THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
         UNDER  THE  SECURITIES  ACT  OF  1933,  AS  AMENDED  (THE  "ACT").  THE
         SECURITIES  MAY NOT BE SOLD,  TRANSFERRED OR ASSIGNED IN THE ABSENCE OF
         AN EFFECTIVE  REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID ACT,
         OR AN OPINION OF COUNSEL IN FORM,  SUBSTANCE  AND SCOPE  CUSTOMARY  FOR
         OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS THAT REGISTRATION IS NOT
         REQUIRED  UNDER SAID ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID
         ACT.


                                           CONVERTIBLE SENIOR SECURED NOTE


El Segundo, California                                       $3,000,000.00
October 7, 1998



<PAGE>





     FOR VALUE RECEIVED, Aura Systems, Inc., a Delaware corporation (hereinafter
called the "Borrower"), hereby promises to pay to the order of RGC International
Investors,  LDC or  registered  assigns (the  "Holder") the sum of Three Million
Dollars ($3,000,000),  on (i) the earliest of (a) April 1, 1999, (b) the closing
of a convertible debt, convertible preferred or common equity financing with net
proceeds to the Borrower of at least  $6,000,000,  and (c) the  occurrence  of a
Maturity Date Event of Default (as defined in Section 1.2) (the earliest of such
dates is hereinafter  defined as the "Maturity  Date") or (ii) if, and solely to
the extent that, the Holder elects the Conversion  Option (as defined below), on
October 7, 2003 (the "Automatic  Conversion  Date"),  and to pay interest on the
unpaid principal  balance hereof at the rate of fourteen percent (14%) per annum
from October 7, 1998 (the "Issue  Date") until the same becomes due and payable,
whether at maturity or upon acceleration or by prepayment or otherwise.  Subject
to Article VI, the Borrower may prepay the  principal and interest on this Note,
without  premium or penalty,  at any time prior to the Maturity Date. Any amount
of  principal  or  interest  on this Note  which is not paid when due shall bear
interest  at the rate of  twenty-two  percent  (22%) per  annum (or such  lesser
amount as is  allowed by law) from the due date  thereof  until the same is paid
("Default Interest"). Interest shall commence accruing on October 7, 1998, shall
be computed on the basis of a 365-day year and the actual number of days elapsed
and shall be payable  (i) in cash,  (a) on  January 2, 1999 and on the  Maturity
Date (as defined  herein) and (b) solely in respect of the  principal  amount in
respect of which the Holder elects the Conversion  Option, the date on which the
Holder elects the Conversion  Option or (ii) to the extent the Holder elects the
Conversion  Option,  at the time of  optional  or  automatic  conversion  of the
principal to which such interest relates in accordance with Article I below. All
payments of principal  and accrued  interest (to the extent not  converted  into
common stock, par value $.005 per share, of the Borrower (the "Common Stock") in
accordance  with the terms  hereof)  shall be made in lawful money of the United
States of  America.  All  payments  shall be made at such  address as the Holder
shall  hereafter give to the Borrower by written notice made in accordance  with
the  provisions  of this Note.  Whenever  any amount  expressed to be due by the
terms of this Note is due on any day which is not a business day, the same shall
instead be due on the next  succeeding  day which is a business  day and, in the
case of any  interest  payment  date which is not the date on which this Note is
paid in full,  the  extension  of the due date  thereof  shall not be taken into
account for purposes of determining  the amount of interest due on such date. As
used in this  Note,  the term  "business  day"  shall  mean any day other than a
Saturday, Sunday or a day on which commercial banks in the city of New York, New
York are authorized or required by law or executive order to remain closed. Each
capitalized term used herein, and not otherwise defined,  shall have the meaning
ascribed thereto in that certain Securities Purchase Agreement, dated October 7,
1998,  pursuant  to  which  this  Note  was  originally  issued  (the  "Purchase
Agreement").  The Automatic  Conversion Date is subject to extension pursuant to
Section 2.4 below. This Note is a secured obligation and is subject to the terms
of that certain  Security  Agreement  dated as of October 7, 1998 (the "Security
Agreement").

         The following terms shall apply to this Note:

                     ARTICLE  I.  MANDATORY PAYMENT

     1.1 Mandatory Payment. On the Maturity Date, the Borrower shall be required
to pay this Note in  accordance  with this  Section 1.1 to the extent the Holder
hereof has not previously  elected to exercise its Conversion Option (as defined
in Section  2.1(a)) in accordance  with Section  2.1(a).  No later than five (5)
business days after the Maturity Date (the "Payment  Date"),  the Borrower shall
make payment of the Mandatory  Payment  Amount (as defined  below) in cash to or
upon the order of the  Holder as  specified  by the  Holder  in  writing  to the
Borrower.  The "Mandatory  Payment  Amount" shall be equal to the sum of (a) the
outstanding  principal amount of this Note not subject to the Conversion  Option
plus (b) accrued and unpaid  interest on the  principal  amount of this Note not
subject to the  Conversion  Option  plus (c)  Default  Interest,  if any, on the
interest  referred to in the immediately  preceding  clause plus (d) any amounts
owed to the Holder  pursuant  to Sections  2.3 and 2.4(g)  hereof or pursuant to
Section 2(b) of the Registration Rights Agreement;  provided,  however,  that if
the Maturity  Date results from the  occurrence  of one of the Events of Default
which  constitutes a Maturity  Date Event of Default then the Mandatory  Payment
Amount  shall  equal  the  Default  Amount.  If the  Borrower  fails  to pay the
Mandatory Payment Amount on the Payment Date, such portion of the Note shall, at
the sole election of the Holder, become subject to the Conversion Option. Except
as otherwise  provided in the preceding  sentence,  the portion of this Note, if
any, in respect of which the Conversion Option is elected shall be deducted from
the Mandatory  Payment  Amount,  and shall be  convertible  in  accordance  with
Article II. The remainder of the Mandatory  Payment  Amount shall continue to be
immediately  due and owing.  Subject to Article V, the  Borrower  shall have the
right to prepay any portion of this Note at any time prior to the Maturity Date.

     1.2 Maturity  Date Events of Default.  The Events of Default (as defined in
Article IV)  described in Sections 4.1, 4.4, 4.5, 4.6, 4.7, 4.8, 4.9, or 4.10 as
well as the events of default attached hereto as Schedule 1.2 shall be deemed to
be "Maturity Date Events of Default."


<PAGE>



                       ARTICLE II.  CONVERSION RIGHTS

                  2.1      Conversion Right.

     (a) Notwithstanding  anything else contained herein to the contrary,  on or
after the earlier of (i) one hundred twenty (120) days from the Issue Date; (ii)
the occurrence of an event set forth in Schedule 1.2; and (iii) the Payment Date
(to the extent the Mandatory  Payment  Amount is not paid on the Payment  Date),
the Holder may elect to have all or a portion  of this Note  become  convertible
into Common Stock pursuant to this Article II (the "Conversion  Option"). To the
extent the  Conversion  Option is not exercised as a result of clause (i) above,
this Note shall  become due on the  Maturity  Date  pursuant to Section 1.1. The
Holder may elect to exercise the Conversion  Option by sending written notice to
the  Borrower  at any  time  after  the  Conversion  Option  becomes  effective.
Notwithstanding  anything else contained  herein to the contrary,  to the extent
the Holder elects the  Conversion  Option,  the Holder shall retain the right to
demand  payment in  accordance  with  Section 1.1 of any portion of this Note in
respect of which it has exercised the Conversion Option or otherwise at any time
on or after the Maturity  Date upon five (5) Trading Days written  notice to the
Borrower.



<PAGE>


     (b) Upon election of the Conversion Option, the Holder shall have the right
from  time to  time,  and at any  time on or  prior  to the day  that all of the
principal,  accrued  interest and other  amounts  payable  hereunder are paid in
full,  to  convert  at any  time  all or  from  time  to  time  any  part of the
outstanding  and unpaid  principal  amount of this Note of at least $50,000,  or
such  lesser  amount  as  shall  remain  unpaid  at the  time of the  conversion
(together with accrued  interest  thereon),  into fully paid and  non-assessable
shares of Common  Stock,  as such Common Stock exists on the date of issuance of
this Note,  or any shares of capital  stock of  Borrower  into which such Common
Stock  shall  hereafter  be  changed or  reclassified  at the  conversion  price
determined as provided herein (the "Conversion Price"); provided,  however, that
in no event (other than in connection  with an Automatic  Conversion (as defined
in Section  2.4 below) on the  Automatic  Conversion  Date)  shall the Holder be
entitled to convert  any portion of this Note in excess of that  portion of this
Note  upon  conversion  of which  the sum of (1) the  number of shares of Common
Stock  beneficially owned by the Holder and its affiliates (other than shares of
Common Stock which may be deemed beneficially owned through the ownership of the
unconverted  portion of the Notes or the  unexercised or unconverted  portion of
any other security of the Borrower (including,  without limitation, the warrants
issued  by  the  Borrower  pursuant  to the  Purchase  Agreement)  subject  to a
limitation  on  conversion or exercise  analogous to the  limitations  contained
herein)  and (2) the  number  of  shares  of  Common  Stock  issuable  upon  the
conversion  of the portion of this Note with respect to which the  determination
of this  proviso is being made,  would  result in  beneficial  ownership  by the
Holder and its affiliates of more than 4.9% of the outstanding  shares of Common
Stock.  For  purposes  of the  proviso to the  immediately  preceding  sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended,  and Regulations 13 D-G thereunder,
except as otherwise provided in clause (1) of such proviso. The number of shares
of  Common  Stock to be  issued  upon  each  conversion  of this  Note  shall be
determined  by  dividing  the  Conversion  Amount  (as  defined  below)  by  the
Conversion  Price in  effect  on the date a notice  of  conversion,  in the form
attached hereto as Exhibit A (the "Notice of  Conversion"),  is delivered to the
Borrower by the Holder in  accordance  with  Section 2.4 below (the  "Conversion
Date").  The term "Conversion  Amount" means,  with respect to any conversion of
this Note,  the sum of (1) the principal  amount of this Note to be converted in
such conversion plus (2) accrued and unpaid interest,  if any, on such principal
amount at the interest rates  provided in this Note to the Conversion  Date plus
(3) Default  Interest,  if any, on the interest  referred to in the  immediately
preceding  clause (2) plus (4) at the Holder's  option,  any amounts owed to the
Holder pursuant to Sections 2.3 and 2.4(g) hereof or pursuant to Section 2(b) of
that  certain  Registration  Rights  Agreement,  dated as of  October  7,  1998,
executed  in  connection  with the  initial  issuance of this Note and the other
Notes  issued  pursuant to the  Purchase  Agreement  (the  "Registration  Rights
Agreement"); provided, however, that in the event that the Conversion Option has
been elected  following an event specified in Sections  2.1(a)(ii) or (iii), the
"principal  amount  of this  Note"  shall be  deemed  to refer to the  Mandatory
Payment Amount.

                  2.2      Conversion Price.



<PAGE>


     (a) The Conversion Price shall be the lesser of (i) the Variable Conversion
Price (as  defined  herein)  and (ii) the  Fixed  Conversion  Price (as  defined
herein) (subject, in each case, to equitable adjustments for stock splits, stock
dividends  or  rights  offerings  by the  Borrower  relating  to the  Borrower's
securities or the  securities of any  subsidiary of the Borrower,  combinations,
recapitalization,  reclassifications,  extraordinary  distributions  and similar
events).  The "Variable  Conversion Price" shall mean the Applicable  Percentage
(as defined herein) multiplied by the Market Price (as defined herein).  "Market
Price"  means the average of the Closing Bid Prices for the Common Stock for any
five (5) consecutive  Trading Days during the sixty (60) Trading Day period (the
"Pricing Period") ending one Trading Day prior to the date the Conversion Notice
is sent by the Holder to the Borrower via  facsimile  (the  "Conversion  Date").
"Closing Bid Price" means, for any security as of any date, the last closing bid
price on the Nasdaq National Market as reported by Bloomberg  Financial  Markets
or  an  equivalent,  reliable  reporting  service  mutually  acceptable  to  and
hereafter  designated  by Holders of a majority in interest of the Notes and the
Borrower  ("Bloomberg")  or, if the Nasdaq  National Market is not the principal
trading market for such security, the last closing bid price of such security on
the  principal  securities  exchange or trading  market  where such  security is
listed or traded as reported by Bloomberg, or if the foregoing do not apply, the
last closing bid price of such  security in the  over-the-counter  market on the
electronic bulletin board for such security as reported by Bloomberg,  or, if no
closing  bid  price  of such  security  in the  over-the-counter  market  on the
electronic bulletin board for such security as reported by Bloomberg,  or, if no
closing bid price is reported for such security by Bloomberg, the average of the
bid  prices of any market  makers for such  security  as  reported  in the "pink
sheets" by the National  Quotation Bureau,  Inc. If the Closing Bid Price cannot
be  calculated  for such security on such date shall be the fair market value as
mutually determined by the Borrower and the Holders of a majority in interest of
Notes  being  converted  for which the  calculation  of the closing bid price is
required in order to determine the Conversion Price of such Notes. "Trading Day"
shall  mean any day on which the  Common  Stock is traded  for any period on the
Nasdaq  National  Market,  or on the  principal  securities  exchange  or  other
securities  market on which the Common Stock is then being  traded.  "Applicable
Percentage"  shall mean 100%. The "Fixed Conversion Price" shall mean $1.40. The
"Closing  Price" means,  for any security as of any date, the last sale price on
the Nasdaq  National  Market as reported by Bloomberg or, if the Nasdaq National
Market is not the  principal  trading  market for such  security,  the last sale
price of such security on the principal  securities  exchange or trading  market
where such  security  is listed or traded as reported  by  Bloomberg,  or if the
foregoing  do  not  apply,   the  last  sale  price  of  such  security  in  the
over-the-counter  market on the  electronic  bulletin board for such security as
reported by  Bloomberg,  or, if no last sale price is reported for such security
by  Bloomberg,  then the average of the bid and ask prices of all active  market
makers for such  security  as  reported  in the "pink  sheets"  by the  National
Quotation Bureau,  Inc. If the Closing Price of such security on such date shall
be the fair market value as mutually determined by Borrower and the Holders of a
majority in interest of the Notes being  converted for which the  calculation of
the Closing Price is required in order to determine the Conversion Price of such
Notes.

     (b)  Notwithstanding  anything contained in Section 2.2(a) to the contrary,
in the event the  Borrower  (i) makes a public  announcement  that it intends to
consolidate  or merge with any other  corporation  (other than a merger in which
the Borrower is the surviving or continuing corporation and its capital stock is
unchanged)  or sell or transfer  all or  substantially  all of the assets of the
Borrower or (ii) any person,  group or entity (including the Borrower)  publicly
announces a tender offer to purchase 50% or more of the Borrower's  Common Stock
(or any other  takeover  scheme)  (the date of the  announcement  referred to in
clause (i) or (ii) is hereinafter referred to as the "Announcement  Date"), then
the Conversion Price shall,  effective upon the Announcement Date and continuing
through the Adjusted  Conversion Price  Termination Date (as defined below),  be
equal to the lower of (x) the Conversion  Price which would have been applicable
for a Conversion occurring on the Announcement Date and (y) the Conversion Price
that would otherwise be in effect.  From and after the Adjusted Conversion Price
Termination  Date, the Conversion Price shall be determined as set forth in this
Section 2.2(b).  For purposes hereof,  "Adjusted  Conversion  Price  Termination
Date" shall mean,  with respect to any proposed  transaction or tender offer (or
takeover scheme) for which a public announcement as contemplated by this Section
2.2(b) has been made,  the date upon which the  Borrower  (in the case of clause
(i) above) or the  person,  group or entity (in the case of clause  (ii)  above)
consummates or publicly announces the termination or abandonment of the proposed
transaction  or tender  offer (or  takeover  scheme)  which  caused this Section
2.2(b) to become operative.



<PAGE>


     (c) In the event that (1) the Borrower fails to obtain  effectiveness  with
the Securities and Exchange Commission of the Registration Statement (as defined
in the  Registration  Rights  Agreement)  prior to one hundred twenty (120) days
following the Issue Date, or (2) such  Registration  Statement lapses in effect,
or sales of all of the  Registrable  Securities (as defined in the  Registration
Rights Agreement) cannot otherwise be made thereunder,  whether by reason of the
Borrower's  failure or  inability to amend or  supplement  the  prospectus  (the
"Prospectus")  included  therein  in  accordance  with the  Registration  Rights
Agreement or otherwise,  after such  Registration  Statement  becomes  effective
(including,  without limitation,  during an Allowed Delay (as defined in Section
3(f) of the Registration  Rights  Agreement)),  then the Pricing Period shall be
comprised  of, (i) in the case of an event  described in clause (1),  sixty (60)
Trading Days  preceding  the 120th day following the Issue Date plus all Trading
Days  through  and  including  the  third  Trading  Day  following  the  date of
effectiveness  of the Registration  Statement;  and (ii) in the case of an event
described in clause (2), the number of Trading Days  preceding the date on which
the Holder is first  notified  that  sales may not be made under the  Prospectus
that would  otherwise then be included in the Pricing Period in accordance  with
the  definition  thereof  set forth in Section  2.2(a),  plus all  Trading  Days
through and  including  the third (3rd)  Trading Day following the date on which
the  Holder  is first  notified  that such  sales  may  again be made  under the
Prospectus.  If a Holder  determines  that sales may not be made pursuant to the
Prospectus  (whether by reason of the Borrower's  failure or ability to amend or
supplement  the  Prospectus  or  otherwise)  it shall so notify the  Borrower in
writing and, unless the Borrower  provider such Holder with a written opinion of
the Borrower's counsel to the contrary,  such determination shall be binding for
purposes of this Paragraph.

     2.3 Authorized  Shares.  The Borrower  covenants that during the period the
conversion  right  exists,  the Borrower  will reserve from its  authorized  and
unissued Common Stock a sufficient  number of shares to provide for the issuance
of Common Stock upon the full conversion of this Note and the other Notes issued
pursuant  to the  Purchase  Agreement.  As of the date of issuance of this Note,
4,285,715 (2x currently required) authorized and unissued shares of Common Stock
have been duly reserved for issuance upon  conversion of this Note and the other
Notes issued  pursuant to the Purchase  Agreement (the "Reserved  Amount").  The
Borrower  represents  that upon  issuance,  such shares will be duly and validly
issued, fully paid and non-assessable. The Borrower (i) acknowledges that it has
irrevocably  instructed its transfer agent to issue  certificates for the Common
Stock issuable upon conversion of this Note and (ii) agrees that its issuance of
this Note shall  constitute  full  authority  to its officers and agents who are
charged with the duty of executing  stock  certificates to execute and issue the
necessary  certificates  for shares of Common Stock in accordance with the terms
and conditions of this Note.


<PAGE>


     If, at any time a Holder of this Note submits a Notice of  Conversion,  the
Borrower does not have sufficient authorized but unissued shares of Common Stock
available to effect such  conversion in accordance  with the  provisions of this
Article II (a "Conversion Default"),  subject to Section 6.8, the Borrower shall
issue to the Holder all of the shares of Common  Stock which are then  available
to effect such conversion. The portion of this Note which the Holder included in
its  Conversion  Notice and which  exceeds the amount which is then  convertible
into   available   shares  of  Common   Stock  (the  "Excess   Amount")   shall,
notwithstanding  anything to the contrary  contained herein,  not be convertible
into Common Stock in accordance with the terms hereof until (and at the Holder's
option  at any time  after)  the date  additional  shares  of  Common  Stock are
authorized  by the  Borrower,  at which  time the  Conversion  Price in  respect
thereof shall be the lower of (i) the Conversion Price on the Conversion Default
Date (as defined  below) and (ii) the Conversion  Price on the  Conversion  Date
thereafter  elected by the Holder in respect thereof.  The Borrower shall pay to
the Holder payments  ("Conversion Default Payments") for a Conversion Default in
the  amount of  (N/365) x .24 x the  Excess  Amount  on the  Conversion  Date in
respect of the Conversion Default (the "Conversion Default Date"), where N = the
number of days from the Conversion Default Date to the date (the  "Authorization
Date") that the  Borrower  authorizes  a  sufficient  number of shares of Common
Stock to effect  conversion of the full  outstanding  principal  balance of this
Note. The Borrower  shall use its best efforts to authorize a sufficient  number
of shares of Common Stock as soon as  practicable  following  the earlier of (i)
such time that the Holder  notifies the Borrower or that the Borrower  otherwise
becomes  aware  that there are or likely  will be  insufficient  authorized  and
unissued shares to allow full conversion thereof and (ii) a Conversion  Default.
The Borrower shall send notice to the Holder of the  authorization of additional
shares  of Common  Stock,  the  Authorization  Date and the  amount of  Holder's
accrued Conversion Default Payments. The accrued Conversion Default Payments for
each calendar  month shall be paid in cash or shall be  convertible  into Common
Stock (at such time as there are sufficient  authorized  shares of Common Stock)
at the Market Price (as defined below), at the Holder's option, as follows:
     (a) In the event Holder  elects to take such payment in cash,  cash payment
shall be made to Holder by the  fifth  day of the month  following  the month in
which it has accrued; and

     (b) In the event Holder  elects to take such payment in Common  Stock,  the
Holder may convert such payment amount into Common Stock at the Conversion Price
(as in effect at the time of  conversion) at any time after the fifth day of the
month  following  the month in which it has  accrued  (at such time as there are
sufficient  authorized  shares of Common Stock) in accordance  with the terms of
this Article II.

     The Holder's  election shall be made in writing to the Borrower at any time
prior to 9:00 p.m., New York City Time, on the third day of the month  following
the month in which Conversion  Default payments have accrued.  If no election is
made, the Holder shall be deemed to have elected to receive cash. Nothing herein
shall limit the Holder's right to pursue actual damages (to the extent in excess
of the Conversion  Default Payments) due to the Borrower's failure to maintain a
sufficient number of authorized shares of Common Stock.

                  2.4      Method of Conversion.



<PAGE>


     (a) This Note may be converted by the Holder in whole or in part  (provided
such partial  conversion  is at least  $50,000,  or such lesser  amount as shall
remain unpaid at the time of the  conversion  (together  with accrued and unpaid
interest thereon)) at any time from time to time in accordance with Section 2.1,
by (A)  submitting to the Borrower a Notice of Conversion (by facsimile or other
reasonable  means of  communication  dispatched on the Conversion  Date prior to
11:00 p.m., New York City Time) and (B) subject to Section 2.4(b),  surrendering
this Note at the principal  office of the Borrower.  So long as the registration
statement filed pursuant to Section 2(a) of the  Registration  Rights  Agreement
(the  "Registration  Statement") is effective (or the Common Stock issuable upon
conversion  hereof may otherwise be resold  publicly  without  restriction)  and
there  is  not  then a  continuing  Event  of  Default,  each  Note  issued  and
outstanding on the Automatic  Conversion Date,  automatically shall be converted
into shares of Common Stock on such date at the then effective  Conversion Price
in  accordance  with,  and subject to, the  provisions  of this  Article II (the
"Automatic  Conversion").  The Automatic Conversion Date shall be the Conversion
Date for purposes of determining the Conversion  Price and the time within which
certificates  representing  the Common  Stock must be  delivered  to the holder.
Notwithstanding  anything  to  the  contrary  contained  herein,  the  Automatic
Conversion  Date shall be extended by one (1) day for each Trading Day occurring
prior  thereto and prior to the full  conversion  of this Note that (i) sales of
all of the  Registrable  Securities  (as  defined  in  the  Registration  Rights
Agreement)  cannot be made pursuant to the  Registration  Statement  (whether by
reason of the Company's  failure to properly  supplement or amend the prospectus
included  therein  in  accordance  with  the  terms of the  Registration  Rights
Agreement or otherwise  including Allowed Delays (as defined in the Registration
Rights  Agreement)),  (ii) any Event of Default  (as  defined in Article  IV) or
Trading  Market  Prepayment  Event (as defined in Section 2.7)  exists,  without
regard to whether  any cure  periods  have run or (iii) that the  Borrower is in
breach  of  any  of its  obligations  pursuant  to  Section  4 of  the  Purchase
Agreement.

     (b)  Notwithstanding  anything  to the  contrary  set  forth  herein,  upon
conversion  of this Note in accordance  with the terms hereof,  the Holder shall
not be required to  physically  surrender  this Note to the Borrower  unless the
entire unpaid principal amount of this Note is so converted.  The Holder and the
Borrower shall maintain  records  showing the principal  amount so converted and
the  dates of such  conversions  or  shall  use such  other  method,  reasonably
satisfactory  to the Holder  and the  Borrower,  so as not to  require  physical
surrender of this Note upon each such conversion. In the event of any dispute or
discrepancy, such records of the Borrower shall be controlling and determinative
in the absence of manifest error.  Notwithstanding the foregoing, if any portion
of this Note is converted as  aforesaid,  the Holder may not transfer  this Note
unless  the  Holder  first  physically  surrenders  this  Note to the  Borrower,
whereupon  the Borrower will  forthwith  issue and deliver upon the order of the
Holder a new note of like tenor,  registered  as the Holder (upon payment by the
Holder of any  applicable  transfer  taxes)  may  request,  representing  in the
aggregate the remaining unpaid principal amount of this Note. The Holder and any
assignee,  by acceptance of this Note,  acknowledge and agree that, by reason of
the  provisions  of this  paragraph,  following  conversion of a portion of this
Note, the unpaid and unconverted  principal  amount of this Note  represented by
this Note may be less than the amount stated on the face hereof.

     (c) The Borrower  shall not be required to pay any tax which may be payable
in respect  of any  transfer  involved  in the issue and  delivery  of shares of
Common Stock or other  securities  or property on  conversion  of this Note in a
name other than that of the Holder (or in street name),  and the Borrower  shall
not be  required  to issue or deliver  any such  shares or other  securities  or
property  unless and until the person or persons  (other  than the Holder or the
custodian  in whose  street  name such  shares  are to be held for the  Holder's
account)  requesting  the issuance  thereof  shall have paid to the Borrower the
amount of any such tax or shall  have  established  to the  satisfaction  of the
Borrower that such tax has been paid.



<PAGE>

     (d)  Upon  receipt  by  the  Borrower   from  the  Holder  of  a  facsimile
transmission  (or  other  reasonable  means of  communication)  of a  Notice  of
Conversion  meeting the  requirements for conversion as provided in this Section
2.4, the Borrower shall issue and deliver or cause to be issued and delivered to
the Holder  certificates  for the Common  Stock  issuable  upon such  conversion
within two (2)  business  days after such  receipt  (and,  solely in the case of
conversion of the entire unpaid principal amount hereof, surrender of this Note)
(such second  business day being  hereinafter  referred to as the "Deadline") in
accordance with the terms hereof and the Purchase Agreement (including,  without
limitation,  in accordance with the requirement that  certificates for shares of
Common Stock issued on or after the effective date of the Registration Statement
upon conversion of this Note shall not bear any restrictive legend).

     (e) Upon  receipt by the  Borrower  of a Notice of  Conversion,  the Holder
shall be deemed to be the holder of record of the  Common  Stock  issuable  upon
such conversion,  the outstanding principal amount and the amount of accrued and
unpaid interest on this Note shall be reduced to reflect such  conversion,  and,
unless the  Borrower  defaults  on its  obligations  under this  Article II, all
rights  with  respect  to the  portion  of this Note  being so  converted  shall
forthwith  terminate  except  the right to  receive  the  Common  Stock or other
securities, cash or other assets, as herein provided, on such conversion. If the
Holder  shall  have  given a  Notice  of  Conversion  as  provided  herein,  the
Borrower's  obligation  to issue and deliver the  certificates  for Common Stock
shall be absolute and  unconditional,  irrespective of the absence of any action
by the Holder to enforce  the same,  any waiver or consent  with  respect to any
provision thereof, the recovery of any judgment against any person or any action
to  enforce  the same,  any  failure  or delay in the  enforcement  of any other
obligation of the Borrower to the holder of record, or any setoff, counterclaim,
recoupment,  limitation or  termination,  or any breach or alleged breach by the
Holder  of any  obligation  to  the  Borrower,  and  irrespective  of any  other
circumstance  which might otherwise limit such obligation of the Borrower to the
Holder in connection with such conversion. The date of receipt of such Notice of
Conversion  shall be the Conversion  Date so long as it is received before 11:00
p.m., New York City Time, on such date.

     (f) In lieu of delivering  physical  certificates  representing  the Common
Stock  issuable  upon  conversion,  provided the  Borrower's  transfer  agent is
participating in the Depository Trust Company ("DTC") Fast Automated  Securities
Transfer  ("FAST")  program,  upon request of the Holder and its compliance with
the  provisions  contained  in Section 2.1 and in this Section 2.4, the Borrower
shall  use its  best  efforts  to cause  its  transfer  agent to  electronically
transmit the Common Stock  issuable  upon  conversion to the Holder by crediting
the account of  Holder's  Prime  Broker with DTC through its Deposit  Withdrawal
Agent Commission ("DWAC") system.



<PAGE>


     (g)  Without  in any way  limiting  the  Holder's  right  to  pursue  other
remedies,  including actual damages and/or equitable  relief,  the parties agree
that if delivery of the Common Stock  issuable  upon  conversion of this Note is
more than one (1) business  day after the Deadline  (other than a failure due to
the  circumstances  described  in Section  2.3  above,  which  failure  shall be
governed by such  Section) the Borrower  shall pay to the Holder $500 per day in
cash,  for each of the first two (2) days beyond the Deadline and $2,500 per day
in cash for each day  thereafter  that the Borrower fails to deliver such Common
Stock.  Such cash  amount  shall be paid to Holder by the fifth day of the month
following  the month in which it has accrued or, at the option of the Holder (by
written notice to the Borrower by the first day of the month following the month
in which it has accrued),  shall be added to the principal  amount of this Note,
in which event  interest  shall accrue  thereon in accordance  with the terms of
this Note and such additional  principal amount shall be convertible into Common
Stock in accordance with the terms of this Note.

     2.5  Concerning  the  Shares.  The  shares of Common  Stock  issuable  upon
conversion  of this Note may not be sold or  transferred  unless either (i) such
shares shall have been included in an effective registration statement under the
Act or (ii) the Borrower or its transfer agent shall have been furnished with an
opinion or other similar letter of legal counsel to the effect that such sale or
transfer is exempt from the  registration  requirements of the Act or (iii) such
shares are sold pursuant to Rule 144 under the Act (or a successor  rule) ("Rule
144") or (iv) such shares are  transferred to an "affiliate" (as defined in Rule
144) of the  Borrower.  Except as otherwise  provided in the Purchase  Agreement
(and subject to the removal provisions set forth below),  until such time as the
shares  of  Common  Stock  issuable  upon  conversion  of this  Note  have  been
registered under the Act as contemplated by the Registration Rights Agreement or
otherwise  may be sold  pursuant to Rule 144 without any  restriction  as to the
number of securities as of a particular date that can then be immediately  sold,
each  certificate  for shares of Common Stock  issuable upon  conversion of this
Note, shall bear a legend substantially in the following form, as appropriate:

         "THE  SECURITIES   REPRESENTED  BY  THIS   CERTIFICATE  HAVE  NOT  BEEN
         REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES
         MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
         REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION
         OF COUNSEL IN FORM,  SUBSTANCE  AND SCOPE  CUSTOMARY  FOR  OPINIONS  OF
         COUNSEL IN COMPARABLE  TRANSACTIONS,  THAT REGISTRATION IS NOT REQUIRED
         UNDER SAID ACT UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT."

     The legend set forth above shall be removed and the Borrower shall issue to
the Holder a new  certificate  therefor  free of any transfer  legend if (i) the
Borrower or its  transfer  agent shall have  received an opinion of counsel,  in
form,  substance  and scope  customary  for  opinions  of counsel in  comparable
transactions,  to the effect that a public sale or transfer of such Common Stock
may be made  without  registration  under the Act and the  shares are so sold or
transferred,  (ii) such Holder  provides the Borrower or its transfer agent with
reasonable  assurances  that the Common Stock  issuable upon  conversion of this
Note (to the extent such securities are deemed to have been acquired on the same
date) can be sold  pursuant to Rule 144 or (iii) in the case of the Common Stock
issuable upon  conversion of this Note,  such security is registered for sale by
the Holder  under an  effective  registration  statement  filed under the Act or
otherwise  may be sold  pursuant to Rule 144 without any  restriction  as to the
number of securities as of a particular date that can then be immediately  sold.
Nothing  in this  Note  shall  (i) limit  the  Borrower's  obligation  under the
Registration Rights Agreement or (ii) affect in any way the Holder's obligations
to comply with applicable  prospectus  delivery  requirements upon the resale of
the securities referred to herein.


<PAGE>



                  2.6      Effect of Certain Events.

     (a) At the option of the Holder, the sale, conveyance or disposition of all
or  substantially  all of the assets of the Borrower,  the  effectuation  by the
Borrower of a transaction or series of related  transactions  in which more than
50% of the voting power of the  Borrower is disposed  of, or the  consolidation,
merger or other  business  combination  of the  Borrower  with or into any other
Person (as defined below) or Persons when the Borrower is not the survivor shall
either:  (i) be deemed to be an Event of Default  (as  defined  in  Article  IV)
pursuant to which the Borrower  shall be required to pay to the Holder an amount
equal to the  Default  Amount  (as  defined  in  Article  IV) or (ii) be treated
pursuant  to  Section  2.6(b)  hereof.   "Person"  shall  mean  any  individual,
corporation, limited liability company, partnership, association, trust or other
entity or organization.

     (b)  Subject to Section  3.4,  if, at any time when this Note is issued and
outstanding,  there  shall be any  merger,  consolidation,  exchange  of shares,
recapitalization,  reorganization,  or other similar event, as a result of which
shares of  Common  Stock of the  Borrower  shall be  changed  into the same or a
different number of shares of another class or classes of stock or securities of
the Borrower or another  entity,  or in case of any sale or conveyance of all or
substantially  all of the assets of the Borrower other than in connection with a
plan of complete liquidation of the Borrower, then, to the extent the Holder has
or thereafter  exercises the Conversion  Option in accordance  with Section 2.1,
the  Holder  of this  Note  shall  thereafter  have the  right to  receive  upon
conversion  of this  Note,  upon the bases  and upon the  terms  and  conditions
specified  herein  and in  lieu  of  the  shares  of  Common  Stock  immediately
theretofore issuable upon conversion, such stock, securities or assets which the
Holder  would have been  entitled to receive in such  transaction  had this Note
been converted in full immediately prior to such transaction  (without regard to
any  limitations  on  conversion  set  forth  herein),  and  in  any  such  case
appropriate provisions shall be made with respect to the rights and interests of
the  Holder  of this  Note to the end that  the  provisions  hereof  (including,
without limitation, provisions for adjustment of the Conversion Price and of the
number of shares  issuable  upon  conversion  of the Note) shall  thereafter  be
applicable,  as nearly as may be  practicable  in relation to any  securities or
assets thereafter  deliverable upon the exercise hereof. Subject to Section 3.4,
the Borrower shall not effect any  transaction  described in this Section 2.6(b)
unless  (a) it first  gives at least ten (10) days prior  written  notice of the
record date of the special meeting of stockholders to approve, or if there is no
such record date,  thirty (30) days prior to the  consummation  of, such merger,
consolidation,  exchange of shares,  recapitalization,  reorganization  or other
similar event or sale of assets  (during which time the Holder shall be entitled
to convert this Note) and (b) the  resulting  successor or acquiring  entity (if
not the Borrower) assumes by written  instrument the obligations of this Section
2.6(a). The above provisions shall similarly apply to successive consolidations,
mergers, sales, transfers or share exchanges.


<PAGE>


     (c)  Subject to Section  3.1,  if the  Borrower  shall  declare or make any
distribution  of its  assets (or  rights to  acquire  its  assets) to holders of
Common  Stock as a dividend,  stock  repurchase,  by way of return of capital or
otherwise (including any dividend or distribution to the Borrower's shareholders
in cash or shares (or rights to acquire shares) of capital stock of a subsidiary
(i.e.,  a  spin-off)  (a  "Distribution"),  the  Holder  of this  Note  shall be
entitled,  upon  any  conversion  of this  Note  after  the date of  record  for
determining shareholders entitled to such Distribution, to receive the amount of
such  assets  which would have been  payable to the Holder  with  respect to the
shares of Common Stock  issuable upon such  conversion  had such Holder been the
holder of such shares of Common  Stock on the record date for the  determination
of shareholders entitled to such Distribution.

     (d) If, at any time when any Notes are issued and outstanding, the Borrower
issues  any  convertible  securities  or rights  to  purchase  stock,  warrants,
securities  or other  property  (the  "Purchase  Rights") pro rata to the record
holders  of any  class of  Common  Stock,  then the  Holder of this Note will be
entitled  upon  any  conversion  of this  Note  after  the  date of  record  for
determining  shareholders  entitled to such Purchase Rights to acquire, upon the
terms  applicable to such Purchase Rights,  the aggregate  Purchase Rights which
such Holder could have  acquired if such Holder had held the number of shares of
Common Stock acquirable upon complete conversion of this Note (without regard to
any limitations on conversion  contained herein)  immediately before the date on
which a record is taken for the grant,  issuance or sale of such Purchase Rights
or, if no such  record is taken,  the date as of which  the  record  holders  of
Common Stock are to be determined for the grant,  issue or sale of such Purchase
Rights.

     (e)  Upon  the  occurrence  of  each  adjustment  or  readjustment  of  the
Conversion  Price as a result of the events  described  in this Section 2.6, the
Borrower, at its expense, shall promptly compute such adjustment or readjustment
and  prepare  and  furnish to the  Holder of a  certificate  setting  forth such
adjustment  or  readjustment  and  showing  in detail  the facts upon which such
adjustment  or  readjustment  is based.  The  Borrower  shall,  upon the written
request at any time of the  Holder,  furnish to such  Holder a like  certificate
setting forth (i) such adjustment or readjustment,  (ii) the Conversion Price at
the time in  effect  and (iii)  the  number  of  shares of Common  Stock and the
amount,  if any,  of other  securities  or  property  which at the time would be
received upon conversion of the Note.


<PAGE>


     2.7  Certain  Payments  in  Lieu of  Conversion.  Unless  permitted  by the
applicable rules and regulations of the principal securities market on which the
Common Stock is then listed or traded, in no event shall the Borrower issue upon
conversion  of this Note and the other Notes  issued  pursuant  to the  Purchase
Agreement  more than the  maximum  number of  shares  of Common  Stock  that the
Borrower  can  issue  pursuant  to any  rule  of  the  principal  United  States
securities  market on which the  Common  Stock is then  traded  (including  Rule
4460(i) of Nasdaq)(the  "Maximum  Share  Amount"),  which,  as of the Issue Date
shall be 16,824,934 shares (19.99% of the total shares  outstanding on the Issue
Date), subject to equitable adjustment from time to time for stock splits, stock
dividends,  combinations, capital reorganizations and similar events relating to
the Common Stock  occurring  after the date hereof.  For purposes of determining
the aggregate  number of shares of Common Stock issuable upon conversion of this
Note and the other Notes  issued  pursuant  to the  Purchase  Agreement,  if the
issuance of Common  Stock  hereunder is  aggregated  with the issuance of Common
Stock under the  debentures  issued to the Holder on October 31, 1997,  December
31, 1997 and March 30, 1998 (the "Prior Debentures") pursuant to the regulations
of principal United States  securities  market on which the Common Stock is then
traded,  the  shares of  Common  Stock  issuable  upon  conversion  of the Prior
Debentures shall be aggregated with the shares of Common Stock issuable pursuant
to this Note.  Once the Maximum  Share Amount has been issued (the date of which
is hereinafter  referred to as the "Maximum  Conversion  Date"), if the Borrower
fails  to  eliminate  any  prohibitions  under  applicable  law or the  rules or
regulations  of any  stock  exchange,  interdealer  quotation  system  or  other
self-regulatory  organization  with jurisdiction over the Borrower or any of its
securities on the  Borrower's  ability to issue shares of Common Stock in excess
of the Maximum Share Amount (a "Trading Market  Prepayment  Event"),  in lieu of
any  further  right  to  convert  this  Note,  and in full  satisfaction  of the
Borrower's  obligations  under this Note,  the Borrower shall pay to the Holder,
within fifteen (15) business days of the Maximum  Conversion  Date (the "Trading
Market Prepayment  Date"), an amount equal to 130% times the sum of (a) the then
outstanding  principal  amount of this Note  immediately  following  the Maximum
Conversion  Date, plus (b) accrued and unpaid  interest on the unpaid  principal
amount of this Note to the  Trading  Market  Prepayment  Date,  plus (c) Default
Interest,  if any,  on the  amounts  referred to in clause (a) and/or (b) above,
plus  (d)  any  optional  amounts  that  may be  added  thereto  at the  Maximum
Conversion  Date by the Holder in  accordance  with the terms  hereof  (the then
outstanding  principal  amount of this Note  immediately  following  the Maximum
Conversion  Date, plus the amounts referred to in clauses (b), (c) and (d) above
shall collectively be referred to as the "Remaining  Convertible Amount").  With
respect to each Holder of Notes,  the Maximum  Share  Amount shall refer to such
Holder's pro rata share thereof determined in accordance with Section 6.8 below.
In the event that the sum of (x) the aggregate  number of shares of Common Stock
issued upon  conversion of this Note and the other Notes issued  pursuant to the
Purchase  Agreement plus (y) the aggregate number of shares of Common Stock that
remain issuable upon conversion of this Note and the other Notes issued pursuant
to the Purchase Agreement, represents at least one hundred percent (100%) of the
Maximum Share Amount (the  "Triggering  Event"),  the Borrower will use its best
efforts to seek and obtain Stockholder  Approval (or obtain such other relief as
will allow conversions  hereunder in excess of the Maximum Share Amount) as soon
as practicable  following the Triggering Event and before the Maximum Conversion
Date. As used herein,  "Stockholder Approval" means approval by the stockholders
of the Borrower to authorize the issuance of the full number of shares of Common
Stock which would be issuable upon full conversion of the then outstanding Notes
but for the Maximum Share Amount  (including,  but not limited to, in accordance
with Rule 4460(i) of the Nasdaq).


<PAGE>


     2.8 Status as  Stockholder.  Upon submission of a Notice of Conversion by a
Holder,  (i) the shares covered  thereby  (other than the shares,  if any, which
cannot be issued  because their  issuance  would exceed such Holder's  allocated
portion of the Reserved  Amount) shall be deemed converted into shares of Common
Stock and (ii) the Holder's rights as a Holder of such converted portion of this
Note shall cease and terminate, excepting only the right to receive certificates
for such shares of Common Stock and to any remedies provided herein or otherwise
available  at law or in  equity  to such  Holder  because  of a  failure  by the
Borrower to comply with the terms of this Note.  Notwithstanding  the foregoing,
if a Holder has not received  certificates  for all shares of Common Stock prior
to the tenth (10th)  business  day after the  expiration  of the  Deadline  with
respect to a conversion of any portion of this Note for any reason, then (unless
the Holder  otherwise elects to retain its status as a holder of Common Stock by
so notifying  the  Borrower),  the Holder shall regain the rights of a Holder of
this  Note  with  respect  to such  unconverted  portions  of this  Note and the
Borrower  shall,  as soon as practicable,  return such  unconverted  Note to the
holder or, if the Note has not been  surrendered,  adjust its records to reflect
that such portion of this Note has not been converted.  In all cases, the Holder
shall retain all of its rights and remedies (including,  without limitation, (i)
the right to receive  Conversion  Default  Payments  pursuant to Section 2.3 the
extent  required  thereby  for  such  Conversion   Default  and  any  subsequent
Conversion  Default and (ii) the right to have the Conversion Price with respect
to subsequent  conversions  determined  in accordance  with Section 2.3) for the
Borrower's failure to convert this Note.

                       ARTICLE III.  CERTAIN COVENANTS

     3.1  Distributions on Capital Stock. So long as the Borrower shall have any
obligation  under this Note, the Borrower shall not without the Holder's written
consent (a) pay,  declare or set apart for such  payment,  any dividend or other
distribution  (whether  in cash,  property  or other  securities)  on  shares of
capital stock other than  dividends on shares of Common Stock solely in the form
of  additional  shares of Common Stock or (b) directly or  indirectly or through
any subsidiary  make any other payment or distribution in respect of its capital
stock.

     3.2  Restriction on Stock  Repurchases.  So long as the Borrower shall have
any  obligation  under this Note,  the  Borrower  shall not without the Holder's
written consent redeem,  repurchase or otherwise acquire (whether for cash or in
exchange for property or other  securities or otherwise) in any one  transaction
or series of related transactions any shares of capital stock of the Borrower or
any warrants, rights or options to purchase or acquire any such shares.

     3.3  Borrowings.  So long as Borrower shall have any obligation  under this
Note, the Borrower shall not without the Holder's written consent create, incur,
assume  or  suffer  to exist  any  liability  for  borrowed  money,  except  (a)
borrowings  in  existence  or  committed  on the date  hereof  and of which  the
Borrower  has  informed  the Holder in  writing  prior to the date  hereof,  (b)
indebtedness to trade creditors incurred in the ordinary course of business, (c)
borrowings,  the  proceeds  of which  shall be used to repay  this  Note and (d)
leases entered into in the ordinary course of business.

     3.4 Sale of Assets.  So long as Borrower  shall have any  obligation  under
this Note, the Borrower shall not without the Holder's  written  consent,  sell,
lease or otherwise  dispose of any of its assets outside the ordinary  course of
business;  provided,  however,  that such consent  shall not be required for the
sale of the common stock of Telemac Cellular Corporation,  Inc. and NewCom, Inc.
Any consent of the Holder to the disposition of any assets may be conditioned on
a specified use of the proceeds of disposition.



<PAGE>

     3.5 Advances and Loans. So long as Borrower shall have any obligation under
this Note,  the  Borrower  shall not without the Holder's  written  consent lend
money,  give credit or make advances to, or otherwise make an investment in, any
person,  firm,  joint venture or  corporation,  including,  without  limitation,
officers,  directors,  employees,  subsidiaries  and affiliates of the Borrower,
except  loans,  credits or advances  (a) in  existence  or committed on the date
hereof and which the Borrower  has  informed the Holder in writing  prior to the
date hereof, and (b) made in the ordinary course of business.

     3.6 Contingent  Liabilities.  So long as Borrower shall have any obligation
under this Note,  the Borrower  shall not without the Holder's  written  consent
assume, guarantee,  endorse,  contingently agree to purchase or otherwise become
liable upon the obligation of any person,  firm,  partnership,  joint venture or
corporation,  except by the endorsement of negotiable instruments for deposit or
collection and except  assumptions,  guarantees,  endorsements and contingencies
(a) in  existence  or  committed  on the date hereof and which the  Borrower has
informed  the  Holder  in  writing  prior to the date  hereof,  and (b)  similar
transactions in the ordinary course of business.

     3.7 Seniority of Note. So long as Borrower shall have any obligation  under
this  Note,  the  Borrower  shall not  incur  any  obligation  with  respect  to
indebtedness  which is  senior  in right of  payment  to this  Note  (including,
without  limitation,  making  any  obligation  outstanding  as of the Issue Date
senior in right of payment to this Note) other than  obligations with respect to
indebtedness  incurred in  connection  with a Permitted  Lien (as defined in the
Security Agreement).

                      ARTICLE IV.  EVENTS OF DEFAULT

     If any of the  following  events of default  (each,  an "Event of Default")
shall occur:

     4.1 Failure to Pay  Principal  or Interest.  The Borrower  fails to pay the
principal  hereof or  interest  thereon  when due,  whether  at  maturity,  upon
mandatory  prepayment  pursuant to Sections  1.1 or 2.7,  upon  acceleration  or
otherwise.



<PAGE>


     4.2 Conversion and the Shares. After the election of the Conversion Option,
the Borrower  fails to issue shares of Common Stock to the Holder (or  announces
or threatens  that it will not honor its  obligation  to do so) upon exercise by
the Holder of the conversion  rights of the Holder in accordance  with the terms
of this Note (for a period of at least  sixty  (60)  days,  if such  failure  is
solely as a result of the circumstances governed by Section 2.3 and the Borrower
is using its best efforts to  authorize a sufficient  number of shares of Common
Stock as soon as practicable),  fails to transfer or cause its transfer agent to
transfer  (electronically or in certificated form) any certificate for shares of
Common  Stock  issued to the  Holder  upon  conversion  of this Note as and when
required by this Note or the Registration  Rights Agreement,  or fails to remove
any restrictive legend (or to withdraw any stop transfer instructions in respect
thereof) on any  certificate for any shares of Common Stock issued to the Holder
upon  conversion  of this Note as and when  required by this Note,  the Purchase
Agreement  or the  Registration  Rights  Agreement  (or makes any  announcement,
statement or threat that it does not intend to honor the  obligations  described
in  this  paragraph)  and  any  such  failure  shall  continue  uncured  (or any
announcement,  statement  or threat  not to honor its  obligations  shall not be
rescinded  in  writing)  for ten (10) days  after the  Borrower  shall have been
notified thereof in writing by the Holder.

     4.3  Failure  to  Effect   Registration.   The  Borrower  fails  to  obtain
effectiveness  with the Securities and Exchange  Commission of the  Registration
Statement prior to March 7, 1999 or the Registration  Statement lapses in effect
(or sales of all of the Registrable  Securities (as defined in the  Registration
Rights  Agreement)  cannot  otherwise be made  thereunder) for more than fifteen
(15)  consecutive  Trading  Days or thirty (30)  Trading Days in any twelve (12)
month  period  after the  Registration  Statement  becomes  effective;  provided
however,  that this  shall not  constitute  an Event of Default  until  after an
election of the Conversion Option;

     4.4 Breach of  Covenants.  The Borrower  breaches any material  covenant or
other material term or condition  contained in Sections 2.3, 2.6, 2.7 or Article
III of this Note,  Sections 4(c),  4(h),  4(i),  4(j), 4(l) or 5 of the Purchase
Agreement  or Sections  2, 3, 4, 5, 6 or 7 of the  Security  Agreement  and such
breach  continues for a period of ten (10) days after written  notice thereof to
the Borrower from the Holder;

     4.5  Breach  of  Representations  and  Warranties.  Any  representation  or
warranty  of  the  Borrower  made  herein  or in  any  agreement,  statement  or
certificate  given  in  writing  pursuant  hereto  or  in  connection   herewith
(including,  without  limitation,  the Purchase  Agreement and the  Registration
Rights  Agreement),  shall be false or misleading  in any material  respect when
made and the  breach of which  has (or with the  passage  of time  will  have) a
material  adverse  effect on the rights of the Holder with respect to this Note,
the Purchase Agreement or the Registration Rights Agreement;

     4.6  Receiver or Trustee.  The Borrower or any  subsidiary  of the Borrower
shall make an assignment  for the benefit of creditors,  or apply for or consent
to the appointment of a receiver or trustee for it or for a substantial  part of
its  property or  business,  or such a receiver or trustee  shall  otherwise  be
appointed;

     4.7 Judgments. Any money judgment, writ or similar process shall be entered
or filed  against the  Borrower or any  Subsidiary  (as defined in the  Purchase
Agreement)  of the Borrower or any of its property or other assets for more than
$250,000,  and shall  remain  unvacated,  unbonded or  unstayed  for a period of
twenty (20) days unless otherwise consented to by the Holder, which consent will
not be unreasonably withheld;

     4.8  Bankruptcy.  Bankruptcy,  insolvency,  reorganization  or  liquidation
proceedings or other  proceedings for relief under any bankruptcy law or any law
for the relief of debtors  shall be instituted by or against the Borrower or any
subsidiary of the Borrower; or

     4.9 Delisting of Common  Stock.  The Common Stock is not listed on at least
one of The Nasdaq National Market,  Nasdaq Small Cap Market,  the New York Stock
Exchange, or the American Stock Exchange;

<PAGE>


     4.10  Default  Under Other  Notes.  An Event of Default has occurred and is
continuing  under  any  of the  other  Notes  issued  pursuant  to the  Purchase
Agreement.

     then,  upon the  occurrence  and  during the  continuation  of any Event of
Default  specified in Section 4.1,  4.2,  4.3, 4.4, 4.5, 4.7, 4.9 or 4.10 at the
option of the Holders of a majority  of the  aggregate  principal  amount of the
outstanding Notes issued pursuant to the Purchase Agreement  exercisable through
the delivery of written  notice to the  Borrower by such  Holders (the  "Default
Notice"),  and upon the  occurrence of an Event of Default  specified in Section
4.6 or 4.8, the Notes shall become  immediately due and payable and the Borrower
shall pay to the Holder, in full satisfaction of its obligations  hereunder,  an
amount  equal to the greater of (i) the Default  Percentage  (as defined  below)
times the sum of (w) the then outstanding principal amount of this Note plus (x)
accrued and unpaid interest on the unpaid  principal  amount of this Note to the
date of payment (the "Mandatory  Prepayment Date") plus (y) Default Interest, if
any, on the  amounts  referred to in clauses (w) and/or (x) plus (z) any amounts
owed to the Holder  pursuant  to Sections  2.3 and 2.4(g)  hereof or pursuant to
Section  2(c)  of  the  Registration  Rights  Agreement  (the  then  outstanding
principal  amount of this Note to the date of payment plus the amounts  referred
to in clauses (x), (y) and (z) shall collectively be known as the "Default Sum")
or (ii) the "parity value" of the Default Sum to be prepaid,  where parity value
means (a) the highest number of shares of Common Stock issuable upon  conversion
of such  Default Sum in  accordance  with  Article I  (treating  the Trading Day
immediately preceding the Mandatory Prepayment Date as the "Conversion Date" for
purposes of  determining  the lowest  applicable  Conversion  Price,  unless the
Default Event arises as a result of a breach in respect of a specific Conversion
Date  in  which  case  such  Conversion  Date  shall  be the  Conversion  Date),
multiplied  by (b) the highest  Closing  Price for the Common  Stock  during the
period  beginning  on the date of first  occurrence  of the Event of Default and
ending one day prior to the Mandatory Prepayment Date (the greater of clause (i)
and (ii) being the "Default  Amount") and all other  amounts  payable  hereunder
shall  immediately  become due and payable,  all without demand,  presentment or
notice,  all of which  hereby are  expressly  waived,  together  with all costs,
including,  without limitation,  legal fees and expenses, of collection, and the
Holder shall be entitled to exercise all other rights and remedies  available at
law or in equity.  The "Default  Percentage"  shall mean 115% for purposes of an
Event of  Default  pursuant  to  Section  4.3 and 130%  for any  other  Event of
Default.

     If the Borrower  fails to pay the Default  Amount  within five (5) business
days of written  notice  that such  amount is due and  payable,  then the Holder
shall  have the right at any time,  so long as the  Borrower  remains in default
(and so long and to the extent that there are sufficient  authorized shares), to
require the Borrower,  upon written notice, to immediately issue, in lieu of the
Default  Amount,  the number of shares of Common Stock of the Borrower  equal to
the Default Amount divided by the Conversion Price then in effect.





<PAGE>


                         ARTICLE V.  REDEMPTION

     5.1 Redemption. If (i) the Conversion Option is elected by the Holder after
the 120th day  following  the Issue Date and prior to the Maturity Date and (ii)
(a)so long as no Event of Default or Trading Market  Prepayment Event shall have
occurred and be continuing, (b) the Registration Statement is then in effect and
has been in effect and sales can be made  thereunder  for at least  twenty  (20)
days prior to the Redemption  Date (as defined below) and (c) the Borrower has a
sufficient  number of  authorized  shares of Common Stock  reserved for issuance
upon full conversion of the Notes, the Borrower may redeem all or any portion of
this Note upon ten (10)  days  prior  written  notice  (a  "Redemption  Notice")
delivered  prior to the Maturity Date in  accordance  with this Section 5.1. Any
Redemption  Notice shall be delivered  to the Holder at its  registered  address
appearing  on the records of the  Borrower and shall state (1) that the Borrower
is exercising its right to redeem this Note and all other Notes issued  pursuant
to the Purchase Agreement and (2) the date of redemption,  which date must be on
or prior to the Maturity Date. On the date fixed for redemption (the "Redemption
Date"), the Borrower shall make payment of the Redemption Amount (as hereinafter
defined) in cash to or upon the order of the Holder as  specified  by the Holder
in writing to the  Borrower at least one  business  day prior to the  Redemption
Date.  The  "Redemption  Amount"  shall  be  equal  to the sum of (a)  the  then
outstanding  principal  amount of this Note plus (b) accrued and unpaid interest
on the  unpaid  principal  amount of this Note to the date of  payment  plus (c)
Default  Interest,  if  any,  on the  interest  referred  to in the  immediately
preceding  clause plus (d) any amounts  owed to the Holder  pursuant to Sections
2.3 and 2.4(g)  hereof or pursuant to Section  2(b) of the  Registration  Rights
Agreement.  Notwithstanding  anything to the contrary  contained in this Section
5.1, the Holder shall at all times after the 120th day  following the Issue Date
and prior to the  Redemption  Date maintain the right to convert all or any part
of this Note in  accordance  with Article II and any amounts so converted  after
receipt of a  Redemption  Notice and prior to the  Redemption  Date set forth in
such notice and payment of the  aggregate  Redemption  Amount  shall be deducted
from the  amount  which is  otherwise  subject  to  redemption  pursuant  to the
Redemption Notice. If the Borrower delivers a Redemption Notice and fails to pay
the  Redemption  Amount due to the Holders of the Notes  within two (2) business
days following the Redemption Date, the Borrower shall forever forfeit its right
to redeem the Notes pursuant to this Section 5.1.

                     ARTICLE VI.  MISCELLANEOUS

     6.1 Failure or  Indulgence  Not Waiver.  No failure or delay on the part of
the Holder in the  exercise of any power,  right or  privilege  hereunder  shall
operate as a waiver  thereof,  nor shall any single or partial  exercise  of any
such power,  right or privilege preclude other or further exercise thereof or of
any other right, power or privileges. All rights and remedies existing hereunder
are  cumulative  to, and not  exclusive  of, any  rights or  remedies  otherwise
available.



<PAGE>


     6.2 Notices.  Any notice herein  required or permitted to be given shall be
in  writing  and may be  personally  served or  delivered  by courier or sent by
United  States  mail and  shall be deemed to have been  given  upon  receipt  if
personally served (which shall include telephone line facsimile transmission) or
sent by courier or three (3) days after  being  deposited  in the United  States
mail, certified,  with postage pre-paid and properly addressed, if sent by mail.
For the  purposes  hereof,  the  address of the Holder  shall be as shown on the
records of the Borrower;  and the address of the Borrower shall be Aura Systems,
Inc., 2335 Alaska Avenue, El Segundo,  California 90245, facsimile number: (310)
643-8719. Both the Holder and the Borrower may change the address for service by
service of written notice to the other as herein provided.

     6.3 Amendments.  This Note and any provision  hereof may only be amended by
an instrument in writing signed by the Borrower and the Holder.  The term "Note"
and all reference thereto,  as used throughout this instrument,  shall mean this
instrument  (and the other Notes issued  pursuant to the Purchase  Agreement) as
originally executed, or if later amended or supplemented,  then as so amended or
supplemented.

     6.4  Assignability.  This Note is transferable at Holder's option and shall
be binding upon the Borrower and its successors and assigns,  and shall inure to
be the benefit of the Holder and its successors and assigns.  Each transferee of
this Note must be an  "accredited  investor"  (as  defined in Rule 501(a) of the
1933 Act).  Notwithstanding anything in this Note to the contrary, this Note may
be pledged as collateral in connection  with a bona fide margin account or other
lending arrangement.

     6.5 Cost of Collection. If default is made in the payment of this Note, the
Borrower shall pay the Holder hereof costs of collection,  including  reasonable
attorneys' fees.

     6.6 Governing  Law. This Note shall be governed by the internal laws of the
State of Delaware, without regard to the principles of conflict of laws.

     6.7  Certain  Amounts.  Whenever  pursuant  to this  Note the  Borrower  is
required to pay an amount in excess of the outstanding  principal amount (or the
portion  thereof  required  to be paid at that  time)  plus  accrued  and unpaid
interest  plus Default  Interest on such  interest,  the Borrower and the Holder
agree that the actual  damages to the Holder from the receipt of cash payment on
this Note may be  difficult  to  determine  and the  amount to be so paid by the
Borrower  represents  stipulated  damages  and not a penalty  and is intended to
compensate  the Holder in part for loss of the  opportunity to convert this Note
and to earn a return  from the sale of  shares  of Common  Stock  acquired  upon
conversion  of this Note at a price in excess of the price paid for such  shares
pursuant to this Note. The Borrower and the Holder hereby agree that such amount
of stipulated  damages is not plainly  disproportionate  to the possible loss to
the Holder from the receipt of a cash payment without the opportunity to convert
this Note into shares of Common Stock.


<PAGE>


     6.8  Allocations of Maximum Share Amount and Reserved  Amount.  The Maximum
Share Amount and Reserved  Amount shall be allocated  pro rata among the holders
of Notes based on the principal amount of such Notes issued to each holder. Each
increase to the Maximum Share Amount and Reserved  Amount shall be allocated pro
rata among the holders of Notes based on the principal amount of such Notes held
by each  holder  at the time of the  increase  in the  Maximum  Share  Amount or
Reserved Amount.  In the event a holder shall sell or otherwise  transfer any of
such holder's Notes,  each  transferee  shall be allocated a pro rata portion of
such transferor's  Maximum Share Amount and Reserved Amount.  Any portion of the
Maximum Share Amount or Reserved Amount which remains allocated to any person or
entity which does not hold any Notes shall be allocated to the remaining holders
of Notes, pro rata based on the principal amount of such Notes then held by such
holders.

     6.9 Damages Shares.  The shares of Common Stock that may be issuable to the
Holder  pursuant to Sections 2.3 and 2.4(g)  hereof and pursuant to Section 2(b)
of the  Registration  Rights  Agreement  ("Damages  Shares") shall be treated as
Common Stock issuable upon  conversion of this Note for all purposes  hereof and
shall be subject to all of the limitations and afforded all of the rights of the
other shares of Common Stock issuable  hereunder,  including without limitation,
the right to be included in the  Registration  Statement  filed  pursuant to the
Registration Rights Agreement.  For purposes of calculating  interest payable on
the outstanding  principal amount hereof,  except as otherwise  provided herein,
amounts  convertible  into Damages  Shares  ("Damages  Amounts")  shall not bear
interest  but must be  converted  prior  to the  conversion  of any  outstanding
principal amount hereof, until the outstanding Damages Amounts is zero.

     6.10  Denominations.  At the request of the Holder,  upon surrender of this
Note, the Borrower  shall promptly issue new Notes in the aggregate  outstanding
principal amount hereof, in the form hereof,  in such  denominations of at least
$100,000 as the Holder shall request.

     6.11 Purchase Agreement. By its acceptance of this Note, each Holder agrees
to be bound by the applicable terms of the Purchase Agreement.

     6.12 Notice of Corporate  Events.  Except as otherwise  provided below, the
Holder of this Note shall have no rights as a Holder of Common  Stock unless and
only to the extent that it converts  this Note into Common  Stock.  The Borrower
shall  provide  the  Holder  with  prior  notification  of  any  meeting  of the
Borrower's  shareholders  (and copies of proxy  materials and other  information
sent to shareholders). In the event of any taking by the Borrower of a record of
its shareholders for the purpose of determining shareholders who are entitled to
receive  payment of any dividend or other  distribution,  any right to subscribe
for, purchase or otherwise acquire  (including by way of merger,  consolidation,
reclassification  or  recapitalization)  any  share of any  class  or any  other
securities  or property,  or to receive any other  right,  or for the purpose of
determining  shareholders  who  are  entitled  to vote in  connection  with  any
proposed sale, lease or conveyance of all or substantially  all of the assets of
the  Borrower  or any  proposed  liquidation,  dissolution  or winding up of the
Borrower, the Borrower shall mail a notice to the Holder, at least ten (10) days
prior to the record  date  specified  therein  (or thirty (30) days prior to the
consummation of the transaction or event,  whichever is earlier), of the date on
which  any  such  record  is to be  taken  for the  purpose  of  such  dividend,
distribution,  right or other event, and a brief statement  regarding the amount
and character of such dividend, distribution, right or other event to the extent
known at such time. The Borrower shall make a public  announcement  of any event
requiring notification to the Holder hereunder substantially simultaneously with
the  notification  to the Holder in  accordance  with the terms of this  Section
6.12.

<PAGE>


     IN WITNESS WHEREOF,  Borrower has caused this Note to be signed in its name
by its duly authorized officer this 7th day of October, 1998.


                                      AURA SYSTEMS, INC.



                                      By:_____________________________________
                                         Steven Veen
                                         Chief Financial Officer


<PAGE>


                                                      EXHIBIT A
                                                NOTICE OF CONVERSION
                                                 OF CONVERTIBLE NOTE

TO:      AURA SYSTEMS, INC.

                  (1)  Pursuant to the terms of the  attached  Convertible  Note
(the "Note"),  the undersigned  hereby elects to convert $ __________  principal
amount of the Note into shares of Common Stock of Aura Systems, Inc., a Delaware
corporation (the  "Borrower").  Capitalized  terms used herein and not otherwise
defined herein have the respective meanings provided in the Note.

                  (2) The  Borrower  shall  electronically  transmit  the Common
Stock  issuable  pursuant  to this  Notice of  Conversion  to the account of the
undersigned  or its  nominee  with DTC  through  its  Deposit  Withdrawal  Agent
Commission system ("DWAC Transfer").

         Name of DTC Prime Broker:                                              
         Account Number:                                                        

|_|      In lieu of receiving  shares of Common Stock issuable  pursuant to this
         Notice of Conversion by way of a DWAC Transfer,  the undersigned hereby
         requests that the Borrower issue a certificate or certificates  for the
         number of shares of Common  Stock set forth  above  (which  numbers are
         based on the  Holder's  calculation  attached  hereto)  in the  name(s)
         specified immediately below or, if additional space is necessary, on an
         attachment hereto:

         Name:                                                                  

         Address:                                                               



                  (3) Holder  acknowledges  and  affirms  that the Common  Stock
issued  pursuant  to  this  Notice  of  Conversion  has  been or will be sold in
accordance with the requirements of the 1933 Act, if applicable,  or pursuant to
an exemption under the 1933 Act.





Date:  ___________________                  
                                                     Signature   of   Registered
                                                     Holder   (must  be   signed
                                                     exactly as name  appears in
                                                     the Note).