Document:

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                                  Exhibit 10.3

                              EMPLOYMENT AGREEMENT

     This EMPLOYMENT AGREEMENT ("Agreement"), dated as of January 8, 2002, is
entered into by and between Advanced Aerodynamics & Structures, Inc., a
California corporation (the "Company"), and L. Peter Larson, (the "Employee").

                                  INTRODUCTION

     The parties hereto desire to provide for the employment of the Employee
with the Company. In order to accomplish such purposes and in consideration of
the terms, covenants and conditions hereinafter set forth, the parties hereby
enter into this Agreement.

                                   ARTICLE 13

                            EMPLOYMENT; TERM; DUTIES

     13.1.  EMPLOYMENT. Upon the terms and conditions hereinafter set forth, the
            ----------
Company hereby employs the Employee, and the Employee hereby accepts employment,
as Executive Vice President and Chief Financial Officer.

     13.2.  TERM. Unless sooner terminated as hereinafter provided, the
            ----
Employee's employment hereunder shall be for a term (the "Term") commencing on
the date hereof and terminating on January 8, 2005. Such employment may continue
in accordance with the terms of this Agreement upon mutual agreement of the
parties. On or before March 1, 2005, Employee shall notify the board of
directors of Company of the ending date of the Term, whereupon Company may elect
to give the Employee nine (9) months' notice of its intent not to extend the
Term. Upon expiration of the Term, Employee shall receive one month of the
Severance Payments and Benefits set forth in Section 4.03 for each month during
which the Company failed to give notice of its intent not to extend the Term.

     13.3.  DUTIES. During the Term, the Employee shall perform such duties for
            ------
the Company as are prescribed by the Bylaws of the Company as of the date of
this Agreement and such additional duties, consistent with such Bylaws and his
position hereunder, as may be assigned to him from time to time by the Board of
Directors of the Company. The Employee shall work for the Company exclusively,
and devote his best efforts, attention and energies to the performance of his
duties hereunder.

                                   ARTICLE 14

                                  COMPENSATION

     14.1.  COMPENSATION. For all services rendered by the Employee hereunder
            ------------
and all covenants and conditions undertaken by him pursuant to this Agreement,
the Company shall pay, and the Employee shall accept, as compensation, an annual
base salary ("Base Salary") of Two Hundred Thousand Dollars ($200,000), payable
in equal bi-weekly installments. The Employee shall also be paid such bonuses
and other compensation as shall be determined from time to time by the Board of
Directors in its sole discretion based on the performance of the Company.

     14.2.  STOCK/WARRANTS. As additional consideration for the services to be
            --------------
rendered by Employee hereunder, Employee shall be issued 1,216,826 shares of the
Class A Common Stock of Employer subject to the to the Stock Restriction
Agreement attached hereto as Exhibit 1. Within thirty (30) days following the
final day of each calendar quarter, through January 8, 2005, and as of the date
of the termination of Employee's employment by the Company (each such date being
referred to herein as a "Quarterly Measurement Date"), Employee shall be issued
Additional Shares in an amount such that the total number of shares issued to
Employee pursuant to this Agreement shall equal three percent (3%) of the issued
and outstanding shares of the Class A and Class B Common

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Stock of the Company (and including such other classes of stock which the
Company may issue during the Term of this agreement) as of such Quarterly
Measurement Date, and such Additional Shares shall be vested on a prorata basis
such that all shares have been vested by the end of The Term. Additional Shares
will continue to be issued until the later of a) The Term plus 185 days or b)
the Company achieves annual revenue exceeding $ 250 Million. Employee may elect
to either pay an amount sufficient to cover any withholding tax obligation of
the Company, or to have the Company withhold part of the shares due to him to
cover the withholding obligations arising from the vesting of these shares.
Employee will be given the option to novate to a modified stock plan and
agreement that is currently being considered and drafted by the Board.

                                   ARTICLE 15

                                    BENEFITS

     15.1.  BENEFITS. During the Term, the Employee shall be provided, at
            --------
Company's expense, a PPOS health insurance plan for the Employee and family and
the accident, disability or hospitalization insurance plans, pension plans or
retirement plans as the Board of Directors makes available to the executive
employees of the Company as a group. Employee shall be entitled to 3 weeks of
vacation annually.

     15.2.  LIFE INSURANCE. During the Term, the Company will purchase and
            --------------
maintain a term life insurance policy insuring the life of the Employee in the
amount of $300,000, and the Employee shall be entitled to designate the
beneficiary of the policy.

     15.3.  AUTOMOBILE. During the Term, the Company shall provide Employee with
            ----------
a Toyota Sequoia LTD or other similar vehicle. The Company shall bear the cost
of servicing, repairing, maintaining, and insuring such vehicle. The Employee
may use such automobile for his private purposes, but shall maintain the car in
good condition and assure that the provisions and conditions of any policy of
insurance relating to the car are observed. The Company shall reimburse Employee
for all reasonable sums expended by him on fuel and oil while engaged in Company
business. Employee shall observe any regulations the Company may impose in
relation to its vehicles. Such vehicle shall not become the property of the
Employee and shall be subject to replacement by the Company from time to time in
accordance with the Company's policy regarding replacement cars. Employee shall
return the vehicle to the Company within ten (10) days of the termination of
this Agreement.

     15.4.  RELOCATION. The Company agrees to reimburse Employee for all costs
            ----------
and expenses reasonably incurred by Employee in connection with his relocation
from Annapolis, Maryland, to Southern California, including 30 days of hotel and
rental car expenses, and one round trip ticket every two weeks to Maryland until
such time as Employee's wife relocates to California (all reasonable efforts to
be made to minimize the cost of such round trip tickets) plus household moving
expenses and housing sales expenses up to a maximum of $50,000. The Company
agrees to pay a housing allowance equal to actual costs incurred, but not
exceeding $2500 per month, until the Employee relocates.

                                   ARTICLE 16

                         TERMINATION; DEATH; DISABILITY

     16.1.  TERMINATION OF EMPLOYMENT WITH CAUSE. If the Employee (a) breaches
            ------------------------------------
any material provision of this Agreement or fails to satisfactorily perform his
obligations hereunder in a fashion that has a material and significantly adverse
effect on the operations of the Company, and such breach and/or failure to
perform is not remedied within thirty (30) days after written notice thereof
from the Company (except that any violation of Article V of this Agreement may
at the Company's discretion result in immediate termination); (b) has been
convicted of or entered a guilty plea to any felony; (c) has committed any act
of fraud, misappropriation of funds, embezzlement or any other act of moral
turpitude as determined by the Board of Directors, in good faith; or (d) has
engaged in willful, reckless, fraudulent, dishonest or grossly negligent
misconduct; then, in addition to any other remedies available to it at law, in
equity or as set forth in this Agreement, the Company shall have the right, upon
written notice to the Employee, to immediately terminate his employment (a
"Termination With Cause") hereunder, without any further liability or obligation
to him hereunder or otherwise in respect of his employment,

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other than its obligation to abide by the terms of the attached Stock
Restriction Agreement and its obligation to pay accrued but unpaid Base Salary
and vacation time as of the date of termination.

     16.2. RESIGNATION. If the Employee resigns, this Agreement shall
           -----------
immediately terminate and the Company shall have no further liability or
obligation to Employee hereunder or otherwise in respect of his employment,
other than its obligation to pay accrued but unpaid Base Salary and vacation
time as of the date of resignation and to abide by the terms of the attached
Stock Restriction Agreement. Employee shall comply with the provisions of
Paragraph V, below, however.

     16.3. TERMINATION OF EMPLOYMENT WITHOUT CAUSE. Notwithstanding any
           ---------------------------------------
provision to the contrary herein, the Company may at any time, in its sole and
absolute discretion and for any or no reason, terminate the employment of the
Employee hereunder (change of control of 50% or more of the voting shares of
company, through sale, merger, consolidation, or other transaction, shall
constitute termination without cause at the election of the Employee) PROVIDED,
that if such termination is not a Termination With Cause, the Company shall pay
and/or provide the Employee as follows:

           (a)  any accrued but unpaid Base Salary as of the date of the
termination as and when such amount is due and payable hereunder.

           (b)  provided Employee has not accepted employment with another
employer (as provided below), Employer shall pay monthly to Employee one-twelfth
(1/12) of the Base Salary in effect as of the date of such termination (the
"Severance Payments") for a period of twelve (12) months (the "Severance
Period"), with the first payment being made on the thirtieth (30th) day
following such date of termination and with each subsequent payment being made
on the same day of each successive month. The obligation of the Company to
provide the Benefits shall continue for twelve months following the date of such
termination or expiration without offer of renewal, PROVIDED, that the Company
may, at its option, pay for and acquire insurance which will provide to Employee
the Benefits for the duration of the Severance Period.

       Notwithstanding the foregoing paragraph (b), the Severance Period,
Severance Payments and the provision of Benefits shall terminate when (i) the
Employee has secured new employment with a base salary equal to or greater than
the Base Salary in effect as of the date of termination. If the Employee accepts
new employment with a base salary (the "New Salary") less than the Base Salary
in effect as of the date of termination and the Severance Period set forth above
has not expired, the Company, in lieu of the remaining Severance Payments to be
made, shall pay the Employee the difference between the total amount of the
remaining Severance Payments due and the total amount of New Salary payable
during the remaining applicable Severance Period.

           (c)  a cash payment immediately upon the date of termination equal to
the Employee's Base Salary on a daily basis (computed on a 260 workday year) in
effect on the date of termination multiplied by the number of accrued and unused
vacation days at the date of termination.

           (d)  Restricted stock and such Additional Shares as required to make
employee stock equal to 5% of the shares then outstanding will vest upon
termination.

           (e)  The provisions of article 5 below will not apply unless Employee
is being paid a salary pursuant to this agreement.

     16.4. DEATH; DISABILITY. Employee's employment hereunder shall terminate
           -----------------
(x) upon his death or (y) if the Employee becomes Disabled (as such term is
hereinafter defined), at the election of the Company by written notice to the
Employee. In the event of a termination of the Employee's employment for death
or Disability, the Company shall pay the Employee (or his legal representatives,
as the case may be) as follows:

           (a)  any accrued but unpaid compensation for Base Salary as of the
date of death or termination for Disability, as and when such amounts are due
and payable hereunder;

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           (b)  a cash payment payable on the date of termination equal to the
Employee's Base Salary on a daily basis (computed on a 260 workday year) in
effect on the date of death or termination, multiplied by the number of accrued
and unused vacation days at the date of such termination; and

           (c)  in the event the Employee is Disabled, the Company will continue
to pay Base Salary and Benefits for the Employee for a period of six (6) months,
until and unless the Employee obtains other employment with a comparable base
salary within such period, PROVIDED, that the Company may, at its option, pay
for and acquire insurance which will provide to Employee the Base Salary and
Benefits for the duration of the Severance Period.

           (d)  Stock and Additional Shares vests pro-rata to the date of death.

     For the purpose of this Agreement, the Employee shall be deemed to be
"Disabled" or have a "Disability" if he has been unable to perform his duties
hereunder for three (3) consecutive months or ninety (90) days in any twelve
(12) consecutive month period, or if a physician certifies that disability will
continue for 90 days, or if Employee has been unable to work for 150 days during
any 16 month period as determined in good faith by the Board of Directors of the
Company and in accordance with applicable laws.

     The Employee acknowledges that the payments referred to in this Section
4.03 constitute the only payments to which the Employee (or his legal
representatives, as the case may be) shall be entitled to receive from the
Company hereunder in the event of a termination of his employment for death or
Disability, and that except for such payments the Company shall have no further
liability or obligation to him (or his legal representatives, as the case may
be) hereunder or otherwise in respect of his employment.

                                   ARTICLE 17

                   INVENTIONS; NON-DISCLOSURE; NON-COMPETITION

     17.1. INVENTIONS. All processes, technologies and inventions relating to
           ----------
the aircraft business (collectively, "Inventions"), including new contributions,
improvements, ideas, discoveries, trademarks and trade names, conceived,
developed, invented, made or found by the Employee, alone or with others, during
his employment by the Company, whether or not patentable and whether or not
conceived, developed, invented, made or found on the Company's time or with the
use of the Company's facilities or materials, shall be the property of the
Company and shall be promptly and fully disclosed by the Employee to the
Company. The Employee shall perform all necessary acts (including, without
limitation, executing and delivering any confirmatory assignments, documents or
instruments requested by the Company) to vest title to any such Inventions in
the Company and to enable the Company, at its expense, to secure and maintain
domestic and/or foreign patents or any other rights for such Inventions.

     17.2. NON-DISCLOSURE. The Employee shall not, at any time during the Term
           --------------
or thereafter, directly or indirectly disclose or furnish to any other person,
firm or corporation, except in the course of the proper performance of his
duties hereunder (a) any information relating to any process, technique or
procedure used by the Company which is not, specifically, a matter of public
knowledge; or (b) any information relating to the operations or financial status
of the Company (including, without limitation, all financial data and sources of
financing), which information is not specifically a matter of public knowledge;
or (c) any information of a confidential nature obtained as a result of his
present or future relationship with the Company, which information is not
specifically a matter of public knowledge; or (d) the name, address or other
information relating to any customer or supplier of the Company; or (e) any
other trade secrets of the Company. Promptly upon the expiration or termination
of the Employee's employment hereunder for any reason, the Employee (or his
personal representative's as the case may be) shall surrender to the Company all
documents, drawings, work papers, lists, memoranda, records and other data
(including all copies) constituting or pertaining in any way to any of the
foregoing information.

     17.3. NON-COMPETITION. The Employee shall not compete with the Company for
           ---------------
a period of 12 months after his resignation or termination with cause by being
employed in a management capacity with another company that manufactures piston
powered general aviation aircraft.

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     17.4.  NON-SOLICITATION. The Employee shall not, during the Term, and for
            ----------------
an eighteen (18) month period following the date of a resignation by Employee or
a Termination With Cause or without cause, directly or indirectly solicit or
attempt to solicit the Company's customers, suppliers or any of its employees.

     17.5.  BREACH OF PROVISIONS. If a party breaches any of the provisions of
            --------------------
this Article V, or in the event that any such breach is threatened, in addition
to and without limiting or waiving any other remedies available at law or in
equity, the other party shall be entitled to immediate injunctive relief in any
court, domestic or foreign, having the capacity to grant such relief, to
restrain any such breach or threatened breach and to enforce the provisions of
this Article V. The parties acknowledge and agree that there is no adequate
remedy at law for any such breach or threatened breach and, in the event that
any action or proceeding is brought seeking injunctive relief, the parties shall
not use as a defense thereto that there is an adequate remedy at law.

     17.6.  REASONABLE RESTRICTIONS. The parties acknowledge that the foregoing
            -----------------------
restrictions, as well as the duration and the territorial scope thereof as set
forth in this Article V, are under all of the circumstances reasonable and
necessary for the protection of the Company and its business.

     17.7.  DEFINITION. For purposes of this Article V, the term "Company" shall
            ----------
be deemed to include any subsidiary or affiliate of the Company.

                                   ARTICLE 18

                                  MISCELLANEOUS

     18.1.  BINDING EFFECT. This Agreement shall be binding upon and inure to
            --------------
the benefit of the parties hereto and their respective legal representatives,
heirs, distributees, successors and assigns; PROVIDED, that the rights and
obligations of the Employee hereunder shall not be assignable by him.

     18.2.  NOTICES. Any notice provided for herein shall be in writing and
            -------
shall be deemed to have been given or made (a) when personally delivered or (b)
when sent by telecopier and confirmed within forty-eight (48) hours by letter
mailed or delivered to the party to be notified at its or his address set forth
herein; or three (3) days after being sent by registered or certified mail,
return receipt requested, to the address of the other party set forth or to such
other address as may be specified by notice given in accordance with this
Section 6.02:

     If to the Company:         Advanced Aerodynamics & Structures, Inc.
                                3205 Lakewood Boulevard
                                Long Beach, California 90808
                                Facsimile: (562) 938-8617
                                Telephone: (562) 938-8620

     If to the Employee:        L. Peter Larson
                                3205 Lakewood Boulevard
                                Long Beach, California 90808
                                Facsimile: (562) 938-8617
                                Telephone: (562) 938-8620

     18.3.  SEVERABILITY. If any provision of this Agreement, or portion
            ------------
thereof, shall be held invalid or unenforceable by a court of competent
jurisdiction, such invalidity or unenforceability shall attach only to such
provision or portion thereof, and shall not in any manner affect or render
invalid or unenforceable any other provision of this Agreement or portion
thereof, and this Agreement shall be carried out as if any such invalid or
unenforceable provision or portion thereof were not contained herein. In
addition, any such invalid or unenforceable provision or portion thereof shall
be deemed, without further action on the part of the parties hereto, modified,
amended or limited to the extent necessary to render the same valid and
enforceable.

     18.4.  WAIVER. No waiver by a party hereto of a breach or default hereunder
            ------
by the other party shall be considered valid, unless expressed in a writing
signed by such first party, and no such waiver shall be deemed a waiver of any
subsequent breach or default of the same or any other nature.

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     18.5.  ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
            ----------------
between the parties with respect to the subject matter hereof, and supersedes
any and all prior agreements between the Company and Employee, whether written
or oral, relating to any or all matters covered by and contained or otherwise
dealt with in this Agreement. This Agreement does not constitute a commitment of
the Company with regard to the Employee's employment, express or implied, other
than to the extent expressly provided for herein.

     18.6.  AMENDMENT. No modification, change or amendment of this Agreement or
            ---------
any of its provisions shall be valid, unless in writing and signed by the party
against whom such claimed modification, change or amendment is sought to be
enforced.

     18.7.  AUTHORITY. The parties each represent and warrant that they have the
            ---------
power, authority and right to enter into this Agreement and to carry out and
perform the terms, covenants and conditions hereof.

     18.8.  TITLES. The titles of the Articles and Sections of this Agreement
            ------
are inserted merely for convenience and ease of reference and shall not affect
or modify the meaning of any of the terms, covenants or conditions of this
Agreement.

     18.9.  APPLICABLE LAW. This Agreement, and all of the rights and
            --------------
obligations of the parties in connection with the employment relationship
established hereby, shall be governed by and construed in accordance with the
substantive laws of the State of California without giving effect to principles
relating to conflicts of law.

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.

                                ADVANCED AERODYNAMICS & STRUCTURES, INC.

                                By:_____________________________________________
                                   Samuel Rothman
                                   Chairman, Compensation Committee and Director

                                EMPLOYEE

                                ________________________________________________
                                L. Peter Larson

                                      6<PAGE>
                                                                    EXHIBIT 10.4

                              EMPLOYMENT AGREEMENT

     This EMPLOYMENT AGREEMENT ("Agreement"), dated as of January 8, 2002, is
entered into by and between Advanced Aerodynamics & Structures, Inc., a
California corporation (the "Company"), and J. Nelson Happy, (the "Employee").

                                  INTRODUCTION

     The parties hereto desire to provide for the employment of the Employee
with the Company. In order to accomplish such purposes and in consideration of
the terms, covenants and conditions hereinafter set forth, the parties hereby
enter into this Agreement.

                                    ARTICLE 1

                            EMPLOYMENT; TERM; DUTIES

     1.1. EMPLOYMENT. Upon the terms and conditions hereinafter set forth, the
          ----------
Company hereby employs the Employee, and the Employee hereby accepts employment,
as Executive Vice President and General Counsel of the Company.

     1.2. TERM. Unless sooner terminated as hereinafter provided, the Employee's
          ----
employment hereunder shall be for a term (the "Term") commencing on the date
hereof and terminating on January 8, 2005. Such employment may continue in
accordance with the terms of this Agreement upon mutual agreement of the
parties. On or before March 1, 2005, Employee shall notify the board of
directors of Company of the ending date of the Term, whereupon Company may elect
to give the Employee nine (9) months' notice of its intent not to extend the
Term. Upon expiration of the Term, Employee shall receive one month of the
Severance Payments and Benefits set forth in Section 4.03 for each month during
which the Company failed to give notice of its intent not to extend the Term.

     1.3. DUTIES. During the Term, the Employee shall perform such duties for
          ------
the Company as are prescribed by the Bylaws of the Company as of the date of
this Agreement and such additional duties, consistent with such Bylaws and his
position hereunder, as may be assigned to him from time to time by the Board of
Directors of the Company. The Employee shall work for the Company exclusively,
and devote his best efforts, attention and energies to the performance of his
duties hereunder.

                                    ARTICLE 2

                                  COMPENSATION

     2.1. COMPENSATION. For all services rendered by the Employee hereunder and
          ------------
all covenants and conditions undertaken by him pursuant to this Agreement, the
Company shall pay, and the Employee shall accept, as compensation, an annual
base salary ("Base Salary") of Two Hundred Thousand Dollars ($200,000), payable
in equal bi-weekly installments. The Employee shall also be paid such bonuses
and other compensation as shall be determined from time to time by the Board of
Directors in its

<PAGE>

sole discretion based on the performance of the Company.

     2.2. STOCK. As additional consideration for the services to be rendered by
          -----
Employee hereunder, Employee shall be issued 1,216,826 shares of the Class A
Common Stock of Employer subject to the to the Stock Restriction Agreement
attached hereto as Exhibit 1. Within thirty (30) days following the final day of
each calendar quarter, through January 8, 2005, and as of the date of the
termination of Employee's employment by the Company (each such date being
referred to herein as a "Quarterly Measurement Date"), Employee shall be issued
Additional Shares in an amount such that the total number of shares issued to
Employee pursuant to this Agreement shall equal three percent (3%) of the issued
and outstanding shares of the Class A and Class B Common Stock of the Company
(and including such other classes of stock which the Company may issue during
the Term of this agreement) as of such Quarterly Measurement Date, and such
Additional Shares shall be vested on a prorata basis such that all shares have
been vested by the end of The Term. Additional Shares will continue to be issued
until the later of a) The Term plus 185 days or b) the Company achieves annual
revenue exceeding $ 250 Million as long as the Employee is employed with the
Company in good standing.

     2.3. WITHHOLDING. Employee may elect to either pay an amount sufficient to
          -----------
cover any withholding tax obligation of the Company, or to have the Company
withhold part of the shares due to him to cover the withholding obligations
arising from the vesting of these shares. The shares to be withheld shall be
valued at the same price as the shares contributed to the Employee at that time.

     2.4. BONUS. As additional consideration for the service to be rendered by
          -----
Employee, the Company's Board of Directors shall consider annually awarding
Employee a bonus, which in its sole discretion, shall reflect Employee's
contribution to the success of the company during the preceding twelve months,
including growth in revenue, earnings, capital, and other factors tending to
improve shareholder value.

                                    ARTICLE 3

                                    BENEFITS

     3.1. BENEFITS. During the Term, the Employee shall be provided, at
          --------
Company's expense, a PPOS health insurance plan for the Employee and family and
the accident, disability or hospitalization insurance plans, pension plans or
retirement plans as the Board of Directors makes available to the executive
employees of the Company as a group. Employee shall be entitled to 3 weeks of
vacation annually.

     3.2. LIFE INSURANCE. During the Term, the Company will purchase and
          --------------
maintain a term life insurance policy insuring the life of the Employee in the
amount of $300,000, and the Employee shall be entitled to designate the
beneficiary of the policy.

     3.3. AUTOMOBILE. During the Term, the Company shall provide Employee with a
          ----------
Toyota Sequoia LTD or other similar vehicle. The Company shall bear the cost of
the difference between the remaining loan balance and the trade in value of
Employee's 1994 SL600 Mercedes, plus servicing, repairing, maintaining, and
insuring the vehicle.

<PAGE>

The Employee may use such automobile for his private purposes, but shall
maintain the car in good condition and assure that the provisions and conditions
of any policy of insurance relating to the car are observed. The Company shall
reimburse Employee for all reasonable sums expended by him on fuel and oil while
engaged in Company business. Employee shall observe any regulations the Company
may impose in relation to its vehicles. Such vehicle shall not become the
property of the Employee and shall be subject to replacement by the Company from
time to time in accordance with the Company's policy regarding replacement cars.
Employee shall return the vehicle to the Company within ten (10) days of the
termination of this Agreement.

     3.4. RELOCATION. The Company agrees to reimburse Employee for all costs and
          ----------
expenses reasonably incurred by Employee in connection with his relocation from
Lawrence, Kansas, to Southern California, in a reasonable amount approved by he
Chief Executive Officer.

     3.5. HOUSING. The Company agrees to pay for the cost of an extended stay
          -------
hotel suite or similarly priced apartment during the term of this Agreement. In
the event of a Termination without Cause the Company shall reimburse Employee
for the reasonable costs of moving and other relocation costs, including any
early termination fees arising from the lease of the vehicle mentioned in
Paragraph 3.03.

                                    ARTICLE 4

                         TERMINATION; DEATH; DISABILITY

     4.1. TERMINATION OF EMPLOYMENT WITH CAUSE. If the Employee (a) breaches any
          ------------------------------------
material provision of this Agreement or fails to satisfactorily perform his
obligations hereunder in a fashion that has a material and significantly adverse
effect on the operations of the Company, and such breach and/or failure to
perform is not remedied within thirty (30) days after written notice thereof
from the Company (except that any violation of Article V of this Agreement may
at the Company's discretion result in immediate termination); (b) has been
convicted of or entered a guilty plea to any felony; (c) has committed any act
of fraud, misappropriation of funds, embezzlement or any other act of moral
turpitude as determined by the Board of Directors, in good faith; or (d) has
engaged in willful, reckless, fraudulent, dishonest or grossly negligent
misconduct; then, in addition to any other remedies available to it at law, in
equity or as set forth in this Agreement, the Company shall have the right, upon
written notice to the Employee, to immediately terminate his employment (a
"Termination With Cause") hereunder, without any further liability or obligation
to him hereunder or otherwise in respect of his employment, other than its
obligation to abide by the terms of the attached Stock Restriction Agreement and
its obligation to pay accrued but unpaid Base Salary and vacation time as of the
date of termination.

     4.2. RESIGNATION. If the Employee resigns, this Agreement shall immediately
          -----------
terminate and the Company shall have no further liability or obligation to
Employee hereunder or otherwise in respect of his employment, other than its
obligation to pay accrued but unpaid Base Salary and vacation time as of the
date of resignation and

<PAGE>

to abide by the terms of the attached Stock Restriction Agreement. Employee
shall comply with the provisions of Paragraph V, below, however.

     4.3. TERMINATION OF EMPLOYMENT WITHOUT CAUSE. Notwithstanding any provision
          ---------------------------------------
to the contrary herein, the Company may at any time, in its sole and absolute
discretion and for any or no reason, terminate the employment of the Employee
hereunder (change of control of an aggregate block of shares that can vote 50%
or more of the voting shares of company, through sale, merger, consolidation, or
other transaction, shall constitute termination without cause at the election of
the Employee) PROVIDED, that if such termination is not a Termination With
Cause, the Company shall pay and/or provide the Employee as follows:

          (a) any accrued but unpaid Base Salary as of the date of the
termination as and when such amount is due and payable hereunder.

          (b) provided Employee has not accepted employment with another
employer (as provided below), Employer shall pay monthly to Employee one-twelfth
(1/12) of the Base Salary in effect as of the date of such termination (the
"Severance Payments") for a period of twelve (12) months (the "Severance
Period"), with the first payment being made on the thirtieth (30th) day
following such date of termination and with each subsequent payment being made
on the same day of each successive month. The obligation of the Company to
provide the Benefits shall continue for twelve months following the date of such
termination or expiration without offer of renewal, PROVIDED, that the Company
may, at its option, pay for and acquire insurance which will provide to Employee
the Benefits for the duration of the Severance Period.

     Notwithstanding the foregoing paragraph (b), the Severance Period,
Severance Payments and the provision of Benefits shall terminate when (i) the
Employee has secured new employment with a base salary equal to or greater than
the Base Salary in effect as of the date of termination. If the Employee accepts
new employment with a base salary (the "New Salary") less than the Base Salary
in effect as of the date of termination and the Severance Period set forth above
has not expired, the Company, in lieu of the remaining Severance Payments to be
made, shall pay the Employee the difference between the total amount of the
remaining Severance Payments due and the total amount of New Salary payable
during the remaining applicable Severance Period.

          (c) a cash payment immediately upon the date of termination equal to
the Employee's Base Salary on a daily basis (computed on a 260 workday year) in
effect on the date of termination multiplied by the number of accrued and unused
vacation days at the date of termination.

          (d) Restricted stock and such Additional Shares as required to make
employee stock equal to 5% of the shares then outstanding will vest upon
termination.

          (e) The provisions of article 5 below will not apply unless Employee
is being paid a salary pursuant to this agreement.

     4.4. DEATH; DISABILITY. Employee's employment hereunder shall
          -----------------

<PAGE>

terminate (x) upon his death or (y) if the Employee becomes Disabled (as such
term is hereinafter defined), at the election of the Company by written notice
to the Employee. In the event of a termination of the Employee's employment for
death or Disability, the Company shall pay the Employee (or his legal
representatives, as the case may be) as follows:

          (a) any accrued but unpaid compensation for Base Salary as of the date

of death or termination for Disability, as and when such amounts are due and
payable hereunder;

          (b) a cash payment payable on the date of termination equal to the
Employee's Base Salary on a daily basis (computed on a 260 workday year) in
effect on the date of death or termination, multiplied by the number of accrued
and unused vacation days at the date of such termination; and

          (c) in the event the Employee is Disabled, the Company will continue
to pay Base Salary and Benefits for the Employee for a period of six (6) months,
until and unless the Employee obtains other employment with a comparable base
salary within such period, PROVIDED, that the Company may, at its option, pay
for and acquire insurance which will provide to Employee the Base Salary and
Benefits for the duration of the Severance Period.

          (d) Stock and Additional Shares vests pro-rata to the date of death.

     For the purpose of this Agreement, the Employee shall be deemed to be
"Disabled" or have a "Disability" if he has been unable to perform his duties
hereunder for three (3) consecutive months or ninety (90) days in any twelve
(12) consecutive month period, or if a physician certifies that disability will
continue for 90 days, or if Employee has been unable to work for 150 days during
any 16 month period as determined in good faith by the Board of Directors of the
Company and in accordance with applicable laws.

     The Employee acknowledges that the payments referred to in this Section
4.03 constitute the only payments to which the Employee (or his legal
representatives, as the case may be) shall be entitled to receive from the
Company hereunder in the event of a termination of his employment for death or
Disability, and that except for such payments the Company shall have no further
liability or obligation to him (or his legal representatives, as the case may
be) hereunder or otherwise in respect of his employment.

                                    ARTICLE 5

                   INVENTIONS; NON-DISCLOSURE; NON-COMPETITION

     5.1. INVENTIONS. All processes, technologies and inventions relating to the
          ----------
aircraft business (collectively, "Inventions"), including new contributions,
improvements, ideas, discoveries, trademarks and trade names, conceived,
developed, invented, made or found by the Employee, alone or with others, during
his employment by the Company, whether or not patentable and whether or not
conceived, developed, invented, made or

<PAGE>

found on the Company's time or with the use of the Company's facilities or
materials, shall be the property of the Company and shall be promptly and fully
disclosed by the Employee to the Company. The Employee shall perform all
necessary acts (including, without limitation, executing and delivering any
confirmatory assignments, documents or instruments requested by the Company) to
vest title to any such Inventions in the Company and to enable the Company, at
its expense, to secure and maintain domestic and/or foreign patents or any other
rights for such Inventions.

     5.2. NON-DISCLOSURE. The Employee shall not, at any time during the Term or
          --------------
thereafter, directly or indirectly disclose or furnish to any other person, firm
or corporation, except in the course of the proper performance of his duties
hereunder (a) any information relating to any process, technique or procedure
used by the Company which is not, specifically, a matter of public knowledge; or
(b) any information relating to the operations or financial status of the
Company (including, without limitation, all financial data and sources of
financing), which information is not specifically a matter of public knowledge;
or (c) any information of a confidential nature obtained as a result of his
present or future relationship with the Company, which information is not
specifically a matter of public knowledge; or (d) the name, address or other
information relating to any customer or supplier of the Company; or (e) any
other trade secrets of the Company. Promptly upon the expiration or termination
of the Employee's employment hereunder for any reason, the Employee (or his
personal representative's as the case may be) shall surrender to the Company all
documents, drawings, work papers, lists, memoranda, records and other data
(including all copies) constituting or pertaining in any way to any of the
foregoing information.

     5.3. NON-COMPETITION. The Employee shall not compete with the Company for a
          ---------------
period of 12 months after his resignation or termination with cause by being
employed in a management capacity with another company that manufactures piston
powered general aviation aircraft.

     5.4. NON-SOLICITATION. The Employee shall not, during the Term, and for an
          ----------------
eighteen (18) month period following the date of a resignation by Employee or a
Termination With Cause or without cause, directly or indirectly solicit or
attempt to solicit the Company's customers, suppliers or any of its employees.

     5.5. BREACH OF PROVISIONS. If a party breaches any of the provisions of
          --------------------
this Article V, or in the event that any such breach is threatened, in addition
to and without limiting or waiving any other remedies available at law or in
equity, the other party shall be entitled to immediate injunctive relief in any
court, domestic or foreign, having the capacity to grant such relief, to
restrain any such breach or threatened breach and to enforce the provisions of
this Article V. The parties acknowledge and agree that there is no adequate
remedy at law for any such breach or threatened breach and, in the event that
any action or proceeding is brought seeking injunctive relief, the parties shall
not use as a defense thereto that there is an adequate remedy at law.

     5.6. REASONABLE RESTRICTIONS. The parties acknowledge that the foregoing
          -----------------------
restrictions, as well as the duration and the territorial scope thereof as set
forth

<PAGE>

in this Article V, are under all of the circumstances reasonable and necessary
for the protection of the Company and its business.

     5.7. DEFINITION. For purposes of this Article V, the term "Company" shall
          ----------
be deemed to include any subsidiary or affiliate of the Company.

                                    ARTICLE 6

                                  MISCELLANEOUS

     6.1. BINDING EFFECT. This Agreement shall be binding upon and inure to the
          --------------
benefit of the parties hereto and their respective legal representatives, heirs,
distributees, successors and assigns; PROVIDED, that the rights and obligations
of the Employee hereunder shall not be assignable by him.

     6.2. NOTICES. Any notice provided for herein shall be in writing and shall
          -------
be deemed to have been given or made (a) when personally delivered or (b) when
sent by telecopier and confirmed within forty-eight (48) hours by letter mailed
or delivered to the party to be notified at its or his address set forth herein;
or three (3) days after being sent by registered or certified mail, return
receipt requested, to the address of the other party set forth or to such other
address as may be specified by notice given in accordance with this Section
6.02:

     If to the Company:  Advanced Aerodynamics & Structures, Inc.
                         3205 Lakewood Boulevard
                         Long Beach, California 90808
                         Facsimile: (562) 938-8617
                         Telephone: (562) 938-8620

     If to the Employee: J. Nelson Happy
                         1510 University Drive
                         Lawrence, Kansas 66044
                         Facsimile: 785 840 9049
                         Telephone: 785 840 9640

     6.3. SEVERABILITY. If any provision of this Agreement, or portion thereof,
          ------------
shall be held invalid or unenforceable by a court of competent jurisdiction,
such invalidity or unenforceability shall attach only to such provision or
portion thereof, and shall not in any manner affect or render invalid or
unenforceable any other provision of this Agreement or portion thereof, and this
Agreement shall be carried out as if any such invalid or unenforceable provision
or portion thereof were not contained herein. In addition, any such invalid or
unenforceable provision or portion thereof shall be deemed, without further
action on the part of the parties hereto, modified, amended or limited to the
extent necessary to render the same valid and enforceable.

     6.4. WAIVER. No waiver by a party hereto of a breach or default hereunder
          ------
by the other party shall be considered valid, unless expressed in a writing
signed by such first party, and no such waiver shall be deemed a waiver of any
subsequent breach or

<PAGE>

default of the same or any other nature.

     6.5. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
          ----------------
between the parties with respect to the subject matter hereof, and supersedes
any and all prior agreements between the Company and Employee, whether written
or oral, relating to any or all matters covered by and contained or otherwise
dealt with in this Agreement. This Agreement does not constitute a commitment of
the Company with regard to the Employee's employment, express or implied, other
than to the extent expressly provided for herein.

     6.6. AMENDMENT. No modification, change or amendment of this Agreement or
          ---------
any of its provisions shall be valid, unless in writing and signed by the party
against whom such claimed modification, change or amendment is sought to be
enforced.

     6.7. AUTHORITY. The parties each represent and warrant that they have the
          ---------
power, authority and right to enter into this Agreement and to carry out and
perform the terms, covenants and conditions hereof.

     6.8. TITLES. The titles of the Articles and Sections of this Agreement are
          ------
inserted merely for convenience and ease of reference and shall not affect or
modify the meaning of any of the terms, covenants or conditions of this
Agreement.

     6.9. APPLICABLE LAW. This Agreement, and all of the rights and obligations
          --------------
of the parties in connection with the employment relationship established
hereby, shall be governed by and construed in accordance with the substantive
laws of the State of California without giving effect to principles relating to
conflicts of law.

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.

                                     ADVANCED AERODYNAMICS & STRUCTURES, INC.

                                     By: ____________________________________
                                         Samuel Rothman
                                         Chairman, Compensation Committee and
                                         Director

                                     EMPLOYEE

                                     ________________________________________
                                     J. Nelson Happy

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