Document:

Second Amended and Restated 1996 Stock Option

  
 EXHIBIT 10.48 
  
 THE SECOND AMENDED AND RESTATED 
 1996 STOCK OPTION AND INCENTIVE PLAN 
 OF ARDEN REALTY, INC. 
 AND ARDEN REALTY LIMITED PARTNERSHIP 
  
           Arden Realty, Inc., a Maryland corporation, and Arden Realty Limited Partnership, a Maryland limited partnership, adopted The 1996 Stock
Option and Incentive Plan of Arden Realty, Inc. and Arden Realty Limited Partnership (the “Plan”), effective September 27, 1996, for the benefit of their eligible employees, consultants and directors which was amended and restated
effective as of May 23, 2000 and again as of September 20, 2001. The Plan consists of two plans, one for the benefit of the employees, consultants and directors of Arden Realty, Inc. and one for the benefit of the employees and consultants of Arden
Realty Limited Partnership. 
  
           The purposes of this Plan are as
follows: 
  
           (1)  To provide an additional incentive for
directors, key Employees and consultants to further the growth, development and financial success of the Company by personally benefiting through the ownership of Company stock and/or rights which recognize such growth, development and financial
success. 
  
           (2)  To enable the Company and the Partnership
to obtain and retain the services of directors, key Employees and consultants considered essential to the long range success of the Company by offering them an opportunity to own stock in the Company and/or rights which will reflect the growth,
development and financial success of the Company. 
  
 ARTICLE I. 
  
 DEFINITIONS 
  
           1.1    General.    Wherever the following terms are used in this Plan they shall have the meaning specified below, unless the context
clearly indicates otherwise. 
  
           1.2    Award
Limit.    “Award Limit” shall mean 425,000 shares of Common Stock. 
  
           1.3    Beneficiary.    “Beneficiary” shall mean the person or persons properly designated by the Optionee, including his
spouse or heirs at law, to exercise such Optionee’s rights under this Plan in the event of the Optionee’s death, or if the Optionee has not designated such person or persons, or such person or persons shall all have pre-deceased the
Optionee, the executor or administrator of the Optionee’s estate. Designation, revocation and redesignation of Beneficiaries must be made in writing in accordance with rules established by the Committee and shall be effective upon delivery to
the Committee. 
  
           1.4    Board.    “Board” shall mean the Board of Directors of the Company. 
  
           1.5    Capital Stock.    “Capital Stock” shall
mean all classes or series of stock of the Company. 
  
           1.6    Change in Control.    “Change in Control” shall mean the occurrence of any of the following events: 

 

	 	          (a)  the individuals constituting the Board as of the Effective Date (the “Incumbent
Board”) cease for any reason to constitute at least two-thirds ( 2/3rds) of the Board; provided, however, that if the
election, or nomination for election by the Company’s stockholders, of any new director was approved by a vote of at least two-thirds ( 2/3rds) of the Incumbent Board, such new director shall be considered a member of the Incumbent Board; 
 

 

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	 	          (b)  an acquisition of any voting securities of the Company (the “Voting
Securities”) by any “person” (as the term “person” is used for purposes of Section 13(d) or Section 14(d) of the Securities Exchange Act of 1934, as amended (the “1934 Act”)) immediately after which such person has
“beneficial ownership” (within the meaning of Rule 13d–3 promulgated under the 1934 Act) (“Beneficial Ownership”) of 20% or more of the combined voting power of the Company’s then outstanding Voting Securities;

 

  

	 	          (c)  approval by the stockholders of the Company of: 
 

  

	 	          (i)  a merger, consolidation, share exchange or reorganization involving the Company, unless

 

  

	 	          (A)  the stockholders of the Company, immediately before such merger, consolidation, share
exchange or reorganization, own, directly or indirectly immediately following such merger, consolidation, share exchange or reorganization, at least 80% of the combined voting power of the outstanding voting securities of the corporation that is the
successor in such merger, consolidation, share exchange or reorganization (the “Surviving Company”) in substantially the same proportion as their ownership of the Voting Securities immediately before such merger, consolidation, share
exchange or reorganization; and 
 

  

	 	          (B)  the individuals who were members of the Incumbent Board immediately prior to the
execution of the agreement providing for such merger, consolidation, share exchange or reorganization constitute at least two-thirds ( 2/3rds) of the members of the board of directors of the Surviving Company; 
 

  

	 	          (ii)  a complete liquidation or dissolution of the Company; or 

  

	 	          (iii)  an agreement for the sale or other disposition of all or substantially all of the
assets of the Company; or 
 

  

	 	          (d)  any person is or becomes the Beneficial Owner of securities of the Company representing
ten percent (10%) or more of the combined voting power of the Company’s then outstanding securities and (A) the identity of the Chief Executive Officer of the Company is changed during the period beginning sixty (60) days before the attainment
of the ten percent (10%) beneficial ownership and ending two (2) years thereafter, or (B) individuals constituting at least one-third (1/3) of the members of the Board at the beginning of such period shall leave the Board during the period beginning
sixty (60) days before the attainment of the ten percent (10%) beneficial ownership and ending two (2) years thereafter. 
 

  
           1.8    Code.    “Code” shall mean the Internal Revenue Code of 1986, as amended. 
  
           1.9    Committee.    “Committee” shall mean the Compensation Committee of the Board, or another committee, or a
subcommittee of the Board, appointed as provided in Section 9.1. 
  
           1.10    Common Stock.    “Common Stock” shall mean the common stock of the Company, par value $.01 per share, and any
equity security of the Company issued or authorized to be issued in the future, but excluding any preferred stock and any warrants, options or other rights to purchase Common Stock. Debt securities of the Company convertible into Common Stock shall
be deemed equity securities of the Company. 
  
           1.11    Company.    “Company” shall mean Arden Realty, Inc., a Maryland corporation. 
  
           1.12    Company Employee.    “Company Employee”
shall mean any officer or other employee (as defined in accordance with Section 3401(c) of the Code) of the Company, or of any corporation which is then a Company Subsidiary. 
  
           1.13    Company Subsidiary.    “Company Subsidiary” shall mean any corporation in
an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain then owns stock possessing 50 percent or more of the total combined voting power of all classes
 
 

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of stock in one of the other corporations in such chain. Except with respect to Incentive Stock Options, “Company Subsidiary” shall also mean any partnership in which the Company and/or
any Company Subsidiary owns more than 50 percent of the capital or profits interests; provided, however, that “Company Subsidiary” shall not include the Partnership nor any Partnership Subsidiary. 
  
           1.14    Deferred Stock.    “Deferred Stock”
shall mean Common Stock awarded under Article VII of this Plan. 
  
           1.15    Director.    “Director” shall mean a member of the Board. 
  
           1.16    Dividend Equivalent.    “Dividend
Equivalent” shall mean a right to receive the equivalent value (in cash or Common Stock) of dividends paid on Common Stock, awarded under Article VII of this Plan. 
  
           1.17    Employee.    “Employee” shall mean any Company Employee or Partnership
Employee. 
  
           1.18    Exchange
Act.    “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended. 
  
           1.19    Fair Market Value.    “Fair Market Value” of a share of Common Stock as of a given date shall be (i) the closing
price of a share of Common Stock on the principal exchange on which shares of Common Stock are then trading, if any (or as reported on any composite index which includes such principal exchange), on the trading day previous to such date, or if
shares were not traded on the trading day previous to such date, then on the next preceding date on which a trade occurred, or (ii) if Common Stock is not traded on an exchange but is quoted on NASDAQ or a successor quotation system, the mean
between the closing representative bid and asked prices for the Common Stock on the trading day previous to such date as reported by NASDAQ or such successor quotation system; or (iii) if Common Stock is not publicly traded on an exchange and not
quoted on NASDAQ or a successor quotation system, the Fair Market Value of a share of Common Stock as established by the Committee (or the Board, in the case of Options granted to Independent Directors) acting in good faith. 
  
           1.20    General Partner
Interest.    “General Partner Interest” shall mean an ownership interest in the Partnership that is a general partner interest and includes any and all benefits to which the holder of such an interest may be
entitled as provided in the Agreement of Limited Partnership of Arden Realty Limited Partnership, as amended, together with all obligations of such holder to comply with the terms and provisions of such agreement. 
  
           1.21    Grantee.    “Grantee” shall mean an Employee or consultant granted a Performance Award, Dividend Equivalent, Stock
Payment or Stock Appreciation Right, or an award of Deferred Stock, under this Plan. 
  
           1.22    Incentive Stock Option.    “Incentive Stock Option” shall mean an option which conforms to the applicable
provisions of Section 422 of the Code and which is designated as an Incentive Stock Option by the Committee. 
  
           1.23    Independent Director.    “Independent Director” shall mean a member of the Board who is not a Company Employee or a
Partnership Employee. 
  
           1.24    Non-Qualified
Stock Option.    “Non-Qualified Stock Option” shall mean an Option which is not designated as an Incentive Stock Option by the Committee. 
  
           1.25    Option.    “Option” shall mean a stock option granted under Article III
of this Plan. An Option granted under this Plan shall, as determined by the Committee, be either a Non-Qualified Stock Option or an Incentive Stock Option; PROVIDED, HOWEVER, that Options granted to Partnership Employees, Independent Directors and
consultants shall be Non-Qualified Stock Options. 
 

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           1.26    Optionee.    “Optionee” shall mean an Employee, consultant or Independent Director granted an Option under this
Plan. 
  
           1.27    Partnership.    “Partnership” shall mean Arden Realty Limited Partnership, a Maryland limited partnership.

  
           1.28    Partnership
Agreement.    “Partnership Agreement” shall mean the amended and restated agreement of limited partnership of the Partnership dated as of October 9, 1996, as the same may be amended, modified or restated from time
to time. 
  
           1.29    Partnership
Employee.    “Partnership Employee” shall mean any officer, other employee (as defined in accordance with Section 3401(c) of the Code) or any self-employed partner of the Partnership, or any entity which is then a
Partnership Subsidiary. 
  
           1.30    Partnership
Optionee Purchased Shares.    “Partnership Optionee Purchased Shares” shall have the meaning set forth in Section 5.4. 
  
           1.31    Partnership Purchase Price.    “Partnership Purchase Price” shall have the meaning set forth
in Section 5.4. 
  
           1.32    Partnership
Purchased Shares.    “Partnership Purchased Shares” shall have the meaning set forth in Section 5.4. 
  
           1.33    Partnership Subsidiary.    “Partnership Subsidiary” shall mean any partnership in an unbroken chain of partnerships
beginning with the Partnership if each of the partnerships other than the last partnership in the unbroken chain then owns more than 50 percent of the capital or profits interests in one of the other partnerships. “Partnership Subsidiary”
shall also mean any corporation in which the Partnership and/or any Partnership Subsidiary owns stock possessing 50 percent or more of the total combined voting power of all classes of stock. 
  
           1.34    Performance Award.    “Performance
Award” shall mean a cash bonus, stock bonus or other performance or incentive award that is paid in cash, Common Stock or a combination of both, awarded under Article VII of this Plan. 
  
           1.35    Plan.    “Plan” shall mean The Second
Amended and Restated 1996 Stock Option and Incentive Plan of Arden Realty, Inc. and Arden Realty Limited Partnership. 
  
           1.36    QDRO.    “QDRO” shall mean a qualified domestic relations order as defined by the Code or Title I of the Employee
Retirement Income Security Act of 1974, as amended, or the rules thereunder. 
  
           1.37    Restricted Stock.    “Restricted Stock” shall mean Common Stock awarded under Article VI of this Plan.

  
           1.38    Restricted
Stockholder.    “Restricted Stockholder” shall mean an Employee, consultant or Independent Director granted an award of Restricted Stock under Article VI of this Plan. 
  
           1.39    Rule 16b-3.    “Rule 16b-3” shall mean
that certain Rule 16b-3 under the Exchange Act, as such Rule may be amended from time to time. 
  
           1.40    Stock Appreciation Right.    “Stock Appreciation Right” shall mean a stock appreciation right granted under Article
VIII of this Plan. 
 

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           1.41    Stock Ownership Limit.    “Stock Ownership Limit” shall mean (i) the restrictions on ownership and transfer of
Common Stock provided in Article VII of the Company’s Articles of Amendment and Restatement (the “Restated Articles”); and (ii) any other restrictions on ownership or transfer set forth in the Restated Articles. 
  
           1.42    Stock Payment.    “Stock
Payment” shall mean (i) a payment in the form of shares of Common Stock, or (ii) an option or other right to purchase shares of Common Stock, as part of a deferred compensation arrangement, made in lieu of all or any portion of the
compensation, including without limitation, salary, bonuses and commissions, that would otherwise become payable to a key Employee or consultant in cash, awarded under Article VII of this Plan. 
  
           1.43    Subsidiary.    “Subsidiary” shall mean
any Company Subsidiary or Partnership Subsidiary. 
  
           1.44    Termination of Consultancy.    “Termination of Consultancy” shall mean the time when the engagement of an Optionee,
Grantee or Restricted Stockholder as a consultant to the Company, a Company Subsidiary, the Partnership or a Partnership Subsidiary is terminated for any reason, with or without cause, including, but not by way of limitation, by resignation,
discharge, death or retirement; but excluding terminations where there is a simultaneous commencement of employment with the Company, any Company Subsidiary, the Partnership or any Partnership Subsidiary. The Committee, in its absolute discretion,
shall determine the effect of all matters and questions relating to Termination of Consultancy, including, but not by way of limitation, the question of whether a Termination of Consultancy resulted from a discharge for good cause, and all questions
of whether particular leaves of absence constitute Terminations of Consultancy. Notwithstanding any other provision of this Plan, the Company, any Company Subsidiary, the Partnership or any Partnership Subsidiary has an absolute and unrestricted
right to terminate a consultant’s service at any time for any reason whatsoever, with or without cause, except to the extent expressly provided otherwise in writing. 
  
           1.45    Termination of Directorship.    “Termination of Directorship” shall mean
the time when an Optionee or Restricted Stockholder who is an Independent Director ceases to be a Director for any reason, including, but not by way of limitation, a termination by resignation, failure to be elected, death or retirement. The Board,
in its sole and absolute discretion, shall determine the effect of all matters and questions relating to Termination of Directorship with respect to Independent Directors. 
  
           1.46    Termination of Employment.    “Termination of Employment” shall mean the
time when the employee-employer relationship between an Optionee, Grantee or Restricted Stockholder and the Company, a Company Subsidiary, the Partnership or a Partnership Subsidiary is terminated for any reason, with or without cause, including,
but not by way of limitation, a termination by resignation, discharge, death, disability or retirement; but excluding (i) terminations where there is a simultaneous reemployment or continuing employment of an Optionee, Grantee or Restricted
Stockholder by the Company, any Company Subsidiary, the Partnership or any Partnership Subsidiary, (ii) at the discretion of the Committee, terminations which result in a temporary severance of the employee-employer relationship, and (iii) at the
discretion of the Committee, terminations which are followed by the simultaneous establishment of a consulting relationship by the Company, a Company Subsidiary the Partnership or a Partnership Subsidiary with the former employee. The Committee, in
its absolute discretion, shall determine the effect of all matters and questions relating to Termination of Employment, including, but not by way of limitation, the question of whether a Termination of Employment resulted from a discharge for good
cause, and all questions of whether particular leaves of absence constitute Terminations of Employment; PROVIDED, HOWEVER, that, with respect to Incentive Stock Options, a leave of absence, change in status from an employee to an independent
contractor or other change in the employee-employer relationship shall constitute a Termination of Employment if, and to the extent that, such leave of absence, change in status or other change interrupts employment for the purposes of Section
422(a)(2) of the Code and the then applicable regulations and revenue rulings under said Section. Notwithstanding any other provision of this Plan, the Company, any Company Subsidiary, the Partnership or any Partnership Subsidiary has an absolute
and unrestricted right to terminate an Employee’s employment at any time for any reason whatsoever, with or without cause, except to the extent expressly provided otherwise in writing. 
 

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 ARTICLE II. 
  
 SHARES SUBJECT TO PLAN 
  
           2.1    Shares Subject to Plan. 
  

	 	          (a)  The shares of stock subject to Options, awards of Restricted Stock, Performance Awards,
Dividend Equivalents, awards of Deferred Stock, Stock Payments or Stock Appreciation Rights shall be Common Stock, initially shares of the Company’s Common Stock, par value $.01 per share. The aggregate number of such shares which may be issued
upon exercise of such options or rights or upon any such awards under the Plan shall not exceed six million five hundred thousand (6,500,000). The shares of Common Stock issuable upon exercise of such options or rights or upon any such awards may be
either previously authorized but unissued shares or treasury shares. 
 

  

	 	          (b)  The maximum number of shares which may be subject to options or Stock Appreciation
Rights granted under the Plan to any individual in any fiscal year shall not exceed the Award Limit. To the extent required by Section 162(m) of the Code, shares subject to Options which are canceled continue to be counted against the Award Limit.

 

  
           2.2    Add-back of
Options and Other Rights.    If any Option, or other right to acquire shares of Common Stock under any other award under this Plan, expires or is canceled without having been fully exercised, or is exercised in whole or in
part for cash as permitted by this Plan, the number of shares subject to such Option or other right but as to which such Option or other right was not exercised prior to its expiration, cancellation or exercise may again be optioned, granted or
awarded hereunder, subject to the limitations of Section 2.1. Shares of Common Stock which are delivered by the Optionee or Grantee or withheld by the Company upon the exercise of any Option or other award under this Plan, in payment of the exercise
price thereof, may again be optioned, granted or awarded hereunder, subject to the limitations of Section 2.1; PROVIDED, HOWEVER, that, no shares of Common Stock delivered or withheld upon the exercise of an Incentive Stock Option, in payment of the
exercise thereof, may again be optioned, granted or awarded if such action would cause the Option to fail to qualify as an Incentive Stock Option under Section 422 of the Code. If any share of Restricted Stock is forfeited by the Grantee or
repurchased by the Company pursuant to Section 6.6 hereof, such share may again be optioned, granted or awarded hereunder, subject to the limitations of Section 2.1. 
  
 ARTICLE III. 
  
 GRANTING OF OPTIONS 
  
           3.1    Eligibility.    Any Employee or
consultant selected by the Committee pursuant to Section 3.4(a)(i) shall be eligible to be granted an Option. Each Independent Director of the Company shall be eligible to be granted Options at the times and in the manner set forth in Sections
3.4(d) and (e). 
  
           3.2    Disqualification For
Stock Ownership.    No person may be granted an Incentive Stock Option under this Plan if such person, at the time the Incentive Stock Option is granted, owns stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or any then existing Company Subsidiary unless such Incentive Stock Option conforms to the applicable provisions of Section 422 of the Code. 
  
           3.3    Qualification of Incentive Stock Options.    No
Incentive Stock Option shall be granted unless such Option, when granted, qualifies as an “incentive stock option” under Section 422 of the Code. No Incentive Stock Option shall be granted to any person who is not an employee as defined in
Section 3401(c) of the Code. 
 

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           3.4    Granting of Options. 
  

	 	          (a)  The Committee shall from time to time, in its absolute discretion, and subject to
applicable limitations of this Plan: 
 

  

	 	          (i)  Determine which Employees are key Employees and select from among the key Employees or
consultants (including Employees or consultants who have previously received Options or other awards under this Plan) such of them as in its opinion should be granted Options; 
 

  

	 	          (ii)  Subject to the Award Limit and the Stock Ownership Limit, determine the number of
shares to be subject to such Options granted to the selected key Employees or consultants; 
 

  

	 	          (iii)  Determine whether such Options are to be Incentive Stock Options or Non-Qualified
Stock Options and whether such Options are to qualify as performance-based compensation as described in Section 162(m)(4)(C) of the Code; and 
 

  

	 	          (iv)  Determine the terms and conditions of such Options, consistent with this Plan;
PROVIDED, HOWEVER, that the terms and conditions of Options intended to qualify as performance-based compensation as described in Section 162(m)(4)(C) of the Code shall include, but not be limited to, such terms and conditions as may be necessary to
meet the applicable provisions of Section 162(m) of the Code. 
 

  

	 	          (b)  Upon the selection of a key Employee or consultant to be granted an Option, the
Committee shall instruct the Secretary of the Company to issue the Option and may impose such conditions on the grant of the Option as it deems appropriate. Without limiting the generality of the preceding sentence, the Committee may, in its
discretion and on such terms as it deems appropriate, require as a condition on the grant of an Option to an Employee or consultant that the Employee or consultant surrender for cancellation some or all of the unexercised Options, awards of
Restricted Stock or Deferred Stock, Performance Awards, Stock Appreciation Rights, Dividend Equivalents or Stock Payments or other rights which have been previously granted to him under this Plan or otherwise. An Option, the grant of which is
conditioned upon such surrender, may have an option price that is higher (but not lower) than the exercise price of such surrendered Option or other award, may cover the same (or a lesser or greater) number of shares as such surrendered Option or
other award, may contain such other terms as the Committee deems appropriate, subject to the Plan, and shall be exercisable in accordance with its terms, without regard to the number of shares, price, exercise period or any other term or condition
of such surrendered Option or other award. 
 

  

	 	          (c)  Any Incentive Stock Option granted under this Plan may be modified by the Committee to
disqualify such option from treatment as an “incentive stock option” under Section 422 of the Code. 
 

  

	 	          (d)  The Board shall from time to time, in its absolute discretion, and subject to applicable
limitations of the Plan: 
 

  

	 	          (i)  Select from among the Independent Directors (including Independent Directors who have
previously received Options under the Plan) such of them as in its opinion should be granted Options; 
 

  

	 	          (ii)  subject to the Award Limit, determine the number of shares to be subject to such
Options granted to the selected Independent Directors; 
 

  

	 	          (iii)  Subject to the provisions of Article 4 determine the terms and conditions of such
Options, consistent with the Plan. 
 

  

	 	          (e)  Notwithstanding subsection (d), during the term of the Plan and subject to the Stock
Ownership Limit, each person who is an Independent Director as of the date of the consummation of the initial public offering of Common Stock automatically shall be granted (i) an Option to purchase ten thousand (10,000) shares of Common Stock
(subject to adjustment as provided in Section 10.3) on the date of such initial public offering. During the term of the Plan, a person who is initially elected to the Board after the consummation of the initial public offering of Common Stock and
who is an Independent Director at the time of such initial election automatically shall be granted (i) an Option to purchase ten thousand
 
 

 

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(10,000) shares of Common Stock (subject to adjustment as provided in Section 10.3) on the date of such initial election. Members of the Board who are employees of the Company who subsequently
retire from the Company and remain on the Board will not receive an initial Option grant pursuant to clause (i) of the preceding sentence, but to the extent that they are otherwise eligible, will receive, after retirement from employment with the
Company, Options as described in clause (ii) of the preceding sentence. All the foregoing Option grants authorized by this Section 3.4(e) are subject to stockholder approval of the Plan. 
 

  
 ARTICLE IV. 
  
 TERMS OF
OPTIONS 
  
           4.1    Option
Agreement.    Each Option shall be evidenced by a written Stock Option Agreement, which shall be executed by the Optionee and an authorized officer of the Company and which shall contain such terms and conditions as the
Committee (or the Board, in the case of Options granted to Independent Directors) shall determine, consistent with this Plan. Stock Option Agreements evidencing Options intended to qualify as performance-based compensation as described in Section
162(m)(4)(C) of the Code shall contain such terms and conditions as may be necessary to meet the applicable provisions of Section 162(m) of the Code. Stock Option Agreements evidencing Incentive Stock Options shall contain such terms and conditions
as may be necessary to meet the applicable provisions of Section 422 of the Code. 
  
           4.2    Option Price.    The price per share of the shares subject to each Option shall be set by the Committee; PROVIDED, HOWEVER,
that such price shall be no less than the par value of a share of Common Stock unless otherwise permitted by applicable state law, and (i) in the case of Incentive Stock Options and Options intended to qualify as performance-based compensation as
described in Section 162(m)(4)(C) of the Code, such price shall not be less than 100% of the Fair Market Value of a share of Common Stock on the date the Option is granted; (ii) in the case of Incentive Stock Options granted to an individual then
owning (within the meaning of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Company or any Company Subsidiary such price shall not be less than 110% of the Fair Market Value of a share of
Common Stock on the date the Option is granted; and (iii) in the case of Options granted to Independent Directors, such price shall equal 100% of the Fair Market Value of a share of Common Stock on the date the Option is granted; PROVIDED, HOWEVER,
that the price of each share subject to each Option granted to Independent Directors on the date of the initial public offering of Common Stock shall equal the initial public offering price (net of underwriting discounts and commissions) per share
of Common Stock. 
  
           4.3    Option
Term.    The term of an Option shall be set by the Committee in its discretion; PROVIDED, HOWEVER, that, (i) in the case of Options granted to Independent Directors, the term shall be ten (10) years from the date the Option
is granted, without variation or acceleration hereunder, and (ii) in the case of Incentive Stock Options, the term shall not be more than ten (10) years from the date the Incentive Stock Option is granted, or five (5) years from such date if the
Incentive Stock Option is granted to an individual then owning (within the meaning of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Company or any Company Subsidiary. Except as limited by
requirements of Section 422 of the Code and regulations and rulings thereunder applicable to Incentive Stock Options, the Committee may extend the term of any outstanding Option in connection with any Termination of Employment or Termination of
Consultancy of the Optionee, or amend any other term or condition of such Option relating to such a termination. 
  
           4.4    Option Vesting. 
  

	 	          (a)  The period during which the right to exercise an Option in whole or in part vests in the
Optionee shall be set by the Committee (or the Board, in the case of options granted to Independent Directors) and the Committee (or the Board, in the case of options granted to Independent Directors) may determine that an Option may not be
exercised in whole or in part for a specified period after it is granted; PROVIDED, HOWEVER, that, unless the Committee (or the Board, in the case of options granted to Independent
 
 

 

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Directors) otherwise provides in the terms of the Option or otherwise, no Option shall be exercisable by any Optionee who is then subject to Section 16 of the Exchange Act within the period
ending six months and one day after the date the Option is granted. At any time after grant of an Option, the Committee (or the Board, in the case of options granted to Independent Directors) may, in its sole and absolute discretion and subject to
whatever terms and conditions it selects, accelerate the period during which an Option vests. 
 

  

	 	          (b)  No portion of an Option which is unexercisable at Termination of Employment, Termination
of Directorship or Termination of Consultancy, as applicable, shall thereafter become exercisable, except as may be otherwise provided by the Committee in the case of Options granted to Employees or consultants (or the Board, in the case of options
granted to Independent Directors) either in the Stock Option Agreement or by action of the Committee (or the Board, in the case of options granted to Independent Directors) following the grant of the Option. 
 

  

	 	          (c)  To the extent that the aggregate Fair Market Value of stock with respect to which
“incentive stock options” (within the meaning of Section 422 of the Code, but without regard to Section 422(d) of the Code) are exercisable for the first time by an Optionee during any calendar year (under the Plan and all other incentive
stock option plans of the Company and any Company Subsidiary) exceeds $100,000, such Options shall be treated as Non-Qualified Options to the extent required by Section 422 of the Code. The rule set forth in the preceding sentence shall be applied
by taking Options into account in the order in which they were granted. For purposes of this Section 4.4(c), the Fair Market Value of stock shall be determined as of the time the Option with respect to such stock is granted. 

  
           4.5    No Right to Continue as
Employee, Director or Consultant.    Nothing in this Plan or in any Stock Option Agreement hereunder shall confer upon any Optionee any right to continue in the employ of, or as a consultant for, the Company, any Company
Subsidiary, the Partnership or any Partnership Subsidiary, or as a director of the Company, or shall interfere with or restrict in any way the rights of the Company, any Company Subsidiary, the Partnership and any Partnership Subsidiary, which are
hereby expressly reserved, to discharge any Optionee at any time for any reason whatsoever, with or without good cause. 
  
           4.6    Exercise of Option After Termination of Employment or Directorship. 
  

	 	          (a)  An Option granted to an Employee is exercisable by an Optionee only while the Optionee
is an Employee. The preceding notwithstanding, the Committee may determine that an Option granted to an Employee may be exercised subsequent to an Optionee’s Termination of Employment, subject to the following limitations: 

  

	 	          (i)  If the Optionee dies while an Option is exercisable under the terms of this Plan, the
Optionee’s Beneficiary may exercise such rights, to the extent the Optionee could have done so immediately preceding his death. Any such Option must be exercised within twelve (12) months after the Optionee’s death and the Committee may in
its sole and absolute discretion extend such period to accommodate such exercise; or 
 

  

	 	          (ii)  If the Optionee’s Termination of Employment is due to the Optionee’s
permanent and total disability, as defined in Section 22(e)(3) of the Code, the Optionee may exercise his Option, to the extent exercisable as of the Optionee’s Termination of Employment, within twelve (12) months after termination; or

 

  

	 	          (iii)  If the Optionee’s employment is terminated for any reason other than those set
forth in subsections (i) or (ii) above, the Optionee may exercise his Option, to the extent exercisable as of his Termination of Employment, within three (3) months after Termination of Employment, unless the Employee dies within said three-month
period. 
 

  

	 	          (iv)  Notwithstanding (i) through (iii) above, an Option may not be exercised later than the
Option’s Expiration Date. 
 

 

 9 

   

  

	 	          (b)  No Option granted to an Independent Director may be exercised to any extent by anyone
after the first to occur of the following events: 
 

  

	 	          (i)  The expiration of twelve (12) months from the date of the Optionee’s death; or

 

  

	 	          (ii)  The expiration of twelve (12) months from the date of the Optionee’s Termination
of Directorship by reason of his permanent and total disability (within the meaning of Section 22(e)(3) of the Code); or 
 

  

	 	          (iii)  The expiration of three (3) months from the date of the Optionee’s Termination of
Directorship for any reason other than such Optionee’s death or his permanent and total disability, unless the Optionee dies within said three-month period. 
 

  

	 	          (iv)  Notwithstanding (i) through (iii) above, an Option may not be exercised later than the
Option’s Expiration Date. 
 

  
           4.7    Consideration.    In consideration of the granting of a Non-Qualified Stock Option, the Optionee shall agree, in the written
Stock Option Agreement, to remain in the employ of the Company, a Company Subsidiary, the Partnership or a Partnership Subsidiary (or to serve as an Independent Director of the Company) for a period of at least one year after the Non-Qualified Stock
Option is granted (or until the next annual meeting of the stockholders of the Company, in the case of an Independent Director). In consideration of the granting of an Incentive Stock Option, the Optionee shall agree, in the written Stock Option
Agreement, to remain in the employ of the Company or a Company Subsidiary for a period of at least one year after the Incentive Stock Option is granted. Nothing in this Plan or in any Stock Option Agreement hereunder shall confer upon any Optionee
any right to continue in the employ of the Company, any Company Subsidiary, the Partnership or any Partnership Subsidiary or as a director of the Company. 
  
 ARTICLE V. 
  
 EXERCISE OF OPTIONS 
  
           5.1    Partial Exercise.    An exercisable Option may be
exercised in whole or in part. However, an Option shall not be exercisable with respect to fractional shares and the Committee (or the Board, in the case of Options granted to Independent Directors) may require that, by the terms of the Option, a
partial exercise be with respect to a minimum number of shares. 
  
           5.2    Manner of Exercise.    All or a portion of an exercisable Option shall be deemed exercised upon delivery of all of the
following to the Secretary of the Company or his office: 
  

	 	          (a)  A written notice complying with the applicable rules established by the Committee (or
the Board in the case of Options granted to Independent Directors), the Company or the Partnership stating that the Option, or a portion thereof, is exercised. The notice shall be signed by the Optionee or other person then entitled to exercise the
Option or such portion; 
 

  

	 	          (b)  Such representations and documents as the Committee (or the Board, in the case of
Options granted to Independent Directors), in its absolute discretion, deems necessary or advisable to effect compliance with all applicable provisions of the Securities Act of 1933, as amended, and any other federal or state securities laws or
regulations. The Committee or Board may, in its absolute discretion, also take whatever additional actions it deems appropriate to effect such compliance including, without limitation, placing legends on share certificates and issuing stop-transfer
notices to agents and registrars; 
 

  

	 	          (c)  In the event that the Option shall be exercised pursuant to Section 10.1 by any person
or persons other than the Optionee, appropriate proof of the right of such person or persons to exercise the Option; and 
 

 

 10 

   

  

	 	          (d)  Full cash payment to (i) the Secretary of the Company for the shares with respect to
which the Option, or portion thereof, is exercised. However, the Committee (or the Board, in the case of Options granted to Independent Directors), may in its discretion (i) allow a delay in payment up to thirty (30) days from the date the Option,
or portion thereof, is exercised; (ii) allow payment, in whole or in part, through the delivery of shares of Common Stock owned by the Optionee, duly endorsed for transfer to the Company with a Fair Market Value on the date of delivery equal to the
aggregate exercise price of the Option or exercised portion thereof; (iii) allow payment, in whole or in part, through the surrender of shares of Common Stock then issuable upon exercise of the Option having a Fair Market Value on the date of Option
exercise equal to the aggregate exercise price of the Option or exercised portion thereof; (iv) allow payment, in whole or in part, through the delivery of property of any kind which constitutes good and valuable consideration; (v) allow payment, in
whole or in part, through the delivery of a full recourse promissory note bearing interest (at no less than such rate as shall then preclude the imputation of interest under the Code) and payable upon such terms as may be prescribed by the Committee
or the Board; (vi) allow payment, in whole or in part, through the delivery of a notice that the Optionee has placed a market sell order with a broker with respect to shares of Common Stock then issuable upon exercise of the Option, and that the
broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the Option exercise price; or (vii) allow payment through any combination of the consideration provided in the foregoing
subparagraphs (ii), (iii), (iv), (v) and (vi). In the case of a promissory note, the Committee (or the Board, in the case of Options granted to Independent Directors) may also prescribe the form of such note and the security to be given for such
note. The Option may not be exercised, however, by delivery of a promissory note or by a loan from the Company when or where such loan or other extension of credit is prohibited by law. 
 

  
           5.3    Transfer of Shares to a Company Employee or Independent
Director.    As soon as practicable after receipt by the Company, pursuant to Section 5.2(d), of payment for the shares with respect to which an Option (which in the case of a Company Employee was issued to and is held by
such Company Employee in his or her capacity as a Company Employee), or portion thereof, is exercised by an Optionee who is a Company Employee or Independent Director, with respect to each such exercise, the Company shall transfer to the Optionee
the number of shares equal to: 
  

	 	          (a)  the amount of the payment made by the Optionee to the Company pursuant to Section
5.2(d), DIVIDED BY 
 

  

	 	          (b)  the price per share of the shares subject to the Option as determined pursuant to
Section 4.2. 
 

  
           5.4    Transfer of Shares to a Partnership Employee.    As soon as practicable after receipt by the Company, pursuant to Section
5.2(d), of payment for the shares with respect to which an Option (which was issued to and is held by a Partnership Employee in his or her capacity as a Partnership Employee), or portion thereof, is exercised by an Optionee who is a Partnership
Employee, with respect to each such exercise: 
  

	 	          (a)  the Company shall transfer to the Optionee the number of shares equal to (A) the amount
of the payment made by the Optionee to the Company pursuant to Section 5.2(d) DIVIDED BY (B) the Fair Market Value of a share of Common Stock at the time of exercise (the “Partnership Optionee Purchased Shares”); and 

  

	 	          (b)  the Company shall sell to the Partnership the number of shares (the “Partnership
Purchased Shares”) equal to the excess of (A) the amount obtained by dividing (i) the amount of the payment made by the Optionee to the Company pursuant to Section 5.2(d) by (ii) the price per share of the shares subject to the Option as
determined pursuant to Section 4.2., over (B) the Partnership Optionee Purchased Shares; The price to be paid by the Partnership to the Company for the Partnership Purchased Shares (the “Partnership Purchase Price”) shall be an amount
equal to the product of (A) the number of Partnership Purchased Shares MULTIPLIED BY (B) the Fair Market Value of a share of Common Stock at the time of the exercise; 
 

  

	 	          (c)  As soon as practicable after receipt of the Partnership Purchased Shares by the
Partnership, the Partnership shall transfer such shares to the Optionee at no additional cost, as additional compensation. 
 

 

 11 

   

  
           5.5    Transfer of Payment to the Partnership.    As soon as practicable after receipt by the Company (i) of the amount described in
Section 5.2(d) and (ii) the Partnership Purchase Price described in Section 5.4, the Company shall contribute to the Partnership an amount of cash equal to such payment and the Partnership shall issue an additional General Partner Interest to the
Company on the terms set forth in the Partnership Agreement. 
  
           5.6    Conditions to Issuance of Stock Certificates.    The Company or the Partnership shall not be required to issue or deliver any
certificate or certificates for shares of stock purchased upon the exercise of any Option or portion thereof prior to fulfillment of all of the following conditions: 
  

	 	          (a)  The admission of such shares to listing on all stock exchanges on which such class of
stock is then listed; 
 

  

	 	          (b)  The completion of any registration or other qualification of such shares under any state
or federal law, or under the rulings or regulations of the Securities and Exchange Commission or any other governmental regulatory body which the Committee or Board shall, in its absolute discretion, deem necessary or advisable; 

  

	 	          (c)  The obtaining of any approval or other clearance from any state or federal governmental
agency which the Committee or Board shall, in its absolute discretion, determine to be necessary or advisable; 
 

  

	 	          (d)  The lapse of such reasonable period of time following the exercise of the Option as the
Committee or Board may establish from time to time for reasons of administrative convenience; and 
 

  

	 	          (e)  The receipt by the Company or the Partnership of full payment for such shares, including
payment of any applicable withholding tax. 
 

  
           5.7    Rights as Stockholders.    The holders of Options shall not be, nor have any of the rights or privileges of, stockholders of
the Company in respect of any shares purchasable upon the exercise of any part of an Option unless and until certificates representing such shares have been issued by the Company to such holders. 
  
           5.8    Ownership and Transfer Restrictions.    Shares
acquired through the exercise of an Option shall be subject to the restrictions on ownership and transfer set forth in the Company’s Amended and Restated Charter. The Committee (or the Board, in the case of Options granted to Independent
Directors), in its absolute discretion, may impose such additional restrictions on the ownership and transferability of the shares purchasable upon the exercise of an Option as it deems appropriate. Any such restriction shall be set forth in the
respective Stock Option Agreement and may be referred to on the certificates evidencing such shares. The Committee may require the Employee to give the Company prompt notice of any disposition of shares of Common Stock acquired by exercise of an
Incentive Stock Option within (i) two years from the date of granting such Option to such Employee or (ii) one year after the transfer of such shares to such Employee. The Committee (or the Board, in the case of Options granted to Independent
Directors) may direct that the certificates evidencing shares acquired by exercise of an Option refer to such requirement to give prompt notice of disposition. 
  
           5.9    Restrictions on Exercise of Option.    An Option is not exercisable if in the sole
and absolute discretion of the Committee the exercise of such Option would likely result in any of the following: 
  

	 	          (a)  the Optionee’s or any other person’s ownership of Capital Stock being in
violation of the Stock Ownership Limit; 
 

  

	 	          (b)  income to the Company that could impair the Company’s status as a real estate
investment trust, within the meaning of Sections 856 through 860 of the Code; or 
 

 

 12 

   

  
 ARTICLE VI. 
  
 AWARD OF RESTRICTED STOCK 
  
           6.1    Award of Restricted Stock. 
  

	 	          (a)  The Committee (or the Board in the case of Independent Directors) may from time to time,
in its absolute discretion: 
 

  

	 	          (i)  Select from among the key Employees, Independent Directors or consultants (including
Employees, Independent Directors or consultants who have previously received other awards under this Plan) such of them as in its opinion should be awarded Restricted Stock; and 
 

  

	 	          (ii)  Determine the purchase price, if any, and other terms and conditions applicable to such
Restricted Stock, consistent with this Plan. 
 

  

	 	          (b)  The Committee (or the Board in the case of Independent Directors) shall establish the
purchase price, if any, and form of payment for Restricted Stock; PROVIDED, HOWEVER, that such purchase price shall be no less than the par value of the Common Stock to be purchased unless otherwise permitted by applicable state law. In all cases,
legal consideration shall be required for each issuance of Restricted Stock. 
 

  

	 	          (c)  Upon the selection of a key Employee, Independent Director or consultant to be awarded
Restricted Stock, the Committee (or the Board in the case of an Independent Director) shall instruct the Secretary of the Company to issue such Restricted Stock and may impose such conditions on the issuance of such Restricted Stock as it deems
appropriate. 
 

  
           6.2    Restricted Stock Agreement.    Restricted Stock shall be issued only pursuant to a written Restricted Stock Agreement, which
shall be executed by the selected key Employee, Independent Director or consultant and an authorized officer of the Company and which shall contain such terms and conditions as the Committee (or the Board in the case of an Independent Director)
shall determine, consistent with this Plan. 
  
           6.3    Consideration.    As consideration for the issuance of Restricted Stock, in addition to payment of any purchase price, the
Restricted Stockholder shall agree, in the written Restricted Stock Agreement, to remain in the employ of, to be a Director of or to consult for, the Company, a Company Subsidiary, the Partnership or a Partnership Subsidiary (whichever is
applicable) for a period of at least one year after the Restricted Stock is issued (or until the next annual meeting of the stockholders of the Company, in the case of an Independent Director) (or such shorter period as may be fixed in the
Restricted Stock Agreement or by action of the Committee (or the Board in the case of an Independent Director) following grant of the Restricted Stock). Nothing in this Plan or in any Restricted Stock Agreement hereunder shall confer on any
Restricted Stockholder any right to continue in the employ of, as a Director of, or as a consultant for, the Company, any Company Subsidiary, the Partnership or any Partnership Subsidiary or shall interfere with or restrict in any way the rights of
the Company, any Company Subsidiary, the Partnership or any Partnership Subsidiary, which are hereby expressly reserved, to discharge any Restricted Stockholder at any time for any reason whatsoever, with or without good cause. 
  
           6.4    Rights as Stockholders.    Upon
delivery of the shares of Restricted Stock to the escrow holder pursuant to Section 6.7, the Restricted Stockholder shall have, unless otherwise provided by the Committee (or the Board in the case of an Independent Director), all the rights of a
stockholder with respect to said shares, subject to the restrictions in his Restricted Stock Agreement, including the right to receive all dividends and other distributions paid or made with respect to the shares; PROVIDED, HOWEVER, that in the
discretion of the Committee (or the Board in the case of an Independent Director), any extraordinary distributions with respect to the Common Stock shall be subject to the restrictions set forth in Section 6.5. 
  
           6.5    Restriction.    All shares of Restricted Stock
issued under this Plan (including any shares received by holders thereof with respect to shares of Restricted Stock as a result of stock dividends, stock splits or any other
 
 

 13 

   

 
form of recapitalization) shall, in the terms of each individual Restricted Stock Agreement, be subject to such restrictions as the Committee (or the Board in the case of an Independent Director)
shall provide, which restrictions may include, without limitation, restrictions concerning voting rights and transferability and restrictions based on duration of employment with the Company, Company performance and individual performance; PROVIDED,
HOWEVER, that, unless the Committee (or the Board in the case of an Independent Director) otherwise provides in the terms of the Restricted Stock Agreement or otherwise, no share of Restricted Stock granted to a person subject to Section 16 of the
Exchange Act shall be sold, assigned or otherwise transferred until at least six months have elapsed from (but excluding) the date on which the Restricted Stock was issued, and PROVIDED, FURTHER, that by action taken after the Restricted Stock is
issued, the Committee (or the Board in the case of an Independent Director) may, on such terms and conditions as it may determine to be appropriate, remove any or all of the restrictions imposed by the terms of the Restricted Stock Agreement.
Restricted Stock may not be sold or encumbered until all restrictions are terminated or expire. Unless provided otherwise by the Committee (or the Board in the case of an Independent Director), if no consideration was paid by the Restricted
Stockholder upon issuance, a Restricted Stockholder’s rights in unvested Restricted Stock shall lapse upon Termination of Employment or, if applicable, upon Termination of Consultancy with the Company or the Partnership. 
  
           6.6    Repurchase of Restricted
Stock.    The Committee (or the Board in the case of an Independent Director) shall provide in the terms of each individual Restricted Stock Agreement that the Company shall have the right to repurchase from the Restricted
Stockholder the Restricted Stock then subject to restrictions under the Restricted Stock Agreement immediately upon a Termination of Employment or, if applicable, upon a Termination of Consultancy between the Restricted Stockholder and the Company,
at a cash price per share equal to the price paid by the Restricted Stockholder for such Restricted Stock; PROVIDED, HOWEVER, that provision may be made that no such right of repurchase shall exist in the event of a Termination of Employment or
Termination of Consultancy without cause, or following a change in control of the Company or the Partnership, or because of the Restricted Stockholder’s retirement, death or Disability, or otherwise. 
  
           6.7    Escrow.    The Secretary of the Company or such
other escrow holder as the Committee may appoint shall retain physical custody of each certificate representing Restricted Stock until all of the restrictions imposed under the Restricted Stock Agreement with respect to the shares evidenced by such
certificate expire or shall have been removed. 
  
           6.8    Legend.    In order to enforce the restrictions imposed upon shares of Restricted Stock hereunder, the Committee (or the Board
in the case of an Independent Director) shall cause a legend or legends to be placed on certificates representing all shares of Restricted Stock that are still subject to restrictions under Restricted Stock Agreements, which legend or legends shall
make appropriate reference to the conditions imposed thereby. 
  
 ARTICLE VII. 
  
 PERFORMANCE AWARDS, DIVIDEND EQUIVALENTS, 
 DEFERRED STOCK, STOCK PAYMENTS

  
           7.1    Performance
Awards.    Any key Employee or consultant selected by the Committee may be granted one or more Performance Awards. The value of such Performance Awards may be linked to the market value, book value, net profits or other
measure of the value of Common Stock or other specific performance criteria determined appropriate by the Committee, in each case on a specified date or dates or over any period or periods determined by the Committee, or may be based upon the
appreciation in the market value, book value, net profits or other measure of the value of a specified number of shares of Common Stock over a fixed period or periods determined by the Committee. In making such determinations, the Committee shall
consider (among such other factors as it deems relevant in light of the specific type of award) the contributions, responsibilities and other compensation of the particular key Employee or consultant. 
 

 14 

   

  
           7.2    Dividend Equivalents.    Any key Employee or consultant selected by the Committee may be granted Dividend Equivalents based on
the dividends declared on Common Stock, to be credited as of dividend payment dates, during the period between the date an Option, Stock Appreciation Right, Deferred Stock or Performance Award is granted, and the date such Option, Stock Appreciation
Right, Deferred Stock or Performance Award is exercised, vests or expires, as determined by the Committee. Such Dividend Equivalents shall be converted to cash or additional shares of Common Stock by such formula and at such time and subject to such
limitations as may be determined by the Committee. With respect to Dividend Equivalents granted with respect to Options intended to be qualified performance-based compensation for purposes of Section 162(m), such Dividend Equivalents shall be
payable regardless of whether such Option is exercised. 
  
           7.3    Stock Payments.    Any key Employee or consultant selected by the Committee may receive Stock Payments in the manner
determined from time to time by the Committee. The number of shares shall be determined by the Committee and may be based upon the Fair Market Value, book value, net profits or other measure of the value of Common Stock or other specific performance
criteria determined appropriate by the Committee, determined on the date such Stock Payment is made or on any date thereafter. 
  
           7.4    Deferred Stock.    Any key Employee or consultant selected by the Committee may be granted an award of Deferred Stock in the
manner determined from time to time by the Committee. The number of shares of Deferred Stock shall be determined by the Committee and may be linked to the market value, book value, net profits or other measure of the value of Common Stock or other
specific performance criteria determined to be appropriate by the Committee, in each case on a specified date or dates or over any period or periods determined by the Committee. Common Stock underlying a Deferred Stock award will not be issued until
the Deferred Stock award has vested, pursuant to a vesting schedule or performance criteria set by the Committee. Unless otherwise provided by the Committee, a Grantee of Deferred Stock shall have no rights as a Company stockholder with respect to
such Deferred Stock until such time as the award has vested and the Common Stock underlying the award has been issued. 
  
           7.5    Performance Award Agreement, Dividend Equivalent Agreement, Deferred Stock Agreement, Stock Payment Agreement.    Each
Performance Award, Dividend Equivalent, award of Deferred Stock and/or Stock Payment shall be evidenced by a written agreement, which shall be executed by the Grantee and an authorized Officer of the Company and which shall contain such terms and
conditions as the Committee shall determine, consistent with this Plan. 
  
           7.6    Term.    The term of a Performance Award, Dividend Equivalent, award of Deferred Stock and/or Stock Payment shall be set by
the Committee in its discretion. 
  
           7.7    Exercise Upon Termination of Employment.    A Performance Award, Dividend Equivalent, award of Deferred Stock and/or Stock
Payment is exercisable or payable only while the Grantee is an Employee or consultant; provided that the Committee may determine that the Performance Award, Dividend Equivalent, award of Deferred Stock and/or Stock Payment may be exercised or paid
subsequent to Termination of Employment or Termination of Consultancy without cause, or following a change in control of the Company or the Partnership, or because of the Grantee’s retirement, death or Disability, or otherwise. 

 
           7.8    Payment on
Exercise.    Payment of the amount determined under Section 7.1 or 7.2 above shall be in cash, in Common Stock or a combination of both, as determined by the Committee. To the extent any payment under this Article VII is
effected in Common Stock, it shall be made subject to satisfaction of all provisions of Section 5.6 and 5.8. 
  
           7.9    Consideration.    In consideration of the granting of a Performance Award, Dividend Equivalent, award of Deferred Stock and/or
Stock Payment, the Grantee shall agree, in a written agreement, to remain in the employ of, or to consult for, the Company or any Subsidiary for a period of at least one year after such Performance Award, Dividend Equivalent, award of Deferred Stock
and/or Stock Payment is granted (or such shorter period as may be fixed in such agreement or by action of the Committee following such grant). 
 

 15 

   

  
 ARTICLE VIII. 
  
 STOCK APPRECIATION RIGHTS 
  
           8.1    Grant Of Stock Appreciation Rights.    A Stock Appreciation Right may be granted to any key Employee or consultant selected by
the Committee. A Stock Appreciation Right may be granted (i) in connection and simultaneously with the grant of an Option, (ii) with respect to a previously granted Option, or (iii) independent of an Option. A Stock Appreciation Right shall be
subject to such terms and conditions not inconsistent with this Plan as the Committee shall impose and shall be evidenced by a written Stock Appreciation Right Agreement, which shall be executed by the Grantee and an authorized officer of the
Company. The Committee, in its discretion, may determine whether a Stock Appreciation Right is to qualify as performance-based compensation as described in Section 162(m)(4)(C) of the Code and Stock Appreciation Right Agreements evidencing Stock
Appreciation Rights intended to so qualify shall contain such terms and conditions as may be necessary to meet the applicable provisions of Section 162(m) of the Code. Without limiting the generality of the foregoing, the Committee may, in its
discretion and on such terms as it deems appropriate, require as a condition of the grant of a Stock Appreciation Right to an Employee or consultant that the Employee or consultant surrender for cancellation some or all of the unexercised Options,
awards of Restricted Stock or Deferred Stock, Performance Awards, Stock Appreciation Rights, Dividend Equivalents or Stock Payments, or other rights which have been previously granted to him under this Plan or otherwise. A Stock Appreciation Right,
the grant of which is conditioned upon such surrender, may have an exercise price that is higher (but not lower) than the exercise price of the surrendered Option or other award, may cover the same (or a lesser or greater) number of shares as such
surrendered Option or other award, may contain such other terms as the Committee deems appropriate subject to the Plan, and shall be exercisable in accordance with its terms, without regard to the number of shares, price, exercise period or any
other term or condition of such surrendered Option or other award. 
  
           8.2     Coupled Stock Appreciation Rights. 
  

	 	          (a)  A Coupled Stock Appreciation Right (“CSAR”) shall be related to a particular
Option and shall be exercisable only when and to the extent the related Option is exercisable. 
 

  

	 	          (b)  A CSAR may be granted to the Grantee for no more than the number of shares subject to
the simultaneously or previously granted Option to which it is coupled. 
 

  

	 	          (c)  A CSAR shall entitle the Grantee (or other person entitled to exercise the Option
pursuant to this Plan) to surrender to the Company unexercised a portion of the Option to which the CSAR relates (to the extent then exercisable pursuant to its terms) and to receive from the Company or the Partnership, as provided in the CSAR
agreement, in exchange therefor an amount determined by multiplying the difference obtained by subtracting the Option exercise price from the Fair Market Value of a share of Common Stock on the date of exercise of the CSAR by the number of shares of
Common Stock with respect to which the CSAR shall have been exercised, subject to any limitations the Committee may impose. 
 

  
           8.3    Independent Stock Appreciation Rights. 
  

	 	          (a)  An Independent Stock Appreciation Right (“ISAR”) shall be unrelated to any
Option and shall have a term set by the Committee. An ISAR shall be exercisable in such installments as the Committee may determine. An ISAR shall cover such number of shares of Common Stock as the Committee may determine; provided, however, that
unless the Committee otherwise provides in the terms of the ISAR or otherwise, no ISAR granted to a person subject to Section 16 of the Exchange Act shall be exercisable until at least six months have elapsed from (but excluding) the date on which
the Option was granted. The exercise price per share of Common Stock subject to each ISAR shall be set by the Committee. An ISAR is exercisable only while the Grantee is an Employee or consultant; provided that the Committee may determine that the
ISAR may be exercised subsequent to Termination of Employment or Termination of Consultancy without cause, or following a change in control of the Company or the Partnership, or because of the Grantee’s retirement, death or Disability, or
otherwise. 
 

 

 16 

   

  

	 	          (b)  An ISAR shall entitle the Grantee (or other person entitled to exercise the ISAR
pursuant to this Plan) to exercise all or a specified portion of the ISAR (to the extent then exercisable pursuant to its terms) and to receive from the Company or the Partnership, as provided in the ISAR agreement, an amount determined by
multiplying the difference obtained by subtracting the exercise price per share of the ISAR from the Fair Market Value of a share of Common Stock on the date of exercise of the ISAR by the number of shares of Common Stock with respect to which the
ISAR shall have been exercised, subject to any limitations the Committee may impose. 
 

  
           8.4    Payment and Limitations on Exercise. 
  

	 	          (a)  Payment of the amount determined under Section 8.2(c) and 8.3(b) above shall be in cash,
in Common Stock (based on its Fair Market Value as of the date the Stock Appreciation Right is exercised) or a combination of both, as determined by the Committee. To the extent such payment is effected in Common Stock it shall be made subject to
satisfaction of all provisions of Section 5.6 and Section 5.8 hereinabove pertaining to Options. 
 

  

	 	          (b)  Grantees of Stock Appreciation Rights may be required to comply with any timing or other
restrictions with respect to the settlement or exercise of a Stock Appreciation Right, including a window-period limitation, as may be imposed in the discretion of the Board or Committee. 
 

  
           8.5      Consideration.    In consideration of
the granting of a Stock Appreciation Right, the Grantee shall agree, in the written Stock Appreciation Right Agreement, to remain in the employ of, or to consult for, the Company or any Subsidiary for a period of at least one year after the Stock
Appreciation Right is granted (or such shorter period as may be fixed in the Stock appreciation Right Agreement or by action of the Committee following grant of the Restricted Stock). 
  
 ARTICLE IX. 
  
 ADMINISTRATION

  
           9.1    Compensation
Committee.    Prior to the Company’s initial registration of Common Stock under Section 12 of the Exchange Act, the Compensation Committee shall consist of the entire Board. Following such registration, the Compensation
Committee (or another committee or a subcommittee of the Board assuming the functions of the Committee under this Plan) shall consist solely of two or more Independent Directors appointed by and holding office at the pleasure of the Board, each of
whom is both a “non-employee director” as defined by Rule 16b-3 and an “outside director” for purposes of Section 162(m) of the Code. Appointment of Committee members shall be effective upon acceptance of appointment. Committee
members may resign at any time by delivering written notice to the Board. Vacancies in the Committee may be filled by the Board. 
  
           9.2    Duties and Powers of Committee.    It shall be the duty of the Committee to conduct the general administration of this Plan in
accordance with its provisions. The Committee shall have the power to interpret this Plan and the agreements pursuant to which Options, awards of Restricted Stock or Deferred Stock, Performance Awards, Stock Appreciation Rights, Dividend Equivalents
or Stock Payments are granted or awarded, and to adopt such rules for the administration, interpretation, and application of this Plan as are consistent therewith and to interpret, amend or revoke any such rules. Notwithstanding the foregoing, the
full Board, acting by a majority of its members in office, shall conduct the general administration of the Plan with respect to Options granted to Independent Directors. Any such grant or award under this Plan need not be the same with respect to
each Optionee, Grantee or Restricted Stockholder. Any such interpretations and rules with respect to Incentive Stock Options shall be consistent with the provisions of Section 422 of the Code. In its absolute discretion, the Board may at any time
and from time to time exercise any and all rights and duties of the Committee under this Plan except with respect to matters which under Rule 16b-3 or Section 162(m) of the Code, or any regulations or rules issued thereunder, are required to be
determined in the sole discretion of the Committee. 
 

 17 

   

  
           9.3    Majority Rule; Unanimous Written Consent.    The Committee shall act by a majority of its members in attendance at a meeting
at which a quorum is present or by a memorandum or other written instrument signed by all members of the Committee. 
  
           9.4    Compensation; Professional Assistance; Good Faith Actions.    Members of the Committee shall receive such compensation for
their services as members as may be determined by the Board. All expenses and liabilities which members of the Committee incur in connection with the administration of this Plan shall be borne by the Company. The Committee may, with the approval of
the Board, employ attorneys, consultants, accountants, appraisers, brokers, or other persons. The Committee, the Company and the Company’s officers and Directors shall be entitled to rely upon the advice, opinions or valuations of any such
persons. All actions taken and all interpretations and determinations made by the Committee or the Board in good faith shall be final and binding upon all Optionees, Grantees, Restricted Stockholders, the Company, the Partnership and all other
interested persons. No members of the Committee or Board shall be personally liable for any action, determination or interpretation made in good faith with respect to this Plan, Options, awards of Restricted Stock or Deferred Stock, Performance
Awards, Stock Appreciation Rights, Dividend Equivalents or Stock Payments, and all members of the Committee and the Board shall be fully protected by the Company in respect of any such action, determination or interpretation. 
  
           9.5    Delegation of Authority.    The
Committee may in its sole and absolute discretion delegate to the Chief Financial Officer of the Company or the Secretary of the Company, or both, any or all of the administrative duties and authority of the Committee under this Plan, other than the
authority to make grants or awards under this Plan to Employees who are officers of the Company within the meaning of Rule 16(a)-1(b) of the Exchange Act or whose total compensation is required to be reported to the Company’s stockholders under
the Exchange Act, to determine the price, timing or amount of such grants or awards or to determine any other matter required by Rule 16b-3 or Code Section 162(m) to be determined in the sole and absolute discretion of the Committee. 

 
           9.6    No Liability.    No member
of the Board or the Committee, or director, officer or employee of the Company, any Company Subsidiary, the Partnership or any Partnership Subsidiary shall be liable, responsible or accountable in damages or otherwise for any determination made or
other action taken or any failure to act by such person so long as such person is not determined to be guilty by a final adjudication of willful misconduct with respect to such determination, action or failure to act. 
  
           9.7    Indemnification.    To the
fullest extent permitted by law, each of the members of the Board and the Committee and each of the directors, officers and employees of the Company, any Company Subsidiary, the Partnership and any Partnership Subsidiary shall be held harmless and
be indemnified by the Company for any liability, loss (including amounts paid in settlement), damages or expenses (including reasonable attorneys’ fees) suffered by virtue of any determinations, acts or failures to act, or alleged acts or
failures to act, in connection with the administration of this Plan so long as such person is not determined by a final adjudication to be guilty of willful misconduct with respect to such determination, action or failure to act. 
  
 ARTICLE X. 
  
 MISCELLANEOUS PROVISIONS 
  
           10.1    Not Transferable.    Options, Restricted Stock awards, Deferred Stock awards, Performance Awards, Stock Appreciation Rights,
Dividend Equivalents or Stock Payments under this Plan may not be sold, pledged, assigned, or transferred in any manner other than by will or the laws of descent and distribution or pursuant to a QDRO, unless and until such rights or awards have
been exercised, or the shares underlying such rights or awards have been issued, and all restrictions applicable to such shares have lapsed; PROVIDED, HOWEVER, that Non-Qualified Stock Options, Restricted Stock, Deferred Stock awards, Performance
Awards, Stock Appreciation Rights, Dividend Equivalents and Stock Payments shall be transferable with the prior written
 
 

 18 

   

 
consent of the Compensation Committee (or the Board, with respect to Non-Qualified Stock Options and Restricted Stock granted to Independent Directors), in which case the transferee shall receive
and hold the Option or other award so transferred subject to the provisions of this Plan and the agreement governing such Option or other award. No Option, Restricted Stock award, Deferred Stock award, Performance Award, Stock Appreciation Right,
Dividend Equivalent or Stock Payment or interest or right therein shall be liable for the debts, contracts or engagements of the Optionee, Grantee or Restricted Stockholder or his successors in interest or shall be subject to disposition by
transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings
(including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect, except to the extent that such disposition is permitted by the preceding sentence. 
  
           During the lifetime of the Optionee or Grantee, only he may exercise an Option or other right or award
(or any portion thereof) granted to him under the Plan, unless it has been disposed of pursuant to a QDRO; PROVIDED, HOWEVER, that if the Compensation Committee (or the Board, with respect to Non-Qualified Stock Options and Restricted Stock granted
to Independent Directors) has permitted an award to be transferred, the option may be exercised by such transferee. After the death of the Optionee or Grantee, any exercisable portion of an Option or other right or award may, prior to the time when
such portion becomes unexercisable under the Plan or the applicable Stock Option Agreement or other agreement, be exercised by his personal representative or by any person empowered to do so under the deceased Optionee’s or Grantee’s will
or under the then applicable laws of descent and distribution. 
  
           10.2    Amendment, Suspension or Termination of This Plan.    Except as otherwise provided in this Section 10.2, this Plan may be
wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Board or the Committee. However, without approval of the Company’s stockholders given within twelve months before or after the
action by the Board or the Committee, no action of the Board or the Committee may, except as provided in Section 10.3, increase the limits imposed in Section 2.1 on the maximum number of shares which may be issued under this Plan or modify the Award
Limit, and no action of the Committee may be taken that would otherwise require stockholder approval as a matter of applicable law, regulation or rule. No amendment, suspension or termination of this Plan shall, without the consent of the holder of
Options, Restricted Stock awards, Deferred Stock awards, Performance Awards, Stock Appreciation Rights, Dividend Equivalents or Stock Payments, alter or impair any rights or obligations under any Options, Restricted Stock awards, Deferred Stock
awards, Performance Awards, Stock Appreciation Rights, Dividend Equivalents or Stock Payments theretofore granted or awarded, unless the award itself otherwise expressly so provides. No Options, Restricted Stock, Deferred Stock, Performance Awards,
Stock Appreciation Rights, Dividend Equivalents or Stock Payments may be granted or awarded during any period of suspension or after termination of this Plan, and in no event may any Incentive Stock Option be granted under this Plan after September
27, 2006. 
  
           10.2A    Repricing
Prohibited.    Notwithstanding any provision in this Plan to the contrary, no Option or Stock Appreciation right may be amended to reduce the price per share of the shares subject to such Option or the exercise price of such
Stock Appreciation right, as applicable, below the option price or exercise price as of the date the Option or Stock Appreciation Right is granted. In addition, as described in Sections 3.4(b)and 8.1, no Option or Stock Appreciation Right may be
granted in exchange for, or in connection with, the cancellation or surrender of an Option, Stock Appreciation Right or other award having a higher option or exercise price. 
  
           10.3    Changes in Common Stock or Assets of the Company, Acquisition or Liquidation of the Company and Other
Corporate Events. 
  

	 	          (a)  Subject to Section 10.3(e), in the event that the Committee (or the Board, in the case
of Options granted to Independent Directors) determines that any dividend or other distribution (whether in the form of cash, Common Stock, other securities, or other property), recapitalization, reclassification, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off, combination, repurchase,
 
 

 

 19 

   

	 	
liquidation, dissolution, or sale, transfer, exchange or other disposition of all or substantially all of the assets of the Company (including, but not limited to, a Change of Control), or
exchange of Common Stock or other securities of the Company, issuance of warrants or other rights to purchase Common Stock or other securities of the Company, or other similar corporate transaction or event, in the Committee’s sole discretion
(or in the case of Options granted to Independent Directors, the Board’s sole discretion), affects the Common Stock such that an adjustment is determined by the Committee to be appropriate in order to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available under the Plan or with respect to an Option, Restricted Stock award, Performance Award, Stock Appreciation Right, Dividend Equivalent, Deferred Stock award or Stock Payment, then the
Committee (or the Board, in the case of Options granted to Independent Directors) shall, in such manner as it may deem equitable, adjust any or all of 
 

  

	 	          (i)  the number and kind of shares of Common Stock (or other securities or property) with
respect to which Options, Performance Awards, Stock Appreciation Rights, Dividend Equivalents or Stock Payments may be granted under the Plan, or which may be granted as Restricted Stock or Deferred Stock (including, but not limited to, adjustments
of the limitations in Section 2.1 on the maximum number and kind of shares which may be issued and adjustments of the Award Limit), 
 

  

	 	          (ii)  the number and kind of shares of Common Stock (or other securities or property) subject
to outstanding Options, Performance Awards, Stock Appreciation Rights, Dividend Equivalents, or Stock Payments, and in the number and kind of shares of outstanding Restricted Stock or Deferred Stock, and 
 

  

	 	          (iii)  the grant or exercise price with respect to any Option, Performance Award, Stock
Appreciation Right, Dividend Equivalent or Stock Payment. 
 

  

	 	          (b)  Subject to Section 10.3(e), in the event of any corporate transaction or other
transaction or event described in Section 10.3(a) which results in shares of Common Stock being exchanged for or converted into cash, securities (including securities of another corporation) or other property, the Committee will have the right to
terminate this Plan as of the date of the event or transaction, in which case all options, rights and other awards granted under this Plan shall become the right to receive such cash, securities or other property, net of any applicable exercise
price. 
 

  

	 	          (c)  Subject to Sections 10.3(c)(vii) and 10.3(e), in the event of any Change of Control or
other transaction or event described in Section 10.3(a) or any unusual or nonrecurring transactions or events affecting the Company, any affiliate of the Company, or the financial statements of the Company or any affiliate, or of changes in
applicable laws, regulations, or accounting principles, the Committee (or the Board, in the case of Options granted to Independent Directors) in its discretion is hereby authorized to take any one or more of the following actions whenever the
Committee (or the Board, in the case of Options granted to Independent Directors) determines that such action is appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the
Plan or with respect to any option, right or other award under this Plan, to facilitate such transactions or events or to give effect to such changes in laws, regulations or principles: 
 

  

	 	          (i)  In its sole and absolute discretion, and on such terms and conditions as it deems
appropriate, the Committee (or the Board, in the case of Options granted to Independent Directors) may provide, either by the terms of the agreement or by action taken prior to the occurrence of such transaction or event and either automatically or
upon the optionee’s request, for either the purchase of any such Option, Performance Award, Stock Appreciation Right, Dividend Equivalent, or Stock Payment, or any Restricted Stock or Deferred Stock for an amount of cash equal to the amount
that could have been attained upon the exercise of such option, right or award or realization of the optionee’s rights had such option, right or award been currently exercisable or payable or fully vested as the replacement of such option,
right or award with other rights or property selected by the Committee (or the Board, in the case of Options granted to Independent Directors) in its sole discretion; 
 

 

 20 

   

  

	 	          (ii)  In its sole and absolute discretion, the Committee (or the Board, in the case of
Options granted to Independent Directors) may provide, either by the terms of such Option, Performance Award, Stock Appreciation Right, Dividend Equivalent, or Stock Payment, or Restricted Stock or Deferred Stock or by action taken prior to the
occurrence of such transaction or event that it cannot be exercised after such event; 
 

  

	 	          (iii)  In its sole and absolute discretion, and on such terms and conditions as it deems
appropriate, the Committee (or the Board, in the case of Options granted to Independent Directors) may provide, either by the terms of such Option, Performance Award, Stock Appreciation Right, Dividend Equivalent, or Stock Payment, or Restricted
Stock or Deferred Stock or by action taken prior to the occurrence of such transaction or event, that for a specified period of time prior to such transaction or event, such option, right or award shall be exercisable as to all shares covered
thereby, notwithstanding anything to the contrary in (i) Section 4.4 or (ii) the provisions of such Option, Performance Award, Stock Appreciation Right, Dividend Equivalent, or Stock Payment, or Restricted Stock or Deferred Stock; 

  

	 	          (iv)  In its sole and absolute discretion, and on such terms and conditions as it deems
appropriate, the Committee (or the Board, in the case of Options granted to Independent Directors) may provide, either by the terms of such Option, Performance Award, Stock Appreciation Right, Dividend Equivalent, or Stock Payment, or Restricted
Stock or Deferred Stock or by action taken prior to the occurrence of such transaction or event, that upon such event, such option, right or award be assumed by the successor or survivor corporation, or a parent or subsidiary thereof, or shall be
substituted for by similar options, rights or awards covering the stock of the successor or survivor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices; 

  

	 	          (v)  In its sole and absolute discretion, and on such terms and conditions as it deems
appropriate, the Committee (or the Board, in the case of Options granted to Independent Directors) may make adjustments in the number and type of shares of Common Stock (or other securities or property) subject to outstanding Options, Performance
Awards, Stock Appreciation Rights, Dividend Equivalents, or Stock Payments, and in the number and kind of outstanding Restricted Stock or Deferred Stock and/or in the terms and conditions of (including the grant or exercise price), and the criteria
included in, outstanding options, rights and awards and options, rights and awards which may be granted in the future; 
 

  

	 	          (vi)  In its sole and absolute discretion, and on such terms and conditions as it deems
appropriate, the Committee may provide either by the terms of a Restricted Stock award or Deferred Stock award or by action taken prior to the occurrence of such event that, for a specified period of time prior to such event, the restrictions
imposed under a Restricted Stock Agreement or a Deferred Stock Agreement upon some or all shares of Restricted Stock or Deferred Stock may be terminated, and, in the case of Restricted Stock, some or all shares of such Restricted Stock may cease to
be subject to repurchase under Section 6.6 or forfeiture under Section 6.5 after such event; and 
 

  

	 	          (vii)  None of the foregoing discretionary terms of this Section 10.3(c) shall be permitted
with respect to Options granted under Sections 3.4(d) and (e) to Independent Directors to the extent that such discretion would be inconsistent with the applicable exemptive conditions of Rule 16b-3. 
 

  

	 	          (d)  Subject to Section 10.3(e) and 10.8, the Committee (or the Board, in the case of Options
granted to Independent Directors) may, in its discretion, include such further provisions and limitations in any Option, Performance Award, Stock Appreciation Right, Dividend Equivalent, or Stock Payment, or Restricted Stock or Deferred Stock
agreement or certificate, as it may deem equitable and in the best interests of the Company. 
 

  

	 	          (e)  With respect to Incentive Stock Options and Options and Stock Appreciation Rights
intended to qualify as performance-based compensation under Section 162(m), no adjustment or action described in this Section 10.3 or in any other provision of the Plan shall be authorized to the extent that such adjustment or
 
 

 

 21 

   

	 	
action would cause the Plan to violate Section 422(b)(1) of the Code or would cause such option or stock appreciation right to fail to so qualify under Section 162(m), as the case may be, or any
successor provisions thereto. Furthermore, no such adjustment or action shall be authorized to the extent such adjustment or action would result in short-swing profits liability under Section 16 or violate the exemptive conditions of Rule 16b-3
unless the Committee (or the Board, in the case of Options granted to Independent Directors) determines that the option or other award is not to comply with such exemptive conditions. The number of shares of Common Stock subject to any option, right
or award shall always be rounded to the next whole number. 
 

  
           10.4    Approval of Plan by Stockholders.    This Plan will be submitted for the approval of the Company’s stockholders within
twelve months after the date of the Board’s initial adoption of this Plan. Options, Performance Awards, Stock Appreciation Rights, Dividend Equivalents or Stock Payments may be granted and Restricted Stock or Deferred Stock may be awarded prior
to such stockholder approval, provided that such Options, Performance Awards, Stock Appreciation Rights, Dividend Equivalents or Stock Payments shall not be exercisable and such Restricted Stock or Deferred Stock shall not vest prior to the time
when this Plan is approved by the stockholders, and provided further that if such approval has not been obtained at the end of said twelve-month period, all Options, Performance Awards, Stock Appreciation Rights, Dividend Equivalents or Stock
Payments previously granted and all Restricted Stock or Deferred Stock previously awarded under this Plan shall thereupon be canceled and become null and void. 
  
           10.5    Tax Withholding.    The Company and the Partnership shall be entitled to require
payment in cash or deduction from other compensation payable to each Optionee, Grantee or Restricted Stockholder of any sums required by federal, state or local tax law to be withheld with respect to the issuance, vesting or exercise of any Option,
Restricted Stock, Deferred Stock, Performance Award, Stock Appreciation Right, Dividend Equivalent or Stock Payment. The Committee (or the Board, in the case of Options granted to Independent Directors) may in its discretion and in satisfaction of
the foregoing requirement allow such Optionee, Grantee or Restricted Stockholder to elect to have the Company withhold shares of Common Stock otherwise issuable under such Option or other award (or allow the return of shares of Common Stock) having
a Fair Market Value equal to the sums required to be withheld. 
  
           10.6    Loans.    The Committee may, in its discretion, extend one or more loans to key Employees in connection with the exercise or
receipt of an Option, Performance Award, Stock Appreciation Right, Dividend Equivalent or Stock Payment granted under this Plan, or the issuance of Restricted Stock or Deferred Stock awarded under this Plan. The terms and conditions of any such loan
shall be set by the Committee. 
  
           10.7    Forfeiture Provisions.    Pursuant to its general authority to determine the terms and conditions applicable to awards under
the Plan, the Committee (or the Board, in the case of Options granted to Independent Directors) shall have the right (to the extent consistent with the applicable exemptive conditions of Rule 16b-3) to provide, in the terms of Options or other
awards made under the Plan, or to require the recipient to agree by separate written instrument, that (i) any proceeds, gains or other economic benefit actually or constructively received by the recipient upon any receipt or exercise of the award,
or upon the receipt or resale of any Common Stock underlying such award, must be paid to the Company, and (ii) the award shall terminate and any unexercised portion of such award (whether or not vested) shall be forfeited, if (a) a Termination of
Employment, Termination of Consultancy or Termination of Directorship occurs prior to a specified date, or within a specified time period following receipt or exercise of the award, or (b) the recipient at any time, or during a specified time
period, engages in any activity in competition with the Company, or which is inimical, contrary or harmful to the interests of the Company, as further defined by the Committee (or the Board, as applicable). 
  
           10.8    Limitations Applicable to Section 16 Persons and Performance-Based
Compensation. Notwithstanding any other provision of this Plan, this Plan, and any Option, Performance Award, Stock Appreciation Right, Dividend Equivalent or Stock Payment granted, or Restricted Stock or Deferred Stock awarded, to any
individual who is then subject to Section 16 of the Exchange Act, shall be subject to any
 
 

 22 

   

 
additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of the Exchange Act) that are requirements for the
application of such exemptive rule. To the extent permitted by applicable law, the Plan, Options, Performance Awards, Stock Appreciation Rights, Dividend Equivalents, Stock Payments, Restricted Stock and Deferred Stock granted or awarded hereunder
shall be deemed amended to the extent necessary to conform to such applicable exemptive rule. Furthermore, notwithstanding any other provision of this Plan, any Option or Stock Appreciation Right intended to qualify as performance-based compensation
as described in Section 162(m)(4)(C) of the Code shall be subject to any additional limitations set forth in Section 162(m) of the Code (including any amendment to Section 162(m) of the Code) or any regulations or rulings issued thereunder that are
requirements for qualification as performance-based compensation as described in Section 162(m)(4)(C) of the Code, and this Plan shall be deemed amended to the extent necessary to conform to such requirements. 
  
           10.9    Effect of Plan Upon Options and Compensation
Plans.    The adoption of this Plan shall not affect any other compensation or incentive plans in effect for the Company, any Company Subsidiary, the Partnership or any Partnership Subsidiary. Nothing in this Plan shall be
construed to limit the right of the Company or the Partnership (i) to establish any other forms of incentives or compensation for Employees, Directors or Consultants of the Company, any Company Subsidiary, the Partnership or any Partnership
Subsidiary or (ii) to grant or assume options or other rights otherwise than under this Plan in connection with any proper corporate purpose including but not by way of limitation, the grant or assumption of options in connection with the
acquisition by purchase, lease, merger, consolidation or otherwise, of the business, stock or assets of any corporation, partnership, firm or association. 
  
           10.10    Section 83(b) Election Prohibited.    No Grantee, Optionee or Restricted Stockholder may make an
election under Section 83(b) of the Code with respect to any award or grant under this Plan. 
  
           10.11    Compliance with Laws.    This Plan, the granting and vesting of Options, Restricted Stock awards, Deferred Stock awards,
Performance Awards, Stock Appreciation Rights, Dividend Equivalents or Stock Payments under this Plan and the issuance and delivery of shares of Common Stock and the payment of money under this Plan or under Options, Performance Awards, Stock
Appreciation Rights, Dividend Equivalents or Stock Payments granted or Restricted Stock or Deferred Stock awarded hereunder are subject to compliance with all applicable federal and state laws, rules and regulations (including but not limited to
state and federal securities law and federal margin requirements) and to such approvals by any listing, regulatory or governmental authority as may, in the opinion of counsel for the Company, be necessary or advisable in connection therewith. Any
securities delivered under this Plan shall be subject to such restrictions, and the person acquiring such securities shall, if requested by the Company, provide such assurances and representations to the Company as the Company may deem necessary or
desirable to assure compliance with all applicable legal requirements. To the extent permitted by applicable law, the Plan, Options, Restricted Stock awards, Deferred Stock awards, Performance Awards, Stock Appreciation Rights, Dividend Equivalents
or Stock Payments granted or awarded hereunder shall be deemed amended to the extent necessary to conform to such laws, rules and regulations. 
  
           10.12    Titles.    Titles are provided herein for convenience only and are not to serve as a basis for
interpretation or construction of this Plan. 
  
           10.13    Governing Law.    This Plan and any agreements hereunder shall be administered, interpreted and enforced under the internal
laws of the State of Maryland without regard to conflicts of laws thereof. 
  
           10.14    Conflicts with Company’s Restated Articles.    Notwithstanding any other provision of this Plan, the Optionee shall not
acquire or have any right to acquire any Common Stock, and shall have no other rights under this Plan, which are prohibited under the Company’s Restated Articles. 
 

 23 

   

  
           IN WITNESS WHEREOF, the parties
hereto have caused this instrument to be executed by their officers duly authorized on this 20th day of September, 2001. 
  

	 	Ar
	den Realty, Inc., a Maryland corporation. 
 

  

	 	/s/  
	  RICHARD S. ZIMAN         
 

	 	By
	:                                      
                                        
                  
 

	 	Ric
	hard S. Ziman 
 

	 	Ch
	ief Executive Officer 
 

  

	Att
	est: 
 

  

	/s/  
	  DAVID A. SWARTZ 
 

	                                      
                                        
                              
	 
 

	Da
	vid A. Swartz 
 

	Sec
	retary 
 

  

	 	Ar
	den Realty Limited Partnership, a Maryland limited partnership. 
 

  

	 	/s/  
	  RICHARD S. ZIMAN 
 

	 	By
	:                                      
                                        
                  
 

	 	Ric
	hard S. Ziman 
 

	 	Ch
	ief Executive Officer 
 

	 	On
	 Behalf of Arden Realty, Inc., a Maryland corporation, in its capacity as General Partner 
 

  

	Att
	est: 
 

  
 s/    DAVID A. SWARTZ 

	                                      
                                        
                              
	 
 

	Da
	vid A. Swartz 
 

	Sec
	retary 
 

 

 24<PAGE>

                                                                     Exhibit 4.1

                             SUBSCRIPTION AGREEMENT

Dear Subscriber:

      You (the "Subscriber") hereby agree to purchase, and Advanced Aerodynamics
& Structures, Inc., a Delaware corporation (the "Company"), hereby agrees to
issue and to sell to the Subscriber, an 8% Secured Convertible Note (the "Note")
convertible in accordance with the terms thereof into shares of the Company's
$.0001 par value Class A common stock (the "Company Shares") and Class A Common
Stock Purchase Warrants of the Company ("Warrants") for the consideration set
forth on the signature page hereof ("Purchase Price"), all of which shall be
deemed allocated to the cost basis of the Note. The form of Note is annexed
hereto as Exhibit A. The Company Shares included in the Securities (as
hereinafter defined) are sometimes referred to herein as the "Shares" or "Common
Stock"; the Note, Warrants and Company Shares issuable upon conversion of the
Note and exercise of the Warrants are collectively referred to herein as, the
"Securities." Upon acceptance of this Agreement by the Subscriber, the Company
shall issue and deliver to the Subscriber the Note and Warrants against payment,
by federal funds (U.S.) wire transfer of the Purchase Price. This subscription
is concurrent with, and part of similar Subscription Agreements which relate to
an offering of a minimum of $7,000,000 of Purchase Price and up to a maximum of
$10,000,000 of Purchase Price (the "Offering"). A closing hereunder shall not
take place unless the Company shall receive or shall have previously received
the net proceeds of not less than $7,000,000 of Purchase Price pursuant to the
Offering ("Minimum Offering").

      The following terms and conditions shall apply to this subscription.

      1. Subscriber's Representations and Warranties. The Subscriber hereby
represents and warrants to and agrees with the Company that:

            (a) Information on Company. The Subscriber has been furnished with
the Company's Prospectus dated May 14, 2001, Form 10-KSB for the year ended
December 31, 2000, as filed with the Securities and Exchange Commission (the
"Commission") together with all subsequent forms 10-Q and forms 8-K, and any
amendments to any such forms 10-K, 10-Q and 8-K filed prior to the date hereof
(collectively, the "Reports"). In addition, the Subscriber has received from the
Company such other information concerning its operations, financial condition
and other matters, as the Subscriber has requested, and the Subscriber has
considered all factors the Subscriber deems material in deciding on the
advisability of investing in the Securities (such information in writing is
collectively, the "Other Written Information").

            (b) Information on Subscriber. The Subscriber is an "accredited
investor," as such term is defined in Regulation D promulgated by the Commission
under the Securities Act of 1933, as amended (the "1933 Act"), is experienced in
investments and business matters, has made investments of a speculative nature
and has purchased securities of United States publicly-owned companies in
private placements in the past and, with its representatives, has such knowledge
and experience in financial, tax and other business matters as to enable the
Subscriber to utilize the information made available by the Company to evaluate
the merits and risks of and to make an informed investment decision with respect
to the proposed purchase, which represents a speculative investment. The
Subscriber has the authority and is duly and legally qualified to purchase and
own the Securities. The Subscriber is able to bear the risk of such investment
for an indefinite period and to afford a complete loss thereof.

            (c) Purchase of Note and Warrants. On the Closing Date, the
Subscriber will purchase the Note and Warrants for its own account and not with
a view to any distribution thereof.

                                       1

<PAGE>

            (d) Compliance with Securities Act. The Subscriber understands and
agrees that the Securities have not been registered under the 1933 Act, by
reason of their issuance in a transaction that does not require registration
under the 1933 Act (based in part on the accuracy of the representations and
warranties of Subscriber contained herein), and that such Securities must be
held unless a subsequent disposition is registered under the 1933 Act or is
exempt from such registration.

            (e) Shares Legend. Except as otherwise provided herein, the Shares
issuable upon conversion of the Note and exercise of the Warrants shall bear the
following legend:

            "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
            UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE SHARES MAY NOT
            BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
            AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT OR AN
            OPINION OF COUNSEL REASONABLY SATISFACTORY TO ADVANCED AERODYNAMICS
            & STRUCTURES, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."

            (f) Note Legend. The Note shall bear the following legend:

            "THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS
            NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
            AMENDED. THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF
            THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED
            IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS
            NOTE UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY
            TO ADVANCED AERODYNAMICS & STRUCTURES, INC. THAT SUCH REGISTRATION
            IS NOT REQUIRED."

            (g) Warrants Legend. The Warrants shall bear the following legend:

            "THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS
            WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
            AS AMENDED. THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON
            EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED
            OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
            STATEMENT AS TO THIS WARRANT UNDER SAID ACT OR AN OPINION OF COUNSEL
            REASONABLY SATISFACTORY TO ADVANCED AERODYNAMICS & STRUCTURES, INC.
            THAT SUCH REGISTRATION IS NOT REQUIRED."

            (h) Communication of Offer. The offer to sell the Securities was
directly communicated to the Subscriber. At no time was the Subscriber presented
with or solicited by any leaflet, newspaper or magazine article, radio or
television advertisement, or any other form of general advertising or solicited
or

                                       2

<PAGE>

invited to attend a promotional meeting otherwise than in connection and
concurrently with such communicated offer.

            (i) Business Relationships. To the best knowledge of Subscriber,
Subscriber represents that there is no present or planned business relationship
between Subscriber and any Company director other than in connection with the
transactions described in this Agreement, previous fundings of the Company, or
as described in the Reports, or in connection with a research report prepared by
a director of the Company.

            (j) Correctness of Representations. The Subscriber represents that
the foregoing representations and warranties are true and correct as of the date
hereof and, unless the Subscriber otherwise notifies the Company prior to the
Closing Date (as hereinafter defined), shall be true and correct as of the
Closing Date. The foregoing representations and warranties shall survive the
Closing Date.

      2. Company Representations and Warranties. The Company represents and
warrants to and agrees with the Subscriber, except as set forth on Schedule B
hereto, that:

            (a) Due Incorporation. The Company and each of its subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of the respective jurisdictions of their incorporation and have the requisite
corporate power to own their properties and to carry on their business as now
being conducted. The Company and each of its subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in each jurisdiction
where the nature of the business conducted or property owned by it makes such
qualification necessary, other than those jurisdictions in which the failure to
so qualify would not have a material adverse effect on the business, operations
or prospects or condition (financial or otherwise) of the Company.

            (b) Capitalization. As of October 23, 2001, the authorized capital
stock of the Company consists of 200,000,000 shares of Class A Common Stock, of
which 38,119,006 shares are issued and outstanding; 10,000,000 shares of Class B
Common Stock, of which 1,900,324 shares are issued and outstanding; 4,000,000
shares of Class E-1 Common Stock of which 4,000,000 shares are issued and
outstanding; 4,000,000 shares of Class E-2 Common Stock, of which 4,000,000
shares are issued and outstanding; and 5,000,000 shares of Preferred Stock, of
which 100,000 shares are designated as Series A 5% Cumulative Preferred Stock,
of which 49,969 such shares were issued and outstanding. Except as set forth in
the Reports or Other Written Information, there are no options, warrants or
rights to subscribe to, securities, rights or obligations convertible into or
exchangeable for or giving any right to subscribe for any shares of capital
stock of the Company. All of the outstanding shares of Common Stock of the
Company have been duly and validly authorized and issued and are fully paid and
nonassessable.

            (c) Reports. The Company has delivered or made available to the
Subscriber true and complete copies of the Reports (including, without
limitation, proxy information and solicitation materials). The Company has not
provided to the Subscriber any information that, according to applicable law,
rule or regulation, should have been disclosed publicly prior to the date hereof
by the Company, but which has not been so disclosed. As of their respective
dates, the Reports complied in all material respects with the requirements of
the 1933 Act or the Exchange Act (as such term is hereinafter defined), as the
case may be, and rules and regulations of the Commission promulgated thereunder
and other federal, state and local laws, rules and regulations applicable to
such Reports. None of the Reports contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. The financial statements of the
Company included in the Reports comply as to form in all material respects with
applicable accounting requirements and the published rules and

                                       3

<PAGE>

regulations of the Commission or other applicable rules and regulations with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they may not include footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of operations
and cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments).

            (d) Authority; Enforceability. This Agreement has been duly
authorized, executed and delivered by the Company and is a valid and binding
agreement enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights generally and
to general principles of equity; and the Company has full corporate power and
authority necessary to enter into this Agreement and to perform its obligations
hereunder and all other agreements entered into by the Company relating hereto.

            (e) Additional Issuances. There are no outstanding agreements or
preemptive or similar rights affecting the Company's common stock or equity and
no outstanding rights, warrants or options to acquire, or instruments
convertible into or exchangeable for, or agreements or understandings with
respect to the sale or issuance of any shares of common stock or equity of the
Company or other equity interest in any of the subsidiaries of the Company,
except as described in the Reports or Other Written Information, or on Schedule
B hereto.

            (f) Consents. No consent, approval, authorization or order of any
court, governmental agency or body or arbitrator having jurisdiction over the
Company, or any of its affiliates, the National Association of Securities
Dealers ("NASD") or the Company's stockholders is required for execution of this
Agreement, and all other agreements entered into by the Company relating
thereto, including, without limitation issuance and sale of the Securities, and
the performance of the Company's obligations hereunder.

            (g) No Violation or Conflict. Assuming the representations and
warranties of the Subscriber in Section 1 are true and correct and the
Subscriber complies with its obligations under this Agreement, neither the
issuance and sale of the Securities nor the performance of its obligations under
this Agreement and all other agreements entered into by the Company relating
hereto by the Company will:

                  (i) violate, conflict with, result in a breach of or
constitute a default (or an event which with the giving of notice or the lapse
of time or both would be reasonably likely to constitute a default) under (A)
the certificate of incorporation, charter or bylaws of the Company or any of its
subsidiaries, (B) to the Company's knowledge, any decree, judgment, order, law,
treaty, rule, regulation or determination applicable to the Company or any of
its subsidiaries of any court, governmental agency or body, or arbitrator having
jurisdiction over the Company or any of its subsidiaries or over the properties
or assets of the Company or any of its subsidiaries, (C) the terms of any bond,
debenture, note or any other evidence of indebtedness, or any agreement, stock
option or other similar plan, indenture, lease, mortgage, deed of trust or other
instrument to which the Company or any of its subsidiaries is a party, by which
the Company or any of its subsidiaries is bound, or to which any of the
properties of the Company or any of its subsidiaries is subject or (D) the terms
of any "lock-up" or similar provision of any underwriting or similar agreement
to which the Company, or any of its subsidiaries is a party; or

                  (ii) result in the creation or imposition of any lien, charge
or encumbrance upon the Securities or any of the assets of the Company, or any
of its subsidiaries.

                                       4

<PAGE>

            (h) The Securities. The Securities, upon issuance:

                  (i) are, or will be, free and clear of any security interests,
liens, claims or other encumbrances, subject to restrictions upon transfer under
the 1933 Act and state laws;

                  (ii) have been, or will be, duly and validly authorized and on
the date of issuance and on the Closing Date, as hereinafter defined, and the
date the Note is converted, and the Warrants are exercised, the Securities will
be duly and validly issued, fully paid and nonassessable (and if registered
pursuant to the 1933 Act, and resold pursuant to an effective registration
statement will be free trading and unrestricted, provided that the Subscriber
complies with the prospectus delivery requirements);

                  (iii) will not have been issued or sold in violation of any
preemptive or other similar rights of the holders of any securities of the
Company; and

                  (iv) will not subject the holders thereof to personal
liability by reason of being such holders.

            (i) Litigation. There is no pending or, to the best knowledge of the
Company, threatened action, suit, proceeding or investigation before any court,
governmental agency or body or arbitrator having jurisdiction over the Company
or any of its subsidiaries that would affect the execution by the Company or the
performance by the Company of its obligations under this Agreement, and all
other agreements entered into by the Company relating hereto. Except as
disclosed on Schedule B hereto or in the Reports or Other Written Information,
there is no pending or, to the best knowledge of the Company, threatened action,
suit, proceeding or investigation before any court, governmental agency or body
or arbitrator having jurisdiction over the Company, or any of its subsidiaries
relating to the Company or any of its directors or officers.

            (j) Reporting Company Eligibility. The Company is a publicly-held
company whose Common Stock is (and has been for the past ninety (90) days)
registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Pursuant to the provisions of the Exchange Act,
the Company has timely filed all reports and other materials required to be
filed thereunder with the Securities and Exchange Commission during the
preceding twelve (12) months.

            (k) No Market Manipulation. The Company has not taken, and will not
take, directly or indirectly, any action designed to, or that might reasonably
be expected to, cause or result in stabilization or manipulation of the price of
the Common Stock of the Company to facilitate the sale or resale of the
Securities or affect the price at which the Securities may be issued.

            (l) Information Concerning Company. The Reports and Other Written
Information contain all material information relating to the Company and its
operations and financial condition as of their respective dates which
information is required to be disclosed therein. Since the date of the financial
statements included in the Reports, and except as modified in the Other Written
Information, there has been no material adverse change in the Company's
business, financial condition or affairs not disclosed in the Reports. The
Reports and Other Written Information do not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.

            (m) Dilution. The number of Shares issuable upon conversion of the
Note may increase substantially in certain circumstances, including, but not
necessarily limited to, the circumstance wherein the trading price of the Common
Stock declines prior to conversion of the Note. The Company's

                                       5

<PAGE>

executive officers and directors have studied and fully understand the nature of
the Securities being sold hereby and recognize that they have a potential
dilutive effect. The board of directors of the Company has concluded, in its
good faith business judgment, that such issuance is in the best interests of the
Company. The Company specifically acknowledges that its obligation to issue
Shares upon conversion of the Note and exercise of the Warrants is binding upon
the Company and enforceable, except as otherwise described in this Subscription
Agreement or the Note, regardless of the dilution such issuance may have on the
ownership interests of other shareholders of the Company.

            (n) Stop Transfer. The Securities are restricted securities as of
the date of this Agreement. The Company will not issue any stop transfer order
or other order impeding the sale and delivery of the Securities, except as may
be required by law.

            (o) Defaults. Neither the Company nor any of its subsidiaries is in
violation of its Certificate of Incorporation or Bylaws, in each case, as
amended to date. Neither the Company nor any of its subsidiaries is (i) in
default under or in violation of any other material agreement or instrument to
which it is a party including without limitation the sublease for the Company's
facility in Long Beach, California, or by which it or any of its properties are
bound or affected, which default or violation would have a material adverse
effect on the Company, (ii) in default with respect to any order of any court,
arbitrator or governmental body or subject to or party to any order of any court
or governmental authority arising out of any action, suit or proceeding under
any statute or other law respecting antitrust, monopoly, restraint of trade,
unfair competition or similar matters or (iii) to its knowledge, in violation of
any statute, rule or regulation of any governmental authority, which violation
would have a material adverse effect on the Company.

            (p) No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offering of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the 1933 Act, nor will the Company or any of its
affiliates or subsidiaries take any action or steps that would cause the
offering of the Securities to be integrated with other offerings.

            (q) No General Solicitation. Neither the Company, nor any of its
subsidiaries, nor to its knowledge, any person acting on its or their behalf,
has engaged in any form of general solicitation or general advertising (within
the meaning of Regulation D under the 1933 Act), in connection with the offer or
sale of the Securities.

            (r) Listing. The Company's common stock is quoted on, and listed for
trading on NASD OTC Bulletin Board. The Company has not received any oral or
written notice from the NASD that its Common Stock will be delisted from the
NASD OTC Bulletin Board or that the Common Stock does not meet all requirements
for the continuation of such listing.

            (s) No Undisclosed Liabilities. The Company has no liabilities or
obligations which are material, individually or in the aggregate, which are not
disclosed in the Reports and Other Written Information, other than those
incurred in the ordinary course of the Company's businesses since December 31,
2000, and which individually or in the aggregate, would not reasonably be
expected to have a material adverse effect on the Company's financial condition.

            (t) No Undisclosed Events or Circumstances. Since December 31, 2000,
no event or circumstance has occurred or exists with respect to the Company or
its businesses, properties, prospects, operations or financial condition, that,
under applicable law, rule or regulation, requires public disclosure

                                       6

<PAGE>

or announcement prior to the date hereof by the Company, but which has not been
so publicly announced or disclosed in the Reports.

            (u) Correctness of Representations. The Company represents that the
foregoing representations and warranties are true and correct as of the date
hereof in all material respects, will be true and correct as of the Closing
Date, and, unless the Company otherwise notifies the Subscriber prior to the
Closing Date, shall be true and correct in all material respects as of the
Closing Date. The foregoing representations and warranties shall survive the
Closing Date for two (2) years.

      3. Regulation D Offering; Opinion. This Offering is being made pursuant to
the exemption from the registration provisions of the 1933 Act, afforded by Rule
506 of Regulation D promulgated thereunder. On the Closing Date, the Company
will provide an opinion acceptable to Subscriber from the Company's legal
counsel opining on, among other things, the availability of the Regulation D
exemption as it relates to the offer and issuance of the Securities. A form of
the legal opinion is annexed hereto as Exhibit C. The Company will provide, at
the Company's expense, such other legal opinions at the Closing and in the
future as are reasonably requested in connection with the security interest to
be granted as described in Section 11 hereof and as may be reasonably necessary
for the conversion of the Note and issuance of the Common Stock upon conversion
of the Note and exercise of the Warrants.

      4. Reissuance of Securities. The Company agrees to reissue certificates
representing the Securities without the legends set forth in Sections 1(e) and
1(f) above (a) at such time as the holder thereof is permitted to and disposes
of such Securities pursuant to Rule 144(d) and/or Rule 144(k) under the 1933
Act, in the opinion of counsel reasonably satisfactory to the Company, or (b)
upon resale subject to an effective registration statement after the Securities
are registered under the 1933 Act. The Company agrees to cooperate with the
Subscriber in connection with all resales pursuant to Rule 144(d) and Rule
144(k) and provide legal opinions, at the Company's expense, necessary to allow
such resales, provided the Company and its counsel receive all reasonably
requested representations from the Subscriber and selling broker, if any. If the
Company fails to remove any legend, as required by this Section 4 (a "Legend
Removal Failure"), then beginning on the tenth (10th) day following such
failure, if the Company continues to fail to remove such legend, the Company
shall pay to the Subscriber or assignee holding shares subject to a Legend
Removal Failure an amount equal to 1% of the Purchase Price of the shares
subject to a Legend Removal Failure per day that such failure continues. If
during any twelve (12) month period, the Company fails to remove any legend as
required by this Section 4 for an aggregate of thirty (30) days, the Subscriber
or assignee holding Securities subject to a Legend Removal Failure may, at its
option, require the Company to purchase all or any portion of the Securities
subject to a Legend Removal Failure held by such Subscriber or assignee at a
price per share equal to 130% of the applicable Purchase Price.

      5. Warrants. The Company will issue and deliver, at the Closing, to the
Subscriber, the Warrants, a form of which is annexed hereto as Exhibit D. The
Subscriber will receive Warrants to purchase two Shares for each $1.00 of
Purchase Price invested by the Subscriber pursuant to this Agreement. The per
share "Purchase Price" of Common Stock, as defined in the Warrants, shall be
$.25 for 50% of the Warrants and $.30 for the other 50% of the Warrants.

      6. Fees.

            (a) The Company shall pay to counsel to the Subscriber its fees of
up to $70,000 for services rendered in connection with the Offering. Thirty-five
thousand dollars ($35,000) of this fee shall be payable out of funds held
pursuant to an Escrow Agreement to be entered into by the Company, Subscriber
and Grushko & Mittman, P.C. (the "Escrow Agreement") and thirty-five thousand
dollars ($35,000) of the fee shall be paid by delivery of a Note and
corresponding Warrants to be issued pursuant

                                       7

<PAGE>

to a Subscription Agreement, identical to this Subscription Agreement. The
principal amount of the Note so issued shall be deemed to comprise a portion of
the Purchase Price of the Offering. The fee will be paid to the attorneys upon
the release of Purchase Price net proceeds to or on the Company's behalf.

            (b) The Company will pay to the finders ("Finders") identified on
Schedule E hereto a fee in the amount of ten percent (10%) of the Purchase Price
("Finder's Fee"). The Finder's Fee must be paid each Closing Date with respect
to the Notes issued on such date. The Finder's Fee will be payable at the
election of each Finder in cash or by delivery to such electing Finders of
promissory notes ("Finder's Notes"). Except as described in the following
sentence, the Finder's Notes will be identical to the Notes. All the
representations, covenants, warranties, undertakings, remedies, liquidated
damages, and indemnification, other rights including but not limited to
registration rights, and rights in Section 9 hereof, made or granted to or for
the benefit of the Subscriber are hereby also made and granted to the Finders in
respect of the Finder's Notes except that the Notes issued to Finders will not
be subject to the security interest described in Section 12 of this Agreement.
Other than in relation to the foregoing exception, references to Notes in this
Agreement (and where appropriate in documents delivered in connection herewith)
shall also relate to the Finder's Notes. In the event the Subscriber so elects,
the Finders Fee may be payable in whole or in part to the Subscriber.

            (c) The Company will issue and deliver, at the Closing, to the
Finders identified on Schedule E, a Warrant, substantially in the form attached
hereto as Exhibit D, to purchase a number of shares of the Company's Class A
Common Stock equal to ten percent (10%) of the shares into which the secured
convertible debenture issued pursuant hereto is convertible at the Maximum Base
Price set forth in Section 2.1.2(i) of the Note. The per share "Purchase Price"
of Common Stock, as defined in the Warrants, shall be $.25 for 50% of the
Warrants and $.30 for the other 50% of the Warrants. In the event there is no
Finder in connection with the Subscriber entitled to receive the Warrants, then
such Warrants will be issued to such Subscriber. Each Finder entitled to receive
Notes or Warrants shall execute and deliver to the Company a Finders Investment
Representation Letter, a form of which is annexed hereto as Exhibit G.

            (d) At the Closing, the Company will pay to LH Financial Services
Corp. the sum of $50,000 as a non-accountable expense allowance.

            (e) The Company on the one hand, and the Subscriber on the other
hand, agree to indemnify the other against and hold the other harmless from any
and all liabilities to any other persons claiming brokerage commissions or
finder's fees except for Finders, on account of services purported to have been
rendered on behalf of the indemnifying party in connection with this
Subscription Agreement or the transactions contemplated hereby and arising out
of such party's actions. Except for Finders, the Company represents that there
are no other parties entitled to receive fees, commissions or similar payments
in connection with the offering described in this Subscription Agreement.

      7.1. Covenants of the Company. The Company covenants and agrees with the
Subscriber as follows:

            (a) The Company will advise the Subscriber, promptly after it
receives notice of issuance by the Commission, any state securities commission
or any other regulatory authority of any stop order or of any order preventing
or suspending any offering of any securities of the Company, or of the
suspension of the qualification of the Common Stock of the Company for offering
or sale in any jurisdiction, or the initiation of any proceeding for any such
purpose.

            (b) The Company shall promptly secure the listing of the Company
Shares and Common Stock issuable upon exercise of the Warrants upon each
national securities exchange or

                                       8

<PAGE>

automated quotation system, if any, upon which shares of its Common Stock are
then listed (subject to official notice of issuance) and shall maintain such
listing so long as any other shares of Common Stock of the Company shall be so
listed. The Company will use its best efforts to maintain the listing and
trading of its Common Stock on the NASD OTC Bulletin Board (the "Principal
Market"), and will comply in all respects with the Company's reporting, filing
and other obligations under the bylaws or rules of the NASD and such exchanges,
as applicable. The Company will provide the Subscriber copies of all notices it
receives notifying the Company of the actual or threatened delisting of the
Common Stock on any exchange or quotation system on which the Common Stock is
listed unless such notification would constitute material non-public
information.

            (c) The Company shall notify the Commission, NASD and applicable
state authorities, in accordance with their requirements, of the transactions
contemplated by this Agreement, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Securities to the Subscriber
and promptly provide copies thereof to Subscriber.

            (d) Until at least two (2) years after the effectiveness of the
registration statement on Form SB-2, the Company (i) will comply in all respects
with its reporting and filing obligations under the Exchange Act, (ii) comply
with all reporting requirements that are applicable to an issuer with a class of
Shares registered pursuant to Regulation SB of the 1933 Act and (iii) comply
with all requirements related to any registration statement filed pursuant to
this Agreement. The Company will not take any action or file any document
(whether or not permitted by the 1933 Act or the Exchange Act or the rules
thereunder) to terminate or suspend such registration or to terminate or suspend
its reporting and filing obligations under said Acts until the later of (y) two
(2) years after the effective date of the registration statement on Form SB-2 or
(z) the sale by the Subscriber of all the Company Shares and Securities issuable
by the Company pursuant to this Agreement. Until at least two (2) years after
the Warrants has been exercised, the Company will use its commercial best
efforts to continue the listing of the Common Stock on the Principal Market and
will comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the NASD and the Principal Market.

            (e) The Company undertakes to reserve, from its authorized but
unissued Common Stock from and after forty-five (45) days after the Closing Date
and thereafter, for such time that the Note or Warrants remain outstanding, a
number of Common Shares equal to not less than 200% of the amount of Common
Shares necessary to allow Subscriber to be able to convert all its outstanding
Note, at the then applicable Conversion Price (100% of such Common Shares being
the "Required Reservation Amount"), and one Common Share for each Common Share
issuable upon exercise of the Warrants. It shall be deemed an Event of Default
under the Note if at any time there is less than 100% of the Required
Reservation Amount reserved. The Company undertakes to amend its Certificate of
Incorporation to increase its authorized but unissued Common Stock within
forty-five (45) days of any date that there is less than 150% of the Required
Reservation Amount available for reservation on behalf of the holders of the
Notes and Warrants. The Company represents and warrants that Dr. Chen is in
possession of sufficient votes to amend the Company's Certificate of
Incorporation by informal shareholder action to increase the authorized Common
Stock of the Company up to 625,000,000 Class A Shares (the "Amendment"). The
Company further warrants that Dr. Chen has voted such Common Stock in favor of a
resolution amending the Certificate of Incorporation. The Company undertakes to
file with the Commission not later than three business days after the Closing
Date, the information statement required pursuant to Rule 14c-2 under the
Securities Exchange Act of 1934 ("Information Statement"). The Company further
covenants and agrees that it will take all action necessary to file the
Amendment with the State of Delaware so that as of forty-five (45) days after
the Closing Date 200% of the Required Reservation Amount will be reserved on
behalf of the Holders of the Notes and one Common Share for each Warrant. It
shall be deemed an Event of Default under the Note if (i) the Information
Statement is

                                       9

<PAGE>

not timely filed, (ii) if 200% of the Required Reservation Amount is not timely
reserved, or (iii) if at any time from and after forty-five (45) days after the
Closing Date there is not reserved one Common Share for each Common Share
issuable upon exercise of the Warrants. The reservation described in this
section shall be on behalf of all the Subscribers to the Offering in proportion
to the principal amount of the Notes issued to them in the Offering.

            (f) The Company undertakes to use the proceeds of the Subscriber's
funds for the purposes set forth on Schedule F hereto. A deviation from the use
of proceeds set forth on Schedule F of more than 5% per item or more than 15% in
the aggregate shall be deemed a material breach of the Company's obligations
hereunder. Except as set forth on Schedule F, the Purchase Price may not and
will not be used for accrued officer and director salaries, payment of financing
related debt, redemption of outstanding redeemable notes or equity instruments
of the Company nor non-trade obligations outstanding on or after the Closing
Date. Purchase Price may not be used to pay more than 50% of each trade-payable
outstanding on a Closing Date without the consent of the Holders of not less
than 30% of the principal amount of the Notes outstanding at the time of payment
of the trade-payable after deduction of the permitted payments and disbursements
described on Schedule F. The Company will deposit the net proceeds of the
Offering in segregated accounts at Morgan Stanley, Branch 761, at 330 Madison
Avenue, New York, New York 10017 (the "Accounts"). One account will be funded
with the sum of $2,200,000 which may be used exclusively for post-Closing
purchase of parts and materials to complete "003" and "004" as more fully
described on Schedule F ("Parts Allocation"). Except for funds deposited in the
Parts Allocation account, the Company may withdraw from the Accounts each thirty
day period no more than $900,000. The written consent of the Collateral Agent
(identified in the Security Agreement referred to in Section 11 of this
Agreement) shall be required for the Company to be permitted to withdraw from
the non-Parts Allocation Account any sum in excess of $900,000 during any thirty
day period. At or prior to Closing, the Company will provide to the Subscriber a
copy of an agreement with the financial institution where the Accounts are to be
maintained, reflecting the foregoing withdrawal limitations. Schedule F
describes the Offering proceeds that may be employed by the Company at or
immediately after Closing, in addition to the initial $900,000 monthly
withdrawal. After the initial withdrawal from the Account, the Company may not
withdraw any funds from the Account if it is not in compliance with its
obligations pursuant to Section 7.1(g).

            (g) Not later than fifteen days after the Closing Date, the Company
will purchase, at the Company's expense, key-man life insurance on the life of
Carl Chen for the benefit of the holders of the Notes as beneficiaries, in
proportion to their interests in the Notes. Such life insurance will be
maintained in effect for so long as any amount remains outstanding on the Notes
or pursuant to this Agreement. The Company will renew such life insurance
annually for an amount equal to not less than 120% of all sums due, payable, and
accrued on the Notes, and pursuant to this Agreement. The Company will provide
written proof of insurance to the Subscribers within twenty days of the Closing
Date. Failure to timely obtain the key-man life insurance will be an Event of
Default as defined in the Note.

      7.2. Covenants of the Subscriber.

            (a) No Short Sales. The Subscriber agrees for itself and its
affiliates that prior to the effective date of the registration statement
described in Section 10.1(ii), that the Subscriber and its affiliates will not
engage in short sales, including a covered short sale, of any of the Company's
Common Stock at a per common share sales price of less than seventy-five cents
($.75). The Subscriber agrees for itself and its affiliates that after the
effective date of the registration statement described in Section 10.1(ii), the
Subscriber and its affiliates will not engage in short sales of any of the
Company's Common Stock. The foregoing notwithstanding the Subscriber may enter
into a short sale or other hedging transaction in connection with Company Shares
the Subscriber anticipates receiving in connection with a

                                       10

<PAGE>

Conversion Notice (as defined in the Note) that has been given to the Company or
a conversion notice given in connection with any other convertible instrument of
the Company held by the Subscribers.

            (b) Compliance with Law. The Subscriber's trading activities with
respect to the Company's Common Stock will be in compliance with all applicable
state and federal securities laws, rules and regulations and the rules and
regulations of the market or exchange on which the Common Stock is listed.

      8. Covenants of the Company and Subscriber Regarding Indemnification.

            (a) The Company agrees to indemnify, hold harmless, reimburse and
defend Subscriber, and Subscriber's officers, directors or other persons acting
in similar capacities against any claim, cost, expense, liability, obligation,
loss or damage (including reasonable legal fees) of any nature, incurred by or
imposed upon Subscriber or any such person which results, arises out of or is
based upon (i) any misrepresentation by Company or breach of any warranty by
Company in this Agreement or in any exhibits or schedules attached hereto, or
other agreement delivered pursuant hereto; or (ii) after any applicable notice
and/or cure periods, any breach or default in performance by the Company of any
covenant or undertaking to be performed by the Company hereunder, or any other
agreement entered into by the Company and Subscriber relating hereto.

            (b) Subscriber agrees to indemnify, hold harmless, reimburse and
defend the Company and the Company's officers and directors against any claim,
cost, expense, liability, obligation, loss or damage (including reasonable legal
fees) of any nature, incurred by or imposed upon the Company or any such person
which results, arises out of or is based upon (i) any misrepresentation by
Subscriber or breach by Subscriber of any warranty in this Agreement or in any
exhibits or schedules attached hereto or other agreement delivered pursuant
hereto; or (ii) after any applicable notice and/or cure periods, any breach or
default in performance by the Subscriber of any covenant or undertaking to be
performed by the Subscriber hereunder, or any other agreement entered into by
the Company and Subscriber relating hereto.

            (c) The procedures set forth in Section 10.6 shall apply to the
indemnifications set forth in Sections 8(a) and 8(b) above.

      9.1 Conversion of Note.

            (a) Upon the conversion of a Note or part thereof, the Company
shall, at its own cost and expense, take all necessary action (including the
issuance of an opinion of counsel) to assure that the Company's transfer agent
shall issue stock certificates in the name of Subscriber (or its nominee) or
such other persons as designated by the Subscriber, and in such denominations to
be specified at conversion, representing the number of shares of common stock
issuable upon such conversion. The Company warrants that no instructions other
than these instructions have been or will be given to the transfer agent of the
Company's Common Stock and that the Shares will be free-trading and freely
transferable, and will not contain a legend restricting the resale or
transferability of the Company Shares provided the Shares are being sold
pursuant to an effective registration statement covering the Shares to be sold
or are otherwise exempt from registration when sold.

            (b) Subscriber will give notice of its decision to exercise its
right to convert a Note or part thereof by faxing an executed and completed
Notice of Conversion (as defined in the Note) to the Company. The Subscriber
will not be required to surrender the Note until the Note has been fully
converted or satisfied. Each date on which a Notice of Conversion is faxed to
the Company in accordance with the provisions hereof shall be deemed a
Conversion Date. The Company will, or will

                                       11

<PAGE>

cause the transfer agent to transmit, the Company's Common Stock certificates
representing the Shares issuable upon conversion of the Note (and a Note
representing the balance of the Note not so converted, if requested by
Subscriber) to the Subscriber via express courier for receipt by such Subscriber
within three (3) business days after receipt by the Company of the Notice of
Conversion (the "Delivery Date"). To the extent that a Subscriber elects not to
surrender a Note for reissuance upon partial payment or conversion, the
Subscriber hereby indemnifies the Company against any and all loss or damage
attributable to a third-party claim in an amount in excess of the actual amount
then due under the Note.

            (c) The Company understands that a delay in the delivery of the
Shares in the form required pursuant to Section 9 hereof, or the Mandatory
Redemption Amount described in Section 9.2 hereof, beyond the Delivery Date or
Mandatory Redemption Payment Date (as hereinafter defined) could result in
economic loss to the Subscriber. As compensation to the Subscriber for such
loss, the Company agrees to pay late payments to the Subscriber for late
issuance of Shares in the form required pursuant to Section 9 hereof upon
conversion of the Note or late payment of the Mandatory Redemption Amount, in
the amount of $100 per business day after the Delivery Date or Mandatory
Redemption Payment Date, as the case may be, for each $10,000 of Note principal
amount being converted or redeemed. The Company shall pay any payments incurred
under this Section in immediately available funds upon demand. Furthermore, in
addition to any other remedies which may be available to the Subscriber, in the
event that the Company fails for any reason to effect delivery of the Shares by
the Delivery Date or make payment by the Mandatory Redemption Payment Date, the
Subscriber will be entitled to revoke all or part of the relevant Notice of
Conversion or rescind all or part of the notice of Mandatory Redemption by
delivery of a notice to such effect to the Company whereupon the Company and the
Subscriber shall each be restored to their respective positions immediately
prior to the delivery of such notice, except that late payment charges described
above shall be payable through the date notice of revocation or rescission is
given to the Company.

            (d) Nothing contained herein or in any document referred to herein
or delivered in connection herewith shall be deemed to establish or require the
payment of a rate of interest or other charges in excess of the maximum
permitted by applicable law. In the event that the rate of interest or dividends
required to be paid or other charges hereunder exceed the maximum permitted by
such law, any payments in excess of such maximum shall be credited against
amounts owed by the Company to the Subscriber and thus refunded to the Company.

      9.2 Mandatory Redemption. In the event the Company is prohibited from
issuing Shares (except by reason of the limitations set forth in Section 9.3
hereof), fails to timely deliver Shares on a Delivery Date or upon the
occurrence of an Event of Default under the Note, after applicable notice and
cure periods, then at the Subscriber's election, the Company must pay to the
Subscriber five (5) business days after request by the Subscriber or on the
Delivery Date (if requested by the Subscriber prior to a Delivery Date), a sum
of money determined by multiplying the principal amount of the Note designated
by the Subscriber by 130%, together with accrued but unpaid interest thereon
("Mandatory Redemption Payment"). The Mandatory Redemption Payment must be
received by the Subscriber on the same date as the Company Shares otherwise
deliverable or within five (5) business days after request, whichever is sooner
("Mandatory Redemption Payment Date"). Upon receipt of the Mandatory Redemption
Payment, the corresponding Note principal and interest will be deemed paid and
no longer outstanding, and any obligation to deliver Shares with respect to
conversion of the redeemed portion of the Note shall be extinguished. In the
event the Company does not have sufficient cash available to pay the Mandatory
Redemption Payment, but the Company has available to it the right to draw on any
equity line of credit, bank line of credit, put or other arrangement, then the
Company must exercise its right to draw on these alternative cash sources so as
to obtain funds to pay the Mandatory Redemption Payment.

                                       12

<PAGE>

      9.3 Maximum Conversion. The Subscriber shall not be entitled to convert on
a Conversion Date that amount of the Note in connection with that number of
shares of Common Stock which would be in excess of the sum of (i) the number of
shares of Common Stock beneficially owned by the Subscriber and its affiliates
on a Conversion Date, and (ii) the number of shares of Common Stock issuable
upon the conversion of the Note with respect to which the determination of this
proviso is being made on a Conversion Date, which would result in beneficial
ownership by the Subscriber and its affiliates of more than 4.99% of the
outstanding shares of Common Stock of the Company on such Conversion Date. For
the purposes of the proviso to the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Exchange
Act, and Regulation 13d-3 thereunder. Subject to the foregoing, the Subscriber
shall not be limited to aggregate conversions of only 4.99%. The Subscriber may
void the conversion limitation described in this Section 9.3 with seventy-five
(75) days prior written notice to the Company. The Subscriber may allocate which
of the equity of the Company deemed beneficially owned by the Subscriber shall
be included in the 4.99% amount described above and which shall be allocated to
the excess above 4.99%.

      9.4 Injunction - Posting of Bond. The Company may not refuse conversion of
a Note based on any claim that such Subscriber or any one associated or
affiliated with such Subscriber has been engaged in any violation of law, breach
of contract, or for any other reason, unless, an injunction from a court, on
notice, restraining and or enjoining conversion of all or part of said Note
shall have been sought and obtained and the Company posts a surety bond for the
benefit of such Subscriber in the amount of 130% of the amount of the Note,
which is subject to the injunction, which bond shall remain in effect until the
completion of arbitration/litigation of the dispute and the proceeds of which
shall be payable to such Subscriber to the extent Subscriber obtains judgment.

      9.5 Buy-In. In addition to any other rights available to the Subscriber,
if the Company fails to deliver to the Subscriber such shares issuable upon
conversion of a Note by the Delivery Date and if after the Delivery Date the
Subscriber purchases (in an open market transaction or otherwise) shares of
Common Stock to deliver in satisfaction of a sale by such Subscriber of the
Common Stock which the Subscriber anticipated receiving upon such conversion (a
"Buy-In"), then the Company shall pay in cash to the Subscriber (in addition to
any remedies available to or elected by the Subscriber) the amount by which (A)
the Subscriber's total purchase price (including brokerage commissions, if any)
for the shares of Common Stock so purchased exceeds (B) the aggregate principal
and/or interest amount of the Note for which such conversion was not timely
honored, together with interest thereon at a rate of 15% per annum, accruing
until such amount and any accrued interest thereon is paid in full (which amount
shall be paid as liquidated damages and not as a penalty). For example, if the
Subscriber purchases shares of Common Stock having a total purchase price of
$11,000 to cover a Buy-In with respect to an attempted conversion of $10,000 of
note principal and/or interest, the Company shall be required to pay the
Subscriber $1,000, plus interest. The Subscriber shall provide the Company
written notice indicating the amounts payable to the Subscriber in respect of
the Buy-In.

      9.6 Optional Redemption. The Company will have the option of redeeming any
outstanding Note ("Optional Redemption") by paying to the Subscriber a sum of
money equal to 125% of the principal amount of the portion of the Note described
below together with accrued but unpaid interest thereon and any and all other
sums due, accrued or payable to the Subscriber arising under this Subscription
Agreement, Note or any other document delivered herewith ("Redemption Amount")
outstanding on the day notice of redemption ("Notice of Redemption) is given to
a Subscriber ("Redemption Date"). A Notice of Redemption must be given, if at
all, within two hours of the delivery to the Company by facsimile of a
Conversion Notice but only in connection with a portion of Note for which notice
of conversion has been given by the Subscriber employing the Conversion Price
described in Section 2.1(b)(ii) of the Note. The Subscriber may elect within
five (5) business days after receipt of a Notice of Redemption to give the
Company Notice of Conversion in connection with some or all of the

                                       13

<PAGE>

Note principal and interest which was the subject of the Notice of Redemption
provided the Conversion Price elected by the Subscriber is the Maximum Base
Price set forth in Section 2.1(b)(i) of the Note. A Notice of Redemption must be
accompanied by a certificate signed by the chief executive officer or chief
financial officer of the Company stating that the Company has on deposit and
segregated ready funds equal to the Redemption Amount. The Redemption Amount
must be paid in good funds to the Subscriber no later than the fifth (5th)
business day after the Redemption Date ("Optional Redemption Payment Date"). In
the event the Company fails to pay the Redemption Amount by the Optional
Redemption Payment Date, then the Redemption Notice will be null and void and
the Company will thereafter have no further right to effect an Optional
Redemption, and at the Subscription's election, the Redemption Amount will be
deemed a Mandatory Redemption Payment and the Optional Redemption Payment Date
will be deemed a Mandatory Redemption Payment Date. Such failure will also be
deemed an Event of Default under the Note. A Notice of Redemption may be given
by the Company, provided (i) no Event of Default, as described in the Note,
shall have occurred; and (ii) the Company Shares issuable upon conversion of the
full outstanding Note principal are included for unrestricted resale in a
registration statement effective as of the Redemption Date. Purchase Price
proceeds may not be used to effect an Optional Redemption.

      9.7 Redemption. The Company may not redeem the Securities without the
consent of the holder of the Securities except as otherwise set forth herein.

      10.1 Registration Rights. The Company hereby grants the following
registration rights to holders of the Securities.

            (i) If the Company at any time proposes to register any of its
securities under the 1933 Act for sale to the public, whether for its own
account or for the account of other security holders or both, except with
respect to registration statements on Forms S-4, S-8 or another form not
available for registering the Company Shares issued and issuable upon conversion
of the Notes and exercise of the Warrants (the Common Stock issued or issuable
upon conversion or exercise of the Securities [which includes the Notes,
Finder's Notes, Warrants, and Finder's Warrants] and securities issued or
issuable by virtue of ownership of the Securities being, the "Registrable
Securities"), for sale to the public, provided the Registrable Securities are
not otherwise registered for resale by the Subscriber or Holder pursuant to an
effective registration statement, each such time it will give at least thirty
(30) days' prior written notice to the record holder of the Registrable
Securities of its intention so to do. Upon the written request of the holder,
received by the Company within thirty (30) days after the giving of any such
notice by the Company, to register any of the Registrable Securities, the
Company will cause such Registrable Securities as to which registration shall
have been so requested to be included with the securities to be covered by the
registration statement proposed to be filed by the Company, all to the extent
required to permit the sale or other disposition of the Registrable Securities
so registered by the holder of such Registrable Securities (the "Seller"). A
request for registration pursuant to this Section 10.1(i) shall be deemed to
have been made in connection with any registration statement filed after the
Closing Date.

            (ii) The Company shall file with the Commission within forty-five
(45) days of the Closing Date (the "Filing Date"), and use its reasonable
commercial efforts to cause to be declared effective, within ninety (90) days
after the Closing Date, a Form SB-2 registration statement in order to register
the Registrable Securities for resale and distribution under the 1933 Act. The
registration statement described in this paragraph must be declared effective by
the Commission within one hundred twenty (120) days of the Closing Date (as
defined herein) ("Effective Date"). The Company will register not less than a
number of shares of Common Stock in the aforedescribed registration statement
that is equal to 200% of the Company Shares issuable at the Conversion Price
that would be in effect on the Closing Date or the date of filing of such
registration statement (employing the Conversion Price (as defined in the Note)
which would result in the greater number of Shares), assuming the conversion of

                                       14

<PAGE>

100% of the Note which are included in the Registrable Securities and one share
of Common Stock for each Common Share issuable upon exercise of the Warrants
included in the Registrable Securities. The Registrable Securities shall be
reserved and set aside exclusively for the benefit of the Subscriber, and not
issued, employed or reserved for anyone other than the Subscriber. Such
registration statement will be promptly amended or additional registration
statements will be promptly filed by the Company as necessary to register
additional Company Shares to allow the public resale of all Common Stock
included in and issuable by virtue of the Registrable Securities.

      10.2 Registration Procedures. In connection with the registration of the
Registrable Securities under the 1933 Act, the Company will, as expeditiously as
possible:

            (a) prepare and file with the Commission a registration statement
with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for the period of the
distribution contemplated thereby (determined as herein provided), and promptly
provide to the holders of Registrable Securities ("Sellers") copies of all
filings and Commission letters of comment;

            (b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective
until the latest of: (i) twelve (12) months after the Maturity Date (as defined
in the Note) of the Note; (ii) two (2) years after the Closing Date; or (iii)
six (6) months after the latest exercise period of the Warrants, and comply with
the provisions of the 1933 Act with respect to the disposition of all of the
Registrable Securities covered by such registration statement in accordance with
the Seller's intended method of disposition set forth in such registration
statement for such period;

            (c) furnish to the Seller, and to each underwriter if any, such
number of copies of the registration statement and the prospectus included
therein (including each preliminary prospectus) as such persons reasonably may
request in order to facilitate the public sale or their disposition of the
securities covered by such registration statement;

            (d) use its best efforts to register or qualify the Seller's
Registrable Securities covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as the Seller and in the
case of an underwritten public offering, the managing underwriter shall
reasonably request, provided, however, that the Company shall not for any such
purpose be required to qualify generally to transact business as a foreign
corporation in any jurisdiction where it is not so qualified or to consent to
general service of process in any such jurisdiction;

            (e) list the Registrable Securities covered by such registration
statement with any securities exchange or other trading market, venue or service
on which the Common Stock of the Company is then listed;

            (f) immediately notify the Seller and each underwriter under such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the 1933 Act, of the happening of any event of
which the Company has knowledge as a result of which the prospectus contained in
such registration statement, as then in effect, includes an untrue statement of
a material fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances then existing; and

            (g) make available for inspection by the Seller, any underwriter
participating in any distribution pursuant to such registration statement, and
any attorney, accountant or other agent retained by the Seller or underwriter,
all publicly available, non-confidential financial and other records, pertinent

                                       15

<PAGE>

corporate documents and properties of the Company, and cause the Company's
officers, directors and employees to supply all publicly available,
non-confidential information reasonably requested by the Seller, underwriter,
attorney, accountant or agent in connection with such registration statement.

      10.3 Provision of Documents. In connection with each registration
hereunder, the Seller will furnish to the Company in writing such information
and representation letters with respect to itself and the proposed distribution
by it as reasonably shall be necessary in order to assure compliance with
federal and applicable state securities laws. In connection with each
registration pursuant to Section 10.1(i) covering an underwritten public
offering, the Company and the Seller agree to enter into a written agreement
with the managing underwriter in such form and containing such provisions as are
reasonable and customary in the securities business for such an arrangement
between such underwriter and companies of the Company's size and investment
stature.

      10.4 Non-Registration Events. The Company and the Subscriber agree that
the Seller will suffer damages if any registration statement required under
Section 10.1(i) above is not filed within sixty (60) days after written request
by the Holder and not declared effective by the Commission within one hundred
twenty (120) days after such request (or the Filing Date and Effective Date,
respectively, in reference to the registration statement on Form SB-2 to be
filed pursuant to Section 10.1(ii)), and maintained in the manner and within the
time periods contemplated by Section 10 hereof, and it would not be feasible to
ascertain the extent of such damages with precision. Accordingly, if (i) the
registration statement described in Sections 10.1(i) is not filed within sixty
(60) days of such written request, or is not declared effective by the
Commission on or prior to the date that is one hundred twenty (120) days after
such request, or (ii) the registration statement on Form SB-2 is not filed on or
before the Filing Date or not declared effective on or before the sooner of the
Effective Date, or within five (5) days of receipt by the Company of a
communication from the Commission that the registration statement described in
Section 10.1(ii) will not be reviewed or (iii) any registration statement
described in Sections 10.1(i) or 10.1(ii) is filed and declared effective but
shall thereafter cease to be effective (without being succeeded immediately by
an additional registration statement filed and declared effective) for a period
of time which shall exceed thirty (30) days in the aggregate per year but not
more than twenty (20) consecutive calendar days (defined as a period of three
hundred sixty-five (365) days commencing on the date the registration statement
is declared effective) (each such event referred to in clauses (i), (ii) and
(iii) of this Section 10.4 is referred to herein as a "Non-Registration Event"),
then, for so long as such Non-Registration Event shall continue, the Company
shall pay in cash as liquidated damages to each holder of any Registrable
Securities an amount equal to 1% per thirty (30) days for the first thirty (30)
days or part thereof and 2% for each thirty (30) days or part thereof,
thereafter, during the pendency of such Non-Registration Event, of the principal
of the Note issued, whether or not converted owned of record by such holder or
issuable as of or subsequent to the occurrence of such Non-Registration Event.
Payments to be made pursuant to this Section 10.4 shall be due and payable
immediately upon demand in immediately available funds. In the event a Mandatory
Redemption Payment is demanded from the Company by the Holder pursuant to
Section 9.2 of this Subscription Agreement, then the liquidated damages
described in this Section 10.4 shall no longer accrue on the portion of the
Purchase Price underlying the Mandatory Redemption Payment, from and after the
date the Holder receives the Mandatory Redemption Payment. It shall also be
deemed a Non-Registration Event to the extent that an amount equal to 120% of
all the Common Stock underlying the Registrable Securities is not included in an
effective registration statement as of and at any time after forty-five (45)
days after the Effective Date, at the Conversion Prices in effect from and after
the Effective Date.

      10.5 Expenses. All expenses incurred by the Company in complying with
Section 10, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel and independent public
accountants for the Company, fees and expenses (including reasonable counsel
fees) incurred in connection with complying with state securities or "blue sky"
laws, fees of the

                                       16

<PAGE>

NASD, transfer taxes, fees of transfer agents and registrars, and costs of
insurance are called "Registration Expenses." All underwriting discounts and
selling commissions applicable to the sale of Registrable Securities, including
any fees and disbursements of any special counsel to the Seller, are called
"Selling Expenses." The Seller shall pay the fees of its own additional counsel,
if any. The Company will pay all Registration Expenses in connection with the
registration statement under Section 10. All Selling Expenses in connection with
each registration statement under Section 10 shall be borne by the Seller and
may be apportioned among the Sellers in proportion to the number of shares sold
by the Seller relative to the number of shares sold under such registration
statement or as all Sellers thereunder may agree.

      10.6 Indemnification and Contribution.

            (a) The Company will indemnify and hold harmless the Subscriber,
each officer of the Subscriber (or other person servicing in a similar
capacity), each director of the Subscriber (or other person serving in a similar
capacity), each underwriter of such Registrable Securities thereunder and each
other person, if any, who controls such Subscriber or underwriter within the
meaning of the 1933 Act, against any losses, claims, damages or liabilities,
joint or several, to which the Subscriber, or such underwriter or controlling
person may become subject under the 1933 Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any registration statement under which such
Registrable Securities was registered under the 1933 Act pursuant to Section 10,
any preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereof, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and will
reimburse the Subscriber, and each of the Subscriber's officers, directors and
other persons serving in similar capacities, each such underwriter and each such
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable to
the Subscriber, and each of the Subscriber's officers, directors and other
persons serving in similar capacities, to the extent that any such damages arise
out of or are based upon an untrue statement or omission made in any preliminary
prospectus if (i) the Subscriber failed to send or deliver a copy of the final
prospectus delivered by the Company to the Subscriber with or prior to the
delivery of written confirmation of the sale by the Subscriber to the person
asserting the claim from which such damages arise, (ii) the final prospectus
would have corrected such untrue statement or alleged untrue statement or such
omission or alleged omission or (iii) to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission so made in conformity
with information furnished by any such Subscriber, or any such controlling
person in writing specifically for use in such registration statement or
prospectus.

            (b) The Subscriber will indemnify and hold harmless the Company, and
each person, if any, who controls the Company within the meaning of the 1933
Act, each officer of the Company who signs the registration statement, each
director of the Company, each underwriter and each person who controls any
underwriter within the meaning of the 1933 Act, against all losses, claims,
damages or liabilities, joint or several, to which the Company or such officer,
director, underwriter or controlling person may become subject under the 1933
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the registration
statement under which such Registrable Securities were registered under the 1933
Act pursuant to Section 10, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company and each such officer,

                                       17

<PAGE>

director, underwriter and controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action, provided, however, that the
Subscriber will be liable hereunder in any such case if and only to the extent
that any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in reliance upon and in conformity with information pertaining to such
Subscriber, as such, furnished in writing to the Company by such Subscriber
specifically for use in such registration statement or prospectus, and provided,
further, however, that the liability of the Subscriber hereunder shall be
limited to the gross proceeds received by the Subscriber from the sale of
Registrable Securities covered by such registration statement.

            (c) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to such indemnified party other than under this Section 10.6(c) and shall only
relieve it from any liability which it may have to such indemnified party under
this Section 10.6(c), except and only if and to the extent the indemnifying
party is materially prejudiced by such omission. In case any such action shall
be brought against any indemnified party and it shall notify the indemnifying
party of the commencement thereof, the indemnifying party shall be entitled to
participate in and, to the extent it shall wish, to assume and undertake the
defense thereof with counsel satisfactory to such indemnified party, and, after
notice from the indemnifying party to such indemnified party of its election so
to assume and undertake the defense thereof, the indemnifying party shall not be
liable to such indemnified party under this Section 10.6(c) for any legal
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation and of liaison with
counsel so selected, provided, however, that, if the defendants in any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be reasonable
defenses available to it which are different from or additional to those
available to the indemnifying party or if the interests of the indemnified party
reasonably may be deemed to conflict with the interests of the indemnifying
party, the indemnified parties shall have the right to select one separate
counsel and to assume such legal defenses and otherwise to participate in the
defense of such action, with the reasonable expenses and fees of such separate
counsel and other expenses related to such participation to be reimbursed by the
indemnifying party as incurred.

            (d) In order to provide for just and equitable contribution in the
event of joint liability under the 1933 Act in any case in which either (i) the
Subscriber, or any controlling person of the Subscriber, makes a claim for
indemnification pursuant to this Section 10.6 but it is judicially determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and the expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case notwithstanding the
fact that this Section 10.6 provides for indemnification in such case, or (ii)
contribution under the 1933 Act may be required on the part of the Subscriber or
controlling person of the Subscriber in circumstances for which indemnification
is provided under this Section 10.6; then, and in each such case, the Company
and the Subscriber will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion so that the Subscriber is responsible only for the portion
represented by the percentage that the public offering price of its securities
offered by the registration statement bears to the public offering price of all
securities offered by such registration statement, provided, however, that, in
any such case, (y) the Subscriber will not be required to contribute any amount
in excess of the public offering price of all such securities offered by it
pursuant to such registration statement; and (z) no person or entity guilty of
fraudulent misrepresentation (within the meaning of Section 10(f) of the 1933
Act) will be entitled to contribution from any person or entity who was not
guilty of such fraudulent misrepresentation.

                                       18

<PAGE>

      11. Security Interest. The Subscriber, together with all Subscribers to
the Offering, will be granted a security interest in certain assets of the
Company pursuant to that certain Security Agreement dated at or about the
Closing Date (the "Security Agreement"). Under the terms of a Subordination
Agreement, the Subscriber will obtain a security interest senior to the security
interest granted to prior investors in the Company's 5% Secured Convertible
Notes issued at or about March 23, 2001. The Company will prepare Forms UCC-1 to
be filed at the Company's expense with such states and counties as may be
designated by the Subscriber to perfect the security interest created by the
Security Agreement. The Company will also execute all such documents reasonably
necessary in the opinion of Subscriber to memorialize and further protect the
security interest described above.

      12. Offering Restrictions. Until the registration statement described in
Section 10.1(ii) relating to all the Registrable Securities has been effective
for a total of 180 days, except with respect to securities otherwise disclosed
in the Reports or Other Written Information, or otherwise referred to in this
Agreement and other documents delivered in connection herewith, the Company will
not issue any equity, convertible debt or other securities. The above
restriction may be waived by holders in interest of not less than 60% of the
principal amount of the Notes actually issued and outstanding on the date waiver
is requested by the Company.

      13. Miscellaneous.

            (a) Notices. All notices or other communications given or made
hereunder shall be in writing and shall be personally delivered or deemed
delivered the first business day after being faxed (provided that a copy is
delivered by first class mail) to the party to receive the same at its address
set forth below or to such other address as either party shall hereafter give to
the other by notice duly made under this Section: (i) if to the Company, to
Advanced Aerodynamics & Structures, Inc., 3205 Lakewood Boulevard, Long Beach
Airport, CA 90808, facsimile number: (562) 938-8620, with a copy by facsimile
only to Luce, Forward, Hamilton & Scripps, LLP, 600 West Broadway, Suite 2600,
San Diego, CA 92101, Attn: Otto Sorensen, Esq., facsimile number: (619)
645-5324, and (ii) if to the Subscriber, to the name, address and telecopy
number set forth on the signature page hereto, with a copy by telecopier only to
Grushko & Mittman, P.C., 551 Fifth Avenue, Suite 1601, New York, New York 10176,
telecopier number: (212) 697-3575. Any notice that may be given pursuant to this
Agreement, or any document delivered in connection with the foregoing may be
given by the Subscriber on the first business day after the observance dates in
the United States of America by Orthodox Jewry of Rosh Hashanah, Yom Kippur, the
first two days of the Feast of Tabernacles, Shemini Atzeret, Simchat Torah, the
first two and final two days of Passover and Pentecost, with such notice to be
deemed given and effective, at the election of the Subscriber on a holiday date
that precedes such notice. Any notice received by the Subscriber on any of the
aforedescribed holidays may be deemed by the Subscriber to be received and
effective as if such notice had been received on the first business day after
the holiday.

            (b) Closing. The consummation of the transactions contemplated
herein shall take place at the offices of Grushko & Mittman, P.C., 551 Fifth
Avenue, Suite 1601, New York, New York 10176, upon the satisfaction of all
conditions to Closing set forth in this Agreement. The closing date shall be the
date that subscriber funds representing the net amount due the Company from the
Purchase Price are transmitted by wire transfer to the Company (the "Closing
Date"). Notwithstanding Section 13(i) of this Agreement, and provided a Closing
takes place on the Minimum Offering, the Closing on up to $1,000,000 of Purchase
Price to be subscribed for by Alpha Capital Aktiengesellschaft may take place at
the discretion of Alpha Capital Aktiengesellschaft up to 120 days after the
initial Closing Date of the Offering. Alpha Capital Aktiengesellschaft reserves
the right to substitute another Subscriber in its stead at any time, provided
such other Subscriber executes this Subscription Agreement and other documents
delivered or to be delivered herewith.

                                       19

<PAGE>

            (c) Entire Agreement; Assignment. This Agreement, and the documents
incorporated herein by reference, represent the entire agreement between the
parties hereto with respect to the subject matter hereof and may be amended only
by a writing executed by the parties hereto. It is the express understanding of
the parties hereto that no party has made any representation whatsoever, express
or implied, oral or written, other than those representations of the parties
hereto expressly set forth in this Agreement. No right or obligation of any
party shall be assigned by that party without prior notice to and the written
consent of the other parties.

            (d) Execution. This Agreement may be executed by facsimile
transmission, and in counterparts, each of which will be deemed an original.

            (e) Law Governing this Agreement. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York without
regard to principles of conflicts of laws. Any action brought by any party
against the others concerning the transactions contemplated by this Agreement
shall be brought only in the state courts of New York or in the federal courts
located in the Southern District of New York. The parties and the individuals
executing this Agreement and other agreements on behalf of the Company agree to
submit to the jurisdiction of such courts and waive trial by jury. The
prevailing party shall be entitled to recover from the other parties its
reasonable attorney's fees and costs. In the event that any provision of this
Agreement or any other agreement delivered in connection herewith is invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision of any agreement.

            (f) Specific Enforcement; Consent to Jurisdiction. The Company and
Subscriber acknowledge and agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement and
to enforce specifically the terms and provisions hereof or thereof, this being
in addition to any other remedy to which any of them may be entitled by law or
equity. Subject to Section 13(e) hereof, each of the Company and Subscriber
hereby waives, and agrees not to assert in any such suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of such court,
that the suit, action or proceeding is brought in an inconvenient forum or that
the venue of the suit, action or proceeding is improper. Nothing in this Section
shall affect or limit any right to serve process in any other manner permitted
by law.

            (g) Adjustments. The Conversion Price and amount of Common Stock
issuable upon conversion of the Notes and other references to sales prices shall
be adjusted consistent with customary anti-dilution adjustments.

            (h) Confidentiality. The Company agrees that it will not disclose
publicly or privately the identity of the Subscriber unless expressly agreed to
in writing by the Subscriber or only to the extent required by law.

                                       20

<PAGE>

            (i) Automatic Termination. This Agreement shall automatically
terminate without any further action of either party hereto if the Closing shall
not have occurred by the twentieth (20th) business day following the date this
Agreement is accepted by the Subscriber.

                      [THIS SPACE INTENTIONALLY LEFT BLANK]

                                       21

<PAGE>

                    SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT

      Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned, whereupon it shall become a
binding agreement between us.

                          ADVANCED AERODYNAMICS & STRUCTURES, INC.
                          a Delaware corporation

                          By: __________________________________________________
                              Carl L. Chen, Chairman and Chief Executive Officer
                              Dated: October ____, 2001

--------------------------------------------------------------------------------
SUBSCRIBERS                            PURCHASE       WARRANTS       WARRANTS
                                       PRICE          PURCHASE       PURCHASE
                                                      PRICE $.30     PRICE $.25
--------------------------------------------------------------------------------
                                       $100,000.00    100,000        100,000

____________________________
(Signature)
MARTIN THALER
14 Bartlett Road,
Monsey, NY 10952
Fax: 845-425-7527
--------------------------------------------------------------------------------
                                       $100,000.00    100,000        100,000

____________________________
(Signature)
ZOCHRON FRAIDA RIVKAH
C/o Abe Roth
5612 18th Avenue
Brooklyn, New York 11204
Fax: 718-236-4849
--------------------------------------------------------------------------------
                                       $100,000.00    100,000        100,000

____________________________
(Signature)
MARTIN KLEIN
2 Boxwood Lane
Lawrence, NY 11559
Fax: 916-371-5160
--------------------------------------------------------------------------------

                                       22

<PAGE>

                    SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT

      Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned, whereupon it shall become a
binding agreement between us.

                          ADVANCED AERODYNAMICS & STRUCTURES, INC.
                          a Delaware corporation

                          By: __________________________________________________
                              Carl L. Chen, Chairman and Chief Executive Officer
                              Dated: October ____, 2001

--------------------------------------------------------------------------------
SUBSCRIBERS                            PURCHASE       WARRANTS       WARRANTS
                                       PRICE          PURCHASE       PURCHASE
                                                      PRICE $.30     PRICE $.25
--------------------------------------------------------------------------------
                                       $50,000.00     50,000         50,000

_________________________________
(Signature)
SARAH KATZ
51 Winesap Lane
Monsey, NY 10952
Fax: 845-425-3626
--------------------------------------------------------------------------------
                                       $100,000.00    100,000        100,000

_________________________________
(Signature)
ROBERT KAPLAN
55A Avenue Road, Apt. 301
Toronto, Canada M5R 2G3
Fax: 416-964-2584
--------------------------------------------------------------------------------
                                       $75,000.00     75,000         75,000

_________________________________
(Signature)
SAMUEL SCHLESINGER
4 Valencia Drive
Monsey, NY 10952
Fax: 845-425-5244
--------------------------------------------------------------------------------

                                       23

<PAGE>

                    SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT

      Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned, whereupon it shall become a
binding agreement between us.

                          ADVANCED AERODYNAMICS & STRUCTURES, INC.
                          a Delaware corporation

                          By: __________________________________________________
                              Carl L. Chen, Chairman and Chief Executive Officer
                              Dated: October ____, 2001

--------------------------------------------------------------------------------
SUBSCRIBERS                            PURCHASE       WARRANTS       WARRANTS
                                       PRICE          PURCHASE       PURCHASE
                                                      PRICE $.30     PRICE $.25
--------------------------------------------------------------------------------
                                       $130,000.00    130,000        130,000

_________________________________
(Signature)
LUCRATIVE INVESTMENTS
Ajeltake Island
P.O. Box 1405
Majuro Marshall Island M.H 96960
Fax: 011-35041555
--------------------------------------------------------------------------------

_________________________________
(Signature)

--------------------------------------------------------------------------------
                                       $250,000.00    250,000        250,000

_________________________________
(Signature)
OTTO WEINGARTEN
1661 53rd Street
Brooklyn, NY 11204
Fax: 718-447-8385
--------------------------------------------------------------------------------

                                       24

<PAGE>

                    SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT

      Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned, whereupon it shall become a
binding agreement between us.

                          ADVANCED AERODYNAMICS & STRUCTURES, INC.
                          a Delaware corporation

                          By: __________________________________________________
                              Carl L. Chen, Chairman and Chief Executive Officer
                              Dated: October ____, 2001

--------------------------------------------------------------------------------
SUBSCRIBERS                            PURCHASE       WARRANTS       WARRANTS
                                       PRICE          PURCHASE       PURCHASE

                                                      PRICE $.30     PRICE $.25
--------------------------------------------------------------------------------
                                       $75,000.00     75,000         75,000

____________________________________
(Signature)
BRIARBROOK TRUST NO: F17189
C/o Fairbairn Trust Company Limited
Attn: Angela Bartie, Fairbairn House
Rohais Frank Peter Port
Guernsey GY1 3H3, Channel Islands
Fax: 44-1481-710-789
--------------------------------------------------------------------------------
                                       $250,000.00    250,000        250,000

____________________________________
(Signature)
TAYSIDE TRADING LTD
50 Town Range
Gilbralta
Fax: 011-972-2-500-2641
--------------------------------------------------------------------------------
                                       $100,000.00    100,000        100,000

____________________________________
(Signature)
HIRSCH J. ZIEGLER
50 East Concord Drive
Monsey, NY 10952
Phone: 845-352-7956
--------------------------------------------------------------------------------

                                       25

<PAGE>

                    SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT

         Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned, whereupon it shall
become a binding agreement between us.

                          ADVANCED AERODYNAMICS & STRUCTURES, INC.
                          a Delaware corporation

                          By: __________________________________________________
                              Carl L. Chen, Chairman and Chief Executive Officer
                              Dated: October ____, 2001

--------------------------------------------------------------------------------
SUBSCRIBERS                            PURCHASE       WARRANTS       WARRANTS
                                       PRICE          PURCHASE       PURCHASE
                                                      PRICE $.30     PRICE $.25
--------------------------------------------------------------------------------
                                       $50,000.00     50,000         50,000

_________________________________
(Signature)
LAZER MILSTEIN            X                   X              X            X
10 Mountain Avenue
Monsey, NY 10952
Phone: 845-425-5858
--------------------------------------------------------------------------------
                                       $100,000.00    100,000        100,000

__________________________________
(Signature)
KELP INVESTORS LTD.
96-98 Rue du Rhone
CH-1211, Geneva, Switzerland
Fax: 4122-819-2200
--------------------------------------------------------------------------------
                                       $300,000.00    300,000        300,000

__________________________________
(Signature)
RNJA, Company, LLC
160 Central Park South, Suite 2701
New York, New York 10019
Fax: 212-586-8244
--------------------------------------------------------------------------------

                                       26

<PAGE>

                    SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT

      Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned, whereupon it shall become a
binding agreement between us.

                          ADVANCED AERODYNAMICS & STRUCTURES, INC.
                          a Delaware corporation

                          By: __________________________________________________
                              Carl L. Chen, Chairman and Chief Executive Officer
                              Dated: October ____, 2001

--------------------------------------------------------------------------------
SUBSCRIBERS                            PURCHASE       WARRANTS       WARRANTS
                                       PRICE          PURCHASE       PURCHASE
                                                      PRICE $.30     PRICE $.25
--------------------------------------------------------------------------------
                                       $50,000.00     50,000         50,000

__________________________________
(Signature)
RUTGERS CASUALTY INSURANCE
COMPANY
444 Madison Avenue
New York, NY 10022
Fax: 212-355-4879
--------------------------------------------------------------------------------
                                       $50,000.00     50,000         50,000

__________________________________
(Signature)
NACHUM STEIN
444 Madison Avenue, Suite 501
New York, NY 10022
Fax: 212-355-7849
--------------------------------------------------------------------------------

__________________________________
(Signature)

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

                                       27

<PAGE>

                    SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT

      Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned, whereupon it shall become a
binding agreement between us.

                          ADVANCED AERODYNAMICS & STRUCTURES, INC.
                          a Delaware corporation

                          By: __________________________________________________
                              Carl L. Chen, Chairman and Chief Executive Officer
                              Dated: October ____, 2001

--------------------------------------------------------------------------------
SUBSCRIBERS                       PURCHASE            WARRANTS       WARRANTS
                                  PRICE               PURCHASE       PURCHASE
                                                      PRICE $.30     PRICE $.25
--------------------------------------------------------------------------------
                                  $1,000,000.00       1,000,000      1,000,000
                                  Payable within 120
                                  days after the
________________________________  initial Closing
(Signature)                       Date pursuant to
ALPHA CAPITAL                     Section 13(b)
AKTIENGESELLSCHAFT
Pradafant 7
9490 Furstentums
Vaduz, Lichtenstein
Fax: 011-42-32323196
--------------------------------------------------------------------------------
                                    $1,375,000.00     1,375,000       1,375,000

_________________________________
(Signature)
ALPHA CAPITAL
AKTIENGESELLSCHAFT
Pradafant 7
9490 Furstentums
Vaduz, Lichtenstein
Fax: 011-42-32323196
--------------------------------------------------------------------------------
                                    $550,000.00       550,000         550,000

_________________________________
(Signature)
STONESTREET LIMITED
PARTNERSHIP
C/o Canaccord Capital Corporation
320 Bay Street, Suite 1300
Toronto, ON M5H 4A6, Canada
Fax: 416-956-8989
--------------------------------------------------------------------------------

                                       28

<PAGE>

                    SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT

      Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned, whereupon it shall become a
binding agreement between us.

                          ADVANCED AERODYNAMICS & STRUCTURES, INC.
                          a Delaware corporation

                          By: __________________________________________________
                              Carl L. Chen, Chairman and Chief Executive Officer
                              Dated: October ____, 2001

--------------------------------------------------------------------------------
SUBSCRIBERS                            PURCHASE       WARRANTS       WARRANTS
                                       PRICE          PURCHASE       PURCHASE
                                                      PRICE $.30     PRICE $.25
--------------------------------------------------------------------------------
                                       $1,000,000.00   1,000,000     1,000,000

__________________________________
(Signature)

STATELAND LTD.
Attn: William Tabbachi
160 Central Park South, Suite 2602
New York, New York 10019
Fax: 212-772-0817
--------------------------------------------------------------------------------
                                       $25,000.00      25,000        25,000

__________________________________
(Signature)
BEAR STEARNS SECURITIES CORP.,
INC. C/F JEFFREY MOSSERI
351 East 84th Street, Apt. 22E
New York, New York 10028
Fax: 212-509-9235
--------------------------------------------------------------------------------
                                       $100,000.00     100,000       100,000

__________________________________
(Signature)
ANDREW RECKLES
4030 Palisades Main
Kennesaw, GA 30144
Fax: 801-749-7763
--------------------------------------------------------------------------------

                                       29

<PAGE>

                    SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT

         Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned, whereupon it shall
become a binding agreement between us.

                          ADVANCED AERODYNAMICS & STRUCTURES, INC.
                          a Delaware corporation

                          By: __________________________________________________
                              Carl L. Chen, Chairman and Chief Executive Officer
                              Dated: October ____, 2001

--------------------------------------------------------------------------------
SUBSCRIBERS                            PURCHASE       WARRANTS       WARRANTS
                                       PRICE          PURCHASE       PURCHASE
                                                      PRICE $.30     PRICE $.25
--------------------------------------------------------------------------------
                                       $370,000.00    370,000        370,000

___________________________________
(Signature)
THE ENDEAVOUR CAPITAL
INVESTMENT FUND, S.A.
Cumberland House
27 Cumberland Street, Nassau
New Providence, The Bahamas
Fax: 1-242-327-0687
--------------------------------------------------------------------------------
                                       $700,000.00    700,000        700,000

___________________________________
(Signature)
AMRO INTERNATIONAL, S.A.
C/o Ultra Finanz Ltd.
Grossmuensterplatz 6, P.O. Box 4401
Zurich, CH-8022, Switzerland
Fax: 011-411-252-5515
--------------------------------------------------------------------------------
                                       $300,000.00    300,000        300,000

___________________________________
(Signature)
THE SHAAR FUND LTD.
C/o Herrick Feinstein, LLP
2 Park Avenue
New York, New York 10022
Attn: Daniel Etna, Esq.
Fax: 212-592-1500
--------------------------------------------------------------------------------

                                       30

<PAGE>

                    SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT

      Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned, whereupon it shall become a
binding agreement between us.

                          ADVANCED AERODYNAMICS & STRUCTURES, INC.
                          a Delaware corporation

                          By: __________________________________________________
                              Carl L. Chen, Chairman and Chief Executive Officer
                              Dated: October ____, 2001

--------------------------------------------------------------------------------
SUBSCRIBERS                            PURCHASE       WARRANTS       WARRANTS
                                       PRICE          PURCHASE       PURCHASE
                                                      PRICE $.30     PRICE $.25
--------------------------------------------------------------------------------
                                       $100,000.00    100,000        100,000

_________________________________
(Signature)
MM&CTW FOUNDATION, INC.
1657 49th Street
Brooklyn, New York 11219
Fax:
--------------------------------------------------------------------------------
                                       $100,000.00    100,000        100,000

_________________________________
(Signature)
PERKMAN INVESTMENTS
Citco Building
Roadtown, Tortola, B.V.I.
Fax: 011-44-22-3466685
--------------------------------------------------------------------------------
                                       $35,000.00     35,000         35,000

_________________________________
(Signature)
BARBARA R. MITTMAN
551 Fifth Avenue, Suite 1601
New York, New York 10176
Fax: 212-697-3575
--------------------------------------------------------------------------------

                                       31

<PAGE>

                    SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT

      Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned, whereupon it shall become a
binding agreement between us.

                          ADVANCED AERODYNAMICS & STRUCTURES, INC.
                          a Delaware corporation

                          By: __________________________________________________
                              Carl L. Chen, Chairman and Chief Executive Officer
                              Dated: October ____, 2001

--------------------------------------------------------------------------------
SUBSCRIBERS                            PURCHASE       WARRANTS       WARRANTS
                                       PRICE          PURCHASE       PURCHASE
                                                      PRICE $.30     PRICE $.25
--------------------------------------------------------------------------------
                                       $50,000.00     50,000         50,000

________________________________
(Signature)
GARY KAPLOWITZ
1233 Beech Street, House #3
Atlantic Beach, NY 11509
Fax: 516-897-8909
--------------------------------------------------------------------------------
                                       $50,000.00     50,000         50,000

________________________________
(Signature)
ALLAN ROTHSTEIN
34 Sousa Drive
Sands Pt., New York 11050
Fax: 516-883-8088
--------------------------------------------------------------------------------

________________________________
(Signature)

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

                                       32

<PAGE>

                    SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT

      Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned, whereupon it shall become a
binding agreement between us.

                          ADVANCED AERODYNAMICS & STRUCTURES, INC.
                          a Delaware corporation

                          By: __________________________________________________
                              Carl L. Chen, Chairman and Chief Executive Officer
                              Dated: October ____, 2001

--------------------------------------------------------------------------------
SUBSCRIBERS                            PURCHASE       WARRANTS       WARRANTS
                                       PRICE          PURCHASE       PURCHASE
                                                      PRICE $.30     PRICE $.25
--------------------------------------------------------------------------------
                                       $200,000.00    200,000        200,000

_______________________________
(Signature)
CONG. BAIS YITZCHAK INC.
17 Concord Drive
Monsey, NY 10952
Fax: 845-356-5423
--------------------------------------------------------------------------------

_______________________________
(Signature)

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

_______________________________
(Signature)

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

                                       33

<PAGE>

                    SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT

      Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned, whereupon it shall become a
binding agreement between us.

                          ADVANCED AERODYNAMICS & STRUCTURES, INC.
                          a Delaware corporation

                          By: __________________________________________________
                              Carl L. Chen, Chairman and Chief Executive Officer
                              Dated: October ____, 2001

--------------------------------------------------------------------------------
SUBSCRIBERS                            PURCHASE       WARRANTS       WARRANTS
                                       PRICE          PURCHASE       PURCHASE
                                                      PRICE $.30     PRICE $.25
--------------------------------------------------------------------------------
                                       $50,000.00     50,000         50,000

_________________________________
(Signature)
PHILLIP HELLER
1370 56th Street
Brooklyn, New York 11219
Fax: 718-447-1889
--------------------------------------------------------------------------------
                                       $100,000.00    100,000        100,000

_________________________________
(Signature)
FRANCESCA WEINGARTEN
1661 53rd Street
Brooklyn, New York 11204
Fax: 718-447-8385
--------------------------------------------------------------------------------

_________________________________
(Signature)

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

                                       34

<PAGE>

                                    EXHIBIT A

                              FORM OF SECURED NOTE

      THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE
      NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS
      NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT
      BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
      EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN
      OPINION OF COUNSEL REASONABLY SATISFACTORY TO ADVANCED AERODYNAMICS &
      STRUCTURES, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.

                            SECURED CONVERTIBLE NOTE

      FOR VALUE RECEIVED, ADVANCED AERODYNAMICS & STRUCTURES, INC., a Delaware
corporation (the "Borrower"), hereby promises to pay to ________________________
________________________________________________________________________________
(the "Holder") or order, without demand, the sum of ____________________________
($__________), with simple interest accruing at the annual rate of eight percent
(8%), on October __, 2006 (the "Maturity Date").

      The following terms shall apply to this Note:

                                   ARTICLE 1
                           PAYMENT RELATED PROVISIONS

1.1.  Payment Grace Period. The Borrower shall have a ten (10) day grace period
      to pay any monetary amounts due under this Note, after which grace period
      a default interest rate of ten percent (10%) per annum shall apply to the
      amounts owed hereunder.

1.2.  Conversion Privileges. The Conversion Privileges set forth in Article II
      shall remain in full force and effect commencing 120 days from the date
      hereof and until the Note is paid in full.

1.3.  Interest Rate. Subject to the Holder's right to convert, interest payable
      on this Note shall accrue at the annual rate of eight percent (8%) and be
      payable September 30, 2002 and semi-annually thereafter, and on the
      Maturity Date, accelerated or otherwise, when the principal and remaining
      accrued but unpaid interest shall be due and payable, or sooner as
      described below. Interest may be paid by the Company by delivery of an
      amount of Common Stock of the Company calculated by dividing the amount of
      interest payable on an interest due date by the Conversion Price (defined
      below) in effect on such interest due date.

                                   ARTICLE 2
                                CONVERSION RIGHTS

      The Holder shall have the right to convert the principal amount and
interest due under this Note into Shares of the Borrower's Common Stock as set
forth below.

2.1.  Conversion into the Borrower's Common Stock.

                                       35

<PAGE>

      (a)         The Holder shall have the right from and after 120 days after
            the issuance of this Note and then at any time until this Note is
            fully paid, to convert any outstanding and unpaid principal portion
            of this Note, and/or at the Holder's election, the interest accrued
            on the Note, (the date of giving of such notice of conversion being
            a "Conversion Date") into fully paid and nonassessable shares of
            Class A common stock of Borrower as such stock exists on the date of
            issuance of this Note, or any shares of capital stock of Borrower
            into which such stock shall hereafter be changed or reclassified
            (the "Common Stock") at the conversion price, as defined in Section
            2.1(b) hereof (the "Conversion Price"), determined as provided
            herein. Upon delivery to the Company of a Notice of Conversion, as
            described in Section 9 of the subscription agreement entered into
            between the Company and Holder relating to this Note (the
            "Subscription Agreement"), the terms of which are incorporated
            herein by this reference, of the Holder's written request for
            conversion, Borrower shall issue and deliver to the Holder within
            three (3) business days from the Conversion Date that number of
            shares of Common Stock for the portion of the Note converted in
            accordance with the foregoing. At the election of the Holder, the
            Company will deliver accrued but unpaid interest on the Note through
            the Conversion Date directly to the Holder on or before the Delivery
            Date (as defined in the Subscription Agreement). The number of
            shares of Common Stock to be issued upon each conversion of this
            Note shall be determined by dividing that portion of the principal
            (and interest, at the election of the Holder) of the Note to be
            converted, by the Conversion Price.

      (b)         Subject to adjustment as provided in Section 2.1(c) hereof,
            the Conversion Price per share shall be at the election of the
            Holder: (i) $.35 ("Maximum Base Price"); or (ii) seventy percent
            (70%) of the average of the three lowest closing bid prices for the
            Common Stock for the thirty (30) trading days prior to but not
            including the Conversion Date, on the NASD OTC Bulletin Board,
            NASDAQ SmallCap Market, NASDAQ National Market System, American
            Stock Exchange or New York Stock Exchange (whichever of the
            foregoing is at the time the principal trading exchange or market
            for the Common Stock, the "Principal Market"), or if not then
            trading on a Principal Market, such other principal market or
            exchange where the Common Stock is listed or traded. If the
            Principal Market does not report bid prices, then the closing price
            shall be substituted for the bid price referred to in this Section
            2.1(b)(ii) when determining the Conversion Price.

      (c)         The Maximum Base Price described in Section 2.1(b)(i) above
            and number and kind of shares or other securities to be issued upon
            conversion determined pursuant to Section 2.1(a) and 2.1(b), shall
            be subject to adjustment from time to time upon the happening of
            certain events while this conversion right remains outstanding, as
            follows:

            (A)   Merger, Sale of Assets, etc. If the Borrower at any time shall
                  consolidate with or merge into or sell or convey all or
                  substantially all its assets to any other corporation, this
                  Note, as to the unpaid principal portion thereof and accrued
                  interest thereon, shall thereafter be deemed to evidence the
                  right to purchase such number and kind of shares or other
                  securities and property as would have been issuable or
                  distributable on account of such consolidation, merger, sale
                  or conveyance, upon or with respect to the securities subject
                  to the conversion or purchase right immediately prior to such
                  consolidation, merger, sale or conveyance. The foregoing
                  provision shall similarly apply to successive transactions of
                  a similar nature by any such successor or purchaser. Without
                  limiting the generality of the foregoing, the anti-dilution
                  provisions of this Section shall apply to such securities of
                  such successor or purchaser after any such consolidation,
                  merger, sale or conveyance.

                                       36

<PAGE>

            (B)   Reclassification, etc. If the Borrower at any time shall, by
                  reclassification or otherwise, change the Common Stock into
                  the same or a different number of securities of any class or
                  classes, this Note, as to the unpaid principal portion thereof
                  and accrued interest thereon, shall thereafter be deemed to
                  evidence the right to purchase such number and kind of
                  securities as would have been issuable as the result of such
                  change with respect to the Common Stock immediately prior to
                  such reclassification or other change.

            (C)   Stock Splits, Combinations and Dividends. If the shares of
                  Common Stock are subdivided or combined into a greater or
                  smaller number of shares of Common Stock, or if a dividend is
                  paid on the Common Stock in shares of Common Stock, the
                  Conversion Price shall be proportionately reduced in case of
                  subdivision of shares or stock dividend or proportionately
                  increased in the case of combination of shares, in each such
                  case by the ratio which the total number of shares of Common
                  Stock outstanding immediately after such event bears to the
                  total number of shares of Common Stock outstanding immediately
                  prior to such event.

            (D)   Share Issuance. Subject to the provisions of this Section, if
                  the Borrower at any time shall issue any shares of Common
                  Stock prior to the conversion of the entire principal amount
                  of the Note (otherwise than as: (i) provided in Sections
                  2.1(c)A, 2.1(c)B or 2.1(c)C or this subparagraph D; or (ii)
                  pursuant to options, warrants or other obligations to issue
                  shares, outstanding on the date hereof or proposed to be
                  issued as described in the Reports and Other Written
                  Information [(i) and (ii) above are hereinafter referred to as
                  the "Existing Option Obligations"]) for a consideration less
                  than the Conversion Price that would be in effect at the time
                  of such issue, then, and thereafter successively upon each
                  such issue, the Conversion Price shall be reduced as follows:
                  (i) the number of shares of Common Stock outstanding
                  immediately prior to such issue shall be multiplied by the
                  Conversion Price in effect at the time of such issue and the
                  product shall be added to the aggregate consideration, if any,
                  received by the Borrower upon such issue of additional shares
                  of Common Stock; and (ii) the sum so obtained shall be divided
                  by the number of shares of Common Stock outstanding
                  immediately after such issue. The resulting quotient shall be
                  the adjusted Conversion Price. Except for the Existing Option
                  Obligations, for purposes of this adjustment, the issuance of
                  any security of the Borrower carrying the right to convert
                  such security into shares of Common Stock or of any warrant,
                  right or option to purchase Common Stock shall result in an
                  adjustment to the Conversion Price upon the issuance of shares
                  of Common Stock upon exercise of such conversion or purchase
                  rights.

      (d)         From and after the issuance date of this Note and for the
            remaining period during which the conversion right exists, Borrower
            will reserve from its authorized and unissued Common Stock a
            sufficient number of shares to provide for the issuance of Common
            Stock upon the full conversion of this Note. Borrower represents
            that upon issuance, such shares will be duly and validly issued,
            fully paid and non-assessable. Borrower agrees that its issuance of
            this Note shall constitute full authority to its officers, agents
            and transfer agents who are charged with the duty of executing and
            issuing stock certificates to execute and issue the necessary
            certificates for shares of Common Stock upon the conversion of this
            Note.

2.2.  Method of Conversion. This Note may be converted by the Holder in whole or
      in part as described in Section 2.1(a) hereof and the Subscription
      Agreement. Upon partial conversion of

                                       37

<PAGE>

      this Note, if requested by the Holder, a new Note containing the same date
      and provisions of this Note shall be issued by the Borrower to the Holder
      for the remaining principal balance of this Note and interest which shall
      not have been converted or paid.

                                   ARTICLE 3
                                EVENT OF DEFAULT

      The occurrence of any of the following events of default ("Event of
Default") shall, at the option of the Holder hereof, make all sums of principal
and interest then remaining unpaid hereon and all other amounts payable
hereunder immediately due and payable, all without demand, presentment or
notice, or grace period, all of which hereby are expressly waived, except as set
forth below:

3.1.  Failure to Pay Principal or Interest. The Borrower fails to pay any
      installment of principal or interest hereon when due and such failure
      continues for a period of ten (10) days after the due date. The ten (10)
      day period described in this Section 3.1 is the same ten (10) day period
      described in Section 1.1 hereof.

3.2.  Breach of Covenant. The Borrower breaches any material covenant or other
      term or condition of this Note in any material respect and such breach, if
      subject to cure, continues for a period of seven (7) days after written
      notice to the Borrower from the Holder.

3.3.  Breach of Representations and Warranties. Any material representation or
      warranty of the Borrower made herein, in the Subscription Agreement
      entered into by the Holder and Borrower in connection with this Note, or
      in any agreement, statement or certificate given in writing pursuant
      hereto or in connection therewith shall be false or misleading in any
      material respect.

3.4.  Receiver or Trustee. The Borrower shall make an assignment for the benefit
      of creditors, or apply for or consent to the appointment of a receiver or
      trustee for it or for a substantial part of its property or business; or
      such a receiver or trustee shall otherwise be appointed.

3.5.  Judgments. Any money judgment, writ or similar final process shall be
      entered or filed against Borrower or any of its property or other assets
      for more than $50,000, and shall remain unpaid, unvacated, unbonded or
      unstayed for a period of forty-five (45) days.

3.6.  Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation
      proceedings or other proceedings or relief under any bankruptcy law or any
      law for the relief of debtors shall be instituted by or against the
      Borrower and if instituted against Borrower are not dismissed within
      forty-five (45) days of initiation.

3.7.  Default. A default by the Borrower, after applicable notice and cure
      periods, under any one or more obligations in an aggregate monetary amount
      in excess of $200,000.

3.8.  Stop Trade. A Securities and Exchange Commission stop trade order or
      Principal Market trading suspension for longer than five (5) trading days.

3.9.  Failure to Deliver Common Stock or Replacement Note. Borrower's failure to
      timely deliver Common Stock to the Holder pursuant to and in the form
      required by this Note and Section 9 of the Subscription Agreement, or if
      required, a replacement Note.

3.10. Non-Registration Event. The occurrence of a Non-Registration Event as
      described in Section 10.4 of the Subscription Agreement.

                                       38

<PAGE>

                                   ARTICLE 4
                                SECURITY INTEREST

4.1.  Security Interest/Waiver of Automatic Stay. This Note is, as of the date
      hereof, secured by a security interest granted on behalf of the Holder to
      the Collateral Agent pursuant to that certain Security Agreement dated
      October __, 2001 (the "Security Agreement"), as delivered by Borrower to
      Holder. The Borrower acknowledges and agrees that should a proceeding
      under any bankruptcy or insolvency law be commenced by or against the
      Borrower, or if any of the Collateral (as defined in the Security
      Agreement) should become the subject of any bankruptcy or insolvency
      proceeding, then the Holder should be entitled to, among other relief to
      which the Holder may be entitled under the Note, Security Agreement,
      Subscription Agreement and any other agreement to which the Borrower and
      Holder are parties (collectively, "Loan Documents") and/or applicable law,
      an order from the court granting immediate relief from the automatic stay
      pursuant to 11 U.S.C. Section 362 to permit the Holder to exercise all of
      its rights and remedies pursuant to the Loan Documents and/or applicable
      law. THE BORROWER EXPRESSLY WAIVES THE BENEFIT OF THE AUTOMATIC STAY
      IMPOSED BY 11 U.S.C. SECTION 362. FURTHERMORE, THE BORROWER EXPRESSLY
      ACKNOWLEDGES AND AGREES THAT NEITHER 11 U.S.C. SECTION 362 NOR ANY OTHER
      SECTION OF THE BANKRUPTCY CODE OR OTHER STATUTE OR RULE (INCLUDING,
      WITHOUT LIMITATION, 11 U.S.C. SECTION 105) SHALL STAY, INTERDICT,
      CONDITION, REDUCE OR INHIBIT IN ANY WAY THE ABILITY OF THE HOLDER TO
      ENFORCE ANY OF ITS RIGHTS AND REMEDIES UNDER THE LOAN DOCUMENTS AND/OR
      APPLICABLE LAW. The Borrower hereby consents to any motion for relief from
      stay that may be filed by the Holder in any bankruptcy or insolvency
      proceeding initiated by or against the Borrower and, further, agrees not
      to file any opposition to any motion for relief from stay filed by the
      Holder. The Borrower represents, acknowledges and agrees that this
      provision is a specific and material aspect of the Loan Documents, and
      that the Holder would not agree to the terms of the Loan Documents if this
      waiver were not a part of this Note. The Borrower further represents,
      acknowledges and agrees that this waiver is knowingly, intelligently and
      voluntarily made, that neither the Holder nor any person acting on behalf
      of the Holder has made any representations to induce this waiver, that the
      Borrower has been represented (or has had the opportunity to he
      represented) in the signing of this Note and the Loan Documents and in the
      making of this waiver by independent legal counsel selected by the
      Borrower and that the Borrower has had the opportunity to discuss this
      waiver with counsel.

                                   ARTICLE 5
                                  MISCELLANEOUS

5.1.  Failure or Indulgence Not Waiver. No failure or delay on the part of
      Holder hereof in the exercise of any power, right or privilege hereunder
      shall operate as a waiver thereof, nor shall any single or partial
      exercise of any such power, right or privilege preclude other or further
      exercise thereof or of any other right, power or privilege. All rights and
      remedies existing hereunder are cumulative to, and not exclusive of, any
      rights or remedies otherwise available.

5.2.  Notices. Any notice herein required or permitted to be given shall be in
      writing and may be personally served or sent by facsimile transmission
      (with copy sent by regular, certified or registered mail or by overnight
      courier). For the purposes hereof, the address and facsimile number of the
      Holder is as set forth on the first page hereof. The address and facsimile
      number of the Borrower shall be Advanced Aerodynamics & Structures, Inc.,
      3205 Lakewood Boulevard, Long Beach Airport, CA 90808, facsimile number:
      (562) 938-8620. Both Holder and Borrower may change the address and
      facsimile number for notice by service of notice to the other as

                                       39

<PAGE>

      herein provided. Notice of Conversion shall be deemed given when made to
      the Company pursuant to the Subscription Agreement.

5.3.  Amendment Provision. The term "Note" and all reference thereto, as used
      throughout this instrument, shall mean this instrument as originally
      executed, or if later amended or supplemented, then as so amended or
      supplemented.

5.4.  Assignability. This Note shall be binding upon the Borrower and its
      successors and permitted assigns, and shall inure to the benefit of the
      Holder and its successors and assigns, and may be assigned by the Holder.

5.5.  Cost of Collection. If default is made in the payment of this Note,
      Borrower shall pay the Holder hereof reasonable costs of collection,
      including reasonable attorneys' fees.

5.6.  Governing Law. This Note shall be governed by and construed in accordance
      with the laws of the State of New York. Any action brought by either party
      against the other concerning the transactions contemplated by this
      Agreement shall be brought only in the state courts of New York or in the
      federal courts located in New York County in the State of New York. Both
      parties and the individual signing this Agreement on behalf of the
      Borrower agree to submit to the jurisdiction of such courts. The
      prevailing party shall be entitled to recover from the other party its
      reasonable attorney's fees and costs.

5.7.  Maximum Payments. Nothing contained herein shall be deemed to establish or
      require the payment of a rate of interest or other charges in excess of
      the maximum permitted by applicable law. In the event that the rate of
      interest required to be paid or other charges hereunder exceed the maximum
      permitted by such law, any payments in excess of such maximum shall be
      credited against amounts owed by the Borrower to the Holder and thus
      refunded to the Borrower.

      IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name
by its Chief Executive Officer on this ____ day of October, 2001.

                          ADVANCED AERODYNAMICS & STRUCTURES, INC.

                          By: __________________________________________________
                              Carl L. Chen, Chairman and Chief Executive Officer

WITNESS:

____________________

                                       40

<PAGE>

                              NOTICE OF CONVERSION

(To be executed by the Registered Holder in order to convert the Note)

      The undersigned hereby elects to convert $_________ of the principal and
$_________ of the interest due on the Note issued by ADVANCED AERODYNAMICS &
STRUCTURES, INC. on October ___, 2001 into Shares of Common Stock of ADVANCED
AERODYNAMICS & STRUCTURES, INC. according to the conditions set forth in such
Note, as of the date written below.

Date of Conversion: ____________________________________________________________

Conversion Price: ______________________________________________________________

Shares To Be Delivered: ________________________________________________________

Signature: _____________________________________________________________________

Print Name: ____________________________________________________________________

Address: _______________________________________________________________________

________________________________________________________________________________

                                       41

<PAGE>

                                   SCHEDULE B
                               DISCLOSURE SCHEDULE
                                       FOR
                    ADVANCED AERODYNAMICS & STRUCTURES, INC.

      This Disclosure Schedule B of Advanced Aerodynamics & Structures, Inc., a
Delaware corporation (the "Company"), is delivered pursuant to Section 2 of that
certain Subscription Agreement dated October 26, 2001 (the "Subscription
Agreement") among the Company and certain subscribers as set forth in the
signature pages of the Subscription Agreement. Capitalized terms used herein and
not otherwise defined herein shall have the meanings set forth in the
Subscription Agreement. This Disclosure Schedule is arranged in paragraphs
corresponding to the lettered paragraphs contained in Section 2 of the
Subscription Agreement; however, any information disclosed herein under any
paragraph number shall be deemed to be disclosed and incorporated into any other
paragraph number under the Subscription Agreement where such disclosure would be
appropriate. The word "None" when used herein denotes that no exception is taken
to the particular representation or warranty.

      Sections 2(b) and (e): See attached Exhibit. The Company has agreed to
issue 1,000,000 shares of Class A common stock to a public relations firm in
exchange for services to help the Company increase its exposure to the public
and financial arenas. Further, the Company has entered into a Consulting
Agreement with a group of consultants who will assist and consult with the
Company regarding investment banking and communications with existing
shareholders, brokers, dealers and other investment professionals. In return for
their services, the Company has agreed to issue Class A common stock in an
amount equal to 12% of the issued and outstanding common stock of the Company.
The Company has agreed to issue and deliver such shares to the consultants at
the earlier of 75 days following the Company's receipt of an amended Type
Certificate from the Federal Aviation Administration for its Jetcruzer 500 or by
October 2003. The consultants may, however, accelerate the final issue date one
or more times, on not less than 10 days prior notice to the Company, as to some
or all of the shares.

      Certain investors ("Holders") who are holders of convertible notes and
Series A Preferred Stock of the Company ("Holders Securities") have entered into
a Lockup Agreement for the benefit of certain other investors in the Company
("Investors") who are also holders of convertible notes and Series A Preferred
Stock of the Company ("Investors Securities") pursuant to which the Holders have
agreed that they may not transfer, or exercise any conversion rights of, any of
the Holders Securities until the sooner of (i) the date one or more Holders have
purchased for $800,000, from the Investors, Investors Securities and/or, at the
election of each Investor, any other notes or preferred stock issued to
Investors by the Company having principal or stated value, as the case may be,
of $600,000, or (ii) the date that each Investor has exercised conversion rights
relating to the Investors Securities and has received the Company's Class A
common stock issuable upon exercise of such conversion rights in a certain
amount to be determined by multiplying the closing bid price on each conversion
date by the number of Class A common stock of the Company received by the
Investor on the conversion date, which certain amount may be increased by the
Proportionate Share (as defined in the Put Agreement noted below) for which the
Company may exercise its Put rights for each Investor. Notwithstanding the
above, Holders may convert Holders Securities in an amount equal to the Holder's
proportionate share, as defined in the Put Agreement discussed below, as of each
conversion date.

      The Company has entered into a Put Agreement with certain investors who
hold convertible notes and preferred stock of the Company pursuant to which the
investors have granted to the Company the option of selling to each investor an
amount of convertible notes up to an aggregate maximum amount of $5,000,000,
subject to reduction in the event of future financings. The Company's right to
exercise the put shall expire October 25, 2002. The Put Agreement also places
certain restrictions on such investors'

                                       42

<PAGE>

ability to sell Class A common stock of the Company received on conversion of
the Company securities held by such investors.

      The Company may in the future issue options to purchase up to 10% of its
outstanding common stock to its Chief Executive Officer and may authorize
additional options to purchase up to 1.5 million shares of its common stock to
its employees. Furthermore, Luce, Forward, Hamilton & Scripps, LLP has agreed to
accept 380,000 shares of the Company's Class A common stock, with customary
piggy back registration rights, in lieu of payment of $38,000 in legal fees.

      Section 2(i) Litigation: On October 4, 2001 a judgment was made against
the Company to pay the amount of $35,048.86 to a vendor who provided goods or
services. The Company has until October 26, 2001 to comply with this judgment.
In addition, the Company is engaged in a suit with a vendor who has filed a
complaint with the courts that the Company owes it $123,785 on a contract order
to manufacture and fabricate certain parts. The Company believes that the vendor
did not comply with certain requirements regarding such parts and denies any
wrong doing and is prepared to litigate this matter. Another potential
litigation can stem from an individual who holds 235,000 warrants to purchase
Class A common stock of the Company. The individual has complained that Company
management misled investors with respect to the timing of the plane's
availability for sale and is seeking reimbursement of $276,434, at an average
cost of $1.18 per warrant. The individual has informed the Company that an
individual action, or a class action suit on behalf of all warrant holders, will
be filed on Monday October 15, 2001, if the individual's claim for reimbursement
has not been resolved by such time. As of October 23, 2001, the Company is not
aware of any such filing and has not made any reimbursement to the individual.

      Section 2(o) Defaults: As of September 30, 2001, the Company was in
default under certain convertible notes issued by the Company on March 23, 2001
(collectively referred to as the "March Notes") for failure to make required
interest payments within 10 days of June 30, 2001 and September 30, 2001. The
Company has accrued approximately $170,000 in interest due to the note holders,
none of which has been paid. The Company hopes to obtain waivers from the
holders of the Notes waiving their right to make all other amounts payable under
the Notes immediately due and payable and each holder of the Notes will be
offered an opportunity to receive such interest payments in Class A common stock
of the Company. Interest payments will continue to become due under the Notes
for as long as the Notes remain outstanding and, in the event the holders of the
Notes elect not to accept the payment of interest in the form of Class A common
stock of the Company, the Company may continue to default on such interest
payments.

      Section 2(r) Listing: The Company received notice of de-listing of its
Class A common stock and Warrants B from the Nasdaq National Market in January
2001. The Company appealed the notice and appeared before the Nasdaq Listing
Qualification Panel on March 30, 2001. On the close of business, April 17, 2001,
the Company's securities were de-listed from the Nasdaq Stock Market and began
trading on the OTC Bulletin Board as of April 18, 2001.

      Section 2(s) No Undisclosed Liabilities: In connection with the 8/30, 9/6,
9/26, 10/5 and 10/12 short term notes (schedules attached herewith), Dr. Chen
has agreed to issue pro rata:

      (i)   For 9/6 notes, 270,000 warrants at $.2431;
      (ii)  For the remaining notes, 865,000 common shares.

                                       43

<PAGE>

Date: _____________, 2001               ADVANCED AERODYNAMICS &
                                        STRUCTURES, INC.

                                        By: ____________________________________
                                            David M. Turner
                                            Vice President Finance & Chief
                                            Financial Officer

                                       44

<PAGE>

                                   EXHIBIT C

                                 LEGAL OPINION

                                       45

<PAGE>

                                   EXHIBIT D

                                FORM OF WARRANT

THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT
AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO ADVANCED AERODYNAMICS & STRUCTURES, INC. THAT
SUCH REGISTRATION IS NOT REQUIRED.

                           Right to Purchase _________ shares of Common Stock of
                           Advanced Aerodynamics & Structures, Inc. (subject to
                           adjustment as provided herein)

                         COMMON STOCK PURCHASE WARRANT

No. ____                                     Issue Date: October ____, 2001

      ADVANCED AERODYNAMICS & STRUCTURES, INC., a corporation organized under
the laws of the State of Delaware (the "Company"), hereby certifies that, for
value received, ________________________________________ (the "Holder"), or
assigns, is entitled, subject to the terms set forth below, to purchase from the
Company from and after forty-five days after the Issue Date of this Warrant and
at any time or from time to time before 5:00 p.m., New York time, through five
(5) years after such date (the "Expiration Date"), up to ___________ fully paid
and nonassessable shares of Common Stock (as hereinafter defined), $.0001 par
value per share, of the Company. The first 50% of the shares of Common Stock
purchaseable hereunder shall have a per share purchase price of $.25. The other
50% of the shares of Common Stock purchasable hereunder shall have a per share
purchase price of $.30. The aforedescribed purchase prices per share, as
adjusted from time to time as herein provided, are referred to herein as the
"Purchase Price". The number and character of such shares of Common Stock and
the Purchase Price are subject to adjustment as provided herein.

      As used herein the following terms, unless the context otherwise requires,
have the following respective meanings:

      (a) The term "Company" shall include Advanced Aerodynamics & Structures,
Inc. and any corporation which shall succeed or assume the obligations of
Advanced Aerodynamics & Structures, Inc. hereunder.

      (b) The term "Common Stock" includes (a) the Company's Class A Common
Stock, $.0001 par value per share, as authorized on the date of the Subscription
Agreement referred to in Section 9 hereof, (b) any other capital stock of any
class or classes (however designated) of the Company, authorized on or after
such date, the holders of which shall have the right, without limitation as to
amount, either to all or to a share of the balance of current dividends and
liquidating dividends after the payment of dividends and distributions on any
shares entitled to preference, and the holders of which shall ordinarily, in the
absence of contingencies, be entitled to vote for the election of a majority of
directors of the Company (even if the right so to vote has been suspended by the
happening of such a contingency) and (c) any other securities into which or for
which any of the securities described in (a) or (b) may be

                                       46

<PAGE>

converted or exchanged pursuant to a plan of recapitalization, reorganization,
merger, sale of assets or otherwise.

      (c) The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person (corporate or
otherwise) which the holder of the Warrant at any time shall be entitled to
receive, or shall have received, on the exercise of the Warrant, in lieu of or
in addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 4 or otherwise.

      1. Exercise of Warrant.

            1.1. Number of Shares Issuable upon Exercise. From and after the
date hereof through and including the Expiration Date, the holder hereof shall
be entitled to receive, upon exercise of this Warrant in whole in accordance
with the terms of subsection 1.2 or upon exercise of this Warrant in part in
accordance with subsection 1.3, shares of Common Stock of the Company, subject
to adjustment pursuant to Section 4.

            1.2. Full Exercise. This Warrant may be exercised in full by the
holder hereof by delivery of an original or facsimile copy of the form of
subscription attached as Exhibit A hereto (the "Subscription Form") duly
executed by such holder and surrender of the original Warrant within seven (7)
days of exercise, to the Company at its principal office or at the office of its
Warrant Agent (as provided hereinafter), accompanied by payment, in cash, wire
transfer or by certified or official bank check payable to the order of the
Company, in the amount obtained by multiplying the number of shares of Common
Stock for which this Warrant is then exercisable by the Purchase Price then in
effect.

            1.3. Partial Exercise. This Warrant may be exercised in part (but
not for a fractional share) by surrender of this Warrant in the manner and at
the place provided in subsection 1.2 except that the amount payable by the
holder on such partial exercise shall be the amount obtained by multiplying (a)
the number of shares of Common Stock designated by the holder in the
Subscription Form by (b) the Purchase Price then in effect. On any such partial
exercise, the Company, at its expense, will forthwith issue and deliver to or
upon the order of the holder hereof a new Warrant of like tenor, in the name of
the holder hereof or as such holder (upon payment by such holder of any
applicable transfer taxes) may request, the number of shares of Common Stock for
which such Warrant may still be exercised.

            1.4. Fair Market Value. Fair Market Value of a share of Common Stock
as of a particular date (the "Determination Date") shall mean the Fair Market
Value of a share of the Company's Common Stock. Fair Market Value of a share of
Common Stock as of a Determination Date shall mean:

                  (a) If the Company's Common Stock is traded on an exchange or
is quoted on the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") National Market System or the NASDAQ SmallCap Market, then
the closing or last sale price, respectively, reported for the last business day
immediately preceding the Determination Date.

                  (b) If the Company's Common Stock is not traded on an exchange
or on the NASDAQ National Market System or the NASDAQ SmallCap Market but is
traded in the over-the-counter market, then the mean of the closing bid and
asked prices reported for the last business day immediately preceding the
Determination Date.

                  (c) Except as provided in clause (d) below, if the Company's
Common Stock is not publicly traded, then as the Holder and the Company agree or
in the absence of agreement by arbitration in accordance with the rules then
standing of the American Arbitration Association, before a

                                       47

<PAGE>

single arbitrator to be chosen from a panel of persons qualified by education
and training to pass on the matter to be decided.

                  (d) If the Determination Date is the date of a liquidation,
dissolution or winding up, or any event deemed to be a liquidation, dissolution
or winding up pursuant to the Company's charter, then all amounts to be payable
per share to holders of the Common Stock pursuant to the charter in the event of
such liquidation, dissolution or winding up, plus all other amounts to be
payable per share in respect of the Common Stock in liquidation under the
charter, assuming for the purposes of this clause (d) that all of the shares of
Common Stock then issuable upon exercise of all of the Warrants are outstanding
at the Determination Date.

            1.5. Company Acknowledgment. The Company will, at the time of the
exercise of the Warrant, upon the request of the holder hereof acknowledge in
writing its continuing obligation to afford to such holder any rights to which
such holder shall continue to be entitled after such exercise in accordance with
the provisions of this Warrant. If the holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such holder any such rights.

            1.6. Trustee for Warrant Holders. In the event that a bank or trust
company shall have been appointed as trustee for the holders of the Warrants
pursuant to Subsection 3.2, such bank or trust company shall have all the powers
and duties of a warrant agent (as hereinafter described) and shall accept, in
its own name for the account of the Company or such successor person as may be
entitled thereto, all amounts otherwise payable to the Company or such
successor, as the case may be, on exercise of this Warrant pursuant to this
Section 1.

      2.1 Delivery of Stock Certificates, etc. on Exercise. The Company agrees
that the shares of Common Stock purchased upon exercise of this Warrant shall be
deemed to be issued to the holder hereof as the record owner of such shares as
of the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares as aforesaid. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within seven (7) days thereafter, the Company at its expense (including
the payment by it of any applicable issue taxes) will cause to be issued in the
name of and delivered to the holder hereof, or as such holder (upon payment by
such holder of any applicable transfer taxes) may direct in compliance with
applicable securities laws, a certificate or certificates for the number of duly
and validly issued, fully paid and nonassessable shares of Common Stock (or
Other Securities) to which such holder shall be entitled on such exercise, plus,
in lieu of any fractional share to which such holder would otherwise be
entitled, cash equal to such fraction multiplied by the then Fair Market Value
of one full share, together with any other stock or other securities and
property (including cash, where applicable) to which such holder is entitled
upon such exercise pursuant to Section 1 or otherwise.

      2.2. Cashless Exercise.

            (a) Payment may be made either in (i) cash or by certified or
official bank check payable to the order of the Company equal to the applicable
aggregate Purchase Price, (ii) by delivery of Warrants, Common Stock and/or
Common Stock receivable upon exercise of the Warrants in accordance with Section
(b) below or (iii) by a combination of any of the foregoing methods, for the
number of Common Shares specified in such form (as such exercise number shall be
adjusted to reflect any adjustment in the total number of shares of Common Stock
issuable to the holder per the terms of this Warrant) and the holder shall
thereupon be entitled to receive the number of duly authorized, validly issued,
fully-paid and non-assessable shares of Common Stock (or Other Securities)
determined as provided herein.

                                       48

<PAGE>

            (b) Notwithstanding any provisions herein to the contrary, if the
Fair Market Value of one share of Common Stock is greater than the Purchase
Price (at the date of calculation as set forth below), in lieu of exercising
this Warrant for cash, upon consent of the Company, the holder may elect to
receive shares equal to the value (as determined below) of this Warrant (or the
portion thereof being cancelled) by surrender of this Warrant at the principal
office of the Company together with the properly endorsed Subscription Form in
which event the Company shall issue to the holder a number of shares of Common
Stock computed using the following formula:

                  X = Y (A-B)
                      -------
                         A

            Where X = the number of shares of Common Stock to be issued to the
                      holder

                  Y = the number of shares of Common Stock purchasable under
                      the Warrant or, if only a portion of the Warrant is being
                      exercised, the portion of the Warrant being exercised (at
                      the date of such calculation)

                  A = the Fair Market Value of one share of the Company's
                      Company's Common Stock (at the date of such calculation)

                  B = Purchase Price (as adjusted to the date of such
                      calculation)

            (c) The cashless exercise feature of this Warrant may be employed
only commencing on the first anniversary of the Issue Date of the Warrant and
then only if a Non-Registration Event (as defined in the Subscription Agreement)
has occurred and is continuing on such date or occurs after such date.

      3. Adjustment for Reorganization, Consolidation, Merger, etc.

            3.1. Reorganization, Consolidation, Merger, etc. In case at any time
or from time to time, the Company shall (a) effect a reorganization, (b)
consolidate with or merge into any other person or (c) transfer all or
substantially all of its properties or assets to any other person under any plan
or arrangement contemplating the dissolution of the Company, then, in each such
case, as a condition to the consummation of such a transaction, proper and
adequate provision shall be made by the Company whereby the holder of this
Warrant, on the exercise hereof as provided in Section 1, at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Common Stock (or Other Securities) issuable on such exercise prior to such
consummation or such effective date, the stock and other securities and property
(including cash) to which such holder would have been entitled upon such
consummation or in connection with such dissolution, as the case may be, if such
holder had so exercised this Warrant, immediately prior thereto, all subject to
further adjustment thereafter as provided in Section 4.

            3.2. Dissolution. In the event of any dissolution of the Company
following the transfer of all or substantially all of its properties or assets,
the Company, prior to such dissolution, shall at its expense deliver or cause to
be delivered the stock and other securities and property (including cash, where
applicable) receivable by the holders of the Warrants after the effective date
of such dissolution pursuant to this Section 3 to a bank or trust company having
its principal office in New York, NY, as trustee for the holder or holders of
the Warrants.

            3.3. Continuation of Terms. Upon any reorganization, consolidation,
merger or transfer (and any dissolution following any transfer) referred to in
this Section 3, this Warrant shall

                                       49

<PAGE>

continue in full force and effect and the terms hereof shall be applicable to
the shares of stock and other securities and property receivable on the exercise
of this Warrant after the consummation of such reorganization, consolidation or
merger or the effective date of dissolution following any such transfer, as the
case may be, and shall be binding upon the issuer of any such stock or other
securities, including, in the case of any such transfer, the person acquiring
all or substantially all of the properties or assets of the Company, whether or
not such person shall have expressly assumed the terms of this Warrant as
provided in Section 4. In the event this Warrant does not continue in full force
and effect after the consummation of the transaction described in this Section
3, then only in such event will the Company's securities and property (including
cash, where applicable) receivable by the holders of the Warrants be delivered
to the Trustee as contemplated by Section 3.2.

      4. Extraordinary Events Regarding Common Stock. In the event that the
Company shall (a) issue additional shares of the Common Stock as a dividend or
other distribution on outstanding Common Stock, (b) subdivide its outstanding
shares of Common Stock or (c) combine its outstanding shares of the Common Stock
into a smaller number of shares of the Common Stock, then, in each such event,
the Purchase Price shall, simultaneously with the happening of such event, be
adjusted by multiplying the then Purchase Price by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such event and the denominator of which shall be the number of shares
of Common Stock outstanding immediately after such event, and the product so
obtained shall thereafter be the Purchase Price then in effect. The Purchase
Price, as so adjusted, shall be readjusted in the same manner upon the happening
of any successive event or events described herein in this Section 4. The number
of shares of Common Stock that the holder of this Warrant shall thereafter, on
the exercise hereof as provided in Section 1, be entitled to receive shall be
increased to a number determined by multiplying the number of shares of Common
Stock that would otherwise (but for the provisions of this Section 4) be
issuable on such exercise by a fraction of which (a) the numerator is the
Purchase Price that would otherwise (but for the provisions of this Section 4)
be in effect, and (b) the denominator is the Purchase Price in effect on the
date of such exercise.

      5. Certificate as to Adjustments. In each case of any adjustment or
readjustment in the shares of Common Stock (or Other Securities) issuable on the
exercise of the Warrants, the Company at its expense will promptly cause its
Chief Financial Officer or other appropriate designee to compute such adjustment
or readjustment in accordance with the terms of the Warrant and prepare a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or receivable by the Company for any
additional shares of Common Stock (or Other Securities) issued or sold or deemed
to have been issued or sold, (b) the number of shares of Common Stock (or Other
Securities) outstanding or deemed to be outstanding and (c) the Purchase Price
and the number of shares of Common Stock to be received upon exercise of this
Warrant, in effect immediately prior to such adjustment or readjustment and as
adjusted or readjusted as provided in this Warrant. The Company will forthwith
mail a copy of each such certificate to the holder of the Warrant and any
Warrant Agent of the Company (appointed pursuant to Section 12 hereof).

      6. Reservation of Stock, etc. Issuable on Exercise of Warrant; Financial
Statements. From and after forty-five (45) days after the Issue Date of this
Warrant, the Company will at all times reserve and keep available, solely for
issuance and delivery on the exercise of the Warrants, all shares of Common
Stock (or Other Securities) from time to time issuable on the exercise of the
Warrant. This Warrant entitles the holder hereof to receive copies of all
financial and other information distributed or required to be distributed to the
holders of the Company's Common Stock.

      7. Assignment; Exchange of Warrant. Subject to compliance with applicable
securities laws, this Warrant, and the rights evidenced hereby, may be
transferred by any registered holder hereof (a

                                       50

<PAGE>

"Transferor") with respect to any or all of the Shares. On the surrender for
exchange of this Warrant, with the Transferor's endorsement in the form of
Exhibit B attached hereto (the "Transferor Endorsement Form") and together with
evidence reasonably satisfactory to the Company demonstrating compliance with
applicable securities laws, the Company at its expense, but with payment by the
Transferor of any applicable transfer taxes) will issue and deliver to or on the
order of the Transferor thereof a new Warrant or Warrants of like tenor, in the
name of the Transferor and/or the transferee(s) specified in such Transferor
Endorsement Form (each a "Transferee"), calling in the aggregate on the face or
faces thereof for the number of shares of Common Stock called for on the face or
faces of the Warrant so surrendered by the Transferor.

      8. Replacement of Warrant. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant
and, in the case of any such loss, theft or destruction of this Warrant, on
delivery of an indemnity agreement or security reasonably satisfactory in form
and amount to the Company or, in the case of any such mutilation, on surrender
and cancellation of this Warrant, the Company at its expense will execute and
deliver, in lieu thereof, a new Warrant of like tenor.

      9. Registration Rights. The Holder of this Warrant has been granted
certain registration rights by the Company. These registration rights are set
forth in a Subscription Agreement entered into by the Company and Subscriber of
the Company's 8% Secured Convertible Notes at or prior to the issue date of this
Warrant. The terms of the Subscription Agreement are incorporated herein by this
reference. Upon the occurrence of a Non-Registration Event, as defined in the
Subscription Agreement, in the event the Company is unable to issue Common Stock
upon exercise of this Warrant that has been registered in the Registration
Statement described in Section 10.1(ii) of the Subscription Agreement, within
the time periods described in the Subscription Agreement, which Registration
Statement must be effective for the periods set forth in the Subscription
Agreement, then upon written demand made by the Holder, the Company will pay to
the Holder of this Warrant, in lieu of delivering Common Stock, a sum equal to
the closing price of the Company's Common Stock on the Principal Market (as
defined in the Subscription Agreement) or such other principal trading market
for the Company's Common Stock on the trading date immediately preceding the
date notice is given by the Holder, less the Purchase Price, for each share of
Common Stock designated in such notice from the Holder.

      10. Call Option. The Company shall have the option to "call" the Warrants
(the "Warrant Call"), in accordance with and governed by the following:

            (a) The Company shall exercise the Warrant Call by giving to each
Warrant Holder a written notice of call (the "Call Notice") during the period in
which the Warrant Call may be exercised.

            (b) The Company's right to exercise the Warrant Call shall commence
with the actual effective date of the registration statement described in
Section 10.1(ii) of the Subscription Agreement and thereafter, shall be
coterminous with the exercise period of the Warrants for a maximum of fifty
percent (50%) of the Common Stock issuable upon the exercise of this Warrant
(the "Warrant Shares"), provided, that the registration statement is effective
at the date the Call Notice is given and through the period ending fourteen (14)
business days thereafter. In no event may the Company exercise the Warrant Call
at any time unless the Warrant Shares to be delivered upon exercise of the
Warrant, will be upon delivery, immediately resalable, without restrictive
legend and upon such resale freely transferable on the transfer books of the
Company.

            (c) Unless otherwise agreed to by the Holder of this Warrant, the
Call Notice must be given to all Warrant Holders who receive Warrants similar to
this Warrant (in terms of exercise price and other principal terms) on or about
the same issue date as this Warrant in proportion to the amounts of

                                       51

<PAGE>

Common Stock which can be purchased by the respective Warrant Holders in
accordance with the respective Warrant held by each.

            (d) The Company may give a Call Notice in connection with up to
twenty-five percent (25%) of the Common Stock issuable upon exercise of this
Warrant provided the closing bid price of the Common Stock, as reported on the
NASD OTC Bulletin Board, NASDAQ National Market, NASDAQ SmallCap Market,
American Stock Exchange or New York Stock Exchange (whichever of the foregoing
is, at the time, the principal trading exchange or market for the Common Stock,
the "Principal Market"), of if not then trading on a Principal Market, such
other principal market or exchange where the Common Stock is listed or traded
for the thirty (30) trading days prior to but not including the date of the Call
Notice, for each trading day during the thirty (30) trading days prior to the
giving of the Call Notice ("Lookback Period") is two hundred percent (200%) of
the Purchase Price and the average daily trading volume of the Common Stock
during the Lookback Period is not less than one hundred fifty thousand (150,000)
Common Shares.

            (e) The Company may give a Call Notice in connection with up to
fifty percent (50%) of the Common Stock issuable upon exercise of this Warrant
provided the closing bid price of the Common Stock, as reported for the
Principal Market, of if not then trading on a Principal Market, such other
principal market or exchange where the Common Stock is listed or traded for the
thirty (30) trading days prior to but not including the date of the Call Notice
for each trading day during the Lookback Period is two hundred percent (200%) of
the Purchase Price and the average daily trading volume of the Common Stock
during the Lookback Period is not less than two hundred fifty thousand (250,000)
Common Shares.

            (f) The respective Warrant Holders shall exercise their Warrant
rights and purchase the appropriate Warrant Shares and pay for same within
fourteen (14) business days of the date of the Call Notice. If the Warrant
Holder fails to timely pay the funds required by the Warrant Call, the Company
may elect to cancel a corresponding amount of this Warrant.

            (g) The Company may not exercise the right to Call this Warrant or
any part of it after the occurrence of a Non-Registration Event, as defined in
the Subscription Agreement, unless same was subject to cure and cured during the
stated cure period.

            (h) Only one Warrant Call may be given in connection with this
Warrant.

      11. Maximum Exercise. The Holder shall not be entitled to exercise this
Warrant on an exercise date, in connection with that number of shares of Common
Stock which would be in excess of the sum of (i) the number of shares of Common
Stock beneficially owned by the Holder and its affiliates on an exercise date,
and (ii) the number of shares of Common Stock issuable upon the exercise of this
Warrant with respect to which the determination of this limitation is being made
on an exercise date, which would result in beneficial ownership by the Holder
and its affiliates of more than 4.99% of the outstanding shares of Common Stock
of the Company on such date. For the purposes of the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13d-3
thereunder. Subject to the foregoing, the Holder shall not be limited to
aggregate exercises which would result in the issuance of more than 4.99%. The
restriction described in this paragraph may be revoked upon seventy-five (75)
days prior notice from the Holder to the Company. The Holder may allocate which
of the equity of the Company deemed beneficially owned by the Subscriber shall
be included in the 4.99% amount described above and which shall be allocated to
the excess above 4.99%.

                                       52

<PAGE>

      12. Warrant Agent. The Company may, by written notice to the each holder
of the Warrant, appoint an agent for the purpose of issuing Common Stock (or
Other Securities) on the exercise of this Warrant pursuant to Section 1,
exchanging this Warrant pursuant to Section 7, and replacing this Warrant
pursuant to Section 8, or any of the foregoing, and thereafter any such
issuance, exchange or replacement, as the case may be, shall be made at such
office by such agent.

      13. Transfer on the Company's Books. Until this Warrant is transferred on
the books of the Company, the Company may treat the registered holder hereof as
the absolute owner hereof for all purposes, notwithstanding any notice to the
contrary.

      14. Notices. All notices and other communications from the Company to the
holder of this Warrant shall be mailed by first class registered or certified
mail, postage prepaid, at such address as may have been furnished to the Company
in writing by such holder or, until any such holder furnishes to the Company an
address, then to, and at the address of, the last holder of this Warrant who has
so furnished an address to the Company.

      15. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be construed and enforced in accordance with and
governed by the laws of New York. Any dispute relating to this Warrant shall be
adjudicated in New York County in the State of New York. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.

      IN WITNESS WHEREOF, the Company has executed this Warrant as of the date
first written above.

                                        ADVANCED AERODYNAMICS & STRUCTURES, INC.

                                        By:  ___________________________________
                                             Carl L. Chen, Chairman & Chief
                                             Executive Officer

Witness:

_________________________________

                                       53

<PAGE>

                              Exhibit A to Warrant

                              FORM OF SUBSCRIPTION
                   (to be signed only on exercise of Warrant)

TO: Advanced Aerodynamics & Structures, Inc.

The undersigned, pursuant to the provisions set forth in the attached Warrant
(No.____), hereby irrevocably elects to purchase (check applicable box):

___   ________ shares of the Common Stock covered by such Warrant; or

___   the maximum number of shares of Common Stock covered by such Warrant
pursuant to the cashless exercise procedure set forth in Section 2.

The undersigned herewith makes payment of the full purchase price for such
shares at the price per share provided for in such Warrant, which is
$___________. Such payment takes the form of (check applicable box or boxes):

___   $__________ in lawful money of the United States; and/or

___   the cancellation of such portion of the attached Warrant as is exercisable
for a total of _______ shares of Common Stock (using a Fair Market Value of
$_______ per share for purposes of this calculation); and/or

___   the cancellation of such number of shares of Common Stock as is necessary,
in accordance with the formula set forth in Section 2, to exercise this Warrant
with respect to the maximum number of shares of Common Stock purchasable
pursuant to the cashless exercise procedure set forth in Section 2.

The undersigned requests that the certificates for such shares be issued in the
name of, and delivered to ______________________________________________________
whose address is _______________________________________________________________
________________________________________________________________________________

The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable upon exercise of the within Warrant shall
be made pursuant to registration of the Common Stock under the Securities Act of
1933, as amended (the "Securities Act"), or pursuant to an exemption from
registration under the Securities Act.

Dated:___________________               ________________________________________
                                        (Signature must conform to name of
                                        holder as specified on the face of the
                                        Warrant)

                                        ________________________________________
                                        ________________________________________
                                        (Address)

                                       54

<PAGE>

                              Exhibit B to Warrant

                         FORM OF TRANSFEROR ENDORSEMENT
                   (To be signed only on transfer of Warrant)

            For value received, the undersigned hereby sells, assigns, and
transfers unto the person(s) named below under the heading "Transferees" the
right represented by the within Warrant to purchase the percentage and number of
shares of Common Stock of Advanced Aerodynamics & Structures, Inc. to which the
within Warrant relates specified under the headings "Percentage Transferred" and
"Number Transferred," respectively, opposite the name(s) of such person(s) and
appoints each such person Attorney to transfer its respective right on the books
of Advanced Aerodynamics & Structures, Inc. with full power of substitution in
the premises.

--------------------------------------------------------------------------------
Transferees               Percentage Transferred             Number Transferred
-----------               ----------------------             ------------------
--------------------------------------------------------------------------------

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

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

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

Dated: ______________, _______          ________________________________________
                                        (Signature must conform to name of
                                        holder as specified on the face of the
                                        warrant)

Signed in the presence of:

______________________________          ________________________________________
         (Name)
                                        ________________________________________
                                                (address)

ACCEPTED AND AGREED:                    ________________________________________
[TRANSFEREE]
                                        ________________________________________
                                                (address)

______________________________
         (Name)

                                       55

<PAGE>

                           SCHEDULE E - FINDERS FEES

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
FINDER                                   NOTE FINDER'S FEE                        WARRANTS TO PURCHASE
                                                                                  SHARES OF COMMON STOCK
------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>                                      <C>
LUCRATIVE INVESTMENTS                    (a) 40% of Finder's Fees payable in      (a) 40% of Warrants isuable in
Ajeltake Island                          connection with investments by Martin    connection with investments by Martin
P.O. Box 1405                            Thaler, Martin Klein, Sarah Katz,        Thaler, Martin Klein, Sarah Katz,
Majuro Marshall Island, M.H 96960        Robert Kaplan, Samuel Schlesinger,,      Robert Kaplan, Samuel Schlesinger,,
Fax: 011-35041555                        Lucrative Investments, Otto              Lucrative Investments, Otto
                                         Weingarten, Briarbrook Trust             Weingarten, Briarbrook Trust
                                         No:F17189, Tayside Trading Ltd.,         No:F17189, Tayside Trading Ltd.,
                                         Hirsch J. Ziegler, Kelp Investors,       Hirsch J. Ziegler, Kelp Investors,
                                         Rutgers Casualty Insurance Company,      Rutgers Casualty Insurance Company,
                                         Nachum Stein, Zochron Fraida Rivkah,     Nachum Stein, Zochron Fraida Rivkah,
                                         Cong. Bais Yitzchak Inc., Phillip        Cong. Bais Yitzchak Inc., Phillip
                                         Heller and Francesca Weingarten.         Heller, and Francesca Weingarten.
                                         (b) 10% of Finder's Fees payable in      (b) 10% of Warrants issuable in
                                         connection with investments by RNJA      connection with investments by RNJA
                                         Company LLC, Stateland Ltd., Bear        Company LLC, Stateland Ltd., Bear
                                         Stearns Securities Corp. Inc. C/F        Stearns Securities Corp. Inc. C/F
                                         Jeffrey Mosseri, Andrew Reckles,         Jeffrey Mosseri, Andrew Reckles,
                                         MM&CTW Foundation Inc., Perkman          MM&CTW Foundation Inc., Perkman
                                         Investments                              Investments
                                         (c) 10% of Finder's Fees payable in      (c) 10% of Warrants issuable in
                                         connection with $750,000 investment by   connection with $750,000 investment by
                                         Alpha Capital Aktiengesellschaft.        Alpha Capital Aktiengesellschaft.
                                         (d) 15% of Finder's Fees payable in      (d) 15% of Warrants issuable in
                                         connection with $625,000 investment by   connection with $625,000 investment by
                                         Alpha Capital Aktiengesellschaft.        Alpha Capital Aktiengesellschaft.
                                         (e) 15% of Finder's Fees payable in      (e) 15% of Warrants issuable in
                                         connection with investment by            connection with investment by
                                         Stonestreet Limited Partnership.         Stonestreet Limited Partnership.
                                         (f) 30% of Finder's Fees payable in      (f) 30% of Warrants issuable in
                                         connection with investment by Amro       connection with investment by Amro
                                         International, S.A., The Endeavour       International, S.A., The Endeavour
                                         Capital Investment Fund S.A.             Capital Investment Fund S.A.
                                         (g) 35% of Finder's Fees payable in      (g) 35% of Warrants issuable in
                                         connection with investment by The        connection with investment by The
                                         Shaar Fund Ltd.                          Shaar Fund Ltd.

                                         * $65,000 of the foregoing Finder's
                                         Fee shall be taken in cash and
                                         deemed reinvested by Lucrative
                                         Investments purchasiung an aggregate
                                         $195,000 of secured Convertible
                                         Notes.

------------------------------------------------------------------------------------------------------------------------
SAM ROTHMAN                              (a) 40% of Finder's Fees payable in      (a) 40% of Warrants issuable in
14 Valencia Drive                        connection with investments by Martin    connection with investments by Martin
Monsey, NY 10952                         Thaler, Martin Klein, Sarah              Thaler, Martin Klein, Sarah

------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       56

<PAGE>

<TABLE>
-------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>                                      <C>
Fax:                                     Katz, Robert Kaplan, Samuel              Katz, Robert Kaplan, Samuel
                                         Schlesinger,, Lucrative Investments,     Schlesinger,, Lucrative Investments,
                                         Otto Weingarten, Briarbrook Trust        Otto Weingarten, Briarbrook Trust
                                         No:F17189, Tayside Trading Ltd., Hirsch  No:F17189, Tayside Trading Ltd., Hirsch
                                         J. Ziegler, Kelp Investors, Rutgers      J. Ziegler, Kelp Investors, Rutgers
                                         Casualty Insurance Company, Nachum       Casualty Insurance Company, Nachum
                                         Stein, Zochron Fraida Rivkah Cong. Bais  Stein, Zochron Fraida Rivkah, Cong.
                                         Yitzchak Inc., Phillip Heller and        Bais Yitzchak Inc., Phillip Heller, and
                                         Francesca Weingarten.                    Francesca Weingarten.
                                         (b) 10% of Finder's Fees payable in      (b) 10% of Warrants issuable in
                                         connection with investments by RNJA      connection with investments by RNJA
                                         Company LLC, Stateland Ltd., Bear        Company LLC, Stateland Ltd., Bear
                                         Stearns Securities Corp. Inc. C/F        Stearns Securities Corp. Inc. C/F
                                         Jeffrey Mosseri, Andrew Reckles,         Jeffrey Mosseri, Andrew Reckles,
                                         MM&CTW Foundation Inc., Perkman          MM&CTW Foundation Inc., Perkman
                                         Investments                              Investments
                                         (c) 10% of Finder's Fees payable in      (c) 10% of Warrants issuable in
                                         connection with $750,000 investment by   connection with $750,000 investment by
                                         Alpha Capital Aktiengesellschaft.        Alpha Capital Aktiengesellschaft.
                                         (d) 15% of Finder's Fees payable in      (d) 15% of Warrants issuable in
                                         connection with $625,000 investment by   connection with $625,000 investment by
                                         Alpha Capital Aktiengesellschaft.        Alpha Capital Aktiengesellschaft.
                                         (e) 15% of Finder's Fees payable in      (e) 15% of Warrants issuable in
                                         connection with investment by            connection with investment by
                                         Stonestreet Limited Partnership.         Stonestreet Limited Partnership.
                                         (f) 30% of Finder's Fees payable in      (f) 30% of Warrants issuable in
                                         connection with investment by Amro       connection with investment by Amro
                                         International, S.A., The Endeavour       International, S.A., The Endeavour
                                         Capital Investment Fund S.A.             Capital Investment Fund S.A.
                                         (g) 35% of Finder's Fees payable in      (g) 35% of Warrants issuable in
                                         connection with investment by The        connection with investment by The
                                         Shaar Fund Ltd.                          Shaar Fund Ltd.

-------------------------------------------------------------------------------------------------------------------------
LIBRA FINANCE, S.A.                      (a) 20% of Finder's Fees payable in      (a) 20% of Warrants issuable in
P.O. Box 4603                            connection with investments by Martin    connection with investments by Martin
Zurich, Switzerland                      Thaler, Martin Klein, Sarah Katz,        Thaler, Martin Klein, Sarah Katz,
Fax: 011-411-201-6262                    Robert Kaplan, Samuel Schlesinger,,      Robert Kaplan, Samuel Schlesinger,,
                                         Lucrative Investments, Otto              Lucrative Investments, Otto
                                         Weingarten, Briarbrook Trust             Weingarten, Briarbrook Trust
                                         No:F17189, Tayside Trading Ltd.,         No:F17189, Tayside Trading Ltd.,
                                         Hirsch J. Ziegler, Kelp Investors,       Hirsch J. Ziegler, Kelp Investors,
                                         Rutgers Casualty Insurance Company,      Rutgers Casualty Insurance Company,
                                         Nachum Stein, Zochron Fraida Rivkah,     Nachum Stein Zochron Fraida Rivkah,
                                         Cong. Bais Yitzchak Inc., Phillip        Cong. Bais Yitzchak Inc., Phillip
                                         Heller, Francesca Weingarten.            Heller, Francesca Weingarten.
                                         (b) 80% of Finder's Fees payable in      (b) 80% of Warrants issuable in
                                         connection with investments by RNJA      connection with investments by RNJA
                                         Company LLC, Stateland Ltd., Bear        Company LLC, Stateland Ltd., Bear
                                         Stearns Securities Corp.                 Stearns Securities Corp.
-------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       57

<PAGE>

<TABLE>
------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>                                      <C>
                                         Inc. C/F Jeffrey Mosseri, Andrew         Inc. C/F Jeffrey Mosseri, Andrew
                                         Reckles, MM&CTW Foundation Inc.,         Reckles, MM&CTW Foundation Inc.,
                                         Perkman Investments                      Perkman Investments
                                         (c) 80% of Finder's Fees payable in      (c) 80% of Warrants issuable in
                                         connection with $750,000 investment by   connection with $750,000 investment by
                                         Alpha Capital Aktiengesellschaft.        Alpha Capital Aktiengesellschaft.
                                         (d) 70% of Finder's Fees payable in      (d) 70% of Warrants issuable in
                                         connection with $625,000 investment by   connection with $625,000 investment by
                                         Alpha Capital Aktiengesellschaft.        Alpha Capital Aktiengesellschaft.
                                         (e) 30% of Finder's Fees payable in      (e) 30% of Warrants issuable in
                                         connection with investment by            connection with investment by
                                         Stonestreet Limited Partnership.         Stonestreet Limited Partnership.
                                         (f) 30% of Finder's Fees payable in      (f) 30% of Warrants issuable in
                                         connection with investment by The        connection with investment by The
                                         Shaar Fund Ltd.                          Shaar Fund Ltd.

------------------------------------------------------------------------------------------------------------------------
STONESTREET CORPORATION                  40% of Finder's Fees payable in          40% of Warrants issuable in connection
C/o Canaccord Capital Corporation        connection with investment by            with investment by Stonestreet Limited
320 Bay Street, Suite 1300               Stonestreet Limited Partnership.         Partnership.
Toronto, ON M5H 4A6, Canada
Fax: 416-956-8989

------------------------------------------------------------------------------------------------------------------------
THE ENDEAVOUR CAPITAL                    40% of Finder's Fees payable in          40% of Warrants issuable in connection
INVESTMENT FUND, S.A.                    connection with investment by The        with investment by The Endeavour
Cumberland House                         Endeavour Capital Investment Fund S.A.   Capital Investment Fund S.A.
27 Cumberland Street, Nassau
New Providence, The Bahamas
Fax: 1-242-327-0687

------------------------------------------------------------------------------------------------------------------------
AMRO INTERNATIONAL, S.A.                 40% of Finder's Fees payable in          40% of Warrants issuable in connection
C/o Ultra Finanz Ltd.                    connection with investment by Amro       with investment by Amro International,
Grossmuensterplatz 6,                    International, S.A.                      S.A.
P.O. Box 4401
Zurich, CH-8022, Switzerland
Fax: 011-411-252-5515

------------------------------------------------------------------------------------------------------------------------
BARBARA R. MITTMAN                       100% of Finder's Fees payable in         100% of Warrants issuable in
551 Fifth Avenue, Suite 1601             connection with investment by Barbara    connection with investment by Barbara
New York, New York 10176                 R. Mittman.                              R. Mittman.
Fax: 212-697-3575

------------------------------------------------------------------------------------------------------------------------
ALEXANDER WESTCOTT                       100% cash Finder's Fees payable in       100% Warrants issuable in connection
AND CO., INC.                            connection with investment by Allan      with investment by Allan Rothstein and
421 Broad Street                         Rothstein and Gary Kaplowitz.            Gary Kaplowitz.
Utica, New York 13501
Fax: 315-738-8233

------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       58

<PAGE>

                                    EXHIBIT G

                    ADVANCED AERODYNAMICS & STRUCTURES, INC.
                   FINDER'S INVESTMENT REPRESENTATION LETTER

      In connection with the offering of Advanced Aerodynamics & Structures,
Inc., a Delaware corporation (the "Company"), to issue secured convertible notes
(the "Notes") and warrants to purchase Class A common stock (the "Warrants") to
investors ("Subscribers") in exchange for up to Ten Million Dollars
($10,000,000) pursuant to that certain Subscription Agreement by and among the
Company and the Subscribers, dated ______________2001 (the "Subscription
Agreement"), the undersigned finder (the "Finder") is set forth on Schedule E to
the Subscription Agreement (the "Schedule of Finders Fees") and has provided
certain services to the Company in exchange for either a (i) cash fee, (ii) the
issuance to the Finder of an unsecured convertible note substantially similar to
the Notes, except as to the security interest granted in the Notes (the
"Finder's Note"), (iii) the issuance to the Finder of a Warrant (the "Finder's
Warrant"), or (iv) a combination of (i), (ii) and (iii) above, as set forth in
the Schedule of Finders Fees.

      As a condition to the issuance of either a Finder's Note or a Finder's
Warrant, or both, the Finder hereby makes the representations, warranties and
covenants to the Company as set forth in the following sections of the
Subscription Agreement (substituting the term "Subscriber" with "Finder" for
purposes hereof), which shall include the related subsections thereto and are
incorporated herein by reference, and agrees to be bound by such provisions:

Subscription Agreement sections 1, 7.2, 8, 10.3, 10.5, 10.6, and 13; and as to
the Finder's Note only, Subscription Agreement sections 9.3 and 9.6.

Dated: _________________, 2001

FINDER:

Finder Name: _________________________________________________

Finder Signature: ____________________________________________

If Finder is a not an individual, Name and Title of Signatory:

______________________________________________________________

                          ACCEPTED BY:

                          ADVANCED AERODYNAMICS & STRUCTURES, INC.
                          a Delaware corporation

                          By: __________________________________________________
                              Carl L. Chen, Chairman and Chief Executive Officer
                              Dated: ____________________, 2001

                                       59

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