SECURITY AGREEMENT


                                     between


                               AURA SYSTEMS, INC.,
                              AURA CERAMICS, INC.,
                                 AURASOUND, INC.
                           AURA MEDICAL SYSTEMS, INC.,
                          ELECTROTEC PRODUCTIONS, INC.,
                              DS OSCILLATOR, INC.,
                            PHILIPS SOUND LABS, INC.
                                       and
                         ELECTROTEC AUDIO LEASE LIMITED



                                       and


                                HW PARTNERS, LP,
                             as Agent for the Funds




                          Dated as of February 22, 2000







<PAGE>











                               SECURITY AGREEMENT


                  SECURITY AGREEMENT (the "Agreement"), dated as of February 22,
2000,  between AURA SYSTEMS,  INC., a Delaware  corporation  (the "Company") and
each  of  AURA  CERAMICS,   INC.,  a  Delaware  corporation  ("Aura  Ceramics"),
AURASOUND,  INC., a Delaware  corporation  ("AuraSound"),  AURA MEDICAL SYSTEMS,
INC., a Delaware corporation ("Aura Medical"),  ELECTROTEC PRODUCTIONS,  INC., a
California  corporation  ("Electrotec  Productions"),  DS  OSCILLATOR,  INC.,  a
California  corporation  ("DS  Oscillator"),  PHILIPS SOUND LABS, INC., a Nevada
corporation  ("Philips Sound") and ELECTROTEC AUDIO LEASE LIMITED, a corporation
organized  and  existing  under  the laws of  England  ("Electrotec  Audio"  and
together with the Company, Aura Ceramics,  AuraSound,  Aura Medical,  Electrotec
Productions,   DS  Oscillator,   and  Philips  Sound,  each  an  "Assignor"  and
collectively,  the "Assignors") and HW PARTNERS, LP, as Agent (the "Assignee" or
the "Agent") for the benefit of the Funds (as defined herein).  Unless otherwise
defined in Article IX hereof, terms used herein and defined in the Secured Notes
(as defined below) shall be used herein as so defined.


                              W I T N E S S E T H :


                  WHEREAS,  each of Infinity Investors Limited,  Glacier Capital
Limited,  Global Growth Limited and Summit Capital  Limited  (collectively,  the
"Funds"),  is the holder of  certain of the  Company's  Variable  Interest  Rate
Convertible  Notes due  September  30,  1998 (the  "Original  Notes")  which are
secured by certain  assets of the Company as specified  in that  certain  Pledge
Agreement dated September 30, 1997;

                  WHEREAS, on the date hereof the Company will issue and deliver
Secured Notes of even date herewith in an aggregate amount of $12,500,000.00 (as
modified, supplemented or amended from time to time, the "Secured Notes") to the
Funds in exchange for the Original  Notes held by the Funds after giving  effect
to the Assignment (the "Exchange");

                  WHEREAS,  it is a condition to the Exchange that the Assignors
shall have executed and delivered this Agreement (this Agreement,  together with
the Secured  Notes,  the  Exchange  Agreement,  the  Guaranty,  the Stock Pledge
Agreement,  and all other documents,  certificates and instruments  executed and
delivered in connection with any of the foregoing, the "Transaction Documents");
and

                  NOW,  THEREFORE,  in  consideration of the foregoing and other
benefits  accruing to the  Assignors,  the receipt and  sufficiency of which are
hereby  acknowledged,  each Assignor hereby makes the following  representations
and  warranties to the Agent and the Funds and hereby  covenants and agrees with
the Agent and each of the Fund as follows:


                                    ARTICLE I

                               SECURITY INTERESTS

                  1.1      Grant of Security Interests.

                  (a) As  security  for the  prompt  and  complete  payment  and
performance when due of all of its Obligations,  each Assignor does hereby grant
to the Agent for the benefit of the Funds, a continuing security interest in all
of the right,  title and  interest of such  Assignor in, to and under all of the
following,  whether now existing or hereafter  from time to time  acquired:  (i)
each and every Receivable, (ii) all Contracts, together with all Contract Rights
arising  thereunder,  (iii) all Inventory,  (iv) all  Equipment,  (v) all Marks,
together  with the  registrations  and right to all  renewals  thereof,  and the
goodwill of the  business of such  Assignor  symbolized  by the Marks,  (vi) all
Patents and Copyrights and all reissues,  renewals or extensions thereof,  (vii)
all computer  programs of such  Assignor and all  intellectual  property  rights
therein and all other proprietary information of such Assignor,  including,  but
not limited to, Trade Secret  Rights,  (viii) all insurance  policies,  (ix) all
Permits,  (x) all other Goods, General  Intangibles,  Chattel Paper,  Documents,
Instruments and Investment  Property,  and (xi) all Proceeds and products of any
and all of the  foregoing  (all of the above  collectively,  the  "Collateral");
provided  however,  that the  Collateral  shall not  include  the  assets of the
Company or AuraSound  licensed to (A) Daewoo  Electronics Co., Ltd.  pursuant to
that  certain  License  Agreement  dated  August 19, 1996 (the  "Daewoo  License
Agreement")  only to the  extent  a  security  interest  in such  Collateral  is
prohibited  under the original  terms of the Daewoo License  Agreement,  and (B)
Speaker  Acquisition  Sub  pursuant  to  that  certain  Assignment  and  License
Agreement dated July 15, 1999 (the "Algo License  Agreement") only to the extent
a security interest in such Collateral is prohibited under the original terms of
the Algo License Agreement.

                  (b) The  security  interest of the Agent under this  Agreement
extends to all  Collateral  of the kind which is the  subject of this  Agreement
which the  Assignors  may  acquire at any time during the  continuation  of this
Agreement.

                  1.2 Power of Attorney.  Each Assignor  hereby  constitutes and
appoints the Agent its true and lawful  attorney,  irrevocably,  with full power
after  the  occurrence  of an  Event of  Default  (which  has not been  cured in
accordance  with the terms of the Secured Notes) in the name of such Assignor or
otherwise to act, require,  demand,  receive,  compound and give acquittance for
any and all moneys  and claims for moneys due or to become due to such  Assignor
under or  arising  out of the  Collateral,  to  endorse  any checks or orders in
connection  therewith and to file any claims or take any action or institute any
proceedings  which  the  Agent  may deem to be  necessary  or  advisable  in the
premises to protect and preserve the Collateral,  including, without limitation,
the  endorsement of any draft or order which may be payable to such Assignor and
the protection and prosecution of all rights  included in the Collateral,  which
appointment as attorney is coupled with an interest.


                                   ARTICLE II

                GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS

                  Each  Assignor  represents,   warrants  and  covenants,  which
representations,  warranties and covenants shall survive  execution and delivery
of this Agreement, as follows:

                  2.1  Necessary   Filings.   All  filings,   registrations  and
recordings necessary or appropriate to create, preserve, protect and perfect the
security interest granted by such Assignor to the Agent hereby in respect of all
the Collateral have been  accomplished and the security  interest granted to the
Agent pursuant to this  Agreement in and to the  Collateral  constitutes a valid
and enforceable  security  interest  therein superior and prior to the rights of
all other  Persons  therein  and  subject  to no other  Liens  (except  that the
Collateral  may be subject to Permitted  Liens) and the Agent is entitled to all
the rights, priorities and benefits afforded by the UCC or other relevant law as
enacted in any relevant jurisdiction to perfected security interests;  provided,
however,  the Assignor will not, and will not permit any of its Subsidiaries to,
nor  shall  any such  Person  allow  any other  Person  to,  file or record  any
assignment,  Lien,  security  interest,  encumbrance  or other  right,  title or
interest,  of any Person,  upon or with respect to any of the Proprietary Rights
of the Assignor  with the United States  Patent and  Trademark  Office.  Nothing
herein shall be deemed or  construed as an argument or admission  that the Liens
upon certain Proprietary Rights of the Assignor created pursuant to the Security
Documents  are  impaired  or  unperfected  nor shall  this  Agreement  impair or
prohibit the Company from  asserting that failure to record at the United States
Patent and Trademark  Office results in the Liens upon such  Proprietary  Rights
being unperfected.

                  2.2 No Liens.  Except as otherwise  provided  herein or in the
Stock Pledge  Agreement,  the Assignor is, and as to  Collateral  acquired by it
from time to time after the date hereof such  Assignor will be, the owner of all
Collateral free from any Lien,  security  interest,  encumbrance or other right,
title or interest of any Person (other than Permitted Liens),  and such Assignor
shall defend the Collateral against all claims and demands of all Persons at any
time claiming the same or any interest therein adverse to the Agent.

                  2.3 Other Financing  Statements.  As of the date hereof, there
is no financing  statement (or similar  statement or instrument of  registration
under the law of any jurisdiction)  covering or purporting to cover any interest
of any kind in the Collateral  (other than  Permitted  Liens) and so long as any
Secured  Note  remains  unpaid or any of the  Obligations  remain  unpaid,  such
Assignor  will not  execute or  authorize  to be filed in any public  office any
financing  statement (or similar  statement or instrument of registration  under
the law of any  jurisdiction) or statements  relating to the Collateral,  except
financing statements filed or to be filed in respect of the Permitted Liens (but
not including any filing with the United States Patent and Trademark Office) and
covering the security interests granted hereby by such Assignor.

                  2.4 Chief Executive  Office;  Records.  As of the date hereof,
the chief executive  office of each Assignor is located as set forth in Schedule
2.4 hereof.  The Assignor  shall give 30 days' prior written notice to the Agent
of its  intention  to move its  chief  executive  office  to  another  location;
provided, however, that any such change of location shall only be made after the
Agent  shall have  received  evidence  that such  Assignor  shall have taken all
actions, reasonably satisfactory to the Agent, subject to Section 2.1 hereof, to
maintain the  security  interest of the Agent in the  Collateral  intended to be
granted hereby at all times fully  perfected and in full force and effect in the
jurisdiction  where  the  chief  executive  office  of  such  Assignor  is to be
relocated.  The  originals  of all  documents  evidencing  all  relating  to the
Collateral  and the only original  books of account and records of such Assignor
relating  thereto  are,  and will  continue to be, kept at such chief  executive
office.  If for any reason any  Collateral or such other books and records shall
be located in any other location,  the Assignor shall,  with respect to such new
location, take, or shall have taken, all action,  reasonably satisfactory to the
Agent,  subject to Section 2.1 hereof,  to maintain the security interest of the
Agent in the  Collateral  intended  to be  granted  hereby  at all  times  fully
perfected  and in full  force and  effect in any event  within  the time  period
provided for the taking of such action required by applicable law.

                  2.5 Location of Bank Accounts,  Inventory and  Equipment.  All
bank accounts (including account numbers,  and name and address of the financial
institutions),  Inventory and Equipment  held on the date hereof by the Assignor
are  located  at one of the  locations  shown on Annex A  attached  hereto.  The
Assignor  agrees that all bank  accounts,  Inventory  and  Equipment now held or
subsequently  acquired  or  created  by it  shall  be  kept at (or  shall  be in
transport to or from) any one of the locations shown on Annex A hereto.  If, for
any reason,  any bank accounts,  Inventory or Equipment  shall be located in any
other  location,  the  Assignor  shall  immediately  notify the Agent and,  with
respect to such new location,  take, or shall have taken, all actions reasonably
satisfactory to the Agent to maintain the security  interest of the Agent in the
Collateral  intended to be granted  hereby at all times fully  perfected  and in
full  force and  effect in any event  within the time  period  provided  for the
taking of such action required by applicable law; provided however, that failure
of the  Assignors  to give  notice  to the Agent  herein  with  respect  to bank
accounts created after the Closing Date containing,  in the aggregate, less than
$100,000 shall not constitute an Event of Default under the Secured Notes.

                  2.6 Trade Names;  Change of Name.  As of the date hereof,  the
Assignor does not have or operate in any jurisdiction under, or in the preceding
12 months has not had or has not operated in any  jurisdiction  under, any trade
names, fictitious names or other names (including, without limitation, any names
of divisions or operations) except its legal name. The Assignor shall not change
its  legal  name or assume  or  operate  in any  jurisdiction  under any  trade,
fictitious  or other name except  those names listed  above  without  giving the
Agent 30 days' prior  written  notice  thereof,  which notice shall  contain the
proposed  names to be used and  jurisdictions  in which it  proposes  to operate
under such names.

                  2.7  Recourse.  This  Agreement is made with full  recourse to
each  Assignor  and  pursuant to and upon all the  warranties,  representations,
covenants,  and agreements on the part of such Assignor  contained  herein,  and
otherwise in writing in connection herewith or therewith.


                                   ARTICLE III

               SPECIAL PROVISIONS CONCERNING INVESTMENT PROPERTY;
                    RECEIVABLES; CONTRACT RIGHTS; INSTRUMENTS

                  3.1 Additional  Representations and Warranties. As of the time
when  each of its  Receivables  arises,  each  Assignor  shall be deemed to have
represented  and warranted  that such  Receivable,  and all records,  papers and
documents  relating thereto (if any) are genuine and, in all respects,  are what
they purport to be, and that all papers and documents (if any) relating  thereto
(i) will  represent  the genuine,  legal,  valid and binding  obligation  of the
account debtor evidencing indebtedness unpaid and owed by the respective account
debtor arising out of the  performance of labor or services or the sale or lease
and delivery of the merchandise  listed therein,  or both, (ii) will be the only
original writings evidencing and embodying such obligation of the account debtor
named therein (other than copies created for general accounting purposes), (iii)
will evidence true and valid  obligations,  enforceable in accordance with their
respective  terms  and (iv)  will be in  compliance  and will  conform  with all
applicable  federal,  state and local laws and  applicable  laws of any relevant
foreign jurisdiction.

                  3.2  Maintenance  of  Records.  Each  Assignor  will  keep and
maintain at its own cost and expense  satisfactory  and complete  records of the
Collateral,  and such  Assignor  will make the same  available  to the Agent for
inspection, at any and all reasonable times upon reasonable prior notice to such
Assignor. If requested by the Agent after an Event of Default has occurred which
has not been cured in accordance with the Secured Notes, each Assignor shall, at
its own cost and expense,  deliver all tangible  evidence of its Receivables and
Contract  Rights  (including,   without  limitation,  copies  of  all  documents
evidencing the  Receivables and all Contracts) and such books and records to the
Agent or to its representatives  (copies of which evidence and books and records
may be retained by such Assignor).  If the Agent so directs, each Assignor shall
legend, in form and manner reasonably satisfactory to the Agent, the Receivables
and  Contracts,  as  well as  books,  records  and  documents  of such  Assignor
evidencing or pertaining to such  Receivables  and Contracts with an appropriate
reference to the fact that the Agent has a security interest in such Receivables
and Contracts.
                  3.3  Modification  of  Terms;  etc.  Each  Assignor  shall not
rescind or cancel any  indebtedness  evidenced  by any  Receivable  or under any
Contract,  or  modify  any term  thereof  or make any  adjustment  with  respect
thereto,  or extend or renew the same,  or  compromise  or settle  any  material
dispute,  claim,  suit  or  legal  proceeding  relating  thereto,  or  sell  any
Receivable or Contract,  or interest therein,  without the prior written consent
of the Agent, except as permitted by Section 3.4 hereof.

                  3.4  Collection.  Each Assignor  shall  endeavor in accordance
with its customary  business practices to cause to be collected from the account
debtor named in each of its  Receivables  or obligor under any Contract,  as and
when due (including,  without  limitation,  amounts which are  delinquent,  such
amounts to be collected in accordance with generally  accepted lawful collection
procedures)  any and all amounts owing under or on account of such Receivable or
Contract,  and apply  forthwith upon receipt  thereof all such amounts as are so
collected to the outstanding  balance of such Receivable or under such Contract,
except  that,  so long as no Event of Default has  occurred  (which has not been
cured in accordance with the terms of the Secured Notes) in respect of which the
Agent has  given  notice  that this  exception  is no  longer  applicable,  such
Assignor may allow in the ordinary  course of business as adjustments to amounts
owing under its  Receivables  and  Contracts  (i) an extension or renewal of the
time or times of payment,  or settlement for less than the total unpaid balance,
which such Assignor finds appropriate in accordance with sound business judgment
and (ii) a refund or credit due as a result of returned  or damaged  merchandise
or improperly performed services.  The reasonable costs and expenses (including,
without  limitation,  attorneys'  fees) of collection,  whether  incurred by any
Assignor or the Agent,  shall be borne by the Assignor or the applicable account
debtor.

                  3.5  Instruments.   If  any  Assignor  owns  or  acquires  any
Instrument or Investment  Property,  such  Assignor  will,  within ten (10) days
thereof,  notify the Agent and deliver such Instrument or Investment Property to
the Agent  appropriately  endorsed to the order of the Agent as further security
hereunder,  provided  that an Assignor may transfer an Instrument to the Company
whereupon the Company shall deliver  immediately such Instrument to the Agent in
accordance with this Section 3.5.

                  3.6 Further  Actions.  Each Assignor will, at its own expense,
make, execute, endorse,  acknowledge, file and/or deliver to the Agent from time
to  time  such  vouchers,   invoices,   schedules,   confirmatory   assignments,
conveyances,  financing statements,  transfer endorsements,  powers of attorney,
certificates,  reports and other assurances or instruments and take such further
steps relating to its Receivables,  Contracts, Instruments,  Investment Property
and other property or rights covered by the security interest hereby granted, as
the  Agent  may  reasonably  require  to give  effect  to the  purposes  of this
Agreement.


                                   ARTICLE IV

                    SPECIAL PROVISIONS CONCERNING TRADEMARKS

                  4.1 Additional  Representations and Warranties.  Each Assignor
represents and warrants that it is the true and lawful owner of all right, title
and  interest  in  and  to  the  United  States  Patent  and  Trademark   Office
registrations,  and applications for registrations, of the Marks listed in Annex
B  attached  hereto  and that  Annex B lists all the  United  States  Patent and
Trademark  Office,  or the  equivalent  office  thereof in any foreign  country,
registrations  and  applications  for  registrations,  of the  Marks  that  such
Assignor now owns or uses in connection with its business and which are material
in the  conduct  of such  Assignor's  business.  Each  Assignor  represents  and
warrants that except with respect to those  licensed marks set forth in Annex B,
it owns,  is licensed to use or otherwise has the right to use all Marks that it
uses.  Each Assignor  further  warrants that it is aware of no third party claim
that any aspect of such Assignor's present or contemplated  business  operations
infringes  or will  infringe  any  Mark.  Except  as set  forth on Annex B, each
Assignor  represents  and  warrants  that it is the true and lawful  owner of or
otherwise  has the right to use all  trademark  registrations  and  applications
listed in Annex C hereto and that said registrations are valid, subsisting, have
not been canceled and that such Assignor is not aware of any  third-party  claim
that any of said  registrations or applications for registration with respect to
a Mark is invalid or unenforceable or is not aware that there is any reason that
any of said  registrations or applications  for  registration  with respect to a
Mark is invalid or unenforceable.

                  4.2 Licenses and Assignments.  Each Assignor hereby agrees not
to divest itself of any right under a Mark other than in the ordinary  course of
business absent prior written approval of the Agent.

                  4.3  Infringements.   Each  Assignor  agrees,   promptly  upon
learning thereof, to notify the Agent in writing of the name and address of, and
to furnish such pertinent information that may be available with respect to, any
party who may be  infringing  or otherwise  violating in any of such  Assignor's
rights in and to any Mark,  or with  respect  to any  party  claiming  that such
Assignor's  use of any Mark  violates  any  property  right of that party.  Each
Assignor further agrees to prosecute  diligently any Person  infringing any Mark
owned by such  Assignor in a manner  consistent  with its past  practice  and in
accordance with reasonable business practices.  Notwithstanding  anything herein
to the contrary,  such Assignor may exercise its business judgment  hereunder in
respect  of any Mark used in  connection  with the  Company's  Non-Core  Assets;
provided  however,  that such Assignor  shall give timely notice  thereof to the
Agent, and that the Agent and/or the Funds (if such Assignor declines to protect
such Marks) may take such actions as  reasonably  necessary at their own expense
to protect such Marks.

                  4.4  Preservation  of Marks.  Each  Assignor  agrees to use or
license  the use of its Marks in  interstate  commerce  during the time in which
this Agreement is in effect,  sufficiently  to preserve such Marks as trademarks
or service marks  registered under the laws of the United States or the relevant
foreign  jurisdiction.  Notwithstanding  anything  herein to the contrary,  such
Assignor may exercise  its  business  judgment  hereunder in respect of any Mark
used in connection with such Assignor's Non-Core Assets;  provided however, that
such Assignor shall give prompt notice thereof to the Agent,  and that the Agent
and/or the Funds (if such Assignor declines to protect such Marks) may take such
actions as reasonably necessary at their own expense to protect such Marks.

                  4.5 Maintenance of  Registration.  Each Assignor shall, at its
own expense,  diligently  process all documents  required to maintain  trademark
registrations,  including but not limited to affidavits of use and  applications
for renewals of registration in the United States Patent and Trademark Office or
equivalent  governmental agency in any foreign jurisdiction for all of its Marks
(excluding  unregistered  Marks),  and shall pay all fees and  disbursements  in
connection therewith,  and shall not abandon any such filing of affidavit of use
or any such application of renewal prior to the exhaustion of all administrative
and judicial  remedies without prior written consent of the Agent (which consent
shall not be  unreasonably  withheld).  Notwithstanding  anything  herein to the
contrary,  such Assignor may exercise its business judgment hereunder in respect
of any Mark used in connection with such Assignor's  Non-Core  Assets;  provided
however,  that such Assignor shall give prompt notice thereof to the Agent,  and
that the Agent  and/or the Funds (if such  Assignor  declines  to  protect  such
Marks) may take such  actions as  reasonably  necessary  at their own expense to
protect such Marks.

                  4.6 Future Registered  Marks. If any Mark registration  issues
hereafter  to any  Assignor  as a result  of any  application  now or  hereafter
pending  before the United  States  Patent and  Trademark  Office or  equivalent
governmental  agency in any foreign  jurisdiction,  such Assignor shall,  within
thirty  (30)  days  of  receipt  of  such  certificate,  deliver  a copy of such
certificate,  and a grant of security in such Mark to the Agent,  confirming the
grant thereof hereunder, the form of such confirmatory grant to be substantially
the same as the form hereof.

                  4.7  Remedies.  If an Event of Default  shall occur (which has
not been cured in  accordance  with the terms of the Secured  Notes),  the Agent
may, by written notice to the Assignors, exercise any or all remedies under this
Agreement, the UCC or any other applicable law.


                                    ARTICLE V

                          SPECIAL PROVISIONS CONCERNING
                   TRADE SECRET RIGHTS, PATENTS AND COPYRIGHTS

                  5.1 Additional  Representations and Warranties.  Each Assignor
represents and warrants that it is the true and lawful owner of all right, title
and  interest in and to (i) all Trade  Secret  Rights,  (ii) the Patents of such
Assignor listed in Annex C attached hereto and that said Patents  constitute all
the patents and  applications  for patents that such Assignor now owns and which
are  material in the conduct of its business  and (iii) the  Copyrights  of such
Assignor listed in Annex D attached  hereto and that said Copyrights  constitute
all the registered copyrights and applications for copyright  registrations that
such  Assignor now owns and which are  material in the conduct of its  business.
Each Assignor  represents  and warrants that it owns all Patents and  Copyrights
that it owns, uses or practices under. Each Assignor further warrants that it is
aware of no third  party  claim  that any aspect of such  Assignor's  present or
contemplated  business operations infringes or will infringe any material patent
or any material copyright or that such Assignor has misappropriated any material
Trade Secret Rights.

                  5.2 Licenses and Assignments.  Each Assignor hereby agrees not
to divest itself of any right,  title or interest  under any Patent or Copyright
(other than those  Patents and  Copyrights  with  respect to Non-Core  Assets in
accordance with the Secured Notes) absent prior written approval of the Agent.

                  5.3  Infringements.   Each  Assignor  agrees,   promptly  upon
learning thereof, to furnish the Agent in writing with all pertinent information
available to such Assignor with respect to any  infringement  or other violation
of such  Assignor's  rights in any Patent or  Copyright,  or with respect to any
claim that the practice of any Patent or the use of any  Copyright  violates any
property right of a third party or with respect to any  misappropriation  of any
material  Trade  Secret Right or any claim that the practice of any Trade Secret
Right violates any property right of a third party. Each Assignor further agrees
to prosecute  diligently any Person  infringing any Patent or Copyright owned by
such   Assignor  or  any  Person   misappropriating   any  Trade  Secret  Right.
Notwithstanding  anything herein to the contrary, such Assignor may exercise its
business  judgment  hereunder  in  respect of any  Patent or  Copyright  used in
connection with such Assignor's  Non-Core Assets;  provided  however,  that such
Assignor  shall give  prompt  notice  thereof  to the Agent,  and that the Agent
and/or  the  Funds  (if such  Assignor  declines  to  protect  such  Patents  or
Copyrights)  may take such actions as reasonably  necessary at their own expense
to protect such Patents or Copyrights.

                  5.4 Maintenance of Patents or Copyrights.  At its own expense,
each Assignor  shall make timely payment of all  post-issuance  fees required to
maintain  in  force   rights   under  each  of  its   Patents  and   Copyrights.
Notwithstanding  anything herein to the contrary, such Assignor may exercise its
business  judgment  hereunder  in  respect of any  Patent or  Copyright  used in
connection with such Assignor's  Non-Core Assets;  provided  however,  that such
Assignor  shall give  prompt  notice  thereof  to the Agent,  and that the Agent
and/or  the  Funds  (if such  Assignor  declines  to  protect  such  Patents  or
Copyrights)  may take such actions as reasonably  necessary at their own expense
to protect such Patents or Copyrights.

                  5.5 Prosecution of Patent or Copyright Application. At its own
expense,  each Assignor  shall  diligently  prosecute all  applications  for (i)
Patents listed on Annex C hereto and (ii)  Copyrights  listed on Annex D hereto,
and, in each case, shall not abandon any such application prior to exhaustion of
all administrative  and judicial  remedies,  absent written consent of the Agent
(which consent shall not be  unreasonably  withheld).  Notwithstanding  anything
herein to the  contrary,  such  Assignor  may  exercise  its  business  judgment
hereunder in respect of any Patent or  Copyright  used in  connection  with such
Assignor's  Non-Core  Assets;  provided  however,  that such Assignor shall give
prompt notice thereof to the Agent, and that the Agent and/or the Funds (if such
Assignor  declines to protect such Patents or Copyrights)  may take such actions
as  reasonably  necessary  at their own  expense  to  protect  such  Patents  or
Copyrights.

                  5.6 Other Patents and  Copyrights.  Within thirty (30) days of
the acquisition or issuance of a Patent or Copyright registration,  or of filing
of an application  for a Patent or Copyright  registration,  each Assignor shall
deliver to the Agent a copy of said  Patent or  Copyright  registration,  as the
case may be, with a grant of security  as to such  Patent or  Copyright,  as the
case  may  be,  confirming  the  grant  thereof  hereunder,  the  form  of  such
confirmatory grant to be substantially the same as the form hereof.

                  5.7  Remedies.  If an Event of Default  shall occur (which has
not been cured in accordance with the Secured  Notes),  the Agent may by written
notice to an Assignor take any or all remedies under this Agreement,  the UCC or
any other applicable law.


                                   ARTICLE VI

                      PROVISIONS CONCERNING ALL COLLATERAL

                  6.1 No  Impairment.  Each Assignor  shall do nothing to impair
the rights of the Agent in the Collateral except as set forth in the Transaction
Documents and subject to Section 2.1 hereof.

                  6.2 Financing Statements.  Each Assignor agrees to execute and
deliver to the Agent such financing statements, in form acceptable to the Agent,
as the Agent  may from  time to time  reasonably  request  or as are  reasonably
necessary or desirable in the  reasonable  opinion of the Agent to establish and
maintain a valid,  enforceable and perfected security interest in the Collateral
as provided herein  (subject to Section 2.1 hereof and Permitted  Liens) and the
other rights and security  contemplated hereby all in accordance with the UCC as
enacted in any and all relevant  jurisdictions  or any other  relevant law. Each
Assignor  will pay any  applicable  filing fees,  recordation  taxes and related
expenses.  Each Assignor hereby  authorizes the Agent to file any such financing
statements without the signature of such Assignor where permitted by law.


                                   ARTICLE VII

                  REMEDIES UPON OCCURRENCE OF EVENT OF DEFAULT

                  7.1 Remedies;  Obtaining  the  Collateral  Upon Default.  Each
Assignor agrees that, if any Event of Default shall have occurred (which has not
been cured in accordance with the terms of the Secured Notes), then and in every
such case,  subject to any  mandatory  requirements  of  applicable  law then in
effect,  the Agent,  in addition to any rights now or hereafter  existing  under
applicable law, shall have all rights as a secured creditor under the UCC in all
relevant jurisdictions or any other applicable law and may, without limitation:

                  (i) personally,  or by agents or attorneys,  immediately  take
         possession of the  Collateral or any part thereof  and/or any documents
         or instruments relating thereto, from such Assignor or any other Person
         who then has  possession  of any part  thereof  with or, to the  extent
         permitted by applicable law,  without notice or process of law, and for
         that purpose may, in accordance with applicable  laws,  enter upon such
         Assignor's  premises  where any of the Collateral is located and remove
         the same and use in connection  with such removal any and all services,
         supplies, aids and other facilities of such Assignor;

                  (ii)  instruct  the  obligor  or  obligors  on any  agreement,
         instrument or other  obligation  (including,  without  limitation,  the
         Contracts)  constituting  or  relating  to the  Collateral  to make any
         payment required by the terms of such instrument or agreement  directly
         to the Agent;

                  (iii)  sell,  assign or  otherwise  liquidate,  or direct such
         Assignor  to sell,  assign or  otherwise  liquidate,  any or all of the
         Collateral or any part thereof,  and take possession of the proceeds of
         any such sale or liquidation; and

                  (iv) take  possession  of the  Collateral  or any part thereof
         and/or any documents or instruments relating thereto, by directing such
         Assignor  in writing  to deliver  the same to the Agent at any place or
         places reasonably designated by the Agent, in which event such Assignor
         shall at its own expense:

                           (A) forthwith cause the same to be moved to the place
                  or places so  designated  by the Agent and there  delivered to
                  the Agent,

                           (B) store and keep any Collateral so delivered to the
                  Agent at such place or places  pending  further  action by the
                  Agent as provided in Section 7.2, and

                           (C) while the Collateral shall be so stored and kept,
                  provide  such  guards  and  maintenance  services  as shall be
                  necessary  to protect  the same and to preserve  and  maintain
                  them in good condition,

it being understood that such Assignor's obligation so to deliver the Collateral
is of the essence of this Agreement and that, accordingly, upon application to a
court of equity  having  jurisdiction,  the Agent  shall be entitled to a decree
requiring specific performance by such Assignor of said obligation.

                  7.2  Remedies;   Disposition  of  the  Collateral.   Upon  the
occurrence of an Event of Default  (which has not been cured in accordance  with
the terms of the Secured Notes),  any Collateral  repossessed by the Agent under
or  pursuant  to  Section  7.1  and  any  other  Collateral  whether  or  not so
repossessed by the Agent, may be sold, assigned, leased or otherwise disposed of
under one or more  contracts  or as an  entirety,  and without the  necessity of
gathering at the place of sale the  property to be sold,  and in general in such
manner,  at such time or times,  at such  place or  places  and on  commercially
reasonable  terms.  Any of the  Collateral  may be  sold,  leased  or  otherwise
disposed of, in the  condition in which the same existed when taken by the Agent
or after any commercially  reasonable  overhaul or repair.  Any such disposition
which shall be a private  sale or other  private  proceedings  permitted by such
requirements  shall be made upon not less than ten (10) days' written  notice to
such Assignor  specifying  the time at which such  disposition is to be made and
the intended sale price or other consideration  therefor,  and shall be subject,
for the ten (10) days  after the  giving  of such  notice,  to the right of such
Assignor or any nominee of such Assignor to acquire the Collateral involved at a
price or for such other  consideration at least equal to the intended sale price
or other  consideration  so  specified.  Any such  disposition  which shall be a
public sale permitted by such requirements  shall be made upon not less than ten
(10) days' written notice to such Assignor specifying the time and place of such
sale and, in the absence of applicable  requirements  of law, shall be by public
auction  (which  may,  at the  Agent's  option,  be subject to  reserve),  after
publication  of notice of such auction not less than ten (10) days prior thereto
in two  newspapers in general  circulation  in Los Angeles,  California.  To the
extent  permitted  by any such  requirement  of law,  the Agent,  the Funds,  or
certain  of them,  may bid for and  become  the  purchaser  (by  bidding  in the
Obligations  or  otherwise) of the  Collateral or any item thereof,  offered for
sale in accordance  with this Section  without  accountability  to such Assignor
(except to the extent of surplus money received as provided in Section 7.4). If,
under  mandatory  requirements of applicable law, the Agent shall be required to
make disposition of the Collateral within a period of time which does not permit
the giving of notice to such Assignor as hereinabove  specified,  the Agent need
give such  Assignor  only  such  notice of  disposition  as shall be  reasonably
practicable  in view of such  mandatory  requirements  of  applicable  law. Each
Assignor  agrees to do or cause to be done all such other acts and things as may
be reasonably  necessary to make such sale or sales of all or any portion of the
Collateral valid and binding and in compliance with any and all applicable laws,
regulations,  orders,  writs,  injunctions,  decrees  or  awards  of any and all
courts,  arbitrations  or governmental  instrumentalities,  domestic or foreign,
having jurisdiction over any such sale or sales, all at such Assignor's expense.

7.3 Waiver.  If the Agent  seeks to exercise  its  remedies  hereunder  and take
possession of any of the  Collateral  by court  process,  EACH  ASSIGNOR  HEREBY
IRREVOCABLY  WAIVES (A) ANY BOND AND ANY  SURETY OR  SECURITY  RELATING  THERETO
REQUIRED BY LAW AS AN INCIDENT TO SUCH POSSESSION, (B) ANY DEMAND FOR POSSESSION
PRIOR TO THE  COMMENCEMENT OF ANY SUIT OR ACTION TO RECOVER  POSSESSION  THEREOF
AND (C) ANY REQUIREMENT THAT THE AGENT RETAIN POSSESSION OF, AND NOT DISPOSE OF,
ANY SUCH COLLATERAL UNTIL AFTER TRIAL OR FINAL JUDGMENT.

         THE  FAILURE OF THE AGENT AT ANY TIME OR TIMES TO REQUIRE  ASSIGNOR  TO
STRICTLY  COMPLY  WITH ANY OF THE  PROVISIONS  OF THIS  AGREEMENT  OR ANY  OTHER
TRANSACTION DOCUMENT SHALL NOT WAIVE OR DIMINISH ANY RIGHT OF THE AGENT LATER TO
DEMAND AND RECEIVE STRICT COMPLIANCE THEREWITH.  ANY WAIVER OF ANY DEFAULT SHALL
NOT WAIVE OR AFFECT ANY OTHER DEFAULT, WHETHER PRIOR OR SUBSEQUENT,  AND WHETHER
OR  NOT  SIMILAR.  NONE  OF THE  PROVISIONS  OF  THIS  AGREEMENT  OR  ANY  OTHER
TRANSACTION DOCUMENT SHALL BE DEEMED TO HAVE BEEN WAIVED BY ANY ACT OR KNOWLEDGE
OF THE AGENT OR ITS AGENTS OR EMPLOYEES,  BUT ONLY BY A SPECIFIC  WRITTEN WAIVER
SIGNED BY AN AUTHORIZED OFFICER OF THE AGENT AND DELIVERED TO THE ASSIGNOR. EACH
ASSIGNOR  WAIVES  DEMAND,  PROTEST,  NOTICE OF PROTEST  AND NOTICE OF DEFAULT OR
DISHONOR,  NOTICE OF PAYMENT AND NONPAYMENT,  RELEASE,  COMPROMISE,  SETTLEMENT,
EXTENSION  OR RENEWAL OF ANY  COMMERCIAL  PAPER,  INSTRUMENT,  ACCOUNT,  GENERAL
INTANGIBLE, DOCUMENT, CHATTEL PAPER, INVESTMENT PROPERTY OR GUARANTY AT ANY TIME
HELD BY THE AGENT OR THE FUNDS ON WHICH ASSIGNOR IS OR MAY IN ANY WAY BE LIABLE,
AND NOTICE OF ANY ACTION TAKEN BY THE AGENT,  UNLESS EXPRESSLY  REQUIRED BY THIS
AGREEMENT, AND NOTICE OF ACCEPTANCE THEREOF.

                  7.4      Application of Proceeds.

                  (a) All moneys  collected  by the Agent upon any sale or other
disposition of the  Collateral,  together with all other moneys  received by the
Agent hereunder, shall be applied as follows:

                  (i) to the payment of any and all expenses and fees (including
         reasonable attorneys' fees) incurred by the Agent in obtaining,  taking
         possession of, or removing, insuring,  repairing, storing and disposing
         of  Collateral  and  any and  all  amounts  incurred  by the  Agent  in
         connection therewith;

                  (ii) next,  any surplus  then  remaining to the payment of the
Obligations under the Secured Notes in the following order of priority:

     (A)      all accrued and unpaid interest on overdue principal and interest;

     (B)      all other accrued and unpaid interest; and

     (C)      all outstanding principal; and

                  (iii) next,  any surplus then  remaining to the payment of any
other Obligations under this Agreement or any other Transaction Document.

                  (b) It is understood that each Assignor shall remain liable to
the extent of any deficiency between (i) the amount of the Obligations for which
it is liable that are  satisfied  with proceeds of the  Collateral  and (ii) the
aggregate outstanding amount of such Obligations.

                  7.5  Remedies  Cumulative.  Each and  every  right,  power and
remedy  hereby  specifically  given to the Agent  shall be in  addition to every
other right,  power and remedy  specifically  given under this  Agreement or the
other Transaction  Documents or now or hereafter existing at law or in equity or
by statute,  and each and every  right,  power and remedy  whether  specifically
herein  given  or  otherwise  existing  may be  exercised  from  time to time or
simultaneously  and as often and in such order as may be deemed expedient by the
Agent. All such rights, powers and remedies shall be cumulative and the exercise
or the beginning of exercise of one shall not be deemed a waiver of the right to
exercise any other or others.  No delay or omission of the Agent in the exercise
of any such  right,  power or remedy and no renewal or  extension  of any of the
Obligations shall impair any such right,  power or remedy nor shall be construed
to be a waiver of any Event of Default or an acquiescence  therein. In the event
that the Agent shall bring any suit to enforce any of its rights  hereunder  and
shall be entitled to judgment, then in such suit the Agent may recover expenses,
including  attorneys'  fees,  and the amounts  thereof shall be included in such
judgment.

                  7.6  Discontinuance  of  Proceedings.  In case the Agent shall
have instituted any proceeding to enforce any right,  power or remedy under this
Agreement by foreclosure,  sale,  entry or otherwise,  and such proceeding shall
have been discontinued or abandoned for any reason or shall have been determined
adversely to the Agent,  then and in every such case, the  Assignors,  the Agent
and each holder of any of the  Obligations  shall be  restored  to their  former
positions and rights  hereunder  with respect to the  Collateral  subject to the
security  interest  created under this Agreement,  and all rights,  remedies and
powers of the Agent shall continue as if no such  proceeding had been instituted
(except  to the  extent  of a  determination  adverse  to the  Agent  in  such a
proceeding).


                                  ARTICLE VIII

                                    INDEMNITY

                  8.1      Indemnity.

                  (a) Except with respect to litigation  concerning the priority
of Permitted  Liens or  assertions  by the Company in  accordance  with the last
sentence of Section 2.1 hereof, each Assignor agrees to indemnify, reimburse and
hold the Agent, each Fund and their respective  successors,  permitted  assigns,
directors,  officers,  Affiliates,  employees,  attorneys,  agents and  servants
(hereinafter in this Section 8.1 referred to individually as  "Indemnitee,"  and
collectively  as   "Indemnitees")   harmless  from  any  and  all   liabilities,
obligations,  losses,  damages,  penalties,  claims,  demands,  actions,  suits,
judgments and any and all reasonable  costs and expenses,  including  reasonable
attorneys'  fees and  expenses  (for  the  purposes  of this  Section  8.1,  the
foregoing are  collectively  called  "Expenses")  of whatsoever  kind and nature
imposed on,  asserted  against or incurred by any of the  Indemnitees in any way
relating to or arising out of this Agreement,  any other Transaction Document or
the documents executed in connection  herewith and therewith or in any other way
connected with the enforcement of any of the terms of, or the  preservation  of,
any rights hereunder or thereunder,  or in any way relating to or arising out of
the manufacture,  ownership,  ordering, purchase, delivery, control, acceptance,
lease,  financing,  possession,  operation,  condition,  sale,  return  or other
disposition, or use of the Collateral (including,  without limitation, latent or
other defects,  whether or not discoverable),  or the violation by such Assignor
of the laws of any country,  state or other  governmental body or unit, any tort
(including,  without limitation, claims arising or imposed under the doctrine of
strict  liability,  or for or on account of injury to or the death of any Person
(including any Indemnitee),  or property  damage),  or contract claim;  provided
that no  Indemnitee  shall be  indemnified  pursuant to this Section  8.1(a) for
Expenses to the extent caused by the gross  negligence or willful  misconduct of
such Indemnitee. Each Assignor agrees that upon written notice by any Indemnitee
of  the  assertion  of  such  an  Expense,   such  Assignor  shall  assume  full
responsibility   for  the  defense  thereof  if  such  Assignor  would  have  an
indemnification  obligation under this Section 8.1(a).  The Indemnitee agrees to
use its best efforts to promptly  notify such Assignor of any such  assertion of
which such Indemnitee has knowledge.

                  (b) Without  limiting the application of Section 8.1(a),  each
Assignor agrees,  jointly and severally,  to pay, or reimburse the Agent for (if
the Agent shall have  incurred  fees,  costs or expenses  because such  Assignor
shall have failed to comply with its  obligations  under this  Agreement  or any
other Transaction Document),  any and all reasonable fees, costs and expenses of
whatever kind or nature incurred in connection  with the creation,  preservation
or protection of the Agent's Liens on, and security  interest in, the Collateral
granted  hereunder,  including,  without  limitation,  all  fees  and  taxes  in
connection  with the recording or filing of instruments  and documents in public
offices,  payment or  discharge  of any taxes or Liens upon or in respect of the
Collateral and all other  reasonable fees, costs and expenses in connection with
protecting,  maintaining or preserving  the Collateral and the Agent's  interest
therein,  whether through judicial proceedings or otherwise,  or in defending or
prosecuting any actions,  suits or proceedings arising out of or relating to the
Collateral.

                  (c) Without limiting the application of Section 8.1(a) or (b),
each Assignor agrees to pay,  indemnify and hold each  Indemnitee  harmless from
and against any loss,  costs,  damages and expenses  which such  Indemnitee  may
suffer, expend or incur in consequence of any misrepresentation by such Assignor
in this  Agreement,  or in any statement or writing  contemplated  by or made or
delivered pursuant to or in connection with this Agreement.

                  (d) If and to the extent that the  obligations  of an Assignor
under this Section 8.1 are  unenforceable  for any reason,  such Assignor hereby
agrees to make the maximum  contribution to the payment and satisfaction of such
obligations which is permissible under applicable law.

                  8.2 Indemnity Obligations Secured by Collateral; Survival. Any
amounts  paid by any  Indemnitee  as to which such  Indemnitee  has the right to
reimbursement  under this Agreement shall constitute  Obligations secured by the
Collateral.  The indemnity  obligations of the Company contained in this Article
VIII shall continue in full force and effect notwithstanding the full payment of
all the  Secured  Notes,  and the  payment of all of the other  Obligations  and
notwithstanding the discharge thereof.

                  8.3  Non-Core  Assets.  The  entirety  of  this  Article  VIII
notwithstanding,  so long as no Event of  Default  shall  occur and has not been
cured in accordance with the terms of the Secured Notes,  all  indemnifications,
security  interests,  liens and claims of the Agent  hereunder in respect of the
Non-Core  Assets  which are sold by an  Assignor in  accordance  with its rights
under the Transaction  Documents shall be released concurrently with the closing
of such sale, and the Agent and the Funds shall execute all documents reasonably
required by the purchaser of such Non-Core Assets to so evidence.


                                   ARTICLE IX

                                   DEFINITIONS

                  The following terms shall have the meanings  herein  specified
unless  the  context  otherwise  requires.  Such  definitions  shall be  equally
applicable to the singular and plural forms of the terms defined.

     "Agent"  shall have the meaning  specified  in the first  paragraph of this
Agreement.

                  "Agreement" shall mean this Security Agreement as the same may
be modified, supplemented or amended from time to time.

                  "Assignor" or "Assignors"  shall have the meaning specified in
the first paragraph of this Agreement.

                  "Chattel  Paper"  shall have the  meaning  assigned  that term
under the UCC as in effect on the date hereof in the State of New York.

                 "Collateral" shall have the meaning provided in Section 1.1(a).

                  "Contract  Rights"  shall  mean  all  rights  of the  Assignor
(including, without limitation, all rights to payment) under each Contract.

     "Contracts"  shall mean all contracts  between the Assignor and one or more
additional parties.

                  "Copyrights" shall mean any United States or foreign copyright
owned by the  Assignor  now or  hereafter,  including  any  registration  of any
copyrights,  in the United States Copyright Office or the equivalent  thereof in
any foreign  country,  as well as any application for a United States or foreign
copyright  registration  now or hereafter made with the United States  Copyright
Office or the equivalent thereof in any foreign jurisdiction by the Assignor.

                  "Documents"  shall have the meaning  assigned  that term under
the UCC as in effect on the date hereof in the State of New York.

                  "Equipment"  shall  mean  any  "equipment,"  as  such  term is
defined in the UCC as in effect on the date hereof in the State of New York, now
or hereafter owned by the Assignor and, in any event,  shall include,  but shall
not be limited to, all machinery, equipment,  furnishings now or hereafter owned
by such Assignor and any and all additions,  substitutions  and  replacements of
any  of  the  foregoing,   wherever  located,  together  with  all  attachments,
components,  parts,  equipment  and  accessories  installed  thereon  or affixed
thereto, including "fixtures" as such term is defined in the UCC as in effect on
the date hereof in the State of New York.

                  "Funds"  shall have the meaning  provided in the first whereas
clause of this Agreement.

                  "General  Intangibles"  shall have the meaning  assigned  that
term under the UCC as in effect on the date hereof in the State of New York.

                  "Goods"  shall have the meaning  assigned  that term under the
UCC as in effect on the date hereof in the State of New York.

                  "Indemnitee" shall have the meaning provided in Section 8.1.

                  "Instrument"  shall have the meaning  assigned that term under
the UCC as in effect on the date hereof in the State of New York.

                  "Inventory" shall mean  merchandise,  inventory and goods, and
all  additions,   substitutions  and  replacements  thereof,  wherever  located,
together with all goods,  supplies,  incidentals,  packaging materials,  labels,
materials  and any other  items  used or usable  in  manufacturing,  processing,
packaging or shipping  same;  in all stages of  production -- from raw materials
through  work-in-process  to finished  goods -- and all products and proceeds of
whatever  sort  and  wherever  located  and any  portion  thereof  which  may be
returned,  rejected,  reclaimed or  repossessed by the Agent from the Assignor's
customers,  and  shall  specifically  include  all  "inventory"  as such term is
defined in the UCC as in effect on the date hereof in the State of New York, now
or hereafter owned by the Assignor, but shall exclude Equipment.

                  "Investment  Property"  shall have the meaning  assigned  that
term  under  the UCC as in  effect  on the date  hereof in the State of New York
(excluding the Pledged Stock).

                  "Marks" shall mean all right, title and interest in and to any
United States or foreign  trademarks,  service marks and trade names now held or
hereafter  acquired by the Assignor,  including any  registration or application
for  registration  of any  trademarks  and service  marks now held or  hereafter
acquired by the Assignor,  which are  registered in the United States Patent and
Trademark Office or the equivalent  thereof in any State of the United States or
in any foreign country,  as well as any unregistered marks used by the Assignor,
and any trade dress including  logos,  designs,  company names,  business names,
fictitious business names and other business identifiers used by the Assignor in
the United States or any foreign country.

                  "Obligation" shall mean: (a) all indebtedness, obligations and
liabilities  (including,  without  limitation,  guarantees and other  contingent
liabilities)  of the  Assignor  to the  Funds or the Agent  arising  under or in
connection with the Secured Notes or any other Transaction Document; (b) any and
all sums  advanced by the Agent in order to preserve the  Collateral or preserve
its security interest in the Collateral;  and (c) in the event of any proceeding
for  the  collection  or  enforcement  of  any   indebtedness,   obligations  or
liabilities  of the  Assignor,  after an Event of Default  shall  have  occurred
(which has not been cured in  accordance  with the terms of the Secured  Notes),
the  reasonable  expenses of  re-taking,  holding,  preparing for sale or lease,
selling  or  otherwise  disposing  or  realizing  on the  Collateral,  or of any
exercise  by the  Agent  of  its  rights  hereunder,  together  with  reasonable
attorneys' fees and court costs.

                  "Patents"  shall mean any United  States or foreign  patent to
which the Assignor now or hereafter has title and any divisions or continuations
thereof, as well as any application for a United States or foreign patent now or
hereafter made by such Assignor.

                  "Permits"  shall mean, to the extent  permitted to be assigned
by the terms  thereof or by  applicable  law,  all  licenses,  permits,  rights,
orders,  variances,  franchises or  authorizations  of or from any  governmental
authority or agency.

                  "Pledged  Stock" shall have the meaning  assigned that term in
the Stock Pledge Agreement.

                  "Proceeds" shall have the meaning assigned that term under the
UCC as in  effect in the  State of New York on the date  hereof  or under  other
relevant law and, in any event,  shall  include,  but not be limited to, (i) any
and all proceeds of any insurance,  indemnity,  warranty or guaranty  payable to
the  Agent  or the  Assignor  from  time  to  time  with  respect  to any of the
Collateral,  (ii) any and all payments (in any form  whatsoever) made or due and
payable to the Assignor  from time to time in connection  with any  requisition,
confiscation,  condemnation,  seizure  or  forfeiture  of all or any part of the
Collateral  by any  governmental  authority (or any person acting under color of
governmental  authority)  and (iii) any and all other  amounts from time to time
paid or payable under or in connection with any of the Collateral.

                  "Receivables" shall mean any "account" as such term is defined
in the UCC as in  effect on the date  hereof  in the  State of New York,  now or
hereafter owned by the Assignor and, in any event, shall include,  but shall not
be limited to, all of such Assignor's rights to payment for goods sold or leased
or services performed by such Assignor, whether now in existence or arising from
time to time hereafter,  including,  without limitation,  rights evidenced by an
account, note, contract, security agreement, chattel paper, or other evidence of
indebtedness  or security,  together  with (a) all security  pledged,  assigned,
hypothecated or granted to or held by such Assignor to secure the foregoing, (b)
all of such Assignor's  right,  title and interest in and to any goods, the sale
of  which   gave   rise   thereto,   (c)  all   guarantees,   endorsements   and
indemnifications on, or of, any of the foregoing, (d) all powers of attorney for
the  execution of any evidence of  indebtedness  or security or other writing in
connection  therewith,  (e) all  books,  records,  ledger  cards,  and  invoices
relating thereto,  (f) evidences of the filing of financing statements and other
statements and the registration of other instruments in connection therewith and
amendments  thereto,  all notices to other  creditors  or secured  parties,  and
certificates  from  filing  or  other  registration  officers,  (g)  all  credit
information,  reports and memoranda relating thereto, and (h) all other writings
related in any way to the foregoing.

                  "Trade Secret Rights" shall mean the rights of the Assignor in
any Trade Secret it holds.

                  "Trade  Secrets" means any secretly held existing  engineering
and other data,  information,  production procedures and other know-how relating
to the design, manufacture,  assembly,  installation, use, operation, marketing,
sale and servicing of any products or business of an Assignor  worldwide whether
written or not written.


                                    ARTICLE X

                                  MISCELLANEOUS

                  10.1. Notices.  Any and all notices or other communications or
deliveries  required or permitted to be provided  hereunder  shall be in writing
and  shall be deemed  given and  effective  on the  earliest  of (i) the date of
transmission,  if such notice or communication is delivered via facsimile at the
facsimile  telephone  number  specified  in this Section 11.4 prior to 4:30 p.m.
(New York City time) on a Business  Day, (ii) the Business Day after the date of
transmission,  if such notice or communication is delivered via facsimile at the
facsimile  telephone  number specified below later than 4:30 p.m. (New York City
time) on any date and earlier than 11:59 p.m. (New York City time) on such date,
(iii) the  Business Day  following  the date of mailing,  if sent by  nationally
recognized  overnight courier service,  or (iv) upon actual receipt by the party
to  whom  such  notice  is  required  to  be  given.   The  addresses  for  such
communications shall be:

                   If to the Assignors:      c/o Aura Systems, Inc.
                                             2335 Alaska Avenue
                                             El Segundo, California
                                             Attn: Michael Froch, Esq.
                                             Facsimile No.: (310) 643-8719

                   With copies to:           Robinson, Diamant & Brill
                                             1888 Century Park East, Suite 1500
                                             Los Angeles, California 90067
                                             Attn: Lawrence A. Diamant, Esq.
                                             Facsimile No.: (310) 277-7584

                   If to the Agent:          Mr. Stuart J. Chasanoff
                                             c/o HW Partners LP
                                             1601 Elm Street, Suite 4000
                                             Dallas, Texas 75201
                                             Facsimile No.: (214) 720-1667

                   With copies to:           White & Case LLP
                                             4900 First Union Financial Center
                                             200 South Biscayne Boulevard
                                             Miami, Florida  33131
                                             Attn:  Thomas E Lauria, Esq.
                                             Facsimile No.: (305) 358-5744



or such other  address as may be designated  in writing  hereafter,  in the same
manner, by such person.

                  10.2 Waiver; Amendment. This Agreement 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.  No delay on the part of the  Agent  in  exercising  any of its  rights,
remedies, powers and privileges hereunder or partial or single exercise thereof,
shall constitute a waiver thereof.  No notice to or demand on the Assignor shall
constitute  a waiver of any of the  rights of the Agent to any other or  further
action without notice or demand.

                  10.3  Obligations  Absolute.  The obligations of each Assignor
hereunder shall remain in full force and effect without regard to, and shall not
be impaired by, (a) any  bankruptcy,  insolvency,  reorganization,  arrangement,
readjustment,  composition,  liquidation  or the like of any  Assignor;  (b) any
exercise  or  non-exercise,  or any  waiver  of,  any  right,  remedy,  power or
privilege  under  or in  respect  of this  Agreement  or any  other  Transaction
Document  except as specifically  set forth in a waiver granted  pursuant to the
restrictions of Section 10.2 hereof;  or (c) any amendment to or modification of
any other  Transaction  Document  or any  security  for any of the  Obligations,
whether  or not such  Assignor  shall  have  notice or  knowledge  of any of the
foregoing.  The rights and remedies of the Agent herein  provided are cumulative
and not  exclusive  of any rights or remedies  which the Agent  would  otherwise
have.

                  10.4  Successors and Assigns.  This Agreement shall be binding
upon each Assignor and its successors and assigns and shall inure to the benefit
of the Agent and the Funds and their  respective  successors  and  assigns.  All
agreements,  statements,  representations  and warranties  made by such Assignor
herein or in any certificate or other  instrument  delivered by such Assignor or
on its behalf under this Agreement  shall be considered to have been relied upon
by the Agent and the Funds and shall  survive the execution and delivery of this
Agreement and the other Transaction  Documents,  regardless of any investigation
made by the Agent or the Funds or on their behalf.

                  10.5  Headings  Descriptive.   The  headings  of  the  several
sections of this  Agreement are inserted for  convenience  only and shall not in
any way affect the meaning or construction of any provision of this Agreement.

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

                  10.7   Governing  Law.  This  Agreement  and  the  rights  and
obligations of the parties  hereunder  shall be construed in accordance with and
governed by the law of the State of New York.

                  10.8  Assignors'  Duties.  It is  expressly  agreed,  anything
herein  contained  to the contrary  notwithstanding,  that each  Assignor  shall
remain  liable  to  perform  all of the  Obligations  assumed  by it under  this
Agreement or any other Transaction Document with respect to the Collateral,  and
the Agent  and the Funds  shall not have any  obligations  or  liabilities  with
respect to any  Collateral by reason of or arising out of this  Agreement or any
other  Transaction  Document,  nor shall the Agent or the Funds be  required  or
obligated  in any manner to perform or  fulfill  any of the  obligations  of the
Assignor under or with respect to any Collateral.

                  10.9 Termination; Release. After all the Obligations have been
paid in full in accordance  with the Transaction  Documents,  this Agreement and
the  security  interests  created  hereby  shall  terminate  (provided  that all
indemnities  set forth  herein  including,  without  limitation,  in Section 8.1
hereof  shall  survive  such  termination),  and the Agent,  at the  request and
expense of the Assignor,  will  promptly  execute and deliver to such Assignor a
proper instrument or instruments  (including UCC termination  statements on form
UCC-3)  acknowledging  the  termination  of this Agreement and will duly assign,
transfer  and  deliver  to such  Assignor  (without  recourse  and  without  any
representation  or warranty)  such of the Collateral as may be in the possession
of the  Agent  and as has not  theretofore  been sold or  otherwise  applied  or
released pursuant to this Agreement.

                  10.10 Entire  Agreement.  This  Agreement,  together  with the
exhibits,  annexes and schedules  hereto,  and the other  Transaction  Documents
contain  the entire  understanding  of the parties  with  respect to the subject
matter hereof and supersede all prior  agreements  and  understandings,  oral or
written, with respect to such matters.

                  10.11  Counterparts.  This  Agreement  may be  executed in any
number  of  counterparts  and  by  the  different  parties  hereto  on  separate
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall together constitute one and the same instrument. A set of
counterparts  executed  by all the  parties  hereto  shall  be  lodged  with the
Assignor, the Funds and the Agent.

                            [SIGNATURE PAGE FOLLOWS]


<PAGE>






                                [SIGNATURE PAGE]







                                [SIGNATURE PAGE]
                  IN WITNESS  WHEREOF,  the  parties  hereto  have  caused  this
Agreement to be executed and delivered by their duly authorized officer or agent
as of the date first indicated above.

                                                AURA SYSTEMS, INC., as Assignor



                                                     By:
                                                     Name:  Gerald Papazian
                                                     Title:    President



                                                     By:
                                                     Name:  Steven C. Veen
                                                     Title:    Vice President


                                                AURA CERAMICS, INC., as Assignor



                                                     By:
                                                     Name:  Steven C. Veen
                                                     Title:    Vice President



                                                     By:
                                                     Name:  Michael Froch
                                                     Title:    Secretary


                                                    AURASOUND, INC., as Assignor



                                                     By:
                                                     Name:  Steven C. Veen
                                                     Title:    Vice President



                                                     By:
                                                     Name:  Michael Froch
                                                     Title:    Secretary


<PAGE>


                                         AURA MEDICAL SYSTEMS, INC., as Assignor



                                                     By:
                                                     Name:  Steven C. Veen
                                                     Title:    Vice President



                                                     By:
                                                     Name:  Michael Froch
                                                     Title:    Secretary


                                      ELECTROTEC PRODUCTIONS, INC., as Assignor



                                                     By:
                                                     Name:  Steven C. Veen
                                                     Title:    Vice President



                                                     By:
                                                     Name:  Michael Froch
                                                     Title:    Secretary


                                                DS OSCILLATOR, INC., as Assignor



                                                     By:
                                                     Name:  Steven C. Veen
                                                     Title:    Vice President



                                                     By:
                                                     Name:  Michael Froch
                                                     Title:    Secretary


<PAGE>


                                           PHILIPS SOUND LABS, INC., as Assignor



                                                     By:
                                                     Name:  Steven C. Veen
                                                     Title:    Vice President



                                                     By:
                                                     Name:  Michael Froch
                                                     Title:    Secretary


                                    ELECTROTEC AUDIO LEASE LIMITED, as Assignor



                                                     By:
                                      Name:
                                     Title:


                                          HW PARTNERS, LP, as Assignee and Agent
                                                       for the Funds
                                                     By:    HW Finance, LLC
                                                            Its Managing Partner

                                                     By:
                                                     Name:  Stuart J. Chasanoff
                                                     Title:Senior Vice President


<PAGE>








<TABLE>
<CAPTION>


                  SCHEDULE OF EQUIPMENT AND INVENTORY LOCATIONS



Location                            Inventory                                           Equipment






                                                                                              ANNEX B
                                                                                                TO
                                                                                        SECURITY AGREEMENT







                                SCHEDULE OF MARKS





                                                                                              ANNEX C
                                                                                                TO
                                                                                        SECURITY AGREEMENT







                   SCHEDULE OF PATENTS AND PATENT APPLICATIONS






                                                                                              ANNEX D
                                                                                                TO
                                                                                        SECURITY AGREEMENT







                SCHEDULE OF COPYRIGHTS AND COPYRIGHT APPLICATIONS



<S>     <C>    <C>    <C>    <C>    <C>    <C>

</TABLE>

                                      (ii)




                                       (i)
                                TABLE OF CONTENTS

                                                                           Page

ARTICLE I

         SECURITY INTERESTS....................................................2
         1.1      Grant of Security Interests..................................2
         1.2      Power of Attorney............................................2

ARTICLE II

         GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS.....................3
         2.1      Necessary Filings............................................3
         2.2      No Liens.....................................................3
         2.3      Other Financing Statements...................................3
         2.4      Chief Executive Office; Records..............................3
         2.5      Location of Inventory and Equipment..........................4
         2.6      Trade Names; Change of Name..................................4
         2.7      Recourse.....................................................4

ARTICLE III

         SPECIAL PROVISIONS CONCERNING
         RECEIVABLES; CONTRACT RIGHTS; INSTRUMENTS.............................4
         3.1      Additional Representations and Warranties....................4
         3.2      Maintenance of Records.......................................5
         3.3      Modification of Terms; etc...................................5
         3.4      Collection...................................................5
         3.5      Instruments..................................................6
         3.6      Further Actions..............................................6

ARTICLE IV

         SPECIAL PROVISIONS CONCERNING TRADEMARKS..............................6
         4.1      Additional Representations and Warranties....................6
         4.2      Licenses and Assignments.....................................6
         4.3      Infringements................................................6
         4.4      Preservation of Marks........................................7
         4.5      Maintenance of Registration..................................7
         4.6      Future Registered Marks......................................7
         4.7      Remedies.....................................................7

ARTICLE V

         SPECIAL PROVISIONS CONCERNING
         TRADE SECRET RIGHTS, PATENTS AND COPYRIGHTS...........................8
         5.1      Additional Representations and Warranties....................8
         5.2      Licenses and Assignments.....................................8
         5.3      Infringements................................................8
         5.4      Maintenance of Patents or Copyrights.........................8
         5.5      Prosecution of Patent or Copyright Application...............9
         5.6      Other Patents and Copyrights.................................9
         5.7      Remedies.....................................................9

ARTICLE VI

         PROVISIONS CONCERNING ALL COLLATERAL..................................9
         6.1      No Impairment................................................9
         6.2      Financing Statements.........................................9
ARTICLE VII

         REMEDIES UPON OCCURRENCE OF EVENT OF DEFAULT.........................10
         7.1      Remedies; Obtaining the Collateral Upon Default.............10
         7.2      Remedies; Disposition of the Collateral.....................11
         7.3      Waiver......................................................11
         7.4      Application of Proceeds.....................................12
         7.5      Remedies Cumulative.........................................13
         7.6      Discontinuance of Proceedings...............................13

ARTICLE VIII

         INDEMNITY  13
         8.1      Indemnity...................................................13
         8.2      Indemnity Obligations Secured by Collateral; Survival.......14

ARTICLE IX

         DEFINITIONS..........................................................15

ARTICLE X

         MISCELLANEOUS........................................................18
         10.1.    Notices.....................................................18
         10.2     Waiver; Amendment...........................................19
                  10.3     Obligations Absolute...............................19
         10.4     Successors and Assigns......................................19
         10.5     Headings Descriptive........................................19
         10.6     Severability................................................19
         10.7     Governing Law...............................................20
         10.8     Assignors'Duties............................................20
         10.9     Termination; Release........................................20
         10.10    Entire Agreement............................................20
         10.11    Counterparts................................................20

ANNEX A           Schedule of Equipment and Inventory Locations
ANNEX B           Schedule of Marks
ANNEX C           Schedule of Patents and Applications
ANNEX D           Schedule of Copyrights and Applications