COMPASS AEROSPACE CORP, 10-K, 2000-03-31

COMPASS AEROSPACE CORP
10-K, 2000-03-31
AIRCRAFT PARTS & AUXILIARY EQUIPMENT, NEC

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

COMMISSION FILE NUMBER [333-75643-01]

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COMPASS AEROSPACE CORPORATION

(exact name of registrant as specified in its charter)

<TABLE>
<S> <C>
DELAWARE 95-4659126
(State or other jurisdiction of (I.R.S. Employee Identification
incorporation or organization) Number)
</TABLE>

1501 HUGHES WAY, SUITE 400, LONG BEACH, CALIFORNIA 90810
(Address of principal executive offices) (Zip Code)

(310) 522-0600
(Registrant's telephone number, including area code)

Securities Registered Pursuant to Section 12(b) of the Act:
NONE

Securities Registered Pursuant to Section 12(g) of the Act:
NONE

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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past ninety days. Yes /X/ No / /

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /

As of February 29th, 2000, there were 34,979,711 shares of the Registrant's
Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
None

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<PAGE>
INDEX

<TABLE>
<S> <C> <C>
PART I

Item 1. Business.................................................... 1

Item 2. Properties.................................................. 9

Item 3. Legal Proceedings........................................... 9

Item 4. Submission of Matters to a Vote of Security Holders......... 9

PART II

Market for Registrant's Common Equity and Related
Item 5. Stockholder Matters......................................... 10

Item 6. Selected Financial Data..................................... 10

Management's Discussion and Analysis of Financial Condition
Item 7. and Results of Operations................................... 13

Quantitative and Qualitative Disclosures About Market
Item 7a. Risk........................................................ 20

Item 8. Financial Statements and Supplementary Data................. 21

Changes in and Disagreements with Accountants on Accounting
Item 9. and Financial Disclosure.................................... 65

PART III

Item 10. Directors and Executive Officers of the Registrant.......... 65

Item 11. Executive Compensation...................................... 67

Security Ownership of Certain Beneficial Owners and
Item 12. Management.................................................. 69

Item 13. Certain Relationships and Related Transactions.............. 70

PART IV

Exhibits, Financial Statement Schedules and Reports on
Item 14. Form 8-K.................................................... 71
</TABLE>
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PART I

All statements other than statements of historical facts included in this
report are considered forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements are subject to known and unknown risks, uncertainties and other
factors such as fluctuations in supply, demand and prices of steel and aluminum
products, changes in the industries that purchase metal products from us, such
as aerospace, and changes in the general economy. Changes in such factors could
cause actual results to differ materially from those contemplated in such
forward-looking statements. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations". Although we believe that the
expectations reflected in such forward-looking statements are reasonable, it can
give no assurance that such expectations will prove to be correct. We undertake
no obligation to release publicly any revisions to these forward-looking
statements to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.

ITEM 1. BUSINESS

COMPASS

Compass was founded in October 1997 to become a major supplier of precision
machined individual metal parts and of higher value-added sub-assemblies,
manufacturing kits and structural components used by aerospace manufacturers in
structural frames and other metal aircraft components. We intend to capitalize
on the trends among aircraft manufacturers which seek to increase outsourcing,
concentrate supplier relationships and encourage suppliers of individual parts
to manage the supply chain and produce more value-added sub-assemblies,
manufacturing kits and structural components.

At present, we are principally engaged in manufacturing individual parts for
aircraft to precise specifications from metals including aluminum, titanium and
steel through the use of precision computer numerically-controlled machine tools
and metal forming equipment. Our facilities in the United Kingdom are also
engaged in metal treatment, non-ferrous casting and produce welded assemblies
and components. We use a variety of advanced techniques and machinery including
horizontal and vertical machining centers and state-of-the-art high-speed
precision machining equipment, as well as three-spindle five-axis gantry mills.

We produce original equipment parts, sub-assemblies, manufacturing kits and
structural components for:

- all of the commercial jet models (717, 737, 747, 757, 767, and 777)
produced by Boeing,

- Airbus single-aisle (A319, A320 and A321) and twin-aisle (A300, A310, A330
and A340), models,

- Bombardier (Canadair Regional Jet-Registered Trademark-, Canadair Global
Express, Lear and Dash-8 models),

- Embrear Aircraft Corporation (ERJ-145), and

- several United States military programs and various other commercial
aircraft manufacturers.

We acquired a total of six additional operating companies in 1999. Prior to
our acquisition of our subsidiaries, our subsidiaries operated under independent
management. Our acquisitions to date and our principal manufacturing facilities
are summarized in the following table.

1
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<TABLE>
<CAPTION>
YEAR DATE
BUSINESS BUSINESS MANUFACTURING
BUSINESS ACQUIRED FOUNDED ACQUIRED LOCATION CAPABILITIES/SPECIALTIES MAJOR CUSTOMERS(2)
- ----------------- -------- ---------- -------------- ------------------------ ------------------
<S> <C> <C> <C> <C> <C>
Western Methods 1978 Nov. 1997 Gardena, CA Small to medium-sized Boeing, Northrop,
machined parts Lockheed, NASA-
JPL
Brittain Machine 1966 April 1998 Wichita, KS Small to large-sized Boeing, Raytheon,
machined parts, Hughes Aircraft,
fabrication and tooling Cessna, Shorts
Brothers
Wichita Manufacturing 1992 April 1998 Cerritos, CA Small to medium- sized Boeing, Northrop,
machined parts BF Goodrich
Barnes Machine(3) 1982 April 1998 Shelton, WA Small to medium-sized Boeing, Northrop,
machined parts Kawasaki
Sea-Lect(1) (3) 1989 May 1998 Kent, WA Sheet metal and Boeing, Japan
extruded/machined parts, Airlines, B.F.
assembly including Goodrich, Lucas
bonding/ riveting, tool Aerospace,
and die making Mitsubishi,
Kawasaki, Hawker
Pacific Hills 1962 Nov. 1998 Valencia, CA Shim stock, laminated Boeing, Rohr
Kent, WA shims, stampings, flat
patterns
Trim 1962 July 1999 Wallisdown, Machining, assembly, Applied Materials,
Poole, turning Shorts Brothers,
Dorset(4) British Aerospace-
Airbus
Diac 1984 July 1999 New Addington, Machining, assembly Shorts Brothers
Croydon and
Biggin Hill,
Kent(4)
Maybrey 1962 July 1999 Lower Non-ferrous casting Edwards
Sydenham(4)
Trefn 1978 July 1999 Llay, Wrexham, Machining, assembly, Applied Materials,
Wales(4) turning British Aerospace-
Airbus
Trefn Metal 1982 July 1999 Llay, Wrexham, Heat treating, British Aerospace-
Treatments Wales(4) anodizing, shot- peening Airbus
Trefn Fabrications 1994 July 1999 Llay, Wrexham, Metal forming, British Aerospace-
Wales(4) fabrication, assembly Airbus
</TABLE>

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(1) We simultaneously acquired the assets of Sea-Lect and the stock of J&J
Leasing, Inc. as a subsidiary of Sea-Lect in May 1998. Subsequent to the
acquisition of these businesses, J&J, which had previously leased machinery
and equipment to Sea-Lect and did not conduct any manufacturing operations,
was merged into Sea-Lect.

2
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(2) Major customers include Boeing, British Aerospace-Airbus, Northrop, Korean
Airlines Co., Ltd., Hughes Aircraft Company, Raytheon Aircraft Company,
Lockheed Martin Corporation, National Air Space Administration-Jet
Propulsion Laboratory, Cessna Aircraft Co., Japan Airlines Co., Ltd., B.F.
Goodrich Aerospace, a division of The B.F. Goodrich Company, Lucas
Aerospace, a division of LucasVarity plc, Mitsubishi Heavy Industries Ltd.,
Kawasaki Heavy Industries, Ltd., Hawker de Havilland Inc., Shorts Brothers
PLC, Edwards High Vacuum, B.F. Goodrich and Rohr, Inc., a subsidiary of B.F.
Goodrich.

(3) We recently consolidated the business operations of Modern with Barnes
Machine and Sea-Lect, including moving machinery and equipment from the
Modern facility to the facilities at Barnes Machine and Sea-Lect. As part of
this consolidation we merged Modern into Sea-Lect in December 1999.

(4) There are multiple buildings and manufacturing sites at each location.

OPERATIONS

Our existing manufacturing capabilities are principally centered around the
precision machining of aluminum, titanium and steel and the production of sheet
metal details, as well as the production of sub-assemblies, manufacturing kits
and structural components. In addition, we engage in fabrication, metal bonding,
metal treatment, non-ferrous casting and minor assembly.

We have a large portfolio of complex machinery which cut, fold, form and
drill metals and other materials used during our manufacturing processes,
including: sheet metal forming equipment, high-speed and conventional computer
numerically-controlled horizontal and vertical machining centers and three-
spindle five-axis gantry mills, computer-numerically-controlled long-bed
machining and milling centers, conventional and gap lathes, stretch presses,
bladder presses, and brakes and shears. These machines provide broad, flexible
manufacturing capabilities. We maintain in-house engineering departments at each
manufacturing facility, some of which utilize CATIA-CADAM Solutions and
Unigraphics systems to create machine control programs from digital parts
specifications received directly from the aircraft manufacturers.

We are also engaged in metal bonding and assembly operations at several of
our manufacturing facilities. Western Methods has developed its own
Boeing-certified specialized bonding process which enables the assembly/bonding
department to bond composite material to aluminum and mechanical hardware to
milled parts. Britain Machine fabricates assembly and tooling platforms and has
diversified into complex assembly production involving bonding and riveting
individual parts together. Western Methods, Britain Machine and Barnes Machine
also participate in Boeing's Advanced Technology Assembly program under which
they manufacture parts requiring drilling precise manufacturing assembly
location holes. In addition, Trefn Fabrications engages in specialty welding and
Maybrey has a full range of non-ferrous casting capabilities, including sand,
die and investment casting.

PRODUCTS

We manufacture parts for all of the Boeing and Airbus commercial aircraft
models, as well as for a variety of aircraft from other commercial aircraft
manufacturers and several U.S. military aircraft and other programs. Our
products range in size from large ribs used in wings and vertical stabilizers to
engine mounts, door stops and shims and range in value from less than $50 to
more than $20,000. We primarily manufacture original equipment parts from
various metals such as aluminum, titanium and steel which are used in the
structural elements of aircraft.

3
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SOURCES AND AVAILABILITY OF RAW MATERIALS

We use a variety of metals in our manufacturing processes, including
aluminum, titanium and steel. We generally acquire these metals from third party
suppliers. The availability and prices of these materials may fluctuate. Any
delay in our ability to obtain necessary raw materials may affect our ability to
meet our customer's needs. In some instances, Boeing may supply us with the
metals we will use in manufacturing parts under a specific purchase order.
Boeing may also require us to acquire metals from some third party suppliers
identified by Boeing. If Boeing requires us to acquire metals from third party
suppliers, Boeing has agreed to reimburse us for the actual cost of those
metals.

CERTIFICATION

We manufacture parts to exact specifications provided by our aerospace
customers in engineering drawings. Our customers require our manufacturing
facilities to perform quality standards testing and certification procedures on
all manufactured parts and provide detailed records to ensure traceability of
each part. Such customers typically certify our manufacturing facilities as
meeting specific quality standards, which certification is necessary for us to
submit bids and manufacture parts for such customers.

Our manufacturing facilities have imposed quality control criteria on their
manufacturing processes and all of our facilities located in the United States
have received Boeing's D1-9000 certification. Boeing's D1-9000 certification is
site specific and certifies that a facility meets a number of specific customer
satisfaction requirements, including manufacturing parts that comply with
specifications and delivery of parts on time and at cost. Furthermore, all but
one of our facilities located in the United States have received Boeing's
D1-9000-A certification, which allows the facility to produce more critical
parts. Some of our facilities in the United Kingdom have received Boeing's
DI-4426 certification, which enables those facilities to produce certain parts
for Boeing. Our Shelton, Washington facility and two of our facilities in the
United Kingdom have received ISO 9002 certification, which indicates that the
facilities have met quality standards set by an international bureau of quality
standards.

Qualified suppliers often subcontract parts to other machine shops while
still remaining responsible for quality and delivery schedules. Several of our
subsidiaries have been selected as Boeing-Wichita key suppliers, which permits
them to subcontract production without Boeing's supervision. Some of our
facilities are also certified by other customers including Northrop, Lockheed,
Raytheon, Airbus, Menasco Aerospace, a division of Coltec Industries Inc., and
B.F. Goodrich.

QUALITY CONTROL

We believe that our machining and quality control equipment represents
state-of-the-art technology. Each of our manufacturing facilities maintains
quality control departments utilizing computer-assisted inspections which meet
or exceed customer requirements and produce required documentation to each
customer's standards.

Our customers require our manufacturing facilities to satisfy specific
standards relating to the quality of our manufactured parts and services. Our
manufacturing facilities perform testing and certification procedures on all
manufactured parts and provide detailed records to ensure traceability of parts.
In addition, we perform quality control tests on all parts we outsource to small
machine shops.

4
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BACKLOG

We operate under a series of long term contracts with the major aircraft
manufacturers which generally cover a two to five-year period for various part
numbers. Each long term contract includes customer estimates of the number of
parts the customer will require over the term of the contract and defines the
responsibilities of the parties, pricing formulas and product specifications for
specific parts covered by the contract. The customer generally issues purchase
orders for selected parts six to twelve months prior to the required shipping
date under the pricing terms and conditions agreed upon in the contract. Most of
our shipments are made pursuant to purchase orders. The long term contracts and
purchase orders are often terminable at will by the customer with respect to
uncompleted portions of the contract or purchase order. The backlog consists of
customers' unfilled purchase orders and therefore is represented largely by
contracts and orders that may be canceled by customers. At December 31, 1999 we
had a total revenue backlog of approximately $140 million, of which
approximately $97 million is deliverable in the remainder of 2000. These numbers
do not include appoximately $48 million of estimated deliveries in 2000 for long
term agreements for which purchase orders have not yet been issued.

CUSTOMERS

Our principal customer is Boeing, which directly accounted for approximately
51.0% of our consolidated revenues for the year ended December 31, 1999 and
indirectly accounted for approximately 14.0% of our consolidated revenues for
the year ended December 31, 1999. We supply parts to a number of major Boeing
divisions, including Boeing-Wichita, Boeing-Seattle, Boeing-Auburn,
Boeing-Portland and Douglas Products, which typically make independent
purchasing decisions. Boeing has announced that it will decrease its delivery of
commercial aircraft from approximately 620 aircraft in 1999 to 480 aircraft in
2000. Boeing orders could decline as a result of such a reduction in deliveries.
A decline in Boeing orders could have a material adverse effect on our business,
financial condition or results of operations.

Our other customers include Airbus, Northrop, Lockheed, Raytheon, Cessna,
Learjet, NASA-JPL, Rockwell International Corporation, General Dynamics
Corporation, British Aerospace, Bombardier, Inc. Canadair, Shorts Brothers PLC
and Embrear Aircraft Corporation, some of which are also Boeing suppliers.

SALES AND MARKETING

Our products are sold directly to aircraft manufacturers such as Boeing,
British Aerospace-Airbus, Lockheed and Raytheon, which perform final assembly of
aircraft, and to large aerospace subcontractors through both direct sales
efforts and independent sales representatives. The aircraft manufacturers and
subcontractors purchase products from qualified subcontractors under rigorous
ongoing certification programs such as Boeing's D1-9000 certification.

The sales process primarily entails relationship management to maximize new
sales from existing customers. The direct sales effort is primarily via
communication with our key customers and is continually maintained by senior
management and dedicated sales professionals. Technical support for such sales,
which is a critical component of the marketing process, is provided through line
manufacturing managers, engineering and quality control personnel.

COMPETITION

The aerospace supplier industry is highly fragmented, consisting of both a
limited number of well-capitalized companies which offer a broad range of
products and services and a large number of smaller, specialized companies. We
believe that the principal competitive factors in the aerospace supplier
industry are quality, precision-machining ability, timely deliveries, overall
customer service and price. We compete with third party manufacturers, some of
which are divisions or subsidiaries of aircraft manufacturers or other large
companies, in the manufacture of individual parts and sub-assemblies,
manufacturing kits and structural components. Some of these competitors have
greater financial and other resources than we do.

5
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GOVERNMENT REGULATION

The aviation industry is highly regulated in the United States by the
Federal Aviation Administration and in other countries by similar agencies. The
FAA regulates commercial flight operations in the United States and requires
that aircraft components meet stringent standards. FAA regulations provide that
aircraft manufacturers must operate under one or more of several different FAA
authorizations. Manufacturers holding FAA production approvals are known as
production approval holders and may engage a supplier to manufacture all or a
portion of an authorized part. If the supplier manufactures complete parts, the
production approval holder must ensure that the parts are fabricated and
inspected under the production approval holder's FAA-approved quality control
system. We must satisfy the requirements of our customers that are subject to
FAA regulations, and provide these customers with products and services that
comply with the government regulations. If material authorizations or approvals
held by our customers were revoked or suspended, our operations could be
adversely affected.

An initial parts manufacturer approval is, in general, an approval of a
manufacturing or modification facility's production quality control system. A
supplemental parts manufacturer approval authorizes the manufacture of a
particular part in accordance with the requirements of the corresponding FAA
production certificate. We have received parts manufacturer approval for some
parts produced at one of our manufacturing facilities. Our FAA approvals are
owned, and may only be used by, the manufacturing facility obtaining such
approval. We do not believe a parts manufacturer approval is necessary to
operate our business as it is currently being conducted. We believe any delay or
failure to obtain the parts manufacturer approval will not have a material
adverse effect on our business, financial condition or results of operations.

The aviation industry is regulated in the United Kingdom by the Civil
Aviation Authority and in other European countries by similar agencies. The CAA
regulates aircraft operated in the United Kingdom. CAA regulations provide that
aircraft manufacturers must operate under CAA authorization. In addition, some
of our customers are subject to similar regulation in other European countries.
Aircraft manufacturers holding CAA approvals or approvals from other European
regulatory agencies may, subject to undertakings to, and regulation by, the
relevant state authority, engage a supplier to manufacture all or a portion of
an authorized part. The aircraft manufacturer must ensure that the parts
manufactured by its suppliers meet approved quality control standards. We must
satisfy the requirements of our customers that are subject to CAA and European
regulations. If material authorizations or approvals held by our customers were
revoked or suspended, our operations could be adversely affected.

Our manufacturing operations in the United States are subject to a variety
of worker and community safety laws. The Occupational Safety and Health Act of
1970 mandate general requirements for safe workplaces for all employees. In
addition, OSHA provides special procedures and measures for the handling of
hazardous and toxic substances. Specific safety standards have been promulgated
for workplaces engaged in the treatment, disposal or storage of hazardous waste.
We believe that our operations are in material compliance with OSHA's health and
safety requirements.

Our manufacturing operations in the United Kingdom are subject to a variety
of worker and European community safety laws. The Health and Safety at Work Act
of 1974, and regulations made thereunder, mandate general requirements for safe
workplaces for all employees. We believe that our operations in the United
Kingdom are in material compliance with the Health and Safety at Work
requirements.

ENVIRONMENTAL MATTERS

We are subject to federal, state, local and foreign laws, regulation and
ordinances that:

- govern activities or operations that may have adverse environmental
effects, such as discharges to air and water,

- establish handling and disposal practices for solid and hazardous wastes,
and

6
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- impose liability for the clean-up costs of, and some of the damages
resulting from, past spills, disposal or other releases of hazardous
substances.

Our operations use some substances and generate some wastes that are
regulated or may be deemed hazardous under applicable environmental laws.
Although we endeavor at each of our facilities to assure compliance with
environmental laws and regulations, from time to time our operations and those
of our predecessors have resulted in, and may in the future result in, some
degree of noncompliance with applicable requirements under environmental laws
for which we may incur liability. We believe, based on currently available
information, that any such noncompliance under current environmental laws will
not have a material adverse effect on our business, financial condition or
results of operations. There can be no assurance that future changes in such
laws, regulations or interpretations thereof, or the nature of our operations,
will not require us to make significant additional capital expenditures to
ensure environmental compliance in the future.

We have acquired and may continue to acquire, pre-existing businesses that
have historical and ongoing operations. We have and will have limited
information about past activities of those companies and operations on our
properties. We are aware that at one of our leased properties, governmental
authorities are currently investigating groundwater contamination and we have
been asked to conduct additional investigations. We have also been named a
defendant in an action filed by an owner of property adjacent to property we
lease. We are indemnified by the owner of the property leased by us, and that
owner has assumed the defense of this action. At this time, we cannot determine,
in either case, what cleanup activities, if any, will be required. Soil and
groundwater contamination may also exist on our other properties as a result of
current or former operations on our properties, or operations on other
properties. Based in part on indemnities obtained in connection with our past
acquisitions, we believe, although there can be no assurance, that such matters
will not have a material adverse effect on our business, financial condition or
results of operations.

We may also incur liability under the Comprehensive Environmental Response
Compensation and Liability Act of 1980 ("CERCLA"), the Resource Conservation and
Recovery Act and similar state and local laws. Some of these laws impose strict,
and in some cases, joint and several liability, for the cleanup of contamination
resulting from past disposal of waste, including disposal at off-site locations.
A pre-existing business acquired by us has been named as a potentially
responsible party under CERCLA at a site where it disposed of waste in the past.
Based on the information available to us, including the apparent limited amount
of waste sent to the site by that business, as well as an existing indemnity
from the seller of the business, we believe that this matter will not have a
material adverse effect on our business, financial condition or results of
operation.

Our operations in the United Kingdom are subject to European community and
United Kingdom regulations, directives and legislation, that:

- govern activities or operations that may have adverse environmental
effects, such as discharges to air and water,

- establish handling and disposal practices for solid and hazardous wastes,
and

- impose liability for the clean-up costs of, and some of the damages
resulting from, past spills, disposal or other releases of hazardous
substances.

Our operations in the United Kingdom use some substances and generate some
wastes that are regulated or may be deemed hazardous under applicable
environmental laws. Although we endeavor at each of our facilities in the United
Kingdom to assure compliance with environmental laws and regulations, from time
to time our operations or those of our predecessors may have resulted in, and
may in the future result in, some degree of noncompliance with applicable
requirements under environmental laws for which we may incur liability. We
believe, based on currently available information, that any such noncompliance
under current environmental laws will not have a material adverse effect on our
business, financial condition or results of operations. There can be no
assurance that future changes in such laws,

7
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regulations or interpreting thereof, or the nature of our operations in the
United Kingdom, will not require us to make significant additional capital
expenditures to ensure environmental compliance in the future. Based in part on
warranties covering Trim and some of its subsidiaries that we obtained in
connection with our acquisition of Trim and its subsidiaries, we believe,
although there can be no assurance, that such matters will not have a material
adverse effect on our business, financial condition or results of operations.

TRADEMARKS

We hold a trademark registered in the United States and nine other countries
through one of our subsidiaries. We believe that the termination, expiration or
infringement of our trademark would not have a material adverse effect on our
business, financial condition or results of operation.

EMPLOYEES

We had 778 employees at February 29, 2000 in three states and had no
collective bargaining agreements in the United States. We had 511 employees at
February 29, 2000 in our United Kingdom facilities. At one of our subsidiaries
in the United Kingdom, a union has been granted sole collective bargaining
rights for 60 hourly paid employees. The same union is recognized at another of
our United Kingdom subsidiaries, but plays no direct role in negotiating
employment terms and conditions. Neither of these arrangements is documented.
The union is currently seeking recognition at another one of our facilities in
the United Kingdom. We have not experienced any strikes or general work
stoppages at any of our facilities and we believe that our relations with our
employees is excellent.

FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS

In July 1999, the Company acquired Trim and its subsidiaries located in the
United Kingdom. The revenue from Trim was $18.5 million, net income was
$0.4 million and total assets were $66.5 million for the year ended December 31,
1999.

SALES BY GEOGRAPHICAL AREA ($ IN MILLIONS)

<TABLE>
<CAPTION>
YEAR US UK OTHER TOTAL
- ---- -------- -------- -------- --------
<S> <C> <C> <C> <C>
1997 $ 2.8 $ 0.0 $ 0.3 $ 3.1
1998 88.2 0.3 8.0 96.5
1999 107.1 17.9 14.4 139.4
</TABLE>

The increase in revenue outside of the United States in 1999 is primarily
attributable to the acquisition of Trim.

AVAILABLE INFORMATION

You may read and copy our materials filed with the SEC at the SEC's Public
Reference Room at 450 Fifth St., NW, Washington, DC 20549. You may obtain
information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. In addition, you may look for information about the Company
online at the SEC website (http://www.sec.gov).

REPORTS TO SECURITY HOLDERS

Pursuant to the terms of our indentures, we are required to provide annual
reports and quarterly reports to our security holders. The annual reports that
we provide will contain financial information that has been reviewed and audited
by an independent certified public accountant. The quarterly financial
information will have been reviewed but not audited by an independent certified
public accountant.

8
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ITEM 2. PROPERTIES

At December 31, 1999 we maintained our corporate headquarters and operated
at the manufacturing facilities listed below, comprising an aggregate of
approximately 782,650 square feet of space. The following table describes the
principal manufacturing facilities and indicates the location, function,
approximate size and ownership status of each location. We believe that our
facilities are suitable for their present intended purposes and adequate for our
present and anticipated level of operations.

<TABLE>
<CAPTION>
APPROXIMATE
FACILITY SIZE
LOCATION PRODUCTS AND FUNCTION (SQ. FEET) OWNERSHIP
- -------- ---------------------- ------------- -----------------
<S> <C> <C> <C>
Long Beach, CA Corporate Headquarters 8,670 Leased
Santa Ana, CA Manufacturing 65,000 Leased (1)
Gardena, CA Manufacturing 20,500 Leased
Wichita, KS Manufacturing 153,000 Owned
Cerritos, CA Manufacturing 42,500 Leased
Shelton, WA Manufacturing 50,000 Owned
Kent, WA Manufacturing 77,180 Leased
Valencia, CA Manufacturing 31,280 Leased
Kent, WA Manufacturing 10,450 Leased
Renton, WA Manufacturing 95,070 Owned (2)
Wallisdown, Poole, Dorset Manufacturing 30,000 Leased and Owned
Llay, Wrexham, Wales Manufacturing 75,000 Owned
Llay, Wrexham, Wales Manufacturing 36,000 Owned
New Addington, Croydon and
Biggin Hill, Kent Manufacturing 28,000 Leased
Lower Sydenham, Croydon Manufacturing 40,000 Leased and Owned
Llay, Wrexham, Wales Manufacturing 20,000 Owned
</TABLE>

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(1) We lease our Santa Ana facility from a former Aeromil affiliate at a fair
market rent.

(2) This facility is owned by us, but is currently on the market to be sold due
to the consolidation of Modern with Barnes Machine and Sea-Lect.

ITEM 3. LEGAL PROCEEDINGS

On May 28, 1999, we filed suit against Alinabal Holdings Corporation, the
former shareholder of Pacific Hills, and the three principal stockholders of
Alinabal, Samuel S. Bergami, Jr., Stephen G. Cerri and Kevin M. Conlisk, in U.S.
District Court of the Southern District of New York. The suit, which alleges
violations of federal securities laws, fraud and breach of contract, seeks
rescission of the Amended and Restated Stock Purchase Agreement dated
November 20, 1998 by and among us, Alinabal and the three stockholders of
Alinabal pursuant to which we acquired Pacific Hills, or in the alternative,
$79.0 million in damages. On July 9, 1999 the defendants filed an answer and
counterclaim seeking, among other relief, release of $0.7 million from escrow.
On March 3, 2000, a hearing was held on motions for summary judgment submitted
by both sides. A decision on the motions is expected in April 2000. Both sides
are engaged in discovery and trial is scheduled to begin in June 2000. At this
preliminary stage of the proceedings, we cannot determine or predict the outcome
of this suit.

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

No matters were submitted to a vote of security holders during the last
quarter of the fiscal year covered by this report.

9
<PAGE>
PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

There is currently no public trading market for our stock, and we are not
listed on any exchange.

HOLDERS

As of February 29, 2000, there were 22 shareholders of Compass.

DIVIDENDS

We have declared no dividends on any of our securities. Our Credit Agreement
and our Indentures all contain provisions restricting our ability to pay
dividends.

UNREGISTERED SECURITIES

In the preceding year, we have issued the following securities that were not
registered under the Securities Act:

In July 1999, we issued a total of 10,204,083 shares of common stock in a
private placement at a purchase price of $1.47 per share for a total of
$15 million.

Pursuant to our 1998 Stock Incentive Plan, in 1999 we granted the following
options to purchase a total of 25,000 shares of common stock at an exercise
price of $1.47 per share: options for 20,000 shares in July 1999 and options for
5,000 shares in March 1999.

In July 1999, we issued $19 million of 10 1/8% Series C Senior Subordinated
Notes due 2005. Each of our subsidiaries except for Maybrey issued guarantees in
connection with these notes.

ITEM 6. SELECTED FINANCIAL DATA

The following selected historical consolidated financial data are derived
from our consolidated financial statements and those of our predecessor,
Brittain Machine. See "Management's Discussion and Analysis of Consolidated
Financial Condition and Consolidated Results of Operations--Consolidated Results
of Operations." Our consolidated financial statements as of December 31, 1997,
1998 and 1999 and for the period October 21, 1997 (date of incorporation)
through December 31, 1997, and for the years ended December 31, 1998 and 1999
have been audited by Ernst & Young LLP, independent auditors, and are included
elsewhere in this report. The consolidated financial statements of Brittain
Machine as of and for the period from July 1, 1997 through April 21, 1998 and as
of and for the year ended June 30, 1997 have been audited by other independent
auditors and are included elsewhere in this report. The consolidated financial
statements of Brittain Machine as of and for the year ended June 30, 1996 have
been audited by Ernst & Young LLP, independent auditors, and are included
elsewhere in this report.

10
<PAGE>
The information contained in this table should be read in conjunction with
"Management's Discussion and Analysis of Consolidated Financial Condition and
Consolidated Results of Operations" and the financial statements and related
notes thereto included elsewhere in this report.

<TABLE>
<CAPTION>
COMPASS FOR COMPASS FOR COMPASS FOR BRITTAIN BRITTAIN
THE YEAR THE YEAR THE 36 DAYS MACHINE(1) FOR THE MACHINE FOR
ENDED ENDED ENDED PERIOD FROM JULY 1, THE YEAR
DECEMBER 31, DECEMBER 31, DECEMBER 31, 1997 THROUGH ENDED
1999 1998 1997 APRIL 21, 1998 JUNE 30, 1997
------------- ------------- ------------- -------------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues.................... $139,437 $ 96,547 $ 3,057 $49,682 $35,481
Cost of sales............... 101,071 70,410 2,386 34,640 25,656
Gross profit................ 38,366 26,137 671 15,042 9,825
Selling, general and
administrative expenses... 24,606 14,537 404 6,798 3,229
Operating income (loss)..... 13,760 11,600 267 8,244 6,596
Interest expense, net....... 21,526 8,493 166 386 398
Other (income) expense...... 2,476 670 (16) (20) 84
Income (loss) before
taxes..................... (10,242) 2,437 117 7,878 6,114
Income taxes (benefit)...... (542) 1,522 43 2,901 2,208
Net income (loss)........... $ (9,700) $ 915 $ 74 $ 4,977 $ 3,906

Other Data:
Net cash flow provided by
(used in):
operating activities........ $ 7,976 $ (6,677) $ 269 $ 7,978 $ (155)
investing activities........ (52,962) (172,117) (23,456) (3,535) (1,244)
financing activities........ 45,438 186,222 23,630 (3,215) 1,763
Net increase (decrease) in
cash...................... $ 452 $ 7,428 $ 443 $ 1,228 $ 364
EBITDA(2)................... $ 31,741 $ 20,550 $ 486 $ 9,755 $ 8,265
EBITDA margin............... 22.8% 21.3% 15.9% 19.6% 23.3%
Depreciation and
amortization.............. $ 19,876 $ 8,440 $ 219 $ 1,511 $ 1,669
Capital expenditures........ 3,636 5,701 25 3,559 1,072

Balance Sheet Data (at
period end):
Cash and cash equivalents... $ 8,323 $ 7,871 $ 443 $ 1,683 $ 455
Total assets................ 301,431 255,505 33,789 32,776 28,602
Long-term obligations
(including current
portion) (2).............. 232,698 196,968 20,585 3,775 3,950
Stockholders' equity (3).... 35,255 29,955 9,074 20,243 15,266
</TABLE>

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

(1) For accounting and financial purposes, Brittain Machine is deemed to be our
predecessor based on the relative significance of Brittain Machine's
revenues, size and operating capacity.

(2) EBITDA is defined as operating income plus depreciation, goodwill
amortization and management fees paid to an affiliate. EBITDA is not a
defined term under GAAP and should not be construed as an alternative to
operating income or cash flows from operating activities as determined by
GAAP. EBITDA data is presented because such data is used by some investors
to determine our ability to meet debt service requirements and is used in
some debt covenant calculations required under the indentures and our
existing credit agreement. EBITDA is not indicative of our operating

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<PAGE>
performance, does not provide a measure of liquidity and does not represent
our available or discretionary funds. Furthermore, EBITDA as reported by us
may not be comparable to EBITDA reported by other companies.

(3) Long-term obligations include long-term debt, including the current portion,
and capital leases.

(4) The purchase price for each company we acquired in 1998 and 1999 was as
follows:

- Brittain Machine--$46.9 million

- Wichita Manufacturing--$8.0 million

- Barnes Machine--$15.0 million

- Sea-Lect (including J&J Leasing, Inc., acquired as a subsidiary of
Sea-Lect and merged into Sea-Lect in March 1999)--$12.2 million

- Pacific Hills--$73.7 million

- Modern (including Modern Holdings, Inc. and Modern Manufacturing, Inc., a
Washington corporation, acquired as subsidiaries of Modern and merged into
Modern in January 1999)--$23.1 million

- Trim and its subsidiaries--$50.7 million

The purchase price for each of our subsidiaries was allocated as follows:

<TABLE>
<CAPTION>
BARNES BRITTAIN WICHITA
MACHINE MACHINE MANUFACTURING SEA-LECT PACIFIC HILLS MODERN TRIM
-------- -------- -------------- -------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents......... $ 687 $ 971 $ 631 $ -- $ -- $ 1,590 $ --
Accounts receivable............... 2,035 7,093 1,732 2,246 2,258 1,294 11,028
Inventories....................... 1,584 7,043 1,803 2,584 2,662 6,632 6,499
Prepaid expenses and other current
assets.......................... 13 36 25 -- 34 358 --
Total current assets.............. 4,319 15,143 4,191 4,830 4,954 9,874 17,527
Property and equipment, net....... 6,712 19,329 4,488 4,587 1,584 6,782 19,079
Other Assets...................... 133 637 -- -- -- -- --
Goodwill.......................... 6,768 19,258 2,359 4,155 67,920 8,664 26,670
------- ------- ------- ------- ------- ------- -------
Total assets...................... $17,932 $54,367 $11,038 $13,572 $74,458 $25,320 $63,276
------- ------- ------- ------- ------- ------- -------
Liabilities and stockholders'
equity
Current liabilities:
Accounts payable.................. $ 1,162 $ 1,191 $ 1,596 $ 1,169 $ 510 $ 892 $10,604
Accrued expenses.................. 242 1,917 272 240 276 296 --
Income taxes payable.............. 489 (644) 222 -- -- -- --
Current portion of long term
debt............................ -- 55 -- -- -- -- --
Total current liabilities......... 1,893 2,519 2,090 1,409 786 1,188 10,604
Deferred tax liability............ 1,050 4,282 976 -- -- 1,037 1,754
Other debt, less current
portion......................... -- 645 -- -- -- -- 240
Stockholders' equity:
Paid-in-capital................... 14,989 46,921 7,972 12,163 73,672 23,095 50,678
Total stockholders' equity........ 14,989 46,921 7,972 12,163 73,672 23,095 50,678
------- ------- ------- ------- ------- ------- -------
Total liabilities and
stockholders' equity............ $17,932 $54,367 $11,038 $13,572 $74,458 $25,320 $63,276
======= ======= ======= ======= ======= ======= =======
</TABLE>

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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

On March 9, 2000, Alexander Hogg, our former Chief Executive Officer,
resigned. Douglas B. Solomon, one of our directors since our inception, assumed
the duties of Chief Executive Officer. Also on that date, we appointed John R.
Reimers as our Chief Operating Officer and Jerome David as our Vice President of
Operational Finance. In conjunction with these management changes, we instituted
a complete review of our internal operations management process, and we have
expanded our review procedures to improve the quality, timeliness and
reliability of information the divisions provide to senior management. We
believe these changes will allow us to better manage our business by improving
coordination among our general managers in purchasing and production decisions,
providing us the structure to optimize our investments in working capital and
improving our order processing operations.

CONSOLIDATED RESULTS OF OPERATIONS

For accounting and financial reporting purposes, Brittain Machine is deemed
to be our predecessor based on the relative significance of Brittain Machine's
revenues, size and operating capacity. When we acquired Brittain Machine on
April 21, 1998, Brittain Machine represented, on a historical basis, 68% of the
revenues and 87% of the pre-tax income of the combined historical results of
Aeromil, Western Methods and Brittain Machine prior to our acquisition of those
companies. The acquisition of Brittain Machine added additional operating
capacity and manufacturing capabilities that significantly advanced our goal of
producing more sub-assemblies, manufacturing kits and structural components. The
following discussion therefore includes the results of operations of Brittain
Machine as our predecessor for the periods shown below.

COMPASS FOR THE YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER
31, 1998.

REVENUES. Revenues increased $42.9 million to $139.4 million for the year
ended December 31, 1999 from $96.5 million for the year ended December 31, 1998.
Combined revenues of Western Methods and Aeromil for the year ended
December 31, 1999 decreased by $4.4 million, a decrease of 12.5%, as compared to
the year ended December 31, 1998 as a result of lower Boeing requirements in
1999 as compared to 1998. Consolidated revenues increased as a result of our
acquisitions of Brittain Machine, Barnes Machine, Wichita Manufacturing,
Sea-Lect, Pacific Hills, Modern and Trim and its subsidiaries.

COST OF SALES. Cost of sales increased $30.7 million to $101.1 million for
the year ended December 31, 1999 from $70.4 million for the year ended
December 31, 1998. The increase in cost of sales was primarily attributable to
the acquisitions we completed in 1998 and 1999. Cost of sales as a percentage of
revenues decreased to 72.5% for the year ended December 31, 1999 from 72.9% for
the year ended December 31, 1998. This percentage decrease was primarily
attributable to the acquisitions we completed in 1998 and 1999 which provided a
higher level of average margins.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $10.1 million to $24.6 million for the year
ended December 31, 1999 from $14.5 million for the year ended December 31, 1998.
This increase in selling, general and administrative expenses was primarily
attributable to the acquisitions we completed in 1998 and 1999. Selling, general
and administrative expenses as a percentage of revenues increased to 17.6% for
the year ended December 31, 1999 from 15.1% for the year ended December 31,
1998. Selling, general and administrative expenses as a percentage of revenues
for Western Methods and Aeromil was 10.4% for the year ended December 31, 1999
as compared to 13.8% for the year ended December 31, 1998. Selling, general and
administrative expenses as a percentage of revenues for the year ended
December 31, 1999 for the companies we acquired in 1998 was 14.2%. Corporate
office selling, general and administrative expenses, including management fees,
was $5.9 million for the year ended December 31, 1999 as compared to
$1.9 million for the year ended December 31, 1998. The increase in selling,
general and administrative expenses is primarily attributable to our overall
growth and the development of our corporate office. The increase in selling,
general and administrative expenses

13
<PAGE>
as a percentage of revenues for the year ended December 31, 1999 is primarily
attributable to the goodwill associated with the acquisitions we completed in
1998 and 1999.

OPERATING INCOME. Operating income increased $2.2 million to $13.8 million
for the year ended December 31, 1999 from $11.6 million for the year ended
December 31, 1998. The increase in operating income was primarily attributable
to the operating income derived from acquisitions we completed in 1998 and 1999,
partly offset by higher selling, general and administrative expenses related to
those acquisitions and increased corporate expenses related to our growth.
Operating income as a percentage of revenues decreased to 9.9% for the year
ended December 31, 1999 from 12.0% for the year ended December 31, 1998 as a
result of higher selling, general and administrative expenses associated with
the acquisitions we completed in 1998 and 1999 and the development of our
corporate office.

INTEREST EXPENSE. Interest expense increased $13.0 million to
$21.5 million for the year ended December 31, 1999 from $8.5 million for the
year ended December 31, 1998. Approximately $3.5 million of the increase in
interest expense is attributable to our issuance of the Series A notes in
April 1998, $6.7 million of the increase is attributable to increased bank
borrowings by us in November 1998, $1.8 million of the increase is attributable
to our issuance of the Series C Notes, the seller variable rate note due 2002
and increased bank borrowings in July 1999, and $0.2 million is attributable to
interest on operating leases. Interest expense attributable to our issuance of
the Series A notes in April 1998 will decrease in 2000 when we cease paying
increased interest on the Series A notes as a form of liquidated damages after
the registration became effective. As of December 31, 1999 increased interest on
the Series A notes as a form of liquidated damages totaled $0.7 million.

NET INCOME. Net income decreased $10.6 million to a net loss of
$9.7 million for the year ended December 31, 1999 from net income of
$0.9 million for the year ended December 31, 1998. The decrease in net income
was primarily attributable to an increase in operating income of $2.2 million,
offset by an increase in interest expense of $13.0 million, increased
amortization of deferred financial fees of $2.6 million and a decrease in income
tax expense of $2.0 million during the year ended December 31, 1999 compared to
the year ended December 31, 1998.

NET CASH FLOW PROVIDED BY (USED IN) OPERATING ACTIVITIES. Net cash flow
provided by operating activities increased $14.7 million to $8.0 million for the
year ended December 31, 1999 from usage of $6.7 million for the year ended
December 31, 1998. The increase in net cash flow provided by operating
activities during the year ended December 31, 1999 was primarily attributable to
an $11.4 million increase in depreciation and amortization expense and an
increase in changes in operating assets and liabilities of $3.3 million, partly
offset by a reduction in net income of $11.5 million and a reduction in the
change in other assets and liabilities of $3.8 million during the year ended
December 31, 1999 compared to the year ended December 31, 1998.

NET CASH FLOW USED IN INVESTING ACTIVITIES. Net cash flow used in investing
activities was related to the purchase of property, plant and equipment and was
$3.6 million for the year ended December 31, 1999 and $5.7 million for the year
ended December 31, 1998.

NET CASH FLOW PROVIDED BY FINANCING ACTIVITIES. Net cash flow provided by
financing activities was $45.4 million for the year ended December 31, 1999 as
compared to net cash flow provided by financing activities of $186.2 million for
the year ended December 31, 1998. The decrease in net cash flow provided by
financing activities for the year ended December 31, 1999 was primarily
attributable to the issuance of the Series A notes during the year ended
December 31, 1998.

EBITDA. EBITDA increased $11.1 million to $31.7 million for the year ended
December 31, 1999 from $20.6 million for the year ended December 31, 1998 as a
result of the acquisitions we completed in 1998 and 1999. EBITDA as a percentage
of revenues increased to 22.8% for the year ended December 31, 1999 from 21.3%
for the year ended December 31, 1998. The increase in EBITDA was primarily

14
<PAGE>
attributable to an increase in revenues of $42.9 million, an increase in gross
profit of $12.3 million and an increase in operating income of $2.2 million in
the year ended December 31, 1999 compared to the year ended December 31, 1998.

HISTORICAL RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 COMPARED
TO PRO FORMA RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998

REVENUES. Historical revenues were $96.5 million for the year ended
December 31, 1998 compared to pro forma revenues of $227.4 million for the same
period. The difference was primarily attributable to the timing of our
acquisitions in 1998 of Brittain Machine, Barnes Machine, Wichita Manufacturing,
Sea-Lect and Pacific Hills and our acquisition of Trim and its subsidiaries in
1999.

COST OF SALES. Historical cost of sales was $70.4 million for the year
ended December 31, 1998 compared to pro forma cost of sales of $149.6 million
for the same period. The difference was primarily attributable to the
acquisitions we completed in 1998 and 1999 and to pro forma adjustments which
increased pro forma cost of sales $0.9 million. Historical cost of sales as a
percentage of historical revenues was 73.0% for the year ended December 31, 1998
as compared to pro forma cost of sales as a percentage of pro forma revenues of
65.8% for the same period. The difference was primarily attributable to our
acquisitions in 1998 of Brittain Machine, Barnes Machine, Wichita Manufacturing,
Sea-Lect and Pacific Hills and our acquisition in 1999 of Trim and its
subsidiaries which provided a higher level of average margins.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Historical selling, general
and administrative expenses were $14.5 million for the year ended December 31,
1998 compared to pro forma selling, general and administrative expenses of
$34.3 million for the same period. The difference was primarily attributable to
the acquisitions we completed in 1998 and 1999 and to pro forma adjustments
which reduced pro forma selling, general and administrative expenses by
$5.8 million. Historical selling, general and administrative expenses as a
percentage of historical revenues was 15.0% for the year ended December 31, 1998
compared to pro forma selling, general and administrative expenses as a
percentage of pro forma revenues of 15.1% for the same period.

OPERATING INCOME. Historical operating income was $11.6 million for the
year ended December 31, 1998 compared to pro forma operating income of
$43.5 million for the same period. The difference was primarily attributable to
the acquisitions we completed in 1998 and 1999 and to pro forma adjustments
which increased pro forma operating income by $5.0 million. Historical operating
income as a percentage of historical revenues was 12.0% for the year ended
December 31, 1998 compared to pro forma operating income as a percentage of pro
forma revenues of 19.1% for the same period. The difference was primarily
attributable to our acquisitions in 1998 of Brittain Machine, Barnes Machine,
Wichita Manufacturing, Sea-Lect and Pacific Hills and our acquisition in 1999 of
Trim and its subsidiaries which provided a higher level of operating income.

INTEREST EXPENSE. Historical interest expense was $8.5 million for the year
ended December 31, 1998 compared to pro forma interest expense of $23.3 million
for the same period. The difference was primarily attributable to pro forma
adjustments to increase interest expense related to increased borrowings
required to reflect the acquisitions we completed in 1998 and 1999 as if they
had occurred on January 1, 1998.

NET INCOME. Historical net income was $0.9 million for the year ended
December 31, 1998 compared to pro forma net income of $9.7 million for the same
period. The difference was primarily attributable to the acquisitions we
completed in 1998 and 1999 and pro forma adjustments.

NET CASH FLOW PROVIDED BY (USED IN) OPERATING ACTIVITIES. Historical net
cash flow used in operating activities was $6.7 million for the year ended
December 31, 1998 compared to pro forma net cash flow

15
<PAGE>
provided by operating activities of $15.3 million for the same period. The
difference was primarily attributable to the acquisitions we completed in 1998
and 1999 which increased pro forma net cash flow offset by increased pro forma
working capital requirements.

EBITDA. Historical EBITDA was $20.6 million for the year ended
December 31, 1998 compared to pro forma EBITDA of $61.9 million for the same
period. The difference was primarily attributable to the acquisitions we
completed in 1998 and 1999 and to higher margins of the acquired companies.
Historical EBITDA as a percentage of historical revenues was 21.3% for the year
ended December 31, 1998 compared to pro forma EBITDA as a percentage of pro
forma revenues of 27.2% for the same period.

BRITTAIN MACHINE FOR THE PERIOD FROM JULY 1, 1997 THROUGH APRIL 21, 1998
COMPARED TO THE YEAR ENDED JUNE 30, 1997.

REVENUES. Revenues increased $14.2 million to $49.7 million for the period
from July 1, 1997 through April 21, 1998 from $35.5 million for the year ended
June 30, 1997. The increase was primarily attributable to a further increase in
capacity by the addition of two high-speed, three- spindle five-axis gantry
mills and two machining centers, as well as increased shipments to both Boeing
and Northrop Grumman Corporation.

COST OF SALES. Cost of sales increased $8.9 million to $34.6 million for
the period from July 1, 1997 to April 21, 1998 from $25.7 million for the year
ended June 30, 1997. Cost of sales increased primarily as a result of the
increase in sales. Cost of sales as a percentage of revenues decreased to 69.7%
for the period from July 1, 1997 to April 21, 1998 from 72.3% for the year ended
June 30, 1997. This decrease was primarily attributable to a reduction in the
level of start up costs encountered in the previous period as well as improved
productivity gains.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $3.6 million to $6.8 million for the period
from July 1, 1997 to April 21, 1998 from $3.2 million for the year ended
June 30, 1997. Selling, general and administrative expenses for the period from
July 1, 1997 to April 21, 1998 include $3.8 million of non-recurring management
and employee bonuses paid in connection with the sale of Brittain Machine.
Selling, general and administrative expenses as a percentage of revenues
increased to 13.7% for the period from July 1, 1997 to April 21, 1998 from 9.1%
for the year ended June 30, 1997. Excluding non-recurring bonuses, selling,
general and administrative expenses as a percentage of revenues for the period
from July 1, 1997 to April 21, 1998 was 6.0%.

OPERATING INCOME. Operating income increased $1.6 million to $8.2 million
for the period from July 1, 1997 through April 21, 1998 from $6.6 million for
the year ended June 30, 1997 as a result of an increase in revenues. Operating
income as a percentage of revenues decreased to 16.6% for the period from
July 1, 1997 through April 21, 1998 from 18.6% for the year ended June 30, 1997.

NET INCOME. Net income increased $1.1 million to $5.0 million for the
period from July 1, 1997 through April 21, 1998 from $3.9 million for the year
ended June 30, 1997. The increase in net income was primarily attributable to
increased revenues and higher gross profit margins.

NET CASH FLOW PROVIDED BY (USED IN) OPERATING ACTIVITIES. Net cash flow
provided by operating activities increased $8.2 million to $8.0 million for the
period from July 1, 1997 through April 21, 1998 from net cash flow used in
operating activities of $0.2 million for the year ended June 30, 1997. The
primary sources of cash during the period from July 1, 1997 through April 21,
1998 related to increases in net income, accounts payable and accrued expenses,
and a decrease in inventories.

NET CASH FLOW USED IN INVESTING ACTIVITIES. Net cash flow used in investing
activities was primarily related to purchases of property and equipment. Net
cash flow used in investing activities was $3.5 million for the period from
July 1, 1997 through April 21, 1998 and $1.2 million for the year ended
June 30, 1997.

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<PAGE>
NET CASH FLOW PROVIDED BY (USED IN) FINANCING ACTIVITIES. Net cash flow
used in financing activities increased $5.0 million to net cash flow used in
financing activities of $3.2 million for the period from July 1, 1997 through
April 21, 1998 from $1.8 million of net cash flow provided by financing
activities for the year ended June 30, 1997. The increase in net cash flow used
in financing activities was primarily attributable to the repayments of
outstanding lines of credit and principal payments on debt.

EBITDA. EBITDA increased $1.5 million to $9.8 million for the period from
July 1, 1997 through April 21, 1998 from $8.3 million for the year ended
June 30, 1997. The increase was primarily the result of an increase in revenues.
EBITDA as a percentage of revenues decreased to 19.6% for the period from
July 1, 1997 through April 21, 1998 from 23.3% for the year ended June 30, 1997,
primarily as a result of increased selling, general and administrative expense
related to non-recurring bonuses above paid in connection with the sale of
Brittain Machine to us.

LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of liquidity have been borrowings, proceeds from the
sale of stock and, to a lesser extent, cash flows from operating activities. At
December 31, 1999 we had cash of approximately $8.3 million, working capital of
approximately $39.1 million and total debt, including the current portion of
long term debt, of approximately $232.7 million.

On April 21, 1998, we completed the private offering of $110.0 million of
Series A notes. After fees and expenses of $3.3 million, the net cash proceeds
of $106.7 million from the issuance and sale of the Series A notes were used to
finance acquisitions and for general corporate purposes. The net proceeds from
the issuance and sale of the Series A notes were also used to repay existing
bank debt which had been used to finance our acquisition of Western Methods and
Aeromil and which was to mature on November 25, 2000 and bore interest at a
blended rate of approximately prime plus 83 basis points. In April and
May 1998, we also issued additional shares of common stock for approximately
$13.5 million in cash. We completed the exchange of Series A Notes for Series B
Notes on January 4, 2000.

On July 30, 1999, we completed the private offering of $19.0 million of
Series C notes. After the original issue discount of $2.8 million, the net cash
proceeds of $16.2 million were used to partly finance our acquisition of Trim
and our other subsidiaries located in the United Kingdom. We also issued
additional shares of common stock in July 1999 for $15.0 million in cash. We
completed the exchange of Series C Notes for Series D Notes on January 4, 2000.

We entered into a credit agreement dated November 20, 1998, as amended and
restated on February 11, 1999, as amended further on June 7, 1999, as amended
further on July 30, 1999, as amended further on March 30, 2000, with BankBoston,
N.A. as Agent, NationsBank, N.A. as Co-Agent, the lenders named therein,
including BankBoston as a lender, Royal Bank of Canada as Syndication Agent,
General Electric Capital Corporation as Documentation Agent and BancBoston
Robertson Stephens Inc., an affiliate of BankBoston, as arranger, providing for
borrowing availability, after the amendments, of up to $125.7 million. Our
obligations under the credit agreement are guaranteed on a senior basis by our
direct and indirect subsidiaries, except for Maybrey, and secured by a security
interest in substantially all of our assets and those of our subsidiaries. The
credit agreement contains customary conditions to borrowing and contains
customary restrictions and covenants. The June 7, 1999 amendment to the credit
agreement retroactively amended some of these covenants effective as of
March 31, 1999, particularly covenants based on EBITDA targets and EBITDA
ratios, to enable us to maintain compliance with the terms of the credit
agreement, as amended. The June 7, 1999 amendment also increased interest rates
by 0.25% and increased some fees which are based on leverage ratios. At
December 31, 1999, we failed to meet certain of the financial covenants under
our credit agreement. In addition, we failed to comply with certain investment
restrictions in connection with advances we made to our United Kingdom
subsidiary. The March 30, 2000 amendment waived compliance with such covenants,
amended the financial covenants for calendar year 2000, added a minimum accounts
payable covenant, added a requirement of mandatory prepayment of the

17
<PAGE>
loans in connection with the settlement of certain litigation, added a provision
regarding maintenance of agreed upon levels of accounts payable, added a
restriction regarding changes to the indentures governing the Series B and
Series D Notes, requires us to grant mortgages on our owned real estate in favor
of the banks, requires us to arrange for our United Kingdom subsidiary to repay
$1.3 million to us, and increased the applicable interest rates and credit
facility fees. We are in compliance with the financial covenants at this time.

The credit agreement, as amended, consists of a revolving credit facility of
$25.0 million, of which $10.0 million is currently available, a $35.0 million
term loan ("Term Loan A"), a $45.0 million term loan ("Term Loan B") and a
$20.7 million acquisition line (the "Acquisition Line"). At February 29, 2000 we
had borrowed $105.7 million under the credit agreement, consisting of the full
amount of Term A Loan and Term B Loan and $20.7 million of the Acquisition Line
and $5.0 million of the revolving credit facility. The March 30, 2000 amendment
terminates the unused portion of the Acquisition Line and limits or prohibits
advances under the revolving credit facility during certain time periods.

The Series B notes call for semi-annual interest payments on April 15 and
October 15 of each year, beginning October 15, 1998. The Series D notes call for
semi-annual interest payments on April 15 and October 15 of each year, beginning
October 15, 1999. The Series B and Series D notes are guaranteed by all of our
current subsidiaries except Maybrey, are subordinate to borrowings under the
credit agreement and require us to meet specific financial ratios, and satisfy
other financial condition tests prior to incurring additional debt or making
some payments. The terms of the notes and the credit agreement include
restrictive covenants that restrict our ability to pay dividends, sell some
assets and incur additional indebtedness. Our ability to pay principal and
interest on our indebtedness, including the notes, will depend upon the future
operating performance of our subsidiaries and will require a substantial portion
of our cash flow from operations.

Operating activities provided $8.1 million of cash flow during the year
ended December 31, 1999. Net cash used in investing activities during the year
ended December 31, 1999 related to purchases of property and equipment and was
$57.9 million. Net cash provided by financing activities during the year ended
December 31, 1999 was $50.3 million.

The principal use of cash during the year ended December 31, 1999 was to
fund the acquisitions we completed during 1999 and to repay indebtedness
incurred to finance our acquisitions in 1997 and 1998. We provided $8.1 million
in net cash for operating activities for the year ended December 31, 1999. Net
cash provided by financing activities was $50.3 million for the year ended
December 31, 1999. Net cash used for investing activities was $57.9 million for
the year ended December 31, 1999.

Capital expenditures during the year ended December 31, 1999 were
approximately $3.6 million for machinery and miscellaneous equipment. Capital
expenditures for the year ended December 31, 1998 were approximately
$5.7 million. The capital expenditures were primarily for high-speed
manufacturing equipment. We believe that funds generated from operations and
borrowing availability under the credit agreement will be sufficient to finance
our current operations and planned capital expenditure requirements for the next
12 months.

We may pursue other acquisition opportunities. We expect to fund future
acquisitions, if any, through the issuance of additional equity securities,
incurrence of additional indebtedness, including use of amounts available under
the credit agreement, and cash flow from operations. To the extent we fund a
significant portion of the consideration for future acquisitions with cash, we
may have to increase the amount of our credit agreement or obtain other sources
of financing. There can be no assurance that we will be able to obtain financing
for potential acquisitions on satisfactory terms and conditions.

18
<PAGE>
INDUSTRY TRENDS

We and other suppliers to Boeing experienced a decrease in the value and
number of orders from Boeing delivered in 1999 as compared to 1998. We believe
the reduction is due to changes in Boeing's purchasing practices implemented as
part of Boeing's strategy to reduce inventories and increase its use of
just-in-time manufacturing techniques. Boeing's stated goal is to increase its
annual inventory turn rate, which is currently approximately two times, to an
annual inventory turn rate of four times. In addition, Boeing is forecasting a
reduction in its delivery of commercial aircraft to 480 aircraft in 2000
relative to projected deliveries of 620 aircraft in 1999. We have experienced a
decline in the value of orders by Boeing for delivery in 2000 at most of our
United States subsidiaries, and particularly at Brittain Machine and at Pacific
Hills. Boeing orders could continue to decline and we cannot assure you that
Boeing orders will increase or return to the 1998 or 1999 level in 2000. In
addition, our results of operations in 2000 probably will not exceed 1999 pro
forma results.

INFLATION

We believe that inflation has not had a material impact on its results of
operations for the 36 days ended December 31, 1997, the year ended December 31,
1998 and the year ended December 31, 1999.

RECENT ACCOUNTING PRONOUNCEMENTS

We adopted Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS No. 130"), effective January 1, 1998. This
Statement establishes standards for the reporting and display of comprehensive
income and its components in the financial statements. There was no impact on
the financial statements of Compass due to the adoption of SFAS No. 130.

We also adopted Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related Information" ("SFAS"
No. 131"), on January 1, 1998. This statement requires us to report financial
and descriptive information about its reportable operating segments. There was
no impact on our financial statements due to the adoption of SFAS No. 131.

Also effective January 1, 1998, we adopted Statement of Financial Accounting
Standards No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits" ("SFAS No. 132"). SFAS No. 132 supersedes the
disclosure requirements in Statements of Financial Accounting Standards No. 87,
"Employers' Accounting for Pensions," Statements of Financial Accounting
Standards No. 88, "Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits," and Statements of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other than Pensions." SFAS No. 132 is intended to improve and standardize
disclosures regarding pensions and post-retirement benefits. There was no impact
on our financial statements due to the adoption of SFAS No. 132.

In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133")
was issued, effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. We do not expect the impact of SFAS No. 133 to have a material
effect on our financial reporting.

In June 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants ("AICPA") issued Statement of Position
98-1 "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" ("SOP 98-1"), which is effective for fiscal years beginning after
December 15, 1998. SOP 98-1 requires capitalization and amortization of
qualified computer software costs over their estimated useful life. We do not
expect the adoption of SOP 98-1 to have a material impact on our financial
statements.

In April 1998, the Accounting Standards Executive Committee of the AICPA
issued Statement of Position 98-5 "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5"), which is effective for

19
<PAGE>
fiscal years beginning after December 15, 1998. SOP 98-5 requires costs of
start-up activities, as defined in Statement SOP 98-5, to be expenses as
incurred. Compass does not expect the adoption of SOP 98-5 to have a material
impact on its financial statements.

YEAR 2000

The Year 2000 issue concerns the inability of information systems to
recognize properly and process date-sensitive information beyond January 1,
2000. We and some of our customers and suppliers are dependent in part on
computer- and date-controlled systems for some functions. As of the date of this
report, the January 1, 2000 date has passed and we are not aware of any
significant internal customer- or vendor-related Year 2000 issues or
computer-related failures. However, as of this date we have not performed all of
the month-, quarter and year-end update and closing procedures for our computer
and date-controlled systems. We cannot assure you that our efforts to address
Year 2000 issues were fully effective, or that Year 2000 issues will not have a
material adverse effect on our business, financial condition or results of
operations. We intend to continue to monitor our systems and our vendors,
suppliers and customers for Year 2000 related issues and take necessary actions
to correct the problems, if any.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

MARKET RISK AND RISK MANAGEMENT POLICIES

Our results of operations are affected by numerous external factors such as
general economic conditions, domestic and foreign competition, raw material
availability and production delays by aerospace manufacturers. We are also
exposed to changes in interest rates primarily from our long term debt issued at
a fixed rate. Under our current policies we do not use interest rate derivative
instruments to manage exposure to interest rate changes. A hypothetical 100
basis point decrease in interest rates along the entire interest rate yield
curve would adversely affect the net fair value of all interest sensitive
financial instruments by $1.0 million for the year ended December 31, 1999.
Based on the current holdings of debt, we do not believe our exposure to
interest rate risk is material. Fixed rate debt obligations currently issued by
us are callable prior to maturity under some circumstances.

20
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

<S> <C>
COMPASS AEROSPACE CORPORATION
For the years ended December 31, 1999 and 1998 and for the
period from October 21, 1997 (date of incorporation) through
December 31, 1997
Report of Independent Auditors.............................. 22
Consolidated Balance Sheets................................. 23
Consolidated Statements of Operations....................... 24
Consolidated Statements of Stockholders' Equity............. 25
Consolidated Statements of Cash Flows....................... 26
Notes to Consolidated Financial Statements.................. 27
BRITTAIN MACHINE, INC.
For the period from July 1, 1997 through April 21, 1998
Report of Independent Certified Public Accountants.......... 40
Consolidated Balance Sheet.................................. 41
Consolidated Statement of Earnings and Retained Earnings.... 42
Consolidated Statement of Cash Flows........................ 43
Notes to Consolidated Financial Statements.................. 44
For the years ended June 30, 1997 and June 30, 1996
Report of Independent Certified Public Accountants.......... 51
Report of Independent Auditors.............................. 52
Consolidated Balance Sheets................................. 53
Consolidated Statements of Earnings and Retained Earnings... 55
Consolidated Statements of Cash Flows....................... 56
Notes to Consolidated Financial Statements.................. 57
</TABLE>

21
<PAGE>
REPORT OF INDEPENDENT AUDITORS

To the Shareholders
Compass Aerospace Corporation

We have audited the accompanying consolidated balance sheets of Compass
Aerospace Corporation and subsidiaries as of December 31, 1999 and 1998 and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years ended December 31, 1999 and 1998 and the period October 21,
1997 (date of incorporation) through December 31, 1997. Our audits also included
the financial statement schedule listed in the Index at Item 14(a). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and the schedule based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 Compass
Aerospace Corporation and subsidiaries at December 31, 1999 and the consolidated
results of their operations and their cash flows for the year ended
December 31, 1999 and 1998 and the period October 21, 1997 (date of
incorporation) through December 31, 1997, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.

/s/ ERNST & YOUNG LLP
Long Beach, California
March 20, 2000 except for Note 16, as to which the date is March 30, 2000

22
<PAGE>
COMPASS AEROSPACE CORPORATION

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31
-------------------
<S> <C> <C>
1999 1998
-------- --------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 8,323 $ 7,871
Accounts receivable less allowance for doubtful accounts
of $1,040 in 1999 and $756 in 1998...................... 23,136 19,553
Inventories............................................... 36,689 32,631
Deferred income taxes..................................... 2,519 2,100
Refundable income taxes................................... -- 889
Prepaid expenses and other current assets................. 1,556 418
-------- --------
Total current assets...................................... 72,233 63,462
Property and equipment, net............................... 73,033 58,914
Costs in excess of net assets acquired, net of accumulated
amortization of $6,950 in 1999 and $2,519 in 1998....... 142,028 120,412
Other assets.............................................. 14,137 12,717
-------- --------
Total assets.............................................. $301,431 $255,505
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 9,594 $ 10,827
Accrued liabilities....................................... 13,250 9,910
Income taxes payable...................................... 1,864 --
Current portion of long-term debt and capital leases...... 8,382 4,632
-------- --------
Total current liabilities................................. 33,090 25,369
Deferred income taxes..................................... 8,770 7,845
Long-term debt and capital leases, less current portion... 224,316 192,336
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value:
Authorized shares:
56,000,000 at December 31, 1999
36,000,000 at December 31, 1998
Issued and Outstanding:
34,979,710 at December 31, 1999
24,775,628 at December 31, 1998....................... 350 248
Paid-in capital........................................... 43,616 28,718
Retained earnings......................................... (8,711) 989
-------- --------
Total stockholders' equity................................ 35,255 29,955
-------- --------
Total liabilities and stockholders' equity................ $301,431 $255,505
======== ========
</TABLE>

See accompanying notes.

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<PAGE>
COMPASS AEROSPACE CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS)

<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 21
YEAR ENDED THROUGH
DECEMBER 31, DECEMBER
----------------------- 31,
1999 1998 1997
---------- ---------- -----------
<S> <C> <C> <C>
Net sales................................................ $139,437 $96,547 $3,057
Cost of sales............................................ 101,071 70,410 2,386
-------- ------- ------
Gross profit............................................. 38,366 26,137 671
Selling, general and administrative expenses............. 24,606 14,537 404
-------- ------- ------
Operating income......................................... 13,760 11,600 267
Interest expense......................................... 21,526 8,493 166
Other expense (income)................................... 2,476 670 (16)
-------- ------- ------
(Loss) income before income taxes........................ (10,242) 2,437 117
Income tax (benefit) expense............................. (542) 1,522 43
-------- ------- ------
Net (loss) income........................................ $ (9,700) $ 915 $ 74
======== ======= ======
</TABLE>

24
<PAGE>
COMPASS AEROSPACE CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(IN THOUSANDS EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
ADDITIONAL TOTAL
PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
----------- -------- ---------- -------- -------------
COMMON STOCK
----------------------
<S> <C> <C> <C> <C> <C>
Balance at October 21, 1997 (date of
incorporation)......................... $ -- $ -- $ -- $ -- $ --
Proceeds from initial private placement
of stock............................... 9,000,000 90 8,910 -- 9,000
Net income............................... -- -- 74 74
----------- ---- ------- ------- -------
Balance at December 31, 1997............. 9,000,000 90 8,910 74 9,074
Issuance of stock........................ 582,376 6 460 -- 466
Conversion of mezzanine debt to stock.... 6,000,000 60 5,940 -- 6,000
Issuance of stock........................ 9,193,252 92 13,408 -- 13,500
Net income............................... -- -- -- 915 915
----------- ---- ------- ------- -------
Balance at December 31, 1998............. 24,775,628 $248 $28,718 $ 989 $29,955
Issuance of stock........................ 10,204,082 102 14,898 15,000
Net loss................................. -- -- -- (9,700) (9,700)
Balance at December 31, 1999............. 34,979,710 $350 $43,616 $(8,711) $35,255
=========== ==== ======= ======= =======
</TABLE>

See accompanying notes.

25
<PAGE>
COMPASS AEROSPACE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED OCTOBER 21
DECEMBER 31, THROUGH
------------------------- DECEMBER 31
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss) income......................................... (9,700) $ 915 $ 74
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Depreciation.............................................. 10,355 5,974 166
Amortization of goodwill.................................. 6,950 2,466 53
Amortization of debt discount loan fees................... 2,571 -- --
Loss on sales of property & equipment..................... 37 -- --
Stock issued for compensation............................. -- 466 --
Deferred taxes............................................ (1,695) (317) --
Changes in operating assets and liabilities:
Accounts receivable..................................... 6,237 (681) 249
Inventories............................................. 3,187 (5,253) 308
Prepaid expenses and other assets....................... (3,378) (14,829) (136)
Accounts payable........................................ (4,049) 2,432 (530)
Accrued expenses and other liabilities.................. (2,539) 2,150 85
--------- --------- --------
Net cash (used in) provided by operating activities....... 7,976 (6,677) 269

INVESTING ACTIVITIES
Purchase of property and equipment........................ (3,636) (5,701) (25)
Acquired businesses, net of cash acquired................. (49,326) (166,416) (23,431)
--------- --------- --------
Net cash used in investing activities..................... (52,962) (172,117) (23,456)

FINANCING ACTIVITIES
Proceeds from note offering............................... 16,150 110,000 --
Proceeds from long-term debt.............................. 19,604 81,000 10,262
Proceeds from mezzanine debt.............................. -- -- 6,000
Proceeds from sale of stock............................... 15,000 13,500 9,000
Payments on long-term debt and capital leases............. (5,316) (14,244) (5,666)
Net (decrease) increase in line of credit................. -- (4,034) 4,034
--------- --------- --------
Net cash provided by financing activities................. 45,438 186,222 23,630
--------- --------- --------
Net increase in cash...................................... 452 7,428 443
Cash and cash equivalents at beginning of period.......... 7,871 443 --
--------- --------- --------
Cash and cash equivalents at end of period................ 8,323 $ 7,871 $ 443
========= ========= ========

SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest.................................................. $ 22,020 $ 6,600 $ 33
========= ========= ========
Income taxes.............................................. $ 385 $ 2,100 $ 110
========= ========= ========

SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES
Conversion of mezzanine debt to stock..................... -- $ 6,000 $ --
========= ========= ========
Note payable assumed through acquisition.................. $ 2,594 $ -- $ --
Assets acquired under capital leases...................... $ 2,244 $ 4,672 $ --
========= ========= ========
</TABLE>

See accompanying notes.

26
<PAGE>
COMPASS AEROSPACE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1999

1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of
Compass Aerospace Corporation and its wholly owned subsidiaries (collectively,
the Company). All significant intercompany accounts and transactions have been
eliminated in consolidation.

BUSINESS

The Company is a major supplier of precision machined individual parts, and
of higher value-added sub-assemblies, manufacturing kits and structural
components used by aerospace manufacturers in structural frames and other metal
aircraft components. The Company manufactures its products using various metals
including aluminum, titanium and steel through the use of precision computer
numerically controlled machine tools using a variety of advanced techniques and
machinery including horizontal and vertical machining centers and
state-of-the-art high-speed precision machining equipment, as well as three-
spindle five-axis gantry mills. Operations are conducted at locations throughout
the United States and the United Kingdom. Customers include domestic and foreign
entities.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

REVENUE RECOGNITION

The Company recognizes revenue from product sales at the time of shipment.
The Company provides its customers the right to return products that are damaged
or defective. Provisions are made for estimated returns.

ACCOUNTING 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 and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.

CASH EQUIVALENTS

The Company considers all highly liquid instruments with an original
maturity of three months or less to be cash equivalents. Cash and cash
equivalents are held by major financial institutions. The Company is subject to
risk for amounts in excess of federal deposit insurance limits.

CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS

Financial instruments which potentially subject the Company to a
concentration of credit risk consist principally of trade receivables. The
Company conducts a major portion of its business with a limited number of
customers. Credit is extended based upon an evaluation of each customer's
financial condition, with terms consistent with those present throughout the
industry. Typically, the Company does not require collateral from customers.

Sales to the Boeing Company accounted for 51%, 72% and 77% of total
consolidated sales for the year ended December 31, 1999 and 1998 and for the
period October 21, 1997 through December 31, 1997,

27
<PAGE>
COMPASS AEROSPACE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
respectively. Trade accounts receivable from the Boeing Company accounted for
32%, 63% and 76% of total consolidated accounts receivable as of December 31,
1999, 1998 and 1997, respectively. Trade accounts receivable from British
Aerospace accounted for 29% of total consolidated accounts receivable as of
December 31, 1999.

FAIR VALUES OF FINANCIAL INSTRUMENTS

Fair values of cash and cash equivalents, accounts receivable, accounts
payable and accrued expenses approximate cost due to the short period of time to
maturity. Fair values of long-term debt, which have been determined based on
borrowing rates currently available to the Company for loans with similar terms
of maturity, approximate the carrying amounts in the consolidated financial
statements.

INVENTORIES

Inventories are stated at the lower of cost, principally the first-in,
first-out method, or market.

PROPERTY AND EQUIPMENT

Property and equipment are carried at cost. The provision for depreciation
of property and equipment, which includes amortization of assets under capital
leases, is generally computed on a straight-line basis over the following useful
lives:

<TABLE>
<S> <C>
Buildings and improvements...... 5-40 years
Machinery and equipment......... 2-10 years
Furniture and fixtures.......... 5-10 years
Leasehold improvements.......... Lease term or life of asset, whichever is shorter
</TABLE>

ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS

In accordance with FASB Statement No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF, the Company records
losses on long-lived assets used in operations when events and circumstances
indicate that the assets might be impaired and the undiscounted cash flows
estimated to be generated by those assets are less than the carrying amounts of
those assets.

COSTS IN EXCESS OF NET ASSETS ACQUIRED

Excess of cost over the fair value of net assets acquired (or goodwill) is
amortized on a straight-line basis over 20 years. The carrying amount of
goodwill is reviewed if facts and circumstances suggest that it may be impaired.
In addition, under FASB Statement No. 121, goodwill associated with assets
acquired in a purchase business combination is included in impairment
evaluations when events or circumstances exist that indicate the carrying amount
of those assets may not be recoverable.

Amortization expense related to goodwill was $6,950,000 and $2,466,000 for
the years ended December 31, 1999 and 1998, respectively, and $53,000 for the
period October 21, 1997 through December 31, 1997.

28
<PAGE>
COMPASS AEROSPACE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION

The financial statements of foreign subsidiaries have been translated into
U.S. dollars in accordance with FASB Statement No. 52, FOREIGN CURRENCY
TRANSLATION. All balance sheet accounts have been translated into U.S. dollars
using the year-end exchange rate. Income statement accounts have been translated
at average exchange rates for the period. Adjustments resulting from translation
of foreign currency financial statements were not material in 1999. Exchange
gains and losses from foreign currency transactions are included in the
consolidated statements of operations in the period in which they occur.

INCOME TAXES

Deferred income taxes are computed using the liability method and reflect
the net tax effects of temporary differences between the carrying amount of
assets and liabilities for financial statement purposes and the amounts used for
income tax purposes. The provision for income taxes reflects the taxes to be
paid for the period and the change during the period in the deferred tax assets
and liabilities.

STOCK-BASED COMPENSATION

The Company has elected to account for stock-based compensation plans in
accordance with Accounting Principles Board Opinion No. 25 (APB 25), ACCOUNTING
FOR STOCK ISSUED TO EMPLOYEES and to provide the pro forma disclosures required
under FASB Statement No. 123, ACCOUNTING FOR STOCK BASED COMPENSATION. Under
APB 25, the Company recognizes no compensation expense related to employee stock
options, as no options are granted at a price below the market price on the day
of the grant.

COMPREHENSIVE INCOME (LOSS)

The Company has adopted the disclosure requirements of FASB Statement
No. 130, REPORTING COMPREHENSIVE INCOME. The Statement requires the Company to
display an amount representing comprehensive income for the year in a financial
statement that is displayed with the same prominence as other financial
statements. The Company had no items of other comprehensive income (loss) during
the year ended December 31, 1999.

SEGMENTS

The Company has one segment--the supply of original equipment parts,
sub-assemblies, manufacturing kits, and structural components to aerospace
manufacturers for use in structural frames and other metal aircraft components.
The Company's operations are conducted domestically and internationally. The
accounting policies of the operating segment are the same as those described in
Note 2. The Company evaluates performance based on EBITDA, defined as profit
before income taxes, interest, depreciation, goodwill amortization, and
management fees paid to an affiliate.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

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 (as deferred by
FASB Statement No. 137). Because of the Company's minimal use of

29
<PAGE>
COMPASS AEROSPACE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
derivatives, 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.

Effective January 1, 1999, the Company adopted the Accounting Standards
Executive Committee of the American Institute of Certified Public Accountants
Statement of Position (SOP) 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE
DEVELOPED OR OBTAINED FOR INTERNAL USE. SOP 98-1 requires capitalization of
qualified computer software costs with amortization recognized over their
estimated useful lives. There was no impact on the financial statements due to
the adoption of SOP 98-1.

Effective January 1, 1999, the Company adopted the Accounting Standards
Executive Committee of the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 98-5, REPORTING ON THE COSTS OF START-UP
ACTIVITIES. SOP 98-5 requires costs of start-up activities, as defined in the
Statement, to be expensed as incurred. There was no impact on the financial
statements due to the adoption of SOP 98-5.

3. ACQUISITIONS

Each of the following transactions has been accounted for under the purchase
method of accounting for business combinations. Accordingly, the accompanying
consolidated statements of operations include revenues and expenses related to
these entities since their respective closing dates. Except for the Trim
Engineering Limited acquisition discussed below, the financial statements
reflect the final allocations of the purchase price. Because the purchase price
allocation has not been finalized on the Trim Engineering Limited business
combination, the financial statements reflect the preliminary allocation of the
purchase price.

During 1997, the Company funded the acquisitions of Western Methods
Machinery Corporation (Western) and Aeromil Engineering Company (Aeromil) under
its then existing credit facility. During 1998, the Company paid down the debt
related to the 1997 acquisitions and funded its 1998 acquisitions through the
proceeds provided by the $110 million Offering and the $170 million Credit
Agreement (see Notes 5 and 7). The Company's 1999 acquisition of Trim was funded
through the proceeds provided by the $19 million Offering, the issuance of
$15 million of common stock (See Notes 5 and 7) and a note to the seller for
$2.6 million.

Each of the businesses discussed below, acquired during 1998, manufactures
parts for aerospace customers, including precision machined parts from titanium,
aluminum, and steel.

On April 21, 1998, the Company acquired all of the outstanding common stock
of Barnes Machine, Inc., located in Shelton, Washington. The Company also
acquired certain land and buildings owned by the stockholders and used in the
operation of the business. The purchase price was $15.1 million. The Company
also retired debt of approximately $0.8 million upon acquisition.

On April 21, 1998, the Company acquired all of the outstanding stock of
Brittain Machine, Inc. (Brittain) and its wholly-owned subsidiary, Wichita
Manufacturing, Inc. (Wichita). Brittain is located in Wichita, Kansas, and
Wichita is located in Cerritos, California. The purchase price was
$55.0 million. The Company also retired debt of approximately $3.0 million upon
acquisition.

On May 11, 1998, the Company acquired certain assets and liabilities of
Sea-Lect Products, Inc. and all of the outstanding common stock of its affiliate
J&J Leasing (collectively Sea-Lect). Sea-Lect is located

30
<PAGE>
COMPASS AEROSPACE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999

3. ACQUISITIONS (CONTINUED)
in Kent, Washington. The purchase price was $12.2 million. The Company also
retired debt of $0.9 million upon acquisition.

On November 20, 1998, the Company purchased all of the outstanding stock of
Pacific Hills Manufacturing Company (formerly Lamsco West, Inc.), with
operations located in Santa Clarita, California, and Kent, Washington. The
purchase price was $73.7 million. At December 31, 1999 and 1998, $2.5 million is
held for the seller in escrow pending fulfillment of provisions in the purchase
agreement.

On December 31, 1998, the Company acquired all of the outstanding common
stock of Modern Manufacturing, Inc. (formerly Y.F. Americas, Inc.), located in
Renton, Washington. The purchase price was $23.1 million. At December 31, 1999
and 1998, $2.5 million is held in escrow for the seller pending fulfillment of
certain provisions in the purchase agreement.

On July 31, 1999, the Company acquired all of the outstanding capital stock
of Trim Engineering Limited, located in the United Kingdom. The purchase price
was $51.2 million, net of acquired cash, including a $2.6 million seller
variable rate note. At December 31, 1999, $5.2 million is held in escrow for the
seller pending fulfillment of certain provisions in the purchase agreement.

4. PRO FORMA FINANCIAL RESULTS (UNAUDITED)

The following unaudited consolidated supplemental pro forma information
includes the accounts of Compass Aerospace Corporation and its wholly owned
subsidiaries. The pro forma information assumes that all the acquisitions were
consummated on January 1, 1998 (in thousands).

<TABLE>
<CAPTION>
DECEMBER 31
-------------------
<S> <C> <C>
1999 1998
-------- --------
Net sales............................................... $165,400 $227,365
======== ========
Net (loss) income....................................... $ (9,290) $ 9,732
======== ========
</TABLE>

The pro forma consolidated results of operations include adjustments to give
effect to amortization of goodwill, interest on acquisition debt, additional
depreciation expense based on the fair market value of the property, plant and
equipment acquired and certain other adjustments, together with the income tax
effects thereon. The unaudited consolidated pro forma information is not
necessarily indicative of the combined results that would have occurred had the
acquisitions and borrowings occurred on those dates, nor is it indicative of the
results that may occur in the future.

5. INVENTORIES

The following is a summary of inventories (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1999 1998
-------- --------
<S> <C> <C>
Raw materials............................................. $10,353 $10,048
Work in process........................................... 18,751 16,970
Finished goods............................................ 7,585 5,613
------- -------
$36,689 $32,631
======= =======
</TABLE>

31
<PAGE>
COMPASS AEROSPACE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999

6. PROPERTY AND EQUIPMENT

The following is a summary of property and equipment (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1999 1998
-------- --------
<S> <C> <C>
Land..................................................... $ 3,296 $ 1,991
Building and improvements................................ 12,826 6,098
Furniture and fixtures................................... 2,774 1,376
Leasehold improvements................................... 891 547
Machinery and equipment.................................. 97,448 55,042
-------- -------
117,235 65,054
Accumulated depreciation................................. (44,202) (6,140)
-------- -------
$ 73,033 $58,914
======== =======
</TABLE>

Included in machinery and equipment are equipment under capital lease
arrangements with historical cost of $6,782,000 and $2,565,000 at December 31,
1999 and 1998, respectively (see Note 14).

7. DEBT OFFERING

On April 21, 1998, the Company completed a $110 million debt offering of
10 1/8% Senior Subordinated Notes. On July 23, 1999 the Company completed a
$19 million debt offering of 10 1/8% Senior Subordinated Notes. Net cash
proceeds from this offering were $16.2 million, reflecting discounts of
$2.8 million. The Notes are unconditionally guaranteed on a senior subordinated
basis by various of the Company's existing subsidiaries and all future
subsidiaries. The net proceeds from the Offerings were used to repay all
outstanding bank debt, to finance the acquisitions, and for general corporate
purposes. The transaction costs of $8.3 million incurred in connection with the
Offerings were recorded as a deferred charge and are amortized over the life of
the Notes on a straight-line basis.

The Notes mature on April 15, 2005, unless redeemed prior to that time.
Interest on the Notes is payable semiannually on April 15 and October 15 of each
year, commencing October 15, 1998, to holders of record. The Notes will be
redeemable at the option of the Company, in whole or in part, on or after
April 15, 2002 at the redemption price as defined in the agreement. In addition,
on or before April 15, 2001 the Company may redeem up to 35% of the principal
amount with the net proceeds of one or more public equity offerings as defined
and provided for in the agreement.

Under provisions of the indenture applicable to the Notes, the Company may,
under certain circumstances, be limited in its ability to incur additional
indebtedness or issue Disqualified Capital Stock (as defined), pay dividends or
make other distributions, create certain liens on assets, sell certain assets
and stock of subsidiaries, enter into certain transactions with affiliates, and
effect certain mergers and consolidations. The Company is also subject to
certain restrictive covenants and is required to maintain certain financial
ratios in connection with the Notes.

8. MEZZANINE DEBT

In connection with the acquisitions of Western and Aeromil, the Company
entered into a subordinated note with its largest stockholder for $6 million
bearing interest at 11%, payable quarterly. On

32
<PAGE>
COMPASS AEROSPACE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999

8. MEZZANINE DEBT (CONTINUED)
March 18, 1998, the Note and related accrued interest was exchanged for
6 million shares of the Company's common stock.

9. BANK BORROWINGS (SEE ALSO NOTE 16)

Long-term debt and capital leases consist of the following (dollars in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1999 1998
-------- --------
<S> <C> <C>
Senior subordinated notes................................... $129,000 $110,000
Term Loan A................................................. 31,500 35,000
Term Loan B................................................. 44,550 45,000
Acquisition line of credit.................................. 20,604 1,000
Capital leases and other.................................... 9,687 5,968
Unamortized discount on senior subordinated notes........... (2,643) --
-------- --------
$232,698 $196,968
======== ========
</TABLE>

On November 20, 1998, the Company entered into a $170 million credit
agreement (Credit Agreement) with Fleet National Bank (formerly known as
BankBoston, N.A.) and its participants. This credit agreement, as amended and
restated on February 11, 1999, and as further amended as of June 7, 1999 and
July 30, 1999, replaced a prior revolving credit facility with Fleet. The credit
agreement includes a $25 million revolving credit note (Revolver), Term Loan A
with available lending of up to $35 million, Term Loan B with available lending
of up to $45 million, and an acquisition line of credit (Acquisition Line) for
up to $35 million. The transaction costs of $5.2 million incurred in connection
with the Credit Agreement were recorded as a deferred charge and are amortized
over the life of the Credit Agreement using the straight-line method. The Credit
Agreement accrues interest at variable rates based upon the bank's prime rate or
Eurocurrency rate and is payable quarterly. The Revolver matures November 2003.
Term Loan A is payable in equal quarterly installments, totaling 10% of the
outstanding principal in 1999, 15% of the outstanding principal in 2000 and
2001, 23.75% of the outstanding principal in 2002, and the remainder in 2003.
Term Loan B is payable in equal quarterly installments totaling 1% of the
outstanding principal in 1999 through 2003, and 47.5% of the outstanding
principal in 2004 and 2005. Payments on the Acquisition Line begin at
December 31, 2000 and are payable in 13 equal quarterly installments. The Credit
Agreement contains certain restrictive covenants and requires the maintenance of
certain financial ratios.

As prescribed by and defined in the Credit Agreement, availability under the
Revolver is limited to 85% of eligible accounts receivable, plus 50% of the net
book value of eligible inventory, plus 25% of the orderly liquidation value of
machinery and equipment, subject to reserves that may be established by the
lender. Subject to these provisions, the Company has $25 million available under
the Revolver and approximately $14 million available under the Acquisition Line.
The remaining $30 million of the Acquisition Line will become available provided
the Company raises one dollar of equity for every additional dollar of
borrowings over the initial $35 million of availability.

As of December 31, 1997, the Company had a note payable to a bank for
$10.3 million. The note was secured by substantially all of the Company's assets
and accrued interest at 9.5%. Interest and principal

33
<PAGE>
COMPASS AEROSPACE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999

9. BANK BORROWINGS (SEE ALSO NOTE 16) (CONTINUED)
payments were due monthly. The note had a maturity date of November 2000. At
December 31, 1997, the Company also had outstanding an installment loan with a
bank for $300,000 that was payable monthly with 8.6% interest and an original
maturity of October 2002. Both of these loans were paid in full during 1998.

Maturities of long-term debt, excluding capital lease payments (see
Note 14) as of December 31, 1999 are as follows (in thousands):

<TABLE>
<S> <C>
2000........................................................ $ 8,382
2001........................................................ 12,981
2002........................................................ 18,674
2003........................................................ 20,186
2004........................................................ 22,107
Thereafter.................................................. 150,368
--------
232,698
Less current portion........................................ (8,382)
--------
Long-term debt.............................................. $224,316
========
</TABLE>

10. INCOME TAXES

<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1999 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Accrued expenses not deductible for tax............... $ 597 $ 735
Inventories........................................... 1,922 1,365
Net operating losses (expiring through 2014).......... 1,468 --
------- -------
Total deferred tax assets............................. 3,987 2,100
Deferred tax liabilities:
Depreciation and amortization......................... (10,029) (7,645)
Other................................................. (209) (200)
------- -------
Total deferred tax liabilities........................ (10,238) (7,845)
------- -------
Net deferred tax liability............................ $(6,251) $(5,745)
======= =======
</TABLE>

34
<PAGE>
COMPASS AEROSPACE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999

10. INCOME TAXES (CONTINUED)
Significant components of the provision for income taxes are as follows (in
thousands):

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Current:
Federal........................................... $(2,327) $1,770
Non-U.S........................................... 185 --
State............................................. (443) 69
------- ------
(2,585) 1,839
Deferred:
Federal........................................... 1,469 (270)
Non-U.S........................................... 283 --
State............................................. 291 (47)
------- ------
2,043 (317)
------- ------
$ (542) $1,522
======= ======
</TABLE>

The reconciliation of income tax at the U.S. federal statutory rate to
income tax expense is as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Income tax at U.S. statutory rates.................. (34)% 34%
State income tax, net of federal benefit............ (3) 3
Goodwill............................................ 10 27
Non-U.S. taxes...................................... 5 --
Differences between previous year's taxes provided
and actual paid................................... 10 --
Other............................................... 7 (2)
--- --
(5)% 62%
=== ==
</TABLE>

11. STOCKHOLDERS' EQUITY

In October 1997, the Company was incorporated with the issuance of
9 million shares of common stock in a private placement, generating net proceeds
of $9 million. The proceeds from this placement were primarily used to acquire
Western and Aeromil.

In April 1998, the Company amended its articles of incorporation to increase
the number of authorized shares from 20 million to 36 million and to establish a
second class of common stock, Class B. All rights remain the same as Class A,
except Class B stock is nonvoting and contains conversion rights based upon
certain criteria.

In connection with the April 21, 1998 Offering, the Company issued
approximately 5.4 million shares of Class B and 3.7 million shares of Class A
shares for $13.5 million in cash. Additionally, in 1998, 582,376

35
<PAGE>
COMPASS AEROSPACE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999

11. STOCKHOLDERS' EQUITY (CONTINUED)
shares of stock were issued to board members and the president as compensation
for services related to the acquisitions.

In July 1999, the Company amended its articles of incorporation to increase
the number of authorized shares from 36 million to 56 million and converted all
Class B stock to Class A.

In connection with the July 23, 1999 Offering, the Company issued
approximately 10.2 million shares of Class A shares for $15 million in cash.

12. STOCK OPTION PLAN

In March 1998, the Company's Board of Directors adopted, and the
shareholders approved, the Compass Aerospace Corporation 1998 Stock Incentive
Plan (the Plan). The Plan will be administered by the Compensation Committee of
the Board of Directors (the Committee). All officers, directors, employees and
independent contractors of the Company are eligible for discretionary awards
under the Plan. The Plan provides for stock-based incentive awards, including
incentive stock options, non-qualified stock options and restricted stock. The
Plan permits the Committee to select eligible persons to receive awards and to
determine certain terms and conditions of such awards, including the vesting
schedule and exercise price of each award, provided, that the option exercise
price may not be less than 85% of the fair market value per share of the
Company's Common Stock on the date of the grant. Under the Plan, no participant
may be granted incentive stock options that are first exercisable in any one
calendar year with fair market value in excess of $100,000. 2,000,000 shares of
the Company's Common Stock have been reserved for issuance under the Plan.

No options were granted as of December 31, 1997. The status of the Company's
stock option plan during 1998 and 1999 is summarized as follows:

<TABLE>
<CAPTION>
NUMBER
OF OPTIONS
----------
<S> <C>
Outstanding at January 1, 1998.............................. --
Granted..................................................... 888,291
Exercised................................................... --
Canceled.................................................... --
-------
Outstanding at December 31, 1998............................ 888,291
Granted..................................................... 25,000
Exercised................................................... --
Canceled.................................................... (86,000)
Outstanding at December 31, 1999............................ 827,291
=======
Options Exercisable at December 31, 1998.................... 60,000
Options Exercisable at December 31, 1999.................... 515,791
=======
</TABLE>

Options generally are granted at fair market value at the date of grant and
expire 10 years after the date of grant. Options for 60,000 shares, issued to an
individual in 1998, are fully vested and immediately exercisable. The remainder
of the options vest and become exercisable in varying installments beginning

36
<PAGE>
COMPASS AEROSPACE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999

12. STOCK OPTION PLAN (CONTINUED)
one year from the date of grant. Exercise prices for options outstanding as of
December 31, 1999 ranged from $1.00 to $1.47 per share.

Had compensation expense for the Company's stock options been recognized
based on the fair value on the grant date under the methodology prescribed by
FASB Statement No. 123, the Company's net (loss) income for the years ended
December 31, 1999 and 1998 would have been $(9,739,000) and $804,000,
respectively.

The fair value for these options was estimated at the date of grant using
the following weighted-average assumptions for December 31, 1999 and 1998:
dividend yield of 0.0%, risk-free interest rates ranging from 4.58% to 5.02%
depending on a weighted-average expected life ranging from two to ten years.

The weighted average fair value of options granted during 1999 is $.18 per
option. The weighted average exercise price for 1999 was $1.22. At December 31,
1999, the weighted average remaining contractual life of options outstanding is
8.5 years.

13. RELATED PARTY TRANSACTIONS

The Company has entered into a management fee agreement with certain
entities controlled by directors of the Company. Under this agreement, the
Company is required to pay an annual aggregate amount equal to $200,000 plus
1.5% of the Company's earnings before income taxes, depreciation, amortization,
and management fees. The Company also typically pays advisory fees to these
affiliates in an amount equal to an aggregate of 1% of the consideration paid
for each business acquired by the Company. Management and advisory fees paid to
these affiliates were $1,398,000, $3,165,000 and $282,000 during the years ended
December 31, 1999 and 1998 and the period from October 21, 1997 through
December 31, 1997.

14. COMMITMENTS AND CONTINGENCIES

The Company leases certain machinery and equipment under capital leases
expiring at various dates through July 2008. The Company also leases office
spaces under operating leases with terms expiring at various dates through 2008.
Rent expense for operating leases amounted to $1,698,000, $1,125,000 and $53,000
for the years ended December 31, 1999 and 1998 and the period October 21 through
December 31, 1997, respectively.

37
<PAGE>
COMPASS AEROSPACE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999

14. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum payments by year and in the aggregate under all
non-cancelable operating and capital leases with terms in excess of one year at
December 31, 1999 are as follows (in thousands):

<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR ENDED DECEMBER 31 LEASES LEASES
- ---------------------- --------- --------
<S> <C> <C>
2000...................................................... $ 1,263 $1,249
2001...................................................... 1,196 1,249
2002...................................................... 1,174 1,198
2003...................................................... 1,078 914
2004...................................................... 881 844
Thereafter................................................ 3,184 1,441
------- ------
$ 8,776 6,895
=======
Less amount representing interest......................... (1,510)
------
Present value of net minimum lease payments............... 5,385
Less current portion...................................... (1,249)
------
Long-term leases payable.................................. $4,136
======
</TABLE>

During the normal course of business, the Company is involved in various
lawsuits. Management, in consultation with legal counsel, does not believe that
the outcome of these lawsuits will have a materially adverse impact on the
financial position or future operations of the Company.

15. RETIREMENT PLAN

In September 1999 the Company established a 401(k) savings plan and trust
(the plan) which generally covers all full time employees. Eligible employees
can elect to withhold up to 15% of their wages and salaries, subject to Internal
Revenue Code limitations. The plan provides a matching contribution equal to 50%
of the employee's first 6% of wages and salaries contributed to the plan.

Prior to 1999, the Company maintained various profit-sharing plans covering
all of its eligible employees for entities acquired. Contributions to the plans
were at the discretion of the Board of Directors and could not exceed the
maximum amount permitted by the Internal Revenue Code. These profit-sharing
plans terminated August 31, 1999, at which time the Company established its
401(k) savings plan and trust.

During the years ended December 31, 1999 and 1998 and the period from
October 21, 1997 through December 31, 1997, the Company made contributions to
employee benefit plans of $374,000, $1,078,000 and $26,000, respectively.

16. SUBSEQUENT EVENTS

Subsequent to December 31, 1999, the Company borrowed an additional
$5 million under its Revolver.

Effective March 30, 2000, the Company amended its Credit Agreement (see Note
9) and received waivers relative to certain debt covenants contained therein
that were not met at December 31, 1999 and a waiver of the Company's failure to
comply with a negative covenant restricting investments. The

38
<PAGE>
COMPASS AEROSPACE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1999

16. SUBSEQUENT EVENTS (CONTINUED)
Amendment waived the Company's requirements to comply with certain debt
covenants as of December 31, 1999 and through the effective date of the
Amendment, at which time the Company was in compliance with all revised
financial debt covenants. The Amendment waived the investment covenant breach,
and also terminated the remaining availability under the $35 million Acquisition
Line. The Amendment also placed additional borrowing restrictions on the
$25 million Revolver, limiting availability to zero (0) during certain periods,
and $10 million during other periods, provided that on August 30, 2000, the
Revolver must be paid in full. Further, the Company has no borrowing
availability on the Revolver from August 31, 2000 through and including
November 1, 2000, at which time up to $12 million becomes available. The Company
is required to pay an amendment fee equal to 0.50% of substantially all of the
outstanding debt under the Credit Agreement and the unused Revolver as of the
effective date. The Amendment includes other requirements, including the
submittal of various documents and financial reports to the lender, the addition
of a covenant regarding an agreed level of accounts payable, restrictions on
changes to the indentures governing the Series B and D Notes, the requirement to
grant mortgages on the Company-owned real estate, as well as the requirement
that potential litigation proceeds as described in the agreement be remitted to
the lender. The Amendment also increased the applicable interest rates and
credit facility fees.

39
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors
Brittain Machine, Inc. and Subsidiary

We have audited the accompanying consolidated balance sheet of Brittain
Machine, Inc. and Subsidiary as of April 21, 1998, and the related consolidated
statements of earnings and retained earnings and cash flows for the period
July 1, 1997 through April 21, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Brittain
Machine, Inc. and Subsidiary as of April 21, 1998, and the consolidated results
of their operations and their consolidated cash flows for the period July 1,
1997 through April 21, 1998 in conformity with generally accepted accounting
principles.

/s/ Grant Thornton LLP

Wichita, Kansas
July 9, 1998

40
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEET

APRIL 21, 1998

<TABLE>
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 1,683,235
Accounts receivable
Trade accounts receivable............................... 7,672,400
Other................................................... 46,955
Inventories............................................... 8,845,527
Refundable income taxes................................... 401,691
Prepaid expenses and other................................ 73,147
Deferred income taxes..................................... 606,936
-----------
Total current assets.................................. 19,329,891
PROPERTY AND EQUIPMENT, AT COST
Land...................................................... $ 200,604
Buildings................................................. 3,691,276
Machinery and equipment................................... 20,828,710
Vehicles.................................................. 148,425
Office equipment.......................................... 730,218
Construction in progress.................................. 2,892,234
-----------
28,491,467
Less accumulated depreciation............................. 15,134,005 13,357,462
-----------
INVESTMENTS AND OTHER ASSETS
Funds held by trustee..................................... 55,408
Bond issuance costs....................................... 33,682 89,090
----------- -----------
$32,776,443
===========

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable.......................................... $ 1,784,819
Accrued payroll, bonuses and employee benefits............ 3,992,423
Payable to affiliate...................................... 1,600,000
Other accrued liabilities................................. 233,937
Current maturities of capital lease obligations........... 428,757
Current maturities of long-term debt...................... 508,151
Current maturities of industrial revenue bonds............ 55,000
-----------
Total current liabilities............................. 8,603,087
LONG-TERM LIABILITIES
Capital lease obligations................................. 1,585,953
Long-term debt............................................ 551,809
Industrial revenue bonds.................................. 645,000
Deferred income taxes..................................... 1,147,273
-----------
3,930,035
STOCKHOLDERS' EQUITY
Common stock, Class A, voting, par value $1
Authorized-300,000 shares Issued and outstanding-90,000
shares.................................................. $ 90,000
Common stock, Class B, nonvoting, par value $1
Authorized-300,000 shares Issued and outstanding-90,000
shares.................................................. 90,000
Additional paid-in capital................................ 55,004
Retained earnings......................................... 20,008,317 20,243,321
----------- -----------
$32,776,443
===========
</TABLE>

The accompanying notes are an integral part of this statement.

41
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF EARNINGS AND RETAINED EARNINGS

PERIOD JULY 1, 1997 THROUGH APRIL 21, 1998

<TABLE>
<S> <C>
Sales....................................................... $49,682,444
Cost of sales............................................... 34,640,582
-----------
Gross margin on sales....................................... 15,041,862
General, administrative and selling expenses................ 2,966,547
Nonrecurring management and employee bonuses paid in
connection with sale of Company........................... 3,831,472
-----------
Earnings from operations.................................... 8,243,843
Other income (expense)
Interest income........................................... 13,327
Interest expense.......................................... (398,808)
Loss on sale of assets.................................... (59,184)
Other..................................................... 79,410
-----------
(365,255)
-----------
Earnings before income taxes................................ 7,878,588
Income taxes................................................ 2,901,353
-----------
NET EARNINGS............................................ 4,977,235
Retained earnings at July 1, 1997........................... 15,031,082
-----------
Retained earnings at April 21, 1998......................... $20,008,317
===========
</TABLE>

The accompanying notes are an integral part of this statement.

42
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CASH FLOWS

PERIOD JULY 1, 1997 THROUGH APRIL 21, 1998

<TABLE>
<S> <C>
Increase (decrease) in cash and cash equivalents

Cash flows from operating activities
Net earnings.............................................. $ 4,977,235
Adjustments to reconcile net earnings to net cash provided
by operating activities
Depreciation and amortization........................... 1,510,526
Deferred income taxes................................... 72,078
Loss on disposal of property and equipment.............. 59,184
Change in assets and liabilities
Increase in accounts receivable....................... (2,618,103)
Increase in income taxes receivable................... (294,205)
Decrease in inventories............................... 2,132,289
Increase in accounts payable.......................... 172,920
Increase in accrued payroll, bonuses and employee
benefits............................................ 2,273,572
Other................................................. (307,565)
-----------
Net cash provided by operating activities........... 7,977,931
Cash flows from investing activities
Purchase of property and equipment........................ (3,558,952)
Proceeds from disposal of property and equipment.......... 24,418
-----------
Net cash used in investing activities............... (3,534,534)
Cash flows from financing activities
Net increase in payable to affiliate...................... 1,600,000
Net decrease in line of credit............................ (3,855,000)
Repayments of long-term debt and industrial revenue
bonds................................................... (702,314)
Repayments of capital lease obligations................... (258,125)
-----------
Net cash used in financing activities............... (3,215,439)
-----------
Net increase in cash and cash equivalents................... 1,227,958
Cash and cash equivalents at July 1, 1997................... 455,277
-----------
Cash and cash equivalents at April 21, 1998................. $ 1,683,235
===========
</TABLE>

The accompanying notes are an integral part of this statement.

43
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

APRIL 21, 1998

NOTE A--SUMMARY OF ACCOUNTING POLICIES

A summary of the significant accounting policies consistently applied in the
preparation of the accompanying consolidated financial statements follows.

1. BUSINESS ACTIVITY, BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

Brittain Machine, Inc. manufactures parts according to customer
specification primarily for use in the aerospace industry. The Company also
designs, manufactures and sells tooling, machinery and equipment for use in the
aerospace industry.

Wichita Manufacturing, Inc., a wholly-owned subsidiary, is located in
Cerritos, California, and is engaged in the same line of business as Brittain
Machine, Inc.

The consolidated financial statements include the consolidated accounts of
Brittain Machine, Inc. and its wholly-owned subsidiary, Wichita
Manufacturing, Inc. immediately prior to the sale of the Company to Compass
Aerospace Corporation (see Note L). All significant intercompany accounts have
been eliminated.

2. ACCOUNTS RECEIVABLE

The Company considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required.

3. USE OF ESTIMATES

In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

4. INVENTORIES

Inventories are stated at the lower of weighted average cost or net
realizable value.

5. PROPERTY AND EQUIPMENT

Land, buildings and equipment are carried at cost. Major additions and
betterments are charged to the property accounts while replacements, maintenance
and repairs which do not improve or extend the life of the respective assets are
expensed currently. Depreciation is computed using the straight-line method over
the estimated useful lives of the assets. Estimated useful lives are as follows:

<TABLE>
<S> <C>
Buildings................................................... 10-30 years
Machinery and equipment..................................... 7-10 years
Vehicles.................................................... 4- 6 years
Office equipment............................................ 5- 7 years
</TABLE>

44
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

APRIL 21, 1998

NOTE A--SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
6. INCOME TAXES

The Company files a consolidated income tax return with its subsidiary.

Deferred income tax assets and liabilities are determined based on the
temporary differences between the financial accounting and tax basis of assets
and liabilities. Deferred tax assets or liabilities at the end of each period
are determined using the currently enacted tax rate expected to apply to taxable
income in the periods in which the deferred tax asset or liability is expected
to be realized or settled.

7. SELF INSURANCE

The Company participates in various self-insurance programs for medical and
workers' compensation risks. In connection with these programs the Company has
mitigated its exposure through the purchase of stipulated stop-loss coverage
with insurance companies. The Company estimates and accrues its liability for
the self-insurance portions of the risks covered by such programs.

8. CASH EQUIVALENTS

For purposes of the consolidated statement of cash flows, the Company
considers all highly liquid investments with maturities of less than three
months to be cash equivalents.

9. REVENUE RECOGNITION

The Company's sales contracts are generally of a short-term nature and are
billed upon delivery. Revenue from such contracts is recognized upon passage of
title to the customer which, in most cases, coincides with shipments of the
related products to customers. Provisions for anticipated losses on contracts,
if any, are made currently as the amount of the loss is determinable.

NOTE B--INVENTORIES

Inventories consist of the following at April 21, 1998:

<TABLE>
<S> <C>
Raw material and supplies................................... $2,889,886
Work in progress............................................ 5,306,881
Finished goods.............................................. 648,760
----------
$8,845,527
==========
</TABLE>

NOTE C--LINE OF CREDIT

At April 21, 1998, the Company had available a line of credit with a bank
for up to $5,000,000. There were no borrowings outstanding at April 21, 1998.
Interest is payable monthly on the outstanding balance at a variable rate equal
to the bank's base rate (9.5% at April 21, 1998). There are no compensating
balance or commitment fee requirements. Borrowings under the line of credit are
collateralized by substantially all assets of the Company.

45
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

APRIL 21, 1998

NOTE D--INCOME TAXES

Income tax expense for the period July 1, 1997 through April 21, 1998
consists of the following:

<TABLE>
<S> <C>
Current..................................................... $2,829,275
Deferred.................................................... 72,078
----------
$2,901,353
==========
</TABLE>

The principal reason for the variation between income taxes computed at the
federal tax rate of 34% and actual income taxes is state income tax expense.

The tax effects of temporary differences that give rise to deferred tax
assets and liabilities at April 21, 1998 are as follows:

<TABLE>
<S> <C>
Deferred tax assets
Inventory valuation differences........................... $ 438,819
Accrued expenses not deductible until paid................ 168,117
----------
606,936
Deferred tax liabilities
Depreciation of property and equipment.................... 891,579
Capital leases treated as operating leases for tax
purposes................................................ 255,694
----------
1,147,273
----------
Net deferred tax liability.............................. $ 540,337
==========
</TABLE>

NOTE E--LONG-TERM DEBT

Long-term debt consists of the following at April 21, 1998:

<TABLE>
<S> <C>
Note payable to bank, payable in monthly installments
including variable interest at the bank's base interest
rate adjusted annually (effective rate 9.25% April 21,
1998), due in 2000 and collateralized by certain equipment
and machinery............................................. $ 906,452
Note payable to bank, payable in monthly installments
including variable interest, due in 1998 and
collateralized by a $250,000 real estate mortgage......... 7,458
Note payable to former stockholder, payable in equal monthly
installments including fixed interest at 9%, due in
2007-not collateralized................................... 146,050
----------
1,059,960
Less current maturities..................................... 508,151
----------
$ 551,809
==========
</TABLE>

46
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

APRIL 21, 1998

NOTE E--LONG-TERM DEBT (CONTINUED)
In connection with the sale of the Company (see Note K), all notes payable
were paid in full subsequent to April 21, 1998.

NOTE F--INDUSTRIAL REVENUE BONDS

The Company financed $2,500,000 for the purchase of certain equipment and
the construction of a building through industrial revenue bonds issued by the
City of Wichita, Kansas and maturing through 2006. The principal and interest
(6% to 8%) on the bonds are serviced by biannual payments by the Company to a
trustee who then remits the funds to the City on the scheduled interest payment
and bond maturity dates. Certain of the proceeds from the bonds and the biannual
payments made by the Company have been and are deposited with the trustee.

The total amount of bonds outstanding at April 21, 1998 was $700,000.
Aggregate annual maturities are as follows:

<TABLE>
<S> <C>
1999........................................................ $ 55,000
2000........................................................ 60,000
2001........................................................ 65,000
2002........................................................ 70,000
2003........................................................ 75,000
Thereafter.................................................. 375,000
--------
$700,000
========
</TABLE>

NOTE G--RELATED PARTY TRANSACTIONS

LEASING ACTIVITIES

The Company has entered into several agreements with an entity, affiliated
by common stockholders, to lease a building and certain machinery and equipment.
Due to the related party relationship with the affiliate and based upon the
underlying economic substance of the leasing arrangements, the leases have been
recorded as capital lease obligations. The recorded lease obligations represent
the outstanding principal balance on the loans incurred by the affiliated entity
to finance that entity's purchase of the building and machinery and equipment
(the "underlying debt"). In addition, the Company is the guarantor of such debt.

A summary of lease payments made during the period July 1, 1997 through
April 21, 1998 under these capital leases is as follows:

<TABLE>
<S> <C>
Total lease payments........................................ $ 653,100
Amount representing interest................................ (105,401)
Amount representing excess lease payments................... (289,574)
---------
Principal payments.......................................... $ 258,125
=========
</TABLE>

47
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

APRIL 21, 1998

NOTE G--RELATED PARTY TRANSACTIONS (CONTINUED)
In connection with the leases, property, plant and equipment at April 21,
1998 included the following:

<TABLE>
<S> <C>
Machinery and equipment..................................... $2,293,024
Building.................................................... 347,561
----------
2,640,585
Less accumulated depreciation............................... (566,142)
----------
$2,074,443
==========
</TABLE>

Depreciation expense for the property under lease was $307,270 for the
period July 1, 1997 through April 21, 1998.

The following is a schedule by years of future minimum lease payments under
capital leases:

<TABLE>
<S> <C>
1999........................................................ $ 975,720
2000........................................................ 975,720
2001........................................................ 751,720
2002........................................................ 551,720
2003........................................................ 311,720
Thereafter.................................................. 1,005,480
-----------
Total minimum lease payments................................ 4,572,080
Amount representing interest................................ (521,176)
Amount representing excess lease payments................... (2,036,194)
-----------
Total capital lease obligations............................. 2,014,710
Less current maturities..................................... 428,757
-----------
$ 1,585,953
===========
</TABLE>

In connection with the sale of the Company (see Note K), all capital leases
were paid in full subsequent to April 21, 1998.

In addition, the Company leased equipment under an operating lease from this
affiliated entity which expired March 1, 1998. The lease which began March 1996
provided for monthly payments of $14,000 per month.

The Company also has a month-to-month rental agreement with a stockholder
for two warehouses. In connection with such agreement rental expense charged to
operations by the Company for the period July 1, 1997 through April 21, 1998 was
$33,500.

OTHER TRANSACTIONS

The Company purchased goods from an entity controlled by the spouse of a
stockholder in the amount of $2,956,000 during the period July 1, 1997 through
April 21, 1998. An amount of $204,000 was due to such affiliate at April 21,
1998 and was included in accounts payable in the accompanying consolidated
balance sheet. The Company also paid $344,000 to an individual related to the
Company's

48
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

APRIL 21, 1998

NOTE G--RELATED PARTY TRANSACTIONS (CONTINUED)
principal stockholders during the period July 1, 1997 through April 21, 1998 for
debarring services performed.

NOTE H--RETIREMENT PLAN

All employees who have completed one year of service and who have attained
21 years of age are eligible to participate in the Company's Profit Sharing
Retirement Plan. Contributions to the Plan are discretionary and made by the
Company for amounts that are determined by the Board of Directors based on a
percentage of each participant's annual compensation. Employees may also
contribute a portion of their compensation to the Plan. The Company charged
$864,000 to expense pursuant to the plan during the period July 1, 1997 through
April 21, 1998.

NOTE I--COMMITMENTS

The Company provides group medical insurance for its employees through a
self-insured medical plan. The Company has purchased a stop-loss insurance
policy that will pay claims in excess of $30,000 per year per individual and in
excess of annual aggregate claims of $420,000.

The Company is self-insured for workers' compensation claims. The Company
has purchased a stop-loss insurance policy that pays workers' compensation
claims in excess of $175,000 per occurrence and aggregate annual claims in
excess of $430,292. The Company has obtained a $655,000 letter of credit from a
bank in favor of the State of Kansas in connection with a self-insurance
program.

Wichita Manufacturing, Inc. leases its facility located in Cerritos,
California at a rental cost of $12,000 per month through October 31, 1998 for a
total commitment of $72,000.

NOTE J--CONTINGENCY

In January 1996, the Company was found liable in a civil action for, inter
alia, breach of contract and termination of joint venture/partnership associated
with a relationship the Company had with another entity. A judgment was recorded
against the Company in the amount of $600,000. The Company secured a $750,000
letter of credit in favor of the plaintiffs and filed a Notice of Appeal. The
plaintiffs filed a Notice of Cross-Appeal seeking damages of approximately
$1,500,000. Through April 21, 1998 the Company recorded a liability for the
$600,000 judgment plus $116,000 of post-judgment interest. On April 21, 1998,
the Company's principal owner assumed the liability. In connection with the
assumption of the liability, the Company transferred life insurance policies
with recorded cash surrender values of $614,000 to the principal owner. The
Company recorded a gain of $102,000 in connection with the transaction.

NOTE K--CONCENTRATION OF SALES

Substantially all of the Company's sales are made to a very few customers.
These customers are typically large companies in the aerospace industry. If the
Company were to lose one or more of these customers and were unable to find
replacement customers, sales would be adversely affected. Two customers
accounted for 73% and 13% of sales for the period July 1, 1997 through
April 21, 1998. Amounts due from these customers accounted for 68% and 12% of
total accounts receivable at April 21, 1998.

49
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

APRIL 21, 1998

NOTE L--SALE OF COMPANY

Effective April 21, 1998, the Company was sold and became a subsidiary of
Compass Aerospace Corporation (Compass). At April 21, 1998, Compass had advanced
the Company $1,600,000 which is shown as due to affiliate in the accompanying
balance sheet.

In anticipation of and in connection with the sale of the Company, certain
nonrecurring management and employee bonuses were declared. Bonuses totaling
$1,600,000 were paid to management/minority stockholders of the Company. Bonuses
and related payroll taxes totaling $2,231,472 were accrued to other employees of
the Company.

NOTE M--SUPPLEMENTAL CASH FLOW INFORMATION

<TABLE>
<S> <C>
Cash paid during the period for
Interest.................................................. $ 407,788
Income taxes.............................................. 3,286,467
Noncash investing and financing activity
Acquisition of property and equipment under capital lease
obligations............................................. 785,061
Transfer of life insurance policies and assumption of
litigation
liability by the Company's principal owner.............. 614,000
</TABLE>

50
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors
Brittain Machine, Inc. and Subsidiary

We have audited the accompanying consolidated balance sheet of Brittain
Machine, Inc. and Subsidiary as of June 30, 1997, and the related consolidated
statements of earnings and retained earnings and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

In our opinion, the 1997 financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Brittain Machine, Inc. and Subsidiary as of June 30, 1997, and the consolidated
results of their operations and their consolidated cash flows for the year then
ended in conformity with generally accepted accounting principles.

/s/ GRANT THORNTON LLP

Wichita, Kansas
October 17, 1997

51
<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
Brittain Machine, Inc. and Subsidiary

We have audited the accompanying consolidated balance sheet of Brittain
Machine, Inc. and Subsidiary as of June 30, 1996, and the related consolidated
statements of earnings and retained earnings, and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our 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 audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Brittain Machine, Inc. and Subsidiary at June 30, 1996, and the consolidated
results of their operations and their cash flows for the year then ended, in
conformity with generally accepted accounting principles.

/s/ ERNST & YOUNG LLP

Wichita, Kansas
September 3, 1996

52
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

JUNE 30,

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................... $ 455 $ 91
Accounts receivable
Trade accounts receivable............................. 4,913 5,386
Other................................................. 188 109
Income tax receivable................................... 107 --
Inventories............................................. 10,978 4,878
Note receivable from affiliate.......................... -- 207
Prepaid expenses and other.............................. 50 56
Deferred income taxes................................... 694 608
------- -------
Total current assets.................................. 17,385 11,335

PROPERTY AND EQUIPMENT, AT COST
Land.................................................... 201 199
Buildings............................................... 3,603 2,812
Machinery and equipment................................. 19,754 18,669
Vehicles................................................ 180 175
Office equipment........................................ 775 679
Construction in progress................................ 99 6
------- -------
24,612 22,540
Less accumulated depreciation........................... 14,007 12,357
------- -------
10,605 10,183

INVESTMENTS AND OTHER ASSETS
Funds held by trustee................................... 56 52
Cash surrender value of life insurance.................. 520 486
Bond issuance costs..................................... 36 39
------- -------
612 577
------- -------
$28,602 $22,095
======= =======
</TABLE>

The accompanying notes are an integral part of these statements.

53
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS

JUNE 30,

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Revolving note payable to bank.......................... $ 3,855 $ 525
Accounts payable........................................ 1,612 923
Accrued payroll and employee benefits................... 1,719 1,388
Litigation judgment payable............................. 672 600
Income taxes payable.................................... -- 1,621
Other accrued liabilities............................... 366 187
Current maturities of capital lease obligations......... 285 156
Current maturities of long-term debt.................... 741 972
Current maturities of industrial revenue bonds.......... 50 400
------- -------
Total current liabilities............................. 9,300 6,772

LONG-TERM LIABILITIES
Capital lease obligations............................... 1,203 507
Long-term debt.......................................... 971 1,710
Industrial revenue bonds................................ 700 750
Deferred income taxes................................... 1,162 996
------- -------
4,036 3,963

STOCKHOLDERS' EQUITY
Common stock, Class A, voting, par value $1
Authorized--300,000 shares
Issued and outstanding--90,000 shares................. 90 90
Common stock, Class B, nonvoting, par value $1
Authorized--300,000 shares
Issued and outstanding--90,000 shares................. 90 90
Additional paid-in capital.............................. 55 55
Retained earnings....................................... 15,031 11,125
------- -------
15,266 11,360
------- -------
$28,602 $22,095
======= =======
</TABLE>

The accompanying notes are an integral part of these statements.

54
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS

YEAR ENDED JUNE 30,

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Sales..................................................... $35,481 $26,892
Cost of sales............................................. 25,656 19,076
------- -------
Gross margin on sales..................................... 9,825 7,816
General, administrative and selling expenses.............. 2,770 2,353
Write off note receivable from affiliate.................. 386 --
Litigation expense........................................ 73 600
------- -------
Earnings from operations.................................. 6,596 4,863
Other income (expense)
Interest income......................................... 11 28
Interest expense........................................ (409) (431)
Gain (loss) on sale of assets........................... 5 (8)
Other................................................. (89) (69)
------- -------
(482) (480)
------- -------
Earnings before income taxes.............................. 6,114 4,383
Income taxes.............................................. 2,208 1,637
------- -------
NET EARNINGS........................................ 3,906 2,746
Retained earnings at beginning of year.................... 11,125 8,379
------- -------
Retained earnings at end of year.......................... $15,031 $11,125
======= =======
</TABLE>

The accompanying notes are an integral part of these statements.

55
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

YEAR ENDED JUNE 30,

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities
Net earnings.............................................. $3,906 $2,746
Adjustments to reconcile net earnings to net cash provided
by (used in)
operating activities
Depreciation and amortization........................... 1,669 1,392
Deferred income taxes................................... 80 (280)
(Gain) loss on disposal of property and equipment....... (5) 8
Write-off uncollectible note receivable from
affiliate............................................. 386 --
Change in assets and liabilities
(Increase) decrease in accounts receivable............ 393 (2,384)
Increase in income taxes receivable................... (107) --
Increase in inventories............................... (6,099) (2,240)
Increase in accounts payable.......................... 688 302
Increase (decrease) in accrued payroll and employee
benefits............................................ 331 (28)
Increase in litigation judgment payable............... 73 600
Increase (decrease) in income taxes payable........... (1,621) 2,404
Other................................................. 151 (139)
------ ------
Net cash provided by (used in) operating
activities........................................ (155) 2,381
Cash flows from investing activities
Decrease in marketable securities......................... -- 12
Purchase of property and equipment........................ (1,072) (1,519)
Proceeds from disposal of property and equipment.......... 7 17
Increase in note receivable from affiliate................ (179) (129)
------ ------
Net cash used in investing activities................... (1,244) (1,619)
Cash flows from financing activities
Net change in funds held by trustee....................... (3) 377
Net change in line of credit.............................. 3,331 165
Repayments of long-term debt and industrial revenue
bonds................................................... (1,370) (1,299)
Repayments of capital lease obligations................... (195) (78)
------ ------
Net cash provided by (used in) financing activities..... 1,763 (835)
------ ------
Net increase (decrease) in cash and cash equivalents........ 364 (73)
Cash and cash equivalents at beginning of year.............. 91 164
------ ------
Cash and cash equivalents at end of year.................... $ 455 $ 91
====== ======
</TABLE>

The accompanying notes are an integral part of this statement.

56
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 1997 AND 1996

NOTE A--SUMMARY OF ACCOUNTING POLICIES

A summary of the significant accounting policies consistently applied in the
preparation of the accompanying consolidated financial statements follows.

1. BUSINESS ACTIVITY AND PRINCIPLES OF CONSOLIDATION

Wichita Manufacturing, Inc., a wholly-owned subsidiary, is located in
Cerritos, California, and is engaged in the same line of business as Brittain
Machine, Inc.

The consolidated financial statements include the consolidated accounts of
Brittain Machine, Inc. and its wholly-owned subsidiary, Wichita
Manufacturing, Inc. All significant intercompany accounts have been eliminated.

2. ACCOUNTS RECEIVABLE

The Company considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required. If amounts become
uncollectible, they will be charged to operations when that determination is
made.

3. USE OF ESTIMATES

4. INVENTORIES

Inventories are stated at the lower of weighted average cost or net
realizable value.

5. PROPERTY AND EQUIPMENT

<TABLE>
<S> <C>
Buildings................................................... 10-30 years
Machinery and equipment..................................... 7-10 years
Vehicles.................................................... 4-6 years
Office equipment............................................ 5-7 years
</TABLE>

57
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1997 AND 1996

NOTE A--SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
6. INCOME TAXES

The Company files a consolidated income tax return with its subsidiary.

7. CASH SURRENDER VALUE OF LIFE INSURANCE

The Company pays the premiums on certain life insurance policies insuring
the lives of two of its stockholders. The cumulative value of net premiums paid
by the Company on behalf of the beneficiary of such life insurance policies is
recorded as an asset as this amount is payable by the policy owner to the
Company upon death of the insured.

The cash surrender values of certain other life insurance contracts owned by
the Company are recorded as assets. The change in such cash surrender values is
accounted as an adjustment of premiums paid in determining the expense or income
to be recognized under the contract for the period.

8. SELF INSURANCE

The Company participates in various self-insurance programs for medical and
workers' compensation risks. In connection with these programs the Company has
mitigated its exposure through the purchase of stipulated stop-loss coverage
with insurance companies. The Company estimates its liability for the
self-insured portions of the risks covered by such programs and accrues
appropriate reserves.

9. CASH EQUIVALENTS

For purposes of the consolidated statement of cash flows, the Company
considers all highly liquid investments with maturities of less than three
months to be cash equivalents.

10. REVENUE RECOGNITION

58
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1997 AND 1996

NOTE B--INVENTORIES

Inventories consist of the following at June 30 (dollars in thousands):

<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Raw material and supplies.................................. $ 3,108 $1,155
Work in progress........................................... 7,260 3,445
Finished goods............................................. 610 278
------- ------
$10,978 $4,878
======= ======
</TABLE>

NOTE C--LINE OF CREDIT

At June 30, 1997, the Company had available a line of credit with a bank for
up to $5,000,000, of which $3,855,000 and $524,519 was outstanding at June 30,
1997 and 1996, respectively. Interest is payable monthly on the outstanding
balance at a variable rate equal to the bank's base rate (9.25% at June 30,
1997). There are no compensating balance or commitment fee requirements.
Borrowings under the line of credit are collateralized by substantially all
assets of the Company.

NOTE D--INCOME TAXES

Income tax expense for the years ended June 30 consists of the following
(dollars in thousands):

<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Current..................................................... $2,128 $1,917
Deferred.................................................... 80 (280)
------ ------
$2,208 $1,637
====== ======
</TABLE>

The principal reason for the variation between income taxes computed at the
federal tax rate of 34% and actual income taxes is state income tax expense.

The tax effects of temporary differences that give rise to deferred tax
assets and liabilities at June 30 are as follows (dollars in thousands):

<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Deferred tax assets
Inventory valuation differences........................... $ 317 $ 393
Accrued expenses not deductible until paid................ 458 377
----- -----
775 770

Deferred tax liabilities
Depreciation of property and equipment.................... 1,026 1,009
Capital leases treated as operating leases for tax
purposes................................................ 136 68
Other..................................................... 81 81
----- -----
1,243 1,158
----- -----
Net deferred tax liability.............................. $ 468 $ 388
===== =====
</TABLE>

59
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1997 AND 1996

NOTE E--LONG-TERM DEBT

Long-term debt consists of the following at June 30 (dollars in thousands):

<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Note payable to bank, payable in monthly installments
including variable interest at the bank's base interest
rate adjusted annually (effective rate 9.125% and 9.0% at
June 30, 1997 and 1996, respectively), due in 2000 and
collateralized by certain equipment and machinery......... $1,280 $1,692
Equipment loans payable to a finance company, payable in
monthly installments including interest at a fixed rate of
7.95% changing to a variable rate during the final year of
the loan, which will range from the index rate (a) to the
index rate plus 1.5% maturing at various dates through
1998 and collateralized by the equipment financed and the
personal guarantees of two stockholders................... 238 751
Note payable to bank, payable in monthly installments
including variable interest, due in 1998 and
collateralized by a $250,000 real estate mortgage......... 40 77
Unsecured note payable to former stockholder, payable in
equal monthly installments including fixed interest at 9%,
due in 2007............................................... 154 162
------ ------
1,712 2,682
Less current maturities..................................... 741 972
------ ------
$ 971 $1,710
====== ======
</TABLE>

(a) The index rate is a rate equal to the highest of (i) the Prime Rate of
Chemical Bank, (ii) the Wall Street Journal prime rate or (iii) the
commercial paper rate in effect from time to time.

Aggregate annual maturities are as follows for the years ending June 30
(dollars in thousands):

<TABLE>
<S> <C>
1998........................................................ $ 741
1999........................................................ 506
2000........................................................ 343
2001........................................................ 12
2002........................................................ 13
Thereafter.................................................. 97
------
$1,712
======
</TABLE>

Interest capitalized during the years ended June 30, 1997 and 1996 was
$17,000 and $125,000 respectively.

NOTE F--INDUSTRIAL REVENUE BONDS

60
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1997 AND 1996

NOTE F--INDUSTRIAL REVENUE BONDS (CONTINUED)
The total amount of bonds outstanding at June 30, 1997 and 1996 was $750,000
and $1,150,000, respectively. Aggregate annual maturities are as follows for the
years ended June 30 (dollars in thousands):

<TABLE>
<S> <C>
1998........................................................ $ 50
1999........................................................ 55
2000........................................................ 60
2001........................................................ 65
2002........................................................ 70
Thereafter.................................................. 450
----
$750
====
</TABLE>

NOTE G--RELATED PARTY TRANSACTIONS

LEASING ACTIVITIES

The Company has entered into several agreements with an entity, affiliated
by common stockholders, to lease a building and certain machinery and equipment.
Due to the related party relationship with the affiliate and based upon the
underlying economic substance of the leasing arrangements, the leases have been
recorded as capital lease obligations. The recorded lease obligation represents
the outstanding principal balance on the loans incurred by the affiliated entity
to finance that entity's purchase of the building and machinery and equipment
(the "underlying debt"). In addition, the Company is the guarantor of such debt.

A summary of lease payments made during the years ended June 30 under these
capital leases is as follows (dollars in thousands):

<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Total lease payments........................................ $483 $192
Amount representing interest................................ (72) (29)
Amount representing excess lease payments................... (216) (85)
---- ----
Principal payments.......................................... $195 $ 78
==== ====
</TABLE>

In connection with the leases, property, plant and equipment at June 30
included the following (dollars in thousands):

<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Machinery and equipment..................................... $1,508 $836
Building.................................................... 348 --
------ ----
1,856 836
Less accumulated depreciation............................... (259) (16)
------ ----
$1,597 $820
====== ====
</TABLE>

61
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1997 AND 1996

NOTE G--RELATED PARTY TRANSACTIONS (CONTINUED)
Depreciation expense for the property under lease was $242,474 and $16,398
for the years ended June 30, 1997 and 1996, respectively.

The following is a schedule by years of future minimum lease payments under
capital leases (dollars in thousands):

<TABLE>
<CAPTION>
YEAR ENDING JUNE 30
- -------------------
<S> <C>
1998........................................................ $ 736
1999........................................................ 736
2000........................................................ 736
2001........................................................ 448
2002........................................................ 272
Thereafter.................................................. 1,098
------
Total minimum lease payments................................ 4,026
Amount representing interest................................ (457)
Amount representing excess lease payments................... (2,081)
------
Total capital lease obligations............................. 1,488
Less current maturities..................................... 285
------
$1,203
======
</TABLE>

In addition, the Company leases equipment under an operating lease from this
affiliated entity which expires March 1, 1998. The lease which began March 1996
provides for monthly payments of $14,000 per month.

The Company also has a month-to-month rental agreement with a stockholder
for two warehouses. In connection with such agreement rental expense charged to
operations by the Company for the years ended June 30, 1997 and 1996 was $60,000
annually.

OTHER TRANSACTIONS

The Company pays the premiums on certain policies insuring the lives of two
of its stockholders. The aggregate amount of such premiums paid during the years
ended June 30, 1997 and 1996 was $103,000 and $87,000, respectively.

The Company purchased goods from an entity controlled by the spouse of a
stockholder in the amount of $4,117,000 and $2,331,000 during 1997 and 1996,
respectively. Additionally, an amount of $502,000 and $285,000 was due to such
affiliate at June 30, 1997 and 1996, respectively, and was included in accounts
payable in the accompanying consolidated balance sheets. The Company also paid
to an individual related to the Company's principal stockholders $310,000 and
$186,000 during 1997 and 1996, respectively, for debarring services performed.

NOTE H--RETIREMENT PLAN

All employees who have completed one year of service and who have attained
age 21 years of age are eligible to participate in the Company's Profit Sharing
Retirement Plan. Contributions to the Plan are

62
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1997 AND 1996

NOTE H--RETIREMENT PLAN (CONTINUED)
made by the Company for amounts that are determined by the Board of Directors
based on a percentage of each participant's annual compensation. Employees may
also contribute a portion of their compensation to the Plan. During the years
ended June 30, 1997 and 1996, the Company charged $842,000 and $834,000 to
expense pursuant to the Plan.

NOTE I--COMMITMENTS

Wichita Manufacturing, Inc. leases its facility located in Cerritos,
California at a rental cost of $12,000 per month through October 31, 1998. The
lease provides an option for an extension of a three-year period. Future
noncancelable lease commitments are as follows (dollars in thousands):

The Company had at June 30, 1997 a commitment to purchase additional
equipment costing $1,748,000. The equipment is scheduled to be delivered in
December 1997.

NOTE J--CONTINGENCY

In January 1996, the Company was found liable in a civil action for, inter
alia, breach of contract and termination of joint venture/partnership associated
with a relationship the Company had with another entity. A judgment was recorded
against the Company in the amount of $600,000. However, the Company has filed a
Notice of Appeal. The plaintiffs have filed a Notice of Cross-Appeal seeking
damages of approximately $1,500,000. While the ultimate outcome of the
disposition of the matter is presently difficult to estimate, the Company
recorded a provision during 1996 of $600,000 and believes that the ultimate
outcome will not have a material adverse effect on its financial position. An
additional provision of $72,500 was recorded in 1997 for post-judgment interest.

NOTE K--CONCENTRATION OF SALES

Nearly all of the Company's sales are made to a very few customers. These
customers are typically large companies in the aerospace industry. If the
Company were to lose one or more of these customers and were unable to find
replacement customers, sales would be adversely affected. One customer accounted
for 67% and 56% of sales for 1997 and 1996, respectively. Amounts due from this
customer accounted for 60% and 64% of total accounts receivable at June 30, 1997
and 1996, respectively.

63
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1997 AND 1996

NOTE L--SUPPLEMENTAL CASH FLOW INFORMATION (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Cash paid during the year for
Interest.................................................. $ 405 $586
Income taxes.............................................. 3,852 --
Noncash investing and financing activity
Acquisition of property and equipment under capital lease
obligations............................................. 1,019 741
</TABLE>

64
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth information with respect to our directors and
executive officers.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------
<S> <C> <C>
Douglas M. Hayes.......... 56 Chairman of the Board and Director
Douglas B. Solomon........ 45 Chief Executive Officer, President and Director
John R. Reimers........... 41 Executive Vice President and Chief Operating
Officer
N. Paul Brost............. 46 Vice President, Chief Financial Officer and
Treasurer
Harald H. Ludwig.......... 45 Director
James P. Angus............ 53 Director
William R. Monkman........ 56 Director
Michael Dritz............. 62 Director
Philip J. Olsson.......... 50 Director
</TABLE>

DOUGLAS M. HAYES has been a Director and our Chairman of the Board since
November 1997. Mr. Hayes has been a Managing Director of Macluan Capital
Corporation, a private investment company and President of Hayes Capital
Corporation, a private investment company since June 1997. From 1986 to June
1997, Mr. Hayes was a Managing Director of Donaldson, Lufkin & Jenrette
Securities Corporation. Mr. Hayes is a graduate of Dartmouth College and holds
an M.B.A. from the Harvard Business School. Mr. Hayes also serves on the board
of directors of GameTech International, Inc. and Reliance Steel & Aluminum Co.

DOUGLAS B. SOLOMON has been a Director since November 1997. He has served as
our President and Chief Executive Officer since March 9, 2000 and served as our
Secretary from November 1997 until March 14, 2000. Mr. Solomon has been a
Managing Director of Macluan Capital Corporation since December 1998 and a
Managing Director of Hayes Capital Corporation since August 1997. From
August 1997 to December 1998, Mr. Solomon served as a Senior Vice President of
Macluan Capital Corporation. Since 1992, Mr. Solomon has been President of The
Woodland Company, which provides financial advisory and consulting services.
Mr. Solomon was a Managing Director of The Chase Manhattan Investment Bank from
1989 to 1991. Mr. Solomon is a graduate of the University of California-Davis
and holds an M.B.A. from the University of California-Los Angeles.

JOHN R. REIMERS has been our Executive Vice President and Chief Operating
Officer since March 10, 2000. From March 1999 to March 2000 he served as Senior
Vice President of Operations and Administration for Teledyne Brown Engineering
and served as Senior Vice President for Teledyne Ryan from 1997 to 1999.
Mr. Reimers is a graduate of Oregon State University.

N. PAUL BROST has been our Vice President, Chief Financial Officer and
Treasurer since September 1998. From 1993 to 1998, Mr. Brost served as Segment
Financial Executive for Textron Inc. responsible for the Systems and Component
Segment, and as Vice President-Finance and Administration for HR Textron, a
division of Textron Inc. From 1976 to 1993, Mr. Brost was with Ernst & Young
LLP, most recently as a partner, with responsibility for numerous manufacturing,
aerospace and defense clients. Mr. Brost is a graduate of Southern Illinois
University and is a Certified Public Accountant.

HARALD H. LUDWIG has been a Director of Compass since November 1997.
Mr. Ludwig co-founded and has been President of Macluan Capital Corporation
since 1985. He is a graduate of Simon Fraser University and holds an L.L.B. from
Osgoode Hall Law School. An entity controlled by Mr. Ludwig

65
<PAGE>
controls Compass Holdings, LLC, which is the majority stockholder of Compass.
Mr. Ludwig also serves on the board of directors for Lions Gate Entertainment
Corp. and for West Fraser Timber Limited.

JAMES P. ANGUS has been a Director of Compass since March 1998. Mr. Angus is
a co-founder of Macluan Capital Corporation and has been President of Angroup
Holdings Limited, a private investment company with interests in marine
transportation, real estate development and other industries, since 1986.
Mr. Angus is a graduate of the University of Victoria and holds an M.B.A. from
the University of Western Ontario.

WILLIAM R. MONKMAN has been a Director of Compass since March 1998.
Mr. Monkman is also the Chief Executive Officer and President of Precision
Aerospace Corporation, which manufactures fuel control systems and carburetors
for aerospace customers and fuel control systems for industrial engines at
plants in Washington, California and Virginia. Mr. Monkman has been affiliated
with Precision Aerospace Corporation since 1981. Between 1981 and 1997
Mr. Monkman was also affiliated with Suntree Industries Limited, most recently
as Chief Executive Officer. Mr. Monkman is a graduate of the University of
Alberta and holds an M.B.A. from the University of Western Ontario.

MICHAEL DRITZ has been a Director of Compass since March 1998. Mr. Dritz is
also the Chairman of Dritz Enterprises LLC which provides consulting services
for the financial industry, serving in that capacity since 1997. From 1995 to
1996, Mr. Dritz was a Managing Director for Merrill Lynch and Chairman of the
Smith Brothers International Advisory Division. Mr. Dritz was the President and
Chief Executive Officer of Smith New Court, Inc. and an Executive Director of
Smith New Court PLC from 1985 to 1995. Mr. Dritz is a graduate of Syracuse
University.

PHILIP J. OLSSON has been a Director of Compass since March 1999.
Mr. Olsson is also Managing Director of Royal Bank Equity Partners Limited,
having served in such a capacity since 1997. From 1986 to 1997, Mr. Olsson
served in various positions at RBC Dominion Securities, including as Vice
Chairman. Mr. Olsson is a graduate of and holds an M.B.A. from Vanderbilt
University. Mr. Olsson also serves on the board of directors of Anchor Lamina,
Inc., Sun Media Corporation, Zintex, Inc., Tiercon Industries, Inc. and ICG
Propane, Inc.

Our directors will serve until their respective successors are elected or
until death, resignation or removal. Executive Officers are appointed by, and
serve at the pleasure of, the Board of Directors.

COMMITTEES OF THE BOARD OF DIRECTORS

Our Board of Directors has established an Audit Committee and a Compensation
Committee.

The responsibilities of the Audit Committee include recommending to the
Board of Directors the independent public accountants to be selected to conduct
the annual audit of our books and records, reviewing the proposed scope of such
audit and approving the audit fees to be paid, reviewing our accounting and
financial controls with the independent public accountants and our financial and
accounting staff and reviewing and approving transactions between us and our
directors, officers and affiliates. Messrs. Angus, Monkman and Solomon are the
members of the Audit Committee.

The Compensation Committee provides a general review of our compensation
plans and policies to ensure that they meet corporate objectives. Our existing
plans with respect to executive compensation are largely based upon contractual
commitments set forth in employment and consulting agreements. You should read
the discussion under the heading "Employment Agreements" for further information
on the terms and conditions of existing employment contracts with our executive
officers. The Compensation Committee's responsibilities also include
administering the 1998 Stock Incentive Plan, including selecting the officers
and salaried employees to whom awards will be granted.

66
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth the compensation paid by us to our Chief
Executive Officer and one other executive officer for the fiscal year ended
December 31, 1999.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
----------------
ANNUAL COMPENSATION SECURITIES
---------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS/SARS (#) COMPENSATION ($)
- --------------------------- -------- ---------- --------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Alexander Hogg,..................... 1999 246,689 -- -- --
Chief Executive Officer and 1998 250,000 200,000 346,291 --
President (1)
N. Paul Brost....................... 1999 145,558 50,000 -- --
Vice President, Chief Financial 1998 35,577 5,000 25,000 --
Officer and Treasurer
</TABLE>

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

(1) Mr. Hogg resigned as our Chief Executive Officer and President on March 9,
2000 and we have appointed Douglas B. Solomon to serve as Chief Executive
Officer and President, effective as of March 9, 2000.

67
<PAGE>
1998 STOCK INCENTIVE PLAN

In March 1998 our Board of Directors adopted, and the shareholders approved,
the Compass Aerospace Corporation 1998 Stock Incentive Plan. The 1998 Stock
Incentive Plan is administered by the Compensation Committee of the Board of
Directors. All officers, directors, employees and independent contractors of
Compass are eligible for discretionary awards under the 1998 Stock Incentive
Plan. The 1998 Stock Incentive Plan provides for stock-based incentive awards,
including incentive stock options, non-qualified stock options and restricted
stock. The 1998 Stock Incentive Plan permits the Compensation Committee to
select eligible persons to receive awards and to determine terms and conditions
of such awards, including the vesting schedule and exercise price of each award,
provided, that the option exercise price may not be less than 85% of the fair
market value per share of our common stock on the date of the grant. Under the
1998 Stock Incentive Plan, no participant may be granted incentive stock options
that are first exercisable in any one calendar year with fair market value in
excess of $100,000. Two million shares of our common stock have been reserved
for issuance under the 1998 Stock Incentive Plan.

The 1998 Stock Incentive Plan may be amended, suspended or terminated at any
time. However, neither the maximum number of shares that may be sold or issued
under the 1998 Stock Incentive Plan, nor the benefits accruing to participants
thereunder may be increased, nor may the class of persons eligible to
participate in the 1998 Stock Incentive Plan be altered, without the approval of
our shareholders; provided, however, that adjustments to the number of shares
subject to the 1998 Stock Incentive Plan and to individual awards thereunder
and/or to the exercise price of awards previously granted are permitted without
shareholder approval upon the occurrence of specific events affecting our
capital structure.

EMPLOYMENT AGREEMENTS

Effective April 1, 2000 we entered into an employment agreement with John R.
Reimers, pursuant to which we agree to employ Mr. Reimers as Executive Vice
President and Chief Operating Officer for a term of three years at an annual
base salary of $225,000. Mr. Reimers will receive a guaranteed bonus of $125,000
during 2000, and will be eligible for a bonus in 2001 based on achieving certain
performance goals which be at least equal to his base salary and will be paid
fifty percent in cash and fifty percent in stock options. Mr. Reimers will also
receive supplemental compensation of $4,444 per month during the term of his
employment agreement. In addition, the agreement provides that Mr. Reimers will
be granted stock options on April 1, 2000 to purchase 200,000 shares of our
common stock at an exercise price equal to $1.47 per share. Of these options,
50,000 will vest on April 1, 2000. The remaining options will vest at the rate
of 50,000 shares per year on April 1 of each year, beginning April 1, 2001.
Mr. Reimer's options will fully vest and become immediately exercisable if:

- any person or entity other than our current stockholders acquires 51% or
more of our voting common stock, or acquires all or substantially all of
our assets, or

- Mr. Reimers' employment agreement is not renewed at the expiration of the
term of the agreement, unless he is terminated other than for cause, or

- Mr. Reimers' employment is terminated due to death or permanent
disability.

In the event we determine that we and Mr. Reimers have met certain
performance goals, Mr. Reimers will also be granted stock options no later than
the end of the first quarter of each of 2001, 2002 and 2003 to purchase not less
than 30,000 shares nor more than 120,000 shares, at an exercise price equal to
the fair market value of the stock at the time of the grant of the option. Such
options shall vest over a four year period from the date of the grant at 25% per
year. Mr. Reimers will also be entitled to receive up to six months of his then
current base salary if he is terminated without cause.

Effective September 21, 1998 we entered into an employment agreement with N.
Paul Brost, pursuant to which we agreed to employ Mr. Brost as Vice President
and Chief Financial Officer for a term of three years at an annual base salary
of $125,000, which has been raised to $180,000, and a minimum

68
<PAGE>
$15,000 bonus payable in 1999. In addition, the agreement provides that
Mr. Brost will be granted stock options to purchase 25,000 shares of our common
stock at an exercise price equal to $1.47 per share. Such options will vest at
the rate of 6,250 shares per year on September 21 of each year, beginning
September 21, 1999. On that date, options for 6,250 shares vested. Mr. Brost's
options will fully vest and become immediately exercisable:

- in the event of a sale of 81% or more of our voting common stock in a
single transaction or a related series of transactions within a
six months period, or

- Mr. Brost's employment is terminated due to death or permanent disability.

Mr. Brost will also be granted stock options to purchase an additional
10,000 shares per annum, at an exercise price to be determined which shall vest
over a four year period at 25% per year if we meet specific EBITDA targets.
Mr. Brost will also be entitled to receive up to six months of his then current
base salary if he is terminated without cause.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Messrs. Hayes, Ludwig and Dritz served as the members of the Compensation
Committee in 1999. Mr. Hayes served as our Chairman of the Board and for each of
our subsidiaries in 1999. Mr. Hayes did not receive any compensation for such
service.

Mr. Hayes and Mr. Ludwig are affiliates of Hayes Capital Corporation and
Dunhill Bank Caribbean Ltd., respectively, which are parties to a management
consulting agreement with us. You should read the discussion under "--Certain
Relationships and Related Party Transactions" for further information on the
terms of the management consulting agreement.

DIRECTOR COMPENSATION

Directors who are not currently receiving compensation as one of our
officers, employees or consultants are entitled to receive an annual retainer
fee of $12,000, plus reimbursement of expenses for each Board of Directors'
meeting and each committee meeting that they attend in person.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information regarding the beneficial
ownership of our capital stock as of the date of this report of:

- each person known to us to beneficially own more than 5% of our voting
securities;

- each of our directors and executive officers; and

- our directors and executive officers as a group.

69
<PAGE>

<TABLE>
<CAPTION>
PERCENTAGE OF
OWNERSHIP
OF CLASS A
NUMBER OF COMMON
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES STOCK
- ------------------------------------ ---------- -------------
<S> <C> <C>
Compass Holdings, L.L.C. (1)................................ 19,691,602 56.3%
RBC Equity Investments, Inc. (2)............................ 10,238,904 29.3%
BancBoston Ventures, Inc. (4)............................... 4,085,181 11.7%
Douglas M. Hayes (3)(6)..................................... 256,000 *
N. Paul Brost (3)........................................... 6,250 *
Douglas B. Solomon (3)...................................... 290,014 *
Harald H. Ludwig (1)(5)..................................... 19,691,602 56.3%
John R. Reimers(3).......................................... 50,000 *
James P. Angus (1).......................................... -- *
William R. Monkman.......................................... -- *
Michael Dritz............................................... -- *
Philip J. Olsson............................................ -- *
All directors and officers as a group....................... 20,293,866 57.9%
</TABLE>

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

* Less than one percent.

(1) The stockholder's address is 940-1040 W. Georgia Street, Vancouver, British
Columbia, Canada V6E 4H1.

(2) The stockholder's address is 200 Bay Street, Royal Bank Plaza, 4th Floor,
North Tower, Toronto, Ontario M51 2W7. Mr. Olsson is an officer of RBC
Equity Investments, Inc.

(3) The stockholder's address is 1501 Hughes Way, Suite 400, Long Beach, CA
90815.

(4) The stockholder's address is 175 Federal Street, M/S75-10-01, Boston,
Massachusetts 02110.

(5) Represents shares owned by Compass Holdings, LLC. Under the terms of the
Operating Agreement of Compass Holdings, Mr. Ludwig has sole voting power
and investment power with respect to the shares held by Compass Holdings.
Messrs. Hayes, Dritz, Monkman, Angus and Brost hold membership interests in
Compass Holdings or its affiliates.

(6) Represents shares owned by the D&C Hayes Living Trust. Mr. Hayes is a
co-trustee of the trust and shares voting power and investment power with
respect to the Class A Common Stock held by the trust.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

We are a party to a management consulting agreement with Dunhill Bank
Caribbean Ltd. and Hayes Capital Corporation, which provides for the payment of
management fees from us to Dunhill Bank Caribbean Ltd. and Hayes Capital
Corporation in an annual aggregate amount equal to $200,000 plus 1.5% of our
EBITDA plus expenses, payable quarterly in arrears. Fifty percent of this
management fee is payable to Dunhill Bank Caribbean Ltd. and 50% is payable to
Hayes Capital Corporation. Mr. Ludwig is the beneficial owner of Dunhill Bank
Caribbean Ltd. Mr. Hayes and Mr. Solomon are the President and a Managing
Director of Hayes Capital Corporation, respectively. In addition to the
management fee described above, we typically also pay advisory fees to Dunhill
Bank Caribbean Ltd. and Hayes Capital Corporation in an amount equal to an
aggregate of 1% of the consideration paid for each business acquired by us. We
believe that the management fees and the advisory fees are on terms no less
favorable to us than those that could be obtained from independent third-parties
in arms-length negotiations.

70
<PAGE>
In connection with an exchange offer, the issuance of certain notes, and a
credit agreement relating thereto, BankBoston, a lender and the administrative
agent under the credit agreement, and BancBoston Robertson Stephens, the
arranger under the credit agreement, are affiliates of BancBoston Securities, an
initial purchaser of the outstanding notes, and are affiliates of BancBoston
Ventures Inc. which holds 11.7% of our voting common stock.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) Exhibits:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
<C> <S>
**3.1 Certificate of Incorporation of Compass Aerospace
Corporation (Compass), as amended to date.
**3.2 Amended and Restated By-Laws of Compass
**3.3 Certificate of Incorporation of AOM Acquisition Co. (which
later changed its name to Aeromil Engineering Company), as
amended to date.
**3.4 Amended and Restated By-laws of Aeromil Engineering Company
**3.5 Articles of Incorporation of Western Methods Machinery
Corporation.
**3.6 Amended and Restated Bylaws of Western Methods Machinery
Corporation.
**3.7 Certificate of Incorporation of Brittain Machine, Inc.
**3.8 By-laws of Brittain Machine, Inc.
**3.9 Articles of Incorporation of Wichita Manufacturing, Inc.
**3.10 Amended and Restated Bylaws of Wichita Manufacturing, Inc.
**3.11 Certificate of Incorporation of Barnes Machine, Inc.
**3.12 By-laws of Barnes Machine, Inc.
**3.13 Certificate of Incorporation of SLP Acquisition Co. (which
later changed its name to Sea-Lect Products, Inc.), as
amended to date.
**3.14 By-Laws of SLP Acquisition Co.
**3.15 Restated Articles of Incorporation of Pacific Hills
Manufacturing Co.
**3.16 Amended and Restated Bylaws of Pacific Hills Manufacturing
Co.
**3.19 Memorandum of Association of Compass Aerospace Limited
**3.20 Articles of Association of Compass Aerospace Limited
**3.21 Memorandum of Association of Diac Limited
**3.22 Articles of Association of Diac Limited
**3.23 Memorandum of Association of Trefn Engineering Limited
**3.24 Articles of Association of Trefn Engineering Limited
**3.25 Memorandum of Association of Trefn Engineering (Metal
Treatments Division) Limited
**3.26 Articles of Association of Trefn Engineering (Metal
Treatments Division) Limited
**3.27 Memorandum of Association of Trefn Fabrications Limited
**3.28 Articles of Association of Trefn Fabrications Limited
**3.29 Memorandum of Association of Trim Engineering Limited
**3.30 Articles of Association of Trim Engineering Limited
**4.1 Indenture, dated April 21, 1998, by and among Compass, the
Guarantors listed therein and IBJ Whitehall Bank & Trust
Company (formerly IBJ Schroder Bank & Trust Company) as
Trustee, relating to the 10 1/8% Series B Senior
Subordinated Notes due 2005 of Compass and the 10 1/8%
Series A Senior Subordinated Notes due 2005 of Compass.
</TABLE>

71
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
<C> <S>
**4.2 Amended and Restated Credit Agreement, dated as of
November 20, 1998 and amended and restated as of
February 11, 1999, by and among Compass, BankBoston, N.A. as
agent and a lender, NationsBank, N.A. as Co-Agent, the
Lenders named therein, Royal Bank of Canada as Syndication
Agent, General Electric Capital Corporation as Documentation
Agent and BancBoston Robertson Stephens, Inc. as arranger
**4.3 Security Agreement, dated November 20, 1998, by and among
Compass, Compass' subsidiaries named therein, BankBoston,
N.A. as agent and the lenders identified therein.
**4.4 Stock Pledge Agreement, dated as of November 20, 1998 by and
among Compass, Brittain Machine, Inc., Sea-Lect Products,
Inc. and BankBoston, N.A. as agent.
**4.5 Amendment No. 1 to Credit Agreement, dated as of June 7,
1999 by and among Compass, Bank Boston, N.A. as Issuing
Bank, as Agent and as a lender, NationsBank, N.A. as Co-
Agent, the Lenders named therein, Royal Bank of Canada as
Syndication Agent, General Electric Capital Corporation as
Documentation Agent.
**4.6 Consent, Waiver and Amendment No. 2 to Credit Agreement,
dated as of July 30, 1999 by and among Compass, Bank Boston,
N.A. as Issuing Bank, as Agent and as a lender, Bank of
America, N.A. (formerly known as NationsBank, N.A.) as
Co-Agent, the Lenders named therein, Royal Bank of Canada as
Syndication Agent, General Electric Capital Corporation as
Documentation Agent.
**4.7 Indenture, dated July 30, 1999, by and among Compass, the
Guarantors listed therein and IBJ Whitehall Bank & Trust
Company as Trustee, relating to the 10 1/8% Series D Senior
Subordinated Notes due 2005 of Compass and the 10 1/8%
Series C Senior Subordinated Notes due 2005 of Compass.
4.8 Waiver and Amendment No. 3 to Credit Agreement, dated as of
March 30, 2000 by and among Compass, Fleet National Bank
(formerly known as BankBoston, N.A.) as Agent, Issuing Bank
and Lender, and the other Lenders named therein.
10.1 Employment Agreement, dated as of April 1, 2000, by and
between Compass and John Reimers.
**10.2 Employment Agreement, dated as of September 21, 1998, by and
between Compass and N. Paul Brost.
**10.4 Compass Aerospace Corporation 1998 Stock Incentive Plan.
**10.5 Management Agreement, dated November 26, 1997, by and among
Compass, Dunhill Bank Caribbean Ltd. and Hayes Capital
Corporation, as amended to date.
12.1 Statement regarding the computation of ratio of earnings to
fixed charges for Compass.
**21.1 Subsidiaries of Compass.
27.1 Financial Data Schedule.
</TABLE>

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

** Previously filed.

(b) Financial Statement Schedules:

In addition to the Consolidated Financial Statements and Report of
Independent Accountants included at Item 8, the following are included herein:

Schedule II--Valuation and Qualifying Accounts and Reserves

All other schedules have been omitted because the information is not
applicable or is not material or because the information required is set forth
in the financial statements on the notes thereto.

We did not file any Form 8-K Current Reports during the last quarter of the
fiscal year ended December 31, 1999.

72
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Los Angeles, State of California, on March 30, 2000.

<TABLE>
<S> <C> <C>
Compass Aerospace Corporation

By: /s/ DOUGLAS M. HAYES
-----------------------------------------
Douglas M. Hayes
CHAIRMAN OF THE BOARD OF DIRECTORS
</TABLE>

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

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C> <C>
/s/ DOUGLAS M. HAYES
------------------------------- Chairman of the Board of Directors March 30, 2000
Douglas M. Hayes

Vice President, Chief Financial
/s/ N. PAUL BROST Officer and Treasurer (Principal
------------------------------- Financial and Accounting March 30, 2000
N. Paul Brost Officer)

/s/ DOUGLAS B. SOLOMON
------------------------------- Chief Executive Officer, President March 30, 2000
Douglas B. Solomon and Director

/s/ JAMES P. ANGUS
------------------------------- Director March 30, 2000
James P. Angus

/s/ MICHAEL DRITZ
------------------------------- Director March 30, 2000
Michael Dritz

/s/ HARALD H. LUDWIG
------------------------------- Director March 30, 2000
Harald H. Ludwig

/s/ WILLIAM R. MONKMAN
------------------------------- Director March 30, 2000
William R. Monkman

/s/ PHILIP J. OLSSON
------------------------------- Director March 30, 2000
Philip J. Olsson
</TABLE>

73
<PAGE>
COMPASS AEROSPACE CORPORATION
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)

<TABLE>
<CAPTION>
BALANCE AT
BEGINNING CHARGED TO CHARGED TO BALANCE AT
OF COSTS AND OTHER DEDUCTIONS END OF
DESCRIPTION PERIOD EXPENSES EXPENSES (1) PERIOD
- ----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
ADDITIONS
As Compass Aerospace Corporation
FOR THE 36 DAYS ENDED DECEMBER 31, 1997
Reserve and allowance deducted from asset
accounts
Allowance for uncollectible accounts..... $ -- $ -- $ 49 $ 18 $ 31
YEAR ENDED DECEMBER 31, 1998
Reserve and allowance deducted from asset
accounts
Allowance for uncollectible accounts..... $ 31 $ 3 $776 $ 54 $ 756
YEAR ENDED DECEMBER 31, 1999
Reserve and allowances deducted from
asset accounts.........................
Allowance for uncollectible accounts..... $756 $131 $672 $519 $1,040
As Brittain Machine, Inc.(2)
YEAR ENDED JUNE 30, 1997
Reserve and allowance deducted from asset
accounts
Allowance for uncollectible accounts..... $ -- $ -- $ -- $ -- $ --
FOR THE PERIOD JULY 1, 1997 THROUGH APRIL
21, 1998
Reserve and allowances deducted from
asset accounts
Allowance for uncollectible accounts..... $ -- $ -- $ -- $ -- $ --
</TABLE>

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

(1) Net of recoveries.

(2) Brittain Machine, Inc. is included as the predecessor of Compass Aerospace
Corporation.

<PAGE>

EXHIBIT 4.8

COMPASS AEROSPACE CORPORATION
AND ITS UNDERSIGNED SUBSIDIARIES
1501 Hughes Way
Suite 400
Longbeach, CA 90810

Dated as of March 30, 2000

Fleet National Bank (f/k/a BankBoston, N.A.), as Agent, and
the Lenders referred to in the Credit
Agreement (as defined below)
100 Federal Street
Boston, Massachusetts 02110

Re: WAIVER AND AMENDMENT NO. 3 TO CREDIT AGREEMENT

Ladies and Gentlemen:

We refer to the Amended and Restated Credit Agreement, dated
as of November 20, 1998, as amended and restated as of February 11, 1999, as
amended as of June 7, 1999, and as further amended as of July 30, 1999 (the
"CREDIT AGREEMENT"), among (a) Compass Aerospace Corporation (the "BORROWER"),
(b) Compass Aerospace Limited (the "UK BORROWER"), (c) Aeromil Engineering
Company ("AEROMIL"), (d) Western Methods Machinery Corporation ("WESTERN
METHODS"), (e) Barnes Machine Incorporated ("BARNES"), (f) Brittain Machine,
Inc. ("BRITTAIN"), (g) Wichita Manufacturing, Inc. ("WICHITA"), (h) Sea-lect
Products, Inc. ("SEA-LECT,") (the successor by merger to Modern Manufacturing,
Inc.), (i) Pacific Hills Manufacturing Co. (formerly known as Lamsco West, Inc.)
("LAMSCO" and, together with Aeromil, Western Methods, Barnes, Brittain, Wichita
and Sea-lect, collectively, the "GUARANTORS"), (j) Fleet National Bank ("FLEET")
and the other lending institutions listed on SCHEDULE 1 thereto as Lenders (the
"LENDERS"), (l) Fleet, as Issuing Bank and as Agent, (m) Royal Bank of Canada,
as Syndication Agent, (n) General Electric Capital Corporation, as Documentation
Agent, and (o) Bank of America, N.A. (f/k/a NationsBank, N.A.), as Co-Agent.
Capitalized terms used but not defined in this Agreement (this "AGREEMENT") have
the same meanings herein as in the Credit Agreement, as amended hereby.

The Borrower has requested that the Required Lenders and
the Agent (i) waive the financial covenants in Sections 11.1, 11.2 and 11.3
of the Credit Agreement for the Reference Period ended December 31, 1999,
(ii) waive any Defaults or Events of Default which are now continuing as a
result of the breach of such financial covenants for such periods, (iii)
waive the UK Loan Default (as defined in Section 1 below), and (iv) amend the
Credit Agreement to, among other things, amend and restate the financial
covenants in Sections 11.1,

<PAGE>

-2-

11.2, 11.3, 11.4 and 11.5 of the Credit Agreement for Reference Periods
ending during calendar year 2000. The undersigned Required Lenders and the
Agent have advised the Borrower that they are prepared to grant such waivers
and consent and to agree to such amendments, on the terms, subject to the
conditions and in reliance on the representations contained herein.

SECTION 1. WAIVER OF CERTAIN FINANCIAL COVENANTS. Subject
to satisfaction of the conditions set forth in Section 3 below, the
undersigned Required Lenders and the Agent hereby waive (a) compliance by the
Borrower with the Maximum Leverage Ratio covenant, the Minimum Consolidated
EBITDA covenant and the Minimum Interest Coverage Ratio covenant set forth in
Sections 11.1, 11.2 and 11.3 of the Credit Agreement, respectively, for the
Reference Period ended December 31, 1999, (b) any Default or Event of Default
which is now continuing as a result of the breach by the Borrower of such
covenants for such period and (c) any Default or Event of Default which is
now continuing as a result of the Borrower having outstanding advances to the
UK Borrower (which are in the aggregate outstanding amount of $1,300,000 as
of March 30, 2000) (all such Defaults and Events of Default referred to above
in this clause (c) being referred to herein as the "UK Loan Default"). The
foregoing waiver of the UK Loan Default will expire at the close of business,
Boston, Massachusetts time, on April 7, 2000 and an Event of Default shall
automatically occur at such time, unless the UK Borrower has paid in full in
cash to the Borrower by such time all outstanding advances made by the
Borrower to the UK Borrower and no such advances are outstanding at such time
(satisfaction of such requirements being referred to herein as the "UK Loan
Default Cure"). If the UK Loan Default Cure is effected, the UK Loan Default
will be permanently waived. Each of such waivers shall be effective as of the
Effective Date.

SECTION 2. AMENDMENT OF CREDIT AGREEMENT. Subject to
satisfaction of the conditions set forth in Section 3 below, each of the
undersigned Transaction Parties, the Agent and the undersigned Required Lenders
agrees to amend the Credit Agreement as set forth below. Each of the following
amendments shall be effective as of the Effective Date:

(a) DEFINITIONS. Section 1.1 of the Credit Agreement is hereby
amended as set forth below:

(i) Section 1.1 of the Credit Agreement is amended by
amending and restating in their entirety each of the following
defined terms as follows:

ACQUISITION LOAN COMMITMENT PERIOD. The
period from the Original Closing Date through the
earlier to occur of (a) the Amendment No. 3 Effective
Date and (b) the termination of the Total Acquisition
Commitment.

ACQUISITION LOANS. Loans made or to be made
by the Lenders with an Acquisition Loan Commitment to
the Borrower pursuant to Section 2.1(d).

CONSOLIDATED EBITDA. With respect to any
Person for any period (subject to any adjustments
required by Section 11.6 and determined on a
consolidated basis in accordance with GAAP),
Consolidated Net Income of such Person and its
Subsidiaries for such period PLUS, to the extent
deducted in determining such Consolidated Net Income
(and without duplication), (a) the sum of interest,
taxes, depreciation and amortization of such Person
and its Subsidiaries for such period on a
consolidated basis, all determined in accordance
with GAAP, (b) all non-cash charges of such Person
for such period arising

<PAGE>

-3-

from the vesting of stock options granted by
such Person or as a result of the effect of an
initial public offering of Capital Stock of such
Person on stock options granted by such Person, (c)
in the case of the Borrower, direct legal expenses of
the Borrower and its Subsidiaries incurred in
connection with the Lamsco Litigation; PROVIDED that
(i) such expenses are incurred during the calendar
year 2000 and (ii) the aggregate amount of such
expenses that may be added back to Consolidated Net
Income in determining Consolidated EBITDA shall not
exceed $1,000,000, and (d) management fees payable by
the Borrower pursuant to the Management Consulting
Agreement, to the extent that such management fees
have been accrued by the Borrower for such period but
not paid, PLUS management fees payable by the
Borrower pursuant to the Management Consulting
Agreement, to the extent that such management fees
have been accrued by the Borrower for a prior period,
and are paid during the period for which Consolidated
EBITDA is being determined.

EXCHANGE NOTES. The senior subordinated
notes due 2005 which may be issued by the Borrower in
exchange for Senior Subordinated Notes in accordance
with the terms contained in the Senior Subordinated
Indenture.

1999 SENIOR SUBORDINATED NOTE DOCUMENTS. The
1999 Senior Subordinated Notes, the 1999 Senior
Subordinated Exchange Notes, the 1999 Senior
Subordinated Indenture, any and all guarantees of any
Subsidiary of the Borrower given or made pursuant to
the 1999 Senior Subordinated Indenture, and each of
the Instruments evidencing the 1999 Senior
Subordinated Notes or 1999 Senior Subordinated
Exchange Notes, or pursuant to which any 1999 Senior
Subordinated Note or 1999 Senior Subordinated
Exchange Note is issued, incurred or guaranteed.

SENIOR SUBORDINATED NOTE DOCUMENTS. The
Senior Subordinated Notes, the Exchange Notes, the
Senior Subordinated Indenture, any and all guarantees
of any Subsidiary of the Borrower given or made
pursuant to the Senior Subordinated Indenture, and
each of the Instruments evidencing the Senior
Subordinated Notes or the Exchange Notes pursuant to
which any Senior Subordinated Note or Exchange Note
is issued, incurred or guaranteed.

SENIOR SUBORDINATED NOTES. The Senior
Subordinated Notes due 2005 issued by the Borrower in
accordance with the terms contained in the Senior
Subordinated Indenture, in an aggregate principal
amount outstanding not to exceed

<PAGE>

-4-

$110,000,000.

SUBORDINATED DEBT DOCUMENTS. The Senior
Subordinated Note Documents, the Exchange Note
Documents, the Permitted Subordinated Debt Documents,
the 1999 Senior Subordinated Note Documents, the 1999
Senior Subordinated Exchange Documents, the Trim
Seller Note Documents, and the Permitted Seller
Subordinated Debt Documents.

TOTAL ACQUISITION COMMITMENT. The sum of the
Total Acquisition Loan Commitments and Total UK
Acquisition Loan Commitments of the Lenders, as in
effect from time to time. The Total Acquisition
Commitment was $65,000,000 as of the Restatement
Effective Date and was reduced to $35,000,000 as of
the Amendment No. 1 Effective Date and was further
reduced to zero as of the Amendment No. 3 Effective
Date.

UK ACQUISITION LOANS. Acquisition loans made
or to be made by the UK Fronting Lender to the UK
Borrower pursuant to Section 2.1(d).

(ii) Section 1.1 of the Credit Agreement is further
amended by inserting the following new defined terms in the
appropriate alphabetical sequence in such Section:

AMENDMENT NO. 3 TO CREDIT AGREEMENT. Waiver
and Amendment No. 3 to Credit Agreement, dated as of
March 30, 2000, among the Transaction Parties, the
Required Lenders and the Agent.

AMENDMENT NO. 3 EFFECTIVE DATE. The date on
which all of the conditions to the effectiveness of
Amendment No. 3 to Credit Agreement are satisfied and
Amendment No. 3 to Credit Agreement becomes
effective.

LAMSCO LITIGATION. The lawsuit filed by
Borrower against Alinabal Holdings Corporation (the
former shareholder of Lamsco), and individuals,
Samuel S. Bergami, Jr., Stephen G. Cerri and Kevin M.
Conlisk, in the U.S. District Court for the Southern
District of New York.

(b) REDUCTION OF TOTAL ACQUISITION COMMITMENTS. The Total
Acquisition Commitment is hereby reduced from $35,000,000 to zero. The
Acquisition Loan Commitment and the UK Acquisition Loan commitment of
each Lender is hereby permanently terminated.

<PAGE>

-5-

Section 2.1 of the Credit Agreement is hereby amended to add, at the
end of such paragraph (c), the following new text:

Notwithstanding anything to the contrary contained in this
Agreement, the sum of the aggregate principal amount of all
Revolving Credit Loans plus the Letter of Credit Exposure shall not
exceed (A) $10,000,000 ($5,000,000 until such time (if any) as
the UK Loan Default Cure has been effected) from the Amendment No. 3
Effective Date to and including August 30, 2000, and (B) $0 from
August 31, 2000, to and including November 1, 2000 (the "CLEAN UP
PERIOD"), and $12,000,000 from and after November 2, 2000. Solely
for purposes of Section 4.4(a) of the Credit Agreement, the Total
Revolving Credit Commitment shall be deemed to be (1) $10,000,000
from the Amendment No. 3 Effective Date to and including August 30,
2000, and (2) $0 during the Clean Up Period, and (3) $12,000,000
from and after November 2, 2000. The Borrower shall not, however, as
a result of the provisions of the previous sentence, be required
during the Clean-Up Period to terminate or cash-collateralize Letter
of Credit No. 50079925 issued by BankBoston, N.A. and in the amount
of $387,000 as of the Amendment No. 3 Effective Date. The Borrower
will not use proceeds of any Revolving Credit Loans directly or
indirectly to fund interest payments on Subordinated Debt which are
scheduled, as of the Amendment No. 3 Effective Date, to be paid on
October 15, 2000. The Borrower will use proceeds of Revolving Credit
Loans solely to pay obligations which are then due and payable by
the Borrower and its Domestic Subsidiaries and the payment of which
is not prohibited by the Loan Documents.

(d) ACQUISITION LOANS AND UK ACQUISITION LOANS. Paragraph (d)
of Section 2.1 of the Credit Agreement is hereby amended by amending
and restating the last two sentences of such paragraph (d) to read as
follows:

The Total Acquisition Loan Commitment was $65,000,000 as of
the Restatement Effective Date and was reduced to $35,000,000
as of the Amendment No. 1 Effective Date and was further
reduced to zero as of the Amendment No. 3 Effective Date. From
and after the Amendment No. 3 Effective Date, no Lender shall
be required to extend any Acquisition Loans hereunder.

(e) TERMINATION OF ACQUISITION LOAN COMMITMENTS AND UK
ACQUISITION LOAN COMMITMENTS. Paragraph (d) of Section 4.2 of the
Credit Agreement is hereby amended and restated in its entirety to read
as follows:

(d) The Acquisition Loan Commitment of each Lender
with such a Commitment and the UK Acquisition Loan Commitment
of each Lender with such a Commitment shall terminate in their
entirety on the Amendment No. 3 Effective Date.

(f) MANDATORY PREPAYMENT WITH LAMSCO LITIGATION PROCEEDS.

<PAGE>

-6-

Paragraph (a) of Section 4.9 of the Credit Agreement is hereby amended
by adding the following new subparagraph (vi) thereto, as follows:

(vi) LAMSCO LITIGATION PROCEEDS. Ninety percent (90%)
of the gross consideration received by or payable to the
Borrower or any of its Subsidiaries in cash from any
settlement, judgment or order related to or other resolution
of any claims related to the Lamsco Litigation. The Borrower
and its Subsidiaries will use any proceeds of the Lamsco
Litigation not required to be paid to the Lenders in the same
manner that proceeds of Revolving Credit Loans are required to
be used.

(g) RELEASE OF CERTAIN UK GUARANTOR GUARANTEES AND SECURITY.
Section 6.4 of the Credit Agreement is hereby deleted in its entirety.

(h) REPORT ON CASH AND CASH FLOWS. Section 9.3 of the Credit
Agreement is hereby amended by adding, immediately after paragraph (p)
thereof, the following new paragraph (q):

(q) on March 31, 2000, and on each Friday thereafter,
a report on the cash and Cash Equivalents of the Borrower and
its Subsidiaries as of the close of business on the prior day,
and a projection of the cash, Cash Equivalents and cash flows
of the Borrower and its Subsidiaries for the thirteen
(13)-week period commencing with the next Monday, such report
and projection to be in form, substance and detail
satisfactory to the Agent.

(i) ADVISOR AND CONSULTANT. Section 9.9 of the Credit
Agreement is hereby amended to add, immediately after paragraph (f)
thereof, the following new paragraph (g):

(g) ADVISOR AND CONSULTANT. Permit any advisor or
consultant engaged by the Agent or by Agent's Special Counsel, as
contemplated by Section 17.2(j) of the Credit Agreement, upon
reasonable advance notice, to visit and inspect any of its
Properties, to examine its books of account and contracts (and to
make copies thereof and extracts therefrom) and to discuss its
affairs, finances and accounts with and to be advised as to the same
by its officers and other employees. The Borrower and its
Subsidiaries will also generally provide all access and information
to, and cooperate with, such advisor or consultant as is necessary
or appropriate to permit such advisor or consultant to perform its
duties to the Agent or the Agent's Special Counsel.

(j) INDEBTEDNESS. Section 10.1 of the Credit Agreement is
amended as follows:

(i) by amending and restating paragraph (f) of
Section 10.1 in its entirety as follows:

(f) Indebtedness of the Borrower under the Exchange
Notes issued in exchange for the Senior Subordinated Notes in
the manner described in the Senior Subordinated Indenture,
PROVIDED, that the aggregate principal amount of the Exchange
Notes outstanding at any time shall not exceed the outstanding
principal amount of the Senior Subordinated Notes on the date
of the issuance of the Exchange Notes, MINUS the amount of any
payment, prepayment, redemption, repurchase or other
acquisition of, or cancellation or other discharge of, any
Exchange Notes;

(ii) by amending and restating paragraph (o) of
Section 10.1 in its entirety as follows:

(o) Indebtedness of the Borrower under the 1999
Senior Subordinated Exchange Notes issued in exchange for the
1999 Senior

<PAGE>

-7-

Subordinated Notes in the manner described in the
1999 Senior Subordinated Indenture, PROVIDED, that the
aggregate principal amount of the 1999 Senior Subordinated
Exchange Notes outstanding at any time shall not exceed the
outstanding principal amount of the 1999 Senior Subordinated
Notes on the date of the issuance of the 1999 Senior
Subordinated Exchange Notes, MINUS the amount of any payment,
prepayment, redemption, repurchase or other acquisition of, or
cancellation or other discharge of, any 1999 Senior
Subordinated Exchange Notes;"

(j) MANAGEMENT FEES. Subsection (i) of paragraph (d) of
Section 10.4 of the Credit Agreement is hereby amended and restated in
its entirety to read as follows:

(i) payments of management fees by the Borrower
pursuant to the Management Consulting Agreement, PROVIDED,
HOWEVER, that (A) at the time of any such payment, the entire
amount of such payment is then required to be made in
accordance with the terms of the Management Consulting
Agreement, (B) no Default or Event of Default is continuing at
the time of such payment or would result therefrom, (C) the
maximum amount of such management fees paid or payable by the
Borrower with respect to any fiscal year shall not exceed
$200,000 plus one and one-half percent (1 1/2%) of
Consolidated EBITDA of the Borrower and its Subsidiaries for
such fiscal year, (D) the Borrower shall pay such management
fees quarterly in arrears, in an amount for any quarter not in
excess of one and one-half percent (1 1/2%) of Consolidated
EBITDA for the prior fiscal quarter (except for the last
fiscal quarter of any fiscal year, during which the Borrower
shall be permitted, subject to the other limitations contained
in this Agreement, to make payments which do not exceed,
together with all other payments made during such fiscal year,
the amount specified in clause (C) above), and (E) no such
management fees shall be paid by the Borrower or any of its
Subsidiaries during the calendar year 2000 and until the
Borrower has demonstrated to the reasonable satisfaction of
the Agent compliance with the financial covenants contained in
Article 11 of this Agreement as in effect prior to amendment
thereof by Amendment No. 3 to Credit Agreement. In the event
that the Borrower pays any such management fees prior to the
delivery by the Borrower of the financial statements required
pursuant to Section 9.3(a) and/or (b) and the Borrower or the
Agent (in the case of any over-payment) determines that an
over-payment or under-payment of such management fees has
occurred as a result of the Borrower's final determination of
Consolidated EBITDA, such management fees shall be adjusted
accordingly, with appropriate (x) refunds of such management
fees for the prior fiscal quarter being made to the Borrower,
or (y) additional payments of such management fees for the
prior fiscal quarter being made by the Borrower, each as the
case may be.

<PAGE>

-8-

(k) PAYMENTS TO HAYES CAPITAL CORPORATION. Section 10.11 of
the Credit Agreement is amended by (i) redesignating paragraph (k)
thereof as paragraph (l), and (ii) inserting the following new
paragraph (k) immediately after paragraph (j) thereof:

(k) reimbursement of reasonable out-of-pocket
expenses of Hayes Capital Corporation incurred on behalf of
the Borrower or in connection with performance of services for
the Borrower (including but not limited to office lease
expense, other office expenses and travel and entertainment
expenses); PROVIDED that the aggregate amount of payments made
by the Borrower as described above in this paragraph (k) shall
not exceed $30,000 in any calendar quarter; and

(l) AMENDMENTS OF DOCUMENTS. Section 10.13 of the Credit
Agreement is hereby amended to add, immediately after paragraph (b)
thereof, the following new paragraph (c):

(m) MAXIMUM LEVERAGE RATIO. Section 11.1 of the Credit
Agreement is hereby amended and restated in its entirety to read as
follows:

11.1. MAXIMUM LEVERAGE RATIO. The Leverage Ratio as
of the end of any Reference Period ending on any date or
during any period set forth in the table below to be greater
than the ratio set forth opposite such date or period:

Date or Period Ratio
-------------- -----
<S> <C>
March 31, 2000 7.50 to 1
June 30, 2000 8.25 to 1
September 30, 2000 8.25 to 1
December 31, 2000 8.00 to 1
January 1, 2001 through September 30, 2001 4.00 to 1
October 1, 2001 through September 30, 2002 3.75 to 1
October 1, 2002 through September 30, 2003 3.50 to 1
October 1, 2003 through February 1, 2005 3.25 to 1
</TABLE>

(n) MINIMUM CONSOLIDATED EBITDA. Section 11.2 of the Credit
Agreement is hereby amended and restated in its entirety to read as
follows:

11.2. MINIMUM CONSOLIDATED EBITDA. Consolidated
EBITDA of the Borrower and its Subsidiaries for any Reference
Period ending on any date or during any period set forth in
the table
<PAGE>

-9-

below to be less than the amount set forth opposite such date
or period:

Minimum
Date or Period Consolidated Ebitda
-------------- -------------------
<S> <C>
March 31, 2000 $30,500,000
June 30, 2000 $28,000,000
September 30, 2000 $28,000,000
December 31, 2000 $28,000,000
January 1, 2001 through June 30, 2001 $51,000,000
July 1, 2001 through December 31, 2001 $55,000,000
January 1, 2002 through December 31, 2002 $60,000,000
January 1, 2003 through June 30, 2003 $63,000,000
July 1, 2003 through December 31, 2003 $63,500,000
January 1, 2004 through March 31, 2004 $65,000,000
April 1, 2004 through December 31, 2004 $66,000,000
January 1, 2005 through February 1, 2005 $67,500,000
</TABLE>

(o) MINIMUM INTEREST COVERAGE RATIO. Section 11.3 of the
Credit Agreement is hereby amended and restated in its entirety to read
as follows:

11.3. MINIMUM INTEREST COVERAGE RATIO. The ratio of
(a) Consolidated EBITDA of the Borrower and its Subsidiaries
for any Reference Period ending on any date or during any
period set forth in the table below to (b) Consolidated Total
Interest Expense of the Borrower and its Subsidiaries for such
Reference Period, to be less than the ratio set forth below
opposite such date or period:

Minimum Interest
Date or Period Coverage Ratio
-------------- --------------
<S> <C>
March 31, 2000 1.25 to 1
June 30, 2000 1.15 to 1
September 30, 2000 1.15 to 1
December 31, 2000 1.15 to 1
January 1, 2001 through February 1, 2005 2.50 to 1
</TABLE>

(p) MINIMUM DEBT SERVICE COVERAGE RATIO. Section 11.4 of the
Credit Agreement is hereby amended and restated in its entirety to read
as follows:

11.4. MINIMUM DEBT SERVICE COVERAGE RATIO. The ratio
of (a) Consolidated Operating Cash Flow of the Borrower and
its Subsidiaries for any Reference Period ending on any date
or during any period set forth in the table below to (b)
Consolidated Debt Service of the Borrower and its Subsidiaries
for such Reference Period, to be less than the ratio set forth
below opposite such date or

<PAGE>

-10-

period:

Minimum Debt Service
Date or Period Coverage Ratio
-------------- --------------
<S> <C>
March 31, 2000 .90 to 1
June 30, 2000 .85 to 1
September 30, 2000 .80 to 1
December 31, 2000 .75 to 1
January 1, 2001 through February 1, 2005 1.15 to 1
</TABLE>

(q) MAXIMUM CAPITAL EXPENDITURES. Section 11.5 of the Credit
Agreement is hereby amended and restated in its entirety to read as
follows:

11.5. MAXIMUM CAPITAL EXPENDITURES. The aggregate
amount of Capital Expenditures of the Borrower and its
Subsidiaries (other than Capital Expenditures made (a) with
the proceeds of Indebtedness permitted by paragraphs (c) of
Section 10.1 or (b) as a result of the acquisition of Capital
Assets in any Permitted Acquisition) (i) to exceed (A)
$1,600,000 during the first six months of the 2000 calendar
year and (B) $3,200,000 during the 2000 calendar year, and
(ii) for any Reference Period ending on any date or during any
period set forth in the table below to exceed the amount set
forth in the table below opposite such date or period:

Date or Period Amount
-------------- ------
<S> <C>
January 1, 2001 through December 31, 2001 $12,200,000
January 1, 2002 through December 31, 2002 $12,400,000
January 1, 2003 through December 31, 2003 $14,200,000
January 1, 2004 through December 31, 2004 $15,100,000
January 1, 2005 through February 1, 2005 $12,500,000
</TABLE>

(r) MINIMUM ACCOUNTS PAYABLE. Article 11 of the Credit
Agreement is hereby amended by inserting, immediately following Section
11.8 thereof, the following new Section 11.9:

11.9. MINIMUM ACCOUNTS PAYABLE. The consolidated
accounts payable of the Borrower and its Subsidiaries to be
less than $6,750,000 as of the end of any calendar month,
commencing with the calendar month ending March 31, 2000.

<PAGE>

-11-

(s) REPRESENTATIONS TRUE; NO DEFAULT OR EVENT OF DEFAULT.
Section 13.1 of the Credit Agreement is hereby amended by adding the
following phrase at the end of such Section:

"or shall result from the making of such Loan or the
issuance, extension or renewal of such Letter of
Credit."

(t) CONDITIONS TO ALL CREDIT EXTENSIONS. Section 13.7 of the
Credit Agreement is hereby amended and restated in its entirety to read
as follows:

"13.7 SENIOR DEBT. The Borrower shall have
demonstrated to the reasonable satisfaction of the Agent that
(a) all outstanding Obligations (after giving effect to the
requested Loans or Letters of Credit) constitute "Senior Debt"
(or corresponding alternative terms) under the Subordinated
Debt Documents and "Designated Senior Debt" under and for all
purposes of each of the Senior Subordinated Indenture and 1999
Senior Subordinated Indenture, and (b) the incurrence of
Indebtedness in respect of the requested Loans or Letters of
Credit shall be permitted by all Subordinated Debt Documents.
The foregoing demonstration shall include (i) certificates of
the chief financial officer of the Borrower, in form and
substance satisfactory to the Agent, setting forth in
reasonable detail the basis therefor, and the calculations (if
any) required to evidence compliance with the applicable
covenants set forth in the Subordinated Debt Documents and
(ii) a legal opinion addressed to the Lenders and the Agent,
in form and substance satisfactory to the Agent, from Morgan
Lewis & Bockius, counsel to the Borrower."

(u) EXPENSES. Section 17.2 of the Credit Agreement is amended
as follows:

(i) by deleting, immediately preceding clause (i) of
such Section, the word "and"; and

(ii) by adding, immediately following clause (i) of
such Section, the following:

and (j) all fees, costs and expenses incurred by the Agent
or by Agent's Special Counsel in connection with the engagement by
the Agent or by Agent's Special Counsel of an advisor or consultant
to review and report to the Agent and/or Agent's Special Counsel as
to the status of any and all matters concerning the business,
operations, financial condition, cash flows, strategies, business
plans, projections, forecasts, budgets, contracts, management and/or
information systems of the Borrower and its Subsidiaries.

(v) SCHEDULE 1 TO CREDIT AGREEMENT (COMMITMENTS; BANK'S
OFFICES). SCHEDULE 1 to the Credit Agreement is hereby amended and
restated in its entirety to read as set forth on SCHEDULE 1 hereto.

<PAGE>

-12-

(w) SCHEDULE 1.2 TO CREDIT AGREEMENT (APPLICABLE MARGINS).
SCHEDULE 1.2 to the Credit Agreement is hereby amended and restated in
its entirety to read as set forth on Schedule 1.2 hereto.

SECTION 3. CONDITIONS TO EFFECTIVENESS. This Agreement shall
become effective if, and only if, on or before March 31, 2000, each of the
following conditions precedent shall have been satisfied:

(a) EXECUTION AND DELIVERY OF DOCUMENTS. The Agent shall have
received:

(i) duly executed counterparts of this Agreement
which, when taken together, bear the authorized signatures of
each of the Transaction Parties and the Required Lenders; and

(ii) from each UK Subsidiary a duly executed consent
and affirmation in the form of EXHIBIT 3(A)(II) hereto as to
the full force and effect of the UK Security Documents as of
and after giving effect to this Agreement and the other
transactions contemplated hereby.

(b) AMENDMENT FEE. The Borrower shall have paid to the Agent,
for the account of each Lender who executes and delivers this Agreement
to the Agent on or prior to the 5:00 p.m., Boston, Massachusetts time,
March 30, 2000, a non-refundable amendment fee equal to 0.50% of the
sum of such Lender's outstanding (i) Revolving Credit Commitment, (ii)
Acquisition Loans, (iii) U.K. Acquisition Loans and (iv) Term Loans A
and (v) Terms Loans B.

(c) FEES AND EXPENSES. The Borrower shall have paid or
reimbursed the Agent for all of the fees and disbursements of Bingham
Dana LLP, the Agent's special counsel, which shall have been incurred
by the Agent in connection with the preparation, negotiation, execution
and delivery of this Agreement and the implementation of the
transactions contemplated thereby, or which otherwise are required to
be paid under the Credit Agreement (including specifically invoices
dated July 31, 1999 and February 29, 2000).

(d) LEGAL OPINION. The Agent shall have received from Morgan,
Lewis & Bockius, counsel to the Transaction Parties, a favorable legal
opinion addressed to the Agent and the Lenders, dated as of the
Effective Date and in form, scope and substance satisfactory to the
Agent. The Transaction Parties shall have instructed such counsel to
deliver such opinion to the Agent.

(e) OFFICER'S CERTIFICATE. The Agent shall have received a
certificate, dated the Effective Date, signed by the chief financial
officer of the Borrower, and in form and substance satisfactory to the
Agent, stating that all outstanding Obligations (i) constitute "Senior
Debt" (or

<PAGE>

-13-

corresponding alternative terms) under the Subordinated Debt
Documents and "Designated Senior Debt" under and for all purposes of
each of the Senior Subordinated Indenture and 1999 Senior Subordinated
Indenture, and (ii) all outstanding Obligations are permitted by all
Subordinated Debt Documents. Such certificate shall include or shall
have attached thereto calculations in form, substance and detail
satisfactory to the Agent demonstrating the correctness of the
statements made in such certificate.

(f) CERTIFIED COPIES OF CHARTER DOCUMENTS. The Agent shall
have received from each of the Transaction Parties a certificate of a
duly authorized officer of such Person, dated as of the Effective Date,
certifying that no amendments to its Governing Documents have occurred
since the Restatement Effective Date. Such certificate shall be in form
and substance reasonably satisfactory to the Agent.

(g) PROOF OF CORPORATE ACTION. The Agent shall have received
from each of the Transaction Parties copies, certified by a duly
authorized officer of such Person to be true and complete on and as of
the Effective Date, of the records of all corporate action taken by
such Person to authorize (i) such Person's execution and delivery of
this Agreement, and (ii) such Person's performance of all of its
agreements and obligations under this Agreement and the Credit
Agreement, as amended hereby (collectively, the "AMENDMENT DOCUMENTS").
Such certified copies shall be in form and substance reasonably
satisfactory to the Agent.

(h) INCUMBENCY CERTIFICATE. The Agent shall have received
incumbency certificates, dated the Effective Date, signed respectively
by a duly authorized officer of each of the Transaction Parties, and
giving the name and bearing a specimen signature of each individual who
shall be authorized (x) to sign, in the name and on behalf of such
Person this Agreement, and (y) to give notices and to take other action
on behalf of such Person under this Agreement. Such certified copies or
certificate shall be in form and substance reasonably satisfactory to
the Agent.

(i) CLOSING CERTIFICATE. The Agent shall have received a
certificate, dated the Effective Date, signed by the Chief Financial
Officer of the Borrower, to the effect that (i) each of the
representations and warranties of the Transaction Parties contained in
Section 5 hereof are true and correct as of the Effective Date and (ii)
no Default or Event of Default exists on the Effective Date (after
giving effect to this Agreement).

(j) DRAFT AUDITED FINANCIAL STATEMENTS. The Borrower shall
have delivered to the Agent all the financial statements required to be
delivered by Section 9.3(a) of the Credit Agreement with respect to the
fiscal year of the Borrower ending December 31, 1999, together with a
draft of the certification without qualification by the Independent
Public Accountants required by such Section 9.3(a), and a draft of the
written statement from such Accountants required by such Section
9.3(a). Such financial

<PAGE>

-14-

statements, such draft certification and such draft written statement
shall be in form and substance satisfactory to the Agent.

(k) REPRESENTATIONS AND WARRANTIES. The Agent shall be
satisfied that the representations and warranties set forth in Section
5 hereof are true and correct on and as of the Effective Date.

The first date as of which all of the foregoing conditions precedents shall be
satisfied is referred to herein as the "EFFECTIVE DATE".

SECTION 4. POST-CLOSING CONVENANTS.

(a) AUDITED FINANCIAL STATEMENTS. The Borrower shall deliver
to each of the Lenders, not later than the Business Day next
following the Amendment No. 3 Effective Date, all the financial
statements required to be delivered by Section 9.3(a) of the Credit
Agreement with respect to the fiscal year of the Borrower ending
December 31, 1999, certified without qualification by the
Independent Public Accountants as required by such Section 9.3(a),
together with the written statement from such Accountants required
by such Section 9.3(a). Such financial statements, such
certification by the Independent Accountants and such written
statement from such Accounts shall be in the form of drafts
previously delivered to the Agent pursuant to Section 3(j) hereof.
The Borrower's failure to timely perform any of its obligations
under this Section 4 shall constitute an immediate and automatic
Event of Default.

(b) MORTGAGES. The US Transaction parties shall not later
than April 30, 2000, deliver to the Agent a fully executed Mortgage
over any owned Real Estate of any of the US Transaction Parties, in
form and substance satisfactory to the Agent, together with title
insurance policies, surveys, evidences of insurance with the Agent
named as loss payee and additional insured, legal opinions and other
documents and certificates with respect to such Real Estate as may
be reasonably required by the Agent.

SECTION 5. REPRESENTATIONS AND WARRANTIES. Each of the
Transaction Parties hereby represents and warrants to the Agent and the Lenders
that:

(a) This Agreement has been duly executed and delivered by
such Transaction Party. The execution and delivery by such Transaction
Party of this Agreement has been duly authorized by proper proceedings
by such Transaction Party, and each Amendment Document constitutes the
legal, valid and binding obligation of such Transaction Party,
enforceable against such Transactions Party in accordance with its
terms.

(b) The execution and delivery by such Transaction Party of
this Agreement and the performance by such Transaction Party of each
Amendment Document (i) are within the corporate or other legal
authority of such Person, (ii) have been duly authorized by all
necessary corporate or other proceedings and (iii) do not and will not
conflict with or result in any breach or contravention of any
Applicable Law or any Contractual Obligation or Governing Document of
any of the Transaction Parties.

(c) Each of the representations and warranties of each of the
Transaction Parties contained in the Loan Documents or in any
Instrument delivered pursuant to or in connection with the Credit
Agreement was true in all respects as of the date as of which it was
made and is true in all respects on the date hereof (except to the
extent that such representations and warranties relate expressly to an
earlier date).

<PAGE>

-15-

(d) All outstanding Obligations (i) constitute "Senior Debt"
(or corresponding alternative terms) under the Subordinated Debt
Documents and "Designated Senior Debt" under and for all purposes of
each of the Senior Subordinated Indenture and 1999 Senior Subordinated
Indenture, and (ii) are permitted by all Subordinated Debt Documents.

(e) After giving effect to this Agreement, no Default or Event
of Default has occurred and is continuing.

(f) SCHEDULE 8.18 of the Credit Agreement accurately describes
all bank accounts of the Borrower and its Subsidiaries. The Borrower
and its Subsidiaries are in compliance with all their obligations under
Section 10.14 (Bank Accounts) and Section 9.12 (Cash Management System)
of the Credit Agreement.

SECTION 6. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

SECTION 7. EXPENSES. The Borrower shall pay all reasonable
out-of-pocket expenses incurred by the Agent and the Lenders in connection with
the preparation, negotiation, execution, delivery and enforcement of this
Agreement, including, but not limited to, the reasonable fees and disbursements
of Bingham Dana LLP.

SECTION 8. MISCELLANEOUS. From and after the date hereof, this
Agreement shall be deemed a Loan Document for all purposes of the Credit
Agreement and the other Loan Documents and each reference to Loan Documents in
the Credit Agreement and the other Loan Documents shall be deemed to include
this Agreement. Except as expressly provided herein, this Agreement shall not,
by implication or otherwise, limit, impair, constitute a waiver of or otherwise
affect any rights or remedies of the Agent or the Lenders under the Credit
Agreement or the other Loan Documents, nor alter, modify, amend or in any way
affect any of the obligations or covenants contained in the Credit Agreement or
any of the other Loan Documents, all of which are ratified and confirmed in all
respects and shall continue in full force and effect. This Agreement may be
executed in any number of counterparts, but all of such counterparts shall
together constitute but one and the same agreement. Delivery of an executed
counterpart of a signature page by facsimile transmission shall be effective as
delivery of a manually executed counterpart of this Agreement. In making proof
of this Agreement, it shall not be necessary to produce or account for more than
one such counterpart.

[Remainder of this page intentionally left blank]

<PAGE>

-16-

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

Very truly yours,

BORROWER: COMPASS AEROSPACE
CORPORATION

By:
Name:
Title:

UK BORROWER: COMPASS AEROSPACE LIMITED

By:
Name:
Title:

GUARANTORS: AEROMIL ENGINEERING
COMPANY
WESTERN METHODS MACHINERY
CORPORATION
BARNES MACHINE INCORPORATED
BRITTAIN MACHINE, INC.
WICHITA MANUFACTURING, INC.,
SEA-LECT PRODUCTS, INC.,
PACIFIC HILLS MANUFACTURING
CO.

By:
Name:
Title:

Agreed to and Accepted By:

FLEET NATIONAL BANK (f/k/a BankBoston, N.A.), as Lender, as
Agent and as Issuing Bank

<PAGE>

-17-

By:
----------------------------------
Name:
Title:

BANKBOSTON, N.A. (London Branch),
as Lender and UK Fronting Lender

By:
----------------------------------
Name:
Title:

GENERAL ELECTRIC CAPITAL
CORPORATION, as Lender

By:
----------------------------------
Name:
Title:

ROYAL BANK OF CANADA, as Lender

By:
----------------------------------
Name:
Title:

BANK OF AMERICA, N.A. (f/k/a NationsBank, N.A.), as Lender

By:
----------------------------------

<PAGE>

-18-

Name:
Title:

PARIBAS, as Lender

By:
----------------------------------
Name:
Title:

WESTERN FINANCIAL BANK, as Lender

By:
----------------------------------
Name:
Title:

HELLER FINANCIAL, INC. , as Lender

By:
----------------------------------
Name:
Title:

CYPRESSTREE INVESTMENT FUND,
LLC, as Lender
By: CypressTree Investment Management
Company Inc., its Managing Member

<PAGE>

-19-

By:
----------------------------------
Name:
Title:

CYPRESSTREE INSTITUTIONAL
FUND, LLC, as Lender

By: CypressTree Investment Management
Company Inc., its Managing Member

By:
----------------------------------
Name:
Title:

KZH CYPRESSTREE-1 LLC, as Lender

By:
----------------------------------
Name:
Title:

FIRST SOURCE FINANCIAL LLP, as Lender
By: First Source Financial, Inc.,
its Agent/Manager

By:
----------------------------------
Name:
Title:

SRV-HIGHLAND, INC. , as Lender

<PAGE>

-20-

By:
----------------------------------
Name:
Title:

<PAGE>

SCHEDULE 1

PART 1 - REVOLVING CREDIT LENDERS - REVOLVING CREDIT COMMITMENTS AND REVOLVING
CREDIT COMMITMENT PERCENTAGES

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

REVOLVING CREDIT LENDERS
(DOMESTIC AND EUROCURRENCY REVOLVING CREDIT COMMITMENT
LENDING OFFICES) REVOLVING CREDIT COMMITMENT PERCENTAGE
- ---------------------------------------------------- ---------------------------- ------------------------------
<S> <C> <C>
FLEET NATIONAL BANK (f/k/a BankBoston, N.A.) $4,000,000 16%
100 Federal Street

Boston, MA 02116
Fax Number: (617) 434-4929
Attention: Ken Weber

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

GENERAL ELECTRIC CAPITAL CORPORATION $4,500,000 18%
201 Mission St. 27th Floor
San Francisco, CA 94105
Fax Number: (415) 284-7433
Attention: Frederick Maurice

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

ROYAL BANK OF CANADA $5,000,000 20%
1 Liberty Plaza, 5th Floor
New York, NY 10006-1404
Fax Number: (212) 428-2319
Attention: John Crawford
- ---------------------------------------------------- ---------------------------- ------------------------------
</TABLE>

<PAGE>

-22-

<TABLE>

- ---------------------------------------------------- ---------------------------- ------------------------------
<S> <C> <C>
BANK OF AMERICA, N.A. $4,000,000 16%
(f/k/a NationsBank, N.A.)
100 N. Broadway
KS1-100-04-64
Wichita, KS 67202
Fax Number: (316) 261-2326
Attention: Lloyd Jones

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

PARIBAS $2,500,000 10%
101 California Street
Suite 3150
San Francisco, CA 94109
Fax Number: (415) 398-4240
Attention: Bob Pinkerton

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

WESTERN FINANCIAL BANK $2,000,000 8%
16485 Laguna Canyon Road
Irvine, CA 92618-3820
Fax Number: (949) 790-4057
Attention: Richard Wagner

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

HELLER FINANCIAL, INC. $3,000,000 12%
500 West Monroe, 12th Floor
Chicago, IL 60661
Fax Number: (312) 441-7367
Attention: Craig Gallehugh

- ---------------------------------------------------- ---------------------------- ------------------------------
TOTAL $25,000,000 100%
- ---------------------------------------------------- ---------------------------- ------------------------------
</TABLE>

<PAGE>

-23-

PART 2 - ACQUISITION LOAN LENDERS - ACQUISITION LOAN COMMITMENTS AND ACQUISITION
LOAN COMMITMENT PERCENTAGES, UK ACQUISITION LOAN COMMITMENT AND TOTAL
ACQUISITION LOAN COMMITMENT PERCENTAGES

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

ACQUISITION LOAN LENDERS ACQUISITION LOAN
(DOMESTIC AND EUROCURRENCY ACQUISITION LOAN COMMITMENT
LENDING OFFICES) COMMITMENT PERCENTAGE

- -------------------------------------------- ------------------------- ------------------------
<S> <C> <C> <C>
FLEET NATIONAL BANK (f/k/a BankBoston, -0- 16%
N.A.)
100 Federal Street

Boston, MA 02116
Fax Number: (617) 434-4929
Attention: Ken Weber

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

BANKBOSTON, N.A. (London Branch) -0- -0-
39 Victoria Street
London SW1H OED
England
Fax Number: (011)44-171-932-9364
Attention: _____________

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

GENERAL ELECTRIC CAPITAL CORPORATION -0- 18%
201 Mission Street, 27th Floor
San Francisco, CA 94105
Fax Number: (415) 284-7433
Attention: Frederick Maurice

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

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

ACQUISITION LOAN LENDERS TOTAL ACQUISITION LOAN
(DOMESTIC AND EUROCURRENCY UK ACQUISITION UK ACQUISITION LOAN COMMITMENT
LENDING OFFICES) LOAN COMMITMENT COMMITMENT PERCENTAGE PERCENTAGES

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

FLEET NATIONAL BANK (f/k/a BankBoston, -0- -0- 8%
N.A.)
100 Federal Street

Boston, MA 02116
Fax Number: (617) 434-4929
Attention: Ken Weber

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

BANKBOSTON, N.A. (London Branch) -0- 16% 8%
39 Victoria Street
London SW1H OED
England
Fax Number: (011)44-171-932-9364
Attention: _____________

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

GENERAL ELECTRIC CAPITAL CORPORATION -0- 18% 18%
201 Mission Street, 27th Floor
San Francisco, CA 94105
Fax Number: (415) 284-7433
Attention: Frederick Maurice

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

<PAGE>

-24-

<TABLE>

- -------------------------------------------- ------------------------- ------------------------
<S> <C> <C> <C>
ROYAL BANK OF CANADA -0- 20%
1 Liberty Plaza, 5th Floor
New York, NY 10006-1404
Fax Number: (212) 428-2319
Attention: John Crawford

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

BANK OF AMERICA, N.A. -0- 16%
(f/k/a NationsBank, N.A.)
100 N. Broadway
KS1-100-04-64
Wichita, KS 67202
Fax Number: (316) 261-2326
Attention: Lloyd Jones

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

PARIBAS -0- 10%
101 California Street
Suite 3150
San Francisco, CA 94109
Fax Number: (415) 398-4240
Attention: Bob Pinkerton

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

WESTERN FINANCIAL BANK -0- 8%
16485 Laguna Canyon Road
Irvine, CA 92618-3820
Fax Number: (949) 750-4057
Attention: Richard Wagner

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

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

ROYAL BANK OF CANADA -0- 20% 20%
1 Liberty Plaza, 5th Floor
New York, NY 10006-1404
Fax Number: (212) 428-2319
Attention: John Crawford

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

BANK OF AMERICA, N.A. -0- 16% 16%
(f/k/a NationsBank, N.A.)
100 N. Broadway
KS1-100-04-64
Wichita, KS 67202
Fax Number: (316) 261-2326
Attention: Lloyd Jones

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

PARIBAS -0- 10% 10%
101 California Street
Suite 3150
San Francisco, CA 94109
Fax Number: (415) 398-4240
Attention: Bob Pinkerton

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

WESTERN FINANCIAL BANK -0- 8% 8%
16485 Laguna Canyon Road
Irvine, CA 92618-3820
Fax Number: (949) 750-4057
Attention: Richard Wagner

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

<PAGE>

-25-

<TABLE>

- -------------------------------------------- ------------------------- ------------------------
<S> <C> <C> <C>
HELLER FINANCIAL, INC. -0- 12%
500 West Monroe, 12 Floor
Chicago, IL 60661
Fax Number: (312) 441-7367
Attention: Craig Gallehugh

- -------------------------------------------- ------------------------- ------------------------
TOTAL -0- 100%
- -------------------------------------------- ------------------------- ------------------------

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

HELLER FINANCIAL, INC. -0- 12% 12%
500 West Monroe, 12 Floor
Chicago, IL 60661
Fax Number: (312) 441-7367
Attention: Craig Gallehugh

- -------------------------------------------- ------------------------- ------------------------- ------------------------------
TOTAL -0- 100% 100%
- -------------------------------------------- ------------------------- ------------------------- ------------------------------
</TABLE>

<PAGE>

PART 3 - TERM LOAN A LENDERS - TERM LOAN A COMMITMENTS AND TERM LOAN A
COMMITMENT PERCENTAGES

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

TERM LOAN A LENDERS
(DOMESTIC AND EUROCURRENCY TERM LOAN A COMMITMENT
LENDING OFFICES) TERM LOAN A COMMITMENT PERCENTAGE

- --------------------------------------------- ------------------------------ -----------------------------
<S> <C> <C>
FLEET NATIONAL BANK (f/k/a BankBoston, N.A.)
100 Federal Street -0- 16%

Boston, MA 02116
Fax Number: (617) 434-4929
Attention: Ken Weber

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

GENERAL ELECTRIC CAPITAL CORPORATION
201 Mission St. 27th Floor -0- 18%
San Francisco, CA 94105
Fax Number: (415) 284-7433
Attention: Frederick Maurice

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

ROYAL BANK OF CANADA
1 Liberty Plaza, 5th Floor -0- 20%
New York, NY 10006-1404
Fax Number: (212) 428-2319
Attention: John Crawford

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

<PAGE>

-26-

<TABLE>

- --------------------------------------------- ------------------------------ -----------------------------
<S> <C> <C>
BANK OF AMERICA, N.A. -0- 16%
(f/k/a NationsBank, N.A.)
100 N. Broadway
KS1-100-04-64
Wichita, KS 67202
Fax Number: (316) 261-2326
Attention: Lloyd Jones

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

PARIBAS -0- 10%
101 California Street
Suite 3150
San Francisco, CA 94109
Fax Number: (415) 398-4240
Attention: Bob Pinkerton

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

WESTERN FINANCIAL BANK -0- 8%
16485 Laguna Canyon Road
Irvine, CA 92618-3820
Fax Number: (949) 790-4057
Attention: Richard Wagner

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

HELLER FINANCIAL, INC. -0- 12%
500 West Monroe, 12th Floor
Chicago, IL 60661
Fax Number: (312) 441-7367
Attention: Craig Gallehugh

- --------------------------------------------- ------------------------------ -----------------------------
TOTAL -0- 100%
- --------------------------------------------- ------------------------------ -----------------------------
</TABLE>

<PAGE>

-28-

PART 4 - TERM LOAN B LENDERS - TERM LOAN B COMMITMENTS AND TERM LOAN B
COMMITMENT PERCENTAGES

<PAGE>

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

TERM LOAN B LENDERS
(DOMESTIC AND EUROCURRENCY TERM LOAN B COMMITMENT
LENDING OFFICES) TERM LOAN B COMMITMENT* PERCENTAGE

- --------------------------------------------------- ----------------------------- -----------------------------
<S> <C> <C>
FLEET NATIONAL BANK -0- 16.666%
(f/k/a BankBoston, N.A.)
100 Federal Street

Boston, MA 02116
Fax Number: (617) 434-4929
Attention: Ken Weber
- --------------------------------------------------- ----------------------------- -----------------------------

GENERAL ELECTRIC CAPITAL CORPORATION -0- 11.111%
201 Mission St. 27th Floor
San Francisco, CA 94105
Fax Number: (415) 284-7433
Attention: Frederick Maurice

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

PARIBAS -0- 5.556%
101 California Street
Suite 3150
San Francisco, CA 94109
Fax Number: (415) 398-4240
Attention: Bob Pinkerton

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

<PAGE>

-29-

<TABLE>

- --------------------------------------------------- ----------------------------- -----------------------------
<C> <C> <C>
CYPRESSTREE INSTITUTIONAL FUND, LLC -0- 2.222%
125 High Street
Boston, MA 02110
Fax Number: (617) 946-5681
Attention: Jeffrey Heuer

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

CYPRESSTREE INVESTMENT FUND, LLC -0- 2.222%
125 High Street
Boston, MA 02110
Fax Number: (617) 946-5681
Attention: Jeffrey Heuer

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

KZH CYPRESSTREE-1 LLC -0- 17.778%
c/o The Chase Manhattan Bank
450 W 23rd Street, 15th Floor
New York, NY 10001
Fax Number: (847) 734-7910
Attention: David Moore

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

FIRST SOURCE FINANCIAL LLP -0- 27.085%
2850 W. Golf Road
Rolling Meadows, IL 60008
Fax Number: (847) 734-7910
Attention: David Moore

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

<PAGE>

-30-

<TABLE>

- --------------------------------------------------- ----------------------------- -----------------------------
<S> <C> <C>
SRV-HIGHLAND, INC. -0- 11.111%
Highland Capital Management, L.P.
1150 Two Galleria Tower
13455 Noel Road
Dallas, TX 75240
Fax Number: (972) 233-4343
Attention: Mark Okada

HELLER FINANCIAL, INC.
500 West Monroe, 12th Floor
Chicago, IL 60661 -0- 5.527
Fax Number: (312) 441-7367
Attention: Craig Gallenhugh

- --------------------------------------------------- ----------------------------- -----------------------------
TOTAL -0- 100%
- --------------------------------------------------- ----------------------------- -----------------------------
</TABLE>

<PAGE>

-31-

SCHEDULE 1.2

APPLICABLE MARGINS

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

Base Eurocurrency Rate Base
Level Leverage Ratio Rate A Loans A Loans Rate B Loans
- ------------ --------------------------------------- -------------- -------------------- -------------
<S> <C> <C> <C> <C>
- ------------ --------------------------------------- -------------- -------------------- -------------
I Greater than 4.5:1.0 2.00% 3.50% 2.50%
- ------------ --------------------------------------- -------------- -------------------- -------------

- ------------ --------------------------------------- -------------- -------------------- -------------
Less than or equal to 4.5:1.0 but
II greater than 4.0:1.0 1.75% 3.25% 2.25%
- ------------ --------------------------------------- -------------- -------------------- -------------

- ------------ --------------------------------------- -------------- -------------------- -------------
Less than or equal to 4.0:1.0 but
III greater than 3.5:1.0 1.50% 3.00% 2.00%
- ------------ --------------------------------------- -------------- -------------------- -------------

- ------------ --------------------------------------- -------------- -------------------- -------------
Less than or equal to 3.5:1.0 but

VI greater than 3.0:1.0 1.25% 2.75% 2.00%
- ------------ --------------------------------------- -------------- -------------------- -------------

- ------------ --------------------------------------- -------------- -------------------- -------------
V Less than or equal to 3.0:1.0 1.00% 2.50% 2.00%
- ------------ --------------------------------------- -------------- -------------------- -------------

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

Eurocurrency Revolving Credit Acquisition Loan
Rate B Loans Commitment Fees Commitment Fees
- --------------------- ------------------------- -------------------------
<C> <C> <C>
- --------------------- ------------------------- -------------------------
4.00% 0.50% 0.75%
- --------------------- ------------------------- -------------------------

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

3.75% 0.50% 0.75%
- --------------------- ------------------------- -------------------------

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

3.50% 0.50% 0.75%
- --------------------- ------------------------- -------------------------

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

3.50% 0.50% 0.75%
- --------------------- ------------------------- -------------------------

- --------------------- ------------------------- -------------------------
3.50% 0.375% 0.50%
- --------------------- ------------------------- -------------------------
</TABLE>

<PAGE>
Exhibit 10.1

EMPLOYMENT AGREEMENT

This Employment Agreement (the "Agreement") is entered into as of April
1, 2000 by and between Compass Aerospace Corporation, a Delaware corporation
(the "Company") and John R. Reimers (the "Executive").

RECITALS

WHEREAS, Company wishes to employ the Executive and Executive wishes to
accept employment subject to the terms and conditions of this Agreement.

NOW, THEREFORE, in consideration of the mutual agreements contained
herein and other good and valuable consideration, the Parties hereto agree as
follows:

1. EMPLOYMENT.

Company hereby employs and engages the services of Executive in the
position of Executive Vice President, Chief Operating Officer for the Term of
Employment set forth in Section 2. Executive agrees to serve the Company for the
Term of Employment as provided herein.

2. TERM OF EMPLOYMENT.

The Initial Term of this Agreement shall be for a period of three (3)
years commencing on the effective date hereof and ending three (3) years
thereafter. Unless a party gives written notice to the other party no less than
120 days before the end of the then existing Initial Term or Extended Term, the
Term shall automatically extend for an additional period of twelve (12) months
("Extended Term").

3. POSITION AND DUTIES.

During the Term of Employment:

a. Executive shall perform services as Executive Vice President and
Chief Operating Officer of the Company subject to the direction and control
of the President of the Company (the "President"). Executive shall perform
such services and duties to the best of his abilities, and shall perform such
services and duties at such of the Company's facilities as may be requested
by the Company. Executive shall also provide such services and duties to any
of the Company's subsidiaries and affiliates as shall be directed from time
to time by the President.

-1-
<PAGE>

b. Executive agrees to devote his full business time to the business
and affairs of the Company, and to use his best efforts to promote the
interests of Company and to perform faithfully and efficiently the
responsibilities assigned to him in accordance with the terms of this
Agreement to the extent necessary to satisfactorily discharge such
responsibilities. Executive shall not, without the President's prior written
consent, render to others services of any kind for compensation, or engage in
any other business activity that would materially interfere with the
performance of his responsibilities under this Agreement. It is expressly
understood and agreed that it shall not be a violation of this Agreement for
Executive to serve on corporate, civic or charitable boards or committees, so
long as such activities do not materially interfere with the performance of
such responsibilities or reflect adversely on Company to any material extent.

4. RESULTS AND PROCEEDS.

As Executive's employer, Company shall, by virtue of such relationship,
own all rights in and to the results and proceeds directly or indirectly
connected with, or arising out of, Executive's services hereunder.

5. COMPENSATION AND BENEFITS.

5.1 BASE SALARY. During the Term, Company shall compensate Executive for
the services to be rendered hereunder at an annual rate of Two Hundred and
Twenty-five Thousand Dollars ($225,000) (the "Base Salary"). Executive
understands and agrees that Company has no obligation to increase his Base
Salary. Such Base Salary shall be payable to Executive in equal bi-weekly
installments or at such other intervals as salary is normally paid by Company
to its executive employees (except during any unpaid vacation), subject to
the usual or required employee payroll deductions and withholdings.

5.2 SUPPLEMENTAL COMPENSATION. During the Term, Company shall
compensate Executive, in addition to but not as part of Base Salary, the sum of
Four Thousand Four Hundred and Forty-four Dollars ($4,444) per month, such sum
to be paid to Executive in equal bi-weekly installments or at such other
intervals as salary is normally paid by Company to its executive employees,
subject to the usual or required employee payroll deductions and withholdings.

5.3 REIMBURSEMENT OF EXPENSES. During the Term of Employment, Executive
shall be entitled to receive prompt reimbursement for all reasonable and
necessary business expenses incurred by Executive in connection with his
performance of services under this Agreement in accordance with Company's then
prevailing policies and procedures (which requirements shall include appropriate
itemization and substantiation of all such expenses incurred).

-2-
<PAGE>

5.4 PERSONAL PAID TIME. Executive shall be entitled to Personal Paid
Time (including, without limitation four (4) weeks paid vacation and holidays
specified by the Company) in accordance with the policy applicable to Company
employees and shall not be entitled to paid vacation or sick time other than
Personal Paid Time. Executive shall only be allowed to carry over into the next
fiscal year ten (10) days of unused Personal Paid Time. All remaining unused
Personal Paid Time will be cashed out, such payment to consist only of Base
Salary for the unused Personal Paid Time and no other compensation or benefits.

5.5 STOCK OPTIONS.

(a) On April 1, 2000, Executive shall be granted a stock option
under the Compass Aerospace Corporation 1998 Stock Incentive Plan (the "Stock
Incentive Plan") to purchase 200,000 shares of common stock of the Company
(the "Common Stock") with an exercise price equal to $1.47 per share.
Twenty-five percent of such option will vest on April 1, 2000, and the
remainder of such option will vest 25% per year on each of the three (3)
anniversary dates of April 1, 2000 beginning on the first such anniversary
date provided that, except as provided in Section 5.5(c) below, Executive is
employed by the Company on each such date. To the maximum extent possible
under the Internal Revenue Code of 1986, the stock options granted pursuant
to this Section 5.5(a) and pursuant to Section 5.5(b) shall be intended to
qualify as "incentive stock options" within the meaning of Section 422 of the
Code.

(b) Executive shall be granted three additional stock options
under the Stock Incentive Plan, each such option to be granted no later than
the end of the first quarter of each of calendar years 2001, 2002, and 2003.
Each such option shall be an option for Executive to purchase not less than
30,000 shares of Common Stock and up to 120,000 shares of Common Stock with
an exercise price equal to the fair market value of the stock at the time of
the grant. The Board of Directors will determine in its discretion, based on
Executive's and Company's performance in the year immediately preceding the
grant, the number of shares of Common Stock to be made subject to the option
grant. Each such option will vest 25% per year on each of the four (4)
anniversary dates of the date of each grant provided that, except as provided
in Section 5.5(c) below, Executive is employed by the Company on each such
date. Fair market value will be as agreed by the Parties, or, if the Parties
cannot agree, it shall be the last price paid for Company's Common Stock in
an arm's-length transaction, including by way of conversion of any of
Company's other securities.

(c) Notwithstanding the vesting provisions of Sections 5.5(a)
and (b) above, all stock options that have been granted to Executive prior to
the date of the expiration of the Term of this Agreement and that have not
vested at such time shall become fully vested and exercisable at that time if
the Company chooses not to renew or extend Executive's employment (unless
such termination of employment is for Cause).

-3-

<PAGE>

Such vesting shall not occur upon the expiration of the Term of this
Agreement if Executive voluntarily terminates his employment with the Company
at such time.

(d) Customary antidilution protection shall apply as relates to
the number of shares subject to any stock option (e.g., in the event of stock
splits) but excluding antidilution protection as relates to the percentage of
Common Stock subject to such option (e.g., in the event of new stock
issuances). Furthermore, there shall be immediate vesting of all options in
the event that Executive dies or becomes disabled or there is a change in
control (which shall occur if any entity other than the shareholders as of
the effective date hereof or their successors acquire 51% or more of the
Common Stock or if Company sells all or substantially all of Company's
assets).

5.6 EXECUTIVE'S REPRESENTATIONS REGARDING STOCK. Executive
represents that he will retain and consult with his own professional advisors
to review and evaluate the economic, tax and other consequences of the stock
options. Executive further represents that any interest he may acquire will
be acquired for investment purposes only and that he understands that there
is no public market for any of the securities comprising the stock options
and that the securities he will receive are subject to restrictions on both
transferability and resale, and may not be transferred or resold except as
permitted under the Securities Act of 1933, as amended, and the applicable
state securities laws, pursuant to registration or exemption therefrom. The
shares of stock issuable to Executive shall bear an appropriate legend
setting out restrictions on transfer and the fact that the securities have
not been registered.

5.7 WITHHOLDING ON STOCK OPTIONS. The Company shall deduct from all
stock issued under the Stock Options any federal, state, or local taxes
required by law to be withheld with respect to such payments. In the
alternative, Executive may pay to the Company the amount of any such taxes
which the Company is required to withhold with respect to the grant or
delivery of stock.

5.8 RESTRICTIONS ON TRANSFER OF SHARES. Shares of Common Stock
issued to Executive pursuant to the stock options will be transferable only
in accordance with the Stockholders Agreement (in the form and substance set
forth in Exhibit A attached hereto) and Section 21 of the Stock Incentive
Plan. As permitted under Section 21 of the Stock Incentive Plan, it is hereby
provided that the restrictions on transfer of the shares issued to Executive
shall lapse and cease to have effect upon any of the following: (1) the first
date on which the Common Stock is held of record by more than 500 persons,
(2) determination by the Board that a public market exist for the outstanding
shares of Common Stock or (3) the consummation of an initial public offering.

5.9 BENEFITS. In addition to the other benefits provided herein,
Executive shall be entitled to participate in such medical, dental,
prescription drug, vision, health care spending account, 401(k) saving and
retirement, short-term disability insurance, long-term disability insurance,
or other employee welfare benefit plans as the Company may offer to and
maintain for the benefit of its Corporate officers and as changed from time-

-4-
<PAGE>

to-time, subject to Executive's fulfilling all applicable eligibility
requirements of each such plan. No statement concerning benefits or
compensation to which Executive is entitled alters in any way the Term of
Employment or the termination of this Agreement.

-5-
<PAGE>

5.10 TRANSITION AND MOVING EXPENSES.

(a) Company shall pay relocation expenses in accordance with
the Compass Executive Relocation Program (Exhibit B attached hereto), except
that one month's Base Salary for unidentified incidental expenses will be
paid instead of one-half month's Base Salary.

(b) Company will pay for an outside third party relocation
service to provide home sale services in connection with Executive's current
residence as follows. Executive will have 90 days after the relocation
service makes a "Fallback Offer" (based on two independent ERC appraisals,
except that if they are not within 5% of each other a third appraisal will be
used) to sell his residence. During this 90-day marketing period, Executive
may utilize the equity advance program in Section 6 of the Compass Executive
Relocation Program to purchase a home in the new location. If at the end of
the 90-day marketing period the residence has not been sold, Executive may
accept the "Fallback Offer." If the residence is sold during the 90-day
marketing period, Executive must contact the relocation service PRIOR to
signing the final sales contract. The relocation service will handle all the
closing arrangements. Executive will receive his equity immediately and
Company will pay the broker's fee and many of Executive's normal escrow
closing charges.

5.11 BONUS.

(a) Executive will be eligible for a cash bonus for calendar
year 2000 to be paid if he achieves performance milestones established by the
Board of Directors, except that Company will pay Executive a bonus of not
less than One Hundred and Twenty-five Thousand Dollars ($125,000) for
calendar year 2000 regardless of whether he achieves the performance
milestones (the "Guaranteed Bonus"). The Company will pay Executive as an
advance of a portion of the Guaranteed Bonus the sum of Fifty Thousand
Dollars ($50,000) (the "Guaranteed Bonus Advance"), such payment to be made
no later than ten (10) days after the effective date hereof. If Executive's
employment by Company terminates pursuant to Section 7.3 or 7.5 hereof on or
before December 31, 2000, Executive will pay back to Company the Guaranteed
Bonus Advance, such payment to be made no later than ten (10) days after
Executive's employment terminates.

(b) Executive will be eligible for a bonus for calendar year
2001 to be paid if the Company achieves performance milestones established by
the Board of Directors. The amount of the bonus will not be less than
Executive's Base Salary for full achievement of the performance milestones
and in no event will exceed twice Executive's Base Salary in the event of
achievement beyond the performance milestones. If Executive is entitled to a
bonus pursuant to this Section 5.11(b), such bonus will be paid 50% in cash
and 50% in stock options. For this purpose, the dollar value of such stock
options will be deemed to be the amount that results from multiplying

-6-
<PAGE>

the number of shares to be granted under the stock options times their fair
market value at the time of grant.

(c) Bonus shall be paid as soon as practicable after Company's
Board of Directors evaluates Executive's and Company's achievement, which
evaluation shall occur no later than the end of the first quarter following
fiscal year end.

(d) During the Extended Term, if any, after the Initial Term,
Executive shall be eligible to participate in any bonus plan Company
maintains for its senior executives.

(e) No bonus shall be paid to Executive with respect to a
fiscal year during which this Agreement terminates pursuant to Section 7
hereof; provided, however, if Executive remains employed pursuant to this
Agreement for at least six (6) months of such fiscal year and this Agreement
terminates pursuant to Section 7.2 or Section 7.4 he will be entitled to a
pro-rata share of the bonus provided pursuant to Section 5.11(b).

6. COVENANTS. Executive covenants in favor of Company as follows:

6.1 TRADE SECRETS OF OTHERS. Executive represents that Executive's
performance of all the terms of this Agreement does not and will not breach
any agreement to keep in confidence proprietary information, material or
trade secrets acquired by Executive in confidence or in trust prior to
Executive's rendering of services to Company. Executive agrees not to enter
into any agreement either written or oral in conflict herewith.

6.2 CONFIDENTIALITY; TRADE SECRETS. Executive acknowledges that his
position with Company is one of the highest trust and confidence both by
reason of his position and by reason of his access to and contact with the
trade secrets and confidential and proprietary business information of
Company. Executive agrees that during the Term of Employment and thereafter:

a. He shall protect and safeguard the trade secrets and confidential
and proprietary information of Company, including (by way of illustration and
not limitation) its arrangements with vendors, customers and joint venture
partners (referred to collectively as Company's "contractors"); its data,
records, patents, licenses, trademarks, copyrights, compilations of
information, processes, programs, know-how, improvements, discoveries,
marketing plans, strategies, forecasts, unpublished financial statements,
budgets, projections, licenses, prices, costs, files, documents, drawings,
memoranda, notes, or other documents, whether maintained electronically or in
hard copy (all such information is hereinafter called the "Proprietary
Information"); other than information known to him before the date hereof or
learned from third Parties without breach of any obligation of
confidentiality or otherwise to Company, or in the public domain;

b. He shall not disclose any of such Proprietary Information, except as
may be required in the ordinary course of performing his duties as an
employee of Company; and

-7-
<PAGE>

c. He shall not use, directly or indirectly, for his own benefit or for
the benefit of another, any of such Proprietary Information, other than for
the benefit of Company as may be required in the ordinary course of
performing his duties as an employee of Company.

The Proprietary Information shall be the exclusive property of Company.
Executive agrees that He shall deliver to Company all files, records,
documents, drawings, memoranda, and other materials, whether electronic or
hard copy, relating to the Proprietary Information or pertaining to his work
with Company in the event of either Company's request or the termination of
his employment for any reason, and that he will not take with him any of the
foregoing or any reproduction of any of the foregoing.

6.3 INDUCEMENT. Executive shall not during the Term of Employment
and for a period of two (2) years thereafter, directly or indirectly, employ,
cause others to employ, or attempt to induce others to employ, any employees
of the Company or attempt to induce said employees to gain or seek other
employment.

6.4 REMEDIES FOR BREACH OF COVENANTS OF EXECUTIVE. The covenants set
forth in Section 6 of this Agreement shall continue to be binding upon
Executive, notwithstanding the termination of his employment with Company for
any reason whatsoever. Such covenants shall be deemed and construed as
separate agreements independent of any other provisions of this Agreement and
any other agreement between Company and Executive. The existence of any claim
or cause of action by Executive against Company, whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
Company of any or all of such covenants. If Executive breaches or threatens
to breach any of the covenants in Section 6 of this Agreement, the Parties
acknowledge and agree that the damage or imminent damage to Company's
business and/or its goodwill would be irreparable and extremely difficult to
estimate, making any remedy at law or in damages inadequate. Accordingly,
Company shall be entitled to injunctive relief against Executive in the event
of any breach or threatened breach of the covenants set forth in Section 6,
in addition to any other relief (including damages) available to Company
under this Agreement or under law.

6.5 LITIGATION. Executive agrees that during the Term of Employment
and thereafter Executive shall do all things, including the giving of
evidence in suits and other proceedings, which Company shall deem necessary
to obtain, maintain, defend, or assert rights accruing to Company during the
Term of Employment and in connection with which Executive has knowledge,
information, or expertise. All reasonable expenses incurred by Executive
during the Term of Employment or thereafter in fulfilling the duties set
forth in this Section, shall be reimbursed by Company to the full extent
legally appropriate, including without limitation a reasonable payment for
Executive's time in the event this Agreement has terminated prior to the time
Executive renders such duties.

-8-
<PAGE>

6.6 FUTURE COOPERATION. The Parties hereto agree to cooperate with
each other from and after the date hereof, and to supply any information and
to execute documents reasonably required for the purposes of giving effect to
this Agreement or in connection with the consummation of any actions
contemplated hereby, all without additional compensation except as provided
in Section 6.5.

7. TERMINATION OF EMPLOYMENT. This Agreement and the employment of
Executive hereunder shall terminate upon the occurrence of the first to occur
of the following events or conditions, and the Parties shall remain subject
to the following conditions and covenants after termination:

7.1 EXPIRATION OF TERM. This Agreement shall terminate upon expiration
of the Term of Employment specified in Section 2 hereof.

7.2 DEATH OR INCAPACITY. This Agreement shall automatically terminate
upon the death or Incapacity of Executive. Subject to the Americans with
Disabilities Act and applicable state law, "Incapacity" shall mean
Executive's inability by reason of mental or physical condition to perform
substantially all of his duties and responsibilities hereunder for a
continuous period of three (3) months or more, or for any aggregate period of
four (4) months or more in any twelve-month period whether or not continuous.
In the event of a dispute as to the existence of any such disability,
Executive agrees to submit to medical or psychiatric examinations conducted
by physicians mutually agreed upon by Company and Executive and to be bound
by any determination made by such physicians.

7.3 CAUSE. Company may terminate Executive's employment for Cause.
"Cause" shall mean (i) an act of dishonesty, fraud, embezzlement, breach of
trust, misappropriation, acceptance of a bribe or kickback or other similar
activity on Executive's part; (ii) a willful and deliberate act by Executive
in bad faith and to the detriment of Company or; (iii) a determination by
Company in good faith that there has been neglect by Executive of such
Executive's duties, chronic absenteeism, unacceptable performance, or any
material breach or violation of Executive's obligations (including, without
limitation, any failure to implement material policies or procedures
established by Company for the transaction of business by Company) or
covenants pursuant to this Agreement, but only if any of such conduct is not
rectified to the satisfaction of Company by Executive within a period of not
less than 90 days after written notification to Executive of such conduct; or
(iv) the conviction, or a plea of nolo contendere, of Executive of a felony
or a crime involving fraud, dishonesty or moral turpitude. Executive's
termination for Cause shall be effective immediately upon notice to
Executive. If Executive's employment is terminated for Cause, or if Executive
voluntarily terminates his employment, Company shall pay Executive his
prorated Base Salary through the effective date of the termination of
employment (which shall be no earlier than the date of notice thereof to
Executive) at the rate in effect at the time of such termination, and Company
shall have no further obligations to Executive under this

-9-
<PAGE>

Agreement. Executive shall forfeit all benefits, rights, and Stock Options
which have not vested as of the effective date of termination.

7.4 OTHER THAN FOR CAUSE. Company may terminate Executive's employment
other than for Cause. If Company terminates Executive's employment other than
for Cause, Company shall pay Executive his Base Salary, prorated to a monthly
sum, for each of six months, such payments to be payable in installments at
such time as Executive would have been paid the Base Salary had the Term of
Employment continued. All amounts which are vested benefits or to

-10-
<PAGE>

which Executive is otherwise entitled under any employee benefits plan of
Company shall be payable in accordance with the terms of such plan. Executive's
termination other than for Cause shall be effective immediately upon notice to
Executive.

7.5 TERMINATION BY EMPLOYEE Executive may terminate his employment by
Company at any time, with or without cause, by providing Company thirty (30)
days' advance written notice. Company will have the option, in its complete
discretion, to make Executive's termination of employment effective at any time
after receipt of such notice and prior to the end of such notice period,
provided Company pays Executive all compensation due and owing through the last
day actually worked plus an amount equal to the Base Salary Executive would have
earned through the balance of the notice period, and thereafter all of Company's
obligations under this Agreement terminate.

7.6 CONTINUATION OF COVENANTS. Notwithstanding termination of his
employment pursuant to the provisions of this Section 7, the obligations of
Executive set forth in Sections 5.3, 5.8, 6, 10 and 11 herein shall survive the
termination of this Agreement.

8. ASSIGNMENT.

8.1 BY EXECUTIVE. This Agreement is personal to Executive and
without the prior written consent of Company (which consent may be withheld
in Company's sole discretion) shall not be assignable by Executive. Executive
shall not have the right to sell, transfer, or assign the right to receive
payments or benefits hereunder, and any such attempted assignment or transfer
shall terminate this Agreement for Cause at the option of Company.
Notwithstanding the foregoing, Executive may convey by will, intestacy, or
other method of estate planning all payments and benefits hereunder to which
he is entitled upon his death.

8.2 BY COMPANY. The provisions of this Agreement shall inure to the
benefit of and be binding upon Company, its successors and assigns, including
without limitation any corporation which may acquire all or substantially all
of Company's assets and business, or with or into which Company may be
consolidated, merged, or reorganized. Upon any such merger, consolidation or
reorganization, the term "Company" as used herein shall be deemed to refer to
such successor corporation.

9. SEVERABILITY. In case one or more provisions of this Agreement
shall for any reason be held by an arbitrator or court of competent
jurisdiction to be invalid, illegal, or unenforceable in any respect, such
invalidity, illegality, or unenforceability shall not affect the validity or
enforceability of any other provision of this Agreement, and this Agreement
shall be construed in all respects as if such invalid, illegal or
unenforceable provision or clause were omitted and had never been contained
herein. In the event any provision of this Agreement is determined by an
arbitrator or court to be unenforceable by reason of its being extended for
too great a period of time or over too great a range of activities, the
Parties hereto agree that the affected provision shall be

-11-
<PAGE>

interpreted to extend only over the maximum period of time or range of
activities as to which it may be enforceable.

10. ARBITRATION OF DISPUTES. Except as otherwise provided herein,
any dispute or controversy arising from or relating to this Agreement, or
from any other aspect of Executive's employment or the termination thereof,
including but not limited to alleged violations of federal, state, and/or
local statutes (for example, claims for discrimination including but not
limited to discrimination based on race, sex, sexual orientation, religion,
national origin, age, marital status, medical condition as defined under
California law, handicap, or disability, and claims relating to leaves of
absence mandated by state or federal law), breach of any contract or covenant
(express or implied), tort claims, violation of public policy, or any other
alleged violation of Executive's statutory, contractual, or common law rights
(and including claims against Company's officers, directors, employees, and
agents), which Executive and Company or other party are unable to resolve
through direct discussion, regardless of the kind or type of dispute
(excluding claims for workers' compensation or unemployment insurance,
administrative charges of employment discrimination or retaliation, and any
solely monetary dispute within the jurisdiction of small claims court) shall
be decided by final and binding arbitration in the County of Los Angeles,
State of California in accordance with the American Arbitration Association's
("AAA") National Rules for the Resolution of Employment Disputes (the
"Rules"). Executive and Company each have the right to be represented by
counsel with respect to arbitration of any dispute pursuant to this
paragraph. The arbitrator shall be selected by agreement between Executive
and Company, but if they do not agree on the selection of an arbitrator
within 30 days after the date of the request for arbitration, the arbitrator
shall be selected pursuant to the Rules. At the request of either Company or
Executive, arbitration proceedings shall be conducted in the utmost secrecy,
and, in such case, all documents, testimony and records shall be received,
heard, and maintained by the arbitrator in secrecy, available for inspection
only by Company and Executive and their respective attorneys and experts who
shall agree, in advance and in writing, to receive all such information
confidentially and to maintain the secrecy of such information until such
information shall become generally known. The arbitrator shall have authority
to award equitable relief, damages, costs, and fees to the greatest extent
permitted by law, including but not limited to any remedy or relief that a
court may order. The fees of the arbitrator shall be split equally between
the Parties. Except for a breach or threatened breach of Section 6 of this
Agreement, the arbitrator shall have exclusive authority to resolve all
claims between the Parties, including but not limited to whether any
particular claim is arbitrable and whether all or any part of this Agreement
is void or unenforceable.

11. LEGAL FEES. Without implying consent to or agreeing to any legal
proceeding other than arbitration as provided in Section 10 herein, in the
event of any arbitration proceeding, administrative proceeding, or litigation
between the Parties relating to or arising from this Agreement, the
prevailing Party in such proceeding or litigation shall be entitled to
recover all reasonable attorney's fees and costs.

12. GOVERNING LAW. This Agreement, and each and every related
document, are to be governed by and construed in accordance with the laws of
the State of California.

-12-
<PAGE>

13. NOTICES. All notices, requests, demands or other communications
hereunder given by the Executive to Company shall be sent by certified mail
to the following address:

Compass Aerospace Corporation
1501 Hughes Way, Suite 400
Long Beach, California 90810
Attention: Alexander Hogg
Fax: 310-522-0601

All notices, requests, demands or other communications
hereunder given by Company to Executive shall be personally delivered to him
or sent by certified mail to the following address:

John R. Reimers
[address to be furnished]

or such other addresses as a party may from time to time specify in writing
to the other in accordance with this notice provision. All notices hereunder
sent by certified mail shall be effective when mailed.

14. ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding among the Parties, and supersedes any and all prior agreements,
arrangements and understandings, both written and oral. No change,
supplement, amendment, modification, waiver or termination of this Agreement
or any provisions contained herein shall be binding unless executed in
writing by the President of Company.

IN WITNESS WHEREOF, the undersigned have executed this
Employment Agreement as of the date first above written.

COMPASS AEROSPACE CORPORATION,
a Delaware corporation
- ---------------------------------------------------------------

- ---------------------------------------
By: /s/ Douglas Solomon
- -----------------------------------------------------------------------------
Its: President and Chief Executive Officer

JOHN R. REIMERS
"Executive"

/s/ John R. Reimers

-13-

<PAGE>

EXHIBIT 12.1

COMPASS AEROSPACE
EARNINGS TO FIXED CHARGES

The ratio of earnings to fixed charges has been calculated by dividing income
before income taxes and fixed charges by fixed charges. Fixed charges consist
of interest expense and one third of operating rental expense, which
management believes is representative of the interest component of rent
expenses.

Compass Aerospace
------------------------------------------- -------------------------------------------
Nine
Months and 36 days Year Ended Year Ended
--------------------------- 21 days ended December 31, December 31, December 31,
1995 1996 1997 April 21, 1998 1997 1998 1999
------------------------------------------- -------------------------------------------
FIXED CHARGES
<S> <C> <C> <C> <C> <C> <C> <C>
Interest (income) expense, net 359 403 398 385 166 8,493 21,526

Interest portion of Net Rental Expense 42 40 52 17 53 416 557
------------------------------------------- -------------------------------------------
Fixed Charges before Capitalized
Interests 401 443 450 402 219 8,909 22,083

Capitalized Interest 0 0 0 0 0 0 0
------------------------------------------- -------------------------------------------
Total Fixed Charges 401 443 450 402 219 8,909 22,083
=========================================== ===========================================

EARNINGS

Income (loss) before taxes (414) 4,383 6,114 7,879 117 2,347 (10,242)

Fixed Charges before Capitalized
Interest 401 443 450 402 219 8,909 22,083
------------------------------------------- -------------------------------------------
Total Adjusted Earnings (13) 4,826 6,564 8,281 336 11,256 11,841
=========================================== ===========================================
Ratio of earnings to fixed charges (0.0) 10.9 14.6 20.6 1.5 1.3 0.5
=========================================== ===========================================

</TABLE>

<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 8,323
<SECURITIES> 0
<RECEIVABLES> 24,176
<ALLOWANCES> 1,040
<INVENTORY> 36,689
<CURRENT-ASSETS> 72,233
<PP&E> 117,235
<DEPRECIATION> 44,202
<TOTAL-ASSETS> 300,531
<CURRENT-LIABILITIES> 33,090
<BONDS> 232,698
0
0
<COMMON> 350
<OTHER-SE> 34,005
<TOTAL-LIABILITY-AND-EQUITY> 300,531
<SALES> 139,437
<TOTAL-REVENUES> 139,437
<CGS> 101,071
<TOTAL-COSTS> 101,071
<OTHER-EXPENSES> 2,476
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,526
<INCOME-PRETAX> (10,242)
<INCOME-TAX> (10,600)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,600)
<EPS-BASIC> 0
<EPS-DILUTED> 0

</TABLE>