LOAN AGREEMENT



                                 By and Between



               CALIFORNIA ECONOMIC DEVELOPMENT FINANCING AUTHORITY



                                       and



                   ADVANCED AERODYNAMICS AND STRUCTURES, INC.



                           Dated as of August 1, 1997







     All  right,  title and  interest  of the  CALIFORNIA  ECONOMIC  DEVELOPMENT
FINANCING  AUTHORITY (the  "Authority") in this Loan Agreement has been assigned
(except for amounts payable under Sections 4.2(b),  7.3, 9.2 and 9.3 hereof, its
right to receive notices,  opinions and other documents required to be delivered
to the  Authority  hereunder  and its rights to consent to certain  actions)  to
First Trust of  California,  National  Association,  as trustee (the  "Trustee")
pursuant  to the  Indenture  of Trust,  dated as of August 1, 1997,  between the
Authority and the Trustee, and is subject to such assignment.

<PAGE>

                                TABLE OF CONTENTS

PARTIES.................................................................  1
PREAMBLES...............................................................  1


                                    ARTICLE I

                                   DEFINITIONS

Section 1.1.         Definition of Terms...................................2
Section 1.2.         Number and Gender.....................................2
Section 1.3.         Articles, Sections, Etc...............................2


                                   ARTICLE II

                                 REPRESENTATIONS

Section 2.1.         Representations of the Authority......................2
Section 2.2.         Representations of the Borrower.......................3
Section 2.3.         Bondholders to Benefit................................5


                                   ARTICLE III

                          CONSTRUCTION OF THE PROJECT;
                              ISSUANCE OF THE BONDS

Section 3.1.         Construction of the Project...........................5
Section 3.2.         Disbursements from the Project Fund and Costs of
                         Issuance Fund.....................................6
Section 3.3.         Establishment of Completion Date; Obligation of
                         Borrower to Complete..............................6
Section 3.4.         Investment of Moneys in Funds.........................7

                                   ARTICLE IV

                     LOAN OF PROCEEDS; REPAYMENT PROVISIONS

Section 4.1.         Loan of Bond Proceeds; Issuance of Bonds..............7
Section 4.2.         Loan Repayments and Other Amounts Payable.............7
Section 4.3.         Purchase of Bonds.....................................9
Section 4.4.         Unconditional Obligations.............................9
Section 4.5.         Assignment of Authority's Rights......................10
Section 4.6.         Amounts Remaining in Funds............................10


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<PAGE>


                                    ARTICLE V

                        SPECIAL COVENANTS AND AGREEMENTS

Section 5.1.         Right of Access to the Project.......................10
Section 5.2.         The Borrower's Maintenance of its Existence..........10
Section 5.3.         Records and Financial Statements of Borrower;
                         Employment Practices.............................11
Section 5.4.         Insurance............................................12
Section 5.5.         Maintenance and Repair; Taxes; Utility and Other
                          Charges.........................................12
Section 5.6.         Qualification in California..........................12
Section 5.7.         Alternate Credit Facility............................12
Section 5.8.         Letter of Credit.....................................13
Section 5.9.         Covenants of the Authority and the Borrower..........14
Section 5.10.        Capital Expenditures.................................16
Section 5.11.        Special Arbitrage Certifications.....................18
Section 5.12.        Covenant to Enter into Agreement or Contract to
                         Provide Ongoing Disclosure.......................19



                                   ARTICLE VI

                      DAMAGE, DESTRUCTION AND CONDEMNATION;
                                 USE OF PROCEEDS

Section 6.1.         Obligation to Continue Payments......................19
Section 6.2.         Application of Net Proceeds..........................19
Section 6.3.         Insufficiency of Net Proceeds........................20
Section 6.4.         Damage to or Condemnation of Other Property..........20


                                   ARTICLE VII

                        LOAN DEFAULT EVENTS AND REMEDIES

Section 7.1.         Loan Default Events..................................20
Section 7.2.         Remedies on Default..................................21
Section 7.3.         Agreement to pay Attorneys' Fees and Expenses........23
Section 7.4.         No Remedy Exclusive..................................23
Section 7.5.         Waivers..............................................23

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                                  ARTICLE VIII

                                   PREPAYMENT

Section 8.1.         Redemption of Bonds with Prepayment Moneys...........23
Section 8.2.         Options to Prepay Loan...............................24
Section 8.3.         Mandatory Prepayment.................................24
Section 8.4.         Amount of Prepayment.................................25
Section 8.5.         Notice of Prepayment.................................26


                                   ARTICLE IX

              NON-LIABILITY OF AUTHORITY; EXPENSES; INDEMNIFICATION

Section 9.1.         Non-Liability of Authority...........................26
Section 9.2.         Expenses.............................................26
Section 9.3.         Indemnification......................................27


                                    ARTICLE X

                                  MISCELLANEOUS

Section 10.1.        Notices..............................................27
Section 10.2.        Severability.........................................28
Section 10.3.        Execution of Counterparts............................29
Section 10.4.        Amendments, Changes and Modifications................29
Section 10.5.        Governing Law........................................29
Section 10.6.        Authorized Representative of the Borrower............29
Section 10.7.        Term of the Agreement................................29
Section 10.8.        Binding Effect.......................................29
Section 10.9.        References to Bank...................................29
Section 10.10.       Brokerage Confirmations..............................30

Exhibit A - The Project                                                  A-1




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<PAGE>

                                 LOAN AGREEMENT

     THIS LOAN  AGREEMENT,  dated as of August 1, 1997,  between the  CALIFORNIA
ECONOMIC  DEVELOPMENT  FINANCING AUTHORITY,  a body public and corporate,  and a
public  instrumentality  of the  State  of  California  (the  "Authority"),  and
ADVANCED  AERODYNAMICS  AND STRUCTURES,  INC., a corporation  duly organized and
validly existing under the laws of the State of California (the "Borrower").

                              W I T N E S S E T H:

     WHEREAS,  the  Authority was  established  for the purpose of promoting and
encouraging commerce and industry,  and generally to foster economic development
in the State of California  (the "State") and is authorized to issue  tax-exempt
revenue bonds to provide  financing for private  activity  economic  development
projects  pursuant to the  provisions of Section 15710 et seq. of the California
Government  Code  (constituting  Part  10.2  of  Division  3 of  Title  2 of the
Government Code of the State of California,  as now in effect and as it may from
time to time hereafter be amended or supplemented) (the "Act"); and

     WHEREAS,  in  furtherance of the purposes of the Authority set forth above,
the Authority proposes to finance the acquisition, construction, rehabilitation,
equipping,   installation,   improvement,   and  furnishing  of  the  industrial
facilities  described  in  Exhibit  A hereto  (the  "Project")  to be owned  and
operated by the Borrower; and

     WHEREAS,  pursuant to and in accordance with the provisions of the Act, the
Authority has authorized and undertaken the issuance of its California  Economic
Development  Financing  Authority  Variable Rate Demand  Industrial  Development
Revenue Bonds, Series 1997 (Advanced Aerodynamics and Structures,  Inc. Project)
(the  "Bonds") in the aggregate  principal  amount of Eight Million Five Hundred
Thousand  Dollars  ($8,500,000) to provide funds to pay a portion of the cost of
the Project and a portion of the costs of issuance of the Bonds; and

     WHEREAS,  the  Authority  proposes to loan the proceeds of the Bonds to the
Borrower,  and the Borrower desires to borrow the proceeds of the Bonds upon the
terms and conditions set forth herein; and

     WHEREAS,  for and in consideration of such loan, the Borrower agrees, inter
alia, to make loan payments  sufficient to pay on the dates specified in Section
4.2 hereof, the principal of, premium, if any, and interest on, the Bonds; and

     WHEREAS,  the  Authority  and the  Borrower  each has duly  authorized  the
execution and delivery of this Agreement;

     NOW,  THEREFORE,  for and in consideration of the premises and the material
covenants  hereinafter  contained,  the parties hereto hereby formally covenant,
agree and bind themselves as follows:
<PAGE>


                                    ARTICLE I

                                   DEFINITIONS

     Section 1.1.  Definition of Terms.  Unless otherwise  defined herein or the
context  otherwise  requires,  the terms used in this  Agreement  shall have the
meanings specified in Section 1.01 of the Indenture of Trust, dated as of August
1, 1997 (the  "Indenture"),  by and  between  the  Authority  and First Trust of
California,  National  Association,  as trustee (the  "Trustee"),  as originally
executed or as it may from time to time be  supplemented  or amended as provided
therein.

     Section 1.2. Number and Gender.  The singular form of any word used herein,
including the terms defined in Section 1.01 of the Indenture,  shall include the
plural, and vice versa. The use herein of a word of any gender shall include all
genders.

     Section  1.3.  Articles,   Sections,   Etc.  Unless  otherwise   specified,
references to Articles, Sections and other subdivisions in this Agreement are to
the designated  Articles,  Sections and other  subdivisions of this Agreement as
amended from time to time. The words "hereof,"  "herein,"  "hereunder" and words
of similar import refer to this Agreement as a whole.  The headings or titles of
the several  Articles and Sections,  and the table of contents  included herein,
shall be solely for  convenience  of reference and shall not affect the meaning,
construction or effect of the provisions hereof.


                                   ARTICLE II

                                 REPRESENTATIONS

     Section 2.1.  Representations  of the  Authority.  The Authority  makes the
following representations as the basis for its undertakings herein contained:

     (a)  The  Authority  is  a  body  public  and   corporate,   and  a  public
instrumentality of the State. Under the provisions of the Act, the Authority has
the power to enter into the transactions  contemplated by this Agreement and the
Indenture and to carry out its  obligations  hereunder.  By proper  action,  the
Authority  has been duly  authorized  to execute,  deliver and duly  perform its
obligations under this Agreement and the Indenture.

     (b) To finance the Costs of the Project and certain Costs of Issuance,  the
Authority will issue the Bonds, which will mature,  bear interest and be subject
to redemption as set forth in the Indenture.

     (c) The Bonds will be issued under and secured by the  Indenture,  pursuant
to which the  Authority's  interest in this Agreement  (except certain rights of
the Authority to payment for expenses and  indemnification)  will be pledged and
assigned to the Trustee as security for payment of the principal of, premium, if
any, and interest on the Bonds

                                        2

<PAGE>



and to the Bank, on a basis subordinate  thereto, as security for the payment of
the obligations of the Borrower under the Reimbursement Agreement.

     (d) The  Authority has not pledged and will not pledge its interest in this
Agreement for any purpose other than to secure the Bonds under the Indenture and
the obligations of the Borrower under the Reimbursement Agreement.

     (e) The Authority is not in default under any of the provisions of the laws
of the State which default would affect its existence or its powers  referred to
in subsection (a) of this Section 2.1.

     (f) The Authority has found and  determined and hereby finds and determines
that (i) the Loan to be made  hereunder  with the  proceeds  of the  Bonds  will
promote the purposes of the Act by providing  funds to finance the  Construction
of the  Project;  (ii) said Loan is in the  public  interest,  serves the public
purposes  and meets the  requirements  of the Act; and (iii) the portion of such
Loan  allocable  to the Costs of the  Project  does not  exceed  the total  cost
thereof as determined by the Borrower and approved by the Authority.

     (g) No member, officer or other official of the Authority has any financial
interest whatsoever in the Borrower or in the transactions  contemplated by this
Agreement and the Indenture.

     (h) Neither the execution and delivery of this  Agreement,  the  Indenture,
the Purchase Contract or the Tax Regulatory  Agreement,  the consummation of the
transactions   contemplated  hereby  or  thereby,  nor  the  fulfillment  of  or
compliance with the terms and conditions of this Agreement,  the Indenture,  the
Purchase Contract or the Tax Regulatory Agreement,  conflict with or result in a
breach of any of the terms,  conditions or provisions of any  restriction or any
agreement or  instrument to which the Authority is now a party or by which it is
bound or  constitute  a  default  under  any of the  foregoing  or result in the
creation or imposition of any  prohibited  lien,  charge or  encumbrance  of any
nature  whatsoever upon any of the property or assets of the Authority under the
terms of any instrument or agreement.

     Section  2.2.  Representations  of the  Borrower.  The  Borrower  makes the
following representations as the basis for its undertakings herein contained:

     (a)  The  Borrower  is a  Delaware  corporation,  duly  organized,  validly
existing and in good standing  under the laws of the State of Delaware and is in
good standing and duly  qualified to transact  business in the State,  is not in
violation of any provision of any of the Borrower's Organization Documents,  has
full power and authority to enter into this  Agreement,  and has duly authorized
the execution and delivery of this Agreement by proper action.

     (b)  The  execution,  delivery  and  performance  by the  Borrower  of this
Agreement,  the  Reimbursement  Agreement,  the Remarketing  Agreement,  the Tax


                                       3
<PAGE>

Regulatory Agreement and all other documents  contemplated hereby to be executed
by the Borrower are within the Borrower's power and have been duly authorized by
all necessary action,  and neither the execution and delivery of this Agreement,
the  Reimbursement  Agreement,  the Remarketing  Agreement or the Tax Regulatory
Agreement  or the  consummation  of the  transactions  contemplated  hereby  and
thereby,  nor the  fulfillment  of or compliance  with the terms and  conditions
hereof and thereof,  conflicts  with or results in a breach of any of the terms,
conditions or provisions of any of the Borrower's  Organization Documents, or of
any law, statute,  rule,  regulation,  order, judgment,  award,  injunction,  or
decree or of any agreement or instrument to which the Borrower is now a party or
by which it is bound or affected,  or constitutes a default (or would constitute
a default  with due  notice  or the  passage  of time or both)  under any of the
foregoing,  or  results  in or  requires  the  creation  or  imposition  of  any
prohibited  lien,  charge or encumbrance  whatsoever upon any of the property or
assets of the Borrower  under the terms of any  instrument or agreement to which
the Borrower is now a party or by which it is bound.

     (c)  The  estimated  Costs  of the  Project  are as set  forth  in the  Tax
Regulatory   Agreement  and  have  been  determined  in  accordance  with  sound
engineering,  construction,  and accounting principles.  All the information and
representations  in the Tax Regulatory  Agreement are true and correct as of the
date thereof.

     (d) The Project consists and will consist of those facilities  described in
Exhibit A and the  Borrower  shall not make any changes to the Project or to the
operation  thereof which would affect the qualification of the Project under the
Act or would cause  interest  on the Bonds not to be  Tax-exempt.  The  Borrower
intends to own and operate the  Project.  The Borrower  covenants  and agrees to
operate or cause the operation of the Project as a facility described by the Act
until the principal of, the premium, if any, and the interest on the Bonds shall
have been paid.

     (e) The  Borrower  has and will  have  title to the  Project  (including  a
leasehold  interest in the land on which the Project is located)  sufficient  to
carry out the purposes of this Agreement.

     (f) At the  time of  submission  of an  application  to the  Authority  for
financial  assistance in  connection  with the Project and on the dates on which
action was taken on such  application,  permanent  financing for the Project had
not otherwise been obtained or arranged.

     (g) To the best  knowledge  of the  Borrower,  no member,  officer or other
official of the Authority has any financial interest  whatsoever in the Borrower
or in the transactions contemplated by this Agreement.

     (h) All certificates, approvals, permits and authorizations with respect to
the  Construction  of  the  Project  of the  State,  the  City  of  Long  Beach,
California,  the federal  government  and other  applicable  local  governmental
agencies have been obtained, or if not yet obtained,  are reasonably expected to
be obtained in due course.  The Project  will be  consistent  with any  existing
local or regional comprehensive plan.


                                        4

<PAGE>




                  (i) No event has occurred and no condition  exists which would
         constitute a Loan Default  Event or which,  with the passing of time or
         with the  giving of notice or both,  would  constitute  a Loan  Default
         Event.

                  (j) There is no litigation  or  proceeding  pending or, to the
         knowledge of the Borrower, threatened, against the Borrower which could
         adversely  affect the  validity of this  Agreement,  the  Reimbursement
         Agreement, the Remarketing Agreement or the Tax Regulatory Agreement or
         the ability of the Borrower to comply with the terms of its obligations
         under this  Agreement,  the  Reimbursement  Agreement,  the Remarketing
         Agreement or the Tax Regulatory Agreement.

                  (k)  No  consent,   authorization  or  approval,  except  such
         consents authorizations or approvals as have been obtained prior to the
         execution and delivery of this Agreement, from any governmental, public
         or quasi-public  body or authority of the United States or of the State
         or any department or  subdivision of any thereof,  is necessary for the
         due execution and delivery by the Borrower of this Agreement.

     Section  2.3.  Bondholders  to  Benefit.  The  Borrower  agrees  that  this
Agreement  is  executed  in part to induce the  purchase by others of the Bonds.
Accordingly,  all covenants and agreements on the part of the Borrower set forth
in this Agreement are hereby  declared to be for the benefit of the  Bondholders
from time to time of such Bonds;  provided,  however,  that such  covenants  and
agreements  shall create no rights in any parties other than the Authority,  the
Borrower,  the Remarketing  Agent,  the Bank, the Trustee,  the Tender Agent and
such Bondholders.


                                   ARTICLE III

                          CONSTRUCTION OF THE PROJECT;
                              ISSUANCE OF THE BONDS

     Section  3.1.  Construction  of the  Project.  The  Borrower  agrees  that,
utilizing  the proceeds of the Bonds  loaned  pursuant to Section 4.1 hereof and
such other funds as may be necessary,  it has or will Construct,  or has or will
cause the Construction of, the Project,  and has or will acquire,  rehabilitate,
equip, construct and install all other facilities and real and personal property
necessary  for the  operation  of the  Project as  described  in the  Borrower's
application   to  the  Authority  for   assistance  in  financing  the  Project,
substantially in accordance with the plans and specifications  prepared therefor
by the Borrower,  including any and all  supplements,  amendments,  additions or
deletions  thereto or therefrom,  it being  understood  that the approval of the
Authority  shall not be required  for  changes in such plans and  specifications
which do not alter the  purpose or  description  of the  Project as set forth in
Exhibit A hereto.  The Borrower  further agrees to proceed with due diligence to
complete the Project within three years from the date hereof.

     In the event that the  Borrower  desires to modify the  Project in a manner
which alters the purpose or description of the Project as set forth in Exhibit A
hereto, such


                                        5

<PAGE>



modification shall be undertaken only upon an amendment to Exhibit A which shall
accurately set forth the  description  and purpose of the Project as so modified
and which  amendment  to Exhibit A shall  become  effective  upon receipt by the
Authority and the Trustee of:

                           (i) a certificate of the Authorized Representative of
         the Borrower describing in detail the proposed changes and stating that
         they  will  not have the  effect  of  disqualifying  the  Project  as a
         facility  that  may be  financed  pursuant  to the Act nor  reduce  the
         employment  benefits  described in the  Borrower's  application  to the
         Authority for assistance in financing the Project;

                           (ii) an opinion  of Bond  Counsel  that the  proposed
         changes to the Project  will not have the effect of  disqualifying  the
         Project as a facility that may be financed pursuant to the Act or cause
         interest on the Bonds to not be Tax-exempt;

                           (iii)  a copy of the  proposed  form  of  amended  or
         supplemented Exhibit A hereto; and

                           (iv)  the  written  approval  of  the  Bank  and  the
Trustee.

     Section  3.2.  Disbursements  from the  Project  Fund and Costs of Issuance
Fund. The Borrower will authorize and direct the Trustee,  upon  compliance with
Section 3.03 of the Indenture,  to disburse the moneys in the Project Fund to or
on behalf of the Borrower only for payment of Costs of the Project.  Each of the
payments  from the Project Fund  referred to in this Section  shall be made upon
receipt  by the  Trustee  of a written  Requisition  in the form  prescribed  by
Section 3.03 of the Indenture,  signed by the Authorized  Representative  of the
Borrower accompanied by the written approval of the Bank.

     Moneys in the Costs of Issuance  Fund shall be  disbursed by the Trustee as
provided in Section 3.03(E) of the Indenture to pay Costs of Issuance.

     Section 3.3.  Establishment of Completion  Date;  Obligation of Borrower to
Complete. As soon as the Construction of the Project is completed, an Authorized
Representative  of the Borrower,  on behalf of the Borrower,  shall evidence the
completion  date by providing a certificate  to the Trustee,  with a copy to the
Authority,  stating  the  Costs of the  Project  and  further  stating  that (i)
Construction of the Project has been completed  substantially in accordance with
the plans and specifications  therefor, and all labor,  services,  materials and
supplies used in Construction  have been paid for or stating the amount required
to be retained in the Project Fund to fully  provide for any  disputed  amounts,
and (ii) all other  equipment  and  facilities  for the operation of the Project
have been acquired,  constructed  and installed in accordance with the plans and
specifications  therefor  and all  costs and  expenses  incurred  in  connection
therewith have been paid or provided for.  Notwithstanding  the foregoing,  such
certificate  may state that it is given  without  prejudice to any rights of the
Borrower against third parties.

     At the time such certificate is delivered to the Trustee,  moneys remaining
in the  Project  Fund,  less  an  amount  representing  a  reasonable  retainage
determined by the Borrower,

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<PAGE>



including any earnings  resulting from the  investment of such moneys,  shall be
used as provided in Section 3.03(D) of the Indenture.

     In the event the moneys in the Project  Fund  available  for payment of the
Costs of the Project should be  insufficient  to pay the Costs of the Project in
full,  the Borrower  agrees to pay  directly,  or to deposit in the Project Fund
moneys  sufficient  to pay,  any costs of  completing  the  Construction  of the
Project in excess of the moneys  available for such purpose in the Project Fund,
or  otherwise  cause  the  Construction  of the  Project  to be  completed.  The
Authority makes no express or implied  warranty that the moneys deposited in the
Project  Fund and  available  for payment of the Costs of the Project  under the
provisions of this Agreement will be sufficient to pay all the amounts which may
be incurred in connection  with the  Construction  of the Project.  The Borrower
agrees that if, after exhaustion of the moneys in the Project Fund, the Borrower
should  pay,  or deposit  moneys in the  Project  Fund for the  payment  of, any
portion of the Costs of the Project  pursuant to the provisions of this Section,
it shall not be entitled to any reimbursement  therefor from the Authority,  the
Trustee  or the  Holders of any of the Bonds,  nor shall it be  entitled  to any
diminution of the amounts payable under Section 4.2.

     Section 3.4.  Investment of Moneys in Funds. Any moneys in any fund held by
the Trustee shall, at the written request of an Authorized Representative of the
Borrower,  but  subject to the  restrictions  on  investments  contained  in the
Indenture,  the Tax Regulatory  Agreement and applicable law in connection  with
the Tax-exempt status of interest on the Bonds, be invested or reinvested by the
Trustee as  provided in the  Indenture.  Such  investments  shall be held by the
Trustee  and shall be deemed  at all  times a part of the fund from  which  such
investments were made, and the interest accruing thereon, and any profit or loss
realized therefrom,  shall be credited or charged as provided in Section 5.05 of
the Indenture.


                                   ARTICLE IV

                     LOAN OF PROCEEDS; REPAYMENT PROVISIONS

     Section  4.1.  Loan of Bond  Proceeds;  Issuance  of Bonds.  The  Authority
covenants and agrees,  upon the terms and conditions in this Agreement,  to loan
the  proceeds  of the  sale of the  Bonds to the  Borrower  for the  purpose  of
financing  the Costs of the  Project  and the Costs of  Issuance  to the  extent
permitted  by the  Indenture.  Pursuant  to said  covenant  and  agreement,  the
Authority will issue the Bonds upon the terms and  conditions  contained in this
Agreement  and the  Indenture  and will cause the Bond proceeds to be applied as
provided in Article III of the Indenture.  Except as provided in Section 3.02 of
the Indenture,  such proceeds shall be disbursed to or on behalf of the Borrower
as provided in Section 3.2 hereof.  The Borrower  hereby approves the Indenture,
the assignment thereunder to the Trustee of the right, title and interest of the
Authority  (with  certain  exceptions)  in  this  Agreement,  and  the  issuance
thereunder by the Authority of the Bonds.

     Section 4.2. Loan  Repayments and Other Amounts  Payable.  (a) On or before
each Bond Payment Date, until the principal of, premium, if any, and interest on
the Bonds shall have been fully paid or provision  for such  payment  shall have
been made as provided in


                                        7

<PAGE>



the Indenture, the Borrower covenants and agrees to pay to the Trustee as a Loan
Repayment  on the Loan made to the  Borrower  from  Bond  proceeds  pursuant  to
Section  4.1, a sum equal to the amount  payable  on such Bond  Payment  Date as
principal of, and premium,  if any, and interest on the Bonds as provided in the
Indenture.

     The Loan Repayments made pursuant to this subsection (a) shall at all times
be  sufficient  to pay the total  amount of interest and  principal  (whether at
maturity or upon redemption or acceleration)  and premium,  if any, becoming due
and payable on the Bonds on each Bond  Payment  Date;  provided  that any amount
held by the  Trustee in the  Revenue  Fund on the due date for a Loan  Repayment
pursuant to the immediately  preceding  paragraph shall be credited  against the
Loan  Repayment due on such date to the extent  available for such purpose under
the terms of the Indenture; and provided further that, subject to the provisions
of this paragraph, if at any time the amounts held by the Trustee in the Revenue
Fund are sufficient to pay all of the principal of and interest and premium,  if
any, on the Bonds as such payments become due, the Borrower shall be relieved of
any obligation to make any further Loan Repayments  under the provisions of this
Section.  Notwithstanding  the foregoing,  if on any date the amount held by the
Trustee in the Revenue Fund is  insufficient  to make any  required  payments of
principal  of  (whether  at maturity or upon  redemption  or  acceleration)  and
interest  and  premium,  if any, on the Bonds as such  payments  become due, the
Borrower,  immediately  upon  receipt  of  notice  of such  deficiency  from the
Trustee, shall forthwith pay such deficiency as a Loan Repayment hereunder.

     The  obligation of the Borrower to make any payment  under this  subsection
(a) shall be deemed to have been  satisfied  to the extent of any  corresponding
payment  made by the Bank to the  Trustee  as a result  of a  drawing  under the
Letter of Credit.  To the extent the Trustee  receives a Loan Repayment from the
Borrower pursuant to this subsection (a) after any payment obligation  hereunder
has been  satisfied by a drawing  under the Letter of Credit,  the Trustee shall
use such Loan Repayment to reimburse the Bank for such drawing.

     (b) The  Borrower  covenants  and  agrees to pay until  the  principal  of,
premium,  if any,  and  interest  on the Bonds  shall  have been  fully  paid or
provision  for such payment  shall have been made as provided in the  Indenture,
(i) the Trustee's  reasonable  annual fee for its ordinary  services rendered as
trustee,  and its reasonable ordinary expenses incurred under the Indenture,  as
and when the same become due, (ii) the Trustee's  reasonable  fees,  charges and
expenses,  as Bond Registrar,  Tender Agent and Paying Agent, and the reasonable
fees of any other  paying agent for the Bonds as provided in the  Indenture,  as
and when the same become due,  (iii) the cost of providing any Bonds required to
be provided  pursuant to the Indenture,  (iv) the reasonable  fees of any rating
agency then rating the Bonds  required to maintain the rating on the Bonds,  (v)
the  reasonable  fees of the  Remarketing  Agent,  and (vi) other  necessary and
ordinary  administrative  fees  and  expenses  of the  Authority.  The  Borrower
covenants  and agrees to make all payments for the  expenses  identified  in (i)
through (vi) above. In addition,  the Borrower agrees to pay such  extraordinary
expenses  incurred by the Trustee,  the Tender Agent, the Remarketing  Agent and
the Authority under the Indenture as and when the same become due. The duties of
the Borrower  under this  subsection  (b) shall survive the  termination of this
Agreement and the termination and discharge of the Indenture.



                                        8

<PAGE>



     (c) The  Borrower  also agrees to pay the fees of the Bank  pursuant to the
Reimbursement Agreement.

     (d) In the  event  the  Borrower  should  fail to make any of the  payments
required by subsections (a)-(c) of this Section, such payments shall continue as
obligations  of the  Borrower  until such  amounts  shall have been fully  paid.
Except  as  provided  in the next  sentence,  the  Borrower  agrees  to pay such
amounts,  together with interest  thereon,  from the date such payments were due
until paid, to the extent permitted by law, at the rate of ten percent (10%) per
annum.  With respect to amounts due the Bank,  the  Borrower  agrees to pay such
amounts  together  with  interest  thereon  at the rates  and times  established
pursuant to the Reimbursement  Agreement.  Interest on overdue payments required
under  subsection  (a) above shall be paid to Bondholders as provided in Section
2.02(B)(2) of the Indenture.

     Section 4.3.  Purchase of Bonds. The Borrower hereby  recognizes and agrees
that the  Indenture  provides  for the  creation  of an account or  accounts  to
facilitate  the  purchase of Bonds by the Tender Agent on the  Mandatory  Tender
Date and upon the optional  tender of Bonds in  accordance  with Section 4.06 of
the  Indenture,  and the Borrower  agrees to provide or cause to be provided the
Letter of Credit for the payment of amounts necessary to purchase such Bonds.

     Section 4.4. Unconditional Obligations.  The obligations of the Borrower to
make the  payments  required by Section 4.2 hereof and to provide or cause to be
provided the Letter of Credit pursuant to Section 4.3 hereof, and to perform and
observe the other agreements on its part contained herein, shall be absolute and
unconditional,  irrespective of any defense or any rights of set-off, recoupment
or counterclaim  it might  otherwise have against the Authority,  and during the
term of this  Agreement,  the Borrower  shall pay  absolutely all payments to be
made on account of the Loan made to the Borrower from Bond proceeds  pursuant to
Section 4.1 hereof,  as  prescribed  in Section 4.2 hereof,  the  obligation  to
provide or cause to be  provided  the Letter of Credit  pursuant  to Section 4.3
hereof,  and all other payments required  hereunder,  free of any deductions and
without abatement,  diminution or set-off.  Until such time as the principal of,
premium,  if any,  and  interest  on the Bonds  shall have been fully  paid,  or
provision  for the  payment  thereof  shall  have been made as  required  by the
Indenture,  the  Borrower  (i) will not  suspend  or  discontinue  any  payments
required  to be made by the  Borrower  pursuant  to this  Agreement,  including,
without limitation,  the payments provided for in Section 4.2 and the obligation
to provide or cause to be provided the Letter of Credit pursuant to Section 4.3;
(ii) will  perform  and  observe all of its other  covenants  contained  in this
Agreement;  and (iii)  except as  provided  in  Article  VIII  hereof,  will not
terminate this Agreement for any cause, including,  without limitation,  failure
to complete the Project,  the  occurrence of any act or  circumstances  that may
constitute  failure of  consideration,  destruction of or damage to the Project,
commercial  frustration  of purpose,  any change in the tax or other laws of the
United States of America or of the State, or any political subdivision of either
of these,  or any failure of the Authority or the Trustee to perform and observe
any covenant,  whether express or implied, or any duty,  liability or obligation
arising out of or connected with this Agreement or the Indenture.



                                        9

<PAGE>



     Section 4.5.  Assignment of Authority's Rights. As security for the payment
of the Bonds,  the Authority will assign to the Trustee the Authority's  rights,
title and interest under this Agreement, including the right to receive payments
hereunder  (except the right of the Authority to receive  certain  payments,  if
any, with respect to expenses and  indemnification  under Sections 4.2(b),  7.3,
9.2 and 9.3 hereof, the Authority's right to receive notices, opinions and other
documents  required  to  be  delivered  to  the  Authority   hereunder  and  the
Authority's  rights to consent  to certain  actions  taken  hereunder),  and the
Authority  hereby directs the Borrower to make the payments  required  hereunder
(except such payments for expenses and indemnification)  directly to the Trustee
as more fully set forth in this  Agreement.  The Borrower hereby assents to such
assignment, agrees to make such payments directly to the Trustee and agrees that
the  provisions  of  Section  4.4  shall  apply to its  obligation  to make such
payments.

     Section 4.6. Amounts Remaining in Funds. It is agreed by the parties hereto
that after:  (i) payment in full of the principal  of, and premium,  if any, and
interest on, the Bonds, or after provision for such payment shall have been made
as  provided  in  the  Indenture,   (ii)  payment,   or  provision  for  payment
satisfactory to the Trustee and paying agents, of the fees, charges and expenses
of the  Trustee  and  paying  agents in  accordance  with the  Indenture,  (iii)
payment,  or provision for payment  satisfactory to the affected parties, of all
other amounts  required to be paid under this Agreement and the Indenture by the
Borrower  and (iv)  payment to the Bank of any  amounts  owed to the Bank by the
Borrower under the  Reimbursement  Agreement,  any amounts remaining in any fund
held by the Trustee  under the Indenture  shall be paid in  accordance  with the
requirements of Section 10.04 of the Indenture.


                                    ARTICLE V

                        SPECIAL COVENANTS AND AGREEMENTS

     Section  5.1.  Right of Access to the  Project.  The  Borrower  agrees that
during the term of this  Agreement,  the  Authority,  the  Trustee  and the duly
authorized  agents of either of them  shall  have the  right,  after  reasonable
notice to the Borrower,  at all reasonable times during normal business hours to
enter upon the site of the  Project to examine  and  inspect  the  Project.  The
rights of access hereby reserved to the Trustee,  and their  respective  agents,
may be exercised  only after the Person  seeking such access shall have executed
such  confidentiality or secrecy agreements,  if any, as may be requested by the
Borrower and which are in the form required of all visitors to the Project site.
Nothing  contained in this Section or in any other  provision of this  Agreement
shall be construed to entitle the Authority or the Trustee to any information or
inspection  involving the confidential  knowledge,  expertise or know-how of the
Borrower.

     Section 5.2. The  Borrower's  Maintenance  of its  Existence.  The Borrower
covenants  and agrees that it will maintain its existence and will not dissolve,
sell,  or  otherwise  dispose of all or  substantially  all of its  assets,  nor
consolidate  with or merge  into  another  entity  or permit  one or more  other
entities to consolidate  with or merge into it.  Notwithstanding  the foregoing,
the Borrower may,  without  violating  the covenants  contained in this Section,
consolidate  with or merge  into  another  entity,  or permit  one or more other
entities to consolidate


                                       10

<PAGE>



with or merge into it, or sell or  otherwise  transfer to another  entity all or
substantially all of its assets as an entirety and thereafter dissolve, if:

     (a) The surviving, resulting or transferee entity, as the case may be:

                           (i)  assumes in  writing,  if such  entity is not the
                  Borrower,  all of the  obligations  of the Borrower under this
                  Agreement;

                           (ii) is not,  after such  transaction,  otherwise  in
                  default under any provisions of this Agreement;

     (b) The Trustee and the  Authority  shall have  received an opinion of Bond
Counsel to the effect that such merger,  consolidation,  sale or other  transfer
will not cause interest on the Bonds not to be Tax-exempt; and

     (c) The  written  consent  of the Bank has been  received  by the  Trustee,
together with an acknowledgment that the Letter of Credit will remain in effect.

     If a merger, consolidation, sale or other transfer is effected, as provided
in this Section, the provisions of this Section shall continue in full force and
effect and no further merger, consolidation,  sale or transfer shall be effected
except in accordance with the provisions of this Section.

     Section 5.3.  Records and  Financial  Statements  of  Borrower;  Employment
Practices.

     (a) The Borrower  covenants and agrees at all times to keep, or cause to be
kept, proper books of record and account,  prepared in accordance with generally
accepted accounting principles,  in which complete and accurate entries shall be
made of all  transactions  of or in relation  to the  business,  properties  and
operations of the Borrower.  Such books of record and account shall be available
for inspection by the Authority or the Trustee,  and the duly authorized  agents
of either of them, at reasonable hours and under reasonable circumstances.

     (b) Upon  the  receipt  of the  written  request  of the  Authority  or the
Trustee,  the Borrower  further  covenants and agrees to furnish the  requesting
party,  within one hundred  twenty (120) days after the end of each Fiscal Year,
with copies of its complete financial  statements together with a Certificate of
an  Authorized  Representative  of the  Borrower  stating  that no  event  which
constitutes  a Loan  Default  Event or which  with the  giving  of notice or the
passage of time or both would  constitute a Loan Default  Event has occurred and
is continuing  as of the end of such Fiscal Year,  or  specifying  the nature of
such event and the actions  taken and  proposed  to be taken by the  Borrower to
cure such default.

     (c) The Borrower shall,  within sixty (60) days of the receipt of a written
request  from the  Authority  or the  Trustee,  furnish a written  report to the
requesting party, as of


                                                        11

<PAGE>



the end of the Borrower's prior Fiscal Year,  stating the status of the Project,
the  outstanding  and unpaid  balance of the Bonds,  the number of full-time and
part-time  employees of the Borrower  employed at the Project  during such prior
Fiscal Year,  and supplying  such current  information  as the  Authority  shall
reasonably request regarding other matters covered in the Borrower's application
for industrial revenue bond financing.

     Section 5.4. Insurance.  The Borrower agrees to insure the Project or cause
the Project to be insured during the term of this Agreement for such amounts and
for such occurrences as are customary for similar  facilities  within the State,
or as may be required  by the Bank,  by means of  policies  issued by  reputable
insurance  companies  qualified  to do business  in the State.  Upon the written
request of the  Authority or the  Trustee,  the  Borrower  shall  deliver to the
requesting  party,  within  sixty  (60)  days of the  receipt  of such  request,
memorandum  copies of the insurance  policies or certificates of insurance which
memorandum  copies of insurance  policies or  certificates  of  insurance  shall
evidence that all insurance  required to be in effect under this Section is then
currently  in full force and  effect.  The  Trustee  and the  Authority  are not
responsible  for the adequacy or sufficiency  of the coverage  evidenced by such
policies or certificates.

     Section 5.5. Maintenance and Repair;  Taxes; Utility and Other Charges. The
Borrower agrees to maintain the Project,  or cause the Project to be maintained,
during  the  term of this  Agreement  (i) in a safe  condition  and (ii) in good
repair and in good operating condition,  ordinary wear and tear excepted, making
from time to time all necessary  repairs  thereto and renewals and  replacements
thereof.

     The  Borrower  agrees  to pay or cause to be paid  during  the term of this
Agreement  all taxes,  governmental  charges of any kind  lawfully  assessed  or
levied upon the Project or any part thereof,  including any taxes levied against
the Project which, if not paid, will become a charge on the Project, all utility
and other charges  incurred in the operation,  maintenance,  use,  occupancy and
upkeep of the  Project and all  assessments  and  charges  lawfully  made by any
governmental  body for public  improvements that may be secured by a lien on the
Project; provided that with respect to special assessments or other governmental
charges that may lawfully be paid in  installments  over a period of years,  the
Borrower shall be obligated to pay only such  installments as are required to be
paid during the term of this  Agreement.  The  Borrower  may, at the  Borrower's
expense  and in the  Borrower's  name,  in good  faith,  contest any such taxes,
assessments and other charges and, in the event of any such contest,  may permit
the taxes,  assessments  or other  charges so contested to remain  unpaid during
that period of such contest and any appeal  therefrom  unless by such nonpayment
the Project or any part thereof will be subject to loss or forfeiture.

     Section  5.6.  Qualification  in  California.   The  Borrower  agrees  that
throughout the term of this Agreement it, or any successor  permitted by Section
5.2, will be qualified to do business in the State.

     Section 5.7.  Alternate  Credit  Facility.  If the Borrower  exercises  its
option to convert the interest rate borne by the Bonds from the Weekly  Interest
Rate to the Fixed Interest


                                       12

<PAGE>



Rate  pursuant to the terms and  provisions of the  Indenture,  the Borrower may
cause to be delivered to the Trustee an Alternate Credit Facility,  effective as
of the Fixed  Rate  Date,  in lieu of  keeping  the Letter of Credit in place as
required by Section 5.8.

     Such Alternate Credit Facility must meet the following conditions:

     (a) the Alternate  Credit Facility must be approved by the Authority or any
successors;

     (b)  the  terms  of  the   Alternate   Credit   Facility  must  provide  an
unconditional  obligation of the issuer of the Alternate  Credit Facility to pay
all amounts with respect to the principal of,  premium,  if any, and interest on
the Bonds when the same shall become due; and

     (c) the term of the  Alternate  Credit  Facility  must  extend to the final
maturity of the Bonds.

     On or prior to the date of the delivery of an Alternate  Credit Facility to
the Trustee,  the Borrower  shall cause to be furnished to the Authority and the
Trustee  (i) an  opinion  of Bond  Counsel  stating  that the  delivery  of such
Alternate  Credit Facility to the Trustee is authorized under this Agreement and
complies  with the terms hereof and will not cause  interest on the Bonds not to
be Tax-exempt, (ii) such opinions regarding the validity of the Alternate Credit
Facility as the  Authority,  the  Trustee and any rating  agency then rating the
Bonds may reasonably  require,  and (iii) written evidence from Moody's,  if the
Bonds are then rated by Moody's, and S&P, if the Bonds are then rated by S&P, to
the effect that such rating  agency has reviewed the proposed  Alternate  Credit
Facility and that the substitution of the proposed Alternate Credit Facility for
the Letter of Credit will not, by itself, result in a reduction of its long term
rating of the Bonds below "A" if the bonds are rated by S&P or below "A2" if the
Bonds are rated by Moody's.

     Section 5.8. Letter of Credit.  The Borrower shall at all times  throughout
the term of this  Agreement (but subject to Section 5.7) maintain or cause to be
maintained the Letter of Credit with respect to the Bonds.  The Letter of Credit
shall be an obligation of the Bank to pay to the Trustee,  against  presentation
of sight drafts and certificates required by the Bank, up to (x) an amount equal
to the aggregate  principal amount of the Bonds then Outstanding as necessary to
pay the principal of such Bonds, whether at maturity,  redemption,  acceleration
or otherwise or upon the purchase of such Bonds upon the optional  tender of the
Bonds  pursuant to Section 4.06 of the  Indenture  and on the  Mandatory  Tender
Date, and (y) an amount equal to 45 days (or such other number of days as may be
required  to  obtain a rating  on the  Bonds if the  Bonds  are then  rated)  of
interest on the Bonds calculated at an interest rate of twelve percent (12%) per
annum on the basis of a 365- or 366-day year, as  applicable,  for the number of
days actually  elapsed while the Bonds bear interest at the Weekly Interest Rate
and an amount equal to 210 days (or such other number of days as may be required
to obtain a rating on the Bonds if the Bonds are then  rated) of interest on the
Bonds  calculated at the actual interest rate or rates on the Bonds on the basis
of a 360-day year of twelve  30-day  months while the Bonds bear interest at the
Fixed Interest Rate to pay interest on the Bonds when due.


                                       13

<PAGE>




     On any Interest Payment Date, the Borrower may, at its option, but with the
written  approval  of  the  Authority,  which  written  approval  shall  not  be
unreasonably  withheld,  provide  or  cause to be  provided  to the  Trustee  an
Alternate  Letter of Credit and the Borrower  shall,  in any event,  cause to be
delivered to the Trustee an extension  of the  Expiration  Date of the Letter of
Credit or an  Alternate  Letter of  Credit at least (i)  twenty-three  (23) days
before the Expiration Date of the then-existing Letter of Credit while the Bonds
bear interest at the Weekly  Interest Rate, or (ii)  forty-five (45) days before
the Expiration  Date of the then existing  Letter of Credit while the Bonds bear
interest  at the Fixed  Interest  Rate.  At least  thirty (30) days prior to the
Letter of Credit  Substitution  Date,  the Borrower shall provide the Authority,
the Trustee, the Bank, the Tender Agent and the Remarketing Agent with a written
notice of its  intention  to provide an Alternate  Letter of Credit  pursuant to
this  Section  5.8.  Such notice  shall  include the  proposed  Letter of Credit
Substitution  Date,  which shall be an Interest  Payment Date,  and identify the
provider of the Alternate Letter of Credit.  An Alternate Letter of Credit shall
be an  irrevocable  letter  of  credit  or  other  irrevocable  credit  facility
delivered  to the  Trustee  on or prior to 8:00  a.m.  (California  time) on the
Letter  of  Credit  Substitution  Date,  issued  by a  commercial  bank or other
financial institution,  the terms of which shall in all material respects be the
same as the  Letter of  Credit.  On or prior to the date of the  delivery  of an
Alternate  Letter of Credit  to the  Trustee,  the  Borrower  shall  cause to be
furnished  to the  Authority  and the  Trustee  (i) an opinion  of Bond  Counsel
stating that the delivery of such  Alternate  Letter of Credit to the Trustee is
authorized  pursuant to this Agreement,  complies with the terms hereof and will
not cause the  interest on the Bonds not to be  Tax-exempt,  (ii) such  opinions
regarding the validity of the Alternate  Letter of Credit as the Authority,  the
Trustee and any rating agency then rating the Bonds may reasonably require,  and
(iii) written evidence from Moody's, if the Bonds are then rated by Moody's, and
S&P, if the Bonds are then rated by S&P,  to the effect that such rating  agency
has reviewed the proposed  Alternate  Letter of Credit and that the substitution
of the  proposed  Alternate  Letter of Credit will not,  by itself,  result in a
reduction of its long-term rating of the Bonds below "A".

     It is understood  and agreed that with proper  notification  to the Trustee
and the  Borrower,  the Bank can declare that a default has  occurred  under the
Reimbursement  Agreement  with  the  Borrower  and  such  default  will  cause a
mandatory redemption of Bonds pursuant to Section 4.01(7) of the Indenture.

     Section  5.9.  Covenants  of the  Authority  and  the  Borrower.  It is the
intention of the parties  hereto that  interest on the Bonds shall be and remain
Tax-exempt  so  long  as  the  Bonds  are  Outstanding,  and  to  that  end  the
representations,  covenants, and agreements of the Authority and the Borrower in
this  Section and in  Sections  5.10 and 5.11 are for the benefit of the Trustee
and each and every Holder of the Bonds.  The  Authority  and the  Borrower  each
(unless otherwise indicated below) represents, warrants and agrees as follows:

     (a) The  Project  consists,  and at all  times  shall  consist,  of land or
property which is subject to the allowance for depreciation  provided in Section
167 of the Code,  and  substantially  all (95% or more) of the  proceeds  of the
Bonds including proceeds of investment  thereof,  shall be used to pay the Costs
of the Project which are chargeable to the capital account of the Borrower,  and
which were paid not earlier than 60 days before April 30, 1997.


                                       14

<PAGE>




     (b) No portion of the  proceeds of the Bonds shall be used to provide for a
private or commercial golf course,  country club,  massage parlor,  tennis club,
skating  facility  (including  roller  skating,  skate  board and ice  skating),
racquet sports facility  (including any handball or racquetball  court), hot tub
facility,  suntan facility,  race track,  automobile sales or service  facility,
retail food or beverage facility,  entertainment  facility,  airplane,  gambling
establishment, health club, liquor store, skybox or luxury box.

     (c)  Less  than  25% of the net  proceeds  of the  Bonds  (after  Costs  of
Issuance)  shall be used to purchase  land or  interests  in land.  The Borrower
covenants to spend sufficient sums from the Project Fund on Costs of the Project
to assure compliance with this covenant.

     (d) No proceeds of the Bonds shall be used to acquire any personal property
or  facilities  unless the first use of such  property  or  facilities  shall be
pursuant to such acquisition, except that if the Project consists of acquisition
of a building,  the Borrower shall,  within two years after the Date of Delivery
or the date of  acquisition of such  building,  whichever is earlier,  expend an
amount,  from  proceeds of the Bonds or  otherwise,  equal to 15% of the cost of
acquiring  such building  financed with proceeds of the Bonds on  rehabilitation
costs of such building as required by Section 147(d) of the Code.

     (e) During the three-year  period  following the date the Project is placed
in  service,  the  Borrower  shall  not  allow  any  other  Person  to  become a
"test-period  beneficiary"  of the  Bonds  who is a  beneficiary  of  industrial
development  bonds in an amount  which would cause the  issuance of the Bonds to
exceed such Person's  aggregate  per-taxpayer  limit under Section 144(a)(10) of
the Code.

     (f) The Borrower  shall not enter into any agreement  which would result in
the payment of principal or interest on the Bonds being  "federally  guaranteed"
within the meaning of Section 149(b) of the Code.

     (g) There is no outstanding issue of industrial development bonds which was
used to  finance  any  facilities  which,  in  relation  to the  Project,  would
constitute  (i) a single  building,  (ii) an enclosed  shopping mall, or (iii) a
strip of offices, stores or warehouses using substantial common facilities.

     (h) Subject to the  provisions  of the final  paragraph of Section 5.10, no
actions shall be taken, or omitted to be taken, by the Borrower which would have
the effect,  directly or indirectly,  of causing interest on any of the Bonds to
not be Tax-exempt.

     (i) No changes shall be made in the Project or the use of the Project which
shall in any way impair the Tax-exempt status of interest on the Bonds.

     (j) The  Borrower  shall not make any use of the  proceeds of the Bonds and
shall not direct or knowingly permit the Trustee to invest any proceeds from the
issuance of the Bonds or any acquired obligation in any manner which would cause
the Bonds to


                                                        15

<PAGE>



become  "arbitrage  bonds" within the meaning of Section 148 of the Code and any
Regulations  thereunder,  and the Borrower shall comply with the requirements of
said Section of the Code and said  Regulations,  as the same may be amended from
time to time, so long as any Bonds remain Outstanding.

     (k) The  Borrower  shall  use due  diligence  to cause  the  Project  to be
operated in  accordance  with all  applicable  laws,  rulings,  regulations  and
ordinances.

     (l) The Borrower shall comply with all conditions  imposed by the Authority
and any State or local agency in its approval of the Project.

     (m) The  Borrower  shall  fully and  faithfully  perform all the duties and
obligations  which the Authority has  covenanted  and agreed in the Indenture to
cause  Borrower  to perform  and any duties and  obligations  which  Borrower is
required in the Indenture to perform.  The foregoing shall not apply to any duty
or  undertaking  of the  Authority  which by its nature  cannot be  delegated or
assigned.

     (n) The Borrower acknowledges,  approves and accepts the rights, duties and
obligations imposed on the Borrower pursuant to the Remarketing Agreement.

     (o)  The  Borrower  shall  faithfully  perform  at all  times  any  and all
covenants, undertakings, stipulations and provisions to be observed or performed
by the Borrower contained in the Indenture, in the Bonds, and in all proceedings
of the Authority pertaining thereto, or otherwise required of the Borrower to be
observed or performed, whether express or implied.

     (p) The Borrower  shall comply with the  covenants and  obligations  of the
Borrower contained in the Reimbursement Agreement.

     (q) The Borrower covenants that it shall use less than twenty-five  percent
(25%) of the net  proceeds of the Bonds (after  deducting  Costs of Issuance) to
provide facilities which are directly related and ancillary to the manufacturing
facility  being  financed  with the proceeds of the Bonds,  in  accordance  with
Section 144(a)(12)(C) of the Code.

     (r) The Borrower and the Authority  shall not become a Holder of the Bonds,
and none of the Borrower,  any Related Party or the Authority  shall directly or
indirectly purchase Bonds from the Remarketing Agent.

     Notwithstanding  any other  provision of this  Agreement or the  Indenture,
including in  particular  Article X of the  Indenture,  the  obligations  of the
Borrower  and the  Authority  to  comply  with the  covenants  set forth in this
Section and Section 5.10 shall survive the  defeasance or payment in full of the
Bonds.

     Section  5.10.  Capital  Expenditures.  For the purpose of this Section and
Section 5.09 the following terms shall have the following meanings:



                                       16

<PAGE>



     "Facilities" shall mean those facilities  described in Section 144(a)(1) of
the Code and Regulations thereunder, including Section 1.103-10(b)(2)(ii)(e) and
Section  1.103-10(d)(2)  of the Regulations,  and shall include those facilities
any Principal User of which is the Borrower or a related  person,  as defined in
Section  144(a)(3)  of the  Code,  located  in the  Project  Location,  and  any
contiguous  or  integrated  facility  treated as being  located  in the  Project
Location by reason of the fact that such  facility is located on both sides of a
border   between  the  Project   Location  and  one  or  more  other   political
jurisdictions.

     "Principal  User"  means any  principal  user of the  Project as defined in
Proposed Treasury Regulations Section 1.103-10(h).

     "Project  Location"  shall  mean the area  within  the City of Long  Beach,
California.

     "Regulations"  shall  mean  those  regulations,  whether  now or  hereafter
adopted,  prepared by the United States  Department of the Treasury with respect
to Section 103 or Part IV of subchapter B of chapter 1 of the Code.

     "Section 144 Capital  Expenditures" shall mean those expenditures  required
to be taken into account with respect to the Bonds pursuant to Section 144(a)(1)
and  (4)  of  the   Code   and   Regulations   thereunder,   including   Section
1.103-10(b)(2)(ii) and (iii) of the Regulations,  including any expenditure with
respect to Facilities,  no matter by whom made (regardless of how paid,  whether
in cash,  notes  or  stock in a  taxable  or  nontaxable  transaction),  paid or
incurred  during  the  six-year  period  beginning  3 years  before  the date of
issuance and delivery of the Bonds,  which may, under any rule or election under
the Code, be treated as a capital  expenditure  (whether or not such expenditure
is so  treated),  and  which  is not  paid  or  reimbursed  out of the  original
principal  proceeds  (exclusive  of  investment  income) of the  Bonds,  but not
including excluded expenditures pursuant to Section 144(a)(4)(C) of the Code and
Regulations  thereunder,  including  Section  1.103-10(b)(2)(iv)  and (v) of the
Regulations.  Such term  shall  also  include  research  and  development  costs
properly  allocable  to the  Project no matter  where paid or  incurred,  unless
specifically excluded by Section 144(a)(4)(C).

     The Borrower represents and warrants that substantially all of the proceeds
of the Bonds are to be used with  respect  to the  Project  to be located in the
Project  Location;  that  there  are no  other  outstanding  obligations  issued
subsequent to September  30, 1968, of any state,  territory or possession of the
United States of America,  or any political  subdivision  of the foregoing or of
the  District  of  Columbia,  the  proceeds of which have been or are to be used
primarily with respect to Facilities;  and that the sum of the principal  amount
of the Bonds  plus the  amount  of  Section  144  Capital  Expenditures  for the
three-year  period ending on the date of issuance and delivery of the Bonds does
not exceed $10,000,000.

     The Authority covenants and agrees that it has not taken and shall not take
any action which will cause interest on the Bonds to not be Tax-exempt.



                                       17

<PAGE>



     The Authority hereby elects to have the provisions of Section  144(a)(4)(A)
of the Code apply to the Bonds. The Borrower  covenants that it shall furnish to
the  Authority  prior  to  the  issuance  and  delivery  of the  Bonds  whatever
information is necessary for the Authority to make such election.

     The  Borrower  further  covenants  that it shall take,  and shall cause any
other  Principal  User to  take,  such  further  actions  as are  required  of a
Principal User of property financed by an issue of obligations which are subject
to the $10,000,000 limitation of Section 144(a)(4)(A) of the Code, which actions
are set  forth in  Section  144(a)(4)(A)  of the  Code  and in the  Regulations,
including Section 1.103-10(b) of the Regulations.

     The Borrower further  covenants and agrees, so long as any of the Bonds are
Outstanding  under the  Indenture,  that the aggregate  principal of Bonds being
issued plus the aggregate amount of Section 144 Capital  Expenditures made or to
be made with respect to Facilities  during the six-year  period  beginning three
years  before the date of  issuance  and  delivery of the Bonds shall not exceed
$10,000,000 (or any such larger amount as may be hereafter permitted by law).

     Notwithstanding  anything  in Section  5.9(h) or this  Section  5.10 to the
contrary,  neither  the  Borrower  nor the  Authority  shall have  violated  the
covenants  contained  in Section  5.9(h) or this Section 5.10 if the interest on
any of the Bonds  becomes  taxable to a Person  solely  because such Person is a
"substantial  user" of the Project or a "related  person"  within the meaning of
Section  147(a) of the Code;  and none of the  covenants and  agreements  herein
contained  shall  require  either  the  Borrower  or the  Authority  to enter an
appearance  or  intervene  in  any   administrative,   legislative  or  judicial
proceeding  in  connection  with  any  changes  in  applicable  laws,  rules  or
regulations or in connection  with any decisions of any court or  administrative
agency or other  governmental  body  affecting  the  taxation of interest on the
Bonds.

     Section 5.11.  Special Arbitrage  Certifications.  (a) The Authority hereby
certifies to the  Borrower  (i) that it has not been  notified of any listing or
proposed  listing of it by the Internal  Revenue  Service as a bond issuer whose
arbitrage  certifications  may not be relied upon and (ii) that  issuance of the
Bonds will not violate any provisions of Section 103 of the Code or, Section 148
of the Code, or the  Regulations  issued under such  Sections of the Code,  such
that the interest on the Bonds is not Tax-exempt.

     (b) The Borrower and the Authority  agree to comply with the Tax Regulatory
Agreement,  as such Tax Regulatory  Agreement shall be amended from time to time
in order that interest on the Bonds  remains  Tax-exempt.  The Borrower  further
agrees to cause any other  Principal User (as defined in Section 5.10 hereof) of
the  Project  to  comply  with the  terms  of this  Loan  Agreement  and the Tax
Regulatory  Agreement  to the extent  necessary  to insure that  interest on the
Bonds remains Tax-exempt.




                                       18

<PAGE>



     Section  5.12.  Covenant  to Enter into  Agreement  or  Contract to Provide
Ongoing Disclosure. The Borrower and the Authority hereby agree that the initial
offering  and sale of the Bonds is exempt  from the  requirements  of  Paragraph
(b)(5)(i) of the  Securities  and  Exchange  Commission  Rule 15c2-12  under the
Securities  Exchange Act of 1934, as amended (17 CFR Part 240, ss.  240.15c2-12)
(the "Rule").  The Borrower  hereby  covenants and agrees that if as a result of
the conversion of the interest rate borne by the Bonds from the Weekly  Interest
Rate to the Fixed Interest Rate or as a result of any amendment or supplement to
the  Indenture or this  Agreement,  the Bonds cease to be exempt under the Rule,
the  Borrower  will  enter  into  an  agreement  or  contract,  constituting  an
undertaking,  to provide  ongoing  disclosure as may be necessary to comply with
the Rule as then in effect. The covenant and agreement contained in this Section
5.12 is for the benefit of the Bondholders,  any  Participating  Underwriter and
the Beneficial  Owners (as defined in the Indenture) as required by the Rule. It
is the Borrower's  express intention that this Section 5.12 be assigned pursuant
to and in  accordance  with Section 6.09 of the Indenture to the Trustee for the
benefit of the  Bondholders,  any  Participating  Underwriter and the Beneficial
Owners and that each Bondholder,  Participating Underwriter and Beneficial Owner
be a  beneficiary  of this  Section  5.12 with the right to enforce this Section
5.12  against  the  Borrower.   Notwithstanding  any  other  provision  of  this
Agreement, failure of the Borrower to comply with the provisions of this Section
5.12 shall not be  considered  a Loan  Default  Event;  provided,  however,  the
Trustee may (and, at the request of any Participating Underwriter or the Holders
of at least 25% aggregate  principal amount in Outstanding Bonds,  shall) or any
Beneficial  Owner may take such  actions as may be  necessary  and  appropriate,
including seeking specific  performance by court order, to cause the Borrower to
comply with its obligations under this Section 5.12.


                                   ARTICLE VI

                      DAMAGE, DESTRUCTION AND CONDEMNATION;
                                 USE OF PROCEEDS

     Section 6.1.  Obligation to Continue Payments.  If prior to full payment of
the Bonds (or provision for payment thereof in accordance with the provisions of
the Indenture) (i) the Project or any portion  thereof is destroyed (in whole or
in part) or is  damaged  by fire or other  casualty,  or (ii)  title  to, or the
temporary  use of, the Project or any portion  thereof  shall be taken under the
exercise  of the  power of  eminent  domain by any  governmental  body or by any
Person acting under governmental  authority,  the Borrower shall nevertheless be
obligated to continue to pay the amounts  specified in Article IV hereof, to the
extent not prepaid in accordance with Article VIII hereof.

     Section 6.2. Application of Net Proceeds. The Borrower shall be entitled to
the Net Proceeds, if any, of any insurance or condemnation awards resulting from
the damage,  destruction or  condemnation  of the Project or any portion thereof
for application as provided in this Section. All Net Proceeds shall be deposited
by the  Borrower in an escrow  account  with the Trustee and shall be applied in
one or more of the  following  ways at the  election of the  Borrower,  with the
consent of the Bank, by written notice to the Authority and the Trustee.



                                       19

<PAGE>



     (a) The prompt repair, restoration, relocation, modification or improvement
of the damaged,  destroyed  or  condemned  portion of the Project to enable such
portion of the Project to  accomplish at least the same function as such portion
of the Project was designed to accomplish prior to such damage or destruction or
exercise of such power of eminent  domain.  If the Borrower elects to proceed as
provided in this  subsection  (a), it shall give the  Authority  and the Trustee
written notice thereof,  and evidence of the Bank's  consent,  within 90 days of
the  deposit  of the Net  Proceeds  with the  Trustee.  Any  balance  of the Net
Proceeds  remaining after such work has been completed shall be deposited in the
Revenue Fund to be applied, with the written consent of the Bank, to the payment
of principal of and premium, if any, and interest on the Bonds, or, if the Bonds
have  been  fully  paid (or  provision  for  payment  thereof  has been  made in
accordance with the provisions of the Indenture),  any balance  remaining in the
Revenue Fund shall be paid in accordance with the  requirements of Section 10.04
of the Indenture.

     (b) The  prepayment  of all or a  portion  of the Loan in  accordance  with
Article VIII hereof and  redemption of Bonds.  If the Borrower fails to give the
notice and  evidence  of the Bank's  consent  required by Section  6.2(a)  above
within 90 days of the deposit of the Net Proceeds with the Trustee, the Borrower
shall be deemed to have elected to apply the Net Proceeds to the  prepayment  of
all or a portion of the Loan as provided in this  subsection  (b) in  accordance
with Section 8.2(a)  hereof,  the Bank shall be deemed to have consented to such
application,  and the Authority and the Trustee shall be deemed to have received
written notice thereof for purposes of this Section 6.2.

     Section 6.3.  Insufficiency  of Net  Proceeds.  If the Project or a portion
thereof is to be repaired, restored, relocated, modified or improved pursuant to
Section 6.2(a) hereof,  and if the Net Proceeds are  insufficient to pay in full
the cost of such repair, restoration,  relocation,  modification or improvement,
the  Borrower  will  nonetheless  complete  the  work or  cause  the  work to be
completed  and will pay or cause to be paid any cost  thereof  in  excess of the
amount of the Net Proceeds held in escrow.

     Section 6.4.  Damage to or  Condemnation  of Other  Property.  The Borrower
shall be entitled to the Net Proceeds of any insurance or condemnation  award or
portion  thereof  made for damages to or takings of its property not included in
the Project.


                                   ARTICLE VII

                        LOAN DEFAULT EVENTS AND REMEDIES

     Section 7.1. Loan Default Events. Any one of the following which occurs and
continues shall constitute a Loan Default Event:

     (a) failure of the Borrower to pay any Loan  Repayment when and as the same
shall become due and payable pursuant to Section 4.2(a);



                                       20

<PAGE>



     (b) failure of the  Borrower to pay any amounts  payable  hereunder,  other
than Loan  Repayments,  when and as the same shall  become  due,  which  failure
continues for a period of 30 days after written notice delivered to the Borrower
and the Bank,  which  notice  shall  specify such failure and request that it be
remedied,  given by the  Authority or the Trustee,  unless the Authority and the
Trustee shall agree in writing to an extension of such time;

     (c) failure of the Borrower to observe and perform any covenant,  condition
or agreement on its part required to be observed or performed by this Agreement,
other than a covenant described in subsection (a) or subsection (b) above, which
failure  continues for a period of 30 days after written notice delivered to the
Borrower and the Bank,  which notice shall specify such failure and request that
it be remedied,  given by the Authority or the Trustee, unless the Authority and
the Trustee, with the written approval of the Bank, shall agree in writing to an
extension of such time;  provided,  however,  that if the failure  stated in the
notice  cannot be corrected  within such period,  the  Authority and the Trustee
will not  unreasonably  withhold  their  consent to an extension of such time if
corrective action is instituted within such period and diligently  pursued until
the default is corrected; or

     (d)  existence  of an Event of Default  under and as  defined  in  Sections
7.01(A)-(D) of the Indenture.

     The  provisions  of  subsection  (c) of this  Section  are  subject  to the
limitation  that the  Borrower  shall not be deemed in default if and so long as
the  Borrower  is  unable  to carry out its  agreements  hereunder  by reason of
strikes,  lockouts or other  industrial  disturbances;  acts of public  enemies;
orders of any kind of the government of the United States or of the State or any
of  their  departments,  agencies,  or  officials,  or  any  civil  or  military
authority;  insurrections,  riots, epidemics, landslides; lightning; earthquake;
fire; hurricanes;  storms; floods;  washouts;  droughts;  arrests;  restraint of
government and people; civil disturbances;  explosions;  breakage or accident to
machinery, transmission pipes or canals; partial or entire failure of utilities;
or any other cause or event (whether similar or dissimilar to the foregoing) not
reasonably  within  the  control  of the  Borrower;  it  being  agreed  that the
settlement  of strikes,  lockouts  and other  industrial  disturbances  shall be
entirely  within the  discretion of the Borrower,  and the Borrower shall not be
required  to  make  settlement  of  strikes,   lockouts  and  other   industrial
disturbances  by acceding to the demands of the  opposing  party or parties when
such course is, in the judgment of the  Borrower,  unfavorable  to the Borrower.
This limitation  shall not apply to any default under  subsections  (a), (b), or
(d) of this Section.  Notwithstanding  any other  provision of this Agreement to
the contrary,  so long as the Bank is not in default under the Letter of Credit,
the Trustee shall not without the prior written consent or direction of the Bank
exercise any remedies under this Agreement in the case of any Loan Default Event
described in subsections (a), (b), or (c) above.

     Section 7.2.  Remedies on Default.  Subject to the last sentence of Section
7.1 above,  whenever  any Loan  Default  Event shall have  occurred and shall be
continuing,



                                       21

<PAGE>



     (a) The Trustee,  by written  notice to the  Borrower  and the Bank,  shall
declare all unpaid amounts  payable under Section 4.2(a) of this Agreement to be
due and payable  immediately,  provided that  concurrently with or prior to such
notice the unpaid  principal  amount of the Bonds shall have been declared to be
due and payable under the Indenture. Upon any such declaration such amount shall
become  and shall be  immediately  due and  payable  in the  amount set forth in
Section 7.01 of the Indenture.

     (b) The  Trustee  shall have  access to and may  inspect,  examine and make
copies of the books  and  records  and any and all  accounts,  data and  federal
income tax and other tax returns of the Borrower.

     (c) The  Authority  or the  Trustee may take  whatever  action at law or in
equity as may be  necessary  or  desirable  to collect  the  payments  and other
amounts  then due and  thereafter  to become due or to enforce  performance  and
observance of any  obligation,  agreement or covenant of the Borrower under this
Agreement.

     In case the Trustee or the  Authority  shall have  proceeded to enforce its
rights under this Agreement and such proceedings shall have been discontinued or
abandoned for any reason or shall have been determined  adversely to the Trustee
or the Authority,  then,  and in every such case, the Borrower,  the Trustee and
the Authority  shall be restored  respectively  to their  several  positions and
rights  hereunder,  and all rights,  remedies  and powers of the  Borrower,  the
Trustee  and the  Authority  shall  continue  as though no such  action had been
taken.

     The Borrower  covenants  that, in case a Loan Default Event shall occur and
all unpaid amounts  payable under Section 4.2(a) hereof shall have been declared
due and payable immediately pursuant to Section 7.2(a) hereof, then, upon demand
of the Trustee,  the Borrower will pay to the Trustee the whole amount that then
shall have  become due and  payable  under said  Section,  with  interest on the
amount then overdue at the rate of ten percent (10%) per annum until such amount
has been paid or, if ten percent is greater than the rate then permitted by law,
at the greatest rate then permitted.

     In case the  Borrower  shall fail  forthwith  to pay such amounts upon such
demand,  the Trustee  shall be entitled and empowered to institute any action or
proceeding at law or in equity for the collection of the sums so due and unpaid,
and may prosecute any such action or proceeding to judgment or final decree, and
may enforce any such  judgment or final decree  against the Borrower and collect
in the manner provided by law the moneys adjudged or decreed to be payable.

     In  case  proceedings  shall  be  pending  for  the  bankruptcy  or for the
reorganization  of the Borrower under the federal  bankruptcy  laws or any other
applicable  law, or in case a receiver or trustee shall have been  appointed for
the  property  of the  Borrower  or in the case of any  other  similar  judicial
proceedings  relative  to the  Borrower,  or the  creditors  or  property of the
Borrower,  then the Trustee shall be entitled and empowered,  by intervention in
such proceedings or otherwise, to file and prove a claim or claims for the whole
amount owing and unpaid  pursuant to this Agreement and, in case of any judicial
proceedings,  to file such proofs of claim and other  papers or documents as may
be necessary or advisable in order to have the


                                       22

<PAGE>



claims of the  Trustee  allowed in such  judicial  proceedings  relative  to the
Borrower,  its creditors or its property,  and to collect and receive any moneys
or other property  payable or deliverable on any such claims,  and to distribute
such amounts as provided in the Indenture  after the deduction of its reasonable
charges  and  expenses.  Any  receiver,  assignee  or trustee in  bankruptcy  or
reorganization is hereby authorized to make such payments to the Trustee, and to
pay to the Trustee any amount due it for reasonable  compensation  and expenses,
including  reasonable expenses and fees of counsel incurred by it up to the date
of such distribution.

     Section 7.3.  Agreement to pay Attorneys'  Fees and Expenses.  In the event
the Borrower  should  default  under any of the  provisions  of this  Agreement,
whether or not such default constitutes a Loan Default Event hereunder,  and the
Authority or the Trustee should employ attorneys or incur other expenses for the
collection  of the  payments  due under this  Agreement  or the  enforcement  of
performance  or  observance  of any  obligation  or agreement on the part of the
Borrower  herein  contained,  the Borrower agrees to pay to the Authority or the
Trustee  the  reasonable  fees and  expenses  of such  attorneys  and such other
reasonable expenses so incurred by the Authority or the Trustee.

     Section  7.4.  No Remedy  Exclusive.  No remedy  herein  conferred  upon or
reserved to the  Authority  or the Trustee is  intended to be  exclusive  of any
other  available  remedy or  remedies,  but each and every such remedy  shall be
cumulative  and shall be in  addition  to every  other  remedy  given under this
Agreement  or now or  hereafter  existing at law or in equity or by statute.  No
delay or omission to exercise any right or power accruing upon any default shall
impair any such right or power or shall be construed to be a waiver thereof, but
any such right and power may be exercised  from time to time and as often as may
be deemed  expedient.  To entitle the  Authority  or the Trustee to exercise any
remedy  reserved to it in this  Article,  it shall not be  necessary to give any
notice, other than such notice as may be herein expressly required.  Such rights
and  remedies  as are given the  Authority  hereunder  shall also  extend to the
Trustee,  and the Trustee  and the  Holders of the Bonds  shall be deemed  third
party beneficiaries of all covenants and agreements herein contained.

     Section 7.5. Waivers.  No delay or omission of the Authority or the Trustee
to exercise any right or power arising upon the  occurrence of any default shall
impair any such right or power or shall be  construed to be a waiver of any such
default or an  acquiescence  therein;  and every power and remedy  given by this
Agreement to the Authority or the Trustee may be exercised from time to time and
as often as may be deemed  expedient.  In the event any  agreement  or  covenant
contained in this  Agreement  should be breached by the Borrower and  thereafter
waived by the  Authority  or the  Trustee,  such waiver  shall be limited to the
particular  breach so waived  and shall not be deemed to waive any other  breach
hereunder.


                                  ARTICLE VIII

                                   PREPAYMENT

     Section 8.1.  Redemption of Bonds with Prepayment  Moneys. By virtue of the
assignment of the rights of the Authority under this Agreement to the Trustee as
is provided in


                                       23

<PAGE>



Section 4.5,  the  Borrower  agrees to and shall pay directly to the Trustee any
amount  permitted  or required  to be paid by it under this  Article  VIII.  The
Indenture  provides  that the Trustee  shall use the moneys so paid to it by the
Borrower,  pursuant to the written  instructions of the Borrower,  to redeem the
Bonds on the date set for such redemption pursuant to Section 8.5.

     Section 8.2.  Options to Prepay Loan. The Borrower shall have the option to
prepay the Loan by paying to the  Trustee  the amount set forth in Section  8.4,
for deposit in the Revenue Fund, to be applied to the redemption of Bonds as set
forth below on the earliest date such Bonds are subject to  redemption  pursuant
to the Indenture and as to which notice of redemption can be given in accordance
with the  Indenture,  at the  redemption  prices  set  forth  below,  under  the
following circumstances:

     (a) The  Borrower  may prepay such  amounts in whole,  and cause all of the
Outstanding  Bonds to be redeemed at the  redemption  price set forth in Section
4.01(5) of the Indenture, if any of the following shall have occurred:

          (i) The Project shall have been damaged or  destroyed,  in whole or in
part,  by fire or other  casualty and the  Authority  and the Trustee  receive a
Certificate of the Authorized Representative of the Borrower to the effect that:
(1) it is not practicable or desirable to rebuild, repair or restore the Project
within a period of six consecutive  months following such damage or destruction,
(2) the  Borrower is or will be thereby  prevented  from  carrying on its normal
operations at the Project for a period of at least six  consecutive  months,  or
(3) the cost of  restoration of the Project would  substantially  exceed the Net
Proceeds of insurance carried thereon; or

          (ii) Title to, or the  temporary use of, all or  substantially  all of
the Project shall have been taken by any governmental  authority,  or any Person
acting under governmental authority,  exercising the power of eminent domain and
the  Authority  and  the  Trustee   receive  a  Certificate  of  the  Authorized
Representative  of the Borrower to the effect that:  (1) the Borrower is thereby
prevented from carrying on its normal  operations at the Project for a period of
at least six consecutive  months or (2) the Project is unsuitable for use by the
Borrower;

     (b) The Borrower may prepay all or any part of the Loan from any  available
funds and cause all or any part of the  Outstanding  Bonds to be redeemed at the
redemption  prices set forth in Section 4.01(2) or 4.01(6) of the Indenture,  as
applicable,  but subject to any  additional  requirements  of the  Reimbursement
Agreement.

     Section 8.3. Mandatory  Prepayment.  (a) The Borrower shall have and hereby
accepts the  obligation  to prepay in full the Loan by paying to the Trustee the
amount set forth in Section 8.4 for  deposit to the  Revenue  Fund to be used to
redeem all the Outstanding  Bonds on the earliest date such Bonds are subject to
redemption  pursuant to the Indenture  and as to which notice of the  redemption
can be given in accordance  with the  Indenture,  at the  redemption  prices set
forth in Section  4.01(5) of the Indenture with respect to subsection (i) below,
Section


                                       24

<PAGE>



4.01(3) of the Indenture with respect to subsections  (ii) and (iii) below,  and
in the Indenture Sections noted with respect to subsection (iv) below:

                           (i) if and when as a  result  of any  changes  in the
                  Constitution of the United States of America or the California
                  Constitution  or as a result of any  legislative,  judicial or
                  administrative  action,  this Agreement shall have become void
                  or  unenforceable  or impossible of  performance in accordance
                  with the  intention  and  purposes of the parties  hereto,  or
                  shall have been declared unlawful.

                           (ii) if,  due to the  untruth  or  inaccuracy  of any
                  representation  or warranty made by the Borrower  herein or in
                  connection with the offer and sale of the Bonds, or the breach
                  of any covenant or warranty of the Borrower  contained in this
                  Agreement,   interest  on  the  Bonds,  or  any  of  them,  is
                  determined not to be Tax-exempt to the Holders  thereof (other
                  than a Holder who is a "substantial  user" of the Project or a
                  "related  person"  within the meaning of Section 147(a) of the
                  Code) by a final administrative  determination of the Internal
                  Revenue  Service  or  final  judicial  decision  of a court of
                  competent  jurisdiction  in a proceeding of which the Borrower
                  received notice and was afforded an opportunity to participate
                  in to the full extent  permitted  by law. A  determination  or
                  decision  will be  considered  final for this purpose when all
                  periods for administrative and judicial review have expired.

                           (iii)  if  either:  (a)  the  Borrower  or any  other
                  Principal  User  of  the  Project  files  a  notice  with  the
                  Authority  and the  Trustee  to the  effect  that the  capital
                  expenditure  limitation  of Section  144(a)(4) of the Code has
                  been  exceeded,  or will be  exceeded,  within a period  of 60
                  days;  or (b) there is a final  determination  (as  defined in
                  subsection  (ii) above) by the Internal  Revenue  Service or a
                  court of competent jurisdiction that such capital expenditures
                  limitation has been exceeded.

                            (iv) if mandatory  redemption  is required by any of
                  Sections 4.01(4), (7), or (8) of the Indenture.

The amount payable by the Borrower in the event of a prepayment required by this
Section  shall be  determined  as set forth in  Section  8.4 hereof and shall be
deposited in the Revenue Fund upon demand by the Authority or the Trustee.

     (b) The Borrower shall prepay all or any part of the Loan from Net Proceeds
under the circumstances described in Section 6.2(b) hereof, and cause all or any
part of the Outstanding  Bonds to be redeemed at the redemption  price set forth
in Section 4.01(5) of the Indenture.

     Section 8.4.  Amount of Prepayment.  In the case of a prepayment in full of
the Loan by the Borrower  under this  Agreement  pursuant to Section 8.2 or 8.3,
the  amount to be paid shall be a sum  sufficient,  together  with  other  funds
deposited  with the  Trustee  and  available  for such  purpose,  to pay (1) the
redemption price specified in the applicable  subsections of Section 8.2 or 8.3,
for all Outstanding Bonds, plus all interest accrued and to accrue to the


                                       25

<PAGE>



redemption  date,  (2) all  reasonable  and  necessary  fees and expenses of the
Authority, the Trustee and any paying agent allowable pursuant to this Agreement
and the Indenture  accrued and to accrue  through final payment of the Bonds and
(3) all other  liabilities  of the  Borrower  accrued  and to accrue  under this
Agreement.

     In the case of partial  prepayment  of the Loan by the Borrower  under this
Agreement  pursuant to Section 8.2 or 8.3,  the amount to be paid shall be a sum
sufficient,  together with other funds  deposited with the Trustee and available
for such  purpose,  to pay the  redemption  price  specified  in the  applicable
subsections  of  Section  8.2 or 8.3,  for the  Bonds to be  redeemed,  plus all
interest  accrued and to accrue to the  redemption  date, and to pay expenses of
redemption  of such  Bonds.  All  partial  prepayments  of the Loan  made by the
Borrower under this Agreement shall be applied in inverse order of the due dates
thereof, or as otherwise provided in the Indenture.

     Section 8.5.  Notice of Prepayment.  The Borrower shall give written notice
to the Authority,  the Bank and the Trustee (1) while the Bonds bear interest at
the Weekly  Interest  Rate,  not less than twenty (20) days prior to the date of
any  prepayment of a Loan Repayment and (2) while the Bonds bear interest at the
Fixed  Interest  Rate,  not less than  forty  (40) days prior to the date of any
prepayment of a Loan Repayment,  in each case specifying the date upon which any
prepayment  will be made,  the basis for such  prepayment and the amount of such
repayment.  If the Borrower  fails to give such notice of a  prepayment  of Loan
Repayments,  the Indenture  provides that the Trustee shall hold such prepayment
in the Redemption Fund.


                                   ARTICLE IX

              NON-LIABILITY OF AUTHORITY; EXPENSES; INDEMNIFICATION

     Section  9.1.  Non-Liability  of  Authority.  The  Authority  shall  not be
obligated to pay the principal of, or premium, if any, or interest on the Bonds,
except from Revenues. The Borrower hereby acknowledges that the Authority's sole
source of moneys to repay the Bonds will be provided by the payments made by the
Borrower  pursuant to this Agreement,  together with other  Revenues,  including
investment  income on certain  funds and accounts  held by the Trustee under the
Indenture,  and hereby  agrees that if the payments to be made  hereunder  shall
ever prove  insufficient  to pay all  principal  of, and  premium,  if any,  and
interest  on the  Bonds as the same  shall  become  due  (whether  by  maturity,
redemption,  acceleration or otherwise),  then upon notice from the Trustee, the
Borrower shall pay such amounts as are required from time to time to prevent any
deficiency  or default in the payment of such  principal,  premium or  interest,
including,  but not  limited  to,  any  deficiency  caused  by acts,  omissions,
nonfeasance  or  malfeasance  on the  part of the  Trustee,  the  Borrower,  the
Authority or any third party.

     Section 9.2.  Expenses.  The Borrower  covenants  and agrees to pay, and to
indemnify  the  Authority  and the  Trustee  against,  all  costs  and  charges,
including   reasonable  fees  and   disbursements  of  attorneys,   accountants,
consultants  and other experts,  incurred in good faith in connection  with this
Agreement, the Bonds or the Indenture.


                                       26

<PAGE>




     Section 9.3.  Indemnification.  The Borrower  releases the  Authority,  the
State, the Treasurer of the State and the Trustee from, and covenants and agrees
that none of the  Authority,  the State or the Trustee  shall be liable for, and
covenants and agrees to indemnify and hold  harmless the  Authority,  the State,
the  Treasurer of the State and the Trustee and their  officers,  employees  and
agents from and against,  any and all losses,  claims,  damages,  liabilities or
expenses, of every conceivable kind, character and nature whatsoever arising out
of,  resulting  from,  or in any way  connected  with  (1) the  Project,  or the
conditions,  occupancy, use, possession,  conduct or management of, or work done
in or  about,  or  from  the  planning,  design,  acquisition,  installation  or
construction of, the Project or any part thereof;  (2) the issuance of any Bonds
or any  certifications or  representations  made in connection  therewith by the
Borrower  and the carrying out of any of the  transactions  contemplated  by the
Bonds,  the  Indenture,  or this  Agreement;  (3) the  Trustee's  acceptance  or
administration of the trusts under the Indenture, or the exercise or performance
of any of its powers or duties under the Indenture;  or (4) any untrue statement
or alleged untrue statement of any material fact or omission or alleged omission
to state a material fact necessary to make the statements  made, in light of the
circumstances  under  which  they were made,  not  misleading,  in the  official
statement utilized by any underwriter in connection with the sale or offering of
any Bonds;  provided that in each case such indemnity  shall not be required for
damages that result from the willful misconduct or negligence on the part of the
party seeking such  indemnity.  The indemnity  required by this Section shall be
only to the extent  that any loss  sustained  by the  Authority  or the  Trustee
exceeds  the Net  Proceeds  the  Authority  or the  Trustee  receives  from  any
insurance  carried  by the  Borrower  with  respect to the loss  sustained.  The
Borrower further covenants and agrees to pay or to reimburse the Authority,  the
State, the Treasurer of the State and the Trustee and their officers,  employees
and agents for any and all costs,  reasonable  attorneys  fees,  liabilities  or
expenses  incurred  in  connection  with  investigating,  defending  against  or
otherwise in  connection  with any such losses,  claims,  damages,  liabilities,
expenses or actions, except to the extent that the same arise out of the willful
misconduct or negligence  of the party  claiming such payment or  reimbursement.
The  provisions of this Section shall survive the payment and  retirement of the
Bonds and the termination of this Agreement.


                                    ARTICLE X

                                  MISCELLANEOUS

     Section 10.1. Notices. All notices,  certificates,  or other communications
given hereunder shall be deemed  sufficiently given on (i) the day such notices,
certificates  or  other  communications  are  received  when  sent  by  personal
delivery,  including tested telex or facsimile communication,  or (ii) the third
day following the day on which the same have been mailed by first class, postage
prepaid, addressed to the Authority, the Borrower, the Trustee, the Tender Agent
or the Bank,  as the case may be, at the address set forth for such party below.
A duplicate  copy of each  notice,  certificate,  or other  communication  given
hereunder  by either the  Authority  or the  Borrower to the other shall also be
given to the Trustee,  the Tender Agent,  Borrower's  counsel and the Bank.  The
Authority,  the  Borrower,  the  Trustee,  the Tender Agent and the Bank may, by
notice given  hereunder,  designate any different  addresses to which subsequent
notices, certificates, or other communications shall be sent.


                                       27

<PAGE>




     If to the Authority:

          California Economic Development Financing Authority
          c/o California Trade and Commerce Agency
          801 K Street, Suite 1700
          Sacramento, California 95814
          Attention: Chair
          (916) 324-1299  Fax:  (916) 322-7214

     If to the Borrower:

          Advanced Aerodynamics and Structures, Inc.
          3501 Lakewood Boulevard
          Long Beach, California 90808
          Attention:  President
          (562) 938-8618   Fax:  (562) 938-8620

     If to the Trustee or Tender Agent:

          First Trust of California, National Association
          One California Street, 4th Floor
          San Francisco, California  94111
          Attention: Municipal Trusts and Agency
          (415) 273-4500  Fax:  (415) 273-4590

     If to the Bank:

          The Sumitomo Bank, Ltd.
          777 South Figueroa Street, Suite 2600
          Los Angeles, California  90017
          Attention: Structured Finance & Financial Institutions Group
          (213) 955-0800  Fax:  (213) 623-6832

     If to the Remarketing Agent

          Rauscher Pierce Refsnes, Inc.
          2711 North Haskell Avenue, Suite 2400
          Dallas, Texas 75204
          Attention:  Fixed Income Banking
          (214) 989-1000  Fax:  (214) 989-1842

     Section 10.2.  Severability.  If any provision of this  Agreement  shall be
held  or  deemed  to  be,  or  shall  in  fact  be,   illegal,   inoperative  or
unenforceable,  the same  shall not  affect any other  provision  or  provisions
herein  contained or render the same invalid,  inoperative,  or unenforceable to
any extent whatever.



                                       28

<PAGE>



     Section 10.3. Execution of Counterparts.  This Agreement may be executed in
several counterparts,  each of which shall be an original and all of which shall
constitute but one and the same instrument; provided, however, that for purposes
of perfecting a security  interest in this Agreement by the Trustee and the Bank
under Article 9 of the California  Uniform Commercial Code, only the counterpart
delivered, pledged, and assigned to the Trustee shall be deemed the original.

     Section 10.4.  Amendments,  Changes and Modifications.  Except as otherwise
provided in this Agreement or the Indenture,  subsequent to the initial issuance
of Bonds and prior to their  payment  in full,  or  provision  for such  payment
having  been  made as  provided  in the  Indenture,  this  Agreement  may not be
effectively  amended,  changed,  modified,  altered or  terminated  without  the
written consent of the Trustee and the Bank.

     Section 10.5.  Governing Law. This Agreement shall be governed  exclusively
by and  construed  in  accordance  with the  applicable  laws of the  State as a
contract  executed and delivered  within the State to be fully performed  within
the State.

     Section 10.6. Authorized Representative of the Borrower. Whenever under the
provisions  of this  Agreement  the  approval of the Borrower is required or the
Authority  or the  Trustee is required to take some action at the request of the
Borrower, such approval or such request shall be given on behalf of the Borrower
by the  Authorized  Representative  of the  Borrower,  and the Authority and the
Trustee  shall be  authorized to act on any such approval or request and neither
party hereto shall have any  complaint  against the other or against the Trustee
as a result of any such action taken.

     Section 10.7. Term of the Agreement.  This Agreement shall be in full force
and effect from the date  hereof and shall  continue in effect as long as any of
the  Bonds  remain  Outstanding  or the  Letter  of Credit  remains  in  effect,
whichever is later. All representations and certifications by the Borrower as to
all matters  affecting  the  Tax-exempt  status of interest on the Bonds and all
indemnifications  by the  Borrower  to the  Authority,  the State or the Trustee
shall survive the termination of this Agreement.

     Section 10.8. Binding Effect.  This Agreement shall inure to the benefit of
and shall be binding  upon the  Authority,  the  Borrower  and their  respective
successors  and  assigns;  subject,  however,  to the  limitations  contained in
Section 5.2 hereof.

     Section 10.9. References to Bank.  Notwithstanding any provisions contained
herein to the  contrary,  the Bank shall be  entitled  to take all  actions  and
exercise  all rights  hereunder  for its own account so long as the Bank has not
wrongfully  dishonored  any drawings  under the Letter of Credit and the Bank is
not in liquidation, bankruptcy or receivership proceedings. After the expiration
or  termination  of the Letter of Credit and after all  obligations  owed to the
Bank  pursuant  to the  Reimbursement  Agreement  have  been  paid  in  full  or
discharged,  all references to the Bank contained  herein shall be null and void
and of no further force and effect.



                                       29

<PAGE>



     Section 10.10. Brokerage  Confirmations.  The Borrower acknowledges that to
the extent  regulations of the  Comptroller of the Currency or other  applicable
regulatory   entity  grant  the   Borrower   the  right  to  receive   brokerage
confirmations  of  security  transactions  under  the  Indenture,  the  Borrower
specifically  waives receipt of such  confirmations  to the extent  permitted by
law. The Trustee is required  under the  Indenture to furnish the Borrower  with
periodic cash  transaction  statements  which include  detail for all securities
transactions made by the Trustee on behalf of the Borrower thereunder.

                           [End of the Loan Agreement]


                                       30

<PAGE>



     IN WITNESS WHEREOF, the California Economic Development Financing Authority
has caused this Agreement to be executed in its name and the Borrower has caused
this  Agreement  to be  executed  in its name,  all as of the date  first  above
written.


                                CALIFORNIA ECONOMIC DEVELOPMENT
                                FINANCING AUTHORITY



                                By:___________________________________________
                                            Chair

ATTEST



By:__________________________________
        Secretary


APPROVED AS TO FORM



By:__________________________________
         Counsel


                                  ADVANCED AERODYNAMICS AND
                                  STRUCTURES, INC.



                                  By:_______________________________________
                                         Authorized Signatory




<PAGE>


                                    EXHIBIT A


                                   THE PROJECT

     The  Project  consists  of the (1)  construction  of a 200,000  square foot
manufacturing  facility  on a parcel of leased  land  located  at 3205  Lakewood
Boulevard,  Long Beach, California (the "Project Site"); and (2) acquisition and
installation of certain manufacturing equipment at the Project Site.


                                       A-1