REIMBURSEMENT AGREEMENT

                                     Between

                   ADVANCED AERODYNAMICS AND STRUCTURES, INC.

                                       And

                           THE SUMITOMO BANK, LIMITED
                              (LOS ANGELES BRANCH)


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

                           Dated as of August 1, 1997

                                   Relating to
                                   $8,500,000
               California Economic Development Financing Authority
                         Variable Rate Demand Industrial
                     Development Revenue Bonds, Series 1997
              (Advanced Aerodynamics and Structures, Inc. Project)








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                                TABLE OF CONTENTS



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                             REIMBURSEMENT AGREEMENT


     THIS  REIMBURSEMENT  AGREEMENT  dated as of August 1, 1997 is entered  into
between  ADVANCED  AERODYNAMICS  AND STRUCTURES,  INC., a corporation  organized
under the laws of the State of  Delaware,  and THE  SUMITOMO  BANK,  LIMITED,  a
banking  corporation  organized under the laws of Japan,  acting through its Los
Angeles  Branch,  which branch is authorized to do business in California by the
Department of Financial Institutions.

                                    ARTICLE I

                                   DEFINITIONS

     Section  1.1  Definitions.  The  following  words  and  terms  used in this
Reimbursement Agreement shall have the following meanings:

     "Authorized  Officer"  means,  with respect to the Issuer,  its Chair,  its
Secretary  or any  other  officer  or  employee  of  the  issuer  authorized  by
resolution  of the Issuer to perform the act or sign the  document in  question,
and,  with respect to the Company,  any person so designated to act on behalf of
the Company by resolution of the Company.

     "Bank Rate" means LIBOR less 0.15% per annum.

     "Bank   Reimbursement   Obligations"   means  all  indebtedness  and  other
obligations  of the  Company to  Sumitomo  arising  under or in relation to this
Reimbursement Agreement or any other Related Document.

     "Bond" or "Bonds"  means the  $8,500,000  Variable  Rate Demand  Industrial
Development  Revenue Bonds,  Series 1997 (Advanced  Aerodynamics and Structures,
Inc.  Project)  dated  August 5, 1997,  authorized  and issued  pursuant  to the
Indenture.

     "Bond Documents" means the Bonds, the Resolutions,  the Indenture, the Loan
Agreement, the Remarketing Agreement, any and all other documents related to the
issuance of the Bonds, and all amendments and supplements to those documents.

     "Business  Day" means any day other than (a) a Saturday,  Sunday or any day
on which banking institutions located in the Cities of New York, New York or Los
Angeles,  California or the city in which the principal office of the Trustee or
the Remarketing  Agent  (initially,  San Francisco,  California) are located are
required or  authorized by law to close or (b) a day on which the New York Stock
Exchange or DTC is closed.

     "Closing Date" means August 5, 1997, or any other Business Day agreed to by
Sumitomo and the Company on which the Letter of Credit is issued.

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     "Code" means the Internal Revenue Code of 1986, as amended.

     "Company" means Advanced  Aerodynamics and Structures,  Inc., a corporation
organized under the laws of the State of Delaware.

     "Conversion Date" means the date on which the interest rate on the Bonds is
converted  to a  Fixed  Interest  Rate  pursuant  to,  and as  defined  in,  the
Indenture.

     "Corporate  Base Rate" means the rate of  interest  publicly  announced  by
Morgan  Guaranty  Trust  Company  of New  York,  in New York,  New York,  or its
successor, from time to time as its corporate base rate.

     "Credit Amount" means the Stated Amount  outstanding from time to time less
the principal amount of any Loans  outstanding.  For purposes of determining the
Credit  Amount  the  Stated  Amount  shall not be  deemed  to have been  reduced
pursuant  to the  terms of the  Letter  of  Credit  other  than as a result of a
permanent reduction of the Stated Amount.

     "Credit Documents" means this Reimbursement Agreement, the Note, the Letter
of Credit, the Investment Agreement and the Pledge Agreement.

     "DTC"  means The  Depository  Trust  Company,  New York,  New York,  or its
nominee,  or its  successors  and assigns,  or any other  depository  performing
similar functions under the Indenture.

     "Default Rate" means the Corporate Base Rate plus two percent (2%).

     "Determination  of  Taxability"  has the meaning  given to that term in the
Indenture.

     "ERISA"  means the Employee  Retirement  Income  Security  Act of 1974,  as
amended.

     "Event of Default" has the meaning set forth in Section 5.1 hereof.

     "Expiration  Date"  means  the  earliest  to  occur  of (i)  the  close  of
Sumitomo's  business on the Stated  Expiration  Date; (ii) the date which is ten
(10) days following the Trustee's receipt of written notice from Sumitomo of the
occurrence  of an Event of Default and a direction to cause an  acceleration  of
all  outstanding  Bonds  pursuant  to the  Indenture;  (iii)  the  date on which
Sumitomo  receives notice from the Trustee that all Bonds have been paid in full
or such  payment  has been  provided  for in  accordance  with the  terms of the
Indenture;  (iv) the date on which  the Bonds  become  secured  by an  Alternate
Letter of Credit in accordance with the terms of the Indenture;  (v) the date on
which the interest  rate on the Bonds is converted to a Fixed  Interest  Rate in
accordance with the terms of the Indenture;  and (vi) the date on which Sumitomo
honors a drawing  following a mandatory  tender of the Bonds pursuant to Section
4.07 of the Indenture.

     "GAAP" means generally accepted  accounting  principles in effect from time
to time.

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     "Governmental Requirement" means any law, statute, code, ordinance,  order,
rule, regulation, judgment, decree, injunction,  franchise, permit, certificate,
license,  authorization  or other direction or requirement  (including,  without
limitation,  any of the  foregoing  which relate to  environmental  standards or
controls,  energy  regulations and occupational,  safety and health standards or
controls)  of  any  federal,  state,  county,  municipal  or  other  government,
department, commission, board, court, agency or any other instrumentality of any
of them,  which exercises  jurisdiction  over the Company or any of its Property
(including, without limitation, the Project).

     "Indebtedness"  means and  includes,  as of any date as of which the amount
thereof is to be  determined,  (i) all items (other than  capital  items such as
surplus and fund  balances,  as well as reserves  for taxes in respect of income
deferred  to the  future  and other  deferred  credits  and  reserves)  which in
accordance with generally accepted  accounting  principles  (including,  without
limitation,   capitalized   leases)  would  be  included  in  determining  total
liabilities  on the  balance  sheet  of a  Person  as of  such  date,  (ii)  all
obligations  which are secured by any Lien  existing  on Property  owned by such
Person,  whether or not the obligations  secured thereby shall have been assumed
by any other  Person,  (iii) all  obligations  of such  Person to  purchase  any
materials,  supplies or other  Property,  or to obtain the services of any other
Person, if the relevant contract or other related document requires that payment
for such materials,  supplies or other Property, or for such services,  shall be
made regardless of whether or not delivery of such materials,  supplies or other
Property  is ever  made or  tendered  or such  services  are ever  performed  or
tendered, and (iv) all guarantees by such Person for the payment of Indebtedness
of others of the character described in (i) through (iii) above.

     "Indenture" means the Indenture of Trust dated as of August 1, 1997 between
the Issuer and the Trustee,  and all  amendments  and  supplements to that Trust
Indenture.

     "Interest  Payment  Date"  has  the  meaning  given  to  that  term  in the
Indenture.

     "Investment  Agreement" means the Investment Agreement dated August 5, 1997
between the Company and Sumitomo,  substantially in the form attached as Exhibit
B, and all amendments and supplements thereto.

     "Issuer" means the California Economic Development  Financing Authority,  a
body public and corporate and a public instrumentality of the State.

     "Letter of Credit" means the Transferable  Irrevocable Direct Pay Letter of
Credit,  substantially  in the form  attached  as  Exhibit  A, to be  issued  by
Sumitomo on the Closing  Date,  including  any  extension  of that letter or any
letter of credit issued by Sumitomo in replacement for that letter.

     "LIBOR" means with respect to any Reset Date (as  hereinafter  defined) the
arithmetic  mean of the rates at which  deposits in U.S.  Dollars are offered by
four  major  banks In the  London  interbank  market  selected  by the Bank,  at
approximately 11:00 a.m., London time, on the day that is two

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Business Days  preceding  the Reset Date to prime banks in the London  interbank
market for a period of one (1) week commencing on the Reset Date.

     "Lien" means (i) any interest in Property (whether real, personal or mixed)
which  secures  an  obligation  owed to a Person  other  than the  owner of such
Property,  including,  without  limitation,  any such  interest  arising  from a
mortgage, charge, pledge, security agreement, conditional sale or trust receipt,
or arising from a lease,  consignment or bailment  given for security  purposes,
(ii) any  encumbrance or charge upon such Property which does not secure such an
obligation,  and (iii) any  exception  to or defect in the title to or ownership
interest in such Property.

     "Loan"  means a loan made to the  Company  pursuant  to Section 2.5 of this
Reimbursement Agreement.

     "Loan  Agreement"  means  the Loan  Agreement  dated as of  August  1, 1997
between the Issuer and the Company,  and all amendments and  supplements to that
Loan Agreement.

     "Non-tendered  Bonds" means Bonds which were required to be tendered  under
Section 4.07 of the Indenture  following notice of mandatory  tender  thereunder
and which are  deemed to have been  properly  tendered  to the  extent  that the
Trustee  has  sufficient  moneys for the payment of the  purchase  price of such
Bonds.

     "Note" means the Direct Obligation Note, substantially in the form attached
as Exhibit C, being issued by the Company to Sumitomo on the Closing Date.

     "Official  Statement"  means the  Official  Statement  of the Issuer  dated
August 4, 1997 relating to the Bonds.

     "Outstanding Bonds" or "Bonds Outstanding" when used in connection with the
Bonds shall have the same meaning as in the Indenture.

     "Person" means an individual, a corporation, a partnership, an association,
a joint stock company, a joint venture, a trust, an unincorporated organization,
or a government or any agency or political subdivision thereof.

     "Pledge  Agreement" means the Custody,  Pledge and Security Agreement dated
as of August 1, 1997 among the Trustee as  custodian,  the Company and Sumitomo,
substantially  in the  form  attached  as  Exhibit  D,  and all  amendments  and
supplements thereto.

     "Pledged Bond" means any Bond during the period from and including the date
of its  purchase  with  amounts  realized  under  the  Letter  of  Credit to but
excluding  the date on which such Bond is  purchased  by any  Person  other than
Sumitomo or the Company.

     "Pledged Collateral" has the meaning set forth in Section 2.8 hereof

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     "Potential  Default"  means an event which but for the lapse of time or the
giving of notice, or both, would constitute an Event of Default.

     "Project"  means  the  construction  and  installation  of a  manufacturing
facility by the Company, financed with the proceeds of the Bonds.

     "Property" means any and all rights,  titles and interests of any Person in
and to any and all property,  whether real or personal,  tangible or intangible,
wherever situated.

     "Rebate  Consultant"  means a firm  of  nationally  recognized  independent
certified  accountants,  as  consultants  appointed by the Company,  to make the
calculations and determinations required by Section 147(f) of the Code.

     "Regulation U" means  Regulation U of the Board of Governors of the Federal
Reserve  System from time to time in effect and includes any  successor or other
regulation or official  interpretation of the Board of Governors relating to the
extension of credit by banks for the purpose of  purchasing  or carrying  margin
stocks applicable to member banks of the Federal Reserve System.

     "Reimbursement  Agreement" means this  Reimbursement  Agreement dated as of
August  1, 1997  between  the  Company  and  Sumitomo,  and all  amendments  and
supplements to this Reimbursement Agreement.

     "Related Documents" means the Credit Documents,  the Bond Documents and any
other agreement or instrument relating thereto.

     "Remarketing  Agent" means Rauscher  Pierce  Refsnes,  Inc., as remarketing
agent for the Bonds, and any successor variable rate remarketing agent appointed
in accordance with the terms hereof and of the Indenture.

     "Remarketing  Agreement" means that certain Remarketing  Agreement dated as
of August 1, 1997, among the Remarketing Agent, the Issuer and the Company,  and
any similar agreement with respect to any successor remarketing agent.

     "Reset Day" means  Wednesday  of each week (or, if such  Wednesday is not a
Business Day, the next Business Day).

     "Resolutions" means the resolutions of the Issuer adopted on April 30, 1997
and June 20, 1997,  authorizing  the issuance of the Bonds,  and  approving  the
Letter of Credit.

     "Section" means a numbered section of this  Reimbursement  Agreement unless
another document is specifically referenced.

     "State" means the State of California.

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     "Stated Amount" has the meaning given to that term in the Letter of Credit.

     "Stated  Expiration Date" means August 5, 2002, or such later date to which
the Stated Expiration Date may be extended from time to time pursuant to Section
2.9 hereof.

     "Sumitomo"  means  The  Sumitomo  Bank,   Limited,  a  banking  corporation
organized under the laws of Japan, acting through its Los Angeles Branch,  which
branch is authorized to do business in California by the Department of Financial
Institutions.

     "Taxes" has the meaning set forth in Section 2.10 hereof.

     "Trust Estate" means the Revenues and other assets granted by the issuer to
the Trustee  pursuant to Section  5.01 of the  Indenture  for the benefit of the
holders of the Bonds and Sumitomo.

     "Trustee"  means  the  trustee  at the  time  serving  as  such  under  the
Indenture, currently First Trust of California, National Association.

     The foregoing  definitions shall be equally applicable to both the singular
and plural  forms of the  defined  terms.  All times used in this  Reimbursement
Agreement shall refer to Los Angeles, California time unless otherwise stated.

     Section 1.2 Terms Defined in Indenture. Terms not otherwise defined in this
Reimbursement Agreement shall have the meanings given to them in the Indenture.

                                   ARTICLE II

                                      TERMS

     Section 2.1 Issuance of Letter of Credit.  Subject to the  satisfaction  of
the terms and conditions of this  Reimbursement  Agreement,  Sumitomo  agrees to
issue the Letter of Credit on the Closing  Date.  The Letter of Credit  shall be
issued by Sumitomo in the initial Stated Amount of $8,625,754  which  represents
$8,500,000 in principal amount of the Bonds and forty-five (45) days of interest
on the Bonds at an interest  rate of 12% per annum  calculated on the basis of a
year of 365 days).

     Section 2.2 Letter of Credit Fees.

          (a) The Company agrees to pay Sumitomo on or before the Closing Date a
nonrefundable  facility fee of $8,626 (0.10% of the initial Stated Amount).  The
Bank acknowledges receipt of such fee.

          (b) For a term  commencing  on the  Closing  Date  and  ending  on the
Expiration Date, the Company agrees to pay Sumitomo a support fee (calculated on
the basis of a year

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of 360 days for actual days elapsed) equal to twenty-five one hundredths percent
(0.25%) per annum of the average  daily Credit  Amount  payable at the office of
Sumitomo in Los Angeles, California (or such other office of Sumitomo located in
the United States of America as Sumitomo may designate to the Company in writing
from time to time),  quarterly in arrears on November 1, 1997 and  thereafter on
each February 1, May 1, August 1 and November 1. Notwithstanding any other terms
or provisions  herein  contained,  such support fee shall be prorated (i) to the
date on which  the  Letter of Credit  is  cancelled,  in the event a  substitute
credit facility is issued and the Letter of Credit is surrendered by the Trustee
for cancellation, or (ii) to the Expiration Date, as appropriate.

     Section 2.3 Drawing and Transfer  Fees. The Company agrees to pay Sumitomo-
$100 each time there is a draw on the Letter of Credit, regardless of the amount
of such drawing. In addition, the Company agrees to pay Sumitomo $2,000 upon the
transfer of the Letter of Credit to a successor Trustee under the Indenture.

     Section  2.4  Reimbursement  for  Certain  Draws.  The  Company  agrees  to
immediately  reimburse  Sumitomo or cause Sumitomo to be immediately  reimbursed
for the amount of any draft drawn under the Letter of Credit on the date of such
drawing  either (i) for payment of interest on the Bonds  whether for  regularly
scheduled  interest  payments on an Interest  Payment Date or at maturity or for
accrued interest on Bonds subject to optional redemption or mandatory redemption
or acceleration pursuant to the Indenture;  (ii) for payment of principal on the
Bonds  whether at maturity or pursuant to an optional  redemption or a mandatory
redemption or an acceleration pursuant to the Indenture; or (iii) for payment of
the purchase price of Bonds tendered or deemed tendered pursuant to Section 4.06
or Section 4.07 of the  Indenture.  Each amount for which the Company has agreed
to reimburse  Sumitomo pursuant to this Section 2.4 shall bear interest from the
date on which  Sumitomo  honors a  drawing  under  the  Letter of Credit in such
amount until paid at a rate per annum  (calculated on the basis of a year of 360
days for actual days elapsed) equal to the Default Rate,  which rate of interest
shall change when and as such Default Rate changes.

     Section 2.5 Loan.

          (a)  Subject  to the  satisfaction  of the ten-ns  and  conditions  in
Section 7.2 of this Reimbursement  Agreement,  Sumitomo agrees to make a Loan to
the Company on each  purchase  date to purchase  Bonds  delivered to the Trustee
pursuant to Section 4.06 or Section 4.07 of the Indenture and Non-Tendered Bonds
which have not been remarketed,  in a principal amount equal to the amount drawn
under the Letter of Credit  (other  than  amounts to be  reimbursed  to Sumitomo
pursuant to Section 2.4);  provided,  however,  that if the terms and conditions
set forth in Section 7.2 are not  satisfied,  the Company  agrees to immediately
reimburse Sumitomo or cause Sumitomo to be immediately reimbursed for the amount
drawn  under the Letter of Credit to  purchase  such  Bonds.  The Loans shall be
evidenced by and payable pursuant to the Note.


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          (b) The principal  amount of each Loan shall be due and payable on the
 .earliest of (i) the Expiration  Date,  (ii) the date on which any Pledged Bonds
purchased  with finds  disbursed  under the Letter of Credit in connection  with
such Loan are redeemed or cancelled pursuant to the Indenture, (iii) the date on
which any  Pledged  Bonds  purchased  with funds  disbursed  under the Letter of
Credit are  remarketed  pursuant  to the  Indenture,  (iv) the date on which the
Letter of Credit is replaced by an Alternate  Credit  Enhancement  in accordance
with the terms of the Indenture and Section 4.10 hereof,  and (v) the date which
is 30 days  immediately  succeeding the date of such Loan.  Each Loan shall bear
interest,  payable monthly in arrears, on its outstanding principal balance at a
rate per annum  (calculated  on the basis of a year of 360 days for actual  days
elapsed)  equal to the Bank Rate from the date of such Loan  until the  maturity
(whether by acceleration or otherwise) of such Loan.  Amounts owing on each Loan
which are not paid on the maturity date shall bear interest,  payable on demand,
until paid at the  Default  Rate.  Each Loan may be prepaid by the  Company,  in
whole or in part, at any time upon two (2) Business  Days'  written  notice from
the Company to Sumitomo, by payment of the principal amount to be so prepaid and
accrued interest on such amount to the date of prepayment. Sumitomo shall record
all Loans and all payments  made on account of the  principal due on the Loan on
the loan schedule  attached to the Note.  Sumitomo's  endorsements  on such loan
schedule shall be conclusive absent manifest error. The failure to make any such
notation shall not, however,  impair the Company's obligations hereunder and the
failure to make a notation  with respect to any  prepayment  shall not prejudice
any assertion by the Company that a prepayment has been made.

          (c) The Company and  Sumitomo  agree that in the event  Pledged  Bonds
held by the Trustee as Custodian  under the Pledge  Agreement are  remarketed by
the Remarketing Agent, the amount received from the remarketing shall be paid to
Sumitomo in full or partial payment of the outstanding balance of any Loan.

     Section 2.6 Additional  Amounts.  If the implementation of or any change in
any law or regulation or in the interpretation by any court or administrative or
governmental  authority  charged  with  their  administration  shall  either (i)
impose, modify or deem applicable any reserve, special deposit, capital adequacy
or similar requirement not existing on the date of this Reimbursement  Agreement
against  letters of credit issued by Sumitomo,  or any assets held by,  deposits
with or for the account of, or loans or commitments by, an office of Sumitomo in
connection  with  payments  by  Sumitomo  under the Letter of Credit  (including
without  limitation a request or  requirement  which affects the manner in which
Sumitomo   allocates  capital  resources  to  its  commitments,   including  its
obligations  hereunder);  or (ii) impose on  Sumitomo  any other  condition  not
existing  on  the  date  of  this   Reimbursement   Agreement   regarding   this
Reimbursement  Agreement  or the Letter of  Credit,  and the result of any event
referred  to in clause (i) or (ii) above  shall be to (x)  increase  the cost to
Sumitomo of issuing or maintaining  the Letter of Credit (which increase in cost
shall be the result of Sumitomo's reasonable allocation of the aggregate of such
cost increases resulting from such events), or (y) reduce any amounts payable by
the Company hereunder, or (z) reduce the rate of return on Sumitomo's capital as
a consequence of its  obligations  hereunder or its issuance and  maintenance of
the Letter of Credit to a level below that which  Sumitomo  could have  achieved
but for such

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circumstances,  then the Company shall immediately pay to Sumitomo, from time to
time as specified by Sumitomo,  additional  amounts which shall be sufficient to
compensate  Sumitomo for such  increased cost or reduction in payment or in rate
of return, together with interest at the Corporate Base Rate on each such amount
from the date  demanded  until paid in full.  Each demand by Sumitomo  hereunder
shall be  accompanied by a certificate  setting forth in reasonable  detail such
increased  cost or  reduction in payment or in rate of return as a result of any
event mentioned in clause (i) or (ii) above and shall, absent manifest error, be
conclusive.  In  determining  such  amounts,  Sumitomo  may use  any  reasonable
commonly accepted averaging and attribution methods.

     Section  2.7  Reimbursement  Unconditional.  The  Company's  obligation  to
reimburse  Sumitomo  for  payments  under the Letter of Credit  made by Sumitomo
shall be absolute and unconditional  under any and all circumstances,  including
without  limitation  the  following:  (i) the  existence of any claim,  set-off,
counterclaim or defense to payment which the Company may have against  Sumitomo,
the Issuer,  the Trustee or any other Person,  including without  limitation any
failure to receive any of the proceeds from the sale of the Bonds to which it is
entitled,  misapplication by the Trustee of such proceeds or the proceeds of any
draw  under  the  Letter  of  Credit,  or (ii) the lack of  legality,  validity,
regularity or  enforceability of the Related  Documents,  (iii) any amendment or
waiver of or consent to departure from any or all of the Related Documents, (iv)
any statement or any other document presented under the Letter of Credit proving
to be forged, fraudulent, invalid or insufficient or any statement therein being
untrue  or  inaccurate,  (v) any other  circumstance  or  happening  whatsoever,
whether or not similar to any of the foregoing.

     Section 2.8 Security for Bank Reimbursement Obligations.  To secure the due
payment and performance of all Bank Reimbursement  Obligations,  (i) the Company
has caused the Credit  Documents to be executed and delivered to Sumitomo,  (ii)
pursuant to the Indenture, the Issuer has granted to the Trustee for the benefit
of Sumitomo all of its rights,  title and  interest in and to the Trust  Estate,
subject  only to the  security  interest  therein  granted  by the Issuer to the
Trustee  for the  benefit of the  holders of the  Bonds,  and (iii) the  Company
hereby  pledges  and  assigns to  Sumitomo,  and  grants to  Sumitomo a security
interest in and to, the investment Agreement and all moneys and investments held
thereunder.  The interests,  rights and amounts pledged to Sumitomo as described
in this Section 2.8 are hereinafter referred to as the "Pledged Collateral". The
Company  shall  execute and deliver to  Sumitomo,  at any time at the request of
Sumitomo,  all such financing  statements and other instruments and documents as
Sumitomo may reasonably request, in a form satisfactory to Sumitomo,  to perfect
and maintain  perfected any security interest granted by the Company to Sumitomo
in the Pledged Collateral.

     Section 2.9  Extension  of Term.  The initial  term of the Letter of Credit
shall be extended by two years at the written  request of the Company  delivered
to Sumitomo on or before  August 5, 2000 ff  Sumitomo,  in its sole  discretion,
notifies  the Issuer,  the Company and the Trustee in writing  within  three (3)
months of its  receipt  of such  request  that the  Letter of Credit  will be so
extended. Thereafter, the Letter of Credit shall be extended by two years at the
written  request of the Company  delivered on or before August 5 in every second
succeeding year if Sumitomo, in its sole discretion, gives notice to such effect
within three (3) months of its receipt of such request. In the event of such

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an  extension  or  extensions,  Sumitomo  shall extend the term of the Letter of
Credit  by  delivering  to the  Trustee,  on or  prior to the  fifteenth  (15th)
Business  Day  next  preceding  the  related   Expiration  Date,  a  certificate
substantially  in the form of  Attachment  C to the Letter of  Credit.  Any such
extension shall be at the sole discretion of Sumitomo and Sumitomo  reserves the
right to renegotiate any provision hereof in connection with any such extension.

     Section 2.10 Taxes on Payments. All payments made by the Company under this
Reimbursement  Agreement shall be made free and clear of, and without  deduction
or  withholding  for or on account of, any present and future  income,  stamp or
other taxes,  levies,  imposts,  deductions,  charges, or withholdings  imposed,
assessed,  levied or collected by any country or any  political  subdivision  or
taxing authority  thereof or therein,  but excluding taxes imposed on net income
of Sumitomo  by the country  under the laws of which  Sumitomo is  organized  or
managed and controlled or any political  subdivision or taxing authority thereof
or  therein or the  country in which  Sumitomo's  office  issuing  the Letter of
Credit may be located or any taxing  authority  of such  country or the state or
any political  subdivision or taxing authority of the state in which such office
is located (all such non-excluded taxes, levies, imposts, deduction,  charges or
withholdings being hereinafter called "Taxes").  If any Taxes are required to be
withheld from any amounts payable to Sumitomo hereunder,  the amounts so payable
to Sumitomo  shall be  increased  to the extent  necessary  to yield to Sumitomo
(after  payment  of all  Taxes)  interest  or any  such  other  amounts  payable
hereunder  at the  rates  or in the  amounts  specified  in  this  Reimbursement
Agreement.  Whenever  any Tax is paid by the  Company,  as  promptly as possible
thereafter,  the Company shall send to Sumitomo a certified copy of any original
official receipt received by the Company showing payment thereof. If the Company
fails to pay any Taxes when due to the appropriate taxing authority, the Company
shall indemnify Sumitomo for any incremental  taxes,  interest or penalties that
may become payable by Sumitomo as a result of any such failure.

     Section 2.11 Making of Payments.  All payments to Sumitomo shall be made in
immediately  available  funds at the Los Angeles office (or such other office of
Sumitomo  located in the United  States of America as Sumitomo may  designate to
the Company in writing from time to time),  not later than 1:00 p.m. on the date
due; and funds received after that hour shall be deemed to have been received by
Sumitomo on the next following  Business Day. If any such payment falls due on a
day which is not a Business  Day,  then such due date shall be  extended  to the
next following Business Day, and appropriate  additional  interest or fees shall
accrue and be payable for the period of such extension.

     Section 2.12 Project Fund Requisitions. The Company and Sumitomo understand
and agree that Sumitomo  shall not approve any  Requisition  pursuant to Section
3.03 of the  Indenture  at any time that the  aggregate  amount held by Sumitomo
pursuant to the Investment Agreement is less than the aggregate principal amount
of Bonds Outstanding.


                                       10

<PAGE>



                                   ARTICLE III

                         REPRESENTATIONS AND WARRANTIES

     In order to induce  Sumitomo to enter into and perform  this  Reimbursement
Agreement,  including,  without limitation,  to issue and maintain the Letter of
Credit, the Company hereby represents and warrants to Sumitomo as follows:

     Section 3.1 Organization and Authorization. The Company is duly and validly
organized and existing under the laws of the State of Delaware,  is qualified to
do business in all jurisdictions (including the State) in which the ownership of
property  or the  nature  of its  business  requires  such  qualification  under
applicable  law or where failure to so qualify  would have an adverse  effect on
its business or properties, and has all requisite power and authority to conduct
its business as now conducted and as proposed to be conducted.

     Section 3.2 Power and  Authority.  The Company has full power and authority
to execute,  deliver and perform this  Reimbursement  Agreement  and the Related
Documents  to which  it is a party,  and has the full  power  and  authority  to
execute,  deliver and perform all other agreements and instruments  executed and
delivered  or to be executed and  delivered  by it pursuant to or in  connection
with this Reimbursement Agreement, the Bonds and the Related Documents.

     Section 3.3 Bank Reimbursement  Obligations Legal, Valid and Binding.  This
Reimbursement  Agreement  and the  Related  Documents  to which the Company is a
party have been duly and validly  authorized,  executed and delivered by it, and
constitute its legal, valid and binding  obligations  enforceable  against it in
accordance  with their  respective  terms,  except insofar as enforcement may be
limited by  applicable  bankruptcy,  insolvency,  reorganization,  moratorium or
similar  laws  affecting  the  enforcement  of  creditors'  rights and  remedies
generally,  and by general  principles of equity,  whether applied by a court of
law or equity.

     Section 3.4 No Legal Bar.  The  Company is not in default  under any of the
provisions  of its  certificate  of  Incorporation  or by-laws  (other  than any
defaults  which will be cured on the Closing Date  following the issuance of the
Bonds),  or any  laws of the  State  of  Delaware,  the  State,  and  all  other
jurisdictions  which would  affect its  existence  or its powers  referred to in
Section 3.1. The  execution,  delivery  and  performance  by the Company of this
Reimbursement  Agreement -and the Related  Documents to which it is a party, and
all other  agreements and  instruments  relating to the foregoing to be executed
and delivered by it In connection  herewith and  therewith,  (i) do not and will
not violate any provision of its certificate of incorporation or by-laws, or any
Governmental Requirement, and (ii) do not and will not violate any provision of,
constitute a default under,  or result in the creation or imposition of any Lien
on any assets of the Company (other than the Project) pursuant to the provisions
of, any mortgage,  indenture,  contract, agreement or other undertaking to which
it as a party or which purports to be binding on it or on any of its assets.


                                       11

<PAGE>



     Section 3.5 Consents. The Company has obtained or will obtain all consents,
permits,  licenses  and  approvals  of,  and  has  made  all  registrations  and
declarations  with,  and taken all other  actions with respect to,  governmental
authorities  required  under law to authorize its execution and delivery of this
Reimbursement Agreement and the Related Documents to which it is a party and all
other  agreements to be delivered in connection  with any thereof,  and all such
consents, permits, licenses, approvals, registrations,  declarations and actions
remain in fun force and effect.

     Section  3.6  Litigation.  There  is  no  action,  suit,  investigation  or
proceeding  pending  or,  to  the  best  of its  knowledge  after  due  inquiry,
threatened against or affecting the Company or the Project,  the result of which
could have a material  adverse  effect on the financial  condition,  business or
operations of the Company or impair its ability to perform or observe any of its
duties,  liabilities or obligations under this Reimbursement Agreement or any of
the Related Documents to which it is a party.

     Section 3.7 Related Documents.  As of the Closing Date, after giving effect
to the issuance of the Bonds, the  representations and warranties of the Company
set forth in the Related  Documents to which it is a party are true and accurate
and are deemed to be repeated herein for the benefit of Sumitomo as if fully set
forth in this Reimbursement Agreement.

     Section  3.8  Official  Statement.  Neither  information  furnished  by the
Company  contained in the Official  Statement,  nor any  certificate  or written
statement or any other data  furnished by it to Sumitomo in connection  with the
negotiation of this  Reimbursement  Agreement or the  transactions  contemplated
hereby,  contains any untrue  statement  of a material  fact or omits to state a
material fact necessary to make the statements  contained  herein or therein not
misleading;  there is no fact known to it which materially  adversely affects or
in the future may materially adversely affect its business, property, assets, or
financial  condition  which  has  not  been  set  forth  in  this  Reimbursement
Agreement,  the  Related  Documents,  the  Official  Statement  or in the  other
documents,  certificates and statements furnished to Sumitomo by it prior to the
date hereof in connection with the transactions contemplated hereby.

     Section 3.9 Collateral.

          (a) Pledged  Bonds.  The Company  has,  and on the date of delivery to
Sumitomo of any Pledged Bonds will have,  full power,  authority and legal right
to cause the Pledged Bonds to be transferred,  delivered and registered pursuant
to the terms of this  Reimbursement  Agreement,  the Pledge  Agreement,  and the
Indenture.  The Company  covenants  and agrees  that it will  defend  Sumitomo's
right,  title and interest in and to the Pledged Bonds and the proceeds  thereof
against the claims and demands of all Persons whomsoever.

          (b) Pledged  Collateral.  The  provisions  of the  Indenture  and this
Reimbursement  Agreement  are  effective to create in favor of Sumitomo a legal,
valid and enforceable  pledge of, and a fully perfected security interest in and
lien  on all of the  Pledged  Collateral,  including,  without  limitation,  the
Investment Agreement. The Company covenants and agrees that it

                                       12

<PAGE>



will  defend  Sumitomo's  right,  title  and  interest  in and  to  the  Pledged
Collateral,  including  but not  limited to the  Investment  Agreement,  and the
proceeds thereof against the claims and demands of all Persons whomsoever.

     Section 3.10 Balance Sheet. The balance sheet of the Company as at December
31, 1996 and the related  statements  of income and fund balances of the Company
for the  calendar  year  ended  December  31,  1996  (copies  of which have been
furnished to Sumitomo) fairly present the financial  condition of the Company as
of such date and the  results of the  operations  of the  Company for the period
ended on such  date;  and since such date,  there has been no  material  adverse
change in the  financial  condition,  results of  operations or prospects of the
Company  except as disclosed to Sumitomo by the Company in writing  prior to the
Closing Date.

     Section 3.11 Existence of Debt and Liens.

          (a) Debt.  The  Company  does not have any  outstanding  Indebtedness,
except as permitted pursuant to Section 4.2(c).

          (b) Lines.  There are no Liens (including  liens or retained  security
titles of conditional  vendors) of any nature whatsoever securing the payment of
Indebtedness  on any  properties of the Company,  except as permitted by Section
4.2(b).

     Section 3.12 Material Conflicts. Each of the material contracts, leases and
other  agreements  (including,  without  limitation,  each  contract,  lease  or
agreement  covered  by or to be covered by any  Related  Document)  to which the
Company  is a party is in full force and  effect,  and as of the  Closing  Date,
after giving effect to the issuance of the Bonds,  the Company is not in default
under any thereof,  nor is the Company  aware of any default or any event which,
with the giving of notice or lapse of time or both,  would  constitute a default
under any of such documents.

     Section 3.13 ERISA.  The Company does not  maintain or  participate  in any
plan which is subject to ERISA.

     Section  3.14  Compliance  with Land Use  Ordinances  and  Agreements.  The
Project  is or will be in  material  compliance  with all local  ordinances  and
agreements  affecting the Project,  including  applicable  zoning,  land use and
planned unit development ordinances and agreements.

                                   ARTICLE IV

                                    COVENANTS

     Section 4.1  Company's  Affirmative  Covenants.  The Company  covenants and
agrees with Sumitomo that it will do the following so long as any amounts may be
drawn under the Letter of Credit,  and  thereafter so long as any amounts remain
outstanding or Bank Reimbursement

                                       13

<PAGE>



Obligations  remain  unfulfilled  under  this  Reimbursement  Agreement,  unless
Sumitomo shall otherwise consent in writing-

          (a) Notice of Defaults and  Bankruptcy.  The Company  shall  forthwith
notify  Sumitomo,  the Remarketing  Agent, and the Trustee,  in writing,  of the
occurrence of any Event of Default or any event which, with the giving of notice
or lapse of time or both, would  constitute an Event of Default,  or any default
under the Related  Documents or any filing by it or any of its  affiliates  of a
petition in bankruptcy  under the United States  Bankruptcy  Code, 11 U.S.C. ss.
101, et seq., or any successor or similar  provisions now or hereafter in effect
and applicable to it or such affiliates.

          (b)  Financial  and Other  information.  The Company  shall furnish to
Sumitomo,  as soon as available  and in any event within 90 days after the close
of its fiscal  year,  (i) a balance  sheet of the  Company as of the end of each
fiscal year, (ii) the related statements of changes in fund balances,  and (iii)
the  related  statements  of  revenues,  expenditures  and the  changes for such
calendar year,  all of which shall be certified by an Authorized  Representative
of the Company and prepared on a  consistent  basis.  In  addition,  the Company
shall furnish to Sumitomo on each April 15, July 15,  October 15 and January 15,
a financial summary of the operations of the Project for the preceding  calendar
quarter and from time to time, as Sumitomo may  reasonably  request,  such other
financial information  concerning the Company and the Project in order to enable
Sumitomo  to  determine  whether the  covenants,  terms and  provisions  of this
Reimbursement Agreement, the Related Documents and all other indebtedness of the
Company  have  been  complied  with by the  Company,  and for that  purpose  all
pertinent  books,  documents  and vouchers  relating to the  Company's  business
affairs and properties  shall at all times during regular business hours be open
to the  inspection of such  accountants  or other agents (who may make copies of
all or any part  thereof  at their own cost and  expense)  as shall from time to
time reasonably be designated by Sumitomo.  Without limiting the foregoing,  the
Company will permit Sumitomo and its designated  agents to visit and inspect any
of the  properties  of the  Company  and to discuss the  affairs,  finances  and
accounts of the Company with its officers and employees and any accounting  firm
performing services for the Company,  all at such times and as often as Sumitomo
may reasonably request.

          (c)  Compliance  with Credit and Bond  Documents.  The  Company  shall
observe and comply with all of its  obligations  arising in connection  with the
Credit  Documents  and  the  Bond  Documents  to  which  it is a  party  and its
certificate of incorporation and by-laws, and all Governmental Requirements, and
all of its covenants and  agreements  contained in the Credit  Documents and the
Bond  Documents to which it is a party are hereby  reaffirmed  and adopted by it
for the benefit of Sumitomo  and are  incorporated  by  reference  herein as now
written  and agreed  upon.  If the  Company  does not  observe or comply with an
obligation arising in connection with this Reimbursement  Agreement or the other
Credit  Documents  or the Bond  Documents  to which it is a party,  Sumitomo may
inform the Company of such non-  observance or  non-compliance  and request that
the  Company  immediately  observe or comply  with such  obligation;  and if the
Company does not so observe or comply to Sumitomo's

                                       14

<PAGE>



satisfaction  within three (3) Business Days after such  request,  then Sumitomo
may,  but shall not be  required  to,  perform or satisfy  such  obligation  and
request  that the Company  reimburse  Sumitomo in  accordance  with  Section 8.5
hereof.

          (d)  Insurance.  The  Company  shall from and after the  Closing  Date
continuously  maintain  at all  times  insurance  with  respect  to the  Project
satisfactory  in all respects to Sumitomo.  Sumitomo  agrees that the  insurance
currently  in force with  respect to the  Project  is  satisfactory.  Any public
liability  insurance  policy shall name the Trustee and  Sumitomo as  additional
insureds.  All insurance  policies shall contain a provision that they shall not
expire,  be canceled or materially  modified by the insurer except upon at least
thirty (30) days' prior written notice to the Company, the Trustee and Sumitomo.
On the Closing  Date,  the Company  shall  provide to the Trustee and Sumitomo a
certificate  or  certificates  of  insurance   establishing  that  the  required
insurance  is in full force and effect,  and shall,  upon request of Sumitomo or
the Trustee,  furnish copies to the requesting  party of the original  insurance
policies required by this Section 4.1(d).

          (e) Licenses and Permits.  The Company  shall take all  necessary  and
appropriate action to ensure the continuance in force of all consents, licenses,
permits, orders, decrees, approvals,  authorizations,  registrations and filings
obtained or made by it in  connection  with this  Reimbursement  Agreement,  the
Project or the Related  Documents  or  necessary  to  authorize  the  execution,
delivery  and  performance  of this  Reimbursement  Agreement  by it,  or of the
Related  Documents  to  which  it is a party  and  all  other  agreements  to be
delivered in connection with any thereof.

          (f)  Further  Assurances.  The  Company  shall  execute and deliver to
Sumitomo all such documents and instruments, and do all such acts and things, as
may  reasonably  be  necessary  or required  by  Sumitomo to enable  Sumitomo to
exercise  and  enforce  its rights  under this  Reimbursement  Agreement  and to
realize  thereon,  and record and Me and rerecord and re-file all such documents
and  Instruments,  at such time or times,  in such  manner  and at such place or
places,  all as may be necessary  or required by Sumitomo to validate,  preserve
and protect the position of Sumitomo under this Reimbursement Agreement.

          (g)  Compliance  Certificates.  As soon as  available  and in no event
later than  ninety  (90) days after the close of each of its fiscal  years,  the
Company  will  furnish  to  Sumitomo  certificates  of  compliance  signed by an
Authorized  Representative  of the  Company  (i)  stating  that a review  of the
activities  of the  Company has been made under its  supervision  with a view to
determining  whether the Company has fulfilled all of its obligations under this
Reimbursement  Agreement  and the Related  Documents;  and (ii) stating that the
Company  has  fulfilled  its  obligations  under  such  documents  and  that all
representations  made herein  continue to be true and correct (or specifying the
nature of any  change),  or if any Event of Default or Potential  Default  shall
have  occurred  specifying  such Event of Default or  Potential  Default and the
nature and status thereof.


                                       15

<PAGE>



          (h) Payment of Taxes. The Company shall pay or cause to be paid to the
public officers charged with the collection  thereof promptly as the same become
due, all taxes,  including but not limited to income, profits or property taxes,
which may now or hereafter be imposed by the United States of America, any state
or municipality or any political  subdivision or subdivisions  thereof,  and all
assessments for public improvements or other assessments,  levies, license fees,
charges for publicly  supplied  water or sewer  services,  excises,  franchises,
imposts and charges, general and special,  ordinary and extraordinary (including
interest,  penalties and all costs  resulting from delayed payment of any of the
foregoing) of whatever  name,  nature and kind and whether or not now within the
contemplation  of the parties  hereto which are now or may  hereafter be levied,
assessed,  charged or imposed upon the Company or which are or may become a lien
upon this Reimbursement  Agreement,  the Related Documents, the Project, the use
or  occupation  thereof or upon the owner or occupants in respect of or upon the
basis  of the  rent or the  estate  thereby  created  (in  connection  with  the
Project), or upon any franchises, businesses, transactions, income, earnings and
receipts  (gross,  net or  otherwise)  of the  Company  in  connection  with the
Project, for payment or collection of which the Company is liable or accountable
under  any  lawful  authority  whatever  by reason of  ownership,  occupancy  or
operation of the Project,  or its  earnings,  profits or receipts  from,  or its
leasing  of, the  Project;  provided,  however,  that the  Company  shall not be
required  to pay or  discharge  or  cause  to be paid  or  discharged  any  tax,
assessment,  lien or other matter  hereunder so long as the validity  thereof is
being contested in good faith and by appropriate  legal  proceedings and neither
the Project nor any rent or income therefrom or interest therein would be in any
immediate danger of being sold,  forfeited,  attached or lost. The Company will,
upon request,  provide Sumitomo or the Trustee with copies of any tax returns of
the Company and receipts for payment of taxes.

          (i)  Maintenance  of  Existence.  The Company  shall (i)  preserve and
maintain its  corporate  existence,  rights and  privileges  in the state of its
incorporation and (ii) qualify and remain qualified as a foreign  corporation in
each  jurisdiction  in which the  ownership  of  property  or the  nature of its
business requires such qualification under applicable law.

          (j) Remarketing  Agent. The Company shall at all times engage or cause
to be  engaged  a  Remarketing  Agent to serve as such  under  the  terms of the
Indenture.

          (k) Rebate  Consultant.  The Company shall engage a Rebate  Consultant
acceptable  to  Sumitomo  in  the  event  it or  the  Internal  Revenue  Service
determines that the Bonds are subject to the provisions of Section 147(f) of the
Code.

     Section 4.2 Company's Negative Covenants.  The Company covenants and agrees
with  Sumitomo  that so long as any  amounts  may be drawn  under the  Letter of
Credit  and -  thereafter  so long as any  amounts  remain  outstanding  or Bank
Reimbursement Obligations remain unfulfilled under this Reimbursement Agreement,
the Company will not,  directly or indirectly,  unless  Sumitomo shall otherwise
consent in writing:


                                       16

<PAGE>



          (a) Related Documents.  Agree to amend, extend,  modify, waive, revise
or otherwise alter or terminate any term of the Related Documents.

          (b) Liens,  etc.  Create or suffer to exist any Lien or any other type
of  preferential  arrangement,  upon or with  respect to any of its  Properties,
whether now owned or hereafter acquired,  or assign any right to receive income,
in each  case to secure  any  Indebtedness,  other  than (i) as  created  by the
Related  Documents,  (ii)  imposed by law on any property of the Company such as
landlords',  carriers',  warehousemen's,  mechanics'  and  other  similar  liens
arising in the ordinary  course of its  business,  not to exceed  $25,000 in the
aggregate,  (iii) purchase money liens or purchase money security interests upon
or in any equipment  owned or held by the Company on the date hereof or owned or
held  by the  Company  hereafter  in the  ordinary  course  of its  business  as
conducted on the date hereof to secure the purchase  price of such  equipment or
to  secure  indebtedness  incurred  solely  for the  purpose  of  financing  the
acquisition of such equipment, (iv) Liens existing on such equipment at the time
of its acquisition,  (v)  encumbrances on equipment  leased,  as lessee,  by the
Company  pursuant to a lease permitted by this  Reimbursement  Agreement and the
Related  Documents,  or (vi) any Liens  disclosed  on the  financial  statements
referred to in Section 3. 1 0 hereof.

          (c) Debt.  Create or suffer to exist any  Indebtedness  other than (i)
any  Indebtedness  incurred  under this  Reimbursement  Agreement  or any of the
Related  Documents,  (ii)  Indebtedness  secured by Liens permitted  pursuant to
Section 4.2(b) hereof, (iii) short-term Indebtedness on customary trade terms in
connection  with the  provision  to the  Company  of goods and  services  in the
ordinary  course  of its  business  as  conducted  on the date  hereof,  or (iv)
Indebtedness  disclosed on the financial statements refer-red to in Section 3.10
hereof.

          (d) Change in Business.  Make any material change in the nature of its
business as conducted on the date hereof.

          (e) Consolidations,  etc. Liquidate, consolidate or merge with or into
any other Person, or convey, transfer, lease or otherwise dispose of (whether in
one transaction or in a series of transactions)  all or substantially all of its
assets,  property or interest  (whether  now owned or  hereafter  acquired),  or
acquire all or substantially  all of the assets of any Person,  or engage in any
other similar or unusual action.

          (f) Sales, etc. of Assets. Sell, assign, encumber,  mortgage,  pledge,
lease,  transfer  or  otherwise  dispose of any of its assets or  properties  or
interests  therein  (including,  without  limitation,  all  or any  part  of the
Project), other than as permitted pursuant to Section 4.2(b) hereof.

          (g)  Investments  in Other  Persons.  Make any loan or  advance to any
Person or purchase or otherwise acquire any capital stock,  obligations or other
securities  of, make any capital  contribution  to, or otherwise  invest in, any
Person; provided, however, that nothing

                                       17

<PAGE>



in this subsection shall prevent the Company from purchasing  readily marketable
direct  obligations  of the United States of America  solely in connection  with
routine cash management operations.

          (h) Official  Statement.  Refer to Sumitomo in any  offering  document
(other than the Official Statement) or make any changes in reference to Sumitomo
in any revision of the Official  Statement,  without  Sumitomo's  prior  written
consent thereto.

          (i) Purchase of Stocks.  Extend credit to others for the purpose of to
purchasing" or "carrying" any "margin stock" (as defined in Regulation U) or use
any of the proceeds of the Bonds to (i) "purchase" or "carry" any "margin stock"
or (ii)  acquire  any  security in any  transaction  which is subject to Section
13(d) or made unlawful pursuant to Section 14 of the Securities  Exchange Act of
1934.

          (j) Optional  Redemption  of Bonds.  Permit an optional  redemption of
Bonds under the Indenture without the prior written consent of Sumitomo.  If the
Company  has  deposited  with  Sumitomo  or the  Trustee an amount  equal to the
principal  amount of Bonds to be redeemed  pursuant to the  Indenture,  Sumitomo
shall consent to such optional redemption to the extent of such amounts.

          (k) Remarketing Agent. Remove or replace the Remarketing Agent without
the prior written consent of Sumitomo.

                                    ARTICLE V

                                     DEFAULT

     Section  5.1  Events  of  Default.  The  occurrence  of one or  more of the
following events shall constitute an Event of Default:

          (a) The occurrence of any "Event of Default" or "Default"  under,  and
as defined in, any Credit Document (other than this Reimbursement  Agreement) or
any Bond  Document,  in each case after giving  effect to any  applicable  grace
periods.

          (b)  Default  in the  payment  of any  Bank  Reimbursement  Obligation
required to be paid or  reimbursed  under this  Reimbursement  Agreement  or any
other  Credit  Document  when and as the same is due and  payable  hereunder  or
thereunder.

          (c) Any  representation  or warranty  made by the Company  under or in
connection with this  Reimbursement  Agreement or the other Related Documents or
in any certificate,  agreement,  instrument or statement contemplated by or made
or delivered  pursuant to or in connection  herewith or therewith shall prove to
have been false or misleading in any material respect.

                                       18

<PAGE>




          (d) The breach by the Company (other than a breach that constitutes an
Event of Default  under Section 5.1 clauses (a) through (c) above) of any of the
covenants,  terms and  provisions  contained in Section 4.1(i) or (j) or Section
4.2 hereof.

          (e) The breach by the Company (other than a breach that constitutes an
Event of Default  under  Section 5.1 clauses (a) through (d) above) of any other
covenants,  terms and provisions of this  Reimbursement  Agreement  which is not
remedied within 30 days after written notice to the Company by Sumitomo,  unless
Sumitomo  shall  consent  to any  extension  of  time  for  such  observance  or
performance.

          (f) The Company shall (i) be adjudicated as bankrupt,  or an order for
relief  shall be  entered  against  it under the  federal  bankruptcy  law which
remains  unstayed or is not dismissed  within sixty (60) days after the entry of
such  adjudication  or  order;  (ii)  make  an  assignment  for the  benefit  of
creditors;  (iii) apply for, seek,  consent to, or acquiesce in, the appointment
of a receiver,  custodian, trustee, examiner, liquidator or similar official for
it or any  substantial  part of its  property;  (iv)  institute  any  proceeding
seeking  an order for  relief  under the  federal  bankruptcy  law or seeking to
adjudicate  it as bankrupt or  insolvent,  or seeking  dissolution,  winding up,
liquidation, reorganization, arrangement, adjustment or composition of it or its
debts  under any  federal or state law  relating to  bankruptcy,  insolvency  or
reorganization  or relief of debtors or fail to file an answer or other pleading
denying the material  allegations of any such  proceeding  filed against it; (v)
take any action to authorize or effect any of the foregoing actions set forth in
this Section  5.1(f);  or (vi) fail to contest in good faith any  appointment or
proceeding described in Section 5.1(g).

          (g) Without the  application,  approval or consent of the  Company,  a
receiver,  custodian, trustee, examiner, liquidator or similar official shall be
appointed  for  the  Company  or any  substantial  part  of its  Property,  or a
proceeding  described in Section 5.1(f) shall be instituted  against the Company
and  such  appointment  continues  undischarged  or  such  proceeding  continues
undismissed or unstayed for a period of sixty (60) consecutive days.

          (h) Any court,  government or governmental agency shall condemn, seize
or otherwise  appropriate,  or take custody or control of all or any substantial
portion of the Property of the Company which is material to the operation of the
Company unless the proceeds are used to replace such Property.

          (i) The occurrence of a Determination of Taxability.

          (j) Any material provision of this  Reimbursement  Agreement or any of
the other Related Documents shall cease to be valid and binding,  or the Company
or any governmental authority shall contest any such provision,  or the Company,
or any agent or trustee on behalf of the Company,  shall deny that it has any or
further  liability  under this  Reimbursement  Agreement  or any of the  Related
Documents.

                                       19

<PAGE>



          (k) Any  governmental  body,  authority  or agency  shall  require any
amendment to this Reimbursement Agreement or any of the other Related Documents,
or any modification to any of the parties hereto or thereto,  which amendment or
modification,  in the opinion of Sumitomo,  may materially  adversely affect any
right or remedy of Sumitomo hereunder or thereunder,  or any statute or any rule
or  regulation  of any  governmental  body,  authority  or agency  shall  render
ineffective or shall materially adversely affect any right or remedy of Sumitomo
hereunder or thereunder,  or any such requirement,  statute,  rule or regulation
shall  cause  the  termination  of or  otherwise  materially  affect  any  duty,
liability  or  obligation,  of the  Company to Sumitomo  hereunder  or under the
Related Documents.

          (l) A default shall occur and be continuing beyond any applicable cure
period  under any  agreement  (other  than the  Related  Documents)  between the
Company and Sumitomo or under any obligation owed by the Company to Sumitomo.

          (m) Any material provision of this  Reimbursement  Agreement or any of
the other Related  Documents shall cease to be valid and binding as respects any
party  other  than  Sumitomo;  or any party or any agent or trustee on behalf of
such  party,   shall  deny  that  it  has  any  further   liability  under  this
Reimbursement  Agreement,  or any material provision of any of the other Related
Documents to which it is a party.

     Section 5.2 Remedies.  Upon the occurrence of any Event of Default Sumitomo
may exercise any one or more of the following rights and remedies in addition to
any other remedies herein or by law provided:

          (a) declare the  principal of and  interest on the Bank  Reimbursement
Obligations  owing hereunder  immediately due and payable,  notwithstanding  the
provisions of Section 2.5;

          (b) give  notice  of the  occurrence  of an Event  of  Default  to the
Trustee,  which notice shall  provide that the Letter of Credit shall expire ten
(10) days after  receipt of such notice by the Trustee and  instruct the Trustee
to cause a redemption of the Bonds pursuant to Section 4.01(7) of the Indenture;

          (c) direct the Trustee to exercise its rights under the  Indenture and
the Loan Agreement;

          (d) exercise Sumitomo's rights under the Related Documents,  including
taking sole possession and ownership or control of the Investment  Agreement and
all moneys and investments held thereunder; or

          (e) pursue any other action available at law or in equity.


                                       20

<PAGE>



                                   ARTICLE VI

                         WAIVER, AMENDMENTS AND REMEDIES

     Section 6.1 Waiver and  Amendments.  No delays or  omissions of Sumitomo to
exercise  any right  under the Credit  Documents  shall  impair such right or be
construed to be a waiver of or an acquiescence in any Event of Default,  and any
single or partial exercise of any such right shall not preclude other or further
exercise  of that  right or the  exercise  of any other  right,  and no  waiver,
amendment or other  variation of the terms,  conditions  or  provisions  of this
Reimbursement Agreement shall be valid unless in writing signed by Sumitomo, and
then only to the extent specifically set forth in such writing.

     Section 6.2  Remedies  Cumulative.  All  remedies  contained  in the Credit
Documents or by law afforded  shall be cumulative  and all shall be available to
Sumitomo until the Letter of Credit has expired or been  terminated and the Bank
Reimbursement Obligations have been indefeasibly paid in full.

                                   ARTICLE VII

                              CONDITIONS PRECEDENT

     Section  7.1  Conditions  Precedent  to  Issuance  of Letter of Credit.  As
conditions  precedent  to the  obligation  of  Sumitomo  to issue the  Letter of
Credit, (a) the Company shall provide or cause to be provided to Sumitomo on the
Closing Date, in form and substance satisfactory to Sumitomo and its counsel:

          (i) a written  opinion  of Luce,  Forward,  Hamilton  &  Scripps  LLP,
counsel  to the  Company,  dated the  Closing  Date,  substantially  in the form
attached as Exhibit E;

          (ii) the  written  opinion  of Kutak  Rock,  bond  counsel,  dated the
Closing Date, in form and substance satisfactory to Sumitomo's counsel;

          (iii) a written  opinion of counsel to the  issuer,  dated the Closing
Date,  with  respect to the due  organization  of the  Issuer,  the power of the
Issuer to enter into the  transactions  contemplated by the Bond Documents,  the
due  adoption  of all  proceedings  of the  Issuer  and the  due  authorization,
execution, delivery and enforceability of the Bond Documents to which the Issuer
is a party, in form and substance satisfactory to Sumitomo's counsel;

          (iv) a  certificate  of good  standing  of the Company and a certified
copy of its Certificate of Incorporation, both certified on or within sixty (60)
days  prior to the date of  execution  of this  Reimbursement  Agreement  by the
Secretary of State of

                                       21

<PAGE>



Delaware and a certificate of an Authorized  Officer of the Company stating that
no changes have been made in the Certificate of  Incorporation  or good standing
of the Company since such date;

          (v) a  certificate  of good  standing of the Company,  certified on or
within  sixty (60) days  prior to the date of  execution  of this  Reimbursement
Agreement by the  Secretary of the State of California  and a certificate  of an
Authorized  Officer or the Company stating that no changes have been made in the
good standing of the Company since such date;

          (vi)  copies,  certified  on  the  date  of  execution  hereof  by  an
Authorized  Officer of the Company,  of its by-laws and resolutions  authorizing
the  execution of the Related  Documents  to which the Company is a party,  upon
which Sumitomo shall be entitled to rely until informed of any change in writing
by the Company;

          (vii) an incumbency certificate,  executed by an Authorized Officer of
the Company,  which shall  identify by name and title and bear the signatures of
the  Authorized  Officers of the Company  authorized to sign this  Reimbursement
Agreement  and those  Related  Documents  to which the Company is a party and to
effect the  transactions  under them,  upon which  Sumitomo shall be entitled to
rely until informed of any change in writing by the Company;

          (viii)  copies,  certified  on the  date  of  execution  hereof  by an
Authorized  Officer of the Issuer, of the resolutions of the Issuer  authorizing
the issuance of the Bonds and any other  resolutions  of the Issuer  authorizing
the execution of those Bond Documents to which the Issuer is a party, upon which
Sumitomo  shall be entitled  to rely until  informed of any change in writing by
the Issuer;

          (ix) an incumbency  certificate,  executed by an Authorized Officer of
the Issuer,  which shall  identify by name and title and bear the  signatures of
the Authorized Officers of the Issuer authorized to sign those Bond Documents to
which the  Issuer is a party and to effect the  transactions  under  them,  upon
which Sumitomo shall be entitled to rely until informed of any change in writing
by the Issuer;

          (x) a  certificate  signed by an  Authorized  Officer of the  Company,
dated the Closing Date and stating that:

               (a) the representations  and warranties  contained in Article III
of this  Reimbursement  Agreement  are correct on and as of the Closing  Date as
though made on such date; and

               (b) no Event of Default has occurred and is continuing,  or would
result from the issuance of the Letter of Credit or the execution and delivery

                                       22

<PAGE>



of this Reimbursement Agreement or any Bond Document or Credit Document to which
the  Company  is a party,  and no event has  occurred  and is  continuing  which
constitutes a Potential Default;

               (xi)  true  and  correct  copies  of all  governmental  approvals
necessary for the Issuer to enter into the Bond Documents to which the Issuer is
a party;

               (xii) evidence that the Remarketing  Agent has  acknowledged  and
accepted in writing its appointment as Remarketing Agent under the Indenture and
its duties and obligations thereunder;

               (xiii) the  receipt  of the  facility  fee  payable  pursuant  to
Section  2.2(a)  hereof  and  all  reasonable  costs  (including  the  fees  and
disbursements of Sumitomo's  special and Japanese  counsel)  associated with the
transactions contemplated by this Reimbursement Agreement in lawful money of the
United States of America in freely transferable and immediately available funds;

               (xiv) true and correct copies of the Bond Documents and all other
documents furnished in connection with the issuance and delivery of the Bonds;

               (xv) the  Credit  Documents  (other  than the  Letter of  Credit)
executed and delivered on behalf of the parties thereto;

               (xvi) evidence  satisfactory  to Sumitomo and its special counsel
that the insurance policies required by Section 4. 1 (d) hereof are in fun force
and effect on the Closing Date;

               (xvii)  evidence of filing or  simultaneous  filing of  completed
Uniform Commercial Code financing  statements from the Company in such forms and
in such places as Sumitomo shall require; and

               (xviii) the  receipt of such other  documents,  certificates  and
opinions as Sumitomo or its special counsel may reasonably request;

          (a) no law,  regulation,  ruling or other  action  of any  government,
foreign or  domestic,  or any  political  subdivision  or  authority  therein or
thereof shall be in effect or shall have occurred,  the effect of which would be
to prevent  Sumitomo from  fulfilling its obligations  under this  Reimbursement
Agreement; and

          (b) all legal requirements  provided herein incident to the execution,
delivery  and  performance  of this  Reimbursement  Agreement  and  the  Related
Documents  and the  transactions  contemplated  hereby  and  thereby,  shall  be
reasonably satisfactory to Sumitomo and its counsel.

                                       23

<PAGE>



     Section  7.2  Conditions  Precedent  to Loans.  Following  any  payment  by
Sumitomo  under the Letter of Credit  pursuant  to a drawing  for the payment of
Bonds  tendered  pursuant to Section  4.06 or Section  4.07 of the  Indenture or
Non-Tendered  Bonds which have not been remarketed,  a loan with respect to such
drawing  shall be made  available  to the  Company  only if on the date on which
Sumitomo honors such drawing the following statements shall be true:

          (a) the  representations  and  warranties of the Company  contained in
Article III of this Reimbursement  Agreement and the other Related Documents are
true and correct on and as of the date of such  payment as though made on and as
of such date; and

          (b) no event has occurred and is continuing, or would result from such
payment, which constitutes a Potential Default or an Event of Default.

     Unless the Company  shall have  previously  advised  Sumitomo in writing or
Sumitomo has actual  knowledge  that one or more of the above  statements  is no
longer true,  the Company shall be deemed to have  represented  and warranted on
the date of such payment that the above statements are true and correct.

                                  ARTICLE VIII

                               GENERAL PROVISIONS

     Section  8.1  Survival  of Certain  Representations  and  Obligations.  The
respective  agreements,  representations and other statements of the Company and
Sumitomo and their  respective  partners,  officials or officers set forth in or
made  pursuant to this  Reimbursement  Agreement  will  survive the issuance and
delivery of the Bonds.

     Section 8.2  Governing  Law.  The  obligations  of the Company and Sumitomo
under  this  Reimbursement  Agreement  shall be  governed  by and  construed  in
accordance with the laws of the State.

     Section 8.3 Headings.  Section headings in this Reimbursement Agreement are
for  convenience  of  reference  only and shall not  govern,  or be used in, the
interpretation of any of the provisions of this Reimbursement Agreement.

     Section 8.4 Benefit of Agreement:  Successors.  The terms and provisions of
the  Credit  Documents  shall be  binding  upon and inure to the  benefit of the
Company and Sumitomo and their  respective  successors and assigns,  except that
the Company shall not have the right to assign its rights or delegate its duties
under any of the Credit  Documents,  or any interest in them,  without the prior
written consent of Sumitomo.

     Section  8.5  Costs,  Expenses.  The  Company  agrees to pay on demand  all
reasonable costs and expenses (including  out-of-pocket  expenses) in connection
with the preparation, execution,

                                       24

<PAGE>



delivery and  administration  of the Credit  Documents  and any other  documents
which may be  delivered  in  connection  with the Credit  Documents,  including,
without  limitation,  the reasonable fees and out-of-pocket  expenses of counsel
for Sumitomo  with respect  thereto and with respect to advising  Sumitomo as to
its  rights  and  responsibilities  under  the  Credit  Documents  and the  Bond
Documents and all costs and expenses in connection  with the  enforcement of the
Credit  Documents and the Bond Documents and such other  documents  which may be
delivered in  connection  herewith  and  therewith  and agrees to save  Sumitomo
harmless from and against any and all  liabilities  with respect to or resulting
from any  delay by the  Company  in  paying  or  omission  to pay such  fees and
expenses.

     Section  8.6 Entire  Agreement.  The  Related  Documents  embody the entire
agreement and  understanding  between the Company and Sumitomo and supersede all
prior agreements between the Company and Sumitomo relating to the subject matter
of this Reimbursement Agreement.

     Section 8.7 Termination.  This Reimbursement Agreement shall terminate upon
the  later  to  occur of the  Expiration  Date or the  date of the  indefeasible
payment in full of all of the Bank Reimbursement Obligations.

     Section 8.8 Execution in Counterparts.  This Reimbursement Agreement may be
executed in multiple counterparts, each of which shall be an original and all of
which shall constitute but one and the same instrument.

     Section 8.9 Set-Off.  In addition to, and without limitation of, any rights
of Sumitomo under  applicable law, if any Event of Default or Potential  Default
occurs,  any indebtedness from Sumitomo to the Company (including the Investment
Agreement but excluding any trust  accounts and other  security and cash held in
an agency capacity  pursuant to a written  agreement with respect to such agency
or trust capacity  between  Sumitomo and the Company) may be set-off and applied
toward payment of the Bank  Reimbursement  Obligations,  whether or not the Bank
Reimbursement Obligations, or any part of them, shall then be due.

     Section 8.10 Severability. If any provision of this Reimbursement Agreement
shall be held invalid or unenforceable  by any court of competent  jurisdiction,
such holding shall not invalidate or render unenforceable any other provision of
this Reimbursement Agreement.

     Section 8.11 Notices.  Unless otherwise  provided for in this Reimbursement
Agreement, any notice required or permitted to be given under this Reimbursement
Agreement  may  be  given  by  certified  or  registered  mail,  return  receipt
requested, or by telex or telecopy,  charges prepaid, or by commercial overnight
delivery service, prepaid, addressed:


                                       25

<PAGE>



         To the Company as follows:

                  Advanced Aerodynamics and Structures, Inc.
                  3501 Lakewood Boulevard
                  Long Beach, California  90808
                  Attention:  Carl L. Chen, Ph.D.
                  Telecopy:  (562) 938-8620
                  Telephone:  (562) 938-8618

         To Sumitomo as follows:

                  The Sumitomo Bank, Limited
                  Los Angeles Branch
                  777 South Figueroa Street, Suite 2600
                  Los Angeles, California 90017
                  Attention:  Manager - Structured Finance
                              and Financial Institutions Group
                  Telecopy:  (213) 623-6832
                  Telephone:  (213) 955-0800

         To the Trustee as follows:

                  First Trust of California, National Association
                  One California Street, Fourth Floor
                  San Francisco, California 94111
                  Attention:  Corporate Trust Department
                  Telecopy:  (415) 273-4590
                  Telephone:  (415) 273-4576

Any  notice  sent by mail  shall be  deemed  given  three  (3) days  after it is
deposited  in the mails.  Any notice sent by telex or  telecopy  shall be deemed
given when confirmed by telex answerback or sent, respectively.  Any notice sent
by commercial  overnight delivery service shall be deemed given one (1) Business
Day after it is deposited  for  delivery.  Each party may change the address for
service of notice upon it by a notice in writing to the other.

                                   ARTICLE IX

                               WAIVER OF LIABILITY

     Sumitomo shall not be responsible for: (a) the use which may be made of the
Letter  of  Credit or for any acts or  omissions  of the users of the  Letter of
Credit;  (b) the validity,  sufficiency,  accuracy or  genuineness  of documents
presented  under  or in  connection  with the  Letter  of  Credit,  even if such
documents should in fact prove to be in any or all respects invalid,  fraudulent
or forged; (c) payment

                                       26

<PAGE>



by  Sumitomo to the Trustee or any  transferee  of the Letter of Credit  against
presentation  of  documents  which do not comply with the terms of the Letter of
Credit,  including  failure of any  documents to bear any  reference or adequate
reference  to the Letter of Credit;  or (d)  delivery  of any  messages by mail,
cable, telegraph or otherwise, whether or not they may be in cipher; except only
that the Company may have a claim against Sumitomo and Sumitomo may be liable to
the  Company to the  extent,  but only to the extent of any direct as opposed to
consequential  damages  suffered  by the Company  which the Company  proves were
caused by (i) Sumitomo's  willful  misconduct or gross negligence in determining
whether  documents  presented  under the Letter of Credit  comply with the terms
thereof or (ii)  Sumitomo's  failure to pay under the Letter of Credit after the
presentation to it by the Trustee of a draft and certificate  strictly complying
with the terms and conditions of the Letter of Credit.  The happening of any one
or  more of the  contingencies  referred  to in the  preceding  clauses  of this
Article IX shall not affect,  impair or prevent the vesting of any of Sumitomo's
rights or powers hereunder,  or the Company's  obligation to make reimbursement.
In  furtherance  and extension and not in limitation of the specific  provisions
set forth above,  the Company  agrees that any action taken by Sumitomo under or
in connection  with the Letter of Credit or the related drafts or documents,  if
taken in good faith,  shall be binding on the Company and shall not put Sumitomo
under any resulting  liability to the Company and the Company thereby makes like
agreement  as to any  inaction or omission  unless in breach of good faith.  The
Company  acknowledges  that the Letter of Credit shall be transferable and it is
understood  and agreed that  Sumitomo is under no duty to  determine  the proper
identity of any one appearing in the draft or documents as transferee, nor shall
Sumitomo  be charged  with  responsibility  of any nature or  character  for the
validity or correctness of any transfer or successive transfers,  and payment by
Sumitomo  to any  purported  transferee  as  reasonably  determined  by Sumitomo
pursuant to the terms of the Letter of Credit is hereby authorized and approved,
and the Company further agrees to hold Sumitomo harmless and indemnified against
any liability or claim in connection with or arising out of the foregoing.

                                    ARTICLE X

                                 INDEMNIFICATION

     The  Company  hereby  indemnifies  and  holds  harmless  Sumitomo  and  its
officers,  directors,  employees  and  attorneys  from and  against  any and all
claims,  damages,  losses,  liabilities  and reasonable  costs or expenses which
Sumitomo  may incur (or which may be claimed  against  Sumitomo by any entity or
entities whatsoever) by reason of or in connection with: (i) the issuance,  sale
or resale of the  Bonds;  (ii) any  provision,  misstatement  or  omission  of a
material  fact  contained  in (or not  contained  in,  as the  case  may be) any
document  pursuant  to which  the  Bonds  are  offered  for sale or are sold (or
resold),  except any  provision,  misstatement  or omission  contained in or not
contained  under the caption  "The Bank" in the  Official  Statement;  (iii) the
execution  and delivery or transfer of, or payment or failure to pay under,  the
Letter of Credit, except for any claims, damages, losses, liabilities,  costs or
expenses to the extent,  but only to the extent,  caused by the gross negligence
or willful  misconduct of Sumitomo in  determining  whether a statement or draft
presented  under the Letter of Credit  complied  with the terms of the Letter of
Credit or Sumitomo's willful failure to pay under the Letter of Credit after the
proper presentation of a certificate or draft strictly complying with

                                       27

<PAGE>



the terms and  conditions  of the  Letter of Credit;  and (iv) any other  action
taken by  Sumitomo  in  connection  with the  transactions  contemplated  by the
Related Documents, except for any claims, damages, losses, liabilities, costs or
expenses to the extent,  but only to the extent,  caused by the gross negligence
or willful misconduct of Sumitomo.

     The  Company  agrees  that  its  obligations,   covenants  and  liabilities
hereunder  shall  survive the  execution  of each of the Credit  Documents,  and
continue  in full  force and  effect  and shall not be  terminated,  discharged,
released,  in whole or in part,  affected  or impaired by any act of Sumitomo or
any event or condition.  The Company agrees that its liability  hereunder  shall
not be  discharged  by: (i) the renewal or  extension of time for the payment of
the Bank  Reimbursement  Obligations  under any of the Credit  Documents  or any
other agreement  relating to the Bank  Reimbursement  Obligations,  whether made
with or without the  knowledge  or consent of the  Company;  (ii) any  transfer,
waiver, compromise,  settlement,  modification,  surrender, or release of any of
the Bank  Reimbursement  Obligations;  (iii) the  existence  of any  defenses to
enforcement of any of the Credit Documents; (iv) any failure, omission, delay or
inadequacy,  whether entire or partial, of Sumitomo to exercise any right, power
or remedy regarding the Bank Reimbursement  Obligations or to enforce or realize
upon (or to make any guarantor a party to the  enforcement or realization  upon)
any of  Sumitomo's  security  for the Bank  Reimbursement  Obligations;  (v) the
existence  of  any  set-off,   claim,  reduction,  or  diminution  of  the  Bank
Reimbursement  Obligations,  or any  defense  of any kind or  nature,  which the
Company may have  against  the Company or which any party has against  Sumitomo;
(vi) the application of payments  received from any source to the payment of any
obligation other than the Bank Reimbursement  Obligations,  even though Sumitomo
might  lawfully  have  elected to apply such  payments to any part or all of the
Bank Reimbursement Obligations;  (vii) the addition,  deletion or release of any
and all other  borrowers,  endorsers,  guarantors,  obligors  and other  persons
liable for the payment of the Bank Reimbursement  Obligations and the acceptance
of any  and all  other  security  for  the  payment  of the  Bank  Reimbursement
Obligations;  (viii) any change in the manner,  place or terms of payment of any
of the Bank Reimbursement Obligations; and (ix) any act or failure to act in any
manner  referred  to  herein  which  may  deprive  the  Company  of its right to
subrogation  against the Company to recover full indemnity for any payments made
pursuant  hereto;  all  whether  or not the  Company  shall  have had  notice or
knowledge  of any act or  omission  referred  to in the  foregoing  clauses  (i)
through (ix) of this Paragraph.  The Company intends that it shall remain liable
hereunder as a principal even if all of the Bank Reimbursement Obligations shall
have been paid in full, notwithstanding any fact, act, event or occurrence which
might  otherwise  operate  as a legal or  equitable  discharge  of a  surety  or
guarantor.



                                       28

<PAGE>



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


                                        ADVANCED AERODYNAMICS AND
                                        STRUCTURES, INC.


                                         By:
                                              President


ATTEST:



By:
    Secretary

(SEAL)


                                         THE SUMITOMO BANK, LIMITED



                                          By:
                                                         , Los Angeles Branch









                                       29

<PAGE>



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


                                         ADVANCED AERODYNAMICS AND
                                         STRUCTURES, INC.



                                          By:
                                                 President

ATTEST:



By:
     Secretary

(SEAL)

                                          THE SUMITOMO BANK, LIMITED



                                          By:
                                             Joint General Manager, Los Angeles
                                             Branch





                                       30

<PAGE>





                                    EXHIBIT A
                            Form of Letter of Credit




                          IRREVOCABLE LETTER OF CREDIT




Letter of Credit No. G/LA-400557                                 August 5, 1997



First Trust of California, National Association
  not individually but solely as Trustee
One California Street, Fourth Floor
San Francisco, California  94111

Attention:  Corporate Trust Department

Ladies and Gentlemen:

     We hereby issue in your favor, not individually, but solely as Trustee (the
"Trustee")  under  the  Indenture  of Trust  dated as of  August  1,  1997  (the
"Indenture")  between the California  Economic  Development  Financing Authority
(the  "Issuer")  and you,  this  irrevocable  direct pay letter of credit  (this
"Letter of Credit") in an amount not exceeding $8,625,754 (the "Stated Amount"),
of which an amount not  exceeding  $8,500,000  may be drawn upon with respect to
the  payment of  principal  of the  Issuer's  $8,500,000  Variable  Rate  Demand
Industrial  Development  Revenue Bonds,  Series 1997 (Advanced  Aerodynamics and
Structures, Inc. Project) (the "Bonds") and an amount not exceeding $125,754 may
be drawn upon with respect to the payment of up to forty-five (45) days' accrued
interest  (at the rate of 12% per annum  based on a 365-day  year) on the Bonds,
for payment of your draft, drawn at sight on The Sumitomo Bank, Limited,  acting
through its Los Angeles Branch (the "Bank"),  777 South Figueroa  Street,  Suite
2600, Los Angeles,  California 90017 (or such other address in the United States
of America as may be designated to you in waiting from time to time by the Bank)
accompanied   by  your   signed   certificate   (with  the   blanks   filled  in
appropriately):

     1. if the drawing is being made with  respect to the  payment or  provision
for payment of interest on the Bonds,  whether for regularly  scheduled interest
payments  pursuant to Section 2.02 of the  Indenture or for accrued  interest on
Bonds subject to optional or mandatory  redemption pursuant to Article IV of the
Indenture or upon the  acceleration of the Bonds pursuant to Section 7.01 of the
Indenture, your certificate in the form attached as Annex I;

                                       A-1

<PAGE>



     2. if the drawing is being made with  respect to the  payment of  principal
upon an optional or mandatory  redemption of Bonds pursuant to Article IV of the
Indenture  or upon the  maturity of the Bonds  pursuant  to Section  2.02 of the
Indenture or upon the  acceleration of the Bonds pursuant to Section 7.01 of the
Indenture, your certificate in the form attached as Annex II;

     3. If the  drawing  is made with  respect  to the  payment  of the  accrued
interest and the principal  portion of the purchase  price of Bonds  tendered or
deemed to have been  tendered  pursuant to Section  4.06 or Section  4.07 of the
Indenture,  your  certificate  in the form attached as Annex III (any such draft
accompanied  by such  signed  certificate  is herein  referred to as a "Purchase
Price Draft").

     More than one demand for payment may be made under this Letter of Credit. A
demand for payment  with  respect to the payment of interest on or  principal of
the Bonds  shall not  exceed  that  portion of the Stated  Amount  allocated  to
interest or principal,  respectively,  as the same is reduced or reinstated from
time to time as provided below.

     The expiration date of this Letter of Credit (the "Expiration  Date") shall
be the  earliest  of: (i) our close of business  on August 5, 2002 (the  "Stated
Expiration  Date"),  unless the Stated Expiration Date has been extended and the
Stated Amount adjusted (if  appropriate) by an instrument  substantially  in the
form of  Attachment  C hereto  (which  forms an integral  part of this Letter of
Credit);  (ii) ten (10) days after you receive  notice from the Bank of an Event
of Default  under (and as defined in) the  Reimbursement  Agreement  dated as of
August  1,  1997  between  Advanced  Aerodynamics  and  Structures,   Inc.  (the
"Company") and the Bank (the "Reimbursement Agreement") and a direction to cause
a redemption of all  outstanding  Bonds under the terms of the Indenture;  (iii)
the date on which the Bank  receives  notice  from you that all Bonds  have been
paid in full or such payment has been provided for in accordance  with the terms
of the  Indenture;  (iv)  the date on  which  the  Bonds  become  secured  by an
Alternate  Letter of Credit (as defined in the Indenture) in accordance with the
terms of the Indenture; and (v) the date on which the interest rate on the Bonds
is  converted  to a fixed rate of interest in  accordance  with the terms of the
Indenture.  You  shall  surrender  this  Letter  of  Credit  to the  Bank on the
Expiration Date of this Letter of Credit.

     A draft and  completed  signed  certificate  (other  than a Purchase  Price
Draft)  presented prior to 9:00 a.m., Los Angeles,  California  time, on any day
except Saturday,  Sunday or any day on which banking institutions located in the
Cities of New York, New York or Los Angeles, California or the city in which the
principal  office of the  Trustee or the  Remarketing  Agent (as  defined in the
Indenture) is located  (initially,  San Francisco,  California)  are required or
authorized  by law to close or a day on which  the New York  Stock  Exchange  is
closed (a  "Business  Day") shall be honored and the amount of the draft paid in
immediately  available funds by 1:00 p.m., Los Angeles,  California time) on the
same Business Day,  provided  that such draft and signed  certificate  presented
conform  to the terms and  conditions  of this  Letter  of  Credit.  A draft and
completed signed certificate (other than a Purchase Price Draft) presented after
9:00 a.m., Los Angeles, California time on any Business Day shall be honored and
the amount of the draft paid in  immediately  available  funds by 11:00 a.m. Los
Angeles,  California  time,  on the following  Business Day,  provided that such
draft and signed

                                       A-2

<PAGE>



certificate  presented  conform to the terms and  conditions  of this  Letter of
Credit.  A Purchase  Price  Draft  presented  prior to 9:00 a.m.,  Los  Angeles,
California  time,  on any  Business  Day shall be honored  and the amount of the
draft paid in immediately available funds by 1:00 p.m., Los Angeles,  California
time on the same Business Day, provided that such Purchase Price Draft presented
conforms to the terms and conditions of this Letter of Credit.  A Purchase Price
Draft  presented  after 9:00 a.m., Los Angeles,  California time on any Business
Day shall be honored and the amount of the draft paid in  immediately  available
funds by 11:00 a.m., Los Angeles, California time on the following Business Day,
provided that such draft and signed  certificate  presented conform to the terms
and  conditions  of this Letter of Credit.  Payment  under this Letter of Credit
shall be made in  accordance  with the  payment  instructions  set  forth in the
completed  certificate  accompanying  each draft.  All payments made by the Bank
under this Letter of Credit shall be made from the Bank's own funds  without any
requirement  that the  Trustee,  the  holders  of the Bonds or the Bank make any
prior claims  against the Company and not out of any funds of the  Company,  the
Issuer or any entity  related to either of them.  By the time set forth above on
the  Business  Day  such  payment  is due the  Bank  shall  enter  such  payment
instructions  on the  Federal  Reserve  wire  or,  in  the  event  such  payment
instructions  specify an account  maintained with the Bank,  credit such account
with immediately available funds.

     Any draft or  certificate  may be presented in person to the Bank or may be
sent to the Bank by  telecopier  or  other  electronic  communication,  promptly
confined by telephone at (213) 955-0800, Attention: Manager - Structured Finance
and Financial  Institutions  Group,  to telecopy  number (213) 623-6832 (or such
other  telecopy or telephone  number as may be designated to you in writing from
time to time by the Bank).  Any such draft or certificate  presented by telecopy
or other  electronic  communication  shall be mailed or delivered to the Bank on
the same day to our office  specified  in the first  paragraph of this Letter of
Credit.

     This  Letter of Credit is  successively  transferable  only to a  successor
paying agent upon receipt by the Bank of prior  written  notice of such transfer
in accordance  with Attachment A (which forms an integral part of this Letter of
Credit),  acknowledged by a purported officer of the Trustee and the transferee,
addressed to the Bank and certifying that the transferee is a successor  trustee
under the Indenture.

     Each  payment of a draft  with  respect to the  payment of  interest  on or
principal of the Bonds honored by the Bank shall, pro tanto, reduce that portion
of the  Stated  Amount  available  under  this  Letter  of  Credit,  subject  to
reinstatement as provided below.  Following the honoring of a drawing  hereunder
to pay regularly scheduled principal of the Bonds or principal of the Bonds upon
an optional or  mandatory  redemption  of the Bonds,  that portion of the Stated
Amount  available  under  this  Letter of Credit to pay  interest  shall also be
reduced to an amount equal to  forty-five  (45) days'  accrued  interest (at the
rate of  interest  of 12% per annum  based on a 365-day  year) on the  principal
amount of the remaining  outstanding Bonds (other than Pledged Bonds (as defined
in the Reimbursement Agreement)).  In addition, the Stated Amount of this Letter
of Credit  shall also be reduced  by the  amount  stated in a written  notice of
reduction  executed by a purported  officer of the Trustee  substantially in the
form of Attachment B (which forms an integral part of this Letter of

                                       A-3

<PAGE>



Credit).  A  reduction  of the Stated  Amount  through the use of such a written
notice of  reduction  shall be effective as of the actual date of receipt by the
Bank of such notice at its above-stated address.

     The Stated Amount shall be reinstated as follows:

     (a) Following the honoring of a drawing under this Letter of Credit for the
payment  of the  purchase  price of  Bonds  tendered,  or  deemed  to have  been
tendered,  to the  Trustee or the  Tender  Agent (as  defined in the  Indenture)
pursuant to Section 4.06 or Section  4.07 of the  Indenture,  the Stated  Amount
shall be reinstated  automatically  and immediately  upon and to the extent that
you have received payment in immediately available funds of the principal of and
accrued interest on the Pledged Bonds in connection with the remarketing thereof
and are holding such  payment for the Bank's sole  benefit and account;  in such
case, (i) the principal  portion of this Letter of Credit shall be reinstated in
an amount equal to the  principal  amount of the  remarketed  Bonds and (ii) the
interest portion shall be reinstated to an amount equal to forty-five (45) days'
accrued interest on the Bonds outstanding (other than Pledged Bonds), calculated
at the rate of 12% per annum based on a 365-day year.  In connection  therewith,
you shall wire  transfer  such  payment to the Bank  immediately  after  receipt
thereof and you shall send to the Bank your telecopy  (promptly followed by mail
delivery) notifying the Bank of such payment.

     (b)  Inunediately  following the honoring of a drawing  hereunder to make a
regularly  scheduled interest payment on the Bonds (that is, other than interest
in connection with an optional  redemption or mandatory  redemption of the Bonds
in whole or in part or an  acceleration  or optional or mandatory  tender of the
Bonds)  in an  amount  set  forth  in the  certificate  in the  form of  Annex I
submitted in conjunction with such drawing, the Bank's obligation hereunder with
respect to the payment of interest on the Bonds will be automatically reinstated
by the amount of such drawing.

     (c)  The  principal  and  interest  portions  of the  Stated  Amount  shall
otherwise be reinstated as the Bank may from time to time notify you in writing.

     The Sumitomo Bank,  Limited  acknowledges and agrees,  notwithstanding  any
terms or provisions of this Letter of Credit or the  Reimbursement  Agreement to
the contrary, that this Letter of Credit is in all respects an obligation of The
Sumitomo Bank, Limited,  binding and enforceable against its properties,  assets
and revenues wherever located.

     This  Letter  of  Credit  shall be  governed  by the  laws of the  State of
California  including without  limitation,  Article 5 of the Uniform  Commercial
Code as in effect in the State of California,  as supplemented by the provisions
(to the extent such provisions are consistent with this Letter of Credit) of the
Uniform   Customs  and  Practice  for   Documentary   Credits  (1993   Revision)
International Chamber of Commerce, Publication No. 500 (the "Uniform Customs").


                                       A-4

<PAGE>



     We  undertake  that your draft and  certificate  drawn and  presented on or
before the time of expiration  of this Letter of Credit in  conformity  with the
terms of this Letter of Credit will be duly honored.


                                       Very truly yours,

                                       THE SUMITOMO BANK, LIMITED


                                        By:
                                                           , Los Angeles Branch




                                       A-5

<PAGE>



ANNEX I (INTEREST DRAW) to
Transferable  Irrevocable  Direct  Pay Letter of Credit  Issued by The  Sumitomo
Bank, Limited, acting through its Los Angeles Branch

The Sumitomo Bank, Limited (Los Angeles Branch)
777 South Figueroa Street, Suite 2600
Los Angeles, California 90017

Attention:        Manager - Structured Finance and
                  Financial Institutions Group

Gentlemen:

     We refer to  Transferable  Irrevocable  Direct  Pay  Letter of  Credit  No.
G/LA-400557 issued in support of the $8,500,000  California Economic Development
Financing  Authority Variable Rate Demand Industrial  Development Revenue Bonds,
Series 1997 (Advanced Aerodynamics and Structures, Inc. Project) (the "Letter of
Credit"). Terms defined in the Letter of Credit and not otherwise defined herein
shall have the same meanings herein as therein.

     1. As the Trustee pursuant to the Indenture, in trust for the owners of the
Bonds,  we hereby make  demand for payment  under the Letter of Credit to pay or
provide for the  payment of unpaid  interest  on such Bonds in  connection  with
either a  regularly  scheduled  interest  payment,  an  optional  redemption,  a
mandatory  redemption or  acceleration  of the Bonds.  Such Bonds have been duly
authenticated under and in accordance with the Indenture.

     2.  Interest  on the Bonds is now or will under the terms of the  Indenture
become due and payable on or prior to the regularly  scheduled  interest payment
date,  maturity  date or redemption  date of the Bonds and the aggregate  amount
required   to  pay  or  to   provide   for   the   payment   of  the   same   is
$____________________ and payment of such amount is hereby demanded.

     3. The amount  demanded  does not exceed the amount  available  today to be
drawn  under the Letter of Credit in respect of the  payment of  interest on the
Bonds.

     4. Upon receipt of the amount demanded under this Letter of Credit, we will
apply the same directly to the payment when due of interest  owing on account of
the Bonds.


                                       A-6

<PAGE>



     5. [Please wire the amount demanded hereunder to account no.  _____________
at _____________ in _______.] [Please credit account no. _______ maintained with
you.]

         Dated as of ______________, 19__.


                                        First  Trust  of  California,   National
                                        Association,  not in its  individual  or
                                        corporate   capacity,   but   solely  as
                                        Trustee under the Indenture.


                                         By:
                                         Title:







                                       A-7

<PAGE>





ANNEX II (PRINCIPAL DRAW) to
Transferable  Irrevocable  Direct  Pay Letter of Credit  Issued by The  Sumitomo
Bank, Limited, acting through its Los Angeles Branch

The Sumitomo Bank, Limited (Los Angeles Branch)
777 South Figueroa Street, Suite 2600
Los Angeles, California 90017

Attention:        Manager - Structured Finance and
                  Financial Institutions Group

Gentlemen:

     We refer to  Transferable  Irrevocable  Direct  Pay  Letter of  Credit  No.
G/LA-400557 issued in support of the $8,500,000  California Economic Development
Financing  Authority Variable Rate Demand Industrial  Development Revenue Bonds,
Series 1997 (Advanced Aerodynamics and Structures, Inc. Project) (the "Letter of
Credit"). Terms defined in the Letter of Credit and not otherwise defined herein
shall have the same meanings herein as therein.

     1. As the Trustee pursuant to the Indenture, in trust for the owners of the
Bonds,  we hereby make demand for payment  under the Letter of Credit to pay all
or a portion of the unpaid  principal  amount of such Bonds which have been duly
authenticated  under and in accordance  with the  Indenture in  connection  with
either an  optional  redemption,  a  mandatory  redemption  or upon  maturity or
acceleration of the Bonds.

     2.  Principal on the Bonds is now or will under the terms of the  Indenture
become due and payable on or prior to the maturity  date or  redemption  date of
the Bonds;  the  drawing in the  amount of  $_________  is being made to pay the
principal  portion  of each  such  Bond and  payment  of such  amount  is hereby
demanded.

     3. The amount  demanded  does not exceed the amount  available  on the date
hereof to be drawn  under the  Letter of Credit in  respect  of the  payment  of
principal on the Bonds.

     4. Upon receipt of the amount demanded under this Letter of Credit, we will
apply the same directly to the payment of the principal  owing on account of the
Bonds.

     5. The Stated Amount of the Letter of Credit shall be  permanently  reduced
by the amount of the draw hereunder.


                                       A-8

<PAGE>



     6. [Please wire the amount demanded  hereunder to account no.  _________ at
________________  in _____.] [Please credit account no. _______  maintained with
you.]

     Dated as of ______________, 19__.


                                        First  Trust  of  California,   National
                                        Association,  not in its  individual  or
                                        corporate   capacity,   but   solely  as
                                        Trustee under the Indenture.


                                         By:
                                         Title:



                                       A-9

<PAGE>



ANNEX III (PURCHASE PRICE DRAW) to

Transferable  Irrevocable  Direct  Pay Letter of Credit  Issued by The  Sumitomo
Bank, Limited, acting through its Los Angeles Branch

The Sumitomo Bank, Limited (Los Angeles Branch)
777 South Figueroa Street, Suite 2600
Los Angeles, California  90017

Attention:        Manager - Structured Finance and
                  Financial Institutions Group

Gentlemen:

     We refer to  Transferable  Irrevocable  Direct  Pay  Letter of  Credit  No.
G/LA-400557 issued in support of the $8,500,000  California Economic Development
Financing  Authority Variable Rate Demand Industrial  Development Revenue Bonds,
Series 1997 (Advanced Aerodynamics and Structures, Inc. Project) (the "Letter of
Credit"). Terms defined in the Letter of Credit and not otherwise defined herein
shall have the same meanings herein as therein.

     1. As the  Trustee  pursuant  to the  Indenture,  we hereby make demand for
payment under the Letter of Credit to pay a part or all of the interest  portion
and the principal  portion of the purchase  price to be paid in respect of Bonds
which have been duly  authenticated  under and in accordance  with the Indenture
and which have been  tendered or were deemed to have been  tendered  pursuant to
Section 4.06 or Section 4.07 of the Indenture and for which remarketing proceeds
have not been received.

     2. The  drawing  in the  aggregate  amount  of $ is  being  made to pay the
purchase  price of Bonds  which have been  tendered  or were deemed to have been
tendered.  Such  aggregate  amount  equals the sum of the  amounts  set forth in
paragraphs 3 and 5 below.

     3. The portion of the drawing equal to $ is being made to pay a part or all
of the  interest  portion of the  purchase  price of such Bonds  which have been
tendered or were deemed to have been tendered and for which remarketing proceeds
have not been  received  corresponding  to the  accrued  interest  thereon,  and
payment of such amount is hereby demanded.

     4. Upon  receipt of the amount set forth under  paragraph 3 above,  we will
apply the same directly to the payment of a part or all of the interest  portion
of the amount to be paid in respect of the Bonds.

     5. The portion of the drawing equal to $ is being made to pay the principal
portion of the  purchase  price of such Bonds  which have been  tendered or were
deemed to have been  tendered and for which  remarketing  proceeds have not been
received, and payment of such amount is hereby demanded.

                                      A-10

<PAGE>



     6. Upon  receipt of the amount set forth under  paragraph 5 above,  we will
apply the same directly to the payment of the principal  portion of the purchase
price to be paid in respect of the Bonds.

     7. The amount set forth under  paragraph 3 above does not exceed the amount
available  on the date  hereof to be drawn under the Letter of Credit in respect
of the payment of interest on the Bonds and the amount set forth under paragraph
5 above  does not exceed the  amount  available  on the date  hereof to be drawn
under the Letter of Credit in respect of the payment of principal on the Bonds.

     8. [Please wire the amount demanded  hereunder to account no.  ____________
at  _______________  in  __________.]  [Please  credit  account  no.  __________
maintained with you.]

         Dated as of ____________, 19__.


                                        First  Trust  of  California,   National
                                        Association,  not in its  individual  or
                                        corporate   capacity,   but   solely  as
                                        Trustee under the Indenture.

                                        By:
                                        Title:



                                      A-11

<PAGE>



                    ATTACHMENT A TO TRANSFERABLE IRREVOCABLE
                           DIRECT PAY LETTER OF CREDIT
                             (Transfer Certificate)
                                                               _________,19__
The Sumitomo Bank, Limited (Los Angeles Branch)
777 South Figueroa Street, Suite 2600
Los Angeles, California 90017

Attention:        Manager - Structured Finance and
                  Financial Institutions Group
Gentlemen:

    We refer to  Transferable  Irrevocable  Direct  Pay  Letter  of  Credit  No.
G/LA-400557 issued in support of the $8,500,000  California Economic Development
Financing  Authority Variable Rate Demand Industrial  Development Revenue Bonds,
Series 1997 (Advanced Aerodynamics and Structures, Inc. Project) (the "Letter of
Credit").

    The  undersigned  is the Trustee  referred to in the Letter of Credit and we
hereby give you notice that  _________________  is the  successor  Trustee  (the
"Successor  Trustee")  under the Indenture  referred to in the Letter of Credit,
and that the Successor  Trustee shall succeed to all the rights and  obligations
of the Trustee under the Letter of Credit.

    Upon payment to you of a $2,000  transfer fee by Advanced  Aerodynamics  and
Structures,  Inc., your consent to the transfer of the Letter of Credit with the
date  thereof  to be  confirmed  by a  Notary  Public  in  Japan  (or  otherwise
officially  established) pursuant to the laws of Japan and receipt by us of your
acknowledgment  and  acknowledgment by the Successor Trustee of this notice, the
Letter of Credit  shall be deemed  to have  been  transferred  to the  Successor
Trustee.

                                         Very truly yours,

                                         First Trust of California, National 
                                         Association

                                         By:
                                         Title:

Agreed and Accepted:                     Acknowledged:

The Sumitomo Bank, Limited,              [Name of Successor Trustee]
acting through its
Los Angeles Branch

By:                                      By:
  
Title:                                   Title:

Date:                                    Date:


                                      A-12

<PAGE>



                    ATTACHMENT B TO TRANSFERABLE IRREVOCABLE
                           DIRECT PAY LETTER OF CREDIT
                             (Reduction Certificate)


                                                         _______________, 19__

The Sumitomo Bank, Limited (Los Angeles Branch)
777 South Figueroa Street, Suite 2600
Los Angeles, California 90017

Attention:        Manager - Structured Finance and
                  Financial Institutions Group

Gentlemen:

    We refer to  Transferable  Irrevocable  Direct  Pay  Letter  of  Credit  No.
G/LA-400557 issued in support of the $8,500,000  California Economic Development
Financing  Authority Variable Rate Demand Industrial  Development Revenue Bonds,
Series  1997  (Advanced   Aerodynamics   and   Structures,   Inc.   Project)  by
___________________  Dollars  ($___________).  This  reduction in Stated  Amount
shall go to reduce that portion of the Stated  Amount  allocated to  (principal,
interest)* relating to the Bonds and shall be effective as of the actual date of
receipt of this  instrument  by The Sumitomo  Bank,  Limited.  Accordingly,  the
Stated  Amount of the Letter of Credit  after  giving  effect to such  reduction
shall be _________________  Dollars ($___________).  It is acknowledged that the
amount of such  reduction  shall no longer be  available  for  payment of drafts
under the Letter of Credit.  All terms used in this instrument which are defined
in the Letter of Credit shall have the same meaning in this instrument as in the
Letter of Credit.

                                        First  Trust  of  California,   National
                                        Association,  not in its  individual  or
                                        corporate   capacity,   but   solely  as
                                        Trustee under the Indenture  referred to
                                        in the Letter of Credit.


                                         By:
                                         Title:





------------------
 *Complete as appropriate.

                                      A-13

<PAGE>



                    ATTACHMENT C TO TRANSFERABLE IRREVOCABLE
                           DIRECT PAY LETTER OF CREDIT
                              (Notice of Extension)


                                                             ____________, 19__

The Sumitomo Bank, Limited (Los Angeles Branch)
777 South Figueroa Street, Suite 2600
Los Angeles, California  90017

Attention:        Manager - Structured Finance and
                  Financial Institutions Group

Gentlemen:

     We refer to  Transferable  Irrevocable  Direct  Pay  Letter of  Credit  No.
G/LA-400557 issued in support of the $8,500,000  California Economic Development
Financing  Authority Variable Rate Demand Industrial  Development Revenue Bonds,
Series  1997  (Advanced  Aerodynamics  and  Structures,  Inc.  Project),  in the
original Stated Amount of $8,625,754 (the "Letter of Credit").  We hereby notify
you that, in accordance  with the terms of the Letter of Credit and that certain
Reimbursement   Agreement  dated  as  of  August  1,  1997,   between   Advanced
Aerodynamics and Structures, Inc. and us, the Stated Expiration Date (as defined
in the  Letter  of  Credit)  of the  Letter  of  Credit  has  been  extended  to
______________.

     The portions of the Stated Amount of the Letter of Credit  available to pay
principal and interest on the Bonds are  $______________  and  $_______________,
respectively, and the Stated Amount is $______________.

     This  letter  should be  attached  to the  Letter of Credit and made a part
thereof.

                                        THE SUMITOMO BANK, LIMITED LOS
                                        ANGELES BRANCH

 
                                        By:
                                        Its:


                                      A-14

<PAGE>



                                    EXHIBIT B

                              INVESTMENT AGREEMENT


     THIS INVESTMENT  AGREEMENT (this "Investment  Agreement"),  dated August 5,
1997  is by  and  between  ADVANCED  AERODYNAMICS  AND  STRUCTURES,  INC.  ("the
Company"),  and THE SUMITOMO BANK,  LIMITED (the "Bank"),  acting by and through
its Los Angeles Branch.

                                   WITNESSETH:

     WHEREAS,  the  California  Economic  Development  Financing  Authority (the
"Issuer") has issued its Variable  Rate Demand  Industrial  Development  Revenue
Bonds,  Series, 1997 (Advanced  Aerodynamics and Structures,  Inc. Project) (the
"Bonds")  in  the  aggregate  principal  amount  of  $8,500,000  pursuant  to an
Indenture  of Trust  dated as of August 1, 1997 (the  "Indenture")  between  the
Issuer and First Trust of California, National Association (the "Trustee"); and

     WHEREAS,  the Bank has agreed to issue its Irrevocable Letter of Credit No.
G/LA-400557  dated August 5, 1997 (the "Letter of Credit") to secure  payment of
principal  of,  interest  on and  purchase  price of,  the Bonds  pursuant  to a
Reimbursement   Agreement  dated  as  of  August  1,  1997  (the  "Reimbursement
Agreement") between the Bank and the Company; and

     WHEREAS,  to induce  the Bank to issue the  Letter of Credit and secure the
obligations of the Company to the Bank under the  Reimbursement  Agreement,  the
Company  has agreed to deposit  certain  moneys  with the Bank  pursuant to this
Investment Agreement;

     NOW,  THEREFORE,  in  consideration  of the  foregoing  and  of the  mutual
covenants  hereinafter  set forth,  the parties  intending  to be legally  bound
hereby agree as follows:

     Section 1. Invested Funds.  The Company hereby  establishes this Investment
Agreement  with  the  Bank  and  agrees  that,  pursuant  to the  terms  of this
Investment  Agreement,  the Company  shall  invest  with the Bank the  aggregate
amount of $8,500,000  (the  "Invested  Funds").  The Company agrees to cause the
Invested  Funds to be  delivered  to the Bank on August  5, 1997 for  investment
pursuant  to  the  terms  of  this  Investment  Agreement.  The  Company  hereby
acknowledges that the Invested Funds and any interest accrued thereon under this
Investment   Agreement  are  not  insured  by  the  Federal  Deposit   Insurance
Corporation.

     Section 2. Investments with the Bank.  Investments  hereunder shall be made
by wire transfer in immediately  available funds to Sumitomo Bank of California,
San Francisco,  California,  ABA #121002042 for the account of the Bank, account
number 051-014969-86, reference: AASI.

     Section 3. Term of Agreement. This Investment Agreement will terminate with
respect to the Invested Funds on the earlier of August 5, 2002 or the Expiration
Date of the  Letter of Credit  (the  "Maturity  Date")  unless  extended  at the
request of the Company with the approval of the Bank.


<PAGE>



Prior to the  Maturity  Date,  the Bank shall have  absolute  and  unconditional
custody  and  control  over the  Invested  Funds.  Subject  to the  terms of the
Reimbursement Agreement, the Invested Funds shall be due and payable by the Bank
to the Company in immediately  available  funds to the account  specified by the
Company to the Bank on the  Maturity  Date.  Provided  no Event of  Default  has
occurred and is continuing  under the  Reimbursement  Agreement,  Invested Funds
shall be due and  payable by the Bank to the  Company in  immediately  available
funds to the account  specified  by the  Company to the Bank  within  three days
following  (i) an  optional  redemption  of Bonds  pursuant to Article IV of the
Indenture in the amount of the Bonds so redeemed or (ii) receipt of a request by
the Company,  which request shall include an  acknowledgment by the Company that
the Bank shall not  approve  any  Requisition  pursuant  to Section  3.03 of the
Indenture  at any time that the  aggregate  amount held by the Bank  pursuant to
this Investment  Agreement is less than the aggregate  principal amount of Bonds
Outstanding  and that an amount of Bond proceeds at least equal to the amount of
Invested Funds paid to the Company has been invested with the Bank.

     Section 4. Interest. Interest shall accrue on the daily outstanding balance
of the Invested  Funds from and  including  August 5, 1997 to and  including the
Maturity Date at LIBOR (as hereinafter defined) less 0.15% per annum (calculated
on the basis of a 360-day  year for  actual  number  of days  elapsed).  As used
herein,  "LIBOR" means with respect to any Reset Date (as  hereinafter  defined)
the arithmetic  mean of the rates at which deposits in U.S.  Dollars are offered
by four major banks in the London  interbank  market  selected  by the Bank,  at
approximately  11:00 a.m.,  London time,  on the day that is two  Business  Days
preceding  the Reset Date to prime  banks in the London  interbank  market for a
period of one (1) month  commencing  on the Reset Date.  "Reset  Date" means the
first business day of each calendar week.

     Provided  no Event of Default  has  occurred  and is  continuing  under the
Reimbursement Agreement,  interest shall be credited to the account specified by
the Company on the first Business Day of each month,  on the Maturity Date or on
any earlier  date on which  Invested  Funds are paid to the  Company  hereunder.
Interest  in an  amount  equal to  one-quarter  of the total  interest  accruing
hereunder  through  August  5,  1999  shall be added to and  become  part of the
Invested  Funds on such date. The balance shall be paid to or for the account of
the  Company on such date to the account  specified  in or pursuant to Section 3
hereof or as otherwise directed by the Company.

     Section 5.  Representations and Warranties.  (a) The Company represents and
warrants to the Bank that: (i) this Investment Agreement constitutes a valid and
binding  obligation  of the  Company;  and  (ii)  the  execution,  delivery  and
performance  of this  Investment  Agreement  by the Company will not result in a
breach or  violation  of or cause a  default  under  any  provision  of any law,
regulation,  order, license, decree, judgment,  indenture, contract or agreement
binding upon the Company.

     (b) The  Bank  represents  and  warrants  to the  Company  that:  (i)  this
Investment Agreement constitutes a valid and binding obligation of the Bank; and
(ii) the execution, delivery and performance of this Investment Agreement by the
Bank will not result in a breach or violation of or

                                       B-2

<PAGE>



cause a default  under any  provision of any law,  regulation,  order,  license,
decree, judgment, indenture, contract or agreement binding upon the Bank.

     Section 6. Role of the Bank. It is expressly  understood and agreed that in
performing  its  obligations  hereunder,  the Bank is not acting as a fiduciary,
agent or other  representative  for the registered owners of the Bonds or anyone
else, and that neither the Bank nor any of its directors,  officers,  employees,
or agents shall be liable or responsible  for: (i) the payment to the registered
owners of any amounts owing on or with respect to the Bonds; or (ii) any acts or
omissions of the Issuer or the Trustee  under or with respect to the validity or
enforceability of the Bonds or the Indenture.

     Section 7. No  Implied  Rights.  Nothing  expressed  or  implied  herein is
intended or shall be  construed to confer upon any person,  firm or  corporation
other  than the  parties  hereto  any  right,  remedy or claim by reason of this
Investment Agreement or any term hereof, and all terms contained herein shall be
for the sole and exclusive benefit of the parties hereto and their successors.

     Section 8. Notices. All notices given pursuant to this Investment Agreement
shall be given  telephonically,  with  verification  sent by  first-class  mail,
postage prepaid, or by telex or telecopier, or overnight commercial courier sent
that Business Day to the addresses  fisted below,  or to such other addresses or
to the  attention of such other person as such party shall have  designated  for
such purpose in a written notice to the other:

         To the Company as follows:

                  Advanced Aerodynamics and Structures, Inc.
                  3501 Lakewood Boulevard
                  Long Beach, California 90808
                  Attention:  Carl L. Chen, Ph.D.
                  Telecopy:  (562) 938-8620
                  Telephone:  (562) 938-8618

         To Sumitomo as follows:

                  The Sumitomo Bank, Limited
                  Los Angeles Branch
                  777 South Figueroa Street, Suite 2600
                  Los Angeles, California 90017
                  Attention:  Manager - Structured Finance
                              and Financial Institutions Group
                  Telecopy:  (213) 623-6832
                  Telephone:  (213) 955-0800


                                       B-3

<PAGE>



         To the Trustee as follows:

                  First Trust of California, National Association
                  One California Street, Fourth Floor
                  San Francisco, California  94111
                  Attention:  Corporate Trust Department
                  Telecopy:  (415) 273-4590
                  Telephone:  (415) 273-4576

However, the failure by either party to provide written confirmation on the same
Business  Day of any  telephonic  notice  given  hereunder  will not result in a
breach of this Investment Agreement.

     Section 9.  Successors  and  Assigns.  This  Investment  Agreement  and all
obligations and rights arising  hereunder shall be binding upon and inure to the
benefit of the parties hereto and their respective  successors,  transferees and
assigns.  This Investment Agreement may not be assigned by any party without the
prior written consent of the other party.

     Section 10.  Amendments and Waivers.  This Investment  Agreement may not be
modified,  amended  or  supplemented,  and no term or  provision  hereof  may be
waived, except in writing signed by the parties hereto.

     Section 11.  Governing  Law.  The  obligations  of the Company and the Bank
under this Investment Agreement shall be governed by and construed in accordance
with the laws of the State of California.

     Section 12.  Counterparts.  This  Investment  Agreement  may be executed in
counterparts,  each of which shall be deemed to be an original  and all of which
taken together shall constitute one and the same instrument.



                                       B-4

<PAGE>



     IN  WITNESS  WHEREOF,  the  parties  hereto  have  caused  this  Investment
Agreement to be executed as of the date written above.

                                      THE SUMITOMO BANK, LIMITED



                                       By:
                                          _______________, Los Angeles Branch


                                       ADVANCED AERODYNAMICS AND
                                       STRUCTURES, INC.



                                        By:
                                            President
ATTEST:


By:
         Secretary

(SEAL)




                                       B-5

<PAGE>



                                    EXHIBIT C

                             DIRECT OBLIGATION NOTE


     FOR VALUE RECEIVED, the undersigned,  ADVANCED AERODYNAMICS AND STRUCTURES,
INC.  (the  "Company"),  hereby  promises to pay to THE SUMITOMO  BANK,  LIMITED
("Sumitomo"),  a banking  corporation  organized under the laws of Japan, acting
through its Los Angeles  Branch,  on or before August 5, 2002, the lesser of (i)
the  principal  sum of Eight  Million Six  Hundred  Twenty-Five  Thousand  Seven
Hundred Fifty-Four Dollars ($8,625,754), together with all other amounts due and
owing under the  Reimbursement  Agreement dated as of August 1, 1997 (as amended
from time to time,  the  "Reimbursement  Agreement")  between  the  Company  and
Sumitomo,  or (ii) the  aggregate  outstanding  amount of all loans  made to the
Company by Sumitomo pursuant to the Reimbursement  Agreement,  together with all
other amounts due and owing under the  Reimbursement  Agreement,  in immediately
available  funds at the principal  corporate  office of  Sumitomo's  Los Angeles
Branch in Los Angeles,  California (or such other office of Sumitomo  located in
the United States of America as Sumitomo may designate to the Company in writing
from time to time), on the dates and at the times specified in the Reimbursement
Agreement and to pay interest on the outstanding  balance of such amounts at the
times  specified in the  Reimbursement  Agreement at a rate per annum (except as
otherwise  specified  in the  Reimbursement  Agreement)  equal to (x) LIBOR less
0.15% per annum and (y) with  respect to any  amounts  not paid when due, a rate
per annum equal to the sum of the  corporate  base rate  publicly  announced  by
Morgan  Guaranty  Trust  Company  of New  York in New  York,  New  York  (or its
successor),  from time to time as its prevailing corporate base rate, which rate
shall  change when and as said  corporate  base rate  changes,  plus two percent
(2.0%).  Sumitomo is  authorized  to record all loans and all  payments  made on
account of the principal due on the loans on the Loan Schedule  attached hereto.
Such Loan Schedule,  and any continuations  thereof,  are hereby incorporated by
reference  herein and made a part hereof,  and Sumitomo's  endorsements  thereon
shall be conclusive absent manifest error. The failure to make any such notation
shall not,  however,  affect the Company's  obligations under this Note. As used
herein,  "LIBOR" means with respect to any Reset Date (as  hereinafter  defined)
the arithmetic  mean of the rates at which deposits in U.S.  Dollars are offered
by four major banks in the London  interbank  market  selected  by the Bank,  at
approximately  11:00 a.m.,  London time,  on the day that is two  Business  Days
preceding  the Reset Date to prime  banks in the London  interbank  market for a
period  of one (1)  week  commencing  on the  Reset  Date.  "Reset  Date"  means
Wednesday of each week (or, if such  Wednesday  is not a Business  Day, the next
Business Day).

     This obligation is issued under, and is subject to all of the terms of, the
Reimbursement  Agreement.  Terms defined in the Reimbursement  Agreement and not
otherwise defined herein shall have the same meanings herein as therein.

     Notwithstanding  the due date of this Note each and  every  amount  payable
shall be  accelerated  to the  extent  that:  (x) funds are  available  from the
Trustee from sources available under the Indenture, (y) funds are available from
the Remarketing  Agent from the remarketing  proceeds of the Bonds, or (z) funds
are available from any Alternate Letter of Credit (as defined in the Indenture).



<PAGE>



     The Company hereby waives presentment for payment,  demand, protest, notice
of protest,  notice of dishonor  and all  defenses on the ground of extension of
time of  payment  for the  payment  hereof  which  may be given  (other  than in
writing) by Sumitomo to the Company.

     This Note shall be governed by and construed in accordance with the laws of
the State of California.

     IN WITNESS WHEREOF, the Company has caused this Note to be duly executed.

         Dated:   August 5, 1997

                                        ADVANCED AERODYNAMICS AND
                                        STRUCTURES, INC.



                                        By:
                                            President
ATTEST:


By:
        Secretary



                                       C-2

<PAGE>



                                  LOAN SCHEDULE



               Principal       Principal                         Notation
Date            Amount            Paid           Balance          Made By























                                       C-3

<PAGE>



                                    EXHIBIT D

                     CUSTODY, PLEDGE AND SECURITY AGREEMENT


     CUSTODY,  PLEDGE  AND  SECURITY  AGREEMENT  dated as of  August  1, 1997 is
entered  into  among  ADVANCED  AERODYNAMICS  AND  STRUCTURES,  INC.,  a limited
partnership  organized under the laws of the State of Delaware (the  "Company"),
THE SUMITOMO BANK,  LIMITED, a banking  corporation  organized under the laws of
Japan,  acting through its Los Angeles Branch  ("Sumitomo"),  and FIRST TRUST OF
CALIFORNIA,  NATIONAL ASSOCIATION,  as custodian (the "Custodian"),  pursuant to
the  Reimbursement  Agreement dated as of August 1, 1997 between the Company and
Sumitomo  (hereinafter,  as the  same  may  from  time  to time  be  amended  or
supplemented, called the "Reimbursement Agreement"):

                                    RECITALS

     1. On  August  5,  1997,  the  California  Economic  Development  Financing
Authority (the "Issuer") issued its Variable Rate Demand Industrial  Development
Revenue Bonds, Series l 997 (Advanced Aerodynamics and Structures, Inc. Project)
(the  "Bonds")  pursuant to an Indenture of Trust dated as of August 1, 1997 (as
amended or supplemented  from time to time, the "Indenture")  between the Issuer
and First Trust of California,  National Association,  as trustee (together with
any successor trustee under the Indenture, the "Trustee").

     2. The  Indenture  requires  that the Bonds be  purchased  from the  owners
thereof on the dates on which the Bonds are  subject to  optional  or  mandatory
tender  pursuant to Sections  4.06 and 4.07 of the  Indenture  (any such date is
referred to herein as the "Tender  Date") under the  circumstances  set forth in
the Indenture.

     3. The Company  has agreed to enter into the  Reimbursement  Agreement  and
thereby cause Sumitomo to issue its transferable  irrevocable  direct pay letter
of credit (the "Letter of Credit")  which may be drawn upon,  inter alia, to pay
the purchase price of Bonds which are subject to optional or mandatory tender on
such Tender Dates.

     4. Bonds tendered or deemed to have been tendered pursuant to the Indenture
which are  purchased by a draw on the Letter of Credit will be registered in the
name of  Sumitomo  or its  nominee  pursuant  to this  Pledge  Agreement  unless
Sumitomo directs otherwise.

     5. It is a  condition  precedent  to  Sumitomo's  delivery of the Letter of
Credit that the Company enter into this Custody,  Pledge and Security  Agreement
(as amended or  supplemented  from time to time, this "Pledge  Agreement")  with
Sumitomo and the Custodian.

     6. First Trust of California,  National  Association  has been appointed as
the Trustee under the Indenture and has also agreed to act as a custodian  under
this Pledge Agreement.


                                       D-1

<PAGE>



     NOW,  THEREFORE,  in  consideration  of the premises and in order to induce
SUMITOMO  to enter  into the  Reimbursement  Agreement  and issue the  Letter of
Credit thereunder and for other good and valuable consideration, the receipt and
sufficiency  of  which is  hereby  acknowledged,  the  parties  hereto  agree as
follows:

     1. Defined Terms.  Unless  otherwise  defined herein,  terms defined in the
Reimbursement  Agreement or the Indenture shall have such defined  meanings when
used herein.

     2. Pledge. The Company hereby pledges, assigns, hypothecates, transfers and
delivers to Sumitomo all its right,  title and interest in and to all Bonds,  as
the  same  may be from  time to time  delivered  to the  Trustee  by the  owners
thereof,  that may be purchased with funds drawn under the Letter of Credit (the
"Pledged  Bonds"),  and hereby  grants to Sumitomo a first lien on, and security
interest in, all rights, title and interest of the Company in and to the Pledged
Bonds, the interest thereon and all proceeds thereof, as collateral security for
the prompt and complete  payment  when due of all amounts due to Sumitomo  under
the Reimbursement  Agreement and the performance of all other obligations of the
Company under the Reimbursement Agreement and the other Credit Documents (all of
the foregoing being hereinafter called the "Obligations").

     3. Custody and Registration of Bonds: Fees of Custodian.

          (a) Sumitomo hereby designates and appoints the Custodian as its agent
and bailee to perfect Sumitomo's pledge, assignment and security interest in the
Pledged Bonds and to serve in accordance  with the terms and  conditions of this
Pledge  Agreement as  custodial  agent of Sumitomo  for the Pledged  Bonds,  the
interest thereon and all proceeds thereof.  Upon any drawing under the Letter of
Credit for the  purchase  price of the Bonds,  the Trustee  shall  deliver  such
Pledged  Bonds  to  the  Custodian,   and  the  Custodian  hereby  accepts  such
appointment  and agrees to perform as  custodial  agent for Sumitomo and to hold
Pledged  Bonds on behalf of Sumitomo in accordance  with the  provisions of this
Pledge  Agreement.  Upon receipt of such Bonds,  the Custodian  shall notify the
Remarketing   Agent  and  the  Company  (by   telecopier  or  other   electronic
communication)   that  Bonds  equal  to  the  portion  of  the  purchase   price
attributable to principal are being held by the Custodian for Sumitomo  pursuant
to this Pledge Agreement.

          (b)  Unless  otherwise  directed  by  Sumitomo  (but  subject  to  the
provisions  of Section 11 hereof),  the  Custodian  shall  cause  either (A) any
Pledged Bonds which have not been  remarketed in accordance with the Remarketing
Agreement to be registered by the Trustee in the name of Sumitomo or its nominee
or (B) if DTC is the registered owner of all Bonds, any Pledged Bonds which have
not  been  remarketed  in  accordance  with  the  Remarketing  Agreement  to  be
registered  in the  name of DTC  with  Sumitomo's  or its  nominee's  beneficial
ownership  interest of such  Pledged  Bonds  recorded  by DTC on its books.  The
Company  hereby agrees that it will execute and deliver such  documents and take
such steps as Sumitomo may  reasonably  request in order to perfect and maintain
perfected Sumitomo's security interest in the Collateral.

                                       D-2

<PAGE>



          (c) The Company irrevocably  constitutes and appoints the Custodian as
its  attorney to cause the  transfer of any Pledged  Bonds on the books kept for
the  registration  thereof and authorizes the Custodian to deliver Pledged Bonds
to the Trustee for  reregistration,  if appropriate,  and delivery in accordance
with the terms of this Pledge Agreement.

          (d) The fees of the Custodian,  if any, in connection with this Pledge
Agreement shall be for the account of the Company.

     4. Payments on the Bonds; Voting Rights.

          (a) If, while this Pledge  Agreement is in effect,  the Company  shall
become  entitled to receive or shall  receive any  payment,  including,  without
limitation, any payment of principal,  premium, interest or proceeds of sale, in
respect of the  Pledged  Bonds,  such  payment  shall be subject to this  Pledge
Agreement.  Any such payment  shall be made  directly to  Sumitomo,  and, in the
event any such payment is received by the Company,  the Company agrees to accept
the same as  Sumitomo's  agent,  to hold the same in trust on behalf of Sumitomo
and to deliver  the same  forthwith  to  Sumitomo.  All sums of money so paid in
respect of the  Pledged  Bonds  which are  received  by the  Company and paid to
Sumitomo  and all such amounts  which shall be paid  directly to Sumitomo by the
Trustee  shall be  credited  against  the  Obligations  of the  Company  owed to
Sumitomo.  If the  payments  are in  excess  of the  amounts  owed to  Sumitomo,
Sumitomo shall return the excess to the Company.

          (b) During such time as Bonds are pledged to Sumitomo  under the terms
of this Pledge  Agreement,  Sumitomo  shall be  entitled to exercise  all of the
rights of an owner of Bonds with respect to voting, consenting and directing the
Trustee as if  Sumitomo  were the owner of such Bonds,  and the  Company  hereby
grants and assigns to Sumitomo all such rights.

     5. Collateral. The Pledged Bonds, all income therefrom and proceeds thereof
are herein collectively sometimes called the "Collateral."

     6. Release of the Bonds.

          (a)  Simultaneously  with the receipt by the Custodian of the proceeds
of sale of any  Pledged  Bonds  which  are  remarketed  in  accordance  with the
Indenture and the  Remarketing  Agreement for a purchase  price of not less than
the principal  amount thereof,  Pledged Bonds in a principal amount equal to the
purchase  price shall be released  from the lien of this  Pledge  Agreement  and
delivered at the direction of the Remarketing  Agent.  The Custodian agrees that
the proceeds of such sale will be disbursed in accordance with the provisions of
Section 8.11 of the Indenture.


                                       D-3

<PAGE>



          (b) Upon  receipt by the  Custodian of written  notice from  Sumitomo,
which notice may be sent by telecopy if immediately  confirmed in writing,  that
Sumitomo has received  payment or  prepayment in full of all amounts owing under
the  Reimbursement  Agreement,  all such Pledged Bonds and any other  Collateral
pledged to Sumitomo then subject to the lien of this Pledge  Agreement  shall be
released  herefrom and registered in the name of and delivered to the Company or
its order.

     7. Exculpatory  Provisions.  Neither the Custodian nor any of its officers,
directors,  employees,  agents,  attorneys-in-fact or affiliates shall be liable
for any action  lawfully taken or omitted to be taken by it or such person under
or in connection with this Pledge Agreement (except for its or each person's own
gross  negligence  or willful  misconduct),  including any failure to collect or
realize upon the Obligations or any Collateral, security or guaranty therefor or
any part thereof.  The Company hereby indemnifies the Custodian from and against
any and all claims,  losses,  damages,  liabilities  and  expenses  which may be
imposed on, incurred by or asserted  against the Custodian in any way related to
or arising out of the subject matter of this Pledge  Agreement  (except for such
claims,  losses,  damages,  liabilities  and  expenses  which  arise  out of the
Custodian's gross negligence or willful misconduct). The Custodian undertakes to
perform only such duties as are expressly  set forth  herein.  The Custodian may
rely and shall be protected in acting or refraining from acting upon any written
notice,  instruction or request  furnished to it hereunder and believed by it to
be  genuine  and  to  have  been  signed  or  presented  by an  Authorized  Bank
Representative; "Authorized Bank Representative" means any one of the persons at
the  time  designated  to act on  behalf  of  Sumitomo  by  written  certificate
furnished to the Custodian, which certificate shall be substantially in the form
set forth in Attachment A attached  hereto and by reference  made a part hereof,
and may be changed from time to time by Sumitomo furnishing a new certificate to
the  Custodian.  The  Custodian  may consult  with counsel of its own choice and
shall have full and complete  authorization  and protection for any action taken
or suffered by it hereunder in good faith and in accordance  with the opinion of
such counsel.  Notwithstanding  any provision to the contrary  contained herein,
the Custodian  shall not be responsible for any act or failure to act absent its
gross negligence or willful misconduct.

     8.  Resignation  or Removal of  Custodian.  The Custodian may resign and be
discharged from its duties and  obligations  hereunder by giving at least thirty
(30) days' prior written notice of such resignation to Sumitomo,  specifying the
date on which such resignation is to take effect.  Sumitomo, with the consent of
the Company  (which consent shall not be  unreasonably  withheld and which shall
not be  required  if an Event of Default  (as  defined in Section 9 hereof)  has
occurred and is  continuing),  may remove and discharge  the Custodian  from its
duties and  obligations  hereunder  by giving at least five (5)  Business  Days'
prior  written  notice of such removal to the Custodian  specifying  the date on
which such removal is to take effect.

     9. Event of  Default.  The term  "Event of  Default" as used in this Pledge
Agreement  shall  mean (a) an Event  of  Default  under  and as  defined  in the
Reimbursement  Agreement  or (b)(i) the failure by any of the parties  hereto to
comply with the  provisions  of Sections 3 or 6 hereof,  (ii) the failure by the
Company to perform or observe any covenant contained in Section 12 or 13 hereof,
or

                                       D-4

<PAGE>



(iii) any  representation or warranty made by the Company pursuant to Section 12
hereof proving to have been incorrect in any material respect when made.

     10. Rights of Sumitomo. Sumitomo shall not be liable for failure to collect
or realize  upon the  Obligations  or any  Collateral  or any  security or other
guarantee therefor, or any part thereof, or for any delay in so doing, nor shall
either party be under any obligation to take any action  whatsoever  with regard
thereto.  If an Event of Default or event  which with notice or lapse of time or
both would become an Event of Default has occurred and is  continuing,  Sumitomo
may  thereafter,  without  notice,  exercise all rights,  privileges  or options
pertaining  to any Pledged  Bonds  pledged to  Sumitomo as if Sumitomo  were the
holder and absolute  owner  thereof,  upon such terms and conditions as Sumitomo
may determine,  all without  liability except to account for Collateral or other
property  actually  received  by it,  but  Sumitomo  shall  not have any duty to
exercise any of the  aforesaid  rights,  privileges  or options and shall not be
responsible for any failure to do so or delay in so doing.

     11. Remedies. In the event any portion of the Obligations has been declared
due and payable,  Sumitomo may, with the prior written  approval of the Company,
forthwith collect, receive,  appropriate and realize upon the Collateral pledged
to it, or any part thereof,  and/or may forthwith sell,  assign,  give option or
options to purchase,  contract to sell or otherwise  dispose of and deliver said
Collateral pledged to it, or any part thereof,  in one or more parcels at public
or  private  sale  or  sales,  at  any  exchange,  broker's  board  or at any of
Sumitomo's  branches,  agencies or  offices,  or  elsewhere  upon such terms and
conditions as Sumitomo and the Company may deem  advisable and at such prices as
Sumitomo  and the  Company  may deem  best,  for cash or on credit or for future
delivery without  assumption of any credit risk, with the right to Sumitomo upon
any such sale or sales,  public or private, to purchase the whole or any part of
said  Collateral  pledged  to it and so sold,  free of any  right or  equity  of
redemption  in the Company which right or equity is hereby  expressly  waived or
released.  Sumitomo  shall  pay over the net  proceeds  of any such  collection,
recovery,  receipt,  appropriation,  realization  or sale  after  deducting  all
reasonable  costs and expenses of every kind  incurred  therein or incidental to
the care,  safekeeping or otherwise of any and all of the Collateral  pledged to
it or in any  way  relating  to the  rights  of  Sumitomo  hereunder,  including
reasonable  attorneys' fees and legal expenses,  to the payment,  in whole or in
part, of the Obligations in such order as Sumitomo may elect.

     12.  Representations,  Warranties and Covenants of the Company. The Company
represents, warrants and covenants that:

          (a) on the date of delivery to  Sumitomo or to the  Custodian  for the
account of Sumitomo of any Pledged  Bonds  described  herein,  the Company shall
have taken no action which would  create any right,  title or interest in and to
the Pledged Bonds in favor of the Remarketing Agent or the Trustee;

          (b)  it  has,  and on the  date  of  delivery  to  Sumitomo  or to the
Custodian  for the  account of Sumitomo  of any  Pledged  Bonds will have,  full
power, authority and legal right

                                       D-5

<PAGE>



to pledge all of its  right,  title and  interest  in and to the  Pledged  Bonds
pursuant to this Pledge Agreement;

          (c) this  Pledge  Agreement  has been duly  authorized,  executed  and
delivered by the Company and constitutes a legal,  valid and binding  obligation
of  the  Company   enforceable   in  accordance   with  its  terms,   except  as
enforceability   may  be   limited   by   applicable   bankruptcy,   insolvency,
reorganization,  moratorium or similar laws affecting  creditors' rights and, to
the extent that such instruments require or may require,  enforcement by a court
of  equity,  such  principles  of equity as the court  having  jurisdiction  may
impose;

          (d) no consent of any other party (including,  without limitation, the
creditors  of  the  Company)  and  no  consent,  license,  permit,  approval  or
authorization of, exemption by, notice or report to, or registration,  filing or
declaration with, any governmental  authority,  domestic or foreign, is required
to be obtained  by the Company in  connection  with the  execution,  delivery or
performance of this Pledge Agreement;

          (e) the execution,  delivery and performance of this Pledge  Agreement
will not result in a material  violation of any provision of any  applicable law
or regulation or of any order, judgment,  writ, award or decree directly binding
on the Company of any court, arbitrator or governmental  authority,  domestic or
foreign,  or of the  Company's  organizational  documents,  or of any  mortgage,
indenture,  lease,  contract,  or other agreement,  instrument or undertaking to
which the Company is a party or which,  to the best  knowledge  of the  Company,
purports to be binding upon the Company or upon any of its respective assets and
will not result in the creation or imposition of any lien, charge or encumbrance
on or  security  interest  in  any of  the  assets  of  the  Company  except  as
contemplated by this Pledge Agreement; and

          (f) the pledge,  assignment and delivery of the Pledged Bonds pursuant
to this Pledge Agreement will create a valid first lien on and a first perfected
security interest in Sumitomo in all right,  title or interest of the Company in
or to such  Bonds,  and the income  and  proceeds  thereof,  subject to no prior
pledge,  lien, mortgage,  hypothecation,  security interest,  charge,  option or
encumbrance  or to any  agreement  purporting  to  grant  to any  third  party a
security  interest in the property or assets of the Company  which would include
the  Pledged  Bonds.  The  Company  covenants  and  agrees  that it will  defend
Sumitomo's  right,  title and security  interest in and to the Pledged Bonds and
the income and  proceeds  thereof  against the claims and demands of all persons
whomsoever.

     13. No Disposition,  Etc. The Company agrees that it will not,  without the
prior written consent of Sumitomo, sell, assign, transfer, exchange or otherwise
dispose  of, or grant any option  with  respect  to, the  Collateral  (except as
provided in Section 6 of this Pledge  Agreement),  nor will it create,  incur or
permit to exist any pledge,  lien, mortgage,  hypothecation,  security interest,
charge,  option or any other  encumbrance with respect to any of the Collateral,
or any  interest  therein,  or any  proceeds  thereof,  except  for the lien and
security interest provided for by this Pledge Agreement.

                                       D-6

<PAGE>



     14. Further  Assurances.  The Company agrees that at any time and from time
to tine,  upon the written  request of  Sumitomo,  the Company  will execute and
deliver such further  documents  and do such further acts and perform all things
as  Sumitomo  may  reasonably  request in order to effect the  purposes  of this
Pledge Agreement.

     15.  Severability.   Any  provision  of  this  Pledge  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 m any jurisdiction shall not invalidate or render unenforceable
such provision in any other jurisdiction.

     16. No Waiver;  Cumulative Remedies.  Sumitomo shall not by any act, delay,
omission  or  otherwise  be deemed to have  waived any of its rights or remedies
hereunder,  and no waiver shall be valid unless in writing,  signed by Sumitomo,
and then only to the extent therein set forth. A waiver by Sumitomo of any right
or remedy  hereunder on any one occasion  shall not be construed as a bar to any
right or remedy which Sumitomo would otherwise have on any further occasion.  No
failure to exercise nor any delay in exercising by Sumitomo of any right,  power
or privilege  hereunder shall operate as a waiver thereof;  nor shall any single
or partial  exercise of any right,  power or  privilege  hereunder  preclude any
other or further exercise  thereof or the exercise of any other right,  power or
privilege.  The rights and remedies  herein  provided are  cumulative and may be
exercised singly or concurrently and are not exclusive of any rights or remedies
provided by law.

     17. Waivers, Amendments: Applicable Law. None of the terms or provisions of
this Pledge Agreement may be waived,  altered,  modified or amended except by an
instrument in writing, duly executed by Sumitomo, the Company and the Custodian.
This Pledge  Agreement and all  obligations  of the Company  hereunder  shall be
binding upon the successors and assigns of the Company and shall,  together with
the rights and  remedies of  Sumitomo,  inure to the benefit of Sumitomo and its
respective  successors  and assigns.  THE  OBLIGATIONS OF THE PARTIES UNDER THIS
PLEDGE  AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF CALIFORNIA.

     18. Term.  This Pledge  Agreement shall remain in full force and effect for
so long as the Letter of Credit is in effect or any  amount is owed to  Sumitomo
under this Pledge  Agreement,  the  Reimbursement  Agreement or any other Credit
Documents,  provided  that in the event of the  resignation  or  removal  of the
Trustee under the Indenture, the Custodian shall resign or be removed under this
Pledge Agreement,  and the successor Trustee appointed under the Indenture shall
be appointed as the successor custodian under this Pledge Agreement.

     19. Notices.  Unless otherwise  provided for in this Pledge Agreement,  any
notice  required or  permitted  to be given under this Pledge  Agreement  may be
given by certified or registered mail, return receipt requested, or by telecopy,
charges  prepaid,  or  by  commercial   overnight  delivery  service,   prepaid,
addressed:


                                       D-7

<PAGE>



         If to the Company:

                  Advanced Aerodynamics and Structures, Inc.
                  3501 Lakewood Boulevard
                  Long Beach, California  90808
                  Attention:  Carl L. Chen, Ph.D.
                  Telecopy:  (562) 938-8620
                  Telephone:  (562) 938-8618

         If to the Custodian:

                  First Trust of California, National Association
                  One California Street, Fourth Floor
                  San Francisco, California  94111
                  Attention:  Corporate Trust Department
                  Telecopy:  (415) 273-4590
                  Telephone:  (415) 273-4576

         If to Sumitomo:

                  The Sumitomo Bank, Limited
                  Los Angeles Branch
                  777 South Figueroa Street, Suite 2600
                  Los Angeles, California 90017
                  Attention:  Manager - Structured Finance
                              and Financial Institutions Group
                  Telecopy:  (213) 623-6832
                  Telephone:   (213) 955-0800

Any  notice  sent by mail  shall be  deemed  given  three  (3) days  after it is
deposited in the mails.  Any notice sent by telecopy  shall be deemed given when
sent. Any notice sent by commercial  overnight  delivery service shall be deemed
given one (1) Business Day after it is deposited for  delivery.  Notwithstanding
anything  herein to the contrary,  notices to release Bonds from Sumitomo to the
Custodian  may be made by  telecopy  and each  such  notice  shall  be  promptly
confirmed in writing as specified above.

     20.  Execution in  Counterparts.  This Pledge  Agreement may be executed in
multiple counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.


                                       D-8

<PAGE>



     IN WITNESS WHEREOF, the parties hereto have caused this Pledge Agreement to
be duly executed and delivered by their duly  authorized  officers as of the day
and year first above written.

                                        ADVANCED AERODYNAMICS AND
                                        STRUCTURES, INC.


                                         By:
                                               President
ATTEST:


By:
       Secretary

(SEAL)
                                         THE SUMITOMO BANK, LIMITED



                                         By:
                                            _____________,. Los Angeles Branch


                                         FIRST TRUST OF CALIFORNIA,
                                         NATIONAL ASSOCIATION, as Custodian



                                         By:
                                         Its:


                                       D-9

<PAGE>



                                  ATTACHMENT A
                                       TO
                                PLEDGE AGREEMENT

             CERTIFICATE DESIGNATING AUTHORIZED BANK REPRESENTATIVES

     The  Sumitomo  Bank,  Limited,   acting  through  its  Los  Angeles  Branch
("Sumitomo"),   hereby   certifies  to  FIRST  TRUST  OF  CALIFORNIA,   NATIONAL
ASSOCIATION  (the  "Custodian"),  as custodian  agent for Sumitomo in accordance
with that certain Custody, Pledge and Security Agreement,  dated as of August 1,
1997  among  Advanced  Aerodynamics  and  Structures,  Inc.,  Sumitomo  and  the
Custodian, that the "Authorized Bank Representatives" for Sumitomo from the date
of this Certificate until the Custodian's receipt of a Certificate  furnished in
replacement hereof shall be the following individuals so designated below:

Name                                        Specimen Signature


     IN WITNESS  WHEREOF,  Sumitomo has executed this Certificate as of this lst
day of August, 1997.

                                         THE SUMITOMO BANK, LIMITED

                                          By:
                                          Title:


                                      D-10

<PAGE>



                                    EXHIBIT E


             [Letterhead of Luce, Forward, Hamilton and Scripps LLP]



                                 August 5, 1997



The Sumitomo Bank, Limited
777 South Figueroa Street, Suite 2600
Los Angeles, California 90017

California Economic Development
Financing Authority
801 K Street, Suite 1700
Sacramento, California 95814

         Re:      $8,500,000 California Economic Development
                  Financing Authority Variable Rate Demand Industrial
                  Development Revenue Bonds, Series 1997
                  (Advanced Aerodynamics and Structures, Inc. Project)

Ladies and Gentlemen:

     We have acted as counsel to Advanced  Aerodynamics and Structures,  Inc., a
corporation  organized and existing under the laws of the State of Delaware (the
"Borrower"),  in  connection  with  the  issuance  by  the  California  Economic
Development  Financing  Authority (the "Issuer") of its $8,500,000 Variable Rate
Demand Industrial  Development Revenue Bonds, Series 1997 (Advanced Aerodynamics
and Structures, Inc.) (the "Bonds").

     We have  examined  the  original,  certified  copies,  or copies  otherwise
identified to our satisfaction as being true copies of the following:

     1 . The Certificate of Incorporation  and By-Laws of Advanced  Aerodynamics
and Structures, Inc.;

     2. The Official Statement, dated August 4, 1997, relating to and describing
the Bonds;

     3. The  Indenture of Trust,  dated as of August 1, 1997 (the  "Indenture"),
between  the Issuer and First Trust of  California,  National  Association  (the
"Trustee");


                                       E-1

<PAGE>



     4. The Loan Agreement,  dated as of August 1, 1997 (the "Loan  Agreement"),
between the Issuer and the Borrower  relating to the Project  described  therein
(the "Project");

     5.  The  Reimbursement   Agreement,   dated  as  of  August  1,  1997  (the
"Reimbursement Agreement"),  between The Sumitomo Bank, Limited (the "Bank") and
the Borrower;

     6. The Direct Obligation Note, dated August 5, 1997 (the "Note"),  from the
Borrower to the Bank;

     7. The Custody,  Pledge and Security Agreement,  dated as of August 1, 1997
(the  "Pledge  Agreement"),  among the  Borrower,  the Bank and  First  Trust of
California, National Association, as custodian; and

     8.  The  Investment   Agreement  dated  August  5,  1997  (the  "Investment
Agreement"), between the Borrower and the Bank

and such other documents,  certificates,  and records as we have deemed relevant
and necessary as the basis for the opinions set forth herein (collectively,  the
"Documents").  The items referred to in numbers 4, 5, 6, 7 and 8 are referred to
as the "Borrower  Documents".  Relying on such examination and pertinent law and
subject to the limitations and  qualifications  hereinafter set forth, we are of
the opinion that:

     1. The Borrower is a corporation duly organized under the laws of the State
of  Delaware,  is duly  authorized  to  conduct  its  business  in the  State of
California,  has  power to enter  into the  Borrower  Documents,  and to use the
Project for the purpose set forth in the Loan Agreement and has duly  authorized
the  execution  and  delivery of the  Borrower  Documents  and has  reviewed and
approved the Indenture.

     2. The execution and delivery of the Borrower  Documents,  the consummation
of the transactions  contemplated  thereby and by the other Borrower  documents,
and the  fulfillment of the terms and  conditions  thereof do not, and will not,
conflict  with,  or result in a breach of, any of the terms or conditions of the
Borrower's  Certificate  of  Incorporation  or By-Laws,  any  restriction or any
agreement or  instrument  to which the Borrower is now a party or by which it is
bound or to which any property of the  Borrower is subject,  and do not and will
not constitute a default under any of the  foregoing,  or be in violation of any
order, decree,  statute, rule or regulation of any court or any state or federal
regulatory  body  having  jurisdiction  over  the  Borrower  or its  properties,
including  the  Project,  and do not,  and will not,  result in the  creation or
imposition of any lien,  charge,  or  encumbrance  of any nature upon any of the
property or assets of the Borrower  contrary to the terms of any  instrument  or
agreement to which the Borrower is a party or by which it is bound.


                                       E-2

<PAGE>


     3. The Borrower Documents have been duly authorized, executed and delivered
and are valid and legally  binding  obligations  of the Borrower  enforceable in
accordance with their terms.

     4. There are no actions,  suits or proceedings pending, or to the knowledge
of the Borrower, threatened against the Borrower or any property of the Borrower
in any court or before any  federal,  state,  municipal,  or other  governmental
agency,  which,  if decided  adversely  to the  Borrower,  would have a material
adverse  effect upon the  Borrower or upon the  business  or  properties  of the
Borrower,  and the  Borrower is not in default  with respect to any order of any
court or governmental agency.

     5 . There are presently no actions,  proceedings,  or litigation before any
court or governmental agency nor to the best of our knowledge,  after reasonable
investigation,  are any threatened or pending against or affecting the Borrower,
in which an unfavorable decision,  ruling, or finding would adversely affect the
validity or  enforceability  of the  Borrower  Documents,  or the  exclusion  of
interest on the Bonds from federal income taxation.

     6. We are unaware of any fact which materially  adversely  affects,  or may
materially  adversely  affect,  the  ability  of the  Borrower  to pay the  Bank
Reimbursement Obligations, as defined in the Reimbursement Agreement.

     7. No  further  approval,  authorization,  consent,  or other  order of any
public board or body (other than the  authorization of the Issuer and compliance
with any applicable  securities  laws) is legally  required for the transactions
contemplated by the Borrower Documents.

     8. The  financing  evidenced  and secured by the Borrower  Documents is not
usurious.

     9. Pursuant to the Reimbursement Agreement, the Borrower has granted to the
Bank a first lien perfected security interest in the Investment Agreement.

     Our opinion is subject to principles of equity  affecting  enforcement  and
remedies,  bankruptcy,  insolvency,   reorganization,   moratorium  and  similar
statutes  affecting  the  rights  of  creditors  and  secured  parties,  and the
availability of the remedy of specific performance or injunctive relief or other
equitable  relief  subject  to the  discretion  of the  court  before  which any
proceeding may be brought.

                                           Very truly yours,



                                       E-3