exhibit  10.37

**SECURITY AGREEMENT**

This  Security Agreement (this "Agreement") is entered into as of January 19, 2004,  by AURA SYSTEMS, INC. a Delaware corporation (the "Debtor"), for the benefit  of ________________ (the "Secured Party"). 

**R  E C I T A L S :**

  A.        The Debtor has requested that the Secured Party extend a loan to the Debtor.  

  B.        Such loan is to be evidenced by a Convertible Promissory Note dated the  date hereof made by the Debtor in favor of the Secured Party (the "Note").  

  C.        Secured Party has required, as a condition of making such loan, that the  Debtor grant a security interest in all of its personal property to secure such  loan and any other present or future obligations of the Debtor. 

  D.        In order to induce the Secured Party to make such loan, the Debtor is  willing to grant such security interest as further provided herein. 

  E.         Debtor has previously granted a first priority security  interest in the same collateral in favor of Koyah Leverage Partners, L.P., a  Delaware limited partnership, as collateral agent (the "Koyah Collateral Agent")  for itself and Koyah Partners, L.P. a Delaware limited partnership (collectively  "Koyah") to secure loans made by Koyah. 

NOW,  THEREFORE, the Debtor hereby agrees with the Secured Party as follows:

# **ARTICLE  I. DEFINITIONS**

Unless  otherwise defined herein, any terms used herein (whether or not capitalized,  such as "accounts," "inventory" and "equipment") which are defined in the Uniform  Commercial Code as enacted in the State of Washington, as amended from time  to time, shall have the meaning assigned to such term therein. Unless otherwise  defined herein, any capitalized terms used herein which are defined in the Note  shall have the meaning assigned to them therein. In addition, the following  terms shall have the meaning set forth below:

"Collateral"  means all of the Debtor's personal property and fixtures of every nature whether  tangible or intangible and whether now owned or hereafter acquired, wherever  located, including without limitation the following:

  (iii) All products and proceeds of the foregoing and all other property received  or receivable in disposition of or exchange of the foregoing.

  "Event of Default" means any default in payment or performance of the Obligations.  

"Obligations"  means any and all obligations and liabilities of every nature of the Debtor  to the Secured Party, whether now existing or hereafter incurred, including  without limitation those arising out of or in connection with the Note, this  Agreement or any other agreements with the Secured Party. The Obligations shall  specifically include any and all principal, interest (including without limitation  interest that, but for the filing of a petition in bankruptcy, would accrue  on such obligations), fees, expenses, indemnities or other obligations or liabilities,  whether voluntary or involuntary, direct or indirect, absolute or contingent,  liquidated or unliquidated, whether or not jointly owed with others, and whether  or not from time to time decreased or extinguished and later increased, created,  or incurred, as well as any and all of such obligations or liabilities that  are paid, to the extent such payment is avoided or recovered directly or indirectly  from the Secured Party as a preference, fraudulent transfer, or otherwise, together  with any and all amendments, modifications, extensions or renewals of the foregoing.  

# **ARTICLE  II.  GRANT OF SECURITY INTEREST**

To  secure the payment and performance of the Obligations, the Debtor hereby grants  a continuing security interest in the Collateral, and assigns the Collateral,  to the Secured Party. Such security interest of the Secured party is junior  to the security interest previously granted to the Koyah Collateral Agent, and  subject to the terms and conditions of the Intercreditor Agreement (as defined  below).

# **ARTICLE  III. COVENANTS OF THE DEBTOR**

The  Debtor shall fully perform each of the covenants set forth below.

## **3.1  Further Documentation**

Promptly  upon request of the Secured Party and at the Debtor's expense, the Debtor (a)  shall prepare, execute, deliver and file any financing statement, any filing  with the Patent and Trademark Office, Copyright Office or other applicable office,  and any renewal, substitution or correction thereof or any other document and  shall take any such further action as the Secured Party may require in perfecting  or protecting the security interested granted by the Debtor under this Agreement  or in otherwise obtaining the full benefits of this Agreement and (b) authorizes  the Secured Party to prepare, execute, deliver and file any such documents and  to take any such actions on behalf of the Debtor. 

## **3.2  Patents, Trademarks and Copyrights**

Schedule  1 lists all Patents, Trademarks and Copyrights currently owned by the Debtor.  Promptly upon any change in the Patents, Trademarks and Copyrights owned by  the Debtor, the Debtor shall provide the Secured Party with an updated Schedule  1 listing all Patents, Trademarks and Copyrights then owned by the Debtor.  Schedule 2 lists all Patents, Trademarks and Copyrights currently licensed to  the Debtor by third parties. Promptly upon any change in the Patents, Trademarks  and Copyrights licensed to the Debtor, the Debtor shall provide the Secured  Party with an updated Schedule 2 listing all Patents, Trademarks and Copyrights  then licensed to the Debtor. 

## **3.3  Pledges**

Following  payment of all obligations owed to Koyah and release of the Koyah Collateral  Agent's security interest in the Collateral, upon request of the Secured Party  and at Debtor's expense, the Debtor shall promptly deliver and pledge to the  Secured Party, endorsed or accompanied by instruments of assignment or transfer  satisfactory to the Secured Party, any Collateral consisting of instruments,  investment property, documents, general intangibles or chattel paper.

## **3.4  Control**

Following  payment in full of all obligations owed to Koyah and release of the Koyah Collateral  Agent's security interest in the Collateral, upon request of the Secured Party  and at Debtor's expense, the Debtor shall cooperate with the Secured Party in  obtaining control with respect to any Collateral consisting of deposit accounts,  investment property, letter of credit rights and electronic chattel paper.

## **3.5  Maintenance of Records**

The  Debtor shall keep and maintain satisfactory and complete records of the Collateral  including but not limited to a record of all payments received and all credits  granted with respect to the Collateral and all other dealings with the Collateral.  The Debtor shall mark its books and records pertaining to the Collateral to  evidence this Agreement and the security interest granted herein. Promptly  upon request of the Secured Party, the Debtor shall deliver and turn over to  the Secured Party copies of all books and records pertaining to the Collateral.

## **3.6  Liens**

Except  for (i) existing licenses of Patents, Trademarks and Copyrights by the Debtor  to third parties set forth on Schedule 3 and (ii) liens in favor of the Koyah  Collateral Agent or liens in favor of other parties named in the Intercreditor  Agreement (as defined below), the Debtor owns the Collateral free and clear  of liens, charges, pledges, security interests, encumbrances or other claims  or interests in the Collateral, and the Debtor will neither create nor permit  the existence of any of the foregoing without the prior written consent of the  Secured Party. Notwithstanding the foregoing, the Secured Party hereby waives  any breach of the covenant set forth above arising from the existing liens set  forth on Schedule 4, so long as the Debtor otherwise remains in compliance with  all of the provisions of the Transaction Documents (as defined in the Agreement  dated as of the date hereof between the Debtor and the Secured Party) and this  Agreement.

## **3.7  Disposition of Collateral**

The  Debtor shall not sell, license, lease, transfer or otherwise dispose of any  of the Collateral without the prior written consent of the Secured Party, except  for sales of inventory, collection of rights to payment, and disposition of  equipment or inventory which is obsolete or being replaced, all in the ordinary  course of business in accordance with past practices.

## **3.8  Limitations on Amendments, Modifications, Terminations, Waivers and Extensions  of Contracts and Agreements Giving Rise to Accounts**

Without  the prior written consent of Secured Party, the Debtor will not (a) amend,  modify, terminate, waive or extend any provision of any agreement giving rise  to an account, general intangible, instrument, chattel paper or other right  to payment, licensing any Patents, Trademarks or Copyrights to the Debtor or  by the Debtor or otherwise relating to the Collateral, in any manner that could  reasonably be expected to have a material adverse effect on the value of any  Collateral or (b) fail to exercise promptly and diligently every material  right that it may have under each such agreement, other than any right of termination  (which shall only be exercised with the prior written consent of the Secured  Party).

## **3.9  Indemnification**

The  Debtor agrees to pay, and to indemnify the Secured Party and hold the Secured  Party harmless from, all liabilities, costs and expenses (including legal fees  and expenses) in connection with protecting or realizing on the Collateral,  enforcing any rights or remedies of the Secured Party or otherwise arising out  of this Agreement. In any suit, proceeding or action brought by the Secured  Party under any account or other right to payment to enforce payment of any  sum owing thereunder or to enforce any provisions of any account or other right  to payment, the Debtor will indemnify the Secured Party and hold the Secured  Party harmless from all expense, loss or damage suffered by reason of any defense,  setoff, counterclaim, recoupment, reduction or liability whatsoever of any account  debtor thereunder arising out of a breach by the Debtor of any obligation thereunder  or arising out of any other agreement, indebtedness or liability at any time  owing to or in favor of such account debtor or its successors from the Debtor.

**3.10  Further Identification of Collateral**

The  Debtor will furnish to the Secured Party from time to time statements and schedules  further identifying and describing the Collateral and such other reports in  connection with the Collateral as the Secured Party may request, all in reasonable  detail.

## **3.11  Notices**

The  Debtor will advise the Secured Party promptly in reasonable detail (a) of any  lien, charge, pledge, security interest, encumbrance or other claim or interest  asserted against any of the Collateral and (b) of the occurrence of any  other event that could reasonably be expected to have a material adverse effect  on the Collateral.

## **3.12  Changes in Locations, Name, Etc.**

The  Debtor will not (a) change its state of organization, (b) change the  location of its chief executive office/chief place of business or remove its  books and records from the locations set forth in Schedule 5 to this Agreement  or (c) change its name, identity or structure to such an extent that any  financing statement filed by the Secured Party in connection with this Agreement  would become ineffective or seriously misleading, unless it shall have given  the Secured Party at least 30 days prior written notice thereof.

## **3.13  Further Assurances**

The  Debtor agrees to take all actions which the Secured Party may request to perfect  or maintain the perfection of, or to otherwise protect, the security interest  granted herein and the Debtor authorizes the Secured Party to take such actions  on behalf of the Debtor, including without limitation (a) filing (including  electronic or facsimile filing) financing statements describing the Collateral,  which may include descriptions broader than as set forth in this Agreement and  (b) filing any documents with the Patent and Trademark Office, Copyright Office  or any other applicable office. The Debtor agrees that where allowed by law,  a carbon, photographic or other reproduction of a financing statement or this  Agreement is sufficient as a financing statement.

**3.14 Insurance**

The  Debtor (a) will keep the Collateral continuously insured at its expense against  fire, theft, and other hazards in amounts and with insurers as shall be sufficient  to fully protect the Collateral, as reasonably approved by the Secured Party,  (b) will include in such policies of insurance to the Secured Party clauses  making any loss payable to the Secured Party as its interest may appear and  agreeing to notify Secured Party of any cancellation or threatened cancellation  not less than 30 days prior to the effective date of such cancellation and (c)  will deliver copies of such policies of insurance to the Secured Party upon  request. 

# **ARTICLE  IV. REPRESENTATIONS AND WARRANTIES**

The  Debtor hereby makes the following representations and warranties:

## **4.1  Title to Collateral**

Except  for liens in favor of the Koyah Collateral Agent or liens in favor of other  parties named in the Intercreditor Agreement, the Debtor has good and marketable  title to all of the Collateral, free and clear of all liens, charges, pledges,  security interests, encumbrances or other claims or interests. Notwithstanding  the foregoing, the Secured Party hereby waives any breach of the representation  and warranty set forth above arising from the existing liens set forth on Schedule  4, so long as the Debtor otherwise remains in compliance with all of the provisions  of the Transaction Documents and this Agreement.

## **4.2  No Impairment of Collateral**

None  of the Collateral shall be impaired or jeopardized because of the security interest  granted herein.

## **4.3  Other Agreements**

The  execution and delivery of this Agreement, the consummation of the transactions  provided for herein, and the fulfillment of the terms hereof will not result  in the breach of any of the terms, conditions, or provisions of, or constitute  a default under, or conflict with or cause any acceleration of any obligation  under any agreement or other instrument to which the Debtor is a party or by  which the Debtor is bound or result in the violation of any applicable law.

## **4.4  No Approvals**

No  approvals of any governmental entity or third party are required in connection  with the security interest herein granted.

## **4.5  Authority**

The  Debtor has full power and authority to grant to the Secured Party a security  interest in the Collateral.

## **4.6  Location of Records**

The  address(es) of the office where the books and records of the Debtor are kept  concerning the Collateral is set forth on Schedule 5 to this Agreement.

## **4.7  State of Organization**

The  Debtor's state of organization is set forth on Schedule 5 to this Agreement.

## **4.8  Chief Executive Office**

The  Debtor's chief executive office and chief place of business is located at the  address set forth on Schedule 5 to this Agreement.

## **4.9  Trade Names**

The  Debtor conducts its business only under its legal name except for any additional  trade names set forth on Schedule 5 to this Agreement. 

# **ARTICLE  V. THE SECURED PARTY'S RIGHTS WITH RESPECT TO THE COLLATERAL**

## **5.1  No Duty on the Secured Party's Part**

The  Secured Party shall not be required to realize upon any Collateral, except at  its option upon the occurrence of any Event of Default; collect the principal,  interest or payment due thereon or exercise any rights or options of the Debtor  pertaining thereto; make presentment, demand or protest; give notice of protest,  nonacceptance or nonpayment; or do any other thing for the protection, enforcement  or collection of any Collateral. The powers conferred on the Secured Party  hereunder are solely to protect the Secured Party's interests in the Collateral  and shall not impose any duty upon the Secured Party to exercise any such powers.  The Secured Party shall be accountable only for amounts that it actually received  as a result of the exercise of such powers; and shall not be responsible to  the Debtor for any act or failure to act hereunder.

## **5.2  Negotiations with Account Debtors**

Upon  the occurrence of any Event of Default, the Secured Party may, in its sole discretion,  extend or consent to the extension of the time of payment or maturity of any  instruments, accounts, chattel paper, general intangibles or other rights to  payment.

## **5.3  Right to Assign**

The  Secured Party may assign or transfer the whole or any part of the Obligations  and may transfer therewith as collateral security the whole or any part of the  Collateral; and all obligations, rights, powers and privileges herein provided  shall inure to the benefit of the assignee and shall bind the successors and  assigns of the parties.

## **5.4  Duties Regarding Collateral**

Beyond  the safe custody thereof, the Secured Party shall not have any duty as to any  Collateral in its possession or control, or as to any preservation of any rights  of or against other parties.

## **5.5  Collection From Account Debtors**

Upon  the occurrence of any Event of Default, the Debtor shall, upon demand by the  Secured Party (and without any grace or cure period), notify all account debtors  to make payment to the Secured Party of any amounts due or to become due. The  Debtor authorizes the Secured Party to contact the account debtors for the purpose  of having all or any of them pay their obligations directly to the Secured Party.  Upon demand by the Secured Party, the Debtor shall enforce collection of any  indebtedness owed to it by account debtors.

## **5.6  Inspection**

The  Secured Party and its designees, from time to time at reasonable times, may  inspect, audit and make copies of and extracts from all records and all other  papers in the possession of the Debtor in connection with the Collateral.

# **ARTICLE  VI. THE SECURED PARTY'S RIGHTS AND REMEDIES**

**6.1  Acceleration; Remedies**

Upon  the occurrence of any Event of Default, the Secured Party shall have all rights  and remedies available to it under the Note, this Agreement, and any other documents  or agreements or available at law or in equity, including without limitation  the Uniform Commercial Code. The Secured Party may proceed to enforce any or  all of such rights and remedies or realize on any or all security or guaranties  for the Obligations in any manner or order it deems expedient without regard  to any equitable principles of marshaling or otherwise. No failure or delay  on the part of the Secured Party in exercising any right, power or privilege  hereunder and no course of dealing shall operate as a waiver thereof; nor shall  any single or partial exercise of any right, power or privilege hereunder preclude  any other or further exercise thereof or the exercise of any right, power or  privilege. The rights and remedies of the Secured Party are cumulative and  not exclusive of any rights or remedies that the Secured Party would otherwise  have. No notice to or demand on the Debtor, in any case, shall entitle the  Debtor to any other or further notice or demand in similar or other circumstances  or shall constitute a waiver of the right of the Secured Party to any other  or further action in any circumstances without notice or demand. 

## **6.2  Notice of Sale**

The  Debtor hereby acknowledges and agrees that written notice mailed to the Debtor  at the address designated herein ten days prior to the date of public or private  sale of any of the Collateral shall constitute commercially reasonable notice.

## **6.3  Disposition of Collateral**

In  addition to all other rights and remedies available to the Secured Party upon  the occurrence of an Event of Default, the Secured Party may dispose of any  of the Collateral at public or private sale in its then present condition or  following such preparation and processing as the Secured Party deems commercially  reasonable. Such sale may include licensing of the Collateral on an exclusive  or non-exclusive basis, on a worldwide or geographically limited basis and on  an all-uses or limited uses basis. For the purpose of enabling the Secured  Party to exercise its rights and remedies hereunder, the Debtor hereby grants  to the Secured Party an irrevocable, non-exclusive license (exercisable without  payment of royalty or other compensation to the Debtor) to use, license or sub-license  any of the Collateral, including in such license access to all media in which  any of the Collateral may be recorded or stored and to all computer software  and programs used for the compilation or printout thereof. The Secured Party  has no duty to prepare or process the Collateral prior to sale. The Secured  Party may disclaim warranties of title, possession, quiet enjoyment and the  like. Such actions by the Secured Party shall not affect the commercial reasonableness  of the sale. Further, the Secured Party may comply with any applicable state  or federal law requirements in connection with a disposition of the Collateral  and compliance will not be considered adversely to affect the commercial reasonableness  of any sale of the Collateral.

**6.4  Rights of Other Creditors**

The  security interest of the Secured Party and the rights of the Secured Party upon  the occurrence of any Event of Default or otherwise under this Agreement shall  be subject to the senior security interest of the Koyah Collateral Agent and  the rights of the Koyah Collateral Agent upon the occurrence of any event of  default or otherwise under its security documents.

**ARTICLE VII. GENERAL PROVISIONS**

## **7.1  The Secured Party's Appointment as Attorney-in-Fact**

(a)  The Debtor hereby irrevocably constitutes and appoints the Secured Party and  any officer or agent thereof, with full power of substitution, as its true and  lawful attorney-in-fact with full irrevocable power and authority  in the place and stead of the Debtor and in the name of the Debtor or in its  own name, from time to time in the Secured Party's discretion, for the purpose  of carrying out the terms of this Agreement, to take any and all appropriate  action and to execute any and all documents and instruments that may be necessary  or desirable to accomplish the purposes of this Agreement; and without limiting  the generality of the foregoing, the Debtor hereby gives the Secured Party the  power and right, on behalf of the Debtor, without consent by or notice to the  Debtor, to do the following:

  (i) upon the occurrence of any Event of Default, to transfer to the Secured  Party or to any other person all or any of the Collateral, to endorse any instruments  pledged to the Secured Party and to fill in blanks in any transfers of Collateral,  powers of attorney or other documents delivered to the Secured Party;

  (ii) to pay or discharge taxes and liens levied or placed on or threatened  against the Collateral;

  (iii) upon the occurrence of any Event of Default, (A) to take possession  of, endorse and collect any checks, drafts, notes, acceptances or other instruments  for the payment of moneys due under any account, instrument or general intangible  or with respect to any other Collateral and (B) to file any claim or to  take any other action or proceeding in any court of law or equity or otherwise  deemed appropriate by the Secured Party for the purpose of collecting all such  moneys due under any account, financial assets, instrument, investment property,  or general intangible or with respect to any other Collateral whenever payable;  and

  (iv) upon the occurrence of any Event of Default, (A) to direct any  party liable for any payment under any of the Collateral to make payment of  all moneys due or to become due thereunder directly to the Secured Party or  as the Secured Party shall direct; (B) to ask for, demand, collect and  receive payment of and receipt for, any and all moneys, claims and other amounts  due or to become due at any time in respect of or arising out of any Collateral;  (C) to sign and endorse any invoices, freight or express bills, bills of  lading, storage or warehouse receipts, drafts against debtors, assignments,  verifications, notices and other documents in connection with any of the Collateral;  (D) to commence and prosecute any suits, actions or proceedings at law  or in equity in any court of competent jurisdiction to collect the Collateral  or any thereof and to enforce any other right in respect of any Collateral;  (E) to defend any suit, action or proceeding brought against the Debtor  with respect to any Collateral; (F) to settle, compromise or adjust any  suit, action or proceeding described in clause (E) above and, in connection  therewith, to give such discharge or releases as the Secured Party may deem  appropriate; and (G) generally, to sell, transfer, pledge and make any  agreement with respect to or otherwise deal with any of the Collateral as fully  and completely as though the Secured Party were the absolute owner thereof for  all purposes; and to do, at the Secured Party's option and the Debtor's expense,  at any time or from time to time, all acts and things that the Secured Party  deems necessary to protect, preserve or realize upon the Collateral and the  Secured Party's security interest therein and to effect the intent of this Agreement,  all as fully and effectively as the Debtor might do.

(b)  The Debtor hereby ratifies all that such attorneys shall lawfully do or cause  to be done by virtue hereof. This power of attorney is a power coupled with  an interest and shall be irrevocable.

(c)   The Debtor also authorizes the Secured Party, at any time and from time  to time, to execute, in connection with the sale provided for in Article VI  hereof, any endorsements, assignments or other instruments of conveyance or  transfer with respect to the Collateral.

(d)  The powers conferred on the Secured Party hereunder are solely to protect the  Secured Party's interests in the Collateral and shall not impose any duty upon  the Secured Party to exercise any such powers. The Secured Party shall be accountable  only for amounts that they actually receive as a result of the exercise of such  powers, and neither it nor any of its officers, directors, employees or agents  shall be responsible to the Debtor for any act or failure to act hereunder.

(e)  The Debtor shall pay or reimburse the Secured Party for all costs and expenses,  including attorneys fees, incurred by the Secured Party while acting as the  Debtor's attorney-in-fact hereunder.

## **7.2  Termination of Agreement**

This  Agreement shall remain in full force and effect until the Obligations have been  fully and finally discharged. 

## **7.3  Severability**

If  any provision of this Agreement is for any reason and to any extent determined  by a court of competent jurisdiction to be invalid or unenforceable, the remainder  of this Agreement will be unaffected and interpreted so as best to reasonably  effect the intent of the parties hereto. Such void or unenforceable provision  of this Agreement shall be replaced with a valid and enforceable provision so  as to achieve, to the greatest extent possible, the economic, business and other  purposes of the void or unenforceable provision.

## **7.4  Waiver**

No  waiver by any party of any breach of any provision hereof shall constitute a  waiver of any other breach of that or any other provision hereof. 

**7.5 Assignment**

All  rights, powers, privileges and immunities herein granted to the Secured Party  shall extend to their successors and assigns and any other legal holder of the  Obligations or this Agreement, with full right by the Secured Party to assign  and/or sell the same. 

**7.6 Successors**

The  rights and obligations of the parties hereto shall inure to the benefit of,  and be binding and enforceable upon, the respective successors and assigns of  the parties.

**7.7   Entire Agreement**

This  Agreement constitutes the entire agreement of the parties hereto concerning  the subject matter hereof, all prior discussions, proposals, negotiations and  understandings having been merged herein. This Agreement or any provision hereof  may be (i) modified or amended, but only by a writing signed by all parties  at such time or (ii) waived (either generally or in a particular instance, either  retroactively or prospectively, either for a specified period of time or indefinitely,  either with or without consideration), but only by a writing signed by the party  granting such waiver. 

**7.8  Intercreditor Agreement.**

The  terms and conditions of this Agreement shall also be governed by and subject  to the terms and conditions of an Intercreditor Agreement dated as of the date  hereof the "Intercreditor Agreement") among the Company and the other  parties named therein.

## **7.9  Governing Law; Jurisdiction; Venue; Jury Trial**

**Consistent  with the governing law and venue provisions of the Intercreditor Agreement,  this Agreement shall be governed by, and interpreted under, the laws of the  State of Washington applicable to contracts made and to be performed therein,  without giving effect to the principles of conflicts of law. The parties hereby  (i) agree that any legal suit, action or proceeding arising out of or relating  to this Agreement must be instituted in a federal or state court located in  the County of Spokane, State of Washington, (ii) irrevocably submit to the jurisdiction  of any such court and waive any objection to the laying of venue in, or the  inconvenience of, such forum and (iii) irrevocably waives all rights to trial  by jury in any action, suit or proceeding arising out of or related to this  Agreement, the Note or any other agreement or document between the Debtor and  the Secured Party.**

## **7.10  Notices**

All  notices and other communications hereunder shall be in writing and shall be  deemed given if delivered personally or by commercial messenger or courier service,  or mailed by registered or certified mail (return receipt requested) or sent  via facsimile (with acknowledgment of complete transmission) to each party at  the address (or at such other address for a party as shall be specified by like  notice) set forth below; provided, however, that notices sent by mail will not  be deemed given until received.

Aura  Systems, Inc. 

  2335 Alaska Avenue

  El Segundo, CA 90245

Attn:  Neal Meehan

Fax:  310-643-8719

[Secured  Party Contact Info]

## **7.11 Costs and Expenses**

The  Debtor hereby agrees to pay to the Secured Party upon demand all costs and expenses,  including attorney's fees, incurred in connection with the administration of  this Agreement, including without limitation all filings or other actions required  by the Secured Party in connection with perfecting or otherwise protecting the  security interest granted hereunder. In addition, the Borrower hereby agrees  to pay to the Secured Party upon demand all costs and expenses, including attorney's  fees, incurred in connection with the enforcement of this Agreement, collection  of the Obligations and the protection, preservation, collection or sale of or  other realization upon the Collateral, including without limitation in any out-of-court  workout, any court action, any appeal or any bankruptcy proceeding. 

## **7.12  Counterparts**

This  Agreement may be executed in any number of counterparts, each of each of which  will be an original, but all of which together will constitute one and the same  instrument.

IN  WITNESS WHEREOF, the Debtor and the Secured Party have caused this Agreement  to be duly executed as of the day and year first above written.

  AURA SYSTEMS, INC.

**SCHEDULE  1**

**Patent and Patent  Applications,**

**Trademark and Trademark  Applications**

**and**

**Copyrights and  Copyright Applications Owned by the Debtor**

1.  Patents.

Any  and all domestic and foreign patent registrations, patent applications, patentable  invention rights or patent-related rights to current and future interests owned  by Debtor or assigned to Debtor, including but not restricted to the following  patent registrations and patent applications:

***Domestic  Patent Registrations***

| *Reg. Number* | *Title*                                                                                                                                                      |  |
|---------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|--|
| 4,892,328     | Electromagnetic        Strut Assembly                                                                                                                        |  |
| 4,912,343     | Electromagnetic        Actuator                                                                                                                              |  |
| 4,969,662     | Active        Damping System for an Automobile Suspension                                                                                                    |  |
| 4,979,789     | Continuous        Source Scene Projector                                                                                                                     |  |
| 5,032,906     | Intensity        Calibration Method for Scene Projector                                                                                                      |  |
| 5,035,475     | Unique        Modulation Television                                                                                                                          |  |
| 5,085,497     | Method        for fabricating mirror array for Optical Projection System                                                                                     |  |
| 5,099,158     | Electromagnetic        Actuator                                                                                                                              |  |
| 5,126,836     | Actuated        Mirror Optical Intensity Modulation                                                                                                          |  |
| 5,135,070     | Active        Hydraulic Pressure Control                                                                                                                     |  |
| 5,138,309     | Electronic        Switch Matrix for a Video Display System                                                                                                   |  |
| 5,150,205     | Actuated        Mirror Optical Intensity Modulation                                                                                                          |  |
| 5,159,225     | Piezoelectric        Actuator                                                                                                                                |  |
| 5,162,767     | High        Efficiency Solenoid                                                                                                                              |  |
| 5,175,465     | Piezoelectric        and Electrostructive Actuators                                                                                                          |  |
| 5,185,660     | Actuated        Mirror Optical Intensity Modulation                                                                                                          |  |
| 5,187,398     | Electromagnetic        Actuator                                                                                                                              |  |
| 5,207,239     | Variable        Gain Servo Assist                                                                                                                            |  |
| 5,212,977     | Electromagnetic        Re-draw Sleeve Actuator                                                                                                               |  |
| 5,222,714     | Electromagnetically        Actuated Valve                                                                                                                    |  |
| 5,245,369     | Scene        Projector                                                                                                                                       |  |
| 5,260,798     | Pixel        Intensity Modulator                                                                                                                             |  |
| 5,278,953     | Machine        Tool Fixture Computer Aided Setup                                                                                                             |  |
| 5,285,995     | Optical        Table Active Leveling and Vibration Cancellation System                                                                                       |  |
| 5,307,665     | Electromagnetic        Re-draw Sleeve Actuator                                                                                                               |  |
| 5,309,050     | Ferromagnetic        Wire Electromagnetic Actuator                                                                                                           |  |
| 5,325,699     | Electromagnetic        Re-draw Sleeve Actuator                                                                                                               |  |
| 5,334,265     | Magnetic        Material                                                                                                                                     |  |
| 5,341,054     | Low        Mass Electromagnetic Actuator                                                                                                                     |  |
| 5,350,153     | Core        Design for Electromagnetic Actuated Valve                                                                                                        |  |
| 5,352,101     | Electromagnetically        Actuated Compressor Valve                                                                                                         |  |
| 5,354,185     | Electromagnetically        Actuated Reciprocating Compressor Driver                                                                                          |  |
| 5,355,108     | Electromagnetically        Actuated Compressor Valve                                                                                                         |  |
| 5,481,396     | Thin        Film Actuated Mirror Array                                                                                                                       |  |
| 5,548,263     | Electromagnetically        Actuated Valve                                                                                                                    |  |
| 5,589,084     | Thin        Film Actuated Mirror Array                                                                                                                       |  |
| 5,616,982     | Piezoelectric        Actuator                                                                                                                                |  |
| 5,689,380     | Thin        Film Actuated Mirror Array for Providing Double Tilt Angle                                                                                       |  |
| 5,710,657     | Monomorph        Thin Film Actuated Mirror Array                                                                                                             |  |
| 5,720,468     | Stagerred        Electromagnetically Actuated Valve Design                                                                                                   |  |
| 5,721,694     | Non-linear        Deterministic Stochastic Filtering Method and System                                                                                       |  |
| 5,734,217     | Induction        Machine using Ferromagnetic Conducting Material in Rotor                                                                                    |  |
| 5,768,392     | Blind        Adaptive Filtering of Unknown Signals in Unknown Noise in Quasi-closed        Loop System                                                       |  |
| 5,768,395     | Double        Ended Field Coil Actuator                                                                                                                      |  |
| 5,772,179     | Hinged        Armature Electromagnetically Actuated Valve                                                                                                    |  |
| 5,780,958     | Piezoelectric        Vibrating Device                                                                                                                        |  |
| 5,782,454     | Electromagnetically        Actuated Valve                                                                                                                    |  |
| 5,796,377     | Video        Display System having an Electronic Switch Matrix for controlling an MSN        array of Piezoelectric Members                                  |  |
| 5,822,370     | Compression/Decompression        for Preservation of High Fidelity Speech Quality at Low Bandwidth                                                           |  |
| 5,898,244     | Dual        Directional Field Coil Actuator                                                                                                                  |  |
| 6,032,113     | N-Stage        Predicted Feedback-Based Compression and Decompression of Spectra of Stochastic        Data Using Convergent Incomplete Autoregressive Models |  |
| 6,157,175     | Mobile        Power Generation System                                                                                                                        |  |
| 6,158,403     | Servo        Control System for an Electromagnetic Valve Actuator used in an Internal        Combustion Engine                                               |  |
| 6,267,351     | Electromagnetic        Valve Actuator with Mechanical End Position Clamp or Latch                                                                            |  |
| D355,751      | Video        Game Accessory Vest                                                                                                                             |  |
| D393,447      | Adapter        Plug                                                                                                                                          |  |
| 5,097,510     | Artificial        Intelligence Pattern Recognition-based Noise Reduction System for Speech        Processing                                                 |  |
| 5,140,640     | Noise        Cancellation System                                                                                                                             |
| 5,589,725     | Monolithic Prestressed Ceramic Devices and Method for        making same                                                                                     |  |
| 4,998,441     | Force        and Torque Measurement System                                                                                                                   |  |
| 5,321,762     | Voice        Coil Actuator                                                                                                                                   |  |
| 5,418,860     | Voice        Coil Excursion and Amplitude Gain Control Device                                                                                                |  |
| 5,424,592     | Electromagnetic        Transducer                                                                                                                            |  |
| 5,434,458     | Voice        Coil Actuator                                                                                                                                   |  |
| 5,536,984     | Voice        Coil Actuator                                                                                                                                   |  |
| 5,539,262     | Axially        Focused Radial Magnet Voice Coil Actuator                                                                                                     |  |
| 5,624,155     | Electromagnetic        Transducer                                                                                                                            |  |
| 5,652,801     | Resonance        Damper for Piezoelectric Transducer                                                                                                         |  |
| 5,727,076     | Audio        Transducer having Piezoelectric Device                                                                                                          |  |
| 5,736,808     | Piezoelectric        Speaker                                                                                                                                 |  |
| 5,786,741     | Polygon        Magnet Structure for Voice Coil Actuator                                                                                                      |  |
| 6,082,315     | Electromagnetic        Valve Actuator                                                                                                                        |  |
| D363,270      | Adapter        Plug                                                                                                                                          |  |
| D364,162      | Amplifier        Housing                                                                                                                                     |  |
| D364,167      | Speaker        Motor Case                                                                                                                                    |  |
| D394,063      | Pair        of Speaker Enclosures                                                                                                                            |  |
| D396,723      | Speaker        Basket                                                                                                                                        |  |
| D449,828      | Speaker        Basket                                                                                                                                        |  |

***Domestic  Patent Applications***

| *Serial Number* | *Title*                                                                                                 |
|-----------------|---------------------------------------------------------------------------------------------------------|
| 09/799,973      | Switched        Reluctance Motor Delivering Constant Torque From Three Phase Sinusoidal        Voltages |
| 09/939,116      | Mobile        power generation system                                                                   |
| 09/938,967      | Bi-directional        power supply circuit                                                              |

***Foreign  Patent Applications***

| *PCT Number* | *Title*                                                                         |
|--------------|---------------------------------------------------------------------------------|
| US00/03815   | Mobile        Power Generation System (Europe, title not verified)              |
| US01/50683   | Mobile        power generation system (Europe & Canada, title not verified) |
| US01/50762   | Bi-directional        power supply circuit (Europe, title not verified)         |

2.  Trademarks.

Any  and all domestic and foreign trademark registrations, trademark applications,  trade and service mark rights, or other trademark-related rights to current  and future interests owned by Debtor or assigned to Debtor, including but not  restricted to the following trademark registrations and trademark applications:

| *Serial Number* | *Reg. Number* | *Word Mark*                      |
|-----------------|---------------|----------------------------------|
| 75547751        |               | AMA                              |
| 75225690        | 2128907       | ASPECT                           |
| 75559987        | 2372115       | AURA                             |
| 74472095        | 1991593       | AURA                             |
| 74369064        | 2196818       | AURA                             |
| 74322660        |               | AURAFLUX                         |
| 75141345        |               | AURAGEN                          |
| 75977693        | 2202313       | AURAGEN                          |
| 75594235        | 2477031       | AURAGEN POWER. ON THE GO.        |
| 74639340        |               | AURAPHILE                        |
| 75141344        |               | AURAPOWER                        |
| 75237652        |               | AURAGEN OF POWER                 |
| 74134961        |               | AURASCOPE                        |
| 74134960        |               | AURASCOPE                        |
| 74466053        | 2142944       | AURASCOPE                        |
| 74417408        |               | AUTO SONICS                      |
| 74410206        |               | AURA SONICS                      |
| 74349974        |               | AURASOUND                        |
| 74313418        | 2482562       | AURA SOUND                       |
| 75235513        |               | AURA VIRTUAL SOUND               |
| 75235817        |               | A V S                            |
| 74679644        | 2072412       | BASS SHAKER                      |
| 74491123        | 1894891       | CUSTOMWARE                       |
| 74491122        | 1892461       | CUSTOMWARE                       |
| 75235512        |               | DO MORE THAN LISTEN              |
| 75225341        | 2181910       | EVA                              |
| 75225280        |               | FAR                              |
| 75225289        |               | FAS                              |
| 75225288        |               | FERRODISK                        |
| 75291968        |               | FORCE                            |
| 75225287        |               | FORCE                            |
| 75225296        |               | FORCE 10                         |
| 75225297        |               | FORCE 12                         |
| 75225298        |               | FORCE 15                         |
| 75225286        |               | FORCE 42                         |
| 75225285        |               | FORCE 52                         |
| 75225284        |               | FORCE 62                         |
| 75229617        |               | FORCE 150                        |
| 75229616        |               | FORCE 250                        |
| 75229720        |               | FORCE 340                        |
| 75229718        |               | FORCE 400Q                       |
| 75225283        |               | FORCE 426                        |
| 75225282        |               | FORCE 527                        |
| 75229719        |               | FORCE 560                        |
| 75225281        |               | FORCE 629                        |
| 75225295        |               | FORCE 639                        |
| 74408244        |               | HIGH GAP                         |
| 74408232        |               | HIGH STROKE                      |
| 74472097        |               | INTERACTOR                       |
| 74425395        | 1920753       | INTERACTOR                       |
| 74132488        | 1663325       | LINAEUM                          |
| 74408446        |               | LINEAR GAP                       |
| 74408231        |               | LINEAR FLUX                      |
| 74408619        |               | LINEAR MAG                       |
| 74408211        |               | LINEAR RING                      |
| 75330407        |               | LINE SOURCE                      |
| 75291967        |               | LINE SOURCE                      |
| 74408243        |               | LINEAR STROKE                    |
| 74528276        |               | MAGFORCE                         |
| 75131644        |               | MOBILE REFERENCE                 |
| 75579640        |               | MOBILE REFERENCE PLATINUM        |
| 75252086        | 2257621       | MR                               |
| 75252085        | 2170439       | MR 1                             |
| 75252089        | 2219543       | MR 5.1                           |
| 75252090        | 2188518       | MR 6.1                           |
| 75252087        | 2224713       | MR 52                            |
| 75252088        | 2170440       | MR 62                            |
| 75252091        |               | MR 629                           |
| 74385179        |               | MUSICAL CHAIRS                   |
| 74720723        | 2063972       | NEO-RADIAL                       |
| 75123841        | 2111403       | NEO-RADIAL TECHNOLOGY            |
| 74706753        | 2067789       | NEO-RADIAL TECHNOLOGY            |
| 74408671        |               | NEO RING                         |
| 75021447        |               | NETFAX                           |
| 74408448        |               | NEO FLUX                         |
| 74408206        |               | NEO GAP                          |
| 74408447        |               | NEO MAG                          |
| 74408208        |               | NEO POWER                        |
| 74408179        |               | NEO STROKE                       |
| 75021446        |               | NETTALK                          |
| 75033935        | 2030035       | NEWCOM                           |
| 75033934        | 2030034       | NEW COM                          |
| 74618797        |               | NEWTALK                          |
| 74706754        | 2144980       | NRT                              |
| 74408242        |               | PILLOW SONICS                    |
| 74394182        |               | POWER TOWER                      |
| 74408601        |               | RADIAL FLUX                      |
| 74408672        |               | RADIAL GAP                       |
| 74408207        |               | RADIAL LINE                      |
| 74408180        |               | RADIAL MAG                       |
| 74408445        |               | RADIAL NEO                       |
| 74408209        |               | RADIAL POLE                      |
| 74408205        |               | RADIAL POWER                     |
| 74408664        |               | RADIAL RING                      |
| 74408178        |               | RADIAL STROKE                    |
| 75579192        | 2654647       | RPM                              |
| 74528416        |               | SOUNDPLAY                        |
| 74408003        |               | TALL GAP                         |
| 74431065        |               | TECHNOLOGIES OF THE 21ST CENTURY |
| 74408210        |               | THEATRE SONICS                   |
| 75579641        |               | THE ULTIMATE UPGRADE             |
| 74437049        |               | THUNDERBOLT                      |
| 74367568        |               | 21ST CENTURY TECHNOLOGIES        |
| 74388369        |               | VIBRASONICS                      |

3.  Copyrights.

Any  and all domestic and foreign copyright registrations, copyright applications  or other copyright-related rights to current and future interests owned by Debtor  or assigned to Debtor. 

**SCHEDULE  2**

**Patents and Patent  Applications, Trademarks and Trademark Applications**

**and**

**Copyrights and  Copyright Applications Licensed to the Debtor**

None.

**SCHEDULE  3**

**Patents  and Patent Applications**

**Trademarks  and Trademark Applications,**

**And  Copyrights and Copyright Applications**

**Licensed  By the Debtor**

None.

**SCHEDULE  4**

**Schedule  of Exceptions**

1.  El Seguendo real property and facilities are subject to a security interest  related to mortgage financing and a pending sale/leaseback transaction.

2.  Note receivable for approximately $1,000,000 under the Alpha Ceramics purchase  agreement has been assigned as collateral to the purchasers in such sale/leaseback  transaction.

**SCHEDULE  5Debtor Information**

State  of organization:  Delaware

Address  of  chief executive office:  Aura Systems, Inc.

  2335 Alaska Avenue

  El Segundo, CA 90245

Address(es)  where  books and records are kept: Same

Additional  trade names:  None