INVESTMENT AGREEMENT


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

                                   WITNESSETH:

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

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

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

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

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

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

         Section 3. Term of Agreement.  This Investment Agreement will terminate
with  respect  to the  Invested  Funds on the  earlier  of August 5, 2002 or the
Expiration Date of the Letter of Credit (the "Maturity Date") unless extended at
the request of the Company with the approval of the Bank.  Prior to the Maturity
Date,  the Bank shall have absolute and  unconditional  custody and control over
the invested Funds.  Subject to the terms of the  Reimbursement  Agreement,  the
Invested Funds shall


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

         Section 4.  Interest.  Interest  shall accrue on the daily  outstanding
balance of the Invested Funds from and including August 5, 1997 to and including
August 13, 1997 at 5.475% per annum  (calculated  on the basis of a 360-day year
for actual number of days elapsed) and  thereafter to and including the Maturity
Date at LIBOR (as hereinafter defined) less 0. 15 % per annum (calculated on the
basis of a 3 60-day year for actual  number of days  elapsed).  As used  herein,
"LIBOR"  means  with  respect  to any Reset Date (as  hereinafter  defined)  the
arithmetic  mean of the rates shown on the LIBOR display on the Reuters  monitor
screen as the London  Interbank  offered rates for deposits in Dollars quoted by
Barclays Bank International  Limited,  Bank of Tokyo,  Bankers Trust Company and
National  Westminster  Bank, PLC, at approximately I 1:00 a.m.,  London time, on
the day that is two Business  Days  preceding the Reset Date for a period of one
(1) week commencing on the Reset Date. "Reset Date" means the first business day
of each calendar week.

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

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

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


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

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

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

         To the Company as follows:

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

          To Sumitomo as follows:

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




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         To the Trustee as follows:

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

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

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

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

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

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




<PAGE>


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


                                     THE SUMITOMO BANK, LIMITED



                                     By:_____________________________________
                                                      , Los Angeles Branch


                                     ADVANCED AERODYNAMICS AND STRUCTURES,
                                     INC.


                                     By:_____________________________________
                                           President


ATTEST:


By:____________________________
         Secretary

(SEAL)