CUSTODY, PLEDGE AND SECURITY AGREEMENT


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

                                    RECITALS


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

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

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

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

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

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


     NOW,  THEREFORE,  in  consideration  of the premises and in order to induce
Sumitomo to

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enter into the Reimbursement Agreement and issue the Letter of Credit thereunder
and for other good and valuable  consideration,  the receipt and  sufficiency of
which is hereby acknowledged, the parties hereto agree as follows:

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

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

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

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

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

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

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

     4. Payments on the Bonds: Voting Rights.

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

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

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

     6. Release of the Bonds.

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

     15.  Severability.   Any  provision  of  this  Pledge  Agreement  which  is
prohibited or unenforceable in any jurisdiction  shall, as to such jurisdiction,
be ineffective to the extent of such  prohibition  or  unenforceability  without
invalidating  the  remaining  provisions  hereof,  and any such  prohibition  or
unenforceability   in  any   jurisdiction   shall  not   invalidate   or  render
unenforceable such provision in any other jurisdiction.

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

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

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

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

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         If to the Company:

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

         If to the Custodian:

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

         If to Sumitomo:

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

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

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



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



ADVANCED AERODYNAMICS AND
STRUCTURES, INC.


By:
         President
ATTEST:

By:
         Secretary

(SEAL)






THE SUMITOMO BANK, LIMITED


By:
         , Los Angeles Branch

FIRST TRUST OF CALIFORNIA,
NATIONAL ASSOCIATION,  as Custodian


By:
Its:



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                                  ATTACHMENT A
                                       TO
                                PLEDGE AGREEMENT

             CERTIFICATE DESIGNATING AUTHORIZED BANK REPRESENTATIVES

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

Name                                       Specimen Signature



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

                                          THE SUMITOMO BANK, LIMITED


                                           By:
                                           Title:




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