INTERNATIONAL AIRLINE SUPPORT GROUP INC, S-4/A, 1996-08-29

INTERNATIONAL AIRLINE SUPPORT GROUP INC
S-4/A, 1996-08-29
MACHINERY, EQUIPMENT & SUPPLIES

Previous: INTERNATIONAL AIRLINE SUPPORT GROUP INC, SC 13E4/A, 1996-08-29

Next: SEACOR HOLDINGS INC, POS AM, 1996-08-29

<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 29, 1996

REGISTRATION NO. 333-08065
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

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

AMENDMENT NO. 2
TO
FORM S-4

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

INTERNATIONAL AIRLINE SUPPORT GROUP, INC.
(Exact name of registrant as specified in its charter)

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

<TABLE>
<S> <C> <C>
DELAWARE 5088 59-2223025
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
</TABLE>

8095 N.W. 64TH STREET
MIAMI, FLORIDA 33166
(305) 593-2658
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)

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

ALEXIUS A. DYER III
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
INTERNATIONAL AIRLINE SUPPORT GROUP, INC.
8095 N.W. 64TH STREET
MIAMI, FLORIDA 33166
(305) 593-2658
(Name, address, including zip code, and telephone number, including area code,
of agent for service)

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

COPIES TO:
PHILIP A. THEODORE
KING & SPALDING
191 PEACHTREE STREET
ATLANTA, GEORGIA 30303
(404) 572-4600
------------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable following the effectiveness of this Registration Statement.

If any securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /

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

LOCATION IN PROXY STATEMENT/PROSPECTUS OF INFORMATION
REQUIRED BY ITEMS OF FORM S-4

<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION IN FORM S-4 LOCATION IN PROSPECTUS
- ---------------------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
1. Forepart of Registration Statement and Outside Front
Cover Page of Prospectus............................ Outside Front Cover of Proxy Statement/ Prospectus;
Facing Page of the Registration Statement

2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Available Information; Table of Contents

3. Risk Factors, Ratio of Earnings to Fixed Charges and
Other Information................................... Summary

4. Terms of the Transaction............................. Summary; The Restructuring

5. Pro Forma Financial Information...................... Summary; Historical and Pro Forma Capitalization; Pro
Forma Combined Financial Information

6. Material Contacts with the Company Being Acquired.... Not Applicable

7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters....... Not Applicable

8. Interests of Named Experts and Counsel............... Not Applicable

9. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities...................... Not Applicable

10. Information With Respect to S-3 Registrants.......... Not Applicable

11. Incorporation of Certain Information by Reference.... Not Applicable

12. Information With Respect to S-2 or S-3 Registrants... Not Applicable

13. Incorporation of Certain Information by Reference.... Not Applicable

14. Information With Respect to Registrants Other Than
S-3 or S-2 Registrants.............................. Summary; Selected Historical Financial Data;
Management's Discussion and Analysis of Financial
Condition and Results of Operations; Business;
Description of Capital Stock; Index to Financial
Statements

15. Information With Respect to S-3 Companies............ Not Applicable

16. Information With Respect to S-2 or S-3 Companies..... Not Applicable

17. Information With Respect to Companies Other Than S-2
or S-3 Companies.................................... Not Applicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION IN FORM S-4 LOCATION IN PROSPECTUS
- ---------------------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
18. Information if Proxies, Consents or Authorizations
are to be Solicited................................. Summary; The Restructuring; The Exchange Offer;
Stockholders' Meeting, Voting Rights and Proxies;
Management; Security Ownership of Certain Beneficial
Owners and Management; Stockholder Proposals

19. Information if Proxies, Consents or Authorizations
are not to be Solicited, or in an Exchange Offer.... Summary; The Restructuring; The Exchange Offer;
Stockholders' Meeting, Voting Rights and Proxies;
Management; Security Ownership of Certain Beneficial
Owners and Management
</TABLE>
<PAGE>

INTERNATIONAL AIRLINE SUPPORT GROUP, INC.

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

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 30, 1996

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

Notice is hereby given that a Special Meeting of Stockholders of
International Airline Support Group, Inc. will be held on September 30, 1996, at
9:00 a.m., New York City time, at the offices of King & Spalding, 120 West 45th
Street, New York, New York 10036-4003, for the following purposes:

(1) To consider and vote upon a proposal to amend the Company's
Certificate of Incorporation to effect a reverse stock split pursuant
to which each 27 outstanding shares of the Company's Common Stock, par value
$.001 per share (the "Common Stock"), will be combined into one share of
Common Stock;

(2) To consider and vote upon a proposal to amend the Company's
Certificate of Incorporation to fix at seven the number of members of
the Company's Board of Directors and to provide that the number of directors
constituting the Board shall not be changed without the affirmative vote of
the holders of a majority of the shares of Common Stock outstanding;

(3) To consider and vote upon a proposal to amend the Company's
Certificate of Incorporation to increase the number of authorized
shares of the Company's Preferred Stock, par value $.001 per share (the
"Preferred Stock") to 2,000,000, to provide that such shares may be issued
from time to time by the Board of Directors without further stockholder
approval and to provide that a series of Preferred Stock may be issued with
such designations, preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications or terms and
conditions of redemptions as are determined by the Board of Directors;

(4) To consider and vote upon a proposal to amend the Company's
Certificate of Incorporation to make the provisions of Section 203 of
the Delaware General Corporation Law inapplicable to the Company, to provide
that no action required or permitted to be taken at any annual or special
meeting of the stockholders of the Company may be taken without a meeting
and to deny the stockholders of the Company the power to act by written
consent, to provide that stockholders seeking to bring business before an
annual meeting of stockholders, or to nominate candidates for election as
directors at an annual or special meeting of stockholders must provide
certain notice thereof, to provide for the adjournment of meetings of the
stockholders of the Company under certain circumstances and to provide that
the Bylaws of the Company may not be amended except with the consent of the
holders of three-fourths of the Company's outstanding Common Stock;

(5) To consider and vote upon a proposal to adopt a stock option plan for
the Company's directors, officers and employees; and

(6) To transact such other business as may properly come before the
meeting or any adjournment thereof.

The Board of Directors has fixed the close of business on August 20, 1996,
as the record date for the determination of stockholders entitled to receive
notice of and to vote at the Special Meeting and at any adjournment thereof.

Your attention is directed to the Proxy Statement/Prospectus submitted with
this Notice.

By order of the Board of Directors

Robert K. Norris

SECRETARY

Miami, Florida
August 29, 1996

PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN SUCH CARD
PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL
MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF
YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD.

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

SUBJECT TO COMPLETION, DATED AUGUST 29, 1996

PROXY STATEMENT/PROSPECTUS

INTERNATIONAL AIRLINE SUPPORT GROUP, INC.
----------------

OFFER TO EXCHANGE COMMON STOCK, PAR VALUE $.001 PER SHARE,
FOR AND SOLICITATION OF CONSENTS FROM HOLDERS OF

8% CONVERTIBLE SUBORDINATED DEBENTURES DUE AUGUST 31, 2003
($10 MILLION PRINCIPAL AMOUNT OUTSTANDING)

This Proxy Statement/Prospectus (the "Proxy Statement/Prospectus") describes
the proposed financial restructuring (the "Restructuring") of International
Airline Support Group, Inc. (the "Company"). Pursuant to the Restructuring, the
Company hereby offers (the "Exchange Offer"), upon the terms and subject to the
conditions set forth in this Proxy Statement/Prospectus and in the accompanying
Consent and Letter of Transmittal (the "Letter of Transmittal"), to issue 224.54
shares of its Common Stock, par value $.001 per share (the "Common Stock"),
after giving effect to the proposed reverse stock split described below, for
each $1,000 of principal amount of its outstanding 8% Convertible Subordinated
Debentures due August 31, 2003 (the "Convertible Debentures"). Holders of
Convertible Debentures whose securities are accepted in the Exchange Offer will
not be entitled to receive any consideration other than the shares of Common
Stock for any interest accrued subsequent to February 28, 1995. The last trade
of the Convertible Debentures known to the Company occurred in October, 1995,
when the largest single holder of the Convertible Debentures sold all the
Convertible Debentures held by it for a cash price of $150 per $1,000 principal
amount of the Convertible Debentures, to one or more other substantial holders
of the Convertible Debentures.

This Proxy Statement/Prospectus also constitutes a consent solicitation
statement in connection with the solicitation (the "Solicitation") of consents
(the "Consents") to certain amendments (the "Amendments") to the several
Securities Purchase Agreements, each dated as of September 8, 1993
(collectively, the "Purchase Agreements"), pursuant to which the Convertible
Debentures were issued. HOLDERS OF CONVERTIBLE DEBENTURES WHO TENDER THEIR
CONVERTIBLE DEBENTURES IN THE EXCHANGE OFFER WILL BE REQUIRED TO CONSENT TO THE
AMENDMENTS. The Exchange Offer and the Solicitation will expire at 12:00
midnight, New York City time on September 27, 1996, unless extended (the
"Expiration Date"). Tenders of the Convertible Debentures may be withdrawn, in
accordance with the withdrawal provisions described herein, at any time prior to
the Expiration Date. A Consent may be revoked, in accordance with the revocation
provisions described herein, prior to the date the Amendments become effective.

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

SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON SEPTEMBER 30, 1996
RELATING TO THE APPROVAL OF CERTAIN AMENDMENTS
TO THE COMPANY'S CERTIFICATE OF INCORPORATION
AND CERTAIN OTHER MATTERS

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

THE COMMON STOCK OFFERED HEREBY IS SUBJECT TO CERTAIN MATERIAL RISKS. SEE
"RISK FACTORS" BEGINNING ON PAGE 18 OF THIS PROXY STATEMENT/PROSPECTUS FOR A
DISCUSSION OF CERTAIN MATERIAL FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH THE RESTRUCTURING. THE RESTRUCTURING DESCRIBED HEREIN WILL RESULT IN
SUBSTANTIAL DILUTION TO HOLDERS OF THE COMPANY'S COMMON STOCK.

NEITHER THE TRANSACTIONS DESCRIBED HEREIN NOR THE SECURITIES OFFERED HEREBY
HAVE BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF SUCH
TRANSACTIONS OR UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
(COVER CONTINUED ON FOLLOWING PAGE)
------------------------------

THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS AUGUST 29, 1996

<PAGE>
(COVER PAGE CONTINUED)

This Proxy Statement/Prospectus is also being furnished to the stockholders
of the Company as a proxy statement in connection with the solicitation of
proxies for a special meeting of stockholders (the "Meeting") at which proposals
relating to the Restructuring and certain other matters are to be voted on by
the stockholders. The items to be voted on include (a) a proposal to combine
each 27 shares of the Common Stock outstanding after the closing of the Exchange
Offer into one share of Common Stock (the "Reverse Stock Split"); (b) a proposal
to fix the number of directors comprising the Company's Board of Directors at
seven and to provide that the number of Directors constituting the Board shall
not be changed without the affirmative vote of the holders of at least 75% of
the issued and outstanding shares of the Common Stock (collectively, the "Board
Amendments"); (c) a proposal to increase to 2,000,000 the number of authorized
shares of Preferred Stock and to provide that these shares may be issued without
further consent of the stockholders with such terms as may be designated by the
Board of Directors (the "Preferred Stock Authorization"); (d) a proposal to
amend and restate the Company's Certificate of Incorporation to amend provisions
regarding corporate governance to require supermajority voting with respect to
certain matters of corporate governance (the "Charter Amendments") and (e) the
approval of a stock option plan for the Company's directors, officers and
employees (the "Stock Option Plan").

Consummation of the Restructuring is conditioned upon, among other things,
the following: (i) the holders of at least 95% of the outstanding principal
amount of the Convertible Debentures (the "Minimum Debt Tenders") shall have
validly tendered and shall not have withdrawn their Convertible Debentures prior
to the Expiration Date; (ii) the Company shall have received Consents from the
holders of at least a majority of the principal amount of the Convertible
Debentures (disregarding the principal amount of any Convertible Debentures held
by the Company or its affiliates); (iii) the Company's stockholders shall have
approved the Reverse Stock Split, the Board Amendments, the Preferred Stock
Authorization, the Charter Amendments and the Stock Option Plan; (iv) the Credit
Agreement to be negotiated and executed by and between the Company and the bank
named therein (the "Credit Agreement") shall have been negotiated and executed,
the conditions to the effectiveness thereof shall have been satisfied or waived
and the Company shall have the ability to borrow at least $2.5 million pursuant
to the Credit Agreement immediately following the consummation of the
Restructuring; and (v) the Company shall have received consents from the holders
of at least a majority of the Stock Units represented by the Warrants, dated
July 17, 1992 (the "Old Warrants"), to the amendment of the expiration date of
the Old Warrants (the "Old Warrant Amendment").

If the foregoing conditions are satisfied, the Restructuring will be
consummated at a closing (the "Closing") to be held promptly following the
Meeting. At the Closing, (a) the Reverse Stock Split, the Board Amendments, the
Preferred Stock Authorization, the Charter Amendments, the Stock Option Plan and
the Credit Agreement would become effective; (b) the Company would accept all
valid tenders of Convertible Debentures and would issue shares of Common Stock
in exchange therefor; (c) the Amendments would become effective; (d) the
Company's 12% Senior Notes due July 17, 1997 (the "Senior Notes") would be
redeemed using advances under the Credit Agreement; (e) the Company would issue
options to purchase shares of Common Stock to the Company's directors, officers
and employees pursuant to the Stock Option Plan in settlement of options and/or
warrants previously awarded to them or in connection with employment agreements
to be entered into by them; and (f) the Old Warrant Amendment would become
effective. None of the foregoing will become effective unless all are
consummated at the Closing.

Only holders of record of Common Stock at the close of business on the
Record Date for the Meeting are entitled to receive notice of and to vote at the
Meeting and any adjournments or postponements thereof. The Meeting may be
adjourned from time to time without notice other than by announcement. Any such
adjournment will require the affirmative vote of a majority of the voting power
present or represented at the Meeting. The persons named as proxies will vote in
favor of such

(COVER CONTINUED ON FOLLOWING PAGE)

ii
<PAGE>
(COVER PAGE CONTINUED)
adjournment, if proposed, those proxies which they are entitled to vote in favor
of any one of the Reverse Stock Split, the Board Amendments, the Preferred Stock
Authorization, the Charter Amendments or to approve the Stock Option Plan, and
the persons named as proxies will vote against such adjournment those proxies
required to be voted against all such proposals. A list of stockholders entitled
to vote at the Meeting will be available for inspection by any stockholder for
any purpose germane to the Meeting during ordinary business hours, during the
ten days prior to the Meeting, at the Company's headquarters at the address set
forth herein.

THE MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING OF STOCKHOLDERS ARE OF
GREAT IMPORTANCE TO THE COMPANY'S STOCKHOLDERS, ACCORDINGLY, STOCKHOLDERS ARE
URGED TO READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THE
ACCOMPANYING PROXY STATEMENT/PROSPECTUS.

Your vote is important. Whether or not you intend to be present at the
Special Meeting, please complete, sign, date and return the accompanying proxy
in the enclosed envelope, which requires no postage if mailed in the United
States. If you choose to attend the Meeting, you may of course revoke your proxy
and personally cast your votes.

THIS PROXY STATEMENT/PROSPECTUS IS FIRST BEING
MAILED TO HOLDERS OF THE CONVERTIBLE DEBENTURES
AND THE COMMON STOCK
ON AUGUST 30, 1996.

iii
<PAGE>
AVAILABLE INFORMATION

The Company has filed a Registration Statement on Form S-4 (the
"Registration Statement") with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended ("the Securities
Act"), with respect to the securities offered hereby. As permitted by the rules
and regulations of the Commission, this Proxy Statement/Prospectus omits certain
information, exhibits and undertakings contained in the Registration Statement.
Such additional information, exhibits and undertakings can be inspected at and
obtained from the Commission in the manner set forth below. For further
information with respect to the securities offered hereby and the Company,
reference is made to the Registration Statement and the financial schedules and
exhibits filed as a part thereof. Statements contained in this Proxy
Statement/Prospectus as to the terms of any contract or other document are not
necessarily complete, and, in each case, reference is made to the copy of each
such contract or other document that has been filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files periodic reports, proxy statements and other information with
the Commission. Such reports, proxy statements and other information filed with
the Commission, as well as the Registration Statement, can be inspected and
copied at the public reference facilities of the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices located at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661,
and Suite 1300, 7 World Trade Center, New York, New York 10048. Copies of such
material can also be obtained by mail from the Public Reference Section of the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The Commission also maintains a Web site at http:\\www.sec.gov
which contains reports, proxy statements and other information regarding
registrants that file electronically with the Commission. Copies of such
reports, proxy statements and other information may also be obtained from the
Company upon request to the Company at its principal executive offices.

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

No person has been authorized to give any information or make any
representation not contained in this Proxy Statement/Prospectus and, if given or
made, such information or representation must not be relied upon. This Proxy
Statement/Prospectus does not constitute an offer to sell or the solicitation of
an offer to buy any securities other than those to which it relates, or an offer
to sell or a solicitation of an offer to buy any securities in any jurisdiction
in which, or to any person to whom, it is unlawful to make such offer or
solicitation. Neither the delivery of this Proxy Statement/Prospectus nor the
distribution of any securities hereunder shall, under any circumstances, create
an implication that there has been no change in the affairs of the Company or in
the information contained herein since the date hereof.

iv
<PAGE>
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY................................................................... 1
General................................................................. 1
The Company............................................................. 1
Operating Strategy...................................................... 2
Background and Purpose of the Restructuring............................. 2
Conditions to the Restructuring......................................... 5
Certain Significant Effects of the Restructuring........................ 5
Risk Factors............................................................ 6
Interest of Certain Persons in the Restructuring........................ 7
The Exchange Offer...................................................... 7
The Meeting............................................................. 9
Proposed Amendments to the Company's Certificate of Incorporation....... 10
The Stock Option Plan................................................... 12
Exchange of Stock Certificates; Fractional Shares....................... 13
Federal Income Tax Considerations....................................... 13
Financial Forecast...................................................... 13
Summary Consolidated Historical Financial Data.......................... 14
Summary Pro Forma Financial Data........................................ 15
Market Prices of and Dividends Paid on Common Stock and Market Prices of
Convertible Debentures................................................. 16
Market and Trading Information.......................................... 17

RISK FACTORS.............................................................. 18
Risk Factors Relating to Failure of the Restructuring to Occur.......... 18
Risk Factors Associated with Ownership of the Common Stock.............. 20

THE RESTRUCTURING......................................................... 24
Background.............................................................. 24
Certain Defaults........................................................ 25
Negotiations with Debentureholders...................................... 26
The Standstill Agreement................................................ 28
Overview of the Restructuring........................................... 29
Certain Significant Effects of the Restructuring........................ 30
Conditions to the Restructuring......................................... 32
Projection of Certain Financial Data.................................... 33
General Assumptions..................................................... 34
Operating Assumptions................................................... 35
Interests of Certain Persons in the Restructuring....................... 39

THE EXCHANGE OFFER........................................................ 39
General................................................................. 39
Acceptance of Convertible Debentures and Delivery of Common Stock....... 40
Expiration Date; Extensions; Amendments................................. 41
How to Tender and Consent in the Exchange Offer......................... 41
Tenders and Consents -- General......................................... 42
Guaranteed Delivery Procedures.......................................... 43
Withdrawal of Tenders and Revocation of Consents........................ 43
Conditions.............................................................. 44
Depositary.............................................................. 46
Fees and Expenses....................................................... 47
</TABLE>

v
<PAGE>

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
STOCKHOLDERS' MEETING, VOTING RIGHTS AND PROXIES.......................... 47
Solicitation of Proxies................................................. 47
Voting of Proxies....................................................... 47
Record Date............................................................. 48
Voting Rights........................................................... 48
Revocation of Proxies................................................... 48
Proposed Amendment to the Company's Certificate of Incorporation:
Reverse Stock Split Amendment......................................... 48
Proposed Amendment to the Company; Certificate of Incorporation:
Preferred Stock Authorization......................................... 48
Proposed Amendment to the Company's Certificate of Incorporation:
Board of Directors.................................................... 49
Proposed Amendments to the Company Certificate of Incorporation:
Provisions Affecting Corporate Governance............................. 49
The Stock Option Plan................................................... 50
Dilution................................................................ 51
Exchange of Stock Certificates; Fractional Shares....................... 51
Other Matters to be Considered.......................................... 51

CERTAIN FEDERAL INCOME TAX CONSIDERATIONS................................. 52
General................................................................. 52
Tax Consequences to the Company......................................... 52
Tax Consequences to the Holders of the Convertible Debentures........... 53

ACCOUNTING TREATMENT...................................................... 54

HISTORICAL AND PRO FORMA CAPITALIZATION................................... 55

SELECTED HISTORICAL FINANCIAL DATA........................................ 56

PRO FORMA FINANCIAL INFORMATION........................................... 57

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................... 60
Liquidity and Capital Resources......................................... 60
Results of Operations................................................... 62

BUSINESS.................................................................. 67
General................................................................. 67
Operating Strategy...................................................... 67
History................................................................. 68
Industry Overview....................................................... 69
Operations of the Company............................................... 70
Customers............................................................... 72
Additional Services..................................................... 73
Government Regulation................................................... 73
Product Liability....................................................... 73
Competition............................................................. 74
Employees............................................................... 74
Legal Proceedings....................................................... 74

MANAGEMENT................................................................ 74
Composition of the Board................................................ 75
Committees of the Board................................................. 75
Executive Compensation.................................................. 76
</TABLE>

vi
<PAGE>

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year End
Option/SAR Value....................................................... 76
Compensation Committee Interlocks and Insider Participation............. 76
Compensation of Directors............................................... 76
The Stock Option Plan................................................... 77
Employment Agreement.................................................... 80
Certain Transactions.................................................... 81

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............ 81

DESCRIPTION OF THE AMENDMENTS............................................. 82

DESCRIPTION OF THE CREDIT AGREEMENT....................................... 82

DESCRIPTION OF THE CONVERTIBLE DEBENTURES................................. 85
General................................................................. 85
Redemption.............................................................. 85
Conversion.............................................................. 86
Subordination of Convertible Debentures................................. 87
Purchase Convertible Debentures Upon a Change of Control................ 88
Certain Covenants....................................................... 90
Events of Default....................................................... 95
Market Information...................................................... 97
Modifications of the terms of the Convertible Debentures or the rights
of the Holders of the Convertible Debentures........................... 97

DESCRIPTION OF CAPITAL STOCK.............................................. 99
General................................................................. 99
Common Stock............................................................ 99
Preferred Stock......................................................... 99
Certain Effects of Authorized but Unissued Stock........................ 99
Directors' Liability.................................................... 99
Anti-takeover Effects of Certain Provisions of the Company's Restated
Certificate of Incorporation and Bylaws................................ 100

LEGAL MATTERS............................................................. 101

EXPERTS................................................................... 101

STOCKHOLDER PROPOSALS..................................................... 101

INDEX TO FINANCIAL STATEMENTS............................................. F-1

APPENDIX A -- PROPOSED RESTATED CERTIFICATE OF INCORPORATION

APPENDIX B -- PROPOSED STOCK OPTION PLAN
</TABLE>

vii
<PAGE>
SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS CONTAINED ELSEWHERE IN THIS PROXY
STATEMENT/PROSPECTUS. CERTAIN TERMS USED IN THE FOLLOWING SUMMARY ARE DEFINED ON
THE COVER PAGE OF THIS PROXY STATEMENT/PROSPECTUS.

GENERAL

This Proxy Statement/Prospectus describes the Restructuring of the Company.
In such regard, it sets forth the terms and conditions of the Exchange Offer,
which is part of the Restructuring. This Proxy Statement/Prospectus also
constitutes a consent solicitation statement in connection with the Solicitation
of Consents to the Amendments. Holders of Convertible Debentures who wish to
accept the Exchange Offer as set forth herein must tender their Convertible
Debentures in accordance with the procedures set forth herein and in the
accompanying Letter of Transmittal. HOLDERS OF CONVERTIBLE DEBENTURES WHO WISH
TO ACCEPT THE EXCHANGE OFFER WILL BE REQUIRED TO CONSENT TO THE AMENDMENTS.
HOLDERS OF CONVERTIBLE DEBENTURES MAY CONSENT TO THE AMENDMENTS WITHOUT
TENDERING THEIR CONVERTIBLE DEBENTURES. The Exchange Offer will expire at 12:00
midnight, New York City time, on September 27, 1996, unless extended by the
Company, in its sole discretion, to permit the satisfaction of all conditions
for such Exchange Offer (such date or such later date and time to which such
offer has been extended, the "Expiration Date"). For a discussion of the
conditions required to be satisfied to enable the Company to consummate the
Exchange Offer, see "The Exchange Offer -- Conditions." At the Closing, to be
held promptly after the Expiration Date, the Company will acquire, to the extent
validly tendered, all of the Convertible Debentures.

This Proxy Statement/Prospectus is also furnished in connection with the
solicitation by the Board of Directors of the Company of proxies to be voted at
the Special Meeting of the Company's stockholders (the "Meeting") to be held at
the offices of King & Spalding, 120 West 45th Street, New York, New York
10036-4003, on September 30, 1996 at 9:00 a.m., New York City time. Stockholders
who wish to vote at the Meeting must execute and return a proxy in accordance
with the procedures set forth herein and in the accompanying proxy or attend the
Meeting.

THE COMPANY

The Company is a worldwide supplier of aircraft spare parts to the aviation
redistribution market. The Company sells spare parts to major commercial
passenger airlines, air cargo carriers, maintenance and repair facilities and
other redistributors. The parts sold by the Company include avionics, rotable
and expendable airframe and engine components for commercial aircraft, including
Airbus, Boeing and McDonnell Douglas aircraft and Pratt & Whitney and
Rolls-Royce jet engines. During the fiscal year ended May 31, 1996 ("fiscal
1996"), the Company supplied parts to over 771 customers worldwide,
approximately 676 of which were domestic customers and approximately 95 of which
were foreign customers. Currently, the Company specializes in replacement parts
for McDonnell Douglas DC-9 aircraft. Management believes that the Company has
one of the most extensive inventories of aftermarket DC-9 parts in the industry.
For fiscal 1996, the Company's operating revenues were approximately $23.2
million, its income from operations was approximately $4.5 million and its
pretax income was approximately $2.3 million.

The Company believes that the annual worldwide market for aircraft spare
parts is approximately $10 billion, of which approximately $1.3 billion
represents sales of aircraft spare parts to the redistribution market. The
redistribution market is highly fragmented, with a limited number of large, well
capitalized companies selling a broad range of aircraft spare parts, and
numerous smaller competitors serving distinct market niches. The Company
believes that significant trends affecting the redistribution market will
continue to increase its overall size while reducing the number of competitors.
Factors causing the expansion of the redistribution market include the
increasing size and age of the world-wide airline fleet and the increasing
pressures on airlines and maintenance and repair facilities to control their
costs.

1
<PAGE>
Although the Company's current financial condition is weak, the Company has
been successful over the last two years in positioning itself as one of the
premier redistributors of aircraft spare parts. Upon the successful
implementation of the Restructuring, the Company believes that it will have the
financial viability to implement its operating strategy to become one of the
select number of redistributors well positioned to fully service the aircraft
spare parts requirements of its customers.

The Company's principal executive offices are located at 8095 N.W. 64th
Street, Miami, Florida 33166. Its telephone number is (305) 593-2658.

OPERATING STRATEGY

The Company is, therefore, undertaking the Restructuring to improve its
financial flexibility and allow it to more fully implement its operating
strategy. The Company's operating strategy has two components. First, the
Company intends to increase its revenues and operating income through continued
customer penetration in its existing markets and expansion into new markets. The
Company intends to achieve this by continuing to increase its share of the
market for spare parts for certain widely operated aircraft models, including,
in particular, the DC-9 (which is no longer in production) and the MD-80.
Although the MD-80 is still in production, many of the DC-9's parts are
interchangeable with the MD-80, which, given the Company's experience and
knowledge with the DC-9, gives it a competitive advantage. The Company intends
to capitalize on the limited availability of spare parts for such aircraft
models, which are either out of production or have a high degree of parts
interchangeability with other model aircraft, by acquiring (i) pools of
inventory from airlines that cease to operate such aircraft or that desire to
reduce their levels of parts inventory and (ii) aircraft for parting out when
the purchase price justifies doing so. The Company believes that its knowledge
of the fleets of DC-9 and MD-80 aircraft currently in operation and its
worldwide contacts in the commercial aviation industry will permit it to acquire
inventory pools and aircraft for parting out on favorable terms in the future.

The second component of the Company's operating strategy is to achieve
revenue and earnings growth by acquiring other companies engaged in the sale of
aircraft parts as well as companies with product lines that would complement the
Company's existing redistribution business. The Company competes in a fragmented
market in which numerous small companies serve distinct market niches. The
Company believes that small aircraft parts redistributors, many of which are
family owned and capital constrained, are unable to provide the extensive
inventory and quality control necessary to comply with applicable regulatory and
customer requirements and will provide acquisition opportunities for the
Company. The Company believes that such acquisitions will permit it to expand
its customer base by selling aircraft parts to airlines and others that are not
now customers, to expand its product line with respect to aircraft in which the
Company currently specializes, to strengthen its relationships with existing
customers and to expand the types of aircraft in which the Company specializes.
The Company, however, is not presently in negotiations with any such company and
has not entered into an agreement to acquire any such company, and there can be
no assurance that the Company will be able to do so. Further, the Company will
be unable to make acquisitions if the Restructuring is not consummated.

BACKGROUND AND PURPOSE OF THE RESTRUCTURING

The Company issued the Convertible Debentures during fiscal 1994 on
September 8, 1993. The proceeds of the Convertible Debentures were used for the
following purposes: (i) to repurchase a portion of the Senior Notes ($3.4
million); (ii) to repay certain other indebtedness ($1.9 million); (iii) to pay
fees and expenses of the offering ($1.1 million); and (iv) to purchase four DC-9
aircraft for parting out ($3.6 million). Also during fiscal 1994, the Company,
in an attempt to more vertically integrate its business, invested approximately
$3 million to establish a repair facility certified by the Federal Aviation
Administration ("FAA"). The principal business of the repair facility, which
commenced operations in fiscal 1994, was to perform FAA-required maintenance
checks on certain narrow body aircraft. The facility was operated by a
wholly-owned subsidiary of the Company, International Airline Service Center,
Inc. ("IASC").

2
<PAGE>
However, during fiscal 1994, while the Company was undertaking its
diversification and expansion program, its financial performance was adversely
affected by several factors. First, sales to Transafrik Corp., a cargo carrier
operating in Africa, declined significantly, from approximately $6.0 million in
fiscal 1993 to approximately $1.5 million in fiscal 1994. Transafrik had
accounted for a significant portion of the Company's revenue prior to fiscal
1994. During fiscal 1994, Transafrik underwent a change in ownership and made
other significant management and operational changes, including a downsizing of
its fleet and changes in fleet mix. Second, the Company was unable to operate
the repair facility profitably, losing approximately $1.9 million on its
operations of the facility during fiscal 1994. Principally as the result of the
establishment of the repair facility, the number of persons employed by the
Company grew from approximately 80 in fiscal 1993 to approximately 160 in fiscal
1994, and sales, general and administrative expense increased to approximately
37.1% of total revenue in fiscal 1994 from approximately 19.3% of total revenue
in fiscal 1993. Third, the overall market for used aircraft and parts weakened
and this, combined with a diminished cash position, reduced the Company's
ability to purchase additional aircraft and inventory for resale and led to a
43.9% decline in total revenues for fiscal 1994, from $33.5 million in fiscal
1993 to $18.7 million.

As a result of the weak demand in the marketplace and the Company's need to
increase its liquidity to meet its obligations as they became due, it became
necessary for the Company to sell an aircraft at an inopportune time and price,
resulting in a $2.1 million loss. This loss related primarily to the aircraft
being sold to raise cash at an amount substantially below cost, as well as the
write-off of an aircraft because its Nigerian lessee defaulted under the lease
and the Company did not believe it could recover possession of the aircraft. In
addition, during the fourth quarter of fiscal 1994, the Company accrued to cost
of sales a charge of $2.4 million for the partial writedown of three aircraft to
reflect net realizability of the aircraft. The unanticipated cost of overhauling
these aircraft at IASC for delivery eliminated the economic benefit that the
Company had negotiated under their sales contract.

In February 1994, the Company's President and Chief Financial Officer left
the Company and in January 1995, the Company's Chief Executive Officer was
replaced by the current Chief Executive Officer. In an effort to address the
Company's financial problems, current senior management made the strategic
decision to refocus the Company on its core business-parts sales. The costs of
implementing this strategy were largely recognized in fiscal 1994. Accordingly,
the Company recorded a net loss of $17.4 million in fiscal 1994, substantially
all of which was related to non-core businesses and, to the extent related to
the core business, was nonrecurring. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."

As part of its strategic decision to refocus on its core business, in late
fiscal 1994 and early fiscal 1995, the Company sought aggressively to reduce its
expenses. As a result, the total number of persons employed by the Company was
reduced by approximately 85%, to 24 by the end of fiscal 1995, and operations at
the service center were terminated. Further, the Company sold a subsidiary that
was engaged in air cargo transport. In addition, during fiscal 1995, the Company
sought to reduce its vulnerability to a decrease in sales to any single customer
by focusing its marketing on the identification and solicitation of new
customers. The Company obtained approximately 80 new parts customers during
fiscal 1995. Also in fiscal 1995, the Company instituted new compensation
policies for its parts sales force. Pursuant to the new policies, all salesman
are paid strictly on commission, sales to new customers are encouraged and
commissions are not paid until accounts are collected. Furthermore, the Company
has continued to decrease its exposure to more volatile international markets.
Its domestic revenues as a percentage of total revenues has increased in each of
the last four fiscal years, to approximately 85% in fiscal 1996 from 72% in
fiscal 1995, 59% in fiscal 1994, and 40% in fiscal 1993.

On May 26, 1995, the Company received a notice of payment blockage from the
majority holder (the "Majority Noteholder") of the Senior Notes. Citing a
continuing Event of Default under the agreement governing the Senior Notes as a
result of the Company's noncompliance with certain financial covenants, the
Majority Noteholder demanded that the scheduled interest payment that would
otherwise have been payable on May 31, 1995 to holders of the Convertible
Debentures not be paid. As a result of the Company's receipt of the notice of
payment blockage, the Company did not

3
<PAGE>
make the interest payments due to holders of the Convertible Debentures on May
31 and August 31, 1995, totaling $.4 million. Pursuant to terms of the Senior
Notes, the Company was prohibited from making any other payments with respect to
the Convertible Debentures prior to the expiration of the payment blockage
period on November 22, 1995. Notwithstanding the expiration of the payment
blockage period, the Company did not make the November 30, 1995 and the February
29 and May 31, 1996 interest payments on the Convertible Debentures. The Company
does not intend to resume making payments of interest on the Convertible
Debentures.

The Company did not make its scheduled July 17, 1995 principal payment on
the Senior Notes in the approximate amount of $1.8 million. The Company cured
the default in part by making a principal payment of $1.45 million on December
12, 1995. The Company made an additional principal payment of $.7 million on May
13, 1996, which cured such principal payment default and prepaid, without
penalty, approximately $.35 million of the $4.1 million principal payment due on
the Senior Notes on July 17, 1996. The Company did not make the July 17, 1996
principal payment on the Senior Notes, which was due in the amount of
approximately $3.7 million, pending redemption of the Senior Notes in connection
with the Restructuring. If the Restructuring is not consummated, the Company
will be unable to make such principal payment.

The failure to make the interest payments to the holders of the Convertible
Debentures and the principal payment to the holders of the Senior Notes due on
July 17, 1996 referred to above constituted an Event of Default under the
agreements governing the Senior Notes and Convertible Debentures. Further, the
Company is in default in the observance of certain financial covenants
applicable to the Senior Notes and the Convertible Debentures. If the Company
remains in default under the terms of the Senior Notes and Convertible
Debentures, the holders of such instruments could accelerate the debt, resulting
in principal of approximately $17.7 million becoming immediately due and
payable. The Company would have no ability to repay such indebtedness if it were
to be accelerated. The foregoing circumstances most likely would require the
Company to cease operations or to file for protection under Chapter 11 of the
Bankruptcy Code. In addition, if the holders of any of the Senior Notes or
Convertible Debentures demand repayment or if the holders of the Senior Notes
seek to realize upon the collateral securing the Senior Notes, there is a
substantial likelihood that the Company will be forced to cease operations or to
file for protection under Chapter 11 of the Bankruptcy Code.

The terms of the Restructuring result from an analysis of the Company's
financial condition and operations conducted by the Company. The Company is
proposing the Restructuring to achieve changes in its financial structure that
it believes are necessary to help alleviate the problems caused by the Company's
current debt service levels and debt repayment obligations, to help assure its
long-term viability and to permit it to implement its operating strategies.
Although the success of the Company after the Restructuring will depend on the
success of its operating strategy and its ability to meet the financial
forecasts, included elsewhere in this Proxy Statement/Prospectus, the
consummation of the Restructuring does not depend on the Company's meeting the
financial forecasts included elsewhere in this Proxy Statement/Prospectus or on
the Company's consummating any acquisitions as part of its operating strategy.
The financial forecasts do not include the results of any potential
acquisitions. The Company does not expect to consummate any acquisition that
would materially interfere with its ability to meet its financial forecasts.
Subject to continuing compliance with the Credit Agreement, the Company is
permitted to make certain acquisitions in order to implement its operating
strategies. However, the Company will not be able to implement its operating
strategy fully if it is unable to obtain advances pursuant to the Credit
Agreement. If the Company fails to meet the financial forecasts, depending on
the magnitude of the departures from forecasted performance, the Company might
be unable to comply with the financial covenants imposed on it pursuant to the
Credit Agreement. Noncompliance with such financial covenants would prevent the
Company from obtaining additional advances pursuant to the Credit Agreement. The
Company will be in compliance with such financial covenants upon consummation of
the Restructuring and the Company believes that such financial covenants provide
it with a sufficient degree of latitude in the event that the

4
<PAGE>

Company fails to meet its forecasted performance. See "Description of the Credit
Agreement." For a discussion of the Company's financial forecasts and a
comparison of these forecasts to the financial covenants contained in the Credit
Agreement, see "The Restructuring -- Projection of Certain Financial Data."

If the Restructuring is not consummated, the financial condition of the
Company will necessitate the development of alternative actions. In view of the
Company's limited financial resources and the existence of unwaived defaults
with respect to the Senior Notes and the Convertible Debentures, there can be no
assurance that the Company would succeed in formulating and consummating an
alternative financial restructuring. In such case, the Company most likely would
be forced to cease operations or to file for protection under Chapter 11 of the
Bankruptcy Code. See "Risk Factors -- Risk Factors Relating to Failure of the
Restructuring to Occur."

CONDITIONS TO THE RESTRUCTURING

Consummation of the Restructuring is conditioned upon, among other things,
the following: (i) the Minimum Tenders shall have been validly tendered and not
withdrawn by the holders of the Convertible Debentures prior to the Expiration
Date; (ii) the requisite Consents shall have been received and such Consents
shall not have been revoked and the Amendments shall have become effective;
(iii) the Company's stockholders shall have approved the amendments to the
Company's Certificate of Incorporation to effect the Reverse Stock Split, the
Board Amendments, the Preferred Stock Authorization and the Charter Amendments
and shall have approved the Stock Option Plan; (iv) the Company and the Lender
(as defined herein) shall have negotiated and executed the Credit Agreement, the
conditions to the effectiveness thereof shall have been satisfied or waived and
the Company shall have the ability to borrow at least $2.5 million pursuant to
the Credit Agreement immediately following the consummation of the
Restructuring; and (v) the Old Warrant Amendment shall have become effective.
See "The Restructuring -- Conditions to the Restructuring."

The Company reserves the right to amend the terms of the Restructuring
(including changes in the consideration being offered in the Exchange Offer to
holders of the Convertible Debentures), if and to the extent that the Company
determines that such amendments are necessary or desirable to complete the
Restructuring. The Company will give holders of the Common Stock and the
Convertible Debentures notice of such amendments as may be required by
applicable law. Holders of the Convertible Debentures may withdraw their tenders
of the Convertible Debentures at any time prior to the Expiration Date of the
Exchange Offer, including during any period of time the Exchange Offer is
extended because of amendments to the terms of the Restructuring.

CERTAIN SIGNIFICANT EFFECTS OF THE RESTRUCTURING

Implementation of the Restructuring would have significant effects on the
financial obligations of the Company and on the current holders of the Common
Stock, the Senior Notes and the Convertible Debentures. The Restructuring would
result in significant changes in the Company's financial obligations, including
(a) the elimination of future interest and principal payment obligations with
respect to at least 95% of the aggregate principal amount of the Convertible
Debentures, (b) the repayment of the Senior Notes, (c) the incurrence of
approximately $7.9 million of indebtedness under the Credit Agreement, (d) the
increased sensitivity of the Company to prevailing interest rates because
indebtedness under the Credit Agreement will bear interest at a floating rate,
and (e) the deferral of principal payments on the Company's long-term
indebtedness because the final maturity of the Credit Agreement is later than
the maturity date of the Senior Notes. The Restructuring would also result in
the modification of certain restrictive covenants now applicable to the Company
pursuant to the instruments creating the Convertible Debentures and the
elimination of the restrictive covenants now applicable to the Company pursuant
to the instruments creating the Senior Notes. The Company expects that it would
have approximately $3.8 million of available borrowings under the Credit
Agreement after the incurrence of the approximately $7.9 million of indebtedness
upon the implementation of the Restructuring. The Company believes that such
remaining availability will be adequate, together with cash from operations, to
meet its projected expenditures.

5
<PAGE>
On a pro forma basis, the Restructuring would have reduced the amount of the
Company's outstanding indebtedness, at May 31, 1996, from $18.1 million to $8.1
million, based on the assumptions that the Restructuring occurred on such date
and that all the Convertible Debentures were accepted for exchange. Total
interest expense, on a pro forma basis, would have been reduced from $2.2
million to $1.2 million during fiscal 1996, based on the assumptions that the
Restructuring occurred on the first day of the period presented, that all the
Convertible Debentures were accepted for exchange and that amounts outstanding
pursuant to the Credit Agreement bore interest at 10.25% throughout the period.

If the Restructuring were implemented, approximately 2.2 million shares of
Common Stock (after giving effect to the Reverse Stock Split) would be issued in
the Exchange Offer, assuming that all of the Convertible Debentures are accepted
for exchange. Issuance of such numbers of shares of Common Stock would dilute
substantially the ownership percentage of the existing holders of the Common
Stock. The percentage ownership of the Company on an actual and on a
fully-diluted basis and the effect of the issuance of such numbers of shares of
Common Stock on the percentage ownership of the common equity of the Company is
shown in the following table:

<TABLE>
<CAPTION>
RESTRUCTURING RESTRUCTURING
PRE-RESTRUCTURING (1) NO DILUTION (2) FULL DILUTION (3)
------------------------ ------------------------ ------------------------
NUMBER OF NUMBER OF NUMBER OF
SHARES PERCENT SHARES PERCENT SHARES PERCENT
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Significant Holders of Convertible
Debentures (4):
Cardinal Recovery Partners................ -- -- 263,385 11.0 263,385 8.8
Northeast Investors Trust................. -- -- 224,540 9.4 224,540 7.5
Deltec Asset Management Corp.............. -- -- 224,540 9.4 224,540 7.5
Other Convertible Debenture Holders......... -- -- 1,532,935 64.0 1,532,935 51.2
----------- ----- ----------- ----- ----------- -----
Total Convertible Debenture Holders......... -- -- 2,245,400 93.8 2,245,400 75.0
Existing Common Stockholders................ 4,041,779 100.0 149,704 6.2 149,704 5.0
Warrant and Option Holders.................. -- -- -- -- 598,782 20.0
----------- ----- ----------- ----- ----------- -----
4,041,779 100.0 2,395,104 100.0 2,993,886 100.0
----------- ----- ----------- ----- ----------- -----
----------- ----- ----------- ----- ----------- -----
</TABLE>

- ------------------------
(1) Assumes no (i) conversion of the Convertible Debentures; (ii) exercise of
the Old Warrants; and (iii) exercise of certain outstanding stock options
and warrants, prior to giving effect to the Reverse Stock Split. The Old
Warrant Amendment will provide for the expiration of the Old Warrants at the
Closing and the options outstanding pursuant to the Company's existing stock
option plan will be canceled as part of the Restructuring.

(2) Assumes that 2,245,400 shares of Common Stock are issued to the Holders of
the Convertible Debentures, after giving effect to the Reverse Stock Split.

(3) Incorporates the assumptions set forth in (2) and further assumes the
exercise of certain outstanding options and warrants, other than the Old
Warrants, and the issuance of all options to be granted under the Stock
Option Plan.

(4) Significant holders of Convertible Debentures are those Convertible
Debenture holders who would receive 5% or more of the Common Stock to be
outstanding upon consummation of the Restructuring.

RISK FACTORS

6
<PAGE>
the Exchange Offer, or to vote in favor of the matters to be brought before the
Meeting, each stockholder and each holder of the Convertible Debentures should
consider carefully all of the information contained in this Proxy
Statement/Prospectus. See "Risk Factors."

INTERESTS OF CERTAIN PERSONS IN THE RESTRUCTURING

In considering the Restructuring, holders of Common Stock and the
Convertible Debentures should be aware that the executive officers and directors
of the Company have certain interests that may present them with potential
conflicts of interests with respect to the Restructuring. See "The Restructuring
- -- Interests of Certain Persons in the Restructuring." The conflicts result from
the following factors: (i) the employment agreement between Mr. Alexius A. Dyer
III, the Chairman of the Board, President and Chief Executive Officer of the
Company, will be extended for an additional five-year term effective upon
consummation of the Restructuring and Mr. George Murnane III, the Executive Vice
President and Chief Financial Officer of the Company, will enter into a
five-year employment agreement with the Company having terms, other than salary
and bonus, substantially similar to those of Mr. Dyer's employment agreement
(see "Management -- Employment Agreement"); (ii) Mr. Dyer's annual compensation
will increase upon consummation of the Restructuring from $135,000 to $175,000
and Mr. Murnane's annual compensation will increase from $120,000 to $150,000;
(iii) Messrs. Dyer and Murnane will be granted restricted stock and/or options
representing 7.5% and 3.5%, respectively, of the shares of Common Stock to be
outstanding following the Restructuring on a fully-diluted basis (see
"Management -- The Stock Option Plan"); (iv) Messrs. Kyle R. Kirkland and E.
James Mueller, who are non-employee directors of the Company, will be granted
restricted stock and/or options, which, together with shares reserved for
issuance to non-employee directors pursuant to the Stock Option Plan, will
represent up to 2.5% of the shares of Common Stock to be outstanding following
the Restructuring on a fully-diluted basis (see "Management -- The Stock Option
Plan"); and (v) Kirkland Messina, Inc., an investment banking firm of which Mr.
Kirkland is a principal, will receive a placement agent's fee of $250,000 in
connection with the origination of the Credit Agreement (see "Management --
Certain Transactions").

THE EXCHANGE OFFER

In exchange for the Convertible Debentures, the Company will issue 224.54
shares of Common Stock, after giving effect to the Reverse Stock Split, for each
$1,000 of principal amount of its outstanding Convertible Debentures. As of the
date of this Proxy Statement/Prospectus, there were outstanding $10 million
aggregate principal amount of Convertible Debentures. The Company has not made
an interest payment on the Convertible Debentures since February 28, 1995. The
Company does not intend to make any subsequent payment of accrued interest with
respect to any Convertible Debentures accepted for exchange in the Exchange
Offer. Holders of Convertible Debentures whose Convertible Debentures are
accepted in the Exchange Offer will not be entitled to receive any consideration
other than shares of Common Stock for any interest accrued subsequent to
February 28, 1995, on such Convertible Debentures. See "The Exchange Offer --
General."

In connection with the Exchange Offer, the Company is also soliciting the
Requisite Consents from the "Holders" (as defined below) of the Convertible
Debentures in the Solicitation. HOLDERS OF CONVERTIBLE DEBENTURES WHO TENDER
THEIR CONVERTIBLE DEBENTURES IN THE EXCHANGE OFFER WILL BE REQUIRED TO CONSENT
TO THE AMENDMENTS. Holders of Convertible Debentures may consent to the
Amendments without tendering their Convertible Debentures in the Exchange Offer.
The Company will make no separate payment for Consents. The Amendments will not
become effective unless and until the Restructuring is consummated. The term
"Holder," when used with respect to a Convertible Debenture, means the
registered owner of such Convertible Debenture on August 20, 1996 (the "Debt
Record Date") or any person who has obtained a properly completed bond power and
proxy from the registered owner on the Debt Record Date. The Company serves as
the registrar for the Convertible Debentures and will advise any purchaser of
Convertible Debentures who was not a registered owner of the Convertible
Debentures on the Debt Record Date as to the procedures to be followed in order
to obtain a properly completed bond power and proxy and effectively to tender
their Convertible Debentures and consent to the Amendments. See "The Exchange
Offer -- General."

7
<PAGE>

The Exchange Offer will expire at 12:00 midnight, New York City time, on
September 27, 1996, unless the Exchange Offer is extended by the Company, in its
sole discretion, to permit the satisfaction of all conditions to the Exchange
Offer, in which case the term "Expiration Date" shall mean the last date and
time to which the Exchange Offer is extended. See "The Exchange Offer --
Expiration Date; Extensions; Amendments."

A Holder electing to tender Convertible Debentures in the Exchange Offer and
to consent to the Amendments should either (i) complete and sign the Letter of
Transmittal, have the signatures thereon guaranteed if required by Instruction 6
thereof, and mail or deliver such Letter of Transmittal together with a properly
completed and duly executed Notice of Guaranteed Delivery or the Convertible
Debentures and any other required documents to the Depository at one of its
addresses set forth on the back cover page of this Proxy Statement/Prospectus,
as set forth under "The Exchange Offer -- How to Tender and Consent in the
Exchange Offer" or (ii) request his broker, dealer, commercial bank, trust
company or other nominee to effect the transaction for him. Holders will not be
obligated to pay any brokerage commissions or solicitation fees in connection
with the Exchange Offer. HOLDERS OF CONVERTIBLE DEBENTURES WHO TENDER THEIR
CONVERTIBLE DEBENTURES IN THE EXCHANGE OFFER WILL BE REQUIRED TO CONSENT TO THE
AMENDMENTS. Holders of Convertible Debentures may consent to the Amendments
without tendering their Debentures in the Exchange Offer.

Tenders of any Convertible Debentures may be withdrawn, in accordance with
the withdrawal provisions described herein, at any time prior to the Expiration
Date for the Exchange Offer. In addition, tenders of Convertible Debentures may
be withdrawn after the expiration of 40 business days from the commencement of
the Exchange Offer, if not yet accepted by the Company. A Consent may be revoked
only by the Holder of the Convertible Debenture with respect to which the
Consent was given and only if the Company receives written notice of revocation
from the Holder prior to the date the Amendment becomes effective. However, the
revocation of a Consent will, unless waived by the Company, render the tender of
the related Convertible Debenture defective. See "The Exchange Offer --
Withdrawal of Tenders and Revocation of Consents."

No fractional shares of Common Stock will be issued upon consummation of the
Exchange Offer. The Company expects to enter into an agreement with the
Depositary whereby the Depositary will aggregate and sell in the open market all
fractional shares of Common Stock otherwise issuable in the Exchange Offer. The
proceeds of such sales would be distributed by the Depositary to the persons who
would otherwise have received such fractional amounts. There can be no assurance
as to the price at which such sales will be affected. See "The Exchange Offer --
Acceptance of Convertible Debentures and Delivery of Common Stock."

If the Restructuring is consummated, at least 95% of the outstanding
Convertible Debentures will be exchanged for shares of Common Stock. Holders of
Convertible Debentures who do not exchange may experience a significant
reduction in their ability to sell their Convertible Debentures and will not
have the benefit of certain restrictive covenants now contained in the Purchase
Agreements. However, the Company's reduced leverage as a result of the
Restructuring should increase the likelihood that the Company will be able to
pay the principal of and interest on the outstanding Convertible Debentures.

Requests for additional copies of this Proxy Statement/Prospectus or the
Letter of Transmittal should be directed to the Company at the address set forth
on the back of this Proxy Statement/ Prospectus or to the telephone number set
forth above. First Union National Bank, Charlotte, North Carolina has been
appointed as Depositary for the Exchange Offer. Questions and requests for
assistance may be directed to the Depositary at (800) 829-8432. For further
information regarding any of the foregoing, contact George Murnane III, Chief
Financial Officer of the Company, at (305) 593-2658.

8
<PAGE>
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF
CONVERTIBLE DEBENTURES TENDER THEIR SECURITIES IN THE EXCHANGE OFFER AND CONSENT
TO THE AMENDMENTS.

THE MEETING

At the Meeting, the Company's stockholders will be asked to approve
amendments to the Company's Certificate of Incorporation to effect the Reverse
Stock Split, the Preferred Stock Authorization and the Charter Amendments and to
approve the Stock Option Plan. The Company will restate its Certificate of
Incorporation (the "Restated Certificate") in connection with these amendments.
See "Appendix A" for the proposed Restated Certificate. Adoption of the proposed
amendments to the Company's Certificate of Incorporation is a condition to the
Exchange Offer and an essential part of the Restructuring.

THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF
THE COMMON STOCK VOTE IN FAVOR OF THE PROPOSED AMENDMENTS TO THE COMPANY'S
CERTIFICATE OF INCORPORATION AND APPROVE THE STOCK OPTION PLAN.

Only stockholders of record at the close of business on August 20, 1996 will
be entitled to notice of and to vote at the Meeting. As of the date of this
Proxy Statement/Prospectus, there were 4,041,779 shares of Common Stock
outstanding, of which there were approximately 105 holders of record and
approximately 850 beneficial owners. There are no shares of Preferred Stock
outstanding. Stockholders have no appraisal or dissenters' rights with respect
to the proposals to amend the Company's Certificate of Incorporation.

Each share of Common Stock is entitled to one vote with respect to the
proposed amendments to effect the Reverse Stock Split, the Preferred Stock
Authorization, the Board Amendments, and the Charter Amendments and with respect
to the approval of the Stock Option Plan. Stockholders have no appraisal or
dissenters' rights with respect to any of the proposed amendments to the
Company's Certificate of Incorporation or the approval of the Stock Option Plan.
See "Stockholders' Meeting, Voting Rights and Proxies."

As of the date of this Proxy Statement/Prospectus, without giving effect to
the Reverse Stock Split, Alexius A. Dyer III, the Chairman of the Board,
President and Chief Executive Officer of the Company, owned of record or
beneficially approximately 1,000 shares of the Company's Common Stock
(disregarding any shares of Common Stock beneficially owned by him by reason of
his ownership of stock options or warrants), which represents approximately
.025% of the aggregate number of shares of Common Stock outstanding. At such
date, without giving effect to the Reverse Stock Split, Mr. and Mrs. Richard R.
Wellman, formerly the Chairman of the Board and Secretary, respectively, of the
Company owned of record or beneficially approximately 1,999,700 shares of Common
Stock, or 49.48% of the shares of Common Stock outstanding. Mr. and Mrs. Wellman
executed an irrevocable proxy, in connection with their resignation of their
positions with the Company on January 31, 1995, authorizing the Board of
Directors of the Company to vote 1,980,000 shares of the Company's Common Stock
(representing approximately 48.99% of the shares of Common Stock outstanding)
owned by the Wellmans. The irrevocable proxy was affirmed by the Wellmans in
October 1995. Accordingly, the executive officers and directors of the Company
possess the power to vote approximately 49.02% of the outstanding shares of
Common Stock with respect to the Reverse Stock Split, the Board Classification,
the Preferred Stock Authorization, the Charter Amendments and approval of the
Stock Option Plan. Messrs. Dyer, Mueller and Kirkland have informed the Company
that they intend to vote in favor of the proposed amendments to the Company's
Certificate of Incorporation and for approval of the Stock Option Plan.

Stockholders are encouraged to mark, sign and date the appropriate proxy
card and mail it promptly in the enclosed return envelope. A stockholder who has
executed and returned a proxy may revoke it at any time before it is voted by
executing and returning a proxy bearing a later date, by

9
<PAGE>
giving notice of revocation to the Secretary of the Company or by attending the
Meeting and voting in person. See "Stockholders' Meeting, Voting Rights and
Proxies -- Solicitation of Proxies," "-- Voting of Proxies," "-- Record Date,"
"-- Voting Rights" and "-- Revocation of Proxies."

PROPOSED AMENDMENTS TO THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS

REVERSE STOCK SPLIT

The Board of Directors has approved an amendment to the Company's
Certificate of Incorporation to effect the Reverse Stock Split (the "Reverse
Stock Split Amendment"). Pursuant to the Reverse Stock Split Amendment, each 27
outstanding shares of Common Stock will be combined into one share of Common
Stock. If adopted, the Reverse Stock Split Amendment will not become effective
unless and until the Closing occurs. The authorized capitalization of the
Company will not be affected by the Reverse Stock Split. Adoption of the Reverse
Stock Split Amendment requires the affirmative vote of the holders of a majority
of the shares of Common Stock outstanding. See "Stockholders' Meeting, Voting
Rights and Proxies -- Proposed Amendment to the Company's Certificate of
Incorporation: Reverse Stock Split Amendment."

BOARD OF DIRECTORS

If the Board Amendments are adopted, three members of the Company's Board of
Directors will be members of the Company's management (each, a "Management
Director"). The remaining four directors will be persons nominated by certain
representatives of holders of the Convertible Debentures after consultation with
the Company's Board of Directors (each, an "Independent Director"). The
Management Directors will be Alexius A. Dyer III; George Murnane III; and E.
James Mueller and one of the Independent Directors will be Kyle Kirkland.
Promptly after the consummation of the Restructuring, the Board of Directors
will appoint three additional Independent Directors from persons nominated by
certain representatives of holders of the Convertible Debentures as described
above.

If adopted, the Board Amendment will not become effective unless and until
the Closing occurs. Adoption of the Board Amendments requires the affirmative
vote of the holders of a majority of the shares of Common Stock outstanding. See
"Stockholders' Meeting, Voting Rights and Proxies -- Proposed Amendment to the
Company's Certificate of Incorporation: Board of Directors," "Management" and
Description of Capital Stock."

PREFERRED STOCK AUTHORIZATION

The Board of Directors has approved an amendment to the Company's
Certificate of Incorporation (i) to increase the number of authorized shares of
Preferred Stock $.001 par value (the "Preferred Stock") to 2,000,000, (ii) to
provide that such shares may be issued from time to time by the Board of
Directors without further stockholder approval and (iii) to provide that a
series of Preferred Stock may be issued with such designations, preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications or terms and conditions of redemption as are
determined by the Board of Directors (the "Preferred Stock Authorization"). If
adopted, the Preferred Stock Authorization will not become effective unless and
until the Closing occurs. Adoption of the Preferred Stock Authorization requires
the affirmative vote of the holders of a majority of the shares of Common Stock
outstanding. See "Stockholders' Meeting, Voting Rights and Proxies -- Proposed
Amendments to the Company's Certificate of Incorporation: Preferred Stock
Authorization" and "Description of Capital Stock."

10
<PAGE>
CHARTER AMENDMENTS

The Board of Directors has approved amendments to the Company's Certificate
of Incorporation and Bylaws to add certain provisions with respect to
stockholder action (the "Charter Amendments"). Certain of those provisions may
make an acquisition of the Company more difficult for an acquiror.

SECTION 203 OF THE DELAWARE LAW. Pursuant to the Charter Amendments, the
Company's Certificate of Incorporation would be amended to make the provisions
of Section 203 of the Delaware General Corporation Law (the "DGCL") inapplicable
to the Company. In general, Section 203 of the DGCL prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years following the date such
stockholder became an "interested stockholder," unless (a) prior to such date
the board of directors of the corporation approved either the "business
combination" or the transaction which resulted in the stockholder becoming an
"interested stockholder," or (b) upon consummation of the transaction which
resulted in the stockholder becoming an "interested stockholder," the
"interested stockholder" owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced, excluding for
purposes of determining the number of shares outstanding those shares owned by
(i) persons who are directors and also officers and (ii) by employee stock
plans, in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer, or (c) on or subsequent to such date the "business
combination" is approved by the board of directors and authorized at the annual
or special meeting of stockholders by the affirmative vote of at least 66 2/3%
of the outstanding voting stock which is not owned by the "interested
stockholder." A "business combination" includes certain mergers, stock or asset
sales and other transactions resulting in a financial benefit to the "interested
stockholder." An "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years, did own) 15% or more of
the corporation's voting stock. Under the terms of Section 203, this amendment
will not be effective until 12 months after adoption by the stockholders and
shall not apply to any "business combination" between the Company and any person
who becomes an "interested stockholder" on or prior to such adoption.

STOCKHOLDER ACTION BY WRITTEN CONSENT. The Certificate of Incorporation
will be amended to provide that no action required or permitted to be taken at
any annual or special meeting of the stockholders of the Company may be taken
without a meeting, and the power of stockholders of the Company to consent in
writing, without a meeting, to the taking of any action is specifically denied.
This provision of the Certificate of Incorporation may not be amended, modified
or repealed by the stockholders of the Company, except with the consent of
holders of three-fourths of the Company's outstanding Common Stock.

ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. The Bylaws will be amended to provide that stockholders seeking to
bring business before an annual meeting of stockholders, or to nominate
candidates for election as directors at an annual or special meeting of
stockholders, must provide timely notice thereof in writing. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Company not less than 30 days nor more than
60 days prior to the meeting; provided, however, that in the event that less
than 40 days' notice or prior public disclosure of the date of the meeting is
given or made to stockholders, notice by the stockholder to be timely must be
received no later than the close of business on the 10th day following the day
on which such notice of the date of the meeting was mailed or such public
disclosure was made. The Bylaws also specify certain requirements for a
stockholder's notice to be in proper written form. These provision may preclude
some stockholders from bringing matters before the stockholders at an annual or
special meeting or from making nominations for directors at an annual or special
meeting. As set forth below, this provision of the Bylaws may not be amended,
modified or repealed by the stockholders of the Company, except with the consent
of holders of three-fourths of the Company's outstanding Common Stock.

11
<PAGE>
ADJOURNMENT OF MEETINGS OF STOCKHOLDERS. The Bylaws will be amended to
provide that when a meeting of stockholders of the Company is convened, the
presiding officer, if directed by the Board of Directors, may adjourn the
meeting if no quorum is present for the transaction of business or if the Board
of Directors determines that adjournment is necessary or appropriate to enable
the stockholders to consider fully information which the Board of Directors
determines has not been made sufficiently or timely available to stockholders or
to otherwise effectively exercise their voting rights. This provision will,
under certain circumstances, make more difficult or delay actions by the
stockholders opposed by the Board of Directors. The effect of such provision
could be to delay the timing of a stockholders' meeting, including in cases
where stockholders have brought proposals before the stockholders which are in
opposition to those brought by the Board of Directors and therefore may provide
the Board of Directors with additional flexibility in responding to such
stockholder proposals. As set forth below, the Bylaw provisions regarding
holding of meetings of stockholders may not be amended or repealed by the
stockholders of the Company, except with the consent of holders of three-fourths
of the Company's outstanding Common Stock.

AMENDMENT OF THE BYLAWS. The Certificate of Incorporation will be amended
to provide that no provision of the Bylaws may be amended, modified or repealed
by the stockholders of the Company, nor any provision of the Bylaws inconsistent
with such provision be adopted by the stockholders of the Company, except with
the consent of holders of three-fourths of the Company's outstanding Common
Stock. This provision will make it more difficult for stockholders to make
changes to the Bylaws that are opposed by the Board of Directors. This provision
of the Certificate of Incorporation may not be amended, modified or repealed by
the stockholders of the Company, except with the consent of holders of
three-fourths of the Company's outstanding Common Stock.

If adopted, the Charter Amendments will not become effective unless and
until the Closing occurs. Adoption of the Charter Amendments requires the
affirmative vote of the holders of a majority of the shares of Common Stock
outstanding. See "Stockholders' Meeting, Voting Rights and Proxies -- Proposed
Amendment to the Company's Certificate of Incorporation: Provisions Affecting
Corporate Governance" and "Description of Capital Stock."

THE STOCK OPTION PLAN

The Board of Directors has approved the adoption of the Stock Option Plan
for the Company's directors, officers and employees. The Stock Option Plan is
intended to provide a means to attract, retain and motivate selected employees
and directors of the Company. The Stock Option Plan provides for the grant to
eligible employees of incentive stock options, non-qualified stock options,
stock appreciation rights, restricted shares and restricted share units,
performance shares and performance units, dividend equivalents and other
share-based awards. All employees and directors are eligible to participate in
the Stock Option Plan. The Stock Option Plan will be administered by the
Compensation Committee of the Company's Board of Directors. The Compensation
Committee will have the full and final authority to select employees to whom
awards may be granted, to determine the type of awards to be granted to such
employees and to make all administrative determinations required by the Stock
Option Plan. The Compensation Committee also will have authority to waive
conditions relating to an award or accelerate vesting of awards. The Stock
Option Plan provides for certain grants of nonqualified stock options to
directors who are not executive officers of the Company. An aggregate of 598,782
shares of Common Stock have been reserved for issuance under the Stock Option
Plan, subject to anti-dilution adjustments in the event of certain changes in
the Company's capital structure.

12
<PAGE>

Common Stock. Forty percent of such options or shares will vest immediately with
15% vesting annually, over the four years following the date of grant. In
addition, shares representing 2.5% of the outstanding Common Stock will be
reserved for future issuance pursuant to the Stock Option Plan, each grant to
vest equally, over three years after being awarded. The Company also intends to
grant options representing up to 2.5% of the outstanding Common Stock to
directors who are not executive officers of the Company. The number of options
to be granted to the such directors will be determined by the Company prior to
the consummation of the Restructuring. The Company intends to reserve for future
issuance to such directors any shares not granted as restricted stock and not
covered by options issued upon consummation of the Restructuring. See
"Management -- The Stock Option Plan."

EXCHANGE OF STOCK CERTIFICATES; FRACTIONAL SHARES

As soon as practicable after the Closing, the Company's stockholders will be
notified and requested to surrender their present Common Stock certificates for
replacement certificates representing the number of shares of Common Stock into
which their shares of Common Stock were combined pursuant to the Reverse Stock
Split. Until so surrendered, each existing certificate for 27 shares of Common
Stock prior to the Closing will be deemed to represent a certificate for one
share of Common Stock.

No certificates or scrip representing fractional shares of Common Stock will
be issued in connection with the Restructuring. The Company expects to enter
into an agreement with the Depositary whereby the Depositary will aggregate and
sell in the open market all fractional shares of Common Stock otherwise issuable
in connection with the Restructuring. There can be no assurance as to the price
at which such sales will be effected. Market conditions or other factors could
cause the fractional shares to be sold at depressed prices, including prices
substantially below fair market value. The proceeds of such sales will be
distributed by the Depositary to the persons who would otherwise have received
such fractional amount. See "Certain Risk Factors -- Market for Common Stock"
and "Stockholders' Meeting, Voting Rights and Proxies -- Exchange of Stock
Certificates; Fractional Shares."

FEDERAL INCOME TAX CONSIDERATIONS

The Restructuring is expected to result in the recognition by the Company of
a certain amount of cancellation of debt ("COD") income. As a result of such
income, the Company's available federal net operating loss carryforwards
("NOLs") will be reduced accordingly. Following the Restructuring, the Company's
ability to use its remaining NOLs will be significantly limited by Section 382
of the Tax Code, except to the extent the Company recognizes certain built-in
gains in its assets during the five-year period following the Restructuring.

The exchange of the Convertible Debentures for Common Stock should
constitute a tax-free recapitalization for federal income tax purposes.
Accordingly, except to the extent that the consideration received by the holder
of Convertible Debentures is attributable to accrued interest, a holder of
Convertible Debentures should not recognize any gain or loss as a result of the
Restructuring. Under the terms of the Exchange Offer, a holder of Convertible
Debentures will be deemed to have been paid, and thus will be required to
include in income the amount of unpaid interest that has accrued with respect to
such Convertible Debentures as of the date of the Restructuring which has not
previously been included in such holder's income.

See "Certain Federal Income Tax Considerations."

FINANCIAL FORECAST

For information with respect to the Company's projected financial
performance, see "The Restructuring -- Projection of Certain Financial Data."

13
<PAGE>
SUMMARY CONSOLIDATED HISTORICAL FINANCIAL DATA

The following table sets forth selected historical financial information of
the Company for the five years ended May 31, 1996. The historical operating data
and historical balance sheet data for the five years ended May 31, 1996
presented below have been derived from, and should be read in conjunction with,
the Company's audited consolidated financial statements and the related notes
thereto. The following financial information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements of the Company included
elsewhere in this Proxy Statement/Prospectus. See "Selected Historical Financial
Data."

PER SHARE DATA:
Primary earnings (loss) per common and common
equivalent shares
Earnings (loss) before extraordinary item....... $ 0.52 $ 0.22 $ (4.21) $ (0.15) $ 0.57
Extraordinary item.............................. -- -- (0.09) -- --
---------- ---------- ---------- ---------- ----------
Net earnings (loss)........................... $ 0.52 $ 0.22 $ (4.30) $ 0.15 $ 0.57
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Weighted average shares outstanding used in
primary calculation.............................. 3,849,852 5,312,046 4,041,779 4,041,779 4,041,779

Fully diluted earnings (loss) per common and
common equivalent shares
Earnings (loss) before extraordinary item....... $ 0.52 $ 0.22 $ (4.21) $ (0.15) $ 0.47
Extraordinary item.............................. -- -- (0.09) -- --
---------- ---------- ---------- ---------- ----------
Net earnings (loss)........................... $ 0.52 $ 0.22 $ 4.30 $ 0.15 $ 0.47
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Weighted average shares outstanding used in fully
diluted calculation.............................. 3,849,852 5,312,046 4,041,779 4,041,779 6,541,779
Ratio of earnings to fixed charges (1)............ 5.01 1.58 -- -- 2.03
</TABLE>

<TABLE>
<CAPTION>
AT MAY 31,
----------------------------------------------------------
1992 1993 1994 1995 1996
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)......................... $ 2,938 $ 17,088 $ (18,312) $ (13,489) $ (10,841)
Total assets...................................... 20,303 35,709 25,553 14,511 16,132
Total debt........................................ 7,605 23,484 26,173 20,335 18,144
Stockholder's equity (deficit).................... 7,080 8,173 (9,088) (9,702) (7,416)
Book value per share.............................. $ 1.78 $ 2.04 $ (2.25) $ (2.40) $ (1.83)
</TABLE>

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

(1) For purposes of this item, "fixed charges" represent interest expense and
"earnings" represent income (loss) from operations. Earnings were
insufficient to cover fixed charges by $19.2 million and $1.4 million for
the years ended May 31, 1994, and 1995, respectively.

14
<PAGE>
SUMMARY PRO FORMA FINANCIAL DATA

The summary pro forma results of operations and financial position of the
Company set forth below have been derived from the Pro Forma Financial
Information appearing elsewhere in this Proxy Statement/Prospectus. The pro
forma operating data have been prepared assuming that the Restructuring occurred
on the first day of the period presented and the pro forma balance sheet data
have been prepared assuming that the Restructuring occurred on the balance sheet
date.

For purposes of presenting pro forma results, the Company's historical
consolidated financial statements have been adjusted to give effect to the
Restructuring, assuming that all of the Convertible Debentures are accepted for
exchange, that the Senior Notes are redeemed on the Closing Date with the
proceeds of an advance pursuant to the Credit Agreement, that amounts
outstanding pursuant to the Credit Agreement bear interest at the rate currently
applicable (10.25%) throughout the periods and that the Reverse Stock Split is
completed. See "Accounting Treatment." The pro forma financial information does
not purport to be indicative of the results that would actually have been
obtained had such transactions been consummated as of the date and for the
period presented or that may be obtained in the future. The information set
forth below should be read in conjunction with the Company's consolidated
historical financial statements and the notes thereto included elsewhere in this
Proxy Statement/Prospectus. See "Financial Statements." For an explanation of
the adjustments and assumptions made to prepare the pro forma financial data,
see "Pro Forma Financial Information."

<TABLE>
<CAPTION>
YEAR ENDED MAY 31, 1996
------------------------
(IN THOUSANDS, EXCEPT
RATIO
AND PER SHARE DATA)
<S> <C>
OPERATING DATA:
Total revenue........................................................................... $ 23,205
Total operating costs (1)............................................................... 18,747
-----------
Income from operations (2).............................................................. 4,458
Interest expense........................................................................ 1,213
Interest and other income............................................................... (34)
-----------
Earnings before income taxes............................................................ 3,279
Provision for income taxes (3).......................................................... 14
-----------
Net earnings............................................................................ $ 3,265
-----------
-----------
Ratio of earnings to fixed charges (4).................................................. 3.68

PER SHARE DATA:
Primary earnings per common and common equivalent share................................. $ 1.36
Weighted average shares outstanding used in primary calculation......................... 2,395,104
Fully diluted earnings per common and common equivalent share........................... $ 1.36
Weighted average shares outstanding used in fully diluted calculation................... 2,395,104
</TABLE>

<TABLE>
<CAPTION>
AT MAY 31, 1996
-------------------------
<S> <C>
BALANCE SHEET DATA:
Working Capital........................................................................ $ 6,652
Total assets........................................................................... 15,459
Total debt............................................................................. 8,144
Stockholders' equity................................................................... 2,103
Book value per share................................................................... $ 0.88
</TABLE>

- ------------------------------
(1) Total operating costs is defined as Cost of sales, Selling, general and
administrative expenses, Provision for doubtful accounts, and Depreciation
and amortization.

(2) Income from operations is defined as total revenue less total operating
costs.

(3) As of May 31, 1996 after giving effect to the Restructuring, the Company
would have had net operating loss carryforwards of approximately $4.9
million available to offset future income. The Company's ability to use such
net operating loss carryforwards to offset future income will be limited.
See "Certain Federal Income Tax Considerations."

(4) For purposes of this item, "fixed charges" represent interest expense and
"earnings" represent income from operations.

15
<PAGE>
MARKET PRICES OF AND DIVIDENDS PAID ON COMMON STOCK AND MARKET PRICES OF
CONVERTIBLE DEBENTURES

COMMON STOCK

The Company's Common Stock has been publicly traded since April 2, 1990.
From April 2, 1990 through July 22, 1994, the Common Stock was listed and traded
on the Nasdaq/National Market System under the symbol IASG. Effective July 22,
1994, the Nasdaq Qualifications Committee delisted the Company's Common Stock
from quotation on the Nasdaq/National Market System. Since that time, the Common
Stock has been traded through the National Quotation Bureau's National Daily
Quotation Price Sheets (the "Pink Sheets"). The following table sets forth the
high and low closing prices of the Common Stock for the fiscal periods indicated
below as reported by Nasdaq/ National Market System, prior to July 22, 1994, and
the high and low bid quotations as reported by the National Quotation Bureau
thereafter.

<TABLE>
<CAPTION>
Fiscal 1995 HIGH LOW
- -------------------- ------ ------
<S> <C> <C>
First Quarter
(through July
22)................ $ 15/16 $ 5/16
First Quarter (from
July 22)........... 3/8 1/4
Second Quarter...... 3/8 1/16
Third Quarter....... 13/32 1/32
Fourth Quarter...... 1/2 5/32

Fiscal 1996 HIGH LOW
- -------------------- ------ ------
<S> <C> <C>
First Quarter....... $ 7/16 $ 9/32
Second Quarter...... 9/32 5/32
Third Quarter....... 3/16 1/8
Fourth Quarter...... 7/32 1/8
<CAPTION>

Fiscal 1997 HIGH LOW
- -------------------- ------ ------
<S> <C> <C>
First Quarter
(through August 28,
1996).............. $ 1/4 $ 3/16
</TABLE>

At May 31, 1996, there were 105 holders of record and approximately 850
beneficial owners of the Company's Common Stock and no holders of the Company's
Preferred Stock. After consummation of the Restructuring, there will be
approximately 900 beneficial owners of Common Stock, assuming all of the
Convertible Debentures are tendered in the Exchange Offer.

The Company has not paid dividends on the Common Stock. The Company's
financial condition and the existence of defaults pursuant to the Senior Notes
and the Convertible Debentures make it unlikely that the Company will be able to
pay dividends on the Common Stock in the foreseeable future in the event the
Restructuring is not consummated. If the Restructuring is consummated, covenants
to be contained in the Credit Agreement will prohibit the Company from paying
dividends on the Common Stock as long as indebtedness issued pursuant to the
Credit Agreement remains outstanding.

The last sale of the Common Stock prior to the announcement of the
Restructuring known to the Company occurred on July 9, 1996 at a price of $.1875
per share. The last sale of the Common Stock prior to the date of this Proxy
Statement/Prospectus known to the Company occurred on August 28, 1996 at a price
of $.1875 per share.

16
<PAGE>
CONVERTIBLE DEBENTURES

No active trading market for the Convertible Debentures exists. The
Convertible Debentures were not registered pursuant to the Securities Act prior
to issuance and are not listed on any exchange. Because of the lack of public
registration and holdings in the Convertible Debentures being limited to only
approximately 50 holders, trading in the Convertible Debentures is extremely
limited and sporadic. The last trade of the Convertible Debentures known to the
Company occurred in October, 1995, when the largest single holder of the
Convertible Debentures sold all the Convertible Debentures held by it for a cash
price equal to $150 per $1,000 principal amount of the Convertible Debentures,
to one or more other substantial holders of the Convertible Debentures.

MARKET AND TRADING INFORMATION

The Company has applied for inclusion of the Common Stock on The Nasdaq
Stock Market's Small Cap Market and on The American Stock Exchange upon
consummation of the Restructuring. The Company will use its best efforts to have
the Common Stock included on either The Nasdaq Stock Market's Small Cap Market
or The American Stock Exchange. If both of the Company's applications are
granted, the Company will decide whether to list the Common Stock on The Nasdaq
Stock Market's Small Cap Market or The American Stock Exchange based on the
Company's judgment regarding the listing that will provide holders of the Common
Stock with the most liquidity. There can be no assurance that either such
application will be granted or that an active trading market for the Common
Stock will develop and no assurance can be given as to the price at which the
Common Stock might trade. See "Certain Risk Factors -- Market for Common Stock."

17
<PAGE>
RISK FACTORS

The Common Stock offered hereby pursuant to the Exchange Offer is subject to
certain material risks. In addition, in the event the Restructuring is not
consummated, there are additional risks to the ownership of Common Stock and
Convertible Debentures primarily as a result of the Company's financial
condition. Before deciding whether or not to tender any Convertible Debentures
pursuant to the Exchange Offer, or to vote in favor of the matters to be brought
before the Meeting, each stockholder and each holder of the Convertible
Debentures should consider carefully all of the information contained in this
Proxy Statement/Prospectus.

RISK FACTORS RELATING TO FAILURE OF THE RESTRUCTURING TO OCCUR

FINANCIAL CONDITION OF THE COMPANY. The Company faces significant liquidity
problems caused by its substantial debt burden. The Company had outstanding
indebtedness of approximately $18.1 million at May 31, 1996, consisting
primarily of $7.7 million principal amount of the Senior Notes, $10 million
principal amount of the Convertible Debentures and $.4 million principal amount
of a mortgage loan secured by its corporate headquarters. The Company has
scheduled debt service obligations (principal and interest) of approximately
$5.05 million during fiscal 1997. Cash flow from operations and cash on hand
will not be sufficient to cover the Company's scheduled cash debt service
obligations during fiscal 1997. See "The Restructuring -- Forecast of Certain
Financial Data." The Company has not made any interest payments on the
Convertible Debentures since February 28, 1995 and there is currently an
interest arrearage of approximately $1 million on the Convertible Debentures. On
July 17, 1995 the Company did not make its scheduled principal payment totaling
approximately $1.8 million to the holders of the Senior Notes. The Company made
a principal payment of $1.45 million on the Senior Notes on December 12, 1995
and a subsequent payment of $.7 million on May 13, 1996, which cured such
principal payment default and prepaid, without penalty, approximately $.35
million of the $4.1 million principal payment due on the Senior Notes on July
17, 1996. The Company did not make its July 17, 1996 principal payment on the
Senior Notes, which was due in the amount of approximately $3.7 million, pending
redemption of the Senior Notes in connection with the Restructuring. If the
Restructuring is not consummated, the Company will be unable to make such
principal payment, the only remaining principal payment on the Senior Notes due
during the current fiscal year, and will continue to be unable to make interest
payments on the Convertible Debentures for the remainder of the current fiscal
year.

The Company projects that it will have insufficient funds to make all of its
scheduled principal and interest payments with respect to the Senior Notes and
Convertible Debentures during fiscal 1997 through 2002, as set forth in the
table below:

<TABLE>
<CAPTION>
FISCAL YEAR
----------------------------------------------------------------
1997 1998 1999 2000 2001 2002
--------- --------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Scheduled principal payments under the Senior Notes.............. $ 3.70 $ 4.00 -- -- -- --
Scheduled interest payments under the Senior Notes............... .50 .10 -- -- -- --
Scheduled interest payments on the Convertible Debentures (1).... .80 .80 .80 .80 .80 .80
--------- --------- --- --- --- ---
Totals......................................................... $ 5.00 $ 4.90 $ .80 $ .80 $ .80 $ ..80
--------- --------- --- --- --- ---
--------- --------- --- --- --- ---
</TABLE>

- ------------------------
(1) No principal repayments with respect to the Convertible Debentures are due
until August 31, 2003.

18
<PAGE>
CERTAIN DEFAULTS. On May 26, 1995, the Company received a notice of payment
blockage from the Majority Noteholder. Citing a continuing Event of Default
under the agreement governing the Senior Notes as a result of the Company's
noncompliance with certain financial covenants, the Majority Noteholder demanded
that the scheduled interest payment which would otherwise have been payable on
May 31, 1995 to holders of the Convertible Debentures not be paid. As a result
of the Company's receipt of the notice of payment blockage, the Company did not
make the interest payments due to holders of Convertible Debentures on May 31,
1995 and August 31, 1995, totaling $.4 million. Pursuant to terms of the Senior
Notes, the Company was prohibited from making any other payments with respect to
the Convertible Debentures prior to the expiration of the payment blockage
period on November 22, 1995. Notwithstanding the expiration of the payment
blockage period, the Company did not pay the November 30, 1995 and the February
29 and May 31, 1996 interest payments on the Convertible Debentures. The Company
does not intend to resume making payments of interest on the Convertible
Debentures.

The Company did not make its scheduled July 17, 1995 principal payment on
the Senior Notes in the approximate amount of $1.8 million. The Company cured
the default in part by making a principal payment of $1.45 million on December
12, 1995. The Company made an additional principal payment of $.7 million on May
13, 1996, which cured such principal payment default and prepaid, without
penalty, approximately $.35 million of the $4.1 million principal payment due on
the Senior Notes on July 17, 1996. The Company did not make its July 17, 1996
principal payment on the Senior Notes, which was due in the amount of
approximately $3.7 million, pending redemption of the Senior Notes in connection
with the Restructuring. If the Restructuring is not consummated, the Company
will be unable to make such principal payment.

The failure to make the interest payments to the holders of the Convertible
Debentures and the principal payment to the holders of the Senior Notes due on
July 17, 1996 referred to above constituted an Event of Default under the
agreements governing the Senior Notes and Convertible Debentures. Further, the
Company is in default in the observance of certain financial covenants
applicable to the Senior Notes and the Convertible Debentures. If the Company
remains in default under the terms of the Senior Notes and Convertible
Debentures, the holders of such instruments could accelerate the debt, resulting
in principal of $17.7 million becoming immediately due and payable. The Company
would have no ability to repay such indebtedness if it were to be accelerated.
The foregoing circumstances most likely would require the Company to cease
operations or to file for protection under Chapter 11 of the Bankruptcy Code. In
addition, if the holders of any of the Senior Notes or Convertible Debentures
demand repayment or if the holders of the Senior Notes seek to realize upon the
collateral securing the Senior Notes, there is a substantial likelihood that the
Company will be forced to cease operations or to file for protection under
Chapter 11 of the Bankruptcy Code. See "The Restructuring -- Certain Defaults."

CONSEQUENCES OF FAILURE TO CONSUMMATE THE RESTRUCTURING. If the
Restructuring is not consummated, the Company's highly leveraged financial
position will result in the continuation of the defaults described above with
respect to the Senior Notes and the Convertible Debentures and may result in a
number of other serious financial and operational problems, including the
following: (i) the Company will experience a severe liquidity crisis; (ii) the
Company will be unable to invest adequate capital in its business or maintain
its current capital assets; (iii) the Company will have little, if any, ability
to access capital markets; (iv) the Company's senior management will be required
to spend an excessive amount of time and effort dealing with the Company's
financial problems, instead of focusing on the operation of its business; (v)
the Company may be unable to retain top managers and other key personnel and
build the value of its business; (vi) the Company may lose business if customers
become concerned about the Company's ability to supply quality replacement parts
in a timely manner or to comply with applicable regulatory requirements; and
(vii) suppliers to the Company may stop providing supplies or may provide
supplies only on shortened payment or cash terms. If these problems occur, the
Company believes that the value of its business will deteriorate.

19
<PAGE>
Accordingly, if the Restructuring is not consummated, the Company will have
little choice but to devise alternative actions. Considering the Company's
limited financial resources and the existence of unwaived defaults with respect
to the Senior Notes and the Convertible Debentures, there can be no assurance
that the Company would succeed in formulating and consummating an acceptable
alternative financial restructuring. In such case, the Company most likely would
be forced to cease operations or to file for protection under Chapter 11 of the
Bankruptcy Code. In addition, because payment defaults currently exist under the
Senior Notes and Convertible Debentures (see "-- Certain Defaults"), it is
possible that creditors of the Company could file an involuntary petition
seeking to place the Company in bankruptcy. There can be no assurance that a
bankruptcy proceeding would result in a reorganization of the Company rather
than a liquidation, or that any reorganization would be on terms as favorable to
the holders of the Convertible Debentures, Senior Notes and Common Stock as the
terms of the Restructuring. If a liquidation or a protracted reorganization were
to occur, there is a risk that there would be no cash or property available for
distribution to holders of the Convertible Debentures and the Common Stock and
that the holders of Senior Notes would incur a significant discount on their
claims. See "The Restructuring -- Certain Defaults."

CONDITIONS TO THE RESTRUCTURING. The Restructuring will not be consummated
unless the following things, among others, occur: (i) the Minimum Tenders shall
have been validly tendered and not withdrawn by the holders of the Convertible
Debentures prior to the Expiration Date; (ii) the requisite Consents shall have
been received and such Consents shall not have been revoked and the Amendments
shall have become effective; (iii) the Company's stockholders shall have
approved the amendments to the Company's Certificate of Incorporation to effect
the Reverse Stock Split, the Board Amendments, the Preferred Stock Authorization
and the Charter Amendments and shall have approved the Stock Option Plan; (iv)
the Company and the Bank shall have negotiated and executed the Credit
Agreement, the conditions to the effectiveness thereof shall have been satisfied
or waived and the Company shall have the ability to borrow at least $2.5 million
pursuant to the Credit Agreement immediately following the Restructuring; and
(v) the Old Warrant Amendment shall have become effective. See "The
Restructuring -- Conditions to the Restructuring." There can be no assurance
that the foregoing conditions will be satisfied.

RISK FACTORS ASSOCIATED WITH OWNERSHIP OF THE COMMON STOCK

EFFECTS OF THE ECONOMY ON THE OPERATIONS OF THE COMPANY. Since the
Company's customers consist of airlines, maintenance and repair facilities that
service airlines and other aircraft spare parts redistributors, the Company's
business can be impacted by the economic factors that affect the airline
industry. When such factors adversely affect the airline industry, they tend to
cause downward pressure on the pricing for aircraft spare parts and increase the
credit risk associated with doing business with airlines. Additionally, factors
such as the price of fuel affect the aircraft spare parts market for older
aircraft, since older aircraft become less competitive with newer model aircraft
as the price of fuel increases. There can be no assurance that economic and
other factors which might affect the airline industry will not have an adverse
impact on the Company's results of operations. See "Business -- Industry
Overview."

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

20
<PAGE>
FLUCTUATIONS IN OPERATING RESULTS. The Company's operating results are
affected by many factors, including the timing of orders from large customers,
the timing of expenditures to purchase inventory in anticipation of future
sales, the timing of bulk inventory purchases, and the mix of available aircraft
spare parts contained, at any time, in the Company's inventory. Since the
Company typically does not obtain long-term purchase orders or commitments from
its customers, it must anticipate the future volume of orders based upon the
historic purchasing patterns of its customers and upon its discussions with its
customers as to their future requirements. Cancellations, reductions or delays
in orders by a customer or group of customers could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Operations of the Company."

GOVERNMENT REGULATION. The aviation industry is highly regulated in the
United States by the FAA and in other countries by similar agencies. While the
Company's business is not regulated, the aircraft spare parts which it sells to
its customers must be accompanied by documentation that enables the customer to
comply with applicable regulatory requirements. There can be no assurance that
new and more stringent government regulations will not be adopted in the future
or that any such new regulations, if enacted, would not have an adverse impact
on the Company. See "Business -- Government Regulation."

CONCENTRATION OF SALES. During a given fiscal year, one or more customers
may account for a significant portion of the Company's parts sales. The
Company's parts customers operate in a segment of the airline industry that is
volatile and it is not unusual for a carrier that uses the types of aircraft for
which the Company stocks parts to fail. In addition, in the past the Company's
sales have been concentrated with a small number of customers. For example, in
fiscal 1994 ADC Airlines and Transafrik accounted for approximately 25% of the
Company's total revenue and in fiscal 1995, Aeroservicios Carabobo C.A. and Ajax
Leasing Ltd., accounted for more than 34% of the Company's total revenue. During
fiscal 1996, other than ValuJet Airlines, Inc., no customer represented more
than 4% of the Company's total revenue.

For fiscal 1996 and the first seven months of calendar year 1996, the
Company's parts sales to ValuJet represented approximately 21% and 25%,
respectively, of the Company's total revenues. ValuJet has been the subject of
intense scrutiny by the FAA since the crash of one of its aircraft in early May
1996. On June 17, 1996, ValuJet entered into a consent decree with the FAA.
Pursuant to the consent decree, ValuJet agreed to ground all of its aircraft
until it demonstrates compliance with specified safety and maintenance
procedures. ValuJet officials have publicly stated their intentions to resume
operations in the near future. Although ValuJet has recently conducted flight
tests and recalled employees, there can be no assurance that ValuJet will be
able to resume operations. FAA officials have refused to commit to a timetable
for permitting ValuJet to resume operations and have indicated that it will not
be permitted to do so in August 1996. Further, the consent decree provides that
ValuJet may operate no more than 15 aircraft when it initially resumes
operations, which is less than half of its fleet. The failure of ValuJet to
resume operations or eventually to resume operations to substantially the level
conducted prior to the grounding could have a material adverse effect on the
Company by reducing the Company's sales and earnings from ValuJet. Furthermore,
to the extent that a number of ValuJet's aircraft are not returned to service
with ValuJet and become available for sale and/or lease, short-term disruptions
may occur in the DC-9 market, temporarily diminishing the value of the Company's
inventory and aircraft. The Company believes that any aircraft previously
operated by ValuJet and not placed back in service will eventually be acquired
by other carriers who will need spare parts, but there can be no assurance in
this regard. The Company also conducts business with other customers who provide
services to ValuJet. Management cannot estimate the effect that the grounding of
ValuJet will have on sales to such other customers.

To reduce the Company's future vulnerability to a decrease in sales to any
single customer, the Company focused its marketing efforts on the identification
and solicitation of new customers. As a result, the Company obtained
approximately 240 new parts customers during fiscal 1995 and approximately 300
during fiscal 1996. See "Business -- Customers."

21
<PAGE>
RISKS REGARDING SALES AND LEASES TO FOREIGN CUSTOMERS. A substantial number
of the Company's customers are located outside the United States. During fiscal
1996, the Company supplied parts to 771 customers worldwide, of which 95 were
foreign customers. The Company's sales and leases abroad entail numerous
financial, legal and political risks for the Company's business, including
restrictions on the convertibility of payments to the Company in foreign
currencies, the difficulty in effecting a legal repossession of aircraft leased
to foreign customers, the difficulty in ascertaining the creditworthiness of
foreign customers, and the difficulty in instituting legal action to collect
receivables owed to the Company by foreign customers. In addition, conducting
business in such foreign jurisdictions exposes the Company to risks of currency
fluctuations, political instability and other risks inherent in operating in
foreign countries. These include controls, expropriation, nationalization and
other policies of local governments as well as the laws and policies of the
United States affecting foreign trade and investment. The Company's sales to
foreign customers are subject to the risks customarily associated with such
activities. Prior to fiscal 1995, a significant portion of the Company's sales
were to foreign customers. Beginning in fiscal 1995, as part of the new senior
management's strategic refocusing, the Company sought to reduce its exposure to
the more volatile international markets. As a result, its foreign revenues as a
percentage of total revenues have decreased in each of the last four years, to
approximately 15% in fiscal 1996 from 28% in fiscal 1995, 41% in fiscal 1994,
and 60% in fiscal 1993. Furthermore, during fiscal 1996, all of the Company's
sales were transacted in U.S. dollars. As of May 31, 1996 the Company owned no
assets outside the United States. See "Business -- Customers."

PRODUCT LIABILITY. The Company's business exposes it to possible claims for
personal injury or death which may result from the failure of an aircraft spare
part sold by it. In this regard, the Company maintains liability insurance in
the amount of $10 million. While the Company maintains what it believes to be
adequate liability insurance to protect it from such claims, and while no
lawsuit has ever been filed against the Company based upon a products liability
theory, no assurance can be given that claims will not arise in the future or
that such insurance coverage will be adequate. Additionally, there can be no
assurance that insurance coverages can be maintained in the future at an
acceptable cost. Any such liability not covered by insurance could have a
material adverse effect on the financial condition of the Company. See "Business
- -- Product Liability."

GROWTH STRATEGY AND RISKS RELATING TO FUTURE ACQUISITIONS. A key element of
the Company's strategy involves growth through the acquisition of additional
inventories of aircraft spare parts and the acquisition of other companies,
assets or product lines that would complement or expand the Company's existing
aircraft spare parts business. The Company's ability to grow by acquisition is
dependent upon, and may be limited by, the availability of suitable aircraft
parts inventories, acquisition candidates, capital, and by restrictions
contained in the Credit Agreement. In addition, acquisitions involve risks that
could adversely affect the Company's operating results, including the
assimilation of the operations and personnel of acquired companies, the
potential amortization of acquired intangible assets and the potential loss of
key employees of acquired companies. There can be no assurance that the Company
will be able to consummate acquisitions on satisfactory terms. See "Business --
Operating Strategy."

RELIANCE ON EXECUTIVE OFFICERS AND KEY EMPLOYEES. The continued success of
the Company is dependent to a significant degree upon the services of its
executive officers and upon the Company's ability to attract and retain
qualified personnel experienced in the various phases of the Company's business.
The Company has or will, upon consummation of the Restructuring, have,
employment agreements with all of its executive officers. The ability of the
Company to operate successfully could be jeopardized if one or more of its
executive officers were unavailable and capable successors were not found. The
employment agreements between the Company and its executive officers will be
individually terminable by each executive officer upon a change of control of
the Company. See "Management."

COMPETITION. The aircraft spare parts redistribution market is highly
fragmented. Customers in need of aircraft parts have access, through
computer-generated inventory catalogues, to a broad array

22
<PAGE>
of suppliers, including aircraft manufacturers, airlines and aircraft services
companies. The dominant companies in the aircraft parts aftermarket are AAR
Corp., Aviation Sales Company and Banner Aerospace. These companies are larger
than the Company and have greater financial resources. The Company also competes
with numerous smaller, independent dealers, which generally participate in niche
markets. The Company believes that none of its competitors account for a
significant amount of the spare parts market for DC-8, DC-9 and MD-80 aircraft,
the types of narrow-bodied aircraft in which the Company specializes.
Competition in the redistribution market is generally based on price,
availability and quality of product, including traceability. There can be no
assurance that competitive pressures will not materially and adversely affect
the Company's business, financial condition or results of operations. See
"Business -- Competition."

DILUTION. The issuance of a significant number of shares of Common Stock in
connection with the Restructuring will result in a significant dilution of the
equity interests of the existing holders of Common Stock. Immediately following
the consummation of the Restructuring, the equity interests of the holders of
Common Stock will be diluted to approximately 5% of the total number of shares
outstanding, assuming that all of the Convertible Debentures are accepted for
exchange, and that all options to purchase shares of Common Stock to be issued
to the Company's management are exercised. See "The Restructuring -- Certain
Significant Effects of the Restructuring."

MARKET FOR COMMON STOCK. The Company has applied for inclusion of the
Common Stock on The Nasdaq Stock Market's Small Cap Market and on The American
Stock Exchange upon consummation of the Restructuring. The Company will use its
best efforts to have the Common Stock included on either The Nasdaq Stock
Market's Small Cap Market or The American Stock Exchange. If both of the
Company's applications are granted, the Company will decide whether to list the
Common Stock on The Nasdaq Stock Market's Small Cap Market or The American Stock
Exchange based on the Company's judgment regarding the listing that will provide
holders of the Common Stock with the most liquidity. There can be no assurance
that either such application will be granted or that an active trading market
for the Common Stock will develop and no assurance can be given that a holder of
Common Stock will be able to sell such Common Stock in the future or as to the
price at which the Common Stock might trade. Further, there can be no assurance
that the Company will be able to maintain its inclusion on such market. The
Company expects to enter into an agreement with the Depositary whereby the
Depositary will aggregate and sell in the open market all fractional shares of
Common Stock otherwise issuable in the Exchange Offer. The Company can give no
assurance that the price at which such sales will be made will not be at a
substantial discount from the fair value of the securities sold. See "The
Exchange Offer -- Acceptance of Convertible Debentures and Delivery of Common
Stock."

NO DIVIDENDS. The Company does not anticipate that it will pay any
dividends on the Common Stock in the foreseeable future. The Credit Agreement
will contain provisions prohibiting the Company from paying dividends without
the consent of the lender. See "Description of the Credit Agreement."

CERTAIN BANKRUPTCY AND INSOLVENCY CONSIDERATIONS. Consummation of the
Restructuring will have significant consequences in the event of a subsequent
bankruptcy for exchanging holders of Convertible Debentures. To the extent
exchanging holders of the Convertible Debentures receive Common Stock, such
holders will have only an equity interest in the Company, which will rank below
all debt claims in a subsequent bankruptcy, including the claims of
non-exchanging holders of Convertible Debentures. Further, the Convertible
Debentures are subordinated to the Senior Notes and to all of the Company's
other secured and unsecured debt. Following the Restructuring, any Convertible
Debentures that have not been exchanged will be subordinated to the Company's
obligations under the Credit Agreement and all of the Company's other secured
and unsecured debt. See "The Restructuring -- Overview of the Restructuring."

23
<PAGE>
The relative rankings of the Company's debt claims and equity interests both
before and after the Restructuring are summarized in the following table.

<TABLE>
<CAPTION>
PRE-RESTRUCTURING POST-RESTRUCTURING
------------------------------ ------------------------------

<C> <S> <C> <C>
1. Secured Debt(a) 1. Secured Debt(a)
Senior Notes Credit Agreement
Other Secured Debt Other Secured Debt

2. Unsecured Debt(b) 2. Unsecured Debt(b) Trade Debt
Trade Debt Convertible Debentures
Convertible Debentures

3. Equity(c) 3. Equity(c)
Common Stock Common Stock
</TABLE>

- ------------------------
(a) All "Secured Debt" ranks ahead of all "Equity" and, to the extent of the
value of the security interests securing any such "Secured Debt," all
"Unsecured Debt." In addition, the debt under the Senior Notes has, and the
debt under the Credit Agreement will have, a contractual priority over all
"Unsecured Debt." To the extent any amount of the "Secured Debt" is under
secured or becomes unsecured, any such amount will have the relative
priority of "Unsecured Debt," except that debt under the Credit Agreement
and Convertible Debentures would retain its contractual priority over all
"Unsecured Debt."

(b) All "Unsecured Debt" ranks ahead of all "Equity." The Convertible Debentures
rank below all indebtedness of the Company other than "Trade Debt" and
indebtedness that by its express terms is not superior to the Convertible
Debentures.

(c) The Common Stock would constitute all the outstanding "Equity" of the
Company. In the event of a liquidation of the Company, all Secured and
Unsecured Debt of the Company, as well as Preferred Stock, if any, would be
paid or provided for and any amounts remaining would be available for the
"Equity."

THE RESTRUCTURING

The following sections of this Proxy Statement/Prospectus set forth certain
information regarding the events leading to the Restructuring, the terms of the
Restructuring, and the effects of the Restructuring on the Company and the
holders of its securities.

BACKGROUND

The Company issued the Convertible Debentures during fiscal 1994 on
September 8, 1993. The proceeds of the Convertible Debentures were used for the
following purposes: (i) to repurchase a portion of the Senior Notes ($3.4
million); (ii) to repay certain other indebtedness ($1.9 million); (iii) to pay
fees and expenses of the offering ($1.1 million); and (iv) to purchase four DC-9
aircraft for parting out ($3.6 million). Also during fiscal 1994, the Company,
in an attempt to more vertically integrate its business, invested approximately
$3 million to establish a repair facility certified by the FAA. The principal
business of the repair facility, which commenced operations in fiscal 1994, was
to perform FAA-required maintenance checks on certain narrow body aircraft. The
facility was operated by IASC.

However, during fiscal 1994, while the Company was undertaking its
diversification and expansion program, its financial performance was adversely
affected by several factors. First, sales to Transafrik Corp., a cargo carrier
operating in Africa, declined significantly, from approximately $6.0 million in
fiscal 1993 to approximately $1.5 million in fiscal 1994. Transafrik had
accounted for a significant portion of the Company's revenue prior to fiscal
1994. During fiscal 1994, Transafrik underwent a change in ownership and made
other significant management and operational changes, including a downsizing of
its fleet and changes in fleet mix. Second, the Company was unable to operate
the repair facility profitably, losing approximately $1.9 million on its
operations of the facility

24
<PAGE>
during fiscal 1994. Principally as the result of the establishment of the repair
facility, the number of persons employed by the Company grew from approximately
80 in fiscal 1993 to approximately 160 in fiscal 1994, and sales, general and
administrative expense increased to approximately 37.1% of total revenue in
fiscal 1994 from approximately 19.3% of total revenue in fiscal 1993. Third, the
overall market for used aircraft and parts weakened and this, combined with a
diminished cash position, reduced the Company's ability to purchase additional
aircraft and inventory for resale and lead to a 43.9% decline in total revenues
in fiscal 1994, from $33.5 million in fiscal 1993 to $18.7 million.

As a result of the weak demand in the marketplace and the Company's need to
increase its liquidity to meet its obligations as they became due, it became
necessary for the Company to sell an aircraft at an inopportune time and price,
resulting in a $2.1 million loss. This loss related primarily to the aircraft
being sold to raise cash at an amount substantially below cost, as well as the
write-off of an aircraft because its Nigerian lessee defaulted under the lease
and the Company did not believe it could recover possession of the aircraft. In
addition, during the fourth quarter of fiscal 1994, the Company accrued to cost
of sales a charge of $2.4 million for the partial write-down of three aircraft
to reflect net realizability of the aircraft. The unanticipated cost of
overhauling these aircraft at IASC eliminated the economic benefit that the
Company had negotiated under their sales contract.

In February 1994, the Company's President and Chief Financial Officer left
the Company and in January 1995, the Company's Chief Executive Officer was
replaced by the current Chief Executive Officer. In an effort to address the
Company's financial problems, current senior management made the strategic
decision to refocus the Company on its core business -- parts sales. The costs
of implementing this strategy were largely recognized in fiscal 1994.
Accordingly, the Company recorded a net loss of $17.4 million in fiscal 1994,
substantially all of which was related to non-core businesses and, to the extent
related to the core business, was nonrecurring. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

As part of its strategic decisions to refocus on its core business, in late
fiscal 1994 and early fiscal 1995, the Company sought aggressively to reduce its
expenses. As a result, the total number of persons employed by the Company was
reduced by approximately 85%, to 24 by the end of fiscal 1995, and operations at
the service center were terminated. Further, the Company sold a subsidiary that
was engaged in air cargo transport. In addition, during fiscal 1995, the Company
sought to reduce its vulnerability to a decrease in sales to any single customer
by focusing its marketing on the identification and solicitation of new
customers. The Company obtained approximately 240 new parts customers during
fiscal 1995. Also in fiscal 1995, the Company instituted new compensation
policies for its parts sales force. Pursuant to the new policies all salesman
are paid strictly on commission, sales to new customers are encouraged and
commissions are not paid until accounts are collected. Furthermore, the Company
has continued to decrease its exposure to more volatile international markets.
Its domestic revenues as a percentage of total revenues has increased in each of
the last four fiscal years, to approximately 85% in fiscal 1996 from 72% in
fiscal 1995, 59% in fiscal 1994, and 40% in fiscal 1993.

CERTAIN DEFAULTS

On May 26, 1995, the Company received a notice of payment blockage from the
Majority Noteholder. Citing a continuing Event of Default under the agreement
governing the Senior Notes as a result of the Company's noncompliance with
certain financial covenants, the Majority Noteholder demanded that the scheduled
interest payment which would otherwise have been payable on May 31, 1995 to
holders of the Convertible Debentures not be paid. As a result of the Company's
receipt of the notice of payment blockage, the Company did not make the interest
payments on the Convertible Debentures due on May 31 and August 31, 1995,
totaling $.4 million. Pursuant to terms of the Senior Notes, the Company was
prohibited from making any other payments with respect to the Convertible
Debentures prior to the expiration of the payment blockage period on November
22, 1995. Notwithstanding the expiration of the payment blockage period, the
Company did not pay the November 30, 1995 and the February 29 and May 31, 1996
interest payments on the Convertible Debentures. The Company does not intend to
resume making payments of interest on the Convertible Debentures.

25
<PAGE>
The Company did not make its scheduled July 17, 1995 principal payment on
the Senior Notes in the approximate amount of $1.8 million. The Company cured
the default in part by making a principal payment of $1.45 million on December
12, 1995. The Company made an additional principal payment of $.7 million on May
13, 1996, which cured such principal payment default and prepaid, without
penalty, approximately $.35 million of the $4.1 million principal amount due on
the Senior Notes on July 17, 1996. The Company did not make its July 17, 1996
principal payment on the Senior Notes, which was due in the amount of
approximately $3.7 million, pending redemption of the Senior Notes in connection
with the Restructuring. If the Restructuring is not consummated, the Company
will be unable to make such principal payment, the only remaining principal
payment on the Senior Notes due during the current fiscal year, and will
continue to be unable to make interest payments on the Convertible Debentures
for the remainder of the current fiscal year.

The failure to make the interest payments to holders of the Convertible
Debentures and the principal payment to the holders of the Senior Notes due on
July 17, 1996 referred to above constituted an Event of Default under the
agreements governing the Senior Notes and Convertible Debentures. Further, the
Company is in default in the observance of certain financial covenants
applicable to the Senior Notes and the Convertible Debentures. If the Company
remains in default under the terms of the Senior Notes and Convertible
Debentures, the holders of such instruments could accelerate the debt, resulting
in principal of approximately $17.7 million becoming immediately due and
payable. The Company would have no ability to repay such indebtedness if it were
to be accelerated. The foregoing circumstances most likely would require the
Company to cease operations or to file for protection under Chapter 11 of the
Bankruptcy Code. In addition, if the holders of any of the Senior Notes or
Convertible Debentures demands repayment or if the holders of the Senior Notes
seek to realize upon the collateral securing the Senior Notes, there is a
substantial likelihood that the Company will be forced to cease operations or to
file for protection under Chapter 11 of the Bankruptcy Code.

NEGOTIATIONS WITH DEBENTUREHOLDERS

In late fiscal 1995, the Company conducted preliminary meetings with certain
holders of the Senior Notes and Convertible Debentures and representatives of
Dabney/Resnick, Incorporated ("D/ R"), which served as the Company's placement
agent for the offering of the Convertible Debentures and whose clients include
several holders of the Convertible Debentures, regarding a restructuring of the
Company's debt. In July 1995, the Company formulated a restructuring proposal
that contemplated (among other things) (i) the issuance of shares of Common
Stock representing approximately 63.55% of the total shares of Common Stock to
be outstanding on a fully diluted basis following implementation of the proposal
to the holders of the Convertible Debentures in exchange for their debt claims
against the Company; (ii) a deferral of the repayment of approximately $1
million of the principal of the Senior Notes for one year; and (iii) the sale of
up to $2 million of new subordinated debt securities and shares of Common Stock
representing up to 12.5% of the Common Stock outstanding on a fully diluted
basis following the implementation of the proposal to certain holders of the
Convertible Debentures for cash. Pursuant to such restructuring proposal, the
Company's management would have received options representing 8.95% of the total
shares of Common Stock to be outstanding on a fully diluted basis following
implementation of the proposal and options equal to 2% of such Common Stock with
respect to each year during the five fiscal years following implementation of
the proposal that the Company achieved certain earnings projections. Following
the implementation of such proposal, the outstanding shares of Common Stock
would have represented approximately 5% of the total outstanding on a fully
diluted basis. The restructuring proposal was presented to certain major holders
of the Convertible Debentures and D/R in July, 1995. The Company understands
that, after the presentation of the restructuring proposal, the largest holder
of the Convertible Debentures sold all of the Convertible Debentures then held
by it, for a cash price equal to $150 per $1,000 principal amount of the
Convertible Debentures, to one or more substantial holders of Convertible
Debentures that had also been participating in the restructuring discussions.

26
<PAGE>
In November 1995, a major Convertible Debenture holder and D/R held
discussions with the Company regarding a possible counterproposal to the
Company's restructuring proposal. Pursuant to the counterproposal, the holders
of the Convertible Debentures would have exchanged their debt claims against the
Company for $4.85 million aggregate principal amount of new debt instruments and
shares of Common Stock representing 60% of the Common Stock outstanding on a
fully diluted basis following implementation of the counterproposal. The new
debt instrument would have been non-interest bearing through fiscal 2000 and
thereafter would have borne interest at the rate of 15% per annum until maturity
in fiscal 2003. The counterproposal also contemplated that management would
receive Common Stock, or options to acquire shares of Common Stock, representing
10% of the Common Stock outstanding on a fully diluted basis following the
implementation of the counterproposal. Shares of Common Stock representing 20%
of the total outstanding on a fully diluted basis were to be issued to the
holders of a new series of debt instruments contemplated by the counterproposal.
The new debt instruments were to be issued for $1.5 million cash. Finally, under
the counterproposal, the outstanding shares of Common Stock would have
represented approximately 5% of the total outstanding on a fully diluted basis.
The Company rejected the counterproposal and it was retracted.

The Convertible Debenture holder then engaged, at the Company's expense, an
aviation consulting firm and an investment banking firm to review the Company's
restructuring proposal. These experts completed their review and issued a report
dated December 12, 1995. The report concluded (i) that the value of the
Company's aircraft and parts inventory exceeded the then outstanding principal
amount of the Senior Notes; (ii) that the Company's gross margins were likely to
decline from current levels and that, therefore, the Company should consider
selling its aircraft to obtain working capital; and (iii) that the recovery that
the Convertible Debenture holders could expect by retaining an equity interest
in the Company should significantly exceed the recovery from a quick sale of
assets or the current sale of the Company's business to a third party. On
February 1, 1996, the Company again met with the major holder of the Convertible
Debentures and D/R. At this meeting, the Company, the Convertible Debenture
holder and D/R discussed the Company's proposal that the Convertible Debentures
be converted into shares of the Company's common stock. The Convertible
Debenture holder and D/R requested that the Company update certain information
included in its original restructuring proposal and provide a revised
restructuring proposal.

The Company presented the updated financial information to the Convertible
Debenture holder and D/R on June 10, 1996. At the June 10 meeting, the
Convertible Debenture holder agreed to exchange the Convertible Debentures held
by it for shares of Common Stock representing 75% of the shares of Common Stock
to be outstanding following the Restructuring, on a fully-diluted basis, and D/R
agreed to recommend to its clients that they do so, subject to the following
conditions: (i) that, following the consummation of the Restructuring, the
Company would be permitted to borrow at least $2.5 million pursuant to the
Credit Agreement; (ii) that the Company agree to use its best efforts to have
the Common Stock included in The Nasdaq Stock Market following the consummation
of the Restructuring; (iii) that the Company, such Debenture holder and D/R
negotiate final terms regarding the composition of the Board of Directors of the
Company and the terms and distribution of the restricted shares of Common Stock
and options to be issued to management upon consummation of the Restructuring;
and (iv) that the amount of the expenses of consummating the Restructuring be
reduced.

On June 26, 1996, the Company again met with D/R. At that meeting, the D/R
representative indicated that D/R would be supportive of a restructuring plan
that satisfied each of the conditions discussed at the June 10 meeting. Also on
June 26, 1996, the Company met with the Majority Noteholder. At the meeting, the
Majority Noteholder agreed to accept prepayment of its Senior Notes upon
consummation of the Restructuring without receipt of prepayment penalty or
penalty interest on overdue interest and to consent to the Old Warrant
Amendment. The Company proposed to the Majority Noteholder that it enter into a
standstill agreement with the Company and provided a draft of such an agreement
to the Majority Noteholder. The Restructuring is the Company's revised

27
<PAGE>

restructuring proposal provided in response to its negotiations with the
Majority Noteholder, such Convertible Debenture holder and D/R representatives.
The terms of the Restructuring were approved by the Directors of the Company at
a meeting held on July 11, 1996.

THE STANDSTILL AGREEMENT

As a result of the negotiations described above, the Company entered into a
Standstill Agreement with the Majority Noteholder on July 11, 1996. Pursuant to
the Standstill Agreement, the Majority Noteholder has agreed to refrain (to the
extent provided therein) from exercising any rights or remedies it may have with
respect to the Event of Default with respect to the Senior Notes that occurred
upon the Company's failure to pay the installment of principal due on the Senior
Notes on July 17, 1996. The obligations of the Majority Noteholder pursuant to
the Standstill Agreement terminate on the earlier of (i) the 120th day following
the date of the Standstill Agreement; (ii) the consummation of the
Restructuring; and (iii) the Termination Date (as defined below). Such
agreement, however, does not constitute a waiver of the Event of Default. In the
event that the Termination Date occurs, the Majority Noteholder will be entitled
to exercise any and all of its rights and remedies with respect to such Event of
Default. The Company has agreed, pursuant to the Standstill Agreement, to
continue to pay non-default rate interest with respect to the Senior Notes in
accordance with their terms prior to the consummation of the Restructuring.

For purposes of the Standstill Agreement, the "Termination Date" is defined
as the first to occur of the following: (i) the occurrence of any "Standstill
Event of Default" (as defined below); (ii) the exercise by any creditor of the
Company of any remedies against the Company with respect to the Company's
obligations to such creditor; and (iii) the first date on which, in the
reasonable determination of the Majority Noteholder, any one of the conditions
precedent to the Restructuring (see "-- Conditions to the Restructuring") is no
longer capable of being satisfied. The Standstill Agreement provides that the
Company shall promptly give notice to the Majority Noteholder of the occurrence
of any event or circumstance of which it is aware that would constitute grounds
for the Majority Noteholder to declare that the Termination Date has occurred
and that if the Termination Date shall occur, the holders of a majority of the
principal amount of the Notes shall give the Company notice of the occurrence.
The "Standstill Events of Default" are the following: (i) the Company, pursuant
to or within the meaning of any bankruptcy law, commences a voluntary case or
proceeding, consents to the entry of an order for relief against it in an
involuntary case or proceeding, consents to the entry of an order for relief
against it in an involuntary case or proceeding, consents to the appointment of
a custodian of it or for all or substantially all of its property, makes a
general assignment for the benefit of its creditors or admits in writing its
inability to pay its debts as they come due; (ii) pursuant to or within the
meaning of any bankruptcy law, an involuntary case or proceeding is commenced
with respect to the Company, and an order against the debtor is entered in such
case or proceeding or the court in such case or proceeding appoints a custodian
for or orders the liquidation of the debtor or any substantial part of its
assets and such order or appointment remains unstayed and in effect for 60 days;
or (iii) the Company defaults in its obligation to make interest payment with
respect to the Senior Notes.

The Majority Noteholder has also agreed that, prior to the Termination Date,
it will not voluntarily transfer Senior Notes or Old Warrants unless the
transferee agrees to be bound by the terms and conditions set forth in the
Standstill Agreement. The Majority Noteholder has also agreed to refrain, prior
to the Termination Date, from collecting from the Company, and from asserting
any right to collect, payment of penalty interest on overdue payments of
principal and interest on the Notes. Further, the Majority Noteholder has agreed
that the provisions of the Senior Notes Purchase Agreement that require the
payment by the Company of a prepayment premium upon the optional prepayment of
the Senior Notes shall be waived in connection with the prepayment of the Notes
upon consummation of the Restructuring. Pursuant to the Standstill Agreement,
the provisions of the Senior Notes that provide for the payment of interest and
interest on overdue installments of interest will again be in full force and
effect upon the occurrence of the Termination Date (other than a Termination
Date that results from the consummation of the Restructuring).

28
<PAGE>
OVERVIEW OF THE RESTRUCTURING

GENERAL. The Company is proposing the Restructuring to achieve changes in
its financial structure that it believes are necessary to help alleviate the
problems caused by the Company's excessive debt service levels and debt
repayment obligations, to help assure its long-term viability and to permit it
to implement its operating strategy. If the Restructuring is consummated, the
Company expects that it will have the financial flexibility and liquidity it
requires to implement its operating strategy. Although the success of the
Company after the Restructuring will depend on the success of its operating
strategy and its ability to meet the financial forecasts included elsewhere in
this Proxy Statement/Prospectus, the consummation of the Restructuring does not
depend on the Company's meeting the financial forecasts included elsewhere in
this Proxy Statement/Prospectus or on the Company's consummating any
acquisitions as part of its operating strategy. However, consummation of the
Restructuring is subject to a number of conditions and the Company has no
assurance that such conditions will be satisfied. See "-- Conditions to the
Restructuring."

In the absence of the Restructuring, the Company will be unable to make the
scheduled principal payments on the Senior Notes and the Convertible Debentures.
In addition, in the absence of the Restructuring, although the Company expects
to be able to make scheduled interest payments on the Senior Notes, it would be
unable to make scheduled interest payments on the Convertible Debentures. If the
holders of any of the Company's Senior Notes or Convertible Debentures demand
repayment or if the holders of the Senior Notes seek to realize upon the
collateral securing the Senior Notes, the Company most likely would be forced to
cease operations or to file for protection under Chapter 11 of the Bankruptcy
Code.

Upon consummation of the Restructuring, (a) the Reverse Stock Split, the
Board Classification, the Preferred Stock Authorization, the Charter Amendments,
the Stock Option Plan and the Credit Agreement would become effective; (b) the
Company would accept all valid tenders of Convertible Debentures and would issue
shares of Common Stock in exchange therefor; (c) the Amendments would become
effective; (d) the Senior Notes would be redeemed using advances under the
Credit Agreement; (e) the Company would issue options to purchase shares of
Common Stock to the Company's directors, officers and employees pursuant to the
Stock Option Plan in settlement of options and/or warrants previously awarded to
them or in connection with employment agreements to be entered into by them; and
(f) the Old Warrant Amendment would become effective. None of the foregoing will
become effective unless all are consummated. The consummation of the
Restructuring is conditioned upon the occurrence of certain events. See "--
Conditions to the Restructuring."

On a pro forma basis, the Restructuring would have reduced the amount of the
Company's outstanding indebtedness, at May 31, 1996, from $18.1 million to $8.1
million, based on the assumptions that the Restructuring occurred on such date
and that all Convertible Debentures were accepted for exchange. Total interest
expense, on a pro forma basis, would have been reduced from $2.2 million to $1.2
million during fiscal 1996, based on the assumptions that the Restructuring
occurred on the first day of the period presented, that all Convertible
Debentures were accepted for exchange and that amounts outstanding on the Credit
Agreement bore interest at 10.25% throughout the periods.

If the Restructuring does not receive the required approvals, the highly
leveraged financial condition of the Company will necessitate the development of
alternative actions. In view of the Company's limited financial resources and
the existence of unwaived defaults under the Senior Notes and the Convertible
Debentures, there can be no assurance that the Company would succeed in
formulating and consummating an alternative financial restructuring. In such
case, the Company would most likely be forced to cease operations or to file for
protection under Chapter 11 of the Bankruptcy Code. See "Risk Factors --
Consequences of Failure to Consummate the Restructuring."

THE CREDIT AGREEMENT. The Restructuring is conditioned upon the execution
of the Credit Agreement with the Bank and the Company's ability to borrow at
least $2.5 million pursuant to the Credit Agreement immediately following the
consummation of the Restructuring. The Company

29
<PAGE>

expects that it will have the ability to borrow approximately $11.7 million
under the Credit Agreement and it expects to incur approximately $7.9 million of
indebtedness under the Credit Agreement upon consummation of the Restructuring.
See "Description of the Credit Agreement."

RETIREMENT OF THE SENIOR NOTES; AMENDMENT OF OLD WARRANTS. The Senior Notes
will be redeemed upon consummation of the Restructuring. It is a condition to
the Restructuring that the holders of the Old Warrants agree to amend the
expiration date of the Old Warrants upon consummation of the Restructuring.

EQUITY RESTRUCTURING. The amendment to the Company's Certificate of
Incorporation authorizing the Reverse Stock Split must be adopted by the
stockholders prior to the consummation of the Restructuring. Pursuant to the
Reverse Stock Split Amendment, the Reverse Stock Split will cause each 27 shares
of Common Stock outstanding to be combined into one share of Common Stock. In
the course of the negotiations described in "-- Negotiations with
Debentureholders," the Company agreed with a major holder of the Convertible
Debentures that the shares of Common Stock to be issued in the Exchange Offer
would represent 75% of the total shares of Common Stock to be outstanding after
the Restructuring, on a fully-diluted basis. The Company further determined
that, in order to facilitate liquidity in the Common Stock post-Restructuring,
it would be appropriate for it to have approximately 3 million shares of Common
Stock outstanding after the Restructuring and calculated the size of the Reverse
Stock Split accordingly. If the Reverse Stock Split were not implemented, the
Company would have in excess of 80 million shares of Common Stock outstanding
after the Restructuring. Adoption of the Reverse Stock Split requires the
affirmative vote of the holders of a majority of the shares of Common Stock
outstanding. See "Stockholders' Meeting, Voting Rights and Proxies -- Exchange
of Stock Certificates; Fractional Shares" for a discussion of the treatment of
fractional shares of Common Stock.

CERTAIN SIGNIFICANT EFFECTS OF THE RESTRUCTURING

SIGNIFICANT CHANGES IN FINANCIAL OBLIGATIONS. The Restructuring would
result in significant changes in the Company's financial obligations, including
(a) the elimination of future interest and principal payment obligations with
respect to at least 95% of the aggregate principal amount of the Convertible
Debentures, (b) the repayment of the Senior Notes, (c) the incurrence of
approximately $7.9 million of indebtedness under the Credit Agreement, (d) the
increased sensitivity of the Company to prevailing interest rates because
indebtedness under the Credit Agreement will bear interest at a floating rate,
and (e) the deferral of principal payments on the Company's long-term
indebtedness because the final maturity of the Credit Agreement is later than
the maturity date of the Senior Notes. The Restructuring would also result in
the modification of certain restrictive covenants now applicable to the Company
pursuant to the instruments creating the Convertible Debentures and the
elimination of the restrictive covenants now applicable to the Company pursuant
to the instruments creating the Senior Notes. The Company expects that it would
have approximately $3.8 million of available borrowings under the Credit
Agreement after the incurrance of the approximately $7.9 million of indebtedness
upon implementation of the Restructuring. The Company believes that such
remaining availability will be adequate, together with cash from operations, to
meet its projected expenditures. Certain effects of the Restructuring, assuming,
in the case of outstanding indebtedness, that the Restructuring was consummated
on May 31, 1996, and, in the case of interest expense, that the Restructuring
was consummated on June 1, 1995, are set forth in the tables below. In addition,
the information set forth in the tables below has been prepared based on the
assumption that all of the Convertible Debentures are accepted for exchange. The
information set forth in the tables below and

30
<PAGE>
the assumptions upon which such information is based are more fully described in
the section entitled "Pro Forma Financial Information." The discussion herein is
qualified in its entirety by the information set forth in such section.

<TABLE>
<CAPTION>
OUTSTANDING INDEBTEDNESS
AT MAY 31, 1996
------------------------
HISTORICAL PRO FORMA
--------- -------------
(IN THOUSANDS)

<S> <C> <C>
Senior Notes................................................................ $ 7,700 $ --
Convertible Debentures...................................................... 10,000 --
Credit Agreement............................................................ -- 7,700
Other Debt.................................................................. 444 444
--------- -------------
Total..................................................................... $ 18,144 $ 8,144
--------- -------------
--------- -------------
</TABLE>

<TABLE>
<CAPTION>
INTEREST REQUIREMENTS
FOR THE YEAR ENDED
MAY 31, 1996
--------------------------
HISTORICAL PRO FORMA
----------- -------------
(IN THOUSANDS)
<S> <C> <C>
Senior Notes................................................................ $ 1,099 $ --
Convertible Debentures...................................................... 800 --
Credit Agreement............................................................ -- 937
Other Debt.................................................................. 80 80
Credit facility fee......................................................... -- 90
Amortization of deferred debt issuance costs................................ 213 106
----------- -------------
Total..................................................................... $ 2,192 $ 1,213
----------- -------------
----------- -------------
</TABLE>

The Company's scheduled obligations to pay interest and principal under the
instruments creating the Senior Notes and the Convertible Debentures during
fiscal years 1997 through 2001 in the absence of the Restructuring are set forth
in the following table. In the absence of the Restructuring, the Company will be
unable to make the scheduled principal payments on the Senior Notes and the
Convertible Debentures. In addition, in the absence of the Restructuring,
although the Company expects to be able to make scheduled interest payments on
the Senior Notes, it would be unable to make scheduled interest payments on the
Convertible Debentures.

<TABLE>
<CAPTION>
NO RESTRUCTURING
FISCAL YEAR
-----------------------------------------------------
1997 1998 1999 2000 2001
--------- --------- --------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Scheduled principal and interest payments on the Senior
Notes....................................................... $ 4.25 $ 4.10 $ -- $ -- $ --
Scheduled principal and interest payments on the Convertible
Debentures.................................................. .80 .80 .80 .80 .80
--------- --------- --------- --------- ---------
Totals..................................................... $ 5.05 $ 4.90 $ .80 $ .80 $ .80
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>

If the Restructuring does not occur, no interest or other payments will be
due under the Credit Agreement because it is a condition precedent to the
effectiveness of the Credit Agreement that the Restructuring occur. The Credit
Agreement will establish a revolving line of credit facility and a term loan
facility in the Company's favor. The Company may borrow up to the lesser of
$11.0 million and an amount based on the level of the Company's eligible
receivables and inventory pursuant to the revolving line of credit facility. All
borrowings pursuant to the revolving line of credit facility must be repaid by
the Company on or before the fifth anniversary of the effectiveness of the
Credit Agreement. The Company may borrow up to the lesser of $3.0 million and an
amount based on a percentage of the liquidation value of its aircraft pursuant
to the term loan facility. To the extent that the entire $3 million is borrowed
pursuant to the term loan facility, such amount must be repaid in monthly

31
<PAGE>
installments of $33,333 during the first fiscal year the term loan is
outstanding, $41,666 during the second year, $50,000 during the third year,
$58,333 during the fourth year and $66,666 during the fifth year. See
"Description of the Credit Agreement" and "-- Forecast of Certain Financial
Data" for a discussion of the Company's estimates regarding borrowings pursuant
to the Credit Agreement.

SIGNIFICANT DILUTION OF EQUITY INTERESTS. If the Restructuring were
implemented, approximately 2.2 million shares of Common Stock (after giving
effect to the Reverse Stock Split) would be issued in the Exchange Offer,
assuming that all of the Convertible Debentures are accepted for exchange.
Issuance of such number of shares of Common Stock would dilute substantially the
equity ownership percentage of the existing holders of the Common Stock. The
percentage ownership of the Company on an actual and on a fully diluted basis
and the effect of the issuance of such number of shares of Common Stock on the
percentage ownership of the equity of the Company is shown in the following
table:

<TABLE>
<CAPTION>
PRE- RESTRUCTURING RESTRUCTURING
RESTRUCTURING(1) NO DILUTION(2) FULL DILUTION(3)
------------------------ ------------------------ ------------------------
NUMBER OF NUMBER OF NUMBER OF
SHARES PERCENT SHARES PERCENT SHARES PERCENT
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Holders of Convertible Debentures........... -- -- 2,245,400 93.8 2,245,400 75.0
Existing Common Stockholders................ 4,041,779 100.0 149,704 6.2 149,704 5.0
Warrant and Option Holders.................. -- -- -- -- 598,782 20.0
----------- ----- ----------- ----- ----------- -----
4,041,779 100.0 2,395,104 100.0 2,993,886 100.0
----------- ----- ----------- ----- ----------- -----
----------- ----- ----------- ----- ----------- -----
</TABLE>

(2) Assumes that 2,245,400 shares of Common Stock are issued to the Holders of
the Convertible Debentures, after giving effect to the Reverse Stock Split.

(3) Incorporates the assumptions set forth in (2) and further assumes the
exercise of certain outstanding warrants, other than the Old Warrants, and
the exercise of all options to be granted under the Stock Option Plan.

OTHER SIGNIFICANT EFFECT. In accordance with the principles of SFAS 15,
entitled "Accounting by Debtors and Creditors for Troubled Debt Restructurings,"
upon completion of the Restructuring, assuming all Convertible Debentures are
accepted for exchange, the Company expects to record an extraordinary gain of
approximately $1.8 million. This represents the difference between the aggregate
outstanding principal amount of the Convertible Debentures and related accrued
interest, less the fair value of the equity interest granted (net of direct
costs), and write-off of the unamortized deferred debt costs associated with the
Convertible Debentures.

CONDITIONS TO THE RESTRUCTURING

Consummation of the Restructuring is conditioned upon, among other things,
the following: (i) the Minimum Tenders shall have been validly tendered and not
withdrawn by the holders of the Convertible Debentures prior to the Expiration
Date; (ii) the requisite Consents shall have been received and such Consents
shall not have been revoked and the Amendments shall have become effective;
(iii) the Company's stockholders shall have approved the amendments to the
Company's Certificate of Incorporation to effect the Reverse Stock Split, the
Board Amendments, the Preferred Stock Authorization and the Charter Amendments
and shall have approved the Stock Option Plan; (iv) the Company and the Bank
shall have negotiated and executed the Credit Agreement, the conditions to the
effectiveness thereof shall have been satisfied or waived and the Company shall
have the ability to borrow at least $2.5 million pursuant to the Credit
Agreement immediately following the consummation of the Restructuring; and (v)
the Old Warrant Amendment shall have become effective.

32
<PAGE>
The Company reserves the right to amend the terms of the Restructuring
(including changes in the consideration being offered in the Exchange Offer to
Holders of the Convertible Debentures), if and to the extent that the Company
determines that such amendments are necessary or desirable to complete the
Restructuring. The Company will give holders of Convertible Debentures and
Common Stock notice of such amendments as may be required by applicable law.
Holders of the Convertible Debentures may withdraw their tenders of the
Convertible Debentures at any time prior to the Expiration Date of the Exchange
Offer, including during any period of time the Exchange Offer is extended
because of amendments to the terms of the Restructuring.

PROJECTION OF CERTAIN FINANCIAL DATA

The projected data contained herein were prepared by the management of the
Company and are qualified by, and are subject to, the assumptions set forth
below and the other information contained in this Proxy Statement/Prospectus.
The following forecast was prepared in compliance with published guidelines of
the Commission and the American Institute of Certified Public Accountants
regarding forecasts and generally accepted accounting principles. Grant Thornton
LLP, the independent auditors of the Company, have neither examined, reviewed
nor compiled the forecast and, consequently, do not express an opinion or any
other form of assurance with respect thereto. The Company believes that the
forecast is presented on a basis consistent with generally accepted accounting
principles as applied to the Company's historical financial statements.

In preparing the forecast, the Company made numerous assumptions with
respect to industry performance, general business and economic conditions, taxes
and other matters, many of which are beyond the Company's control. All the
material assumptions made in the forecast are set forth below or are referenced
in the notes that accompany the projection. The Company believes that all such
assumptions are reasonable; however, such forecast and assumptions are not
necessarily indicative of current values or future performance, which may be
significantly less favorable or more favorable than as set forth below. Although
the forecast represents the best estimate of the Company, for which the Company
believes it had a reasonable basis as of the time of the preparation thereof, of
the results of operations and financial position of the Company after giving
effect to the Restructuring, it is only an estimate, and actual results may vary
considerably from the forecast. The forecast also reflects assumptions as to
certain business decisions that are subject to change.

The Company's future results of operations and the other prospective
statements contained in the forecast, in particular the projections of parts
sales and aircraft sale and lease information, gross margin and selling, general
and administrative expenses, involve a number of risks and uncertainties. Among
the factors that could cause actual results to differ materially are business
conditions and the general economy, competitive factors such as the demand for
older aircraft, the Company's ability to maintain inventory that meets
applicable regulatory standards and client demand, the availability of new parts
and general risks of inventory obsolescence, the ongoing trend for customers to
use fewer suppliers causing a loss of customers, and the loss of a principal
customer in a given period if the Company is unable to replace sales to such
customers. See "Risk Factors."

The forecast was materially completed in June 1996. The Company is not aware
of any events subsequent to such date that would materially impact the
projection. The Company does not intend to update or otherwise revise the
forecast to reflect circumstances existing after the date hereof or to reflect
the occurrence of unanticipated events, even in the event that the assumptions
underlying the forecast are shown to be in error, except as required by
applicable law, prior to the consummation of the Restructuring. Furthermore, the
Company does not intend to update or revise the projection to reflect changes in
general economic or industry conditions. The forecast should not be relied on
for any purpose other than in consideration of the Restructuring. The forecast
should be read together with the information contained in "Pro Forma Unaudited
Financial Information," "Business" and the Consolidated Financial Statements of
the Company and the related notes included elsewhere in this Proxy
Statement/Prospectus. The Company's regular quarterly and annual financial
statements

33
<PAGE>
are included in the Company's Quarterly Reports on Form 10-Q and Annual Reports
on Form 10-K, which are filed with the Commission. Information contained in such
financial statements shall be deemed to supersede the projection. See "Available
Information."

The inclusion of the projection herein should not be regarded as a
representation by the Company, and there can be no assurance that the results
reflected in the projection will be realized. The projected and actual results
will vary, and those variations may be material. Neither the Company nor any of
its agents or representatives assume responsibility for the accuracy or adequacy
of the projections contained herein. HOLDERS OF COMMON STOCK AND CONVERTIBLE
DEBENTURES ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THE PROJECTION.

GENERAL ASSUMPTIONS

The projection is based upon assumptions which the Company's management
believes provide a reasonable basis for presenting the effects of the
Restructuring. The general assumptions used to prepare the projection include
the following:

1. The projections give effect to the Restructuring, assuming that all the
Convertible Debentures are accepted for exchange, that the Restructuring
was consummated on May 31, 1996, that all conditions to the Restructuring
have been satisfied and that the Restructuring was accounted for as a
restructuring of troubled indebtedness pursuant to SFAS 15.

2. The Restructuring generates $1.8 million in earnings.

3. The interest expense on the Credit Agreement is based on the lender's
prime rate plus 2% and is assumed to equal 10.25% throughout the
projection period. Interest expense also includes a credit facility fee
of $7,500 per month payable to the lender and the amortization of debt
acquisition costs, $280,000 of various charges payable to the lender
under the Credit Agreement, and a $250,000 placement agency fee payable
to Kirkland Messina, Inc. See "Management -- Certain Transactions."

4. The Senior Notes are redeemed without the payment of a prepayment penalty
or penalty interest on overdue principal or interest.

5. The Company will pay an additional $.4 million of fees and expenses
associated with the Restructuring at or prior to the Closing in addition
to $.3 million of costs incurred to date relating to the Restructuring.
These fees and expenses are expected to consist of the following:

<TABLE>
<S> <C>
Fees and Expenses Incurred to Date:
Legal Expenses................................................. $ 146,059
Accounting..................................................... 16,100
Independent Outside Consultants................................ 172,700
---------
Total Fees and Expenses Incurred to Date......................... $ 334,859
Estimated Additional Fees and Expenses to be Incurred:
Printing and Other............................................. $ 100,000
Accounting..................................................... 50,000
Legal.......................................................... 250,000
---------
Total Estimated Additional Fees and Expenses to be Incurred...... $ 400,000
</TABLE>

The accounting for the fees and expenses will be as provided under
"Accounting Treatment."

6. Following the Restructuring, the Company estimates that it will have net
operating loss carryforwards of approximately $4.9 million. As a result
of built-in gains in the Company's inventory, during the projected
period, the Company expects (outside of the annual Section 382
limitation), to be able to use all of its net operating loss
carryforwards. Net operating

34
<PAGE>

loss carryforwards are assumed to be used in respect to 50% of its pretax
income. Deferred income taxes have not been provided because the
differences between book and taxable incomes are not expected to be
significant.

7. The Company will make no acquisitions during the periods presented.

OPERATING ASSUMPTIONS

The Company expects to sell one aircraft during fiscal 1997 for
approximately $550,000 (at a cost of $450,000) and that at any given time two of
the three remaining aircraft will be leased for total monthly lease rentals of
$80,000. The Company does not expect to sell any other aircraft during the
projection period.

Parts sales are projected in fiscal 1997 to be the same as in fiscal 1996
(primarily as a result of an expected reduction in sales to ValuJet from fiscal
1996 levels); thereafter, parts sales are expected to increase 7.5% per annum.
The projected growth in parts sales is principally attributed to the Company's
improved financial flexibility, its ability to implement its operating strategy,
primarily through the use of advances obtained pursuant to the Credit Agreement
to acquire new inventory and management's estimate of the effect of such
additional inventory on the level of parts sales, as well as general increased
demand for aircraft spare parts. The gross margin for parts is projected to
remain at approximately 35% in fiscal 1997 and to remain constant thereafter.

Selling, general and administrative costs are expected to increase in fiscal
1997 to approximately 21% of total revenues, principally due to the reduction in
aircraft sales and lease revenue. Thereafter, selling, general and
administrative costs are expected to remain at approximately 22% of total
revenues.

35
<PAGE>
PROJECTED INCOME STATEMENT DATA

<TABLE>
<CAPTION>
FISCAL YEAR ENDING MAY 31,
-------------------------------------------------------------------------
1997 1998 1999 2000 2001
------------- ------------- ------------- ------------- -------------
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenue:
Aircraft sales....................... $ 550 $ -- $ -- $ -- $ --
Parts sales.......................... 18,885 20,301 21,824 23,461 25,220
Lease revenue........................ 960 960 960 960 960
------------- ------------- ------------- ------------- -------------
Total revenue.................... $ 20,395 $ 21,261 $ 22,784 $ 24,421 $ 26,180
Cost of goods sold:
Parts................................ 12,275 13,196 14,186 15,250 16,393
Aircraft............................. 450 -- -- -- --
------------- ------------- ------------- ------------- -------------
Total cost of goods sold......... $ 12,725 $ 13,196 $ 14,186 $ 15,250 $ 16,393
------------- ------------- ------------- ------------- -------------
Gross profit............................. 7,670 8,065 8,598 9,171 9,787
S, G & A expenses........................ 4,306 4,629 4,976 5,349 5,750
------------- ------------- ------------- ------------- -------------
EBITDA (1)........................... $ 3,364 $ 3,436 $ 3,622 $ 3,822 $ 4,037
Depreciation and amortization............ 620 611 602 380 88
------------- ------------- ------------- ------------- -------------
EBIT (2)............................. $ 2,744 $ 2,825 $ 3,020 $ 3,442 $ 3,949
Interest expense, net.................... 1,047 1,139 1,090 1,020 933
------------- ------------- ------------- ------------- -------------
Earnings before taxes.................... $ 1,697 $ 1,686 $ 1,930 $ 2,422 $ 3,016
Provision for income taxes............... 296 295 340 432 824
------------- ------------- ------------- ------------- -------------
Net earnings............................. $ 1,401 $ 1,391 $ 1,590 $ 1,990 $ 2,192
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Earnings per common share................ $ 0.58 $ 0.58 $ 0.66 $ 0.83 $ 0.92
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Weighted average number of shares
outstanding............................. 2,395,104 2,395,104 2,395,104 2,395,104 2,395,104
Tangible net worth (3)................... $ 3,064 $ 4,560 $ 6,255 $ 8,348 $ 10,657
Fixed charge coverage ratio (4).......... 2.0 1.8 1.8 1.8 1.8
Current ratio (5)........................ 1.4 1.6 1.7 1.9 2.0
</TABLE>

NOTES TO PROJECTED INCOME STATEMENT DATA

1. EBITDA is defined as earnings before interest, income taxes, depreciation
and amortization.

2. EBIT is defined as earnings before interest and income taxes.

3. The Credit Agreement requires that the Company achieve a tangible net worth
that equals or exceeds zero on the first quarter following the closing date
and that the Company's tangible net worth on the last day of each subsequent
fiscal quarter equals or exceeds the amounts specified under "Description of
the Credit Agreement."

4. The Credit Agreement requires that the Company maintain a fixed charge
coverage ratio that is greater than or equal to 1:1 from the closing date
through the fiscal quarter ending November 30, 1996, and thereafter a fixed
charge coverage ratio that is greater than or equal to 1.1:1. See
"Description of the Credit Agreement."

5. The Credit Agreement requires that the Company maintain a monthly current
ratio that is greater than or equal to 1:1. See "Description of the Credit
Agreement."

36
<PAGE>
PROJECTED CASH FLOW DATA

<TABLE>
<CAPTION>
FISCAL YEAR ENDING MAY 31,
-----------------------------------------------------
1997 1998 1999 2000 2001
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings.............................................. $ 1,401 $ 1,391 $ 1,590 $ 1,990 $ 2,192
Adjustments to reconcile Net Income to Net cash provided
by operating activities
Depreciation.......................................... 620 611 602 380 88
Amortization of fees and expenses..................... 106 106 106 106 106
Increase in working capital (1)....................... (3,022) (1,529) (1,514) (1,515) (1,516)
--------- --------- --------- --------- ---------
Total adjustments................................. (2,296) (812) (806) (1,029) (1,322)
--------- --------- --------- --------- ---------
Net cash provided by (used in) operating activities:...... $ (895) $ 579 $ 784 $ 961 $ 870
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................. (96) (99) (102) (106) (108)
CASH FLOWS FROM FINANCING ACTIVITIES:
Term loan............................................. (400) (500) (600) (700) (800)
Revolving Credit Facility............................. 1,306 47 (56) (129) 64
Other (2)............................................. (39) (27) (26) (26) (26)
--------- --------- --------- --------- ---------
Net cash provided by (used in) financing activities... 867 (480) (682) (855) (762)
--------- --------- --------- --------- ---------
Net increase (decrease) in cash........................... $ (124) $ 0 $ 0 $ 0 $ 0
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>

NOTES TO PROJECTED CASH FLOW DATA

(1) Represents changes in accounts receivables plus inventories and other
current assets less accounts payable and accrued and other liabilities.
Inventory purchases are projected to be $1 million in fiscal 1997 and $1.5
million annually thereafter.

(2) Represents principal repayments under the Company's mortgage note, equipment
notes and capitalized lease obligations.

37
<PAGE>
PROJECTED CAPITALIZATION DATA

<TABLE>
<CAPTION>
FISCAL YEAR ENDING MAY 31,
-----------------------------------------------------
1997 1998 1999 2000 2001
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash................................................... $ 0 $ 0 $ 0 $ 0 $ 0
Revolver............................................. 6,236 6,283 6,227 6,098 6,162
Long-term liabilities:
Term Loan............................................ 2,600 2,100 1,500 800 0
Mortgage payable..................................... 403 377 351 325 299
Notes payable........................................ 1 0 0 0 0
--------- --------- --------- --------- ---------
Total long-term debt............................... 3,004 2,477 1,851 1,125 299
Stockholders' equity:
Common stock......................................... 2 2 2 2 2
Additional paid-in capital........................... 10,544 10,544 10,544 10,544 10,544
Accumulated deficit.................................. (7,009) (5,617) (4,026) (2,036) 156
--------- --------- --------- --------- ---------
Total stockholders' equity......................... 3,537 4,930 6,520 8,510 10,702
--------- --------- --------- --------- ---------
Total capitalization................................... $ 12,777 $ 13,690 $ 14,598 $ 15,733 $ 17,163
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>

PROJECTED BALANCE SHEET DATA

<TABLE>
<CAPTION>
FISCAL YEAR ENDING MAY 31,
-----------------------------------------------------
ASSETS: 1997 1998 1999 2000 2001
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash................................................. $ 0 $ 0 $ 0 $ 0 $ 0
Accounts receivable.................................. 3,353 3,495 3,745 4,014 4,304
Aircraft inventory................................... 889 889 889 889 889
Parts inventory...................................... 8,938 10,438 11,938 13,438 14,938
Other current assets................................. 102 106 114 122 131
--------- --------- --------- --------- ---------
Total current assets............................... 13,281 14,928 16,686 18,463 20,261
Property, plant & equipment............................ 4,830 4,929 5,031 5,137 5,245
Accumulated depreciation............................. (2,672) (3,283) (3,884) (4,264) (4,352)
--------- --------- --------- --------- ---------
Net property, plant & equipment.................... 2,158 1,646 1,147 873 893
Capitalized fees & expenses............................ 425 318 212 106 0
Other assets........................................... 51 52 51 51 51
--------- --------- --------- --------- ---------
Total assets....................................... $ 15,915 $ 16,944 $ 18,096 $ 19,493 $ 21,205
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
LIABILITIES:
Total current liabilities.............................. $ 3,138 $ 3,254 $ 3,498 $ 3,760 $ 4,042
Revolver............................................... 6,236 6,283 6,227 6,098 6,162
Long-term debt:
Term Loan............................................ 2,600 2,100 1,500 800 0
Mortgage payable..................................... 403 377 351 325 299
Notes payable........................................ 1 0 0 0 0
--------- --------- --------- --------- ---------
Total long-term debt............................... 3,004 2,477 1,851 1,125 299
STOCKHOLDERS' EQUITY:
Common stock......................................... 2 2 2 2 2
Additional paid-in capital........................... 10,544 10,544 10,544 10,544 10,544
Accumulated deficit.................................. (7,009) (5,617) (4,026) (2,036) 156
--------- --------- --------- --------- ---------
Total stockholders' equity......................... 3,537 4,930 6,520 8,510 10,702
--------- --------- --------- --------- ---------
Total liabilities & stockholders' equity............... $ 15,915 $ 16,944 $ 18,096 $ 19,493 $ 21,205
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>

38
<PAGE>
INTERESTS OF CERTAIN PERSONS IN THE RESTRUCTURING

In considering the Restructuring, holders of Common Stock and the
Convertible Debentures should be aware that the executive officers and directors
of the Company have certain interests that may present them with potential
conflicts of interests with respect to the Restructuring. The conflicts result
from the following factors: (1) the employment agreement between Mr. Alexius A.
Dyer III, the Chairman of the Board, President and Chief Executive Officer of
the Company, will be extended for an additional five-year term effective upon
consummation of the Restructuring and Mr. George Murnane III, the Executive Vice
President and Chief Financial Officer of the Company, will enter into a
five-year employment agreement with the Company having terms, other than salary
and bonus, substantially similar to those of Mr. Dyer's employment agreement
(see "Management -- Employment Agreement"); (ii) Mr. Dyer's annual compensation
will increase upon consummation of the Restructuring from $135,000 to $175,000
and Mr. Murnane's annual compensation will increase from $120,000 to $150,000;
(iii) Messrs. Dyer and Murnane will be granted restricted stock and/or options
which, together with shares reserved for issuance to directors who are not
executive officers of the Company pursuant to the Stock Option Plan, will
represent 7.5% and 3.5%, respectively, of the shares of Common Stock to be
outstanding following the Restructuring on a fully-diluted basis (see
"Management -- The Stock Option Plan"); (iv) Messrs. Kyle R. Kirkland and E.
James Mueller, who are directors of the Company, will be granted restricted
stock and/or options representing up to 2.5% of the shares of Common Stock to be
outstanding following the Restructuring on a fully-diluted basis (see
"Management -- The Stock Option Plan"); and (v) Kirkland Messina, Inc., an
investment banking firm of which Mr. Kirkland is a principal, will receive a
placement agent's fee of $250,000 in connection with the origination of the
Credit Agreement (See "Management -- Certain Transactions").

THE EXCHANGE OFFER

GENERAL

Upon the terms and subject to the conditions set forth in this Proxy
Statement/Prospectus and in the accompanying Letter of Transmittal, the Company
is offering in the Exchange Offer to issue 224.54 shares of the Company's Common
Stock, after giving effect to the Reverse Stock Split, for each $1,000 principal
amount of its outstanding Convertible Debentures. Convertible Debentures not
accepted by the Company in the Exchange Offer will be returned. As of the date
of this Proxy Statement/Prospectus, there were outstanding $10 million aggregate
principal amount of Convertible Debentures. No executive officer, director or
affiliate of the Company owned or owns of record or beneficially any Convertible
Debentures.

The Company has not made an interest payment on the Convertible Debentures
since February 28, 1995. The Company does not intend to make any subsequent
payment of accrued interest with respect to any Convertible Debentures accepted
for exchange in the Exchange Offer. Holders of Convertible Debentures whose
Convertible Debentures are accepted in the Exchange Offer will not be entitled
to receive any consideration other than shares of Common Stock for any interest
accrued subsequent to February 28, 1995 on such Convertible Debentures. Under
the terms of the Exchange Offer, the fair market value of the Common Stock
exchanged for Convertible Debentures will be allocated first to accrued interest
and then to the principal amount of such Convertible Debentures. See "Certain
Federal Income Tax Considerations -- Exchange of Convertible Debentures."

In connection with the Exchange Offer, the Company is also soliciting the
requisite Consents to the applicable Amendments. HOLDERS OF CONVERTIBLE
DEBENTURES WHO TENDER THEIR CONVERTIBLE DEBENTURES IN THE EXCHANGE OFFER WILL BE
REQUIRED TO CONSENT TO THE AMENDMENTS. Holders of Convertible Debentures may
consent to the Amendments without tendering their Convertible Debentures in the
Exchange Offer. The Company will make no separate payment for Consents. The
purpose of the Amendments is to amend or eliminate from the Purchase Agreement
covenants and other provisions. The Amendments will reduce the covenant
protection available to holders thereof. The Purchase Agreement with respect to
the Convertible Debentures will be amended, upon consummation of the
Restructuring, by

39
<PAGE>
deleting covenants requiring the Company to (i) maintain a specified interest
coverage ratio, (ii) maintain a specified consolidated net worth, (iii) provide
demand registration rights with respect to the Common Stock issuable upon
conversion and the covenant that limits the ability of the Company to engage in
certain lines of business.

If the Exchange Offer is consummated, Holders of Convertible Debentures who
do not tender pursuant to the Exchange Offer will hold the Convertible
Debentures under the Purchase Agreement as amended by the Amendments. The
Amendments will not affect the Company's obligation to pay the principal of the
Convertible Debentures at maturity and interest on the Convertible Debentures
when due; and, in connection with the Closing, the Holders of the Convertible
Debentures remaining outstanding will be paid amounts sufficient to cure all
interest payment defaults with respect to such Convertible Debentures. Further,
the Company's reduced leverage as a result of the Restructuring should increase
the likelihood that the Company will be able to pay the principal of and
interest on the outstanding Convertible Debentures. See "Description of
Convertible Debentures -- Certain Covenants" and "Description of the
Amendments."

Holders of Convertible Debentures who do not exchange may also experience a
significant reduction in their ability to sell their Convertible Debentures
because, if the Exchange Offer is consummated, at least 95% of the outstanding
Convertible Debentures will be exchanged for shares of Common Stock.

Holders of Convertible Debentures who tender in the Exchange Offer will not
be required to pay brokerage commissions or solicitation fees or, subject to the
instructions in the Letter of Transmittal, transfer taxes with respect to the
exchange of securities pursuant to the Exchange Offer. The Company will pay all
charges and expenses, other than certain applicable taxes, in connection with
the Exchange Offer. See "-- Fees and Expenses." All references herein to the
Exchange Offer shall be deemed to include the Solicitation, unless otherwise
specified.

Subject to limitations imposed by applicable law and the Company's debt
instruments, the Company may, in the future, seek to acquire any outstanding
Convertible Debentures in open market purchases, optional redemptions,
subsequent exchange offers or otherwise. The Company does not have any current
plans to make any such acquisitions and the Credit Agreement will preclude such
acquisition, absent the consent of the Bank.

ACCEPTANCE OF CONVERTIBLE DEBENTURES AND DELIVERY OF COMMON STOCK

The Company will accept, promptly after the Expiration Date, all Convertible
Debentures that were validly tendered and not withdrawn on or prior to the
applicable Expiration Date. The shares of Common Stock will be delivered in
exchange for the applicable Convertible Debentures accepted in the Exchange
Offer promptly after the Expiration Date.

The Company shall be deemed to have accepted validly tendered Convertible
Debentures in the Exchange Offer and validly delivered Consents in the
Solicitation when, as and if the Company has given oral or written notice
thereof to the Depositary. The Depositary will act as agent for the tendering
Holders of Convertible Debentures for the purposes of receiving the Common Stock
from the Company. The Common Stock will be delivered in exchange for Convertible
Debentures accepted in the Exchange Offer promptly after the Expiration Date. No
fractional shares of Common Stock will be issued upon consummation of the
Exchange Offer.

The Company expects to enter into an agreement with the Depositary whereby
the Depositary will aggregate all fractional shares of Common Stock otherwise
issuable in the Exchange Offer and sell them in the open market. Each person
otherwise entitled to a fractional share of Common Stock will receive a payment
in cash in lieu of such fractional share equal to such person's proportionate
interest in the proceeds of sales of all such fractional shares in the open
market, net of the costs of the Depositary in effecting such sales. The Company
intends to cause such payments to be made promptly after the Expiration Date,
but in any event not later than five business days after the Expiration Date.

40
<PAGE>
The Company can give no assurance that the price at which such sales will be
made will not be at a substantial discount from the fair value of the securities
sold. See "Risk Factors -- Risk Factors Associated with Ownership of the Common
Stock -- Market for Common Stock."

EXPIRATION DATE; EXTENSIONS; AMENDMENTS

The Exchange Offer will expire at 12:00 midnight, New York time on September
27, 1996, unless extended by the Company, in its sole discretion, to permit the
satisfaction of all conditions to the Exchange Offer, in which case the term
"Expiration Date" shall mean the last date and time to which the Exchange Offer
is extended. In order to extend the Expiration Date, the Company will notify the
Depositary of any extension by oral or written notice and will make a public
announcement thereof, each prior to 9:00 a.m., New York time, on the next
business day after the previously scheduled Expiration Date. Such announcement
may state that the Company is extending the Exchange Offer for a specified
period or on a daily basis.

The Company expressly reserves the right to (i) delay accepting any Consents
or Convertible Debentures, to extend the Exchange Offer or to terminate the
Exchange Offer and not accept Consents or Convertible Debentures not previously
accepted if any of the conditions set forth herein under "-- Conditions" shall
not have been satisfied, by giving oral or written notice of such delay,
extension or termination to the Depositary, or (ii) amend at any time, or from
time to time, the terms of the Exchange Offer in any respect. If the Company
exercises any such right, the Company will give written or oral notice to the
Depositary and make a public announcement thereof. Without limiting the manner
in which the Company may choose to make such a public announcement, the Company
shall have no obligation to publish, advertise or otherwise communicate any such
public announcement, other than by making a release to the Dow Jones News
Service. The Commission has taken the position that the minimum period during
which an exchange offer must remain open following material changes in the terms
of such exchange offer or in the information concerning such exchange offer
(other than a change in price or a change in percentage of securities sought)
will depend upon the facts and circumstances of such change, including the
relative materiality of the terms or information changes. With respect to any
change in price or percentage of securities sought, a minimum ten business day
period is required to allow for adequate dissemination of such change. Except
for the press release described above and except as required by the Exchange Act
and the rules and regulations thereunder, the Company does not intend to give
written notification of any such changes to Holders of Convertible Debentures.

HOW TO TENDER AND CONSENT IN THE EXCHANGE OFFER

A Holder electing to tender Convertible Debentures in the Exchange Offer and
to consent to the Amendments should either (i) complete and sign the Letter of
Transmittal or a facsimile thereof, have the signatures thereon guaranteed if
required by Instruction 6 thereof, and mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with a properly completed and duly
executed Notice of Guaranteed Delivery or the Convertible Debentures and any
other required documents to the Depositary at one of its addresses set forth on
the back cover page of this Proxy Statement/ Prospectus or (ii) request his
broker, dealer, commercial bank, trust company or other nominee to effect the
transaction for him.

Pursuant to the terms of the Letter of Transmittal, the completion,
execution and delivery thereof will constitute consent to the Amendments.
However, as set forth in the Letter of Transmittal, a defective tender may,
under circumstances where the Holder has otherwise properly completed, executed
and delivered the Letter of Transmittal, constitute a valid Consent and will be
counted for purposes of determining whether requisite approval of the Amendments
has been obtained even if the accompanying Convertible Debentures are not
accepted for exchange by reason of such defect. In addition, if a Letter of
Transmittal is properly executed, delivered and dated prior to the Expiration
Date, but no box with respect to the Amendments on the Letter of Transmittal is
marked, the Holder of Convertible Debentures who executed such Letter of
Transmittal shall be deemed to have consented to the Amendments.

41
<PAGE>
Holders of Convertible Debentures who do not tender their Convertible
Debentures but wish to consent to the Amendments should complete the Letter of
Transmittal in accordance with the instructions thereto and return it promptly
to the Depositary.

In order for a tender of Convertible Debentures to constitute a valid
tender, Holders should complete the Letter of Transmittal in accordance with the
instructions set forth therein and deliver such Letter of Transmittal to the
Depositary on or prior to 12:00 midnight, New York time, on the Expiration Date.
The term "Holder," when used with respect to a Convertible Debenture means the
registered owner of such a Convertible Debenture on the Debt Record Date or any
person who has obtained a properly completed bond power and proxy from the
registered holder.

Pursuant to the Purchase Agreement, only the registered owner of a
Convertible Debenture on the Debt Record Date (or his duly designated proxy)
shall be entitled to consent to an Amendment or to revoke any Consent, whether
or not such person continues to be the registered owner of such Convertible
Debenture after the Debt Record Date. The Company serves as the registrar for
the Convertible Debentures and will advise any purchaser of Convertible
Debentures who was not a registered owner of the Convertible Debentures on the
Debt Record Date as to the procedures to be followed in order to obtain a
properly completed bond power and proxy and effectively to tender their
Convertible Debentures and consent to the Amendments.

TENDERS AND CONSENTS -- GENERAL

The tender or Consent by a Holder pursuant to one of the procedures set
forth herein will constitute an agreement between such Holder and the Company in
accordance with the terms and subject to the conditions set forth herein and in
the Letter of Transmittal.

THE METHOD OF DELIVERY OF CONVERTIBLE DEBENTURES, THE LETTER OF TRANSMITTAL
AND ALL OTHER REQUIRED DOCUMENTS TO THE DEPOSITARY IS AT THE ELECTION AND RISK
OF EACH HOLDER. Except as otherwise provided herein, such delivery will be
deemed made only when actually received by the Depositary. Instead of effecting
delivery by mail, it is recommended that Holders use an overnight or hand
delivery service. If Convertible Debentures are sent by mail, registered mail,
with return receipt requested, properly insured, is recommended. In all cases,
sufficient time should be allowed to assure timely delivery. No documents should
be sent to the Company.

Any beneficial holder of Convertible Debentures whose Convertible Debentures
are registered or held of record in the name of his broker, dealer, commercial
bank, trust company or other nominee and who wishes to tender his Convertible
Debentures should contact such registered holder or record holder promptly and
instruct such holder to tender on his behalf. If such beneficial holder wishes
to tender Convertible Debentures and consent to the Amendments on his own
behalf, such beneficial holder must, prior to completing and executing the
Letter of Transmittal and delivering his Convertible Debentures, make
appropriate arrangements to obtain a properly completed bond power and proxy
from the registered holder.

Signatures on each Letter of Transmittal must be guaranteed unless the
Convertible Debentures delivered pursuant thereto are delivered (i) by a
registered holder of Convertible Debentures who has not completed the boxes on
the Letter of Transmittal entitled "Special Issuance Instructions" or "Special
Delivery Instructions;" (ii) for the account of an Eligible Institution (as
defined below); or (iii) a Consent is being given by the registered holder of
Convertible Debentures that are not being tendered in the Exchange Offer. In the
event that signatures are required to be guaranteed, such guarantees must be by
a firm that is a participant in the Medallion Signature Guarantee Program (an
"Eligible Institution").

If the Letter of Transmittal with respect to any Convertible Debenture is
signed by a person other than the registered holder of any certificate(s) listed
therein, such certificate(s) must be endorsed or accompanied by appropriate bond
powers and proxies, signed exactly as the name or names of the registered holder
or holders appear on the certificate(s). If the Letter of Transmittal or any
certificates, bond powers, proxies or other instruments of transfer are signed
by trustees, executors,

42
<PAGE>
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons should so
indicate when signing, and, unless waived by the Company, proper evidence
satisfactory to the Company of their authority to so act must be submitted.

All questions as to the validity, form, eligibility (including time of
receipt), acceptance, withdrawal and revocation of tendered Convertible
Debentures and delivered Consents will be resolved by the Company, whose
determination will be final and binding. The Company reserves the absolute right
to reject any or all tenders and withdrawals of Convertible Debentures and
deliveries and revocation of Consents that are not in proper form or the
acceptance of which would, in the opinion of the Company or counsel for the
Company, be unlawful. The Company also reserves the right to waive any
irregularities or conditions of tenders or Consents as to particular Convertible
Debentures. The Company's interpretation of the terms and conditions of the
Exchange Offer (including the instructions in the Letters of Transmittal) will
be final and binding. Unless waived, any irregularities in connection with
tenders and withdrawals of Convertible Debentures and deliveries and revocations
of Consents must be cured within such time as the Company shall determine.
Neither the Company nor the Depositary shall be under any duty to give
notification of defects in such tenders, withdrawals, deliveries or revocations
or shall incur any liability for failure to give such notification. Tenders and
withdrawals of Convertible Debentures and deliveries and revocation of Consents
will not be deemed to have been made until such irregularities have been cured
or waived. Any Convertible Debentures received by the Depositary that are not
properly tendered or delivered and as to which the irregularities have not been
cured or waived will be returned by the Depositary to the tendering Holders of
Convertible Debentures unless otherwise provided in the Letter of Transmittal as
soon as practicable following the Expiration Date.

GUARANTEED DELIVERY PROCEDURES

If a Holder of Convertible Debentures desires to tender such Convertible
Debentures and the certificate(s) representing such Convertible Debentures are
not immediately available, or time will not permit such Holder's certificate(s)
or other required documents to reach the Depositary before 12:00 midnight, New
York time, on the Expiration Date, a tender may be effected if:

(a) the tender is made through an Eligible Institution;

(b) prior to 12:00 midnight, New York time on the Expiration Date, the
Depositary receives from such Eligible Institution a properly
completed and duly executed Notice of Guaranteed Delivery (by telegram,
telex, facsimile transmission, mail or hand delivery) setting forth the name
and address of the Holder of Convertible Debentures, and the principal
amount of Convertible Debentures to be delivered, as the case may be,
stating that the delivery is being made thereby and guaranteeing that within
five New York Stock Exchange trading days after the date of execution of the
Notice of Guaranteed Delivery, the duly executed Letter of Transmittal (or
facsimile thereof) and the certificate(s) representing the Convertible
Debentures, and any other documents required thereby will be deposited by
the Eligible Institution with the Depositary; and

(c) the certificate(s) for all tendered Convertible Debentures, the
Letter of Transmittal (or facsimile thereof), and all other documents
required thereby are received by the Depositary within five New York Stock
Exchange trading days after the date of execution of such Notice of
Guaranteed Delivery.

Failure to complete the guaranteed delivery procedures outlined above will
not, of itself, affect the validity of, or effect a revocation of, any Consent
properly executed by a Holder of Convertible Debentures who attempted to use the
guaranteed delivery procedures.

WITHDRAWAL OF TENDERS AND REVOCATION OF CONSENTS

Tenders of Convertible Debentures may be withdrawn at any time prior to the
Expiration Date for the Exchange Offer. In addition, tenders of Convertible
Debentures may be withdrawn after the expiration of 40 business days from the
commencement of the Exchange Offer, if not yet accepted by the Company. Any
Holder of Convertible Debentures who has tendered Convertible Debentures may

43
<PAGE>
withdraw such Convertible Debentures by delivery of a written notice of
withdrawal to the Depositary. To be effective, a written or facsimile
transmission notice of withdrawal must (i) be timely received by the Depositary
at one of its addresses specified on the back cover of this Proxy
Statement/Prospectus before the expiration of the Exchange Offer, (ii) specify
the name of the registered holder of the Convertible Debentures to be withdrawn,
(iii) contain a description of the Convertible Debentures to be withdrawn, the
certificate numbers shown on the particular certificates evidencing such
Convertible Debentures and the aggregate principal amount represented by such
Convertible Debentures, and (iv) be signed by the registered holder of such
Convertible Debentures in the same manner as the original signature on the
Letter of Transmittal (including any required signature guarantees), or be
accompanied by documents of transfer sufficient to have the transfer of such
Convertible Debenture registered pursuant to the Purchase Agreement. The
signature(s) on the notice of withdrawal must be guaranteed by an Eligible
Institution unless such Convertible Debentures have been tendered (i) by a
registered holder of Convertible Debentures who has not completed the boxes on
the Letter of Transmittal entitled "Special Issuance Instructions" or "Special
Delivery Instructions" or (ii) for the account of an Eligible Institution. If
the Convertible Debentures to be withdrawn have been delivered or otherwise
identified to the Depositary, a signed notice of withdrawal is effective
immediately upon receipt of written or facsimile transmission notice of
withdrawal even if physical release is not yet effected.

Any Convertible Debentures which have been tendered for exchange but which
are not exchanged will be returned to the Holder thereof without cost to such
Holder promptly following the Expiration Date. Properly withdrawn Convertible
Debentures may be retendered at any time prior to 12:00 midnight, New York time,
on the Expiration Date by following one of the procedures described under "--
How to Tender and Consent in the Exchange Offer."

All questions as to the validity (including time of receipt) of notices of
withdrawal will be determined by the Company, whose determination will be final
and binding. None of the Company, the Depositary or any other person will be
under any duty to give notification of any defects or irregularities in any
notice of withdrawal or revocation or incur any liability for failure to give
any such notification.

A Consent may be revoked only by the Holder of the Convertible Debentures
with respect to which the Consent was given and only if the Company receives
written notice of revocation from the Holder, prior to the date the Amendments
become effective. However, if a Holder who has tendered Convertible Debentures
subsequently effects a valid revocation of a Consent, such action will render
the prior tender of the Convertible Debentures with respect to which the Consent
was given defective. The Company reserves the right to waive any such defect.

In order to withdraw a Consent, the Holder of the Convertible Debentures
with respect to which the Consent was given must provide the Company written
notice of revocation, at the applicable address as provided below, prior to the
date the Consent becomes effective.

The Purchase Agreement provides that any notice or communication sent to the
Company shall be sufficiently given if in writing and delivered in person,
telecopied or mailed by first-class mail addressed to the President of the
Company at the address set forth above. Notices to the Company are deemed given
only when received by the Company. Holders of Convertible Debentures who wish to
revoke their Consents should allow sufficient time for the notice of revocation
to reach the Company.

CONDITIONS

Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange any Convertible Debentures not theretofore
accepted for exchange or exchanged, and may terminate, extend or amend the
Exchange Offer as provided herein, before the acceptance of such Convertible
Debentures for exchange, if any of the following conditions are not satisfied:

(a) the Minimum Tenders shall have been validly tendered by the Holders
of Convertible Debentures pursuant to the Exchange Offer and not
withdrawn prior to the Expiration Date;

44
<PAGE>
(b) the Company shall have received Consents from the holders of at least
a majority of the principal amount of the Convertible Debentures
(disregarding the principal amount of any Convertible Debenture held by the
Company or its affiliates);

(c) the Company's stockholders shall have approved the Reverse Stock
Split, the Board Amendments, the Preferred Stock Authorization, the
Charter Amendments and the Stock Option Plan;

(d) the Company and the Bank shall have negotiated and executed the
Credit Agreement, the conditions to the effectiveness thereof shall
have been satisfied or waived and the Company shall have the ability to
borrow at least $2.5 million pursuant to the Credit Agreement immediately
following the consummation of the Restructuring;

(e) the Company shall have received Consents from the holders of at least
a majority of the Stock Units represented by the Old Warrants to the
Old Warrant Amendment;

(f) no action or proceeding shall have been instituted or threatened in
any court or by or before any governmental agency with respect to the
Exchange Offer which, in the sole judgment of the Company, may materially
impair the contemplated benefits of the Exchange Offer to the Company;

(g) there shall not have occurred (i) any general suspension of, or
limitation on prices for, trading in securities traded on the New
York Stock Exchange; (ii) a declaration of a banking moratorium by United
States, New York, Delaware, Florida or Georgia authorities; or (iii) any
commencement or escalation of a war or armed hostilities or other
international or national emergency that, in the sole judgment of the
Company, would or might have a material adverse effect on the market prices
of the Company's securities;

(h) there shall not have occurred any change or development involving a
prospective change in the general economic, financial or market
conditions in the United States or abroad that, in the sole judgment of the
Company, would or might have a material adverse effect upon the market
prices of the Company's securities;

(i) there shall not have occurred any change or development involving a
prospective change in or affecting the business, condition (financial
or otherwise) or prospects of the Company which in the sole judgment of the
Company, would or might prohibit, restrict or delay consummation of the
Exchange Offer or materially impair the contemplated benefits of the
Exchange Offer to the Company;

(j) there shall not exist, in the sole judgment of the Company, any
actual or threatened legal impediment (including a default under a
material agreement, indenture or other instrument or obligation to which the
Company is a party or by which it is bound) to the acquisition of the
Convertible Debentures or the issuance of the Common Stock; or

(k) (i) no person shall have publicly disclosed an acquisition proposal
with respect to the Company or any of its securities or assets; and
(ii) no tender or exchange offer for Convertible Debentures and/or Common
Stock shall have been commenced by any person, if such tender or exchange
offer could result in such other person and its affiliates beneficially
owning directly or indirectly more than 15% of the then outstanding shares
of Common Stock that would be outstanding upon consummation of the
Restructuring; and (iii) it shall not have been publicly disclosed and the
Company shall not have learned that any person or "group" (within the
meaning of Section 13(d)(3) of the Exchange Act) shall have acquired, or
proposed to acquire, beneficial ownership of more than 15% of the
outstanding shares of Common Stock and/or Convertible Debentures which would
constitute more than 15% of the shares of Common Stock that would be
outstanding upon consummation of the Restructuring;

45
<PAGE>
which, in the sole judgment of the Company in any case, and regardless of the
circumstances (including any action or inaction by the Company) giving rise to
any such condition, makes it inadvisable to consummate the Exchange Offer or to
proceed with such acceptance for exchange.

The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to such
conditions or may be waived by the Company in whole or in part at any time, and
from time to time, in its sole discretion. If any of the conditions listed above
is not satisfied, the Company may (i) refuse to accept any Convertible
Debentures or Consents and return all tendered Convertible Debentures to
tendering Holders, (ii) extend the Exchange Offer and retain all Convertible
Debentures tendered and Consents delivered prior to the expiration of the
Exchange Offer, or (iii) waive or modify any of such unsatisfied conditions with
respect to the Exchange Offer and accept all properly tendered Convertible
Debentures or properly delivered Consents. There can be no assurance that the
foregoing conditions will be satisfied. In the event that the foregoing
conditions are not satisfied or waived, the Restructuring will not occur, the
Company will not accept for exchange any of the Convertible Debentures and the
Amendments will not become effective. Any determination by the Company
concerning such conditions described above will be final and binding upon all
parties.

If a modification or waiver constitutes a material change to the Exchange
Offer, the Company will promptly disclose such modification or waiver in a
manner reasonably calculated to inform Holders of Convertible Debentures of such
modification, and the Company will extend the Exchange Offer for a period which
the Company in its discretion deems appropriate, subject to any applicable laws,
depending on the significance of the modification or waiver and the manner of
disclosure to Holders of Convertible Debentures. The Commission has taken the
position that the minimum period during which an exchange offer must remain open
following material changes in the terms of such exchange offer or in the
information concerning such exchange offer (other than a change in price or a
change in percentage of securities sought) will depend upon the facts and
circumstances of such change, including the relative materiality of the terms or
information changes. With respect to any change in price or percentage of
securities sought, a minimum ten business day period is required to allow for
adequate determination of such change. IN THE EVENT THE COMPANY MODIFIES OR
WAIVES ANY OF SUCH CONDITIONS, THE COMPANY AND/OR HOLDERS OF CONVERTIBLE
DEBENTURES MAY BE EXPOSED TO ADDITIONAL RISKS WHICH CANNOT PRESENTLY BE
PREDICTED OR EVALUATED.

In addition to the foregoing, the Company will not be required to accept for
exchange any Convertible Debentures not theretofore accepted for exchange or
exchanged, and may terminate, extend or amend the Exchange Offer as provided
herein, if, at any time prior to the time of acceptance for exchange of any
Convertible Debentures pursuant to the Exchange Offer, the Company shall have
been advised, or shall otherwise have reason to believe, that any necessary
consent or approval will be denied or substantially delayed, or will not be
given other than upon terms or conditions which would, in the opinion of the
Company, make it impractical to proceed with the Exchange Offer.

DEPOSITARY

First Union National Bank, Charlotte, North Carolina has been appointed as
Depositary for the Exchange Offer. Questions and requests for assistance may be
directed to the Depositary at one of its addresses and telephone numbers set
forth on the back cover of this Proxy Statement/Prospectus.

46
<PAGE>
FEES AND EXPENSES

The expenses of soliciting tenders of Convertible Debentures and of
obtaining Consents will be borne by the Company. The principal solicitation is
being made by mail; however, additional solicitation may be made by telegraph,
telephone or in person by officers and regular employees of the Company and its
affiliates, who will not receive additional compensation. Such officers may
solicit tenders of Convertible Debentures and seek to obtain Consents.
Arrangements may also be made with brokerage houses and other custodians,
nominees and fiduciaries to forward the material regarding the Exchange Offer to
the beneficial owners of Convertible Debentures. The Company will reimburse such
forwarding agents for reasonable out-of-pocket expenses incurred by them but no
compensation will be paid for their services.

The total cash expenditures to be incurred by the Company in connection with
the Exchange Offer are estimated to be approximately $.4 million in addition to
the approximately $.3 million already incurred.

STOCKHOLDERS' MEETING, VOTING RIGHTS AND PROXIES

SOLICITATION OF PROXIES

This Proxy Statement/Prospectus is furnished in connection with the
solicitation by the Board of Directors of the Company of proxies to be voted at
the Meeting, which will be held at the offices of King & Spalding, 120 West 45th
Street, New York, New York 10036-4003, on September 30, 1996 at 9:00 a.m., New
York City time, to consider the proposals set forth in this Proxy
Statement/Prospectus to approve the Reverse Stock Split, the Board Amendments,
the Preferred Stock Authorization, the Charter Amendments and the Stock Option
Plan.

WHETHER OR NOT YOU ARE TO ATTEND THE MEETING, YOUR VOTE BY PROXY IS VERY
IMPORTANT. STOCKHOLDERS ARE ENCOURAGED TO MARK, SIGN AND DATE THE APPROPRIATE
PROXY CARD AND MAIL IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE.

The expenses of soliciting proxies will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates, who will not receive additional
compensation. Arrangements may also be made with brokerage houses and other
custodians, nominees and fiduciaries to forward the material regarding the
Meeting to the beneficial owners of Common Stock. The Company will reimburse
such forwarding agents for reasonable out-of-pocket expenses incurred by them,
but no compensation will be paid for their services.

VOTING OF PROXIES

All shares represented by a properly executed proxy will be voted at the
Meeting in accordance with the directions on such proxy. If no direction is
indicated on a properly signed proxy, the shares covered thereby will be voted
in favor of the Reverse Stock Split, the Board Amendments, the Preferred Stock
Authorization, the Charter Amendments and to approve the Stock Option Plan.
Abstentions and "broker non-votes" are counted for purposes of determining the
presence or absence of a quorum for the transaction of business, and will
therefore have the effect of a "no" vote on all proposals brought before the
Meeting. The Board of Directors recommends that you vote, according to your
voting rights, "FOR" such proposals by checking the appropriate box on the
accompanying proxy.

In the event that sufficient votes in favor of any of the proposals set
forth in the Notice of Special Meeting of Stockholders are not received by the
time scheduled for the Meeting, or if any of the other conditions to the
Restructuring are not satisfied, the persons named as proxies may propose one or
more adjournments of the Meeting to permit further solicitation of proxies with
respect to any such proposal or to permit the satisfaction of any such
condition. Any such adjournment will require the affirmative vote of a majority
of the voting power present or represented at the Meeting. The persons named as
proxies will vote in favor of such adjournment, if proposed, those proxies which
they are

47
<PAGE>
entitled to vote in favor of any one of the Reverse Stock Split, the Board
Amendments, the Preferred Stock Authorization, the Charter Amendments, or to
approve the Stock Option Plan and persons named as proxies will vote against
such adjournment those proxies required to be voted against all such proposals.

RECORD DATE

As of the date of this Proxy Statement/Prospectus, without giving effect to
the Reverse Stock Split, Alexius A. Dyer III, the Chairman of the Board,
President and Chief Executive Officer of the Company, owned of record or
beneficially approximately 1,000 shares of the Company's Common Stock
(disregarding any shares of Common Stock beneficially owned by him by reason of
his ownership of stock options or warrants), which represents approximately
.025% of the aggregate number of shares of Common Stock outstanding. At such
date, without giving effect to the Reverse Stock Split, Mr. and Mrs. Richard R.
Wellman, formerly the Chairman of the Board and Secretary, respectively, of the
Company, owned of record or beneficially approximately 1,999,700 shares of
Common Stock, or 49.48% of the shares of Common Stock outstanding. Mr. and Mrs.
Wellman executed an irrevocable proxy, in connection with their resignation of
their positions with the Company on January 31, 1995, authorizing the Board of
Directors of the Company to vote 1,980,000 shares of the Company's Common Stock
(representing approximately 48.99% of the shares of Common Stock outstanding)
owned by the Wellmans. The irrevocable proxy was affirmed by the Wellmans in
October 1995. Accordingly, the executive officers and directors of the Company
possess the power to vote approximately 49.02% of the outstanding shares of
Common Stock with respect to the Reverse Stock Split, the Board Amendments, the
Charter Amendments, the Preferred Stock Authorization and approval of the Stock
Option Plan. Messrs. Dyer, Mueller and Kirkland have informed the Company that
they intend to vote in favor of the proposed amendments to the Company's
Certificate of Incorporation and for approval of the Stock Option Plan.

VOTING RIGHTS

Each share of Common Stock is entitled to one vote with respect to the
Reverse Stock Split Amendment, the Board Amendments, the Preferred Stock
Authorization, the Charter Amendments and the Stock Option Plan. Stockholders
have no appraisal or dissenters' rights with respect to the proposals to amend
the Company's Certificate of Incorporation.

REVOCATION OF PROXIES

A stockholder who has executed and returned a proxy may revoke it at any
time before it is voted by executing and returning a proxy bearing a later date,
by giving written notice of revocation to the Secretary of the Company or by
attending the Meeting and voting in person.

PROPOSED AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION:
REVERSE STOCK SPLIT AMENDMENT

The Board of Directors has approved the Reverse Stock Split Amendment
whereby each 27 outstanding shares of Common Stock will be combined into one
share of Common Stock. See "Description of Capital Stock" and Appendix A. If
adopted, the Reverse Stock Split Amendment will not become effective unless and
until the Closing occurs. The authorized capitalization of the Company will not
be affected by the Reverse Stock Split. Adoption of the Reverse Stock Split
Amendment requires the affirmative vote of the holders of a majority of the
shares of Common Stock outstanding.

PROPOSED AMENDMENT TO THE COMPANY; CERTIFICATE OF INCORPORATION:
PREFERRED STOCK AUTHORIZATION

The Board of Directors has approved the Preferred Stock Authorization. The
Preferred Stock Authorization would increase the number of authorized shares of
Preferred Stock to 2,000,000 from

48
<PAGE>
500,000 and would allow the Board of Directors to fix the designations,
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications or terms and conditions of
redemption for a particular series of Preferred Stock. The Board of Directors
does not currently intend to issue a series of Preferred Stock. If adopted, the
Preferred Stock Authorization will not become effective unless and until the
Closing occurs. Adoption of the Preferred Stock Authorization requires the
affirmative vote of the holders of a majority of the shares of Common Stock
outstanding.

PROPOSED AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION:
BOARD OF DIRECTORS

The Board of Directors has approved the Board Amendments, pursuant to which
(i) the number of directors of the Company shall be fixed at seven members and
(ii) the number of directors constituting the Board shall not be changed without
the affirmative vote of at least 75% of the issued and outstanding shares of
Common Stock. If adopted, the Board Amendments will not become effective unless
and until the Closing occurs. Adoption of the Board Amendments requires the
affirmative vote of the holders of a majority of the shares of Common Stock
outstanding.

PROPOSED AMENDMENTS TO THE COMPANY'S CERTIFICATE OF INCORPORATION:
PROVISIONS AFFECTING CORPORATE GOVERNANCE

The Board of Directors has approved the Charter Amendments to add certain
provisions to the Company's Certificate of Incorporation and Bylaws with respect
to stockholder action. Certain of those provisions may make an acquisition of
the Company more difficult for an acquiror.

SECTION 203 OF THE DELAWARE LAW. Pursuant to the Charter Amendments, the
Company's Certificate of Incorporation would be amended to make the provisions
of Section 203 of the DGCL inapplicable to the Company. In general, Section 203
of the DGCL prohibits a publicly held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years following the date such stockholder became an "interested stockholder,"
unless (a) prior to such date the board of directors of the corporation approved
either the "business combination" or the transaction which resulted in the
stockholder becoming an "interested stockholder," or (b) upon consummation of
the transaction which resulted in the stockholder becoming an "interested
stockholder," the "interested stockholder" owned at least 85% of the voting
stock of the corporation outstanding at the time the transaction commenced,
excluding for purposes of determining the number of shares outstanding those
shares owned (i) by persons who are directors and also officers and (ii) by an
employee stock plan in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer, or (c) on or subsequent to such date the
"business combination" is approved by the board of directors and authorized at
the annual or special meeting of stockholders by the affirmative vote of at
least 66 2/3% of the outstanding voting stock which is not owned by the
"interested stockholder." A "business combination" includes certain mergers,
stock or asset sales and other transactions resulting in a financial benefit to
the "interested stockholder." An "interested stockholder" is a person who,
together with affiliates and associates, owns (or within three years, did own)
15% or more of the corporation's voting stock. Under the terms of Section 203,
this amendment will not be effective until 12 months after its adoption by the
stockholders and shall not apply to any "business combination" between the
Company and any person who becomes an "interested stockholder" on or prior to
such adoption.

49
<PAGE>
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. The Bylaws will be amended to provide that stockholders seeking to
bring business before an annual meeting of stockholders, or to nominate
candidates for election as directors at an annual or special meeting of
stockholders, must provide timely notice thereof in writing. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Company not less than 30 days nor more than
60 days prior to the meeting; provided, however, that in the event that less
than 40 days' notice or prior public disclosure of the date of the meeting is
given or made to stockholders, notice by the stockholder to be timely must be
received no later than the close of business on the 10th day following the day
on which such notice of the date of the meeting was mailed or such public
disclosure was made. The Bylaws also specify certain requirements for a
stockholder's notice to be in proper written form. These provision may preclude
some stockholders from bringing matters before the stockholders at an annual or
special meeting or from making nominations for directors at an annual or special
meeting. This provision of the Bylaws may not be amended, modified or repealed
by the stockholders of the Company, except with the consent of holders of
three-fourths of the Company's outstanding Common Stock.

ADJOURNMENT OF MEETINGS OF STOCKHOLDERS. The Bylaws will be amended to
provide that when a meeting of stockholders of the Company is convened, the
presiding officer, if directed by the Board of Directors, may adjourn the
meeting if no quorum is present for the transaction of business or if the Board
of Directors determines that adjournment is necessary or appropriate to enable
the stockholders to consider fully information which the Board of Directors
determines has not been made sufficiently or timely available to stockholders or
to otherwise effectively exercise their voting rights. This provision will,
under certain circumstances, make more difficult or delay actions by the
stockholders opposed by the Board of Directors. The effect of such provision
could be to delay the timing of a stockholders' meeting, including in cases
where stockholders have brought proposals before the stockholders which are in
opposition to those brought by the Board of Directors and therefore may provide
the Board of Directors with additional flexibility in responding to such
stockholder proposals. As set forth below, this provision of the Bylaws may not
be amended, modified or repealed by the stockholders of the Company, except with
the consent of holders of three-fourths of the Company's outstanding Common
Stock.

AMENDMENT OF THE BYLAWS. The Certificate of Incorporation will be amended
to provide that no provision of the Bylaws may be amended, modified or repealed
by the stockholders of the Company, nor may any provision of the Bylaws
inconsistent with such provision be adopted by the stockholders of the Company,
except with the consent of holders of three-fourths of the Company's outstanding
Common Stock. This provision will make it more difficult for stockholders to
make changes to the Bylaws that are opposed by the Board of Directors. This
provision of the Certificate of Incorporation may not be amended, modified or
repealed by the stockholders of the Company, except with the consent of holders
of three-fourths of the Company's outstanding Common Stock.

THE STOCK OPTION PLAN

50
<PAGE>

awards to be granted to such employees and to make all administrative
determinations required by the Stock Option Plan. The Compensation Committee
also will have authority to waive conditions relating to an award or accelerate
vesting of awards. The Stock Option Plan provides for certain grants of
nonqualified stock options to directors who are not executive officers of the
Company. An aggregate of 598,782 shares of Common Stock have been reserved for
issuance under the Stock Option Plan, subject to anti-dilution adjustments in
the event of certain changes in the Company's capital structure.

In connection with the Restructuring, after the adoption of the Stock Option
Plan, the Company intends to grant restricted stock and/or options to purchase
the following numbers of shares of Common Stock to the following persons or
groups: Alexius A. Dyer III, 224,543 shares, representing 7.5% of the Common
Stock to be outstanding following the Restructuring on a fully-diluted basis;
George Murnane III, 104,787 shares, representing 3.5% of such outstanding Common
Stock; and the non-executive employees of the Company, 119,756 shares,
representing 4.0% of such outstanding Common Stock. Forty percent of such
options or shares will vest immediately with 15% vesting annually, over the four
years following the date of grant. In addition, shares representing 2.5% of the
outstanding Common Stock will be reserved for future issuance pursuant to the
Stock Option Plan, each grant to vest equally, over three years after being
awarded. The Company also intends to grant options representing up to 2.5% of
the outstanding Common Stock to directors who are not executive officers of the
Company. The number of options to be granted to such directors will be
determined by the Company prior to the consummation of the Restructuring. The
Company intends to reserve for future issuance to such directors any shares not
granted as restricted stock and not covered by options issued upon consummation
of the Restructuring.

For a complete description of the Stock Option Plan, see "Management -- The
Stock Option Plan."

DILUTION

The Restructuring will result in significant dilution of the equity
interests of the existing holders of Common Stock. See "Risk Factors --
Dilution" and "The Restructuring -- Certain Significant Effects of the
Restructuring -- Significant Dilution of Equity Interests."

EXCHANGE OF STOCK CERTIFICATES; FRACTIONAL SHARES

As soon as practicable after the Closing, the Company's stockholders will be
notified and requested to surrender their Common Stock certificates for
replacement certificates representing the number of shares of Common Stock into
which their shares of Common Stock were combined pursuant to the Reverse Stock
Split. Until so surrendered, each existing certificate for 27 shares of Common
Stock prior to the Closing will be deemed to represent a certificate for one
share of Common Stock.

No certificates or scrip representing fractional shares of Common Stock will
be issued in connection with the Restructuring. The Company expects to enter
into an agreement with the Depositary whereby the Depositary will aggregate and
sell all fractional shares of Common Stock otherwise issuable in connection with
the Restructuring. There can be no assurance as to the price at which sales will
be effected. Market conditions or other factors could cause the fractional
shares or holdings to be sold at depressed prices, including prices
substantially below fair market value. The proceeds of such sales will be
distributed by the Depositary to the persons who would otherwise have received
such fractional amount. See "The Exchange Offer -- Acceptance of Convertible
Debentures and Delivery of Common Stock" and "Risk Factors -- Market for Common
Stock."

OTHER MATTERS TO BE CONSIDERED

It is not anticipated that any matter other than the approval of the Stock
Option Plan, the Reverse Stock Split, the Board Amendments, the Preferred Stock
Authorization and the Charter Amendments will be brought before the Meeting. If
other matters are properly presented, proxies will be voted in accordance with
the best judgment of the proxy holders.

51
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS

GENERAL

The opinion of the Company's counsel, King & Spalding ("Counsel"), regarding
the material federal income tax consequences of the Restructuring to the Company
and to the holders of Convertible Debentures is described herein. Such opinion
is based on the provisions of the Internal Revenue Code of 1986, as amended (the
"Tax Code"), final, temporary and proposed Treasury regulations thereunder, and
administrative and judicial interpretations thereof, all as in effect as of the
date hereof, and all of which are subject to change (perhaps retroactively) by
legislation, administrative action or judicial decision. Such opinion is also
based on certain factual representations, assumptions and beliefs of the
Company, as set forth herein and such opinion does not extend to such factual
representations, assumptions and beliefs. There can be no assurance that the
Internal Revenue Service (the "Service") will not challenge one or more of the
tax consequences of the Restructuring described herein, and no ruling from the
Service has been or will be requested as to any of such tax consequences.

The following discussion does not include all matters that may be relevant
to any particular holder in light of such holder's particular facts and
circumstances. Certain holders, including financial institutions,
broker-dealers, tax-exempt entities, insurance companies and foreign persons may
be subject to special treatment not described below.

THE FEDERAL INCOME TAX CONSEQUENCES OF THE RESTRUCTURING ARE COMPLEX. ALL
HOLDERS OF CONVERTIBLE DEBENTURES SHOULD CONSULT WITH THEIR OWN TAX ADVISORS AS
TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE RESTRUCTURING AND THE
OWNERSHIP AND DISPOSITION OF THE COMMON STOCK, INCLUDING THE APPLICATION AND
EFFECT OF ANY STATE, LOCAL AND FOREIGN TAX LAWS.

TAX CONSEQUENCES TO THE COMPANY

CANCELLATION OF INDEBTEDNESS. If a taxpayer satisfies its outstanding debt
obligation for less than its principal amount, such taxpayer generally realizes
cancellation of debt ("COD") income for federal income tax purposes. In the case
of an exchange such as that contemplated by the Restructuring, where outstanding
indebtedness is canceled in exchange for Common Stock, the amount of such COD
income is, in general, equal to the excess of the adjusted issue price
(including accrued but unpaid interest) of the indebtedness satisfied over the
fair market value of such Common Stock. Such COD income is recognized and
included in the taxpayer's taxable income except to the extent that Section 108
of the Tax Code applies.

Section 108 of the Tax Code provides an exception to the recognition of COD
income for taxpayers who are insolvent (but only to the extent of their
insolvency) or where the discharge occurs in a Chapter 11 or similar case under
the Bankruptcy Code. Section 108(b) of the Tax Code provides that certain tax
attributes of the taxpayer must be reduced by the amount of the taxpayer's COD
income that is excluded under Section 108(a) of the Tax Code. In general, net
operating loss carryovers, tax credit and capital loss carryforwards are reduced
first, and then the tax basis of the Company's property is reduced (but not
below the remaining amount of its liabilities). In lieu of the generally
required order of attribute reduction, the taxpayer may elect instead to reduce
first, its tax basis in its depreciable property, and then its remaining tax
attributes. Such attribute reductions are made after the determination of the
Company's tax liability for the taxable year in which the Restructuring occurs.

If the cancellation of indebtedness does not occur pursuant to a federal
bankruptcy case, the exclusion from income provided by Section 108 of the Tax
Code applies only to the extent that the taxpayer is insolvent for purposes of
that section. To the extent that the COD income exceeds the amount by which the
taxpayer is insolvent prior to the debt discharge, such excess is included in
the

52
<PAGE>
taxpayer's taxable income. A taxpayer is insolvent to the extent of the excess
of (i) the aggregate amount of all the taxpayer's liabilities over (ii) the fair
market value of all of the taxpayer's assets immediately prior to the debt
cancellation transaction.

The Company may recognize COD income in the Restructuring, depending on the
value of the Company's Common Stock following the Restructuring. Based on the
Company's estimate of the value of the Common Stock that will be issued to the
holders of the Convertible Debentures, the Company currently expects that it
will recognize approximately $2,373,500 of COD income in the Restructuring. Any
such COD income will be excluded from the Company's taxable income to the extent
of its pre-Restructuring insolvency (with correlative reduction of its tax
attributes under Section 108(b) of the Tax Code), and the remainder will be
included in the Company's taxable income. There can be no assurance that the IRS
or a court will agree with the Company's determination of its insolvency or the
value of the Common Stock after the Restructuring is effected. As a result, it
is possible that the Company could be required to recognize a significant amount
of taxable income in connection with the Restructuring.

LIMITATION ON UTILIZATION OF NET OPERATING LOSS CARRYFORWARDS. Section 382
of the Tax Code generally limits a corporation's use of its net operating loss
carryforwards ("NOLs") and certain built-in losses if the corporation undergoes
an "ownership change." An ownership change generally occurs when a percentage of
the corporation's stock by value held by certain persons (identified in Tax Code
Section 382 as "5% shareholders") increases in the aggregate by more than 50
percentage points over the lowest level held by such persons during a three-year
testing period. If an ownership change occurs, the corporation's annual
utilization of its NOLs is limited to the product of the corporation's equity
value immediately before the ownership change multiplied by the applicable
long-term federal tax-exempt rate. The Company believes that the Restructuring
will result in an ownership change of the Company for purposes of Section 382 of
the Tax Code.

However, under a special rule, the Company will be entitled to use its NOL
carryforwards to fully offset, without any limitation, any "built-in gains" that
are recognized during the five-year period following the Restructuring. In order
to take advantage of the recognized built-in gain rule, the Company must have an
aggregate net unrealized built-in gain in its assets (i.e., excess of aggregate
fair market value over aggregate tax basis) on the date of the Restructuring
which exceeds the lesser of $10 million or 15% of the total gross fair market
value of its assets (excluding cash and cash items). The Company is permitted to
increase its annual Section 382 limitation by the amount of "recognized built-in
gains" attributable to the disposition of assets held on the date of the
Restructuring within the five-year period following the Restructuring. The
Company presently believes it will have a net unrealized built-in gain in assets
in excess of the statutory threshold.

Without taking into account the COD income attributable to the
Restructuring, the Company presently estimates that it will have NOL
carryforwards following the Restructuring of approximately $7.3 million,
although there can be no assurance that the IRS will concur in the reporting
positions on which the Company's NOL calculations are based. Such NOLs will be
reduced or consumed by the COD income recognized in the Restructuring. The
application of Section 382 of the Tax Code could severely limit the Company's
ability to use such carryforwards. Except to the extent that the Company has a
net unrealized built-in gain and recognizes such gains during such five-year
period, the Company's annual limitation under Section 382 may be small.

TAX CONSEQUENCES TO THE HOLDERS OF THE CONVERTIBLE DEBENTURES

The exchange of the Convertible Debentures for Common Stock pursuant to the
Exchange Offer will constitute a recapitalization under Section 368(a)(1)(E) of
the Tax Code, and therefore, no gain or loss will be recognized by the holders
except to the extent provided in Section 354(c)(2)(B) with respect to accrued
interest that is treated as paid by Common Stock. The terms of the Exchange
Offer provide that the fair market value of the Common Stock exchanged for
Convertible Debentures will be

53
<PAGE>
allocated first to accrued interest and then to the principal amount of such
Convertible Debentures. The Company will report interest in its information
filings to holders and to the Service in a manner consistent with the above
allocations.

If the Company's allocations are accepted by the Service or ultimately
sustained by the courts, then a holder of Convertible Debentures should
recognize ordinary interest income equal to the fair market value of the Common
Stock that is allocated to interest which accrued during the holder's holding
period for such Convertible Debentures to the extent that such interest has not
previously been included in the holder's income.

In general, a holder's tax basis in such Common Stock received pursuant to
the Restructuring (and not allocable to accrued and unpaid interest) would equal
the holder's adjusted tax basis in the Convertible Debentures surrendered, and
such holder's holding period in the Common Stock received (and not allocable to
accrued and unpaid interest) would include its holding period for the
Convertible Debentures surrendered. The holder's tax basis in that portion of
the Common Stock allocable to accrued and unpaid interest would be equal to the
amount of interest deemed received, and the holder's holding period in such
portion of the Common Stock allocable to accrued and unpaid interest would begin
on the day after the exchange.

This discussion assumes that holders hold their Convertible Debentures as
capital assets within the meaning of Section 1221 of the Tax Code and will hold
the Common Stock received in the exchange therefor as capital assets. Based on
this assumption and except as specifically noted herein, any gain or loss
recognized by a holder on the disposition of any such securities would be
capital gain or loss. Such gain or loss would be long-term capital gain or loss
if the holding period with respect to such security exceeds one year, and
otherwise would be short-term capital gain or loss. The use of capital losses to
offset other income is subject to significant limitations. Moreover, gain on the
disposition of Common Stock acquired by a holder in exchange for Convertible
Debentures will generally be treated as ordinary income to the extent that the
holder was allowed an ordinary loss on such exchange.

BACKUP WITHHOLDING. A holder of Common Stock may, under certain
circumstances, be subject to "backup withholding" at the rate of 31% with
respect to dividends paid on Common Stock or the proceeds of a sale, exchange or
redemption of such Common Stock unless such holder (i) is a corporation or comes
within certain other exempt categories and, when required, demonstrates this
fact or (ii) provides a correct taxpayer identification number, certifies that
such holder is not subject to backup withholding and otherwise complies with
applicable requirements of the backup withholding provisions. A holder who does
not provide a correct taxpayer identification number may be subject to penalties
imposed by the Service. Any amount withheld under these rules will be creditable
against the holder's federal income tax liability.

ACCOUNTING TREATMENT

The Company proposes to account for the Restructuring using the principles
of SFAS 15, entitled "Accounting by Debtors and Creditors for Troubled Debt
Restructurings." Pursuant to such principles, a debtor, such as the Company,
that issues an equity interest to a creditor in discharge of the creditor's debt
claim is required to account for the equity interest at its fair value and to
recognize as a gain the difference between the fair value of the equity interest
and the carrying amount of the debt discharged.

Upon completion of the Restructuring, assuming all Convertible Debentures
are accepted for exchange, the Company will record an extraordinary gain of
approximately $1.8 million. This represents the difference between the aggregate
outstanding principal amount of the Convertible Debentures and related accrued
interest, less the fair value of the equity interest granted (net of direct
costs), and write-off of the unamortized deferred debt costs associated with the
Convertible Debentures.

54
<PAGE>
HISTORICAL AND PRO FORMA CAPITALIZATION

The following unaudited tables set forth the consolidated capitalization of
the Company at May 31, 1996 and the consolidated pro forma capitalization of the
Company as of such date as adjusted to give effect to the Restructuring as if it
became effective on such date. The pro forma information presented below assumes
that all of the Convertible Debentures are accepted for exchange. The
information presented below should be read in conjunction with the Consolidated
Financial Statements and the unaudited Pro Forma Financial Information and
related notes appearing elsewhere herein. See "Financial Statements" and "Pro
Forma Financial Information."

<TABLE>
<CAPTION>
MAY 31, 1996
---------------------
ACTUAL PRO FORMA
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt........................................................................... $ 3,695 $ 437
Long-term debt in default classified as current........................................... 14,042 --
Long-term debt............................................................................ 407 7,707
Stockholders' equity:
Preferred stock, $.001 par value, 500,000 shares authorized; 2,000,000 shares authorized
pro forma; no shares issued and outstanding, actual or pro forma....................... -- --
Common stock, $.001 par value; 20,000,000 shares authorized; 4,041,779 shares issued and
outstanding; 2,395,104 shares issued and outstanding pro forma (1)..................... 4 2
Additional paid-in capital.............................................................. 2,654 10,546
Accumulated deficit..................................................................... (10,074) (8,445)
---------- ---------
Total stockholders' equity (deficit).................................................. (7,416) 2,103
---------- ---------
Total capitalization.................................................................. $ 10,727 $ 10,247
---------- ---------
---------- ---------
</TABLE>

- ------------------------
(1) Represents shares issued after the Restructuring and the Reverse Stock Split
but does not include 2,116,410 shares of Common Stock issuable under certain
outstanding warrants and options pursuant to the existing stock option plan
and the Old Warrants, actual, and 598,782 shares of Common Stock subject to
options under the Stock Option Plan, pro forma. See "Management -- Stock
Option Plan."

55
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA

<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
----------------------------------------------------------
1992 1993 1994 1995 1996
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales...................................................... $ 26,527 $ 32,032 $ 16,747 $ 21,999 $ 21,410
Lease revenue.................................................. -- 1,473 1,986 2,984 1,795
---------- ---------- ---------- ---------- ----------
Total revenues................................................. 26,527 33,505 18,733 24,983 23,205
Cost of sales.................................................. 16,311 21,494 22,104 17,712 13,208
Selling, general and administrative expenses................... 5,281 6,469 6,943 4,358 3,922
Provision (recovery) for doubtful accounts..................... 374 493 1,488 (335) 464
Depreciation and amortization.................................. 201 1,000 2,474 1,401 1,153
Losses of service center subsidiary............................ -- -- 1,923 676 --
Unusual and nonrecurring items................................. -- -- -- (177) --
---------- ---------- ---------- ---------- ----------
Total operating expenses....................................... 22,167 29,456 34,932 23,635 18,747
---------- ---------- ---------- ---------- ----------
Income (loss) from operations.................................. 4,360 4,049 (16,199) 1,348 4,458
Interest expense............................................... 871 2,569 2,953 2,564 2,192
Interest and other income, net................................. (94) (66) (88) (603) (34)
---------- ---------- ---------- ---------- ----------
Earnings (loss) before income taxes, equity in loss of joint
venture and extraordinary item................................ 3,583 1,546 (19,065) (614) 2,300
Provision for income taxes (benefit)........................... 1,370 510 (2,476) -- 14
Equity in loss of joint venture................................ (229) (59) (424) -- --
Extraordinary loss on extinguishment of debt................... -- -- (363) -- --
---------- ---------- ---------- ---------- ----------
Net earnings (loss)............................................ $ 1,984 $ 977 $ (17,376) $ (614) $ 2,286
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
PER SHARE DATA:
Primary earnings (loss) per common and common equivalent shares
Earnings (loss) before extraordinary item.................... $ 0.52 $ 0.22 $ (4.21) $ (0.15) $ 0.57
Extraordinary item........................................... -- -- (0.09) -- --
---------- ---------- ---------- ---------- ----------
Net earnings (loss)........................................ $ 0.52 $ 0.22 $ (4.30) $ 0.15 $ 0.57
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Weighted average shares outstanding used in primary
calculation................................................... 3,849,852 5,312,046 4,041,779 4,041,779 4,041,779
Fully diluted earnings (loss) per common and common equivalent
shares
Earnings (loss) before extraordinary item.................... $ 0.52 $ 0.22 $ (4.21) $ (0.15) $ 0.47
Extraordinary item........................................... -- -- (0.09) -- --
---------- ---------- ---------- ---------- ----------
Net earnings (loss)........................................ $ 0.52 $ 0.22 $ 4.30 $ 0.15 $ 0.47
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Weighted average shares outstanding used in fully diluted
calculation................................................... 3,849,852 5,312,046 4,041,779 4,041,779 6,541,779
Ratio of earnings to fixed charges (1)......................... 5.01 1.58 -- -- 2.03
</TABLE>

<TABLE>
<CAPTION>
AT MAY 31,
----------------------------------------------------------
1992 1993 1994 1995 1996
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)...................................... $ 2,938 $ 17,088 $ (18,312) $ (13,489) $ (10,841)
Total assets................................................... 20,303 35,709 25,553 14,511 16,132
Short-term debt................................................ 7,296 4,905 3,531 1,812 3,695
Long-term debt in technical default classified as current...... -- -- 22,157 18,083 14,042
Long-term debt................................................. 309 18,579 485 440 407
Stockholder's equity (deficit)................................. 7,080 8,173 (9,088) (9,702) (7,416)
Book value per share........................................... $ 1.78 $ 2.04 $ (2.25) $ (2.40) $ (1.83)
</TABLE>

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

(1) For purposes of this item, "fixed charges" represent interest expense and
"earnings" represent income (loss) from operations. Earnings were
insufficient to core fixed charges by $19.2 million and $1.4 million for the
years ended May 31, 1994 and 1995, respectively.

56
<PAGE>
PRO FORMA FINANCIAL INFORMATION

The unaudited Pro Forma Condensed Consolidated Balance Sheet as of May 31,
1996 and the unaudited Pro Forma Condensed Consolidated Statements of Operations
for the fiscal year ended May 31, 1996 set forth below, have been prepared using
the principles of SFAS 15, entitled "Accounting by Debtors and Creditors for
Troubled Debt Restructurings" and are based on the historical consolidated
financial statements of the Company, adjusted to give effect to the
Restructuring, assuming all of the Convertible Debentures are accepted for
exchange, that the Senior Notes are redeemed on the Closing Date with the
proceeds of an advance pursuant to the Credit Agreement and that the amounts
outstanding pursuant to the Credit Agreement bear interest at 10.25%. The Pro
Forma Condensed Consolidated Balance Sheet reflects adjustments as if the
Restructuring had occurred as of the date of such balance sheet. The Pro Forma
Condensed Consolidated Statement of Operations reflects adjustments as if the
Restructuring had occurred on the first day of the applicable period, excluding
the effect of the estimated extraordinary gain of $1.8 million to be realized
upon completion of the Restructuring. The pro forma financial information should
be read in conjunction with the historical financial statements, including the
notes thereto, and Management's Discussion and Analysis of Financial Condition
and Results of Operations, all of which are included in this Proxy
Statement/Prospectus. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Index to Financial Statements." The
pro forma financial information does not purport to be indicative of the results
which would actually have been obtained had such transactions been completed as
of the date and for the period presented or which may be obtained in the future.

PRO FORMA STATEMENT OF OPERATIONS
(in thousands, except ratios and per share data)

<TABLE>
<CAPTION>
HISTORICAL
YEAR ENDED PRO FORMA YEAR
MAY 31, PRO FORMA ENDED MAY 31,
1996 ADJUSTMENTS 1996
----------- ---------------- ---------------
<S> <C> <C> <C>
Revenues
Net sales...................................................... $ 21,410 -- $ 21,410
Lease revenue.................................................. 1,795 -- 1,795
----------- ---------------- ---------------
Total revenue................................................ 23,205 -- 23,205
Cost of sales.................................................... 13,208 -- 13,208
SG&A expenses.................................................... 3,922 -- 3,922
Provision for doubtful accounts.................................. 464 -- 464
Depreciation and amortization.................................... 1,153 -- 1,153
----------- ---------------- ---------------
Total operating expenses..................................... 18,747 -- 18,747
Income from operations........................................... 4,458 -- 4,458
Interest expense................................................. 2,192 (213)(1) 1,213
(800)(2)
(162)(3)
106(4)
90(5)
Interest and other income........................................ (34) -- (34)
----------- ---------------- ---------------
Earnings before income taxes..................................... 2,300 979 (10 3,279
Provision for income taxes....................................... 14 -- 14
----------- ---------------- ---------------
Net earnings..................................................... $ 2,286 $ 979 $ 3,265
----------- ---------------- ---------------
----------- ---------------- ---------------
Ratio of earnings to fixed charges............................... 2.03 3.68
PER SHARE DATA (12)(11):
Primary earnings per common and common equivalent share $ 15.27 $ 1.36
----------- ---------------
----------- ---------------
Weighted average shares outstanding used in primary
calculation..................................................... 149,704 2,395,104
Fully diluted earnings per common and common equivalent share $ 12.74 $ 1.36
----------- ---------------
----------- ---------------
Weighted average shares outstanding used in fully diluted
calculation..................................................... 242,288 2,395,104
</TABLE>

57
<PAGE>
PRO FORMA CONDENSED BALANCE SHEET
(in thousands)

<TABLE>
<CAPTION>
HISTORICAL
YEAR ENDED PRO FORMA
MAY 31, PRO FORMA YEAR ENDED
1996 ADJUSTMENTS MAY 31, 1996
----------- ---------------- -------------
<S> <C> <C> <C>
Cash and cash equivalents.......................................... $ 940 -- $ 940
Accounts receivable, net........................................... 2,015 -- 2,015
Inventories........................................................ 9,277 -- 9,277
Other current assets............................................... 69 -- 69
----------- -------- -------------
Total current assets............................................. 12,301 -- 12,301
Property and equipment, net........................................ 2,682 2,682
Deferred debt costs, net........................................... 762 374(4) 424
(611)(6)
(101)(8)
Deferred restructuring fees........................................ 335 (335)(9) --
Other assets....................................................... 52 -- 52
----------- -------- -------------
Total assets....................................................... $ 16,132 $ (673) $ 15,459
----------- -------- -------------
----------- -------- -------------
Current liabilities
Current maturities of long-term obligations...................... $ 3,695 $ 400(7) $ 437
(3,658)(7)
Long-term obligations in default classified as current........... 14,042 (4,042)(7) --
(10,000)(6)
Accounts payable................................................. 2,171 -- 2,171
Accrued expenses................................................. 3,233 (162)(3) 3,041
480(4)
90(5)
400(9)
(1,000)(6)
----------- -------- -------------
Total current liabilities........................................ 23,141 (17,582) 5,649
Long-term obligations, less current maturities..................... 407 7,300(7) 7,707
Common stock and additional paid in capital........................ 2,658 8,625(6) 10,548
(735)(9)
Accumulated deficit................................................ (10,074) 162(3) (8,445)
(106)(4)
(90)(5)
1,764(6)
(101)(8)
----------- -------- -------------
Total stockholders' equity (deficit)............................... (7,416) 9,519 2,103
----------- -------- -------------
Total liabilities and stockholders' equity......................... $ 16,132 $ (673) $ 15,459
----------- -------- -------------
----------- -------- -------------
</TABLE>

58
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

The following notes set forth an explanation of the assumptions used in
preparing the unaudited pro forma condensed financial statements. The pro forma
adjustments are based on the best estimates of the Company's management using
information currently available.

(1) Reflects elimination of amortization of deferred debt costs included in the
historical financial statements related to the Senior Notes and Convertible
Debentures.

(2) Reflects elimination of interest expense on Convertible Debentures.

(3) Reflects the differential between the stated interest rate on the Senior
Notes and the assumed rate of 10.25%, based on the current prime rate plus
2%, as defined in the Credit Agreement, on amounts outstanding during
fiscal 1996. All of the differential is due to such change in interest
rates due to the fact that the amount assumed outstanding under the Credit
Agreement equals the amount outstanding on the Senior Notes. Based on the
amounts outstanding during fiscal 1996, for each 1% increase or decrease in
the interest rate under the Credit Agreement, the Company's interest
expense would increase or decrease, as the case may be, by approximately
$91,000.

(4) Represents amortization for year of placement agent fees and other such
debt costs associated with the Credit Agreement. Such fees are expected to
be amortized over a period of 5 years. Such costs are estimated to total
$530, which includes $50 included in the historical financial statements
and incurence of an additional $480 of such costs.

(5) Represents $7,500 per month credit facility fee payable to the lender under
the Credit Agreement.

(6) Upon completion of the Restructuring, assuming all Debentures are
converted, the Company estimates that they will recognize an extraordinary
gain, pursuant to SFAS 15, on this troubled debt restructuring. The
extraordinary gain is computed based upon the amount of the Debentures
($10,000) and related accrued interest ($1,000), less the write-off of the
unamortized deferred debt costs on the Debentures ($611) and the fair value
of the equity interest granted ($8,625). The fair value of the equity
interest granted was determined based upon a multiple of six times the
projected 1997 EBITDA of $3,274, less pro forma debt of $8,143, multiplied
by 75%. Such percentage represents the percentage of ownership to be held
by the Convertible Debenture holders on a fully diluted basis. This is not
reflected in the Pro Forma Statement of Operations as this is not a
recurring charge.

(7) Reflects the prepayment, without penalty, of the Senior Notes ($3,658 and
$4,042, classified in the historical statements as current maturities of
long-term obligations and long-term obligations in technical default,
respectively) with the proceeds of a concurrent advance pursuant to the
Credit Agreement. As defined in the Credit Agreement, $400 would be due
within one year after the date of issuance and the remainder ($7,300) would
be classified as a long-term obligation.

(8) Reflects write-off of deferred debt costs on the Senior Notes upon
prepayment. This is not reflected in the Pro Forma Statement of Operations
as this is not a recurring charge.

(9) Reduction in paid-in capital for direct costs associated with granting of
equity interest described in Note (5). Such costs are estimated to total
$735, which includes the $335 in restructuring costs presented in the
historical financial statements and the incurring of an additional $400 of
such costs.

(10) The Company has sufficient net operating losses available to offset pro
forma adjustments. Accordingly, the adjustments described herein are
without tax effect. The Company's ability to use such net operating loss
carryforwards to offset future income will be limited. See "Certain Federal
Income Tax Considerations."

(11) Historical weighted average shares and resulting primary and fully-diluted
earnings per share amounts reflect the proposed 1:27 reverse stock split.

(12) Weighted average shares used in computing pro forma primary and fully
diluted earnings per share was computed based upon existing outstanding
shares and shares to be issued upon conversion of the Convertible
Debentures. Such calculation excludes stock options and warrants to be
issued upon completion of the restructuring. The following table sets forth
a reconciliation of weighted average shares used in computing historical
primary and fully-diluted earnings per share and pro forma weighted average
shares.

<TABLE>
<CAPTION>
FULLY
PRIMARY DILUTED
--------- ------------
<S> <C> <C>
Historical............................................................... 149,704 242,288
Common stock equivalents eliminated upon restructuring................... -- (92,593)
Shares issued in connection with restructuring........................... 2,245,400 2,245,400
--------- ------------
Total weighted average shares........................................ 2,395,104 2,395,104
--------- ------------
--------- ------------
</TABLE>

59
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

LIQUIDITY AND CAPITAL RESOURCES

THE RESTRUCTURING. As of August 28, 1996, the Company had entered into
Standstill Agreements with holders of approximately 96.8% of the outstanding
principal amount of the Senior Notes and had reached an agreement in principle
with the single largest holder of the Convertible Debentures and D/R providing
for the Restructuring. See "The Restructuring -- Background" and "Negotiations
with Debentureholders." The Company expects that consummation of the
Restructuring will result in the following:

-A reduction of its indebtedness from approximately $18.1 million to
approximately $8.1 million and reclassification of long-term debt from a
current to a long-term obligation.

-A capital structure that will permit the Company to implement its operating
strategy.

-Reduced debt service obligations and adequate cash flow to fund such
obligations and operations.

-An improved operating income to fixed charge ratio.

See "The Restructuring -- Certain Significant Effects of the Restructuring" and
"The Restructuring -- Projection of Certain Financial Data."

If the Restructuring is not consummated, the Company's highly leveraged
financial position will result in the continuation of the defaults with respect
to the Senior Notes and the Convertible Debentures and may result in a number of
other serious financial and operational problems, including the following: (i)
the Company will experience a severe liquidity crisis; (ii) the Company will be
unable to invest adequate capital in its business or maintain its current
capital assets; (iii) the Company will have little, if any, ability to access
capital markets; (iv) the Company's senior management will be required to spend
an excessive amount of time and effort dealing with the Company's financial
problems, instead of focusing on the operation of its business; (v) the Company
may be unable to retain top managers and other key personnel and build the value
of its business; (vi) the Company may lose business if customers become
concerned about the Company's ability to supply quality replacement parts in a
timely manner or to comply with applicable regulatory requirements; and (vii)
suppliers to the Company may stop providing supplies or may provide supplies
only on shortened payment or cash terms. If these problems occur, the Company
believes that the value of its business will deteriorate.

Accordingly, if the Restructuring is not consummated, the Company will have
little choice but to devise alternative actions. Considering the Company's
limited financial resources and the existence of unwaived defaults with respect
to the Senior Notes and the Convertible Debentures, there can be no assurance
that the Company would succeed in formulating and consummating an acceptable
alternative financial restructuring. In such case, the Company most likely would
be forced to cease operations or to file for protection under Chapter 11 of the
Bankruptcy Code. In addition, because payment defaults currently exist under the
Senior Notes and Convertible Debentures (see "Risk Factors -- Risk Factors
Relating to Failure of the Restructuring to Occur -- Certain Defaults"), it is
possible that creditors of the Company could file an involuntary petition
seeking to place the Company in bankruptcy. There can be no assurance that a
bankruptcy proceeding would result in a reorganization of the Company rather
than a liquidation, or that any reorganization would be on terms as favorable to
the holders of the Convertible Debentures, Senior Notes and Common Stock as the
terms of the Restructuring. If a liquidation or a protracted reorganization were
to occur, there is a risk that there would be no cash or property available for
distribution to holders of the Convertible Debentures and the Common Stock and
that the holders of Senior Notes would incur a significant discount on their
claims.

THE COMPANY'S CURRENT FINANCIAL CONDITION. At May 31, 1996, the Company's
total long-term debt amounted to $18.1 million, consisting primarily of $7.7
million principal amount of the Senior

60
<PAGE>
Notes, $10.0 million principal amount of the Convertible Debentures and $.4
million principal amount of a mortgage loan secured by its corporate
headquarters. The entire principal amount of the Senior Notes and the
Convertible Debentures was classified as current at May 31, 1996, because of the
existence of defaults under the governing documents. The Senior Notes, which
were issued during fiscal 1993, bear interest at the fixed rate of 12% per
annum, payable quarterly, and mature in 1997. The Convertible Debentures, which
were issued during fiscal 1994, bear interest at the fixed rate of 8% per annum,
payable quarterly, are convertible into shares of the Company's Common Stock at
$4.00 per share and mature in 2003.

On May 26, 1995, the Company received a notice of payment blockage from the
Majority Noteholder. Citing a continuing Event of Default under the agreement
governing the Senior Notes as a result of the Company's noncompliance with
certain financial covenants, the Majority Noteholder demanded that the scheduled
interest payment which would otherwise have been payable on May 31, 1995 to
holders of the Convertible Debentures not be paid. As a result of the Company's
receipt of the notice of payment blockage, the Company did not make its
scheduled May 31, 1995 and August 31, 1995 interest payments due to holders of
the Convertible Debentures, totaling $400,000. Pursuant to the terms of the
Senior Notes, the Company was prohibited from making any other payments with
respect to the Convertible Debentures prior to the expiration of the payment
blockage period on November 22, 1995. Notwithstanding the expiration of the
payment blockage period, the Company did not pay the November 30, 1995 and the
February 29 and May 31, 1996 interest payments on the Convertible Debentures.
The Company does not intend to resume making payments of interest on the
Convertible Debentures.

The Company did not make its scheduled July 17, 1995 principal payment on
the Senior Notes in the approximate amount of $1.8 million. The Company cured
the default in part by making a principal payment of $1.45 million on the Senior
Notes on December 12, 1995. The Company made an additional principal payment of
$.7 million, on May 13, 1996 which cured such principal payment default and
prepaid, without penalty, approximately $.35 million of the $4.1 million
principal payment due on the Senior Notes on July 17, 1996. The Company did not
make its July 17, 1996 principal payment on the Senior Notes, which was due in
the amount of approximately $3.7 million, pending redemption of the Senior Notes
in connection with the Restructuring. If the Restructuring is not consummated,
the Company will be unable to make such principal payment, the only remaining
principal payment on the Senior Notes due during the current fiscal year, and
will continue to be unable to make interest payments on the Convertible
Debentures for the remainder of the current fiscal year.

The failure to make the interest payments to the holders of the Convertible
Debentures and the principal payment to the holders of the Senior Notes due on
July 17, 1996 referred to above constitutes an Event of Default under the
agreements governing the Senior Notes and Convertible Debentures. Further, the
Company is in default in the observance of certain financial covenants
applicable to the Senior Notes and the Convertible Debentures. If the Company
remains in default under the terms of the Senior Notes and Convertible
Debentures, the holders of such instruments could accelerate the debt, resulting
in principal of $17.7 million becoming immediately due and payable. The Company
would have no ability to repay such indebtedness if it were to be accelerated.
The foregoing circumstances most likely would require the Company to cease
operations or to file for protection under Chapter 11 of the Bankruptcy Code. In
addition, if the holders of any of the Company's Senior Notes or Convertible
Debentures demand repayment or if the holders of the Senior Notes seek to
realize upon the collateral securing the Senior Notes, there is a substantial
likelihood that the Company will be forced to cease operations or to file for
protection under Chapter 11 of the Bankruptcy Code.

At May 31, 1996, the Company had a working capital deficit of $10.8 million
and a current ratio of .5 to 1.0, compared to a working capital deficit of $13.5
million and a current ratio of .4 to 1.0 at May 31, 1995. The $2.7 million
reduction in the working capital deficit was primarily the result of proceeds
from the sale of certain aircraft (that were previously leased), being used to
pay down current

61
<PAGE>
liabilities. This is reflected in the Company's cash flows which show cash flow
provided by operating activities of approximately $2.1 million, but cash flows
from financing activities using approximately $2.6 million.

The Company does not have any bank lines of credit or other sources of
liquidity beyond cash flows from operating activities due to profitable
operations, if any, or further asset sales. However, the Company does not
currently have any significant commitments for capital outlays. The Company has
received a commitment for a Credit Facility consisting of (i) a revolving line
of credit in an amount equal to the lesser of (a) $11.0 million and (b) an
amount based on the sum of eligible accounts receivables, eligible lease payment
receivables and eligible inventory minus a revolver reserve and (ii) a term loan
in an amount equal to the lesser of (a) $3.0 million and (b) an amount based on
a percentage of the forced liquidation value of aircraft approved by the lender
plus the revolver reserve. See "Description of the Credit Agreement." It is a
condition to the consummation of the Restructuring that the Company enter into
the Credit Agreement. The Company expects that it will have the ability to
borrow approximately $11.7 million under the Credit Agreement and it expects to
incur approximately $7.9 million of indebtedness under the Credit Agreement upon
consummation of the Restructuring. The Company believes that its remaining
available borrowings will be adequate together with cash from operations, to
meet its projected expenditures.

RESULTS OF OPERATIONS

OVERVIEW.

The following table sets forth percentage relationships of expense items to
total revenues for the periods indicated:

<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES
YEARS ENDED MAY 31,
-------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Operating Data:
Net Sales........................................................ 89.4% 88.1% 92.3%
Lease Revenue.................................................... 10.6 11.9 7.7
----------- ----- -----
Total revenues................................................... 100.0% 100.0% 100.0%
----------- ----- -----
Cost of sales.................................................... 118.0 70.9 56.9
Selling, general and administrative expenses..................... 37.1 17.4 16.9
Provision (recovery) for doubtful accounts....................... 7.9 (1.3) 2.0
Depreciation and amortization expense............................ 13.2 5.6 5.0
Losses of service center subsidiary.............................. 10.3 2.7 --
Unusual and nonrecurring items................................... -- (.7) --
----------- ----- -----
Total operating expenses....................................... (186.5) 94.6 80.8
----------- ----- -----
Income from operations........................................... (86.5) 5.4 19.2
Interest expense................................................. 15.8 10.3 9.4
Interest and other income, net................................... (.5) (2.4) (.1)
----------- ----- -----
Earnings (loss) before income taxes, equity in loss of joint
venture and extraordinary item.................................. (101.8) (2.5) 9.9
Provision for income taxes (benefit)............................. (13.2) -- 0.0
Equity in loss of joint venture.................................. (2.3) -- --
Extraordinary loss on extinguishment of debt..................... (1.9) -- --
----------- ----- -----
Net earnings (loss)............................................ (92.8)% (2.5)% 9.9%
----------- ----- -----
----------- ----- -----
</TABLE>

Inventories are valued at the lower of cost or market. The cost of aircraft
spare parts purchased individually or in lots, as opposed to whole aircraft
purchases, is determined on a specific identification basis. As of May 31, 1996,
such parts represented approximately 83% of the inventory cost value. The cost
of parts acquired through whole aircraft purchases is assigned to the pool of
parts (the

62
<PAGE>
aircraft) based on the purchase price of the aircraft. As parts are sold from
the pool, the amount of cost amortized is based upon the relationship of the
cost basis of the pool to the estimated sales value of the pool. As parts sales
take place, the costs are charged to cost of sales based on the estimated cost
of sales percentage. As of May 31, 1996, such parts represented approximately 3%
of the inventory cost value. The revenue estimates for the pool of parts (the
aircraft) is determined by management based upon the individual sales values of
all the parts in the pool. The revenue estimates are then projected by quarter
over a five-year period beginning with the date on which management determines
the aircraft is to be parted out. Management monitors its initial estimates and
may make adjustments if warranted by market conditions. If the actual revenue
exceeds the quarterly estimates, no amortization adjustment is required. The
amortization schedule is established to write the pool of parts to zero over a
five-year period even though there may be parts in the pool remaining for future
sale after such period.

Certain aircraft held for sale, which were previously leased, are accounted
for as inventory. As of May 31, 1996, such aircraft represented approximately
14% of the inventory cost value.

FISCAL 1996 COMPARED WITH FISCAL 1995.

Net parts sales increased by 37% or $5.1 million, from $13.8 million in
fiscal 1995 to $18.9 million in fiscal 1996. The increase in net parts sales is
attributable in part to the Company's sales to ValuJet Airlines, which sales
amounted to $4.8 million in fiscal 1996 compared to $1.4 million in 1995.
Additionally, an improved operating environment within the airline industry led
to increased parts sales to new and existing customers. Aircraft sales decreased
to $2.5 million in fiscal 1996, compared to $8.1 million in fiscal 1995.
Aircraft sales are unpredictable transactions and may fluctuate significantly
from year to year, dependent, in part, upon the Company's ability to purchase an
aircraft at an attractive price and resell it within a relatively brief period
of time, as well as the overall market for used aircraft. During fiscal 1996,
the Company acquired one aircraft and sold three aircraft, as compared to fiscal
1995, during which the Company sold eight aircraft and acquired none. Lease
revenue decreased to $1.8 million in fiscal 1996 from $3.0 million in fiscal
1995, as certain leases that were in existence during the prior year were
terminated and not renewed (two of the aircraft under such terminated leases
were sold during fiscal 1996). The increase in parts sales was insufficient to
offset the decrease in aircraft sales and lease revenue and, as a result, total
revenues for fiscal 1995 decreased 7% to $23.2 million from $25.0 million for
fiscal 1995.

Fiscal 1996 lease revenues include $139,000 in revenues arising from a
fiscal 1995 transaction. During fiscal 1995 the Company accepted lease payments
from a foreign customer in the customer's local currency because conversion
restrictions precluded the customer from obtaining and paying U.S. dollars. Due
to uncertainties regarding when and at what rate the local currency could be
converted to U.S. dollars, the Company valued the local currency at an estimated
value of $200,000 as of May 31, 1995 (included in cash), such amount being less
than the then current U.S. equivalent amount at the official exchange rate. The
Company subsequently was able to convert the funds to U.S. dollars in the amount
of $339,000, resulting in a gain of $139,000, which is included in lease
revenues during fiscal 1996.

In addition, fiscal 1996 revenues were increased as a result of the
settlement of certain disputes with a customer. Pursuant to the settlement, the
customer paid the Company $660,000 and the Company canceled a note receivable
from the customer. The Company also released all claims it had against the
customer, which included, among other things, claims for the purchase price of
parts purchased by the customer on open account or pursuant to a consignment
arrangement. The customer released certain claims it had against the Company as
part of the settlement. The transaction resulted in a net gain to the Company of
approximately $345,000, consisting of the excess of cash received over the net
carrying value of the note receivable and cost of inventory. The Company
recorded as net sales the cost of the inventory plus the amount of the net gain.

As noted above, the Company's net parts sales to ValuJet Airlines amounted
to $4.8 million, or 21% of total revenues, and $1.4 million, or 6% of total
revenues, during fiscal 1996 and 1995,

63
<PAGE>

respectively. On June 17, 1996, ValuJet Airlines entered into a consent decree
with the FAA, pursuant to which ValuJet Airlines agreed to ground all of its
aircraft until it demonstrates compliance with specified safety and maintenance
procedures. ValuJet officials have publicly stated their intentions to resume
operations in the near future. Although ValuJet has recently conducted flight
tests and recalled employees, there can be no assurance that ValuJet will be
able to resume operations. FAA officials have refused to commit to a timetable
for permitting ValuJet to resume operations and have indicated that it will not
be permitted to do so in August 1996. Further, the consent decree provides that
ValuJet may operate no more than 15 aircraft when it initially resumes
operations, which is less than half of its fleet. The failure of ValuJet
Airlines to resume operations or eventually to resume operations to
substantially the level conducted prior to the grounding could have a material
adverse effect on the Company. The Company also conducts business with other
customers who provide services to ValuJet Airlines. Management cannot estimate
the effect that the grounding of ValuJet Airlines has had or will have on sales
to such other customers.

Cost of sales decreased 25.4% from $17.7 million in fiscal 1995 to $13.2
million in fiscal 1996, primarily as a result of lower sales. In addition, cost
of sales as a percentage of total revenues also decreased from 70.9% to 56.9%
respectively. The decrease in cost of sales as a percentage of total revenues
from fiscal 1995 to fiscal 1996 was primarily due to higher margin aircraft
sales in fiscal 1996 as compared to fiscal 1995. Cost of aircraft sales was
34.8% of total revenues in fiscal 1996 compared to 98.6% in fiscal 1995. The
cost of aircraft sales during fiscal 1995 was in excess of normal levels as the
result of the sale at cost of three DC-9 aircraft during fiscal 1995. Cost of
parts sales as a percentage of total parts sales was 63.4% in fiscal 1996
compared to 66.0% in fiscal 1995.

Selling, general and administrative expenses decreased $.5 million,
amounting to $3.9 million, or 16.9% of total revenues in fiscal 1996, compared
to $4.4 million, or 17.4% of total revenues in fiscal 1995, primarily as a
result of the Company's ongoing cost reduction program.

Provision (recovery) for doubtful accounts was $464,000 in fiscal 1996
compared to $(335,000) in fiscal 1995. During fiscal 1995, the Company,
primarily through litigation, recovered approximately $700,000 of accounts
receivable which had been written off or reserved during fiscal 1994. The
recoveries were offset during fiscal 1995 by a provision for doubtful accounts
of $350,000. During fiscal 1996, the Company instituted a policy whereby it
records a provision of approximately 2% of total revenues for estimated future
write-off's of accounts receivable. There were no other significant provisions
or recoveries made during fiscal 1996.

Depreciation and amortization were $1.2 million in fiscal 1996 compared to
$1.4 million in fiscal 1995. Included in fiscal 1996 depreciation is a writedown
of $190,000 to the Company's headquarters facility to reduce its cost to
estimated market value. On August 8, 1996, the Company entered into a contract
to sell its headquarters facility. The Company anticipates that the sale will be
consummated during the second quarter of fiscal 1997. The net reduction from
fiscal 1995 to fiscal 1996 was due primarily to a decrease in depreciation of
aircraft held for lease, resulting from the sale of certain of the Company's
aircraft which were previously held for lease during fiscal 1995.

The Company incurred losses from its service center subsidiary of $676,000
in fiscal 1995. The amounts recorded relate to the Company's wholly owned
subsidiary, International Airline Service Center, Inc., which ceased operations
in fiscal 1995.

During fiscal 1995, the Company incurred unusual and nonrecurring items of
$177,000. Included in these unusual and nonrecurring items is an expense of
$180,000 incurred in connection with the transactions between the Company and
Richard R. Wellman and Lynda Wellman and an affiliate of the Wellmans, and a
gain of $375,000 relating to settlement of litigation which had previously been
accrued in an amount in excess of the settlement amount. There were no unusual
and nonrecurring items in fiscal 1996.

64
<PAGE>
Interest expense in fiscal 1996 was $2.2 million, compared to $2.6 million
in fiscal 1995. The decrease in interest expense from fiscal 1995 to fiscal 1996
was due to a net reduction in total debt outstanding, to $18.1 million at May
31, 1996 compared to $20.3 million at May 31, 1995.

Interest and other income for fiscal 1996 was $34,000, compared to $.6
million in fiscal 1995. Included in the fiscal 1995 amounts were several
non-recurring transactions, including approximately $340,000 of interest income
collected on notes receivable (such notes were retired during the first quarter
of fiscal 1996), a $66,000 gain on the sale of certain land located in Kentucky,
and approximately $120,000 received in connection with consulting and other
services provided to an insurance company.

Although the Company had net operating loss carryforwards sufficient to
offset income during fiscal 1996 it recorded a provision for income taxes of
$14,000. The Company has fully exhausted its carryback benefits and recorded a
one hundred percent (100%) valuation allowance against the deferred tax asset
for net operating loss carryforwards. The $14,000 provision recorded in fiscal
1996 relates to alternative minimum taxes and amendments of certain prior year
state and federal tax returns.

Net earnings during fiscal 1996 were $2,286,000, or $.57 per share, compared
to a loss of $614,000 or $.15 per share during fiscal 1995. On a fully-diluted
basis, earnings (loss) per share were $(.47) and $(.15) per share during fiscal
1996 and 1995, respectively.

FISCAL 1995 COMPARED WITH FISCAL 1994.

Total revenues for fiscal 1995 increased 33.4% from total revenues for
fiscal 1994, to $25.0 million from $18.7 million. The increase in total revenues
is primarily attributable to an increase in aircraft sales, from $4.1 million in
fiscal 1994 to $8.2 million in fiscal 1995. During fiscal 1995, the Company sold
three DC-9 aircraft to a leasing company for $5.6 million pursuant to a contract
entered into during fiscal 1994. Aircraft sales are unpredictable transactions
and may fluctuate significantly from year to year, dependant, in part, upon the
Company's ability to purchase an aircraft at an attractive price and resell it
within a relatively brief period of time. Lease revenue increased to $3.0
million in fiscal 1995 from $2.0 million in fiscal 1994.

Cost of sales decreased 19.9% from $22.1 million in fiscal 1994 to $17.7
million in fiscal 1995, while cost of sales as a percentage of revenues
decreased from 118.0% in fiscal 1994 to 70.9% in fiscal 1995. During fiscal
1994, the Company recorded charges to cost of sales totaling $9.5 million for
writedowns and valuation adjustments to certain parts inventory and aircraft
(see "-- Fiscal 1994 Compared With Fiscal 1993"), thus making a comparison of
cost of sale percentages between fiscal 1994 and fiscal 1995 not meaningful.
During fiscal 1995, the Company realized no profit on the $5.6 million sale of
three DC-9 aircraft to a leasing company because the carrying value of such
aircraft equaled the sales price. Excluding the $5.6 million from sales and cost
of sales during fiscal 1995, the Company's cost of sales as a percentage of
fiscal 1995 revenues was 66.0% compared to 64.0% and 61.2% in fiscal 1993 and
1992, respectively.

Selling, general and administrative expenses ("SG&A") for fiscal 1995
decreased 37.2% to $4.4 million in fiscal 1995 compared to $6.9 million in
fiscal 1994. As a percentage of revenues, SG&A expense was 17.4% in fiscal 1995
compared to 37.1% in fiscal 1994. The reduction in SG&A expense of $2.6 million
from fiscal 1994 to fiscal 1995 was due to several factors, including reductions
in the number of management personnel and ongoing efforts to reduce operating
costs. Payroll and commission costs were $1.3 million in fiscal 1995 compared to
$2.2 million in fiscal 1994. Travel and entertainment costs were $261,000 in
fiscal 1995 compared to $610,000 in fiscal 1994. Additionally, in the fourth
quarter of fiscal 1994 the Company accrued a charge of $825,000 in connection
with an unfavorable judgment arising from a lawsuit relating to commissions owed
on the sale of an aircraft in 1989.

Provision (recovery) for doubtful accounts was $(335,000) in fiscal 1995
compared to $1.5 million in fiscal 1994. During fiscal 1995, the Company,
primarily through litigation, recovered approximately

65
<PAGE>
$700,000 of accounts receivable which had been written off or reserved during
fiscal 1994. The recoveries were offset during fiscal 1995 by a provision for
doubtful accounts of $350,000. During fiscal 1994, the Company wrote off
approximately $900,000 of accounts receivable which were determined to be
uncollectible, and reserved additional funds for accounts that may not be
collectible.

Depreciation and amortization was $1.4 million in fiscal 1995 compared to
$2.5 million in fiscal 1994. The net reduction from 1994 to 1995 was due
primarily to a decrease in depreciation of aircraft held for lease, as several
of the Company's aircraft that were being depreciated in fiscal 1994 were sold
either during the latter part of fiscal 1994 or during fiscal 1995.

Loss of the service center subsidiary was approximately $.7 million in
fiscal 1995 compared to a loss of $1.9 million in fiscal 1994. The subsidiary
ceased operations in fiscal 1995.

Included in unusual and non-recurring items in fiscal 1995 is an expense of
$180,000 incurred in connection with the transactions between the Company and
Richard R. Wellman and Lynda Wellman and an affiliate of the Wellmans and a gain
of $375,000 relating to settlement of litigation which had previously been
accrued in an amount in excess of the settlement amount.

Interest expense for fiscal 1995 was $2.6 million compared to $3.0 million
in fiscal 1994. The decrease in interest expense is due to a net reduction in
total debt outstanding, from $26.2 million at May 31, 1994 to $20.3 million at
May 31, 1995. During fiscal 1995, the Company repaid $4.7 million of the
principal due on the Senior Notes.

Interest and other income was $.6 million in fiscal 1995 compared to $88,000
in fiscal 1994. Included in interest and other income during fiscal 1995 is
approximately $340,000 interest income collected on notes receivable, a $66,000
gain on the sale of certain land located in Kentucky, and approximately $120,000
received in connection with consulting and other services provided to an
insurance company.

The net loss for fiscal 1995 was $614,000, or $(.15) per share, compared to
a net loss of $17.4 million or $(4.30) per share for fiscal 1994.

66
<PAGE>
BUSINESS

GENERAL

The Company is a worldwide supplier of aircraft spare parts to the aviation
redistribution market. The Company sells spare parts to major commercial
passenger airlines, air cargo carriers, maintenance and repair facilities and
other redistributors. The parts sold by the Company include avionics, rotable
and expendable airframe and engine components for commercial aircraft, including
Airbus, Boeing and McDonnell-Douglas aircraft and Pratt & Whitney and
Rolls-Royce jet engines. During fiscal 1996, the Company supplied parts to over
771 customers worldwide, approximately 676 of which were domestic customers and
approximately 95 of which were foreign customers. Currently, the Company
specializes in replacement parts for McDonnell Douglas DC-9 aircraft. Management
believes that the Company has one of the most extensive inventories of
aftermarket DC-9 parts in the industry. For fiscal 1996, the Company's operating
revenues were approximately $23.2 million, its income from operations was
approximately $4.5 million and its pretax income was approximately $2.3 million.

The Company believes that the annual worldwide market for aircraft spare
parts is approximately $10 billion, of which approximately $1.3 billion
represents sales of aircraft spare parts to the redistribution market and that
the Company's sales represented approximately 2% of such market during fiscal
1996. The redistribution market is highly fragmented, with a limited number of
large, well capitalized companies selling a broad range of aircraft spare parts,
and numerous smaller competitors serving distinct market niches. The Company
believes that significant trends affecting the redistribution market will
continue to increase its overall size while reducing the number of competitors.
Factors causing the expansion of the redistribution market include the
increasing size and age of the world-wide airline fleet and the increasing
pressures on airlines and maintenance and repair facilities to control their
costs.

Although the Company's current financial condition is weak, the Company has
been successful over the last two years in positioning itself as one of the
premier redistributors of aircraft spare parts. Upon the successful
implementation of the Restructuring, the Company believes that it will have the
financial viability to implement its operating strategy and to become one of the
select number of redistributors well positioned to fully service the aircraft
spare parts requirements of its customers.

OPERATING STRATEGY

The Company is, therefore, undertaking the Restructuring to improve its
financial flexibility and allow it to implement its operating strategy. The
Company's operating strategy has two components. First, the Company intends to
increase its revenues and operating income through continued customer
penetration in its existing markets and expansion into new markets. The Company
intends to achieve this by continuing to increase its share of the market for
spare parts for certain widely operated aircraft models, including, in
particular, the DC-9 (which is no longer in production) and the MD-80. Although
the MD-80 is still in production, many of the DC-9's parts are interchangeable
with the MD-80, which, given the Company's experience and knowledge with the
DC-9, gives it a competitive advantage. The Company intends to capitalize on the
limited availability of spare parts for such aircraft models by acquiring (i)
pools of inventory from airlines that cease to operate such aircraft or that
desire to reduce their levels of parts inventory and (ii) aircraft for parting
out when the purchase price justifies doing so. In this regard, the Company
purchased an inventory of DC-9 and MD-80 parts from Pt. Garuda Indonesia, an
Indonesian airline, in May 1996 for total consideration of approximately $2.6
million. This inventory, which has an appraised fair market value in excess of
$7.5 million, became available following Garuda's decision to discontinue
operating DC-9 aircraft. The Company believes that its knowledge of the fleets
of DC-9 and MD-80 aircraft currently in operation and its worldwide contacts in
the commercial aviation industry will permit it to acquire other inventory pools
and aircraft for parting out on favorable terms in the future.

The second component of the Company's operating strategy is to achieve
revenue and earnings growth by acquiring other companies engaged in the sale of
aircraft parts as well as companies with

67
<PAGE>

product lines that would complement the Company's existing redistribution
business. The Company competes in a fragmented market in which numerous small
companies serve distinct market niches. The Company believes that small aircraft
parts redistributors, many of which are family owned and capital constrained,
are unable to provide the extensive inventory and quality control necessary to
comply with applicable regulatory and customer requirements and will provide
acquisition opportunities for the Company. The Company believes that such
acquisitions will permit it to expand its customer base by selling aircraft
parts to airlines and others that are not now customers, to expand its product
line with respect to aircraft in which the Company currently specializes, to
strengthen its relationships with existing customers and to expand the types of
aircraft in which the Company specializes. The Company, however, is not
presently in negotiations with any such Company and has not entered into an
agreement to acquire any such company and there can be no assurance that the
Company will be able to do so. Further, the Company will be unable to make
acquisitions if the Restructuring is not consummated.

HISTORY

The Company became a supplier of aircraft parts in the early 1980s by
parting out DC-8 aircraft and reselling the resulting spare parts. Based upon
the Company's success in parting out DC-8 aircraft, which ceased production in
1972, the Company began purchasing and parting out DC-9 aircraft in 1991.
Production of DC-9 aircraft ceased in 1982. The DC-8 and DC-9 aircraft have life
expectancies that have exceeded the manufacturer's original estimates. Beginning
in 1992, the Company began purchasing and parting out Boeing 727 aircraft. The
Company has acquired thirty-eight DC-8, eight DC-9, and six Boeing 727 aircraft
for parting out since the Company began operations. In addition, the Company
purchased the original testbed MD-80 from McDonnell Douglas and parted it out.
The Company's extensive inventory of DC-9 parts also enables it to sell parts to
operators of the MD-80 because a substantial number of DC-9 parts may be used on
the MD-80.

Traditionally, the Company obtained most of its parts inventory by parting
out high quality aircraft. Although management expects that, if financing is
available, it may acquire additional aircraft for parting out, management
believes that the principal source of its inventory acquisitions during the next
fiscal year will be purchases of excess inventory from aircraft operators. In
the past, the Company acquired aircraft for parting out only if its initial
estimate of the timing and value of parts sales for such aircraft would allow
the Company to recover the purchase price within 180 days through the sale of a
portion of parts, and to sell the remaining parts for amounts in excess of the
purchase price over the subsequent five years. Aircraft that are available at
appropriate prices are increasingly difficult to locate because of, among other
things, the continued trend of start-up, low-cost airlines to use narrow-body
aircraft such as the DC-9. However, the emergence of the start-up, low-cost
airlines has enhanced the value of the Company's existing inventory because in
order to assure reliable operations, such airlines need to maintain a minimum
supply of spare parts or establish relationships with spare parts suppliers.
Because of the Company's position as a primary source of spare parts for the
DC-9 aircraft and because the start-up airlines generally lack the resources to
maintain extensive supplies of spare parts, the Company believes that it will
continue to be an active parts supplier for such airlines.

In addition to its DC-9 spare parts, the Company maintains inventories of
spare parts for the Boeing 727, 737 and 747 aircraft, the McDonnell Douglas DC-8
and MD-80 aircraft and the Lockheed L1011 and L100/C130. The Company also
generates additional revenues by brokering third party spare parts on behalf of
customers and by arranging for the repair or exchange of customers' spare parts
with FAA-certified repair facilities.

Management believes that its customer relationships are important to the
Company's operational success. The Company has established relationships with
many domestic and foreign aircraft operators and, subject to the availability of
financing, maintains an adequate level of inventory in order to

68
<PAGE>
service such customers in a timely manner. Management believes that availability
and timely delivery of quality spare parts are the primary factors considered by
customers when making a spare parts purchase decision.

INDUSTRY OVERVIEW

GENERAL. The Company believes that the world-wide aircraft fleet is both
growing and getting older. According to the World Jet Airplane Inventory for
calendar 1995, the combined aircraft fleets of aircraft operators throughout the
world at December 31, 1995 consisted of approximately 12,452 jet aircraft, the
average age of which was approximately 13.1 years. A significant number of the
spare parts used in these aircraft are supplied by different types of companies,
including original equipment manufacturers ("OEMs") and numerous redistributors,
such as the Company, fixed-base operators, FAA-certified overhaul facilities,
traders and brokers. Management believes that the fragmented nature of the
aircraft spare parts industry creates opportunities for small well-capitalized
and financed companies with proven infrastructures to exploit niche markets in
certain types of aircraft, such as the DC-9 and MD-80.

Economic factors have prompted many airlines to defer aircraft procurement
programs and extend the useful life of older equipment. Consequently, many
aircraft operators are postponing, deferring or canceling orders for new
aircraft and are retaining their older aircraft. Certain U.S. and European
operators have implemented measures such as the installation of FAA-approved
hush kits and extended life maintenance programs to extend the useful lives of
older aircraft in their fleets. In addition, many foreign and domestic start-up
aircraft operators are establishing their fleets through the acquisition of the
less expensive second generation aircraft even though such older aircraft
typically require more maintenance and replacement parts than new aircraft.

Furthermore, increased competition in the airline industry has led to the
emergence of several start-up low-cost airlines which use DC-9s and MD-80s,
including ValuJet, Spirit Airlines and Reno Air. The start-up airlines generally
offer service on specific high traffic, short-haul routes rather than attempting
to compete with the extensive hub-and-spoke systems used by the major carriers
to obtain long-haul traffic. Second generation aircraft (such as the DC-9) are
able to operate profitably on these high-traffic, short-haul routes.

In addition to the growth in the number of older aircraft in service, cost
and availability considerations are causing airlines to reduce the size of their
spare parts inventories and, therefore, to utilize aircraft spare parts sold by
redistributors to provide parts that are no longer in production. As airlines
adopt just-in-time inventory procurement processes, inventory storage and
handling devolves to suppliers such as the Company, thus increasing the
percentage of parts sold by redistributors relative to those sold by parts
manufacturers. Furthermore, in order to reduce purchasing costs, airlines have
been reducing the number of "approved" suppliers.

As a result of these supplier reductions, there has been and the Company
believes there will continue to be a consolidation in the redistribution market
even as the redistribution market is expected to grow. The Company believes that
only those redistributors with extensive inventories, adequate capital and the
ability to comply with applicable regulatory and customer requirements regarding
part quality and traceability will be able to capitalize on these trends. The
Company currently maintains an inventory of over 50,500 line items consisting of
more than 565,000 parts, which the Company believes will enhance its ability to
respond well to such market trends.

AVAILABILITY OF REPLACEMENT PARTS. Aircraft and parts manufacturers
typically provide their customers with replacement parts throughout the
production life of the aircraft. Other sources for new aircraft parts include
authorized subcontractors for the OEMs, new parts distributors and aircraft
operators with excess inventories. Once an aircraft is no longer in production,
a manufacturer will continue to supply spare parts to its customers for an
extended period of time, which varies among

69
<PAGE>
aircraft types. For example, spare parts for the DC-8 aircraft were available
from the aircraft manufacturer until 1987, 15 years after the DC-8 model type
ceased production. However, manufacturers generally have no obligation to supply
or maintain parts for an aircraft operator that was not the original purchaser
of the aircraft.

As OEMs cease manufacturing replacement parts, and as other sources of new
parts become increasingly scarce, aircraft operators must locate alternative
sources for quality aftermarket parts to maintain the reliable operation of
their aircraft. Often, aircraft operators will opt for quality aftermarket parts
even when new parts are still in production. Aftermarket aircraft parts must
meet the same FAA standards as new parts but generally cost less than new parts,
and are often more readily available.

NOISE ABATEMENT REGULATIONS. The FAA classifies aircraft in three groups,
Stage 1, Stage 2 and Stage 3, in order of decreasing noise characteristics. In
1980 the FAA adopted a rule prohibiting the operation of Stage 1 aircraft in or
to the United States. In response to a Congressional requirement, the FAA
submitted a report to Congress in April 1986 which presented various approaches
to encourage or require the replacement of Stage 2 aircraft with Stage 3
aircraft. The FAA noise abatement regulations that were adopted require aircraft
operators to phase out their noisier aircraft gradually by either replacing them
with quieter Stage 3 aircraft or equipping them with hush kits to comply with
noise abatement regulations according to the following schedule: by December 31,
1994, each aircraft operator was required either to reduce the number of Stage 2
aircraft it operated by 25% or operate a fleet composed of not less than 55%
Stage 3 aircraft; by December 31, 1996, each aircraft operator must either
reduce its Stage 2 aircraft by 50% or operate a fleet composed of not less than
65% Stage 3 aircraft; by December 31, 1998 at least 75% of an aircraft
operator's Stage 2 aircraft must be eliminated, or its overall fleet must be
composed of 75% Stage 3 aircraft; and by December 31, 1999, 100% of the fleet
must be composed of Stage 3 aircraft, subject to certain waivers.

OPERATIONS OF THE COMPANY

"PARTING OUT" AND INVENTORY ACQUISITION. The purchase and dismantling of an
aircraft and the resale of the dismantled parts for use on other aircraft is
commonly called "parting out." Traditionally, the Company obtained most of its
spare parts inventory by parting out high quality aircraft. When the Company
acquires an aircraft for parting out, the aircraft is delivered to an inventory
storage facility. The aircraft is then removed from the U.S. registry. The
seller of the aircraft will often provide the Company with a computerized data
base listing all the parts and equipment on the aircraft which is verified by
the Company. If a computerized listing of parts is not available, the Company
will conduct its own inventory of the aircraft to be parted out. The parts and
equipment are catalogued and all the relevant information regarding the parts,
including each part's repair history, is entered into the Company's computer
database. Management believes that it is essential that such information be
immediately available in order to facilitate sales by the Company's sales
personnel. In certain instances, parts which are in high demand are pre-sold
prior to the delivery of the aircraft to the Company. High value parts such as
engines and engine components are also often pre-sold. Pre-selling allows the
Company to recover a significant amount of its investment within a short time
from the date of the aircraft delivery.

An aircraft purchased for parting out is often in the same condition as the
aircraft that will utilize the spare parts. Sellers are usually motivated to
dispose of their aircraft at part out prices for a variety of reasons, including
the seller's need for immediate liquidity or inability to economically lease the
aircraft to third parties. Additionally, such aircraft may require extensive
maintenance or overhaul or may require government-mandated improvements which
are uneconomical for the sellers to perform.

In addition to purchasing whole aircraft, the Company also acquires spare
parts by bidding on the inventory of companies that are eliminating certain
portions of their spare parts inventory due to the retirement of an aircraft
type from their fleet, the downsizing of operations or the dissolution of its
business as a whole. Management believes that its principal source of inventory
acquisitions during the next fiscal year will be from such sales.

70
<PAGE>
Modern aircraft design emphasizes the use of components that may be reused
repeatedly after inspection and overhaul. Because of the reusable nature of such
"rotable" parts, sales of rotable parts offer greater profit potential than the
nonreusable "consumable" parts. Vendors offer rotable parts in different
conditions, designated by industry standards. A component may be sold in
"serviceable" condition, meaning that the unit may be installed on an aircraft
without further inspection. "As removed - not for failure" designates a
component that was removed from an aircraft for some reason other than
malfunction and may be reinstalled after inspection. The remaining condition,
"unserviceable," designates the need for the part to be overhauled prior to
inspection and installation. The FAA requires rotable and other spare parts to
be inspected at FAA-certified repair facilities prior to installation on an
aircraft. However, the FAA does not prohibit the sale of aftermarket parts that
have not been inspected and certified.

PRODUCT LINES. Historically, the Company maintained a large inventory of
aftermarket parts for the DC-8 aircraft. The DC-8, an early model Stage 1
aircraft, has not been produced since 1972. The FAA's enactment of noise
abatement restrictions in 1980 grounded all DC-8s powered by JT3 and JT4 class
engines in use in the United States and required such aircraft to be refitted
with modern, quieter engines. Because of the expense involved in installing new
engines, the use of DC-8 aircraft in the United States declined. Certain devices
known as "hush kits" were invented in order to bring the JT3 engines within
acceptable noise limits. In late 1985, the FAA approved the first hush kit for
certain JT3 engines and an additional hush kit was approved for other JT3
engines in 1987. The effect of these changes was to create new demand for DC-8
parts because a DC-8 equipped with a hush kit is among the lowest cost aircraft
to operate per ton mile. Accordingly, the Company believes that the DC-8s will
continue to be used by freight carriers and other operators and that the sale of
DC-8 parts will continue to be a source of revenues in the foreseeable future.
However, it is expected that sales of DC-8 parts will continue to decline in
correspondence with the decrease of DC-8s in operation.

Because of the limited number of DC-8s in operation, the Company began
expanding its inventory to include parts for Stage 2 aircraft, such as the DC-9
aircraft. Currently, the Company specializes in replacement parts for DC-9
aircraft. The noise abatement regulations issued by the FAA require aircraft
operators to phase out their noisier Stage 2 jets by the year 2000 unless they
are retrofitted with hush kits to bring them into compliance with the Stage 3
noise requirements. The Company believes that retrofitting with hush kits as
well as the extended life maintenance programs instituted by many aircraft
operators will increase the useful life of DC-9s. In addition to the Company's
inventory of McDonnell Douglas DC-8 and DC-9 parts, the Company's inventory also
includes spare parts for the Boeing 727, 737, and 747 aircraft, the McDonnell
Douglas MD-80 aircraft and the Lockheed L1011 and L100/C130 aircraft and for the
Pratt & Whitney JT-8D engine series. Many of the parts on the MD-80, which is
still in production, are interchangeable with similar parts for the DC-9.

MARKETING. The Company has developed a sales and marketing infrastructure
which includes well-trained and knowledgeable sales personnel, computerized
inventory management, listing of parts in electronic industry data bank
catalogues and a home page on the Internet. Crucial to the successful marketing
of the Company's inventory is the Company's ability to make timely delivery of
spare parts in reliable condition. The Company believes aircraft operators are
more sensitive to reliability and timeliness than price.

The Company's account executives are experienced and knowledgeable about the
market segment in which the Company participates. Account executives understand
maintenance requirements, parts for the aircraft type utilized in their markets,
as well as list prices and fair values of most items sold. Furthermore, they are
familiar with alternative sources for parts not inventoried by the Company.

Market forces establish the price for aftermarket aircraft parts. No pricing
service or catalogue exists for aftermarket components. Aftermarket aircraft
parts prices are determined by referencing new parts catalogues with
consideration given to existing supply and demand conditions. Often,

71
<PAGE>
aircraft operators will opt for quality aftermarket parts even when new parts
are still in production. Aftermarket aircraft parts that meet the same FAA
standards as new parts cost less than the same new parts and are often more
readily available.

In addition to directly marketing its inventory, the Company lists its
inventory in the Air Transport Association's computerized data bank ("AIRS") and
with the Inventory Locator Service ("ILS"), a proprietary computerized data
bank. Both of these data bases are 24 hour electronic "marketplaces" where
aircraft parts transactions take place.

CUSTOMERS

GENERAL. The Company's customer base includes major passenger and cargo
operators, smaller aircraft operators, overhaul facilities, FAA-certified repair
facilities and other redistributors who may in turn resell to end users. Certain
aircraft operators often buy through competitors instead of directly through the
Company because of the operator's existing relationship with the competitor or
the competitor's ability to overhaul the part sought.

In addition to selling parts, the Company also sells entire aircraft from
time to time. In a given period, a substantial portion of the Company's revenues
may be attributable to the sale of aircraft. Such sales are unpredictable
transactions, dependent, in part, upon the Company's ability to purchase an
aircraft at an attractive price and resell it within a relatively brief period
of time. The revenues from the sale of aircraft during a given period may result
in the purchaser of the aircraft being considered a major customer of the
Company for that period. The Company does not expect to make repeat aircraft
sales to a given customer; therefore, changes in the identity of major customers
are frequently due to the occurrence of aircraft sales.

MAJOR CUSTOMERS. In fiscal 1993 and 1994, Transafrik Corp., a cargo carrier
operating in Africa, accounted for a significant amount of the Company's revenue
Prior to fiscal 1993, no customer accounted for more than 10% of the Company's
net revenues, except Transafrik. In fiscal 1994, sales to Transafrik declined
significantly. Transafrik accounted for less than one percent of the Company's
total revenue in fiscal 1995 and fiscal 1996, compared with 25%, 18% and 10% of
total revenue in fiscal 1992, 1993 and 1994, respectively. During fiscal 1995,
the Company sought to reduce its vulnerability to a decrease in sales to any
single customer by focusing its marketing on the identification and solicitation
of new customers. The Company obtained approximately 240 new parts customers
during fiscal 1995 and 242 new customers in fiscal 1996. In fiscal 1995, the
Company instituted new compensation policies for its parts sales force. Pursuant
to the new policies, all salesman are paid strictly on commission, sales to new
customers are encouraged and commissions are not paid until accounts are
collected. In addition, the Company has continued to decrease its exposure to
more volatile international markets. Its domestic revenues as a percentage of
total revenues has increased in each of the last four fiscal years, to
approximately 85% in fiscal 1996 from 72% in fiscal 1995, 59% in fiscal 1994,
and 40% in fiscal 1993.

During fiscal 1996 and the first seven months of calendar year 1996, the
Company's parts sales to ValuJet represented approximately 21% and 25%,
respectively, of the Company's total revenues. On June 17, 1996, ValuJet entered
into a consent decree with the FAA, pursuant to which ValuJet agreed to ground
all its aircraft until it demonstrates compliance with specified safety and
maintenance procedures. The Company also conducts business with other customers
who provide services to ValuJet. Management cannot estimate the effect that the
grounding of ValuJet has had or will have on sales to such customers.

72
<PAGE>
The following table lists the Company's customers which, based upon net
revenues, accounted for more than 10% of net revenues for the fiscal years ended
May 31, 1996 and 1995:

<TABLE>
<CAPTION>
NET REVENUES
CUSTOMER (000'S) PERCENTAGE OF TOTAL NET REVENUES
- --------------------------------------------------- ------------------- ---------------------------------
<S> <C> <C>
1995:
Aeroservices Carabobo C.A. $ 2,716 10.9
Ajax Leasing Ltd. 5,625 22.5
1996:
ValuJet Airlines, Inc. 4,771 20.6
</TABLE>

GEOGRAPHIC DISTRIBUTION OF CUSTOMERS. The Company sells aircraft and
aircraft parts and leases aircraft to foreign and domestic customers. The
footnotes to the Consolidated Financial Statements of the Company, which are set
forth elsewhere in this Proxy Statement/Prospectus, provide certain information
with respect to the geographic areas from which the Company has derived revenue
during the three fiscal years ended on May 31, 1996. See also "Risk Factors --
Risk Factors Associated with Ownership of the Common Stock -- Risks Regarding
Sales and Leases to Foreign Customers."

ADDITIONAL SERVICES

AIRCRAFT AND ENGINE SALES AND LEASING. The Company has determined that its
spare parts sales opportunities are enhanced by providing its existing and new
customers with whole aircraft and engines through sale transactions. Such
transactions allow the Company to expand its customer base for spare parts and
to reduce the cost basis in its aircraft. The Company currently owns four
aircraft. As of May 31, 1996, one of the aircraft was subject to a
month-to-month lease. The Company expects to continue to broker sales of
aircraft and engines when opportunities to do so arise.

EXCHANGE TRANSACTIONS. An "exchange transaction" generally involves a high
value/high turnover rotable part which an operator frequently replaces when
performing aircraft maintenance. In an exchange transaction, a customer pays an
exchange fee and returns a "core" unit to the Company within 14 days. A "core"
unit is the same part which is being delivered to the customer by the Company,
but in need of overhaul. The Company has the customer's core unit overhauled and
bills the customer for the overhaul charges and retains the overhauled core unit
in its inventory. The Company continues to emphasize exchange transactions
because they are profitable and ensure that scarce parts remain in stock for
future sales.

BROKERED TRANSACTIONS. In a "brokered transaction" the Company fills a
customer order for a part not held in the Company's inventory. The Company
locates the part for the customer from another vendor and then resells the part
to the customer. During fiscal 1996, brokered transactions accounted for
approximately 13% of total revenues, as compared to approximately 19% of total
revenues during fiscal 1995.

GOVERNMENT REGULATION

The aviation industry is highly regulated in the United States by the FAA
and in other countries by similar agencies. While the Company's business is not
regulated, the aircraft spare parts which it sells to its customers must be
accompanied by documentation that enables the customer to comply with applicable
regulatory requirements. There can be no assurance that new and more stringent
government regulations will not be adopted in the future or that any such new
regulations, if enacted, would not have an adverse impact on the Company.

PRODUCT LIABILITY

The Company's business exposes it to possible claims for personal injury or
death which may result from the failure of an aircraft spare part sold by it. In
this regard, the Company maintains liability insurance in the amount of $10
million. While the Company maintains what it believes to be adequate liability
insurance to protect it from such claims, and while no lawsuit has ever been
filed against the Company based upon a products liability theory, no assurance
can be given that claims will not arise in the future or that such insurance
coverage will be adequate. Additionally, there can be no

73
<PAGE>
assurance that insurance coverages can be maintained in the future at an
acceptable cost. Any such liability not covered by insurance could have a
material adverse effect on the financial condition of the Company.

COMPETITION

The aircraft spare parts redistribution market is highly fragmented.
Customers in need of aircraft parts have access, through computer-generated
inventory catalogues, to a broad array of suppliers, including aircraft
manufacturers, airlines and aircraft services companies. The dominant companies
in the aircraft parts aftermarket are AAR Corp., Aviation Sales Company and
Banner Aerospace. These companies are larger than the Company and have greater
financial resources. The Company also competes with numerous smaller,
independent dealers, which generally participate in niche markets. The Company
believes that none of its competitors account for a significant amount of the
spare parts market for DC-8, DC-9 and MD-80 aircraft, the types of narrow-bodied
aircraft in which the Company specializes. Competition in the redistribution
market is generally based on price, availability and quality of product,
including traceability.

EMPLOYEES

As of August 15, 1996, the Company had approximately 25 employees. Of these,
two are executive officers, six are sales personnel, seven are accounting,
finance, data processing, and administrative personnel, one is a quality
assurance specialist and the remainder are inventory and warehouse operations
personnel. The Company is not a party to any collective bargaining agreement.
The Company believes its relations with its employees are good.

LEGAL PROCEEDINGS

The Company is not now a party to any litigation or other legal proceeding.
The Company may become a defendant in legal proceedings in the ordinary course
of business.

MANAGEMENT

The following table sets forth the names, ages and positions of the
executive officers and directors of the Company as of the date of the Proxy
Statement/Prospectus. A summary of the background and experience of each of
these individuals is set forth following the table.

<TABLE>
<CAPTION>
NAME AGE POSITION HELD DIRECTOR SINCE
- ------------------------- --- ---------------------------------------- --------------
<S> <C> <C> <C>
Alexius A. Dyer III (1) 40 Chairman of the Board, President and 1992
Chief Executive Officer

George Murnane III (2) 38 Executive Vice President and Chief N/A
Financial Officer

Kyle R. Kirkland (3)(4) 34 Director 1992

E. James Mueller 50 Director 1991
(1)(3)(4)
</TABLE>

- ------------------------
(1) Member of Executive Committee

(2) Mr. Murnane is a nominee to the Board of Directors

(3) Member of Audit Committee

(4) Member of Compensation Committee

ALEXIUS A. DYER III has been the Chief Executive Officer of the Company and
Chairman of the Company's Board of Directors since February 1995. Mr. Dyer has
been a director of the Company since 1992. Mr. Dyer served as President of the
Company from February 1994 to February 1995. From February 1991 to February
1994, Mr. Dyer served as Executive Vice President of Capital Markets of the
Company. Additionally, during 1991, he served as the President and director of
the Company's subsidiary, Barnstorm Leasing, Inc., which was merged into the
Company in July 1992.

74
<PAGE>
GEORGE MURNANE III has been Executive Vice President and Chief Financial
Officer of the Company since June 1996. From March 1996 through June 1996, Mr.
Murnane served as a consultant for the aviation industry. From October 1995
through February 1996 he served as Executive Vice President and Chief Operating
Officer of Atlas Air, Inc., an air cargo company. From 1986 to 1995 he was
affiliated with the New York investment banking firm of Merrill Lynch & Co.,
most recently as Director in the firm's Transportation Group.

KYLE R. KIRKLAND has been a director of the Company since July 1992. Mr.
Kirkland was appointed to the Board in connection with the Company's issuance of
the Senior Notes. Mr. Kirkland has served as the President of Kirkland Messina,
Inc., an investment banking firm, since March 1994. Mr. Kirkland was employed as
Senior Vice President of Dabney/Resnick, Inc. ("D/R") from June 1991 until
February 1994. D/R acted as the placement agent for the Senior Notes and the
Subordinated Debentures. Mr. Kirkland was employed as an investment banker with
Canyon Partners, Inc. and with Drexel Burnham Lambert, Inc. from March 1990
through June 1991 and from July 1988 through March 1990, respectively. Mr.
Kirkland is also a director of Steinway Musical Instruments, Inc.

E. JAMES MUELLER has been a director of the Company since 1991. Mr. Mueller
has been a principal with J.M. Associates, Inc., a business development
consulting firm, since January 1992. From June 1978 through December 1991, Mr.
Mueller was the Vice President of Sales/Marketing of Air Cargo Associates, Inc.,
a Connecticut airline charter brokerage/sales corporation. The Company has
entered into a commission agreement with J.M. Associates, Inc., pursuant to
which J.M. Associates, Inc. is compensated for originating transactions for the
Company. See "Certain Relationships and Related Transactions."

COMPOSITION OF THE BOARD

Pursuant to the Board Amendment, (i) the number of directors of the Company
shall be fixed at seven members; and (ii) the number of directors constituting
the Board shall not be changed without the affirmative vote of at least 75% of
the issued and outstanding shares of Common Stock.

COMMITTEES OF THE BOARD

The Compensation Committee of the Board of Directors reviews all aspects of
compensation of executive officers of the Company and makes recommendations on
such matters to the full Board of Directors. The Compensation Committee was
created by action of the Board of Directors after the end of fiscal 1992.

The Audit Committee makes recommendations to the Board concerning the
selection of outside auditors, reviews the financial statements of the Company
and considers such other matters in relation to the internal and external audit
of the financial affairs of the Company as may be necessary or appropriate in
order to facilitate accurate and timely financial reporting. The Audit Committee
also reviews proposals for major transactions.

The Board of Directors also created an Executive Committee after the end of
fiscal 1992.

The Company does not maintain a standing nominating committee or other
committee performing similar functions.

75
<PAGE>
EXECUTIVE COMPENSATION

The following sets forth certain information regarding the aggregate cash
compensation paid to or earned by the Company's Chief Executive Officer during
fiscal 1994, 1995 and 1996. Mr. Murnane became Chief Financial Officer of the
Company on June 17, 1996.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
NAME AND -------------------------- ----------------
PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS/SARS(#)
- -------------------------- --------- ------------- ----------- ----------------
<S> <C> <C> <C> <C>
Alexius A. Dyer III, 1996 $ 135,000 80,000(1) --
President and Chief 1995 133,108 -- 107,000
Executive Officer 1994 108,865 20,000 --
</TABLE>

- ------------------------
(1) Mr. Dyer's fiscal 1996 bonus consists of $80,000 paid to him upon execution
of his employment agreement and an additional amount to be earned by him
pursuant to the terms of his employment agreement and to be determined by
the Compensation Committee. See "-- Employment Agreement."

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION/SAR VALUE

Shown below is information with respect to all unexercised options to
purchase the Company's Common Stock granted to Mr. Alexius A. Dyer III, the
Company's sole executive officer at May 31, 1996, through the end of fiscal 1995
under the Company's option plans. No options were exercised during fiscal year
1996. At May 31, 1996, the exercise price of all such unexercised options
exceeded the market value of the underlying Common Stock.

<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED
OPTIONS AT FY-END
NAME EXERCISABLE/UNEXERCISABLE
- --------------------------------------------------------------------- -----------------------
<S> <C>
Alexius A. Dyer III (1).............................................. 173,667/33,333(2)
</TABLE>

- ------------------------
(1) All options granted under the prior stock option plan will be canceled in
connection with the Restructuring.

(2) Includes 66,667 shares of Common Sock that may be acquired pursuant to the
vested portion of a Stock Purchase Warrant granted to Mr. Dyer on October
15, 1993. The exercise price is $3.00 per share.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The members of the Compensation Committee, Kyle R. Kirkland and E. James
Mueller, have never been employees of the Company. No interlocks existed and no
insiders participated in the Compensation Committee's deliberations or decisions
regarding fiscal 1995 salaries.

COMPENSATION OF DIRECTORS

The non-employee members of the Company's Board of Directors received a
$25,000 fee for their service on the Board during fiscal 1996 pursuant to a
Director's Compensation Plan that was adopted during fiscal 1995. During fiscal
1995, the non-employee members of the Company's Board of Directors received a
$25,000 fee for their service on the Board pursuant to the Director's
Compensation Plan. During fiscal 1994, non-employee members of the Board of
Directors received options to purchase 15,000 shares of Common Stock upon their
appointment or election to the Board. Such grants vest in increments of 5,000
shares per year. Additional grants of 15,000 shares are made upon election to
the Board after all previous grants have vested. These additional grants also
vest in 5,000 share increments. The exercise price of all grants is the fair
market value of the Common Stock at the date of

76
<PAGE>
grant. All options granted under the prior stock option plan will be cancelled
in connection with the Restructuring. Directors are also reimbursed for expense
incurred in connection with the attendance of Board meetings.

THE STOCK OPTION PLAN

The following information regarding the Stock Option Plan is being provided
to the stockholders of the Company in connection with the solicitation of
proxies for approval of the Stock Option Plan. The following description of the
Stock Option Plan is a summary only and does not purport to be complete. This
summary is qualified in its entirety by reference to the Stock Option Plan,
which is attached hereto as Appendix B. Stockholders are urged to read the Stock
Option Plan.

PLAN DESCRIPTION

The Stock Option Plan is intended to provide a means to attract, retain and
motivate selected employees and directors of the Company. The Stock Option Plan
provides for the grant to eligible employees of incentive stock options,
non-qualified stock options, stock appreciation rights, restricted shares and
restricted share units, performance shares and performance units, dividend
equivalents and other share-based awards (collectively "awards"). All employees
(approximately 25 persons) and directors (seven persons) are eligible to
participate in the Stock Option Plan. The Stock Option Plan will be administered
by the Compensation Committee. The Compensation Committee will have the full and
final authority to select employees to whom awards may be granted, to determine
the type of awards to be granted to such employees and to make all
administrative determinations required by the Stock Option Plan. The
Compensation Committee also will have authority to waive conditions relating to
an award or accelerate vesting of awards. The Stock Option Plan provides for
certain grants of nonqualified stock options to directors who are not executive
officers of the Company. An aggregate of 598,782 shares of Common Stock have
been reserved for issuance under the Stock Option Plan, subject to anti-dilution
adjustments in the event of certain changes in the Company's capital structure.

In connection with the Restructuring, after the adoption of the Stock Option
Plan, the Company intends to grant shares of restricted stock and/or options to
purchase the following numbers of shares of Common Stock to the following
persons or groups:

<TABLE>
<CAPTION>
NUMBER OF STOCK OPTIONS
AND/OR SHARES OF
RESTRICTED STOCK
NAME TO BE GRANTED
- ----------------------------------------------------------------------------------------- -----------------------
<S> <C>
Alexius A. Dyer III...................................................................... 224,543
All executive officers as a group (2 persons)............................................ 329,330
All other employees as a group........................................................... 119,756
</TABLE>

Forty percent of such options or shares will vest immediately with 15%
vesting annually over the four years following the date of grant. The Company
also intends to grant options representing up to 2.5% of the outstanding Common
Stock to directors who are not executive officers of the Company. The number of
options to be granted to such directors will be determined by the Company prior
to the consummation of the Restructuring. The Company intends to reserve for
future issuance to such directors any shares not granted as restricted stock and
not covered by options issued upon consummation of the Restructuring.

STOCK OPTIONS. The Stock Option Plan authorizes the granting of both
incentive stock options and non-qualified stock options. At the discretion of
the Compensation Committee, awards of options to employees under the Stock
Option Plan may be granted in tandem with other types of awards. Incentive stock
options granted to employees under the Stock Option Plan, and any accompanying
share appreciation rights, must generally expire within 10 years after the date
of grant. The exercise prices of incentive stock options must be equal to at
least 100% of the fair market value of the Common Stock on the date of grant.
The exercise prices of non-qualified stock options may be more or less than the
fair market value of the Common Stock on the date of grant. Awards under the
Stock Option Plan

77
<PAGE>
to employees, except for vested shares, are not transferable by the holder other
than by will or applicable laws of descent or distribution, except pursuant to a
designation filed by an employee with the Company as to who shall receive the
benefits specified under the Stock Option Plan upon the death of such employee.

RESTRICTED STOCK. The Stock Option Plan authorizes the Compensation
Committee to grant shares of restricted stock to employees, subject to the terms
and conditions imposed by the Compensation Committee. These terms may include a
restriction period during which the shares of restricted stock may not be sold,
assigned, transferred, pledged or otherwise encumbered and during which such
shares may be subject to forfeiture. Except for such restrictions on transfer
and such other restrictions as the Compensation Committee may impose, the
recipient of restricted stock will have all the rights of a holder of Common
Stock as to such restricted stock including the right to vote the shares and the
right to receive dividends. Except as provided by the Compensation Committee at
the time of grant or otherwise, upon a termination of employment for any reason
during the restriction period, all shares still subject to restriction will be
forfeited by the employee. The Stock Option Plan also authorizes the
Compensation Committee to grant restricted share units to an employee, under
which shares of Common Stock or cash will be delivered to the employee after the
expiration of the restriction period.

SHARE APPRECIATION RIGHTS. The Stock Option Plan authorizes the
Compensation Committee to grant share appreciation rights to employees, subject
to the terms and conditions imposed by the Compensation Committee. Share
appreciation rights give an employee the right to receive the excess of the fair
market value of shares of Common Stock on the date of exercise over the exercise
price of the share appreciation rights, as set by the Compensation Committee.
Terms within the discretion of the Compensation Committee may include the time
of exercise, the form of consideration payable at exercise, and the method by
which shares of Common Stock will be delivered or deemed to be delivered to an
employee.

PERFORMANCE SHARES AND PERFORMANCE UNITS. The Stock Option Plan also
authorizes the Compensation Committee to grant performance shares or performance
units to employees, subject to the terms and conditions imposed by the
Compensation Committee. These awards provide shares of Common Stock or cash to
an employee upon the satisfaction of certain performance objectives, as
determined by the Compensation Committee. Awards may be fixed or may vary in
accordance with the level of such performance. The Compensation Committee
generally may revise the performance objectives to reflect the occurrence of
significant events which it expects to have a substantial effect on the
performance objectives. Except as provided by the Compensation Committee at the
time of grant or otherwise, upon a termination of employment during the
performance period, all shares and units relating to such performance period
will be forfeited by the employee.

DIVIDEND EQUIVALENTS. The Stock Option Plan also authorizes the
Compensation Committee to grant dividend equivalents to employees. These awards
may relate to other awards of shares, rights or units and generally give an
employee the right to receive cash or other property equal to any dividends paid
on the shares of Common Stock underlying such other awards. Such dividend
equivalents may either be paid when accrued or deemed to have been reinvested in
additional shares of Common Stock. Dividend equivalents (other than freestanding
dividend equivalents) will be subject to all conditions and restrictions of the
underlying awards to which they relate.

In addition to the foregoing types of awards, the Stock Option Plan also
authorizes the Compensation Committee, subject to limitations under applicable
law, to grant employees any other awards based on shares of Common Stock,
including the award of unrestricted shares purely as a bonus and not subject to
any conditions. Cash awards, as an element of or supplement to any other award,
are also authorized under the Stock Option Plan. In all cases, the Compensation
Committee shall determine the terms and conditions of such awards.

The Stock Option Plan generally may be amended, altered, suspended,
discontinued or terminated from time to time by the Board of Directors, except
that stockholder approval is required, in

78
<PAGE>
accordance with Section 422 of the Code, for any amendment (a) to increase the
number of shares of Common Stock reserved for issuance under the Stock Option
Plan or (b) to change the class of employees eligible to participate in the
Stock Option Plan; provided, however, that no such amendment may impair the
rights of any participant without his consent.

The Stock Option Plan provides that, if the Compensation Committee
determines that a stock dividend, recapitalization, stock split, reorganization,
merger, consolidation, spin-off, combination, or similar corporate transaction
affects the Common Stock such that an adjustment is appropriate to prevent
dilution or enlargement of rights of employees participating in the Stock Option
Plan, the Compensation Committee has discretion to adjust the number and kind of
shares to be issued under the Stock Option Plan, the number and kind of shares
issuable in respect of outstanding awards and the exercise price, grant price or
purchase price of any award. The Stock Option Plan provides that such
adjustments with respect to options of directors who are not executive officers
of the Company shall be made automatically. In addition, the Compensation
Committee is authorized to make adjustments in the terms of awards in
recognition of certain unusual or non-recurring events affecting the Company and
its financial statements.

FEDERAL INCOME TAX CONSEQUENCES OF OPTION GRANTS

The following discussion outlines generally the federal income tax
consequences of option awards under the Stock Option Plan. Individual
circumstances may vary these results. The federal income tax law and regulations
are frequently amended, and each participant should rely on his own tax counsel
for advice regarding federal income tax treatment under the Stock Option Plan.

NON-QUALIFIED STOCK OPTIONS. The recipient of a non-qualified stock option
under the Stock Option Plan is not subject to any federal income tax upon the
grant of such option nor does the grant of the option result in an income tax
deduction for the Company. As a result of the exercise of an option, the
recipient will recognize ordinary income in an amount equal to the excess, if
any, of the fair market value of the shares transferred to the recipient upon
exercise over the exercise price. Such fair market value generally will be
determined on the date the shares of Common Stock are transferred pursuant to
the exercise. However, if the recipient is subject to Section 16(b) of the
Exchange Act, the date on which the fair market value of the shares transferred
will be determined is delayed until the earlier of the last day of the six-month
period beginning on the date the "property" is "purchased" or the first day on
which a sale of the "property purchased" will not subject the recipient to suit
under Section 16(b) of the Exchange Act. Alternatively, if the recipient is
subject to Section 16(b) of the Exchange Act and makes a timely election under
Section 83(b) of the Code, such fair market value will be determined on the date
the shares are transferred pursuant to the exercise without regard to the effect
of Section 16(b) of the Exchange Act. The recipient will recognize ordinary
income in the year in which the fair market value of the shares transferred is
determined. The Company generally will be entitled to a federal income tax
deduction equal to the amount of ordinary income recognized by the recipient
when such ordinary income is recognized by the recipient, provided the Company
satisfies applicable federal income tax reporting requirements. The Company's
deduction, however, is subject to a $1,000,000 limitation on the deduction of
certain employee remuneration under Section 162(m) of the Code, unless an
exception for performance-based compensation under such section applies.

Depending on the period the shares of Common Stock are held after exercise,
the sale or other taxable disposition of shares acquired through the exercise of
a non-qualified stock option generally will result in a short- or a long-term
capital gain or loss equal to the difference between the amount realized on such
disposition and the fair market value of such shares when the non-qualified
stock option was exercised.

Special rules apply to a recipient who exercises a non-qualified stock
option by paying the exercise price, in whole or in part, by the transfer of
shares of Common Stock to the Company.

INCENTIVE STOCK OPTIONS. An employee is not subject to any federal income
tax upon the grant of an incentive stock option pursuant to the Stock Option
Plan, nor does the grant of an incentive stock

79
<PAGE>
option result in an income tax deduction for the Company. Further, an employee
will not recognize income for federal income tax purposes and the Company
normally will not be entitled to any federal income tax deduction as a result of
the exercise of an incentive stock option and the related transfer of shares of
Common Stock to the employee. However, the excess of the fair market value of
the shares transferred upon the exercise of the incentive stock option over the
exercise price for such shares generally will constitute an item of alternative
minimum tax adjustment to the employee for the year in which the option is
exercised. Thus, certain employees may increase their federal income tax
liability as a result of the exercise of an incentive stock option under the
alternative minimum tax rules of the Code.

If the shares of Common Stock transferred pursuant to the exercise of an
incentive stock option are disposed of within two years from the date the option
is granted or within one year from the date the option is exercised, the
employee generally will recognize ordinary income equal to the lesser of (1) the
gain recognized (i.e., the excess of the amount realized on the disposition over
the exercise price) or (2) the excess of the fair market value of the shares
transferred upon exercise over the exercise price for such shares. If the
employee is subject to Section 16(b) of the Exchange Act, special rules may
apply to determine the amount of ordinary income recognized upon the
disposition. The balance, if any, of the employee's gain over the amount treated
as ordinary income on disposition generally will be treated as long- or
short-term capital gain depending upon whether the holding period applicable to
long-term capital assets is satisfied. The Company generally would be entitled
to a federal income tax deduction equal to any ordinary income recognized by the
employee, provided the Company satisfies applicable federal income tax reporting
requirements and subject to the limitation on the deduction of certain employee
remuneration as mandated by Section 162(m) of the Code, absent an exception for
performance-based compensation under such section.

If the shares of Common Stock transferred upon the exercise of an incentive
stock option are disposed of after the holding periods have been satisfied, such
disposition generally will result in long-term capital gain or loss treatment
with respect to the difference between the amount realized on the disposition
and the exercise price. The Company will not be entitled to a federal income tax
deduction as a result of a disposition of such shares after these holding
periods have been satisfied.

RECOMMENDATION OF THE BOARD OF DIRECTORS

The Board of Directors of the Company has unanimously approved the Stock
Option Plan and has determined that the Stock Option Plan is in the best
interest of the Company and its stockholders. Accordingly, the Board of
Directors unanimously recommends that the stockholders of the Company vote to
approve the Stock Option Plan.

EMPLOYMENT AGREEMENT

As of December 1, 1995, the Company entered into a two-year employment
agreement with Mr. Alexius A. Dyer III, the President, Chief Executive Officer
and Chairman of the Company. The employment agreement provides for payment of a
base salary of $135,000 per annum for each year during the stated term; provided
that the base salary shall automatically increase to $150,000 per annum
effective upon consummation of the Restructuring. Further, pursuant to the
employment agreement, the Company paid Mr. Dyer a bonus of $80,000 upon his
execution of the employment agreement as an inducement for entering into the
agreement.

The employment agreement provides that Mr. Dyer is entitled to an annual
bonus during the stated term in an amount equal to 5% of the Company's net
income before extraordinary and non-recurring items and income taxes, subject to
two adjustments. First, in computing net income, the Company is required to
exclude any item of revenue (including COD income) or expense attributable to
the Restructuring or to any litigation commenced by or against the Company.
Second, items of revenue and expense attributable to the sale of aircraft are
not considered extraordinary or non-recurring items.

80
<PAGE>
Pursuant to the employment agreement, if Mr. Dyer is terminated without
cause prior to the end of the term of the employment agreement, the Company is
required to pay to Mr. Dyer the base salary for the remaining term of the
agreement plus an amount equal to a pro rata portion (based on months employed
during the current fiscal year) of the bonus paid to him during the previous
fiscal year. If Mr. Dyer terminates the employment agreement following the
occurrence of a "Change of Control" (as defined) or the consummation of the
Restructuring, the Company is obligated to pay to him an amount equal to the
average annual compensation paid to him during the two most recent fiscal years
of the Company.

CERTAIN TRANSACTIONS

The Company has engaged Kirkland Messina, Inc., an investment banking firm,
to act as the exclusive financial advisor and agent to the Company in connection
with the origination of the Credit Agreement. Mr. Kyle R. Kirkland, a director
of the Company, is an executive officer of Kirkland Messina, Inc. Kirkland
Messina, Inc. will receive a fee of $250,000, $150,000 of which is payable upon
the closing of the Credit Agreement and the balance of which is payable in equal
installments over the next succeeding four fiscal quarters, for its services
pursuant to such engagement. For a description of the interests of executive
officers and directors that may present them with potential conflicts of
interest with respect to the Restructuring, see "The Restructuring -- Interests
of Certain Persons in the Restructuring." During fiscal 1996, the Company paid
commissions totaling $85,000 to J.M. Associates, Inc., a company controlled by
E. James Mueller, a director of the Company. Under the terms of a commission
agreement, J.M. Associates, Inc. is entitled to 3-4% of revenues originated by
Mr. Mueller.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding (i) each person
known to the Company who may be considered a beneficial owner of more than 5% of
the outstanding shares of the Company's Common Stock and (ii) by the Company's
Chief Executive Officer, who is the only officer of the Company whose salary
exceeds $100,000, and each of the Company's directors and by all directors and
executive officers as a group as of May 31, 1996:

<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENTAGE OF
OWNED OUTSTANDING SHARES
----------------- -------------------
<S> <C> <C>
Alexius A. Dyer III (1)......................................... 174,667(2) 4.00

E. James Mueller (1)............................................ 15,000(3) *

Kyle R. Kirkland (1)............................................ 107,237(4) 2.65

All Directors and Executive Officers as a Group (3 persons)..... 296,904 6.87

Lynda Wellman (1)(5)............................................ 1,999,700 49.48

Richard R. Wellman (1)(5)....................................... 1,999,700 49.48

Sun Life Insurance Company of America (6)....................... 514,865 12.74
11601 Wilshire Boulevard, 12th Floor Los Angeles, California
90025-1748
</TABLE>

- ------------------------
* Less than one percent of the shares of Common Stock outstanding.

(1) The address for Messrs. Dyer, Mueller and Kirkland is c/o International
Airline Support Group, Inc., 8095 N.W. 64th Street, Miami, Florida 33166.
The address for Mr. and Mrs. Wellman is 7540 Lochness Drive, Miami Lakes,
Florida 33014.

(2) Includes 107,000 shares of Common Stock that may be obtained by Mr. Dyer
upon exercise by him of options granted to him pursuant to the Employee
Stock Option Plan and 66,667 shares of

81
<PAGE>
Common Stock that may be acquired pursuant to the vested portion of a Stock
Purchase Warrant granted to Mr. Dyer on October 15, 1993. The exercise
prices for the options and warrants are $.19 and $3.00 per share,
respectively. The options will be canceled as part of the Restructuring and
new options will be granted as part of the Restructuring. See "Management --
The Stock Option Plan."

(3) Represents shares that may be obtained by Mr. Mueller upon exercise by him
of options granted to him pursuant to the Non-Employee Directors Stock
Option Plan. The exercise price is $4.625 per share. These options will be
cancelled as part of the Restructuring. The options will be canceled as part
of the Restructuring and new options will be granted as part of the
Restructuring. See "Management -- The Stock Option Plan."

(4) Represents shares that may be obtained by Mr. Kirkland upon exercise of
options granted to him pursuant to the Non-Employee Directors Stock Option
Plan and upon the exercise of warrants granted to him as an officer of the
placement agent for the Senior Notes. The exercise prices for the options
and warrants are $5.125 and $5.3875 per share, respectively. These options
will be canceled pursuant to the Restructuring. The options will be canceled
as part of the Restructuring and new options will be granted as part of the
Restructuring. See "Management -- The Stock Option Plan."

(5) For purposes of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), Mr. and Mrs. Wellman are deemed to be the beneficial owners
of the Common Stock owned by the other. Mr. and Mrs. Wellman executed an
irrevocable proxy, in connection with their resignation of their positions
with the Company on January 31, 1995, authorizing the Board of Directors of
the Company to vote 1,980,000 shares of the Company's Common Stock owned by
the Wellmans. The Wellmans affirmed the proxy in October 1995. The proxy
expires in January 1997.

(6) Sun Life Insurance Company of America ("Sun Life"), a subsidiary of
SunAmerica Corporation ("SunAmerica"), is the registered owner of
exercisable warrants to purchase 514,865 shares of the Company's Common
Stock at an exercise price of $5.3875. Sun Life acquired the warrants in
connection with its purchase of Senior Notes. Under the Exchange Act,
SunAmerica may be deemed the beneficial owner of the shares described
herein. These warrants will expire on the date of the Closing pursuant to
the Old Warrant Amendment.

DESCRIPTION OF THE AMENDMENTS

This Proxy Statement/Prospectus constitutes a consent solicitation for
consents to the Amendments to the Purchase Agreements. The Amendments will
delete certain financial covenants contained in the Purchase Agreements. The
Amendments will delete the covenants requiring the Company to (i) maintain a
specified interest coverage ratio, (ii) maintain a specified consolidated net
worth, (iii) provide demand registration rights with respect to the Common Stock
issuable upon conversion and the covenant that limits the ability of the Company
to engage in certain lines of business. For a description of such covenants, see
"Description of the Convertible Debentures -- Certain Covenants -- Interest
Coverage Ratio; -- Maintenance of Consolidated Net Worth; -- Demand Registration
Rights; and -- Limitation on Activities."

DESCRIPTION OF THE CREDIT AGREEMENT

Pursuant to the Credit Agreement between the Company and BNY Financial
Corporation (the "Lender"), the Lender will provide a $3,000,000 term loan (the
"Term Loan") and will agree to provide loans from time to time, in its
reasonable discretion, pursuant to an $11,000,000 revolving credit facility (the
"Revolver"; the Term Loan and the Revolver, collectively the "Credit Facility").
The Credit Facility shall be secured by a first lien on substantially all assets
of the Company, including accounts receivable, amounts receivable under aircraft
leases, inventory, equipment and intangibles.

82
<PAGE>

Availability under the Revolver is subject to a borrowing base (the
"Revolver Borrowing Base") consisting of (i) up to 85% of Eligible Accounts and
Eligible Lease Payment Receivables (in each case after subtraction of any
Collateral Reserves) PLUS (ii) the lesser of (A) up to 100% of the total cost of
Eligible Inventory plus $500,000 (after subtracting any Collateral Reserves),
(B) up to 75% of the Forced Liquidation Value of Eligible Inventory (after
subtracting any Collateral Reserves) and (C) $8,000,000, MINUS (iii) the
Revolver Reserve. The Revolver Reserve is an amount determined by the Lender
from time to time in its discretion not to exceed the difference between the
outstanding principal amount of the Term Loan at such time minus the Term Loan
Borrowing Base at such time. The Term Loan Borrowing Base at any time is
calculated as an amount equal to the sum of (i) up to 80% of the Forced
Liquidation Value of all Approved Aircraft located in jurisdictions other than
Kenya (after subtraction of Collateral Reserves) PLUS (ii) up to 50% of the
Forced Liquidation Value of all Approved Aircraft located in Kenya (after
subtraction of Collateral Reserves). The foregoing percentages applicable to the
Revolver and Term Loan Borrowing Bases are subject to the discretion of the
Lender. The Revolver is subject to mandatory prepayment to the extent that
outstanding amounts thereunder on any day exceed the Revolver Borrowing Base.
The Term Loan is subject to mandatory prepayment to the extent that the
outstanding principal balance of the Term Loan exceeds the Term Loan Borrowing
Base plus the Revolver Reserve.

Borrowings under the Credit Agreement shall bear interest at a daily
floating rate equal to the higher of (i) the Prime Rate or (ii) the Federal
Funds Rate plus 0.5%, in each case plus a margin of 2.0%. Interest shall be
payable monthly in arrears. In addition, a closing fee in the amount of $70,000
is payable upon the closing of the Credit Agreement, and a monthly facility fee
of $7,500 is payable until the earlier of maturity or termination of the Credit
Facility.

The Credit Facility will mature on the fifth anniversary of the closing of
the Credit Agreement. Amounts outstanding under the Revolver may be prepaid from
time to time and thereafter may be reborrowed subject to the terms of the Credit
Agreement. The principal balance of the Term Loan shall be payable in monthly
installments of $33,333 during the first year of the Term Loan, $41,666 during
the second year of the Term Loan, $50,000 during the third year of the Term
Loan, $58,333 during the fourth year of the Term Loan, and $66,666 during the
fifth year of the Term Loan, with the unpaid principal balance due and payable
on the final maturity date. The Term Loan is subject to mandatory prepayment in
an amount equal to the lesser of (i) 100% of the net proceeds of the sale of
Approved Aircraft and (ii) the sum of the Revolver Reserve and the amount by
which the Term Loan Borrowing Base is reduced by the sale of such Approved
Aircraft. In addition, the Revolver is subject to prepayment in an amount equal
to 100% of the net proceeds of the sale of other assets, but amounts so prepaid
may be reborrowed subject to the terms of the Revolver.

If the Company terminates the Credit Facility during the first year
following the closing of the Credit Agreement, the Company must pay to the
Lender an early termination fee equal to 3% of the amount of the Credit Facility
immediately prior to termination. If such termination occurs during the second
year following the closing of the Credit Agreement, the early termination fee
payable is equal to 2% of the amount of the Credit Facility immediately prior to
termination. If such termination occurs during the third year following the
closing of the Credit Agreement or any year thereafter, the early termination
fee payable is equal to 1% of the amount of the Credit Facility immediately
prior to termination.

Covenants contained in the Credit Agreement include (i) limitations on
indebtedness, (ii) limitations on liens, (iii) limitations on guarantee
obligations, (iv) limitations on mergers, consolidations, liquidations and the
like, prohibition upon the sale of substantially all of the assets of the
Company, and prohibition on material changes in the present method of conducting
business, (v) limitations on asset sales, (vi) limitations on dividends, (vii)
limitations on capital expenditures, (viii) limitations on investments, loans
and advances, (ix) limitations on optional prepayment and modification of debt
instruments, (x) limitations on transactions with affiliates, (xi) limitations
on negative pledges, (xii) limitations on changes in fiscal year, (xiii)
prohibition on new business lines, (xiv) limitations on

83
<PAGE>

amendments to the Company's certificate of incorporation or bylaws in a manner
that would adversely affect the interests of the Lender, (xv) limitations on the
formation or acquisition of subsidiaries, and (xvi) certain requirements
regarding financial tests and ratios (the "Financial Covenants").

The covenant regarding limitations on indebtedness prohibits the Company
from incurring additional indebtedness other than (i) indebtedness incurred
under the Credit Facility, (ii) indebtedness incurred to finance the acquisition
of fixed or capital assets (whether pursuant to a loan, a financing lease or
otherwise) in an aggregate principal amount not exceeding $100,000 at any time
outstanding, (iii) indebtedness subordinated in right of payment to the Credit
Facility on terms and conditions satisfactory to the Lender and (iv) additional
indebtedness not exceeding $50,000 in aggregate principal amount at any time
outstanding.

The Financial Covenants include a fixed charge coverage ratio, a tangible
net worth test, a current ratio and a net losses test. The Credit Agreement
provides that the Company must maintain a fixed charge coverage ratio that is
greater than or equal to 1:1 from the closing date through the fiscal quarter
ending November, 1996 and thereafter a fixed charge coverage ratio that is
greater than or equal to 1.1:1. The fixed charge coverage ratio will be measured
on the basis of a trailing four fiscal quarter basis, provided that for the
first three fiscal quarters after the closing of the Credit Agreement the fixed
charge coverage ratio shall be measured from the closing date to the relevant
fiscal quarter end.

The Credit Agreement will contain a tangible net worth covenant pursuant to
which the Company will be required to achieve a tangible net worth as of the
last day of the fiscal quarter ending November 1996 that equals or exceeds zero.
The net worth covenant will also require that the Company's tangible net worth
on the last day of each fiscal quarter thereafter equal or exceed the amount set
forth opposite such fiscal quarter below:

<TABLE>
<CAPTION>
MINIMUM TANGIBLE
FISCAL QUARTER END NET WORTH
- ----------------------------------------------------------------- ---------------------------
<S> <C>
February, 1997................................................... $ 65,000
May, 1997........................................................ $130,000
August, 1997..................................................... $200,000
November, 1997................................................... $285,000
February, 1998................................................... $360,000
May 1, 1998...................................................... $440,000
August 1, 1998................................................... $530,000
November, 1998................................................... $625,000
February, 1999................................................... $720,000
Each Fiscal Quarter End Thereafter............................... Amount required for prior
fiscal quarter end plus
$80,000.
</TABLE>

The Credit Agreement also requires that the Company maintain a monthly current
ratio that is greater than or equal to 1:1. The current ratio will be the ratio
of (i) current assets to (ii) the sum of current liabilities plus amounts
outstanding under the Revolver, minus current maturities under the Term Loan. In
addition, the Credit Agreement requires that the Company's net income in any two
consecutive individual fiscal quarters cannot be less than zero.

Events of Default under the Credit Agreement include (i) failure by the
Company to make any payment of principal, interest or other amount owing under
the Credit Agreement when due and payable that, in the case of interest and
other amounts (other than principal), continues unremedied for a period of three
days; (ii) any representation or warranty by the Company proving to have been
materially false or misleading when made; (iii) the breach of certain negative
and financial covenants contained in the Credit Agreement; (iv) the breach of
any other obligation under the Credit Agreement that shall continue unremedied
for a period of thirty days; (v) the failure to make any payment in respect of
material indebtedness of the Company, or the default by the Company with respect
to any

84
<PAGE>

such indebtedness, the effect of which is to cause or to permit the holder or
holders of such indebtedness to cause such indebtedness to become due prior to
its stated maturity; (vi) the institution of bankruptcy or insolvency
proceedings by or against the Company which, in the case of a proceeding
instituted against the Company, remains undismissed, undischarged or unbonded
for a period of sixty days; (vii) the application for the appointment of a
receiver, or the failure of the Company generally to, or the inability of the
Company to, or the admission by the Company in writing of its inability to, pay
its debts as they become due; (viii) the occurrence of a "prohibited
transaction" or certain other events relative to ERISA involving an amount
material to the Company; (ix) the entering against the Company of one or more
judgments or decrees involving liability of a material amount that is not paid
or covered by insurance, if such judgment or decree has not been vacated,
discharged, stayed or bonded pending appeal within thirty days; and (x) the
termination of certain security documents or the liens evidenced thereby. Upon
the occurrence and during the continuance of an Event of Default (other than an
Event of Default described in clause (vi) above), the Lender may, by notice to
the Company, declare the Credit Facility terminated and declare all amounts
outstanding under the Credit Agreement and the other documents executed by the
Company in connection therewith to be due and payable whereupon the same shall
immediately become due and payable. If an Event of Default described in clause
(vi) above has occurred and is continuing, the Credit Facility shall immediately
terminate and all amounts outstanding under the Credit Agreement and the other
documents executed in connection therewith shall immediately become due and
payable.

DESCRIPTION OF THE CONVERTIBLE DEBENTURES

The Convertible Debentures were issued by the Company pursuant to the
several Security Purchase Agreement each dated as of September 8, 1993 (each, a
"Purchase Agreement" and collectively, the "Purchase Agreements"). The following
statements are subject to the detailed provisions of the Purchase Agreements and
are qualified in their entirety by reference to the Purchase Agreements, a form
of which is filed as an exhibit to the Registration Statement of which this
Proxy Statement/ Prospectus is a part and is also available for inspection at
the offices of the Company.

GENERAL

The Convertible Debentures represent unsecured general obligations of the
Company subordinate in right of payment to certain other obligations of the
Company as described under " -- Subordination of Convertible Debentures," and
convertible into Common Stock as described under " -- Conversion." At May 31,
1996, $10,000,000 principal amount of Convertible Debentures were outstanding.
The Convertible Debentures mature on August 31, 2003, unless earlier redeemed at
the option of the Company or at the option of a Holder upon a Change of Control
(as defined below). See " -- Redemption" and "Purchase of Convertible Debentures
Upon a Change of Control." The Convertible Debentures are not subject to a
sinking fund. The Convertible Debentures are issued in fully registered form
only in denominations of $1,000 or any integral multiple thereof.

No established trading market exists for the Convertible Debentures. See "
- -- Market Information."

Interest at the annual rate of 8.0% is payable quarterly in arrears on each
February 28, May 31, August 31 and November 30. The Company has not paid
interest since February 28, 1995. As of May 31, 1996, the amount of interest
arrearages on the Convertible Debentures was approximately $1 million.

REDEMPTION

MANDATORY. The Company is required to redeem on August 31, 2003, the
aggregate amount of outstanding Convertible Debentures at a redemption price
equal to 100% of the principal amount thereof, plus accrued and unpaid interest
to the redemption date.

85
<PAGE>
OPTIONAL. The Convertible Debentures may be redeemed upon 30 days notice,
in whole or in part, on any interest payment date after August 31, 1996 (three
year non-call) at the following prices (expressed as a percentage of par) if
redeemed during the twelve month period beginning August 31 of the year
indicated below, plus accrued interest:

<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ---------------------------------------------------------------------------- ----------------
<S> <C>
1996........................................................................ 106.00%
1997........................................................................ 105.15%
1998........................................................................ 104.30%
1999........................................................................ 103.45%
2000........................................................................ 102.60%
2001........................................................................ 101.75%
2002........................................................................ 100.85%
2003 and thereafter......................................................... 100.00%
</TABLE>

The Company is required to give written notice of redemption of the
Convertible Debentures pursuant to the Purchase Agreements to each Holder of any
outstanding Convertible Debentures not less than 30 nor more than 60 days prior
to the date fixed for such redemption in such notice, which notice shall specify
the principal amount to be redeemed, together with the premium to be paid
thereon and the date fixed for such redemption. Upon the giving of notice of any
redemption as provided in related Purchase Agreement, the Company will redeem on
the date therein fixed for redemption the applicable redemption price of the
Convertible Debentures so to be redeemed as specified in such notice, together
with interest accrued thereon to such date fixed for redemption.

CONVERSION

The Convertible Debentures may be converted at their principal amount or any
portion thereof which is an integral multiple of $1,000 at any time prior to the
close of business on August 31, 2003 subject to prior redemption or purchase at
the option of the Holder of Convertible Debentures into shares of the Company's
Common Stock par value $.001 per share (calculated as to each conversion to the
nearest 1/100th of a share), at the conversion price of $4.00 per share (the
"Conversion Price"), subject to adjustment as described below. The conversion
price per share for any Convertible Debenture not tendered pursuant to the
Exchange Offer will be $108, subject to adjustment as described below. The
Company will not be required to issue fractional shares of Common Stock but will
pay a cash adjustment in lieu thereof. In the case of any Convertible Debenture
or portion thereof called for redemption, conversion rights will expire at the
close of business on the business day immediately preceding the date fixed for
redemption. A Convertible Debenture for which a Holder of Convertible Debentures
has delivered notice exercising the option of such Holder of Convertible
Debentures to require the Company to purchase such Convertible Debenture may be
converted only if such notice is withdrawn by a written notice of withdrawal
delivered by the Holder of Convertible Debentures prior to the close of business
on the purchase date in accordance with the Securities Purchase Agreement.
Convertible Debentures surrendered for conversion during the period from the
close of business on any record date next preceding any date specified in the
related Purchase Agreement as the fixed date on which an installment of interest
thereon is due and payable (the "Interest Payment Date") to the opening of
business on such Interest Payment Date (except Convertible Debentures called for
redemption) must be accompanied by payment of an amount equal to the interest
thereon which the Holder of Convertible Debentures is to receive. In the case of
any Convertible Debenture which has been converted after any record date but on
or before the next Interest Payment Date (except Convertible Debentures called
for redemption within such period), the interest payable on such Interest
Payment Date shall be paid notwithstanding such conversion, and such interest
shall be paid to the Holder of such Convertible Debenture on such record date.
Except as described above, no interest on converted Convertible Debentures will
be payable by the Company on any Interest Payment Date subsequent to the date of
conversion. No other payment or adjustment for interest or dividends is to be
made upon conversion.

86
<PAGE>
The Conversion Price is subject to adjustment as set forth in the Securities
Purchase Agreement in certain events, including (i) the subdivision, combination
or reclassification of the outstanding Common Stock of the Company; (ii) the
issuance of Common Stock as a dividend or distribution on Common Stock; (iii)
the issuance of rights, warrants or options (expiring within 45 days after the
record date in respect of such rights, warrants or options) to an affiliate
and/or all holders of Common Stock entitling them to acquire shares of Common
Stock (or securities convertible into or exchangeable for Common Stock) at less
than the current market price (as defined in the Purchase Agreements) of the
Common Stock; (iv) the distribution to all holders of Common Stock or shares of
any class of capital stock other than Common Stock, of cash or assets (including
securities, but excluding any regular or quarterly cash dividends or
distributions paid out of consolidated current or retained earnings), any
rights, options warrants to purchase securities of the Company, and the issuance
of any class of capital stock as a dividend or distribution on Common Stock; or
(v) certain mergers, consolidations or sales of assets. There will be no upward
adjustment in the Conversion Price except in the event of a reverse stock split.
The Company is not required to make any adjustment in the Conversion Price of
less than $0.05, but the same will be carried forward and taken into account in
the computation of any subsequent adjustment.

Conversion Price adjustments or omissions in making such adjustments may,
under certain circumstances, be deemed to be distributions that could be taxable
as dividends under the Internal Revenue Code to Holders of Convertible
Debentures or to holders of Common Stock.

In case of any reclassification (excluding those referred to above), merger,
consolidation or sale of substantially all the assets of the Company as an
entirety, the Holder of each outstanding Convertible Debenture shall have the
right to convert such Convertible Debenture only into the kind and amount of
securities, cash and other property receivable by a holder of the number of
shares of Common Stock into which such Convertible Debentures might have been
converted immediately prior to the effective date of the transaction.

The Company shall at all times reserve and keep available, free from
preemptive rights, out of authorized but unissued Common Stock, the full number
of shares of Common Stock then issuable upon the conversion of all outstanding
Convertible Debentures. All outstanding shares of Common Stock are, and the
shares of Common Stock issuable upon conversion of the Convertible Debentures
will be, upon issuance, validly issued, fully paid and nonassessable.

SUBORDINATION OF CONVERTIBLE DEBENTURES

The payment of the principal of, premium, if any, interest on and all other
amounts with respect to the Convertible Debentures is subordinated in right of
payment, to the extent set forth in the Purchase Agreements, to the prior
payment in full of all Senior Indebtedness (as defined below) of the Company. By
reason of such subordination of the Company, whether in bankruptcy, insolvency,
reorganization, marshaling of assets and liabilities of the Company or similar
events, certain general creditors of Company may recover more, ratably, than the
Holders of the Convertible Debentures. There are no restrictions in the Purchase
Agreements on the amount of Senior Indebtedness or any other indebtedness that
may be incurred by the Company or any of its subsidiaries, and the Convertible
Debentures will be subordinate to substantially all future indebtedness of the
Company and its subsidiaries. No payment on account of principal of, premium, if
any, interest on, or any other amounts with respect to the Convertible
Debentures may be made unless all amounts then due for principal of, premium, if
any, and sinking fund requirements and interest on, and any other amounts with
respect to any Senior Indebtedness have been paid; and no payment on account of
principal of, premium, if any, interest on, or any other amounts with respect to
the Convertible Debentures may be made unless there shall not have existed at
the time of payment or immediately after giving effect thereto any default in
the payment of any amounts with respect to Senior Indebtedness or any event of
default with respect to any Senior Indebtedness permitting acceleration of
maturity of such Senior Indebtedness. Upon any distribution of the assets of the
Company or upon any dissolution, winding

87
<PAGE>
up, liquidation, or reorganization of the Company, the holders of Senior
Indebtedness will be entitled to receive payment in full before the Holders of
the Convertible Debentures are entitled to receive any payment.

Senior Indebtedness is defined in the Purchase Agreement as the principal of
or premium, if any, unpaid interest on and any other amounts with respect to (i)
indebtedness for borrowed money for the payment of which the Company is
responsible or liable or the payment of which the Company has guaranteed,
whether such indebtedness is outstanding as of the date of the Securities
Purchase Agreement or thereafter created, incurred, assumed or guaranteed by the
Company, unless in the instrument creating or evidencing the same or pursuant to
which the same is outstanding it is specifically provided that such indebtedness
is not superior in right of payment to the Convertible Debentures; (ii) capital
lease obligations determined in accordance with generally accepted accounting
principals; (iii) any reimbursement and cash collateralization obligations under
letters of credit; (iv) obligations under bankers' acceptances and interest rate
hedge or currency hedge agreements; (v) all interest on such amounts accruing
after the commencement of any bankruptcy or similar proceeding of which the
Company or any of its subsidiaries is the subject, whether or not a claim for
post-petition interest is allowed as a claim in any such proceeding, and
including all fees, expenses and other amounts payable in connection therewith;
and (vi) renewals, extensions, modifications and refundings of any such
indebtedness or obligations.

The Convertible Debentures will be effectively subordinated to all
indebtedness and other liabilities and commitments (including trade payables and
lease obligations) of the Company's subsidiaries. Any right of the Company to
receive assets of any such subsidiary upon the latter's liquidation or
reorganization (and the consequent right of the Holders of the Convertible
Debentures to participate in those assets) will be effectively subordinated to
the claims of that subsidiary's creditors, except to the extent that the Company
is itself recognized as a creditor of such subsidiary, in which case the claims
of the Company would still be subordinated to any obligations secured by the
assets of such subsidiary and any indebtedness of such subsidiary senior to that
held by the Company.

At May 31, 1996, the aggregate amount of Senior Indebtedness of the Company
and indebtedness of its consolidated subsidiaries was approximately $18.1
million.

PURCHASE OF CONVERTIBLE DEBENTURES UPON A CHANGE OF CONTROL

In the event of any Change in Control (as defined below) of the Company
occurring prior to maturity, each Holder of Convertible Debentures will have the
right, at the Holder's option, subject to the terms and conditions of the
Purchase Agreements, to require the Company to purchase all or any part
(provided that the remaining principal amount thereof is $1,000 or an integral
multiple thereof), of the Holder's Convertible Debentures on the date that is no
later than 30 business days after the occurrence of such Change in Control (the
"Change in Control Purchase Date") at a cash price equal to 100% of the
principal amount thereof plus accrued interest to and including the Change in
Control Purchase Date (the "Change in Control Purchase Price").

Within 15 business days after the Change in Control, the Company is
obligated to mail to the registered agent for the Holders of the Convertible
Debentures (the "Agent") and to all Holders of Convertible Debentures at their
addresses shown in the register of the registrar (and to beneficial owners as
required by applicable law) a notice regarding the Change in Control, which
notice shall state, among other things: (i) the last date on which the purchase
right may be exercised; (ii) the Change in Control Purchase Price; (iii) the
Change in Control Purchase Date; (iv) the name and address of the Agent (if
other than the Company) and of any other office or agency maintained for the
purpose of surrender of the Convertible Debentures for purchase; and (v) the
procedures that Holders of Convertible Debentures must follow to exercise these
rights. The Company will cause a copy of such notice to be published in a daily
newspaper of national circulation.

To exercise this right, the Holder of Convertible Debentures must deliver
written notice (a "Change in Control Purchase Notice") to the Agent or to any
other office or agency maintained for

88
<PAGE>
such purpose, of the exercise of such right prior to the close of business on
the Change in Control Purchase Date. The Change in Control Purchase Notice must
state: (i) the certificate numbers on the Convertible Debentures to be delivered
by the Holder of Convertible Debentures thereof for purchase by the Company;
(ii) the portion of the principal amount of the Convertible Debentures to be
purchased, which portion must be $1,000 or an integral multiple thereof; and
(iii) that such Convertible Debentures are to be purchased by the Company on the
Change in Control Purchase Date pursuant to the applicable provisions of the
Convertible Debentures.

Any Change in Control Purchase Notice may be withdrawn by the Holder of
Convertible Debentures by a written notice of withdrawal delivered to the Agent
or to any other office or agency maintained for such purpose on or prior to the
close of business on the Change in Control Purchase Date. The notice of
withdrawal shall state the principal amount and the certificate numbers of the
Convertible Debentures as to which the withdrawal notice relates and the
principal amount, if any, which remains subject to the original Change in
Control Purchase Notice.

Under the Securities Purchase Agreement, a "Change in Control" of the
Company is deemed to have occurred at such time as (x) there shall be
consummated any consolidation or merger of the Company in which the Company is
not the continuing or surviving corporation or pursuant to which the Company's
Voting Stock (as defined below) would be converted into cash, securities or
other property, other than, in either case, a merger of the Company in which the
holders of Voting Stock of the Company immediately prior to the merger have
directly or indirectly, at least a majority of Voting Stock of the surviving
corporation immediately after the merger or (y) any person, including its
Affiliates, other than Lynda Wellman, Richard Wellman or the Company, its
subsidiaries or their employee benefit plans, files a Schedule 13D or 14D-l (or
any successor schedule, form or report under the Exchange Act) disclosing that
such person has become the beneficial owner of 50% or more of the voting power
of the Company's Voting Stock. "Voting Stock" means, with respect to any person,
capital stock of such person having general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of such person (irrespective of whether or not at the time capital
stock of any other class or classes shall have or might have voting power by
reason of the happening of any contingency).

Notwithstanding the foregoing, a Change in Control as described above shall
not be deemed to have occurred if (i) the Closing Price per share of the Common
Stock for any five trading days within the period of ten consecutive trading
days ending immediately before the Change in Control (in the case of a Change in
Control described in clause (x) above) or, in the case of a Change in Control
described in clause (y) above, within such period or within the period of ten
consecutive trading days commencing on the date immediately after the later of
the Change in Control or the public announcement of the Change in Control, is at
least equal to 105% of the conversion price in effect on the date immediately
preceding the date of such Change in Control or public announcement, as the case
may be, (ii) the average Closing Price per share of the Common Stock for the ten
consecutive trading days ending immediately before the Change in Control (in the
case of a Change in Control described in clause (x) above) or, in case of a
Change in Control described in clause (y) above, for such period or for the ten
consecutive trading days commencing on the date immediately after the later of
the Change in Control or the public announcement of the Change in Control, is
greater than 100% of the conversion price in effect on the date immediately
preceding the date of such Change in Control or public announcement, as the case
may be, (iii) all of the consideration to the holders of Common Stock in the
transaction giving rise to such Change in Control consists of cash, securities
that are, or immediately upon issuance will be, listed on the national
securities exchange or quoted on The Nasdaq National Market System, or a
combination of cash and such securities, and the aggregate fair market value of
such consideration (which, in the case of such securities, shall be equal to the
average of the daily closing prices of such securities during the ten
consecutive trading days commencing with the sixth trading day following
consummation of such transaction) allocable to each share of Common Stock is
greater than 100% of the conversion price in effect on the date immediately
preceding the closing date

89
<PAGE>
of such transaction or (iv) at least 90% of the consideration in any
consolidation, merger, recapitalization or business combination, however
effected, accounted for as a pooling of interests, consists of common stock
which is (or will, upon consummation of such transaction or event, be) listed on
a national securities exchange or approved for quotation on The Nasdaq National
Market System.

CERTAIN COVENANTS

Payment of Convertible Debentures. The Company shall pay the principal of
and interest on the Convertible Debentures on the dates and in a manner provided
in the Convertible Debentures. Principal and interest shall be considered paid
on the date due if the Paying Agent (other than the Company or a Subsidiary
thereof) holds on the date money designated for and sufficient to pay all
principal of and interest on the Convertible Debentures then due.

To the extent lawful, the Company shall pay interest on (i) overdue
principal, at 10.0% per annum, compounded quarterly and (ii) installments of
overdue interest at 10.0% per annum. Interest is payable on overdue principal
and interest regardless of the applicable grace period.

DEMAND REGISTRATION RIGHTS. Holders of at least 51.0% principal amount of
the Convertible Debentures acting jointly, and as one class, may demand that the
Company have a Registration Statement under the Securities Act of 1933, as
amended (the "1933 Act"), with respect to the Common Stock issuable upon
conversion of the Convertible Debentures, filed within six months and declared
effective within nine months following the date of such demand (the "Demand
Date"), which Registration Statement would permit public trading of such Common
Stock, and to keep such registration effective for three years thereafter. This
covenant will be deleted pursuant to the Amendments.

PIGGYBACK REGISTRATION RIGHTS. Whenever the Company proposes to register
any of its securities under the 1933 Act and the registration form to be used
may be used for the registration of Registerable Securities (a "Piggyback
Registration"), the Company will give prompt notice to all holders of
Registerable Securities of its intention to effect such registration and,
subject to underwriter cutbacks, will include in such registration all
Registerable Securities with respect to which the Company has received written
requests for inclusion therein within 15 days after the receipt of the Company's
notice. For purposes of the Convertible Debentures, "Registerable Securities"
means any shares of Common Stock into which the Convertible Debentures have been
converted.

FINANCIAL INFORMATION. The Company will deliver to the Holders of
Convertible Debentures copies of the annual and quarterly reports and other
information, documents, and other reports which the Company is required to file
with the SEC pursuant to any provision of the Securities and Exchange Act of
1934, and of any other reports or information which the Company delivers or
makes available to any of its security holders, within five (5) days of filing
such reports with the SEC or of delivery to the Company's security holders, as
the case may be.

So long as any of the Convertible Debentures remain outstanding, the Company
shall cause quarterly reports for the first three quarters of each fiscal year
and annual reports which it would be required to file under any provision of the
Exchange Act if it had a class of securities listed on a national securities
exchange, together with copies of a consolidating balance sheet of the Company
and its subsidiaries as of the end of each such accounting period and of the
related consolidating statements of income and cash flow for the portion of the
year then ended, to be mailed to the Holders of Convertible Debentures at their
address appearing in the register within five (5) days of when such report would
have been required to be filed under Section 13 of the Exchange Act.

The Company shall also make such reports available promptly to prospective
purchasers of the Convertible Debentures, beneficial Holders of the Convertible
Debentures, securities analysts and broker-dealers upon their reasonable
request.

INSPECTION RIGHTS. Holders of at least $1 million in aggregate principal
amount of the Convertible Debentures (at issuance), at such Holders' expense
(unless a Default or an Event of Default has

90
<PAGE>
occurred and is continuing, in which case at the Company's expense), shall have
the right to visit and inspect any of the properties of the Company and its
Subsidiaries, to examine the books of account and records of the Company and its
Subsidiaries, to be provided with copies and extracts therefrom, to discuss the
affairs, finances and accounts of the Company and its Subsidiaries with, and to
be advised as to the same by, its and their officers and employees and their
independent public accountants (and the Company authorizes such independent
public accountants to discuss the Company's and its Subsidiaries financial
matters with such Holder of Convertible Debentures or its representatives,
regardless of whether any representative of the Company or any of its
Subsidiaries is present, but provided that an officer of the Company will be
afforded a reasonable opportunity to be present at any such discussion), all at
such reasonable times and intervals during normal business hours and upon
reasonable prior notice. The Company will likewise afford such Holders the
opportunity to obtain any information, to the extent the Company or any of its
Subsidiaries possesses such information or can acquire it without unreasonable
effort or expense, necessary to verify the accuracy or any of the
representations and warranties made by the Company under the Securities Purchase
Agreement. Each Holder of Convertible Debentures agrees to keep all information
received pursuant to the "DISCLOSURE" section of the Securities Purchase
Agreement confidential, except that disclosure can be made: (I) to any
governmental body (including for this purpose the National Association of
Insurance Commissioners) having jurisdiction over the holder of the Convertible
Debentures in the law or ordinary course of business; (ii) to any other person
pursuant to subpoena or other process, whether legal, administrative or other;
(iii) to the Holder of the Convertible Debentures' officers, directors,
trustees, employees, legal counsel, financial advisors, auditors or accountants
who need access to such information in connection with their duties, provided
that such party agrees to keep such information confidential in accordance with
this paragraph; (iv) to any transferee or prospective institutional purchaser of
a Debenture who agrees to be bound by this paragraph; or (v) to the extent
necessary in the enforcement of such Holder of Convertible Debentures' rights
under the Securities Purchase Agreement and under the Convertible Debentures
during the continuance of a Default or Event of Default.

INTEREST COVERAGE RATIO. The Company shall not permit the Interest Coverage
Ratio (defined as the ratio of Consolidated Cash Flow to Total Net Interest
Expense) of the Company for the immediately preceding four fiscal quarters as
determined as of the last day of each fiscal quarter beginning May 31, 1994 to
be less than 2.0 to 1.0. This covenant will be deleted pursuant to the
Amendments.

MAINTENANCE OF CONSOLIDATED NET WORTH. The Company shall furnish to the
Holders of Convertible Debentures an Officer's Certificate within 60 days after
the end of the first three fiscal quarters of the Company's Fiscal Year and 90
days after the end of its Fiscal Year, setting forth the Consolidated Net Worth
(defined as common equity) of the Company as of the end of such fiscal quarter
or Fiscal

91
<PAGE>
Year. For each four fiscal quarter period ending on the dates set forth below,
the Consolidated Net Worth of the Company at the end of at least one of the four
fiscal quarters ending during such period shall be equal to or greater than the
amount set forth across from such dates for such fiscal quarters:

<TABLE>
<CAPTION>
ONE QUARTER WITH A
CONSOLIDATED NET WORTH
DATE OF AT LEAST:
- ---------------------------------------------------------------------- ----------------------
<S> <C>
November 30, 1993..................................................... $ 6,000,000
February 28, 1994..................................................... 6,000,000

May 31, 1994.......................................................... 6,000,000
August 31, 1994....................................................... 8,000,000
November 30, 1994..................................................... 8,000,000
February 28, 1995..................................................... 8,000,000

May 31, 1995.......................................................... 8,000,000
August 31, 1995....................................................... 10,000,000
November 30, 1995..................................................... 10,000,000
February 29, 1996..................................................... 10,000,000

May 31, 1996.......................................................... 10,000,000
August 31, 1996....................................................... 11,000,000
November 30, 1996..................................................... 11,000,000
February 28, 1997..................................................... 11,000,000

May 31, 1997.......................................................... 11,000,000
August 31, 1997....................................................... 12,000,000
November 30, 1997..................................................... 12,000,000
February 28, 1998..................................................... 12,000,000

May 31,1998........................................................... 12,000,000
August 31, 1998....................................................... 13,000,000
November 30, 1998..................................................... 13,000,000
February 28, 1999..................................................... 13,000,000

May 31, 1999.......................................................... 13,000,000
August 31, 2000....................................................... 14,000,000
November 30, 2000..................................................... 14,000,000
February 29, 2000..................................................... 14,000,000

May 31, 2000.......................................................... 14,000,000
August 31, 2000 and thereafter........................................ 15,000,000
</TABLE>

This covenant will be deleted pursuant to the Amendments.

COMPLIANCE CERTIFICATE. The Company shall deliver to the Holders of
Convertible Debentures, within 45 days after the end of each of the first three
fiscal quarters of each Fiscal Year and within 90 days after the end of each
Fiscal Year, an Officers' Certificate stating that a review of the activities of
the Company during the preceding Fiscal Year, as the case may be, has been made
under the supervision of the signing Officers with a view to determining whether
the Company has kept, observed, performed and fulfilled its obligations under
the Securities Purchase Agreement, and further stating that, to the best
knowledge of each such Officer signing such certificate, the Company has kept,
observed, performed and fulfilled each and every covenant contained in the
Securities Purchase Agreement, and is not in default in the performance or
observance of any of the terms, provisions and conditions hereof, and to the
best of such Officer's knowledge, no event has occurred and is continuing which
is, or after notice or lapse of time or both would become, a Default or an Event
of Default, or if such an event has occurred and is continuing, specifying each
such event known to such Officer and the nature and status thereof.

92
<PAGE>
The Company, so long as any of the Convertible Debentures are outstanding,
shall deliver to the Holders of Convertible Debentures, forthwith upon becoming
aware of any Default, Event of Default or default in the performance of any
covenant, agreement or condition contained in the Convertible Debentures, the
Securities Purchase Agreement or any of the Collateral Documents, an Officer's
Certificate specifying such Default, Event of Default and the nature and status
thereof.

STAY, EXTENSION AND USURY LAWS. The Company covenants (to the extent it may
lawfully do so) that it will not at any time insist upon, plead, or in any
manner whatsoever claim or take the benefit or advantage of, any stay or
extension law or any usury law or other law which would prohibit or forgive the
Company from paying all or a portion of the principal of or interest on the
Convertible Debentures as contemplated herein, wherever enacted, now or at any
time hereinafter in force, or which may materially affect the covenants or the
performance of the Securities Purchase Agreement in a manner inconsistent with
the provisions of the Securities Purchase Agreement. The Company expressly
waives all benefit or advantage of any such law, and will covenant that it will
not hinder, delay or impede the execution of any power granted to the Holders of
Convertible Debentures, but will suffer and permit the execution of every such
power as though no such law had been enacted. If a court of competent
jurisdiction proscribes that the Company may not waive its rights to take the
benefit or advantage of any stay or extension law or any usury law or other law
in accordance with the prior sentence, then the obligation to pay interest on
the Convertible Debentures shall be reduced to the maximum legal limit under
applicable law governing the interest payable in connection with the Convertible
Debentures.

LIMITATION ON ACTIVITIES. The Company shall not be permitted to engage in
any business or investment activities other than those necessary for, incident
to, connected with, or arising out of its principal activities in the aircraft
parts industry or a directly related industry. This covenant will be deleted
pursuant to the Amendments.

SALE OF ASSETS. The Company shall not sell, lease, transfer or dispose of
any of its interest in its respective properties or assets, whether real,
personal or mixed, or tangible or intangible, other than in the ordinary course
of business consistent with prudent business practice.

ACCOUNTING CHANGES. The Company will use one of the following accounting
firms, or their respective successors: Arthur Andersen, Coopers & Lybrand,
Deloitte & Touche, Ernst & Young, KPMG Peat Marwick, Price Waterhouse, or Grant
Thornton.

INVESTMENT COMPANY ACT. The Company shall not become an investment act
company subject to registration under the Investment Company Act of 1940, as
amended.

LIMITATION ON MERGER CONSOLIDATION OR SALE. Except for certain limited
circumstances, the Company shall not without the consent of a majority of the
Holders of Convertible Debentures consolidate or merge with or into, or sell,
transfer, lease or convey all or substantially all of its assets to, any person,
provided HOWEVER, that the Company will be permitted to consolidate or merge a
wholly-owned subsidiary into the Company or another wholly-owned subsidiary of
the Company. Such action, in certain instances, will result in a redemption of
the Convertible Debentures at the option of the Holders of Convertible
Debentures subject to the redemption provisions contained in the Change of
Control covenant herein.

EXISTENCE. The Company will do or cause to be done all things necessary to
preserve and keep in full force and effect its existence in accordance with the
organizational documents of the Company and the rights (charter and statutory),
licenses and franchises of the Company; PROVIDED, HOWEVER, that the Company
shall not be required to preserve any such right, license or franchise if the
Board of Directors of the Company shall determine in good faith in accordance
with the Company's charter documents that the preservation thereof is no longer
desirable in the conduct of the business of the Company taken as a whole and
that the loss thereof is not adverse in any material respect to the Holders of
Convertible Debentures.

93
<PAGE>
MAINTENANCE OF PROPERTIES. The Company shall maintain, preserve, protect
and keep its properties in good repair, working order and condition (ordinary
wear and tear excepted), and make necessary and proper repairs, renewals and
replacements so that its business carried on in connection therewith may be
properly conducted at all times consistent with past practices of International
Airline Support Group, Inc.

MAINTENANCE OF INSURANCE. The Company shall, and shall cause each of its
Subsidiaries to, maintain insurance in such amounts and covering such risks as
is usually carried by companies engaged in similar businesses and owning similar
properties in the same general areas in which the Company and its subsidiaries
operate.

All insurance shall be maintained with insurance carriers having an A.M.
Best & Co. rating of
"A-" or better.

BOOKS AND RECORDS. The Company shall keep books and records which
accurately reflect all of its business affairs and transactions and permit any
Holder of Convertible Debentures or any of its representatives, at reasonable
times and intervals during normal business hours, and upon reasonable prior
notice, to visit the Company offices, to discuss financial matters with
representatives of senior management and independent public accountants (and the
Company shall authorize such independent public accountants to discuss the
Company's financial matters with any Holder of Convertible Debentures or its
representative whether or not any representative of the Company is available to
be present but provided that an officer of the Company shall be afforded a
reasonable opportunity to be present at any such discussion) and to examine
(and, at the expense of the Company, photocopy extracts from) any of its books
or other corporate records.

COMPLIANCE WITH ERISA. The Company shall not permit any ERISA Affiliate to
(i) terminate, any Welfare Plan so as to result in any liability of the Company
or ERISA Affiliate to the PBGC; (ii) permit to exist any other event or
condition that presents a material risk of such termination by the PBGC of any
Welfare Plan, including, but not limited to, the occurrence of any Reportable
Event; (iii) withdraw, or permit any ERISA Affiliate to incur any withdrawal
liability with respect to any Multi employer Plan; or (iv) permit a Reportable
Event to occur with respect to any Welfare Plan which would present a material
risk to the Company of incurring a liability on account of such Welfare Plan.

TRANSFER OF THE CONVERTIBLE DEBENTURES. The Convertible Debentures may not
be transferred except in compliance with the Securities Act of 1933, as amended,
and no other Holder of the Convertible Debentures may transfer any Convertible
Debentures in an aggregate principal amount less than the lessor of (i) all of
the Convertible Debentures held by such Holder of Convertible Debentures or (ii)
$500,000.

MODIFICATION OF CERTAIN AGREEMENTS. With the consent of the Holders of at
least a majority in aggregate principal amount of the outstanding Convertible
Debentures, the Agent and the Company may execute a supplemental agreement to
add provisions to, or change in any manner or eliminate any provisions of, the
Securities Purchase Agreement or modify in any manner the rights of the Holders
of Convertible Debentures; provided however, that, without the consent of the
Holder of each outstanding Convertible Debenture, no such supplemental agreement
shall (i) extend the stated maturity of any Convertible Debenture, or reduce the
rate or extend the time of payment of interest thereon, or reduce the principal
amount thereof or reduce the premium payable upon the redemption thereof or the
amount payable thereon in the event of acceleration or the amount thereof
payable in bankruptcy; (ii) reduce the aforesaid percentage of Holders of
Convertible Debentures which are required to consent to any such supplemental
agreement; or (iii) make any change that adversely affects the right to convert
or the conversion price for any Convertible Debenture; provided further that no
such supplemental agreement shall modify or eliminate the provisions of the
Securities Purchase Agreement relating to the subordination of the Convertible
Debentures in any manner that might terminate or impair the subordination of the
Convertible Debentures to Senior Indebtedness without the prior written consent
of all the holders of the Senior Indebtedness.

94
<PAGE>
EVENTS OF DEFAULT

An "Event of Default" occurs under the Purchase Agreements if:

(i)
there is a default in the payment of the principal of or premium, if
any, on any Convertible Debenture when and as the same shall become
due and payable, whether at stated maturity, by acceleration, by notice of
prepayment or otherwise; or

(ii)
default shall be made in the payment of any interest on any
Convertible Debenture when and as such interest shall become due and
payable, and such default shall have continued for a period of 10 days; or

(iii)
default shall be made in the performance or observance of any
covenant, agreement or condition continued in the "INTEREST COVERAGE
RATIO," "CHANGE IN CONTROL," or "MAINTENANCE OF CONSOLIDATED NET WORTH"
sections of the Purchase Agreements; or

(iv)
default shall be made in the performance or observance of any other
covenant, agreement or condition contained in the Purchase Agreements
or the related registration rights agreement, and such default shall have
continued for a period of 30 days after such default shall first have become
known to the Company; or

(v)
any event shall occur or any condition shall exist in respect of any
Indebtedness of the Company (other than the Convertible Debentures)
in any aggregate principal amount of $500,000 or more, or under any
agreement securing or relating to any of such Indebtedness, the effect of
which is to cause the acceleration of the maturity of such Indebtedness, or
any such Indebtedness shall not have been paid at the final maturity date
thereof and any applicable grace period shall have expired; or

(vi)
the Company shall (a) apply for or consent to the appointment of, or
the taking of possession by, a receiver, custodian, trustee or
liquidator of itself or of all or a substantial part of its property, (b) be
generally unable to pay its debts as such debts become due, (c) make a
general assignment for the benefit of its creditors, (d) commence a
voluntary case under Title 11, United States Code or any similar federal or
state law for the relief of debtors (the "Bankruptcy Laws") (as now or
hereafter in effect), (e) file a petition seeking to take advantage of any
other law providing for the relief of debtors, (f) fail to controvert in a
timely or appropriate manner, or acquiesce in writing to, any petition filed
against it in an involuntary case under such Bankruptcy Laws, (g) take any
action under the laws of its jurisdiction of incorporation analogous to any
of the foregoing, or (h) take any corporate action for the purpose of
effecting any of the foregoing; or

(vii)
a proceeding or case shall be commenced, without the application or
consent of the Company in any court of competent jurisdiction,
seeking (1) the liquidation, reorganization, dissolution, winding up, or
composition or readjustment of its debts, (2) the appointment of a trustee,
receiver, custodian, liquidator or the like of it or of all or any
substantial part of its assets, or (3) similar relief in respect of it,
under any law providing for the relief of debtors, and such proceeding or
case shall continue undismissed, or unstayed and in effect, for a period of
30 days; or an order for relief shall be entered in an involuntary case
under such Bankruptcy Laws, against the Company; or action under the laws of
the jurisdiction of incorporation of the Company analogous to any of the
foregoing shall be taken with respect to the Company and shall continue
unstayed and in effect for any period of 30 days; or

(viii)
final judgment for the payment of money shall be rendered by a court
of competent jurisdiction against the Company and the Company shall
not discharge the same or provide for its discharge in accordance with its
terms, or procure a stay of execution thereof within 60 days from the date
of entry thereof and within said period of 60 days, or such longer period
during which execution of such judgment shall have been stayed, appeal
therefrom and cause the execution thereof to be stayed during such appeal,
and such judgment together with all other such judgments shall exceed in the
aggregate $500,000;

95
<PAGE>
(ix)
any representation or warranty made by the Company in the Securities
Purchase Agreement or in any certificate or other instrument
delivered hereunder or thereunder or pursuant hereto or thereto or in
connection with any provision hereof of thereof shall be false or incorrect;
or

(x)
either the Company or any of its ERISA Affiliates as employers under
any multi-employer plan, within the meaning of Section 4001(a)(3) of
ERISA, shall have incurred, in connection with a complete or partial
withdrawal from such multi-employer plan, withdrawal liability that is
reasonably likely to have a material adverse effect on the business,
business prospects, operations, properties or financial condition of the
Company, or of the Company and its Subsidiaries;

then (A) upon the occurrence of any Event of Default described in subsection
(vi) or (vii) above, the unpaid principal amount of all Convertible Debentures,
together with the interest accrued thereon and all other amounts payable by the
Company hereunder and, to the extent permitted by applicable law, an amount
equal to the premium that would be payable if the Company were redeeming the
Convertible Debentures at such time pursuant to Purchase Agreements (or if such
time is prior to August 31, 1996, then on September 1, 1996), shall
automatically become immediately due and payable, without presentment, demand,
protest or other requirements of any kind, all of which are hereby expressly
waived by the Company or (B) upon the occurrence of any other Event of Default,
the Holders of at least a majority in principal amount of the then outstanding
Convertible Debentures, provided that Convertible Debentures owned by the
Company or any affiliate of the Company shall be disregarded and not deemed
outstanding for this purpose (the "Majority Holders"), may, by written notice to
the Company, declare the unpaid principal amount of all Convertible Debentures
to be, and the same shall forthwith become, due and payable, together with the
interest accrued thereon and all other amounts payable by the Company hereunder
and, to the extent permitted by applicable law, an amount equal to the premium
that would be payable if the Company were redeeming the Debentures at such time
pursuant to the Purchase Agreements (or if such time is prior to August 31,
1996, then on September 1, 1996), provided that, during the existence of an
Event of Default described in clauses (i) or (ii) above with respect to any
Convertible Debenture, the Holder of such Convertible Debentures may, by written
notice to the Company declare such Convertible Debenture to be, and the same
shall forthwith become, due and payable, together with the interest accrued
thereon and all other amounts payable by the Company hereunder and, to the
extent permitted by applicable law, an amount equal to the premium that would be
payable if the Company were redeeming the Convertible Debentures at the time
pursuant to the Purchase Agreements (of if such time is prior to August 31,
1996, then on September 1, 1996). If any Holder of any Convertible Debenture
shall exercise the option specified in the proviso to the preceding sentence,
the Company will forthwith give written notice thereof to the Holders of all
other outstanding Convertible Debentures and each such Holder of Convertible
Debentures may (whether or not such notice is given or received), by written
notice to the Company, declare the principal of all Convertible Debentures held
by it to be, and the same shall forthwith become, due and payable, together with
the interest accrued thereon and all other amounts payable by the Company
hereunder and, to the extent permitted by applicable law, an amount equal to the
premium that would be payable if the Company were redeeming the Debentures at
the time pursuant to the Purchase Agreements (or if such time is prior to August
31, 1996, then on September 1, 1996).

However, if at any time after any Convertible Debenture shall have so become
due and payable, the Company shall pay all arrears of interest on the
Convertible Debentures and all payments on account of the principal of and
premium (if any) on the Convertible Debentures which shall have become due
otherwise than by acceleration (with interest on such principal, premium (if
any) and, to the extent permitted by law, on overdue payments of interest, at
the rate specified in the Convertible Debentures) and all Events of Default
(other than nonpayment of principal of and accrued interest on Convertible
Debentures, and amounts equal to premium as aforesaid, due and payable solely by
virtue of acceleration) shall be remedied or waived pursuant to the Purchase
Agreements, then, and in every

96
<PAGE>
such case, the Majority Holders, by written notice to the Company, may rescind
and annul any such acceleration and its consequences; but no such action shall
affect any subsequent Default or Event of Default or impair any right consequent
thereon.

Within forty-five days after the end of the first three fiscal quarters of
the Company's fiscal year and within ninety days after the end of its fiscal
year, an Officer's Certificate of Compliance with the Agreement must be
delivered to the Holders of Convertible Debentures. A written statement
regarding any Events of Default discovered by the Company's independent
certified public accountants must be delivered to the Holders of Convertible
Debentures within ninety days of the end of the fiscal year. Immediately upon
becoming aware of any default, event of default, or default in the performance
of any covenant, agreement or condition contained in the Convertible Debentures
or the Purchase Agreements, written specifying such default, event of default,
or default in performance and the nature and status thereof must be delivered to
the Holders of the Convertible Debentures. Such notice must be in writing and
delivered, telecopied or mailed, first class postage prepaid to the Holders of
the Convertible Debentures at their addresses as set forth in the Purchase
Agreements or at such other address as has been designated by a Holder of
Convertible Debentures by written notice to the Company.

MARKET INFORMATION

No active trading market for the Convertible Debentures exists. The
Convertible Debentures were not registered pursuant to the Securities Act prior
to issuance and are not listed on any exchange. Because of the lack of public
registration and holdings in the Convertible Debentures being limited to
approximately 50 holders, trading in the Convertible Debentures is extremely
limited and sporadic. The last trade of the Convertible Debentures known to the
Company occurred in October, 1995, when the largest single holder of the
Convertible Debentures sold all of the Convertible Debentures held by it for a
cash price equal to $150 per $1,000 principal amount of the Convertible
Debentures, to one or more other substantial Holders of the Convertible
Debentures. Convertible Debentures not tendered in the Exchange Offer may
experience a significant decrease in liquidity.

MODIFICATIONS OF THE TERMS OF THE CONVERTIBLE DEBENTURES OR THE RIGHTS OF THE
HOLDERS OF THE CONVERTIBLE DEBENTURES

The Purchase Agreements permit the Company to amend or waive compliance with
any term, covenant, agreement or condition of the Purchase Agreements by one or
more substantially concurrent written instruments signed by the Majority
Holders; provided, however, that (i) no such amendment or waiver shall: (a)
reduce the principal of, or reduce the rate of or change the time for payment of
interest on or any premium payable upon redemption or the amount payable in
bankruptcy with respect to, any Convertible Debenture, or extend the maturity of
any Convertible Debenture, without the consent of the Holder of each Convertible
Debenture so affected; or (b) modify any of the provisions of the Securities
Purchase Agreement or of the Convertible Debentures with respect to the payment
or prepayment thereof, or reduce the percentage of the Holders of Convertible
Debentures required to approve any such amendment or effectuate any such waiver,
without the consent of the Holders of all of the Convertible Debentures at the
time outstanding; or (c) make any change that adversely affects the right to
convert or the conversion price of any Convertible Debenture, without the
consent of the Holders of all of the Convertible Debentures at the time
outstanding; or (d) modify or eliminate the provisions of the Securities
Purchase Agreement relating to the subordination of the Convertible Debentures
in any manner that might terminate or impair the subordination of the
Convertible Debentures to Senior Indebtedness, without the prior written consent
of the holders of Senior Indebtedness, and (ii) no such waiver shall extend to
or affect any obligation not expressly waived or impair any right consequent
thereon.

Any amendment or waiver to the Convertible Debentures or the Purchase
Agreements shall apply equally to all the Holders of the Convertible Debentures
and shall be binding upon them, upon each future Holder of any Convertible
Debenture and upon the Company, in each case whether or not a notation thereof
shall have been placed on any Convertible Debenture.

97
<PAGE>
So long as any outstanding Convertible Debentures are owned by any
institutional Holder, the Company will not solicit, request or negotiate for or
with respect to any proposed waiver or amendment of any of the provisions of the
Purchase Agreements or the Convertible Debentures unless each Holder of
Convertible Debentures (irrespective of the amount of Convertible Debentures
then owned by it) shall be informed thereof by the Company and shall be afforded
the opportunity of considering the same and shall be supplied by the Company
with sufficient information to enable it to make an informed decision with
respect thereto. Executed or true and correct copies of any amendment or waiver
effected pursuant to the provisions of the Purchase Agreements shall be
delivered by the Company to each Holder of Convertible Debentures forthwith
following the date on which the same shall have been executed and delivered as
set forth herein. Neither the Company nor any of its subsidiaries will, directly
or indirectly, pay or cause to be paid any remuneration, whether by way of
supplemental or additional interest, fee or otherwise, to any Holder of
Convertible Debentures as consideration for or as an inducement to the entering
into by any Holder of Convertible Debentures or any amendment or waiver of any
of the terms and provisions of the Purchase Agreements unless such remuneration
is concurrently paid, on the same terms, ratably to the Holders of all of the
Convertible Debentures outstanding at the time such offer is made, and who
consented to such amendment or waiver.

98
<PAGE>
DESCRIPTION OF CAPITAL STOCK

GENERAL

After the Restructuring, the authorized capital stock of the Company will
consist of 20,000,000 shares of Common Stock, par value $.001 per share and
2,000,000 shares of Preferred Stock par value $.001 per share. As of May 31,
1996, there were 4,041,779 shares of Common Stock outstanding which were held of
record by 105 stockholders and beneficially by approximately 850 stockholders
and no shares of Preferred Stock outstanding. Immediately following completion
of the Restructuring, there will be 2,395,105 shares of Common Stock outstanding
and no shares of Preferred Stock outstanding.

COMMON STOCK

Subject to the rights of the holders of any Preferred Stock which may be
outstanding, each holder of Common Stock on the applicable record date is
entitled to receive such dividends as may be declared by the Board of Directors
out of funds legally available therefor, and, in the event of liquidation to
share pro rata in any distribution of the Company's assets after payment or
providing for the payment of liabilities and the liquidation preference of an
outstanding Preferred Stock. Each holder of Common Stock is entitled to one vote
for each share held of record on the applicable record date on all matters
presented to a vote of stockholders, including the election of directors.
Holders of Common Stock have no cumulative voting rights or preemptive rights to
purchase or subscribe for any stock or other securities and there are no
conversion rights or redemption or sinking fund provisions with respect to such
stock. All outstanding shares of Common Stock are, and the shares of Common
Stock offered hereby will be when issued, fully paid and nonassessable.

The transfer agent for the Common Stock is The First Union National Bank of
North Carolina.

PREFERRED STOCK

Pursuant to the Preferred Stock Authorization, the Company's Board of
Directors will have the authority to issue shares of Preferred Stock in one or
more series and to fix, by resolution, the voting powers, full or limited or no
voting powers, and such designations, preferences and relative, participating,
optional or other rights, if any, and the qualifications, limitations or
restrictions thereof, if any, including the number of shares in such series
(which the Board may increase or decrease as permitted by Delaware law),
liquidation preferences, dividend rates, conversion rights and redemption
provisions of the shares constituting any series, without any further vote or
action by the stockholders. Any share of Preferred Stock so issued would have
priority over the Common Stock with respect to dividend or liquidation rights or
both.

CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK

The authorized but unissued shares of Common Stock and Preferred Stock are
available for future issuance without stockholder approval. These additional
shares may be utilized for a variety of corporate purposes, including future
public offerings to raise additional capital, corporate acquisitions and
employee benefit plans.

The existence of authorized but unissued and unreserved Common Stock and
Preferred Stock may enable the Board of Directors to issue shares to persons
friendly to current management which could render more difficult or discourage
an attempt to obtain control of the Company by means of a proxy consent, tender
offer, merger, or otherwise, and thereby protect the continuity of the Company's
management.

DIRECTORS' LIABILITY

The Company has included in its Restated Certificate provisions to eliminate
the personal liability of its directors for monetary damages resulting from
breaches of their fiduciary duty (provided that such provision does not
eliminate liability for breaches of the duty of loyalty, acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, violations under Section 174 of the DGCL or for any transaction from which
the director derived an improper personal benefit) and in its Bylaws provisions
to indemnify its directors and officers to the fullest extent

99
<PAGE>
permitted by Section 145 of the DGCL, including circumstances in which
indemnification is otherwise discretionary. The Company believes that these
provisions are necessary to attract and retain qualified persons as directors
and officers.

ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE COMPANY'S RESTATED
CERTIFICATE OF INCORPORATION AND BYLAWS

AMENDMENT OF THE BYLAWS. The Certificate of Incorporation will be amended
to provide that no provision of the Bylaw may be amended, altered, changed or
repealed by the stockholders of the Company, nor may any provision of the Bylaws
inconsistent with such provision be adopted by the stockholders of the Company,
except with the consent of holders of three-fourths of the Company's outstanding
Common Stock. This provision will make it more difficult for stockholders to
make changes to the Bylaws that are opposed by the Board of Directors. This
provision of the Certificate of Incorporation may not be amended, modified or
repealed by the stockholders of the Company, except with the consent of holders
of three-fourths of the Company's outstanding Common Stock.

100
<PAGE>
If adopted, the Charter Amendments will not become effective unless and
until the Closing occurs. Adoption of the Charter Amendments requires the
affirmative vote of the holders of a majority at the shares of Common Stock
outstanding. See "Stockholders' Meeting, Voting Rights and Proxies -- Proposed
Amendment to the Company's Certificate of Incorporation: Provisions Affecting
Corporate Governance" and "Description of Capital Stock."

LEGAL MATTERS

Certain legal matters in connection with the Restructuring, including the
validity of the shares of Common Stock to be issued pursuant to the Exchange
Offer, will be passed upon for the Company by King & Spalding.

EXPERTS

The audited financial statements and schedules of the Company for the three
years ended May 31, 1995 are included in this Proxy Statement/Prospectus in
reliance upon the report of Grant Thornton LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.

STOCKHOLDER PROPOSALS

Any holder of Common Stock and any person who will become a holder of Common
Stock who wishes to present a proposal for inclusion in the Company's proxy
statement for the next annual meeting of stockholders must comply with the rules
and regulations of the Commission then in effect. Such proposal must be received
by the Secretary of the Company at 8095 N.W. 64th Street, Miami, Florida 33166,
a reasonable time prior to the Company's commencement of its solicitation of
proxies in connection with such annual meeting, in order to be considered for
inclusion in the Company's next annual meeting proxy statement.

101
<PAGE>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Audited Consolidated Financial Statements
Report of independent certified public accountants..................................................... F-2
Consolidated balance sheets as of May 31, 1995 and 1996................................................ F-3
Consolidated statements of operations for the years ended May 31, 1994, 1995 and 1996.................. F-4
Consolidated statements of stockholders' equity (deficit) for the years ended May 31, 1994, 1995 and
1996.................................................................................................. F-5
Consolidated statements of cash flows for the years ended May 31, 1994, 1995 and 1996.................. F-6
Notes to consolidated financial statements............................................................. F-7
</TABLE>

F-1

<PAGE>

REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS

The Board of Directors and Stockholders
International Airline Support Group, Inc.

We have audited the accompanying consolidated balance sheets of International
Airline Support Group, Inc. and Subsidiaries as of May 31, 1995 and 1996, and
the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended May 31, 1996.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
from 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
International Airline Support Group, Inc. and Subsidiaries as of May 31, 1995
and 1996 and the consolidated results of their operations and their
consolidated cash flows for each of the three years in the period ended May
31, 1996, in conformity with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note B, the
Company is in default under its debt agreements which could result in the
lenders demanding payment under the Company's long-term debt agreements,
raising substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note B.
The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.

We have also audited Schedule II of International Airline Support Group, Inc.
and Subsidiaries for each of the three years in the period ended May 31,
1996. In our opinion, this schedule presents fairly, in all material
respects, the information required to be set forth therein.

GRANT THORNTON LLP

Miami, Florida
July 12, 1996

F-2

<PAGE>

INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

MAY 31, 1995 AND 1996

ASSETS

Current assets
Cash and cash equivalents (Note A) $ 848,331 $ 940,274
Accounts receivable, net of allowance for doubtful accounts
of approximately $619,000 in 1995 and $735,000 in 1996 2,592,463 2,014,691
Notes receivable 313,490 -
Inventories (Notes A, C and D) 6,497,270 9,277,315
Deferred tax benefit - current, net of valuation allowance
of $1,146,000 in 1995 and $960,000 in 1996 (Note F) - -
Other current assets 31,480 68,798

----------- -----------
Total current assets 10,283,034 12,301,078

Property and equipment (Notes A, D, E and R)
Land 330,457 -
Aircraft held for lease 3,289,613 2,974,760
Building and leasehold improvements 715,772 36,815
Machinery and equipment 940,948 972,507
----------- -----------
5,276,790 3,984,082
Less accumulated depreciation 1,980,927 2,051,620
Land and building held for sale, net - 750,000
----------- -----------
Property and equipment, net 3,295,863 2,682,462
----------- -----------
Other assets
Deferred debt costs, net (Note A) 931,932 762,431
Deferred tax benefit, net of valuation allowance of
$3,894,000 in 1995 and $3,011,000 in 1996 (Note F) - -
Deferred restructuring fees - 334,860
Deposits and other assets - 51,500
----------- -----------
931,932 1,148,791
----------- -----------

$14,510,829 $16,132,331
----------- -----------
----------- -----------

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities
Current maturities of long-term obligations (Note D) $ 1,812,040 $ 3,695,108
Long-term obligations in default classified as current (Notes B and D) 18,083,334 14,041,667
Accounts payable 1,650,078 2,171,496
Accrued expenses (Note O) 2,226,900 3,233,231
----------- -----------
Total current liabilities 23,772,352 23,141,502

Long-term obligations, less current maturities (Notes B and D) 440,377 406,760

Commitments and contingencies (Notes E, M and P) - -

Stockholders' equity (deficit) (Notes G and H)
Preferred Stock - $.001 par value; authorized 500,000 shares;
0 shares outstanding in 1995 and 1996. - -
Common stock - $.001 par value; authorized 20,000,000 shares;
issued and outstanding 4,041,779 shares in 1995 and 1996. 4,042 4,042
Additional paid-in capital 2,654,332 2,654,332
Accumulated deficit (12,360,274) (10,074,305)
----------- -----------
Total stockholders' deficit (9,701,900) (7,415,931)
----------- -----------

$14,510,829 $16,132,331
----------- -----------
----------- -----------

</TABLE>

The accompanying notes are an integral part of these statements.

F-3

<PAGE>

INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED MAY 31, 1994, 1995 AND 1996

1994 1995 1996
------------- ------------ -------------
<S> <C> <C> <C>
Revenues
Net sales $ 16,746,932 $ 21,998,869 $ 21,410,201
Lease revenue 1,986,450 2,984,218 1,794,768
------------- ------------- -------------
Total revenues 18,733,382 24,983,087 23,204,969

Cost of sales (Note N) 22,104,131 17,712,427 13,207,671
Selling, general and administrative
expenses (Notes N and O) 6,943,147 4,358,119 3,921,795
Provision (recovery) for doubtful accounts 1,487,969 (334,571) 464,099
Depreciation and amortization 2,475,071 1,400,832 1,153,477
Losses of service center subsidiary (Note Q) 1,922,086 675,860 -
Unusual and nonrecurring items (Note P) - (177,115) -
------------- ------------- -------------
Total operating costs 34,932,404 23,635,552 18,747,042
------------- ------------- -------------

Income (loss) from operations (16,199,022) 1,347,535 4,457,927

Interest expense 2,953,220 2,564,318 2,191,968
Interest and other income (87,600) (602,943) (34,058)
------------- ------------- -------------
Earnings (loss) before income taxes,
equity in loss of joint venture, and
extraordinary item (19,064,642) (613,840) 2,300,017

Provision for income taxes (benefit) (Note F) (2,475,185) - 14,048
------------- ------------- -------------
Earnings (loss) before equity in loss of
joint venture and extraordinary item (16,589,457) (613,840) 2,285,969

Equity in loss of joint venture (Note J) (423,224) - -
------------- ------------- -------------

Earnings (loss) before extraordinary item (17,012,681) (613,840) 2,285,969

Extraordinary loss on the extinguishment of debt
(Note D) (363,022) - -
------------- ------------- -------------
Net earnings (loss) $ (17,375,703) $ (613,840) $ 2,285,969
------------- ------------- -------------
------------- ------------- -------------

Per share data:
Primary earnings (loss) per common and common
equivalent shares
Earnings (loss) before extraordinary item $ (4.21) $ (.15) $ .57
Extraordinary item (.09) - -
--------- --------- --------
Net earnings (loss) $ (4.30) $ (.15) $ .57
--------- --------- --------
--------- --------- --------
Weighted average shares outstanding used in
primary calculation 4,041,779 4,041,779 4,041,779
------------- ------------- -------------
------------- ------------- -------------

Fully-diluted earnings (loss) per common and
common equivalent shares
Earnings (loss) before extraordinary item $ (4.21) $ (.15) $ .47
Extraordinary item (.09) - -
--------- --------- --------
Net earnings (loss) $ (4.30) $ (.15) $ .47
--------- --------- --------
--------- --------- --------

Weighted average shares outstanding used in
fully-diluted calculation 4,041,779 4,041,779 6,541,779
------------- ------------- -------------
------------- ------------- -------------

</TABLE>

The accompanying notes are an integral part of these statements.

F-4

<PAGE>

INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
Common Stock
------------------------- Additional Retained
Number of Par Paid-In Earnings
Shares Value Capital (Deficit) Total
----------- -------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at June 1, 1993 4,009,112 $ 4,009 $ 2,540,030 $ 5,629,269 $ 8,173,308
Issuance of common stock 32,667 33 114,302 - 114,335
Net loss - - - (17,375,703) (17,375,703)
----------- -------- ------------- -------------- -------------
Balance at May 31, 1994 4,041,779 4,042 2,654,332 (11,746,434) (9,088,060)
Net loss - - - (613,840) (613,840)
----------- -------- ------------- -------------- -------------
Balance at May 31, 1995 4,041,779 4,042 2,654,332 (12,360,274) (9,701,900)
Net earnings - - - 2,285,969 2,285,969
----------- -------- ------------- -------------- -------------
Balance at May 31, 1996 4,041,779 $ 4,042 $ 2,654,332 $ (10,074,305) $ (7,415,931)
----------- -------- ------------- -------------- -------------
----------- -------- ------------- -------------- -------------
</TABLE>

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

F-5

<PAGE>

INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED MAY 31, 1994, 1995 AND 1996

Cash flows from operating activities:
Net earnings (loss) $ (17,375,703) $ (613,840) $ 2,285,969
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,865,610 1,693,301 1,372,979
Depreciation - service center 284,452 196,322 -
Gain on sale of aircraft held for lease - - (864,795)
Gain on Express One transaction - (70,631) -
Loss on Wellman transaction - 33,575 -
(Increase) decrease in deferred tax benefit 69,000 (23,696) -
Equity in loss of joint venture 423,224 - -
Decrease (increase) in accounts receivable (83,108) 1,224,560 577,770
Decrease in notes receivable 800,000 806,510 313,490
Decrease (increase) in income tax refund (1,930,000) 1,930,000 -
(Increase) decrease in inventories 8,243,147 4,910,834 (3,030,045)
(Increase) decrease in other current assets 981,557 154,271 (37,318)
(Increase) decrease in other assets (112,999) 178,322 (51,500)
Increase (decrease) in accounts payable and accrued expenses 5,012,896 (4,591,430) 1,527,750
(Decrease) in income taxes payable (211,666) - -
------------ ----------- -----------
Net cash provided by (used in) operating activities (1,033,590) 5,828,098 2,094,300

Cash flows from investing activities:
Proceeds from maturity of restricted certificates of deposit 356,115 - -
Capital expenditures (3,635,919) (135,936) (875,281)
Proceeds from sale of aircraft held for lease 1,000,000 - 1,450,000
------------ ----------- -----------
Net cash provided by (used in) investing activities (2,279,804) (135,936) 574,719

Cash flows from financing activities:
Net payments under line of credit (1,000,000) - -
Borrowings under notes and leases 10,000,000 - -
Increase in deferred restructuring costs - - (334,860)
Increase in deferred debt costs (341,326) - (50,000)
Repayments of debt obligations (5,760,432) (4,939,621) (2,192,216)
------------ ----------- -----------
Net cash (used in) provided by financing activities 2,898,242 (4,939,621) (2,577,076)
------------ ----------- -----------
Net increase (decrease) in cash and cash equivalents (415,152) 752,541 91,943
Cash and cash equivalents at beginning of period 510,942 95,790 848,331
------------ ----------- -----------
Cash and cash equivalents at end of period $ 95,790 $ 848,331 $ 940,274
------------ ----------- -----------
------------ ----------- -----------

Supplemental disclosures of cash flow information (Note K):
Cash paid during the year for:
Interest $ 2,736,233 $ 2,167,279 $ 1,206,028
------------ ----------- -----------
------------ ----------- -----------
Income taxes $ - $ - $ 36,910
------------ ----------- -----------
------------ ----------- -----------
</TABLE>

The accompanying notes are an integral part of these statements.

F-6

<PAGE>

INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MAY 31, 1994, 1995 AND 1996

NOTE A - DESCRIPTION OF COMPANY BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

International Airline Support Group, Inc. and Subsidiaries (the "Company")
is primarily engaged in the sale of aircraft, aircraft parts, leasing of
aircraft and related services. Since its inception in 1982, the Company has
become a primary source of replacement parts for widely operated aircraft
models which are no longer in production such as the McDonnell Douglas DC-8
and DC-9. The Company supplies parts to over 500 customers worldwide. The
Company previously was engaged in other activities through the Company's
wholly-owned subsidiary, International Airline Service Center, Inc. ("Service
Center"), which was an FAA certified repair facility engaged in the
performance of maintenance checks required by the FAA on narrow body aircraft
(see Note Q). The Company's other wholly-owned subsidiary, Brent Aviation,
Inc. d/b/a Custom Air Transport was previously engaged in the flight
operation of cargo aircraft (see Note P).

a) Consolidation

The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant intercompany
transactions have been eliminated in consolidation. Investments in
nonconsolidated entities are reported on the equity method.

b) Cash and Cash Equivalents

The Company considers all highly liquid investments with original
maturities of three months or less at the time of purchase to be cash
equivalents. Included as cash equivalents at May 31, 1996 is $1,100,000 in
certificates of deposit with a stated maturity of seven days.

Cash balances in financial institution accounts are secured by the Federal
Deposit Insurance Corporation ("FDIC") for amounts up to $100,000, per
customer. At May 31, 1996, the Company's uninsured cash balances
approximated $1,472,000.

c) Inventories

Inventories are stated at the lower of cost or market. The cost of
aircraft parts is determined on a specific identification basis for those
parts purchased individually or in lots where specific identification is
practical. For parts acquired through whole aircraft purchases, the costs
are assigned to pools which are amortized as part sales take place. The
amortization is based upon the actual sales, except in any periods where
sales are lower than expected, the estimated sales per the initial sales
projection are used (which has a maximum life of 5 years). The amount of
cost amortized is based upon the gross profit percentage as calculated from
the estimated sales value of the parts. The sales value estimates are
monitored by management, and adjusted periodically as necessary. Certain
aircraft, which were previously leased have been classified as held for sale
and are included in inventory.

At May 31, 1995 and 1996, approximately 80% and 97%, respectively, of the
ending inventory (including aircraft held for sale) was costed under the
specific identification method, and the remaining 20% and 3%, respectively,
was costed under the pooling method.

d) Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated life utilizing
straight-line and accelerated methods. The estimated lives of the
depreciable assets range from 5 to 31.5 years. Overhaul costs on aircraft
held for lease are capitalized and depreciated over the estimated service
life of the overhaul. For income tax purposes, accelerated methods of
depreciation are generally used. Deferred income taxes are provided for the
difference between depreciation expense for tax and financial reporting
purposes.

F-7

<PAGE>

INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

MAY 31, 1994, 1995 AND 1996

NOTE A - DESCRIPTION OF COMPANY BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
- Continued

e) Deferred Debt Costs

Deferred debt costs principally relate to the costs associated with
obtaining the Company's Senior Secured Notes and Convertible Subordinated
Debentures. These costs are being amortized using the interest method over
the life of the respective debt issue. Accumulated amortization at May 31,
1995 and 1996, was approximately $1,094,000 and $1,307,000, respectively.

f) Earnings Per Share

Primary earnings (loss) per share is computed by dividing net earnings (loss)
by the weighted average number of common shares outstanding and common
stock equivalents. Stock options and warrants are considered common stock
equivalents unless their inclusion would be anti-dilutive. For the purpose
of computing common stock equivalents for stock options and warrants, the
modified treasury stock method was not used as the effect would be
antidilutive. The Company's Convertible Subordinated Debentures
("Debentures") are not considered common stock equivalents for the purpose
of computing primary earnings per share as the effective yield on the
securities exceeded 66-2/3% of the average Aa corporate bond rate at the
time of issuance.

Fully diluted earnings (loss) per shares is computed for 1996 as if the
Debentures were converted into common stock as of the beginning of the
period (see Note D). Stock options and warrants are not considered common
stock equivalents for the purpose of computing fully diluted earnings
(loss) per share as the effect would be antidilutive under the modified
treasury stock method. The Debentures and stock options and warrants are
not considered common stock equivalents in fiscal years 1994 and 1995 due
to the net losses for those periods.

g) Revenue Recognition

Revenue from the sale of parts is recognized when products are shipped to
the customer. Revenue from the sale of aircraft is recognized when all
consideration has been received and the buyer has taken delivery and
acceptance of the aircraft. Lease revenue is recognized on an accrual basis,
unless collectibility is uncertain.

h) Employee Benefit Plan

In fiscal 1992, the Company established a contributory 401(K) plan. The
plan is a defined contribution plan covering all eligible employees of the
Company, to which the Company makes certain discretionary matching
contributions based upon the level of its employees' contributions. The
amount charged to earnings in fiscal 1994, 1995 and 1996 were insignificant.
The Company does not provide any health or other benefits to retirees.

i) Stock Options

Options granted under the Company's Stock Option Plans are accounted for
under APB 25, "Accounting for Stock Issued to Employees," and related
interpretations. In November 1995, the Financial Accounting Standards Board
issued Statement 123, "Accounting for Stock-Based Compensation," which will
require additional proforma disclosures for companies that will continue to
account for employee stock options under the intrinsic value method specified
in APB 25. The Company plans to continue to apply APB 25 and the only effect
of adopting Statement 123 in fiscal 1997 will be the new disclosure
requirement.

F-8

<PAGE>

INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

MAY 31, 1994, 1995 AND 1996

NOTE A - DESCRIPTION OF COMPANY BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
- Continued

j) Fair Value of Financial Instruments

The carrying value of cash and cash equivalents, trade receivables, and
accounts payable approximate fair value due to the short term maturities of
these instruments.

k) Reclassifications

Certain amounts in the prior year financial statements have been
reclassified to conform to the current year presentation.

l) Income Taxes

Income taxes are provided based on earnings reported for tax return
purposes in addition to a provision for deferred income taxes. Deferred
income taxes are provided in order to reflect the tax consequences in future
years of differences between the financial statement and tax basis on assets
and liabilities at each year end.

m) Management Estimates

The preparation of the 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 at
May 31, 1995 and 1996 and revenues and expenses during the periods then ended.
The actual outcome of the estimates could differ from these estimates made in
the preparation of the financial statements.

n) Land and Building Held for Sale

The land and building (the "property") held for sale represents the Company's
corporate offices and adjacent warehouse located in Miami, Florida.
Subsequent to May 31, 1996, the Company entered into a contract to sell the
property, with an expected sales date in November 1996. As of May 31, 1995
and 1996, the net book value of the property was approximately $963,000 and
$750,000, respectively. As of May 31, 1996, the property was written down
to its market value, less estimated selling expenses. Included in
depreciation expense for the year ended May 31, 1996 is approximately
$190,000 relating to this write down.

NOTE B - GOING CONCERN

Primarily as a result of the net losses experienced in fiscal 1994 and
1995, and the classification of certain debt obligations as current, the
Company has a significant deficit in working capital and stockholders'
equity. Currently, the Company is not in compliance with certain financial
and other covenants under the loan agreements relating to the 12% Senior
Secured Notes ("Notes"), issued July 1992, and the 8% Convertible
Subordinated Debentures ("Debentures"), issued September 1993 (see Long-Term
Obligations Note D). The Notes are secured by substantially all of the
assets of the Company and the Debentures are subordinated in right of payment
to the Notes.

Excluding amounts scheduled to be repaid in fiscal 1997 under the terms of
the agreements, $14,041,667 is subject to accelerated maturity and, as such,
has been classified as a current liability in the Consolidated Balance Sheets
at May 31, 1996. The Company has presented a restructuring proposal to the
holders of the Notes and the Debentures which is described in a Registration
Statement filed on Form S-4 filed by the Company with the Securities and
Exchange Commission on July 12, 1996 (see Note R). However, there can be no
assurance that the Company will be able to consummate a restructuring of its
indebtedness. If the lenders were to accelerate maturity, the Company would
not have sufficient funds to repay the debt obligations.

F-9

<PAGE>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

MAY 31, 1994, 1995 AND 1996

NOTE B - GOING CONCERN - Continued

As a result of the above factors, there exists substantial doubt about the
Company's ability to continue in existence.

NOTE C - INVENTORY

Inventories at May 31, 1995 and 1996 consisted of the following:

1995 1996
----------- -----------

Aircraft parts $ 4,063,352 $ 7,938,049
Aircraft available for sale 2,433,918 1,339,266
----------- -----------
$ 6,497,270 $ 9,277,315
----------- -----------
----------- -----------
NOTE D - LONG-TERM OBLIGATIONS

Long-term obligations at May 31, 1995 and 1996 consisted of the following:

1995 1996
----------- -----------

12% Senior Secured Notes $ 9,850,000 $ 7,700,000

8% Convertible Subordinated Debentures 10,000,000 10,000,000

Mortgage note payable to bank 455,420 429,260

Notes payable due in equal monthly
installments through October 1997,
bearing interest at 9.5% to 11.5%
collateralized by equipment 16,363 8,000

Capitalized lease obligations (Note E) 13,968 6,275
----------- ----------

20,335,751 18,143,535

Less: Current maturities and long-term
obligations in default classified
as current 19,895,374 17,736,775
----------- ----------

$ 440,377 $ 406,760
----------- ----------
----------- ----------

In July 1992, the Company issued $18.0 million of five (5) year 12% Senior
Secured Notes ("Notes") due July 1997. In September of 1993, the note
agreement was amended, to require a payment of $3,450,000 with the proceeds
from the issuance of the Convertible Subordinated Debentures ("Debentures")
and subsequent sinking fund payments of $3,233,333 in July 1994 and 1995 and
$4,041,667 in July 1996 and 1997.

In connection with this extinguishment, the Company recorded as an
extraordinary item the loss on retirement of debt. Such costs included a 6%
prepayment penalty as well as that portion of the deferred debt issuance
costs associated with the Notes retired. In May 1996, the Company prepaid,
without penalty $383,334 of the amount due in July 1996. The notes are
secured by substantially all the assets of the Company. Warrants to purchase
1,093,528 shares of common stock were issued to the Noteholders at an
exercise price of $5.38. The warrants have a five year term and carry
restrictions regarding exercise and registration of the underlying shares.
The security purchase agreement contains restrictive covenants requiring the
Company to maintain a minimum net worth as well as certain financial ratios,
restricts dividends and limits capital expenditures, indebtedness, liens,
certain business activities and inventory purchases. The Company is in
default of the loan agreement.

F-10

<PAGE>

INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

MAY 31, 1994, 1995 AND 1996

NOTE D - LONG-TERM OBLIGATIONS - Continued

In September 1993, the Company issued $10.0 million in Convertible
Subordinated Debentures ("Debentures"), due August 2003, through a private
placement offering. The Debentures may be redeemed in whole or in part after
August 1996, upon 30 days notice by the Company. The Debentures are
convertible to the Company's common stock at a price of $4.00 per share
(2,500,000 shares). The Debentures conversion options carry restrictions
regarding conversion and registration of the underlying shares. The
Debenture holders have certain demand and piggy-back registration rights on
the underlying shares. The Debentures have a fixed annual interest rate of
8%, with such interest payable quarterly. The securities purchase agreement
contains restrictive covenants requiring the Company to maintain a certain
level of consolidated net worth and certain financial ratios related to
interest expense coverage. The Company is in default of the loan agreement.

In May 1995, the Company received a notice of payment blockage from the
holder of a majority of the Notes. The payment blockage prevented the
Company from any scheduled interest payment on the Debentures, through
November 1995. Irrespective of the payment blockage, the Company has not
made any of the scheduled interest payments on the Debentures since February
1995. Included in the May 31, 1995 and 1996, financial statements is
$200,000 and $1,000,000 representing accrued interest on the Debentures.

In September 1992, the Company entered into a promissory note and mortgage
and security agreement with a bank. The promissory note is payable in equal
monthly installments of $2,180 plus interest through September 1997 when the
remaining balance is due. The note has an interest rate of 1% above the
bank's prime rate. The note is secured by a first mortgage on the land and
building in Miami, Florida (see Note A). This property also has a junior
mortgage in favor the holders of the notes.

The scheduled maturities of long-term obligations in each of the next five
years subsequent to May 31, 1996 are as follows: 1997 - $3,695,108, 1998 -
$4,448,426, 1999 - $0, 2000 - $0, 2001 -$0 and thereafter $10,000,000.
However, the Company is in default under the terms of the securities purchase
agreement for the Notes and the Debentures. If the holders were to demand
repayment, $14,041,667, which is scheduled to be paid subsequent to May 31,
1997, would be due immediately.

NOTE E - LEASES

The Company conducts a portion of its operations utilizing leased equipment
which has been capitalized. Following is a schedule of future minimum rental
payments under capital leases together with the present value of future
minimum rentals as of May 31, 1996.

Future minimum lease payments $ 7,890
Less amount representing interest 1,615
-------
Present value of future minimum lease payments 6,275
Current maturities 5,092
-------

Long term obligations under capital leases $1,183
-------
-------

Capitalized equipment leases are accounted for and amortized as
company-owned equipment. The following is a schedule of leased equipment
under capital leases:

1995 1996
---------- ----------

Equipment $ 298,279 $ 298,279
Less: Accumulated amortization 279,863 292,244
---------- ----------

$ 18,416 $ 6,035
---------- ----------
---------- ----------

F-11
<PAGE>

INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

MAY 31, 1994, 1995 AND 1996

NOTE E - LEASES - Continued

The Company leased warehouse and hangar facilities as well as certain
equipment under long-term operating lease agreements. Rental expense under
these leases for the years ended May 31, 1994, 1995 and 1996 was
approximately $242,000, $220,000 and $53,000, respectively. At May 31, 1996,
there are no future minimum payments on non-cancellable operating leases.

The Company currently leases an aircraft to a customer under a month to
month operating lease. In addition to minimum base rentals, the lease
agreement requires additional rent based upon aircraft usage. The net
investment in aircraft held for or leased to customers was $2,210,202 and
$1,849,143 at May 31, 1995 and 1996, respectively.

NOTE F - INCOME TAXES

The provision for income taxes for the years ended May 31, 1994, 1995 and
1996 is as follows:

1994 1995 1996
------------- --------- ----------
Current provision:
Federal $ (2,544,185) $ - $ 14,048
State - - -
------------ --------- ----------
(2,544,185) - 14,048
Deferred provision 69,000 - -
------------ --------- ----------
$ (2,475,185) $ - $ 14,048
------------ --------- ----------
------------ --------- ----------

The tax effect of the Company's temporary differences and carryforwards is
as follows:

<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
Deferred tax (benefits) - current:
Reserve for overhaul costs $ (545,000) $ (332,000)
Bad debt reserve (233,000) (276,000)
Inventory capitalization (188,000) (145,000)
Accrued payroll (37,000) -
Accrued legal settlement costs (116,000) (1,000)
Accrued vacation (16,000) (15,000)
Accrued - other (11,000) (4,000)
Accrued repair costs - (187,000)
------------ ------------

$ (1,146,000) $ (960,000)
------------ ------------
------------ ------------
</TABLE>

<TABLE>
<CAPTION>
1995 1996
------------ -------------

<S> <C> <C>
Deferred tax liabilities (benefits) - non-current:
Depreciation $ 226,000 $ (17,000)
Aircraft - capitalized maintenance 36,000 36,000
Restructuring charges (702,000) (160,000)
Accrued interest income (106,000) -
Net operating loss carryforward - federal (2,941,000) (2,467,000)
Net operating loss carryforward - state (277,000) (260,000)
Minimum tax credit - federal (122,000) (135,000)
Other, net (8,000) (8,000)
------------ ------------

$ (3,894,000) $ (3,011,000)
------------ ------------
------------ ------------

</TABLE>

F-12

<PAGE>

INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

MAY 31, 1994, 1995 AND 1996

NOTE F - INCOME TAXES - Continued

The Company has recorded valuation allowances equal to the amount of the
deferred tax benefits at May 31, 1995 and 1996. The valuation allowance has
decreased by $1,069,000 in fiscal 1996.

The following table summarizes the differences between the Company's
effective tax rate and the statutory federal rate as follows:

1994 1995 1996
---- ---- ----

Statutory federal rate (34.0)% (34.0)% 34.0%
Operating losses with no current tax benefit 19.6 34.0 -.
Tax benefit from net operating loss carryforward -. -. (33.4)
------ ------ ------

Effective tax rate (14.4)% -. 0.6%
------ ------ ------
------ ------ ------

The Company has net operating loss carryforwards for federal and state
purposes of approximately $7.3 and $7.2 million, respectively. The net
operating losses will expire at various points through the year 2010. The
Company has a federal minimum tax credit carryover of approximately $135,000
which may be utilized in future years to the extent that the regular tax
liability exceeds the alternative minimum tax. Certain provisions of the tax
law may limit the net operating loss and credit carryforwards available for
use in any given year in the event of a significant change in ownership
interest.

NOTE G - COMMON AND PREFERRED STOCK

In July 1993, the Company amended the Articles of Incorporation to
authorize the issuance of up to 500,000 shares of preferred stock. No such
stock has been issued.

In June 1993, the Company issued 32,667 shares of common stock to an
individual in exchange for certain aircraft parts included in the Company's
inventory.

NOTE H - STOCK OPTIONS

The Stockholders in October 1989 approved a Stock Option Plan pursuant to
which 350,000 shares of the Company's common stock were reserved for the
grant of options to employees and directors of the Company or its
subsidiaries. The issuance of the options and the form of the options shall
be at the discretion of the Company's Compensation Committee. Information
with respect to stock options under the plan is as follows:

Number of Shares
--------------------------------------------
Reserved Outstanding Available
---------- ------------- -----------
Balance June 1, 1994 315,000 150,500 164,500
Granted - 265,000 (265,000)
Expired - (54,000) 54,000
Canceled - (66,500) 66,500
--------- ---------- --------

Balance May 31, 1995 315,000 295,000 20,000
Granted - - -
Expired - - -
Canceled - (25,500) 25,500
--------- ---------- --------

Balance May 31, 1996 315,000 269,500 45,500
--------- ---------- --------
--------- ---------- --------

F-13

<PAGE>

INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

MAY 31, 1994, 1995 AND 1996

NOTE H - STOCK OPTIONS - Continued

Effective in December 1994, the outstanding employee stock options were
canceled and new options were issued through an Incentive Stock Option
Agreement. Options were granted to purchase 265,000 shares at an exercise
price of $.19, which equaled the fair market value of the Company's stock on
the effective date of the grant. All options granted were fully vested at
May 31, 1995, and expire in December 1999. Included in the above table are
options granted to directors to purchase 30,000 shares at exercise prices
ranging from $4.625 to $4.875 per share.

In April 1992, the Company granted a lender options to purchase 100,000 and
50,000 shares with exercise prices of $4.875 and $4.625, respectively. The
options expire in October 1996.

In connection with the settlement of a legal dispute arising from a loan to
the Company, in April 1992, the Company issued an option to the lender to
purchase 200,000 shares at $3.25 per share, which approximated the market
price on the date of the grant.

NOTE I - SALES TO MAJOR CUSTOMERS/FOREIGN AND DOMESTIC

The Company sells aircraft and aircraft parts, and leases aircraft to
foreign and domestic customers. Most of the Company's sales take place on an
unsecured basis, and a majority of the sales are to aircraft operators.

The information with respect to sales and lease revenue, by geographic
area, is presented in the table below for the years ended May 31, 1994, 1995
and 1996.

(IN THOUSANDS)

1994 1995 1996
--------- --------- ----------

United States $ 10,978 $ 18,048 $ 19,800
Africa and Middle East 4,636 1,204 623
Europe 374 1,350 177
Latin America 2,178 4,347 2,454
Canada 558 34 -
Asia 9 - 151
--------- --------- ---------
$ 18,733 $ 24,983 $ 23,205
--------- --------- ---------
--------- --------- ---------

The Company had part sales to a domestic customer which accounted for
approximately 21% of net sales in fiscal 1996 and less than 10% of net sales
in fiscal 1995. The Company did not have any sales to this customer in
fiscal 1994. However, this customer has been the subject of intense scrutiny
by the FAA since the crash of one of its aircraft in early May 1996. On June
17, 1996, the customer entered into a consent decree with the FAA. Pursuant
to the consent decree, the customer agreed to ground all of its aircraft
until it demonstrates compliance with specified safety and maintenance
procedures. The customer has not yet resumed operations. Additionally,
the Company has customers which in turn do business with this customer.
There is no way to estimate the sales volumes to these other customers which
may also be impacted by the aforementioned events. No other customer
accounted for more than 10% of the Company's sales in fiscal 1996.

(continued)

F-14

<PAGE>

INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

MAY 31, 1994, 1995 AND 1996

NOTE I - SALES TO MAJOR CUSTOMERS/FOREIGN AND DOMESTIC - Continued

The Company had sales to a Venezuelan customer which accounted for
approximately 11% of net sales in fiscal 1995 and less than 10% in fiscal
year 1994. Additionally, the Company sold 3 aircraft to a United States
customer which represented 23% of net sales in fiscal 1995. The Company did
not have any sales to this customer in previous fiscal years. The Company
had sales to one African customer which accounted for less than 10% of net
sales during the years ended May 31, 1996 and 1995, and 10% of net sales
during the year ended May 31, 1994.

The Company's allowance for doubtful accounts is based on management's
estimates of the creditworthiness of its customers, and, in the opinion of
management is believed to be set in an amount sufficient to respond to normal
business conditions. Should such conditions deteriorate or any major credit
customer default on its obligations to the Company, this allowance may need
to be increased which may have an adverse impact upon the Company's earnings.

NOTE J - INVESTMENT IN UNCONSOLIDATED JOINT VENTURE

The Company had a 50% interest in A.P. Number 1, Inc., a joint venture
corporation created to purchase, sell and lease aircraft and engines. In
fiscal 1993, the Company advanced $5,000 and executed as co-maker, together
with the Company's Joint Venture partner, a promissory note for $2,900,000
due October 31, 1993. The promissory note was also signed as co-maker by the
then Chairman of the Company personally. The proceeds of the loan were
advanced to the joint venture without any specific terms regarding repayment
of principal or payment of interest, and the funds were used to purchase
three aircraft.

The joint venture's operations were not successful, and the joint venture
was not able to make the required payments under the terms of the note. The
Company was in default under the terms of the note due to nonpayment of
principal and interest and in February 1994, the Company agreed upon a
settlement with the lender, whereby the lender received title to the three
(3) aircraft and $500,000 from the Company.

All remaining liabilities have been satisfied and the joint venture has
been dissolved. The Company's loss relating to the joint venture, as shown
in the statement of operations for fiscal 1994, includes its share of the
joint venture operating losses ($280,000) and its loss upon dissolution
($143,224).

NOTE K - SUPPLEMENTAL CASH FLOW DISCLOSURE

During fiscal 1994, the Company acquired approximately $1,140,000 in
equipment under a leasing arrangement which was classified as a capital lease
obligation at May 31, 1994.

The net change in inventory in fiscal 1995 and 1996, as derived from the
change in balance sheet amounts, has been adjusted for the following items:

1995 1996
------------- -----------
<S> <C> <C>

Net increase (decrease) in inventory $ (2,222,504) $ 2,780,045
Write-down of aircraft - 250,000
Transfer of aircraft from held for lease to inventory (2,688,330) -
------------ -----------

Cash flow impact from change in inventory $ (4,910,834) $ 3,030,045
------------ -----------
------------ -----------

</TABLE>

In fiscal 1994, the Company issued 32,667 shares of common stock in
exchange for certain inventory.

F-15

<PAGE>

INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

MAY 31, 1994, 1995 AND 1996

NOTE L - RELATED PARTY TRANSACTIONS

During the year ended May 31, 1994, the Company sold an aircraft for $400,000
to a business partner of an outside director of the Company based upon
management's best estimate of the aircraft's fair market value. The Company
recorded a loss of approximately $106,000 on this transaction.

In fiscal 1994, the Company paid approximately $54,000 to a director under
a consulting agreement which originated in fiscal 1993. In 1994, the
consulting agreement was terminated and a commission agreement was entered
into. This consulting agreement, which originated in fiscal 1993, was
terminated in 1994, and a commission agreement was entered into. Under the
commission agreement, the director is entitled to 3-4% of revenues
generated from sales to customers brought in by the director. In fiscal
1995 and 1996, the Company paid commissions of approximately $33,000 and
$85,000, respectively.

In connection with the issuance of the Senior Secured Notes, the Company's
placement agent received a $720,000 placement fee, together with a warrant to
purchase 273,382 shares of common stock at $5.3875 per share. In connection
with the issuance of the Convertible Subordinated Debentures, this same
placement agent received a $600,000 placement fee. A director of the Company
was an employee of the placement agent.

In fiscal 1994, the Company rented a condominium unit from an entity
controlled by an officer/director. Total rent paid in fiscal 1994 was
approximately $9,000.

NOTE M - FOURTH QUARTER ADJUSTMENTS

The Company recorded a fourth quarter adjustment in 1994 in the amount of
approximately $2,476,000 which related to reducing certain estimated tax
benefits recorded in the third quarter, for which a 100% valuation allowance
was established at year-end. Also, an adjustment was made for $110,000
reversing an inventory part included erroneously twice in inventory in the
first, second, and third quarters. Also in the fourth quarter, certain
charges recorded initially as restructuring charges in the third quarter were
re-classified to cost of goods sold.

The Company recorded a fourth quarter adjustment in 1996 in the amount of
approximately $385,000 which related to capitalizing the costs incurred as a
result of the planned restructuring (see Note R). Approximately $306,000 of
these costs were expensed in the first three quarters of fiscal 1996.

NOTE N - COST OF SALES

In the third quarter of fiscal 1994, the Company adopted a restructuring
program designed to reduce costs, improve liquidity, and increase stockholder
value. The restructuring program included the termination of the Company's
President, other reductions in personnel, the sale of certain fixed assets
and an intensive review of the Company's product lines and inventories.

Cost of sales for fiscal 1994 includes charges aggregating $9.6 million
relating to the following:

1. Reductions of approximately $2.0 million in the carrying amount of the
Company's inventory part pools resulting from changes in sales
estimates and related inventory values, reflecting the deteriorating
economic conditions in the industry.

2. In March 1994, the Company entered into an agreement to sell three
aircraft upon completion of certain repairs and maintenance that was
expected to be completed in fiscal 1995. The Company recorded a
provision of approximately $2.4 million at May 31, 1994, for the
estimated excess of the final cost of the repairs and maintenance
over the sales price, after overhauling the aircraft to meet the
customer's contract specifications.

(continued)

F-16

<PAGE>

INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

MAY 31, 1994, 1995 AND 1996

NOTE N - COST OF SALES - Continued

3. Writedowns approximating $3.1 million relating to weak current market
conditions and the review of realizability of Company assets performed
during the Company's restructuring program.

4. Losses totaling approximately $2.1 million relating to the sale of a
leased aircraft and the write-off of another aircraft due to a default
by the lessee under the terms of the lease. In June 1995, the Company
recovered this aircraft.

NOTE O - ACCRUED LIABILITIES

Accrued liabilities consist of the following items:

<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Customer deposits $ 426,453 $ 367,669
Accrued repair costs 224,406 187,157
Accrued legal costs 60,000 -
Accrued interest 399,030 1,165,468
Accrued payroll 282,834 399,886
Accrued property taxes 2,730 31,144
Accrued commissions 159,536 167,741
Reserve for repair of leased aircraft 570,940 480,308
Other 100,971 433,858
---------- ----------
$2,226,900 $3,233,231
---------- ----------
---------- ----------
</TABLE>

NOTE P - WELLMAN TRANSACTION

In January 1995, the Company entered into an agreement with the former
President and former Secretary of the Company whereby the Company transferred
all of the outstanding stock of Brent Aviation, a wholly-owned subsidiary, to
an affiliate of the former employees. In addition, the Company also
transferred certain spare parts, components, inventory and equipment for
B-727 series aircraft, and a McDonnell Douglas DC-4 aircraft. In
consideration, the Company received $230,000 and agreed to lease a B-727 to
the affiliate on a month-to-month basis.

In addition, the employees resigned from all positions as officers or
directors, granted a proxy to the Company enabling the Company's directors to
vote 1.98 million shares of common stock held by the employees for a period
of two years, and agreed not to compete or interfere with any of the
businesses of the Company and its remaining subsidiaries for a period of two
years. The Company further agreed to pay the former Secretary one year's
salary as severance. As of May 31, 1995, $95,000 of the accrued severance
was unpaid and was recorded in accrued liabilities. In fiscal 1996, this
liability was paid in full. The Company also agreed to terminate its
leasehold interest in a facility located at Grayson County, Texas Airport,
allowing Brent Aviation to lease such facility for its operations.

NOTE Q - DISPOSAL OF SERVICE CENTER OPERATIONS

In June 1994, the Company's Board of Directors unanimously voted to cease
operations and to sell or otherwise dispose of the Company's wholly-owned
subsidiary, International Airline Service Center, Inc. ("IASC"), which was
an FAA certified repair facility engaged in the performance of maintenance
check required by the FAA on narrow body aircraft, following the sale of
certain of the Company's aircraft being serviced under contract by IASC.

(continued)
F-17

<PAGE>

INTERNATIONAL AIRLINE SUPPORT GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

MAY 31, 1994, 1995 AND 1996

NOTE Q - DISPOSAL OF SERVICE CENTER OPERATIONS - Continued

During the third quarter of 1995, IASC fulfilled its obligations to service
the aircraft and ceased operations. On January 31, 1995, IASC entered into
an agreement with a third party, pursuant to which IASC assigned its interest
in a certain equipment lease with a net book value of $826,965 at May 31,
1995, to the third party, and the third party assumed IASC's interests and
obligations under such lease. IASC's interest in the lease as of May 31,
1995 was $897,596. Thus a gain of $70,631 was recognized as a result of the
transaction. Pursuant to the transaction, IASC disposed of substantially all
of its operating assets.

As of May 31, 1995, IASC had an insignificant amount of assets and
liabilities recorded on its books.

NOTE R - SUBSEQUENT EVENTS

Subsequent to May 31, 1996, the Company entered into a contact to sell its
premises in Miami, Florida for $850,000 in cash, less applicable selling
costs. As the premises were written down to the estimated net realizable
value as of May 31, 1996, no gain or loss is expected to be recognized upon
completion on this transaction. The write down is included in depreciation
expense in fiscal 1996.

On July 12, 1996, the Company announced that it did not intend to pay the
scheduled $3.7 million principal installment due on the Notes on July 17,
1996, pending redemption of the Senior Notes in connection with a
restructuring of its indebtedness. The debt restructuring is described in a
Registration Statement on Form S-4 filed by the Company with the Securities
and Exchange Commission, also on July 12, 1996. Pursuant to the proposed
restructuring, the Company would offer to exchange (the "Exchange Offer")
224.54 shares of its Common Stock for each $1,000 principal amount of the
Convertible Debentures. In connection with the restructuring, the Company
also intends to solicit proxies form the holders of its Common Stock to
approve a 1-for-27 reverse stock split, to effect certain amendments to its
Certificates of Incorporation and to approve a stock option plan.
Consummation of the restructuring is subject to certain conditions.

The Company also announced that, on July 11, 1996, the holder of a majority
of the outstanding principal amount of the Notes (the "Majority Noteholders")
executed a "Standstill Agreement" with the Company pursuant to which such
holder agreed that it would refrain (to the extent provided therein) from
exercising any rights or remedies it may have with respect to the Event of
Default with respect to the Notes that will occur upon the Event of Default
with respect to the Notes that will occur upon the Company's failure to pay
the July 17, 1996 installment of principal.

The obligations of the Majority Noteholder pursuant to the Standstill
Agreement terminate on the earlier of (i) the 120th day following the date of
the Standstill Agreement; (ii) the consummation of the restructuring; and
(iii) the occurrence of certain specified events, including, among other
things, the exercise by any creditor of the Company of any remedies against
the Company with respect to the Company's obligations to such creditor and
the first date on which, in the reasonable determination of the Majority
Noteholder, any one of the conditions precedent to the restructuring is no
longer capable of being satisfied.

F-18
<PAGE>

APPENDIX A -- PROPOSED
RESTATED CERTIFICATE OF INCORPORATION

<PAGE>

RESTATED AND AMENDED
CERTIFICATE OF INCORPORATION
OF
INTERNATIONAL AIRLINE SUPPORT GROUP, INC.

International Airline Support Group, Inc., a corporation organized and
existing under the laws of the State of Delaware, hereby certifies as follows:

1. The name of the corporation is International Airline Support Group,
Inc. (the "Corporation"). The original Certificate of Incorporation of the
Corporation was filed with the Secretary of State of the State of Delaware on
October 20, 1989.

2. Pursuant to Sections 242 and 245 of the Delaware General Corporation
Law, this Restated and Amended Certificate of Incorporation restates and
integrates and further amends the provisions of the Certificate of Incorporation
of the Corporation.

3. This Restated and Amended Certificate of Incorporation was duly
adopted in accordance with the provisions of Sections 242 and 245 of the
Delaware General Corporation Law.

4. Upon the filing in the Office of the Secretary of State of the State
of Delaware of this Restated and Amended Certificate of Incorporation, the
shares of common stock, par value $.001 per share, of the Corporation (the
"Common Stock") issued and outstanding immediately prior to such filing of this
Restated and Amended Certificate of Incorporation are hereby automatically
reclassified and changed without any action on the part of the stockholders of
the Corporation so that each twenty-seven (27) shares of Common Stock become one
(1) share of common stock, par value $.001 per share, of the Corporation,
neither increasing nor decreasing the Corporation's stated capital thereby.

5. The text of the Certificate of Incorporation as heretofore amended or
supplemented is hereby restated and further amended to read in its entirety as
follows:

ARTICLE I
The name of the Corporation is International Airline Support Group, Inc.

A-1

<PAGE>

ARTICLE II

The address of the Corporation's registered office in the State of Delaware
is 1209 Orange Street, New Castle County, Wilmington, Delaware 19801. The name
of its registered agent at such address is The Corporation Trust Company.

ARTICLE III

The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.

ARTICLE IV

The Corporation shall have authority to issue 20,000,000 shares of common
stock, par value $.001 per share ("Common Stock"), and 2,000,000 shares of
preferred stock, par value $.001 per share ("Preferred Stock").

ARTICLE V

The Board of Directors is authorized, subject to any limitations prescribed
by law, to provide for the issuance of the shares of Preferred Stock in series,
and by filing a certificate pursuant to the applicable law of the State of
Delaware to establish from time to time the number of shares to be included in
each such series and to fix the designations, powers, preferences and rights of
the shares of each such series and the qualifications, limitations and
restrictions thereof.

The authority of the Board of Directors with respect to each series shall
include, but not be limited to, determination of the following:

(a) The number of shares constituting that series and the distinctive
designation of that series;

(b) The dividend rate on the shares of that series, if any, whether
dividends shall be cumulative, and, if so, from which date or dates, and
the relative rights of priority, if any, of payment of dividends on shares
of that series;

(c) Whether that series shall have voting rights, in addition to the
voting rights provided by law, and, if so, the terms of such voting rights;

(d) Whether that series shall have conversion privileges, and, if so,
the terms and conditions of such conversion, including provision for
adjustment of the conversion rate in such events as the Board of Directors
shall determine;

(e) Whether or not the shares of that series shall be redeemable,
and, if so, the terms and conditions of such redemption, including the date
or dates upon or after which they shall be redeemable, and the amount per
share payable in case of redemption, which amount may vary under different
conditions and at different redemption dates;

(f) Whether that series shall have a sinking fund for the redemption
or purchase of shares of that series, and, if so, the terms and amount of
such sinking fund;

(g) The rights of the shares of that series in the event of voluntary
or involuntary liquidation, dissolution or winding up of the Corporation,
and the relative rights of priority, if any, of payment of shares of that
series; and

(h) Any other relative rights, preferences and limitations of that
series.

A-2

<PAGE>

ARTICLE VI

Upon the filing of this Restated and Amended Certificate of Incorporation,
the new Board of Directors of the Corporation shall consist of seven (7)
members, but the number may be increased or decreased in the manner provided in
the Bylaws of the Corporation; provided, however, that the number of directors
constituting the full Board of Directors shall not be changed without the
affirmative vote of at least seventy-five percent (75%) of the issued and
outstanding shares of Common Stock. The names and mailing addresses of the
persons who are to serve as the new directors of the Corporation upon the filing
of this Restated and Amended Certificate of Incorporation are:

Alexius A. Dyer III
International Airline Support Group, Inc.
8095 N.W. 64th Street
Miami, Florida 33166

George Murnane III
International Airline Support Group, Inc.
8095 N.W. 64th Street
Miami, Florida 33166

E. James Mueller
International Airline Support Group, Inc.
8095 N.W. 64th Street
Miami, Florida 33166

Kyle R. Kirkland
International Airline Support Group, Inc.
8095 N.W. 64th Street
Miami, Florida 33166

The remaining three (3) directors shall be appointed by the Board of
Directors after the filing of this Restated and Amended Certificate of
Incorporation.

ARTICLE VII

SECTION 1. The Board of Directors shall have the power to adopt, amend or
repeal any provision of the Bylaws of the Corporation. Notwithstanding any
other provision of this Restated and Amended Certificate of Incorporation or the
Bylaws of the Corporation (and notwithstanding that some lesser percentage may
be specified by law), no provision of the Bylaws of the Corporation shall be
amended, modified or repealed by the stockholders of the Corporation, nor shall
any provision of the Bylaws of the Corporation inconsistent with any such
provision be adopted by the stockholders of the

A-3

<PAGE>

Corporation, unless approved by the affirmative vote of at least seventy-five
percent (75%) of the issued and outstanding shares of Common Stock.

SECTION 2. Notwithstanding any other provision of this Restated
Certificate of Incorporation or the Bylaws of the Corporation (and
notwithstanding that some lesser percentage may be specified by law), no
provision of Articles IV, V, VI, VII, VIII, or X of this Restated and Amended
Certificate of Incorporation shall be amended, modified or repealed, nor shall
any provision of this Restated and Amended Certificate of Incorporation
inconsistent with any such provision be adopted, by the stockholders of the
Corporation, unless approved by the affirmative vote of at least seventy-five
percent (75%) of the issued and outstanding shares of Common Stock.

ARTICLE VIII

A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as director, except for liability (i) for any breach of the director's duty
of loyalty to the Corporation or its stockholders, (ii) for acts or omissions
not in good faith or that involve intentional misconduct or a knowing violation
of law, (iii) under Section 174 of the Delaware General Corporation Law or
(iv) for any transaction from which the director derived any improper personal
benefit. If the Delaware General Corporation Law is amended to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended. Any repeal or modification of this Article by
the stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of or prior to
such repeal or modification.

ARTICLE IX

The provisions of Section 203 of the Delaware General Corporation Law, as
in effect on the date hereof and as amended hereafter, shall not be applicable
to the Corporation.

ARTICLE X

Notwithstanding any other provision of this Restated and Amended
Certificate of Incorporation or the Bylaws of the Corporation, and
notwithstanding anything to the contrary specified by law, no action required or
permitted to be taken at any annual or special meeting of the stockholders of
the Corporation may be taken without such a meeting, and the power of
stockholders of the Corporation to consent in writing to the taking of such
action without a meeting, as contemplated by Section 228 of the Delaware General
Corporation Law, is hereby specifically denied.

ARTICLE XI

Elections of directors need not be by written ballot except and to the
extent provided in the Bylaws of the Corporation.

IN WITNESS WHEREOF, this Restated and Amended Certificate of Incorporation
has been signed as of this ___ day of _______________, 1996.

INTERNATIONAL AIRLINE SUPPORT GROUP, INC.

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

Title:
----------------------------------------

A-4

<PAGE>

Attest:

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

Title:
---------------------------------------

A-5

<PAGE>

APPENDIX B -- PROPOSED
STOCK OPTION PLAN

<PAGE>

INTERNATIONAL AIRLINE SUPPORT GROUP, INC.

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

1996 LONG TERM INCENTIVE AND SHARE AWARD PLAN

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

Section Page
- ------- ----

I. Purposes..........................................................B-3

II. Definitions.......................................................B-3

III. Administration....................................................B-5

(A) Authority of the Committee...................................B-5
(B) Manner of Exercise of Committee Authority....................B-7
(C) Limitation of Liability......................................B-7

IV. Shares Subject to the Plan........................................B-7

V. Specific Terms of Awards..........................................B-9

(A) General......................................................B-9
(B) Options......................................................B-9
(C) SARs.........................................................B-10
(D) Restricted Shares............................................B-11
(E) Restricted Share Units.......................................B-11
(F) Performance Shares and Performance Units.....................B-12
(G) Dividend Equivalents.........................................B-13
(H) Other Share-Based Awards.....................................B-13

VI. Certain Provisions Applicable to Awards...........................B-14

(A) Stand-Alone, Additional, Tandem and Substitute Awards........B-14
(B) Terms of Awards..............................................B-14
(C) Form of Payment Under Award..................................B-14
(D) Nontransferability...........................................B-14

VII. Director's Options................................................B-15

(A) Annual Grant.................................................B-15

B-1

<PAGE>

(B) Market Value.................................................B-15
(C) Termination of Service.......................................B-15
(D) Time and Method of Exercise..................................B-16
(E) Nontransferability...........................................B-16
(F) Adjustments..................................................B-16

VIII. General Provisions................................................B-16

(A) Compliance with Legal and Trading Requirements...............B-17
(B) No Right to Continued Employment or Service..................B-17
(C) Taxes........................................................B-17
(D) Changes to the Plan and Awards...............................B-17
(E) No Rights to Awards; No Stockholder Rights...................B-18
(F) Unfunded Status of Awards....................................B-18
(G) Nonexclusivity of the Plan...................................B-18
(H) Not Compensation for Benefit Plans...........................B-18
(I) No Fractional Shares.........................................B-18
(J) Governing Law................................................B-19
(K) Effective Date; Plan Termination.............................B-19
(L) Titles and Headings..........................................B-19

B-2

<PAGE>

INTERNATIONAL AIRLINE SUPPORT GROUP, INC.

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

1996 LONG TERM INCENTIVE AND SHARE AWARD PLAN

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

I. PURPOSES. The purposes of the 1996 Long Term Incentive and Share Award
Plan are to advance the interests of International Airline Support Group, Inc.
and its stockholders by providing a means to attract, retain, and motivate
selected employees and non-employee directors of the Company, upon whose
judgment, initiative and efforts the continued success, growth and development
of the Company is dependent.

II. DEFINITIONS. For purposes of the Plan, the following terms shall be
defined as set forth below:

A. "Affiliate" means any entity other than the Company and its Subsidiaries
that is designated by the Board or the Committee as a participating employer
under the Plan, provided that the Company directly or indirectly owns at least
20% of the combined voting power of all classes of stock of such entity or at
least 20% of the ownership interests in such entity.

B. "Award" means any Option, SAR, Restricted Share, Restricted Share Unit,
Performance Share, Performance Unit, Dividend Equivalent, or Other Share-Based
Award granted to an Eligible Employee under the Plan.

C. "Award Agreement" means any written agreement, contract, or other
instrument or document evidencing an Award.

D. "Beneficiary" means the person, persons, trust or trusts which have been
designated by such Eligible Employee in his most recent written beneficiary
designation filed with the Company to receive the benefits specified under this
Plan upon the death of the Eligible Employee, or, if there is no designated
Beneficiary or surviving designated Beneficiary, then the person, persons, trust
or trusts entitled by will or the laws of descent and distribution to receive
such benefits.

E. "Board" means the Board of Directors of the Company.

F. "Code" means the Internal Revenue Code of 1986, as amended from time to
time. References to any provision of the Code shall be deemed to include
successor provisions thereto and regulations thereunder.

G. "Committee" means the Compensation Committee of the Board, or such other
Board committee as may be designated by the Board to administer the Plan.

B-3

<PAGE>

H. "Company" means International Airline Support Group, Inc., a corporation
organized under the laws of Delaware, or any successor corporation.

I. "Director" means a member of the Board who is not an executive officer
of the Company.

J. "Director's Option" means a NQSO granted to a Director under Section
VII.

K. "Dividend Equivalent" means a right, granted under Section V.G., to
receive cash, Shares, or other property equal in value to dividends paid with
respect to a specified number of Shares. Dividend Equivalents may be awarded on
a free-standing basis or in connection with another Award, and may be paid
currently or on a deferred basis.

L. "Eligible Employee" means any employee of the Company or its Subsidiaries
and Affiliates, including any director who is an employee.

M. "Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time. References to any provision of the Exchange Act shall be deemed
to include successor provisions thereto and regulations thereunder.

N. "Fair Market Value" means, with respect to Shares or other property, the
fair market value of such Shares or other property determined by such methods or
procedures as shall be established from time to time by the Committee. If a
public market for the Company's Shares shall exist, unless otherwise determined
by the Committee in good faith, the Fair Market Value of Shares shall mean the
mean between the high and low selling prices per Share on the immediate
preceding date (or, if the Shares were not traded on that day, the next
preceding day that the Shares were traded) on the principal exchange or market
on which the Shares are traded, as such prices are officially quoted on such
exchange or market.

O. "ISO" means any Option intended to be and designated as an incentive
stock option within the meaning of Section 422 of the Code.

P. "NQSO" means any Option that is not an ISO.

Q. "Option" means a right, granted under Section V.B. or Section VII, to
purchase Shares.

R. "Other Share-Based Award" means a right, granted under Section V.H., that
relates to or is valued by reference to Shares.

S. "Participant" means an Eligible Employee or Director who has been granted
an Award or Director's Option under the Plan.

T. "Performance Share" means a performance share granted under Section V.F.

B-4

<PAGE>

U. "Performance Unit" means a performance unit granted under Section V.F.

V. "Plan" means this 1996 Long Term Incentive and Share Award Plan.

W. "Restricted Shares" means an Award of Shares under Section V.D. that may
be subject to certain restrictions and to a risk of forfeiture.

X. "Restricted Share Unit" means a right, granted under Section V.E., to
receive Shares or cash at the end of a specified deferral period.

Y. "Rule 16b-3" means Rule 16b-3, as from time to time in effect and
applicable to the Plan and Participants, promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act.

Z. "SAR" or "Share Appreciation Right" means the right, granted under
Section V.C., to be paid an amount measured by the difference between the
exercise price of the right and the Fair Market Value of Shares on the date of
exercise of the right, with payment to be made in cash, Shares, or property as
specified in the Award or determined by the Committee.

AA. "Shares" means shares of common stock, $.001 par value per share, of the
Company.

BB. "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations (other than the last corporation in the unbroken chain) owns shares
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in the chain.

III. ADMINISTRATION.

A. AUTHORITY OF THE COMMITTEE. The Plan shall be administered by the
Committee, and the Committee shall have full and final authority to take the
following actions, in each case subject to and consistent with the provisions
of the Plan:

1. to select Eligible Employees to whom Awards may be granted;

2. to designate Affiliates;

3. to determine the type or types of Awards to be granted to each
Eligible Employee;

4. to determine the type and number of Awards to be granted, the number
of Shares to which an Award may relate, the terms and conditions of any Award
granted under the Plan (including, but not limited to, any exercise price, grant
price, or purchase price, and any bases for adjusting such exercise, grant or
purchase price, any restriction or condition, any schedule for lapse of
restrictions or conditions relating to transferability or forfeiture,
exercisability, or settlement of an

B-5

<PAGE>

Award, and waiver or accelerations thereof, and waivers of performance
conditions relating to an Award, based in each case on such considerations as
the Committee shall determine), and all other matters to be determined in
connection with an Award;

5. to determine whether, to what extent, and under what circumstances
an Award may be settled, or the exercise price of an Award may be paid, in cash,
Shares, other Awards, or other property, or an Award may be canceled, forfeited,
exchanged, or surrendered;

6. to determine whether, to what extent, and under what circumstances
cash, Shares, other Awards, or other property payable with respect to an Award
will be deferred either automatically, at the election of the Committee, or at
the election of the Eligible Employee;

7. to prescribe the form of each Award Agreement, which need not be
identical for each Eligible Employee;

8. to adopt, amend, suspend, waive, and rescind such rules and
regulations and appoint such agents as the Committee may deem necessary or
advisable to administer the Plan;

9. to correct any defect or supply any omission or reconcile any
inconsistency in the Plan and to construe and interpret the Plan and any Award,
rules and regulations, Award Agreement, or other instrument hereunder;

10. to accelerate the exercisability or vesting of all or any portion
of any Award or to extend the period during which an Award is exercisable; and

11. to make all other decisions and determinations as may be required
under the terms of the Plan or as the Committee may deem necessary or advisable
for the administration of the Plan.

B. MANNER OF EXERCISE OF COMMITTEE AUTHORITY. The Committee shall have
sole discretion in exercising its authority under the Plan. Any action of the
Committee with respect to the Plan shall be final, conclusive, and binding on
all persons, including the Company, Subsidiaries, Affiliates, Eligible
Employees, any person claiming any rights under the Plan from or through any
Eligible Employee, and stockholders. The express grant of any specific power to
the Committee, and the taking of any action by the Committee, shall not be
construed as limiting any power or authority of the Committee.

B-6

<PAGE>

C. LIMITATION OF LIABILITY. Each member of the Committee shall be entitled
to, in good faith, rely or act upon any report or other information furnished to
him by any officer or other employee of the Company or any Subsidiary or
Affiliate, the Company's independent certified public accountants, or other
professional retained by the Company to assist in the administration of the
Plan. No member of the Committee, nor any officer or employee of the Company
acting on behalf of the Committee, shall be personally liable for any action,
determination, or interpretation taken or made in good faith with respect to the
Plan, and all members of the Committee and any officer or employee of the
Company acting on their behalf shall, to the extent permitted by law, be fully
indemnified and protected by the Company with respect to any such action,
determination, or interpretation.

IV. SHARES SUBJECT TO THE PLAN.

A. Subject to adjustment as provided in Section IV.C. hereof, the total
number of Shares reserved for issuance in connection with Awards and Director's
Options under the Plan shall be 598,782. No Award or Director's Option may be
granted if the number of Shares to which such Award or Director's Option
relates, when added to the number of Shares previously issued under the Plan,
exceeds the number of Shares reserved under the preceding sentence. If any
Awards or Director's Options are forfeited, canceled, terminated, exchanged or
surrendered or such Award or Director's Option is settled in cash or otherwise
terminates without a distribution of Shares to the Participant, any Shares
counted against the number of Shares reserved and available under the Plan with
respect to such Award or Director's Option shall, to the extent of any such
forfeiture, settlement, termination, cancellation, exchange or surrender, again
be available for Awards or Director's Options under the Plan; PROVIDED, HOWEVER,
that in the case of forfeiture, cancellation, exchange or surrender of
Restricted Shares or Restricted Share Units with respect to which dividends or
Dividend Equivalents were accrued but unpaid, such dividends and Dividend
Equivalents are also forfeited, canceled, exchange or surrendered. Upon the
exercise of any Award granted in tandem with any other Awards, such related
Awards shall be canceled to the extent of the number of Shares as to which the
Award is exercised.

B. Any Shares distributed pursuant to an Award or Director's Option may
consist, in whole or in part, of authorized and unissued Shares or treasury
Shares, including Shares acquired by purchase in the open market or in private
transactions.

B-7

<PAGE>

C. In the event that the Committee shall determine that any dividend in
Shares, recapitalization, Share split, reorganization, merger, consolidation,
spin-off, combination, repurchase, or share exchange, or other similar
corporate transaction or event, affects the Shares such that an adjustment is
appropriate in order to prevent dilution or enlargement of the rights of
Eligible Employees under the Plan, then the Committee shall make such
equitable changes or adjustments as to deems appropriate and, in such manner
as it may deem equitable, adjust any or all of (i) the number and kind of
shares which may thereafter be issued under the Plan, (ii) the number and
kind of shares, other securities or other consideration issued or issuable in
respect of outstanding Awards, and (iii) the exercise price, grant price, or
purchase price relating to any Award; PROVIDED, HOWEVER, in each case that,
with respect to ISOs, such adjustment shall be made in accordance with
Section 424(a) of the Code, unless the Committee determines otherwise. In
addition, the Committee is authorized to make adjustments in the terms and
conditions of, and the criteria and performance objectives included in,
Awards in recognition of unusual or non-recurring events (including, without
limitation, events described in the preceding sentence) affecting the Company
or any Subsidiary or Affiliate or the financial statements of the Company or
any Subsidiary or Affiliate, or in response to changes in applicable laws,
regulations, or accounting principles; provided, however, that, if an Award
Agreement specifically so provides, the Committee shall not have discretion
to increase the amount of compensation payable under the Award to the extent
such an increase would cause the Award to lose its qualification as
performance-based compensation for purposes of Section 162(m)(4)(C) of the
Code and the regulations thereunder.

V. SPECIFIC TERMS OF AWARDS.

A. GENERAL. Awards may be granted on the terms and conditions set forth in
this Section V. In addition, the Committee may impose on any Award or the
exercise thereof, at the date of grant or thereafter (subject to Section
VIII.D.), such additional terms and conditions, not inconsistent with the
provisions of the Plan, as the Committee shall determine, including terms
regarding forfeiture of Awards or continued exercisability of Awards in the
event of termination of employment by the Eligible Employee.

B. OPTIONS. The Committee is authorized to grant Options, which may be
NQSOs or ISOs, to Eligible Employees on the following terms and conditions:

B-8

<PAGE>

1. EXERCISE PRICE. The exercise price per Share purchasable under an
Option shall be determined by the Committee, and the Committee may, without
limitation, set an exercise price that is based upon achievement of performance
criteria if deemed appropriate by the Committee.

2. TIME AND METHOD OF EXERCISE. The Committee shall determine at the
date of grant or thereafter the time or times at which an Option may be
exercised in whole or in part (including, without limitation, upon achievement
of performance criteria if deemed appropriate by the Committee), the methods by
which such exercise price may be paid or deemed to be paid (including, without
limitation, broker-assisted exercise arrangements), the form of such payment
(including, without limitation, cash, Shares, notes or other property), and the
methods by which Shares will be delivered or deemed to be delivered to Eligible
Employees.

3. ISOs. The terms of any ISO granted under the Plan shall comply in
all respects with the provisions of Section 422 of the Code, including but not
limited to the requirement that no ISO shall be granted more than ten years
after the earlier of the date of adoption or stockholder approval of the Plan.

C. SARs. The Committee is authorized to grant SARs (Share Appreciation
Rights) to Eligible Employees on the following terms and conditions:

1. RIGHT TO PAYMENT. An SAR shall confer on the Eligible Employee to
whom it is granted a right to receive with respect to each Share subject
thereto, upon exercise thereof, the excess of (a) the Fair Market Value of one
Share on the date of exercise (or, if the Committee shall so determine in the
case of any such right, the Fair Market Value of one Share at any time during a
specified period before or after the date of exercise) over (b) the exercise
price of the SAR as determined by the Committee as of the date of grant of the
SAR (which, in the case of an SAR granted in tandem with an Option, shall be
equal to the exercise price of the underlying Option).

2. OTHER TERMS. The Committee shall determine, at the time of grant or
thereafter, the time or times at which an SAR may be exercised in whole or in
part, the method of exercise, method of settlement, form of consideration
payable in settlement, method by which Shares will be delivered or deemed to be
delivered to Eligible Employees, whether or not an SAR shall be in tandem with
any other Award, and any other terms and conditions of any SAR. Unless the
Committee determines otherwise, an SAR (a) granted in tandem with an NQSO may be
granted at the time of grant of the

B-9

<PAGE>

related NQSO or at any time thereafter or (b) granted in tandem with an ISO may
only be granted at the time of grant of the related ISO.

D. RESTRICTED SHARES. The Committee is authorized to grant Restricted
Shares to Eligible Employees on the following terms and conditions:

1. ISSUANCE AND RESTRICTIONS. Restricted Shares shall be subject to
such restrictions on transferability and other restrictions, if any, as the
Committee may impose at the date of grant or thereafter, which restrictions may
lapse separately or in combination at such times, under such circumstances
(including, without limitation, upon achievement of performance criteria if
deemed appropriate by the Committee), in such installments, or otherwise, as the
Committee may determine. Except to the extent restricted under the Award
Agreement relating to the Restricted Shares, an Eligible Employee granted
Restricted Shares shall have all of the rights of a stockholder including,
without limitation, the right to vote Restricted Shares and the right to receive
dividends thereon.

2. FORFEITURE. Except as otherwise determined by the Committee, at the
date of grant or thereafter, upon termination of employment during the
applicable restriction period, Restricted Shares and any accrued but unpaid
dividends or Dividend Equivalents that are at that time subject to restrictions
shall be forfeited; PROVIDED, HOWEVER, that the Committee may provide, by rule
or regulation or in any Award Agreement, or may determine in any individual
case, that restrictions or forfeiture conditions relating to Restricted Shares
will be waived in whole or in part in the event of termination resulting from
specified causes, and the Committee may in other cases waive in whole or in part
the forfeiture of Restricted Shares.

3. CERTIFICATES FOR SHARES. Restricted Shares granted under the Plan
may be evidenced in such manner as the Committee shall determine. If
certificates representing Restricted Shares are registered in the name of the
Eligible Employee, such certificates shall bear an appropriate legend referring
to the terms, conditions, and restrictions applicable to such Restricted Shares,
and the Company shall retain physical possession of the certificate.

4. DIVIDENDS. Dividends paid on Restricted Shares shall be either paid
at the dividend payment date, or deferred for payment to such date as determined
by the Committee, in cash or in unrestricted Shares having a Fair Market Value
equal to the amount of such dividends. Shares distributed in connection with a
Share split or dividend in Shares, and other property distributed as a dividend,
shall be subject to restrictions and a risk of forfeiture to the same extent as
the Restricted Shares with respect to which such Shares or other property has
been distributed.

B-10

<PAGE>

E. RESTRICTED SHARE UNITS. The Committee is authorized to grant Restricted
Share Units to Eligible Employees, subject to the following terms and
conditions:

1. AWARD AND RESTRICTIONS. Delivery of Shares or cash, as the case may
be, will occur upon expiration of the deferral period specified for Restricted
Share Units by the Committee (or, if permitted by the Committee, as elected by
the Eligible Employee). In addition, Restricted Share Units shall be subject to
such restrictions as the Committee may impose, if any (including, without
limitation, the achievement of performance criteria if deemed appropriate by the
Committee), at the date of grant or thereafter, which restrictions may lapse at
the expiration of the deferral period or at earlier or later specified times,
separately or in combination, in installments or otherwise, as the Committee may
determine.

2. FORFEITURE. Except as otherwise determined by the Committee at date
of grant or thereafter, upon termination of employment (as determined under
criteria established by the Committee) during the applicable deferral period or
portion thereof to which forfeiture conditions apply (as provided in the Award
Agreement evidencing the Restricted Share Units), or upon failure to satisfy any
other conditions precedent to the delivery of Shares or cash to which such
Restricted Share Units relate, all Restricted Share Units that are at that time
subject to deferral or restriction shall be forfeited; PROVIDED, HOWEVER, that
the Committee may provide, by rule or regulation or in any Award Agreement, or
may determine in any individual case, that restrictions or forfeiture conditions
relating to Restricted Share Units will be waived in whole or in part in the
event of termination resulting from specified causes, and the Committee may in
other cases waive in whole or in part the forfeiture of Restricted Share Units.

F. PERFORMANCE SHARES AND PERFORMANCE UNITS. The Committee is authorized
to grant Performance Shares or Performance Units or both to Eligible Employees
on the following terms and conditions:

1. PERFORMANCE PERIOD. The Committee shall determine a performance
period (the "Performance Period") of one or more years and shall determine the
performance objectives for grants of Performance Shares and Performance Units.
Performance objectives may vary from Eligible Employee to Eligible Employee and
shall be based upon such performance criteria as the Committee may deem
appropriate. Performance Periods may overlap and Eligible Employees may
participate simultaneously with respect to Performance Shares and Performance
Units for which different Performance Periods are prescribed.

B-11

<PAGE>

2. AWARD VALUE. At the beginning of a Performance Period, the
Committee shall determine for each Eligible Employee or group of Eligible
Employees with respect to that Performance Period the range of number of Shares,
if any, in the case of Performance Shares, and the range of dollar values, if
any, in the case of Performance Units, which may be fixed or may vary in
accordance with such performance or other criteria specified by the Committee,
which shall be paid to an Eligible Employee as an Award if the relevant measure
of Company performance for the Performance Period is met.

3. SIGNIFICANT EVENTS. If during the course of a Performance Period
there shall occur significant events as determined by the Committee which the
Committee expects to have a substantial effect on a performance objective during
such period, the Committee may revise such objective; PROVIDED, HOWEVER, that,
if an Award Agreement so provides, the Committee shall not have discretion to
increase the amount of compensation payable under the Award to the extent such
an increase would cause the Award to lose its qualification as performance-based
compensation for purposes of Section 162(m)(4)(C) of the Code and the
regulations thereunder.

4. FORFEITURE. Except as otherwise determined by the Committee, at the
date of grant or thereafter, upon termination of employment during the
applicable Performance Period, Performance Shares and Performance Units for
which the Performance Period was prescribed shall be forfeited; PROVIDED,
HOWEVER, that the Committee may provide, by rule or regulation or in any Award
Agreement, or may determine in an individual case, that restrictions or
forfeiture conditions related to Performance Shares and Performance Units will
be waived in whole or in part in the event of terminations resulting from
specified causes, and the Committee may in other cases waive in whole or in part
the forfeiture of Performance Shares and Performance Units.

5. PAYMENT. Each Performance Share or Performance Unit may be paid in
whole Shares, or cash, or a combination of Shares and cash either as a lump sum
payment or in installments, all as the Committee shall determine, at the time of
grant of the Performance Share or Performance Unit or otherwise, commencing as
soon as practicable after the end of the relevant Performance Period.

G. DIVIDEND EQUIVALENTS. The Committee is authorized to grant Dividend
Equivalents to Eligible Employees. The Committee may provide, at the date of
grant or thereafter, that Dividend Equivalents shall be paid or distributed when
accrued or shall be deemed to have been reinvested in additional Shares, or
other investment vehicles as the Committee may

B-12

<PAGE>

specify, provided that Dividend Equivalents (other than freestanding Dividend
Equivalents) shall be subject to all conditions and restrictions of the
underlying Awards to which they relate.

H. OTHER SHARE-BASED AWARDS. The Committee is authorized, subject to
limitations under applicable law, to grant to Eligible Employees such other
Awards that may be denominated or payable in, valued in whole or in part by
reference to, or otherwise based on, or related to, Shares, as deemed by the
Committee to be consistent with the purposes of the Plan, including, without
limitation, unrestricted shares awarded purely as a "bonus" and not subject to
any restrictions or conditions, other rights convertible or exchangeable into
Shares, purchase rights for Shares, Awards with value and payment contingent
upon performance of the Company or any other factors designated by the
Committee, and Awards valued by reference to the performance of specified
Subsidiaries or Affiliates. The Committee shall determine the terms and
conditions of such Awards at date of grant or thereafter. Shares delivered
pursuant to an Award in the nature of a purchase right granted under this
Section V.H. shall be purchased for such consideration, paid for in such times,
by such methods, and in such forms, including, without limitation, cash, Shares,
notes or other property, as the Committee shall determine. Cash awards, as an
element of or supplement to any other Award under the Plan, shall also be
authorized pursuant to this Section V.H.

VI. CERTAIN PROVISIONS APPLICABLE TO AWARDS.

A. STAND-ALONE, ADDITIONAL, TANDEM AND SUBSTITUTE AWARDS. Awards granted
under the Plan may, in the discretion of the Committee, be granted to Eligible
Employees either alone or in addition to, in tandem with, or in exchange or
substitution for, any other Award granted under the Plan or any award granted
under any other plan or agreement of the Company, any Subsidiary or Affiliate,
or any business entity to be acquired by the Company or a Subsidiary or
Affiliate, or any other right of an Eligible Employee to receive payment from
the Company or any Subsidiary or Affiliate. Awards may be granted in addition
to or in tandem with such other Awards or awards, and may be granted either as
of the same time as or a different time from the grant of such other Awards
or awards. The per Share exercise price of any Option, grant price of any
SAR, or purchase price of any other Award conferring a right to purchase
Shares which is granted, in connection with the substitution of awards granted
under any other plan or agreement of the Company or any Subsidiary or
Affiliate or any business entity to be acquired by the Company or any
Subsidiary or Affiliate, shall be determined by the Committee, in its
discretion.

B-13

<PAGE>

B. TERMS OF AWARDS. The term of each Award granted to an Eligible Employee
shall be for such period as may be determined by the Committee; PROVIDED,
HOWEVER, that in no event shall the term of any ISO or an SAR granted in tandem
therewith exceed a period of ten years from the date of its grant (or such
shorter period as may be applicable under Section 422 of the Code).

C. FORM OF PAYMENT UNDER AWARDS. Subject to the terms of the Plan and any
applicable Award Agreement, payments to be made by the Company or a Subsidiary
or Affiliate upon the grant, maturation, or exercise of an Award may be made in
such forms as the Committee shall determine at the date of grant or thereafter,
including, without limitation, cash, Shares, or other property, and may be made
in a single payment or transfer, in installments, or on a deferred basis. The
Committee may make rules relating to installment or deferred payments with
respect to Awards, including the rate of interest to be credited with respect to
such payments.

D. NONTRANSFERABILITY. Awards (except for vested Shares) shall not be
transferable by an Eligible Employee except by will or the laws of descent and
distribution (except pursuant to a Beneficiary designation) and shall be
exercisable during the lifetime of an Eligible Employee only by such Eligible
Employee or his guardian or legal representative. An Eligible Employee's rights
under the Plan may not be pledged, mortgaged, hypothecated, or otherwise
encumbered, and shall not be subject to claims of the Eligible Employee's
creditors. Each Award, or the Shares issued pursuant to such Award, shall be
held (subject to expiration or forfeiture, as the case may be) for at least
six months following the date of grant of such Award.

VII. DIRECTOR'S OPTIONS.

A. ANNUAL GRANT. On the Effective Date, each Director in office on such
date shall be granted a NQSO to purchase a number of Shares as determined by
the Committee. Each Director who assumes office subsequent to such date
shall be granted a NQSO to purchase a number of Shares as determined by the
Committee. Such Directors Options shall have an exercise price per Share
equal to 100 percent of the Market Value of one Share on the date of grant;
provided, however, that such price shall be at least equal to the par value
of a Share. Each Option granted to a Director under this paragraph A shall
become fully exercisable on the date of grant, and shall expire (unless
terminated earlier under paragraph C below) on the tenth anniversary of the
date of grant.

B. MARKET VALUE. For purposes of this Section VII, Market Value shall mean
the mean between the high and low selling prices per Share on the immediately
preceding date (or, if the Shares were not traded on that day, the next
preceding day that the Shares were traded) on the principal exchange or market
on which the Shares are traded, as such prices are

B-14

<PAGE>

officially quoted on such exchange or market. If no public trading market for
the Shares shall exist, Market Value shall be determined by the Committee.

C. TERMINATION OF SERVICE. If a person ceases to be a Director, (i) due to
retirement after attainment of age 65, or (ii) due to death or disability, all
of his outstanding Options may be exercised at any time prior to the expiration
dates of such Options. If the Director's service terminates for any other
reason, all of his outstanding Options may be exercised at any time within six
months after the date of such termination, but no later than the expiration date
of the Options.

D. TIME AND METHOD OF EXERCISE. The exercise price of a Director's Option
shall be paid to the Company at the time of exercise either in cash or in Shares
already owned by the optionee and having a total Market Value equal to the
exercise price, or in a combination of cash and such Shares.

E. NONTRANSFERABILITY. No Director's Option granted under the Plan shall be
transferable other than by will or by the laws of descent and distribution.
During the lifetime of the optionee, a Director's Option shall be exercisable
only by him or by his guardian or legal representative. Each Director's
Option, or the Shares issued pursuant to such option, shall be held (subject
to expiration) by the Director for at least six months following the date of
grant of such Director's Option.

F. ADJUSTMENTS. In the event that subsequent to the Effective Date any
dividend in Shares, recapitalization, Share split, reverse split,
reorganization, merger, consolidation, spin-off, combination, repurchase, or
share exchange, or other such change, affects the Shares such that they are
increased or decreased or changed into or exchanged for a different number or
kind of shares, other securities of the Company or of another corporation or
other consideration, then in order to maintain the proportionate interest of the
Director and preserve the value of the Director's Option, (1) there shall
automatically be substituted for each Share subject to an unexercised Director's
Option and each Share to be issued under Section VII.A. subsequent to such event
the number and kind of shares, other securities or other consideration into
which each outstanding Share shall be changed or for which each such Share shall
be exchanged, and (2) the exercise price shall be increased or decreased
proportionately so that the aggregate purchase price for the Shares subject to
any unexercised Director's Option shall remain the same as immediately prior to
such event.

B-15

<PAGE>

VIII. GENERAL PROVISIONS.

A. COMPLIANCE WITH LEGAL AND TRADING REQUIREMENTS. The Plan, the granting
and exercising of Awards or Director's Options thereunder, and the other
obligations of the Company under the Plan and any Award Agreement, shall be
subject to all applicable federal and state laws, rules and regulations, and to
such approvals by any regulatory or governmental agency as may be required. The
Company, in its discretion, may postpone the issuance or delivery of Shares
under any Award or Director's Option until completion of such stock exchange or
market system listing or registration or qualification of such Shares or other
required action under any state or federal law, rule or regulation as the
Company may consider appropriate, and may require any Participant to make such
representations and furnish such information as it may consider appropriate in
connection with the issuance or delivery of Shares in compliance with applicable
laws, rules and regulations. No provisions of the Plan shall be interpreted or
construed to obligate the Company to register any Shares under federal or state
law.

B. NO RIGHT TO CONTINUED EMPLOYMENT OR SERVICE. Neither the Plan or any
action taken thereunder shall be construed as giving any employee or director
the right to be retained in the employ or service of the Company or any of its
Subsidiaries or Affiliates, nor shall it interfere in any way with the right of
the Company or any of its Subsidiaries or Affiliates to terminate any employee's
or director's employment or service at any time.

C. TAXES. The Company or any Subsidiary or Affiliate is authorized to
withhold from any Award granted, any payment relating to an Award under the
Plan, including from a distribution of Shares, or any payroll or other payment
to an Eligible Employee, amounts of withholding and other taxes due in
connection with any transaction involving an Award, and to take such other
action as the Committee may deem advisable to enable the Company and Eligible
Employees to satisfy obligations for the payment of withholding taxes and other
tax obligations relating to any Award. This authority shall include authority
to withhold or receive Shares or other property and to make cash payments in
respect thereof in satisfaction of an Eligible Employee's tax obligations.

D. CHANGES TO THE PLAN AND AWARDS. The Board may amend, alter, suspend,
discontinue, or terminate the Plan or the Committee's authority to grant awards
under the Plan without the consent of stockholders of the Company or
Participants,

B-16

<PAGE>

except that any such amendment, alteration, suspension, discontinuation, or
termination shall be subject to the approval of the Company's stockholders to
the extent such stockholders' approval is required under Section
422 of the Code; provided, however, that, without the consent of an affected
Participant, no amendment, alteration, suspension, discontinuation, or
termination of the Plan may impair the rights or, in any other manner, adversely
affect the rights of such Participant under any Award or Director's Option
theretofore granted to him.

E. NO RIGHTS TO AWARDS; NO STOCKHOLDER RIGHTS. No Eligible Employee or
employee shall have any claim to be granted any Award under the Plan, and there
is no obligation for uniformity of treatment of Eligible Employees and
employees. No award shall confer on any Eligible Employee any of the rights of
a stockholder of the Company unless and until Shares are duly issued or
transferred to the Eligible Employee in accordance with the terms of the Award.

F. UNFUNDED STATUS OF AWARDS. The Plan is intended to constitute an
"unfunded" plan for incentive compensation. With respect to any payments not
yet made to a Participant pursuant to an Award or Director's Option, nothing
contained in the Plan or any Award or Director's Option shall give any such
Participant any rights that are greater than those of a general creditor of the
Company; provided, however, that the Committee may authorize the creation of
trusts or make other arrangements to meet the Company's obligations under the
Plan to deliver cash, Shares, other Awards, or other property pursuant to any
Award, which trusts or other arrangements shall be consistent with the
"unfunded" status of the Plan unless the Committee otherwise determines with the
consent of each affected Participant.

G. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by the
Board nor its submission to the stockholders of the Company for approval shall
be construed as creating any limitations on the power of the Board to adopt such
other incentive arrangements as it may deem desirable, including, without
limitation, the granting of options and other awards otherwise than under the
Plan, and such arrangements may be either applicable generally or only in
specific cases.

B-17

<PAGE>

H. NOT COMPENSATION FOR BENEFIT PLANS. No Award payable under this Plan
shall be deemed salary or compensation for the purpose of computing benefits
under any benefit plan or other arrangement of the Company for the benefit of
its employees or directors unless the Company shall determine otherwise.

I. NO FRACTIONAL SHARES. No fractional Shares shall be issued or delivered
pursuant to the Plan or any Award or Director's Option. In the case of Awards
to Eligible Employees, the Committee shall determine whether cash, other Awards,
or other property shall be issued or paid in lieu of such fractional Shares or
whether such fractional Shares or any rights thereto shall be forfeited or
otherwise eliminated. In the case of Director's Options, cash shall be paid in
lieu of such fractional shares.

J. GOVERNING LAW. The validity, construction, and effect of the Plan, any
rules and regulations relating to the Plan, and any Award Agreement shall be
determined in accordance with the laws of Delaware without giving effect to
principles of conflict of laws.

K. EFFECTIVE DATE; PLAN TERMINATION. The Plan shall become effective as
of October 1, 1996 (the "Effective Date") upon approval by the affirmative
votes of the holders of a majority of voting securities of the Company. The
Plan shall terminate as to future awards on the date which is ten (10) years
after the Effective Date.

L. TITLES AND HEADINGS. The titles and headings of the sections in the Plan
are for convenience of reference only. In the event of any conflict, the text
of the Plan, rather than such titles or headings, shall control.

B-18
<PAGE>
INTERNATIONAL AIRLINE SUPPORT GROUP, INC.
IMPORTANT

Any holder of Convertible Debentures who wishes to accept the Exchange Offer
should either (a) complete the Consent and Letter of Transmittal with any
required signature guarantees and forward it with such Convertible Debentures
and any other required documents to the Depositary or (b) request a broker or
bank to effect the transaction for such holder. Holders of Convertible
Debentures that are registered in the name of a broker, dealer, commercial bank,
trust company or nominee should contact such institution to tender their
Convertible Debentures. See "The Exchange Offer -- How to Tender and Consent in
the Exchange Offers."

TO: FIRST UNION NATIONAL BANK, DEPOSITARY
Toll Free Telephone 1-800-829-8432

BY MAIL OR BY HAND: BY FACSIMILE TRANSMISSION:
- -------------------------------------- --------------------------------------

First Union National Bank First Union National Bank
Shareholder Services (704) 383-7199
230 South Tryon Street
Charlotte, North Carolina 28288-1153
For overnight items use code 28288

ADDITIONAL COPIES

Requests for additional copies of this Proxy Statement/Prospectus and the
forms of Letter of Transmittal should be directed to the Company. You may also
contact your local broker, dealer, commercial bank or trust company for
assistance concerning the Exchange Offer.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The following summary is qualified in its entirety by reference to the
complete text of the statute referred to below, the Company's Certificate of
Incorporation and Bylaws.

The Registrant's Bylaws provides that each person who was or is made a party
to, is threatened to be made a party to or is otherwise involved in any action,
suit or proceeding, whether civil, criminal, administrative or investigative, or
is contacted by any governmental or regulatory body in connection with any
investigation or inquiry, by reason of the fact that he or she is or was a
director or executive officer of the Registrant or is or was serving at the
request of the Registrant as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether the basis of
such proceeding or investigation is alleged action in an official capacity or in
any other capacity as set forth above shall be indemnified and held harmless by
the Registrant to the fullest extent authorized by the Delaware General
Corporation Law as it currently exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
Registrant to provide broader indemnification rights than such law permitted the
Registrant to provide prior to such amendment).

Under Section 145 of the Delaware General Corporation Law, a corporation may
indemnify a director, officer, employee or agent of the corporation (or other
entity if such person is serving in such capacity at the corporation's request)
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him if he acted in good faith
and in a manner he reasonably believed to be in, or not opposed to, the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. In the
case of an action brought by or in the right of a corporation, the corporation
may indemnify a director, officer, employee or agent of the corporation (or
other entity if such person is serving in such capacity at the corporation's
request) against expenses (including attorneys' fees) actually and reasonably
incurred by him if he acted in good faith and in a manner he reasonably believed
to be in, or not opposed to, the best interests of the corporation, except that
no indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless a court determines that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnification for such expenses as the court shall deem proper.
Expenses (including attorneys' fees) incurred by an officer or director in
defending any civil, criminal, administrative or investigative action, suit or
proceeding may be paid by the corporation in advance of the final disposition of
such action, suit or proceeding upon receipt of an undertaking by or on behalf
of such director or officer to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the corporation.

The Registrant's Certificate of Incorporation provides that no director of
the Registrant shall be personally liable to the Registrant or its stockholders
for monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the Registrant
or its stockholders, (ii) for any acts or omissions not in good faith or which
involve intentional misconduct or knowing violation of law, (iii) under Section
174 of the Delaware General Corporation Law or (iv) for any transaction in which
the director derived an improper personal benefit.

II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

a. Exhibits

<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- --------- ------------------------------------------------------------------------------------------------
<C> <S>
*2.1.1 Form of Standstill Agreement dated July 8, 1996 among the Registrant and the holders of the
Registrant's 12% Senior Secured Notes due 1997 who are signatories thereto.
2.1.2 Form of Standstill Agreement dated July 11, 1996 among the Registrant and the holders of the
Registrant's 12% Senior Secured Notes due 1997 who are signatories thereto (incorporated by
reference to Exhibit 2.1.2 of the Registrant's Annual Report on Form 10-K for the fiscal year
ended May 31, 1996 (the "1996 Form 10-K")).
*2.2 Form of Warrant Agreement Amendment No. 1, dated as of July 9, 1996, among the Registrant and
the holders of the Warrants, dated July 17, 1992, who are signatories thereto.
*2.3 Letter, dated June 7, 1996, from BNY Financial Corporation to the Registrant with attached Term
Sheet.
2.4 Form of Credit Agreement between BNY Financial Corporation and the Registrant (filed herewith).
3.1 Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 of the
Registrant's Annual Report on Form 10-K for the fiscal year ended May 31, 1993 (the "1993 Form
10-K").
3.2 Restated and Amended Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 of the
1993 Form 10-K).
3.3 Proposed Form of Amended and Restated Certificate of Incorporation of the Registrant (attached
as Appendix A to the Proxy Statement/Prospectus forming a part of this Registration Statement).
*3.4 Proposed form of Amended and Restated Bylaws of the Registrant.
4.1 Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 of the 1993 Form
10-K).
4.2 Form of Warrant issued to holders of Senior Notes (incorporated by reference to Exhibit 4-A to
the Registrant's Form 8-K dated July 17, 1992 (the "July 1992 Form 8-K")).
4.3 Form of 8% Convertible Subordinated Debentures due August 31, 2003 (incorporated by reference to
Exhibit 4.3 of the 1993 Form 10-K).
*4.4 Form of 12% Senior Secured Notes.
*5.1 Opinion of King & Spalding as to the legality of the securities being registered.
*8.1 Opinion of King & Spalding as to tax matters.
*10.1.1 Employment Agreement, dated as of December 1, 1995, between the Registrant and Alexius A. Dyer
III.
10.2.1 Employee Stock Option Plan (incorporated by reference to Exhibit 10.2.1. of the 1993 Form 10-K).
10.2.2 Non-Employee Director Stock Option Plan (incorporated by reference to Exhibit 10.2.2 of the 1993
Form 10-K).
10.2.3 401(k) Plan (incorporated by reference to Exhibit 10-H of the Registrant's Annual Report in Form
10-K for the fiscal year ended May 31, 1992 (the "1992 Form 10-K")).
10.2.4 Bonus Plan (incorporated by reference to Exhibit 10.2.4 of the 1992 Form 10-K).
</TABLE>

II-2
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- --------- ------------------------------------------------------------------------------------------------
<C> <S>
10.2.5 Cafeteria Plan (incorporated by reference to Exhibit 10.2.5 of the 1993 Form 10-K).
10.2.6 Proposed Form of 1996 Long-Term Incentive and Share Award Plan (attached as Appendix B to the
Proxy Statement/Prospectus forming a part of this Registration Statement).
10.3.1 Form of Securities Purchase Agreement dated as of July 17, 1992 among Registrant and the
Purchasers listed therein, as amended (Incorporated by reference to Exhibit 10-A of the
Registrant's July 1992 Form 8-K).
10.3.2 Consent, Amendment and Waiver dated as of September 8, 1993 among Registrant and the parties
listed therein (incorporated by reference to Exhibit 10.9.2 of the 1993 Form 10-K).
10.4 Representative Indemnity Agreement between Registrant and its Directors and Executive Officers.
(incorporated by reference to Exhibit 10.12 of the 1993 Form 10-K).
10.5.1 Securities Purchase Agreement dated as of September 8, 1993 among Registrant and the Purchasers
listed therein (incorporated by reference to Exhibit 10.13 of the 1993 Form 10-K).
10.6 Form of Registration Rights Agreement dated as of September 8, 1993, among Registrant and the
Purchasers listed therein (incorporated by reference to Exhibit 10.14 of the 1993 Form 10-K).
10.7 Settlement Stipulation, dated January 31, 1995, among Admark International, Ltd., Plaintiff and
Norville Trading Company Ltd., International Airline Support Group, Inc., and Richard R.
Wellman, Defendants (incorporated by reference to Exhibit 10.7.3 of the Registrant's Annual
Report in Form 10-K for the fiscal year ended May 31, 1995 (the "1995 Form 10-K")).
10.8 Purchase Agreement, dated January 1995, among International Airline Support Group, Inc., Richard
R. Wellman, Lynda Wellman, and Custom Air Holdings, Inc., including as an exhibit the "General
Proxy" executed by Richard R. Wellman and Lynda Wellman (incorporated by reference to Exhibit
10.1 to the Registrant's Form 10-Q/A for the quarter ended August 31, 1994).
10.10 Assignment and Assumption Agreement, dated January 31, 1995, between International Airline
Service Center, Inc. and Express One International, Inc. (incorporated by reference to Exhibit
10.2 to the Registrant's Form 10-Q/A for the quarter ended August 31, 1994).
10.11 Notice of Payment Blockage, dated May 25, 1995 (incorporated by reference to Exhibit 10.11 of
the 1995 Form 10-K).
*10.12 Form of Engagement Letter dated February 16, 1996, between the Registrant and Kirkland Messina,
Inc.
10.13 Form of Depositary Agreement between the Registrant and First Union National Bank of North
Carolina (incorporated by reference to Exhibit 10.13 to the Registrant's 1996 Form 10-K).
10.14 Commission Agreement dated December 1, 1995 between the Registrant and J.M. Associates, Inc.
(incorporated by reference to Exhibit 10.14 to the Registrant's 1996 Form 10-K).
10.15 Aircraft Parts Purchase Agreement, dated May 16, 1996, between Paxford Int'l, Inc. and the
Registrant (filed herewith).
*11 Statement regarding computation of per share earnings.
</TABLE>

II-3
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- --------- ------------------------------------------------------------------------------------------------
<C> <S>
12 Statement regarding computation of ratios (filed herewith).
*21 Subsidiaries of Registrant.
23.1 Consent of Grant Thornton L.L.P. (filed herewith).
*23.2 Consent of King & Spalding (included in Exhibit 5.1).
*24.1 Power of attorney of the officers and directors of Registrant signing this Registration
Statement.
99.1 Form of Consent and Letter of Transmittal for the Registrant's 8% Convertible Subordinated
Debentures due August 31, 2003.
99.2 Form of Notice of Guaranteed Delivery for the Registrant's 8% Convertible Subordinated
Debentures due August 31, 2003.
99.3 Form of Proxy with respect to the solicitation of the holders of the Registrant's Common Stock.
</TABLE>

- ------------------------
* previously filed.

<TABLE>
<S> <C> <C>
b. Financial Statement Schedules.
Schedule II Valuation and Qualifying Accounts
</TABLE>

ITEM 22. UNDERTAKINGS

The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.

The registrant undertakes that every prospectus (i) that is filed pursuant
to the immediately preceding paragraph, or (ii) that purports to meet the
requirements of section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

II-4
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 2 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Miami, State of Florida, on August 29, 1996.

INTERNATIONAL AIRLINE SUPPORT
GROUP, INC.

By /s/ GEORGE MURNANE III
------------------------------------------
George Murnane III
EXECUTIVE VICE PRESIDENT AND
CHIEF EXECUTIVE OFFICER

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.

SIGNATURE TITLE DATE
- ------------------------------ ------------------------------ ---------------

* Chairman of the Board,
- ------------------------------ President, Chief Executive August 29, 1996
Alexius A. Dyer III Officer and Director

*
- ------------------------------ Executive Vice President and August 29, 1996
George Murnane III Chief Financial Officer

* Vice President -- Finance,
- ------------------------------ Controller and Chief August 29, 1996
Robert K. Norris Accounting Officer

*
- ------------------------------ Director August 29, 1996
E. James Mueller

*
- ------------------------------ Director August 29, 1996
Kyle R. Kirkland

*By /s/ GEORGE MURNANE III
--------------------------
George Murnane III
ATTORNEY-IN-FACT

II-5
<PAGE>
INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBITS PAGE
- --------- -----
<C> <S> <C>
*2.1.1 Form of Standstill Agreement dated July 8, 1996 among the Registrant and the holders of the
Registrant's 12% Senior Secured Notes due 1997 who are signatories thereto.
2.1.2 Form of Standstill Agreement dated July 11, 1996 among the Registrant and the holders of the
Registrant's 12% Senior Secured Notes due 1997 who are signatories thereto (incorporated by
reference to Exhibit 2.1.2 of the Registrant's Annual Report on Form 10-K for the fiscal year
ended May 31, 1996 (the "1996 Form 10-K")).
*2.2 Form of Warrant Agreement Amendment No. 1, dated as of July 9, 1996, among the Registrant and
the holders of the Warrants, dated July 17, 1992, who are signatories thereto.
*2.3 Letter, dated June 7, 1996, from BNY Financial Corporation to the Registrant with attached Term
Sheet.
2.4 Form of Credit Agreement between BNY Financial Corporation and the Registrant (filed herewith).
3.1 Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 of the
Registrant's Annual Report on Form 10-K for the fiscal year ended May 31, 1993 (the "1993 Form
10-K").
3.2 Restated and Amended Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 of the
1993 Form 10-K).
3.3 Proposed Form of Amended and Restated Certificate of Incorporation of the Registrant (attached
as Appendix A to the Proxy Statement/Prospectus forming a part of this Registration Statement).
*3.4 Proposed form of Amended and Restated Bylaws of the Registrant.
4.1 Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 of the 1993 Form
10-K).
4.2 Form of Warrant issued to holders of Senior Notes (incorporated by reference to Exhibit 4-A to
the Registrant's Form 8-K dated July 17, 1992 (the "July 1992 Form 8-K")).
4.3 Form of 8% Convertible Subordinated Debentures due August 31, 2003 (incorporated by reference to
Exhibit 4.3 of the 1993 Form 10-K).
*4.4 Form of 12% Senior Secured Notes.
*5.1 Opinion of King & Spalding as to the legality of the securities being registered.
*8.1 Opinion of King & Spalding as to tax matters.
*10.1.1 Employment Agreement, dated as of December 1, 1995, between the Registrant and Alexius A. Dyer
III.
10.2.1 Employee Stock Option Plan (incorporated by reference to Exhibit 10.2.1. of the 1993 Form 10-K).
10.2.2 Non-Employee Director Stock Option Plan (incorporated by reference to Exhibit 10.2.2 of the 1993
Form 10-K).
10.2.3 401(k) Plan (incorporated by reference to Exhibit 10-H of the Registrant's Annual Report in Form
10-K for the fiscal year ended May 31, 1992 (the "1992 Form 10-K")).
10.2.4 Bonus Plan (incorporated by reference to Exhibit 10.2.4 of the 1992 Form 10-K).
10.2.5 Cafeteria Plan (incorporated by reference to Exhibit 10.2.5 of the 1993 Form 10-K).
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
EXHIBITS PAGE
- --------- -----
<C> <S> <C>
10.2.6 Proposed Form of 1996 Long-Term Incentive and Share Award Plan (attached as Appendix B to the
Proxy Statement/Prospectus forming a part of this Registration Statement).
10.3.1 Form of Securities Purchase Agreement dated as of July 17, 1992 among Registrant and the
Purchasers listed therein, as amended (Incorporated by reference to Exhibit 10-A of the
Registrant's July 1992 Form 8-K).
10.3.2 Consent, Amendment and Waiver dated as of September 8, 1993 among Registrant and the parties
listed therein (incorporated by reference to Exhibit 10.9.2 of the 1993 Form 10-K).
10.4 Representative Indemnity Agreement between Registrant and its Directors and Executive Officers.
(incorporated by reference to Exhibit 10.12 of the 1993 Form 10-K).
10.5.1 Securities Purchase Agreement dated as of September 8, 1993 among Registrant and the Purchasers
listed therein (incorporated by reference to Exhibit 10.13 of the 1993 Form 10-K).
10.6 Form of Registration Rights Agreement dated as of September 8, 1993, among Registrant and the
Purchasers listed therein (incorporated by reference to Exhibit 10.14 of the 1993 Form 10-K).
10.7 Settlement Stipulation, dated January 31, 1995, among Admark International, Ltd., Plaintiff and
Norville Trading Company Ltd., International Airline Support Group, Inc., and Richard R.
Wellman, Defendants (incorporated by reference to Exhibit 10.7.3 of the Registrant's Annual
Report in Form 10-K for the fiscal year ended May 31, 1995 (the "1995 Form 10-K")).
10.8 Purchase Agreement, dated January 1995, among International Airline Support Group, Inc., Richard
R. Wellman, Lynda Wellman, and Custom Air Holdings, Inc., including as an exhibit the "General
Proxy" executed by Richard R. Wellman and Lynda Wellman (incorporated by reference to Exhibit
10.1 to the Registrant's Form 10-Q/A for the quarter ended August 31, 1994).
10.10 Assignment and Assumption Agreement, dated January 31, 1995, between International Airline
Service Center, Inc. and Express One International, Inc. (incorporated by reference to Exhibit
10.2 to the Registrant's Form 10-Q/A for the quarter ended August 31, 1994).
10.11 Notice of Payment Blockage, dated May 25, 1995 (incorporated by reference to Exhibit 10.11 of
the 1995 Form 10-K).
*10.12 Form of Engagement Letter dated February 16, 1996, between the Registrant and Kirkland Messina,
Inc.
10.13 Form of Depositary Agreement between the Registrant and First Union National Bank of North
Carolina (incorporated by reference to Exhibit 10.13 to the Registrant's 1996 Form 10-K).
10.14 Commission Agreement dated December 1, 1995 between the Registrant and J.M. Associates, Inc.
(incorporated by reference to Exhibit 10.14 to the Registrant's 1996 Form 10-K).
10.15 Aircraft Parts Purchase Agreement, dated May 16, 1996 between Paxford Int'l, Inc. and the
Registrant (filed herewith).
*11 Statement regarding computation of per share earnings.
12 Statement regarding computation of ratios (filed herewith).
*21 Subsidiaries of Registrant.
23.1 Consent of Grant Thornton L.L.P. (filed herewith).
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
EXHIBITS PAGE
- --------- -----
<C> <S> <C>
*23.2 Consent of King & Spalding (included in Exhibit 5.1).
*24.1 Power of attorney of the officers and directors of Registrant signing this Registration
Statement.
99.1 Form of Consent and Letter of Transmittal for the Registrant's 8% Convertible Subordinated
Debentures due August 31, 2003.
99.2 Form of Notice of Guaranteed Delivery for the Registrant's 8% Convertible Subordinated
Debentures due August 31, 2003.
99.3 Form of Proxy with respect to the solicitation of the holders of the Registrant's Common Stock.
</TABLE>

- ------------------------
* previously filed.

<PAGE>
EXHIBIT 2.4
CW&T DRAFT
8/23/96

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

CREDIT AGREEMENT

BETWEEN

INTERNATIONAL AIRLINE SUPPORT GROUP, INC.
BORROWER,

AND

BNY FINANCIAL CORPORATION
LENDER

DATED AS OF SEPTEMBER *[__], 1996

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

<PAGE>

TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Other Definitional Provisions . . . . . . . . . . . . . . . . . 21

SECTION 2 AMOUNT AND TERMS OF COMMITMENTS . . . . . . . . . . . . . . . . 22
2.1 Revolver Facility . . . . . . . . . . . . . . . . . . . . . . . 22
2.2 Procedure for Borrowing under Revolver. . . . . . . . . . . . . 22
2.3 Term Loan Facility. . . . . . . . . . . . . . . . . . . . . . . 22
2.4 Procedure for Term Loan Borrowing . . . . . . . . . . . . . . . 23
2.5 Discretionary Term Loan Advance Upon Substitution of Approved
Aircraft . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

SECTION 3 GENERAL PROVISIONS APPLICABLE TO LOANS. . . . . . . . . . . . . 23
3.1 Interest Rates and Payment Dates. . . . . . . . . . . . . . . . 23
3.2 Optional Loan Prepayments . . . . . . . . . . . . . . . . . . . 24
3.3 Mandatory Loan Prepayments. . . . . . . . . . . . . . . . . . . 25
3.4 Computation of Interest and Fees. . . . . . . . . . . . . . . . 26
3.5 Obligations and Payments. . . . . . . . . . . . . . . . . . . . 26
3.6 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.7 Lending Offices; Change of Lending Office . . . . . . . . . . . 29
3.8 Repayment of Loans; Evidence of Debt. . . . . . . . . . . . . . 29
3.9 Closing Fee; Facility Fee . . . . . . . . . . . . . . . . . . . 30
3.10 Early Termination Fee . . . . . . . . . . . . . . . . . . . . . 30
3.11 Bank Charges. . . . . . . . . . . . . . . . . . . . . . . . . . 30
3.12 Matured Funds . . . . . . . . . . . . . . . . . . . . . . . . . 30

SECTION 4 REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . 32
4.1 Financial Condition . . . . . . . . . . . . . . . . . . . . . . 32
4.2 No Change . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.3 Existence; Compliance with Law. . . . . . . . . . . . . . . . . 33
4.4 Power; Authorization; Enforceable Obligations . . . . . . . . . 33
4.5 No Legal Bar. . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.6 No Material Litigation. . . . . . . . . . . . . . . . . . . . . 34
4.7 No Default. . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.8 Ownership of Property; Liens. . . . . . . . . . . . . . . . . . 34
4.9 Intellectual Property . . . . . . . . . . . . . . . . . . . . . 34
4.10 No Burdensome Restrictions. . . . . . . . . . . . . . . . . . . 35
4.11 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.12 Federal Regulations . . . . . . . . . . . . . . . . . . . . . . 35
4.13 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.14 Investment Company Act; Other Regulations . . . . . . . . . . . 36
4.15 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.16 Security Documents. . . . . . . . . . . . . . . . . . . . . . . 36
4.17 Accuracy and Completeness of Information. . . . . . . . . . . . 36
4.18 Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . 37
4.19 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
4.20 Solvency. . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
4.21 Purpose of Loans. . . . . . . . . . . . . . . . . . . . . . . . 38
4.22 Environmental Matters . . . . . . . . . . . . . . . . . . . . . 38
4.23 Regulation H . . . . . . . . . . . . . . . . . . . . . . . . . 39

-i-

<PAGE>

4.24 Not a Certificated Air Carrier. . . . . . . . . . . . . . . . . 39
4.25 Schedule 1.1. . . . . . . . . . . . . . . . . . . . . . . . . . 39

SECTION 5 CONDITIONS PRECEDENT. . . . . . . . . . . . . . . . . . . . . . 39
5.1 Conditions to Initial Extensions of Credit. . . . . . . . . . . 39
5.2 Conditions to Each Extension of Credit. . . . . . . . . . . . . 43

SECTION 6 AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . 43
6.1 Financial Statements. . . . . . . . . . . . . . . . . . . . . . 44
6.2 Certificates; Other Information . . . . . . . . . . . . . . . . 44
6.3 Payment of Obligations. . . . . . . . . . . . . . . . . . . . . 46
6.4 Conduct of Business and Maintenance of Existence. . . . . . . . 46
6.5 Maintenance of Property . . . . . . . . . . . . . . . . . . . . 46
6.6 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
6.7 Inspection of Property; Books and Records; Discussions. . . . . 51
6.8 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
6.9 Environmental Laws. . . . . . . . . . . . . . . . . . . . . . . 52
6.10 Periodic Audit of Collateral. . . . . . . . . . . . . . . . . . 52
6.11 Protection of Collateral and Additional Collateral. . . . . . . 52
6.12 Compliance with Airworthiness Directives. . . . . . . . . . . . 53
6.13 Replacement of Aircraft Parts . . . . . . . . . . . . . . . . . 53
6.14 Alterations, Modifications and Additions. . . . . . . . . . . . 54
6.15 Event of Loss with Respect to an Aircraft Engine . . . . . . . 55
6.16 Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
6.17 Requisition for Use of the Aircraft by the United States
Government or the Government of Registry of the Aircraft . . . 56
6.18 Requisition for Use of an Aircraft Engine by the United States
Government or the Government of Registry of the Aircraft . . . 56

SECTION 7 NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . 57
7.1 Financial Condition Covenants . . . . . . . . . . . . . . . . . 57
7.2 Limitation on Indebtedness. . . . . . . . . . . . . . . . . . . 59
7.3 Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . 59
7.4 Limitation on Guarantee Obligations . . . . . . . . . . . . . . 60
7.5 Limitation on Fundamental Changes . . . . . . . . . . . . . . . 60
7.6 Limitation on Sale of Assets. . . . . . . . . . . . . . . . . . 60
7.7 Limitation on Dividends . . . . . . . . . . . . . . . . . . . . 61
7.8 Limitation on Capital Expenditures. . . . . . . . . . . . . . . 61
7.9 Limitation on Investments, Loans and Advances . . . . . . . . . 61
7.10 Limitation on Optional Payments and Modifications of Debt
Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . 62
7.11 Limitation on Transactions with Affiliates. . . . . . . . . . . 62
7.12 Limitation on Sales and Leasebacks. . . . . . . . . . . . . . . 62
7.13 Limitation on Changes in Fiscal Year. . . . . . . . . . . . . . 62
7.14 Limitation on Negative Pledge Clauses . . . . . . . . . . . . . 62
7.15 Limitation on Lines of Business . . . . . . . . . . . . . . . . 63
7.16 Governing Documents . . . . . . . . . . . . . . . . . . . . . . 63
7.17 Limitation on Subsidiary Formation . . . . . . . . . . . . . . 63
7.18 Limitation on Aircraft Leases, Registration and Operation . . . 63
7.19 Certificated Air Carrier . . . . . . . . . . . . . . . . . . . 63
7.20 Additional Collateral . . . . . . . . . . . . . . . . . . . . . 63

-ii-

<PAGE>

SECTION 8 EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . 64

SECTION 9 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . 66
9.1 Amendments and Waivers. . . . . . . . . . . . . . . . . . . . . 66
9.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
9.3 No Waiver; Cumulative Remedies. . . . . . . . . . . . . . . . . 67
9.4 Survival of Representations and Warranties. . . . . . . . . . . 67
9.5 Payment of Expenses and Taxes . . . . . . . . . . . . . . . . . 67
9.6 Successors and Assigns; Participations and Assignments . . . . 68
9.7 Adjustments; Set-off . . . . . . . . . . . . . . . . . . . . . 70
9.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 70
9.9 Severability . . . . . . . . . . . . . . . . . . . . . . . . . 70
9.10 Integration . . . . . . . . . . . . . . . . . . . . . . . . . . 70
9.11 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . 70
9.12 Submission To Jurisdiction; Waivers . . . . . . . . . . . . . . 71
9.13 Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . 71
9.14 WAIVERS OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . 72
9.15 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . 72
</TABLE>

-iii-

<PAGE>

<TABLE>
SCHEDULES
<S> <C>
Schedule I Approved Aircraft, Approved Aircraft Leases, Permitted
Jurisdictions and Permitted Lessees
Schedule 1.1 Aircraft, Aircraft Engines and Aircraft Leases
Schedule 2.3 Term Loan Principal Repayment Schedule
Schedule 4.4 Consents, Authorizations and Filings
Schedule 4.19 Insurance
Schedule 4.22 Environmental Matters
Schedule 7.2 Indebtedness to Remain Outstanding after the Closing Date
Schedule 7.3 Liens to Remain Outstanding
Schedule 7.4 Guarantee Obligations to Remain Outstanding

EXHIBITS

Exhibit A Form of Borrowing Base Certificate
Exhibit B Form of Borrower Security Agreement
Exhibit C Form of Borrowing Certificate
Exhibit D-1 Form of Opinion of Special Counsel to the Borrower
Exhibit D-2 Form of Opinion of Special FAA Counsel
Exhibit E Form of Republic Intercreditor Agreement
Exhibit F Form of Aircraft Chattel Mortgage
Exhibit G Form of Consent and Agreement
Exhibit H Form of Landlord Waiver
</TABLE>

-iv-

<PAGE>

CW&T DRAFT 8/23/96
CREDIT AGREEMENT

CREDIT AGREEMENT, dated as of September *[__], 1996, between
International Airline Support Group, Inc., a Delaware corporation (the
"Borrower"), and BNY Financial Corporation, a New York corporation (the
"Lender").

RECITALS

The Borrower has requested that the Lender make available to the
Borrower senior secured revolving credit loans and a senior secured term loan,
in aggregate principal amounts at any one time outstanding not to exceed
$11,000,000.00 and $3,000,000.00, respectively, the proceeds of which would be
used (i) to repay certain existing senior debt of the Borrower, (ii) to provide
working capital requirements of the Borrower in the ordinary course of business
and (iii) to pay fees and expenses incurred in connection herewith. The Lender
is willing to make such extensions of credit available to the Borrower, but only
on the terms, and subject to the conditions, set forth in this Agreement.

The parties hereto hereby agree as follows:

SECTION 1. DEFINITIONS

1.1 DEFINED TERMS. As used in this Agreement, the following terms
shall have the following meanings:

"ACCOUNTS": as to any Person, all of the accounts, contract rights,
instruments, documents, chattel paper, general intangibles relating to
accounts, drafts and acceptances, and all other forms of obligations owing
to such Person, arising out of or in connection with the sale or lease of
Inventory or the rendition of services, excluding Lease Payment
Receivables, and all guarantees and other security therefor, whether
secured or unsecured, now existing or hereafter created, and whether or not
specifically pledged to the Lender hereunder or pursuant to any of the
other Credit Documents.

"AFFILIATE": as to any Person, any other Person (other than a
Subsidiary) which, directly or indirectly, is in control of, is controlled
by, or is under common control with, such Person. For purposes of this
definition, "control" of a Person (including, with its correlative
meanings, "controlled by" and "under common control with") means the power,
directly or indirectly, either to (a) vote 10% or more of the securities
having ordinary voting power for the election of directors or other similar
managers of such Person or (b) direct or cause the direction of the
management and policies of such Person, whether by contract or otherwise.

"AGREEMENT": this Credit Agreement, as amended, supplemented or
otherwise modified from time to time.

"AIRCRAFT": each aircraft in which the Borrower now has or may in the
future acquire an interest including all Aircraft Engines incorporated,
installed in or attached thereto and where the context permits the related
Manuals and Technical Records.

"AIRCRAFT CHATTEL MORTGAGES": means each of the aircraft chattel
mortgages in respect of each of the Aircraft and/or Aircraft Engines in
substantially the form of Exhibit F attached hereto, as the same may be
renewed, modified, amended, supplemented or restated, from time to time in
the manner provided therein.

-1-

<PAGE>

"AIRCRAFT ENGINE": shall mean each aircraft engine in which the
Borrower may now have or in the future acquire an interest and any aircraft
engine substituted by a lessee pursuant to an Aircraft Lease, together in
each case with any and all Aircraft Parts incorporated or installed in or
attached thereto and any Aircraft Part removed therefrom until such time as
a replacement part shall be substituted therefor. Except as otherwise set
forth herein, at such time as an aircraft engine shall be substituted by a
lessee pursuant to an Aircraft Lease, such replaced Aircraft Engine shall
cease to be an Aircraft Engine hereunder.

"AIRCRAFT INVENTORY": all Aircraft, Airframes, Aircraft Engines and
Aircraft Parts of the Borrower other than any Approved Aircraft and any
Airframes, Aircraft Engines and Aircraft Parts incorporated or installed
in, attached to, or otherwise identified as being related to or comprising
part of an Approved Aircraft.

"AIRCRAFT LEASE": means each aircraft lease agreement between the
Borrower, as lessor, and any lessee in respect of an Aircraft, as the same
may be renewed, modified, amended, supplemented or restated, from time to
time in the manner provided therein.

"AIRCRAFT NOTES": notes received by the Borrower as all or part of the
consideration for the sale by the Borrower of an Aircraft and pledged to
the Lender pursuant to a pledge agreement that is satisfactory in form and
substance to the Lender in its sole and absolute discretion.

"AIRCRAFT PARTS": shall mean all appliances, components, parts,
instruments, appurtenances, avionics, accessories, furnishings and other
equipment of whatever nature (other than complete Aircraft Engines), which
are now or from time to time may be incorporated or installed in or
attached to an aircraft (including without limitation the airframe of such
aircraft, any related aircraft engines and any related appliances,
components, parts, instruments, appurtenances, avionics, accessories,
furnishings and other equipment of whatever nature). Except as otherwise
set forth in an Aircraft Lease, only at such time as a replacement aircraft
part shall be substituted for an Aircraft Part in accordance with such
Aircraft Lease, shall the Aircraft Part so replaced cease to be an Aircraft
Part hereunder.

"AIRFRAME": each of the Aircraft, excluding any Aircraft Engines or
engines from time to time installed thereon, but including any and all
Aircraft Parts (except Aircraft Parts that are incorporated or installed in
or attached to any such Aircraft Engine or engine), so long as: (i) such
included Aircraft Parts shall be incorporated or installed in or attached
to such Aircraft (but not in or to any Aircraft Engines from time to time
installed thereon); or (ii) such included Aircraft Parts shall remain
identified or connected with such Aircraft in that they are subject to
repair, alteration or modification as provided in Sections 6.13 and 6.14 of
this Agreement, except Aircraft Engines from time to time installed
thereon.

"ALTERNATE BASE RATE": for any day, a rate per annum equal to the
higher of: (a) the Prime Rate in effect on such day; or (b) the Federal
Funds Effective Rate in effect on such day plus one-half of one percent
(0.5%).

"APPLICABLE MARGIN": with respect to each Loan, 2.00% per annum.

"APPRAISAL": means an appraisal of the fair market value and the
Forced Liquidation Value of each and every Aircraft, Airframe and Aircraft
Engine and of all Aircraft Parts, which is (i) conducted by the Appraiser,
(ii) prepared for and addressed to the Lender, (iii) based upon a physical
inspection of such Aircraft, Airframe, Aircraft Engine and Aircraft Part
and a review of related maintenance records and (iv) accompanied by all
back-up calculations made by such appraisal company.

"APPRAISER": Avmark Services Ltd. or such other recognized aircraft
appraisal company, which shall in all cases be unaffiliated with each of
the Borrower and the Lender and acceptable to the Lender.

-2-

<PAGE>

"APPROVED AIRCRAFT": means each Aircraft from time to time owned by
Borrower and listed as an Approved Aircraft and described on SCHEDULE I.
"APPROVED AIRCRAFT LEASE": means each Aircraft Lease listed from time
to time as an Approved Aircraft Lease on Schedule I.

"ASSIGNEE": as defined in Section 9.6(c).

"ASSIGNMENT AND ACCEPTANCE": as defined in Section 9.6(c).
"AVAILABLE REVOLVER FACILITY": at any time, an amount equal to the
excess, if any, of (a) the amount of the Revolver Facility (without regard
to whether any Revolver Advances are outstanding) over (b) the aggregate
unpaid principal amount of all Revolver Advances made by the Lender then
outstanding.

"BNY": The Bank of New York, a New York banking corporation.

"BORROWER": as defined in the heading to this Agreement.

"BORROWER SECURITY AGREEMENT": the Security Agreement to be executed
and delivered by the Borrower, substantially in the form of Exhibit B, as
the same may be amended, supplemented or otherwise modified from time to
time.

"BORROWING BASE CERTIFICATE": a certificate, substantially in the
form of Exhibit A, with appropriate insertions, showing the Borrowing Base
as of the date set forth therein, and executed on behalf of the Borrower by
a duly authorized officer thereof.

"BORROWING CERTIFICATE": a certificate substantially in the form of
Exhibit C.

"BORROWING DATE": any Business Day specified in a notice pursuant to
Section 2.2 or Section 2.4 as a date on which the Borrower requests the
Lender to make Loans hereunder.

"BUSINESS": as defined in Section 4.22.

"BUSINESS DAY": a day other than a Saturday, Sunday or other day on
which commercial banks in New York City are authorized or required by law
to close.

"CAPITAL STOCK": any and all shares, interests, participations or
other equivalents (however designated) of capital stock of a corporation,
any and all similar ownership interests in a Person (other than a
corporation) and any and all warrants or options to purchase any of the
foregoing.

"CASH EQUIVALENTS": (a) securities with maturities of 180 days or
less from the date of acquisition issued or fully guaranteed or insured by
the United States Government or any agency thereof, (b) certificates of
deposit and eurodollar time deposits with maturities of 180 days or less
from the date of acquisition and overnight bank deposits of the Lender or
of any commercial bank having capital and surplus in excess of
$500,000,000, (c) repurchase obligations of the Lender or of any commercial
bank satisfying the requirements of clause (b) of this definition, having a
term of not more than 180 days with respect to securities issued or fully
guaranteed or insured by the United States Government, (d) commercial paper
of a domestic issuer rated at least A-1 or the equivalent thereof by
Standard and Poor's Ratings Group ("S&P") or P-1 or the equivalent thereof
by Moody's Investors Service, Inc. ("Moody's") and in either case maturing

within 270 days after the day of acquisition, (e) securities with
maturities of 180 days or less from the date of acquisition issued or fully
guaranteed by any state, commonwealth or territory of the United States, by
any political subdivision or taxing authority of any such state,
commonwealth or

-3-

<PAGE>

territory or by any foreign government, the securities of which state,
commonwealth, territory, political subdivision, taxing authority or foreign
government (as the case may be) are rated at least A- by S&P or A3 by
Moody's, (f) securities with maturities of 180 days or less from the date
of acquisition backed by standby letters of credit issued by any Lender or
any commercial bank satisfying the requirements of clause (b) of this
definition or (g) shares of money market mutual or similar funds which
invest exclusively in assets satisfying the requirements of clauses (a)
through (f) of this definition.

"CERTIFICATED AIR CARRIER": a Citizen of the United States holding a
carrier operating certificate issued by the Secretary of Transportation
pursuant to Chapter 447 of Title 49, United States Code, for aircraft
capable of carrying ten or more individuals or 6,000 pounds or more of
cargo.

"CITIZEN OF THE UNITED STATES": the meaning specified in Section
40102(a)(15) of Title 49 of the United States Code or any similar
legislation of the United States of America enacted in substitution or
replacement therefor.

"CLOSING DATE": the date on which the conditions precedent set forth
in Section 5.1 are satisfied and the initial Loans are made hereunder.
"CODE": the Internal Revenue Code of 1986, as amended from time to
time.

"COLLATERAL": all property and interests in property of the Borrower,
now owned or hereinafter acquired, upon which a Lien is purported to be
created by any Security Document.

"COLLATERAL RESERVES": reserves for Eligible Accounts, Eligible Lease
Payment Receivables and Eligible Inventory, as are deemed appropriate by
the Lender in its sole discretion, including, without limitation, (i) in
respect of disputed items, deductions, allowances, credits, bill and hold
and consignment sales, letters of credit, airway releases, steamship
guarantees and any other offsets asserted or granted and (ii) reserves in
an amount equal to 35% of the cost of all Inventory located at FAA
overhaul, repair or certification facilities.

"COMMON STOCK": the Common Stock, $.001 par value per share, of the
Borrower.

"COMMONLY CONTROLLED ENTITY": an entity, whether or not incorporated,
which is under common control with the Borrower within the meaning of
Section 4001 of ERISA or is part of a group which includes the Borrower and
which is treated as a single employer under Section 414 of the Code.

"CONSENT AND AGREEMENT": each Consent and Agreement by and among the
Lender, the Borrower and a Lessee under an Aircraft Lease in substantially
the form attached hereto as Exhibit G or in such other form as the Lender
may in its sole and absolute discretion require.

"CONSOLIDATED CURRENT ASSETS": of any Person as of the date of
determination, all current assets of such Person and its consolidated
Subsidiaries (if any) determined in conformity with GAAP as at such date;
provided, however, that such amounts shall not include (a) any amounts for
any Indebtedness owing by an Affiliate of such Person, unless such
Indebtedness arose in connection with the sale of goods or other property
in the ordinary course of business and would otherwise constitute current
assets in conformity with GAAP, (b) any shares of stock issued by an
Affiliate of such Person, (c) the cash surrender value of any life
insurance policy, or (d) any Consolidated Intangibles of such Person.

"CONSOLIDATED CURRENT LIABILITIES": of any Person as of the date of
determination, all current liabilities of such Person and its consolidated
Subsidiaries (if any) determined in conformity with GAAP as at such date,
but in any event including the amounts of (a) all Indebtedness of such
Person payable on demand or, at the option of the Person to whom such
Indebtedness is owed, not more than twelve months

-4-

<PAGE>

after such date, and (b) all reserves in respect of such Indebtedness, the
validity of which is contested at such date.

"CONSOLIDATED EBITDA": for any period with respect to any Person, the
sum for such period of (a) Consolidated Net Income of such Person, and (b)
the sum of, without duplication, provisions for income taxes, distributions
permitted by Section 7.7, Consolidated Interest Expense, and depreciation
and amortization expense and other non-cash expenses, in each case as used
in determining such Consolidated Net Income.

"CONSOLIDATED INTANGIBLES": at a particular date with respect to any
Person, all assets of such Person and its consolidated Subsidiaries, if
any, determined on a consolidated basis at such date, that would be
classified as intangible assets in accordance with GAAP, but in any event
including, without limitation, unamortized debt discount and expense,
unamortized organization and reorganization expense, costs in excess of the
net asset value (determined in accordance with GAAP) of acquired companies,
copyrights, patents, trade or service marks, franchises, trade names,
goodwill and the amount of any write-up in the book value of any assets
resulting from any revaluation (other than revaluations arising out of
foreign currency valuations in accordance with GAAP) thereof after May 31,
1996.

"CONSOLIDATED INTEREST EXPENSE": for any period with respect to any
Person, the amount which, in conformity with GAAP, would be set forth
opposite the caption "interest expense" or any like caption (including
without limitation, imputed interest included in payments under Financing
Leases) on a consolidated income statement of such Person and its
consolidated Subsidiaries (if any) for such period excluding the
amortization of any original issue discount.

"CONSOLIDATED NET INCOME": for any period with respect to any Person,
the consolidated net income (or deficit) of such Person and its
consolidated Subsidiaries (if any) for such period (taken as a cumulative
whole), determined in accordance with GAAP, but without taking into account
any gains or losses resulting from any extraordinary or non-recurring items
as determined in accordance with GAAP.

"CONSOLIDATED TANGIBLE NET WORTH": at a particular date with respect
to any Person, all amounts which would be included under shareholders' or
partners' equity (or other equivalent category) on a consolidated balance
sheet of such Person and its consolidated Subsidiaries (if any) determined
on a consolidated basis in accordance with GAAP as at such date, plus an
amount equal to the outstanding principal balance of the Subordinated
Debentures as at such date and any other Indebtedness that by its terms is

subordinated to the Obligations on terms and conditions satisfactory to the
Lender and has a maturity of more than one year after the maturity of the
Obligations, minus Consolidated Intangibles of such Person as at such date,
plus, to the extent included in Consolidated Intangibles, deferred
financing costs in respect of the

-5-

<PAGE>

extensions of credit to be made on the Closing Date not reflected in the
projections referred to in Section 4.1(c).

"CONTRACTUAL OBLIGATION": as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.

"CRAF PROGRAM": the Civil Reserve Air Fleet Program currently
administered by the United States Air Force Mobility Command pursuant to
Executive Order No. 11490, as amended, or any substantially similar
program.

"CREDIT DOCUMENTS": this Agreement, the Security Documents, the
Republic Intercreditor Agreement, each Consent and Agreement, any Term
Note, any Revolver Note and any other documents, agreements or instruments
executed and delivered to the Lender pursuant to Section 6.11.

"CUSTOMER": the account debtor with respect to any Account and/or the
prospective purchaser of goods, services or both or with respect to any
contract or other arrangement with the Borrower pursuant to which the
Borrower is to deliver any personal property or perform any services in the
ordinary course of business, including without limitation each lessee under
an Aircraft Lease.

"DEFAULT": any of the events specified in Section 8, whether or not
any requirement for the giving of notice, the lapse of time, or both, or
any other condition, has been satisfied.

"DISPUTE": any defense, counterclaim, offset, dispute or other claim,
whether arising from or relating to an Account, a Lease Payment Receivable,
an Aircraft Lease or an Aircraft, or arising from or relating to any other
transaction or occurrence.

"DOLLARS" and "$": dollars in lawful currency of the United States of
America.

"ELIGIBLE ACCOUNTS": all Accounts of the Borrower arising in the
ordinary course of its business, evidencing the sale of goods and services
by the Borrower and which the Lender, in its sole discretion, shall deem to
be an Eligible Account based upon such considerations as the Lender may
from time to time deem appropriate. Without in any way limiting the
generality of the foregoing, (i) in general, unless otherwise determined by
the Lender as aforesaid, an Account shall not constitute an Eligible
Account unless it is subject to a perfected first priority Lien in favor of
the Lender, is free and clear of all Liens other than Liens permitted
pursuant to Section 7.3 and is evidenced by invoice, contract or other
document reasonably satisfactory to the Lender, and (ii) no Account of a
Customer shall be included within this definition if:

(a) such Account arises out of a sale made by the Borrower to (i) an
Affiliate or a Subsidiary of the Borrower or to a Person
controlled by an Affiliate or a Subsidiary of the Borrower, or
(ii) a Customer that is the Borrower's creditor or supplier,
except that the net amount, if any, owing to the Borrower may be
an Eligible Account;

(b) more than sixty (60) days have elapsed from the due date of such
Account or one hundred twenty (120) days from the invoice date of
such Account;

(c) fifty percent (50%) or more of the aggregate account balance of
Accounts due from such Customer is more than sixty (60) days past
due date or one hundred twenty (120) days past invoice date;

-6-

<PAGE>

(d) any covenant, representation or warranty contained in this
Agreement or in any other Credit Document with respect to such
Account has been breached in a material respect;

(e) the Lender is not and continues not to be satisfied with the
credit standing of such Customer, or the Lender is insecure or
otherwise believes, in its sole judgment, that collection of such
Account is doubtful or that such Account may not be paid by
reason of such Customer's financial inability to pay;

(f) other than as provided in paragraph (a) above, such Customer has
asserted any Dispute, offset or counterclaim against the
Borrower, such Account or any other Account due from such
Customer to the Borrower, or such Account is or could be expected
to become subject to any offset, deduction, defense, Dispute, or
counterclaim, or is contingent in any respect or for any reason,
but only to the extent of the amount in dispute;

(g) such Customer resides outside Canada, the continental United
States, Alaska, Hawaii, the U.S. Virgin Islands or such other
jurisdiction listed on Schedule I as a Permitted Jurisdiction,
unless the sale is covered by a letter of credit or credit
insurance in form and substance acceptable to the Lender in its
sole discretion; provided, however, that the Lender may approve
Accounts denominated in Dollars of Customers residing outside of
the foregoing jurisdictions as Eligible Accounts in its sole
judgment on a case-by-case basis;

(h) such Account is on a sale-and-return, sale on approval,
consignment or any other repurchase or return basis or is
evidenced by chattel paper;

(i) such Customer is the United States of America, any state or any
department, agency or instrumentality of any of them, unless the
Borrower assigns its right to payment of such Account to the
Lender pursuant to the Federal Assignment of Claims Act of 1940,
as amended, or has otherwise complied with all other applicable
statutes or ordinances;

(j) any of the following events occur or conditions exist with
respect to the goods giving rise to such Account: (i) if such
goods have not been shipped to, delivered to or accepted by such
Customer, or if possession and/or control of such goods is held,
maintained or retained by the Borrower or any Affiliate or
Subsidiary thereof (or any agent or custodian of the Borrower or
any Affiliate or Subsidiary thereof) for the account of or
subject to further and/or future direction from such Customer, or
(ii) if such Account otherwise does not represent a final sale,
or (iii) such goods have been repossessed, unless, in the case of
each of (i), (ii) or (iii), such goods are subject to a bill and
hold letter in form and substance satisfactory to the Lender;

(k) the amount of all Accounts of such Customer exceeds any credit
limit determined by the Lender, in its sole discretion, to the
extent that the amount of such Account exceeds such limit;

(l) such Customer has commenced or has had commenced against it a
case under any federal, state or other bankruptcy or insolvency
laws, as now constituted or hereafter amended, or made an
assignment for the benefit of creditors, or if a decree or order
for relief has been entered by a court having jurisdiction in the
premises in respect of such Customer in an involuntary case under
any state or federal bankruptcy laws, as now constituted or
hereafter amended, or if any other petition or other application
for relief under any state or federal bankruptcy law has been
filed against such Customer, or if such Customer has failed,
suspended business, ceased to be solvent, called a meeting of

-7-

<PAGE>

its creditors (in order to discuss financial insolvency or lack
of liquidity), or consented to or suffered a receiver, trustee,
liquidator or custodian to be appointed for it or for all or a
significant portion of its assets or affairs;

(m) to the extent that the Borrower has made any agreement with such
Customer for any deduction therefrom, except for discounts or
allowances made in the ordinary course of business for prompt
payment, all of which discounts or allowances shall be reflected
in the calculation of the face value of each respective invoice
related thereto;

(n) such Account is not payable to the Borrower; or

(o) in the case of each Aircraft Note, such note does not mature
prior to ninety (90) days before the Termination Date.
"ELIGIBLE INVENTORY": all Inventory of the Borrower (including,
without limitation, Aircraft Inventory) other than Approved Aircraft, which
is located in the United States of America, which is in good and saleable
condition and which is not, in the Lender's sole opinion, obsolete,
damaged, slow moving or unmerchantable and which the Lender, in its sole
discretion, shall deem Eligible Inventory based upon such considerations as
the Lender may from time to time deem appropriate, including, without
limitation, the Borrower's compliance in all material respects with
Environmental Laws and other Requirements of Law and the waiver by
landlords of any leased property on which Inventory is located of any
landlord's liens thereon. In general, unless otherwise determined by the
Lender as aforesaid, Inventory shall not constitute Eligible Inventory
unless it is subject to a perfected first priority Lien in favor of the
Lender and is free and clear of all Liens other than Liens permitted
pursuant to Section 7.3.

"ELIGIBLE LEASE PAYMENT RECEIVABLES": all Lease Payment Receivables
of the Borrower which the Lender, in its sole discretion, shall deem to be
an Eligible Lease Payment Receivable based upon such considerations as the
Lender may from time to time deem appropriate. Without in any way limiting
the generality of the foregoing, (i) in general, unless otherwise
determined by the Lender as aforesaid, a Lease Payment Receivable shall not
constitute an Eligible Lease Payment Receivable unless it is subject to a
perfected first priority Lien in favor of the Lender, and is free and clear
of all Liens other than Liens permitted pursuant to Section 7.3, and (ii)
no Lease Payment Receivable of a Customer shall be included within this
definition if:

(a) such Lease Payment Receivable arises out of an Aircraft Lease (i)
which is not an Approved Aircraft Lease with a Permitted Lessee,
(ii) with an Affiliate or Subsidiary of the Borrower or with a
Person controlled by an Affiliate or a Subsidiary of the
Borrower, or (iii) with a Customer that is the Borrower's
creditor or supplier, except that the net amount if any owing to
the Borrower may be an Eligible Lease Payment Receivable;

(b) more than forty-five (45) days have elapsed from the due date of
such Lease Payment Receivable;

(c) any covenant, representation or warranty contained in this
Agreement, the related Aircraft Lease or any other Credit
Document with respect to such Lease Payment Receivable has been
breached in a material respect;

(d) the Lender is not and continues not to be satisfied with the
credit standing of such Customer, or the Lender is insecure or
otherwise believes, in its sole judgment, that collection of such
Lease Payment Receivable is doubtful or that such Lease Payment
Receivable may not be paid by reason of such Customer's financial
inability to pay;

-8-

<PAGE>

(e) other than as provided in paragraph (a) above, such Customer has
asserted any Dispute, offset or counterclaim against the
Borrower, such Lease Payment Receivable or any other Lease
Payment Receivable due from such Customer to the Borrower, or
such Account is or could be expected to become subject to any
offset, deduction, defense, Dispute, or counterclaim, or is
contingent in any respect or for any reason, but only to the
extent of the amount in dispute;

(f) such Customer resides outside Canada, the continental United
States, Alaska, Hawaii or the U.S. Virgin Islands or such other
jurisdiction listed on Schedule I as a Permitted Jurisdiction;
provided, however, that the Lender may approve Lease Payment
Receivables denominated in Dollars of Customers residing outside
of the foregoing jurisdictions as Eligible Lease Payment
Receivables in its sole judgment on a case-by-case basis;

(g) such Customer is the United States of America, any state or any
department, agency or instrumentality of any of them, unless the
Borrower assigns its right to payment of such Lease Payment
Receivable to the Lender pursuant to the Federal Assignment of
Claims Act of 1940, as amended, or has otherwise complied with
all other applicable statutes or ordinances;

(h) such Customer has commenced or has had commenced against it a
case under any federal, state or other bankruptcy or insolvency
laws, as now constituted or hereafter amended, or made an
assignment for the benefit of creditors, or if a decree or order
for relief has been entered by a court having jurisdiction in the
premises in respect of such Customer in an involuntary case under
any state or federal bankruptcy laws, as now constituted or
hereafter amended, or if any other petition or other application
for relief under any state or federal bankruptcy law has been
filed against such Customer, or if such Customer has failed,
suspended business, ceased to be solvent, called a meeting of its
creditors (in order to discuss financial insolvency or lack of
liquidity), or consented to or suffered a receiver, trustee,
liquidator or custodian to be appointed for it or for all or a
significant portion of its assets or affairs; and

(i) such Customer has not executed and delivered a valid and binding
Consent and Agreement, or, if such a Consent and Agreement is not
delivered, the Approved Aircraft Lease does not in the opinion of
the Lender contain all of the substantive provisions of a Consent
and Agreement and afford the rights, privileges and protections
thereof to the Lender as a party or third party beneficiary
thereof, or in each case has not delivered such other documents,
instruments, and opinions of counsel as the Lender may in its
sole and absolute discretion require.

"ENVIRONMENTAL LAWS": any and all foreign, Federal, state, local or
municipal laws, rules, orders, regulations, statutes, ordinances, codes,
decrees, requirements of any Governmental Authority or other Requirements
of Law (including common law) regulating, relating to or imposing liability
or standards of conduct concerning protection of human health, natural
resources, wildlife or the environment, as now or may at any time hereafter
be in effect.
"EQUIPMENT": with respect to any Person, all of the equipment,
machinery and goods (excluding Inventory) of such Person, wherever located
and whether now owned or hereafter acquired, including, without limitation,
all apparatus, motor vehicles, fittings, furniture, furnishing, fixtures,
parts, accessories and all replacements and substitutions therefor or
accessions thereto.

"ERISA": the Employee Retirement Income Security Act of 1974, as
amended from time to time.

-9-

<PAGE>

"EVENT OF DEFAULT": any of the events specified in Section 8;
provided that any requirement for the giving of notice, the lapse of time,
or both, or any other condition, has been satisfied.

"EVENT OF LOSS": with respect to the Aircraft, Airframes, Aircraft
Engines and Aircraft Parts, any of the following events: (i) the loss of
such property or the use thereof due to the destruction of or damage to
such property that renders repair uneconomic or that renders such property
permanently unfit for normal use by the Borrower or any lessee of such
property for any reason whatsoever; (ii) any damage to such property that
results in an insurance settlement with respect to such property on the
basis of a total loss; (iii) the theft or disappearance of such property
that results in loss of use or possession of such property by the Borrower
or any lessee of such property for a period in excess of one hundred and
twenty (120) days; (iv) the confiscation, condemnation, or seizure of, or
requisition of title to such property by any governmental or purported
governmental authority of the United States or any agency or
instrumentality of any thereof (other than a requisition for use by any
such authority, such as the CRAF Program), that in the case of any event
referred to in this clause (iv) shall have resulted in the loss of
possession or use of such property by the Borrower or any lessee of such
property for a period in excess of one hundred and twenty (120) consecutive
days; (v) the confiscation, condemnation, or seizure of or requisition of
title to such property by any foreign governmental authority or purported
governmental authority or any agency or instrumentality of any thereof
(other than a requisition of use by any such authority described in clause
(vii) below) that in the case of any event referred to in this clause (v)
shall have resulted in the loss of possession or use of such property by
the Borrower or any lessee of such property for a period in excess of one
hundred and twenty (120) consecutive days, (vi) as a result of any law,
rule, regulation, order or other action by the FAA or other governmental
body of the government of registry of the Aircraft having jurisdiction, the
use of such property in the normal course of the business of air
transportation shall have been prohibited for a period of one hundred
eighty (180) consecutive days, unless the Borrower (or any lessee of such
property), prior to the expiration of such one hundred eighty day (180-day)
period, shall have undertaken and shall be diligently carrying forward all
steps that are necessary or desirable to permit the normal use of such
property by the Borrower (or any lessee of such property) but in no case
shall such use have been prohibited for a period in excess of two
consecutive years; (vii) the requisition for use (which does not involve or
threaten to involve the confiscation, condemnation, seizure or requisition
of title to such property) by any foreign governmental authority or any
agency or instrumentality thereof that continues for a period in excess of
one hundred eighty (180) consecutive days; provided, that the time periods
referenced in clauses (iii), (iv) and (v) above, whichever is applicable,
shall be increased to one hundred eighty (180) days if such event is
covered by insurance referenced in Section 6.6(a), (b) or (c) below (as
applicable). An Event of Loss with respect to the Aircraft shall be deemed
to have occurred if an Event of Loss occurs with respect to the Airframe.

"EXISTING MORTGAGES": *[___________________________________].

"FAA": the U.S. Federal Aviation Administration.

"FEDERAL FUNDS EFFECTIVE RATE": for any day, the weighted average of
the rates on overnight federal funds transactions with members of the
Federal Reserve System arranged by federal funds brokers, as published on
the next succeeding Business Day by the Federal Reserve Bank of New York,
or, if such rate is not so published for any day which is a Business Day,
the average of the quotations for the day of such transactions received by
BNY from three federal funds brokers of recognized standing selected by it.

"FACILITIES": the collective reference to the Revolver Facility and
the Term Loan Facility.

"FINANCING LEASE": any lease of property, real or personal, the
obligations of the lessee in respect of which are required in accordance
with GAAP to be capitalized on a balance sheet of the lessee.

-10-

<PAGE>

"Fixed Charge Coverage Ratio": for any period with respect to any
Person, the ratio of (a) Consolidated EBITDA of such Person for such period
MINUS the aggregate amount of all expenditures made or committed to be made
by such Person and its consolidated Subsidiaries, if any, during such
period in respect of the purchase or other acquisition of fixed or capital
assets (other than any such expenditures financed with Indebtedness
permitted under Section 7.2(b)) minus the amount of all taxes paid by such
Person and its consolidated Subsidiaries (and, without duplication, the
amount of all distributions made by such Person and its Subsidiaries as
permitted by Section 7.7), if any, during such period, to (b) the sum of
(i) all scheduled payments of principal of Indebtedness of such Person and
its consolidated Subsidiaries, if any, during such period and (ii) all cash
interest expense of such Person and its consolidated Subsidiaries, if any,
during such period (including without limitation all imputed interest in
respect of Financing Leases), in each such case determined in accordance
with GAAP.

"FORCED LIQUIDATION VALUE": as to any Aircraft, Airframe, Aircraft
Engine or Aircraft Part, or group of any of the foregoing, as determined by
the Lender or the Appraiser, the value of such Aircraft, Airframe, Aircraft
Engine, Aircraft Part or group based on the assumption that it is sold
under an immediate "auction" sale.

"GAAP": generally accepted accounting principles in the United States
of America in effect from time to time.

"GOVERNING DOCUMENTS": as to any Person, its articles or certificate
of incorporation and by-laws, its partnership agreement, its certificate of
formation and operating agreement, and/or the other organizational or
governing documents of such Person.

"GOVERNMENTAL AUTHORITY": any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government.

"GUARANTEE OBLIGATION": as to any Person (the "guaranteeing person"),
any obligation of (a) the guaranteeing person or (b) another Person
(including, without limitation, any bank under any letter of credit) to
induce the creation of which the guaranteeing person has issued a
reimbursement, counterindemnity or similar obligation, in either case
guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends
or other obligations (the "primary obligations") of any other third Person
(the "primary obligor") in any manner, whether directly or indirectly,
including, without limitation, any obligation of the guaranteeing person,
whether or not contingent, (i) to purchase any such primary obligation or
any property constituting direct or indirect security therefor, (ii) to
advance or supply funds (1) for the purchase or payment of any such primary
obligation or (2) to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor, (iii) to purchase property, securities or services
primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor to make payment of such
primary obligation or (iv) otherwise to assure or hold harmless the owner
of any such primary obligation against loss in respect thereof; provided,
however, that the term Guarantee Obligation shall not include endorsements
of instruments for deposit or collection in the ordinary course of
business. The terms "Guarantee" and "Guaranteed" used as a verb shall have
a correlative meaning. The amount of any Guarantee Obligation of any
guaranteeing person shall be deemed to be the lower of (a) an amount equal
to the stated or determinable amount of the primary obligation in respect
of which such Guarantee Obligation is made and (b) the maximum amount for
which such guaranteeing person may be liable pursuant to the terms of the
instrument embodying such Guarantee Obligation, unless such primary
obligation and the maximum amount for which such guaranteeing person may be
liable are not stated or determinable, in which case the amount of such
Guarantee Obligation shall be such guaranteeing person's maximum reasonably
anticipated liability in respect thereof as determined by the Borrower in
good faith.

-11-

<PAGE>

"INDEBTEDNESS": of any Person at any date, without duplication, (a)
all indebtedness of such Person for borrowed money (whether by loan or the
issuance and sale of debt securities) or for the deferred purchase price of
property or services (other than current trade liabilities incurred in the
ordinary course of business and payable in accordance with customary
practices), (b) any other indebtedness of such Person which is evidenced by
a note, bond, debenture or similar instrument, (c) all obligations of such
Person under Financing Leases, (d) all obligations of such Person in
respect of letters of credit, acceptances or similar instruments issued or
created for the account of such Person and (e) all liabilities secured by
any Lien on any property owned by such Person even though such Person has
not assumed or otherwise become liable for the payment thereof.

"INSOLVENCY": with respect to any Multiemployer Plan, the condition
that such Plan is insolvent within the meaning of Section 4245 of ERISA.

"INSOLVENT": pertaining to a condition of Insolvency.

"INTEREST PAYMENT DATE": as to any Loan, the last day of each
calendar month.

"INVENTORY": with respect to any Person, all now owned or hereafter
acquired inventory (including without limitation Approved Aircraft and
Aircraft Inventory), wherever located, including any such inventory which
is in transit, as would be reflected on the financial statements of such
Person in accordance with GAAP, and all documents of title or other
documents representing such property.

"LEASE PAYMENT RECEIVABLES": means all rights to payment or receipt of
money owing or to be owing to Borrower under any Aircraft Lease, all
proceeds thereof and all files in which Borrower has any interest
whatsoever containing information identifying or pertaining thereto and all
Borrower's right, title, security and guaranties with respect to each such
Aircraft Lease.

"LEDGER DEBT": as defined in Section 3.5(d).

"LENDING OFFICE": the lending office of the Lender located at 1290
Avenue of the Americas, New York, New York, 10104, or as may from time to
time be designated as such in a writing delivered to the Borrower.

"LIEN": any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), charge or other
security interest or any preference, priority or other security agreement
or preferential arrangement of any kind or nature whatsoever (including,
without limitation, any conditional sale or other title retention agreement
and any Financing Lease having substantially the same economic effect as
any of the foregoing), and the filing of any financing statement under the
Uniform Commercial Code or comparable law of any jurisdiction in respect of
any of the foregoing.

"LOAN": any loan, including without limitation any Revolver Advance
and any Term Loan, made by any Lender pursuant to this Agreement.

"MANUALS AND TECHNICAL RECORDS:" all such manuals, technical data,
log books and other records pertaining to the Aircraft to be maintained by
the Borrower or any lessee under an Aircraft Lease or as shall be required
to comply with the requirements of the FAA or any Regulatory Authority from
time to time applicable and in force.

"MATERIAL ADVERSE EFFECT": a material adverse effect on (a) the
business, operations, property, condition (financial or otherwise) or
prospects of the Borrower, and its Subsidiaries, if any, taken as a whole
or (b) the validity or enforceability of this or any of the other Credit
Documents or the rights or remedies of the Lender hereunder or thereunder.

-12-

<PAGE>

"MATERIAL ENVIRONMENTAL AMOUNT": an amount payable by the Borrower in
excess of $100,000 for remedial costs, compliance costs, compensatory
damages, punitive damages, fines, penalties or any combination thereof.

"MATERIALS OF ENVIRONMENTAL CONCERN": any gasoline or petroleum
(including crude oil or any fraction thereof) or petroleum products or any
hazardous or toxic substances, materials or wastes, defined or regulated as
such in or under any Environmental Law, including, without limitation,
asbestos, polychlorinated biphenyls and urea-formaldehyde insulation.

"MULTIEMPLOYER PLAN": a Plan which is a multiemployer plan as defined
in Section 4001(a)(3) of ERISA.

"NET PROCEEDS": (i) the aggregate cash consideration received by the
Borrower in connection with any transaction referred to in clause (i) of
Section 3.3(d) or in Section 3.3(e) less (ii) the expenses (including out-
of-pocket expenses) incurred by the Borrower in connection with such
transaction (including, in the case of any issuance of debt or equity
securities, underwriters' commissions and fees) and the amount of any
federal and state taxes incurred in connection with such transaction, in
each case as certified by a Responsible Officer to the Lender at the time
of such transaction, less (iii) with respect to any sale, lease,
assignment, exchange or other disposition of any asset, all amounts
required to repay outstanding Indebtedness of the Borrower permitted
hereunder secured by a Lien on such asset permitted hereunder and which is
senior to any Lien of the Lender on such asset under the Security
Documents.

"NON-EXCLUDED TAXES": as defined in Section 3.6.

"OBLIGATIONS": the unpaid principal amount of, and interest
(including, without limitation, interest accruing after the maturity of the
Loans and interest accruing after the filing of any petition in bankruptcy,
or the commencement of any insolvency, reorganization or like proceeding,
relating to the Borrower, whether or not a claim for post-filing or post-
petition interest is allowed in such proceeding) on the Loans, and all
other obligations and liabilities of the Borrower to the Lender, whether
direct or indirect, absolute or contingent, due or to become due, or now
existing or hereafter incurred, which may arise under, or out of or in
connection with this Agreement, the Security Documents or any other Credit
Document, or any other document made, delivered or given in connection
therewith or herewith, whether on account of principal, interest,
reimbursement obligations, fees, indemnities, costs, expenses (including,
without limitation, all fees and disbursements of counsel to the Lender
that are required to be paid by the Borrower pursuant to the terms of the
Credit Documents) or otherwise.

"PARTICIPANT": as defined in Section 9.6(b).

"PBGC": the Pension Benefit Guaranty Corporation established pursuant
to Subtitle A of Title IV of ERISA.

"PERMITTED JURISDICTION": with respect to any Eligible Account,
Eligible Lease Payment Receivable or Approved Aircraft, any jurisdiction
listed in Schedule 1.1 as a Permitted Jurisdiction and, in the case of
Eligible Accounts and Eligible Lease Payment Receivables, in which the
obligor thereon resides and, in the case of Approved Aircraft, in which
such Approved Aircraft is registered.

"PERMITTED LESSEE": each lessee under an Aircraft Lease listed as a
Permitted Lessee in Schedule 1.1.

"PERSON": an individual, partnership, corporation, limited liability
company, business trust, joint stock company, trust, unincorporated
association, joint venture, Governmental Authority or other entity of
whatever nature.

-13-

<PAGE>

"PLAN": at a particular time, any employee benefit plan which is
covered by ERISA and in respect of which the Borrower or a Commonly
Controlled Entity is (or, if such plan were terminated at such time, would
under Section 4069 of ERISA be deemed to be) an "employer" as defined in
Section 3(5) of ERISA.

"PRIME RATE": the rate of interest publicly announced from time to
time by BNY at its principal office in New York as its prime rate or prime
lending rate. This rate of interest is determined from time to time by BNY
as a means of pricing some loans to its customers and is neither tied to
any external rate of interest or index nor does it necessarily reflect the
lowest rate of interest actually charged by BNY to any particular class or
category of customers of BNY. BNY and the Lender may make commercial loans
or other loans at rates of interest at, above or below the Prime Rate.

"PROPERTIES": as defined in Section 4.22.

"REAL ESTATE": with respect to any Person, all of the right, title,
and interest of such Person in any and all real property, whether now owned
or hereafter acquired, or in which it has an interest at any time and from
time to time, including, without limitation, all rights and easements in
connection therewith and all buildings and improvements now or hereafter
constructed thereon.

"REGULATION G": Regulation G of the Board of Governors of the Federal
Reserve System as in effect from time to time.

"REGULATION U": Regulation U of the Board of Governors of the Federal
Reserve System as in effect from time to time.
"REORGANIZATION": with respect to any Multiemployer Plan, the
condition that such plan is in reorganization within the meaning of Section
4241 of ERISA.

"REPORTABLE EVENT": any of the events set forth in Section 4043(b) of
ERISA, other than those events as to which the thirty day notice period is
waived under Sections .13, .14, .16, .18, .19 or .20 of PBGC Reg. Section
2615.

"REPUBLIC MORTGAGE": that certain existing Mortgage and Security
Agreement made as of the 18th day of September, 1992 by the Borrower to
Republic, as the same may be amended, supplemented or otherwise modified
from time to time.

"REPUBLIC": Republic National Bank of Miami.

"REPUBLIC INTERCREDITOR AGREEMENT": that Intercreditor Agreement
between the Lender and Republic in substantially the form attached hereto
as Exhibit E.

"REQUIREMENT OF LAW": as to any Person, the partnership agreement,
certificate of incorporation and by-laws or other organizational or
Governing Documents of such Person, and any law, treaty, rule or regulation
or determination of an arbitrator or a court or other Governmental
Authority, in each case applicable to or binding upon such Person or any of
its property or to which such Person or any of its property is subject.

"RESPONSIBLE OFFICER": the chief executive officer and president of
the Borrower or, with respect to financial matters, the executive vice
president and chief financial officer of the Borrower.

"REVOLVER ADVANCES": as defined in Section 2.1.

-14-

<PAGE>

"REVOLVER BORROWING BASE": at any time, the excess of:

I. the sum of (a) 85% (or such other percentage as the Lender shall
determine in its sole and absolute discretion) of the total
outstanding balance, after subtraction of any Collateral
Reserves, of then Eligible Accounts and Eligible Lease Payment
Receivables and (b) the least of (i) 100% (or such other
percentage as the Lender shall determine in its sole and absolute
discretion) of the total cost, after subtracting Collateral
Reserves, of the then Eligible Inventory plus $500,000.00, (ii)
75% (or such other percentage as the Lender shall determine in
its sole and absolute discretion) of the Forced Liquidation
Value, after subtracting any Collateral Reserves, of such
Eligible Inventory and (iii) $8,000,000.00;

over

II. the Revolver Reserve at such time.
The Revolver Borrowing Base in effect at any time shall be the Revolver
Borrowing Base as shown on the Borrowing Base Certificate most recently
delivered by the Borrower pursuant to this Agreement; provided, however,
that if the Borrower shall fail to deliver a Borrowing Base Certificate
when required pursuant to Section 6.2(c), the Borrowing Base in effect
shall be zero until such Borrowing Base Certificate is delivered.

"REVOLVER FACILITY": at any time, the obligation of the Lender to make
Revolver Advances to the Borrower hereunder in an aggregate principal
amount at any one time outstanding not to exceed $11,000,000.00, as such
obligation may be reduced from time to time in accordance with the
provisions of this Agreement.

"REVOLVER RESERVE": as of any date, an amount equal to the lesser of
(i) an amount equal to the excess, if any, of the Term Loan Facility Amount
on such date over the Term Loan Borrowing Base on such date and (ii) an
amount equal to the excess, if any, of the sum determined in accordance
with clause I of the definition of Revolver Borrowing Base on such date and
the aggregate outstanding Revolver Advances on such date.

"REVOLVER NOTE": as defined in Section 3.5(f).

"SECURITY DOCUMENTS": the collective reference to the Borrower
Security Agreement, the Aircraft Chattel Mortgages (including all mortgage
supplements thereto) and all other security documents hereafter delivered
to the Lender granting a Lien on any asset or assets of any Person to
secure any of the Obligations or to secure any guarantee of any such
Obligations.

"SENIOR SECURED NOTES": the 12% Senior Secured Notes due July 17,
1997 of the Borrower issued pursuant to the Senior Secured Notes Purchase
Agreements.

"SENIOR SECURED NOTES PURCHASE AGREEMENTS": the collective reference
to the Securities Purchase Agreements, each dated as of July 17, 1992,
between the Borrower and the original purchasers of the Senior Secured
Notes.

"SINGLE EMPLOYER PLAN": any Plan which is covered by Title IV of
ERISA, but which is not a Multiemployer Plan.

"SUBORDINATED DEBENTURES": the 8% Convertible Subordinated Debentures
due August 31, 2003, issued by the Borrower pursuant to the Subordinated
Debenture Purchase Agreements.

-15-

<PAGE>

"SUBORDINATED DEBENTURE CONVERSION": the exchange, pursuant to the
exchange offer, dated *[August __, 1996], of Subordinated Debentures
representing at least 80% of the outstanding principal balance of all
Subordinated Debentures at the time of the commencement of such exchange
offer for Common Stock.

"SUBORDINATED DEBENTURE PURCHASE AGREEMENTS": the collective
reference to the Securities Purchase Agreements, each dated as of September
8, 1993, between the Borrower and the original purchasers of the
Subordinated Debentures.

"SUBSIDIARY": as to any Person, a corporation, partnership or other
entity of which shares of stock or other ownership interests having
ordinary voting power (other than stock or such other ownership interests
having such power only by reason of the happening of a contingency) to
elect a majority of the board of directors or other managers of such
corporation, partnership or other entity are at the time owned, or the
management of which is otherwise controlled, directly or indirectly through
one or more intermediaries, or both, by such Person. Unless otherwise
qualified, all references to a "Subsidiary" or to "Subsidiaries" in this
Agreement shall refer to a Subsidiary or Subsidiaries of the Borrower.

"TERM LOAN BORROWING BASE": at any time, an amount equal to the sum of
(i) 80% (or such other percentage as the Lender shall determine in its sole
discretion) of the Forced Liquidation Value, after deduction of any
applicable Collateral Reserves, at such time, of all Approved Aircraft
domiciled in jurisdictions other than Kenya and (ii) 50% (or such other
percentage as the Lender shall determine in its sole discretion) of the
Forced Liquidation Value, after deduction of any applicable Collateral
Reserves, at such time, of all Approved Aircraft domiciled in Kenya.

"TERM LOAN FACILITY": at any time, the obligation of the Lender to
make the Term Loan in accordance with the provisions of this Agreement,
which shall not exceed an amount equal to $3,000,000.00 minus the aggregate
amount of repayments of principal then required to have been made in
accordance with Schedule 2.3.

"TERM LOAN FACILITY AMOUNT": at any time, the amount of the Term Loan
Facility, without regard to whether any Term Loans are outstanding.

"TERM LOAN": as defined in Section 2.2 (together with any advance made
in connection with the substitution of Approved Aircraft pursuant to
Section 2.5).

"TERM NOTE:" as defined in Section 3.5(f).

"TERMINATION DATE": *[September __,] 2001.

"TRANSFEREE": as defined in Section 9.6(d).

1.2 Other Definitional Provisions. (a) Unless otherwise specified
therein, all terms defined in this Agreement shall have the defined meanings
when used in any certificate or other document made or delivered pursuant
hereto.

(b) As used herein and in any certificate or other document made or
delivered pursuant hereto, accounting terms relating to the Borrower or its
Subsidiaries, if any, not defined in Section 1.1 and accounting terms partly
defined in Section 1.1, to the extent not defined, shall have the respective
meanings given to them under GAAP.

-16-

<PAGE>

(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Section, Schedule and
Exhibit references are to this Agreement unless otherwise specified.

(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.

SECTION 2. AMOUNT AND TERMS OF FACILITIES

2.1 REVOLVER FACILITY. Subject to the terms and conditions hereof,
the Lender agrees in its reasonable discretion to make revolving credit loans
("Revolver Advances") to the Borrower from time to time during the period
commencing with and including the Closing Date and ending with the termination
of this Agreement in an aggregate principal amount at any one time outstanding
not to exceed the lesser of the Revolver Facility then in effect and the
Revolver Borrowing Base then in effect. During the term of this Agreement the
Borrower may use the Revolver Facility by borrowing, prepaying the Revolver
Advances in whole or in part, and reborrowing, all in accordance with the terms
and conditions hereof.

2.2 PROCEDURE FOR BORROWING UNDER REVOLVER. The Borrower may borrow
under the Revolver Facility during the term of this Agreement on any Business
Day in an aggregate principal amount not exceeding the Available Revolver
Facility then in effect; provided that the Borrower shall give the Lender
irrevocable notice, which notice must be received by the Lender prior to 12:00
noon, New York City time on the requested Borrowing Date, specifying (i) the
amount to be borrowed and (ii) the requested Borrowing Date. Upon receipt of
any such notice from the Borrower, the Lender shall make the amount of each
borrowing available to the Borrower by wire transfer of immediately available
funds to the Borrower's account at *[_____________], Account No. *[_____________
(ABA No.____________)] or, with respect to Revolver Advances deemed to have been
requested, by disbursing the amount thereof to the Lender in payment of
outstanding Obligations.

2.3 TERM LOAN FACILITY. Subject to the terms and conditions hereof,
the Lender agrees to make a term loan to the Borrower in one advance (such
advance, together with any advances made in connection with the substitution of
Approved Aircraft pursuant to Section 2.5 hereof, the "Term Loan") on the
Closing Date in the principal amount of the lesser of (a) the Term Loan Facility
Amount on such date and (b) the Term Loan Borrowing Base on such date plus the
Revolver Reserve on such date. The Term Loan shall be dated the Closing Date,
stated to mature in the installments and amounts payable on the dates set forth
in Schedule 2.3 hereto, and bear interest for the period from the Closing Date
on the unpaid principal amount thereof at the applicable interest rates per
annum specified in Section 3.1. All payments of principal shall reduce the Term
Loan Facility on a dollar-for-dollar basis.

2.4 PROCEDURE FOR TERM LOAN BORROWING. The Borrower shall give the
Lender irrevocable notice, which notice must be received by the Lender prior to
12:00 noon, New York City time, on the requested Borrowing Date for the Term
Loan (other than any advance requested to be made in connection with the
substitution of Approved Aircraft pursuant to Section 2.5 (each such advance, a
"Substitution Advance") and at least ten (10) Business Days prior to the
requested Borrowing Date for any Substitution Advance, in each case requesting
that the Lender make such advance on the requested Borrowing Date. The amount
of the Term Loan (including any advance agreed by the Lender to be made in
connection with the substitution of Approved Aircraft pursuant to Section 2.5)
shall be made available to the Borrower by wire transfer of immediately
available funds to the Borrower's account at *[_____________], Account No.
*[_____________ (ABA No.____________].

2.5 DISCRETIONARY TERM LOAN ADVANCE UPON SUBSTITUTION OF APPROVED
AIRCRAFT. At the request of the Borrower and after substitution of an Approved
Aircraft (the "Substitute Aircraft") for an Approved Aircraft within six months
after repayment of the Term Loan to the extent and as required by Section 3.3(d)
hereunder, the Lender may make an advance in an amount equal to the lesser of
(i) 80% (or such other percentage as the Lender shall determine in its sole
discretion) of the Forced Liquidation Value of the Substitute Aircraft if it is

-17-

<PAGE>

domiciled in a jurisdiction other than Kenya, less any applicable Collateral
Reserve, and 50% (or such other percentage as the Lender shall determine in its
sole discretion) of the Forced Liquidation Value of the Substitute Aircraft
domiciled in Kenya, less any applicable Collateral Reserve and (ii) the amount,
if any, by which (A) $3,000,000.00 minus all repayments of principal made, or
required to have been made on or prior to the date of such advance in accordance
with Schedule 2.3, hereto exceeds (B) the outstanding principal balance of the
Term Loan on such date (prior to the making of such Advance). Each such
advance, if any, shall be made in the sole and absolute discretion of the Lender
and shall be deemed to be a Term Loan for all purposes hereunder and shall
increase the Term Loan Facility on a dollar-for-dollar basis. From and after
the making of such advance the outstanding principal balance of the Term Loan
shall include the amount of such advance, interest shall be payable on such
amount, and the amount of each scheduled principal repayments shall be
increased pro rata by such amount.

SECTION 3. GENERAL PROVISIONS APPLICABLE TO LOANS

3.1 INTEREST RATES AND PAYMENT DATES. (a) Loans shall bear interest
at a rate per annum equal to the Alternate Base Rate plus the Applicable
Margin.

(b) If on any five Business Days (whether or not consecutive)
occurring in any calendar month the amount of Revolver Advances outstanding on
each such Business Day exceeds the lesser of the Revolver Borrowing Base and the
Revolver Facility as in effect for each such Business Day with the permission of
the Lender pursuant to Section 3.3(c), then the average daily balance of all
Loans outstanding on each day during such month shall bear interest at the rate
determined pursuant to clause (a) of this Section 3.1 plus a per annum rate of
one-half of one percent (0.50%).

(c) If (i) all or a portion of (A) any principal of any Loan, (B) any
interest payable thereon, (C) any fee payable hereunder or (D) any other amount
payable hereunder shall not be paid when due (whether at the scheduled payment
date or stated maturity, or by acceleration or otherwise, but in the case of
clauses (B), (C) and (D) after giving effect to any applicable cure or grace
period under Section 8(a)), or (ii) an Event of Default not occurring as a
result of the failure to pay any such amount when due shall exist and be
continuing, then, in each such case, the principal of the Loans and any such
overdue interest, fee or other amount shall bear interest at a rate per annum
which is the rate that would otherwise be applicable thereto pursuant to the
foregoing provisions of this Section plus 2%, in each case from the date of such
non-payment until such overdue principal, interest, fee or other amount is paid
in full (as well after as before judgment).

(d) Interest shall be payable in arrears on each Interest Payment
Date, provided that interest accruing pursuant to paragraph (c) of this Section
shall be payable from time to time on demand.

(e) In no event shall any of the interest rates charged pursuant to
the terms of this Agreement exceed the highest rate permissible under any law
which a court of competent jurisdiction shall, in a final determination, deem
applicable hereto. In the event that such a court determines that the Lender
has received interest hereunder in excess of the highest applicable rate, such
excess interest shall be first applied to any unpaid principal balance owed by
the Borrower, and if the then remaining excess interest is greater than the
unpaid principal balance, the Lender shall promptly refund such excess interest
to the Borrower.

3.2 OPTIONAL LOAN PREPAYMENTS. (a) The Borrower may at any time and
from time to time prepay the Revolver Advances, in whole or in part, without
premium or penalty, after giving to the Lender notice, which must be received by
the Lender no later than 12:00 noon, New York City time on the date of such
prepayment and which must specify the date and amount of prepayment. If any
such notice is given, the amount specified in such notice shall be due and
payable on the date specified therein.

(b) The Borrower may at any time and from time to time prepay the
Term Loan, in whole or in part, without premium or penalty after giving to the
Lender notice, which must be received by the Lender no later than 12:00 noon,
New York City time on the date of such prepayment and which must specify the
date and amount

-18-

<PAGE>

of prepayment. If any such notice is given, the amount specified in such notice
shall be due and payable on the date specified therein and the amount of such
payments shall be applied against scheduled repayments of principal on a pro
rata basis and shall reduce the Term Loan Facility on a dollar-for-dollar basis.

3.3 Mandatory Loan Prepayments. (a) If on any date on which a
Borrowing Base Certificate is required to be delivered pursuant to
Section 6.2(c), the aggregate outstanding principal amount of the Revolver
Advances as of such date exceeds the Revolver Borrowing Base, the Borrower shall
prepay the Revolver Advances in an amount equal to the amount of such excess no
later than the Business Day immediately following the date of delivery of such
Borrowing Base Certificate. Without in any way limiting the foregoing, the
Borrower shall upon receipt of any insurance proceeds paid in connection with
the occurrence of an Event of Loss with respect to an Aircraft other than an
Approved Aircraft, prepay the Revolver Advances in an amount equal to such
insurance proceeds.

(b) If on any date on which a Borrowing Base Certificate is required
to be delivered pursuant to Section 6.2(c), the aggregate outstanding principal
amount of the Term Loan as of such date exceeds an amount equal to the sum of
the Term Loan Borrowing Base and the Revolver Reserve, the Borrower shall
immediately prepay the Term Loan in an amount equal to the amount of such
excess. The amount of such payment shall be applied against scheduled
repayments of principal on a pro rata basis and shall reduce the Term Loan
Facility on a dollar-for-dollar basis.

(c) Notwithstanding the provisions of paragraphs (a) and (b) of this
Section and subject to Section 3.1(b), the Lender may, in its sole and absolute
discretion and without waiver of any right hereunder, permit the amount of the
Revolver Advances to exceed the Revolver Borrowing Base for such time and upon
such terms and conditions as it may determine.

(d) The Borrower shall (i) immediately upon each sale of an Approved
Aircraft prepay the Term Loan in an amount equal to the lesser of (A) 100% of
the Net Proceeds thereof and (B) the sum of the Revolver Reserve and amount by
which the Term Loan Borrowing Base is reduced by such sale and (ii) within two
(2) Business Days after the occurrence of any Event of Loss with respect to an
Approved Aircraft prepay the Term Loan in an amount equal to the sum of the
Revolver Reserve and amount by which the Term Loan Borrowing Base is reduced by
such Event of Loss. Amounts so paid shall be applied to the scheduled
repayments of principal on a pro rata basis and shall reduce the Term Loan
Facility on a dollar-for-dollar basis.

(e) Unless the Lender otherwise agrees, the Borrower shall prepay the
Revolver Advances in an amount equal to 100% of the Net Proceeds of any sale,
lease, assignment, exchange or other disposition for cash of any asset or group
of assets (including, without limitation, insurance proceeds paid as a result of
any destruction, casualty or taking of any property of the Borrower), other than
Approved Aircraft and the Real Estate of the Borrower upon which its principal
executive offices are located on the Closing Date, not made in the ordinary
course of business by the Borrower, in any such case no later than three

-19-

<PAGE>

Business Days following receipt by the Borrower of such proceeds, together with
accrued interest to such date on the amount prepaid; provided that no such
prepayment shall be required pursuant to this Section 3.3(e) unless the
aggregate amount of such Net Proceeds received by the Borrower and not
previously applied to prepayment of the Revolver Advances is at least $100,000.
Nothing in this Section 3.3(e) shall be construed to derogate any restriction or
limitation contained in any Credit Document imposed on any transaction of the
types described in this Section 3.3(e), including without limitation the
restrictions set forth in Sections 7.2, 7.5, and 7.6 hereof.

3.4 COMPUTATION OF INTEREST AND FEES. (a) All fees and interest
shall be calculated on the basis of a 360-day year for the actual days elapsed.

(b) Each determination of an interest rate by the Lender pursuant to
any provision of this Agreement shall be conclusive and binding on the Borrower
in the absence of manifest error. The Lender shall, at the request of the
Borrower, deliver to the Borrower a statement showing the quotations used by the
Lender in determining any interest rate pursuant to Section 3.1(a).

3.5 OBLIGATIONS AND PAYMENTS. (a) Unless otherwise specified, all
Obligations, including all Loans and any debit balance(s) in the Borrower's
account(s), shall be payable on the Termination Date, or if earlier, the
effective termination date of this Agreement. Recourse to the Collateral will
not be required at any time. All credit balances or other sums at any time
outstanding to the Borrower's credit and all reserves on the Lender's books, and
all of the Borrowers property in the possession of the Lender at any time or in
the possession of any parent, Affiliate or Subsidiary of the Lender, or in which
the Lender or any parent, Affiliate or Subsidiary of any of them has a Lien or
security interest, may be held and reserved by the Lender as security for all
Obligations.

(b) The Borrower recognizes that the amounts evidenced by checks,
notes, drafts or any other items of payment relating to and/or proceeds of
Accounts or Lease Payment Receivables may not be collectible by the Lender on
the date received. The Lender shall only conditionally credit the Borrower's
account(s) on the Lender's books at such time as the Lender receives such
payment. In making computations under this Agreement, the settlement date for
each payment received, and the date on which the corresponding Account or Lease
Payment Receivable shall be deemed paid for purposes of calculating the Revolver
Borrowing Base, shall be three (3) Business Days after the date on which the
payment is actually received by the Lender, provided that such items of payment
have been collected in good funds and finally credited to the Lender's account.
The Lender shall not, however, be required to credit the Borrower's account for
the amount of any item of payment which is unsatisfactory to the Lender in its
reasonable discretion and the Lender may charge the Borrower's account(s) for
the amount of any item of payment which is returned to the Lender unpaid.

(c) All payments (including prepayments) of principal, interest and
other amounts payable hereunder, or under any of the related agreements shall be
made to the Lender, without set-off or counterclaim at the Lending Office not
later than 1:00 p.m. (New York City time) on the due date therefor in lawful
money of the United States of America in federal or other funds immediately
available to the Lender. If any payment hereunder becomes due and payable on a
day other than a Business Day, such payment shall be extended to the next
succeeding Business Day, and, with respect to payments of principal, interest
thereon, shall be payable at the then applicable rate during such extension.
The Lender shall have the right to effectuate payment on any and all Obligations
due and owing hereunder by charging the account(s) of the Borrower and shall
promptly notify the Borrower thereafter.

(d) The Borrower shall pay principal, interest, and all other
Obligations payable hereunder, or under any related agreement, without any
deduction whatsoever, including, but not limited to, any deduction for any
setoff or counterclaim. Until the earlier to occur of a Default or an Event of
Default, any payment(s) theretofore made in the ordinary course of the
Borrower's business of Ledger Debt (as defined immediately below)

-20-

<PAGE>

due from the Borrower, as an account debtor, may be made to the Lender (only),
with such deduction(s) as may be found in the ordinary course of business to be
proper and valid with respect to related sales, but following the occurrence of
a Default or an Event of Default, any payment(s) made thereafter as to Ledger
Debt due from the Borrower to the Lender shall be made without any deduction
whatsoever, including but not limited to any deduction for setoff or
counterclaim. For purposes of this subparagraph, the term "Ledger Debt" shall
mean and include all indebtedness and obligations due or to become due to the
Lender from the Borrower by reason of or in connection with the sale of goods
and/or the rendering of services from any factored client of the Lender to the
Borrower, as an account debtor, as to which the resulting account receivable is
sold or assigned to the Lender at any time and from time to time by such
factored client(s).

(e) All payments received or realized at any time and from time to
time by the Lender from or for the account of the Borrower, other than proceeds
of insurance applied pursuant to Section 6.6(d), and any proceeds thereof shall
be applied as follows:

FIRST, to the payment of all reasonable and invoiced costs
and expenses of the Lender in connection with the collection of such
payments or the sale of any Collateral or otherwise in connection with
this Agreement or any of the other Loan Documents, including all court
costs and the fees and expenses of its agents and legal counsel, the
repayment of all advances made by the Lender on behalf of the Borrower
in connection with the preservation of any Collateral or any exercise
of remedies under the Loan Documents and any other costs or expenses
incurred in connection with the exercise of any right or remedy
hereunder or under any of the other Loan Documents;

SECOND, to the payment in full of any interest accrued and
unpaid on the Loans;

THIRD, to the payment in full of all principal of the Loans;

FOURTH, to the payment in full of all other Obligations; and

FIFTH, to the Borrower, its successors or assigns, or as a
court of competent jurisdiction may otherwise direct.

All payments made to the Lender by or for the account of the Borrower
not constituting proceeds of Accounts or Lease Payment Receivables (whether such
proceeds are paid by the Customer to the Lender under the Borrower Security
Agreement or to directly to the Borrower), shall be so applied on the date of
receipt by the Lender of good funds therefor and all payments received or
realized at any time and from time to time by the Lender from or for the account
of the Borrower constituting proceeds of Accounts and Lease Payment Receivables,
other than proceeds of insurance applied pursuant to Section 6.6(d), and any
proceeds thereof, shall be so applied three Business Days after receipt thereof
by the Lender.

(f) The Borrower agrees that, upon the request by the Lender, the
Borrower will execute and deliver to the Lender (i) a promissory note of the
Borrower evidencing the Term Loan of the Lender, in form and substance
acceptable to the Lender (a "Term Note"), and/or (ii) a promissory note of the
Borrower evidencing the Revolver Advances of the Lender in form and substance
acceptable to the Lender (a "Revolver Note").

3.6 TAXES. (a) All payments made by the Borrower under this
Agreement shall be made free and clear of, and without deduction or withholding
for or on account of, any present or future income, stamp or other taxes,
levies, imposts, duties, charges, fees, deductions or withholdings, now or
hereafter imposed, levied, collected, withheld or assessed by any Governmental
Authority, excluding net income taxes and franchise taxes (imposed in lieu of
net income taxes) imposed on the Lender as a result of a present or former
connection between the Lender and the jurisdiction of the Governmental Authority
imposing such tax or any political subdivision or

-21-

<PAGE>

taxing authority thereof or therein (other than any such connection arising
solely from the Lender having executed, delivered or performed its obligations
or received a payment under, or enforced, this Agreement). If any such non-
excluded taxes, levies, imposts, duties, charges, fees deductions or
withholdings ("Non-Excluded Taxes") are required to be withheld from any amounts
payable to the Lender hereunder, the amounts so payable to the Lender shall be
increased to the extent necessary to yield to the Lender (after payment of all
Non-Excluded Taxes) interest or any such other amounts payable hereunder at the
rates or in the amounts specified in this Agreement, provided, however, that
the Borrower shall not be required to increase any such amounts payable to the
Lender if it shall cease to be, or any successor or assign shall not be,
organized under the laws of the United States of America or a state thereof and
shall fail to comply with the requirements of clause (b) of this Section.
Whenever any Non-Excluded Taxes are payable by the Borrower, as promptly as
possible thereafter the Borrower shall send to the Lender a certified copy of an
original official receipt received by the Borrower showing payment thereof. If
the Borrower fails to pay any Non-Excluded Taxes when due to the appropriate
taxing authority or fails to remit to the Lender the required receipts or other
required documentary evidence, the Borrower shall indemnify the Lender for any
incremental taxes, interest or penalties that may become payable by the Lender
as a result of any such failure. The agreements in this Section shall survive
the termination of this Agreement and the payment of the Loans and all other
amounts payable hereunder.

(b) If the Lender shall cease to be, or any successor to or assign of
the Lender shall not be, incorporated under the laws of the United States of
America or a state thereof, the Lender or its successor lender, as the case may
be, shall deliver to the Borrower (i) two duly completed copies of United States
Internal Revenue Service Form 1001 or 4224 or successor applicable form, as the
case may be, and (ii) an Internal Revenue Service Form W-8 or W-9 or successor
applicable form. The Lender or such successor or assignee, as the case may be,
also agrees to deliver to the Borrower two further copies of the said Form 1001
or 4224 and Form W-8 or W-9, or successor applicable form or other manner of
certification, as may be required, on or before the date that any such form
expires or becomes obsolete or after the occurrence of any event requiring a
change in the most recent form previously delivered by it to the Borrower, and
such extensions or renewals thereof as may reasonably be requested by the
Borrower, unless in any such case an event (including, without limitation, any
change in treaty, law or regulation) has occurred prior to the date on which any
such delivery would otherwise be required which renders all such forms
inapplicable or which would prevent such Lender from duly completing and
delivering any such form with respect to it and the Lender or such successor or
assignee, as the case may be, so advises the Borrower. The Lender or such
successor lender, as the case may be, shall certify (i) in the case of a Form
1001 or 4224, that it is entitled to receive payments under this Agreement
without deduction or withholding of any United States federal income taxes and
(ii) in the case of a Form W-8 or W-9, that it is entitled to an exemption from
United States backup withholding tax.

3.7 LENDING OFFICE; CHANGE OF LENDING OFFICE. Loans made by the
Lender shall be made and maintained at the Lending Office.

3.8 REPAYMENT OF LOANS; EVIDENCE OF DEBT. (a) The Borrower hereby
unconditionally promises to pay to the Lender the then unpaid principal amount
of each Loan on the Termination Date (or such earlier date on which the Loans
become due and payable pursuant to Section 8). The Borrower hereby further
agrees to pay interest on the unpaid principal amount of the Loans from time to
time outstanding from the date hereof until payment in full thereof at the rates
per annum, and on the dates, set forth in Section 3.1.

-22-

<PAGE>

(b) The Lender shall maintain in accordance with its usual practice a
loan account or accounts evidencing the indebtedness of the Borrower to the
Lender resulting from each Loan from time to time, including the dates and
amounts of principal and interest payable and paid to the Lender from time to
time under this Agreement.

(c) The entries made in the accounts of the Lender maintained
pursuant to Section 3.8(b) shall, to the extent permitted by applicable law, be
prima facie evidence of the existence and amounts of the obligations of the
Borrower therein recorded; provided, however, that the failure of the Lender to
maintain any such account, or any error therein, shall not in any manner affect
the obligation of the Borrower to repay (with applicable interest) the Loans
made to such Borrower by the Lender in accordance with the terms of this
Agreement.

(d) For each month, the Lender shall send to the Borrower a statement
showing the accounting for the Loans made to the Borrower, payments made or
credited in respect thereof, and other transactions between the Lender and the
Borrower during such month. Each such monthly statement shall be deemed correct
and binding upon the Borrower in the absence of manifest error and shall
constitute an account stated between the Lender and the Borrower unless the
Lender receives a written statement of the Borrower's specific exceptions
thereto within sixty (60) days after such statement is sent by the Lender to the
Borrower.

3.9 CLOSING FEE; FACILITY FEE . (a) On the Closing Date, the
Borrower shall pay to the Lender in immediately available funds a fee equal to
$70,000.00 (which shall be in addition to all fees paid to the Lender prior to
the execution and delivery of this Agreement). The Lender is hereby authorized
to withhold the amount of such fee from the proceeds of the Term Loan.

(b) The Borrower agrees to pay to the Lender a facility fee of
$7,500.00 per month for each month commencing with the month in which the
Closing Date occurs and ending with and including the month in which the
Termination Date (or such earlier date on which both of the Facilities shall
have terminated as provided herein) occurs. The fee for the month in which the
Closing Date occurs shall be pro rated based upon the number of days from and
including the Closing Date to and including the last day of such month.

3.10 EARLY TERMINATION FEE. Except as set forth in Section 9.6(c), if
the Borrower shall terminate the Facilities during any annual period following
the Closing Date set forth below, the Borrower shall concurrently pay to the
Lender an early termination fee in the amount equal to the percentage of the
Facilities in effect immediately prior to such termination set forth opposite
such period below:

<TABLE>
<CAPTION>
YEAR FOLLOWING CLOSING DATE AMOUNT
--------------------------- ------
<S> <C>
Year 1 3.00%
Year 2 2.00%
Year 3 and thereafter 1.00%
</TABLE>

3.11BANK CHARGES. The Borrower shall additionally pay to the Lender
all reasonable and customary bank charges paid or incurred by the Lender for the
Borrower's account, including, without limitation, charges for wire transfers.

3.12 MATURED FUNDS. In the event that any amounts payable by the
Lender to the Borrower under this Agreement or any Security Agreement (as
confirmed by the Lender by appropriate credit to the Borrower's account(s) with
the Lender) are not drawn by the Borrower, the Lender shall pay to the Borrower
interest on such amounts while so held by the Lender (such amounts, while so
held, being hereinafter referred to as "Matured Funds"), at rates announced by
the Lender from time to time as the Lender's matured funds rate (the "Matured
Funds Rate", which Matured Funds Rate may not be made available at all times to
all customers of the Lender).

-23-

<PAGE>

Interest hereunder at the Matured Funds Rate shall be paid to the
Borrower by credit to the Borrower's account(s) monthly on the last day of the
month in which such interest accrues. Any change announced by the Lender in the
Matured Funds Rate shall be effective only after ten (10) days prior written
notice to the Borrower of the Lender's intention to make such change.

As of the Effective Date, the Matured Funds Rate on the average daily
balance of Matured Funds held by the Borrower during any month shall be a rate
per annum equal to three percent (3%) less than the average Alternate Base Rate
in effect during such month.

3.13 INCREASED COSTS. If any change in any Requirement of Law or
in the interpretation or application thereof by any court or administrative
agency or other Governmental Authority charged with the administration thereof
shall either impose, modify, assess or deem applicable any reserve, special
deposit, assessment or similar requirement against Loans made by the Lender or
impose on the Lender any other condition regarding any Loans or the performance
by the Lender of its obligations under this Agreement, and the result thereof
shall be to increase the cost to the Lender of making or maintaining such Loans
or otherwise performing its obligations hereunder (which increase in cost shall
be the result of the Lender's reasonable allocation of the aggregate of such
cost increases resulting from such events) or shall reduce any amount receivable
by the Lender in respect thereof, then, upon demand by the Lender, the Borrower
shall immediately pay to the Lender, from time to time as specified by the
Lender, additional amounts which shall be sufficient to compensate the Lender
for such increased cost or reduced amount receivable, together with interest on
each such amount from the date demanded until payment in full thereof at the
rate provided in Section 3.1. A certificate as to the fact and amount of such
increased cost incurred by the Lender as a result of any such event shall be
submitted by the Lender to the Borrower, shall be conclusive, absent manifest
error.

SECTION 4. REPRESENTATIONS AND WARRANTIES

To induce the Lender to enter into this Agreement and to make the
Loans, the Borrower hereby represents and warrants to the Lender that:

4.1 FINANCIAL CONDITION.

(a) The audited consolidated balance sheet of the Borrower as at May
31, 1996 and the related unaudited consolidated statements of income and of cash
flows for the fiscal year ended on such date, copies of which have heretofore
been furnished to the Lender, are complete and correct in all material respects
and present fairly the consolidated financial condition of the Borrower as at
such date, and the consolidated results of its operations and its consolidated
cash flows for the fiscal year then ended. All such financial statements,
including the related schedules and notes thereto, have been prepared in
accordance with GAAP applied consistently throughout the periods involved
(except as approved by such accountants or Responsible Officer of the Borrower,
as the case may be, and as disclosed therein). At the date of the most recent
balance sheet referred to above, the Borrower had (i) no material Guarantee
Obligation, (ii) to its knowledge, no contingent liability, (iii) no liability
for taxes, (iv) no long-term lease, and (v) no unusual forward or long-term
commitment, including, without limitation, any interest rate or foreign currency
swap or exchange transaction, in each case which is not reflected in the
foregoing statements or in the notes thereto. During the period from May 31,
1996 to and including the date hereof there has been no sale, transfer or other
disposition by the Borrower of any material part of its business or property and
no purchase or other acquisition of any business or property (including any
Capital Stock of any other Person) material in relation to the financial
condition of the Borrower at May 31, 1996.

(b) The unaudited consolidated balance sheet of the Borrower as at
August 31, 1996 and the related unaudited consolidated statements of income and
of cash flows for the three-month period ended on such date, certified by an
Responsible Officer of the Borrower, copies of which have heretofore been
furnished to the Lender, are complete and correct in all material respects and
present fairly the consolidated financial condition of the Borrower as at such
date, and the results of its operations and its cash flows for the three-month
period then

-24-

<PAGE>

ended (subject to normal year-end audit adjustments). All such financial
statements, including the related schedules and notes thereto, have
been prepared in accordance with GAAP applied consistently throughout the
periods involved (except as approved by such accountants or Responsible Officer,
as the case may be, and as disclosed therein). At the date of the most recent
balance sheet referred to above, the Borrower had (i) no material Guarantee
Obligation, (ii) to its knowledge, no contingent liability, (iii) no liability
for taxes, (iv) and no long-term lease, and (v) no unusual forward or long-term
commitment, including, without limitation, any interest rate or foreign currency
swap or exchange transaction, in each case which is not reflected in the
foregoing statements or in the notes thereto.

(c) The operating forecast and cash flow projections of the Borrower,
copies of which have heretofore been furnished to the Lender, have been prepared
in good faith under the direction of a Responsible Officer of the Borrower, and
in accordance with GAAP except that such forecast and projections do not include
footnotes and other disclosures which may be required pursuant to GAAP. The
Borrower has no reason to believe that as of the date of delivery thereof such
operating forecast and cash flow projections are not a fair and reasonable
presentation of the projected financial position, results of operations and
changes in cash flows of the Borrower for the periods indicated, based upon the
assumptions stated therein, which assumptions the Borrower believes to be
reasonable.

4.2 NO CHANGE. (a) Since May 31, 1996 there has been no development
or event which has had or could reasonably be expected to have a Material
Adverse Effect, and (b) during the period from May 31, 1996 to and including the
date hereof no distributions have been declared, paid or made upon the Capital
Stock of the Borrower nor has any of the Capital Stock of the Borrower been
redeemed, retired, purchased or otherwise acquired for value by the Borrower or
any of its Affiliates.

4.3 EXISTENCE; COMPLIANCE WITH LAW. The Borrower (a) is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, (b) has the power and authority, and the legal
right, to own and operate its property, to lease the property it operates as
lessee and to conduct the business in which it is currently engaged, (c) is duly
qualified and in good standing under the laws of each jurisdiction where its
ownership, lease or operation of property or the conduct of its business
requires such qualification and (d) is in compliance with all Requirements of
Law except to the extent that the failure to comply therewith reasonably could
not, in the aggregate, be expected to have a Material Adverse Effect.

4.4 POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. The Borrower has
the power and authority, and the legal right, to make, deliver and perform the
Credit Documents to which it is a party and to borrow hereunder and has taken
all necessary action to authorize the borrowings on the terms and conditions of
this Agreement and to authorize the execution, delivery and performance of the
Credit Documents to which it is a party. No consent or authorization of, filing
with, notice to or other act by or in respect of, any Governmental Authority or
any other Person is required in connection with the borrowings hereunder or with
the execution, delivery, performance, validity or enforceability of the Credit
Documents to which the Borrower is a party other than as listed on Schedule 4.4
hereto. Each Credit Document to which the Borrower is a party has been or will
be duly executed and delivered on behalf of the Borrower. Each Credit Document
to which the Borrower is a party when executed and delivered will constitute a
legal, valid and binding obligation of the Borrower enforceable against it in
accordance with its terms, subject to the effects of bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally, general equitable
principles (whether considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing.

4.5 NO LEGAL BAR. The execution, delivery and performance of the
Credit Documents to which the Borrower is a party, the borrowings hereunder and
the use of the proceeds thereof will not violate any Requirement of Law or
Contractual Obligation of the Borrower and will not result in, or require, the
creation or imposition of any Lien on any of its properties or revenues pursuant
to any such Requirement of Law or Contractual Obligation (other than Liens
created by the Security Documents in favor of the Lender).

-25-

<PAGE>

4.6 NO MATERIAL LITIGATION. No litigation, investigation or
proceeding of or before any arbitrator or Governmental Authority is pending or,
to the knowledge of the Borrower, threatened by or against the Borrower, or
against any of its properties or revenues (a) with respect to any of the Credit
Documents or any of the transactions contemplated hereby or thereby, or (b)
which could reasonably be expected to have a Material Adverse Effect.

4.7 NO DEFAULT. The Borrower is not in default under or with respect
to any of its Contractual Obligations in any respect which could reasonably be
expected to have a Material Adverse Effect. No Default or Event of Default has
occurred and is continuing.

4.8 OWNERSHIP OF PROPERTY; LIENS. The Borrower has good record and
marketable title in fee simple to, or a valid leasehold interest in, all its
real property, and good title to, or a valid leasehold interest in, all its
other property, including, without limitation, its Aircraft, and none of such
property is subject to any Lien except as permitted by Section 7.3.

4.9 INTELLECTUAL PROPERTY. The Borrower owns, or is licensed to use,
all trademarks, tradenames, copyrights, technology, know-how and processes
necessary for the conduct of its business as currently conducted except for
those the failure to own or license which could not reasonably be expected to
have a Material Adverse Effect (the "Intellectual Property"). No claim has been
asserted and is pending by any Person challenging or questioning the use of any
such Intellectual Property or the validity or effectiveness of any such
Intellectual Property, nor does the Borrower know of any valid basis for any
such claim. The use of such Intellectual Property by the Borrower does not
infringe on the rights of any Person, except for such claims and infringements
that, in the aggregate, could not reasonably be expected to have a Material
Adverse Effect.

4.10 NO BURDENSOME RESTRICTIONS. No Requirement of Law or Contractual
Obligation of the Borrower has a Material Adverse Effect.

4.11 TAXES. The Borrower has filed or caused to be filed all tax
returns which, to the knowledge of the Borrower, are required to be filed and
has paid all taxes shown to be due and payable on said returns or on any
assessments made against it or any of its property and all other taxes, fees or
other charges imposed on it or any of its property by any Governmental Authority
(other than any the amount or validity of which are currently being contested in
good faith by appropriate proceedings and with respect to which reserves in
conformity with GAAP have been provided on the books of the Borrower, as the
case may be); no tax Lien has been filed (other than property tax Liens of
record permitted under Section 7.3(a)), and, to the knowledge of the Borrower,
no claim is being asserted, with respect to any such tax, fee or other charge.

4.12 FEDERAL REGULATIONS. No part of the proceeds of any Loans will
be used for "purchasing" or "carrying" any "margin stock" within the respective
meanings of each of the quoted terms under Regulation G or Regulation U of the
Board of Governors of the Federal Reserve System as now and from time to time
hereafter in effect, or for any purpose which violates, or which would be
inconsistent with, the provisions of the regulations of such Board of Governors.
If requested by the Lender, the Borrower will furnish to the Lender a statement
to the foregoing effect in conformity with the requirements of FR Form G-3 or FR
Form U-1 referred to in said Regulation G or Regulation U, as the case may be.

4.13 ERISA. Neither a Reportable Event nor an "accumulated funding
deficiency" (within the meaning of Section 412 of the Code or Section 302 of
ERISA) has occurred during the five-year period prior to the date on which this
representation is made or deemed made with respect to any Plan, and each Plan
has complied in all material respects with the applicable provisions of ERISA
and the Code. No termination of a Single Employer Plan has occurred, and no
Lien in favor of the PBGC or a Plan has arisen, during such five-year period.
The present value of all accrued benefits under each Single Employer Plan (based
on those assumptions used to fund such Plans) did not, as of the last annual
valuation date prior to the date on which this representation is made or deemed
made, exceed the value of the assets of such Plan allocable to such accrued
benefits. Neither the Borrower nor any

-26-

<PAGE>

Commonly Controlled Entity has had a complete or partial withdrawal from any
Multiemployer Plan, and neither the Borrower nor any Commonly Controlled Entity
would become subject to any liability under ERISA if the Borrower or any such
Commonly Controlled Entity were to withdraw completely from all Multiemployer
Plans as of the valuation date most closely preceding the date on which this
representation is made or deemed made. No such Multiemployer Plan is in
Reorganization or Insolvent. The present value (determined using actuarial and
other assumptions which are reasonable in respect of the benefits provided and
the employees participating) of the liability of the Borrower and each Commonly
Controlled Entity for post retirement benefits to be provided to their current
and former employees under Plans which are welfare benefit plans (as defined in
Section 3(1) of ERISA) does not, in the aggregate, exceed the assets under all
such Plans allocable to such benefits.

4.14 INVESTMENT COMPANY ACT; OTHER REGULATIONS. The Borrower is not
an "investment company", or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended. The
Borrower is not subject to regulation under any Federal or State statute or
regulation (other than Regulation X of the Board of Governors of the Federal
Reserve System) which limits its ability to incur Indebtedness.

4.15 SUBSIDIARIES. As of the Closing Date, the Borrower has no
Subsidiaries.

4.16 SECURITY DOCUMENTS. (a) The provisions of each Security
Document are effective to create in favor of the Lender a legal, valid and
enforceable security interest in all right, title and interest of the Borrower
in the "Collateral" described therein.

(b) (i) When financing statements on forms UCC-1, as indicated on
Schedules *[IV, V, and VI] to the Borrower Security Agreement, have been filed
or recorded, as applicable, in the offices in the jurisdictions listed in
Schedules *[IV, V and VI] to the Borrower Security Agreement, the Borrower
Security Agreement shall constitute a fully perfected first Lien on, and
security interest in, all right, title and interest of the Borrower in the
"Collateral" described therein, which can be perfected by such filing.

(ii) When the Aircraft Chattel Mortgages have been filed with the FAA
in Oklahoma City, Oklahoma, each Aircraft Chattel Mortgage shall constitute a
fully perfected first mortgage lien on, and security interest in, all right,
title and interest of the Borrower in the "Mortgaged Property" described
therein, which can be perfected by such filing.

4.17 ACCURACY AND COMPLETENESS OF INFORMATION. (a) All factual
information, reports and other papers and data with respect to the Borrower
(other than projections) furnished, and all factual statements and
representations made, to the Lender by the Borrower, or on behalf of the
Borrower, were, at the time the same were so furnished or made, when taken
together with all such other factual information, reports and other papers and
data previously so furnished and all such other factual statements and
representations previously so made, complete and correct in all material
respects, and did not, as of the date so furnished or made, contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements contained therein not misleading in light of the
circumstances in which the same were made.

(b) All projections with respect to the Borrower furnished by or on
behalf of the Borrower to the Lender were prepared and presented in good faith
by or on behalf of the

-27-

<PAGE>

Borrower. No fact is known to the Borrower which materially and adversely
affects or in the future is reasonably likely (so far as the Borrower can
reasonably foresee) to have a Material Adverse Effect which has not been set
forth in the financial statements referred to in Section 6.1 or in such
information, reports, papers and data or otherwise disclosed in writing to the
Lender prior to the Closing Date.

4.18 LABOR RELATIONS. The Borrower is not engaged in any unfair labor
practice which could reasonably be expected to have a Material Adverse Effect.
There is (a) no unfair labor practice complaint pending or, to the best
knowledge of the Borrower, threatened against the Borrower before the National
Labor Relations Board which could reasonably be expected to have a Material
Adverse Effect and no grievance or arbitration proceeding arising out of or
under a collective bargaining agreement is so pending or threatened; (b) no
strike, labor dispute, slowdown or stoppage pending or, to the best knowledge of
the Borrower, threatened against the Borrower; and (c) no union representation
question existing with respect to the employees of the Borrower and no union
organizing activities are taking place with respect to any thereof.

4.19 INSURANCE. The Borrower has, with respect to its properties and
business, insurance covering the risks, in the amounts, with the deductible or
other retention amounts, and with the carriers, listed on Schedule 4.19, which
insurance meets the requirements of Section 6.6 hereof and Section 5(o) of the
Borrower Security Agreement, in each case as of the Closing Date.

4.20 Solvency. On the Closing Date, after giving effect to the
consummation of the repayment of the Senior Secured Notes and the Subordinated
Debenture Conversion, and to the incurrence of all indebtedness and obligations
being incurred on or prior to such date in connection herewith and therewith,
(i) the amount of the "present fair saleable value" of the assets of the
Borrower will, as of such date, exceed the amount of all "liabilities of the
Borrower, contingent or otherwise", as of such date, as such quoted terms are
determined in accordance with applicable federal and state laws governing
determinations of the insolvency of debtors, (ii) the present fair saleable
value of the assets of the Borrower will, as of such date, be greater than the
amount that will be required to pay the liabilities of the Borrower on its debts
as such debts become absolute and matured, (iii) the Borrower will not have, as
of such date, an unreasonably small amount of capital with which to conduct its
business, and (iv) the Borrower will be able to pay its debts as they mature.
For purposes of this Section 4.20, "debt" means "liability on a claim", and
"claim" means any (x) right to payment, whether or not such a right is reduced
to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured,
disputed, undisputed, legal, equitable, secured or unsecured, and (y) right to
an equitable remedy for breach of performance if such breach gives rise to a
right to payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured or unmatured, disputed, undisputed, secured
or unsecured.
4.21 PURPOSE OF LOANS. The proceeds of the Loans shall be used by the
Borrower for repayment of the Senior Secured Notes, for working capital purposes
in the ordinary course of business and to pay fees and expenses incurred in
connection herewith and therewith.

-28-

<PAGE>

4.22 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 4.22:

(a) The facilities and properties subject to the Republic Mortgage
and each other parcel, if any, owned or operated by the Borrower (the
"Properties") do not contain, and have not previously contained, any Materials
of Environmental Concern in amounts or concentrations which (i) constitute or
constituted a violation of, or (ii) could give rise to liability or result in a
payment in excess of the Material Environmental Amount under, any Environmental
Law.

(b) The Properties and all operations at the Properties are in
compliance, and have in the last five years been in compliance, with all
applicable Environmental Laws, and there is no contamination at, under or about
the Properties or violation of any Environmental Law with respect to the
Properties or the businesses operated by the Borrower (the "Business") which
could interfere with the continued operation of the Properties or impair the
fair saleable value thereof.

(c) The Borrower has received no notice of violation, alleged
violation, non-compliance, liability or potential liability regarding
environmental matters or compliance with Environmental Laws with regard to any
of the Properties or the Business, nor does the Borrower have knowledge or
reason to believe that any such notice will be received or is being threatened.

(d) Materials of Environmental Concern have not been transported or
disposed of from the Properties in violation of, or in a manner or to a location
which could give rise to liability or result in a payment in excess of the
Material Environmental Amount under any Environmental Law, nor have any
Materials of Environmental Concern been generated, treated, stored or disposed
of at, on or under any of the Properties in violation of, or in a manner that
could give rise to liability or result in a payment in excess of the Material
Environmental Amount under any applicable Environmental Law.

(e) No judicial proceeding or governmental or administrative action
is pending or, to the knowledge of the Borrower, threatened, under any
Environmental Law to which the Borrower is or will be named as a party with
respect to the Properties or the Business, nor are there any consent decrees or
other decrees, consent orders, administrative orders or other orders, or other
administrative or judicial requirements outstanding under any Environmental Law
with respect to the Properties or the Business.

(f) There has been no release or threat of release of Materials of
Environmental Concern at or from the Properties, or arising from or related to
the operations of the Borrower in connection with the Properties or otherwise in
connection with the Business, in violation of or in amounts or in a manner that
could give rise to liability or result in a payment in excess of the Material
Environmental Amount under Environmental Laws.

4.23 REGULATION H. No mortgage of any of the Real Estate of the
Borrower granted to the Lender, if any, encumbers improved real property which
is located in an area that has been identified by the Secretary of Housing and
Urban Development as an area having special flood hazards and in which flood
insurance has been made available under the National Flood Insurance Act
of 1968.

4.24 NOT A CERTIFICATED AIR CARRIER. The Borrower is not on the
Closing Date a Certificated Air Carrier.

4.25 SCHEDULE 1.1 AND SCHEDULE 4.19. Schedule 1.1 contains a true,
complete and accurate list and description of all Aircraft, Aircraft Engines and
Aircraft Leases and Schedule 4.19 contains a true complete and accurate list and
description of all insurance in effect with respect to the properties and
business of the Borrower.

-29-

<PAGE>

SECTION 5. CONDITIONS PRECEDENT

5.1 CONDITIONS TO INITIAL EXTENSIONS OF CREDIT. The agreement of the
Lender to make the initial extension of credit requested to be made by it is
subject to the satisfaction, immediately prior to or concurrently with the
making of such extension of credit on the Closing Date, of the following
conditions precedent:

(a) CREDIT DOCUMENTS. The Lender shall have received:

(i) this Agreement, executed and delivered by a duly authorized
officer of the Borrower,

(ii) the Borrower Security Agreement, executed and delivered by
duly authorized officer of the Borrower,

(iii) the Republic Intercreditor Agreement, executed by a
duly authorized officer of Republic ,

(iv) an Aircraft Chattel Mortgage in respect of each Aircraft and
Aircraft Engine, executed and delivered by a duly authorized officer
of the Borrower,

(v) a Consent and Agreement with respect to the assignment of
each Aircraft Lease, if any, other than the Aircraft Lease between the
Borrower and *[__________________], and

(vi) an original of each Aircraft Lease, executed by each of the
parties thereto.

(b) RELATED AGREEMENTS. The Lender shall have received true and
correct copies, certified as to authenticity by the Borrower, of the
Republic Mortgage, the Senior Note Purchase Agreement, the Subordinated
Debenture Purchase Agreement, the FAA Bill of Sale with respect to each
Aircraft, the Purchase Agreement with respect to each Aircraft and Aircraft
Engine and such other agreements, documents or instruments as may be
requested by the Lender, including, without limitation, a copy of any debt
instrument, security agreement or other material contract to which the
Borrower may be a party (whether before, on, or after the Closing Date) and
all other agreements, documents and instruments relating in any way to the
Aircraft, the Aircraft Engines, or any Aircraft Leases.

(c) CONCURRENT TRANSACTIONS. (i) All amounts owing under the Senior
Secured Notes shall have been or shall be, concurrently with the making of
the initial Loans, repaid in full, and any Liens created pursuant to the
Senior Note Purchase Agreements, the Existing Mortgages other than the
Republic Mortgage and any and all related financing documents shall have
been or shall be, concurrently with the making of the initial Loans,
released, and the Senior Note Purchase Agreements, the Existing Mortgages
other than the Republic Mortgage and all such related financing documents
shall terminate and be of no further force and effect upon such repayment
(except for indemnification and similar rights which by their terms
continue after the termination of the Senior Note Purchase Agreements), in
each case pursuant to such payout letters, Lien releases, termination
statements, mortgage satisfactions, back-up letter of credit arrangements,
lock-box agreements and assignments and other documents as the Lender may
require, each of which shall be in form and substance satisfactory to the
Lender.

(ii) The Subordinated Debentures shall be subordinate in all respects
to the Loans and the Lien of this Agreement and the Security Documents.

(d) BORROWING CERTIFICATE. The Lender shall have received, a
certificate of the Borrower, dated the Closing Date, substantially in the
form of Exhibit C, with appropriate insertions and attachments,

-30-

<PAGE>

satisfactory in form and substance to the Lender, executed by a Responsible
Officer or any Vice President and the Secretary or any Assistant Secretary
of the Borrower.

(e) BORROWING BASE CERTIFICATE. The Lender shall have received a
Borrowing Base Certificate showing the Revolver Borrowing Base and the Term
Loan Borrowing Base, in each case as of the Business Day immediately
preceding the Closing Date, with appropriate insertions and dated the
Closing Date, satisfactory in form and substance to the Lender, executed by
a Responsible Officer or any Vice President of the Borrower.

(f) PROCEEDINGS OF THE BORROWER. The Lender shall have received a
copy of the resolutions, in form and substance satisfactory to the Lender,
of the Board of Directors of the Borrower authorizing (i) the execution,
delivery and performance of this Agreement and the other Credit Documents
to which it is a party, (ii) the borrowings contemplated hereunder and
(iii) the granting by it of the Liens created pursuant to the Security
Documents, certified by the Secretary or an Assistant Secretary of the
Borrower as of the Closing Date, which certificate shall be in form and
substance satisfactory to the Lender and shall state that the resolutions
thereby certified have not been amended, modified, revoked or rescinded.

(g) BORROWER INCUMBENCY CERTIFICATE. The Lender shall have received
a certificate of the Borrower, dated the Closing Date, as to the incumbency
and signature of the authorized signatories of the Borrower executing any
Credit Document satisfactory in form and substance to the Lender, executed
by the President or any Vice President and the Secretary or any Assistant
Secretary of the Borrower.

(h) GOVERNING DOCUMENTS. The Lender shall have received true and
complete copies of the Governing Documents of the Borrower, certified as of
the Closing Date as complete and correct copies thereof by the Secretary or
an Assistant Secretary of the Borrower.

(i) GOOD STANDING CERTIFICATES. The Lender shall have received
certificates dated as of a recent date from the Secretary of State or other
appropriate authority, evidencing the good standing of the Borrower (i) in
the jurisdiction of its organization and (ii) in each other jurisdiction
where its ownership, lease or operation of property or the conduct of its
business requires it to qualify as a foreign Person except, as to this
subclause (ii), where the failure to so qualify could not have a Material
Adverse Effect.

(j) CONSENTS, LICENSES AND APPROVALS. The Lender shall have received
a certificate of a Responsible Officer of the Borrower (i) attaching copies
of all consents, authorizations and filings referred to in Section 4.4, and
(ii) stating that such consents, licenses and filings are in full force and
effect, and each such consent, authorization and filing shall be in form
and substance satisfactory to the Lender.

(k) FEES. The Lender shall have received the fees to be received on
the Closing Date referred to in Section 3.9.

(l) LEGAL OPINIONS. The Lender shall have received the executed
legal opinion of King & Spalding, special counsel to the Borrower,
substantially in the form of Exhibit D-1, and of *[____________], special
FAA counsel to the Borrower, in the form of Exhibit D-2. Each such legal
opinion shall cover such other matters incident to the transactions
contemplated by this Agreement as the Lender may reasonably require.

(m) ACTIONS TO PERFECT LIENS. The Lender shall have received
evidence in form and substance satisfactory to it that all filings,
recordings, registrations and other actions, including, without limitation,
the filing of duly executed Aircraft Chattel Mortgages with the FAA and
financing statements on forms UCC-1, necessary or, in the opinion of the
Lender, desirable to perfect the Liens created by the Security Documents
shall have been completed.

-31-

<PAGE>

(n) COPIES OF DOCUMENTS. The Lender shall have received a copy of
all recorded documents referred to, or listed as exceptions to title in,
the title policy or policies referred to in Section 5.1(q) and a copy,
certified by such parties as the Lender may deem appropriate, of all other
documents affecting the property covered by each Mortgage.

(o) LANDLORD'S WAIVER. The Lender shall have received, with respect
to each parcel of real property in which the Borrower holds a leasehold
interest and which are used as the locations of warehouses *[other
facilities], if any, a landlord's waiver and consent, substantially in the
form of Exhibit H, duly executed by the landlord with respect to such
property.

(p) LIEN SEARCHES. The Lender shall have received the results of a
recent search by a Person satisfactory to the Lender, of the Uniform
Commercial Code, judgment and tax lien filings which may have been filed
with respect to personal property of the Borrower, and the results of such
search shall be satisfactory to the Lender.

(q) FIELD EXAMINATION. The Lender shall have received copies of a
field examination, in form and substance satisfactory to the Lender, of the
accounts receivable and inventory of the Borrower prepared by
representatives of the Lender.

(r) INSURANCE. The Lender shall have received evidence in form and
substance satisfactory to it that all of the requirements of Section 6.6
hereof and Section 5(o) of the Borrower Security Agreement shall have been
satisfied.

5.2 CONDITIONS TO EACH EXTENSION OF CREDIT. The agreement of the
Lender to make any extension of credit requested to be made by it on any date
(including, without limitation, its initial extension of credit) is subject to
the satisfaction of the following conditions precedent:

(a) REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties made by the Borrower in or pursuant to the Credit Documents
shall be true and correct in all material respects on and as of such date
as if made on and as of such date.

(b) NO DEFAULT. No Default or Event of Default shall have occurred
and be continuing on such date or after giving effect to the extensions of
credit requested to be made on such date.

(c) BORROWING BASE. In the case of any Loans requested to be made,
the Lender shall have timely received a Borrowing Base Certificate for the
most recent day for which such Borrowing Base Certificate is required to be
delivered, in accordance with Section 6.2(c).

(d) ADDITIONAL MATTERS. All corporate and other proceedings, and all
documents, instruments and other legal matters in connection with the
transactions contemplated by this Agreement and the other Credit Documents
shall be satisfactory in form and substance to the Lender, and the Lender
shall have received such other documents and legal opinions in respect of
any aspect or consequence of the transactions contemplated hereby or
thereby as it shall reasonably request.

Each borrowing by the Borrower hereunder shall constitute a representation and
warranty by the Borrower as of the date thereof that the conditions contained in
this Section 5.2 have been satisfied.

SECTION 6. AFFIRMATIVE COVENANTS

The Borrower hereby agrees that, so long as any of the Facilities
remain in effect or any amount is owing to the Lender hereunder or under any
other Credit Document, the Borrower shall:

-32-

<PAGE>

6.1 FINANCIAL STATEMENTS. Furnish to the Lender:

(a) as soon as available, but in any event within 120 days after the
end of each fiscal year of the Borrower, a copy of the balance sheet of the
Borrower as at the end of such year and the related statements of income
and retained earnings and of cash flows for such year, setting forth in
each case in comparative form the figures for the previous year, reported
on without a "going concern" or like qualification or exception, or
qualification arising out of the scope of the audit, certified by the Chief
Financial Officer of the Borrower and *[Grant Thornton] or such other
independent certified public accountants of nationally recognized standing
acceptable to the Lender;

(b) as soon as available, but in any event not later than 60 days
after the end of each of the quarterly periods of each fiscal year
(including the fourth quarter) of the Borrower, the unaudited balance sheet
of the Borrower as at the end of such quarter and the related unaudited
statements of income and retained earnings and of cash flows of the
Borrower for such quarter and the portion of the fiscal year through the
end of such quarter, setting forth in each case in comparative form the
figures for the previous year, certified by the Chief Financial Officer of
the Borrower as being fairly stated in all material respects (subject to
normal year-end audit adjustments);

(c) as soon as available, but in any event not later than 30 days
after the end of each calendar month other than the last calendar month of
the Borrower's fiscal year and not later than 60 days after such last
month, the unaudited balance sheet of Borrower as at the end of such month
and the related unaudited statements of income and retained earnings and of
cash flows of the Borrowers for such month and the portion of the fiscal
year through the end of such month, setting forth in each case in
comparative form the figures for the previous year, certified by the Chief
Financial Officer of the Borrower as being fairly stated in all material
respects (subject to normal year-end audit adjustments);

all such financial statements shall be complete and correct in all material
respects and shall be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except as approved by such accountants or officer, as the case may be,
and disclosed therein).

6.2 CERTIFICATES; OTHER INFORMATION. Furnish to the Lender:

(a) concurrently with the delivery of the financial statements
referred to in Section 6.1(a) and (c), a certificate of the independent
certified public accountants reporting on such financial statements stating
that in making the examination necessary therefor no knowledge was obtained
of any Default or Event of Default, except as specified in such
certificate;

(b) concurrently with the delivery of each of the financial
statements referred to in Section 6.1, a certificate of a Responsible
Officer on behalf of the Borrower (i) stating that, to the best of such
Responsible Officer's knowledge, the Borrower during such period has
observed or performed all of its covenants and other agreements, and
satisfied every condition, contained in this Agreement and the other Credit
Documents to be observed, performed or satisfied by it, and that such
Officer has obtained no knowledge of any Default or Event of Default except
as specified in such certificate and (ii) showing in detail the
calculations supporting such Responsible Officer's certification of the
Borrower's compliance with the requirements of Section 7.1(a) through
7.1(c);

(c) prior to 2:00 p.m., New York City time on each Business Day, a
Borrowing Base Certificate showing the Revolver Borrowing Base and the Term
Loan Borrowing Base (but only, in the case of the Term Loan Borrowing Base,
in connection with the delivery of the first such certificate hereunder and
in each case that the Term Loan Borrowing Base changes from the amount
thereof most recently reported), in each case as of the immediately
preceding Business Day, certified as complete and correct by a Responsible
Officer or any vice president on behalf of the Borrower, which Borrowing
Base

-33-

<PAGE>

Certificate shall disclose daily updates of the amount of Eligible
Accounts and Eligible Lease Payment Receivables, weekly updates of the
amount of Eligible Inventory; and the Forced Liquidation Value of Approved
Aircraft when required;

(d) not later than thirty days prior to the end of each fiscal year
of the Borrower or such other period requested by the Lender, a copy of the
projections by the Borrower of the operating budget and cash flow budget of
the Borrower for the succeeding fiscal year, such projections to be
accompanied by a certificate of a Responsible Officer on behalf of the
Borrower to the effect that such projections have been prepared on the
basis of sound financial planning practice and that such Responsible
Officer has no reason to believe they are incorrect or misleading in any
material respect;

(e) within five days after the same are sent, copies of all financial
statements and reports which the Borrower sends to its shareholders, and
within five days after the same are filed, copies of all financial
statements and reports which the Borrower may make to, or file with, the
Securities and Exchange Commission or any successor or analogous
Governmental Authority;

(f) within 20 days following the end of each calendar month, (i) a
detailed trial balance of all Accounts and Lease Payment Receivables of the
Borrower as of the end of such calendar month, and (ii) a detailed invoice
listing of all accounts payable of the Borrower (such accounts payable to
include any book overdrafts or held checks);

(g) during the month of *[___] in each calendar year, a report of a
reputable insurance broker with respect to the insurance maintained by the
Borrower in accordance with Section 6.6 of this Agreement and Section 5(o)
of the Borrower Security Agreement and such supplemental reports as the
Lender may from time to time request; and

(h) promptly, such additional financial and other information as the
Lender may from time to time reasonably request.

In preparing the Borrowing Base Certificate to be delivered pursuant to
paragraph (c) of this Section 6.2 on each Business Day, the Borrower may treat
any Account then owned by the Borrower on such Business Day as an Eligible
Account if on the first Business Day of the month it satisfied the eligibility
criteria of clauses (b), (c), (f), (g), (j) and (m) and, unless otherwise
notified by the Lender, clauses (e), (k) and (l) of the definition of Eligible
Account.

6.3 PAYMENT OF OBLIGATIONS. Pay, discharge or otherwise satisfy at
or before maturity or before they become delinquent, as the case may be, all its
obligations of whatever nature, except where the amount or validity thereof is
currently being contested in good faith by appropriate proceedings and reserves
in conformity with GAAP with respect thereto have been provided on the books of
the Borrower, as the case may be, except for such obligations as to which the
failure to so pay, discharge or otherwise satisfy would not, in the aggregate,
have a Material Adverse Effect on the Borrower.

6.4 CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. Continue to
engage in business of the same general type as now conducted by it and preserve,
renew and keep in full force and effect its existence and take all reasonable
action to maintain all rights, privileges and franchises necessary or desirable
in the normal conduct of its business except as otherwise permitted pursuant to
Section 7.5; comply with all Contractual Obligations and Requirements of Law
except to the extent that failure to comply therewith could not, in the
aggregate, have a Material Adverse Effect.

6.5 MAINTENANCE OF PROPERTY.

-34-

<PAGE>

(a) Keep all property useful and necessary in its business in good
working order and condition. Without in any way limiting the generality of the
foregoing, the Borrower agrees to keep and maintain, or cause to be kept and
maintained, the Aircraft, the Airframes, the Aircraft Engines and the Aircraft
Parts in good operating condition, except for ordinary wear and tear, and to
make or cause to be made all necessary repairs and replacements thereof so that
the value and operating efficiency thereof shall at all times be maintained and
preserved in accordance with industry standard and any and all applicable
Requirements of Law (including without limitation, in the case of all Aircraft,
so as to maintain such Aircraft certified as airworthy and, in the case of each
Approved Aircraft, so as to maintain such Approved Aircraft as readily
certifiable as airworthy under Part 121 of the U.S. Federal Aviation Regulations
regardless of the jurisdiction of its registration), and any applicable
provisions of Aircraft Leases. Without in any way limiting the foregoing, all
Aircraft held by the Borrower for lease or sale and all Approved Aircraft shall,
while not in passenger or cargo operation, be stored and maintained in
accordance with all manufacturers approved storage procedures for long-term or
short-term storage, as the case may be, and no Airframe, Aircraft Part or
Aircraft Engine of an Approved Aircraft may be removed for use as part of or to
support any other Aircraft or the other operations of the Borrower.
Notwithstanding the foregoing, nothing in this clause (a) shall prohibit the
Borrower from "parting-out" or removing Aircraft Engines or Aircraft Parts from
any Aircraft other than an Approved Aircraft while such Aircraft is on the
ground and not in passenger or cargo service.

(b) Maintain or cause to be maintained in the English language, or
provide or cause to be provided promptly upon the request of the Lender English
translations of, all records, logs and other materials required to be maintained
in respect of the Aircraft under each applicable Requirement of Law.

6.6 INSURANCE

(a) PUBLIC LIABILITY AND PROPERTY DAMAGE INSURANCE. Carry or cause
to be carried with insurers of recognized responsibility acceptable to the
Lender (i) with respect to each Aircraft, aircraft public liability (including,
without limitation, passenger legal liability, contractual liability and, to the
extent war risk insurance is required by Section 6.6(b) hereof, war risk
liability) insurance and property damage insurance (exclusive of manufacturer's
product liability insurance) and (ii) cargo liability insurance, in each such
case of a type, covering the risks and in scope and amount consistent from time
to time with prudent industry custom and practice. All policies of insurance
carried in accordance with this Section 6.6(a) and any policies taken out in
substitution or replacement for such policies (A) shall be amended to name the
Lender (and, if any Aircraft Lease shall be in effect, the Borrower in its
capacity as lessor under the Aircraft Lease) as additional insureds as their
respective interests may appear (but without imposing on the Lender liability to
pay the premiums for such insurance), (B) shall provide that in respect of the
interests of the Lender in such policies, the insurance shall not be invalidated
by any action or inaction of the Borrower (or, if any Aircraft Lease is then in
effect, any lessee or sublessee) and shall insure the Lender (and, if any
Aircraft Lease shall be in effect, the Borrower in its capacity as lessor under
the Aircraft Lease) regardless of any breach or violation of any warranty,
declaration or condition contained in such policies by the Borrower (or, if any
Aircraft Lease is then in effect, any lessee or sublessee), and (C) shall
provide that if the insurers cancel such insurance for any reason whatever or if
any material change is made in such insurance that adversely affects the
interest of the Lender (or, if any Aircraft Lease shall be in effect, the
Borrower in its capacity as lessor under the Aircraft Lease), or such insurance
shall lapse for non-payment of premium, such cancellation, lapse or change shall
not be effective as to the Lender (or, if any Aircraft Lease shall be in effect,
the Borrower in its capacity as lessor under the Aircraft Lease) for thirty days
(seven days in the case of war risk and allied perils coverage) after receipt by
the Lender (and, if any Aircraft Lease shall be in effect, the Borrower in its
capacity as lessor under the Aircraft Lease), respectively, of written notice by
such insurers of such cancellation, lapse or change; provided, however, that if
any notice period specified above is not reasonably obtainable, such policies
shall provide for as long a period of prior notice as shall then be reasonably
obtainable. Each liability policy (1) shall be primary without right of
contribution from any other insurance that is carried by the Lender (or, if any
Aircraft Lease shall be in effect, the Borrower in its capacity as lessor under
the Aircraft Lease), (2) shall expressly provide that all of the provisions
thereof, except the limits of liability, shall operate in the same

-35-

<PAGE>

manner as if there were a separate policy covering each insured, and (3) shall
waive any right of the insurers to any set-off or counterclaim or any other
deduction, whether by attachment or otherwise, in respect of any liability of
(and shall waive any right of subrogation against) the Lender (or, if any
Aircraft Lease shall be in effect, the Borrower in its capacity as lessor under
the Aircraft Lease) to the extent of any moneys due to the Lender (or, if any
Aircraft Lease shall be in effect, the Borrower in its capacity as lessor under
the Aircraft Lease).

(b) INSURANCE AGAINST LOSS OR DAMAGE TO THE AIRCRAFT. Maintain or
cause to be maintained in effect with insurers of recognized responsibility
acceptable to the Lender, all risk aircraft hull insurance covering the Aircraft
and all risk coverage of the related Aircraft Engines (including, without
limitation, war risk and governmental confiscation and expropriation (other than
by the government of registry of the Aircraft) and hijacking insurance, in
respect of all Aircraft flown outside of the United States and Canada), which is
of a type as from time to time is in accordance with prudent industry custom and
practice for an amount and in no event less than the fair market value thereof.
Any policies of insurance carried in accordance with this paragraph (b) covering
the Aircraft and any policies taken out in substitution or replacement for any
such policies (i) shall name the Lender (and, if any Aircraft Lease shall be in
effect, the Borrower in its capacity as lessor under the Aircraft Lease) as
additional insureds, as their respective interests may appear (but without
imposing on any such party liability to pay premiums with respect to such
insurance), (ii) shall provide that all proceeds shall be payable to the Lender
(for application pursuant to paragraph (d) of this Section 6.6, (iv) shall
provide that if the insurers cancel such insurance for any reason whatever, or
if any material change is made in the insurance that adversely affects the
interest of the Lender (or if any Aircraft Lease shall be in effect, the
Borrower in its capacity as lessor under the Aircraft Lease), such cancellation
or change shall not be effective as to the Lender (or, if any Aircraft Lease
shall be in effect, the Borrower in its capacity as lessor under the Aircraft
Lease) for thirty (30) days (seven days in the case of hull war risk and allied
perils coverage) after receipt by the Lender (and, if any Aircraft Lease shall
be in effect, the Borrower in its capacity as lessor under the Aircraft Lease),
respectively, of written notice by such insurers of such cancellation or change,
provided, however, that if any notice period specified above is not reasonably
obtainable, such policies shall provide for as long a period of prior notice as
shall then be reasonably obtainable, (v) shall provide that in respect of the
respective interests of the Lender (and, if any Aircraft Lease shall be in
effect, the Borrower in its capacity as lessor under the Aircraft Lease) in such
policies the insurance shall not be invalidated by any action or inaction of the
Borrower (or, if a Aircraft Lease is then in effect, any lessee or the Borrower)
and shall insure the respective interests of the Lender (and, if any Aircraft
Lease shall be in effect, the Borrower in its capacity as lessor under the
Aircraft Lease), as they appear, regardless of any breach or violation of any
warranty, declaration or condition contained in such policies by the Borrower
(or, if a Aircraft Lease is then in effect, any lessee), (vi) shall be primary
without any right of contribution from any other insurance that is carried by
the Lender (or, if any Aircraft Lease shall be in effect, the Borrower in its
capacity as lessor under the Aircraft Lease), (vii) shall waive any right of
subrogation of the insurers against the Lender (and, if any Aircraft Lease shall
be in effect, the Borrower in its capacity as lessor under the Aircraft Lease),
and (viii) the Borrower shall waive any right of the insurers to set-off or
counterclaim or any other deduction, whether by attachment or otherwise, in
respect of any liability of the Borrower (or any lessee) to the extent of any
moneys due to the Lender. In the case of a loss with respect to an engine
(other than an Aircraft Engine) installed on the Airframe, the Borrower shall
hold any payment to it of any insurance proceeds in respect of such loss for the
account of the Borrower or any other third party that is entitled to receive
such proceeds. In the case of any policy that contains an exclusion for war or
allied perils risks, the Borrower will cause such policy, as well as each policy
covering war or allied perils risks to have a "50-50" provisional settlement
clause applicable to such policy, if commercially available.

(c) GROUNDED AIRCRAFT AND AIRCRAFT INVENTORY. With respect to all
Aircraft (including Approved Aircraft) during any period that such Aircraft is
on the ground and not in normal passenger or cargo service operation, in lieu of
the insurance required by clauses (a) and (b) of this Section 6.6, the Borrower
may, and with respect to all Aircraft Inventory the Borrower shall, carry or
cause to be carried, insurance otherwise conforming with the provisions of said
clauses (a) and (b) except that the amounts of the coverage, the scope of the
risks and the type of insurance shall be the same as from time to time is in
accordance with prudent industry custom and practice and in an amount at least
equal to the fair market value thereof.

-36-

<PAGE>

(d) Application of Insurance Proceeds. Proceeds of insurance
policies hereby required to be in effect shall be applied by the Lender as
follows:
(i) If payable as the result of an Event of Loss with respect to
any of the Aircraft, Airframes, Aircraft Engines or Aircraft Parts, and if
the Borrower is obligated to make payment pursuant to Section 3.3, such
proceeds shall be paid to the Lender and applied toward such obligation;

(ii) If payable as the result of any damage or loss not
constituting an Event of Loss with respect to any Airframe, Aircraft Engine
or Aircraft Part, but as to which the Borrower is obligated (because of the
diminution in Forced Liquidation Value thereof) to make payment under
Section 3.3, such proceeds shall be paid to the Lender and applied toward
such obligation;

(iii) If payable as the result of any damage or loss not
constituting an Event of Loss with respect to any Airframe, the Aircraft
Engine or Aircraft Part, but as to which the Borrower is obligated to
repair or replace such Airframe or Aircraft Engine pursuant to Section
6.13, such proceeds shall be applied to the reimbursement of the Borrower
for such repair or replacement; and

(iv) In all other cases, such proceeds shall be applied to the
repayment of the outstanding Revolver Advances, without reduction of the
Revolver Facility, and if no such advances shall be outstanding, paid to
the Borrower;

provided, however, that any amounts payable under subclause (iii) or (iv) hereof
shall not be paid to the Borrower if at the time of such payment a Default or an
Event of Default shall have occurred and be continuing but shall be either held
by the Lender (in an interest-bearing account) (x) in the case of subclause
(iii), as security to ensure that the appropriate repairs are made or
maintenance undertaken, or applied to repair the damage or undertake the
maintenance, and (y) in the case of subclause (iv), to ensure satisfaction of
the Obligations. At such time as there shall not be continuing any such Default
or Event of Default, such amount shall be paid to the Borrower to the extent not
previously applied in accordance with the preceding sentence or otherwise under
the Credit Documents.

(e) PAYMENTS FROM GOVERNMENTAL AUTHORITIES. Any payment, received at
any time by the Lender or the Borrower from any Governmental Authority or other
Person with respect to an Event of Loss shall be applied in the same manner as
insurance proceeds are applied pursuant to Section 6.6(d) above.

(f) PERIODIC REPORTS. On or prior to the date hereof and at least
annually, prior to each anniversary of the Closing Date, the Borrower shall
furnish to the Lender a report and/or certificate signed by a firm of
independent aircraft insurance brokers, appointed by the Borrower and reasonably
acceptable to the Lender, describing in reasonable detail the insurance then
carried and maintained on or with respect to the Aircraft and stating that in
the opinion of such firm such insurance complies with the terms of this Section
6.6. The Borrower shall cause such firm to advise the Lender in writing (i)
promptly of any default in the payment of any premium and of any other act or
omission on the part of the Borrower of which such firm has knowledge and that
might invalidate or render unenforceable in whole or in part, any insurance on
the Aircraft, Airframes, Aircraft Engines and Aircraft Parts, and (ii) at least
10 days prior to the expiration or termination date of any insurance maintained
with respect thereto if such insurance has not been renewed by such date in
accordance with the terms hereof.

6.7 INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS.

(a) Keep proper books of records and account in which full, true and
correct entries in conformity with GAAP and all Requirements of Law shall be
made of all dealings and transactions in relation to its business and
activities; and permit representatives of the Lender to visit and inspect any of
its properties and examine and make abstracts from any of its books and records
at any reasonable time and as often as may reasonably be desired and to discuss
the business, operations, properties and financial and other condition of the
Borrower with officers and employees of the Borrower and with its independent
certified public accountants.

-37-

<PAGE>

(b) Lender shall cause, at the Borrower's sole cost and expense,
physical Appraisals of all Aircraft to be conducted annually; provided, however,
that upon the occurrence of an Event of Loss with respect to any Aircraft or at
any other time Lender shall deem itself insecure or unsafe or shall fear
diminution in value of the Aircraft, Lender may cause, at the Borrower's sole
cost and expense, additional Appraisals and inspections to be conducted with
respect to the Approved Aircraft and Borrower shall use its best efforts to
facilitate such Appraisals or inspections whether under an Aircraft Lease or
otherwise. In addition, Borrower shall provide, at its sole cost and expense,
"desk top" Appraisals to the Lender semi-annually.

6.8 NOTICES. Promptly give notice to the Lender of:

(a) the occurrence of any Default or Event of Default and of any
event that constitutes, or with the passage of time would constitute, an
Event of Loss with respect to any Aircraft or Aircraft Engine;

(b) any (i) default or event of default under any Contractual
Obligation of the Borrower or (ii) litigation, investigation or proceeding
which may exist at any time between the Borrower and any Governmental
Authority, which in either case, if not cured or if adversely determined,
as the case may be, could have a Material Adverse Effect;

(c) any litigation or proceeding affecting the Borrower in which the
amount involved is $100,000 or more and not covered by insurance or in
which injunctive or similar relief is sought;

(d) the acquisition by the Borrower of any property or interest in
property (including, without limitation, Aircraft or Aircraft Parts), that
is not subject to a perfected Lien in favor of the Lender pursuant to the
Security Documents;

(e) the occurrence of any transaction or occurrence referred to in
Section 3.3(d) or Section 3.3(e), and the receipt of any Net Proceeds or
any insurance proceeds as a result thereof (whether or not such Net
Proceeds or proceeds are then required to be applied to the repayment of
Loans and reduction of Facilities as specified in Section 3.3(d) or Section
3.3(e));

(f) the following events, as soon as possible and in any event within
30 days after the Borrower knows or has reason to know thereof: (i) the
occurrence or expected occurrence of any Reportable Event with respect to
any Plan, a failure to make any required contribution to a Plan, the
creation of any Lien in favor of the PBGC or a Plan or any withdrawal from,
or the termination, Reorganization or Insolvency of, any Multiemployer Plan
or (ii) the institution of proceedings or the taking of any other action by
the PBGC or the Borrower or any Commonly Controlled Entity or any
Multiemployer Plan with respect to the withdrawal from, or the terminating,
Reorganization or Insolvency of, any Plan; and

(g) any development or event which has had or could reasonably be
expected to have a Material Adverse Effect.

Each notice pursuant to this Section shall be accompanied by a statement of a
Responsible Officer setting forth details of the occurrence referred to therein
and stating what action the Borrower proposes to take with respect thereto.

6.9 ENVIRONMENTAL LAWS. (a) Comply with, and ensure compliance by
all tenants and subtenants, if any, with, all applicable Environmental Laws and
obtain and comply with and maintain, and ensure that all tenants and subtenants
obtain and comply with and maintain, any and all licenses, approvals,
notifications, registrations or permits required by applicable Environmental
Laws.

-38-

<PAGE>

(b) Conduct and complete all investigations, studies, sampling and
testing, and all remedial, removal and other actions required under
Environmental Laws and promptly comply with all lawful orders and directives of
all Governmental Authorities regarding Environmental Laws.

6.10 PERIODIC AUDIT OF COLLATERAL. The Lender shall be entitled to
perform due diligence inspections, tests and reviews of the Collateral of the
Borrower on any Business Day at any time and from time to time as often as the
Lender shall determine to be necessary or desirable and shall in each case be
satisfied in all material respects with the results thereof and the Borrower
shall bear the reasonable expenses of the Lender in connection with each such
inspection, test and review.

6.11 PROTECTION OF COLLATERAL. The Borrower shall defend and protect
its title to, its possession of and the Lender's Lien in the Collateral against
all claims, Liens, demands, penalties and rights asserted by any Person or
Persons. Without derogating the obligation of the Borrower under Section 7.20,
in the event that the Borrower enters into any Aircraft Lease or acquires any
interest in any property that is not subject to a perfected Lien in favor of the
Lender pursuant to the Security Documents, the Borrower shall take such action
(including, without limitation, the preparation and filing of financing
statements and aircraft chattel mortgage in form and substance satisfactory to
the Lender) as the Lender shall request in order to create and/or perfect a
first priority Lien in favor of the Lender on such property.

6.12 COMPLIANCE WITH AIRWORTHINESS DIRECTIVES. Each Aircraft shall
at all times during which it is registered with any Governmental Authority under
any Requirement of Law, including without limitation registration with the FAA
under the Federal Aviation Act, and in passenger or cargo service operation have
an appropriate, currently effective airworthiness certificate issued by the
Governmental Authority of the jurisdiction of its registration and shall be in
compliance with all Airworthiness Directives applicable to the Aircraft. All
Airworthiness Directives shall be accomplished in accordance with all applicable
bulletins and manuals published by the manufacturer of the Airframe or Aircraft
Engines or Aircraft Parts or FAA-approved or other applicable Governmental
Authority-approved data. The Borrower may determine not to have or maintain any
airworthiness certificate or comply with any such Airworthiness Directive in
respect of or applicable to any Aircraft that is not in passenger or cargo
operation, if the Borrower gives to the Lender notice of such determination no
less than twenty (20) Business Days prior to the termination or expiration of
any airworthiness certificate in effect with respect to such Aircraft or such
non-compliance, as the case may be, and, further, if the effect thereof is to
materially decrease the fair market value or Forced Liquidation Value of such
Aircraft, the Borrower provides at the expense of the Borrower to the Lender in
advance an Appraisal of such Aircraft which gives effect to such termination,
expiration or non-compliance.

6.13 REPLACEMENT OF AIRCRAFT PARTS. The Borrower shall promptly
replace or cause to be replaced all Aircraft Parts that may from time to time be
incorporated or installed in or attached to any Airframe or any Aircraft Engine
comprising part of an Approved Aircraft that may from time to time become worn
out, lost, stolen, destroyed, seized, confiscated, damaged beyond repair or
permanently rendered unfit for use for any reason whatsoever, except as
otherwise provided in Section 6.14. In addition, the Borrower (or any lessee)
may remove in the ordinary course of maintenance, service, repair, overhaul or
testing, any Aircraft Parts, whether or not worn out, lost, stolen, destroyed,
seized, confiscated, damaged beyond repair or permanently rendered unfit for
use, provided that the Borrower (or any lessee), except as otherwise provided in
Section 6.14, shall replace such Aircraft Parts as promptly as practicable.
Replacement Aircraft Parts shall be owned by the Borrower free and clear of all
Liens (except for Liens permitted under paragraphs (a), (b) and (i) of Section
7.3 and except for replacement property temporarily installed on an emergency
basis) and shall be in as good operating condition as, and shall have a value
and utility at least equal to, the Aircraft Parts replaced, assuming such
replaced Aircraft Parts were in the condition and repair required to be
maintained by the terms hereof. Aircraft Parts at any time removed from the
Airframe or any Aircraft Engine comprising an Approved Aircraft that must be
replaced as provided in this Section shall remain subject to the Lien of the
Lender, no matter where located, until such time as such Aircraft Parts shall be
replaced by Aircraft Parts that have been incorporated or installed in or
attached to such Airframe or such Aircraft Engine and that meet the requirements
for replacement parts specified above. Immediately upon any replacement part

-39-

<PAGE>

becoming incorporated or installed in or attached to any such Airframe or any
such Aircraft Engine as above provided, without further act (subject only to
Permitted Liens and except for replacement property temporarily installed on an
emergency basis), (i) such replacement Aircraft Part shall become subject to
this Agreement and be deemed part of such Airframe or such Aircraft Engine for
all purposes hereof to the same extent as the Aircraft Parts originally
incorporated or installed in or attached to such Airframe or such Aircraft
Engine, and (ii) the replaced Aircraft Part shall be free and clear of the Lien
of the Lender, and shall no longer be deemed an Aircraft Part hereunder.

6.14 ALTERATIONS, MODIFICATIONS AND ADDITIONS. Subject to Section
6.13, the Borrower, at its own expense, shall make (or cause to be made) such
alterations and modifications in and additions to the Approved Aircraft as may
be required from time to time to meet the applicable standards of the FAA or any
other Governmental Authority in which such Aircraft may then be registered;
provided, however, that the Borrower (or, if a Lease is then in effect, any
lessee) may in good faith contest the validity or application of any Requirement
of Law in any reasonable manner that does not materially adversely affect the
Lender or materially adversely affect the use or diminish the value of the
Approved Aircraft; provided, further, that the Borrower's failure to make (or
cause to be made) any such alterations or modifications shall not constitute
noncompliance with the requirements of this Section 6.14 or a breach of the
Borrower's undertaking hereunder for so long a period as may be necessary to
remedy such failure, if such failure was not caused by the negligence or willful
misconduct of the Borrower and can be remedied, so long as during such period
the Borrower (or any lessee) is using due diligence and best efforts to remedy
such failure. In addition, the Borrower (or any lessee), may from time to time
add further parts or accessories and make such alterations and modifications in
and additions to the Approved Aircraft as the Borrower (or any lessee) may deem
desirable in the proper conduct of its business, including, without limitation,
removal of Aircraft Parts that the Borrower (or any lessee) deems obsolete or no
longer suitable or appropriate for use on the Approved Aircraft; provided that
no such alteration, modification, removal or addition shall diminish the value
or utility of the Approved Aircraft or materially impair the condition or impair
the airworthiness thereof, below the value, utility, condition or airworthiness
thereof immediately prior to such alteration, modification, removal or addition
assuming the Approved Aircraft was then of the value and utility and in the
condition and airworthiness required to be maintained by the terms of this
Agreement. The Borrower (or any lessee) may, at any time, so long as no Event
of Default shall have occurred and be continuing, remove or suffer to be removed
any Aircraft Part, provided that such Aircraft Part (i) is in addition to, and
not in replacement of or substitution for, any Aircraft Part originally
incorporated or installed in or attached to the Approved Aircraft on the Closing
Date or any Aircraft Part in replacement of or substitution for any such
Aircraft Part, (ii) is not required to be incorporated or installed in or
attached or added to the Approved Aircraft pursuant to the terms of clause (a)
of Section 6.5 or the first sentence of this Section 6.14, and (iii) can be
removed from the Approved Aircraft without diminishing or impairing the value,
utility, condition or airworthiness that the Approved Aircraft would have had at
such time had such alteration, modification or addition not occurred. Upon the
removal by the Borrower (or lessee) of any Aircraft Part as provided above, such
Aircraft Part shall no longer be deemed part of the Approved Aircraft from which
it was removed. In addition, the Borrower may at any time remove equipment,
appliances and appurtenances (such as a video system) owned by a third party
that is in addition to Aircraft Parts so long as such item is not required to be
incorporated or installed in or added to the Approved Aircraft pursuant to the
terms of clause (a) of Section 6.5 or the first sentence of this Section 6.14,
provided that such removal will not diminish the value (determined as if such
property had never been incorporated or installed in or added to the Approved
Aircraft) or utility of the Approved Aircraft or materially impair the condition
of the Approved Aircraft.

6.15 EVENTS OF LOSS.

(a) Upon the occurrence of an Event of Loss with respect to an
Aircraft, or the Airframe and the Aircraft Engines then installed thereon, the
Borrower shall promptly give the Lender written notice of such Event of Loss and
either prepay the Loans pursuant to and as required by Section 3.3 hereof or, if
such Aircraft is an Approved Aircraft, with the consent of the Lender in its
sole discretion, substitute an Aircraft for such Approved Aircraft.

-40-

<PAGE>

(b) Upon the occurrence of an Event of Loss with respect to an
Aircraft Engine under circumstances in which there has not occurred an Event of
Loss with respect to the Airframe on which it is installed, the Borrower shall
forthwith (and in any event, within thirty (30) days after such occurrence) give
the Lender written notice thereof and shall promptly replace the Aircraft Engine
with another engine of the same make, manufacturer and model as the Aircraft
Engine (or replace any Aircraft Engines on the related Aircraft so that all such
Aircraft Engines are of the same manufacturer, make and model and are equivalent
to or an improved model of the Aircraft Engine being replaced and otherwise
suitable for installation and use on the Airframe) free and clear of all Liens
(other than Liens permitted pursuant to paragraphs (a), (b) and (i) of Section
7.3) and having a value and utility equal to or greater than, and being in as
good operating condition as, the Aircraft Engine with respect to which such
Event of Loss occurred (assuming that such Aircraft Engine had been maintained
in accordance with this Agreement). Prior to or at the time of any such
conveyance, the Borrower, at its own expense, will (a) cause amendments to
Schedule 1.1 hereof and to the related Aircraft Chattel Mortgage to be duly
executed by the Borrower and, in the case of such Aircraft Chattel Mortgage, to
be filed for recording pursuant to the Federal Aviation Act, or the applicable
laws, rules and regulations or any other jurisdiction in which the Airframe may
then be registered, (b) furnish the Lender with such evidence of compliance with
the insurance provisions of Section 6.6 hereof with respect to such replacement
aircraft engine as the Lender may reasonably request, and (c) provide the Lender
an opinion of counsel reasonably satisfactory to the Lender concerning the
absence of Liens (other than Liens permitted pursuant to paragraphs (a), (b) and
(i) of Section 7.3) with respect to such replacement engine. For all purposes
hereof, each such replacement engine shall, after such conveyance, be deemed
part of the property leased hereunder, and shall be deemed an Aircraft Engine.

6.16 OPERATION. Maintain, use, service, repair, overhaul and
operate the Aircraft, and cause all lessees to maintain, use, service, repair,
overhaul and operate the Aircraft, in accordance with all applicable
Requirements of Laws, and in accordance with all airworthiness certificates,
licenses and registrations relating to the Aircraft issued by a Governmental
Authority, except to the extent the Borrower (or, if a Lease is then in effect,
any lessee) is contesting in good faith the validity or application of any such
Requirement of Law in any reasonable manner which does not materially adversely
affect the Lender (including, without limitation, risk subjecting the Lender to
any criminal liability) or materially adversely affect the use or diminish the
value of the Aircraft.

6.17 REQUISITION FOR USE OF THE AIRCRAFT BY THE UNITED STATES
GOVERNMENT OR THE GOVERNMENT OF REGISTRY OF THE AIRCRAFT. In the event of the
requisition for use of any Aircraft or Airframe by the United States Government
or any other Governmental Authority in the jurisdiction of registration thereof
not constituting an Event of Loss, the Borrower shall notify the Lender of such
requisition and shall assign all rights to receive payments for such requisition
(including without limitation insurance, indemnity or reimbursement rights to
the extent provided by the United States Government or such other Governmental
Authority) to the Lender and all of the Borrower's obligations under this
Agreement with respect to the Aircraft (including insurance obligations) shall
continue to the same extent as if such requisition had not occurred.

6.18 REQUISITION FOR USE OF AN AIRCRAFT ENGINE BY THE UNITED STATES
GOVERNMENT OR THE GOVERNMENT OF REGISTRY OF THE AIRCRAFT. In the event of the
requisition for use of an Aircraft Engine (but not the Airframe to which it is
affixed or relates) by the United States Government or any other government of
registry of the Aircraft or any agency or instrumentality of any thereof (other
than in the circumstances contemplated by Section 6.16) the Borrower shall
replace such Aircraft Engine hereunder by complying (or causing any lessee to
comply) with the terms of Section 6.14 to the same extent as if an Event of Loss
had occurred with respect thereto, and, upon compliance with Section 6.14
hereof, any payments received by the Lender or the Borrower from such government
entity with respect to such requisition shall be paid over to, or retained by,
the Borrower.

SECTION 7. NEGATIVE COVENANTS

The Borrower hereby agrees that, so long as any of the Facilities
remain in effect or any amount is owing to the Lender hereunder or under any
other Credit Document, the Borrower shall not, directly or indirectly:

-41-

<PAGE>

7.1 FINANCIAL CONDITION COVENANTS.

(a) MAINTENANCE OF TANGIBLE NET WORTH. Permit Consolidated Tangible
Net Worth of the Borrower at the end of each fiscal quarter set forth below to
be less than the amount set forth opposite such fiscal quarter:

<TABLE>
<CAPTION>
PERIOD Amount
------ ------
<S> <C>
Fiscal quarter ending November 1996 $0.00

Fiscal quarter ending February 1997 $ 65,000.00

Fiscal quarter ending May 1997 $130,000.00

Fiscal quarter ending August 1997 $200,000.00

Fiscal quarter ending November 1997 $285,000.00

Fiscal quarter ending February 1998 $360,000.00

Fiscal quarter ending May 1998 $440,000.00

Fiscal quarter ending August 1998 $530,000.00

Fiscal quarter ending November 1998 $625,000.00

Fiscal quarter ending February 1999 $720,000.00

Fiscal quarter ending May 1999 $800,000.00

Each fiscal quarter ending after The amount required
May 1999 by this covenant for
the immediately
preceding fiscal
quarter plus
$80,000.00
</TABLE>

(b) FIXED CHARGE COVERAGE. Permit the Fixed Charge Coverage Ratio
for any period set forth below to fall below the ratio set forth opposite such
period.

<TABLE>
<CAPTION>
PERIOD Ratio
------ -----
<S> <C>
Closing Date through end of first

-42-

<PAGE>

fiscal quarter after the Closing Date 1.00 to 1

Closing Date through end of second
fiscal quarter after the Closing Date 1.10 to 1

Closing Date through end of third
fiscal quarter after the Closing Date 1.10 to 1

Closing Date through end of fourth
fiscal quarter thereafter (if less
than a full fiscal year) 1.10 to 1

Each period of four consecutive
fiscal quarters commencing on or
after the Closing Date 1.10 to 1
</TABLE>

(c) CURRENT RATIO. Permit the ratio of (i) Consolidated Current
Assets of the Borrower to (ii) the Consolidated Current Liabilities of the
Borrower minus the amount of any payments of principal of or interest on the
Term Loans included within such Consolidated Current Liabilities plus, without
duplication, the aggregate amount of outstanding Revolver Advances at any time
to be less than 1.0 to 1.0.

(d) NET LOSSES. Permit Consolidated Net Income of the Borrower to be
less than zero for more than two consecutive individual fiscal quarters.

7.2 Limitation on Indebtedness. Create, incur, assume or suffer to
exist any Indebtedness, except:

(a) Indebtedness of the Borrower under this Agreement;

(b) Indebtedness of the Borrower incurred to finance the acquisition
of fixed or capital assets (whether pursuant to a loan, a Financing Lease
or otherwise) in an aggregate principal amount not exceeding $100,000.00 at
any time outstanding;

(d) additional Indebtedness not exceeding $50,000.00 in aggregate
principal amount at any one time outstanding;

(e) Indebtedness of the Borrower which is subordinate in all respects
to the Obligations on terms and conditions satisfactory to the Lender and
has a maturity in excess of one-year later than the maturity of the
Obligations; and

(f) Indebtedness of a wholly-owned subsidiary of the Borrower, formed
in accordance with Section 7.17 hereof.

7.3 LIMITATION ON LIENS. Create, incur, assume or suffer to exist
any Lien upon any of its property, assets or revenues, whether now owned or
hereafter acquired, except for:

-43-

<PAGE>

(a) Liens for taxes not yet due or which are being contested in good
faith by appropriate proceedings, provided that adequate reserves with
respect thereto are maintained on the books of the Borrower in conformity
with GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's
or other like Liens arising in the ordinary course of business which are
not overdue for a period of more than 60 days or which are being contested
in good faith by appropriate proceedings;

(c) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation;

(d) deposits to secure the performance of bids, trade contracts
(other than for borrowed money), leases, statutory obligations, surety and
appeal bonds, performance bonds and other obligations of a like nature
incurred in the ordinary course of business;

(e) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount and which do not in any case
materially detract from the value of the property subject thereto or
materially interfere with the ordinary conduct of the business of the
Borrower;

(f) Liens in existence on the date hereof listed on Schedule 7.3,
securing Indebtedness permitted by Section 7.2(c), PROVIDED that no such
Lien is spread to cover any additional property after the Closing Date and
that the amount of Indebtedness secured thereby is not increased;

(g) Liens securing Indebtedness of the Borrower permitted by Section
7.2(b) and 7.2(f) incurred to finance the acquisition of fixed or capital
assets, provided that (i) such Liens shall be created substantially
simultaneously with the acquisition of such fixed or capital assets, (ii)
such Liens do not at any time encumber any property other than the property
financed by such Indebtedness, (iii) the amount of Indebtedness secured
thereby is not increased and (iv) the principal amount of Indebtedness
secured by any such Lien shall at no time exceed 100% of the original
purchase price of such property of such property at the time it was
acquired;

(h) Liens (not otherwise permitted hereunder), which secure
obligations not exceeding $50,000 in aggregate amount at any time
outstanding; and

(i) Liens created pursuant to the Security Documents.

7.4 LIMITATION ON GUARANTEE OBLIGATIONS. Create, incur, assume or
suffer to exist any Guarantee Obligation except:

(a) Guarantee Obligations in existence on the date hereof and listed
on Schedule 7.4; and

(b) Guarantee Obligations incurred after the date hereof in an
aggregate amount not to exceed $50,000 at any one time outstanding.

7.5 LIMITATION ON FUNDAMENTAL CHANGES. Enter into any merger,
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution), or convey, sell, lease, assign, transfer
or otherwise dispose of, all or substantially all of its property, business or
assets, or make any material change in its present method of conducting
business.

-44-

<PAGE>

7.6 LIMITATION ON SALE OF ASSETS. Convey, sell, lease, assign,
transfer or otherwise dispose of any of its property, business or assets
(including, without limitation, receivables and leasehold interests), whether
now owned or hereafter acquired, except:

(a) the sale or other disposition of obsolete or worn out property in
the ordinary course of business;

(b) the sale or lease of Inventory in the ordinary course of
business; and

(c) the conveyance, sale, lease, assignment, transfer or other
disposition of any asset provided that the Borrower complies with the
provisions of Section 3.3 with respect thereto.

7.7 LIMITATION ON DIVIDENDS. Declare or pay any dividend or
distribution on, or make any payment on account of, or set apart assets for a
sinking or other analogous fund for, the purchase, redemption, defeasance,
retirement or other acquisition of, any shares of any class of Capital Stock of
the Borrower or any warrants or options to purchase any such Stock, whether now
or hereafter outstanding, or make any other distribution in respect thereof,
either directly or indirectly, whether in cash or property or in obligations of
the Borrower.

7.8 LIMITATION ON CAPITAL EXPENDITURES. Make or commit to make (by
way of the acquisition of securities of a Person or otherwise) any expenditure
in respect of the purchase or other acquisition of fixed or capital assets
(excluding any such asset acquired in connection with normal replacement and
maintenance programs properly charged to current operations and any Aircraft
acquired in the ordinary course of business) except for expenditures in the
ordinary course of business not exceeding, in the aggregate during any fiscal
year of the Borrower, the sum of (i) the amount of depreciation expense of the
Borrower during the immediately preceding fiscal year, determined in accordance
with GAAP, (ii) $100,000.00 and (iii) the excess if any over $100,000.00 and the
amount of such expenditures made in the immediately preceding fiscal year
pursuant to clause (ii) of this Section 7.8.

7.9 LIMITATION ON INVESTMENTS, LOANS AND ADVANCES. Make any advance,
loan, extension of credit or capital contribution to, or purchase any stock,
bonds, notes, debentures or other securities of or any assets constituting a
business unit of, or make any other investment in, any Person, except :

(a) extensions of trade credit in the ordinary course of business;

(b) investments in Cash Equivalents; and

7.10 LIMITATION ON OPTIONAL PAYMENTS AND MODIFICATIONS OF DEBT
INSTRUMENTS. (a) Make any optional payment or prepayment on or redemption or
purchase of any Indebtedness (other than the Loans), or (b) amend, modify or
change, or consent or agree to any amendment, modification or change to any of
the terms of any such Indebtedness (other than any such amendment, modification
or change which would extend the maturity or reduce the amount of any payment of
principal thereof or which would reduce the rate or extend the date for payment
of interest thereon), provided, however, that the Borrower may make any such
payment, prepayment, redemption or purchase of (x) Subordinated Debentures in an
amount not to exceed in the aggregate $500,000.00, if at the time of making any
such payment, prepayment, redemption or purchase no Default or Event of Default
shall exist and be continuing and if after giving effect thereto the Available
Revolver Facility exceeds $2,000,000.00 and (y) any other Indebtedness not
subordinated to the Obligations, in each and every such case if at the time of
making any such payment, prepayment, redemption or purchase no Default or Event
of Default shall exist and be continuing and if after giving effect thereto the
Available Revolver Facility exceeds $1,500,000.00.

-45-

<PAGE>

7.11 LIMITATION ON TRANSACTIONS WITH AFFILIATES. Enter into any
transaction, including, without limitation, any purchase, sale, lease or
exchange of property or the rendering of any service, with any Affiliate unless
such transaction is (a) otherwise permitted under this Agreement, (b) in the
ordinary course of the Borrower's business and (c) upon fair and reasonable
terms no less favorable to the Borrower than it would obtain in a comparable
arm's length transaction with a Person which is not an Affiliate.

7.12 LIMITATION ON SALES AND LEASEBACKS. Enter into any arrangement
with any Person providing for the leasing by the Borrower of real or personal
property which has been or is to be sold or transferred by the Borrower to such
Person or to any other Person to whom funds have been or are to be advanced by
such Person on the security of such property or rental obligations of the
Borrower.

7.13 LIMITATION ON CHANGES IN FISCAL YEAR. Permit the fiscal year of
the Borrower to end on a day other than May 31, without the prior written
consent of the Lender, which consent shall not be unreasonably withheld or
delayed.

7.14 LIMITATION ON NEGATIVE PLEDGE CLAUSES. Enter into with any
Person any agreement, other than (a) this Agreement; and (b) any purchase money
mortgages or Financing Leases permitted by this Agreement (in which cases, any
prohibition or limitation shall only be effective against the assets financed
thereby), which prohibits or limits the ability of the Borrower to create,
incur, assume or suffer to exist any Lien upon any of its property, assets or
revenues, whether now owned or hereafter acquired.

7.15 LIMITATION ON LINES OF BUSINESS. Enter into any business, either
directly or indirectly, except for those businesses in which the Borrower is
engaged on the date of this Agreement or which are directly related thereto.

7.16 GOVERNING DOCUMENTS. Amend its certificate of incorporation or
other Governing Documents, if the same would adversely affect any interest of
the Lender hereunder or under any other Credit Document, without the prior
written consent of the Lender.

7.17 LIMITATION ON SUBSIDIARY FORMATION. Form or acquire any
Subsidiary, unless (i) such Subsidiary shall have been formed for the purpose of
acquiring aircraft or any other special purpose acceptable to the Lender, (ii)
all of the Capital Stock of such Subsidiary shall have pledged to the Lender to
secure the Obligations, (iii) the formation and corporate and capital structure,
and all documentation relating to any of the foregoing, including without
limitation the Credit Documents (and any amendments to the Credit Documents),
shall be in form and substance satisfactory to the Lender, (iv) at the time of
such formation no Default or Event of Default shall have occurred and be
continuing, and (v) the Lender shall have received such opinions of counsel,
financial statements, appraisals and other documents and instruments as it may
require in form and substance satisfactory to it.

7.18 LIMITATION ON AIRCRAFT LEASES, REGISTRATION AND OPERATION. Enter
into any Aircraft Lease and shall not register or permit the registration of any
Aircraft under the laws of any country other than the United States, in each
such case without at least twenty (20) Business Days prior written notice to the
Lender. The Borrower shall not operate the Aircraft, or permit any lessee to
operate the Aircraft, in any area excluded from coverage by any insurance
required by the terms of this Agreement or in any area of hostilities unless the
Aircraft is covered by "war risk" insurance.

7.19 CERTIFICATED AIR CARRIER Become a Certificated Air Carrier
without notifying the Lender at least sixty (60) days prior thereto and without
taking all steps necessary to continue and to maintain at all times the
perfected first priority Lien of the Lender in all of the Collateral.

7.20 ADDITIONAL COLLATERAL Borrower shall not enter into any
Aircraft Lease or acquire any property or interest in property (including,
without limitation, Aircraft and Aircraft Parts) other than property made

-46-

<PAGE>

subject to a Lien permitted under Section 7.3(g), without (i) taking on or
before the acquisition thereof all steps necessary to create a perfected first
priority Lien in favor of the Lender therein, and (ii) preparing and delivering
to the Lender any and all appropriate amendments to the Schedules to this
Agreement (other than Schedule I which may not be amended unilaterally),
including without limitation, in the case of Aircraft, Aircraft Engines and
Aircraft Leases, adding the same to Schedule 1.1.

-47-

<PAGE>

SECTION 8. EVENTS OF DEFAULT

If any of the following events shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of or interest on
any Loan or any other amount payable hereunder or under the other Credit
Documents when due in accordance with the terms thereof or hereof
(including any mandatory prepayment required pursuant to Section 3.5) and,
in the case of interest or other amount (other than principal of any Loan),
such failure shall continue for a period of three (3) days; or

(b) Any representation or warranty made or deemed made by the
Borrower herein or in any other Credit Document or which is contained in
any certificate, document or financial or other statement furnished by it
at any time under or in connection with this Agreement or any such other
Credit Document shall prove to have been incorrect in any material respect
on or as of the date made or deemed made; or

(c) The Borrower shall default in the observance or performance of
any agreement contained in Section 7 of this Agreement, Section 5(a), (b),
(i) and (j) of the Borrower Security Agreement and Sections 3.1 and 3.5 of
each Aircraft Chattel Mortgage; or

(d) The Borrower shall default in the observance or performance of
any other agreement contained in this Agreement or any other Credit
Document (other than as provided in paragraphs (a) through (c) of this
Section), and such default shall continue unremedied for a period of 30
days; or

(e) The Borrower shall (i) default in any payment of principal of or
interest of any Indebtedness (other than the Loans) or in the payment of
any Guarantee Obligation, beyond the period of grace (not to exceed 30
days), if any, provided in the instrument or agreement under which such
Indebtedness or Guarantee Obligation was created, if the aggregate amount
of the Indebtedness and/or Guarantee Obligations in respect of which such
default or defaults shall have occurred is at least $250,000.00; or (ii)
default in the observance or performance of any other agreement or
condition relating to any such Indebtedness or Guarantee Obligation or
contained in any instrument or agreement evidencing, securing or relating
thereto, or any other event shall occur or condition exist, the effect of
which default or other event or condition is to cause, or to permit the
holder or holders of such Indebtedness or beneficiary or beneficiaries of
such Guarantee Obligation (or a trustee or agent on behalf of such holder
or holders or beneficiary or beneficiaries) to cause, with the giving of
notice if required, such Indebtedness to become due prior to its stated
maturity or such Guarantee Obligation to become payable; or

(f) (i) The Borrower shall commence any case, proceeding or other
action (A) under any existing or future law of any jurisdiction, domestic
or foreign, relating to bankruptcy, insolvency, reorganization or relief of
debtors, seeking to have an order for relief entered with respect to it, or
seeking to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its debts,
or (B) seeking appointment of a receiver, trustee, custodian, conservator
or other similar official for it or for all or any substantial part of its
assets, or the Borrower shall make a general assignment for the benefit of
its creditors; or (ii) there shall be commenced against the Borrower any
case, proceeding or other action of a nature referred to in clause (i)
above which (A) results in the entry of an order for relief or any such
adjudication or appointment or (B) remains undismissed, undischarged or
unbonded for a period of 60 days; or (iii) there shall be commenced against
the Borrower any case, proceeding or other action seeking issuance of a
warrant of attachment, execution, distraint or similar process against all
or any substantial part of its assets which results in the entry of an
order for any such relief which shall not have been vacated, discharged, or
stayed or bonded pending appeal within 60 days from the entry thereof; or
(iv) the Borrower shall take any action in furtherance of, or indicating
its consent to, approval of, or acquiescence

-48-

<PAGE>

in, any of the acts set forth in clause (i), (ii), or (iii) above; or
(v) the Borrower shall generally not, or shall be unable to, or shall
admit in writing its inability to, pay its debts as they become due; or

(g) (i) Any Person shall engage in any "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Code) involving any
Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302
of ERISA), whether or not waived, shall exist with respect to any Plan or
any Lien in favor of the PBGC or a Plan shall arise on the assets of the
Borrower or any Commonly Controlled Entity, (iii) a Reportable Event shall
occur with respect to, or proceedings shall commence to have a trustee
appointed, or a trustee shall be appointed, to administer or to terminate,
any Single Employer Plan, which Reportable Event or commencement of
proceedings or appointment of a trustee is, in the reasonable opinion of
the Required Lenders, likely to result in the termination of such Plan for
purposes of Title IV of ERISA, (iv) any Single Employer Plan shall
terminate for purposes of Title IV of ERISA, (v) the Borrower or any
Commonly Controlled Entity shall, or in the reasonable opinion of the
Required Lenders is likely to, incur any liability in connection with a
withdrawal from, or the Insolvency or Reorganization of, a Multiemployer
Plan or (vi) any other event or condition shall occur or exist with respect
to a Plan; and in each case in clauses (i) through (vi) above, such event
or condition, together with all other such events or conditions, if any,
involve an aggregate amount in excess of $500,000.00; or

(h) One or more judgments or decrees shall be entered against the
Borrower involving in the aggregate a liability (to the extent not paid or
covered by insurance) of $500,000 or more, and all such judgments or
decrees shall not have been vacated, discharged, stayed or bonded pending
appeal within 30 days from the entry thereof; or

(i) (i) Any of the Security Documents shall cease, for any reason, to
be in full force and effect, or the Borrower shall so assert or (ii) the
Lien created by any of the Security Documents shall cease to be enforceable
and of the same effect and priority purported to be created thereby;

then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) of this Section with respect to the
Borrower, automatically the Facilities shall immediately terminate and the Loans
hereunder (with accrued interest thereon) and all other amounts owing under this
Agreement and the other Credit Documents shall immediately become due and
payable, and (B) if such event is any other Event of Default, either or both of
the following actions may be taken: (i) the Lender may, by notice to the
Borrower, declare the Facilities to be terminated forthwith, whereupon the
Facilities shall immediately terminate; and (ii) the Lender may, by notice to
the Borrower, declare the Loans hereunder (with accrued interest thereon) and
all other amounts owing under this Agreement and the other it Credit Documents
to be due and payable forthwith, whereupon the same shall immediately become due
and payable.

Except as expressly provided above in this Section, presentment,
demand, protest and all other notices of any kind are hereby expressly waived.

SECTION 9. MISCELLANEOUS

9.1 AMENDMENTS AND WAIVERS. Neither this Agreement nor any other
Credit Document, nor any terms hereof or thereof may be amended, supplemented or
modified except in accordance with the provisions of this Section 9.1. The
Lender may from time to time, (a) enter into with the Borrower written
amendments, supplements or modifications hereto and to the other Credit
Documents for the purpose of adding any provisions to this Agreement or the
other Credit Documents or changing in any manner the rights of the Lender or of
the Borrower hereunder or thereunder or (b) waive, on such terms and conditions
as the Lender may specify in such instrument, any of the requirements of this
Agreement or the other Credit Documents or any Default or Event of Default and
its consequences. Any such waiver and any such amendment, supplement or
modification shall be binding upon the Borrower, the Lender and all future
holders of the Loans. In the case of any waiver, the Borrower and the Lender
shall be restored to their former positions and rights hereunder and under the
other Credit

-49-

<PAGE>

Documents, and any Default or Event of Default waived shall be deemed to be
cured and not continuing; but no such waiver shall extend to any subsequent or
other Default or Event of Default or impair any right consequent thereon.
Notwithstanding the foregoing, the Borrower may, and shall be under a continuing
obligation to, unilaterally amend each Schedule 1.1 and Schedule 4.19 so that
each will at all times be true, complete and correct. Such amendment shall be
effected by delivery of such schedule as amended to the Lender in the manner
provided in Section 9.2 and such schedule shall be deemed to be amended upon
receipt thereof by the Lender.

9.2 NOTICES. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
facsimile transmission) and, unless otherwise expressly provided herein, shall
be deemed to have been duly given or made (a) in the case of delivery by hand,
when delivered, (b) in the case of delivery by mail, three days after being
deposited in the mails, postage prepaid, or (c) in the case of delivery by
facsimile transmission, when sent and receipt has been electronically confirmed,
addressed as follows in the case of the Borrower and the Lender, or to such
other address as may be hereafter notified by the respective parties hereto:

The Borrower: International Airline Support Group, Inc.
8095 N.W. 64th Street
Miami, Florida 33166
Attention:
Fax:

The Lender: BNY Financial Corporation
1290 Avenue of the Americas
New York, New York 10104
Attention: Mr. Frank Imperato
Fax : (212) 408-7399

PROVIDED that any notice, request or demand to or upon the Lender pursuant to
Sections 2.2, 2.3, 3.2, 3.4, 3.8(d) or 9.1 shall not be effective until
received.

9.3 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no
delay in exercising, on the part of the Lender, any right, remedy, power or
privilege hereunder or under the other Credit Documents shall operate as a
waiver thereof; nor shall any single or partial exercise of any right, remedy,
power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, remedy, power or privilege. The rights,
remedies, powers and privileges herein provided are cumulative and not exclusive
of any rights, remedies, powers and privileges provided by law.

9.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties made hereunder, in the other Credit Documents and in any
document, certificate or statement delivered pursuant hereto or in connection
herewith shall survive the execution and delivery of this Agreement and the
making of the Loans hereunder.

9.5 PAYMENT OF EXPENSES AND TAXES. The Borrower agrees (a) to pay or
reimburse the Lender for all its out-of-pocket costs and expenses incurred in
connection with the development, preparation and execution of, and any
amendment, supplement or modification to, this Agreement and the other Credit
Documents and any other documents prepared in connection herewith or therewith,
and the consummation and administration of the transactions contemplated hereby
and thereby, including, without limitation, the reasonable fees and
disbursements of counsel to the Lender, (b) to pay or reimburse the Lender for
all its costs and expenses incurred in connection with the enforcement or
preservation of any rights under this Agreement, the other Credit Documents and
any such other documents, including, without limitation, the reasonable fees and
disbursements of counsel (including the allocated fees and expenses of in-house
counsel) to the Lender, (c) to pay, indemnify, and hold the Lender harmless
from, any and all recording and filing fees and any and all liabilities with
respect to, or resulting from any delay in paying, stamp, excise and other
taxes, if any, which may be payable or determined to be payable

-50

<PAGE>

in connection with the execution and delivery of, or consummation or
administration of any of the transactions contemplated by, or any amendment,
supplement or modification of, or any waiver or consent under or in respect of,
this Agreement, the other Credit Documents and any such other documents, and (d)
to pay, indemnify, and hold the Lender harmless from and against any and all
other liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever with
respect to the execution, delivery, enforcement, performance and administration
of this Agreement, the other Credit Documents and any such other documents,
including, without limitation, any of the foregoing relating to the violation
of, noncompliance with or liability under, any Environmental Law applicable to
the operations of the Borrower or any of the Properties (all the foregoing in
this clause (d), collectively, the "indemnified liabilities"), provided, that
the Borrower shall have no obligation hereunder to the Lender with respect to
indemnified liabilities arising from (i) the gross negligence or willful
misconduct of the Lender or (ii) legal proceedings commenced against the Lender
by any security holder or creditor thereof arising out of and based upon rights
afforded any such security holder or creditor solely in its capacity as such.
The agreements in this Section shall survive repayment of the Loans and all
other amounts payable hereunder.

9.6 SUCCESSORS AND ASSIGNS; PARTICIPATIONS AND ASSIGNMENTS. (a)
This Agreement shall be binding upon and inure to the benefit of the Borrower
and the Lender and their respective successors and assigns, except that the
Borrower may not assign or transfer any of its rights or obligations under this
Agreement without the prior written consent of the Lender and Lender may not
assign or transfer, or grant any participations in, any of its rights or
obligations under this Agreement except pursuant to this Section 9.6.

(b) The Lender may, in the ordinary course of its commercial banking
business and in accordance with applicable law, at any time sell to one or more
banks or other entities ("Participants") participating interests in any Loan
owing to the Lender, any Facility of the Lender or any other interest of the
Lender hereunder and under the other Credit Documents. In the event of any such
sale by the Lender of a participating interest to a Participant, the Lender's
obligations under this Agreement to the other parties to this Agreement shall
remain unchanged, the Lender shall remain solely responsible for the performance
thereof, the Lender shall remain the holder of any such Loan for all purposes
under this Agreement and the other Credit Documents, and the Borrower shall
continue to deal solely and directly with the Lender in connection with the
Lender's rights and obligations under this Agreement and the other Credit
Documents. The Borrower agrees that if amounts outstanding under this Agreement
are due or unpaid, or shall have been declared or shall have become due and
payable upon the occurrence of an Event of Default, each Participant shall, to
the maximum extent permitted by applicable law, be deemed to have the right of
setoff in respect of its participating interest in amounts owing under this
Agreement to the same extent as if the amount of its participating interest were
owing directly to it as the Lender under this Agreement. The Borrower also
agrees that each Participant shall be entitled to the benefits of Section 3.6,
3.13 and 9.5 with respect to its participation in the Facilities and the Loans
outstanding from time to time as if it was the Lender; provided that, in the
case of Section 3.6, such Participant shall have complied with the requirements
of said Section and, provided, further, that no Participant shall be entitled to
receive any greater amount pursuant to any such Section than the Lender would
have been entitled to receive in respect of the amount of the participation
transferred by the Lender to such Participant had no such transfer occurred.
The Borrower shall also agree to such amendments of this Agreement and the other
Credit Documents as may be reasonably requested by the Lender to effectuate the
sale of such participating interests to Participants.

(c) The Lender may, in the ordinary course of its commercial banking
business and in accordance with applicable law, at any time and from time to
time assign to any affiliate of the Lender or to an additional bank or financial
institution all or any part of its rights and obligations under this Agreement
and the other Credit Documents. Upon notification to Borrower of Lender's intent
to make such assignment then Borrower shall cooperate with the Lender to (i)
amend the Credit Agreement and other loan documents to provide for such
assignment, (ii) provide for additional lenders and for an agent to act on
behalf of such lenders and (iii) take all other actions that are reasonably
required by the Lender and on such terms that are customary for this type of
assignment. In the event of any assignment to Assignee which is not an
affiliate of BNY, the Lender shall give written notice thereof to the Borrower
and the Borrower shall have the right to prepay the Loans in whole but not in

-51-

<PAGE>

part without penalty or premium (including without limitation, any early
termination fee set forth in Section 3.10) at any time within sixty (60) days of
the delivery of such notice.

(d) The Borrower authorizes the Lender to disclose to any Participant
or Assignee (each, a "Transferee") and any prospective Transferee any and all
financial information in the Lender's possession concerning the Borrower and its
Affiliates which has been delivered to the Lender by or on behalf of the
Borrower pursuant to this Agreement or which has been delivered to the Lender by
or on behalf of the Borrower in connection with the Lender's credit evaluation
of the Borrower and its Affiliates prior to becoming a party to this Agreement
provided that such prospective Transferee expressly agrees to be bound by the
provisions of Section 9.15.

(e) For avoidance of doubt, the parties to this Agreement acknowledge
that the provisions of this Section concerning assignments of Loans relate only
to absolute assignments and that such provisions do not prohibit assignments
creating security interests, including, without limitation, any pledge or
assignment by the Lender of any Loan to any Federal Reserve Bank in accordance
with applicable law.

9.7 SET-OFF. In addition to any rights and remedies of the Lender
provided by law, the Lender shall have the right, without prior notice to the
Borrower, any such notice being expressly waived by the Borrower to the extent
permitted by applicable law, upon any amount becoming due and payable by the
Borrower hereunder (whether at the stated maturity, by acceleration or
otherwise) to set-off and appropriate and apply against such amount any and all
deposits (general or special, time or demand, provisional or final), in any
currency, and any other credits, indebtedness or claims, in any currency, in
each case whether direct or indirect, absolute or contingent, matured or
unmatured, at any time held or owing by the Lender or any branch or agency
thereof to or for the credit or the account of the Borrower. The Lender agrees
promptly to notify the Borrower after any such set-off and application made by
such Lender, provided that the failure to give such notice shall not affect the
validity of such set-off and application.

9.8 COUNTERPARTS. This Agreement may be executed by one or more of
the parties to this Agreement on any number of separate counterparts (including
by facsimile transmission of signature pages hereto), and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument. A set of the copies of this Agreement signed by all the parties
shall be lodged with the Borrower and the Lender.

9.9 Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

9.10 INTEGRATION. This Agreement and the other Credit Documents
represent the agreement of the Borrower and the Lender with respect to the
subject matter hereof, and there are no promises, undertakings, representations
or warranties by the Lender relative to subject matter hereof not expressly set
forth or referred to herein or in the other Credit Documents.

9.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

9.12 SUBMISSION TO JURISDICTION; WAIVERS. The Borrower hereby
irrevocably and unconditionally:

(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement and the other Credit Documents to
which it is a party, or for recognition and enforcement of any judgment in
respect thereof, to the non-exclusive general jurisdiction of the courts of
the State of New

-52-

<PAGE>

York, the courts of the United States of America for the Southern District
of New York, and appellate courts from any thereof;

(b) consents that any such action or proceeding may be brought in
such courts and waives any objection that it may now or hereafter have to
the venue of any such action or proceeding in any such court or that such
action or proceeding was brought in an inconvenient court and agrees not to
plead or claim the same;

(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail
(or any substantially similar form of mail), postage prepaid, to the
Borrower at its address set forth in Section 9.2 or at such other address
of which the Lender shall have been notified pursuant thereto;

(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the
right to sue in any other jurisdiction; and

(e) waives, to the maximum extent not prohibited by law, any right it
may have to claim or recover in any legal action or proceeding referred to
in this Section any special, exemplary, punitive or consequential damages.

9.13 ACKNOWLEDGMENTS. The Borrower hereby acknowledges that:

(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the other Credit Documents;

(b) the Lender has no fiduciary relationship with or duty to the
Borrower arising out of or in connection with this Agreement or any of the
other Credit Documents, and the relationship between the Borrower and the
Lender in connection herewith or therewith is solely that of debtor and
creditor; and

(c) no joint venture is created hereby or by the other Credit
Documents or otherwise exists by virtue of the transactions contemplated hereby
among the Borrower and the Lender.

9.14 WAIVERS OF JURY TRIAL. THE BORROWER AND THE LENDER HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT AND FOR ANY
COUNTERCLAIM THEREIN.

9.15 CONFIDENTIALITY. The Lender agrees and each Assignee, Transferee
and Participant shall agree to keep confidential all non-public information
provided to it by the Borrower pursuant to this Agreement that is designated by
the Borrower in writing as confidential; provided that nothing herein shall
prevent the Lender from disclosing any such information (i) to any Assignee,
Transferee, or Participant which receives such information having been made
aware of the confidential nature thereof and expressly agreeing to be bound by
the terms of Section 9.5 hereof, (ii) to its employees, directors, agents,
attorneys, accountants and other professional advisors, (iii) upon the request
or demand of any examiner or other Governmental Authority having jurisdiction
over the Lender, (iv) in response to any order of any court or other
Governmental Authority or as may otherwise be required pursuant to any
Requirement of Law, (v) which has been publicly disclosed other than in breach
of this Agreement, or (vi) in connection with the exercise of any remedy
hereunder.

[Signature Page Follows]

-53-

<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.

INTERNATIONAL AIRLINE SUPPORT GROUP, INC.

By: _____________________________________________
Name:
Title:

BNY FINANCIAL CORPORATION

By: _____________________________________________
Name:
Title:

Credit Agreement: Signature Page

<PAGE>

SCHEDULE I

APPROVED AIRCRAFT, APPROVED AIRCRAFT LEASES AND PERMITTED LESSEES

-1-

<PAGE>

SCHEDULE 1.1

AIRCRAFT AND AIRCRAFT ENGINES

[BORROWER TO SUPPLY ALL OTHER SCHEDULES]

-1-

<PAGE>
AIRCRAFT PARTS PURCHASE AGREEMENT

THIS AIRCRAFT PARTS PURCHASE AGREEMENT, is entered into as of this 16th day
of May, 1996 between PAXFORD INT'L, INC., (the "Seller"), and International
Airline Support Group, Inc. (the "Buyer");

RECITALS:

Seller has purchased an inventory of aircraft parts, identified on the 18
page Parts Inventory and related Records (the "Parts"), attached to this
Agreement as Exhibit "A," less Excluded Parts AND RELATED RECORDS identified on
the attached Exhibit "B," from Pt. Garuda Indonesia a/k/a/ Garuda Airlines (the
"Airline").

Buyer desires to purchase from Seller and Seller desires to sell to Buyer
certain of such Parts upon the terms and conditions hereinafter set forth.

NOW, THEREFORE, in consideration of the premises and of the mutual promises
and agreements contained herein, the parties hereto, intending to be legally
bound, hereby agree as follows.

Section 1. Purchase of Aircraft Parts.

1.1 PURCHASED PARTS. Subject to the terms and conditions of this
Agreement, Seller shall sell, assign, transfer and deliver to Buyer, and Buyer
shall purchase from Seller, all of Seller's right, title and interest in and to
the Parts less the Excluded Parts and related records, together with all
overhaul and maintenance records related thereto that are available from the
Airline (the "Records").

1.2 DISCLAIMER OF WARRANTIES. THE PARTS AND THE RECORDS ARE BEING
SOLD TO BUYER "AS IS" AND "WITH ALL FAULTS," AND THE BUYER ACKNOWLEDGES THAT NO
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE ARE TO BE
IMPLIED IN THIS TRANSACTION.

1.3 BILL OF SALE. Seller will deliver to Buyer a bill of sale,
substantially in the form of Exhibit "C" to this Agreement, with respect to the
Parts upon payment of all sums due hereunder. Subject to Section 2.5, until
such time as all payments due hereunder have been made, in full, Seller shall
retain title to the Parts. Seller shall from time to time, at Buyer's request
and expense, execute and deliver to Buyer such additional instruments of
transfer, conveyance and assignment as Buyer may request to evidence more
effectively the transfer, conveyance and assignment of the Parts and the Records
to Buyer.

<PAGE>

Section 2. Purchase Price.

2.1 PURCHASE PRICE. Buyer hereby agrees to pay or deliver to Seller
the following as full and final payment of the purchase price (the "Purchase
Price") for the Parts (other than the Excluded Parts):

(a) The sum of One Million United States Dollars ($1,000,000)
which is now on deposit in escrow with King & Spalding in
Atlanta, GA ("Escrow Agent").

(b) The additional sum of Three Hundred Thousand Dollars
($300,000) upon execution of this Agreement.

(d) The additional sum of Three Hundred Fifty Thousand Dollars
($350,000) thirty (30) days after U.S. Customs clearance.

(e) Title, naming the Buyer as the Seller and the Seller as the
Buyer in the form of a commercial bill of sale, to a ship
set of DC9 Stage II nose cowls and thrust reversers
currently in the possession of Seller. Such bill of sale to
be delivered to the Seller upon execution of this Agreement
at which time title will pass to Seller.

(f) Title, naming the Buyer as the Seller and the Seller as the
Buyer in the form of a commercial bill of sale, to a second
ship set of serviceable DC9 Stage II nose cowls and thrust
reversers currently in the possession of Buyer. Title and
possession to the second ship set to pass on closing. Buyer
will release the ship set to Seller at its Miami warehouse
on Sellers demand. Such nose cowls and thrust reversers
will be delivered FOB the Buyers Miami facility at such time
as Seller shall specify.

(g) All of the above referred to collectively as the "Purchase
Price."

(h) All payments due hereunder to Seller shall be in U.S.
dollars, made by wire transfer of immediately available
funds and shall be made to the following account:

Bank Marine Midland Bank
Scarsdale Branch
24 Chase Road, Scarsdale, NY
ABA Number 021001088

-2-

<PAGE>

Account Name Paxford Int'l Inc.
Account Number 537467688

2.2 ESCROW.

(a) Buyer has deposited with the Escrow Agent the sum of One
Million Dollars ($1,000,000.00) USD and has instructed the
Escrow Agent to disburse such funds to Seller upon receipt
of notice of Buyer's acceptance of the Parts as evidenced by
the Certificate of Inspection and Acceptance of the Parts
substantially in the form of Exhibit "D."

(b) Seller will preposition a commercial bill of sale for the
Parts with its attorney Myron H. Budnick in Miami, FL to be
released to the Buyer upon receipt by Seller of all the
escrowed items set out above and payment in full of the
purchase price.

2.3 CLOSING DATE. The Closing, unless the parties agree to extend
the time for closing, shall occur not later than close of business EDT on May
16, 1996 (the "Closing Date"), following the execution of this Agreement and by
the Buyer executing the Certificate of Inspection and Acceptance of the Parts,
which Certificate of Inspection and Acceptance shall be substantially in the
form attached as Exhibit "D" to this Agreement.

2.4 RELATED TRANSACTIONS.

(a) Provided that the Buyer shall have made all of the payments
due to the Seller pursuant to this Agreement and there is no
uncured default in payment of amounts due Seller pursuant to
this Agreement, Buyer shall have the right to purchase, for
cash, from Seller two (2) ship sets of DC9 Stage II Nose
Cowls and Thrust Reversers for a period of ninety (90) days
from the date of U.S. Customs Clearance of this Agreement
for the sum of US $300,000 per ship set.

(b) Buyer shall arrange for the shipment of all of the Parts and
the Excluded Parts to Miami, at Buyers sole cost, in the
name of the Seller.

(c) Seller shall use reasonable efforts to assist Buyer to
obtain any overhaul and/or maintenance records in the
possession of the Airline, but not delivered to Buyer on the
Closing Date. Buyer will shall reimburse Seller for all
reasonable out of pocket expenses incurred in so assisting
the Buyer.

2.5 SALE OF PARTS. Notwithstanding anything to the contrary set
forth in this Agreement, Buyer shall have the right to sell the Parts (together
with related records), in the ordinary course of business, to unrelated third
parties. Further, Seller agrees that title to any Parts

-3-

<PAGE>

(together with related records) sold by Buyer in accordance with the preceding
sentence shall pass upon such sale to the purchaser of the Parts (together with
related records) without further action by Seller or Buyer. So long as there is
no uncured default in the payments of amounts due Seller pursuant to this
Agreement, buyer shall be entitled to retain the proceeds of all sales of the
Parts. Following the occurrence of a default in payments due to Seller pursuant
to this Agreement that remains uncured for the applicable grace period, all cash
received by the Buyer from the sale of Parts shall be promptly remitted by the
Buyer to the Seller and all such cash and other proceeds of the sales of Parts
shall be held by the Buyer in trust for the benefit of the Seller until the same
is remitted to the Seller.

Section 3. Delivery and Inspection.

3.1 INSPECTION. Seller has made the Parts and Records available to
the Buyer for Inspection at the Airline Facility in Jakarta, Indonesia. Buyer
shall have completed inspection and execute the Certificate of Inspection and
Acceptance concurrent with the execution of this Agreement.

3.2 DELIVERY. Seller will provide to Buyer the necessary Indonesian
Tax and Customs clearance. Seller will deliver the Parts including the Excluded
Parts to a shipper selected by the Buyer at the Airline facilities in Jakarta,
Indonesia after receipt by Seller of the escrowed funds, additional payments due
on execution and the bills of sale due to Seller hereunder.

3.3 TITLE, RISK OF LOSS. Title to the Parts (other than the Excluded
parts) and Records shall pass to Buyer upon full payment of all sums due
hereunder. However, Buyer shall bear all risk of loss or damage to the Parts
and Records during shipment from the Airline's facility in Jakarta, Indonesia to
Miami, Florida from and after Delivery to Buyer shipping agent.

3.4 EXCLUDED PARTS. Buyer shall at its expense pack and ship the
Excluded Parts to Miami, Florida as part of the consideration for the purchase
of the Parts. Title AND RISK OF LOSS of the Excluded Parts shall remain with
the Seller at all times.

Section 4. Representations and Warranties of Seller.

Seller hereby represents, warrants, covenants and agrees to and with
Buyer as follows:

4.1 DUE INCORPORATION AND QUALIFICATION. Seller is a corporation
duly organized, validly existing and in good standing under the laws of the
State of New York.

4.2 AUTHORITY TO EXECUTE AND PERFORM AGREEMENTS. Seller has the full
legal right and power and all authority and approval required to enter into,
execute and deliver this Agreement and to perform fully Seller's obligations
under this Agreement. Seller's execution of this Agreement and the consummation
of the transactions contemplated by this Agreement have been

-4-

<PAGE>

approved by Seller's directors and shareholders. This Agreement has been duly
executed and delivered by Seller and constitutes the legal, valid and binding
obligation of Seller, enforceable against the Seller in accordance with its
terms. The execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated hereby and the performance by
Seller of this Agreement in accordance with its terms and conditions will not,
conflict with or result in the breach or violation of any of the terms or
conditions of; or constitute (or with notice or lapse of time or both would not
constitute) a default under: (i) the Articles of Incorporation or Bylaws or
Seller, (ii) any material instrument, contract or other agreement to which
Seller is a party or by or to which it or any of its assets or properties are
bound or subject; (iii) any statute or any regulation, order, judgment or decree
of any court or governmental or regulatory body; or (iv) any license or permit
material to or necessary for the conduct of the business of Seller.

4.3 TITLE AND LIENS. Seller has or will have, and will convey to
Buyer upon full payment, good and marketable title to the Parts and Records free
and clear or any pledge, lien, security interest, restriction or other
encumbrance of any nature whatsoever (except for tax liens relating to taxes not
yet due and payable) arising from or through the Seller.

4.4 LITIGATION. Seller is not aware of any litigation or judicial,
administrative or arbitration proceeding relating to the Parts, the manner in
which they were sold to Seller or the transactions contemplated by this
Agreement.

4.5 CONSENTS. No consent of any third party is necessary in
connection with the execution of this Agreement by Seller or the Consummation by
Seller of the transactions contemplated hereby.

4.6 GOVERNMENTAL COMPLIANCE. Seller is in full compliance with all
applicable laws, rules, regulations and orders applicable to its purchase of the
Parts and Records and its resale of the Parts and Records to Buyer.

4.7 TAXES, EXPORT FEES, CUSTOM DUTIES. All taxes, export fees and
custom duties due to Indonesian authorities and payable with respect to the
Parts and Records in connection with the Seller's purchase of the Parts and
Records from the Airline, export of the Parts and Records from Indonesia and
resale of the Parts and Records to Buyer in Indonesia have been or will be fully
satisfied at the time of Delivery to Buyers shipping agent.

4.8 BROKERS OR FINDERS. Seller is aware of the provisions of the
Foreign Corrupt Practices Act of 1977 and has instructed any broker, finder or
agent retained by Seller in connection with Seller's purchase of the Parts and
Records from the Airline to refrain from any conduct that would constitute a
violation of the Act. Seller has paid, or will pay promptly when due, all
amounts due to any broker, finder or agent retained by Seller for any brokerage
fees, finders' fees or other like commissions with respect to the transactions
contemplated by this Agreement. No such broker, finder or agent has or will
have any lien against the Parts or Records with respect to any such brokerage
fee, finders fee or other like commission.

-5-

<PAGE>

Section 5. Representations and Warranties of Buyer.

Buyer hereby represents, warrants, covenants and agrees to and with
Seller as follows:

5.1 ORGANIZATION. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.

5.2 AUTHORITY TO EXECUTE AND PERFORM AGREEMENTS. Buyer has the full
legal right and power and all authority and approval required to enter into,
execute and deliver this Agreement and to perform fully its obligations
hereunder. This Agreement has been duly executed and delivered by Buyer and
constitutes the valid and binding obligation of Buyer enforceable in accordance
with its terms.

5.3 BROKERS' OR FINDERS' FEES. Buyer has not incurred any liability
to any broker, finder or agent for any brokerage fees, finders' fees or other
like commissions with respect to the transactions contemplated by this
Agreement. Buyer is aware of the provisions of the Foreign Corrupt Practices
Act of 1977 and has instructed any broker, finder or agent retained by Buyer in
connection with the purchase of the Parts from the Seller to refrain from any
conduct that would constitute a violation of the Act.

5.4 INSURANCE. Buyer has obtained, or will obtain, and has paid, or
will pay, all applicable premiums for marine insurance covering the Parts and
Records, excluding the Excluded Parts, at Buyer's sole cost. Seller shall be
named as an insured showing that Seller retains title to the Parts until all
payments due hereunder have been made in full to Seller.

5.5 IMPORT DUTIES SALES TAXES. Buyer will pay all import duties and
sales taxes levied on the Parts and Records by the taxing authorities in the
port of entry.

Section 6. Default

6.1 The occurrence of any of the following shall constitute a
"Default" and shall be a material breach of this Agreement.

(a) Buyer's failure to make a payment on the date provided
herein (with a ten [10] day grace period), or to have the
required insurance in full force and effect at all times,
for which no notice to Buyer is required.

(b) Buyer's failure to observe or perform any of its other
obligations hereunder and its failure to cure the same
within ten (10) days after written notice thereof to Buyer.
If such failure by its nature can be cured, and provided
Buyer shall have commenced to cure such Default within said
ten (10)

-6-

<PAGE>

days and proceeds with all due diligence, deliberate speed
and good faith to cure such Default. Seller shall waive
such Default.

(d) Buyer suspends or discontinues business or sells or
otherwise disposes of all or substantially all of its
assets.

(e) If Buyer shall consent to the appointment of a receiver,
trustee or liquidator of itself or of a substantial part of
its assets or property, or shall make a general assignment
for the benefit of creditors, or shall file a petition in
bankruptcy, or a petition or an answer seeking
reorganization in a proceeding under any bankruptcy law (as
now or hereafter in effect other than a proceeding known as
a "prepackaged bankruptcy" instituted by the Buyer in which
the sole impaired class of creditors is the holders of the
Buyer's 8% Convertible Subordinated Debentures), or an
answer admitting the material allegations of a petition
filed against the Buyer in any such proceedings, or shall by
petition, answer or consent, seek relief under the
provisions of any other now existing or future bankruptcy or
other similar law providing for the reorganization or
winding up of corporations, or an agreement, composition or
extension or adjustment with its creditors.

(f) If an order, judgment or decree shall be entered by a court
of competent jurisdiction appointing, without the consent of
the Buyer, a receiver, trustee or liquidator of the Buyer or
of any substantial part of its property, or any substantial
part of the Buyer properties shall be sequestered, and any
such order, judgment or decree of appointment or
sequestration shall remain in full force un-dismissed, un-
stayed, or un-vacated for a period of sixty (60) days after
the date of entry thereof.

(g) If a petition against Buyer in proceedings under the
bankruptcy laws or other insolvency laws (as now or
hereafter in effect) shall be filed, and any decree or order
adjudging the Buyer a bankrupt or insolvent in such
proceeding shall remain in force un-dismissed or un-stayed
for a period of sixty (60) days after such adjudication, or
in case the approval of such petition as filed or amended
shall be approved by such court as properly filed and such
approval shall not be withdrawn or the proceeding under any
provision of any law providing for reorganization or winding
up of corporations which may apply to the Buyer, or any
court orders control of the Buyer or of any substantial part
of its property and such jurisdiction, custody or control
shall remain in force unrelinquished, un-stayed or un-
terminated for a period of sixty (60) days.

-7-

<PAGE>

6.2 IN THE EVENT OF SUCH DEFAULT, and while such Default continues
Seller, at its option (in addition to such other rights and remedies which
Seller may have), may terminate this Agreement by giving notice to the Buyer.
If Seller so terminates this Agreement, Buyer shall forthwith deliver
possession of the Parts to Seller at any location designated by Seller in the
Southeastern United States and Seller shall be authorized to enter on any
premises where the Parts may be located and to retake possession and to remove
the Parts from said premises without liability of any kind on the part of
Seller.

6.3 Seller may, at its option, in addition to all other rights as
herein set forth and all other rights granted in law or in equity after a
Default by Buyer hereunder, sell the Parts to any third party upon such terms
and conditions as Seller may reasonably determine, and apply the proceeds
therefrom for the account of Buyer to the amounts due to Seller as provided
herein. The total proceeds of such sale, to the extent payment is received by
Seller, less Seller's reasonable expenses incurred in connection therewith,
including all reasonable attorney fees and expenses, shall be applied to the
total amount due to Seller as provided herein, and Buyer shall pay to Seller
immediately any deficiency. If any surplus remains following such applications,
such surplus shall be remitted to the Buyer.

6.4 Seller may at its election waive any Default and its consequences
and rescind and annul such notice to Buyer in writing at its sole option to that
effect, and thereupon the respective rights of the parties shall be as they
would have been if no Default had occurred and no such notice had been given.
Notwithstanding the provision of this Article, it is expressly understood and
agreed by Buyer that time is of the essence with regard to Buyer's obligations
under this Agreement and that no waiver, rescission or annulment shall extend to
or affect any other or subsequent Default or impair any rights or remedies
consequent thereon.

Section 7. Miscellaneous.

7.1 BINDING EFFECT. This Agreement shall inure to the benefit of and
shall be binding upon Buyer and Seller and their respective successors and
assigns.

7.2 GOVERNING LAW. This Agreement shall be deemed to be made in, and
in all respects shall be interpreted, construed and governed by and in
accordance with, the laws of the State of Florida.

7.3 HEADINGS. The section and paragraph headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.

7.4 NOTICES. All communications provided for hereunder shall be in
writing and shall be deemed to be given when delivered in person or deposited in
the United States mail, first

-8-

<PAGE>

class, registered or certified, return receipt requested, with proper postage
prepaid, or sent by facsimile as follows:

(a) If to Seller, addressed to:

Paxford Int'l, Inc.
10 Paxford Lane
Scarsdale, New York 10583
Attention: Mr. Antonio Novena, President

(b) If to Buyer, addressed to:

International Airline Support Group, Inc.
3108 Piedmont Road, Suite 235
Atlanta, Georgia 30305
Attention: Mr. Alexius A. Dyer, III
fax (404) 233-0088

7.5 SURVIVAL. All representations, warranties, covenants and
agreements made by each of the parties hereto shall survive the closing of the
transactions contemplated hereunder.

7.6 EXPENSES. Each party hereto shall bear its own direct and
indirect expenses incurred by such party in connection with the negotiation and
preparation of this Agreement and the consummation of the transactions
contemplated hereby.

7.7 REMEDIES CUMULATIVE. Any right, power or remedy provided under
this Agreement to any party hereto shall be cumulative and in addition to any
other right, power or remedy provided under this Agreement or now or hereafter
existing at law or in equity. No course of dealing between or among the parties
hereto or any delay or failure on the part of any party in exercising any rights
hereunder or at law or in equity shall operate as a waiver of any rights of such
party, except to the extent expressly waived in writing by such party.

7.8 FACSIMILE SIGNATURE. The parties shall exchange facsimile signed
copies of this agreement which shall have the same force and effect as an
originally executed document, until such time as the parties can exchange
original signed documents.

7.9 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.

7.10 ENTIRE AGREEMENT. This Agreement is intended by the parties
hereto to be final expression of their agreement and is the complete and
exclusive statement of the terms thereof

-9-

<PAGE>

notwithstanding any representation or statements to the contrary heretofore
made. This Agreement may be modified only by a written instrument signed by
each of the parties hereto.

IN WITNESS WHEREOF, the parties have executed this Agreement under seal
as of the date first above written.

PAXFORD INT'L, INC. International Airline Support Group, Inc.

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

Name: Name:
--------------------------- ----------------------------

its its
----------------------------- ------------------------------

-10-

<PAGE>

EXHIBIT "A"

Parts Inventory 18 pages provided by Pt. Garuda Indonesia
TO BE INSERTED HERE

-11-

<PAGE>

EXHIBIT "B"

Excluded Parts

All of the nose cowls and thrust reversers listed on the PT. Garuda 18
page Parts Inventory referred to Exhibit "A" or if unlisted that are delivered
to the Seller and/or the Buyer at Jakarta, Indonesia by Pt. Garuda Indonesia.
All other parts received at delivery in Jakarta, Indonesia shall be deemed to be
sold to Buyer subject to the terms of this Agreement.

-12-

<PAGE>

EXHIBIT "C"
Parts
BILL OF SALE

FOR GOOD AND VALUABLE CONSIDERATION, receipt of which is hereby
acknowledged, Paxford Int'l Inc., (the "Seller") does hereby grant, bargain,
sell and deliver to International Airlines Support Group, Inc. ("Buyer") its
successors and assigns the Parts and related Records, less Excluded Parts and
related Records, pursuant to an Aircraft Parts Purchase Agreement dated May
16th, 1996 by and between Seller and Buyer consisting of Parts delivered to
Buyer ____________________________, as of the __________ day of ____________,
1996 consisting of numerous parts for the McDonnell Douglas DC9 aircraft "as is
where is" without warranty or representation of any kind or nature other than
title to the Parts.

To have and to hold singularly the said Parts and Records into the
Buyer, its successors and assigns, for its and their own use, forever.

The Seller hereby warrants that the Seller is the owner and holder of,
and has good title to, the Parts and Records and that there is hereby conveyed
to Seller on the date hereof good title to the Parts free and clear of all
liens, claims and encumbrances (other than liens created by or through the
Buyer) and that the Seller shall defend such title against all persons
whomsoever (other than any person claiming by or through the Buyer).

IN WITNESS WHEREOF, the Seller has caused this Bill of Sale to be
executed on its behalf by a duly authorized officer on this ________ day of
____________________________, 1996.

Paxford Int'l Inc.

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

-13-

<PAGE>

EXHIBIT "D"

Certificate of Inspection and Acceptance

Pursuant to the terms of an AIRCRAFT PARTS PURCHASE AGREEMENT
("Agreement"), entered into as of this 16th day of May, 1996, between PAXFORD
INT'L, INC., (the "Seller"), and International Airline Support Group, Inc. (the
"Buyer") for the purchase of an inventory of aircraft Parts and related Records,
identified on an 18 page Parts Inventory attached to the Agreement prepared by
Pt. Garuda Indonesia a/k/a Garuda Airlines, the Buyer does hereby acknowledge
that it has inspected the Parts and related Records and does hereby accept the
Parts and related Records under the terms of the Agreement.

Accepted this ____________ day of May, 1996.

International Airlines Support Group, Inc.

By:
----------------------------------
its
----------------------------------

-14-

<PAGE>
EXHIBIT 12

INTERNATIONAL AIRLINE SUPPORT GROUP, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS EXCEPT RATIO DATA)

<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
------------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Income (loss) from operations............................... $ 4,360 $ 4,049 $ (16,199) $ 1,170 $ 4,458

Interest expense............................................ 871 2,569 2,953 2,564 2,192
--------- --------- ---------- --------- ---------

Ratio of earnings to fixed charges (1)...................... 5.01 1.58 -- -- 2.03
</TABLE>

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

<PAGE>

CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS

We have issued our report dated July 12, 1996, accompanying the consolidated
financial statements of International Airline Support Group, Inc. contained
in Amendment #2 to the Proxy Statement and Prospectus. We consent to the use
of the aforementioned report in the Proxy Statement and Prospectus, and to
the use of our name as it appears under the caption "Experts."

/s/ GRANT THORNTON LLP

Miami, Florida
August 26, 1996

<PAGE>

INTERNATIONAL AIRLINE SUPPORT GROUP, INC.
CONSENT AND LETTER OF TRANSMITTAL
TO TENDER AND/OR TO GIVE CONSENTS IN RESPECT OF ITS
8% CONVERTIBLE SUBORDINATED DEBENTURES DUE AUGUST 31, 2003
IN EXCHANGE FOR SHARES OF ITS COMMON STOCK
PURSUANT TO ITS PROXY STATEMENT/PROSPECTUS DATED , 1996

THE EXCHANGE OFFER WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON ,
1996, UNLESS EXTENDED. TENDERS OF CONVERTIBLE DEBENTURES MAY BE WITHDRAWN AT
ANY TIME PRIOR TO 12:00 MIDNIGHT, NEW YORK TIME, ON THE EXPIRATION DATE. DEBT
CONSENTS MAY BE REVOKED ONLY IF THE COMPANY RECEIVES NOTICE OF REVOCATION BEFORE
THE DATE THE AMENDMENT BECOMES EFFECTIVE. HOLDERS WHO TENDER THEIR CONVERTIBLE
DEBENTURES WILL BE REQUIRED TO CONSENT TO THE DEBT AMENDMENTS.

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

TO: FIRST UNION NATIONAL BANK OF NORTH CAROLINA
DEPOSITARY

TELEPHONE NUMBER:
-----------------

BY HAND/OVERNIGHT DELIVERY By Facsimile: By Mail:
- -------------------------- ------------- --------

DELIVERY OF THIS CONSENT AND LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER
THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.

The undersigned acknowledges receipt of the Proxy Statement/Prospectus
dated , 1996 (the "Prospectus) of
International Airline Support Group, Inc. (the "Company") and this Consent and
Letter of Transmittal, which together constitute (i) the Company's offer (the
"Exchange Offer") to exchange 224.54 shares of its Common Stock, par value
$0.001 per share (the "Common Stock") for each $1,000 principal amount of its
outstanding 8% Convertible Subordinated Debentures due August 31, 2003, as
specified below and (ii) the Company's solicitation (the "Solicitation") of
consents (the "Consents") to certain amendments (the "Amendment"), described in
the Prospectus under the caption "The Exchange Offer--General," to the separate
Securities Purchase Agreements, dated September 8, 1993 (collectively, the
"Purchase Agreements"), pursuant to which the Convertible Debentures were
issued. All references herein to the Exchange Offer shall be deemed to include
the Debt Solicitation unless otherwise specified.

The Company will accept for exchange all Convertible Debentures that are
validly tendered and not withdrawn on or prior to the Expiration Date. No
Convertible Debentures will be exchanged unless all conditions to the Exchange
Offer set forth in the Prospectus are satisfied.

The Consent and Letter of Transmittal is to be used (i) if certificates for
Convertible Debentures are to be physically delivered to the Depositary
herewith, (ii) if tenders are to be made by book entry transfer to one of the
accounts maintained by the Depositary at
the________________________________________________ (the "Book Entry Transfer
Facility") pursuant to the procedures set forth in the Prospectus under the
caption "The Exchange Offers -- How to Tender and Consent in the Exchange
Offers," (iii) if tenders are to be made according to the guaranteed delivery
procedures set forth in the Prospectus under "The Exchange Offers -- Guaranteed
Delivery Procedures" or (iv) if non-tendering Holders desire to vote for the
Amendments. Holders who tender their Convertible Debentures must also consent
to the Amendment. The Exchange Offer will expire on , 1996
(the "Expiration Date") unless extended, in which case the term "Expiration
Date" shall mean the last time and date to which the Exchange Offer is extended.
Capitalized terms used herein and not otherwise defined shall have the
respective meanings assigned to them in the Prospectus.

<PAGE>

PLEASE READ THE ENTIRE CONSENT AND LETTER OF TRANSMITTAL CAREFULLY BEFORE
CHECKING ANY BOX BELOW. YOUR BANKER OR BROKER CAN ASSIST YOU IN COMPLETING THIS
FORM. THE INSTRUCTIONS INCLUDED WITH THIS CONSENT AND LETTER OF TRANSMITTAL
MUST BE FOLLOWED. QUESTIONS AND REQUESTS FOR ASSISTANCE SHOULD BE DIRECTED TO
THE DEPOSITARY AT THE ADDRESS AND TELEPHONE NUMBER SET FORTH ABOVE. REQUESTS
FOR ADDITIONAL COPIES OF THE PROSPECTUS AND THE CONSENT AND LETTER OF
TRANSMITTAL SHOULD BE DIRECTED TO THE COMPANY AT 8095 N.W. 64TH STREET, MIAMI,
FLORIDA, TELEPHONE (305) 593-2658.

Holders who wish to tender their Convertible Debentures and/or consent to
the Amendments must complete the table in Box One and complete and sign in Box
Three. If only columns (1) through (3) are completed in Box One, the Holder
will be deemed to have tendered for exchange and/or consented to the Amendments,
as the case may be, with respect to all Convertible Debentures listed in the
table in Box One. If a Holder wishes to tender, and/or consent to the
Amendments with respect to less than all of such Convertible Debentures, column
(4) in Box One must be completed in full and such Holder should refer to
Instruction 5. Holders who are not tendering Convertible Debentures and who
wish to vote on the Amendments must complete Box Two in addition to completing
the table in Box One and completing and signing in Box Three.

THE RECORD DATE FOR CONSENTING TO THE AMENDMENTS IS ,
1996. ONLY HOLDERS OF RECORD OF CONVERTIBLE DEBENTURES ON THE RECORD DATE ARE
ENTITLED TO CONSENT TO THE AMENDMENTS. ANY BENEFICIAL HOLDER WHOSE CONVERTIBLE
DEBENTURES WERE HELD OF RECORD ON THE RECORD DATE IN THE NAME OF SUCH PARTY'S
BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE WHO WISHES TO
CONSENT TO THE AMENDMENT SHOULD CONTACT AND INSTRUCT SUCH REGISTERED HOLDER TO
CONSENT TO THE AMENDMENTS ON ITS BEHALF. ANY REGISTERED HOLDER OF CONVERTIBLE
DEBENTURES THAT PURCHASES CONVERTIBLE DEBENTURES, OR WHOSE PURCHASE OF
CONVERTIBLE DEBENTURES IS REGISTERED, AFTER THE RECORD DATE WHO WISHES TO
CONSENT TO THE AMENDMENTS MUST ARRANGE WITH SUCH PARTY'S SELLER TO OBTAIN A
PROXY FROM THE HOLDER OF RECORD ON THE RECORD DATE OF SUCH CONVERTIBLE
DEBENTURES.

SIGNATURE(S) MUST BE PROVIDED BELOW

PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY

Holders of Convertible Debentures who wish to tender and consent to the
Amendments with respect to their Convertible Debentures pursuant to the Exchange
Offer and whose certificates representing such Convertible Debentures are not
lost, but are not immediately available, or who will be unable to submit all
required documents to the Depositary on or before the Expiration Date or who
cannot complete the procedures for book entry transfer on a timely basis may
tender their Convertible Debentures according to the guaranteed delivery
procedures set forth in the Prospectus under "The Exchange Offers -- Guaranteed
Delivery Procedures." See Instruction 1.

/ / CHECK HERE IF TENDERED CONVERTIBLE DEBENTURES ARE ENCLOSED HEREWITH.

/ / CHECK HERE IF TENDERED CONVERTIBLE DEBENTURES ARE BEING DELIVERED BY BOOK
ENTRY TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE DEPOSITARY WITH A BOOK
ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING (ONLY PARTICIPANTS IN A
BOOK ENTRY TRANSFER FACILITY SYSTEM MAY DELIVER DEBENTURES BY BOOK ENTRY
TRANSFER):

Name of Tendering Institution:
_________________________________________________

Book entry Transfer Facility:
_________________________________________________

Account Number:
________________________________________________________________

Transaction Code Number:
_______________________________________________________

/ / CHECK HERE IF TENDERED CONVERTIBLE DEBENTURES ARE BEING DELIVERED PURSUANT
TO A NOTICE OF GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING:

Name(s) of Registered Owner(s):
________________________________________________

Date of Execution of Notice of Guaranteed Delivery:
____________________________

Name of Institution which Guaranteed Delivery:
_________________________________

Account Number if delivered by book entry transfer:
____________________________

/ / CHECK HERE IF THIS CONSENT AND LETTER OF TRANSMITTAL IS BEING DELIVERED TO
VOTE ON THE AMENDMENTS AND NO CONVERTIBLE DEBENTURES ARE BEING TENDERED.

/ / CHECK HERE IF CONVERTIBLE DEBENTURES HAVE BEEN PREVIOUSLY DELIVERED
PURSUANT TO A CONSENT AND LETTER OF TRANSMITTAL.

<PAGE>

BOX ONE
- --------------------------------------------------------------------------------
LIST BELOW THE CONVERTIBLE DEBENTURES TO WHICH THIS CONSENT AND LETTER OF
TRANSMITTAL RELATES. IF THE SPACE PROVIDED BELOW IS INADEQUATE, THE CERTIFICATE
NUMBERS AND PRINCIPAL AMOUNTS SHOULD BE LISTED ON A SEPARATE SIGNED SCHEDULE
AFFIXED HERETO

DESCRIPTION OF CONVERTIBLE DEBENTURES
------------------------------------------------------------------------------------------------------
(1) (2) (3) (4)
--------------------------- --------------------------- -------------------- ----------------
NAME(S) AND ADDRESS(ES) OF
REGISTERED HOLDER(S) CERTIFICATE NUMBER(S) AGGREGATE PRINCIPAL PRINCIPAL AMOUNT
(PLEASE FILL IN, IF BLANK) (ATTACH LIST IF NECESSARY)* AMOUNT(S) TENDERED**
--------------------------- --------------------------- -------------------- ----------------
<S> <C> <C> <C>

--------------------------- --------------------------- -------------------- ----------------
--------------------------- --------------------------- -------------------- ----------------
--------------------------- --------------------------- -------------------- ----------------
TOTAL:
--------------------------- --------------------------- -------------------- ----------------
</TABLE>

* NEED NOT BE COMPLETED BY HOLDERS OF CONVERTIBLE DEBENTURES TENDERING BY
BOOK ENTRY TRANSFER.

** UNLESS OTHERWISE INDICATED, THE HOLDER WILL BE DEEMED TO HAVE TENDERED THE
ENTIRE PRINCIPAL AMOUNT OF CONVERTIBLE DEBENTURES REPRESENTED BY TENDERED
CERTIFICATES. SEE INSTRUCTION 5. THE HOLDER MUST CONSENT TO THE
AMENDMENTS WITH RESPECT TO ANY CONVERTIBLE DEBENTURES TENDERED.
- --------------------------------------------------------------------------------

BOX TWO
- --------------------------------------------------------------------------------
CONSENT TO AMENDMENTS

THIS CONSENT IS BEING SOLICITED BY THE COMPANY. HOLDERS OF CONVERTIBLE
DEBENTURES WHO WISH TO TENDER THEIR CONVERTIBLE DEBENTURES PURSUANT TO THE
EXCHANGE OFFER MUST CONSENT TO THE ADOPTION OF THE AMENDMENTS.

THE UNDERSIGNED HEREBY VOTES WITH RESPECT TO $ IN
PRINCIPAL AMOUNT OF THE CONVERTIBLE DEBENTURES DESCRIBED IN BOX ONE ON THE
AMENDMENTS AS FOLLOWS:

/ / FOR / / AGAINST / / ABSTAIN

UNLESS OTHERWISE INDICATED, THE VOTE MARKED ABOVE WILL BE DEEMED TO HAVE
BEEN GIVEN WITH RESPECT TO ALL TO THE CONVERTIBLE DEBENTURES DESCRIBED ABOVE IN
BOX ONE. HOWEVER, THE UNDERSIGNED MUST VOTE FOR THE AMENDMENTS WITH RESPECT TO
AT LEAST THE PRINCIPAL AMOUNT OF CONVERTIBLE DEBENTURES TENDERED HEREBY.
SUBMISSION OF AN EXECUTED CONSENT AND LETTER OF TRANSMITTAL BY A TENDERING
HOLDER OF A REGISTERED CONVERTIBLE DEBENTURE WITHOUT INDICATING A VOTE WILL
CONSTITUTE A VOTE FOR THE AMENDMENTS. IN ADDITION, A DEFECTIVE TENDER MAY,
UNDER CERTAIN CIRCUMSTANCES, CONSTITUTE A VALID CONSENT AND WILL BE COUNTED FOR
PURPOSES OF DETERMINING WHETHER THE REQUISITE CONSENTS HAVE BEEN OBTAINED EVEN
IF THE ACCOMPANYING Convertible Debentures are not accepted for exchange by
reason of such defect.

The Undersigned authorizes the Depositary to deliver this Consent and
Letter of Transmittal to the Company as evidence of the undersigned's vote on
the Amendments.
- --------------------------------------------------------------------------------

Ladies and Gentlemen:

MATTERS APPLICABLE TO HOLDERS TENDERING CONVERTIBLE DEBENTURES.

In accordance with the terms and subject to the conditions set forth in the
Prospectus, the undersigned hereby tenders to the Company the above-described
principal amount of Convertible Debentures. Subject to, and effective upon
acceptance for exchange of the Convertible Debentures tendered herewith, the
undersigned hereby exchanges, assigns and transfers to, or upon the order of,
the Company all right, title and interest in and to all the Convertible
Debentures that are being tendered hereby and that are being accepted for
exchange pursuant to the Exchange Offer, and irrevocably constitutes and
appoints the Depositary the true and lawful agent and attorney-in-fact of the
undersigned with respect to such Convertible Debentures (with full knowledge
that the Depositary also acts as agent for the Company), with full power of
substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest), to (a) deliver such Convertible Debentures to the
Company or cause ownership of such Convertible Debentures to be transferred to
the Company on the Company's books and deliver all accompanying evidences to
transfer and authenticity to or upon the order of the Company upon receipt by
the Depositary, as the undersigned's agent, of the shares of Common Stock to
which the undersigned is entitled upon the acceptance by the Company of such
Convertible Debentures under the Exchange Offer, and (b) receive all benefits
and otherwise exercise all rights to beneficial ownership of such Convertible
Debentures, all in accordance with the terms of the Exchange Offer. The
undersigned agrees and acknowledges, by the execution and delivery hereof, that
the undersigned makes and provides the written consent of the Holder(s) of the
Convertible Debentures to which this Consent and Letter of Transmittal applies
with respect to the Amendments, unless otherwise indicated.

The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, exchange, assign and transfer the
Convertible Debentures tendered hereby, and that when the same are accepted for
exchange by the Company, the Company will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances,
and such Convertible Debentures shall not be subject to any adverse claims. The
undersigned will, upon request, execute and deliver any additional documents
deemed by the Depositary or the Company to be necessary or desirable to complete
the exchange, assignment and transfer of the Convertible Debentures tendered
hereby. The undersigned hereby represents that the Convertible Debentures
tendered are valid and that the undersigned is duly authorized to tender such
Convertible Debentures.

The undersigned understands that, upon acceptance by the Company of the
Convertible Debentures tendered hereby, the undersigned will be deemed to have
accepted the shares of Common Stock issued in exchange therefor and will be
deemed to have waived all rights with respect to interest accrued on the
Convertible Debentures.

Convertible Debentures properly tendered and not withdrawn will be accepted
as soon as practicable after the satisfaction or waiver of all conditions to the
Exchange Offer. The undersigned understands that the shares of Common Stock
will be delivered as promptly as practicable upon acceptance of the tendered
Convertible Debentures by the Company. The Exchange Offer is subject to a
number of conditions, as more particularly set forth in the Prospectus. The
undersigned recognizes that as a result of such conditions the Company may not
be required to exchange any or all of the Convertible Debentures tendered
hereby. In such event, the Convertible Debentures not exchanged will be
returned to the undersigned at the address shown below the undersigned's
signature(s) unless otherwise indicated under "Special Delivery Instructions."

The undersigned understands that tenders of Convertible Debentures pursuant
to any of the procedures described in the Prospectus and in this Consent and
Letter of Transmittal will constitute a binding agreement between the
undersigned and the Company upon the terms and subject to the conditions of the
Exchange Offer.

Unless otherwise indicated herein under "Special Issuance Instructions,"
please issue the certificates for the Common Stock and return any Convertible
Debentures not tendered or not accepted for exchange, in the name(s) of the
undersigned at the address set forth above under "Description of Convertible
Debentures." Similarly, unless otherwise indicated under "Special Delivery
Instructions," please deliver the certificates for shares of Common Stock and
any Convertible Debentures not tendered or not accepted for exchange (and
accompanying documents, as appropriate) to the undersigned at the address set
forth above under "Description of Convertible Debentures." In the event that

<PAGE>

both the "Special Issuance Instructions" and the "Special Delivery Instructions"
are completed, please issue the certificates for the shares of Common Stock
and/or return or issue any certificates for Convertible Debentures not tendered
or not accepted for exchange in the name(s) of and deliver such certificates for
Convertible Debentures and/or such certificates for shares of Common Stock to
the person or persons so indicated. Holders tendering Convertible Debentures by
book entry transfer may request that any Convertible Debentures not tendered or
not accepted for exchange be returned by crediting such account maintained at
the Book Entry Transfer Facility as such Holder may designate by making an
appropriate entry under "Special Issuance Instructions." The undersigned
recognizes that the Company has no obligation pursuant to the "Special Issuance
Instructions" to make arrangements for the transfer of any Convertible
Debentures from the name of the registered Holder(s) thereof if the Company does
not accept for exchange any of the Convertible Debentures so tendered.

MATTERS APPLICABLE TO HOLDERS VOTING ON THE AMENDMENTS.

In accordance with the terms and subject to the conditions set forth in the
Prospectus and in this Consent and Letter of Transmittal, the undersigned hereby
votes with respect to the Amendments as indicated above in Box Two. The
undersigned hereby agrees and acknowledges that the execution and delivery
hereof constitute the consent of the undersigned with respect to the Amendments
as contemplated by Section 14 of the Purchase Agreements. The undersigned
understands that the consent provided hereby shall remain in full force and
effect until the consent given hereby in respect of the Amendments is revoked,
all in accordance with the procedures provided for in the Prospectus and in this
Consent and Letter of Transmittal. The undersigned hereby irrevocably
constitutes and appoints the Depositary the true and lawful agent and attorney-
in-fact of the undersigned with respect to the Amendments (with full knowledge
that the Depositary also acts as agent for the Company), with full power of
substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest), to deliver to the Trustee certification of the
undersigned's consent with respect to the Amendments, all in accordance with the
terms of the Purchase Agreements, the Amendments and the Exchange Offer. If the
undersigned has consented, or is deemed to have consented, to the Amendments as
provided in the Prospectus and in this Consent and Letter of Transmittal, the
undersigned will, upon request, execute and deliver any additional documents
deemed necessary or desirable by the Depositary or the Company to perfect the
undersigned's consent to the execution of the supplemental indenture reflecting
the Amendments.

MATTERS APPLICABLE TO ALL HOLDERS.

All authority conferred or agreed to be conferred herein shall survive the
death or incapacity of the undersigned, and any obligation of the undersigned
hereunder shall be binding upon the heirs, executors, administrators, legal and
personal representatives, successors in interest and assigns of the undersigned

- --------------------------------------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 6,7 AND 8)

To be completed ONLY if (a) certificates for Convertible Debentures for
principal amounts not exchanged and/or shares of Common Stock are to be issued
in the name of someone other than the person whose signature appears on the face
of this Consent and Letter of Transmittal or (b) Convertible Debentures tendered
by book entry transfer which are not tendered or not accepted for exchange are
to be returned by credit to an account maintained at a Book Entry Transfer
Facility.

ISSUE AND MAIL:

(Check appropriate box(es))

/ / Convertible Debentures to:

/ / Common Stock to:

Name(s):
--------------------------------------
(Please print)

--------------------------------------
(Please print)

Address:
--------------------------------------
--------------------------------------
(Zip Code)

--------------------------------------
(Tax Identification or Social Security No.)

(Complete Substitute Form W-9)

Credit unexchanged Convertible Debentures tendered by book entry transfer to the
Book Entry Transfer Facility Account set forth below:

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

___________________ Account No.
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS

(SEE INSTRUCTIONS 6,7 AND 8)

To be completed ONLY if (a) certificates for Convertible Debentures for
principal amounts not exchanged and/or shares of Common Stock are to be sent to
someone other than the person whose signature appears on the face of this
Consent and Letter of Transmittal or to such person at an address other than
that shown in the box entitled "Description of Convertible Debentures" on the
face of this Consent and Letter of Transmittal.

MAIL AND DELIVER:

(Check appropriate box(es))

/ / Convertible Debentures to:

/ / Common Stock to:

Name(s):
--------------------------------------
(Please print)

--------------------------------------
(Please print)

Address:
--------------------------------------
--------------------------------------
(Zip Code)

--------------------------------------
(Tax Identification or Social Security No.)

<PAGE>

<TABLE>
<S> <C>
BOX THREE
- ------------------------------------------------------------------------------------------------------------------------------------
PLEASE SIGN HERE
TO BE COMPLETED BY ALL HOLDERS TENDERING CONVERTIBLE DEBENTURES
(WHETHER OR NOT CONVERTIBLE DEBENTURES ARE BEING PHYSICALLY TENDERED HEREBY)
AND/OR VOTING ON THE AMENDMENTS
X______________________________________________________________ X________________________________________________________________
Signature(s) of Registered Holder(s) Signature(s) of Registered Holder(s)
or Authorized Signatory or Authorized Signatory

X______________________________________________________________ X________________________________________________________________
Type or Print Name Type or Print Name

Dated:________________________________________________, 19_____ Dated:___________________________________________________, 19____

Area Code and telephone No(s).:____________________________________________________________________________________________________

Tax Identification or Social Security No(s):_______________________________________________________________________________________

Must be signed by the registered Holder(s) exactly as the name(s) appear(s) on the certificate(s) for Convertible Debentures or by
person(s) authorized to become registered Holder(s) as evidenced by endorsements and documents transmitted herewith. See
Instructions 3 and 6. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation, agent, or other person acting in a fiduciary or representative capacity, please provide the following information.
See Instruction 6.

Name(s): Address(es) (include zip code):

________________________________________________________________ _________________________________________________________________

________________________________________________________________ _________________________________________________________________
Type or Print Type or Print

Capacity (Full Title):_____________________________________________________________________________________________________________

GUARANTEE OF SIGNATURE(S)
(IF REQUIRED -- SEE INSTRUCTIONS 1 AND 6)

Name of firm:______________________________________________________________________________________________________________________

Authorized Signature:______________________________________________________________________________________________________________

Title:_____________________________________________________________________________________________________________________________

Dated:_____________________________________________________________________________________________________________________________
PLEASE COMPLETE SUBSTITUTE FORM W-9 BELOW -- SEE INSTRUCTION 9
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

- -------------------------------------------------------------------------------
PAYOR'S NAME:

- -------------------------------------------------------------------------------
Name as shown on account (if joint account, list first and circle the name of
the person or entity whose number you enter below)

- -------------------------------------------------------------------------------
Address (if Holder does not complete, signature below will constitute
certification that the address on page 3 is correct)

- -------------------------------------------------------------------------------
City, State and Zip Code
- -------------------------------------------------------------------------------

SUBSTITUTE

FORM W-9
DEPARTMENT OF THE TREASURY INTERNAL REVENUE SERVICE

PAYOR'S REQUEST FOR TAXPAYER IDENTIFICATION NO. FOR ALL ACCOUNTS

Enter your taxpayer identification number on the appropriate line. For most
individuals, this is your Social Security number. If you do not have a number,
see How to Obtain a TIN in the enclosed Guidelines.
Note: If the account is in more than one name, see the chart on page 2 of
enclosed Guidelines as to which number to give the payor.

Social Security Number
or Employer Identification Number

_____________________________________________
If you do not have a TIN, but are awaiting one, write "Applied For" in the space
above for the TIN and sign and date below.

CERTIFICATION -- UNDER PENALTIES OF PERJURY, I CERTIFY THAT:
(1) The number shown on this form is my correct Taxpayer Identification
Number (or I am waiting for a number to be issued to me),
(2) I am not subject to backup withholding either because I have not
notified by the Internal Revenue Service ("IRS") that I am subject to backup
withholding as a result of the failure to report all interest or dividends, or
the IRS has notified me that I am not longer subject to backup withholding, and
(3) any other information provided on this form is true and correct.

CERTIFICATION INSTRUCTIONS -- You must cross out item (2) above if you have been
notified by the IRS that you are subject to backup withholding because of
underreporting interest or dividends on your tax return. However, if after being
notified by the IRS that you were subject to backup withholding you received
another notification from the IRS that you are no longer subject to backup
withholding, do not cross out item (2). (Also see Certification under Specific
Instruction in the enclosed Guidelines.)

SIGNATURE______________________________________

DATE_____________________, 1996

CERTIFICATE OF AWAITING
TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (b)
I intend to mail or deliver an application in the near future. I understand
that if I do not provide a taxpayer identification number within sixty (60)
days, 20% of any payments made to me thereafter may be withheld until I provide
a number.

_____________________________ _______________________
SIGNATURE DATE

NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY IN CERTAIN
CIRCUMSTANCES RESULT IN BACKUP WITHHOLDING OF 20% OF ANY
PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE
REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.

YOU MUST COMPLETE THE CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION
NUMBER IF YOU WROTE "APPLIED FOR" IN THE SPACE FOR THE TIN ABOVE

<PAGE>

INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER

1. DELIVERY OF THIS CONSENT AND LETTER OF TRANSMITTAL AND CERTIFICATES;
GUARANTEED DELIVERY PROCEDURES; BOOK ENTRY TRANSFER PROCEDURES. This Consent
and Letter of Transmittal is to be used if (a) certificates for Convertible
Debentures are to be physically delivered to the Depositary herewith, (b)
tenders are to be made by book entry transfer to the accounts maintained by the
Depositary at of the Book Entry Transfer Facility pursuant to the procedures set
forth in the Prospectus, (c) tenders are to be made according to the guaranteed
delivery procedures set forth in the Prospectus or (d) non-tendering Holders
desire to vote on the Amendments.

To validly tender Convertible Debentures pursuant to the Exchange Offer,
either (a) a properly completed and duly executed copy of this Consent and
Letter of Transmittal (or facsimile thereof) with any required signature
guarantees, together with either a properly completed and duly executed Notice
of Guaranteed Delivery or certificates for the Convertible Debentures and any
other documents required by this Consent and Letter of Transmittal must be
received by the Depositary at one of its addresses or numbers set forth on the
first page of this Consent and Letter of Transmittal or the tender of
Convertible Debentures pursuant to the procedures for book entry transfer as set
forth below must be effected prior to 12:00 midnight, New York City time, on the
Expiration Date, or (b) a Holder of Convertible Debentures must comply with the
guaranteed delivery procedures described in the next succeeding paragraph.

Holders of Convertible Debentures who desire to tender such Convertible
Debentures pursuant to the Exchange Offer and whose certificates representing
such Convertible Debentures are not lost but are not immediately available, or
time will not permit all required document to reach the Depositary prior to
12:00 midnight, New York City time, on the Expiration Date or who cannot
complete the procedure for book entry transfer on a timely basis may tender
their Convertible Debentures pursuant to the guaranteed delivery procedures set
forth in the Prospectus under "The Exchange Offers -- Guaranteed Delivery
Procedures." Pursuant to such procedures, (i) tender must be made through a
commercial bank or trust company having an office or branch in the United States
or by a firm which is a member of a registered national securities exchange or
of the National Association of Securities Dealers, Inc. (an "Eligible
Institution"), (ii) the Depositary must have received from such Eligible
Institution, prior to 12:00 midnight, New York City time, on the Expiration
Date, a properly completed and duly executed Notice of Guaranteed Delivery (by
mail, hand delivery, telegram or facsimile transmission), and (iii) the
certificates for all tendered Convertible Debentures in proper form for
transfer, or a confirmation of book entry transfer of such Convertible
Debentures into the Depositary's applicable account at a Book Entry Transfer
Facility, together with a properly completed and duly executed Consent and
Letter of Transmittal (or facsimile thereof) and all other documents required by
this Consent and Letter of Transmittal, must be received by the Depositary
within five New York Stock Exchange trading days after the date of execution of
the Notice of Guaranteed Delivery, all as provided in the Prospectus under the
caption "The Exchange Offers - Guaranteed Delivery Procedures."

THE METHOD OF DELIVERY OF THIS CONSENT AND LETTER OF TRANSMITTAL, THE
CERTIFICATES FOR CONVERTIBLE DEBENTURES AND OTHER REQUIRED DOCUMENTS IS AT THE
ELECTION AND RISK OF THE TENDERING HOLDER. EXCEPT AS OTHERWISE PROVIDED HEREIN
AND IN THE PROSPECTUS, SUCH DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY
RECEIVED BY THE DEPOSITARY. INSTEAD OF EFFECTING DELIVERY BY MAIL, IT IS
RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IF DELIVERY
IS BY MAIL, IT IS RECOMMENDED THAT THE HOLDER USE PROPERLY INSURED, REGISTERED
MAIL WITH RETURN RECEIPT REQUESTED, AND THAT THE MAILING BE MADE SUFFICIENTLY IN
ADVANCE OF THE EXPIRATION DATE TO PERMIT DELIVERY TO THE DEPOSITARY PRIOR TO
12:00 MIDNIGHT, NEW YORK CITY TIME, ON THE EXPIRATION DATE.

The Depositary has established accounts with respect to the Convertible
Debentures at the Book Entry Transfer Facilities for the purpose of the Exchange
Offer, and any financial institution that is a participant in a Book Entry
Transfer Facility system may make a book entry transfer of the Convertible
Debentures by causing the applicable Book Entry Transfer Facility to transfer
such Convertible Debentures into the Depositary's account in accordance with
such Book Entry Transfer Facility's procedures for such transfer. Although
delivery of Convertible Debentures may be effected through book entry transfer
into the Depositary's account at a Book Entry Transfer Facility, this Consent
and Letter of Transmittal (or a facsimile thereof), together with any required
signature guarantees and any other required documents, must, in any case, be
transmitted to and received or confirmed by the Depositary at one of the
addresses or numbers set forth on the first page hereof prior to 12:00 midnight,
New York City time, on the Expiration Date, except as otherwise provided herein.
DELIVERY OF DOCUMENTS TO THE DEPOSITARY'S ACCOUNT AT A BOOK ENTRY FACILITY IN
ACCORDANCE WITH ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
NOTWITHSTANDING COMPLIANCE WITH BOOK ENTRY TRANSFER DELIVERY PROCEDURES, FAILURE
TO DELIVER THIS EXECUTED CONSENT AND LETTER OF TRANSMITTAL TO THE DEPOSITARY
PRIOR TO 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THE EXPIRATION DATE MAY RESULT
IN THE TENDERED CONVERTIBLE DEBENTURES NOT BEING ACCEPTED FOR EXCHANGE.

All questions as to the validity, form, eligibility (including time of
receipt), acceptance, withdrawal and revocation of tendered Convertible
Debentures and delivered Consents will be determined by the Company, whose
determination will be final and binding. The Company reserves the absolute
right to reject any or all tenders or withdrawals of Convertible Debentures and
deliveries or revocations of Consents that are not in proper form or the
acceptance of which would, in the opinion of counsel to the Company, be
unlawful. The Company also reserves the right to waive any irregularities or
conditions of tenders and Consents as to particular Convertible Debentures. The
interpretation of the Company of the terms and conditions of the Exchange Offer
and solicitation of Consents (including the Instructions herein) will be final
and binding and irregularities in connection with tenders and Consents must be
cured within such time as the Company shall determine. No alternative,
conditional or contingent tenders or Consents will be accepted. Neither the
Company nor the Depositary nor any other person will be under any duty to give
notification of any defects or irregularities in any tender or Consent nor will
incur any liability for failure to give any such notification. Tenders of
Convertible Debentures will not be deemed to have been made until irregularities
have been cured or waived. Any Convertible Debentures received by the
Depositary that are not properly tendered and as to which irregularities have
not been cured or waived will be returned by the Depositary to the tendering
Convertible Debenture Holders, unless otherwise provided in this Consent and
Letter of Transmittal, as soon as practicable following the Expiration Date.

Any tendered Convertible Debentures which are not accepted for exchange
because of an invalid tender, the occurrence of certain other events set forth
in the Prospectus or otherwise, will be returned without expense to the
appropriate tendering Holder thereof (or in the case of Convertible Debentures
tendered by book entry transfer, to an account maintained at the Book Entry
Transfer Facility), as promptly as practicable following the expiration,
withdrawal or termination of the Exchange Offer.

2. WITHDRAWAL RIGHTS. Convertible Debentures tendered pursuant to the
Exchange Offer may be withdrawn, as hereinafter provided, at any time prior to
12:00 midnight, New York City time, on the Expiration Date. In addition,
tenders of Convertible Debentures may be withdrawn after the expiration of 40
business days from the commencment of the Exchange Offer, if not yet accepted by
the Company.

For the withdrawal of a tender to be effective, a written or facsimile
transmission notice of withdrawal must be received by the Depositary at one of
the addresses or numbers set forth on the front page of this Consent and Letter
of Transmittal prior to the Expiration Date. Any such notice of withdrawal must
specify the name of the person who tendered the Convertible Debentures, the
principal amount of Convertible Debentures to be withdrawn and (where
certificates for Convertible Debentures have been tendered) the names in which
such Convertible Debentures are registered, if different from that of the person
tendering such Convertible Debentures. If Convertible Debentures have been
delivered or otherwise identified to the Depositary, then, prior to the release
of such Convertible Debentures, the serial numbers of the particular
certificates evidencing the Convertible Debentures to be withdrawn and a notice
of withdrawal signed by the registered Holder in the same manner as the original
Consent and Letter of Transmittal with the signature(s) guaranteed by an
Eligible Institution (except in the case of Convertible Debentures tendered by
an Eligible Institution) must be submitted. Withdrawals of tenders of
Convertible Debentures may not be rescinded; however, withdrawn Convertible
Debentures may be retendered on or prior to 12:00 midnight, New York City time,
on the Expiration Date by following any of the procedures described above under
Instruction 1. Compliance with these procedures for withdrawal will not revoke
a consent to the Amendments. Revocations of consents to the Amendments must be
effected in accordance with the procedures set forth below under Instruction 4.

All questions as to the validity (including time of receipt) of notices of
withdrawal will be determined by the Company, whose determination will be final
and binding. Neither the Company, the Depositary, nor any other person will be
under any duty to give notification of any defects or irregularities in any
notice of withdrawal or will incur any liability for failure to give such
notification.

3. CONSENT TO AMENDMENTS. Holders of Convertible Debentures who do not
tender their Convertible Debentures but wish to consent to the Amendments should
complete this Consent and Letter of Transmittal in accordance with the
instructions hereto and return it promptly to the Depositary.

Pursuant to the Purchase Agreements, only the registered owner of a
Convertible Debenture on _______________ (the "Record Date"), or his duly
designated proxy, shall be entitled to consent to the Amendments or to revoke
any Consent, whether or not such person continues to be the registered owner of
such Convertible Debenture after the Record Date. A beneficial Holder of
Convertible Debenture who is not a registered Holder of such Convertible
Debenture must arrange for the registered Holder to execute and deliver a
consent on such beneficial Holder's behalf. A subsequent transfer of
Convertible Debentures on the records of the Company will not have the effect of
revoking

<PAGE>

any consent theretofore given by a Holder of such Convertible Debentures, and
such consent will remain valid. See Instruction 4 below. Any registered Holder
of Convertible Debentures that purchases Convertible Debentures, or whose
purchase of Convertible Debentures is registered, after the Record Date who
wishes to consent to the Amendments must arrange with such party's seller to
obtain a proxy from the Holder of record on the Record Date of such Convertible
Debentures.

For the Amendments to become effective, Holders of a majority in aggregate
principal amount of Convertible Debentures must consent thereto. The
effectiveness of the Amendments is conditioned upon the occurrence of the
Closing.

4. REVOCATION OF CONSENTS TO AMENDMENTS. Any registered Holder of
Convertible Debentures on the Record Date who has consented to the adoption of
the Amendments, or his duly authorized proxy, may revoke such consent by
delivering notice of revocation to the Company at the address set forth below
prior to the date the Amendments become effective. HOWEVER, IF A HOLDER WHO HAS
TENDERED CONVERTIBLE DEBENTURES SUBSEQUENTLY EFFECTS A VALID REVOCATION OF
CONSENT TO THE AMENDMENTS WITH RESPECT TO SUCH CONVERTIBLE DEBENTURES, SUCH
ACTION WILL RENDER THE PRIOR TENDER OF CONVERTIBLE DEBENTURES DEFECTIVE. THE
COMPANY RESERVES THE RIGHT TO WAIVE ANY SUCH DEFECT.

The Convertible Debenture Purchase Agreements provide that any notice or
communication sent to the Company shall be sufficiently given if in writing and
delivered in person or mailed by first-class mail addressed to the Company at
the following address: International Airline Support Group, Inc., 8095 N.W. 64th
Street, Miami, Florida 33166, Attention: George Murnane, III, Chief Financial
Officer. Holders of Convertible Debentures who wish to revoke their Consents
should allow sufficient time for the notice of revocation to reach the Company.

5. ACCEPTANCE OF CONVERTIBLE DEBENTURES FOR EXCHANGE; DELIVERY OF COMMON
STOCK; PARTIAL TENDERS. Tenders will be accepted in denominations of $1,000 and
any integral multiples thereof and in any denominations of less than $1,000,
PROVIDED that, if less than the entire principal amount of a Convertible
Debenture is tendered, the untendered portion of such Convertible Debenture
shall be in a denomination of $1,000 or any integral multiple thereof;
disregarding fractions of Convertible Debentures, which may result in a
denomination of other than $1,000 or an integral multiple thereof being accepted
by the Company. The entire principal amount of Convertible Debentures will be
deemed to have been tendered unless otherwise indicated. If less than the
entire principal amount of any Convertible Debentures evidenced by a submitted
certificate is to be tendered, the tendering Holder should fill in the principal
amount of the Convertible Debentures which is to be tendered in column (4) of
the table in Box One above. Shares of Common Stock will be issued in the
Exchange Offer in whole shares only. No certificates or scrip representing
fractional shares will be issued in the Exchange Offer. The Depositary will
combine each stockholder's individual fractional interests into whole shares and
will to the extent practicable, within the five business days following the
Expiration Date, aggregate and sell all remaining fractional shares at then
prevailing prices and distribute the net proceeds of such sales to the Holders
entitled thereto.

Upon the terms and subject to the conditions of the Exchange Offer, the
acceptance for exchange of Convertible Debentures validly tendered under the
Exchange Offer and not withdrawn and the delivery of shares of Common Stock
and any proceeds of the sale of fractional shares of Common Stock will be made
promptly after the Expiration Date.

For purposes of the Exchange Offer, the Company shall be deemed to have
accepted for exchange validly tendered Convertible Debentures when, as and if
the Company has given oral or written notice thereof to the Depositary. The
Depositary will act as agent for the tendering Holders of Convertible Debentures
for the purpose of receiving the shares of Common Stock and any proceeds of the
sale of fractional shares of Common Stock and transmitting the Common Stock and
such proceeds, if any, to such Holders. Tendered Convertible Debentures, not
accepted for exchange by the Company will be returned without expense to
tendering Holders as soon as practicable following the Expiration Date.

6. SIGNATURES ON THIS CONSENT AND LETTER OF TRANSMITTAL; BOND POWERS AND
ENDORSEMENTS; GUARANTEE OF SIGNATURES. With respect to a tender of Convertible
Debentures and/or a vote on the Amendments, this Consent and Letter of
Transmittal must be signed by the registered Holder(s) of the Convertible
Debentures tendered and/or voted hereby, and such signatures must correspond
with the name(s) of such Holder(s) as written on the face of the certificate
without alteration, enlargement, or any change whatsoever. If this Consent and
Letter of Transmittal is signed by a person other than the registered Holder(s)
of the Convertible Debentures, such must be endorsed or accompanied by
appropriate bond powers and proxies, in either case, signed exactly as the
name(s) of the registered Holder(s) appear(s) on such Convertible Debentures.
Signatures of endorsement on any such Convertible Debentures or bond powers must
be guaranteed by an Eligible Institution.

(a) If any of the Convertible Debentures are held of record by two
or more persons, all such persons must sign this Consent and Letter of
Transmittal.

(b) If any of the Convertible Debentures are registered in different
names, it will be necessary to complete, sign and submit as many separate
Consents and Letters of Transmittal and any necessary accompanying
documents as there are different registrations.

(c) If this Consent and Letter of Transmittal is signed by the
registered Holder(s) of the Convertible Debentures, no endorsements of
Convertible Debentures or separate bond powers are required, unless
Convertible Debentures not exchanged or the certificates for shares of
Common Stock are to be issued in the name of, or delivered to, any person
other than the registered Holder(s). Signatures on any such Convertible
Debentures or bond powers must be guaranteed by an Eligible Institution
(unless signed by an Eligible Institution).

(d) If this Consent and Letter of Transmittal is signed by a person
other than the registered Holder(s) of the Convertible Debentures, such
Convertible Debentures must be endorsed or accompanied by appropriate bond
powers and proxies, and in either case, signed exactly as the name(s) of
the registered Holder(s) appear(s) on such Convertible Debentures.
Signatures on any such Convertible Debentures or bond powers must be
guaranteed by an Eligible Institution (unless signed by an Eligible
Institution).

(e) If this Consent and Letter of Transmittal or any certificates or
bond powers are signed by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation, or other person acting in a
fiduciary or representative capacity, such person should so indicate when
signing, and unless waived by the Company, proper evidence satisfactory to
the Company of the authority of such person to so act must be submitted
with this Consent and Letter of Transmittal.

ENDORSEMENTS ON CONVERTIBLE DEBENTURES OR BOND POWERS REQUIRED BY THIS
INSTRUCTION 6 MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION.

THE AUTHENTICITY OF THE SIGNATURE ON THIS CONSENT AND LETTER OF TRANSMITTAL
MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION, UNLESS (A) THIS CONSENT AND
LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE CONVERTIBLE
DEBENTURES TENDERED HEREWITH AND THE SHARES OF COMMON STOCK ARE TO BE ISSUED
DIRECTLY TO SUCH HOLDER AND NEITHER THE BOX ENTITLED "SPECIAL ISSUANCE
INSTRUCTIONS" NOR THE BOX ENTITLED "SPECIAL DELIVERY INSTRUCTIONS" ON THIS
CONSENT AND LETTER OF TRANSMITTAL HAS BEEN COMPLETED, (B) THE CONVERTIBLE
DEBENTURES ARE TENDERED FOR THE ACCOUNT OF AN ELIGIBLE INSTITUTION OR (C) A
CONSENT IS BEING GIVEN IN RESPECT OF THE CONVERTIBLE DEBENTURES BY THE
REGISTERED HOLDER THEREOF, BUT SUCH CONVERTIBLE DEBENTURES ARE NOT BEING
TENDERED.

7. BROKERAGE FEES AND TRANSFER TAXES. Holders of Convertible Debentures
who tender Convertible Debentures will not be required to pay brokerage
commissions or fees or transfer taxes with respect to the exchange of
Convertible Debentures pursuant to the Exchange Offer unless the box entitled
"Special Issuance Instructions" herein is marked as described in Instruction 8.
If, however, the box entitled "Special Issuance Instructions" is marked and
shares of Common Stock or any Convertible Debentures not exchanged are to be
issued in the name of, or delivered to, any person other than the registered
Holder(s), or if a transfer tax is imposed for any reason other than the
transfer or sale of Convertible Debentures to the Company pursuant to the
Exchange Offer, the amount of any transfer taxes (whether imposed on the
registered Holder(s), such other person or otherwise) will be payable to the
tendering Holder(s). Unless satisfactory evidence of the payment of such taxes,
or exemption therefrom, is submitted herewith, the amount of such transfer taxes
will be billed directly to the tendering Holder(s). EXCEPT AS PROVIDED IN THIS
INSTRUCTION 7, IT WILL NOT BE NECESSARY FOR TRANSFER TAX STAMPS TO BE AFFIXED TO
THE CERTIFICATES LISTED IN THIS CONSENT AND LETTER OF TRANSMITTAL.

8. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If (i) certificates for
shares of Common Stock or (ii) any Convertible Debentures not exchanged are to
be issued or delivered in the name of a person other than a person(s) signing
this Consent and Letter of Transmittal, the appropriate boxes on this Consent
and Letter of Transmittal should be completed. Holders tendering Convertible
Debentures by book entry transfer may request that Convertible Debentures not
exchanged be credited to such accounts maintained at the Book Entry Transfer
Facility as such Holder may designate.

9. SUBSTITUTE FORM W-9. Under federal income tax laws, each tendering
Holder must provide the Depositary with such Holder's correct taxpayer
identification number by completing the Substitute Form W-9 set forth above. In
general, if a Holder is an individual, the taxpayer identification number is the
Social Security number of such individual. If the Depositary is not provided
with the correct taxpayer identification number, the Holder may be subject to a
$50 penalty imposed by the Internal Revenue Service, as well as "backup
withholding" as described below. Certain Holders (including, among others, all
corporations and certain foreign individuals) are not subject to these backup
withholding and reporting requirements. In order to satisfy the Depositary that
a foreign individual qualifies as an exempt recipient, such Holder must submit a
statement (Form W-8), signed under penalties of perjury, attesting to that
individual's exempt status. Such Form W-8 can be obtained from the Depositary.
For further information concerning

<PAGE>

backup withholding and instructions for completing the Substitute Form W-9
(including how to obtain a taxpayer identification number if you do not have one
and how to complete the Substitute Form W-9 if Convertible Debentures are held
in more than one name), consult the enclosed "Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9."

Failure to complete the Substitute Form W-9 will not, by itself, cause
Convertible Debentures to be deemed to be invalidly tendered,but may require the
Depositary, in certain circumstances, to withhold 20% of the amount of any
payments made pursuant to the Exchange Offer. Backup withholding is not an
additional federal income tax. Rather, the federal income tax liability of a
person subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained from the Internal Revenue Service.

10. WAIVER OF CONDITIONS. The Company reserves the absolute right to
waive certain of the specified conditions to the Exchange Offer, as described in
the Prospectus under "The Exchange Offers - Conditions."

11. MUTILATED, LOST, STOLEN OR DESTROYED CONVERTIBLE DEBENTURES. Any
Holder whose certificates for Convertible Debentures have been mutilated, lost,
stolen or destroyed should contact the Depositary at the address indicated above
for further instructions.

12. EXPIRATION DATE. The Exchange Offer will expire at 12:00 midnight,
New York City time, on _______________, 1996, unless extended by the Company.
The Company reserves the right to extend the Exchange Offer for such period or
periods as it may determine in its sole discretion, in which event the
Expiration Date shall be the time and date on which such Exchange Offer, as so
extended, shall expire. The Company will notify the Depositary of any extension
by written or oral notice and will make a public announcement thereof by release
to the Dow Jones News Service prior to 9:00 a.m.,New York City time, on the next
business day following the previously scheduled Expiration Date. During any
such extension, all Convertible Debentures previously tendered and not accepted
for exchange will remain subject to the Exchange Offer and may, subject to the
terms and conditions hereof, be accepted for exchange by the Company, subject to
the withdrawal rights of tendering Holders.

13. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests
for assistance may be directed to the Depositary at its address and telephone
number set forth above. Additional copies of the Prospectus and this Consent
and Letter of Transmittal may be obtained from the Information Agent at the
address and telephone number set forth below.

IMPORTANT: THIS CONSENT AND LETTER OF TRANSMITTAL OR A MANUALLY SIGNED FACSIMILE
COPY HEREOF (TOGETHER WITH CERTIFICATES OR CONFIRMATION OF BOOK ENTRY TRANSFER
AND ALL OTHER REQUIRED DOCUMENTS) OR THE NOTICE OF GUARANTEED DELIVERY MUST BE
RECEIVED BY FIRST UNION NATIONAL BANK OF NORTH CAROLINA, THE DEPOSITARY, PRIOR
TO 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THE EXPIRATION DATE.

<PAGE>
EXHIBIT 99.2

INTERNATIONAL AIRLINE SUPPORT GROUP, INC.

OFFER TO EXCHANGE

SHARES OF COMMON STOCK

FOR ITS

8% CONVERTIBLE SUBORDINATED DEBENTURES
DUE AUGUST 31, 2003

NOTICE OF GUARANTEED DELIVERY

THE EXCHANGE OFFER WILL EXPIRE
AT 12:00 MIDNIGHT, NEW YORK CITY TIME,
ON , 1996, UNLESS EXTENDED.

As set forth in the Proxy Statement/Prospectus dated ,
1996 (the "Prospectus") under "The Exchange Offers - Guaranteed Delivery
Procedures," this form or one substantially equivalent hereto must be used to
accept the Exchange Offer (as defined below) of International Airline Support
Group, Inc. (the "Company") and to consent to the Amendments (as defined in
the Prospectus) if the 8% Convertible Subordinated Debentures due August 31,
2003 (the "Convertible Debentures"), are not immediately available or time
will not permit such certificates or other required documents to reach the
Depositary prior to 12:00 midnight, New York City time, on the Expiration
Date (as defined in the Prospectus). Such form may be delivered by hand or
transmitted by telegram, telex, facsimile transmission or mail to the
Depositary prior to 12:00 midnight, New York City time, on the Expiration
Date.

TO: FIRST UNION NATIONAL BANK OF NORTH CAROLINA

DEPOSITARY

TELEPHONE NUMBER:

BY HAND/OVERNIGHT DELIVERY: BY FACSIMILE: BY MAIL:

DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE
OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN AS SET
FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.

This form is not to be used to guarantee signatures. The Eligible
Institution which completes this form must communicate the guarantee to the
Depositary and must deliver the Consent and Letter of Transmittal and
Convertible Debenture Certificates to the Depositary within the time period
shown herein. Failure to do so could result in a financial loss to such
Eligible Institution.

<PAGE>

Ladies and Gentlemen:

The undersigned hereby tenders to the Company, upon the terms and
conditions set forth in the Prospectus and related Consent and Letter of
Transmittal (which together constitute the "Exchange Offer"), receipt of
which is hereby acknowledged, $___________ aggregate principal amount of
Convertible Debentures pursuant to the guaranteed delivery procedure
described in the Prospectus.

The undersigned consents to the Amendments and acknowledges that
tendering Convertible Debentures in accordance with the Exchange Offer
constitutes a consent to the Amendments.

(PLEASE TYPE OR PRINT ALL INFORMATION BELOW)

Signature(s):
-------------------------
- ------------------------------------- Convertible Debenture Certificate.
Name(s) of Record Holder(s): No(s). (if available):
---------
- ------------------------------------- ---------------------------------------
Address(es):
------------------------- Aggregate Principal Amount of
- ------------------------------------- Convertible Debentures Represented by
- ------------------------------------- Certificate(s):
Zip Code $
--------------
Area Code and Tel. No(s).:
-----------
- -------------------------------------
Dated:
-------------------------------

GUARANTEE
(DO NOT USE FOR SIGNATURE GUARANTEE)
The undersigned, a member firm of a registered national securities
exchange or a member of the National Association of Securities Dealers, Inc.
or a commercial bank or trust company having an office or branch in the
United States, hereby guarantees (a) that the above named person(s) "own(s)"
the Convertible Debentures tendered hereby within the meaning of Rule 10b-4
under the Securities Exchange Act of 1934, as amended; (b) that such tender
of Convertible Debentures complies with Rule 10b-4; and (c) that delivery to
the Depositary of Convertible Debentures Certificates tendered hereby,
together with a properly completed and duly executed Consent and Letter of
Transmittal (or manually signed facsimile thereof properly completed and duly
executed) and any other required documents, will be received by the
Depositary no later than five(5) New York Stock Exchange trading days after
the date of execution of this Notice of Guaranteed Delivery.

- ----------------------------------- -----------------------------------
Name of Firm Authorized Signature

- ----------------------------------- -----------------------------------
Address Title

- ----------------------------------- -----------------------------------
Zip Code Name: Please Type or Print

Area Code & Tel. No. Dated: , 19
-------------- ----------------- --

NOTE: DO NOT SEND SUCH CONVERTIBLE DEBENTURE CERTIFICATES
WITH THIS FORM. CERTIFICATES MUST BE SENT WITH THE CONSENT
AND LETTER OF TRANSMITTAL

<PAGE>

EXHIBIT 99.3

INTERNATIONAL AIRLINE SUPPORT GROUP, INC.

PROXY

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON _____________ __, 1996

The undersigned hereby appoints Alexius A. Dyer III and George Murnane III,
and each of them, proxies with full power of substitution and resubstitution,
for and in the name of the undersigned, to vote all shares of International
Airline Support Group, Inc. which the undersigned would be entitled to vote if
personally present at the Special Meeting of Stockholders to be held at King &
Spalding, 50th Floor, 191 Peachtree Street, Atlanta, Georgia 30303 at
_____ a.m., local time, and at any adjournment thereof, upon the matters
described in the accompanying Notice of Special Meeting and Proxy
Statement/Prospectus, receipt of which is hereby acknowledged, and upon any
other business that may properly come before the meeting or any adjournment
thereof. Said proxies are directed to vote on the matters described in the
Notice of Special Meeting and Proxy Statement/Prospectus as follows, and
otherwise in their discretion upon such other business as may properly come
before the meeting or any adjournment thereof.

THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO DIRECTION IS GIVEN, IT WILL
BE VOTED FOR THE APPROVAL OF REVERSE STOCK SPLIT, THE BOARD AMENDMENT, THE
PREFERRED STOCK AUTHORIZATION, THE CHARTER AMENDMENTS AND THE STOCK OPTION PLAN.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE REVERSE
STOCK SPLIT, THE BOARD AMENDMENT, THE PREFERRED STOCK AUTHORIZATION, THE CHARTER
AMENDMENTS AND THE STOCK OPTION PLAN.

1. APPROVAL OF THE REVERSE STOCK SPLIT

FOR AGAINST ABSTAIN
----- ----- -----

2. APPROVAL OF THE BOARD AMENDMENT

FOR AGAINST ABSTAIN
----- ----- -----

3. APPROVAL OF THE PREFERRED STOCK AUTHORIZATION

FOR AGAINST ABSTAIN
----- ----- -----

4. APPROVAL OF THE CHARTER AMENDMENTS

FOR AGAINST ABSTAIN
----- ----- -----

5. APPROVAL OF THE STOCK OPTION PLAN

FOR AGAINST ABSTAIN
----- ----- -----

DATE: , 1996
- ----------------------------- -------- ----
Signature of Shareholder

- -----------------------------
Print Name

IMPORTANT: Please date this proxy and sign exactly as your name or names appear
on the stock certificates representing your shares. If the stock is held
jointly, your signature should include both names. Executors, administrators,
guardians and other signing in a representative capacity shall give full title.

PLEASE COMPLETE, DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING ON
, 1996. IF YOU ATTEND THE SPECIAL MEETING, YOU
MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY.