Document:

Exhibit
      10.18

     

    THIS
      DEBENTURE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS DEBENTURE
      HAVE
      NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS DEBENTURE
      AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS DEBENTURE MAY NOT BE
      SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
      REGISTRATION STATEMENT AS TO THIS DEBENTURE UNDER SAID ACT OR AN OPINION OF
      COUNSEL REASONABLY SATISFACTORY TO AURA SYSTEMS, INC. THAT SUCH REGISTRATION
      IS
      NOT REQUIRED.

     

    $[__________]

     

    NO.
      [___]

     

    DATE
      OF ISSUANCE: January
      ___, 2008

     

    AURA
      SYSTEMS, INC.

     

    7%
      Convertible Subordinated Debenture

     

    AURA
      SYSTEMS, INC.,
      a
      Delaware corporation (together with its successors, the “Corporation”),
      for
      value received hereby promises to pay to:

     

    [__________________________]

     

    (the
      “Holder”),
      the
      principal sum of [___________________] Dollars ($[________]) (“Total
      Principal Amount”),
      on
      January ___, 2013 (the “Maturity
      Date”)
      and to
      pay interest at such times and on such terms and conditions as specified
      herein.

     

    This
      7%
      Convertible Subordinated Debenture (this “Convertible
      Debenture”)
      is one
      of a duly authorized issuance of $3,000,000.00 aggregate principal amount of
      Convertible Subordinated Debentures of the Corporation (the “Series”).
      Any
      payment of principal on this Convertible Debenture shall be made pro rata with
      all principal payments made on the other Convertible Subordinated Debentures
      issued in the Series.

     

    1. CERTAIN
      DEFINITIONS.

     

    In
      addition to the defined terms included elsewhere herein, the following terms
      as
      used herein shall have the following meanings:

     

    “Affiliate”
means,
      with respect to any Holder, any person that directly or indirectly, through
      one
      or more intermediaries, controls, or is controlled by, or is under common
      control with, such Holder including without limitation any member, manager,
      partner, director or senior executive officer of any such person or Affiliate
      thereof. As used in this definition, the terms "control," "controlled by" and
      "under common control with" shall be mean the power, directly or indirectly,
      to
      vote more than fifty percent (50%) of the securities having voting power for
      the
      election of directors of such person or to direct or cause the direction of
      the
      management and policies of such person, whether by voting power, contract or
      otherwise.

     

    
      
        

      

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        SUBORDINATED DEBENTURE - Page 1  

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    “Change
      of Control”
      means
      when any person or group of persons (within the meaning of Sections 13 and
      14 of
      the Securities and Exchange Act of 1934 (the “Exchange
      Act”)
      and
      the rules and regulations of the Securities and Exchange Commission (the
“Commission”)
      relating to such Sections) shall have acquired after the date hereof beneficial
      ownership (within the meaning of Rules 13d-3 and 13d-5 promulgated by the
      Commission pursuant to the Exchange Act) of 50.1% or more of the outstanding
      shares of Common Stock of the Corporation after the date hereof.

     

    “Common
      Stock”
      means
      the
      common stock of the Corporation, par value $0.0001 per share.

     

    “Family
      Member”
means
      any parent, spouse, lineal descendent or adopted child of a Holder.

     

    “Permitted
      Transfer”
      means
      a
      transfer by the Holder of no less than all such Holder’s right, title and
      interest in this Convertible Debenture to any of the following: (i) any
      wholly-owned subsidiary or Affiliate of such Holder; (ii) any partnership of
      which such Holder or any Family Member or Affiliate of such Holder is a general
      partner and, together with such Holder’s Family Members or Affiliates, holds in
      excess of fifty percent (50%) of the economic interest of the partnership;
      (iii)
      any Family Member of such Holder; (iv) any trust of which there is, while the
      obligations of this Convertible Debenture remain outstanding, no beneficiary
      other than a person or entity described in subsections
      (i)
      through
      (iii)
      above;
      or (v) an executor or administrator of a Holder’s estate upon his or her death
      or, in the event of a Holder that is a decedent’s estate, any testamentary
      trusts created under the will of the decedent.

     

    “Sale
      Event”
      means
      one of the following: (i) the occurrence of a Change of Control of the
      Corporation; (ii) a transfer of all or substantially all of the assets of the
      Corporation to any person or entity in a single transaction or series of related
      transactions; or (iii) a consolidation or merger of the Corporation with or
      into
      another person or entity in which the Corporation is not the surviving entity
      or
      survives solely as a wholly-owned subsidiary of another entity (other than
      a
      merger which is effected solely to change the jurisdiction of incorporation
      of
      the Corporation and results in a reclassification, conversion or exchange of
      outstanding shares of Common Stock solely into shares of Common
      Stock).

     

    2. INTEREST
      AND PRINCIPAL.

     

    2.1. Interest
      Rate, Payment of Interest and Calculation.
      The
      Corporation promises to pay interest in cash on the Total Principal Amount
      of
      this Convertible Debenture outstanding from time to time at the rate of
seven
      percent
      (7%)
      per
      annum (the “Interest
      Rate”)
      or, if
      less, the maximum rate permitted by applicable law. Past due amounts (including
      interest, to the extent permitted by law) will accrue interest at the Interest
      Rate plus two percent (2%) per annum or, if less, the maximum rate permitted
      by
      applicable law, and will be payable on demand. Interest on this Convertible
      Debenture will be calculated on the basis of a 360-day year of twelve 30 day
      months. The Corporation will pay interest in cash (a) quarterly in arrears,
      on
      the last day of each fiscal quarter of each year (each, an “Interest
      Payment Date”)
      until
      the Maturity Date, commencing on May 31, 2008 (unless such day is not a business
      day, in which event, on the next succeeding business day) (the “First
      Interest Payment Date”),
      (b)
      the Maturity Date, (c) each Conversion Date (as hereafter defined), and (d)
      the
      date the principal amount of this Convertible Debenture shall be declared to
      be
      or shall automatically become due and payable, on the principal sum hereof
      outstanding, from the most recent Interest Payment Date to which interest has
      been paid on this Convertible Debenture, or if no interest has been paid on
      this
      Convertible Debenture, from the date of this Convertible Debenture, until
      payment in full of the principal sum hereof has been made.

     

    
      
        
          

        

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          SUBORDINATED DEBENTURE - Page 2  

       

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    2.2. Payment
      of Principal. If
      not
      sooner paid in accordance with the provisions of this Convertible Debenture,
      the
      Corporation shall repay the remaining unpaid principal balance of this
      Convertible Debenture on the Maturity Date.

     

    2.3. Method
      of Payment. The
      Corporation will pay in cash all sums becoming due on this Convertible Debenture
      for principal, interest or otherwise by check or wire transfer to the Holder
      of
      this Convertible Debenture in such coin or currency of the United States of
      America as at the time of payment shall be legal tender for the payment of
      public and private debts at the address specified for such purpose below the
      Holder’s name above, or by such other method or at such other address as such
      Holder shall have from time to time specified to the Corporation in writing
      for
      such purpose, without the presentation or surrender of this Convertible
      Debenture.

     

    3. REGISTRATION.

     

    3.1. Record
      Ownership. The
      Corporation shall maintain a register of the Holder of this Convertible
      Debenture (the “Register”)
      showing its name and address and the serial number and principal amount of
      Convertible Debenture issued to or transferred of record by it pursuant to
      Section
      3.2
      hereof.
      The Register may be maintained in electronic, magnetic or other computerized
      form. The Corporation may treat the person named as the Holder in the Register
      as the sole owner of this Convertible Debenture.

     

    3.2. Registration
      of Permitted Transfer.
      Except
      for Permitted Transfers, the Holder may not transfer or otherwise assign this
      Convertible Debenture, in whole or in part, and no transfer of this Convertible
      Debenture other than a Permitted Transfer may be registered on the Register.
      Permitted Transfers shall be registered when this Convertible Debenture is
      (a)
      presented to the Corporation with a request to register the Permitted Transfer
      hereof, (b) the Convertible Debenture is accompanied by a written instrument
      of
      transfer in form reasonably satisfactory to the Corporation, duly executed
      by
      the Holder thereof or his or its attorney duly authorized in writing, and
      reasonable assurances are given that the endorsements are genuine and effective,
      (c) the Corporation has received any and all accompanying documents that it
      may
      reasonably request, including but not limited to representations regarding
      the
      investor suitability of the proposed transferee, and (d) the Corporation has
      received evidence reasonably satisfactory to it that such Permitted Transfer
      is
      rightful and in compliance with this Convertible Debenture and all applicable
      laws, including state and Federal securities laws. When this Convertible
      Debenture is presented for such transfer and duly transferred hereunder, it
      shall be canceled and a new Convertible Debenture showing the name of the
      transferee as the record holder thereof shall be issued in lieu hereof.

     

    3.3. Worn
      and Lost Securities. If
      this
      Convertible Debenture becomes worn, defaced or mutilated, but is still
      substantially intact and recognizable, the Corporation or its agent may issue
      a
      new Convertible Debenture in lieu hereof upon its surrender bearing a number
      not
      contemporaneously outstanding. Where the Holder claims that the Convertible
      Debenture has been lost, destroyed or wrongfully taken, the Corporation shall
      issue a new Convertible Debenture in place of the original Convertible Debenture
      bearing a number not contemporaneously outstanding if the Holder so requests
      by
      written notice to the Corporation actually received by the Corporation before
      it
      is notified that the Convertible Debenture has been acquired by a bona fide
      purchaser and the Holder has delivered to the Corporation an indemnity bond
      in
      such amount and issued by such surety as the Corporation deems reasonably
      satisfactory, together with an affidavit of the Holder setting forth the facts
      concerning such loss, destruction or wrongful taking, and such other information
      in such form with such proof or verification as the Corporation may reasonably
      request.

     

    
      
        
          

        

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          SUBORDINATED DEBENTURE - Page 3  

       

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    4. CONVERSION.

     

    4.1. Conversion
      at the Option of the Holder. Subject
      to Section
      4.5
      and the
      provisions for Mandatory Conversion set forth therein, at the option of the
      Holder and at any time or from time to time, all (but not less than all) of
      the
      outstanding principal balance of this Convertible Debenture may be converted
      into that certain number of fully paid and nonassessable shares of Common Stock
      as is determined under Section
      4.2
      below
      (the “Conversion
      Shares”).
      

     

    4.2. Conversion
      Price.
      Subject
      to the adjustments set forth in Section
      4.4,
      this
      Convertible Debenture may be converted into that number of shares of Common
      Stock equal to the Total Principal Amount of this Convertible Debenture
      outstanding on the Conversion Date (as defined below) divided by $3.00 (the
      “Conversion
      Price”).

     

    4.3. Conversion
      Procedures.

     

    (a) The
      conversion of this Convertible Debenture (the “Conversion”)
      will
      be deemed to have been effected as of the close of business on the date on
      which
      the Holder delivers a notice of conversion, in the form attached hereto as
      Exhibit
      A
      (including via telecopy), to the Corporation of the Conversion of this
      Convertible Debenture (the “Conversion
      Date”).
      Within five (5) business days of the Conversion Date, the Holder shall surrender
      this Convertible Debenture at the principal office of the Corporation. On the
      Conversion Date, the rights of the Holder of this Convertible Debenture will
      cease and the person or persons in whose name or names any certificate or
      certificates for Conversion Shares are to be issued upon such Conversion will
      be
      deemed to have become the holder or holders of record of the shares of Common
      Stock represented thereby.

     

    (b) As
      soon
      as possible after a Conversion has been effected (but in any event within ten
      (10) business days), the Corporation will deliver to the converting Holder
      a
      certificate or certificates representing the number of shares of Common Stock
      issuable by reason of the Conversion, pursuant to Section
      4.1.
      To the
      extent necessary, fractional shares of Common Stock will be issued upon
      Conversion.

     

    (c) The
      issuance of certificates for shares of Common Stock upon a Conversion of this
      Convertible Debenture will be made without charge to the Holder for any issuance
      tax in respect thereof or other cost incurred by the Corporation in connection
      with such Conversion and the related issuance of shares of Common Stock. Upon
      Conversion of this Convertible Debenture, the Corporation will take all such
      actions as are necessary in order to insure that the Common Stock issuable
      with
      respect to such Conversion will be validly issued, fully paid and
      nonassessable.

     

    
      
        
          

        

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    (d) All
      accrued unpaid interest on this Convertible Debenture shall be payable upon
      Conversion in cash.

     

    4.4. Adjustments. The
      Conversion Price shall be subject to adjustment from time to time as
      follows:

     

    (a) Share
      Reorganization.
      If and
      whenever the Corporation shall:

     

    (i) subdivide
      the outstanding shares of Common Stock into a greater number of
      shares;

     

    (ii) consolidate
      the outstanding shares of Common Stock into a smaller number of
      shares;

     

    (iii) issue
      Common Stock or securities convertible into or exchangeable for shares of Common
      Stock (without the payment of additional consideration therefor) as a stock
      dividend to all or substantially all the holders of Common Stock;
      or

     

    (iv) make
      a
      distribution on the outstanding Common Stock to all or substantially all the
      holders of Common Stock payable in Common Stock or securities convertible into
      or exchangeable for Common Stock (without the payment of additional
      consideration therefor);

     

    (any
      of
      such events being herein called a “Share
      Reorganization”),
      then
      in each such case the Conversion Price shall be adjusted, effective immediately
      after the record date at which the holders of Common Stock are determined for
      the purposes of the Share Reorganization or, if no record date is fixed, the
      effective date of the Share Reorganization, by multiplying the applicable
      Conversion Price in effect on such record or effective date, as the case may
      be,
      by a fraction of which:

    

    (I) the
      numerator shall be the number of shares of Common Stock outstanding after giving
      effect to such Share Reorganization, including, in the case of a distribution
      of
      securities convertible into or exchangeable for shares of Common Stock, the
      number of shares of Common Stock that would have been outstanding if such
      securities had been converted into or exchanged for Common Stock on such record
      or effective date; and 

     

    (II) the
      denominator shall be the number of shares of Common Stock outstanding on such
      record or effective date (without giving effect to the
      transaction).

     

    (v) Capital
      Reorganization.
      If and
      whenever there shall occur a reclassification or redesignation of the shares
      of
      Common Stock or any change of the shares of Common Stock into other shares,
      other than in a Share Reorganization (any such event being herein called a
      “Capital
      Reorganization”),
      then
      in each such case, the Holder who exercises the right to convert this
      Convertible Debenture after the effective date of such Capital Reorganization
      shall be entitled to receive and shall accept, upon the exercise of such right,
      in lieu of the number of shares of Common Stock to which such Holder was
      theretofore entitled upon the exercise of the conversion privilege, the
      aggregate number of shares or other securities or property of the Corporation
      or
      of the entity
      resulting from such Capital Reorganization that such Holder would have been
      entitled to receive as a result of such Capital Reorganization if, on the
      effective date thereof, such Holder had been the holder of the number of shares
      of Common Stock to which such Holder was theretofore entitled upon conversion
      of
      this Convertible Debenture; provided,
      however,
      that no
      such Capital Reorganization shall be consummated unless all necessary steps
      shall have been taken so that such Holder shall thereafter be entitled to
      receive such number of shares or other securities of the Corporation or of
      the
      entity resulting from such Capital Reorganization, subject to adjustment
      thereafter in accordance with provisions the same, as nearly as may be possible,
      as those contained above.

     

    
      
        
          

        

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          SUBORDINATED DEBENTURE - Page 5  

       

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (b) Adjustment
      Rules.
      The
      following rules and procedures shall be applicable to adjustments made in this
      Article
      4:

     

    (i) no
      adjustment in the Conversion Price shall be required unless such adjustment
      would result in a change of at least one percent (1%) in the Conversion Price
      then in effect; provided,
      however,
      that
      any adjustments which, but for the provisions of this clause would otherwise
      have been required to be made, shall be carried forward and taken into account
      in any subsequent adjustment;

     

    (ii) if
      any
      event occurs of the type contemplated by the adjustment provisions of this
      Article
      4
      but not
      expressly provided for by such provisions, the Corporation will give notice
      of
      such event as provided herein, and the Corporation’s Board of Directors will
      make an appropriate adjustment in the Conversion Price so that the rights of
      the
      Holder shall not be diminished by such event; and

     

    (iii) if
      a
      dispute shall at any time arise with respect to any adjustment of the Conversion
      Price, such dispute shall be conclusively determined by the auditors of the
      Corporation or, if they are unable or unwilling to act, by a firm of independent
      certified public accountants selected by the Board of Directors of the
      Corporation and any such determination shall be binding upon the Corporation
      and
      the Holder.

     

    (c) Certificate
      as to Adjustment.
      The
      Corporation shall from time to time promptly after the occurrence of any event
      that requires an adjustment in the Conversion Price deliver to the Holder a
      certificate specifying the nature of the event requiring the adjustment, the
      amount of the adjustment necessitated thereby, the Conversion Price after giving
      effect to such adjustment and setting forth, in reasonable detail, the method
      of
      calculation and the facts upon which such calculation is based.

     

    (d) Notice
      to Holders.
      If the
      Corporation shall fix a record date for:

     

    
      
        
          

        

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    (i) any
      Share
      Reorganization (other than the subdivision of outstanding Common Stock into
      a
      greater number of shares or the consolidation of outstanding Common Stock into
      a
      smaller number of shares), or

     

    (ii) any
      Capital Reorganization (other than a reclassification or redesignation of the
      Common Stock into other shares), or

     

    (iii) any
      Sale
      Event; then

     

    the
      Corporation shall, not less than ten (10) days prior to such record date or,
      if
      no record date is fixed, prior to the effective date of such event, give to
      the
      Holder notice of the particulars of the proposed event or the extent that such
      particulars have been determined at the time of giving the notice.

    

    4.5. Mandatory
      Conversion.

     

    (a) In
      the
      event that the Closing Price (as hereinafter defined) per share of the Common
      Stock of the Corporation is equal to or greater than two (2) times the
      Conversion Price (as may be adjusted from time to time as set forth in
Section
      4.4 above)
      per
      share for fifteen (15) consecutive Trading Days (as hereinafter defined), then
      the outstanding principal balance of this Convertible Debenture shall be
      automatically converted into Conversion Shares at the Conversion Price as set
      forth in Section
      4.2,
      all
      without any further action by the Holder, and whether or not the Holder
      surrenders this Convertible Debenture to the Corporation (any such event being
      herein called a “Mandatory
      Conversion”).
      “Closing
      Price”
means
      the last reported sale price regular way or, in case no such reported sale
      takes
      place on such Trading Day, the average of the last closing bid and asked prices
      regular way, in either case on the principal national securities exchange on
      which the Common Stock is listed or admitted to trading, or if not listed or
      admitted to trading on any national securities exchange, the closing sale price
      for such day reported by Nasdaq, if the Common Stock is traded over-the-counter
      and quoted in the National Market System or in the “pink sheets” distributed by
      the National Quotation Service of the National Quotation Bureau, Inc., or if
      the
      Common Stock is so traded, but not so quoted, the average of the closing
      reported bid and asked prices of the Common Stock as reported by Nasdaq or
      any
      comparable system, or, if the Common Stock is not listed on Nasdaq or any
      comparable system, the average of the closing bid and asked prices as furnished
      by two members of the National Association of Securities Dealers, Inc. selected
      from time to time by the Board of Directors for that purpose. If the Common
      Stock is not publicly traded or is not traded in such manner that the quotations
      referred to above are available for the period required hereunder, Closing
      Price
      per share of Common Stock shall be deemed to be the fair value per share of
      Common Stock as determined in good faith by a majority of the Corporation’s
      Board of Directors, and if such directors are unable to reach a decision on
      the
      Closing Price, the Closing Price shall be determined by a nationally recognized
      investment banking firm, accounting firm or valuation firm mutually acceptable
      to a majority of the Board of Directors and the holders of a majority of the
      then outstanding shares of Common Stock. “Trading
      Day”
means
      at any time a day on which the principal securities market for the Common Stock
      is open for general trading of securities.

     

    (b) The
      conversion procedures as set forth above in Section
      4.3
      shall be
      followed in connection with any Mandatory Conversion pursuant to this
Section
      4.5.

     

    
      
        
          

        

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    4.6. Option
      of Holder Upon Sale Event.
      Holder
      shall have the option, within [five
      (5)]
      days of
      Holder’s receipt of notice of a Sale Event as provided in Section
      4.4(e)
      above,
      upon written notice to the Corporation in the form attached hereto as
Exhibit
      A,
      to
      convert the Total Principal Amount of this Convertible Debenture into the number
      of Conversion Shares as is determined under Section
      4.2,
      in
      accordance with the conversion procedures set forth in Section
      4.3.
      If
      Holder does not deliver such notice of conversion within such five (5) day
      period and in accordance with the terms hereof, Holder the Corporation shall,
      without any further action by the Holder, promptly pay Holder in full the amount
      of the outstanding balance of the Convertible De benture, including accrued
      but
      unpaid interest, out of the proceeds of the Sale Event.

     

    5. EVENTS
      OF DEFAULT.

     

    5.1. Events
      of Default. If
      one or
      more of the following described events (each an “Event
      of Default”)
      shall
      occur:

     

    (a) The
      Corporation shall default in the payment of principal on this Convertible
      Debenture or on any other Convertible Subordinated Debenture included in the
      Series; or

     

    (b) The
      Corporation shall default in the payment of interest on this Convertible
      Debenture, or any other Convertible Subordinated Debenture included in the
      Series, when and as due, which is not cured within ten (10) business days of
      the
      date such sum is due and owing; or

     

    (c) The
      Corporation shall fail to perform or observe any other term, provision,
      condition, agreement or obligation of the Corporation under this, or any other
      Convertible Subordinated Debenture issued in the Series, and such failure shall
      continue uncured for a period of ten (10) business days after notice from the
      Holder of such failure; or

     

    (d) The
      Corporation shall (i) admit in writing its inability to pay its debts as they
      mature, (ii) make an assignment for the benefit of creditors or commence
      proceedings for its dissolution; or (iii) apply for or consent to the
      appointment of a trustee, liquidator or receiver for it or for a substantial
      part of its property or business; or

     

    (e) A
      trustee, liquidator or receiver shall be appointed for the Corporation or for
      a
      substantial part of its property or business without its consent and shall
      not
      be discharged within ninety (90) days after such appointment; or

     

    (f) Any
      governmental agency or any court of competent jurisdiction at the instance
      of
      any governmental agency shall assume custody or control of the whole or any
      substantial portion of the properties or assets of the Corporation and shall
      not
      be dismissed within ninety (90) days thereafter; or

     

    (g) Bankruptcy,
      reorganization, insolvency 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 Corporation and, if instituted against the
      Corporation, shall not be dismissed, stayed or bonded within ninety (90) days
      after such institution or the Corporation shall in any action or answer approve
      of, consent to, or acquiesce in any such proceedings or admit the material
      allegations of, or default in answering a petition filed in any such
      proceedings;

     

    
      
        
          

        

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    then,
      or
      at any time thereafter, and in each such case, unless such Event of Default
      shall have been waived in writing by the Holder of this Convertible Debenture
      (which waiver shall not be deemed to be a waiver for any subsequent default),
      at
      the option of the Holder and in such Holder’s sole discretion, Holder may
      declare the outstanding principal balance of, and accrued but unpaid interest
      on, this Convertible Debenture to be immediately due and payable without
      presentment, demand, protest or notice of any kind, all of which are hereby
      waived, anything herein or in any note or other instruments to the contrary
      notwithstanding, and may immediately, and without expiration of any period
      of
      grace, enforce any and all of such Holder’s rights and remedies provided herein
      or any other rights or remedies afforded by law. The separate occurrence of
      any
      of the events described above shall be deemed a separate Event of Default for
      all purposes.

     

    5.2. Powers
      and Remedies Cumulative. No
      right
      or remedy herein conferred upon or reserved to the Holder is intended to be
      exclusive of any other right or remedy, and every right and remedy shall, to
      the
      extent permitted by law, be cumulative and in addition to every other right
      and
      remedy given hereunder or now or hereafter existing at law or in equity or
      otherwise. The assertion or employment of any right or remedy hereunder, or
      otherwise, shall not prevent the concurrent assertion or employment of any
      other
      appropriate right or remedy. Every power and remedy given by this Convertible
      Debenture or by law may be exercised from time to time, and as often as shall
      be
      deemed expedient, by the Holder.

     

    5.3. Subordination.
      Payment
      of this Convertible Debenture shall be subordinate and junior in right of
      payment to certain senior indebtedness of the Corporation to the extent and
      in
      the manner set forth in this Section
      5.3.

     

    (a) Subordination
      of Convertible Debenture to Qualified Senior Obligations.

     

    (i) The
      Subordinated Obligations (as defined below) are hereby expressly made
      subordinate and junior in right of payment to the prior payment and satisfaction
      in full of all Qualified Senior Obligations (as defined below) unless in the
      instrument creating or evidencing such indebtedness it is provided that such
      indebtedness is not senior in right of payment to this Convertible Debenture.
      Such subordination is for the benefit of and may, together with the provisions
      of this Section
      5.3,
      be
      enforced by the holders of the Qualified Senior Obligations against the
      Corporation and the holder of this Convertible Debenture. The Qualified Senior
      Obligations shall continue to constitute Qualified Senior Obligations for all
      purposes hereof notwithstanding the fact that such Qualified Senior Obligations
      or any claim in respect thereof shall be disallowed, avoided or subordinated
      pursuant to bankruptcy law or any other applicable law or equitable principles
      as a claim for unmatured interest, a fraudulent transfer or conveyance, a
      preference or otherwise.

     

    
      
        
          

        

        CONVERTIBLE
          SUBORDINATED DEBENTURE - Page 9  

       

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (ii) As
      used
      herein “Qualified
      Senior Obligations”
shall
      mean any future payment obligations of the Corporation (or any of its successors
      or assigns) under, in respect of, or relating to, any document relating to
      the
      incurrence of debt, however created, or any other indebtedness in respect of
      borrowed money or evidenced by bonds, notes, debentures, guarantees or similar
      instruments or letters of credit (or reimbursement agreements in respect
      thereof), whether direct or indirect, joint or several, absolute or contingent,
      due or to become due, and whether in respect of or relating to principal,
      interest (including, without limitation, any interest accruing after the
      commencement of any case, proceeding or other action relating to the bankruptcy,
      insolvency or reorganization of the Corporation at the rate specified in the
      applicable agreement, whether or not such interest is allowed in such
      proceeding), fees, premiums, charges, expenses, reimbursements, indemnities,
      damages or any other obligations or liabilities under, in respect of or related
      to any such agreement in an amount of at least $10,000,000 and which is wholly
      or partially secured by the assets of the Corporation.

     

    (iii) As
      used
      herein, “Subordinated
      Obligations”
shall
      mean all payment obligations of the Corporation, its successors or assigns,
      however created, whether direct or indirect, as obligor or guarantor, joint
      or
      several, absolute or contingent, due or to become due, now existing or hereafter
      arising and whether in respect of or relating to principal, interest (including,
      without limitation, deferred interest), fees, premiums, charges, expenses,
      reimbursements, indemnities, damages under, in respect of or related to this
      Convertible Debenture.

     

    (b) Option
      of Holder to be Prepaid. In
      the
      event the Corporation becomes obligated under a Qualified Senior Obligation
      after the date hereof (such event referred to hereinafter as a “Qualified
      Senior Financing”),
      the
      Holder shall have the option (i) to be prepaid in full in the amount of the
      outstanding balance, including accrued but unpaid interest, of this Convertible
      Debenture out of the proceeds of the Qualified Senior Financing or (ii) to
      continue to hold this Convertible Debenture under the terms and conditions
      contained herein, including but not limited to the subordination provisions
      of
      this Section
      5.3.
      In
      addition, if the Holder opts to continue to hold this Convertible Debenture,
      the
      Holder agrees to execute any additional subordination documents or agreements
      as
      required by the lender(s) of the Qualified Senior Financing.

     

    (c) Subordination
      upon Bankruptcy or Insolvency.
      In the
      event of (i) any insolvency or bankruptcy case or proceeding under the
      Bankruptcy Code, 11 U.S.C. 101 et
      seq.,
      as
      amended, or any receivership, liquidation, reorganization or other similar
      case
      or proceeding against the Corporation or any of its assets, (ii) any
      liquidation, dissolution or other winding up of the Corporation, whether
      voluntary or involuntary and whether or not involving insolvency or bankruptcy,
      or (iii) any assignment for the benefit of creditors or any other marshaling
      of
      assets and liabilities of the Corporation, then and in any such
      event:

     

    (i) the
      holders of the Qualified Senior Obligations shall be entitled to receive
      indefeasible payment and satisfaction in full of all amounts due or to become
      due on or in respect of all Qualified Senior Obligations, before the Holder
      is
      entitled to receive any payment on account of this Convertible Debenture;
      and

     

    (ii) any
      payment or distribution of any kind or character, whether in cash, property
      or
      securities, by set-off or otherwise, to which the Holder would be entitled
      but
      for the provisions of this Section
      5.3,
      including any such payment or distribution which may be payable or deliverable
      by reason of the payment of any other indebtedness of the Corporation being
      subordinated to the payment under this Convertible Debenture, shall be paid
      or
      delivered by the liquidating trustee or agent or other person making such
      payment or distribution, whether a trustee in bankruptcy, a receiver or
      liquidating trustee or otherwise, directly to the holders of the Qualified
      Senior Obligations or any agent for such holders to the extent necessary to
      make
      payment in full of all Qualified Senior Obligations remaining unpaid, after
      giving effect to any concurrent payment or distribution to the holders of the
      Qualified Senior Obligations.

     

    
      
        
          

        

        CONVERTIBLE
          SUBORDINATED DEBENTURE - Page 10  

       

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    The
      Corporation shall give prompt notice to the Holder of the occurrence of any
      of
      the events referred to in this subsection
      5.3(c).

     

    (d) Subordination
      upon Default on Qualified Senior Obligations.
      In the
      event that any Event of Default (as such term is defined in any credit agreement
      governing the Qualified Senior Obligations) in the payment of principal of
      or
      premium or interest on any Qualified Senior Obligations shall have occurred
      and
      be continuing (a “Senior
      Default”),
      then,
      no payment shall be made by the Corporation on account of this Convertible
      Debenture from the date of the occurrence of such Senior Default until the
      date,
      if any, on which the Qualified Senior Obligations to which such Senior Default
      relates shall have ceased to exist or such Senior Default is cured or waived
      in
      writing by the holder(s) of such Qualified Senior Obligations.

     

    Until
      all
      Qualified Senior Obligations shall have been indefeasibly paid and satisfied
      in
      full, upon the occurrence of a Senior Default and during the continuation
      thereof, (i) the Corporation shall not, directly or indirectly, make any payment
      or prepayment on account of, or assign or transfer or grant a security interest
      with respect to, any part of its properties, assets, capital stock or rights
      (collectively, “Assets”)
      for or
      in respect of, or acquire, Subordinated Obligations and (ii) the holders of
      indebtedness under this Convertible Debenture shall not (A) demand, accelerate
      the maturity of, sue for or accept, take or receive from the Corporation (or
      from any other person) any payment, assignment, transfer, grant or acquisition
      described in the preceding clause (i) (including, without limitation, taking
      any
      action to cause the rescission of this Convertible Debenture or any other
      security issued in connection with the Subordinated Obligations) or to otherwise
      enforce its rights in respect of the Subordinated Obligations, (B) cancel,
      set
      off or otherwise discharge any part of the Subordinated Obligations in partial
      or complete satisfaction of any obligations of any nature whatsoever owing
      to
      the Corporation by the Holder of this Convertible Debenture; or (C) commence
      or
      join with any other creditor of the Corporation in the commencement of any
      proceeding against the Corporation under any bankruptcy, reorganization,
      readjustment or arrangement of debt, receivership, liquidation, insolvency,
      fraudulent conveyance or other similar law.

     

    The
      provisions of this subsection
      (d)
      shall
      not apply to any payment with respect to which subsection
      (b)
      would
      be applicable.

     

    (e) Payments
      Held in Trust.
      In the
      event that the Holder shall receive any payment or distribution of any kind
      or
      character with respect to the Subordinated Obligations, whether in cash,
      property or securities, at a time when such payment or distribution is
      prohibited by subsections
      (c)
      or
      (d)
      above,
      and before all Qualified Senior Obligations have been paid and satisfied in
      full, then and in such event, such payment or distribution shall be deemed
      to be
      the property of, segregated, received and held in trust for the benefit of,
      and
      shall be immediately paid over or delivered forthwith to, the holders of the
      Qualified Senior Obligations or any agent for such holders for application
      to
      the payment of all Qualified Senior Obligations remaining unpaid until all
      such
      Qualified Senior Obligations shall have been paid in full, after giving effect
      to any concurrent payment or distribution to the holders of the Qualified Senior
      Obligations, it being understood that nothing contained herein shall affect
      the
      conversion rights of the Holder of this Convertible Debenture.

     

    
      
        
          

        

        CONVERTIBLE
          SUBORDINATED DEBENTURE - Page 11  

       

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (f) Holder’s
      Rights and Remedies.
      Nothing
      contained in this Section
      5.3
      shall,
      at any time except during the pendency of any case or proceeding of the
      Corporation referred to in subsection
      5.3(c)
      or
      under the conditions described in subsection
      5.3(d),
      affect
      the obligation of the Corporation to make or prevent the Corporation from making
      payments at any time of principal of or interest or premium, if any, on this
      Convertible Debenture or any fees or other amounts payable by the Corporation
      under this Convertible Debenture, or prevent the Holder from exercising all
      of
      its conversion rights and all remedies otherwise permitted by this Convertible
      Debenture or applicable law upon default under this Convertible Debenture,
      subject to the rights, if any, under this Section
      5.3
      of the
      holders of the Qualified Senior Obligations.

     

    (g) Subrogation
      to Rights of Holders of the Qualified Senior Obligations.
      Subject
      to the payment in full of all Qualified Senior Obligations, the Holder shall
      be
      subrogated to the rights of the holders of the Qualified Senior Obligations
      to
      receive payments and distributions of cash, property and securities applicable
      to the Qualified Senior Obligations until the principal of and interest and
      premium, if any, on this Convertible Debenture and any fees or other amounts
      payable by the Corporation under this Convertible Debenture shall have been
      paid
      in full. For purposes of such subrogation, no payments or distributions to
      the
      holders of the Qualified Senior Obligations of any cash, property or securities
      to which the Holder would have been entitled but for the provisions of this
      Section
      5.3,
      and no
      payments over pursuant to the provisions of this Section
      5.3
      to the
      holders of the Qualified Senior Obligations by the Holder, shall, as among
      the
      Corporation, the Holder and the Corporation’s creditors other than the holders
      of the Qualified Senior Obligations, be deemed to be a payment or distribution
      by the Corporation to or on account of the Qualified Senior
      Obligations.

     

    (h) Continuing
      Nature of the Subordination.
      This
Section
      5.3
      is
      irrevocable except under written agreement of the parties and shall continue
      until the Qualified Senior Obligations have been paid and satisfied in full
      or
      are otherwise discharged and released by the holders of Qualified Senior
      Obligations, and the Holder shall not be released from any duty, obligation
      or
      liability hereunder so long as there is any claim of the holders of Qualified
      Senior Obligations against the Corporation arising out of any agreement which
      relates to an obligation that has not been performed, settled, discharged or
      satisfied in full. The Holder shall not be released nor shall the Holder’s
      obligations hereunder be in any way diminished by (i) any extension of time
      for
      payment or performance of the Qualified Senior Obligations, (ii) any action
      taken under any agreement by or on behalf of the holders of Qualified Senior
      Obligations in the exercise of any right thereby conferred, (iii) any delay,
      failure or omission on the part of the holders of Qualified Senior Obligations
      to enforce any such right, (iv) any amendment to any terms of any agreement
      relating to any Qualified Senior Obligation, whether relating to any extension
      of time for payment or performance, or increasing amounts to be borrowed or
      otherwise, (v) any release, exchange, sale or surrender of collateral or
      guarantees relating to any Qualified Senior Obligation, or (vi) any settlement
      or compromise relating to any Qualified Senior Obligation.

     

    
      
        
          

        

        CONVERTIBLE
          SUBORDINATED DEBENTURE - Page 12  

       

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (i) The
      Corporation shall not give, and no holder of Subordinated Obligations shall
      demand, accept or receive, any collateral security, direct or indirect, for
      any
      Subordinated Obligations.

     

    (j) If
      any
      Qualified Senior Obligations shall have become or been declared to be
      immediately due and payable, the Subordinated Obligations shall become
      immediately due and payable, notwithstanding any inconsistent terms
      thereof.

     

    (k) For
      the
      purposes of this Section
      5.3,
      no
      Qualified Senior Obligations shall be deemed to have been paid in full unless
      the holder thereof shall have received and have been permitted to retain cash
      equal to the amount thereof then outstanding and such Qualified Senior
      Obligations shall have been fully discharged.

     

    (l) The
      Corporation and the Holder, for themselves and their successors and assigns
      as
      holders of Subordinated Obligations, covenant to execute and deliver to holders
      of Qualified Senior Obligations such further instruments and to take such
      further action as the holders of Qualified Senior Obligations may at any time
      or
      times reasonably request in order to carry out the provisions and intent of
      this
      Section.

     

    5.4. Modification
      of Convertible Debenture.
      This
      Convertible Debenture may be modified with the written consent of the holders
      of
      not less than 80% of the total Conversion Shares issued and issuable upon
      conversion of all of the Convertible Subordinated Debentures of the Series
      outstanding on the date such consent is requested. With respect to any such
      modification, the Corporation shall be entitled to rely (without inquiry) upon
      any representation by Holder as to the existence of such consent, with Holder’s
      execution of any modification agreement being conclusive evidence of such
      consent.

     

    5.5. Notices.
      Any
      notice or communication to the Corporation shall be duly given if in writing
      and
      delivered via hand delivery or regular mail to the following
      address:

     

    Aura
      Systems, Inc.

    2330
      Utah
      Avenue

    El
      Segundo, California 90245

    

    5.6. Successors.
      All
      agreements of the Corporation in this Convertible Debenture shall bind its
      successors.

     

    5.7. Severability.
      In
      case
      any provision in this Convertible Debenture shall be invalid, illegal or
      unenforceable, the validity, legality and enforceability of the remaining
      provisions shall not in any way be affected or impaired thereby, and the Holder
      shall have no claim therefor against any party hereto.

     

    5.8. Miscellaneous.
      This
      Convertible Debenture shall be deemed to be a contract made under the laws
      of
      the State of California and for all purposes shall be governed by and construed
      in accordance with the laws of said State. The parties hereto, including all
      guarantors or endorsers, hereby waive presentment, demand, notice, protest,
      notice of intent to acceleration, notice of acceleration and all other demands
      and notices in connection with the delivery, acceptance, performance and
      enforcement of this Convertible Debenture, except as specifically provided
      herein, and assent to extensions of the time of payment, or forbearance or
      other
      indulgence without notice.

     

    
      
        
          

        

        CONVERTIBLE
          SUBORDINATED DEBENTURE - Page 13  

       

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    The
      Holder by acceptance of this Convertible Debenture agrees to be bound by the
      provisions of this Convertible Debenture which are expressly binding on such
      Holder.

     

    [Signature
      Page Follows]

     

    
      

    

    
      CONVERTIBLE
        SUBORDINATED DEBENTURE - Page 14 

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    IN
      WITNESS WHEREOF,
      the
      Corporation has caused this instrument to be duly executed.

     

    Dated: Effective
      January ___, 2008

     

    
      	
              AURA
                SYSTEMS, INC.

            
	 	 
	
              By:

            	 

	
              Name:

            	 

	
              Title:

            	
               

            

    

    
      
         

        
          

        

        CONVERTIBLE
          SUBORDINATED DEBENTURE - Page 15 

      

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    EXHIBIT
      A

    

    NOTICE
      OF CONVERSION

    OF
      7% CONVERTIBLE SUBORDINATED DEBENTURE

    OF
      AURA SYSTEMS, INC.

     

      
        	 	To:	
                Aura
                  Systems, Inc.

              

      

      2335
        Alaska Avenue

      El
        Segundo, California 90245

      Facsimile
        No.: (310) 643-8719

    

    

    1. Pursuant
      to the terms of the 7%
      Convertible Subordinated Debenture due January ____, 2013 (the “Convertible
      Debenture”),
      the
      undersigned hereby elects to convert the Total Principal Amount of the
      Convertible Debenture into shares of Common Stock of Aura Systems, Inc., a
      Delaware corporation (the “Corporation”),
      at a
      Conversion Price per share equal to $_______________. Capitalized terms used
      herein and not otherwise defined herein have the respective meanings provided
      in
      the Convertible Debenture.

    

    2. The
      number of shares of Common Stock issuable upon the conversion of the Convertible
      Debenture to which this Notice relates is _______________ (the “Conversion
      Shares”).
      

    

    3. Please
      issue a certificate or certificates for _______________ Conversion Shares in
      the
      name(s) specified immediately below or, if additional space is necessary, on
      an
      attachment hereto:

    

    
      	 
	 	 

	
              Name

            	 	
              Name

            
	 
	 	 

	
              Address

            	 	
              Address

            
	 
	 	 

	
              SS
                or Tax ID Number

            	 	
              SS
                or Tax ID Number

            

    

    

    Delivery
      Instructions

    for
      Common Stock:                                                            

     

     

    
      
        

      

      EXHIBIT
        A TO CONVERTIBLE SUBORDINATED DEBENTURE - Page 1

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    4. If
      the
      shares of Common Stock issuable upon conversion of the Convertible Debenture
      have not been registered for resale under the Securities Act of 1933, as amended
      (the “1933
      Act”),
      and
      the provisions of Rule 144(k) under the 1933 Act are inapplicable to the
      undersigned with respect to the Conversion Shares relating to this Notice,
      the
      undersigned represents and warrants that (a) the Conversion Shares to which
      this
      Notice relates are being acquired for the account of the undersigned for
      investment, and not with a view to, or for resale in connection with, the
      distribution thereof, and that the undersigned has no present intention of
      distributing or reselling such shares and (b) the undersigned is an “accredited
      investor” as defined in Regulation D under the 1933 Act. If the provisions of
      Rule 144(k) under the 1933 Act are inapplicable to the undersigned with respect
      to the Conversion Shares relating to this Notice, the undersigned further agrees
      that (i) such Conversion Shares shall not be sold or transferred unless (A)
      they
      first shall have been registered under the 1933 Act and applicable state
      securities laws or (B) the Company shall have been furnished with an opinion
      of
      legal counsel reasonably satisfactory in form, scope and substance to the
      Company to the effect that such sale or transfer is exempt from the registration
      requirements of the 1933 Act and (ii) until such Conversion Shares are
      registered for resale by the undersigned under the 1933 Act, the Company may
      place a legend on the certificate(s) for the Conversion Shares to that effect
      and place a stop-transfer restriction in its records relating to the
      shares.

    

    
      	
              NAME:

            	 

    

    

    
      	
              Date:
                

            	 	 	 
	 	 	 	
              Signature
                of Registered Holder

            
	 	 	 	
              (Must
                be signed exactly as name

            
	 	 	
                

            	
              appears
                in the Convertible Debenture.)

            

    

    

      
        
          

        

      

      EXHIBIT
        A TO CONVERTIBLE SUBORDINATED DEBENTURE - Page
        2EXECUTION
      COPY

    

    _______________________________

    

    ASSET
      PURCHASE AGREEMENT

     

    BY
      AND AMONG

     

    AURA
      SYSTEMS, INC. AND

     

    EMERALD
      COMMERCIAL LEASING, INC.

    

    MAY
      15, 2008

    _______________________________

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    Schedule
      1.1 and General Assignment and Bill of Sale

    

    
      	
              Schedule
                1.1

            	
              Inventory
                (Assets)

            

    

    

    General
      Assignment and Bill of Sale

    
      
        
        

      

      
        ii

        
          

        

      

      
        
        

      

    

    ASSET
      PURCHASE AGREEMENT

    

    This
      Asset Purchase Agreement (this “Agreement”), dated May 15, 2008, effective as of
      May 15, 2008, is made by and between Aura Systems, Inc., a Delaware corporation
      (the “Buyer”), having its principal place of business at 2330 Utah Avenue, El
      Segundo, California 90245 and Emerald Commercial Leasing, Inc. a Georgia
      corporation (the “Seller”), having its principal place of business at 4225
      Moreland Avenue, Conley, Georgia 30288.

    

    RECITALS

     

    WHEREAS,
      Seller
      is
      engaged in the business of leasing complete refrigeration transport systems,
      which include, among other things, the design and installation of generators,
      and refrigeration systems onto commercial diesel vehicles for use in interstate
      commerce in the United States (the “Business”); and

     

    WHEREAS,
      Buyer
      desires to purchase and Seller desires to sell certain inventory assets relating
      to refrigeration transport systems as described below; and

     

    WHEREAS,
      this
      Agreement sets forth the terms and conditions upon which the Buyer will purchase
      from Seller, and Seller will sell to Buyer, the aforementioned inventory assets
      for the consideration provided herein.

    

    NOW
      THEREFORE,
      In
      consideration of the foregoing, the mutual representations, warranties and
      covenants set forth herein, and for other good and valuable consideration,
      the
      receipt and sufficiency of which are hereby acknowledged, the parties to this
      Agreement hereby agree as follows:

     

    ARTICLE
      I

    PURCHASE
      AND SALE OF ASSETS

     

    1.1 Agreement
      of Sale and Purchase.
      Seller
      hereby sells, bargains, assigns, transfers and conveys to Buyer and Buyer hereby
      purchases and acquires the following assets (the “Assets”) of Seller on the
      terms and conditions set forth in this Agreement: 

     

    (a) all
      right, title and interest of the Seller in and to the inventory attached hereto
      in Schedule 1.1 (the “Assets”).

     

    Seller
      is
      retaining any and all other assets and liabilities of the Business.

     

    1.2 Purchase
      Price.
      The
      purchase price for the Assets is $384,894.89. 

     

    1.3 Time
      and Place of Closing.
      The
      closing of described herein (the “Closing”) shall take place simultaneously with
      the execution of this Agreement. The date and time at which the Closing actually
      occurs is hereinafter referred to as the “Closing Date.”

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    1.4 Execution
      and Delivery of Documents of Title by the Seller.
      At the
      Closing, the Seller shall execute and deliver to the Buyer a general assignment
      and bill of sale in form and substance acceptable to Buyer, (the “Bill of Sale”)
      and such deeds, conveyances, certificates of title, assignments, assurances
      and
      other instruments and documents as the Buyer may reasonably request in order
      to
      effect the sale, conveyance, and transfer of the Assets from the Seller to
      the
      Buyer. Such instruments and documents shall be sufficient to convey to the
      Buyer
      good and marketable title in all of the Assets. The Seller will, from time
      to
      time after the Closing Date, take such additional actions and execute and
      deliver such further documents as the Buyer may reasonably request in order
      to
      more effectively sell, transfer and convey the purchased Assets to the Buyer
      and
      to place the Buyer in position to operate and control all of the purchased
      Assets.

     

    1.5 Allocation
      of the Purchase Price.
      The
      purchase price for the assets shall be allocated to the Assets as set forth
      in
      the attached Schedule 1.1, which represent the fair market value allocable
      to
      each of the Assets to be purchased by Buyer under this Agreement, were arrived
      at by arm’s length negotiations, and shall be used by each party in reporting
      the transaction contemplated by this Agreement for federal income tax purposes.
      As to assets purchased at Buyer’s cost, such shall be noted in Schedule 1.1.

     

    1.6 Waiver
      of Compliance with the Bulk Sales Act.
      In
      connection with the transactions contemplated hereby, only if applicable, the
      parties shall waive compliance with the provisions of Article 6 of the Uniform
      Commercial Code - Bulk Transfers and the Bulk Sales Act, to the extent
      applicable, and any other applicable United States, state or provincial bulk
      sales act or statute (“Bulk Sales Acts”).

     

    1.7 Payment
      Terms. Subsequent
      to the Closing, Buyer shall pay for each asset item in accordance with the
      pricing set forth in Schedule 1.1, upon Buyer’s sale to third parties of its all
      electric refrigeration transport mobile power systems, incorporating items
      comprising the Assets contained in Schedule 1.1, net fifteen calendar days
      of
      Buyer’s receipt of payment for each such asset item sold. Payment to Seller of
      the purchase price in total for the Assets shall be without interest to Buyer
      and within a period not to exceed two years from the date Buyer takes physical
      possession of the Assets. 

     

    ARTICLE
      II

    REPRESENTATIONS
      AND WARRANTIES

    OF
      THE SELLER 

     

    2.1 The
      Seller hereby represents and warrants to the Buyer that the following statements
      are true and correct. 

     

    (a) Organization
      and Qualification.
      The
      Seller is a corporation duly organized, validly existing and in good standing
      under the laws of the state of its incorporation. The Seller has full corporate
      power and authority to own, use and lease its properties and to conduct its
      business as such properties are currently owned, used or leased and as such
      business is currently conducted. The Seller is qualified to do business as
      a
      foreign corporation and is in good standing in each jurisdiction in which the
      conduct of its business would require such qualification.

    
      
        
        

      

      
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    (b) Authority;
      No Violation.
      The
      Seller has all requisite corporate power and authority to enter into this
      Agreement and to carry out the transactions contemplated hereby or thereby.
      The
      execution, delivery and performance by the Seller of this Agreement have been
      duly and validly authorized and approved by all necessary corporate action.
      This
      Agreement constitutes the legal and binding obligation of the Seller,
      enforceable in accordance with its terms. Assuming the accuracy of the
      representations and warranties of the Buyer hereunder, the entering into of
      this
      Agreement by the Seller does not, and the consummation by the Seller of the
      transactions contemplated hereby, including specifically the transfer of the
      Assets to the Buyer by the Seller, will not violate the provisions of
      (i) any applicable laws of the United States or any other state or
      jurisdiction in which the Seller does business, or (ii) the Seller’s
      Articles of Incorporation or Bylaws.

     

    2.2 The
      Seller hereby represents and warrants that it has no any actual knowledge that
      any of the following statements are not true or correct in all material
      respects. 

     

    (a) No
      Violation.
      The
      consummation, execution, delivery and performance of this Agreement will not
      conflict with any provision of, or result in a default or acceleration of any
      obligation under, result in any change in the rights or obligations of the
      Seller under or require any consent under, any Lien, contract agreement,
      license, lease, instrument, indenture, order, arbitration award, judgment,
      or
      decree to which the Seller is a party or by which it is bound, or to which
      any
      property of the Seller is subject and which now has a material adverse effect
      on
      the Seller.

     

    (b) Consents.
      No
      consent, waiver, approval, order or authorization of, or registration,
      declaration or filing with, any court, administrative agency or commission
      or
      other federal, state, county, local or other foreign governmental authority,
      instrumentality, agency or commission (“Governmental Entity”) or any third
      party, including a party to any agreement with the Seller, is required by or
      with respect to the Seller in connection with the execution and delivery of
      this
      Agreement and any related agreement, if any, to which the Seller is a party.
      

     

    (c) Title
      to the Purchased Assets.
      Seller
      has good and marketable title to all of the Assets, free and clear of all
      charges, liens, commitments, claims, restrictions, leases or encumbrances of
      every kind and nature. 

     

    (d) Condition
      of Assets.
      At the
      time of delivery to Buyer, the Assets shall be in good repair and operating
      condition, suitable for its intended uses, and Buyer shall have the right to
      inspect the Assets prior to the closing. 

     

    (e) Liabilities.
      Seller
      does not have and will not have after the date of this Agreement any debts,
      liabilities or obligations of any nature, whether accrued, absolute, contingent
      or otherwise for which Buyer may become liable as a result of the transactions
      contemplated by this Agreement.

    
      
        
        

      

      
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    (f) Litigation.
      There
      are no claims pending or threatened (or any facts which could lead to such
      a
      claim) by, or against the Seller before any federal, state, local or foreign
      court or any other governmental or administrative agency or tribunal or any
      arbitrator or arbitration panel, and there are no judgments, orders, rulings,
      charges, decrees, injunctions, notices of violation or other mandates against
      the Seller to which the Seller is a party with respect to the business, property
      or assets of the Seller.

     

    (g) Brokers.
      Neither
      the Seller nor anyone acting on their behalf has engaged, retained, nor incurred
      any liability to any broker, finder or agent or has agreed to pay any brokerage
      fees, commissions, finder’s fees or other fees with respect to this Agreement or
      the transactions contemplated hereby.

     

    (h) Disclosure
      of Material Information.
      There is
      no fact or circumstance known to the Seller which now or hereafter has a
      material adverse effect on the Seller and which has not been set forth in this
      Agreement or in any other document delivered or to be delivered in connection
      herewith. Without limiting the generality of the foregoing, the Seller has
      not
      heretofore taken any actions, nor is there any existing fact or circumstance
      relating to Seller, which now or hereafter has a material adverse effect on
      Buyer after the consummation of the purchase and sale of the Assets contemplated
      hereby.

     

    (i) No
      Misleading Statements.
      No
      representation, warranty or statement of Seller set forth in this Agreement
      or
      any Schedule to this Agreement contains or will contain any untrue statements
      of
      a material fact.

     

    ARTICLE
      III

    REPRESENTATIONS
      AND WARRANTIES OF THE BUYER

     

    The
      Buyer
      hereby represents and warrants to the Seller as follows:

     

    3.1 Organization
      and Qualification.
      The
      Buyer is a corporation duly organized, validly existing and in good standing
      under the laws of the state of Delaware, with full corporate power and authority
      to own, use or lease its properties and to conduct its business as such
      properties are owned, used or leased and as such business is conducted.

     

    3.2 Authority.
      The
      Buyer has the requisite corporate power and authority to enter into this
      Agreement and to carry out the transactions contemplated hereby or thereby.
      The
      execution, delivery and performance of this Agreement and any related document
      by the Buyer has been duly and validly authorized and approved by all necessary
      corporate action. 

     

    3.3 Brokers.
      The
      Buyer has not engaged, retained, or incurred any liability to any broker, finder
      or agent or has agreed to pay any brokerage fees, commissions, finder’s fees or
      other fees with respect to this Agreement or the transactions contemplated
      hereby.

     

    3.3 No
      Misleading Statements.
      No
      representation, warranty or statement of Buyer set forth in this Agreement
      or
      any Schedule to this Agreement contains or will contain any untrue statements
      of
      a material fact.

    
      
        
        

      

      
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    ARTICLE
      IV

    NO
      ASSUMPTION OF LIABILITIES AND INDEMNIFICATION 

     

    4.1 Assumption
      of Liabilities.
      Buyer
      is not assuming and shall not be obligated or liable for any of the liabilities,
      obligations, contracts or commitments of Seller, whether now existing or arising
      in the future. If Buyer pays or performs any expense, liability, obligation,
      contract or commitment of Seller, Buyer shall be entitled to indemnification
      from Seller pursuant to Section 4.2 below; provided that Buyer will promptly
      notify Seller upon receipt of any such claim and will not pay or perform on
      such
      claim if Seller provides Buyer with assurances which are, in Buyer’s
      determination, adequate to the effect that Seller will pay or perform what
      is
      properly due to the claimant. 

     

    4.2 Indemnification
      of Buyer.
      Seller
      agrees to indemnify and hold harmless Buyer and its officers, directors,
      stockholders, employees, and agents, from, against and in respect of:

     

    (a) Any
      and
      all losses, damages or deficiencies resulting from any and all
      misrepresentations or breaches of any warranty, provision or term by Seller
      made
      or contained in this Agreement or any Schedule hereto; 

     

    (b) The
      assertion against Buyer of any claim by any creditor of or claimant against
      Seller relating to an obligation or liability of Seller or to the operation,
      ownership, use or maintenance prior to Closing of the Assets or Business of
      Seller; and

     

    (c) The
      reasonable costs and expenses incident to any and all actions, suits,
      proceedings, claims, demands, assessments or judgments in respect of any matter
      for which Buyer is indemnified under Section 4.2(a) or (b) above, including
      legal and accounting fees and expenses. 

     

    4.3 Indemnification
      of Seller.
      Buyer
      agrees to indemnify and hold harmless Seller and its officers, directors,
      stockholders, employees, and agents, from, against and in respect of:

     

    (d) Any
      and
      all losses, damages or deficiencies resulting from any and all
      misrepresentations or breaches of any warranty, provision or term by Buyer
      made
      or contained in this Agreement or any Schedule hereto; 

     

    (e) The
      assertion against Seller of any claim by any creditor of or claimant against
      Buyer relating to the operation, ownership, use or maintenance after the Closing
      of the Assets of Seller; and

     

    (f) The
      reasonable costs and expenses incident to any and all actions, suits,
      proceedings, claims, demands, assessments or judgments in respect of any matter
      for which Seller is indemnified under Section 4.3(a) or (b) above, including
      legal and accounting fees and expenses. 

     

    4.4 Cooperation.
      If a
      party to this Agreement (the “Indemnifying Party”) is indemnifying the other
      party to this Agreement (the “Indemnified Party”), the Indemnified party agrees
      to provide the Indemnifying Party such cooperation, information or assistance
      as
      the Indemnifying Party may reasonably request. 

    
      
        
        

      

      
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    ARTICLE
      V

    MISCELLANEOUS

     

    5.1 Fees
      and Expenses.
      Each of
      the parties hereto will pay and discharge its own expenses and fees in
      connection with the negotiation of and entry into this Agreement and the
      consummation of the transactions contemplated hereby.

     

    5.2 Notices.
      All
      notices, requests, demands, consents and communications necessary or required
      under this Agreement shall be made in the manner specified, or, if not
      specified, shall be delivered by hand or sent by registered or certified mail,
      return receipt requested, or by telecopy (receipt confirmed) or e-mail
      to:

     

    if
      to the
      Buyer:

     

    Aura
      Systems, Inc.

    Melvin
      Gagerman, CEO and Chairman

    233
      Utah
      Avenue

    El
      Segundo, California 90245

    Facsimile
      Transmission Number: (310) 643-7457

     

    if
      to the
      Seller:

     

    Emerald
      Commercial Leasing, Inc.

    Joseph
      Dickman, President and Sole Stockholder

    4255
      Moreland Avenue

    Conley,
      GA 30288

    Facsimile
      Transmission Number: (404) 763-1628

     

    All
      such
      notices, requests, demands, consents and other communications shall be deemed
      to
      have been duly given or sent two (2) days following the date on which mailed,
      or
      on the date on which delivered by hand or by facsimile transmission (receipt
      confirmed), as the case may be, and addressed as aforesaid.

     

    5.3 Successors
      and Assigns.
      All
      covenants and agreements set forth in this Agreement and made by or on behalf
      of
      any of the parties hereto shall bind and inure to the benefit of the successors
      and assigns of such party, whether or not so expressed, except that neither
      party may assign or transfer any of their respective rights or obligations
      under
      this Agreement without the consent in writing of the other, except in connection
      with a merger of such party with a third party or a sale of all or substantially
      all the assets or stock of such party to a third party.

     

    5.4 Counterparts;
      Descriptive Headings; Variations in Pronouns.
      This
      Agreement may be executed in any number of counterparts and by the different
      parties hereto on separate counterparts, each of which when so executed and
      delivered shall be an original, but all of which together shall constitute
      one
      and the same instrument, and it shall not be necessary in making proof of this
      Agreement to produce or account for more than one such counterpart. The headings
      of the sections and paragraphs of this Agreement have been inserted for
      convenience of reference only and shall not be deemed to be part of this
      Agreement. All pronouns and any variations thereof refer to the masculine,
      feminine or neuter, singular or plural, as the identity of the person or persons
      may require.

    
      
        
        

      

      
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    5.5 Severability;
      Entire Agreement.
      If any
      provision contained herein is held unenforceable, the enforceability of any
      such
      provision in every other respect and of the remaining provisions hereof shall
      not be in any way impaired or affected. This Agreement, including the Schedule
      and Bill of Sale referred to herein, is complete, and all promises,
      representations, understandings, warranties and agreements with reference to
      the
      subject matter hereof, and all inducements to the making of this Agreement
      relied upon by any of the parties hereto, have been expressed herein or in
      said
      Schedule and Bill of Sale. This Agreement may not be amended except by an
      instrument in writing signed on behalf of the Seller and the Buyer.

     

    5.6 Attorneys’
      Fees.
      In any
      action or proceeding brought to enforce any provision of this Agreement the
      successful party shall be entitled to recover reasonable attorneys’ fees in
      addition to any other available remedy.

     

    5.7 Course
      of Dealing.
      No
      course of dealing and no delay on the part of any party hereto in exercising
      any
      right, power, or remedy conferred by this Agreement shall operate as a waiver
      thereof or otherwise prejudice such party’s rights, powers and remedies. The
      failure of any of the parties to this Agreement to require the performance
      of a
      term or obligation under this Agreement or the waiver by any of the parties
      to
      this Agreement of any breach hereunder shall not prevent subsequent enforcement
      of such term or obligation or be deemed a waiver of any subsequent breach
      hereunder. No single or partial exercise of any rights, powers or remedies
      conferred by this Agreement shall preclude any other or further exercise thereof
      or the exercise of any other right, power or remedy.

     

    5.8 GOVERNING
      LAW.
      THIS
      AGREEMENT, INCLUDING THE VALIDITY HEREOF AND THE RIGHTS AND OBLIGATIONS OF
      THE
      PARTIES HEREUNDER, SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
      LAWS OF THE STATE OF CALIFORNIA WITHOUT
      REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
      JURISDICTION
      AND VENUE FOR ANY ACTION COMMENCED SHALL BE IN LOS ANGELES SUPERIOR COURT OR
      THE
      UNITED STATES DISTRICT COURT, CENTRAL DISTRICT OF CALIFORNIA. THIS AGREEMENT
      IS
      MADE SUBJECT TO AND IN ACCORDANCE WITH THE SECURITIES LAWS OF THE UNITED
      STATES.

    

    [Remander
      of page intentionally left blank. Signature page to follow.]

    
      
        
        

      

      
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    IN
      WITNESS WHEREOF
      the
      parties hereto have executed this Agreement under seal as of the date first
      set
      forth above.

     

    
      	
              ATTEST:

            	 	EMERALD
              COMMERCIAL LEASING, INC.
	 	 	 	 
	 
	 	
              By:
                

            	 

	 	 	Name:
              Joseph Dickman
	 	 	Title:
              President and Sole Stockholder
	 	 	 	 
	
              ATTEST:

            	 	AURA
              SYSTEMS, INC.
	 	 	 	 
	 
	 	
              By:
                

            	 

	 	 	Name:
              Melvin Gagerman
	 	 	Title:
              Chairman and Chief Executive Officer

    

    
      
        
        

      

      
        8

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