EXHIBIT 10.29

                               SECURITY AGREEMENT


     This Security  Agreement (this  "Agreement") is entered into as of July 24,
2003, by AURA  SYSTEMS,  INC. a Delaware  corporation  (the  "Debtor"),  for the
benefit of KOYAH LEVERAGE PARTNERS,  L.P., a Delaware limited partnership in its
capacity as  collateral  agent for the Lenders  referred to below (the  "Secured
Party").

                                R E C I T A L S :

     A. The Debtor has requested  that KOYAH LEVERAGE  PARTNERS,  L.P. and KOYAH
PARTNERS, L.P. (collectively, the "Lenders") extend loans to the Debtor.

     B. Such loans are to be evidenced by Convertible Promissory Notes dated the
date hereof made by the Debtor in favor of the Lenders (the "Notes").

     C. The Lenders have required, as a condition of making such loans, that the
Debtor grant a security  interest in all of its personal property to secure such
loans and any other present or future obligations of the Debtor to the Lenders.

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

     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 Notes 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  (except  in the case of  (ii)(g)  below  which is  limited to the
specific property set forth therein), whether tangible or intangible and whether
now owned or hereafter acquired,  wherever located, including without limitation
the following:

          (i) (a)  All  goods;  (b) all  inventory,  merchandise,  and  personal
     property  held  for sale or lease or  furnished  or to be  furnished  under
     contracts of service, all raw materials, work in process, or materials used
     or  consumed  in  Debtor's  business,  wherever  located and whether in the
     possession of the Debtor,  a warehouseman,  a bailee,  or any other person;
     (c)  all  equipment,   machinery,   tools,   office  equipment,   supplies,
     furnishings,  furniture,  or  other  items  used  or  useful,  directly  or
     indirectly,  in the  Debtor's  business,  (d)  all  fixtures;  and  (e) all
     substitutes and replacements  therefor,  all accessions,  attachments,  and
     other additions  thereto,  all tools, parts and supplies used in connection
     therewith,  all packaging,  manuals,  warranties and  instructions  related
     thereto, and all leasehold or equitable interests therein;

          (ii) (a) All accounts, accounts receivable, contract rights, contracts
     receivable,  purchase orders, notes, drafts, acceptances,  and other rights
     to payment and  receivables;  (b) all chattel  paper  (whether  tangible or
     electronic),  documents and instruments  (including  promissory notes); (c)
     all money and deposit accounts; (d) all letter of credit rights (whether or
     not the letter of credit is evidenced by a writing), rights under security,
     guaranties  or other  supporting  obligations,  tort  claims and  proceeds,
     insurance claims and proceeds,  and tax refund claims and proceeds; (e) all
     securities and other investment  property;  (f) all general intangibles and
     payment   intangibles,   (g)  all  patents  and  patent   applications  and
     registrations,  trademarks and trademark  applications  and  registrations,
     service marks and service mark applications and registrations, trade names,
     trade  styles,   goodwill,   inventions,   designs,   methods,   processes,
     technology, know-how, intellectual property, drawings, specifications, blue
     prints,  confidential information,  trade secrets, customer lists, supplier
     lists,   software  and  computer  programs,   mask  works,  and  mask  work
     applications and registrations,  copyrights and copyright  applications and
     registrations, goodwill, license agreements, franchise agreements and other
     licenses,  permits,  franchises,  and  agreements  of every kind and nature
     pursuant to which the Debtor possesses, uses or has authority to possess or
     use any property (whether tangible or intangible) of the Debtor or pursuant
     to which  others  possess,  use or have  authority  to  possess  or use any
     property (whether  tangible or intangible) of the Debtor,  and infringement
     and  commercial  tort  claims  which are  related  to the  "AuraGen"  based
     technologies or products ("Patents, Trademarks and Copyrights"),  including
     without  limitation  the patents  and patent  applications,  trademark  and
     trademark  applications and copyrights and copyright applications listed on
     Schedule 1 hereto; and (h) all business records, software, writings, plans,
     specifications, schematics, and other recorded data in any form; and

          (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  Lenders or the  Secured  Party,  whether  now  existing or
hereafter  incurred,  including  without  limitation  those arising out of or in
connection  with the Notes,  this  Agreement  or any other  agreements  with the
Lenders or 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 Lenders or 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.

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. Promptly upon any change in the Patents,  Trademarks and
Copyrights licensed to the Debtor by third parties, 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

     Promptly  upon request of the Secured  Party and at Debtor's  expense,  the
Debtor shall 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

     Promptly  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 all books and records  pertaining to the Collateral at
any time after the occurrence of an Event of Default.

     3.6 Liens

     Except for existing  licenses of Patents,  Trademarks and Copyrights by the
Debtor to third  parties set forth on Schedule 3 to this  Agreement,  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.

     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 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 4 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

     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.

     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 4 to this Agreement.

     4.7 State of Organization

     The  Debtor's  state of  organization  is set forth on  Schedule  4 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 4 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 4 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 and the Lenders shall not be required to realize upon any
Collateral,  except at their 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 and the Lenders  hereunder are solely to protect
the Secured  Party's and the Lenders'  interests in the Collateral and shall not
impose  any duty upon the  Secured  Party or the  Lenders to  exercise  any such
powers.  The Secured Party and the Lenders shall be accountable only for amounts
that they  actually  receive as a result of the  exercise  of such  powers;  and
neither the Secured Party nor the Lenders shall 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 and the Lenders 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

     (a) Upon the occurrence of any Event of Default,  the Secured Party and the
Lenders shall have all rights and remedies available to it under the Notes, 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 and the  Lenders  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 principes
of marshaling or otherwise. No failure or delay on the part of the Secured Party
or the Lenders 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 and the Lenders are  cumulative and
not  exclusive of any rights or remedies  that the Secured  Party or the Lenders
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 or
the Lenders 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
and the Lenders 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.

ARTICLE VII. APPOINTMENT OF COLLATERAL AGENT

     The  Lenders  hereby  appoint  KOYAH  LEVERAGE  PARTNERS,   L.P.  as  their
collateral  agent to act as the  Secured  Party  hereunder  for all  purposes in
obtaining,  maintaining,  protecting and enforcing the security  interest in the
Collateral  and hereby  authorize  KOYAH  LEVERAGE  PARTNERS,  L.P., in its sole
discretion,  to enter into all such  agreements  and to take all such actions as
KOYAH  LEVERAGE  PARTNERS,  L.P.  in its sole  discretion,  deems  necessary  or
advisable in  connection  therewith.  In so acting as  collateral  agent,  KOYAH
LEVERAGE PARTNERS, L.P. shall act for the ratable benefit of the Lenders and any
amounts  realized or costs incurred by the Secured Party in connection with this
Agreement shall be ratably allocated between the Lenders.

ARTICLE VIII. GENERAL PROVISIONS

     8.1 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 or the Lenders to exercise  any such  powers.  The
Secured  Party and the Lenders 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.

8.2 Termination of Agreement

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

8.3 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.

8.4 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.

8.5 Assignment

     All rights, powers, privileges and immunities herein granted to the Secured
Party and the Lenders 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 and the Lenders to assign and/or sell the same.

8.6 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.

8.7 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.

8.8 Governing Law; Jurisdiction; Venue; Jury Trial

     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 Notes or any other agreement or document between the Debtor
and the Secured Party or the Lenders.

8.9 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

                                    Koyah Leverage Partners, L.P.
                                    c/o ICM Asset Management, Inc.
                                    601 West Main Avenue, Suite 600
                                    Spokane WA, 99201
                                    Attn: Robert Law
                                    Fax:    (509) 444-4500

                                    Koyah Partners, L.P.
                                    c/o ICM Asset Management, Inc.
                                    601 West Main Avenue, Suite 600
                                    Spokane WA, 99201
                                    Attn: Robert Law
                                    Fax:    (509) 444-4500


8.10 Costs and Expenses

     The Debtor  hereby  agrees to pay to the Secured Party and the Lenders 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.

8.11 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.

8.12 Title and Subtitles

     The  titles  of the  sections  of this  Agreement  are for  convenience  of
reference only and are not to be considered in construing this Agreement.



                  [Remainder of page intentionally left blank]







<PAGE>



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

               "Debtor"

               AURA SYSTEMS, INC.

               By:    /s/ Neal F. Meehan
               ----------------------------------------------------------
               Name:  Neal F. Meehan
               ----------------------------------------------------------
               Title: Chairman & Chief Executive Officer
               ----------------------------------------------------------

                          "Secured Party" and "Lender"

               KOYAH LEVERAGE PARTNERS, L.P.
               By:    Koyah Ventures LLC, its general partner

               By:    /s/ Robert J. Law
               ------------------------------------------------------
               Name:  Robert J. Law
               Title: Vice President

                                    "Lender"

               KOYAH PARTNERS, L.P.
               By:    Koyah Ventures LLC, its general partner

               By:    /s/ Robert J. Law
               ------------------------------------------------------
               Name:  Robert J. Law
               Title: Vice President








<PAGE>

                                   SCHEDULE 1

                        Patents and Patent Applications,
                      Trademark and Trademark Applications
                                       and
                      Copyrights and Copyright Applications

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,  related to the "AuraGen" based
technologies, including but not restricted to the following patent registrations
and patent applications:



5,734,217     Induction Machine using Ferromagnetic Conducting Material in Rotor

6,157,175     Mobile Power Generation System

Pending       Mobile Power Generation System

Pending       Switched Reluctance Motor Delivering Constant Torque From Three
              Phase Sinusoidal Voltages

Pending       Bi-Directional Power Supply Circuit

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,  relating
generally to "AuraGen"  based  products,  including  but not  restricted  to the
following trademark registrations and trademark applications:



        Serial Number             Reg. Number         Word Mark

           75977693                 2202313           AURAGEN
           --------                 -------           -------

           75594235                 2477031           AURAGEN POWER. ON THE GO.
           --------                 -------           -------------------------

           75559987                 2372115           AURA
           --------                 -------           ----

           75237652                                   AURAGEN OF POWER
           --------                                   ----------------
           75141345                                   AURAGEN
           --------                                   -------
           75141344                                   AURAPOWER
           --------                                   ---------
           74472095                 1991593           AURA
           --------                 -------           ----

           74369064                 2196818           AURA
           --------                 -------           ----

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,  relating to the "AuraGen"  based  technologies or
"AuraGen" products.



                  [Remainder of page intentionally left blank]




<PAGE>



                                   SCHEDULE 2

     Patents and Patent Applications, Trademarks and Trademark Applications
                                       and
          Copyrights and Copyright Applications Licensed to the Debtor



                                      None




<PAGE>


                                   SCHEDULE 3

                         Patents and Patent Applications
                     Trademarks and Trademark Applications,
                    And Copyrights and Copyright Applications
                             Licensed By the Debtor



                                      None

<PAGE>





                                   SCHEDULE 4

                               Debtor 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