certification requirements in order to claim a reduction of
or exemption from withholding under the foregoing rules. Non-U.S. Holders should
consult applicable income tax treaties, which may provide different rules.

Interest income of a Non-U.S. Holder that is not effectively connected with
a United States trade or business and that does not qualify for the portfolio
interest exemption described above generally will be subject to a withholding
tax at a 30% rate (or, if applicable, a lower treaty rate).

CONVERSION OF A NOTE INTO COMMON STOCK. In general, no United States
federal income tax or withholding tax will be imposed upon the conversion of a
Note into Common Stock by a Non-U.S. Holder except with respect to the receipt
of cash in lieu of fractional shares by Non-U.S. Holders upon conversion of a
Note, where any one of the four exceptions described below under "Material
Federal Income Tax

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Considerations--Taxation of Non-U.S. Holders--Disposition of Notes or Common
Stock" is applicable. In addition, under certain circumstances, the extent to
which the fair market value of the Common Stock received upon conversion is
attributable to accrued interest will be treated as ordinary interest income
taxable as described above under "Material Federal Income Tax
Considerations--Taxation of Non-U.S. Holders--Payments of Interest."

DISPOSITION OF NOTES OR COMMON STOCK. A Non-U.S. Holder of a Note or the
Common Stock into which it was converted generally will not be subject to United
States federal income tax or withholding tax on any gain realized on the sale,
exchange, retirement or other disposition of the Note or Common Stock (including
the receipt of cash in lieu of fractional shares upon conversion of the Note to
Common Stock), unless (i) the gain is effectively connected with a United States
trade or business of the Non-U.S. Holder, (ii) in the case of a Non-U.S. Holder
who is an individual, such holder is present in the United States for a period
or periods aggregating 183 days or more during the taxable year of the
disposition, and either such holder has a "tax home" in the United States or the
disposition is attributable to an office or other fixed place of business
maintained by such holder in the United States, (iii) the Non-U.S. Holder is
subject to tax pursuant to the provisions of the Code applicable to certain
United States expatriates, or (iv) the Company is a United States real property
holding corporation. The Company does not believe that it is, or is likely to
become, a United States real property holding corporation.

DISTRIBUTIONS WITH RESPECT TO COMMON STOCK. To the extent distributions
made by the Company are treated as dividends (as described above under "Material
Federal Income Tax Considerations--Taxation of U.S. Holders--Distributions with
Respect to Common Stock"), a Non-U.S. Holder will be subject to United States
federal withholding tax at a 30% rate (or lower rate provided under an
applicable income tax treaty) on dividends paid (or deemed paid, as described
above under "Material Federal Income Tax Considerations--Taxation of U.S.
Holders--Adjustments to Conversion Price") on Common Stock, unless the dividends
are taxable as effectively connected with the conduct of a trade or business in
the United States and the Non-U.S. Holder delivers IRS Form 4224 to the payor.
Except to the extent otherwise provided under an applicable tax treaty, a
Non-U.S. Holder generally will be taxed in the same manner as a U.S. Holder on
dividends paid (or deemed paid) that are effectively connected with the conduct
of a trade or business in the United States by the Non-U.S. Holder. If such
Non-U.S. Holder is a foreign corporation, it also may be subject to a United
States branch profits tax on such effectively connected income at a 30% rate or
such lower rate as may be specified by an applicable income tax treaty.

Under current Treasury regulations, dividends paid to an address in a
foreign country are presumed to be paid to a resident of that country (unless
the payor has knowledge to the contrary) for purposes of the withholding rules
discussed herein and, under the current interpretation of the Treasury
regulations, for purposes of determining the applicability of a tax treaty rate.
Under the Regulations effective January 1, 2000, however, a Non-U.S. Holder of
Common Stock who wishes to claim the benefit of an applicable treaty rate would
be required to satisfy applicable certification requirements. In addition, under
these Regulations, in the case of Common Stock held by a foreign partnership,
the certification requirement generally would be applied to the partners of the
partnership and the partnership would be required to provide certain
information, including a United States taxpayer identification number. These
Regulations also will provide look-through rules for tiered partnerships.

BACKUP WITHHOLDING AND INFORMATION REPORTING

U.S. HOLDERS. Under current United States federal income tax law, payments
of principal, interest and dividends made to, and the proceeds of disposition of
Notes or Common Stock by, certain noncorporate U.S. Holders will be subject to
information reporting and backup withholding at a rate of 31%. Generally, the
backup withholding rules will apply only if the U.S. Holder (i) fails to furnish
its taxpayer identification number ("TIN") to the payor, (ii) furnishes such
payor with an incorrect TIN, (iii) is notified by the IRS that it has failed to
report properly interest, dividends or other "reportable payments" as defined by
the Code, or (iv) under certain circumstances, fails to provide such payor or
the U.S. Holder's securities broker with a certified statement, signed under
penalty of perjury, that the TIN provided is its correct number and that the
U.S. Holder is not subject to backup withholding. Backup

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withholding will not apply with respect to payments made to certain U.S. Holders
of the Notes, including payments to certain exempt recipients (such as
corporations and exempt organizations). The amount of backup withholding from a
payment to a Holder will be allowed as a credit against the Holder's federal
income tax liability and may entitle such Holder to a refund, provided the
required information is furnished to the IRS.

NON-U.S. HOLDERS. The Company must report annually to the IRS and to each
Non-U.S. Holder any interest or dividend that is subject to withholding or that
is exempt from U.S. withholding tax pursuant to a tax treaty or the exceptions
described above.

Backup withholding at a rate of 31% and information reporting generally may
apply to payments of principal and interest if the payee fails to certify under
penalties of perjury that it is not a U.S. person, or if the payor has actual
knowledge that the holder is a United States person. Dividends paid to Non-U.S.
Holders that are subject to the 30% withholding tax described above or that are
subject to treaty reduction generally will be exempt from United States backup
withholding tax.

Payment of the proceeds of the sale or other disposition of Notes or Common
Stock to or through a United States office of a United States or foreign broker
will be subject to information reporting and possible backup withholding at a
rate of 31% if the owner fails to certify its non-United States status under
penalties of perjury or otherwise establishes an exemption, or if the broker has
actual knowledge that the holder is a U.S. Person or that the conditions of any
other exemption are not, in fact, satisfied. Payment of the proceeds on the sale
of Notes or Common Stock to or through a foreign office of a foreign broker that
is not a "U.S. related person" generally will not be subject to information
reporting or backup withholding tax. For this purpose. a "U.S. related person"
is (i) a "controlled foreign corporation" for United States federal income tax
purposes or (ii) a foreign person 50% or more of whose gross income from all
sources for a specified period is derived from activities that are effectively
connected with the conduct of a United States trade or business. In the case of
the payment of proceeds from the disposition of Notes to or through a foreign
office of a broker that is either a United States person or a related person,
information reporting is required on the payment unless the broker has
documentary evidence in its files that the owner is a Non-U.S. Holder and the
broker has no actual knowledge to the contrary.

Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be allowed as a refund or a credit against such Non-U.S.
Holder's United States federal income tax, provided that the required
information is furnished to the IRS.

The backup withholding and information reporting rules would also be changed
by the Regulations. These Regulations will provide that proceeds from the
disposition of Common Stock after December 31, 1999 will be exempt from backup
withholding and information reporting only if the Non-U.S. Holder complies with
certain certification requirements or otherwise establishes an exemption.

Holders of Notes should consult their tax advisors regarding their
qualification for exemption from backup withholding and the procedure for
obtaining such an exemption.

THE FOREGOING SUMMARY OF MATERIAL FEDERAL INCOME TAX CONSEQUENCES IS FOR
GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, PROSPECTIVE HOLDERS
SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES OF
THE ACQUISITION, OWNERSHIP, AND DISPOSITION OF THE NOTES AND THE COMMON STOCK
INTO WHICH THE NOTES ARE CONVERTIBLE, INCLUDING THE APPLICABILITY AND EFFECT OF
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.

70
<PAGE>
UNDERWRITING

Subject to the terms and conditions set forth in the Underwriting Agreement,
EVEREN Securities, Inc. and ING Baring Furman Selz LLC have severally agreed to
purchase from the Company and the Company has agreed to sell to each of the
Underwriters, the respective aggregate amount of Notes set forth opposite its
name below, at the public offering price set forth on the cover page of this
Prospectus, less the underwriting discount:

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
UNDERWRITERS OF NOTES
- ------------------------------------------------------------------------------- -------------
<S> <C>
EVEREN Securities, Inc......................................................... $
ING Baring Furman Selz LLC.....................................................
-------------
$
-------------
-------------
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to certain conditions precedent including
the delivery of certain legal opinions by its counsel. The Company has agreed in
the Underwriting Agreement to indemnify the Underwriters and their controlling
persons against certain liabilities in connection with the offer and sale of the
Notes, including liabilities under the Securities Act, and to contribute to
payments that the Underwriters may be required to make in respect thereof. The
nature of the Underwriters' obligations is such that the Underwriters are
committed to purchase all of the Notes if any of the Notes are purchased by
them.

The Underwriters have advised the Company that they propose to offer the
Notes directly to the public initially at the public offering price set forth on
the cover page of this Prospectus and to certain dealers at such offering price
less a concession not to exceed % of the principal amount of the Notes. The
Underwriters may reallow discounts not in excess of % of the principal amount
of the Notes to certain other dealers. After the initial public offering of the
Notes, the offering price and other selling terms may be changed by the
Underwriters.

Pursuant to the Underwriting Agreement, the Company has granted to the
Underwriters an option, exercisable for 30 days, to purchase an additional $7.5
million aggregate principal amount of Notes, on the same terms and conditions as
are set forth on the cover page hereof. The Underwriters may exercise such
option to purchase additional Notes solely for the purpose of covering
over-allotments, if any, made in connection with the sale of the Notes offered
hereby. To the extent that the Underwriters exercise such option, the
Underwriters will be committed, subject to certain conditions, to purchase the
principal amounts of Notes proportionate to such Underwriter's initial
commitments as indicated in the preceding table.

The Notes are new issues of securities, have no established trading market
and may not be widely distributed. No assurance can be given as to the liquidity
of any trading market for the Notes.

LEGAL MATTERS

The validity of the Notes offered hereby will be passed upon for the Company
by Troy & Gould Professional Corporation, Los Angeles, California. Brobeck
Phleger & Harrison LLP, Irvine, California, has acted as counsel to the
Underwriters in connection with certain legal matters related to this Offering.

EXPERTS

The consolidated financial statements of the Company included in this
Prospectus and the Registration Statement, to the extent and for the periods
indicated in their report, have been audited by Ernst & Young LLP, independent
auditors, as stated in their report thereon appearing elsewhere herein and in
the

71
<PAGE>
Registration Statement, and are included in reliance upon such report given upon
the authority of such firm as experts in accounting and auditing.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports, proxy or information statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, as well as at the following regional
offices: Seven World Trade Center, New York, New York 10048, and Citicorp
Center, 500 W. Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such material can be obtained from the Public Reference Section of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. In addition, the Commission maintains a Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The address
of the Commission's Web site is http://www.sec.gov. The Common Stock of the
Company is quoted on the Nasdaq National Market. Reports, proxy statements and
other information concerning the Company may be inspected at the offices of The
Nasdaq Stock Market at 1735 K Street, N.W., Washington, D.C. 20006.

Additional information regarding the Company and the securities offered
hereby is contained in the Registration Statement of which this Prospectus is a
part, and the exhibits thereto, filed with the Commission under the Securities
Act of 1933, as amended (the "Securities Act"). For further information
pertaining to the Company and the securities offered hereby, reference is made
to the Registration Statement and the exhibits thereto, which may be inspected
without charge at, and copies thereof may be obtained at prescribed rates from,
the office of the Commission at Judiciary Plaza, 450 Fifth Street, Washington,
D.C. 20549. Statements contained herein concerning the provisions of any
document are not necessarily complete and in each instance reference is made to
the copy of the document filed as an exhibit or schedule to the Registration
Statement. Each such statement is qualified in its entirety by reference to the
copy of the applicable documents filed with the Commission.

72
<PAGE>
HAWKER PACIFIC AEROSPACE

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

CONTENTS

<TABLE>
<S> <C>
Report of Independent Auditors........................................................ F-2

AUDITED CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Balance Sheets........................................................... F-3
Consolidated Statements of Operations................................................. F-4
Consolidated Statements of Changes in Stockholders' Equity............................ F-5
Consolidated Statements of Cash Flows................................................. F-6
Notes to Consolidated Financial Statements............................................ F-8
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS

THE BOARD OF DIRECTORS

HAWKER PACIFIC AEROSPACE

We have audited the accompanying balance sheet of Hawker Pacific Aerospace a
wholly-owned subsidiary of BTR Dunlop Holdings, Inc. (the "Predecessor") as of
December 31, 1995, and the related statements of operations, and cash flows for
the year ended December 31, 1995 and the ten months ended October 31, 1996. We
have also audited the accompanying consolidated balance sheets of Hawker Pacific
Aerospace (the "Successor") as of December 31, 1996 and 1997, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for the two months ended December 31, 1996 and the year ended December 31,
1997. These financial statements are the responsibility of the Predecessor's and
Successor's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Hawker Pacific
Aerospace as the Predecessor and Successor companies, at December 31, 1995, 1996
and 1997, and the consolidated results of their operations and their cash flows
for the year ended December 31, 1995, the ten months ended October 31, 1996, the
two months ended December 31, 1996, and the year ended December 31, 1997, in
conformity with generally accepted accounting principles.

Ernst & Young LLP

Woodland Hills, California
February 13, 1998

F-2
<PAGE>
HAWKER PACIFIC AEROSPACE

CONSOLIDATED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
SUCCESSOR
PREDECESSOR ----------------------------------------
------------
DECEMBER 31 DECEMBER 31
1995 1996 1997 JUNE 30
------------ ------------ ------------ 1998
------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash.................................................... $ 399,000 $ 1,055,000 $ 160,000 $ 574,000
Accounts receivable, less allowance for doubtful
accounts of $39,000, $67,000, $147,000 and $162,000 at
December 31, 1995, 1996, 1997, and June 30, 1998,
respectively.......................................... 6,392,000 6,336,000 7,351,000 14,246,000
Accounts receivable from affiliates..................... 624,000 -- -- --
Other receivables....................................... 1,086,000 59,000 80,000 85,000
Inventories............................................... 13,446,000 12,950,000 14,814,000 20,445,000
Prepaid expenses and other current assets................. 404,000 344,000 240,000 636,000
------------ ------------ ------------ ------------
Total current assets...................................... 22,351,000 20,744,000 22,645,000 35,986,000
Equipment and leasehold improvements, net................. 4,871,000 4,719,000 5,083,000 9,569,000
Landing gear exchange, less accumulated amortization of
$422,000, $61,000, $375,000 and $881,000 at December 31,
1995, 1996, 1997, and June 30, 1998, respectively....... 7,479,000 8,654,000 11,067,000 32,652,000
Goodwill, less accumulated amortization of $17,000 and
$25,000 at December 31, 1996 and 1997, respectively..... -- 620,000 145,000 --
Deferred taxes............................................ 680,000 -- -- 157,000
Deferred financing costs.................................. -- 325,000 262,000 497,000
Deferred offering costs................................... -- -- 766,000 --
Other assets.............................................. 74,000 116,000 930,000 343,000
------------ ------------ ------------ ------------
$35,455,000 $ 35,178,000 $ 40,898,000 $79,204,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................ $ 2,536,000 $ 3,806,000 $ 6,946,000 $ 4,967,000
Accounts payable to affiliates.......................... 1,365,000 -- -- --
Line of credit.......................................... -- 5,329,000 8,529,000 10,470,000
Deferred revenue........................................ 1,299,000 1,593,000 848,000 1,538,000
Accrued payroll and employee benefits................... 511,000 809,000 812,000 2,955,000
Environmental remediation............................... 234,000 657,000 -- --
Accrued expenses and other liabilities.................. 1,012,000 475,000 316,000 4,393,000
Current portion of notes payable........................ 2,105,000 850,000 1,450,000 1,830,000
------------ ------------ ------------ ------------
Total current liabilities................................. 9,062,000 13,519,000 18,901,000 26,153,000
Due to parent and affiliates.............................. 27,310,000 -- -- --
Notes payable:
Bank note............................................... -- 12,650,000 11,200,000 24,054,000
Related party........................................... -- 6,500,000 6,500,000 5,000,000
------------ ------------ ------------ ------------
-- 19,150,000 17,700,000 29,054,000
Commitments and contingencies
Stockholders' equity:
Preferred Stock--Series A, $5,000 per share liquidation
preference, non-voting, 400 shares authorized, issued
and outstanding at December 31, 1996 and 1997......... -- 2,000,000 2,000,000 --
Preferred Stock, no par value; 5,000,000 shares
authorized; none issued and outstanding at June 30,
1998.................................................. -- -- -- --
Common Stock--20,000,000 shares authorized, 2,870,603,
2,972,222 and 5,822,222 shares issued and outstanding
at December 31, 1996, 1997, and June 30, 1998,
respectively.......................................... 500,000 40,000 1,040,000 21,108,000
Additional paid-in capital.............................. 4,126,000 -- --
Currency translation adjustment......................... -- -- -- 239,000
Retained earnings (deficit)............................. (5,543,000 ) 469,000 1,257,000 2,650,000
------------ ------------ ------------ ------------
Total stockholders' equity (deficiency)................... (917,000 ) 2,509,000 4,297,000 23,997,000
------------ ------------ ------------ ------------
Total liabilities and stockholders' equity (deficiency)... $35,455,000 $ 35,178,000 $ 40,898,000 $79,204,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>

SEE ACCOMPANYING NOTES.

F-3
<PAGE>
HAWKER PACIFIC AEROSPACE

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
1997JUNE 30 1998
--------------------------
SUCCESSOR
PREDECESSOR ------------------------------------------------------
--------------------------
YEAR TEN MONTHS TWO MONTHS YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31 OCTOBER 31 DECEMBER 31 DECEMBER 31
1995 1996 1996 1997 (UNAUDITED)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues..................... $ 35,012,000 $ 32,299,000 $ 6,705,000 $ 41,042,000 $ 20,358,000 $ 31,039,000
Cost of revenues............. 28,993,000 27,027,000 4,599,000 31,430,000 15,680,000 24,102,000
------------ ------------ ------------ ------------ ------------ ------------
Gross profit................. 6,019,000 5,272,000 2,106,000 9,612,000 4,678,000 6,937,000
------------ ------------ ------------ ------------ ------------ ------------
Operating expenses:
Selling expenses........... 2,858,000 2,248,000 525,000 3,191,000 1,551,000 1,720,000
General and administrative
expenses................. 1,979,000 2,796,000 534,000 2,706,000 1,243,000 2,370,000
Restructuring charges...... -- 1,196,000 -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Total operating expenses..... 4,837,000 6,240,000 1,059,000 5,897,000 2,794,000 4,090,000
------------ ------------ ------------ ------------ ------------ ------------
Income (loss) from
operations................. 1,182,000 (968,000) 1,047,000 3,715,000 1,884,000 2,847,000
Other (expense) income:
Interest expense........... (1,598,000) (1,609,000) (203,000) (2,431,000) (1,171,000) (1,449,000)
Interest income............ -- -- 7,000 3,000 -- --
Other expense, net......... -- -- -- (32,000) -- --
------------ ------------ ------------ ------------ ------------ ------------
Total other (expense)
income..................... (1,598,000) (1,609,000) (196,000) (2,460,000) (1,171,000) (1,449,000)
------------ ------------ ------------ ------------ ------------ ------------
Income (loss) before income
tax provision (benefit).... (416,000) (2,577,000) 851,000 1,255,000 713,000 1,398,000
Income tax provision
(benefit).................. (680,000) (971,000) 382,000 467,000 265,000 5,000
------------ ------------ ------------ ------------ ------------ ------------
Net income (loss).......... $ 264,000 $ (1,606,000) $ 469,000 $ 788,000 $ 448,000 $ 1,393,000
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
Earnings per common share:
Basic...................... $ 0.15 $ 0.25 $ 0.14 $ 0.26
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Diluted.................... $ 0.15 $ 0.25 $ 0.14 $ 0.25
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average common and
common equivalent shares
outstanding:
Basic...................... 3,120,603 3,145,079 3,120,603 5,420,012
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Diluted.................... 3,120,603 3,145,079 3,120,603 5,573,074
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>

SEE ACCOMPANYING NOTES.

F-4
<PAGE>
HAWKER PACIFIC AEROSPACE
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK OTHER
----------------------- --------------------- RETAINED COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT EARNINGS INCOME TOTAL
----------- ---------- --------- ---------- --------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at November 1, 1996........... -- $ -- -- $ -- $ -- $ -- $ --
Issuance of Preferred Stock........... 400 2,000,000 -- -- -- -- 2,000,000
Issuance of Common Stock to
Founders............................ -- -- 2,640,955 -- -- -- --
Issuance of Common Stock to
Management.......................... -- -- 229,648 40,000 -- -- 40,000
Net income for the period............. -- -- -- -- 469,000 -- 469,000
--- ---------- --------- ---------- --------- -------------- ----------
Balance at Decmeber 31, 1996.......... 400 2,000,000 2,870,603 40,000 469,000 -- 2,509,000
Issuance of Common Stock.............. -- -- 101,619 1,000,000 -- -- 1,000,000
Net income for the year............... -- -- -- -- 788,000 -- 788,000
--- ---------- --------- ---------- --------- -------------- ----------
Balance at December 31, 1997.......... 400 2,000,000 2,972,222 1,040,000 1,257,000 -- 4,297,000
Net income for the period
(unaudited)......................... -- -- -- -- 1,393,000 -- 1,393,000
Foreign currency translation
adjustment (unaudited).............. -- -- -- -- -- 239,000 239,000
--------- -------------- ----------
Comprehensive income (unaudited)...... -- -- -- -- 1,393,000 239,000 1,632,000
Conversion of preferred stock
(unaudited)......................... (400) (2,000,000) 250,000 2,000,000 -- -- --
Issuance of Common Stock
(unaudited)......................... -- -- 2,600,000 18,068,000 -- -- 18,068,000
--- ---------- --------- ---------- --------- -------------- ----------
Balance at June 30, 1998
(unaudited)......................... -- $ -- 5,822,222 $21,108,000 $2,650,000 $ 239,000 $23,997,000
--- ---------- --------- ---------- --------- -------------- ----------
--- ---------- --------- ---------- --------- -------------- ----------
</TABLE>

SEE ACCOMPANYING NOTES.

F-5
<PAGE>
HAWKER PACIFIC AEROSPACE

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SUCCESSOR
PREDECESSOR ---------------------------------------------------
------------------------
TEN TWO
YEAR MONTHS MONTHS YEAR SIX MONTHS
ENDED ENDED ENDED ENDED ENDED
DECEMBER 31 OCTOBER 31 DECEMBER 31 DECEMBER 31 JUNE 30
1995 1996 1996 1997 1997 1998
------------ ---------- ------------ ------------ --------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................ $ 264,000 $(1,606,000) $ 469,000 $ 788,000 $ 448,000 $1,393,000
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Deferred income taxes.................. (680,000) (971,000) 382,000 466,000 279,000 (12,000)
Depreciation........................... 680,000 525,000 183,000 741,000 353,000 637,000
Amortization........................... 174,000 294,000 17,000 463,000 254,000 657,000
Non-cash restructuring charge.......... -- 561,000 -- -- -- --
Stock compensation..................... -- -- 40,000 -- -- --
(Gain) loss on the sale of machinery,
equipment and landing gear........... 332,000 -- -- (78,000) -- --
Changes in operating assets and
liabilities:
Accounts receivable.................... (1,773,000) 1,771,000 (103,000) (1,036,000) 737,000 (6,900,000)
Inventory.............................. (4,433,000) 1,156,000 (901,000) (185,000) 128,000 (3,669,000)
Prepaid expenses and other current
assets............................... (101,000) (72,000) 21,000 104,000 (304,000) (396,000)
Accounts payable....................... (397,000) (2,681,000) 2,195,000 622,000 (883,000) (1,979,000)
Deferred revenue....................... 1,029,000 532,000 115,000 (745,000) (866,000) 690,000
Accrued liabilities.................... 682,000 261,000 (139,000) (818,000) (732,000) 3,341,000
------------ ---------- ------------ ------------ --------- ------------
Cash provided by (used in) operating
activities........................... (4,223,000) (230,000) 2,279,000 322,000 (586,000) (6,238,000)
INVESTING ACTIVITIES
Purchase of equipment, leasehold
improvements and landing gear.......... (4,479,000) (1,173,000) (155,000) (2,890,000) (495,000) (5,360,000)
Purchase of equipment and landing gear
from BA................................ -- -- -- -- -- (18,887,000)
Purchase of BA inventory................. -- -- -- -- -- (1,962,000)
Proceeds from disposals of equipment,
leasehold improvements and landing
gear................................... 350,000 -- -- 250,000 -- --
Acquisition of Predecessor............... -- -- (28,398,000) -- -- --
Other assets............................. 15,000 (26,000) -- (824,000) (39,000) 587,000
------------ ---------- ------------ ------------ --------- ------------
Cash used in investing activities........ (4,114,000) (1,199,000) (28,553,000) (3,464,000) (534,000) (25,622,000)
FINANCING ACTIVITIES
Borrowing under bank note................ -- -- 13,500,000 -- -- 13,285,000
Principal payments on bank note.......... -- -- -- (850,000) (425,000) (51,000)
Principal payments on related party
note................................... -- -- -- -- -- (1,500,000)
Borrowings/payments on line of credit,
net.................................... -- -- (1,287,000) 3,200,000 600,000 1,941,000
Borrowing on note payable to related
party.................................. -- -- 6,500,000 -- -- --
Initial borrowing under line of credit... -- -- 6,616,000 -- -- --
Borrowings/payments on due to Parent and
affiliates (net)....................... 8,010,000 2,193,000 -- -- -- --
Deferred offering costs.................. -- -- -- (766,000) -- (1,966,000)
Deferred financing cost.................. -- -- -- (337,000) -- --
Issuance of preferred stock.............. -- -- 2,000,000 -- -- --
Deferred loan fees....................... -- -- -- -- -- (235,000)
Contributions to capital................. -- 242,000 -- 1,000,000 -- --
Net proceeds from equity offering........ -- -- -- -- -- 20,800,000
------------ ---------- ------------ ------------ --------- ------------
Cash provided by financing activities.... 8,010,000 2,435,000 27,329,000 2,247,000 175,000 32,274,000
Increase (decrease) in cash.............. (327,000) 1,006,000 1,055,000 (895,000) (945,000) 414,000
Cash, beginning of period................ 726,000 399,000 -- 1,055,000 1,055,000 160,000
------------ ---------- ------------ ------------ --------- ------------
Cash, end of period...................... $ 399,000 $1,405,000 $1,055,000 $ 160,000 $ 110,000 $ 574,000
------------ ---------- ------------ ------------ --------- ------------
------------ ---------- ------------ ------------ --------- ------------
</TABLE>

F-6
<PAGE>
HAWKER PACIFIC AEROSPACE

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

SEE ACCOMPANYING NOTES.

F-7
<PAGE>
HAWKER PACIFIC AEROSPACE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(INFORMATION AT JUNE 30, 1998 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

Hawker Pacific Aerospace, formerly known as Hawker Pacific, Inc. (the
"Company") is a California corporation with headquarters in Sun Valley,
California, with additional facilities in the Netherlands and the United
Kingdom. The Company repairs and overhauls aircraft and helicopter landing gear,
hydromechanical components, and wheels, brakes and braking system components for
a diverse international customer base, including commercial airlines, air cargo
operators, domestic government agencies, aircraft leasing companies, aircraft
parts distributors, and original equipment manufacturers. In addition, the
Company distributes and sells new and overhauled spare parts and components for
both fixed wing and helicopters.

ORGANIZATION AND BASIS OF PRESENTATION

The Company operated as a subsidiary of BTR Dunlop Holdings, Inc., a
Delaware Corporation, from December 21, 1994 to October 31, 1996. BTR Dunlop
Holdings, Inc. was a subsidiary of BTR plc, a United Kingdom company
(collectively, the "Parent").

Effective January 1, 1994, the Company merged its operations with certain
operations of Dunlop Aviation, Inc., a subsidiary of the Parent. The merger was
a combination of companies under common control and was accounted for similar to
the pooling of interests method of accounting.

Pursuant to an Agreement of Purchase and Sale of Stock, Aqhawk, Inc.
("Aqhawk") purchased all of the Company's outstanding stock from BTR plc
effective as of November 1, 1996 (the "Acquisition"). Aqhawk was formed as a
holding company for the sole purpose of acquiring the stock of the Company and
was subsequently merged into the Company. The acquisition has been accounted for
under the purchase accounting method. The aggregate purchase price was
approximately $29,800,000, which includes the cost of the Acquisition. The
aggregate purchase price was allocated to the assets of the Company, based upon
estimates of their respective fair market values. The excess of purchase price
over the fair values of the net assets acquired was $1,019,000 and was recorded
as goodwill. Goodwill has been subsequently reduced for the reduction of certain
allowances on deferred taxes and amortization.

The financial statements as of December 31, 1995 and for the year ended
December 31, 1995 and the ten months ended October 31, 1996 are presented under
the historical cost basis of the Company, as a wholly-owned subsidiary of BTR
Dunlop Holdings, Inc., the predecessor Company (the "Predecessor"). The
financial statements as of December 31, 1996 and 1997, and for the two months
ended December 31, 1996 and the year ended December 31, 1997 are presented under
the new basis of the successor company (the "Successor") established in the
Acquisition.

On February 3, 1998, the Company completed an initial public offering (the
"Initial Public Offering") of 2,766,667 shares of the Company's common stock
("Common Stock"). Of the 2,766,667 shares of Common Stock sold in the Offering,
2,600,000 shares were sold by the Company and 166,667 shares were sold by a
principal shareholder of the Company. The principal shareholder sold 415,000
additional shares of Common Stock pursuant to the exercise of an over allotment
option granted to the underwriters by the principal shareholder. The Company
received net proceeds of approximately $18.1 million net of expenses of
approximately $2.7 million. The Company used approximately $9.2 million of the
net proceeds to fund a portion of the purchase price for certain assets of
British Airways as discussed below, and approximately

F-8
<PAGE>
HAWKER PACIFIC AEROSPACE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AT JUNE 30, 1998 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
$7.6 million to repay a portion of the revolving and term debt previously
outstanding under the Company's credit facility.

In connection with the Initial Public Offering, the Company effected a
579.48618 for one stock split of the Company's Common Stock in November 1997 and
a one for .9907406 reverse stock split in January 1998. All references in the
accompanying financial statements to the number of shares of Common Stock, per
common share amounts have been retroactively adjusted to reflect the stock
splits. All of the Company's Series A Preferred Stock were converted into an
aggregate of 250,000 shares of Common Stock. In addition, the Company's capital
structure was changed to reflect 20,000,000 shares of Common Stock and 5,000,000
shares of preferred stock authorized. The Board of Directors has authority to
fix the rights, preferences, privileges and restrictions, including voting
rights, of those shares without any future vote or action by the shareholders.

PRINCIPALS OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiary, Hawker Pacific Aerospace, Limited.
All significant intercompany amounts have been eliminated.

ACQUISITION OF CERTAIN ASSETS OF BRITISH AIRWAYS

On February 4, 1998 (the "Acquisition Date"), the Company completed its
acquisition of certain assets of British Airways plc ("BA Assets"). The BA
Assets represent the assets of British Airways Engineering used to service
landing gear primarily on British Airways plc's ("British Airways") aircraft.
The purchase price for the BA Assets was approximately $19.5 million, including
$1.1 million of transaction costs. In addition, the Company subsequently
purchased an additional landing gear for $2.9 million (the liability for this
payment was included in accrued liabilities at June 30, 1998) from British
Airways. As part of the BA Acquisition, the Company and British Airways entered
into a seven-year exclusive service agreement on February 4, 1998 for the
Company to provide landing gear and related repair and overhaul services to
substantially all of the aircraft currently operated by British Airways.

INTERIM FINANCIAL INFORMATION

The accompanying balance sheet as of June 30, 1998 and the statements of
operations and cash flows for the six months ended June 30, 1997, and 1998 and
the statement of changes in shareholders equity for the six months ended June
30, 1998 are unaudited. In the opinion of management, the statements have been
prepared on the same basis as the audited financial statements and include all
adjustments, consisting of normal recurring adjustments, necessary for the fair
statement of interim periods. The data disclosed in these notes to the financial
statements for these periods is also unaudited. The results of operations and
cash flows for the interim period are not necessarily indicative of the results
to be expected for any other interim future period.

F-9
<PAGE>
HAWKER PACIFIC AEROSPACE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AT JUNE 30, 1998 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following unaudited pro forma information combines the results of
operations of the Successor and Predecessor as if the Acquisition had occurred
on January 1, 1996 and includes certain pro forma adjustments to the historical
operating results for amortization of goodwill, depreciation and amortization of
fixed assets and interest expense. The pro forma information is presented for
illustrative purposes only, and is not necessarily indicative of what the actual
results of operations would have been during such periods or representative of
future operations.

<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED
DECEMBER 31
1996
--------------
(UNAUDITED)
<S> <C>
Revenues...................................................................... $ 39,004,000
Net loss...................................................................... (1,523,000)
Net loss per share............................................................ (0.49)
</TABLE>

LANDING GEAR EXCHANGE

Landing gear and other rotable assets are accounted for as fixed assets at
cost and are depreciated over their estimated useful lives to their respective
salvage values. These assets include various airplane, wing, body and nose
landing gear shipsets. Landing gear and other rotable assets are held for
purposes of exchanging the assets for a customer's landing gear or other part
needing repair or overhaul. As the landing gear is exchanged and the customer is
billed for the cost of the repair, the landing gear or other parts are typically
repaired and overhauled and maintained as property of the Company for future
exchanges. The estimated useful lives range from 10 to 15 years depending on the
age of the aircraft and projected marketability of the exchange gear over time.
Amortization expense is recorded as a component of cost of revenues using the
straight-line amortization method.

RECOGNITION OF REVENUE

The Company generates revenue primarily from repair and overhaul services.
In some cases repair and overhaul services include exchange fees for the
exchange of the Company's landing gear or other parts for the customer's landing
gear or other parts needing repair or overhaul services. The Company also
generates revenues from the sale and distribution of spare parts.

Spare parts sales and exchange fee revenues are each individually less than
10% of total revenues.

Revenues for repair and overhaul services not involving an exchange
transaction are recognized when the unit is shipped. Deferred revenue is
principally comprised of customer prepayments and progress billings related to
the overhaul and repair of landing gear and other services which are in process.
Revenues from spare parts sales are recognized at the time of shipment. Landing
gear exchange fees are recognized on shipment of the exchanged gear to the
customer. Revenues for repair and overhaul service involving an exchange are
recognized when the cost of repairing the part received from the customer are
known and billable.

F-10
<PAGE>
HAWKER PACIFIC AEROSPACE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AT JUNE 30, 1998 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMPREHENSIVE INCOME

During 1998, the Company adopted Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130
establishes new rules for the reporting and display of comprehensive income and
its components; however, the adoption of SFAS No. 130 had no impact on the
Company's net income or shareholders' equity. SFAS No. 130 requires foreign
currency translation adjustments to be included in other comprehensive income.
The adoption of SFAS No. 130 did not result in reclassification of prior year
financial statements.

CONCENTRATIONS OF RISK

MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK The Company performs
credit evaluations and analysis of amounts due from its customers; however, the
Company generally does not require collateral. Credit losses have been within
management's expectations and an estimate of uncollectible accounts has been
provided for in the financial statements.

Revenue from three customers, who individually accounted for greater than
10% of total revenues, were 20.3%, 19.3% and 10.4%, respectively, of the
Company's total revenues for the six months ended June 30, 1998, and accounted
for 27.2%, 16.6% and 9.5%, respectively, of the accounts receivable balance at
June 30, 1998.

One customer accounted for 19.3% of the Company's total revenues for the
year ended December 31, 1997 and represented 18.9% of the accounts receivable
balance at December 31, 1997.

One customer accounted for 13.1% of the Company's total revenues for the two
month period ended December 31, 1996 and represented 7.4% of the accounts
receivable balance at December 31, 1996.

Revenues from two customers, who individually accounted for greater than 10%
of total revenues, were 19.6% and 11.7%, respectively, of the Company's total
revenues for the ten month period ended October 31, 1996.

Revenues from two customers, who individually accounted for greater than 10%
of total revenues, were 17.1% and 10.0%, respectively, of the Company's total
revenues for the year ended December 31, 1995 and accounted for 9.9% and 11.3%,
respectively, of the accounts receivable balance at December 31, 1995.

MAJOR VENDORS

One vendor accounted for $5,777,000 of the Company's total purchases during
the six months ended June 30, 1998.

Three vendors accounted for $9,283,000 of the Company's total purchases
during the year ended December 31, 1997.

Three vendors accounted for $1,901,000 of the Company's total purchases for
the two month period ended December 31, 1996.

F-11
<PAGE>
HAWKER PACIFIC AEROSPACE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AT JUNE 30, 1998 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Two vendors accounted for $7,030,000 of the Company's total purchases during
the ten month period ended October 31, 1996.

One vendor accounted for $5,005,000 of the Company's total purchases for the
year ended December 31, 1995.

INVENTORIES

Inventories are stated at the lower of cost or market. Purchased parts and
assemblies are valued based on the weighted average cost. Work-in-process
inventories include purchased parts, direct labor and factory overhead.
Provisions for potentially obsolete or slow moving inventory are made based on
management's analysis of inventory levels, turnover and future revenue
forecasts.

EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Equipment and leasehold improvements are recorded at cost. Depreciation
expense is being provided using the straight-line method based on the following
estimated useful lives:

<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------------ ------------------
<S> <C> <C>
Leasehold improvements................................ Lesser of life of Lesser of life of
lease or asset lease or asset
Machinery and equipment............................... 13.3 years 8 years
Tooling............................................... 13.3 years 5 years
Furniture and fixtures................................ 7 years 5 years
Vehicles.............................................. 5 years 3 years
Computer equipment.................................... 5 years 3 years
</TABLE>

Expenditures for repairs are expensed as incurred and additions, renewals
and betterments are capitalized.

GOODWILL

In connection with the purchase of the Company by Aqhawk, Inc. as previously
described, the Company recorded goodwill which represents the excess of the
purchase price over the estimated fair value of the net assets acquired. The
Company is amortizing goodwill using the straight-line method over a period of
15 years. The Company assesses the recoverability of its goodwill whenever
adverse events or changes in circumstances or business climate indicate that
expected future cash flows for the business may not be sufficient to support
recorded goodwill.

At December 31, 1996, and 1997 and June 30, 1998, goodwill was reduced by
$382,000, $466,000 and $145,000, respectively, due to the realization of certain
deferred tax assets and the corresponding reduction of the valuation allowance
established in the allocation of the purchase price of the Acquisition. As a
result, goodwill has been reduced to zero as of June 30, 1998.

F-12
<PAGE>
HAWKER PACIFIC AEROSPACE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AT JUNE 30, 1998 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN REVENUES

The Company generated revenues from customers located outside of the United
States of $5,616,000, $4,493,000, $1,517,000, $11,856,000 and $11,597,000, of
which $3,368,000, $2,887,000, $1,191,000, $9,901,000 and $4,606,000 were
revenues generated from the Company's United States location for the year ended
December 31, 1995, the ten months ended October 31, 1996, and the two months
ended December 31, 1996 the year ended December 31, 1997, and the six months
ended June 30, 1998, respectively.

Realized and unrealized foreign exchange gains (losses) amounted to
$161,000, $33,000, ($3,000), $298,000 and $201,000 for the year ended December
31, 1995, the ten months ended October 31, 1996, the two months ended December
31, 1996, the year ended December 31, 1997 and the six months ended June 30,
1998, respectively.

ENVIRONMENTAL EXPENSE AND INCOME RECOVERY

Included in general and administrative expense for the year ended December
31, 1995, and the ten months ended October 31, 1996, is $717,000 and $947,000,
respectively, of legal fees and settlement cost associated with investigating,
defending and settling the environmental remediation matter discussed in Note 7.
In addition, for the year ended December 31, 1995, general and administrative
expense has been reduced by insurance recoveries of $1,000,000. There were no
corresponding costs incurred in the two months ended December 31, 1996, the year
ended December 31, 1997, or the period ended June 30, 1998.

EARNINGS PER SHARE

Earnings per common share are computed based on the weighted average number
of shares outstanding during each period. The weighted average number of shares
outstanding give effect to the stock split and conversion of preferred stock
discussed in Note 1 as if they had occurred on November 1, 1996.

During 1997, the Company adopted Statement of Financial Accounting Standards
No. 128, "Earnings Per Share" ("SFAS No. 128"). Pursuant to SFAS No. 128, basic
earnings (loss) per common share are computed based upon the weighted average
number of common shares outstanding for the period. Diluted earnings per common
share reflects the potential dilution that could occur if certain securities
were exercised or converted into common stock.

The adoption of SFAS No. 128 did not result in a restatement of earnings
(loss) per common share for the periods presented in the financial statements.
Basic earnings (loss) per share under SFAS No. 128 is the same as diluted
earnings (loss) per share for all periods presented except for the six months
ended June 30, 1998, and includes 250,000 shares issued upon the conversion of
the preferred stock discussed in Note 1, as if converted at the beginning of the
period. The number of shares used in the calculation of basic and diluted
earnings per share was 3,120,603 and 3,145,079 for the two months ended December
31, 1996 and the year ended December 31, 1997, respectively. The number of
shares used in the calculation of basic and diluted earnings per share was
5,420,012 and 5,573,074 for the six months ended June 30, 1998, respectively.
The difference between basic and diluted is due to options to purchase common
stock.

F-13
<PAGE>
HAWKER PACIFIC AEROSPACE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AT JUNE 30, 1998 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Options to purchase 374,937 shares of common stock at $8 per share (the
Initial Public Offering price) were outstanding during 1997 but were not
included in the computation of diluted earnings per share because the exercise
price was greater than the average market price of the common shares and,
therefore, the effect would be antidilutive.

EMPLOYEE STOCK COMPENSATION

The Company adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS No. 123), which establishes a
fair value method of accounting for stock-based compensation plans. In
accordance with SFAS No. 123, the Company has chosen to continue to account for
stock-based compensation utilizing the intrinsic value method prescribed in APB
25. Accordingly, compensation cost for stock options is measured as the excess,
if any, of the fair market price of the Company's stock at the date of grant
over the amount an employee must pay to acquire the stock.

Also, in accordance with SFAS No. 123, the Company intends to provide
footnote disclosure with respect to stock-based employee compensation in its
1998 annual financial statements. The cost of stock-based employee compensation
is based on the fair value of the award measured at the measurement date
(generally the grant date) and is recognized over the service period. The value
of the stock-based award is determined using a pricing model whereby
compensation cost is the fair value of the stock option as determined by the
model at grant date or other measurement date.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments principally consist of accounts
receivable, accounts payable, line of credit, note payable to a bank, and notes
payable to a related party as defined by Statement of Financial Accounting
Standards No. 107, "Disclosures About Fair Value of Financial Instruments." The
carrying value of accounts receivable and accounts payable approximates their
fair market values due to the short-term nature of these instruments. The
carrying value of the line of credit and note payable to a bank approximates
their fair market values since these financial instruments carry a floating
interest rate. The fair market value of the note payable to a related party
approximated its carrying value based on current market rates for such debt.

MANAGEMENT'S 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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results may differ from those estimates.

NEW ACCOUNTING PRONOUNCEMENTS

Statement of Financial Accounting Standards No. 131, "Disclosure about
Segments of an Enterprise and Related Information" (SFAS No. 131) issued by the
FASB is effective for financial statements beginning after December 15, 1997.
The new standard requires that public business enterprises report certain
information about operating segments in complete sets of financial statements of
the enterprise

F-14
<PAGE>
HAWKER PACIFIC AEROSPACE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AT JUNE 30, 1998 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
and in condensed financial statements of interim periods issued to shareholders.
It also requires that public business enterprises report certain information
about their products and services, the geographic areas in which they operate
and their major customers. The Company does not expect adoption of SFAS No. 131
to have a material effect, if any, on its results of operations.

In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, which is
required to be adopted in years beginning after June 15, 1999. Because of the
Company's minimal use of derivatives (see interest rate swaps in Note 5),
management does not anticipate that the adoption of the new Statement will have
a significant effect on earnings or the financial position of the Company.

2. INVENTORIES

Inventories are comprised of the following:

<TABLE>
<CAPTION>
SUCCESSOR
PREDECESSOR -------------------------------------------
--------------- DECEMBER 31
DECEMBER 31 ----------------------------
1995 1996 1997
--------------- ------------- ------------- JUNE 30
1998
-------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Purchased parts and assemblies....... $ 10,658,000 $ 9,722,000 $ 11,961,000 $ 18,615,000
Work-in-process...................... 2,788,000 3,228,000 2,853,000 1,830,000
--------------- ------------- ------------- -------------
$ 13,446,000 $ 12,950,000 $ 14,814,000 $ 20,445,000
--------------- ------------- ------------- -------------
--------------- ------------- ------------- -------------
</TABLE>

F-15
<PAGE>
HAWKER PACIFIC AEROSPACE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AT JUNE 30, 1998 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)

3. EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Equipment and leasehold improvements, at cost, consist of the following:

<TABLE>
<CAPTION>
SUCCESSOR
PREDECESSOR -----------------------------------------
--------------- DECEMBER 31
DECEMBER 31 --------------------------
1995 1996 1997
--------------- ------------ ------------ JUNE 30
1998
-------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Leasehold improvements.................. $ 1,331,000 $ 1,009,000 $ 1,575,000 $ 1,739,000
Machinery and equipment................. 5,354,000 3,202,000 3,394,000 7,305,000
Tooling................................. 641,000 308,000 356,000 444,000
Furniture and fixtures.................. 342,000 72,000 199,000 216,000
Vehicles................................ 31,000 30,000 30,000 38,000
Computer equipment...................... 1,301,000 209,000 384,000 1,414,000
--------------- ------------ ------------ -------------
9,000,000 4,830,000 5,938,000 11,156,000
Less: Accumulated depreciation........ 4,129,000 111,000 855,000 1,587,000
--------------- ------------ ------------ -------------
$ 4,871,000 $ 4,719,000 $ 5,083,000 $ 9,569,000
--------------- ------------ ------------ -------------
--------------- ------------ ------------ -------------
</TABLE>

4. INCOME TAXES

The tax provision of the Predecessor has been computed as if the Predecessor
filed a separate income tax return. For the period ending December 31, 1995, the
taxable income of the Predecessor was included in the consolidated Federal and
State tax returns of its Parent. Under a tax sharing arrangement with its
Parent, the Predecessor's deferred tax assets were expected to be recoverable
against the current or future earnings of the Predecessor or its Parent.
Accordingly, the deferred tax valuation allowance for certain deferred taxes
recoverable through the consolidated tax return of the Parent was reduced
resulting in a net deferred tax benefit for the year ended December 31, 1995.

For the two months ended December 31, 1996, and the year ended December 31,
1997, the tax provision has been computed on a stand-alone basis. A full
valuation allowance for the Successor's net deferred tax assets was provided at
the Acquisition date as an adjustment to goodwill due to future uncertainty
concerning the ultimate realization of the net deferred tax asset. To the extent
the deferred tax assets of the Successor become realizable under Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No.
109") the related reduction in the valuation allowance will be recorded as a
reduction to goodwill until goodwill is eliminated and then as a reduction of
income tax expense.

F-16
<PAGE>
HAWKER PACIFIC AEROSPACE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AT JUNE 30, 1998 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)

4. INCOME TAXES (CONTINUED)
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 used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows:

<TABLE>
<CAPTION>
SUCCESSOR
---------------------------
PREDECESSOR
--------------- DECEMBER 31
DECEMBER 31 ---------------------------
1995 1996 1997
--------------- ------------- ------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.................. $ 3,026,000 $ 1,953,000 $ 3,013,000
Inventory valuation accruals...................... 942,000 1,449,000 439,000
Accounts receivable valuation accruals............ 17,000 131,000 64,000
Environmental remediation accruals................ 102,000 285,000 --
Employee benefits and compensation................ 135,000 195,000 169,000
Product and service warranties.................... 109,000 82,000 70,000
State tax credits................................. -- -- 127,000
Other items, net.................................. 335,000 351,000 76,000
--------------- ------------- ------------
Total deferred tax assets....................... 4,666,000 4,446,000 3,958,000
Deferred tax liabilities:
Depreciation and amortization..................... 1,977,000 2,474,000 2,789,000
Property, equipment and landing gear exchange
asset basis adjustments......................... -- 445,000 445,000
Other items, net.................................. 185,000 100,000 65,000
--------------- ------------- ------------
Total deferred tax liabilities.................. 2,162,000 3,019,000 3,299,000
--------------- ------------- ------------
Net deferred tax asset.............................. 2,504,000 1,427,000 659,000
Less valuation allowance............................ (1,824,000) (1,427,000) (659,000)
--------------- ------------- ------------
Net deferred tax asset after allowance.............. $ 680,000 $ -- $ --
--------------- ------------- ------------
--------------- ------------- ------------
</TABLE>

F-17
<PAGE>
HAWKER PACIFIC AEROSPACE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AT JUNE 30, 1998 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)

4. INCOME TAXES (CONTINUED)
Significant components of the provision for taxes based on income are as
follows:

<TABLE>
<CAPTION>
PREDECESSOR
------------------------------- SUCCESSOR
YEAR --------------------------------
ENDED TEN MONTHS TWO MONTHS YEAR
DECEMBER 31 ENDED OCTOBER ENDED DECEMBER ENDED DECEMBER
1995 31 1996 31 1996 31 1997
--------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Current:
Federal........................... $ -- $ -- $ -- $ --
State............................. -- -- -- 1,000
--------------- -------------- --------------- ---------------
-- -- -- 1,000
Deferred:
Federal........................... (504,000) (746,000) 277,000 466,000
State............................. (176,000) (225,000) 105,000 --
--------------- -------------- --------------- ---------------
(680,000) (971,000) 382,000 466,000
--------------- -------------- --------------- ---------------
(Benefit) provision for taxes....... $ (680,000) $ (971,000) $ 382,000 $ 467,000
--------------- -------------- --------------- ---------------
--------------- -------------- --------------- ---------------
</TABLE>

The tax (benefit) provision for the year ended December 31, 1995, includes a
benefit of $525,000, resulting from the reduction of the deferred tax valuation
allowance.

For the two months ended December 31, 1996 and the year ended December 31,
1997, reductions of the valuation reserve of approximately $382,000 and
$466,000, respectively, resulted in equivalent reductions of goodwill. For the
year ended December 31, 1997 deferred tax assets of $302,000, were determined
not to be realizable and were charged directly against the valuation allowance.

During the six months ended June 30, 1998 the Company estimated that the
deferred tax asset valuation allowance of $659,000 was no longer needed and such
amount was reversed as a $145,000 reduction of goodwill and a $514,000 benefit
recorded in the income tax provision.

A reconciliation of the statutory federal income tax rate to the effective
tax rate, as a percentage of income before tax, is as follows:

<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
-------------------------------------- -----------------------------------------
YEAR YEAR
ENDED DECEMBER 31 TEN MONTHS ENDED TWO MONTHS ENDED ENDED DECEMBER 31
1995 OCTOBER 31 1996 DECEMBER 31 1996 1997
------------------ ------------------ -------------------- -------------------
<S> <C> <C> <C> <C>
Statutory federal income tax rate... (34)% (34)% 34% 34%
Nondeductible expenses.............. 13 2 3 3
State income taxes, net of federal
benefit........................... (4) (6) 8 --
Decrease in valuation
reserve........................... (139) -- -- --
-- -- --
---
Effective tax rate.................. (164)% (38)% 45% 37%
-- -- --
-- -- --
---
---
</TABLE>

F-18
<PAGE>
HAWKER PACIFIC AEROSPACE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AT JUNE 30, 1998 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)

4. INCOME TAXES (CONTINUED)

The Company has net operating loss carryforwards for federal tax purposes of
$7,892,000 which expire in the years 2007 to 2012. The Company also has State
net operating loss carryforwards of $3,548,000 which expire in the years 1999 to
2002. Utilization of the net operating losses may be limited as a result of
limitations due to changes in ownership.

5. SUCCESSOR LINES OF CREDIT AND NOTES PAYABLE

At December 31, 1997 the Company had a revolving line of credit agreement
with a bank which permitted borrowings up to the lesser of $10,000,000 or a
borrowing base of 85% of accounts receivable plus the lesser of $6,000,000 or
50% of the value of acceptable inventory. The line of credit agreement also
included a facility for up to $2,000,000 in letters of credit. The line of
credit was to expire November 30, 1999, and carried interest at either the
"offshore rate" plus 1.5% or the bank's reference rate, at the option of the
Company. The weighted average interest rate on borrowing outstanding under the
line of credit was 7.56% at December 31, 1997. The Company had available
borrowings of $427,000 at December 31, 1997 under this agreement.

The line of credit agreement contained certain covenants which included, but
are not limited to, quick ratio, fixed charge coverage ratio, profitability, and
dividend and capital investment limitations. The line of credit was
collateralized by all personal property of the Company and guaranteed by a
Shareholder of the Company.

The Company also had a shipset purchase line of credit from a bank up to
$3,000,000 to finance a portion of the purchase price for landing gear used in
the ordinary course of business. At December 31, 1996 and 1997, there were no
amounts outstanding under the shipset purchase line of credit.

On February 3, 1998, the Company completed its Amended and Restated Business
Loan Agreement (the "Amended Loan Agreement") with Bank of America. This
agreement increases the credit available to the Company from $26.5 million to
$45.5 million. The Amended Loan Agreement provides the Company with a $15.0
million revolving line of credit, subject to limitations based on collateral, a
$24.5 million dollar term loan and a $6 million capital expenditure facility.
The revolving line of credit matures in three years, and the term loan and
capital expenditure facilities mature in seven years. At the Company's election,
the rate of interest on each of the three facilities is either Bank of America's
reference rate or the interbank eurodollar rates on either the London market or
the Cayman Islands market.

F-19
<PAGE>
HAWKER PACIFIC AEROSPACE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AT JUNE 30, 1998 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)

5. SUCCESSOR LINES OF CREDIT AND NOTES PAYABLE (CONTINUED)
The Company's note payable balance consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31
----------------------------
1996 1997
------------- ------------- JUNE 30
1998
-------------
(UNAUDITED)
<S> <C> <C> <C>
Note payable to a bank, payable in quarterly
installments, beginning in 1999 of $812,500
and periodically escalating to $1,312,500 in
2004, plus interest at either the offshore
rate plus 1.875% or the bank's reference rate,
subject to the same terms and conditions as
the line of credit, maturing December 31,
2004. The interest rate in effect at June 30,
1998 was 7.4%................................. $ 13,500,000 $ 12,650,000 $ 24,500,000

Note payable to a bank on capital expenditure
facility, payable in quarterly installments of
$51,250 and one final payment of $102,000 plus
interest at either the offshore rate plus
1.875% or the bank's reference rate, subject
to the same terms and conditions as the line
of credit, maturing December 31, 2004. The
interest rate in effect at June 30, 1998 was
7.4%.......................................... -- -- $ 1,384,000

Note payable to related party, interest accrues
monthly at 11.8% per annum, interest payments
due monthly equal to the lesser of the accrued
interest or excess cash flow as defined,
subordinated to the line of credit, term loan
and capital expenditure loan, quarterly
principal payments of $700,000 scheduled to
begin in January 2004 through December 2006... 6,500,000 6,500,000 5,000,000
------------- ------------- -------------
20,000,000 19,150,000 30,884,000
Less current.................................... 850,000 1,450,000 1,830,000
------------- ------------- -------------
$ 19,150,000 $ 17,700,000 $ 29,054,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

F-20
<PAGE>
HAWKER PACIFIC AEROSPACE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AT JUNE 30, 1998 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)

5. SUCCESSOR LINES OF CREDIT AND NOTES PAYABLE (CONTINUED)
Maturity of notes payable as of December 31, 1997, is summarized as follows:

<TABLE>
<S> <C>
1998........................................................... $1,450,000
1999........................................................... 1,700,000
2000........................................................... 2,250,000
2001........................................................... 2,250,000
2002........................................................... 2,500,000
2003 and thereafter............................................ 9,000,000
----------
$19,150,000
----------
----------
</TABLE>

Maturity of notes payable as of June 30, 1998, unaudited, is summarized as
follows:

<TABLE>
<S> <C>
1999........................................................... $1,830,000
2000........................................................... 3,455,000
2001........................................................... 3,705,000
2002........................................................... 4,205,000
2003........................................................... 4,705,000
2004 and thereafter............................................ 12,984,000
----------
$30,884,000
----------
----------
</TABLE>

The Company entered into an interest rate swap agreement (the "Swap
Agreement") to reduce the impact of changes in interest rates in its
floating-rate long-term debt. The Swap Agreement dated January 13, 1997 has an
initial notional amount of $6,750,000 reducing to $2,781,000 through the
expiration date of December 31, 2001. The Company is required to pay interest on
the notional amount at the rate of 6.65% and receives from the bank a percentage
of the notional amount based on a floating interest rate. The Swap Agreement
effectively reduces its interest rate exposure on the notional amount to a fixed
rate of 6.65%. The notional amount at December 31, 1997 was $6,325,000. The
floating interest rate in effect under the Swap Agreement at December 31, 1997
was 5.87%. The Swap Agreement had a negative fair market value of $128,000 at
December 31, 1997.

With the Amended Loan Agreement the Company entered into another interest
rate swap agreement (the "Swap Agreement") to reduce the impact of changes in
interest rates in its floating-rate long-term debt. The Swap Agreement dated
February 19, 1998 has an initial notional amount of $14,700,000 reducing to
$8,550,000 through the expiration date of March 28, 2002. The Company is
required to pay interest on the notional amount at the rate of 6.39% and
receives from the bank a percentage of the notional amount based on a floating
interest rate. The Swap Agreement effectively reduces its interest rate exposure
of the notional amount to a fixed rate of 6.39%. The floating interest rate in
effect under the Swap Agreement is 5.625%. The Swap Agreement had a negative
fair market value of $259,000 at June 30, 1998.

F-21
<PAGE>
HAWKER PACIFIC AEROSPACE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AT JUNE 30, 1998 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)

6. COMMITMENTS AND CONTINGENCIES

OPERATING LEASES

The Company leases its facilities, certain office equipment and a vehicle
under operating lease agreements, which expire through May 2010 and contain
certain escalation clauses based on various inflation indexes. Future minimum
rental payments as of December 31, 1997, are summarized as follows:

<TABLE>
<S> <C>
1998........................................................... $1,165,000
1999........................................................... 1,158,000
2000........................................................... 1,158,000
2001........................................................... 1,165,000
2002........................................................... 1,120,000
2003 and thereafter............................................ 5,621,000
----------
$11,387,000
----------
----------
</TABLE>

The Company entered into a 13-year operating lease for additional office
space and warehouse facilities during July 1997. In addition, significant
leasehold improvement costs were incurred during the year ended December 31,
1997.

The Company incurred rent expense of approximately $980,000, $586,000,
$109,000 and $795,000 for the year ended December 31, 1995, the ten months ended
October 31, 1996, the two months ended December 31, 1996, and the year ended
December 31, 1997, respectively.

EMPLOYMENT AGREEMENTS

The Company is obligated under certain management employment contracts
through October 31, 2001. Future minimum salary expense related to these
contracts are summarized as follows:

ENVIRONMENTAL REMEDIATION

During 1993, the Company and other parties became defendants in a United
States Environmental Protection Agency and State of California lawsuit (the
"Plaintiffs") alleging violations of certain environmental regulations related
to the contamination of ground water in the San Fernando Valley Basin that
resulted from the release of hazardous substances.

During 1996, the Company recorded additional reserves related to this matter
for total reserves of $657,000 at October 31, 1996 and December 31, 1996. The
Company has been indemnified by BTR plc for any claims related to this matter in
excess of the amount recorded. The amount recorded at December 31, 1996
represented the Company's portion of a settlement that was reached with the
Plaintiffs during 1997.

F-22
<PAGE>
HAWKER PACIFIC AEROSPACE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AT JUNE 30, 1998 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)

6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
In August 1997 and January 1998, two separate lawsuits were filed by various
individuals against Lockheed Martin Corporation and various other parties,
including the Company, in the Los Angeles Superior Court pleading various causes
of action in connection with certain alleged injuries caused by toxic and
carcinogenic chemicals allegedly released by the defendants in the Burbank and
Glendale areas of Los Angeles County, California. The individual plaintiffs seek
unspecified compensatory and punitive damages. The Company does not believe that
it caused the release of toxic and carcinogenic chemicals alleged in the
complaints and BTR has assumed the defense and has agreed to indemnify the
Company in connection with such claims. No amounts have been recorded as a
liability because it is not possible to estimate the probable liability.
Further, any liability that arises will be the responsibility of BTR plc.

LITIGATION

The Company is involved in various lawsuits, claims and inquiries, which the
Company believes are routine to the nature of the business. In the opinion of
management, the resolution of these matters will not have a material adverse
effect on the financial position, results of operations or cash flows of the
Company.

7. RELATED PARTY TRANSACTIONS

SALES AND PURCHASES

The Predecessor generated revenue and purchased goods and services from its
Parent and various subsidiaries of its Parent (collectively the "Affiliates").
Certain long term purchase agreements with the Affiliates have continued under
the Successor company.

Total revenues for the year ended December 31, 1995 and the ten months ended
October 31, 1996 from the Affiliates were approximately $552,000 and $331,000,
respectively.

Total purchases for the year ended December 31, 1995 and the ten months
ended October 31, 1996 from the affiliates were approximately $6,820,000 and
$5,437,000, respectively.

In the ordinary course of business, the Successor pays sales commissions to
a company which is also a shareholder of the Successor. During the period from
January 1, 1997 through December 31, 1997, and the period from January 1, 1998
to June 30, 1998, the Successor paid $556,000 and $285,000 of commissions and
reimbursed expenses to this related party, respectively.

NOTES PAYABLE TO RELATED PARTY

As more fully described in Note 5, the Successor is subject to a note
payable to a company controlled by shareholders of the Successor which is
included in notes payable on the balance sheets. Interest expense on this note
payable for the two months ended December 31, 1996, the year ended December 31,
1997 and the six months ended June 30, 1998 amounted to $74,000, $767,000 and
$314,000, respectively. The balance of this note was $6,500,000 as of December
31, 1996 and 1997 and was reduced to $5,000,000 at June 30, 1998 by a principle
payment of $1,500,000 in February 1998.

F-23
<PAGE>
HAWKER PACIFIC AEROSPACE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AT JUNE 30, 1998 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)

7. RELATED PARTY TRANSACTIONS (CONTINUED)
DUE TO PARENT AND AFFILIATES

The Predecessor generally funded its operations through borrowings from the
Parent through October 31, 1996. The Predecessor made payments against such
borrowings based on cash availability although there were no contractual payment
terms. Amounts classified as current in the balance sheet at December 31, 1995
represent the estimated amount of the borrowing paid from working capital as of
December 31, 1995. During the year ended December 31, 1995 and the ten months
ended October 31, 1996, the weighted average interest rate was 5.6% and 4.9%,
respectively. During the year ended December 31, 1995 and the ten months ended
October 31, 1996, the average borrowings outstanding on the due to Parent and
affiliates were approximately $28,624,000 and $32,978,000, respectively, and
Company recognized interest expense on borrowings from its Parent and affiliates
of $1,598,000, and $1,609,000, respectively. All borrowing amounts due to Parent
and affiliates were settled in connection with the November 1, 1996 acquisition
of the Company.

MANAGEMENT FEE

The Company had an agreement (the "Old Management Agreement") with Unique
Investment Corporation ("Unique") to pay a management fee of $25,000 per month.
Certain shareholders of the Company are related parties to Unique. The Company
paid $50,000 to Unique during the period from November 1, 1996 through December
31, 1996, and $300,000 during the period from January 1, 1997 through December
31, 1997.

In September 1997, the Company and Unique entered into a new management
services agreement (the "New Management Services Agreement") pursuant to which,
upon the consummation of the Initial Public Offering, the Old Management
Agreement was terminated, and Unique is entitled to receive $150,000 per year
payable monthly commencing in January 1999 for certain management services
rendered to the Company.

The New Management Services Agreement will terminate upon the Company
completing an underwritten public offering in which selling shareholders offer
25% or more of the Common Stock sold in such offering.

In September 1997, the Company also entered into a mergers and acquisitions
agreement with Unique pursuant to which Unique received $300,000 upon the
closing of the BA Acquisition for services provided in connection with the
acquisition.

PARENT COMPANY ALLOCATION OF EXPENSES

The Predecessor received a charge from its Parent for certain insurance
(i.e., workers' compensation, product liability, group medical, etc.) and
employee benefit program expenses that were contracted and paid by the Parent
and allocated to the various subsidiaries. Management believes these allocations
approximate the amounts that would have been incurred had the Predecessor
operated on a stand-alone basis. Included in general and administrative expense
and cost of revenues is $436,000 and $1,504,000 for the year ended December 31,
1995 and the ten months ended October 31, 1996, respectively, of costs charged
to the Predecessor by the Parent for these programs.

F-24
<PAGE>
HAWKER PACIFIC AEROSPACE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AT JUNE 30, 1998 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)

7. RELATED PARTY TRANSACTIONS (CONTINUED)
WARRANTY REIMBURSEMENT FROM PARENT

The Predecessor had an arrangement with the Parent whereby certain warranty
costs incurred by the Predecessor for the failure of parts purchased from the
Parent or its affiliates were reimbursed to the Predecessor. For the year ended
December 31, 1995, the Predecessor received $184,000 for reimbursement of
warranty costs incurred by the Predecessor.

8. STOCK OPTION PLAN

In November 1997, the Board of Directors adopted the Company's 1997 Stock
Option Plan (the "1997 Plan"). The 1997 Plan, provides for the grant of options
to directors, officers, other employees and consultants of the Company to
purchase up to an aggregate of 634,514 shares of Common Stock. The purpose of
the 1997 Plan is to provide participants with incentives that will encourage
them to acquire a proprietary interest in, and continue to provide services to
the Company. Options granted under the 1997 Plan may be "incentive stock
options" as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), or nonqualified options.

The exercise price of any incentive stock options granted may not be less
than 100% of the fair market value of Common Stock as of the date of grant (110%
of the fair market value if the grant is to an employee who owns more than 10%
of the total combined voting power of all classes of capital stock of the
Company). Nonqualified options may be granted under the 1997 Plan at an exercise
price of not less than 85% of the fair market value of the Common Stock on the
date of grant. Options may not be exercised more than ten years after the date
of grant (five years after the date of grant if the grant is an incentive stock
option to an employee who owns more than 10% of the total combined voting power
of all classes of capital stock of the Company). The number of options
outstanding and the exercise price thereof are subject to adjustments in the
case of certain transactions such as mergers, recapitalizations, stock splits or
stock dividends.

In November 1997, the Board of Directors of the Company granted six-year
options to purchase 259,572 shares of Common Stock under the 1997 Plan. The
exercise price for these options is $8.00 per share. The options generally will
be subject to vesting and will become exercisable at a rate of 5% per quarter
from the date of grant, subject to the optionee's continuing employment with the
Company. Certain options become fully vested and exercisable upon a change in
control as defined.

In addition, in November 1997, the Board of Directors granted five-year
management stock options to purchase an aggregate of 115,365 shares of Common
Stock. All of these options are vested and are exercisable at $8.00 per share.

9. EMPLOYEE BENEFIT PLANS

Effective January 1, 1997, the Company adopted a defined benefit pension
plan (the 1997 Plan) to provide retirement benefits to its employees. This
non-contributory plan covers substantially all employees of the Company as of
the effective date of the plan. Pursuant to plan provisions, normal monthly
retirement benefits are equal to the participant's credited benefit service (up
to a maximum of 35 years) times the sum of 0.75% of the participant's final
average monthly compensation plus 0.65% of such compensation in excess of the
participant's covered average monthly wage. The plan also provides for early

F-25
<PAGE>
HAWKER PACIFIC AEROSPACE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AT JUNE 30, 1998 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)

9. EMPLOYEE BENEFIT PLANS (CONTINUED)
retirement and certain death and disability benefits. The Company's funding
policy for the plans is to contribute amounts sufficient to meet the minimum
funding requirements of the Employee Retirement Income Security Act of 1974,
plus any additional amounts which the Company may determine to be appropriate.

For the year ended December 31, 1995 the Company recorded net periodic
pension expense of $166,000 and during the ten months ended October 31, 1996 the
Company recorded a net periodic pension expense of $234,000 as part of the
allocated charges from the Parent.

The net pension cost for Company-sponsored defined benefit pension plan for
the year ended December 31, 1997 included the following components:

<TABLE>
<CAPTION>
SUCCESSOR
------------
YEAR ENDED
DECEMBER 31
1997
------------
<S> <C>
Service cost.................................................................... $ 94,000
Interest cost................................................................... 54,000
Net amortization and deferral................................................... 34,000
------------
Net pension cost................................................................ $ 182,000
------------
------------
</TABLE>

The reconciliation of the funded status of the defined benefit pension plan
is as follows:

<TABLE>
<CAPTION>
SUCCESSOR
-------------
YEAR ENDED
DECEMBER 31
1997
-------------
<S> <C>
Actuarial present value of benefits:
Vested benefits................................................................ $ (159,000)
Nonvested benefits............................................................. (101,000)
-------------
Accumulated benefit obligation................................................. (260,000)
Effect of projected future compensation increases.............................. (780,000)
-------------
Projected benefit obligation................................................... (1,040,000)
-------------
Fair value of plan assets...................................................... --

Projected benefit obligation in excess of plan assets.......................... (1,040,000)
Unrecognized prior service cost................................................ 745,000
Unrecognized net losses........................................................ 113,000
Minimum pension liability...................................................... (78,000)
-------------
Pension liability.............................................................. $ (260,000)
-------------
-------------
</TABLE>

The Company made no contributions to the Plans during the year ended
December 31, 1997.

F-26
<PAGE>
HAWKER PACIFIC AEROSPACE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AT JUNE 30, 1998 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)

9. EMPLOYEE BENEFIT PLANS (CONTINUED)

The assumptions used in the determination of the net pension cost for the
defined benefit pension plan were as follows:

<TABLE>
<CAPTION>
1997
-----
<S> <C>
Discount rate.......................................................................... 7%
Rate of increase in compensation levels................................................ 3%
Expected long-term rate of return on assets............................................ 7%
</TABLE>

Effective January 1, 1997, the Company also adopted a defined contribution
401(k) retirement savings plan which covers substantially all employees of the
Company. Plan participants are allowed to contribute up to 15% of their base
annual compensation and are entitled to receive a company match equal to 50% of
the participant's contribution up to a maximum of 6% of the participant's annual
base compensation. Participant contributions to the plan are immediately fully
vested while Company matching contributions are subject to a five-year vesting
period. All contributions to the plan are held in a separate trust account.
During the year ended December 31, 1997, the Company's matching contribution
amounted to $137,000. This amount was expensed during the period and is included
in the statement of operations.

10. RESTRUCTURING CHARGES

The Predecessor closed its facility in Miami, Florida during May 1996. This
closure and the transfer of certain fixed assets and inventory to the Sun
Valley, California facility resulted in a nonrecurring restructuring charge of
$1,196,000 in the statement of operations for the ten months ended October 31,
1996. The nonrecurring charge primarily includes costs incurred related to fixed
and other asset write-offs of approximately $600,000, payroll and severance of
approximately $190,000, moving and integration costs of approximately $243,000
and the balance for facility and other charges. Additionally, the Company
recorded Miami related inventory write-offs of approximately $489,000, which
were charged to cost of sales during the ten months ended October 31, 1996.
Revenues and operating income of Miami, Florida operations which will not be
continued were approximately as follows for the year ended December 31, 1995 and
the ten months ended October 31, 1996:

<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Revenue........................................................... $ 7,404,000 $ 2,049,000
Operating income (loss)........................................... (74,000) (40,000)
</TABLE>

11. STOCKHOLDERS EQUITY

Aqhawk was formed on November 1, 1996 with the issuance of 400 shares of
Series A Preferred Stock to an individual for $2,000,000 and the issuance of
5,741,206 shares of Common Stock to the same individual, certain shareholders of
Unique and management of the Company. Effective November 1, 1996 Aqhawk merged
with the Company through the issuance of 2,870,603 shares of Common Stock of the
Company in exchange for the 5,741,206 shares of Common Stock of Aqhawk and the
issuance of 400 shares of Series A Preferred Stock of the Company for 400 shares
of Preferred Stock of Aqhawk. A value

F-27
<PAGE>
HAWKER PACIFIC AEROSPACE

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AT JUNE 30, 1998 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)

11. STOCKHOLDERS EQUITY (CONTINUED)
of $40,000 was assigned to 229,648 shares of Common Stock issued to management
and such amount was expensed as compensation expense in the two months ended
December 31, 1996.

In 1997 the Company received $1,000,000 for the issuance of 101,619 shares
of the Company's Common Stock. The capital infusion was made pursuant to an
agreement under which the majority shareholder had agreed to provide to the
Company up to $1,000,000 in return for Common Stock. The Series A Preferred
Stock was converted into 250,000 shares of Common Stock in connection with the
Company's Initial Public Offering.

12. NON-MONETARY EXCHANGE TRANSACTION

During the year ended December 31, 1997, the Company sold certain landing
gear with a book value of $1,240,000 for a different landing gear valued at
$1,800,000 and cash of $250,000. In connection with the exchange transaction the
Company recognized profit of $78,000 during the year ended December 31, 1997,
representing the pro rata portion of the gain associated with the cash received.
The landing gear received in the exchange was recorded in the amount of
$1,068,000.

F-28
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF ANY OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING THE
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HERETO.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 9
Use of Proceeds........................................................... 18
Price Range of Common Stock and Dividend Policy........................... 18
Capitalization............................................................ 19
Selected Financial Data................................................... 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 22
Business.................................................................. 31
Management................................................................ 43
Certain Transactions...................................................... 53
Principal Shareholders.................................................... 55
Description of Notes...................................................... 56
Description of Capital Stock.............................................. 66
Material Federal Income Tax Consequences.................................. 67
Underwriting.............................................................. 72
Legal Matters............................................................. 73
Experts................................................................... 73
Available Information..................................................... 73
Financial Statements...................................................... F-1
</TABLE>

$50,000,000
% CONVERTIBLE SUBORDINATED NOTES
DUE 2005

[LOGO]

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

PROSPECTUS

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

EVEREN SECURITIES, INC.

ING BARING FURMAN SELZ LLC

, 1998

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth an itemized statement of all expenses to be
incurred in connection with the issuance and distribution of the securities that
are the subject of this Registration Statement other than underwriting discounts
and commissions. All expenses incurred with respect to the distribution will be
paid by the Company, and such amounts, other than the Securities and Exchange
Commission registration fee and the NASD filing fee, are estimates only.

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............ $ 16,963
NASD filing fee................................................ 6,250
Nasdaq National Market System listing fee...................... 30,000
Printing and engraving expenses................................ 60,000
Trustee fees................................................... 5,000
Legal fees and expenses........................................ 100,000
Accounting fees and expenses................................... 75,000
Miscellaneous expenses......................................... 206,787
----------
Total........................................................ $ 500,000
----------
----------
</TABLE>

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

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Company's Amended and Restated Articles of Incorporation, as amended
("Amended Articles") provide that, pursuant to the California Corporations Code,
the liability of the directors of the Company for monetary damages shall be
eliminated to the fullest extent permissible under California law. This is
intended to eliminate the personal liability of a director for monetary damages
in an action brought by, or in the right of, the Company for breach of a
director's duties to the Company or its shareholders. This provision in the
Amended Articles does not eliminate the directors' fiduciary duty and does not
apply for certain liabilities: (i) for acts or omissions that involve
intentional misconduct or a knowing and culpable violation of law; (ii) for acts
or omissions that a director believes to be contrary to the best interest of the
Company or its shareholders or that involve the absence of good faith on the
part of the director; (iii) for any transaction from which a director derived an
improper personal benefit; (iv) for acts or omissions that show a reckless
disregard for the director's duty to the Company or its shareholders in
circumstances in which the director was aware, or should have been aware, in the
ordinary course of performing a director's duties, of a risk of serious injury
to the Company or its shareholders; (v) for acts or omissions that constitute an
unexcused pattern of inattention that amounts to an abdication of the director's
duty to the Company or its shareholders; (vi) with respect to certain
transactions or the approval of transactions in which a director has a material
financial interest; and (vii) expressly imposed by statute for approval of
certain improper distributions to shareholders or certain loans or guarantees.
This provision also does not limit or eliminate the rights of the Company or any
shareholder to seek non-monetary relief such as an injunction or rescission in
the event of a breach of a director's duty of care. The Company's Amended and
Restated Bylaws (the "Amended Bylaws") require the Company to indemnify its
officers and directors to the full extent permitted by law, including
circumstances in which indemnification would otherwise be discretionary. Among
other things, the Amended Bylaws require the Company to indemnify directors and
officers against certain liabilities that may arise by reason of their status or
service as directors and officers and allows the Company to advance their
expenses incurred as a result of any proceeding against them as to which they
could be indemnified.

Section 317 of the California Corporations Code ("Section 317") provides
that a California corporation may indemnify any person who was or is a party or
is threatened to be made a party to any threatened,

II-1
<PAGE>
pending or completed action or proceeding, whether civil, criminal,
administrative or investigative (other than action by or in the right of the
corporation) by reason of the fact that he is or was a director, officer,
employee, or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation or
enterprise, against expenses, judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interest of the corporation, and, with respect
to any criminal action or proceeding, had no cause to believe his conduct was
unlawful.

Section 317 also provides that a California corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses actually
and reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted under similar standards, except that no
indemnification may be made in respect to any claim, issue or matter as to which
such persons shall have been adjudged to be liable to the corporation unless and
only to the extent that the court in which such action or suit was brought shall
determine that despite the adjudication of liability, such person is fairly and
reasonably entitled to be indemnified for such expenses which the court shall
deem proper.

Section 317 provides further that to the extent a director or officer of a
California corporation has been successful in the defense of any action, suit or
proceeding referred to in the previous paragraphs or in the defense of any
claim, issue or matter therein, he shall be indemnified against expenses
actually and reasonably incurred by him in connection therewith; that
indemnification authorized by Section 317 shall not be deemed exclusive of any
other rights to which the indemnified party may be entitled; and that the
corporation may purchase and maintain insurance on behalf of a director or
officer of the corporation against any liability asserted against him or
incurred by him in any such capacity or arising out of his status as such
whether or not the corporation would have the power to indemnify him against
such liabilities under Section 317.

In addition, the Company has entered into indemnity agreements ("Indemnity
Agreement(s)") with each of its directors and executive officers. Each such
Indemnity Agreement provides that the Company will indemnify the indemnitee
against expenses, including reasonable attorneys' fees, judgements, penalties,
fines and amounts paid in settlement actually and reasonably incurred by him in
connection with any civil or criminal action or administrative proceeding
arising out of the performance of his duties as a director or officer, other
than an action instituted by the director or officer. Such indemnification is
available if the indemnitee acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Company, and, with
respect to any criminal action, had no reasonable cause to believe his conduct
was unlawful. The Indemnity Agreements also require that the Company indemnify
the director or executive officer in all cases to the fullest extent permitted
by applicable law. Each Indemnity Agreement permits the director or officer that
is party thereto to bring suit to seek recovery of amounts due under the
Indemnity Agreement and to recover the expenses of such a suit if he is
successful. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
the Company pursuant to the foregoing provisions, the Company has been informed
that in the opinion of the Commission, such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable. The
Company believes that its Amended Articles of Incorporation and Amended Bylaw
provisions are necessary to attract and retain qualified persons as directors
and officers. The Company also intends to obtain directors' and officers'
liability insurance.

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

II-2
<PAGE>
The Company believes that it is the position of the Commission that insofar
as the foregoing provisions may be invoked to disclaim liability for damages
arising under the Securities Act, the provision is against public policy as
expressed in the Securities Act and is therefore unenforceable. Such limitation
of liability also does not affect the availability of equitable remedies such as
injunctive relief or rescission.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

The following is a table of recent option grants and sales of unregistered
securities:

<TABLE>
<CAPTION>
EFFECTIVE DATE
OF ISSUANCE ISSUED TO NUMBER AND TYPE OF SECURITY CONSIDERATION
- ------------------------ ---------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C>
November 1996 Five shareholders of Unique 2,583,543 shares of Common (1)
Investment Corporation Stock
("Unique")

November 1996 Four executive officers 229,648 shares of Common (1)
Stock

November 1996 Two sales representatives 57,412 shares of Common (1)
Stock

November 1997 Four executive officers Options to Purchase 115,365 Services Rendered
shares at $8

February 1998 A principal shareholder 250,000 shares of Common Conversion of 400 shares of
Stock Series A Preferred Stock
issued in connection with
the BTR Transaction, for
which Ms. Bastian paid
$2,000,000

November 1997 Employee Stock Options to Options to purchase 259,572 Services rendered
employees, including four shares at $8
executive officers

September 30, 1997 A principal shareholder 49,948 shares of Common $500,000
Stock

October 10, 1997 A principal shareholder 51,671 shares of Common $500,000
Stock
</TABLE>

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

(1) Effective November 1, 1996, Aqhawk, Inc. ("Aqhawk"), a corporation owned by
the Unique shareholders and management of the Company, purchased all of the
outstanding capital stock of the Company from BTR Dunlop, Inc. ("BTR") (the
"BTR Transaction"). The purchase price Aqhawk paid was approximately
$29,802,861 provided through a combination of bank debt and funds in the
aggregate amount of $8,500,000 provided by Melanie L. Bastian, a principal
shareholder and former director of the Company, consisting of subordinated
debt and $2,000,000 cash in return for the issuance of Preferred Stock. In
December 1996, Aqhawk was merged with the Company. In the merger, each two
shares of Common Stock of Aqhawk were converted into one share of Common
Stock of the Company, and each share of preferred stock was converted into
one share of Series A Preferred Stock of the Company, resulting in the
issuance of the shares shown on this chart.

The Company believes that the issuances of securities pursuant to the
foregoing transactions were exempt from registration under the Securities Act of
1933, as amended, by virtue of Section 4(2) thereof as

II-3
<PAGE>
transactions not involving public offerings. No underwriters were engaged in
connection with any of the foregoing offers or sales of securities and no
commissions were paid in connection with such sales.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) The following exhibits, which are furnished with this Registration
Statement or incorporated herein by reference, are filed as a part of this
Registration Statement:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<S> <C>
1.1 Underwriting Agreement.*

2.1 Agreement relating to the Sale and Purchase of part of the Business of British Airways plc dated
December 20, 1997 by and among the Company, Hawker Pacific Aerospace Limited and British Airways plc.,
and related Landing Gear Overhaul Services Agreement.(1)+

3.1 Amended and Restated Articles of Incorporation of the Company.(1)

3.2 Amended and Restated Bylaws of the Company.(1)

3.3 Certificate of Amendment to the Amended and Restated Articles of Incorporation of the Company.(1)

4.1 Indenture.*

5.1 Opinion of Troy & Gould Professional Corporation.*

10.1 1997 Stock Option Plan and forms of Stock Option Agreements.(1)

10.1A Amendment No. 1 to 1997 Stock Option Plan.(1)

10.2 Employment Agreement dated November 1, 1996 between the Company and David L. Lokken, as amended.(1)

10.2A First Amendment to Employment Agreement for David L. Lokken.(1)

10.3 Employment Agreement dated November 1, 1996 between the Company and Brian S. Aune, as amended.(1)

10.3A First Amendment to Employment Agreement for Brian S. Aune.(1)

10.4 Employment Agreement dated November 1, 1996 between the Company and Brian S. Carr, as amended.(1)

10.4A First Amendment to Employment Agreement for Brian S. Carr.(1)

10.5 Employment Agreement dated November 1, 1996 between the Company and Michael A. Riley, as amended.(1)

10.5A First Amendment to Employment Agreement for Michael A. Riley.(1)

10.6 Statement of Terms and Conditions of Employment dated May 12, 1998 between Hawker Pacific Aerospace
Limited and Richard Adey.(4)

10.7 Form of Indemnity Agreement for directors and executive officers of the Company.(1)

10.8 Business Loan Agreement dated November 27, 1996 between the Company and Bank of America National Trust
and Savings Association.(1)

10.8A Amendment No. 1 to Business Loan Agreement between the Company and Bank of America National Trust and
Savings Association.(1)

10.9 Agreement of Purchase and Sale of Stock dated November 27, 1996 by and among BTR Dunlop, Inc., BTR, Inc.
and Aqhawk, Inc.(1)
</TABLE>

II-4
<PAGE>
<TABLE>
<S> <C>
10.10 Repair, Overhaul, Exchange, Warranty and Distribution Agreement dated November 1, 1996 between the
Company and Dunlop Limited, Aviation Division.+(1)

10.11 Distribution Agreement dated November 1, 1996 between the Company and Dunlop Limited, Precision
Rubber.(1)

10.12 Repair, Overhaul, Exchange, Warranty and Distribution Agreement dated November 1, 1996 between the
Company and Dunlop Equipment Division.+(1)

10.13 Repair Services Agreement dated September 9, 1997 between the Company and American Airlines, Inc.+(1)

10.14 Award/Contract dated September 20, 1995 issued by USCG Aircraft Repair and Supply Center to the
Company.+(1)

10.15 Maintenance Services Agreement dated August 19, 1994 between the Company and Federal Express
Corporation, as amended.+(1)

10.16 Lease dated March 31, 1997 by and between the Company and Industrial Centers Corp.(1)

10.16A First Amendment to Lease Agreement dated March 31, 1997 by and between the Company and Industrial
Centers Corp.(2)

10.17 Tenancy Agreement relating to Bennebroekerweg, Rijsenhout (Netherlands) dated March 13, 1998 between the
Company and Mateor II C.V.(4)

10.18 Management Services Agreement dated November 14, 1997 between the Company and Unique Investment Corp.(1)

10.19 Mergers and Acquisitions Agreement dated September 2, 1997 between the Company and Unique Investment
Corp.(1)

10.19A First Amendment to Mergers and Acquisitions Agreement dated January 23, 1998 by and between the Company
and Unique Investment Corp.(3)

10.20 Subordinated Note for $6,500,000 in favor of Unique Investment Corp.(1)

10.21 Amended and Restated Subordinated Promissory Note dated February 3, 1998 in favor of Unique Investment
Corp.(2)

10.22 Certified Translation of Rental Agreement between Mr. C. G. Kortenoever and Flight Accessory
Services.(1)

10.23 Lease Agreement dated July 28, 1994 by and between the Company and Industrial Bowling Corp.(1)

10.23A First Amendment to Lease Agreement dated July 28, 1994 by and between the Company and Industrial Bowling
Corp.(2)

10.24 Lease Agreement dated July 28, 1994 by and between the Company and Industrial Bowling Corp.(1)

10.25 Lease Agreement dated July 28, 1994 by and between the Company and Industrial Bowling Corp.(1)

10.26 Lease Agreement dated July 28, 1994 by and between the Company and Industrial Bowling Corp.(1)

10.27 Lease Agreement dated June 24, 1997 by and between the Company and Allstate Insurance Company.(1)

10.27A First Amendment to Lease Agreement between the Company and Allstate Insurance Company.(2)

10.28 Lease Agreement dated November 21, 1994 by and between the Company and Gordon N. Wagner and Peggy M.
Wagner, and Joseph W. Basinger and Viola Marie Basinger.(1)
</TABLE>

II-5
<PAGE>
<TABLE>
<S> <C>
10.29 Underlease, dated February 4, 1998, by and among British Airways plc, Hawker Pacific Aerospace Limited
and the Company.+(3)

10.30 Bailment and Services Agreement, dated as of September 1, 1997, by and between Federal Express
Corporation and the Company.+(3)

10.31 Amended and Restated Business Loan Agreement dated January 23, 1998 between the Company and Bank of
America National Trust and Savings Association.(2)

10.32 Security Agreement dated January 23, 1998 by the Company in favor of Bank of America National Trust and
Savings Association.(2)

10.33 Pledge Agreement dated January 23, 1998 by the Company in favor of Bank of America National Trust and
Savings Association.(2)

10.34 Subordination Agreement dated January 23, 1998 by and among the Company, Hawker Pacific Aerospace
Limited, Bank of America National Trust and Savings Association, Melanie L. Bastian and Unique
Investment Corporation.(2)

12.1 Statement regarding ratio of earnings to fixed charges.

21.1 Subsidiaries of the Company.*

23.1 Consent of Ernst & Young LLP.

23.2 Consent of Troy & Gould Professional Corporation (contained in Exhibit 5.1).*

24.1 Power of Attorney (contained in Part II).

27.1 Financial Data Schedule*
</TABLE>

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

+ Portions of exhibits deleted and filed separately with the Securities and
Exchange Commission pursuant to a request for confidentiality.

* To be filed by amendment.

(1) Previously filed as exhibits to the Company's Registration Statement Form
S-1, as amended (Registration No. 333-40295), and incorporated herein by
reference.

(2) Previously filed as an exhibit to the Company's Form 10-K for the year ended
December 31, 1997, and incorporated herein by reference.

(3) Previously filed as an exhibit to the Company's Form 10-Q for the quarter
ended March 31, 1998, and incorporated herein by reference.

(4) Previously filed as an exhibit to the Company's Form 10-Q for the quarter
ended June 30, 1998, and incorporated herein by reference.

II-6
<PAGE>
(b) The following schedules supporting the financial statements are included
herein:

HAWKER PACIFIC AEROSPACE
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
COLUMN B COLUMN C COLUMN E
----------- ---------------------------- ----------
COLUMN A BALANCE AT CHARGED TO CHARGED TO COLUMN D BALANCE AT
- ----------------------------------------------- BEGINNING COSTS AND OTHER --------------- THE END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ----------------------------------------------- ----------- ----------- --------------- --------------- ----------
<S> <C> <C> <C> <C> <C>
PREDECESSOR
Year Ended December 31, 1995................... $ 111,000 $ 50,000 -- $ (122,000)(a) $ 39,000
Ten Months Ended October 31, 1996.............. 39,000 345,000 -- (188,000)(a) 196,000

SUCCESSOR
Two Months Ended December 31, 1996............. 196,000 -- -- (129,000)(a) 67,000
Year Ended December 31, 1997................... 67,000 167,000 -- (87,000)(a) 147,000
</TABLE>

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

(a) Represents amounts written-off against the allowance for doubtful accounts,
list of recoveries and reversals.

All other schedules are omitted, since the required information is not
present in amounts sufficient to require submission of schedules or because the
information required is included in the Registrant's financial statements and
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 of 1933, as amended (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 of whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.

(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of
this 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 Rule 497(h) under the Securities Act shall be
deemed to be part of this registration statement as of the time it
was declared effective.

(2) For the purpose 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-7
<PAGE>
(d) The undersigned Registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made
of the securities registered hereby, a post-effective amendment to this
registration statement:

(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;

(ii) To reflect in the prospectus any facts or events arising after
the effective date of this registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
this registration statement;

(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.

(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities shall be deemed to be the initial bona fide
offering thereof.

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the Offering.

II-8
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Sun Valley, State of
California, on August 18, 1998.

<TABLE>
<S> <C> <C>
HAWKER PACIFIC AEROSPACE

By: /s/ SCOTT W. HARTMAN
-----------------------------------------
Scott W. Hartman
CHAIRMAN OF THE BOARD
</TABLE>

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Scott W. Hartman, David L. Lokken and Brian S.
Aune, and each of them, his true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for him and in his name, place,
and stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement and any Registration
Statement and/or amendment thereto pursuant to Rule 462(b) under the Securities
Act of 1933, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ SCOTT W. HARTMAN
- ------------------------------ Chairman of the Board August 18, 1998
Scott W. Hartman
Chief Executive Officer
/s/ DAVID L. LOKKEN (Principal Executive
- ------------------------------ Officer), President and August 18, 1998
David L. Lokken Director
Vice President and Chief
/s/ BRIAN S. AUNE Financial Officer
- ------------------------------ (Principal Financial and August 18, 1998
Brian S. Aune Accounting Officer)
/s/ DANIEL J. LUBECK
- ------------------------------ Director August 18, 1998
Daniel J. Lubeck
/s/ JOHN G. MAKOFF
- ------------------------------ Director August 18, 1998
John G. Makoff
/s/ JOEL F. MCINTYRE
- ------------------------------ Director August 18, 1998
Joel F. McIntyre
/s/ DANIEL C. TOOMEY, JR.
- ------------------------------ Director August 18, 1998
Daniel C. Toomey, Jr.
/s/ MELLON C. BAIRD
- ------------------------------ Director August 18, 1998
Mellon C. Baird
</TABLE>

II-9
<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION PAGE
- --------- ------------------------------------------------------------------------------------------------- -----
<S> <C> <C>
1.1 Underwriting Agreement*

2.1 Agreement relating to the Sale and Purchase of part of the Business of British Airways plc dated
December 20, 1997 by and among the Company, Hawker Pacific Aerospace Limited and British
Airways plc., and related Landing Gear Overhaul Services Agreement(1)+

3.1 Amended and Restated Articles of Incorporation of the Company(1)

3.2 Amended and Restated Bylaws of the Company(1)

3.3 Certificate of Amendment to the Amended and Restated Articles of Incorporation of the Company(1)

4.1 Indenture*

5.1 Opinion of Troy & Gould Professional Corporation*

10.1 1997 Stock Option Plan and forms of Stock Option Agreements(1)

10.1A Amendment No. 1 to 1997 Stock Option Plan(1)

10.2 Employment Agreement dated November 1, 1996 between the Company and David L. Lokken, as
amended(1)

10.2A First Amendment to Employment Agreement for David L. Lokken(1)

10.3 Employment Agreement dated November 1, 1996 between the Company and Brian S. Aune, as amended(1)

10.3A First Amendment to Employment Agreement for Brian S. Aune(1)

10.4 Employment Agreement dated November 1, 1996 between the Company and Brian S. Carr, as amended(1)

10.4A First Amendment to Employment Agreement for Brian S. Carr(1)

10.5 Employment Agreement dated November 1, 1996 between the Company and Michael A. Riley, as
amended(1)

10.5A First Amendment to Employment Agreement for Michael A. Riley(1)

10.6 Statement of Terms and Conditions of Employment dated May 12, 1998 between Hawker Pacific
Aerospace Limited and Richard Adey(4)

10.7 Form of Indemnity Agreement for directors and executive officers of the Company(1)

10.8 Business Loan Agreement dated November 27, 1996 between the Company and Bank of America National
Trust and Savings Association(1)

10.8A Amendment No. 1 to Business Loan Agreement between the Company and Bank of America National Trust
and Savings Association(1)

10.9 Agreement of Purchase and Sale of Stock dated November 27, 1996 by and among BTR Dunlop, Inc.,
BTR, Inc. and Aqhawk, Inc.(1)

10.10 Repair, Overhaul, Exchange, Warranty and Distribution Agreement dated November 1, 1996 between
the Company and Dunlop Limited, Aviation Division+(1)

10.11 Distribution Agreement dated November 1, 1996 between the Company and Dunlop Limited, Precision
Rubber(1)

10.12 Repair, Overhaul, Exchange, Warranty and Distribution Agreement dated November 1, 1996 between
the Company and Dunlop Equipment Division+(1)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION PAGE
- --------- ------------------------------------------------------------------------------------------------- -----
<S> <C> <C>
10.13 Repair Services Agreement dated September 9, 1997 between the Company and American Airlines,
Inc.+(1)

10.14 Award/Contract dated September 20, 1995 issued by USCG Aircraft Repair and Supply Center to the
Company+(1)

10.15 Maintenance Services Agreement dated August 19, 1994 between the Company and Federal Express
Corporation, as amended+(1)

10.16 Lease dated March 31, 1997 by and between the Company and Industrial Centers Corp.(1)

10.16A First Amendment to Lease Agreement dated March 31, 1997 by and between the Company and Industrial
Centers Corp.(2)

10.17 Tenancy Agreement relating to Bennebroekerweg, Rijsenhout (Netherlands) dated March 13, 1998
between the Company and Mateor II C.V.(4)

10.18 Management Services Agreement dated November 14, 1997 between the Company and Unique Investment
Corp.(1)

10.19 Mergers and Acquisitions Agreement dated September 2, 1997 between the Company and Unique
Investment Corp.(1)

10.19A First Amendment to Mergers and Acquisitions Agreement dated January 23, 1998 by and between the
Company and Unique Investment Corp.(3)

10.20 Subordinated Note for $6,500,000 in favor of Unique Investment Corp.(1)

10.21 Amended and Restated Subordinated Promissory Note dated February 3, 1998 in favor of Unique
Investment Corp.(2)

10.22 Certified Translation of Rental Agreement between Mr. C. G. Kortenoever and Flight Accessory
Services(1)

10.23 Lease Agreement dated July 28, 1994 by and between the Company and Industrial Bowling Corp.(1)

10.23A First Amendment to Lease Agreement dated July 28, 1994 by and between the Company and Industrial
Bowling Corp.(2)

10.24 Lease Agreement dated July 28, 1994 by and between the Company and Industrial Bowling Corp.(1)

10.25 Lease Agreement dated July 28, 1994 by and between the Company and Industrial Bowling Corp.(1)

10.26 Lease Agreement dated July 28, 1994 by and between the Company and Industrial Bowling Corp.(1)

10.27 Lease Agreement dated June 24, 1997 by and between the Company and Allstate Insurance Company(1)

10.27A First Amendment to Lease Agreement between the Company and Allstate Insurance Company(2)

10.28 Lease Agreement dated November 21, 1994 by and between the Company and Gordon N. Wagner and Peggy
M. Wagner, and Joseph W. Basinger and Viola Marie Basinger(1)

10.29 Underlease, dated February 4, 1998, by and among British Airways plc, Hawker Pacific Aerospace
Limited and the Company+(3)

10.30 Bailment and Services Agreement, dated as of September 1, 1997, by and between Federal Express
Corporation and the Company+(3)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION PAGE
- --------- ------------------------------------------------------------------------------------------------- -----
<S> <C> <C>
10.31 Amended and Restated Business Loan Agreement dated January 23, 1998 between the Company and Bank
of America National Trust and Savings Association(2)

10.32 Security Agreement dated January 23, 1998 by the Company in favor of Bank of America National
Trust and Savings Association(2)

10.33 Pledge Agreement dated January 23, 1998 by the Company in favor of Bank of America National Trust
and Savings Association(2)

12.1 Statement regarding ratio of earnings to fixed charges.

21.1 Subsidiaries of the Company*

23.1 Consent of Ernst & Young LLP

23.2 Consent of Troy & Gould Professional Corporation (contained in Exhibit 5.1)*

24.1 Power of Attorney (contained in Part II)

27.1 Financial Data Schedule*
</TABLE>

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

+ Portions of exhibits deleted and filed separately with the Securities and
Exchange Commission pursuant to a request for confidentiality.

* To be filed by amendment.

(1) Previously filed as exhibits to the Company's Registration Statement Form
S-1, as amended (Registration No. 333-40295), and incorporated herein by
reference.

(2) Previously filed as an exhibit to the Company's Form 10-K for the year ended
December 31, 1997, and incorporated herein by reference.

(3) Previously filed as an exhibit to the Company's Form 10-Q for the quarter
ended March 31, 1998, and incorporated herein by reference.

(4) Previously filed as an exhibit to the Company's Form 10-Q for the quarter
ended June 30, 1998, and incorporated herein by reference.

<PAGE>
EXHIBIT 12.1

STATEMENT RE: COMPUTATION OF
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
TEN MONTHS
YEAR ENDED DECEMBER 31 ENDED TWO MONTHS YEAR ENDED DECEMBER 31
----------------------------------------- OCTOBER 31, ENDED DECEMBER --------------------------------
1993 1994 1995 1996 31, 1996 1997
----------- ----------- --------------- --------------- --------------- 1996 ---------------
---------------
(PRO FORMA)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated
pretax
income $ (192,000) $ 1,079,000 $ (416,000) $ (2,577,000) $ 851,000 $ (2,457,000) $ 1,255,000
Interest
expense 1,033,000 507,000 1,598,000 1,609,000 203,000 2,305,000 2,431,000
Interest
portion
of rental
expense 171,600 297,660 323,425 193,380 35,310 228,690 262,241
----------- ----------- --------------- --------------- --------------- --------------- ---------------
Earnings
(loss) $ 1,012,600 $ 1,883,660 $ 1,505,425 $ (774,620) $ 1,089,310 $ 76,690 $ 3,948,241
----------- ----------- --------------- --------------- --------------- --------------- ---------------
----------- ----------- --------------- --------------- --------------- --------------- ---------------

Interest
expense $ 1,033,000 $ 507,000 $ 1,598,000 $ 1,609,000 $ 203,000 $ 2,305,000 $ 2,431,000
Interest
portion
of rental
expense 171,600 297,660 323,425 193,380 35,310 228,690 262,241
----------- ----------- --------------- --------------- --------------- --------------- ---------------
Fixed
charges $ 1,204,600 $ 804,660 $ 1,921,425 $ 1,802,380 $ 238,310 $ 2,533,690 $ 2,693,241
----------- ----------- --------------- --------------- --------------- --------------- ---------------
----------- ----------- --------------- --------------- --------------- --------------- ---------------

Ratio of
earnings
(loss) to
fixed
charges 0.84 2.34 0.78 -- 4.57 0.03 1.47
----------- ----------- --------------- --------------- --------------- --------------- ---------------
----------- ----------- --------------- --------------- --------------- --------------- ---------------

SIX MONTHS
ENDED JUNE 30,
1998
---------------

<S> <C>
Consolidate
pretax
income $ 1,398,000
Interest
expense 1,449,000
Interest
portion
of rental
expense 416,344
---------------
Earnings
(loss) $ 3,263,344
---------------
---------------
Interest
expense $ 1,449,000
Interest
portion
of rental
expense 416,344
---------------
Fixed
charges $ 1,865,344
---------------
---------------
Ratio of
earnings
(loss) to
fixed
charges 1.75
---------------
---------------
</TABLE>

<PAGE>
EXHIBIT 23.1

CONSENT OF INDEPENDENT AUDITOR

We consent to the reference to our firm under the captions "Experts" and
"Selected Financial Data" and to the use of our report dated February 13, 1998
in the Registration Statement Form S-1 and related Prospectus (the Registration
Statement) of Hawker Pacific Aerospace for the registration of $50,000,000
Convertible Subordinated Notes due 2005 and the related shares of its Common
Stock.

Our audit also included the financial statement schedule of Hawker Pacific
Aerospace listed in Item 16(b). The 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,
present fairly in all material respects the information set forth therein.

ERNST & YOUNG LLP

Woodland Hills, CA
August 13, 1998