EXCHANGE AGREEMENT


                                      Among

                               AURA SYSTEMS, INC.,

                           INFINITY INVESTORS LIMITED,

                            GLACIER CAPITAL LIMITED,

                             SUMMIT CAPITAL LIMITED,

                             GLOBAL GROWTH LIMITED,

                                       and

                                 HW PARTNERS, LP
                             as Agent for the Funds

                          Dated as of February 22, 2000





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                               EXCHANGE AGREEMENT


                  THIS EXCHANGE  AGREEMENT,  dated as of February 22, 2000 (this
"Agreement"),  by and among AURA  SYSTEMS,  INC.,  a Delaware  corporation  (the
"Company"),  INFINITY INVESTORS  LIMITED,  a corporation  organized and existing
under the laws of Nevis, West Indies  ("Infinity"),  GLACIER CAPITAL LIMITED,  a
corporation  organized  and  existing  under  the  laws of  Nevis,  West  Indies
("Glacier"),  SUMMIT CAPITAL LIMITED, a corporation organized and existing under
the laws of Nevis, West Indies ("Summit"),  GLOBAL GROWTH LIMITED, a corporation
organized  and  existing  under the laws of Nevis,  West Indies  ("Global"  and,
together with Infinity, Glacier and Summit, each a "Fund", and collectively, the
"Funds"),  and  HW  PARTNERS,  LP,  a  Texas  limited  partnership,  not  in its
individual capacity but solely as agent for the Funds hereunder (the "Agent").

                              W I T N E S S E T H :

                  WHEREAS,  the Company acknowledges and agrees that Infinity is
the  holder  of the  Company's  Variable  Interest  Rate  Convertible  Notes due
September  30,  1998,  in  the  aggregate  amount  of at  least  $15,243,581.46,
including all accrued interest  thereon  (collectively,  the "Infinity  Notes"),
which are secured by certain  assets of the Company as specified in that certain
Pledge Agreement dated September 30, 1997;

                  WHEREAS,  the Company  acknowledges and agrees that Glacier is
the  holder  of the  Company's  Variable  Interest  Rate  Convertible  Notes due
September 30, 1998, in the aggregate amount of at least $1,227,868.92, including
all accrued  interest thereon  (collectively,  the "Glacier  Notes"),  which are
secured by certain  assets of the Company as specified  in that  certain  Pledge
Agreement dated September 30, 1997;

                  WHEREAS,  the Company  acknowledges  and agrees that Summit is
the  holder  of the  Company's  Variable  Interest  Rate  Convertible  Notes due
September 30, 1998, in the aggregate amount of at least $1,227,868.92, including
all accrued  interest  thereon  (collectively,  the "Summit  Notes"),  which are
secured by certain  assets of the Company as specified  in that  certain  Pledge
Agreement dated September 30, 1997;

                  WHEREAS,  the Company  acknowledges  and agrees that Global is
the  holder  of the  Company's  Variable  Interest  Rate  Convertible  Notes due
September 30, 1998, in the aggregate amount of at least  $601,302.92,  including
all accrued interest  thereon  (collectively,  the "Global Notes" and,  together
with the Infinity Notes,  the Glacier Notes and the Summit Notes,  the "Original
Notes"), which are secured by certain assets of the Company as specified in that
certain Pledge Agreement dated September 30, 1997;

                  WHEREAS,  prior to the Exchange (as defined below),  the Funds
will transfer,  convey and assign (the "Assignment") to a third-party  purchaser
acceptable to the Funds (the "Purchaser")  $4,000,000 in principal amount of the
Original  Notes (the  "Assigned  Notes") in exchange for $3,000,000 in cash (the
"Cash Payment") and 1,111,111  unrestricted shares of the Company's Common Stock
(the  "Acquired  Shares" and,  together  with the Cash  Payment,  the  "Purchase
Price");

                  WHEREAS,  in connection with a proposed  restructuring  of its
financial  affairs (the  "Restructuring"),  the Company has  requested  that the
Funds agree to accept Secured Notes of even date herewith  (defined below) in an
aggregate  principal  amount of  $12,500,000  in exchange for the Original Notes
held by the Funds after giving effect to the Assignment; and

                  WHEREAS, pursuant to the Restructuring,  the Funds have agreed
to accept  Secured  Notes in exchange for the  Original  Notes held by the Funds
after giving effect to the Assignment,  subject to the terms and satisfaction of
the conditions set forth below;

                  NOW,  THEREFORE,  in consideration of the mutual covenants and
agreements set forth herein and for good and valuable consideration, the receipt
of which is hereby acknowledged, the parties agree as follows:

                  SECTION 1.        Definitions and Principles of Construction.

                  1.1.  Defined Terms. As used in this Agreement,  the following
terms shall have the following  meanings (such meanings to be equally applicable
to both the singular and plural forms of the terms defined,  except as otherwise
provided):

                  "Affiliate"  shall mean,  with respect to any Person,  (i) any
other Person that, directly or indirectly,  is controlled by, or is under common
control with, or controls such Person, (ii) any other Person in which,  directly
or indirectly,  such Person holds,  of record or  beneficially,  five percent or
more of the equity or voting  securities,  (iii) any other Person that holds, of
record or beneficially,  five percent or more of the equity or voting securities
of such Person, or (iv) any director,  officer,  partner or individual holding a
similar position in respect of such Person.

                  "Agent" shall have the meaning given to such term in the first
paragraph of this Agreement.

                  "Agreement" shall mean this Exchange  Agreement,  as modified,
supplemented,   amended,  restated  (including  any  amendment  and  restatement
hereof), extended, reviewed or replaced from time to time.

                  "Applicable   Discount"   shall  mean,  with  respect  to  any
applicable  prepayment of principal  under the Secured Notes in accordance  with
the terms  thereof,  a  percentage  which on the Closing  Date shall be equal to
twenty  percent (20%) and thereafter  shall  decrease on a daily,  straight line
basis to zero percent (0%) on the Maturity Date.

                  "Assigned  Notes" shall have the meaning given to such term in
the fifth whereas clause of this Agreement.

                  "Assignment"  shall have the meaning given to such term in the
fifth whereas clause of this Agreement.

     "Aura Ceramics" shall mean Aura Ceramics, Inc., a Delaware corporation.

     "Aura Realty" shall mean Aura Realty, Inc., a Delaware corporation.

                  "AuraGen" shall mean that certain power  generator  developed,
manufactured,  marketed, distributed and/or sold by or for the Company or any of
its  Subsidiaries  under the trademark  AuraGen,  any  successor  thereto or any
similar,   derivative   or  related   product  line  which  may  be   developed,
manufactured,  marketed, distributed and/or sold by or for the Company or any of
its Subsidiaries.

     "AuraSound" shall mean AuraSound, Inc., a Delaware corporation.

                  "Authority"  shall  mean  any   governmental,   regulatory  or
administrative body, agency,  commission,  board,  arbitrator or authority,  any
court or  judicial  authority,  or any public,  private or  industry  regulatory
authority, whether international, national, federal, state or local.

                  "Bankruptcy  Code"  shall mean  title 11 of the United  States
Code (11  U.S.C.  ss.  101 et  seq.),  as  amended  from  time to time.  Section
references to the Bankruptcy Code are to the Bankruptcy Code as in effect on the
date of this  Agreement and any subsequent  provisions of the  Bankruptcy  Code,
amendatory thereof, supplemental thereto or substituted therefor.

     "Board of Directors" shall mean the Board of Directors of the Company.

                  "Business Day" shall mean any day except Saturday,  Sunday and
any day which shall be a legal holiday or a day on which banking institutions in
the State of New York or the State of California  are  authorized or required by
law or other government actions to close.

                  "Claim" shall mean any action, claim,  lawsuit,  demand, suit,
inquiry, hearing, investigation,  notice of a violation, litigation, proceeding,
arbitration,  appeals or other dispute, whether civil, criminal,  administrative
or otherwise.

                  "Closing" shall have the meaning given to such term in Section
2.2(a) hereof.

                  "Closing  Date" shall have the  meaning  given to such term in
Section 2.2(a) hereof.

                  "Code"  shall  mean the  Internal  Revenue  Code of  1986,  as
amended from time to time, and the  regulations  promulgated  and rulings issued
thereunder.  Section  references to the Code are to the Code as in effect at the
date of this  Agreement and any  subsequent  provisions of the Code,  amendatory
thereof, supplemental thereto or substituted therefor.

     "Collateral" shall mean all property subject to the Security Documents.

                 "Commission" shall mean the Securities and Exchange Commission.

                  "Common  Stock" shall mean shares now or hereafter  authorized
of the class of common stock of the Company, stock of any other class into which
such  shares may  hereafter  be  reclassified  or changed  and any other  equity
securities of the Company hereafter designated as common stock.

                  "Company"  shall  have the  meaning  given to such term in the
first paragraph of this Agreement.

                  "Contingent  Obligation"  shall mean,  as to any  Person,  any
obligation  of such  Person  arising  under,  pursuant  to or  derived  from any
derivatives transactions or guaranteeing any Indebtedness,  leases, dividends or
other  obligations  ("primary  obligations")  of any other Person (the  "primary
obligor") in any manner,  whether  directly or  indirectly,  including,  without
limitation,  any obligation of such Person,  whether or not  contingent,  (i) to
purchase any such primary  obligation  or any  property  constituting  direct or
indirect security therefor, (ii) to advance or supply funds (x) for the purchase
or payment of any such primary  obligation or (y) to maintain working capital or
equity capital of the primary  obligor or otherwise to maintain the net worth or
solvency  of the primary  obligor,  (iii) to purchase  property,  securities  or
services  primarily  for the purpose of assuring  the holder of any such primary
obligation of the ability of the primary obligor to make payment of such primary
obligation  or (iv)  otherwise  to assure or hold  harmless  the  holder of such
primary obligation against loss in respect thereof; provided,  however, that the
term  Contingent  Obligation  shall not include  endorsements of instruments for
deposit or  collection  in the ordinary  course of  business.  The amount of any
Contingent  Obligation  shall be deemed to be an amount  equal to the  stated or
determinable  amount  of  the  primary  obligation  in  respect  of  which  such
Contingent  Obligation  is made (subject to any  limitation  therein) or, if not
stated or determinable,  the maximum reasonably anticipated liability in respect
thereof  (assuming such Person is required to perform  thereunder) as determined
by such Person in good faith.

                  "Contract"  shall mean any  agreement,  contract,  commitment,
instrument or other binding  arrangement or  understanding,  whether  written or
oral.

                  "Conversion  Event" shall have the meaning  given to such term
in the Secured Notes.

     "CNA" shall mean American Casualty Company of Reading, Pennsylvania.

                  "CNA Restructuring  Agreement" shall mean the agreement by and
between the Company and CNA in the form of Exhibit A hereto.

                  "Date Data" shall mean any data of any type that includes date
information or which is otherwise derived from,  dependent on or related to date
information.

                  "Date-Sensitive System" shall mean any software,  microcode or
hardware  system  or  component,  including  any  electronic  or  electronically
controlled  system  or  component,  that  processes  any  Date  Data and that is
installed,  in development or on order by the Company or any of its Subsidiaries
for its  internal  use,  or that the Company or any of its  Subsidiaries  sells,
leases,  licenses,  assigns or otherwise provides, or the provision or operation
of which the Company or any of its  Subsidiaries  provides the  benefit,  to its
customers, vendors, suppliers, affiliates or any other third party.

                  "DFS" shall mean Deutsche Financial Services.

                  "DFS  Claims"  shall  mean the claims of DFS  relating  to the
obligation  of the  Company  with  respect  to debts  owed by  NewCom to DFS and
guaranteed by the Company.

                  "Disclosure Materials" shall mean, collectively,  the exhibits
and schedules to this Agreement or the other Exchange Documents  furnished by or
on behalf of the Company.

                  "ERISA" shall mean the Employee Retirement Income Security Act
of 1974,  as amended  from time to time,  and the  regulations  promulgated  and
rulings issued thereunder. Section references to ERISA are to ERISA as in effect
at the date of this Agreement and any subsequent provisions of ERISA, amendatory
thereof, supplemental thereto or substituted therefor.

                  "ERISA  Affiliate"  shall  mean each  person  (as  defined  in
Section 3(9) of ERISA) which  together  with the Company or a Subsidiary  of the
Company  would be deemed to be a "single  employer"  (i) within  the  meaning of
Section  414(b),  (c), (m) or (o) of the Code or (ii) as a result of the Company
or a Subsidiary  of the Company  being or having been a general  partner of such
person.

                  "Exchange"  shall  have  the  meaning  given  to such  term in
Section 2.2(b) hereof.

                  "Exchange  Act"  shall  mean  the  United  States   Securities
Exchange Act of 1934, as amended from time to time.
                  "Exchange   Documents"   shall  mean  and   include  (i)  this
Agreement,  (ii) the  Secured  Notes,  (iii) the  Security  Documents,  (iv) the
Guaranty, and (v) all other documents, certificates and instruments executed and
delivered in connection with any of the foregoing.

                  "Existing  Indebtedness"  shall have the meaning given to such
term in Section 4.1(l) hereof.

                  "Existing  Liens" shall have the meaning given to such term in
the Secured Notes.

                  "Existing Secured  Indebtedness"  means Existing  Indebtedness
secured by Existing Liens (other than judgment liens).

                  "Financial  Statements"  shall have the meaning  given to such
term in Section 4.1(h) hereof.

                  "Foreign  Pension Plan" shall mean any plan, fund  (including,
without   limitation,   any  superannuation   fund)  or  other  similar  program
established or maintained outside the United States of America by the Company or
any one or more of its  Subsidiaries  primarily  for the benefit of employees of
the Company or such Subsidiaries  residing outside the United States of America,
which plan, fund or other similar program  provides,  or results in,  retirement
income,  a deferral of income in  contemplation  of retirement or payments to be
made upon  termination of employment,  and which plan is not subject to ERISA or
the Code.

                  "Funds" shall have the meaning given to such term in the first
paragraph of this Agreement.

                  "GAAP" shall mean generally accepted accounting  principles in
the United States consistently applied during a relevant period.

                  "Glacier"  shall  have the  meaning  given to such term in the
first paragraph of this Agreement.

                  "Glacier  Notes" shall have the meaning  given to such term in
the second whereas clause of this Agreement.

                  "Global"  shall  have the  meaning  given to such  term in the
first paragraph of this Agreement.

                  "Global  Notes"  shall have the meaning  given to such term in
the fourth whereas clause of this Agreement.

                  "Guarantee"  shall  mean any  guarantee  or  other  Contingent
Obligation (other than any endorsement for collection or deposit in the ordinary
course of  business),  direct or indirect,  with respect to any  obligations  of
another  Person,   through  an  agreement  or  otherwise,   including,   without
limitation,  (i) any  endorsement  or  discount  with  recourse  or  undertaking
substantially  equivalent to or having economic effect similar to a guarantee in
respect of any such  obligations  and (ii) any Contract  (x) to purchase,  or to
advance or supply  funds for the payment or purchase  of, any such  obligations,
(y) to purchase,  sell or lease property,  products,  materials or supplies,  or
transportation or services,  in respect of enabling such other Person to pay any
such  obligation or to assure the owner thereof  against loss  regardless of the
delivery or  nondelivery  of the  property,  products,  materials or supplies or
transportation  or  services  or  (z) to  make  any  loan,  advance  or  capital
contribution to or other investment in, or to otherwise provide funds to or for,
such other  Person in respect of enabling  such Person to satisfy an  obligation
(including any liability for a dividend,  stock liquidation  payment or expense)
or to assure a minimum equity,  working capital or other balance sheet condition
in respect of any such obligation.

                  "Guarantor"   shall  mean  each   Subsidiary  of  the  Company
executing the Guaranty or otherwise made a party thereto in accordance  with the
terms thereof.

                  "Guaranty"  shall mean the Guaranty  executed and delivered by
the Guarantors in the form of Exhibit B hereto.

                  "Indebtedness"  shall mean, as to any Person  specified in any
provision  of  this  Agreement,   without  duplication,   (i)  all  indebtedness
(including principal,  interest,  fees and charges) of such Person (x) evidenced
by any notes,  bonds,  debentures or similar  instruments made or issued by such
Person,  (y) for  borrowed  money  or (z) for the  deferred  purchase  price  of
property or services,  (ii) the face amount of all letters of credit  issued for
the account of such Person,  (iii) all liabilities  secured by any Lien upon any
property owned by such Person, whether or not such liabilities have been assumed
by such  Person,  (iv)  the  aggregate  amount  required  to be  capitalized  in
accordance  with GAAP under leases under which such Person is the lessee and (v)
all Contingent Obligations and Guarantees of such Person.

                  "Independent  Director"  shall mean a director  of the Company
who has no  relationship  to the Company that may interfere with the exercise of
such individual's independence from the Company or its management.  For purposes
hereof,  "relationship" shall include, without limitation, (i) being employed by
the Company or any of its  Affiliates  at any time during the year in which such
individual  was elected to the Board of  Directors of the Company or at any time
during any of the three calendar years preceding the year of such election, (ii)
accepting any compensation  from the Company or any of its Affiliates other than
compensation  for board  service or benefits  under a  tax-qualified  retirement
plan,  (iii) being a member of the immediate  family of an individual who at any
time  during  the  year in which  such  director  was  elected  to the  Board of
Directors  of the  Company  is, or has been at any time  during any of the three
calendar years  preceding the year of such election,  employed by the Company or
any of its  Affiliates  as an executive  officer,  (iv) being a partner in, or a
controlling  shareholder or an executive officer of, any for-profit organization
to which the Company or any of its  Affiliates  made,  or from which the Company
received,  payments  (other than those arising  solely from  investments  in the
Company's  securities)  that exceed  five  percent  (5%) of such  organization's
consolidated  gross  revenues for that year, or $200,000,  whichever is more, at
any time during any of the three calendar  years  preceding the year of election
of the director to the Company's  Board of Directors,  and (v) being employed as
an executive of another company where any of the Company's  executives  serve on
such other company's compensation committee.

                  "Infinity"  shall have the  meaning  given to such term in the
first paragraph of this Agreement.

                  "Infinity  Notes" shall have the meaning given to such term in
the first whereas clause of this Agreement.

                  "Insider" shall have the meaning given to such term in Section
101(31) of the Bankruptcy Code.

                  "Isosceles" shall mean Isosceles Fund Ltd.

                  "JNC" shall mean JNC  Opportunity  Fund Ltd., a Cayman Islands
limited duration company.

                  "Lien" shall mean,  with respect to any asset,  any  mortgage,
lien, pledge,  encumbrance,  right of first refusal, charge or security interest
of any kind in or on such asset or the revenues or income thereon or therefrom.

                  "Margin  Stock"  shall  mean  "margin  stock"  as such term is
defined  under  Regulation U of the Board of  Governors  of the Federal  Reserve
System, as in effect from time to time.

                  "Material  Adverse  Effect"  shall mean,  with  respect to the
Company and its  Subsidiaries  taken as a whole,  any material adverse effect on
the  ability  of the  Company  or  the  Subsidiaries  to  perform  any of  their
obligations under any Exchange Document.

                  "Maturity  Date" shall have the meaning  given to such term in
Section 2.1(e)(A) hereof.

                "NEC" shall mean NEC Technologies, Inc., a Delaware Corporation.

     "New Equity" shall have the meaning set forth in Section 3.14 hereof.

                  "NewCom" shall mean NewCom, Inc., a Delaware corporation.

                  "NewCom  Note"  shall have the  meaning  given to such term in
Section 4.1(ff) hereof.

                  "Obligations"  shall mean all present and future  obligations,
liabilities  and other  amounts  owing to any Fund pursuant to the terms of this
Agreement or any other Exchange Document.

                  "Option" shall mean any subscription,  option, warrant, right,
security, Contract, commitment,  understanding,  or stock appreciation,  phantom
stock option,  profit participation or arrangement by which the Company is bound
to issue any additional  shares of its capital stock or rights pursuant to which
any Person has a right to purchase shares of the Company's capital stock.

                  "Order" shall mean any decree,  order,  judgment,  injunction,
rule, ruling, Lien, voting right, or consent of or by an Authority.

                  "Original Notes" shall have the meaning given that term in the
fourth whereas clause of this Agreement.

     "OSHA" shall mean the Occupational Safety and Health Administration.

     "Patents" shall have the meaning given that term in the Security Agreement.

                  "PBGC"  shall mean the Pension  Benefit  Guaranty  Corporation
established pursuant to Section 4002 of ERISA, or any successor thereto.

                  "Permits"  shall mean all  permits,  licenses,  registrations,
certificates, Orders or approvals from any Authority or other Person (including,
without  limitation,  those  relating to the occupancy or use of owned or leased
real property) issued to or held by the Company.

                  "Permitted Liens" shall have the meaning given to such term in
the Secured Notes.

                  "Person"   shall  mean  an   individual   or  a   corporation,
partnership,  trust, incorporated or unincorporated association,  joint venture,
limited  liability  company,  joint stock  company,  government (or an agency or
political subdivision thereof) or other entity of any kind.

                  "Plan"  shall mean any pension plan as defined in Section 3(2)
of ERISA  which is  maintained  or  contributed  to by (or to which  there is an
obligation  to  contribute  of) the Company or a Subsidiary of the Company or an
ERISA  Affiliate,  and each  such  plan  for the  five-year  period  immediately
following  the latest date on which the Company,  or a Subsidiary of the Company
or an  ERISA  Affiliate  maintained,  contributed  to or  had an  obligation  to
contribute to such plan.

                  "Pledged  Stock" shall have the meaning  given to such term in
the Stock Pledge Agreement.

                  "Process  Agent" shall mean CT Corporation  System,  presently
located at 111 Eighth Avenue, New York, New York 10011.

                  "Proprietary  Rights"  shall  mean  all  (i)  patents,  patent
applications,    patent    disclosures    and    all    related    continuation,
continuation-in-part,   divisional,  reissue,  reexamination,   utility,  model,
certificate of invention and design patents, patent applications,  registrations
and applications for registrations, (ii) trademarks, service marks, trade dress,
logos,  trade names and corporate names and  registrations  and applications for
registration  thereof,  (iii) copyrights and  registrations and applications for
registration  thereof,  (iv) mask works and  registrations  and applications for
registration thereof, (v) computer software, data and documentation,  (vi) trade
secrets  and   confidential   business   information,   whether   patentable  or
unpatentable and whether or not reduced to practice, know-how, manufacturing and
production  processes  and  techniques,  research and  development  information,
copyrightable  works,  financial,  marketing and business data, pricing and cost
information,  business and marketing  plans and customer and supplier  lists and
information, (vii) other proprietary rights relating to any of the foregoing and
(viii) copies and tangible embodiments thereof.

                  "Prospectus"   shall  mean  the   prospectus   included  in  a
Registration Statement,  including any prospectus subject to completion, and any
such  Prospectus as amended or  supplemented  by any prospectus  supplement with
respect to the terms of the  offering  of any portion of the Shares and, in each
case, by all other  amendments  and  supplements to such  prospectus,  including
post-effective  amendments, and in each case including all material incorporated
by reference therein.

                  "Purchasers"  shall have the meaning given to such term in the
fifth whereas clause of this Agreement.

                  "Registration Statement" shall mean any registration statement
of  the  Company  which  covers  any of  the  Shares,  and  all  amendments  and
supplements  to  any  such  Registration  Statement,   including  post-effective
amendments,  in each  case  including  the  Prospectus  contained  therein,  all
exhibits thereto and all material incorporated by reference therein.

                  "Regulation"   shall  mean  any  rule,  law,  code,   statute,
regulation, ordinance,  requirement,  announcement or other binding action of or
by an Authority.

                  "Reportable  Event"  shall mean an event  described in Section
4043(c)  of ERISA  with  respect  to a Plan that is subject to Title IV of ERISA
other than those  events as to which the 30-day  notice  period is waived  under
subsection .22, .23, .25, .27 or .28 of PBGC Regulation Section 4043.

                  "Restructured  NEC Debt" shall have the meaning  given to such
term in Section 3.13(d) hereof.

                  "Restructured Trade Debt" shall have the meaning given to such
term in Section 3.13(c) hereof.

                  "Restructuring"  shall have the meaning  given to such term in
the sixth whereas clause of this Agreement.

                  "Rose Glen"  shall mean RGC  International  Investors,  LDC, a
limited duration company of the Cayman Islands.

     "SEC Documents" shall have the meaning set forth in Section 4.1(y) hereof.

                  "Secured  Notes"  shall  mean the  Secured  Notes of even date
herewith  issued to the Funds  pursuant to this  Agreement  in exchange  for the
Original Notes held by the Funds after giving effect to the  Assignment,  in the
form of Exhibit C hereto.

     "Securities  Act" shall mean the United States  Securities  Act of 1933, as
amended from time to time.

                  "Security  Agreement" shall mean the Security  Agreement to be
executed and delivered by the Company in the form of Exhibit D hereto.

                  "Security  Documents"  shall mean (i) the Security  Agreement,
(ii) the Stock Pledge Agreement, and (iii) all other documents, certificates and
instruments executed and delivered in connection with any of the foregoing.

                  "Shares" shall mean shares of Common Stock issued to the Funds
upon conversion of the Secured Notes or exercise of the Warrants.

                  "Stock Pledge Agreement" shall mean the Stock Pledge Agreement
to be executed and delivered by the Company in the form of Exhibit E hereto.

                  "Subsidiaries"  has the meaning  given to such term in Section
4.1(a) hereof;  provided,  however, that, for purposes of this Agreement and the
other Exchange Documents, the term "Subsidiaries" shall not include NewCom.

                  "Summit"  shall  have the  meaning  given to such  term in the
first paragraph of this Agreement.

                  "Summit  Notes"  shall have the meaning  given to such term in
the third whereas clause of this Agreement.

                  "Taxes" shall mean any taxes,  including,  without limitation,
income, gross receipts, net proceeds, alternative or add-on minimum, ad valorem,
value added,  turnover,  sales, use,  property,  personal property (tangible and
intangible),  stamp, leasing,  lease, user, excise, duty,  franchise,  transfer,
license,  withholding,  payroll,  employment,  foreign,  fuel,  excess  profits,
occupational and interest equalization,  windfall profits,  severance, and other
charges (including interest and penalties).

                  "UCC" shall mean the Uniform  Commercial  Code as from time to
time in effect in the relevant jurisdiction.

                  "Unfunded  Current  Liability"  of any  Plan  shall  mean  the
amount,  if any, by which the value of the  accumulated  plan benefits under the
Plan  determined  on a plan  termination  basis  in  accordance  with  actuarial
assumptions  at such  time  consistent  with  those  prescribed  by the PBGC for
purposes of Section  4044 of ERISA,  exceeds  the fair market  value of all plan
assets  allocable to such  liabilities  under Title IV of ERISA  (excluding  any
accrued but unpaid contributions).

                  "Warrants"  shall mean the  Warrants of even date  herewith to
purchase  Common  Stock at an exercise  price of $0.375 per share in the form of
Exhibit F hereto.

                  "Working  Capital   Indebtedness"   shall  mean   Indebtedness
incurred by the Company or its  Subsidiaries  for working capital  purposes,  on
commercially reasonable terms, in arm's length transactions and approved in each
case by no less than  two-thirds  (2/3) of the Board of Directors of the Company
prior to the incurrence thereof.

                  "Year  2000  Compliant"  shall  mean (i) with  respect to Date
Data,  that such  data is in proper  format  and  accurate  for all dates in the
twentieth and twenty-first  centuries,  and (ii) with respect to  Date-Sensitive
Systems, that each such system accurately processes all Date Data, including for
the twentieth and twenty-first  centuries,  without loss or any functionality or
performance,  including but not limited to calculating,  comparing,  sequencing,
storing and displaying such Date Data (including all leap year  considerations),
when used as a  stand-alone  system or in  combination  with other  software  or
hardware.

                  1.2.     Principles of Construction.

                  (a) All references to sections,  schedules and exhibits are to
sections,  schedules  and  exhibits  in or to this  Agreement  unless  otherwise
specified.  The words  "hereof,"  "herein" and  "hereunder" and words of similar
import when used in this Agreement  shall refer to this Agreement as a whole and
not to any particular provision of this Agreement.

                  (b) All accounting terms not specifically defined herein shall
be  construed  in  accordance  with GAAP in  conformity  with  those used in the
preparation of the financial statements described in Section 4.1(h) hereof.

                  SECTION 2.        The Exchange.

     2.1. Issuance of Secured Notes and Exchange of Original Notes.

                  (a) Infinity. Subject to the terms and conditions set forth in
this  Agreement,  the Company  shall,  at the Closing,  issue and deliver to the
Agent for the account of Infinity (i) one or more Secured  Notes,  substantially
in the form of  Exhibit C hereto,  in an  aggregate  principal  amount  equal to
$10,411,928, and (ii) one or more Warrants, substantially in the form of Exhibit
F hereto,  to purchase  83,296 Shares of Common Stock,  against  delivery of the
Infinity Notes held by Infinity after giving effect to the Assignment.

                  (b) Glacier.  Subject to the terms and conditions set forth in
this  Agreement,  the Company  shall,  at the Closing,  issue and deliver to the
Agent for the account of Glacier (i) one or more Secured Notes, substantially in
the form of Exhibit C hereto, in an aggregate principal amount equal to $838,680
and (ii) one or more Warrants, substantially in the form of Exhibit F hereto, to
purchase  6,709 Shares of Common  Stock,  against  delivery of the Glacier Notes
held by Glacier after giving effect to the Assignment.

                  (c) Summit.  Subject to the terms and  conditions set forth in
this  Agreement,  the Company  shall,  at the Closing,  issue and deliver to the
Agent for the account of Summit (i) one or more Secured Notes,  substantially in
the form of Exhibit C hereto, in an aggregate principal amount equal to $838,680
and (ii) one or more Warrants, substantially in the form of Exhibit F hereto, to
purchase 6,709 Shares of Common Stock, against delivery of the Summit Notes held
by Summit after giving effect to the Assignment.

                  (d) Global.  Subject to the terms and  conditions set forth in
this  Agreement,  the Company  shall,  at the Closing,  issue and deliver to the
Agent for the account of Global (i) one or more Secured Notes,  substantially in
the form of Exhibit C hereto, in an aggregate principal amount equal to $410,712
and (ii) one or more Warrants, substantially in the form of Exhibit F hereto, to
purchase 3,286 Shares of Common Stock, against delivery of the Global Notes held
by Global after giving effect to the Assignment.

                  (e) General Terms and  Conditions of the Secured  Notes.  Each
Secured  Note  shall  contain,  without  limitation,  the  following  terms  and
conditions:

                           (A) Principal under each Secured Note shall mature on
         November 30, 2002 (the "Maturity Date");

                           (B) Unpaid  principal  amount under each Secured Note
         shall  bear  interest  at the rate of  eight  percent  (8%)  per  annum
         (computed on the basis of a 360-day year of 30-day  months) and, to the
         extent  permitted  by law,  any overdue  amount  thereunder  shall bear
         interest at the rate of sixteen percent (16%) per annum;

                           (C) Each Secured Note shall be convertible,  in whole
         or in part (at the election of the holder  thereof),  into Common Stock
         of the  Company  at a price of $0.60 per Share (or $0.30 per Share upon
         certain conditions  thereof) upon the occurrence of a Conversion Event;
         and

                           (D) The  Company  shall  have  the  right  to  prepay
         amounts due under each  Secured  Note at any time,  without  premium or
         penalty,  in an aggregate  principal amount of at least  $1,000,000.00,
         together  with  interest  accrued  as of the  date of such  prepayment;
         provided,  however,  that, with respect to any applicable prepayment in
         accordance with the terms thereof, the principal  outstanding amount of
         such Secured Note shall be reduced by an amount equal to the sum of the
         principal so prepaid and the Applicable Discount.

                  (f) Funds' Rights  Absolute.  Nothing in this  Agreement or in
any other  Exchange  Document  shall  interfere  with the rights of the Funds to
determine and allocate among  themselves the Original  Notes,  the Secured Notes
and the Warrants  which are the subject of the  Exchange  referred to in Section
2.2 hereof in such manner as they deem fit.

                  2.2.     Closing.

                  (a) The closing of the transactions  contemplated  hereby (the
"Closing")  shall take place at the offices of White & Case LLP,  633 West Fifth
Street, Suite 1900, Los Angeles, California 90071-2007 on February 24, 2000 (the
"Closing Date"), or at such other time and/or place as the Funds and the Company
may agree in writing; provided, however, that if the Closing has not occurred by
the Closing Date,  this  Agreement  shall  automatically  terminate and be of no
further force and effect unless extended by the parties hereto in writing.

                  (b) At the Closing,  (i) the Company  shall deliver (A) to the
Agent for the  account of each Fund,  the Secured  Notes and the  Warrants to be
issued and delivered to such Fund as specified in Section 2.1 hereto, and (B) to
the persons  entitled  thereto,  all other  documents,  instruments and writings
required  to have  been  delivered  at or prior to the  Closing  by the  Company
pursuant to this Agreement;  and (ii) each Fund shall deliver to the Company (A)
the  Original  Notes  held by it  after  giving  effect  to the  Assignment,  as
specified  in Section  2.1,  and (B) all  documents,  instruments  and  writings
required to have been delivered at or prior to the Closing by such Fund pursuant
to this Agreement (collectively, the "Exchange").

                  SECTION 3. Conditions  Precedent.  The obligation of each Fund
to make  the  Exchange  on the  Closing  Date  is  subject,  at the  time of the
Exchange,  to the  satisfaction  of the following  conditions on or prior to the
Closing Date (unless waived in writing by the Agent on behalf of the Funds on or
prior to the Closing Date):

                  3.1.  Execution  of  Agreement.  The  Closing  Date shall have
occurred,  and the Company shall have delivered the Disclosure  Materials to the
Funds (in form and substance  satisfactory to the Agent),  and the parties shall
have executed the Exchange Documents.

                  3.2. Issuance and Delivery of Secured Notes and Warrants.  The
Company  shall have  issued and  delivered  to the Agent for the account of each
Fund appropriate Secured Notes and Warrants in the amount, with the maturity and
as otherwise provided herein.

                  3.3.     Security Documents.

                  (a) The  Company  shall  have duly  authorized,  executed  and
delivered the Stock Pledge Agreement, together with satisfactory evidence of all
annotations  in the stock  ledger of each of the  issuers of the  Pledged  Stock
referred to therein necessary to grant in favor of the Agent a security interest
in, and Lien on, all of the Pledged Stock in accordance with and pursuant to the
terms of the Stock Pledge Agreement.

                  (b) The  Company  shall  have duly  authorized,  executed  and
delivered  the  Security  Agreement,  covering all of the  Collateral  described
therein, and the Agent shall have received:

                           (A)   acknowledgment   copies  of  proper   financing
         statements  (Form UCC-1) duly filed under the UCC of each  jurisdiction
         as may be  necessary  or, in the  opinion  of the Agent,  desirable  to
         perfect the security interests  purported to be created by the Security
         Documents;

                           (B) copies of requests for information (Form UCC-11),
         or equivalent reports,  listing the financing statements referred to in
         clause (A) above and all other effective financing statements that name
         the Company as debtor and that are filed in the jurisdictions  referred
         to in said clause  (A),  together  with copies of such other  financing
         statements  (none of which  shall  cover the  Collateral  except to the
         extent evidencing Permitted Liens);

                           (C)   evidence  of  the   completion   of  all  other
         recordings  and filings of, or with respect to, the Security  Agreement
         as may be  necessary  or, in the  opinion  of the Agent,  desirable  to
         perfect the security interests  purported to be created by the Security
         Documents; and

                           (D) evidence that all other actions  necessary or, in
         the reasonable  opinion of the Agent,  desirable to perfect and protect
         the  security  interests  purported  to  be  created  by  the  Security
         Documents have been taken.

                  (c)  Each  of  the  Guarantors  shall  have  duly  authorized,
executed and delivered the Security  Agreement,  covering all of the  Collateral
described therein, and the Agent shall have received:

                           (A)   acknowledgment   copies  of  proper   financing
         statements  (Form UCC-1) duly filed under the UCC of each  jurisdiction
         as may be  necessary  or, in the  opinion  of the Agent,  desirable  to
         perfect the security interests  purported to be created by the Security
         Documents;

                           (B) copies of requests for information (Form UCC-11),
         or equivalent reports,  listing the financing statements referred to in
         clause (A) above and all other effective financing statements that name
         each  Guarantor  as  debtor  and  that are  filed in the  jurisdictions
         referred  to in said  clause  (A),  together  with copies of such other
         financing  statements (none of which shall cover the Collateral  except
         to the extent evidencing Permitted Liens);

                           (C)   evidence  of  the   completion   of  all  other
         recordings  and filings of, or with respect to, the Security  Agreement
         as may be  necessary  or, in the  opinion  of the Agent,  desirable  to
         perfect the security interests  purported to be created by the Security
         Documents; and

                           (D) evidence that all other actions  necessary or, in
         the reasonable  opinion of the Agent,  desirable to perfect and protect
         the  security  interests  purported  to  be  created  by  the  Security
         Documents have been taken.

                  3.4. Issuance of Shares of Aura Realty. Aura Realty shall have
issued  shares of its capital  stock to the Company  representing  the Company's
100% ownership interest in Aura Realty.

     3.5.  Guaranty.  The Subsidiaries  (other than Aura Realty) shall have duly
authorized, executed and delivered the Guaranty.

                  3.6. Proceedings.  The Agent shall have received all corporate
and legal instruments and agreements required to be delivered in connection with
the  transactions  contemplated by the Exchange  Documents in form and substance
satisfactory to the Agent in all respects, and the Agent shall have received all
information  and  copies of all  documents  and  papers,  including  records  of
corporate and legal proceedings, governmental and third-party approvals, if any,
which the Agent reasonably may have requested in connection therewith,  and such
other  documents  and  papers  where  appropriate  to  be  certified  by  proper
corporate, governmental or other Authorities.

                  3.7. No Default;  Representations and Warranties.  At the time
of the Exchange (and after giving effect thereto) (i) there shall exist no Event
of Default and (ii) all  representations  and  warranties of the Company and its
Subsidiaries  contained  herein  or in  any  other  Exchange  Document  and  all
information contained in the Disclosure Materials delivered by, or on behalf of,
the Company,  shall be true and correct in all material  respects  with the same
effect as though such  representations and warranties had been made on and as of
the Closing  Date,  except as  expressly  provided  herein.  The Company and its
Subsidiaries  shall have performed and complied with all  agreements,  covenants
and  conditions  required by this Agreement to be performed and complied with by
it on or prior to the Closing Date.

                  3.8.     Sale of Assigned Notes; Conversion of Assigned Notes.

                  (a) The Funds and the  Purchasers  shall have entered into the
Assignment,  and the Funds shall have irrevocably received in the aggregate from
the  Purchaser,  in respect of the Assigned  Notes,  (i) by wire transfer to the
account  designated  in writing by the Agent,  the Cash  Payment in  immediately
available funds,  (ii) good and marketable  title to the Acquired Shares,  which
Acquired Shares shall be fully paid, non-assessable, free and clear of all liens
and  encumbrances,  and freely  transferable by the Funds immediately upon their
receipt thereof,  and the certificates of which shall have been duly endorsed by
the  Purchaser  in the  manner  required  by the  Funds  and  shall not bear any
restrictive  legend with respect to such Acquired Shares or the transfer thereof
and (iii) an opinion of Michael Froch, Esquire,  general counsel to the Company,
substantially in the form of Exhibit G hereto, confirming the foregoing and such
other  matters  as the Funds may  require,  which  opinion  shall be in form and
substance satisfactory to the Agent.

                  (b) The  Purchasers  shall have  converted the Assigned  Notes
into  Common  Stock of the  Company  (proof of which is set  forth in  Exhibit M
hereto).

                  3.9.  Opinion of  Counsel.  The Agent  shall have  received an
opinion  addressed  to the  Agent,  and dated the  Closing  Date,  from  Guzik &
Associates,  counsel  to the  Company,  substantially  in the form of  Exhibit H
hereto covering such matters as the Agent shall reasonably request in accordance
with customary practices in transactions of this nature.

                  3.10.  Consent Letter.  The Agent shall have received a letter
from the Company,  substantially in the form of Exhibit I hereto, indicating its
appointment  of the Process  Agent as its agent to accept  service of process in
connection  with  the  transactions  contemplated  by  the  Exchange  Documents,
together with the  countersignature  of the Process Agent indicating its consent
to serve in such capacity.

                  3.11.  Compliance  with  Applicable  Law.  The  Agent  and its
counsel shall be reasonably  satisfied that the Exchange and the consummation of
the transactions  contemplated hereby shall be in compliance with all applicable
law.

                  3.12. Litigation. No litigation,  action, suit, investigation,
claim  or  proceeding  shall be  pending  or  threatened  with  respect  to this
Agreement or any other Exchange Document or the transactions contemplated hereby
or thereby or,  except for the DFS Claims,  which has,  or could  reasonably  be
expected to have, a Material Adverse Effect.

                  3.13.    Indebtedness.

                  (a) The Company shall not have any outstanding liabilities for
Indebtedness  materially  different  from  those set forth on  Schedule  3.13(a)
hereto.

                  (b) All  unsecured  Indebtedness  of the Company for  borrowed
money (including,  without limitation,  Indebtedness owed to JNC and all holders
of the  Company's  8%  Secured  Convertible  Non-Recourse  Notes  Due  2008,  as
modified,  supplemented  or amended from time to time in accordance with Section
3.21 of the Secured  Notes),  all unsecured  Indebtedness  owed to the Company's
management  (except as set forth in Schedule 3.13(b)  hereto),  all Indebtedness
evidenced  by the  Assigned  Notes,  and all  Indebtedness  of the  Company  for
borrowed money which is not set forth in Schedule  3.13(a)  (including,  without
limitation,  any  Indebtedness  for borrowed money owed by the Company or any of
its  Subsidiaries to Algo  Technologies,  Inc.,  Maurice Zeitlin or any of their
respective  Affiliates) in each case  outstanding on or before the Closing Date,
shall have been  converted  into  Common  Stock  (proof of which is set forth in
Exhibit W hereto).

                  (c) At least ninety percent (90%) of the Company's  trade debt
as of July 26, 1999 (as set forth in Schedule  3.13(c)  hereto)  shall have been
restructured (each such restructured trade debt, a "Restructured Trade Debt") to
provide  for  payments  in  full  in  cash by the  Company  in  respect  of each
Restructured  Trade Debt  payable over a period of not less than three (3) years
commencing from January 1, 2000. The documentation relating to each Restructured
Trade Debt and the terms and  conditions  thereof  shall be as specified in that
certain Payment Agreement dated as of January 1, 2000 by and between the Company
and Credit  Managers  Association of California  (as agent for the  Restructured
Trade Debt) and the Ballot and  Acceptance of Plan for Repayment of Creditors of
Aura Systems,  Inc. dated on or about July 26, 1999 in the form attached  hereto
as Exhibit J.

                  (d)  All  obligations  relating  to any  Indebtedness  owed by
NewCom to NEC and guarantied by the Company shall have been  restructured  (such
restructured  debt, the  "Restructured  NEC Debt") pursuant to a valid,  binding
written  agreement   executed  by  NEC.  The   documentation   relating  to  the
Restructured  NEC Debt and the terms and conditions  thereof shall be reasonably
acceptable to the Funds and attached hereto as Exhibit O.

                  3.14.  New Equity.  The Company shall have received new equity
contributions in cash in an amount of not less than $6,800,000.00 ("New Equity")
in exchange for new Common Stock.

                  3.15.  Governmental and Third-Party Approvals.  The Agent, the
Funds and the  Company  shall have  obtained  any and all  consents,  approvals,
Orders,  qualifications,  licenses,  Permits or other authorizations required by
all  applicable  Regulations,  Orders and Contracts of the Company or binding on
any of its  properties  or assets with  respect to the  execution,  delivery and
performance of this Agreement, the consummation of the transactions contemplated
herein (other than the filing and  effectiveness of the  Registration  Statement
relating to the resale of the  Shares)  and the  conduct of the  business of the
Company in the same manner  after the Closing  Date as before the Closing  Date,
including,  without limitation,  the consent of Rose Glen to the granting by the
Company of the Liens provided for in the Security Documents  (attached hereto as
Exhibit P).

                  3.16. Releases.  The Company shall have executed and delivered
releases  to the  Funds in the form of  Exhibit  K hereto  with  respect  to all
matters prior to the Closing  Date.  The Funds shall have executed and delivered
releases  to the  Company  in the form of Exhibit L hereto  with  respect to all
matters prior to the Closing Date; provided,  however, that such releases by the
Funds shall not (a)  preclude  the Funds from  asserting  any and all matters in
connection with the appointment of a bankruptcy trustee,  examiner,  receiver or
responsible person for the Company or any of its Subsidiaries in any bankruptcy,
insolvency or other proceeding involving the Company or any of its Subsidiaries,
or (b)  include  any and all claims or causes of action of the Funds of whatever
character  or  nature,  at law or in equity,  arising  from,  related  to, or in
connection with any payments,  conveyances or transfers of assets or property by
the  Company  to  any  Person,  including,  without  limitation,  to  any of its
officers, directors, subsidiaries, affiliates or Insiders.

                  3.17. No Material Adverse Change.  Nothing shall have occurred
since the Closing  Date (and the Funds  shall have  become  aware of no facts or
conditions not previously  known) which has, or could  reasonably be expected to
have, a Material Adverse Effect.

                  3.18.   Ranking.   The  Agent  shall  be  satisfied  that  the
Obligations  under  and in  accordance  with the  Secured  Notes  and the  other
Exchange  Documents  constitute  and  will  constitute   unconditional   secured
Indebtedness of the Company and the Guarantors and, with respect to the Company,
Aura  Ceramics and Aura Sound,  shall rank and will rank (i) at least pari passu
in  priority  of payment and in all other  respects  with all other  present and
future secured  Indebtedness  of such Persons  subject to the priority rights of
holders of (A) Existing Secured Indebtedness as of the Closing Date as set forth
in Schedule  3.18(i)(A)  hereto,  (B) validly created and fully perfected senior
secured  Indebtedness  permitted under Sections 4.5(c) and 4.5(d) of the Secured
Notes incurred by the Company after the Closing Date, and (C) obligations of the
Company,  Aura  Ceramics,  Aura Sound  existing on the Execution Date secured by
valid and perfected judgment liens against such Persons as set forth in Schedule
3.18(i)(C);  provided,  however,  that the Company may supplement  such Schedule
3.18(i)(C) to reflect judgment liens validly created and fully perfected through
the  Closing  Date  which the  Company  had no  knowledge  of and which were not
identified in UCC certificates set forth in such Schedule  3.18(i)(C),  and (ii)
senior to all other Indebtedness of such Persons.

                  3.19. Payments.  All fees, expenses and other amounts required
to be paid on or prior to the Closing  Date under this  Agreement  and the other
Exchange Documents shall have been paid.

                  3.20.  AuraGen  Patents.  The Agent  shall  have  received  an
opinion dated February 18, 2000, from Blakely Sokoloff, Taylor & Zafman, counsel
to the  Company,  substantially  in the form of Exhibit Q hereto with respect to
the Company's ownership of the AuraGen Patents.

The consummation of the Exchange shall constitute a representation  and warranty
by the Company to the Agent and each of the Funds that all conditions  specified
in this Section 3 have been fulfilled in accordance  with the terms hereof.  All
of the Secured Notes, Warrants, certificates, legal opinions and other documents
referred to in this Section 3, unless otherwise specified, shall be delivered to
the Agent for the  account  of each of the Funds  and,  except  for the  Secured
Notes,  in  sufficient  counterparts  or copies for each of the Funds and shall,
unless otherwise specified, be in form and substance satisfactory to the Agent.

                  SECTION 4.        Representations and Warranties.

                  4.1.  Representations  and Warranties of the Company. In order
to  induce  the  Funds to enter  into this  Agreement  and to make the  Exchange
provided for herein, the Company makes the following representations, warranties
and  agreements  each as of the Closing Date unless  otherwise  specified by the
terms  thereof,  all of which shall  survive the  execution and delivery of this
Agreement and the other  Exchange  Documents and the occurrence of the Exchange,
with the occurrence of the Exchange being deemed to constitute a  representation
and warranty  that the matters  specified in this Section 4 are true and correct
in all material  respects on and as of the Closing Date (it being understood and
agreed,  however, that any representation or warranty which by its terms is made
as of a specified  date shall be required to be true and correct in all material
respects only as of such specified date):

                  (a)  Corporate  Status.  The  Company is a  corporation,  duly
incorporated,  validly existing and in good standing under the laws of the State
of Delaware, with the requisite corporate power and authority to own and use its
properties  and assets and to transact  the  business in which it is engaged and
presently proposes to engage. Aura Ceramics is a corporation, duly incorporated,
validly  existing and in good standing  under the laws of the State of Delaware,
with the requisite  corporate  power and authority to own and use its properties
and assets and to transact  the  business  in which it is engaged and  presently
proposes to engage.  AuraSound  is a  corporation,  duly  incorporated,  validly
existing and in good standing under the laws of the State of Delaware,  with the
requisite corporate power and authority to own and use its properties and assets
and to transact  the business in which it is engaged and  presently  proposes to
engage. The Company has no subsidiaries or equity investment in any other Person
other than as set forth in Schedule  4.1(a),  Schedule  4.1(h)(a)  and  Schedule
4.1(y) hereto  (collectively,  the  "Subsidiaries"),  and  certificates  of good
standing for each of the Company,  Aura  Ceramics and AuraSound are set forth in
Schedule 4.1(a) hereto.

                  (b) Corporate  Power and Authority;  Enforcement.  Each of the
Company,  Aura  Ceramics and AuraSound  has the  requisite  corporate  power and
authority  to execute,  deliver and  perform  the terms and  provisions  of each
Exchange  Document to which it is a party and has taken all necessary  corporate
action to  authorize  the  execution,  delivery  and  performance  by it of such
Exchange  Document.  Each of the Company,  Aura  Ceramics and AuraSound has duly
executed and delivered each Exchange  Document to which it is a party,  and each
such Exchange Document  constitutes the legal,  valid and binding  obligation of
the Company,  Aura Ceramics and  AuraSound  enforceable  in accordance  with its
terms,  except to the extent that the  enforceability  thereof may be limited by
applicable bankruptcy,  insolvency,  reorganization,  moratorium, liquidation or
similar laws relating to, or affecting  generally the enforcement of, creditors'
rights and  remedies or by other  equitable  principles  of general  application
(regardless of whether enforcement is sought in equity or at law).

                  (c)  Capitalization.  The  authorized,  issued and outstanding
capital  stock of the  Company  and its  Subsidiaries  is set forth on  Schedule
4.1(c) hereto (as may be  supplemented  in  accordance  with Section 3.19 of the
Secured Notes).  No shares of Common Stock are entitled to preemptive or similar
rights. Except for the Secured Notes and as otherwise  specifically disclosed in
Schedule  4.1(c) hereto,  there are no  outstanding  Options,  warrants,  script
rights  to  subscribe  to,  calls or  commitments  of any  character  whatsoever
relating  to,  or  securities,   rights  or  obligations   convertible  into  or
exchangeable  for, or giving any Person any right to  subscribe  for or acquire,
any  shares of  capital  stock of the  Company  or any of its  Subsidiaries,  or
contracts, commitments,  understandings, or arrangements by which the Company or
any  Subsidiary  is or may  become  bound to issue  additional  shares of Common
Stock, or securities or rights convertible or exchangeable into shares of Common
Stock.  Neither the Company,  Aura Ceramics nor AuraSound is in violation of any
of the provisions of its  respective  certificate  of  incorporation,  bylaws or
other charter or similar organizational documents.

                  (d) Validity of the Original  Notes.  On the Closing Date, the
Original  Notes  represent  valid and binding  obligations of the Company to the
Funds  which  are  due  and  payable  in  the  aggregate   amount  of  at  least
$16,500,000.00,  including interest thereon, enforceable pursuant to their terms
and which are not  subject  to  setoff,  recoupment,  or any  other  defense  or
counterclaim.

                  (e) Issuance of Secured Notes and Warrants.  The Secured Notes
and Warrants have been duly and validly authorized for issuance pursuant to this
Agreement  and,  when issued and  delivered as provided  hereunder in accordance
with the terms  hereof,  shall be valid and binding  obligations  of the Company
enforceable in accordance with their terms free and clear of all Liens.

                  (f)  No  Violation.   Neither  the   execution,   delivery  or
performance  by the Company of the Secured  Notes or Warrants or of the Company,
Aura Ceramics or AuraSound of any of the other Exchange Documents nor compliance
by any of them  with the  terms  and  provisions  hereof  and  thereof,  nor the
consummation  of the  transactions  contemplated  hereby  or  thereby,  will (i)
contravene any applicable provision of any law, statute, rule or regulation,  or
any order, writ, judgment,  injunction, decree or other restriction of any court
or Authority (including Federal and state securities laws and regulations), (ii)
conflict or be inconsistent  with, or result in any breach of, any of the terms,
covenants,  conditions  or  provisions  of, or constitute a default (or an event
which with  notice or lapse of time or both would  become a default)  under,  or
give  to  others  any  rights  of   termination,   amendment,   acceleration  or
cancellation  of, or result in the creation or imposition of (or the  obligation
to create or impose) any Lien upon any of the property or assets of the Company,
Aura  Ceramics or AuraSound  pursuant to the terms of any  indenture,  mortgage,
deed of trust, loan agreement, credit agreement or any other material agreement,
Contract or  instrument  to which the Company,  Aura  Ceramics or AuraSound is a
party or by which it or any of its  property or assets is bound,  affected or to
which it may be subject (but not  including any default  arising under  Existing
Secured  Indebtedness  of the Company  owed to Imperial  Bank as a result of the
granting of Liens under the Security Documents in respect of the Secured Notes),
or (iii)  conflict  or be  inconsistent  with or violate  any  provision  of the
certificate of incorporation,  bylaws or other charter or similar organizational
document (each as amended through the date hereof) of the Company, Aura Ceramics
or AuraSound.  The businesses of the Company and its Subsidiaries have not been,
and are not  currently  being,  conducted in violation of any law,  ordinance or
regulation of any Authority, except for violations which, individually or in the
aggregate,  do not have, or could not reasonably be expected to have, a Material
Adverse Effect.

                  (g) Consents and Approvals. No consent, waiver,  authorization
or order of, or any filing or  registration  with,  any court or other  federal,
state, local or other governmental Authority or other Person (except (A) as have
been  obtained or made on or prior to the Closing  Date and which remain in full
force and effect on such date and (B) for the filing  and  effectiveness  of the
Registration  Statement  relating  to the resale of the  Shares) is  required to
authorize,  or is required in connection  with, (i) the execution,  delivery and
performance  of any Exchange  Document or (ii) the legality,  validity,  binding
effect or enforceability of any such Exchange Document.

     (h) Financial  Statements;  Financial Condition;  Undisclosed  Liabilities;
Projections; etc.

                           (A) The audited consolidated  year-end balance sheets
         of the Company for each of the fiscal years ended February 28, 1998 and
         1997 and  related  consolidated  statements  of  income,  cash flow and
         shareholders' equity of the Company and its Subsidiaries for the fiscal
         years  ended on such  dates,  copies  of which are  attached  hereto as
         Schedule 4.1(h)(A) (collectively,  the "Financial Statements"),  fairly
         present the financial  condition of the Company and its Subsidiaries as
         of such dates and the  consolidated  results of the  operations  of the
         Company  and  its  Subsidiaries  for  such  fiscal  years.  All  of the
         foregoing  financial  statements  have been  prepared (i) in accordance
         with GAAP (except as stated  therein or in the notes  thereto) and (ii)
         from the books and records of the  Company,  except that the  unaudited
         financial  statements  have no notes  attached  thereto and do not have
         year-end adjustments (none of which would be recurring). All properties
         used  in  the  Company's  business  operations  as  of  each  Financial
         Statement date are reflected in the Financial  Statements in accordance
         with and to the extent required by GAAP.

                           (B) On and as of the  Closing  Date and after  giving
         effect  to the  Exchange,  the  Restructuring  and to all  Indebtedness
         (including  under the Exchange  Documents) being incurred or assumed by
         the Company and its Subsidiaries in connection  therewith,  (i) the sum
         of the tangible and  intangible  assets,  at a fair  valuation,  of the
         Company and Aura Ceramics on a stand-alone basis and of the Company and
         its  Subsidiaries  taken as a whole will exceed their  debts;  (ii) the
         Company and Aura  Ceramics on a  stand-alone  basis and the Company and
         its  Subsidiaries  taken as a whole have not incurred and do not intend
         to incur,  and do not believe that they will incur,  debts beyond their
         ability to pay such debts as such debts  mature;  and (iii) the Company
         and Aura  Ceramics  on a  stand-alone  basis  and the  Company  and its
         Subsidiaries  taken as a whole will have sufficient  capital with which
         to conduct their  businesses.  The amount of Contingent  Obligations at
         any time  shall be  computed  as the amount  that,  in light of all the
         facts and  circumstances  existing at such time,  represents the amount
         that can  reasonably  be  expected  to  become  an  actual  or  matured
         liability.  A copy of the pro forma  consolidated  balance sheet of the
         Company after giving effect to the Exchange,  the  Restructuring and to
         all  Indebtedness   (including  under  the  Exchange  Documents)  being
         incurred or assumed by the Company and its  Subsidiaries  in connection
         therewith is attached hereto as Schedule 4.1(h)(B) hereto.

                           (C)  Except  as  fully  disclosed  in  the  Financial
         Statements and Schedule 4.1(h)(C), there were as of the Closing Date no
         Indebtedness, liabilities or obligations with respect to the Company or
         any of its  Subsidiaries of any nature  whatsoever  (whether  absolute,
         accrued,   contingent,   unliquidated  or  otherwise)   which,   either
         individually or in the aggregate, have, or could reasonably be expected
         to have, a Material Adverse Effect. As of the Closing Date, the Company
         does not know of any basis for the  assertion  against it or any of its
         Subsidiaries of any Indebtedness, liability or obligation of any nature
         whatsoever that is not fully  disclosed in the Financial  Statements or
         Schedule  4.1(h)(C)  which,  either  individually  or in the aggregate,
         have,  or could  reasonably  be  expected to have,  a Material  Adverse
         Effect.

                           (D) The  projections  delivered  to the  Agent on the
         Closing  Date  have  been  prepared  in good  faith  and are  based  on
         reasonable  assumptions,  and there are no statements or conclusions in
         the projections  which are based upon or include  information  known to
         the Company to be misleading  in any material  respect or which fail to
         take into account material  information  known to the Company regarding
         the matters reported therein. The Company believes that the projections
         are  reasonable  and  attainable,  it being  recognized  by the  Funds,
         however,  that  projections as to future events are not to be viewed as
         facts and that the actual results during the period or periods  covered
         by the projections  may differ from the projected  results and that the
         differences may be material.

                  (i) Ranking.  The Obligations  under the Secured Notes and the
other Exchange Documents  constitute and will constitute  unconditional  secured
Indebtedness of the Company and the Guarantors and, with respect to the Company,
Aura  Ceramics  and  AuraSound,  rank and will rank (i) at least  pari  passu in
priority of payment and in all other  respects with all other present and future
secured  Indebtedness  of such Persons subject to the priority rights of holders
of (A)  Existing  Secured  Indebtedness  as of the Closing  Date as set forth in
Schedule  3.18(i)(A)  hereto,  (B) validly  created and fully  perfected  senior
secured  Indebtedness  permitted under Sections 4.5(c) and 4.5(d) of the Secured
Notes incurred by the Company after the Closing Date, and (C) obligations of the
Company and Aura Ceramics and AuraSound  existing on the Execution  Date secured
by valid and  perfected  judgment  liens  against  such  Persons as set forth in
Schedule  3.18(i)(C);  provided,  however,  that the Company may supplement such
Schedule  3.18(i)(C)  to  reflect  judgment  liens  validly  created  and  fully
perfected  through the Closing  Date which the Company had no  knowledge  of and
were not identified in UCC  certificates set forth in Schedule  3.18(i)(C),  and
(ii) senior to all other Indebtedness of such Persons.

                  (j) Litigation;  Proceedings. There is no action, suit, notice
of violation,  proceeding or  investigation  pending or, to the knowledge of the
Company,  threatened against or affecting the Company or any of its Subsidiaries
or  any of  their  respective  assets  or  properties  before  or by any  court,
governmental or administrative  agency or regulatory Authority (federal,  state,
county,  local or foreign)  which (A)  relates to or  challenges  the  legality,
validity or enforceability of any transaction  contemplated hereby or any of the
Exchange  Documents,  (B) could,  individually  or in the  aggregate,  adversely
impair such Person's  ability to perform fully on a timely basis its obligations
under any of the Exchange Documents, or (C) has, or could reasonably be expected
to have, a Material  Adverse  Effect from and after the Closing Date (except for
the DFS Claims).

                  (k) No Default or  Violation.  On and as of the  Closing  Date
(except as otherwise  provided herein, in the Exchange Documents or as disclosed
in Schedule 4.1(k) hereto),  neither the Company nor Aura Ceramics:  (i) will be
in default under or in violation of any indenture,  loan or credit  agreement or
any  other  agreement  evidencing  Indebtedness  of  the  Company  or any of its
Subsidiaries  or any other  agreement or instrument to which it is a party or by
which it or any of its  properties  is  bound  (but not  including  any  default
arising under Existing Secured Indebtedness of the Company owed to Imperial Bank
as a result of the granting of Liens under the Security  Documents in respect of
the  Secured  Notes),  (ii)  will be in  violation  of any  order of any  court,
arbitrator, governmental body or Authority, or (iii) will be in violation of any
statute,  rule or regulation of any Authority,  except as could not, in any such
case,  individually  or in the  aggregate,  (A)  adversely  affect the legality,
validity or enforceability of any transaction  contemplated hereby or any of the
Exchange  Documents,  or (B) adversely  impair such Person's  ability to perform
fully on a timely basis its obligations under any of the Exchange Documents,  or
(C) has, or could reasonably be expected to have, a Material Adverse Effect.

                  (l) Indebtedness. Schedule 4.1(l) hereto sets forth a true and
complete list (subject to variances not to exceed seven and one-half  percent (7
1/2%) in the aggregate) of all Indebtedness  (excluding  Indebtedness  under the
Secured Notes and the other Exchange  Documents) of the Company,  Aura Ceramics,
and Aura Realty as of the Execution Date and which is to remain outstanding (the
"Existing  Indebtedness"),  in each case showing the aggregate  principal amount
thereof,  accrued  interest in respect  thereof and the name of any Person which
directly or indirectly guaranteed such debt.

                  (m) True and  Complete  Disclosure.  All  factual  information
(taken  as a whole)  furnished  by or on  behalf  of the  Company  or any of its
Subsidiaries in writing to the Agent or any Fund (including, without limitation,
all  information  contained  in the  Exchange  Documents)  for purposes of or in
connection with this Agreement,  any other Exchange  Document or any transaction
contemplated hereby or thereby is, and all other such factual information (taken
as a whole)  hereafter  furnished  by or on behalf of the  Company or any of its
Subsidiaries  in writing to the Agent or any Fund will be, true and  accurate in
all  material  respects  on the date as of which  such  information  is dated or
certified  and not  incomplete  by omitting to state any fact  necessary to make
such  information  (taken as a whole) not misleading in any material  respect at
such  time in  light of the  circumstances  under  which  such  information  was
provided.  There is no fact which the Company has not  disclosed to the Agent or
the Funds herein and of which the  Company,  its  Subsidiaries,  or any of their
respective officers, directors or executive employees is aware and which has, or
could reasonably be expected to have, a Material Adverse Effect.

                  (n)      Use of Proceeds; Margin Regulations.

                           (A) All proceeds of the  Original  Notes were used by
         the Company for general corporate purposes.

                           (B) No part of the proceeds of any Original Note were
         used (i) to purchase or carry any Margin Stock or to extend  credit for
         the purpose of  purchasing  or carrying  any Margin  Stock or to refund
         indebtedness  originally  incurred  for  such  purpose  or (ii) for any
         purpose  which  violated or was  inconsistent  with the  provisions  of
         Regulations G, T, U or X of the Board of Governors of the United States
         Federal Reserve System.

                  (o) Tax Returns and Payments.  Except as disclosed in Schedule
4.1(o) hereto, each of the Company, Aura Ceramics, AuraSound and Aura Realty (A)
has filed all income tax returns and all other  material tax  returns,  domestic
and  foreign,  required  to be filed by it and has paid all  material  taxes and
assessments  payable by it which have become due,  except for those contested in
good faith and  adequately  disclosed  and fully  provided for on its  financial
statements  in  accordance  with  GAAP,  and (B) has at all times  paid,  or has
provided adequate reserves (in the good faith judgment of the management of such
Person) for the payment of, all income  taxes  applicable  for all prior  fiscal
years and for the current  fiscal year to date.  Except as disclosed in Schedule
4.1(o) hereto,  there is no material action,  suit,  proceeding,  investigation,
audit,  or claim now pending or, to the  knowledge  of the Company or any of its
Subsidiaries,  threatened by any Authority  regarding any taxes relating to such
Person. As of the Execution Date, neither the Company, Aura Ceramics, AuraSound,
nor Aura Realty has entered  into an  agreement  or waiver or been  requested to
enter into an agreement or waiver extending any statute of limitations  relating
to the  payment  or  collection  of  taxes  of such  Person,  or is aware of any
circumstances  that would cause the taxable  years or other  taxable  periods of
such Person not to be subject to the normally applicable statute of limitations.

                  (p)      Compliance with ERISA.

                           (A) Schedule 4.1(p) hereto sets forth each Plan; each
         Plan  (and  each  related  trust,  insurance  contract  or  fund) is in
         substantial  compliance  with its terms and with all  applicable  laws,
         including,  without limitation, ERISA and the Code; each Plan (and each
         related trust,  if any) which is intended to be qualified under Section
         401(a)  of the  Code  has  received  a  determination  letter  from the
         Internal  Revenue Service to the effect that it meets the  requirements
         of  Sections  401(a) and 501(a) of the Code;  no  Reportable  Event has
         occurred;  no Plan which is a multiemployer plan (as defined in Section
         4001(a)(3) of ERISA) is insolvent or in reorganization;  no Plan has an
         Unfunded Current Liability;  no Plan which is subject to Section 412 of
         the Code or Section 302 of ERISA has an accumulated funding deficiency,
         within  the  meaning  of such  sections  of the Code or  ERISA,  or has
         applied for or received a waiver of an accumulated  funding  deficiency
         or an  extension  of any  amortization  period,  within the  meaning of
         Section  412  of  the  Code  or  Section  303  or  304  of  ERISA;  all
         contributions  required  to be made  with  respect  to a Plan have been
         made;  neither the Company  nor any  Subsidiary  of the Company nor any
         ERISA  Affiliate  has incurred any material  liability  (including  any
         indirect, contingent or secondary liability) to or on account of a Plan
         pursuant to Section 409, 502(i),  502(l),  515, 4062, 4063, 4064, 4069,
         4201, 4204 or 4212 of ERISA or Section 401(a)(29),  4971 or 4975 of the
         Code or expects to incur any such liability  under any of the foregoing
         sections with respect to any Plan; no condition exists which presents a
         material  risk to the Company or any  Subsidiary  of the Company or any
         ERISA  Affiliate  of  incurring a liability  to or on account of a Plan
         pursuant  to the  foregoing  provisions  of  ERISA  and  the  Code;  no
         proceedings  have been  instituted to terminate or appoint a trustee to
         administer  any Plan which is subject to Title IV of ERISA;  no action,
         suit,  proceeding,  hearing, audit or investigation with respect to the
         administration,  operation  or the  investment  of  assets  of any Plan
         (other  than  routine  claims for  benefits)  is  pending,  expected or
         threatened;   using  actuarial   assumptions  and  computation  methods
         consistent  with  Part  1 of  subtitle  E of  Title  IV of  ERISA,  the
         aggregate liabilities of the Company and its Subsidiaries and its ERISA
         Affiliates  to all Plans which are  multiemployer  plans (as defined in
         Section  4001(a)(3)  of ERISA) in the  event of a  complete  withdrawal
         therefrom,  as of the close of the most recent fiscal year of each such
         Plan ended prior to the Closing Date, would not exceed  $100,000;  each
         group  health  plan (as  defined in Section  607(1) of ERISA or Section
         4980B(g)(2)  of the Code)  which  covers or has  covered  employees  or
         former employees of the Company,  any Subsidiary of the Company, or any
         ERISA  Affiliate has at all times been operated in compliance  with the
         provisions  of Part 6 of  subtitle  B of Title I of ERISA  and  Section
         4980B  of the  Code;  no lien  imposed  under  the Code or ERISA on the
         assets of the  Company or any  Subsidiary  of the  Company or any ERISA
         Affiliate  exists or is likely to arise on account of any Plan; and the
         Company and its  Subsidiaries  may cease  contributions to or terminate
         any employee  benefit plan maintained by any of them without  incurring
         any material liability.

                           (B) Neither  the Company nor any of its  Subsidiaries
         has, or has ever had, a Foreign Pension Plan.

                  (q) Compliance with Law and Applicable Government Regulations.
Each of the Company and its  Subsidiaries is presently in compliance with regard
to its operations,  practices,  real property,  plants,  structures,  machinery,
equipment and other  property,  and all other aspects of its business,  with all
applicable  Regulations  and  Orders,   including,   but  not  limited  to,  all
Regulations relating to the safe conduct of business,  environmental protection,
quality and labeling,  antitrust, Taxes, consumer protection, equal opportunity,
discrimination,  health,  sanitation,  fire,  zoning,  building and occupational
safety, except for such non-compliances which, individually or in the aggregate,
would not have, or could not reasonably be expected to have, a Material  Adverse
Effect.  There are no Claims pending or, to the Company's knowledge  threatened,
nor has the Company  received any written notice regarding any violations of any
Regulations  or Orders  enforced by any Authority  including any  requirement of
OSHA or any pollution and environmental control agency (including air and water)
that have, or could reasonably be expected to have, a Material Adverse Effect.

                  (r) Security Documents. The provisions of each of the Security
Documents  will,  on the  Closing  Date,  create in favor of the Agent,  for the
benefit of the Funds,  as security for the  Obligations  hereunder and under all
other Exchange  Documents,  a valid and enforceable  security interest in all of
the right,  title and interest of the relevant assignor or pledgor thereunder in
and to the  Collateral  described  therein  superior to all Liens subject to the
priority  rights of holders of Permitted Liens of the types described in clauses
(c) and (i) of Section 4.1 of the Secured Notes (and any  extension,  renewal or
replacement  thereof to the extent  permitted  by Section  4.1(k) of the Secured
Notes).

                  (s) Investment Company Act. Neither the Company nor any of its
Subsidiaries  is  an  "investment  company"  or a  company  "controlled"  by  an
"investment company," within the meaning of the United States Investment Company
Act of 1940, as amended.

                  (t) Public Utility  Holding  Company Act.  Neither the Company
nor any of its Subsidiaries is a "holding company," or a "subsidiary company" of
a  "holding  company,"  or  an  "affiliate"  of  a  "holding  company"  or  of a
"subsidiary  company"  of a "holding  company"  within the meaning of the United
States Public Utility Holding Company Act of 1935, as amended.

                  (u) Labor Relations.  Each of the Company and its Subsidiaries
is in  compliance  with all  federal,  state  and  local  Regulations  or Orders
affecting  employment and employment  practices  applicable to each such Person,
including  terms and  conditions of employment  and wages and hours,  except for
certain failure to make salary or other compensation  payments to management and
such non-compliances which, individually or in the aggregate, would not have, or
could not reasonably be expected to have, a Material Adverse Effect. The Company
and its  Subsidiaries  have no collective  bargaining  agreements and there have
been no strikes,  work stoppages or any demands for collective bargaining by any
union or labor organization.  Neither the Company nor any of its Subsidiaries is
engaged in any unfair labor  practice that has, or could  reasonably be expected
to have,  a  Material  Adverse  Effect.  There is (A) no unfair  labor  practice
complaint pending against the Company or any of its Subsidiaries or, to the best
knowledge  of  the  Company,  threatened  against  the  Company  or  any  of its
Subsidiaries, and no grievance or arbitration proceeding arising out of or under
any collective bargaining agreement is pending against the Company or any of its
Subsidiaries  or, to the best knowledge of the Company,  threatened  against the
Company or any of its Subsidiaries,  (B) no strike,  labor dispute,  slowdown or
stoppage is pending  against the Company or any of its  Subsidiaries  or, to the
best  knowledge  of the  Company,  threatened  against the Company or any of its
Subsidiaries   and  (C)  to  the  best  knowledge  of  the  Company,   no  union
representation question is existing with respect to the employees of the Company
or any of its Subsidiaries  and, to the best knowledge of the Company,  no union
organizing  activities  are taking  place,  except  (with  respect to any matter
specified  in  clause  (A),  (B) or (C)  above,  either  individually  or in the
aggregate)  which does not have, or could not  reasonably be expected to have, a
Material Adverse Effect.

                  (v)  Proprietary  Rights,  Licenses,  Franchises and Formulas.
Each of the Company and its Subsidiaries owns all Proprietary Rights,  licenses,
franchises and formulas, or rights with respect to any of the foregoing, and has
obtained assignments of all leases and other rights of whatever nature necessary
for the present  conduct of its  business,  without any known  conflict with the
rights of others which, or the failure to obtain which, as the case may be, has,
or could reasonably be expected to have, a Material Adverse Effect.  To the best
knowledge  of the  Company,  no claim is pending  that the Company or any of its
Subsidiaries  infringes  upon the asserted  rights of any other Person under any
intellectual property, except for claims which could not, individually or in the
aggregate, have, or could not reasonably be expected to have, a Material Adverse
Effect.  To the best  knowledge  of the  Company,  no claim is pending that such
intellectual   property  owned  or  licensed  by  the  Company  or  any  of  its
Subsidiaries or which such Person  otherwise has the right to use is invalid and
unenforceable,  except  for  claims  which  could  not,  individually  or in the
aggregate,  have, or reasonably be expected to have, a Material  Adverse Effect.
The consummation of the transactions  contemplated hereby or by any of the other
Exchange  Documents will not alter or impair any rights of the Company or any of
its  Subsidiaries  to use any  intellectual  property  in a way that  would not,
individually or in the aggregate, have, or could reasonably be expected to have,
a Material Adverse Effect.  The Company is the legal and beneficial owner of all
right,  title and interest in, to and under the Proprietary  Rights with respect
to AuraGen,  and the Company has not entered into any agreement or understanding
with  any  Person  concerning  any  sale,  lease,  transfer,   option,  license,
assignment or other disposition of such Proprietary Rights, other than the grant
of security interests in connection with Permitted Liens.

                  (w) Certain Fees. No fees or commission will be payable by the
Company to any broker,  finder,  investment  banker or bank with  respect to the
consummation  of the  transactions  contemplated  hereby  or by any of the other
Exchange Documents.

                  (x)  Private  Offering.  The offer,  issuance  and sale of the
Secured Notes pursuant to this Agreement are exempt from registration  under the
Securities  Act.  Neither the  Company  nor any person  acting on its behalf has
taken or will take any action (including,  without  limitation,  any offering of
any  securities  of the Company  under  circumstances  which  would  require the
integration  of such  offering  with the offering of the Secured Notes under the
Securities  Act) which  might  subject  the  offering,  issuance  or sale of the
Secured Notes to the registration requirements of the Securities Act.

                  (y) SEC  Documents.  Attached  hereto as Schedule  4.1(y) is a
true and complete list of all forms,  reports and documents required to be filed
by the Company and its Subsidiaries  under the Exchange Act,  including pursuant
to Section 13(a) or 15(d) thereof (the "SEC  Documents"),  which the Company has
failed to file as of the Closing Date.

                  (z) Directors and  Management  Compensation.  Schedule  4.1(z)
hereto sets forth a list of all officers,  directors and key employees  (meaning
those earning more than $50,000.00  annually  including all bonuses and non-cash
consideration) of the Company and its Subsidiaries,  together with a description
of their  respective  positions and total  compensation  and a list of all other
outstanding  obligations owed by the Company to each of such Persons.  On and as
of the  Closing  Date,  the  Company  and its  Subsidiaries  will  not  have any
liability to any of their employees,  officers or directors (except as set forth
in Schedule  4.1(z)) other than for the payment of salaries and director fees to
be paid in the ordinary course of business.

                  (aa)  Absence of Certain  Changes.  Since  November  30, 1998,
except as fully  disclosed on Schedule  4.1(aa) hereto or otherwise  provided in
this  Agreement,  there  has not been any (a)  material  adverse  change  in the
business,  operations,  properties,  assets, condition (financial or otherwise),
results,   plans,  strategies  or  prospects  of  the  Company  or  any  of  its
Subsidiaries  which has, or could  reasonably  be  expected to have,  a Material
Adverse Effect; (b) damage, destruction or loss, whether covered by insurance or
not, having a Material Adverse Effect with regard to the Company's or any of its
Subsidiaries' property and business;  (c) declaration,  setting aside or payment
of any dividend or distribution  (whether in cash, stock or property) in respect
of the Company's or any of its Subsidiaries' capital stock, or any redemption or
other acquisition of such stock by the Company or any of its  Subsidiaries;  (d)
increase in the  compensation  payable to or to become payable by the Company or
any of its  Subsidiaries to its officers,  Insiders or employees  (other than in
the  ordinary  course) or any  adoption of or increase in any bonus,  insurance,
pension or other employee  benefit plan,  payment or arrangement made to, for or
with any such  officers,  Insiders  or  employees  (other  than in the  ordinary
course) or any  Affiliate of the Company or any of its  Subsidiaries;  (e) entry
into any material  Contract not in the ordinary  course of business,  including,
without  limitation,  any  borrowing or capital  expenditure;  (f) change by the
Company or any of its Subsidiaries in accounting  methods or principles;  or (g)
consensual Lien placed on any property of the Company or any of its Subsidiaries
other than Permitted Liens.

                  (bb) Year 2000 Compliance.  As of the Closing Date,  except as
set forth on Schedule 4.1(bb) hereto, all Date Data and Date-Sensitive  Systems,
if any, of the Company and its Subsidiaries are Year 2000 Compliant. The Company
and its Subsidiaries  have obtained written  representations  or assurances from
each  entity  that  (x)  provides  Date  Data  to  the  Company  or  any  of its
Subsidiaries,  or (y)  processes  in any way Date Data for the Company or any of
its  Subsidiaries or otherwise  provides any material  product or service to the
Company or any of its Subsidiaries that is dependent on Year 2000 Compliant Date
Data or a Year 2000 Compliant  Date-Sensitive  System, that all of such entity's
Date Data and  Date-Sensitive  Systems  that are used for,  or on behalf of, the
Company or any of its Subsidiaries are Year 2000 Compliant.

     (cc) Capital Expenditures and Investments. Each Contract of the Company and
its  Subsidiaries for capital  expenditures  and investments  entered into on or
after November 30, 1998 involving $50,000 or more is fully disclosed in Schedule
4.1(cc) hereto.

                  (dd) Dealings with  Affiliates.  Schedule  4.1(dd) hereto sets
forth a complete  and  accurate  list,  including  the  parties,  of all oral or
written Contracts to which the Company and its Subsidiaries are, will be or have
been a party,  at any time from  November 30, 1998 to and  including the Closing
Date, and to which any one or more of their  Affiliates is also a party.  Except
as set forth on Schedule  4.1(dd)  hereto,  since November 30, 1998, the Company
and its Subsidiaries have not made any payments, loaned any funds or property or
made any credit arrangement with any Affiliate or employee of the Company or any
of its  Subsidiaries  except for the payment of employee  salaries  and director
compensation in the ordinary course of business.

     (ee) Solicitation  Materials.  The Company did not solicit any offer to buy
or sell the  Secured  Notes by means  of any  form of  general  solicitation  or
advertising.

                  (ff)  Assignment  of  NewCom   Promissory  Note.  The  Company
acknowledges,  confirms and ratifies the assignment and transfer to the Funds by
delivery to the Agent of that certain  Promissory  Note dated September 19, 1997
payable by NewCom to the order of the Company in the original  principal  amount
of $17,000,000.00  due September 20, 1998 (the "NewCom Note") and further agrees
with the Funds that it shall take such  further  actions,  give such notices and
deliver such further written  instruments as the Funds may reasonably request in
order to  effectuate  such  assignment  and  transfer  and to  provide  benefits
thereof.  The  NewCom  Note  shall be held by the Agent for the  benefit  of the
Funds.  The  Company  further  acknowledges  and agrees  with the Funds that any
amount paid to them under or  pursuant to the NewCom Note shall be the  property
of such Funds and the Company hereby releases any claim,  demand or right it may
now or  hereafter  have or acquire with respect to the NewCom Note or any amount
paid or payable thereunder.  Notwithstanding the above, each of the Funds agrees
that,  prior  to  April  30,  2000,  it will  not (i)  commence  an  involuntary
bankruptcy proceeding against NewCom and (ii) at any time assert in any judicial
proceeding  or  otherwise  that the  Company is  NewCom's  alter ego or that the
Company is obligated to the Funds thereunder.

                  4.2.  Representations and Warranties of the Funds. Each of the
Funds, severally and not jointly,  hereby represents and warrants to the Company
as follows:

                  (a)  Ownership of Original  Notes.  Such Fund is the legal and
beneficial owner of the Original Notes to be exchanged  hereunder,  as specified
in Section 2.1.

                  (b)  Organization;  Authority.  Such  Fund is an  entity  duly
organized,  validly  existing  and  in  good  standing  under  the  laws  of the
jurisdiction of its organization with the requisite power and authority to enter
into and to consummate  the  transactions  contemplated  hereby and otherwise to
carry out its  obligations  hereunder and  thereunder.  The  acquisition  of the
Secured Notes by such Fund  hereunder has been duly  authorized by all necessary
action on the part of such  Fund.  This  Agreement  has been duly  executed  and
delivered by such Fund (by and through its authorized Agent) and constitutes the
valid and legally  binding  obligation of such Fund,  enforceable  against it in
accordance with its terms, except to the extent that the enforceability  thereof
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting  generally the enforcement
of, creditors'  rights and remedies or by other equitable  principles of general
application (regardless of whether enforcement is sought in equity or at law).

                  (c) Fund Status. At the time such Fund was offered the Secured
Notes to be exchanged by it hereunder, it was, and at the date hereof, it is, an
"accredited investor" as defined in Rule 501(a) under the Securities Act.

                  (d)  Experience  of the Fund.  In  reliance  on the  Company's
representations  and warranties herein, such Fund, either alone or together with
its  representatives,  has such  knowledge,  sophistication  and  experience  in
business and financial  matters so as to be capable of evaluating the merits and
risks of an investment in the securities to be acquired by it hereunder, and has
so evaluated the merits and risks of such investment.

                  (e) Ability of the Fund to Bear Risk of Investment.  Such Fund
is able to bear the  economic  risk of an  investment  in the  securities  to be
acquired by it hereunder  and, at the present time, is able to afford a complete
loss of such investment.

                  The  Company  acknowledges  and agrees  that the Agent and the
Funds make no  representations  or warranties  with respect to the  transactions
contemplated hereby other than those specifically set forth in this Section 4.2.

                  SECTION 5.        Other Agreements of the Parties.

                  5.1.     Transfer Restrictions.

                  (a) If any Fund should decide to dispose of any of the Secured
Notes,  such Fund  understands and agrees that it may do so only (i) pursuant to
an effective  registration  statement under the Securities Act, or (ii) pursuant
to an available exemption from registration under the Securities Act.

                  (b) The Funds agree to the imprinting,  so long as required by
the terms of the Securities Act, of the following legend on each Secured Note:

                  NEITHER  THIS  SECURED   NOTE  NOR  THE   GUARANTIES   OF  THE
                  SUBSIDIARIES  HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
                  1933, AS AMENDED (THE "SECURITIES  ACT"), OR THE "BLUE SKY" OR
                  SECURITIES  LAWS OF ANY STATE BY REASON OF THEIR ISSUANCE IN A
                  TRANSACTION  EXEMPT FROM THE REGISTRATION  REQUIREMENTS OF THE
                  SECURITIES   ACT  OR  SUCH   STATE   SECURITIES   LAWS,   AND,
                  ACCORDINGLY,  MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
                  EFFECTIVE  REGISTRATION  STATEMENT UNDER THE SECURITIES ACT OR
                  PURSUANT  TO AN  AVAILABLE  EXEMPTION  FROM  THE  REGISTRATION
                  REQUIREMENTS  THEREUNDER,  AND IN COMPLIANCE  WITH  APPLICABLE
                  STATE SECURITIES LAWS.

                  The legend set forth above shall be removed as soon as allowed
under the Securities Act or the regulations promulgated thereunder.  The Company
agrees that it will provide each Fund, upon request,  with any required  opinion
of counsel and a replacement Secured Note, free from such legend at such time as
such legend is no longer applicable, at no charge.

                  5.2. Blue Sky Laws. The Company shall qualify the Shares under
the securities or "Blue Sky" laws of such jurisdictions as each Fund may request
and shall continue such  qualification at all times as long as any Fund owns any
Shares.

                  5.3. Integration. The Company shall not and shall use its best
efforts  to ensure  that no  Affiliate  shall,  sell,  offer for sale or solicit
offers to buy or otherwise negotiate in respect of any "security" (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the  Secured  Notes  or  the  Shares  in a  manner  that  would  require  the
registration  under the  Securities  Act of the sale of the Secured Notes or the
Shares to the Funds.

                  SECTION 6.        Miscellaneous.

                  6.1.  Fees and  Expenses.  The Company and the Funds shall pay
the fees and expenses of their  respective  advisors,  counsel,  accountants and
other  experts,  if  any,  and  all  other  expenses  incurred  incident  to the
negotiation,  preparation, execution, delivery and performance of this Agreement
and the other  Exchange  Documents.  The  Company  shall pay all stamp and other
taxes (other than income) and duties levied in  connection  with the issuance of
the Secured Notes and Shares pursuant hereto or any other Exchange Document.

                  6.2.     Indemnification.

                  (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 of the  Security  Agreement,  the  Company  agrees to
indemnify and hold harmless,  to the extent permitted by law, the Agent and each
Fund  and  their  respective  officers  and  directors,   employees,   advisors,
attorneys,  agents, and  representatives  against any and all claims,  causes of
action,  losses,  liabilities,  damages or expenses incurred by any of them as a
result of, arising out of, or in any way related to, or by reason of, any breach
or default by the Company  under any  provision  of this  Agreement or any other
Exchange Document,  including,  but not limited to, any breach by the Company of
its representations and warranties set forth in Section 4.1 hereto.

                  (b) Any person entitled to indemnification hereunder shall (i)
give prompt written notice to the  indemnifying  party of any claim with respect
to which it seeks  indemnification  and (ii) unless in such indemnified  party's
reasonable  judgment  a  conflict  of  interest  between  such  indemnified  and
indemnifying  parties  may  exist  with  respect  to  such  claim,  permit  such
indemnifying  party to assume the defense of such claim with counsel  reasonably
satisfactory  to  the  indemnified  party.  If  such  defense  is  assumed,  the
indemnifying party shall not be subject to any liability for any settlement made
by the  indemnified  party  without its consent (but such  consent  shall not be
unreasonably  withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim shall not be obligated to pay the fees and
expenses  of  more  than  one  counsel  for  all  parties  indemnified  by  such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any  indemnified  party  a  conflict  of  interest  may  exist  between  such
indemnified party and any other of such indemnified parties with respect to such
claim.

                  (c) The  indemnification  provided  for under  this  Agreement
shall remain in full force and effect regardless of any investigation made by or
on behalf of the  indemnified  party or any  officer,  director  or  controlling
person of such  indemnified  party and shall survive the transfer of securities.
The Company also agrees to make such provisions,  as are reasonably requested by
any indemnified party, for contribution to such party in the event the Company's
indemnification is unavailable for any reason.

                  6.3.  Entire  Agreement;  Amendments.  This  Agreement and the
other Exchange  Documents,  together with the exhibits and schedules  hereto and
thereto,  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.

                  6.4. 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 6.4 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 Company: Aura Systems, Inc.
                                              2335 Alaska Avenue
                                              El Segundo, California  90245
                                              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 Infinity:    Infinity Investors Limited
                                              Hunkins Waterfront Plaza
                                              Main Street
                                              P.O. Box 556
                                              Charlestown, Nevis, West Indies
                                              Attn:   Gwen McLaughlin
                                              Facsimile No.:  (345) 949-0881

                           If to Glacier:     Glacier Capital Limited
                                              Hunkins Waterfront Plaza
                                              Main Street
                                              P.O. Box 556
                                              Charlestown, Nevis, West Indies
                                              Attn:   Gwen McLaughlin
                                              Facsimile No.:  (345) 949-0881

                           If to Global:      Global Growth Limited
                                              Hunkins Waterfront Plaza
                                              Main Street
                                              P.O. Box 556
                                              Charlestown, Nevis, West Indies
                                              Attn:   Gwen McLaughlin
                                              Facsimile No.:  (345) 949-0881

                           If to Summit:      Summit Capital Limited
                                              Hunkins Waterfront Plaza
                                              Main Street
                                              P.O. Box 556
                                              Charlestown, Nevis, West Indies
                                              Attn:  Gwen McLaughlin
                                              Facsimile No.:  (345) 949-0881

                           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

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

                           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.

                  6.5.  Amendments;  Waivers. No provision of this Agreement may
be waived or amended except in a written  instrument  signed,  in the case of an
amendment,  by both the Company and the Agent,  or, in the case of a waiver,  by
the party against whom  enforcement  of any such waiver is sought.  No waiver of
any default with respect to any  provision,  condition  or  requirement  of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any other  provision,  condition or requirement  hereof,  nor shall any delay or
omission of either  party to exercise any right  hereunder in any manner  impair
the exercise of any such right accruing to it thereafter.

     6.6. Headings Descriptive. The headings herein are for convenience only, do
not  constitute  a part of this  Agreement  and  shall not be deemed to limit or
affect any of the provisions hereof.

                  6.7.     Benefit of Agreement; Assignments; Participations.

                  (a) This  Agreement  shall be  binding  upon and  inure to the
benefit of and be enforceable  by the  respective  successors and assigns of the
parties hereto,  provided that the Company may not assign or transfer any of its
rights or obligations hereunder or under any other Exchange Documents.

                  (b) Any  Fund  (or any Fund  together  with one or more  other
Funds) may sell, assign, transfer or grant participations in all or a portion of
its rights and outstanding Obligations hereunder and under the Secured Notes and
Warrants to any person,  each of which  assignees  shall  become a party to this
Agreement  as a Fund,  provided  that new  Secured  Notes and  Warrants  will be
issued,  at the Company's  expense,  to such new Fund and to the assigning  Fund
upon the request of such new Fund or assigning  Fund, such new Secured Notes and
Warrants to be in conformity  with the  requirements of Section 2.1 hereof (with
appropriate   modifications)  to  the  extent  needed  to  reflect  the  revised
outstanding  Obligations).  The  assigning  Fund will  notify the Company of any
assignment pursuant to this Section 6.7(b); provided,  however, that the failure
to give any such notice,  or any error in such  notice,  shall not affect any of
the obligations of the Company hereunder or under any other Exchange Document.

                  (c) Nothing in this  Agreement  shall  prevent or prohibit any
Fund from  pledging its rights  hereunder  or under any of the Secured  Notes or
Warrants.

                  6.8. No Third-Party Beneficiaries.  This Agreement is intended
for the benefit of the parties hereto and their respective  permitted successors
and  assigns  and is not for the  benefit  of, nor may any  provision  hereof be
enforced by, any other person.

     6.9.  GOVERNING  LAW;  SUBMISSION TO  JURISDICTION;  VENUE;  WAIVER OF JURY
TRIAL.

                  (a) THIS  AGREEMENT AND THE OTHER  EXCHANGE  DOCUMENTS AND THE
RIGHTS  AND  OBLIGATIONS  OF THE  PARTIES  HEREUNDER  AND  THEREUNDER  SHALL  BE
CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK
WITHOUT  GIVING EFFECT TO THE  PRINCIPLES  THEREOF  RELATING TO CONFLICTS OF LAW
EXCEPT SECTION 5-1401 OF THE NEW YORK GENERAL  OBLIGATIONS LAW. ANY LEGAL ACTION
OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY SUCH OTHER EXCHANGE DOCUMENT
MAY BE  BROUGHT  IN (i) THE  COURTS  OF THE  STATE OF NEW YORK OR OF THE  UNITED
STATES FOR THE  SOUTHERN  DISTRICT  OF NEW YORK,  AND/OR  (ii) THE COURTS OF THE
DEFENDANT'S  RESPECTIVE  CORPORATE  DOMICILE,  AND, BY EXECUTION AND DELIVERY OF
THIS AGREEMENT,  EACH PARTY HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT
OF  ITS  PROPERTY,  GENERALLY  AND  UNCONDITIONALLY,  THE  JURISDICTION  OF  THE
AFORESAID  COURTS.  THE COMPANY  HEREBY  IRREVOCABLY  DESIGNATES,  APPOINTS  AND
EMPOWERS CT  CORPORATION  SYSTEM,  WITH OFFICES ON THE DATE HEREOF AT 111 EIGHTH
AVENUE,  NEW  YORK,  NEW YORK  10011 AS ITS  DESIGNEE,  APPOINTEE  AND  AGENT TO
RECEIVE,  ACCEPT AND  ACKNOWLEDGE  FOR AND ON ITS BEHALF,  AND IN RESPECT OF ITS
PROPERTY,  SERVICE OF ANY AND ALL LEGAL PROCESS,  SUMMONS, NOTICES AND DOCUMENTS
WHICH MAY BE SERVED IN ANY SUCH  ACTION OR  PROCEEDING.  IF FOR ANY REASON  SUCH
DESIGNEE,  APPOINTEE  AND AGENT SHALL CEASE TO BE AVAILABLE TO ACT AS SUCH,  THE
COMPANY AGREES TO DESIGNATE A NEW DESIGNEE, APPOINTEE AND AGENT IN NEW YORK CITY
ON THE TERMS AND FOR THE PURPOSES OF THIS  PROVISION  SATISFACTORY  TO THE AGENT
UNDER THIS AGREEMENT. THE COMPANY FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF
PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING
BY THE  MAILING OF COPIES  THEREOF BY  REGISTERED  OR  CERTIFIED  MAIL,  POSTAGE
PREPAID,  TO THE COMPANY AT ITS  ADDRESS  SET FORTH IN SECTION 6.4 HEREOF,  SUCH
SERVICE TO BECOME  EFFECTIVE 30 DAYS AFTER SUCH  MAILING.  NOTHING  HEREIN SHALL
AFFECT THE RIGHT OF THE AGENT,  ANY FUND OR THE  HOLDER OF ANY  SECURED  NOTE OR
ORIGINAL  NOTE TO SERVE  PROCESS  IN ANY  OTHER  MANNER  PERMITTED  BY LAW OR TO
COMMENCE LEGAL  PROCEEDINGS OR OTHERWISE  PROCEED AGAINST THE COMPANY AND/OR ANY
GUARANTOR IN ANY OTHER JURISDICTION.

                  (b) THE COMPANY HEREBY  IRREVOCABLY WAIVES ANY OBJECTION WHICH
IT MAY NOW OR  HEREAFTER  HAVE TO THE  LAYING  OF VENUE OF ANY OF THE  AFORESAID
ACTIONS OR  PROCEEDINGS  ARISING OUT OF OR IN CONNECTION  WITH THIS AGREEMENT OR
ANY OTHER  EXCHANGE  DOCUMENT  BROUGHT IN THE COURTS  REFERRED  TO IN CLAUSE (a)
ABOVE AND HEREBY FURTHER  IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN
ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING  BROUGHT IN ANY SUCH COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM.

                  (c) EACH OF THE PARTIES TO THIS AGREEMENT  HEREBY  IRREVOCABLY
WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION,  PROCEEDING  OR  COUNTERCLAIM
ARISING OUT OF OR RELATING TO THIS  AGREEMENT,  THE OTHER EXCHANGE  DOCUMENTS OR
THE TRANSACTIONS  CONTEMPLATED  HEREBY OR THEREBY.  THIS PROVISION IS A MATERIAL
INDUCEMENT FOR THE PARTIES HERETO TO ENTER INTO THIS AGREEMENT.

                  6.10.  Counterparts.  This Agreement may be executed in two or
more counterparts,  all of which when taken together shall be considered one and
the same agreement and shall become effective when counterparts have been signed
by each party and delivered to the other party,  it being  understood  that both
parties need not sign the same  counterpart.  In the event that any signature is
delivered by facsimile  transmission,  such  signature  shall create a valid and
binding  obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.

                  6.11. Publicity.  The Company and the Agent shall consult with
each other in issuing any press releases or otherwise  making public  statements
with respect to the  transactions  contemplated  hereby and neither  party shall
issue any such press release or otherwise make any such public statement without
the prior written consent of the other,  which consent shall not be unreasonably
withheld or delayed, except for such releases, filings or public statements that
are  required  by  law or any  regulatory  body  or  governmental  authority  of
competent jurisdiction.

                  6.12.    Confidentiality.

                  (a)  Each  of  the  Funds   and  the  Agent   agrees  to  keep
confidential any non-public  information supplied to it by the Company or any of
its  Subsidiaries  pursuant to this  Agreement or any other  Exchange  Document;
provided,  however,  that nothing  herein shall limit the disclosure of any such
information (i) to the extent required by statute,  rule, regulation or judicial
process,  (ii) to  counsel  for any of the  Funds  or the  Agent so long as such
counsel  confirms  it shall  keep the  non-public  information  confidential  in
accordance  with these  provisions,  (iii) to auditors or  accountants or to any
other   regulatory   agency   or   body   with   proper   authority   (including
non-governmental  regulatory agencies or bodies),  (iv) to any other Fund or the
Agent,  (v) in  connection  with any  litigation to which any one or more of the
Funds or the Agent is a party where  disclosure of such  information  is, in the
opinion  of  counsel  for any  Fund or the  Agent,  necessary  or  advisable  in
connection with any action,  claim, suit or proceeding,  directly or indirectly,
involving  or  potentially  involving  any Fund or the Agent and arising out of,
based upon,  relating  to or  involving  this  Agreement  or any other  Exchange
Document,  or  any  transactions  contemplated  hereby  or  thereby  or  arising
hereunder or thereunder, (vi) to any subsidiary,  Affiliates, director, officer,
employee or representative of any Fund or of the Agent, (vii) to any assignee or
participant (or prospective  assignee or participant) so long as any such Person
confirms in writing that it shall keep the non-public  information  confidential
in accordance with these provisions,  or (viii) to any credit rating agency that
rates the financial  condition of any Fund or the claims  paying  ability of any
Fund,  provided  that  such  credit  rating  agency  agrees in  writing  to keep
confidential  any non-public  information  provided by the Company or any of its
Subsidiaries;  provided  further that in no event shall any Fund or the Agent be
obligated or required to return any  materials  furnished by or on behalf of the
Company or any of its Subsidiaries.

                  (b) Each of the Funds and the Agent  shall  inform the Company
in writing of the name and  address of any of the Persons  described  in clauses
(vii) and (viii) of Section 6.12(a) above to whom any non-public  information of
the  Company  or any  Subsidiary  shall  have  been  provided,  together  with a
description of the  information  so provided,  in each case within five Business
Days of the delivery to any such Person of any such non-public information.

                  6.13. Severability.  In case any one or more of the provisions
of this Agreement shall be invalid or unenforceable in any respect, the validity
and enforceability of the remaining terms and provisions of this Agreement shall
not in any way be affected or impaired  thereby and the parties  will attempt to
agree  upon a valid  and  enforceable  provision  which  shall  be a  reasonable
substitute  therefor,  and upon so agreeing,  shall  incorporate such substitute
provision in this Agreement.

                  6.14. Remedies.  In addition to being entitled to exercise all
rights provided  herein or granted by law,  including  recovery of damages,  the
Company  and  the  Funds  will  be  entitled  to  specific  performance  of  the
obligations under this Agreement.  The Company and the Funds agree that monetary
damages  would not be adequate  compensation  for any loss incurred by reason of
any breach of their respective  obligations  described in the foregoing sentence
and hereby  agree to waive in any action for  specific  performance  of any such
obligation the defense that a remedy at law would be adequate.

                            [SIGNATURE PAGE FOLLOWS]


<PAGE>


                                [SIGNATURE PAGE]

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

                                                     AURA SYSTEMS, INC.



                                                     By:
                                                     Name:  Gerald Papazian
                                                     Title:    President



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




<PAGE>




                                                     HW PARTNERS, LP

                                                     By:    HW Finance, LLC
                                                            Its Managing Partner

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


                                                     INFINITY INVESTORS LIMITED

                                                     HW Partners, LP
                                                            Its Agent

                                                     By:    HW Finance, LLC
                                                            Its Managing Partner

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


                                                     GLACIER CAPITAL LIMITED

                                                     HW Partners, LP
                                                            Its Agent

                                                     By:    HW Finance, LLC
                                                            Its Managing Partner

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




<PAGE>




                                                     GLOBAL GROWTH LIMITED

                                                     HW Partners, LP
                                                            Its Agent

                                                     By:    HW Finance, LLC
                                                            Its Managing Partner

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


                                                     SUMMIT CAPITAL LIMITED

                                                     HW Partners, LP
                                                            Its Agent

                                                     By:    HW Finance, LLC
                                                            Its Managing Partner

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


<PAGE>



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                         [INSERT EXHIBITS AND SCHEDULES]


<PAGE>




losangeles 37189 v5  [Sp105!.docSp105!.doc]Sp105!.docSp105!.doc

                                      (ii)


losangeles 37189 v5  [Sp105!.docSp105!.doc]Sp105!.docSp105!.doc

                                       (i)
                                TABLE OF CONTENTS




SECTION 1.        Definitions and Principles of Construction...................2

         1.1.     Defined Terms................................................2
         1.2.     Principles of Construction..................................11

SECTION 2.        The Exchange................................................11

         2.1.     Issuance of Secured Notes and Exchange of Original Notes....11
         2.2.     Closing.....................................................13

SECTION 3.        Conditions Precedent........................................13

         3.1.     Execution of Agreement......................................13
         3.2.     Issuance and Delivery of Secured Notes......................13
         3.3.     Security Documents..........................................13
         3.4.     Issuance of Shares of Aura Realty...........................15
         3.5.     Guaranty....................................................15
         3.6.     Proceedings.................................................15
         3.7.     No Default; Representations and Warranties..................15
         3.8.     Sale of Assigned Notes; Conversion of Assigned Notes........15
         3.9.     Opinion of Counsel..........................................16
         3.10.    Consent Letter..............................................16
         3.11.    Compliance with Applicable Law..............................16
         3.12.    Litigation..................................................16
         3.13.    Indebtedness................................................16
         3.14.    New Equity..................................................17
         3.15.    Governmental and Third-Party Approvals......................17
         3.16.    Releases....................................................17
         3.17.    No Material Adverse Change..................................17
         3.18.    Ranking.....................................................17
         3.19.    Payments....................................................18
         3.20.    AuraGen Patents.............................................18

SECTION 4.        Representations and Warranties..............................18

         4.1.     Representations and Warranties of the Company...............18
         4.2.     Representations and Warranties of the Funds.................28

SECTION 5.        Other Agreements of the Parties.............................29

         5.1.     Transfer Restrictions.......................................29
         5.2.     Blue Sky Laws...............................................30
         5.3.     Integration.................................................30

SECTION 6.        Miscellaneous...............................................30
         6.1.     Fees and Expenses...........................................30
         6.2.     Indemnification.............................................30
         6.3.     Entire Agreement; Amendments................................31
         6.4.     Notices.....................................................31
         6.5.     Amendments; Waivers.........................................33
         6.6.     Headings Descriptive........................................33
         6.7.     Benefit of Agreement; Assignments; Participations...........33
         6.8.     No Third-Party Beneficiaries................................34
         6.9.     GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF
                  JURY TRIAL..................................................34
         6.10.    Counterparts................................................35
         6.11.    Publicity...................................................35
         6.12.    Confidentiality.............................................35
         6.13.    Severability................................................36
         6.14.    Remedies....................................................36