Document:

exhibit 10.54

exhibit 10.54

AMENDMENT AND CONVERSION AGREEMENT

            THIS
  AMENDMENT AND CONVERSION AGREEMENT (this "Agreement") is entered into
  as of August 19, 2004 between AURA SYSTEMS, INC., a Delaware corporation (the
  "Company"), and KOYAH LEVERAGE PARTNERS, L.P., a Delaware limited
  partnership ("Leverage"), KOYAH PARTNERS, L.P., a Delaware limited
  partnership ("Koyah"), EDGAR APPLEBY, an individual ("Appleby"),
  PRUDENT BEAR FUND, INC., a Maryland corporation ("Prudent Bear"),
  KOYAH VENTURES LLC, a Delaware limited liability company ("Ventures"),
  and RAVEN PARTNERS, L.P., a Delaware limited partnership ("Raven")
  (collectively, the "Lenders"). 

            WHEREAS,
  in connection with loans by Leverage to the Company, (i) the Company, Leverage
  and Koyah entered into an Agreement dated as of July 24, 2003 (the "Leverage
  Agreement"), (ii) the Company executed in favor of Leverage two Convertible
  Promissory Notes dated as of July 24, 2003 (collectively, the "Leverage
  Notes"), (iii) the Company executed in favor of Leverage (as collateral
  agent for Leverage and Koyah) a Security Agreement dated as of July 24, 2003
  (the "Leverage Security Agreement"), and (iv) the Company executed
  in favor of Leverage (as collateral agent for Leverage and Koyah) a Stock Pledge
  Agreement dated as of August 18, 2003 (the "Leverage Pledge Agreement")
  (collectively, the "Leverage Loan Documents"); 

            WHEREAS,
  in connection with loans by Koyah to the Company, (i) the Company, Leverage
  and Koyah entered into an Agreement dated as of July 24, 2003 (the "Koyah
  Agreement"), (ii) the Company executed in favor of Koyah two Convertible
  Promissory Notes dated as of July 24, 2003 (collectively, the "Koyah
  Notes"), (iii) the Company executed in favor of Leverage (as collateral
  agent for Leverage and Koyah) a Security Agreement dated as of July 24, 2003
  (the "Koyah Security Agreement"), and (iv) the Company executed
  in favor of Leverage (as collateral agent for Leverage and Koyah) a Stock Pledge
  Agreement dated as of August 18, 2003 (the "Koyah Pledge Agreement")
  (collectively, the "Koyah Loan Documents"); 

            WHEREAS,
  in connection with loans by Appleby to the Company, (i) the Company and Appleby
  entered into an Agreement dated as of January 19, 2004 (the "Appleby Agreement"),
  (ii) the Company executed in favor of Appleby a Convertible Promissory
  Note dated as of January 19, 2004 (the "Appleby Note"), (iii) the
  Company executed in favor of Appleby a Security Agreement dated as of January
  19, 2004 (the "Appleby Security Agreement"), and (iv) the Company
  executed in favor of Appleby a Stock Pledge Agreement dated as of January 19,
  2004 (the "Appleby Pledge Agreement") (collectively, the "Appleby
  Loan Documents"); 

            WHEREAS,
  in connection with loans by Prudent Bear to the Company, (i) the Company and
  Prudent Bear entered into an Agreement dated as of January 19, 2004 (the "Prudent
  Bear Agreement"), (ii) the Company executed in favor of Prudent Bear
  a Convertible Promissory Note dated as of January 19, 2004 (the "Prudent
  Bear Note"), (iii) the Company executed in favor of Prudent Bear 
  a Security Agreement dated as of January 19, 2004 (the "Prudent Bear
  Security Agreement"), and (iv) the Company executed in favor of Prudent
  Bear a Stock Pledge Agreement dated as of January 19, 2004 (the "Prudent
  Bear Pledge Agreement") (collectively, the "Prudent Bear Loan Documents");

            WHEREAS,
  in connection with loans by Ventures to the Company, (i) the Company and Ventures
  entered into an Agreement dated as of June 14, 2004 (the "Ventures Agreement"),
  (ii) the Company executed in favor of Ventures a Convertible Promissory
  Note dated as of June 14, 2004 (the "Ventures Note"), (iii) the
  Company executed in favor of Ventures a Security Agreement dated as of June
  14, 2004 (the "Ventures Security Agreement"), and (iv) the Company
  executed in favor of Ventures a Stock Pledge Agreement dated as of June 14,
  2004 (the "Ventures Pledge Agreement") (collectively, the "Ventures
  Loan Documents"); 

            WHEREAS,
  in connection with loans by Raven to the Company, (i) the Company and Raven
  entered into an Agreement dated as of June 14, 2004 (the "Raven Agreement"),
  (ii) the Company executed in favor of Raven a Convertible Promissory Note
  dated as of June 14, 2004 (collectively the "Raven Note"), (iii) the
  Company executed in favor of Raven a Security Agreement dated as of June 14,
  2004 (the "Raven Security Agreement"), and (iv) the Company executed
  in favor of Raven a Stock Pledge Agreement dated as of June 14, 2004 (the "Raven
  Pledge Agreement") (collectively, the "Raven Loan Documents");

            WHEREAS,
  certain of the Notes are for a term loan in a set principal amount (collectively,
  the "Term Notes") and certain of the Notes are for optional advance
  loans up to a maximum principal amount (the "Optional Advance Notes").

            WHEREAS,
  certain of the Loan Documents have been further amended or supplemented and
  all references in this Agreement to the "Agreements", the "Notes",
  the "Security Agreements", the "Pledge Agreements" or the
  "Loan Documents" of the various parties shall mean and refer to the
  Agreements, the Notes, the Security Agreements, the Pledge Agreements and the
  Loan Documents of such parties as so further amended or supplemented; 

            WHEREAS,
  Leverage, Koyah, Appleby and Prudent Bear entered into an Intercreditor Agreement
  dated as of January 19, 2004 (the "Intercreditor Agreement") to which
  the Company was an additional party for purposes of acknowledging the intercreditor
  arrangements contained therein and agreeing to the obligations of the Company
  contained therein; 

            WHEREAS,
  Leverage and Koyah, as the majority lenders under the Intercreditor Agreement,
  entered into a Joinder Agreement dated as of June 14, 2004 (the "Joinder
  Agreement") with Ventures and Raven to add them as additional lenders under
  the Intercreditor Agreement;

            WHEREAS,
  the Company is entering into a Securities Purchase Agreement dated as of the
  date hereof (the "Securities Purchase Agreement") with certain investors,
  for the purchase of units (the "Units") consisting of Series B Cumulative
  Convertible Preferred Stock (the "Series B Stock") and warrants to
  purchase Common Stock (the "Warrants"), as part of a $5,000,000 minimum/$15,000,000
  maximum financing (the "Series B Financing"), and is completing the
  initial issuance and funding of the Series B Financing on the date hereof; 

            WHEREAS,
  the aggregate principal amounts outstanding under the Notes (excluding any costs
  and expenses of the Lenders payable by the Company which have been incurred
  but not yet been invoiced) and the accrued interest on the Notes as of the date
  hereof are as set forth in Schedule 1 attached hereto;

            WHEREAS,
  in connection with the initial issuance and funding of the Series B Financing,
  the Company has requested that the Lenders extend the maturity date of the Notes,
  amend the Notes and convert the Notes over time into Units; and 

            WHEREAS,
  the parties are entering into this Agreement to extend the maturity date of
  the Notes, to amend the Notes, to convert the Notes over time into Units and
  to provide for related matters, all on the terms and conditions set forth herein.

            NOW,
  THEREFORE, for valuable consideration, the receipt of which is hereby acknowledged,
  the parties do hereby agree as follows: 

1.     Extension of Maturity Dates.  The Maturity
  Date (as defined in the Notes) set forth in Section 1 of each of the Notes hereby
  is amended and extended to August 19, 2005, after which date each of the Notes
  shall be due and payable upon five (5) days demand; provided however, that if
  all of the conditions set forth in Section 9(b) of this Agreement, other than
  the condition set forth in clause (iii)(A) thereof have been satisfied as of
  August 19, 2005, then the Maturity Date (if all other Section 9(b) conditions
  remain satisfied at the commencement of each  extension) shall be further amended
  and extended for up to four (4) successive three (3) month periods (ending respectively
  on November 19, 2005, February 19, 2006, May 19, 2006 and August 19, 2006) to
  allow such condition set forth in Section 9(b)(iii)(A) to be satisfied. If the
  condition set forth in Section 9(b)(iii)(A) is not satisfied by August 19, 2006,
  each of the Notes shall be due and payable upon five (5) days demand.

 2.      Amendment of Prepayment Terms.  Section
  3 of each Note, entitled "Payment Terms" in the case of the Leverage
  Note, the Koyah Note, the Ventures Note and the Raven Note and "Prepayment"
  in the case of the Appleby Note and the Prudent Bear Note, hereby is deleted
  in its entirety and replaced with the following:

	 	3.     Prepayment.  This Note
      may be prepaid in whole but not in part, at any time upon ten (10) business
      days' prior written notice, without any premium or penalty.  In the event
      of any tender of prepayment of this Note by Borrower, Lender shall have
      the right to exercise its conversion rights instead of electing acceptance
      of such prepayment, as provided in Section 9 of this Note.  

3.      Amendment of Conversion Terms.  Section 9
  of each Note, entitled "Conversion of Note", hereby is deleted in
  its entirety and replaced with following:

	         	
      9.         Conversion
        of Note.  

                  At
        the option of Lender, the outstanding principal balance of this Note and
        all accrued interest, fees or other amounts payable under this Note, at
        any time prior to acceptance by Lender of payment thereof instead of conversion
        as provided below, may be converted, in whole or in part, into units (the
        "Units") consisting of shares of Series B Cumulative Convertible
        Preferred Stock (the "Series B Stock") and warrants to purchase
        Common Stock (the "Warrants") of Borrower, at the same price
        and on the same other terms and conditions as the $5,000,000 minimum/$15,000,000
        maximum Series B Cumulative Convertible Preferred Stock financing (the
        "Series B Financing"), as set forth in the Securities Purchase
        Agreement (the "Securities Purchase Agreement") with the initial
        investors in the Series B Financing which is attached as Exhibit A
        to the Amendment and Conversion Agreement dated as of August 19, 2004
        (the "Amendment and Conversion Agreement") among Borrower and
        the Lenders named therein (collectively, the "Intercreditor Lenders"),
        the terms and conditions of which are incorporated herein by reference;
        provided, however, that the following terms shall be adjusted as applied
        to the Intercreditor Lenders: (i) the subscription amount shall be the
        amount being converted by an Intercreditor Lender in the particular conversion
        involved and the subscription date shall be the date of such conversion;
        (ii) the option to purchase additional Units contained in Section 1.5
        of the Securities Purchase Agreement (A) shall be in an amount up to fifty
        percent (50%) of the total number of Units issuable to an Intercreditor
        Lender in the Initial Conversions and Additional Conversions (as defined
        in the Amendment and Conversion Agreement) and (B) shall be exercisable
        by an Intercreditor Lender, in whole or in part, at any time on or before
        May 31, 2005, (1) in increments as set forth in Schedule 3 attached
        to the Amendment and Conversion Agreement and (2) subject to earlier termination
        upon notice as set forth in Section 1.5(a)(iii) of the Securities Purchase
        Agreement, but with the amount of the option exercisable under the circumstances
        described in Section 1.5(a)(iii) being equal to fifty percent (50%) of
        the unexercised portion of the original option; (iii) Section 4.5 of the
        Securities Purchase Agreement shall not apply to an Intercreditor Lender
        and instead shall be replaced by Section 24 of the Amendment and Conversion
        Agreement; (iv) Section 8.1 of the Securities Purchase Agreement shall
        not apply to an Intercreditor Lender and instead shall be replaced by
        Section 20 of this Agreement; and (v) the Registration Rights Agreement
        referred to in the Securities Purchase Agreement shall not apply to an
        Intercreditor Lender and shall be replaced by the Registration Rights
        Agreement referred to in the Amendment and Conversion Agreement.  Upon
        any conversion, Borrower and Lender shall be deemed to have entered into
        a Securities Purchase Agreement (with such adjusted terms) for such conversion,
        as if executed and delivered by them.

                  Upon
        any tender of payment of this Note by Borrower (whether by prepayment
        before maturity or payment at or after maturity), Lender shall have ten
        (10) business days thereafter to elect either acceptance of such payment
        instead of conversion or exercise of its conversion right, in whole or
        in part.  In the event Lender fails to make such election by such date,
        Lender shall be deemed to have elected acceptance of payment instead of
        conversion, provided that the payment tendered is the full amount owing
        under this Note.  Any exercise of such conversion right shall be at the
        option of Lender, in its sole discretion.  Lender may exercise such conversion
        right by providing to Borrower written notice of exercise in the form
        attached as Exhibit B to the Amendment and Conversion Agreement
        or other appropriate form. In the event of any stock splits, stock dividends,
        recapitalizations or similar events after August 19, 2004 but prior to
        the date of conversion, then the number and kind of securities issuable
        upon conversion shall be appropriately adjusted.  Such conversion shall
        be effective immediately upon giving such notice and as of such date Lender
        shall be treated for all purposes as the holder of the securities issuable
        upon conversion.

                  As
        soon as practicable after such conversion, Borrower, at its expense, shall
        cause to be issued in the name of and delivered to Lender the securities
        to which Lender shall be entitled upon such conversion.  Upon a partial
        conversion of this Note, (i) this Note may be surrendered by Lender and
        replaced with a new Note of like tenor for the remaining balance of the
        Note surrendered or (ii) Lender may retain this Note and the parties may
        keep separate records of the outstanding balance of this Note.  A new
        Note shall be delivered to Lender as soon as practicable after any such
        surrender.  No fractional shares shall be issued upon such conversion. 
        If upon such conversion a fractional share results, the number of shares
        to be issued upon conversion shall be rounded upwards or downwards to
        the nearest whole number.

    

4.      Amendment of Defaults.  Section 13
  of each Note, entitled "Defaults," hereby is amended to add an additional
  "Default" reading as follows:  

	         	
               (e)         The
        investors in the Series B Financing shall fail to fulfill or default on
        any of their respective obligations under the Securities Purchase Agreement(s)
        for the Series B Financing or any related promissory notes or other agreements
        or documents or Borrower shall fail to receive all of the funds as scheduled
        under such Securities Purchase Agreement(s) or any related promissory
        notes or other agreements or documents, in each case if (i) the subscription
        amount(s) of the defaulting or non-paying investor(s) is at least twenty
        percent (20%) of the total subscription amounts of all investors in the
        Series B Financing and (ii) the default or failure to receive funds continues
        for sixty (60) days from the scheduled due date.

    

5.      Amendment of Maximum Principal Amount of
  Raven Optional Advance Note.  The maximum principal amount of the Optional
  Advance Note in favor of Raven hereby is amended to be One Hundred Twenty-Five
  Thousand Dollars ($125,000).

 6.     Amendment of Schedule of Exceptions.

	         	
               (a)        Agreements. 
        The last sentence of Section 1(k) of the Leverage Agreement, the Koyah
        Agreement, the Appleby Agreement and the Prudent Bear Agreement hereby
        is amended to add at the end thereof ", except as listed in the Schedule
        of Exceptions".  In addition, the Schedule of Exception attached
        to each such Agreement hereby is amended to read as set forth in the Schedule
        of Exceptions attached hereto as Exhibit C.

      

    
	 	         (b)         Notes. 
      The Schedule of Exceptions attached to the Leverage Note, the Koyah Note,
      the Appleby Note and the Prudent Bear Note hereby is amended to read as
      set forth in the Schedule of Exceptions attached hereto as Exhibit D.

    
	 	         (c)         Security
      Agreements.  The Schedule of Exceptions attached to the Leverage Security
      Agreement, the Koyah Security Agreement, the Appleby Security Agreement
      and the Prudent Bear Security Agreement hereby is amended to read as set
      forth in the Schedule of Exceptions attached hereto as Exhibit E.

    

7.      Amendment of Warrants.  The last sentence
  of the first paragraph of the Warrant dated April 5, 2004 issued by the Company
  to Leverage and the Warrant dated April 5, 2004 issued by the Company to Koyah
  hereby is amended to read as follows:

	         	
      The Holder may exercise this Warrant at any time after the date of this
        Warrant and prior to the seventh anniversary of the date hereof (the "Expiration
        Date").

    

8.      Confirmations and Releases.

	         	
               (a)         Loan
        Balance Confirmation.  The Company hereby confirms, acknowledges and
        agrees that (i) the respective amounts for the Lenders set forth in Schedule
        1 attached hereto are the aggregate amounts of principal outstanding
        and accrued interest under the Notes as of the date hereof (excluding
        any costs and expenses of the Lenders payable by the Company which have
        been incurred but not yet been invoiced) and (ii) such principal amounts
        and accrued interest, together with any other amounts payable by the Company
        under the Notes or other Loan Documents, are owing under the Notes and
        other Loan Documents.

    
	 	
               (b)         Release. 
        (i) The Company, on behalf of itself and its heirs, successors and assigns,
        and (ii) each Lender, on behalf of its heirs, successors and assigns,
        hereby fully and irrevocably: (A) releases, acquits, satisfies and forever
        discharges each of the Lenders, and each of their respective past, present
        and future affiliates, officers, directors, partners, employees, agents,
        attorneys, representatives, heirs, successors and assigns, from any and
        all manner of liabilities, obligations, expenses, damages, judgments,
        executions, actions, claims, demands and causes of action of any nature
        whatsoever, whether at law or in equity, known or unknown or now accrued
        or subsequently maturing, which such releasing party now has or hereafter
        may have arising under, related to or in connection with the Loan Documents,
        the Intercreditor Agreement or the Joinder Agreement (the "Claims");
        (ii) covenants and agrees never to institute or cause to be instituted
        or continue prosecution of any suit or other form of action or proceeding
        of any kind or nature whatsoever against any released party with respect
        to the Claims; and (iii) waives any and all rights and benefits which
        it now has or hereafter may have by virtue of the provisions of Section
        1542 of the Civil Code of the State of California which provides as follows:
      

    
	 	  	
      A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
        KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE,
        WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH
        THE DEBTOR.

    
	 	
               Each releasing
        party specifically agrees, represents and warrants that (x) such releasing
        party realizes and acknowledges that factual matters now unknown to it
        may have given or hereafter may give rise to Claims which are presently
        unknown, unanticipated or unsuspected, (y) the release contained herein
        has been negotiated and agreed upon in light of such realization and (z)
        such releasing party nevertheless hereby intends the release contained
        herein to fully and irrevocably release, acquit, satisfy and forever discharge
        each of the released parties from any such unknown, unanticipated or unsuspected
        Claims. 

               The foregoing release,
        however, is not intended to release any Lender from its express, continuing
        obligations specifically contained in the Loan Documents, the Intercreditor
        Agreement, the Joinder Agreement, this Agreement, the Securities Purchase
        Agreement (as deemed executed and delivered upon any conversion (with
        adjusted terms) pursuant to the amended conversion rights under Section
        9 of the Notes), the Registration Rights Agreement (as defined below),
        the Shareholder Agreement (as defined below), the Certificate of Designations
        (as defined in the Securities Purchase Agreement) or any related agreements
        or documents (collectively, the "Transaction Documents").

    
	 	
               (c)         Additional
        Confirmation.  Without limiting the generality of the foregoing, the
        Company hereby specifically confirms, acknowledges and agrees that, as
        of the date hereof and as of the date of any conversion, the Company owes
        all such principal, interest and other amounts under the Notes and the
        other Loan Documents and all of its other obligations under the Notes,
        the other Loan Documents and the other Transaction Documents in full,
        without any defense, setoff or reduction of any nature whatsoever (including
        without limitation any claims released under such release).

    
	 	9.         Conversion of Notes.
	 	         (a)         Initial Conversions.  Upon the
      initial closing of the Series B Financing, the Lenders shall exercise
      their amended conversion rights under Section 9 of the Notes for an aggregate
      conversion amount of Two Million Five Hundred Thousand Dollars ($2,500,000),
      allocated among the Lenders and the Notes on a non-pro rata basis in accordance
      with the initial conversion amounts set forth in Schedule 2 attached
      hereto for each Lender and Note (the "Initial Conversions"). 
      Each Lender shall exercise such conversion right by giving written notice
      thereof.
	 	
               (b)         Additional Conversions.  At the end of each
        calendar quarter after the Company has received a total of $4,100,000.00
        in New Funds, plus an additional amount equal to Costs and Fees (as those
        terms are defined below), but subject to the conditions set forth below,
        the Lenders shall exercise their amended conversion rights under Section
        9 of the Notes for an aggregate conversion amount equal to the amount
        of funds actually received by the Company in the Series B Financing
        during such quarter, allocated among the remaining Lenders and the remaining
        Notes on a pro rata basis in accordance with the then outstanding total
        amounts of the remaining Notes (the "Additional Conversions"). 
        Each remaining Lender shall exercise such conversion right by giving written
        notice thereof. For purposes of this paragraph the term "New Funds" means
        cash received by the Company after the initial closing of the Series B
        financing from payments due under notes made by investors under the Securities
        Purchase Agreement or from cash received from new investors.  New Funds
        shall not include, among other things (1) funds received at or prior to
        the time of initial closing of the Series B financing, (2) debt converted
        at the time of initial closing of the Series B financing, (3) conversions
        of dividend accruals or stock issued in exchange for non-cash consideration
        (4) funds paid to or on account of the Company in connection with the
        sale of the real property located at 2335 Alaska Avenue and 2330 Utah
        Avenue, El Segundo, California (the "Real Estate") For purposes of this
        paragraph the term "Costs and Fees" means any legal costs and legal fees
        incurred by others and paid or payable by the Company in connection with
        the (m) sale of the Real Estate including, without limitation, assumption
        by the purchasers thereof of the debt on the Real Estate, (n) settlement
        with the minority Shareholders of Aura Realty, Inc., and (o) settlement
        of litigation filed by, and other claims of, certain former officers and
        employees pursuant to a Mutual Settlement Agreement and Release between
        the Company and Arthur Schwartz, et. al., dated as of August ___, 2004.
      

               The obligations of the remaining Lenders to do any Additional
        Conversion shall be subject to the following conditions: (i) all investors
        in the Series B Financing have fulfilled all of their respective
        obligations under the Securities Purchase Agreement(s) for the Series
        B Financing and any related promissory notes or other agreements or documents
        and the Company has received all of the funds as scheduled under such
        Securities Purchase Agreement(s) and any related promissory notes or other
        agreements or documents; (ii) the authorized number of shares of Common
        Stock of the Company has been increased sufficiently; (iii) (A) the registration
        statement described in Section 1.3 of the Registration Rights Agreement
        is effective or (B) an automatic conversion has occurred under Section
        6(a)(ii) of the Certificate of Designations; and (iv) the Company's has
        resolved matters with its creditors in a manner satisfactory to the Lenders
        holding a majority of the then outstanding total balance of the Notes. 
      

               In the event that any remaining Lender has previously exercised
        its amended conversion right other than as part of the Initial Conversions
        or the Additional Conversions, the amount of such other conversion shall
        be credited against such remaining Lender's amount of subsequent Additional
        Conversions.  In the event that (x) additional issuances and fundings
        of the Series B Financing occur during any calendar quarter but the conditions
        to the obligations of the remaining Lenders to do any Additional Conversion
        are not satisfied at the end of such calendar quarter and (y) such conditions
        are subsequently satisfied, the obligations of the remaining Lenders to
        do such Additional Conversion shall become effective on the date that
        such conditions are subsequently satisfied.

    
	 	 

            10.         Registration
  Rights Agreement and Shareholder Agreement.  In connection with this Agreement,
  each Lender is entering into (i) a Registration Rights Agreement with the Company
  in the form attached hereto as Exhibit F (the "Registration Rights
  Agreement") and (ii) a Shareholder Agreement with other investors in the
  Series B Financing in the form attached to the Securities Purchase Agreement
  (the "Shareholder Agreement").

          11.         Company
  Acknowledgements.  The Company confirms, acknowledges and agrees that (i) after
  giving effect to the Initial Conversions and the Additional Conversions, the
  Security Agreements and the Stock Pledge Agreements will continue to secure
  all of the Company's remaining obligations under the Loan Documents  and (ii) any
  future additional advances to the Company by the Lenders under the Optional
  Advance Notes, or any conversions or other future financing of the Company by
  the Lenders or their affiliates (other than the Initial Conversion and the Additional
  Conversions on the terms and conditions hereof), are at the option of the Lenders
  or their affiliates, in their sole discretion.  

                        The Company further confirms, acknowledges and agrees
  that: (i) as reflected in the Loan Documents, (a) the Lenders have already made
  substantial additional advances to the Company that were not originally contemplated,
  (b) the total amount of advances by the Lenders to date are far in excess of
  the maximum amount of advances originally contemplated, and (c) as a result
  of several extensions of the maturity date, the advances are for a substantially
  longer term than originally contemplated, (ii) the Lenders were under no obligation
  to make such additional advances or grant such extensions and did so to help
  the Company in a time of need with its tight financial position, (iii) the Lenders
  have been very accommodating to the Company in this regard, (iv) the Lenders
  are under no obligation to make any future additional advances, grant any further
  extensions, or do any conversions or other future financing of the Company (other
  than the Initial Conversions and the Additional Conversions on the terms and
  conditions hereof), (v) the Company has been aware for some time of the need
  for the Company to line up alternative financing sources and put in place alternative
  financing arrangements, (vi) the Company is and was aware that the Lenders
  do not intend to make any additional advances or grant any further extensions,
  (vii) accordingly, the Company is aware that it needs to line up alternative
  financing sources and put in place alternative financing arrangements, and (viii) it
  is the Company's sole responsibility to line up alternative financing sources
  and put in place alternative financing arrangements in amounts, on terms and
  at times necessary to meet its financing needs.

          12.         [Intentionally Omitted.].  

         13.         Further Assurances.  If requested by the Lenders,
  the Company shall promptly execute and deliver amended and restated documents
  to replace the Notes or any other Transaction Documents  and appropriately reflect
  the amendments of the Notes or any other Transaction Documents which are contained
  in this Agreement or any other Transaction Documents, as further evidence of
  the Company's obligations thereunder.  

         14.         Representations and Warranties. The Company hereby
  re-affirms and re-makes, as of the date hereof and as of the date of any conversion,
  all of its representations and warranties contained in the Loan Documents, as
  modified by the amendments and waivers set forth in this Agreement and certain
  of the Loan Documents.  For purposes of re-affirming the representations and
  warranties contained in the Loan Documents, the term "Transaction Documents"
  as used therein shall mean the Transaction Documents as defined in this Agreement. 
  In addition, the Company hereby affirms and makes, as of the date hereof and
  as of the date of any conversion, all of its representation and warranties contained
  in the Securities Purchase Agreement for such conversion, it being understood
  that pursuant to Section 9 of the Notes, such representations and warranties
  of the Company like all of the other terms and conditions of the Securities
  Purchase Agreement (as adjusted pursuant to Section 9 of the Notes) apply to
  any conversion, including the Initial Conversions and the Additional Conversions.
  All of such representations and warranties shall survive the closing of the
  transactions contemplated by this Agreement and the other Transaction Documents.

         Such representations and warranties by the Company include, among
  others, a representation and warranty that the execution, delivery and performance
  by the Company of this Agreement and the other Transaction Documents and the
  consummation by the Company of the transactions contemplated hereby and thereby
  have been duly authorized by all necessary action on the part of the Company's
  Board of Directors.  As a further assurance to the Lenders with respect to such
  representation and warranty, the Company shall deliver to the Lenders, within
  five (5) business days after request by the Lenders, evidence satisfactory to
  the Lenders in their sole discretion of the authorization by the Company's Board
  of Directors of the execution, delivery and performance by the Company of this
  Agreement and the other Transaction Documents and the consummation by the Company
  of the transactions contemplated hereby and thereby, to the extent such evidence
  has not been previously delivered to the Lenders.

         15.         Acknowledgements.     The Lenders acknowledge that (i)
  the Company has agreed to provide continued directors and officers insurance
  as provided in Section 4.6 of the Securities Purchase Agreement and (ii) the
  Company has entered into indemnification agreements with its directors and that
  such agreements shall remain in effect as provided in Section 4.7 of the Securities
  Purchase Agreement.

          16.         Amendments and Waivers. Any term of this Agreement
  may be amended and the observance of any term of this Agreement may be waived
  (either generally or in a particular instance and either retroactively or prospectively),
  only with (i) the written consent of the Company and all affected Lenders in
  the case of an amendment and (ii) the written consent of the waiving party in
  the case of a waiver. 

         17.         Entire Agreement. This Agreement, together with
  the other Transaction Documents, constitute the entire agreement of the parties
  concerning the subject matter hereof and thereof, all prior discussions, proposals,
  negotiations and understandings having been merged herein and therein.  Except
  as specifically modified by this Agreement, the other Transaction Documents
  shall remainn unchanged and in full force and effect.  The Company hereby re-affirms
  all of its obligations under the Transaction Documents, as amended hereby.

         18.         Successors.  This Agreement shall inure to the
  benefit of and be binding upon the successors and assigns of the Company and
  the Lenders. Nothing in this Agreement, express or implied, is intended to confer
  upon any party other than the parties hereto or their respective permitted successors
  and assigns any rights, remedies, obligations or liabilities under or by reason
  of this Agreement, except as may be expressly provided in this Agreement.

         19.         Severability.  If any part of this Agreement is
  determined to be illegal or unenforceable, all other parts shall remain in full
  force and effect. 

         20.         Attorneys' Fees.  The Company shall pay the reasonable
  attorneys' fees, costs and disbursements of the Lenders in enforcing any terms
  of this Agreement and the other Transaction Documents, whether or not any action
  at law or in equity is brought. 

         21.         Governing Law.  The Agreement shall be governed
  by and construed and interpreted in accordance with the law of the State of
  Washington, without regard to that state's conflict of laws principles. All
  disputes between the parties to this Agreement and the other Transaction Documents,
  whether sounding in contract, tort, equity or otherwise, shall be resolved only
  by state and federal courts located in Spokane, Washington, and the courts to
  which an appeal therefrom may be taken.  All parties hereto waive any objections
  to the location of the above referenced courts, including but not limited to
  any objection based on lack of jurisdiction, improper venue or forum non-conveniens. 
  Notwithstanding the foregoing, any party obtaining any order or judgment in
  any of the above referenced courts may bring an action in a court in another
  jurisdiction in order to enforce such order or judgment. 

         22.         Notice.  Any notice under this Agreement shall
  be given in writing and shall be addressed to the party to be notified at the
  address indicated below, or at such other address as such party may designate
  by written notice to the other party.  

	  	
      Aura Systems, Inc. 

        2335 Alaska Avenue

        El Segundo, CA  90245

        Attn:     Neal Meehan

      Fax:      310-643-8719

      Koyah Leverage Partners, L.P. 

        c/o ICM Asset Management, Inc.

        601 West Main Avenue, Suite 600

        Spokane WA 99201

        Attn: Robert Law

      Fax:  509-444-4500

      Koyah Partners, L.P. 

        c/o ICM Asset Management, Inc.

        601 West Main Avenue, Suite 600

        Spokane WA 99201

        Attn: Robert Law

      Fax:  509-444-4500

      Edgar Appleby 

        Peacock Point

        Locust Valley, NY 11560

        Fax:  (516) 674-3748

      Prudent Bear Fund, Inc. 

        8140 Walnut Hill Lane, Suite 300

        Dallas, TX  75206

        Attn:     Greg Jahnke

        Fax:  (214) 696-5556

      Raven Partners, L.P.

        c/o ICM Asset Management, Inc.

        601 West Main Avenue, Suite 600

        Spokane, WA  99201

        Attn:     Robert Law

        Fax:  (509) 444-4500

    

         23.         Independent Nature of Lenders' Obligations and Rights. 
  The obligations of a Lender under this Agreement and the other Transaction Documents
  are several and not joint with the obligations of any other Lenders, and each
  Lender shall not be responsible in any way for the performance of the obligations
  of any other Lenders under this Agreement or the other Transaction Documents. 
  The investment and/or credit decision of each Lender to enter into this Agreement
  and the other Transaction Documents has been made by such Lender independently
  of any other Lenders and independently of any information, materials, statements
  or opinions as to the business, affairs, operations, assets, properties, liabilities,
  results of operation, condition (financial or otherwise) or prospects of the
  Company or of any subsidiary which have been made or given by any other Lenders
  or by any agent or employee of any other Lenders, and each Lender and its agents
  and employees shall have no liability to any other Lenders (or any other person)
  relating to or arising from any such information, materials, statements or opinions. 
  Each Lender acknowledges that it has the sophistication and ability to look
  out for its own interest and has independently made its own investment and/or
  credit decision to enter into this Agreement and the other Transaction Documents
  based upon such evaluation and information as it has deemed appropriate.

         Nothing contained in this Agreement or in the other Transaction Documents,
  and no action taken by any Lender pursuant thereto, shall be deemed to constitute
  the Lenders as a partnership, an association, a joint venture or any other kind
  of entity, or create a presumption that the Lenders are in any way acting in
  concert or as a group with respect to the obligations contained in or the transactions
  contemplated by this Agreement or the other Transaction Documents.  Each Lender
  acknowledges that no other Lenders have acted as agent for such Lender in connection
  with entering into this Agreement and the other Transaction Documents and that
  no other Lenders will be acting as agent of such Lender in connection with monitoring
  its investment or making any future investment and/or credit decisions.  Each
  Lender shall be entitled to independently protect and enforce its rights, including
  with limitation, the rights arising out of this Agreement or the other Transaction
  Documents, and it shall not be necessary for any other Lenders to be joined
  as an additional party in any proceeding for such purpose, except as otherwise
  provided in the Intercreditor Agreement or the Joinder Agreement.  

          24.         Legal Representation.  The Company and each
  Lender acknowledge that Paine Hamblen Coffin Brook & Miller LLP ("Paine
  Hamblen") has represented only Leverage, Koyah, Ventures, Raven and their
  affiliates in connection with this Agreement and the other Transaction Documents,
  and that Paine Hamblen has not represented the Company or any other Lender in
  any way in connection therewith.  Each Lender also acknowledges that the interests
  of Leverage, Koyah, Ventures, Raven and their affiliates are different than
  the interests of such Lender and that such Lender has the sophistication and
  ability to look out for its own interest.  The Company and each Lender further
  acknowledges that it has been represented by its (or the case of Appleby, is
  an attorney acting as his) own legal counsel in connection with this Agreement
  and the other Transaction Documents and has consulted with and relied upon the
  legal representation and advice of such legal counsel in connection therewith.

         25.         Lenders' Attorney Fees and Expenses.  On the terms
  and conditions set forth below, the Company shall pay the costs and expenses
  of legal counsel to the Lenders in connection with (i) the negotiation, execution
  and delivery of this Agreement and the other Transaction Documents as well as
  the consummation of the transactions contemplated by such agreements, the administration
  of such agreements and any amendments or waivers of such agreements and (ii) the
  evaluation, discussion and negotiation by the Lenders, as debt or equity holders
  of the Company, of any other financing or similar proposals or expressions of
  interest involving the Company which previously have been, currently are or
  subsequently may be made or advanced by or any persons or entities (including
  the Lenders) and the negotiation, execution and delivery of any related agreements
  or documents as well as the consummation of the transactions contemplated thereby. 
  The Company shall pay such costs and expenses within ten (10) business days
  of submittal, and the Lenders may apply any retainer held by them or their legal
  counsel against such costs and expenses.  Alternatively, the Lenders may pay
  such costs and expenses directly and then the amounts so paid shall constitute
  advances made under the Optional Advance Notes to the extent such advances are
  within the maximum principal amount of the Optional Advance Notes and otherwise
  shall constitute additional amounts payable by the Company under this Agreement
  and bear interest at the rate set forth in the Notes until paid by the Company.
  All such costs and expenses incurred and invoiced on or before the date of this
  Agreement are already reflected in the principal amounts set forth in Schedule
  1 attached hereto and shall be paid by the Company in full through advances
  under the Optional Advance Notes.  All such costs and expenses incurred but
  not yet invoiced on or before the closing date of the Initial Conversions are
  not reflected in Schedule 1 attached hereto and shall be paid by the
  Company in full through advances under the Optional Advance Notes. All such
  costs and expenses incurred after the closing date of the Initial Conversions
  are not reflected in Schedule 1 attached hereto and (x) shall be paid
  by the Company up to a maximum amount of $25,000 (it being understood that such
  maximum amount shall only apply to the attorney fee provision set forth in this
  Section 24, but not any other attorney fee provisions of the Transaction Documents)
  and (y) shall not be paid by the Company through any additional advances under
  the Optional Advance Notes, and instead shall only be paid by the Company in
  cash.  Notwithstanding that the Company is paying such costs and expenses, the
  Company acknowledges and agrees that such legal counsel is representing only
  the Lenders, and not the Company. 

[Remainder of Page Intentionally Left Blank]

ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO
  FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON
  LAW.

          IN WITNESS WHEREOF, the parties have caused this Agreement to be
  duly executed and delivered as of the date first set forth above. 

	  	
      AURA SYSTEMS, INC.

      By:                                                     
        

      Name:                                                
        

      Title:                                                  
        

    
	  	
      KOYAH LEVERAGE PARTNERS, L.P.

      By:       Koyah Ventures LLC, its general partner

      By:                                                                   
        

      Name:                                                               

      Title:                                                                
        

    
	  	
      KOYAH PARTNERS, L.P.

      By:  Koyah Ventures LLC, its general partner

      By:                                                                   
        

      Name:                                                               

      Title:                                                                
        

    
	  	
      EDGAR APPLEBY

                                                                             
        

    
	  	
      PRUDENT BEAR FUND, INC.

      By:                                                                   
        

      Name:                                                               

      Title:                                                                
        

    
	
      [Signature Page to Amendment and Conversion Agreement]

    
	  	
      KOYAH VENTURES LLC

      By:                                                                   
        

      Name:                                                               

      Title:                                                                
        

    
	  	
      RAVEN PARTNERS, L.P.

        By:       Koyah Ventures LLC, its general partner

      By:                                                                   
        

      Name:                                                               

      Title:                                                                
        

    

[Signature Page to Amendment and Conversion Agreement]

SCHEDULE 1

Note Balances 

(08/19/04)

[ATTACH EXCEL SPREADSHEET]

SCHEDULE 2

Initial Conversion Amounts

(08/19/04)

[ATTACH EXCEL SPREADSHEET]

SCHEDULE 3

Option Exercisability

 1.Exercisable Increments.

            The option of each Intercreditor Lender under Section 1.5 of the
  Securities Purchase Agreement (as adjusted pursuant to Section 9 of the Notes)
  shall be exercisable at any time in an amount equal to the total amount of the
  Initial Conversion and the Additional Conversions of such Intercreditor Lender
  actually done up to that time.

 2.Termination.

            The option of each Intercreditor Lender under such Section (as
  so adjusted) shall terminate in increments (expressed as a percentage of the
  original total amount of such option) as follows: 

	  	
      Terminated

      Increment

    
	
      December 31, 2004

    	
      50%

    
	
      May 31, 2005

    	
        50%

    
	
      TOTAL

    	
      100%

    

            Notwithstanding the foregoing, if any portion of the option of
  an Intercreditor Lender is not exercisable on December 31, 2004 because the
  conditions to the obligation of such Intercreditor Lender to do an Additional
  Conversion underlying such portion of the option have not been satisfied by
  such date, then such portion of the Option shall not terminate on December 31,
  2004 and shall instead be extended to May 31, 2005.

EXHIBIT A

Securities Purchase Agreement

[ATTACH]

EXHIBIT B

Notice Of Exercise

(To Be Signed Only Upon Exercise)

To:       Aura Systems, Inc.

            The undersigned holder hereby elects to convert $___________ (the
  "Conversion Amount") of the outstanding total balance of the Convertible
  Promissory Note dated as of ________________ in the original principal amount
  of $__________ made by Aura Systems, Inc. (the "Company") in favor
  of the undersigned holder, as amended (the "Note"), pursuant to Section
  9 of the Note and effective as of _______________ .  Unless otherwise specified
  below, the Conversion Amount shall be allocated (i) first to accrued interest
  on the Note, (ii) second to fees or other amounts payable under the Note and
  (iii) third to the principal balance of the Note.

            Other Instructions:  _______________________________________________________
  _____________________________________________________________________________.

Please issue the stock certificates and warrants issuable upon such conversion
  in the name or names specified below:

                                                                                   
                                                              

(Name of Holder)                                                         (Name
  of Holder)

                                                                                   
                                                              

(Name of Signer)                                                          (Name
  of Signer)

                                                                                   
                                                              

(Signature)                                                                   
  (Signature)

                                                                                   
                                                              

(Title of Signer)                                                            
  (Title of Signer)

                                                                                   
                                                              

(Address)                                                                    
  (Address)

                                                                                   
                                                              

(City, State, Zip Code)                                                 (City,
  State, Zip Code)

                                                                                   
                                                              

(Federal Tax Identification Number)                              (Federal Tax
  Identification Number)

                                                                                   
                                                              

(Date)                                                                         
  (Date)

EXHIBIT C

Schedule of Exceptions

(Agreements)

Liens

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

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

            3.         The Plaintiffs in Arthur Schwatz v. Aura Systems, Inc.
  received a Writ of Attachment to collect a portion of their judgment.  On May
  3, 2004, the Plaintiffs used this Writ to effect a levy against the Company's
  primary bank account and received approximately $191,689.  On May 11, 2004,
  Plaintiffs returned those funds to the Company without relinquishing their rights
  under the Writ.  On June 7, 2004, the Plaintiff and the Company entered an Agreed
  Judgment in this case with a 45 day delayed effective date.

Defaults

            1.         Shareholder litigation (Barovich/Chiu et al ) judgment
  settlement for approximately $789,000 is in default.  In April of 2003, this
  creditor served Writs of Execution against one of the Company's bank accounts
  but has taken no further action.

            2.         Convertible notes issued in August - October 2002 for
  a total principal amount of $625,000 are or may be in default.

            3.         The $1,000,000 Note Payable to the purchasers in the
  sale/leaseback transaction, dated December 1, 2002, became due and payable on
  May 30, 2004.

Financial Statements

            1.         The long-term note receivable from Alpha Ceramics was
  assigned to the Purchasers in the Sale/Leaseback Agreement, dated December 1,
  2002, as disclosed in the footnotes and MD&A of recent public filings (see
  Liens Note 2 above); however, this receivable was included on the balance sheet
  in the most recent financial statements.

EXHIBIT D

Schedule of Exceptions

(Notes)

1.         Shareholder litigation (Barovich/Chiau et al) judgment settlement
  for approximately $789,000 is in default.  In April 2003, this creditor served
  Writs of Execution against the Company's bank accounts but has taken no further
  action. 

2.         Convertible notes payable, issued in August - October 2002 for a
  total principal amount of $625,000 are in default.

3.         The $1,000,000 Note Payable to purchasers in a sale/leaseback transaction,
  dated December 1, 2002, became due and payable on May 30, 2004.

EXHIBIT E

Schedule of Exceptions

(Security Agreements)

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

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

3.         The Plaintiffs in Arthur Schwatz v. Aura Systems, Inc. received
  a Writ of Attachment to collect a portion of their judgment.  On May 3, 2004,
  the Plaintiffs used this Writ to effect a levy against the Company's primary
  bank account and received approximately $191,689.  On May 11, 2004, Plaintiffs
  returned those funds to the Company without relinquishing their rights under
  the Writ.  On June 7, 2004, the Plaintiff and the Company entered an Agreed
  Judgment in this case with a 45 day delayed effective date.

EXHIBIT F

Registration Rights Agreement

[ATTACH INTERCREDITOR FORM]exhibit 10.55

exhibit 10.55

AURA SYSTEMS, INC.

REGISTRATION RIGHTS AGREEMENT

(Intercreditor)

Dated as of August 19,
  2004

  

   

Intercreditor

REGISTRATION RIGHTS
  AGREEMENT

THIS REGISTRATION RIGHTS
  AGREEMENT (this "Agreement") dated as of August 19, 2004, is made by
  and among AURA SYSTEMS, INC., a Delaware corporation (the "Company"),
  and THE INVESTORS LISTED ON THE SIGNATURE PAGE HEREOF (each of whom is herein
  called individually, a "Investor" and all of whom are herein called,
  collectively, the "Investors"), with reference to the following facts:

In connection with the
  Amendment and Conversion Agreement dated as of August 19, 2004 (the "Amendment
  and Conversion Agreement"), by and among the Company and the Investors,
  this Agreement is to be executed and delivered by the Investors and the Company.

NOW, THEREFORE, in consideration
  of the mutual promises and covenants set forth herein and for other consideration,
  the receipt and sufficiency of which is hereby acknowledged, the parties hereto
  further agree as follows:

 1.                 
   Registration Rights.  The Company covenants and agrees as follows:

 1.1             
   Definitions.  For purposes of this Section 1:

 (a)               
   "Common Stock" means the Company's common stock, par
  value $.005 per share.

 (b)              
   "Form S-3" means such form under the 1933 Act as in effect on
  the date hereof or any registration form under the 1933 Act subsequently adopted
  by the SEC that permits inclusion or incorporation of substantial information
  by reference to other documents filed by the Company with the SEC.

 (c)               
   "Holder" means any person owning or having the right to acquire
  Registrable Securities or any assignee thereof in accordance with Section 1.11
  hereof.

 (d)              
   "1933 Act" means the Securities Act of 1933, as amended.

 (e)               
   "1934 Act" means the Securities Exchange Act of 1934, as amended.

 (f)                
   "register", "registered", and "registration" refer
  to a registration effected by preparing and filing a registration statement
  or similar document in compliance with the 1933 Act, and the declaration or
  ordering of effectiveness of such registration statement or document.

 (g)               
   "Registrable Securities" means (i) the shares of Common Stock
  issuable upon conversion of the Series B Stock to be acquired by the Investors
  by pursuant to the Amendment and Conversion Agreement, (ii) the shares
  of Common Stock issuable upon exercise of the warrants to be acquired by the
  Investors by pursuant to the Amendment and Conversion Agreement, (iii) any shares
  of Common Stock held by the Investors which were previously acquired by them;
  (iv) the shares of Common Stock issuable upon conversion of any Series A Stock
  held by the Investors which were previously acquired by them, (v) the shares
  of Common Stock issuable upon exercise of any warrants held by the Investors
  which were previously acquired by them, (vi) the shares of Common Stock issuable
  upon exercise of the Registration Warrants (as defined in Section 1.3(c)), and
  (vii) any other shares of stock of the Company issued as (or issuable upon
  the conversion or exercise of any warrant, right or other security that is issued
  as) a dividend or other distribution with respect to, or in exchange for, or
  in replacement of, the shares referenced in clauses (i) through (vii) above;
  provided that there shall be excluded any Registrable Securities sold by a person
  in a transaction in which that person's rights under this Section 1 are not
  assigned.

 (h)               
   The number of shares of "Registrable Securities" outstanding
  shall be determined by the number of shares of Common Stock outstanding that
  are, and the number of shares of Common Stock issuable pursuant to then exercisable
  or convertible securities that are, Registrable Securities.

 (i)                 
   "SEC" means the Securities and Exchange Commission.

 (j)                
   "Series A Stock" means the Company's Series A Convertible Redeemable
  Preferred Stock, par value $.005 per share.

 (k)              
   "Series B Stock" means the Company's Series B Cumulative
  Convertible Preferred Stock, par value $.005 per share.

 (l)                 
   Other Terms:  Any other capitalized term not defined herein shall
  have the meaning set forth in the Amendment and Conversion Agreement.

 1.2             
   [Intentionally Omitted].

 1.3             
   Agreed Registration.

 (a)               
   Within one hundred twenty (120) days after the date of approval by the
  Company's shareholders of an increase in the number of authorized shares of
  Common Stock (the "Shareholder Approval Date"), the Company
  shall prepare and file with the SEC a registration statement on Form S-3 (or,
  if Form S-3 is not then available, on such form of registration statement that
  is then available to effect a registration of all Registrable Securities, subject
  to consent of the Investors holding at least a majority of the Registrable Securities)
  covering the registration of all of the Registrable Securities, other than the
  shares issuable upon exercise of the Registration Warrants. In the event that
  any Registration Warrants are issued, the Company shall promptly amend such
  registration statement to also include the shares issuable upon exercise of
  such Registration Warrants. The Company shall use best efforts to obtain the
  effectiveness of such registration statement as soon as possible thereafter. 
  The Company shall keep such registration statement effective at all times until
  the earlier of the date on which all the Registrable Securities (i) are sold
  by the Holders in an open market transaction and (ii) can be sold by the Holders
  (and any affiliate of the Holders with whom the Holders must aggregate their
  sales under Rule 144) in any three-month period without volume limitation and
  without registration in compliance with Rule 144 under the 1933 Act.

 (b)              
   If the Holders intend to distribute the Registrable Securities by means
  of an underwriting, they shall so advise the Company.  The underwriter will
  be selected by a majority in interest (as determined by the number of Registrable
  Securities held) of the Holders and shall be reasonably acceptable to the Company. 
  In such event, the right of any Holder to include such Holder's Registrable
  Securities in such registration shall be conditioned upon such Holder's participation
  in such underwriting and the inclusion of such Holder's Registrable Securities
  in the underwriting (unless otherwise mutually agreed by a majority in interest
  of the Holders) to the extent provided herein.  All Holders proposing to distribute
  their securities through such underwriting shall (together with the Company
  as provided in Section 1.6(e)) enter into an underwriting agreement in
  customary form with the underwriter or underwriters selected for such underwriting. 
  Notwithstanding any other provision of this Section 1.3, if the underwriter
  advises the Holders in writing that marketing factors require a limitation of
  the number of shares to be underwritten, then the Holders shall so advise all
  Holders of Registrable Securities that would otherwise be underwritten pursuant
  hereto, provided that the number of shares of Registrable Securities to be included
  in such underwriting shall not be reduced unless all other securities are first
  entirely excluded from the underwriting.

 (c)               
   If either (i) on the date one hundred twenty (120) days after the Shareholder
  Approval Date the registration statement described in Section 1.3(a) has not
  been filed or (ii) the Company fails to appropriately respond to any comments
  received from the SEC on such registration statement within forty-five (45)
  days after receipt (including the filing of an amendment to such registration
  statement if appropriate), then the Company, unless waived by an Investor, shall
  issue to each Investor a warrant in the form attached hereto as Exhibit A (each,
  a "Registration Warrant" and, collectively, the "Registration Warrants")
  to acquire the number of shares of Common Stock equal to (i) 2.5% multiplied
  by (ii) the aggregate number of shares of Registrable Securities to be acquired
  by such Investor pursuant to the Amendment and Conversion Agreement, excluding
  (x) such Registrable Securities which have been sold by that Investor in an
  open market transaction, or (y) can be sold by that Investor (and any affiliate
  of the Investor with whom such Investor must aggregate its sales under Rule
  144) in any three-month period without volume limitation and without registration
  in compliance with Rule 144 under the 1933 Act.  The exercise price of each
  such Registration Warrant shall be $.02 per share, subject to adjustment as
  set forth in the Registration Warrant.

 (d)              
   If at the end of each subsequent thirty (30) day period thereafter either
  (i) the Company still has not filed the registration statement described in
  Section 1.3(a) or (ii) the Company still has not appropriately responded to
  any comments received from the SEC on such registration statement (including
  the filing of an amendment to such registration statement if appropriate), then
  the Company, unless waived by an Investor, shall issue to each Investor an additional
  Registration Warrant to acquire the number of shares of Common Stock equal to
  (i) 2.5% multiplied by (ii) the aggregate number of shares of Registrable Securities
  to be acquired by such Investor pursuant to the Amendment and Conversion Agreement,
  excluding (x) such Registrable Securities which have been sold by that Investor
  in an open market transaction, or (y) can be sold by that Investor (and any
  affiliate of the Investor with whom such Investor must aggregate its sales under
  Rule 144) in any three-month period without volume limitation and without registration
  in compliance with Rule 144 under the 1933 Act.  

 (e)               
   If (i) the registration statement described in Section 1.3(a) becomes
  effective but at any time thereafter is no longer effective (or is deemed no
  longer effective as a result of any suspension of use under the circumstances
  described in Section 1.6(f)) and (ii) such lack of effectiveness continues for
  a forty-five (45) day period, then the Company, unless waived by an Investor,
  shall issue to each Investor a Registration Warrant to acquire the number of
  shares of Common Stock equal to (i) 2.5% multiplied by (ii) the aggregate number
  of shares of Registrable Securities to be acquired by such Investor pursuant
  to the Amendment and Conversion Agreement, excluding (x) such Registrable Securities
  which have been sold by that Investor in an open market transaction, or (y)
  can be sold by that Investor (and any affiliate of the Investor with whom such
  Investor must aggregate its sales under Rule 144) in any three-month period
  without volume limitation and without registration in compliance with Rule 144
  under the 1933 Act.. 

 (f)                
   If at the end of each subsequent thirty (30) day period thereafter,
  the registration statement described in Section 1.3(a) still is no longer effective
  (or is deemed no longer effective as a result of any suspension of use under
  the circumstances described in Section 1.6(f)), then the Company, unless waived
  by an Investor, shall issue to each Investor an additional Registration Warrant
  to acquire the number of shares of Common Stock equal to (i) 2.5% multiplied
  by (ii) the aggregate number of shares of Registrable Securities to be acquired
  by such Investor pursuant to the Amendment and Conversion Agreement, excluding
  (x) such Registrable Securities which have been sold by that Investor in an
  open market transaction, or (y) can be sold by that Investor (and any affiliate
  of the Investor with whom such Investor must aggregate its sales under Rule
  144) in any three-month period without volume limitation and without registration
  in compliance with Rule 144 under the 1933 Act..

 (g)               
   Notwithstanding the foregoing, the maximum amount of Registration Warrants
  issuable to any Investor under Sections 1(d) through 1(f) shall be Registration
  Warrants to acquire the number of shares of Common Stock equal to (i) 12.5%
  multiplied by (ii) the aggregate number of shares of Registrable Securities
  to be acquired by such Investor pursuant to the Amendment and Conversion Agreement.
  

 (h)               
   The Company shall execute such other and further certificates, instruments
  and other documents as may be reasonably requested by the Investors or reasonably
  necessary or proper to implement, complete and perfect the Investors' rights
  under this Section 1.3 and, upon effectiveness of a registration statement
  with respect to the Registrable Securities, to freely trade the Registrable
  Securities without limitation or restriction imposed or created by the Company
  or securities law.

 (i)                 
   The terms and covenants set forth in this Section 1.3 shall terminate
  as to each Holder and be of no further force and effect on the earlier of the
  date on which all the Registrable Securities beneficially owned by that Holder
  (i) are registered pursuant to this Section 1.3 and sold by that Holder in an
  open market transaction or (ii) can be sold by that Holder (and any affiliate
  of the Holder with whom such Holder must aggregate its sales under Rule 144)
  in any three-month period without volume limitation and without registration
  in compliance with Rule 144 under the 1933 Act.

 1.4             
   Company Registration.

 (a)               
   If (but without any obligation to do so) the Company proposes to register
  any of its stock (including a registration effected by the Company for stockholders
  other than the Holders) or other securities under the 1933 Act in connection
  with the public offering of such securities on any form which also would permit
  registration of the Registrable Securities, the Company shall, at such time,
  promptly give each Holder notice of such registration.  Upon the request of
  each Holder given within thirty (30) days after such notice by the Company,
  the Company shall, subject to the provisions of Section 1.4(c), cause to be
  registered under the 1933 Act all of the Registrable Securities that each such
  Holder has requested to be registered.

 (b)              
   The Company shall have the right to terminate or withdraw any registration
  initiated by it under this Section 1.4 prior to the effectiveness of such registration,
  whether or not any Holder shall have elected to include securities in such registration. 
  The expenses of such withdrawn registration shall be borne by the Company in
  accordance with Section 1.8 hereof.

 (c)               
   In connection with any offering involving an underwriting of shares
  of the Company's capital stock, the Company shall not be required under this
  Section 1.4 to include any requesting Holder's securities in such underwriting,
  unless such Holder accepts the terms of the underwriting as agreed between the
  Company and the underwriters selected by it (or by other persons entitled to
  select the underwriters) and enters into an underwriting agreement in customary
  form with the underwriter or underwriters selected by the Company, and then
  only in such quantity as the underwriters determine in their sole discretion
  will not jeopardize the success of the offering by the Company.  If the total
  amount of securities, including Registrable Securities, requested to be included
  in such offering by the Company, the Holders and other security holders to whom
  registration rights have been granted exceeds the amount of securities that
  the underwriters determine in their sole discretion is compatible with the success
  of the offering, then the Company shall be required to include in the offering
  only that number of securities (including Registrable Securities) that the underwriters
  determine in their sole discretion will not jeopardize the success of the offering
  (the Registrable Securities so included to be apportioned pro rata among the
  selling Holders according to the total amount of Registrable Securities requested
  to be included therein by each selling Holder or in such other proportions as
  shall mutually be agreed to by such selling Holders); provided, that the amount
  of Registrable Securities requested by the Holders to be included in such offering
  pursuant to this Section 1.4 and all other securities requested by other holders
  to be included in such offering pursuant to other "piggyback" registration rights
  shall be reduced first (the Registrable Securities and other securities so reduced
  to be apportioned pro rata among the selling Holders and other holders according
  to the total amount of Registrable Securities and other securities requested
  to be included therein by each selling Holder and other holder) before any reduction
  of any (i) securities requested to be included in such offering by any holders
  exercising "demand" registration rights or (ii) any securities sold by the Company
  to be included in such offering.  For purposes of such apportionment among Holders,
  for any selling stockholder that is a Holder of Registrable Securities and that
  is a partnership or corporation, the partners, retired partners and stockholders
  of such Holder, or the estates and family members of any such partners and retired
  partners and any trusts for the benefit of any of the foregoing persons shall
  be deemed to be a single "selling Holder", and any pro rata reduction with respect
  to such "selling Holder" shall be based on the aggregate amount of Registrable
  Securities requested to be included in such offering by all such related entities
  and individuals.

 1.5             
   Form S-3 Registration.  If the Company shall receive from one
  or more Holders a request or requests that the Company effect a registration
  on Form S-3 and any related blue sky or similar qualification or compliance
  with respect to at least 25% (or a lesser percentage if the requirements of
  Section 1.5(b)(i) are met) of the Registrable Securities owned by such Holder
  or Holders, the Company shall:

 (a)               
   promptly give notice of the proposed registration, and any related blue
  sky or similar qualification or compliance, to all other Holders; and

 (b)              
   cause, as soon as practicable, such Registrable Securities to be registered
  for offering and sale on Form S-3 and cause such Registrable Securities to be
  qualified in such jurisdictions as such Holders may reasonable request, together
  with all or such portion of the Registrable Securities of any other Holders
  joining in such request as are specified in a request given within fifteen (15)
  days after receipt of such notice from the Company; provided that the Company
  shall not be obligated to effect any such registration, qualification or compliance,
  pursuant to this Section 1.5:

 (i)                 
   if the Holders, together with the holders of any other securities of
  the Company entitled to inclusion in such registration, propose to sell Registrable
  Securities and such other securities (if any) at an aggregate price to the public
  of less than $500,000;

 (ii)               
   if the Company has, within the twelve month period preceding the date
  of such request, already effected two registrations on Form S-3 for the Holders
  pursuant to this Section 1.5;

 (iii)              
   if the Company shall furnish to the Holders a certificate signed by
  the Chief Executive Officer of the Company stating that in the good faith judgment
  of the Board of Directors of the Company, it would be seriously detrimental
  to the Company and its stockholders for such Form S-3 Registration to be effected
  at such time, in which event the Company shall have the right to defer the filing
  of the Form S-3 registration statement for a period of not more than sixty (60)
  days after receipt of the request of the Holder or Holders under this Section
  1.5; provided that the Company shall not utilize this right more than once in
  any twelve (12) month period; provided, further, that the Company shall not
  register shares for its own account during such sixty (60) day period, but such
  prohibition shall not apply to the registration of Company shares in connection
  with (x) a merger or (y) registration of shares relating to a stock option,
  stock purchase or similar plan; or

 (iv)             
   in any particular jurisdiction in which the Company would be required
  to qualify to do business or to execute a general consent to service of process
  in effecting such registration, qualification or compliance.

 (c)               
   Subject to the foregoing, the Company shall file a registration statement
  covering the Registrable Securities and other securities so requested to be
  registered as soon as practicable after receipt of the request or requests of
  the Holders.

 1.6             
   Obligations of the Company.  Whenever required under this Section
  1 to effect the registration of any Registrable Securities, the Company shall,
  as expeditiously as reasonably possible:

 (a)               
   except as otherwise provided in Section 1.3, prepare and file with
  the SEC a registration statement with respect to such Registrable Securities
  and use best efforts to cause such registration statement to become effective,
  and keep such registration statement effective for a period of up to two hundred
  seventy (270) days or, if earlier, until the distribution contemplated in the
  registration statement has been completed; provided that (i) such two hundred
  seventy (270) day period shall be extended for a period of time equal to (A)
  the period the Holder refrains from selling any securities included in such
  registration at the request of an underwriter of Common Stock (or other securities)
  of the Company and (B) the period of any suspension of use of such registration
  statement under the circumstances described in Section 1.6(f); and (ii) in the
  case of any registration of Registrable Securities on Form S-3 (or any other
  Form, to the extent permitted by law) that are intended to be offered on a continuous
  or delayed basis, such two hundred seventy (270) day period shall be extended,
  if necessary, to keep the Registration Statement effective until all such Registrable
  Securities are sold, except to the extent that the Holders (and any affiliate
  of the Holders with whom the Holders must aggregate their sales under Rule 144)
  of such Registrable Securities may sell those Registrable Securities in any
  three-month period without regard to the volume limitation and without registration
  in compliance with Rule 144 under the 1933 Act;

 (b)              
   prepare and file with the SEC such amendments and supplements to such
  registration statement and the prospectus used in connection with such registration
  statement as may be necessary to comply with the 1933 Act with respect to the
  disposition of all securities covered by such registration statement during
  the period of time such registration statement remains effective;

 (c)               
   furnish to the Holders such numbers of copies of a prospectus, including
  a preliminary prospectus, in conformity with the requirements of the 1933 Act,
  and such other documents as they may reasonably request to facilitate the disposition
  of Registrable Securities owned by them;

 (d)              
   use best efforts to register and qualify the securities covered by such
  registration statement under such other securities or Blue Sky laws of such
  jurisdictions as shall be reasonably requested by the Holders; provided that
  the Company shall not be required in connection therewith or as a condition
  thereto to qualify to do business or to file a general consent to service of
  process in any such states or jurisdictions;

 (e)               
   in the event of any underwritten public offering, enter into and perform
  its obligations under an underwriting agreement, in usual and customary form,
  with the managing underwriter of such offering;

 (f)                
   during the period of time such registration statement remains effective,
  immediately notify each Holder of Registrable Securities covered by such registration
  statement in writing at any time when (i) a prospectus relating thereto is required
  to be delivered under the 1933 Act or (ii) the happening of any event as a result
  of which the prospectus included in such registration statement, as then in
  effect, includes an untrue statement of a material fact or omits to state a
  material fact required to be stated therein or necessary to make the statements
  therein not misleading in the light of the circumstances then existing, and
  in the case of clause (ii) above, the Holder shall suspend the use of the prospectus
  until its receipt of the written notice referred to in the last sentence of
  this Section 1.6(f).  Notwithstanding the provisions of this Section 1.6, the
  Company may, during the period a registration statement is required to remain
  effective hereunder, suspend the use of the prospectus for a period not to exceed
  sixty (60) days (whether or not consecutive) in any 12-month period if the Board
  of Directors of the Company determines in good faith that because of valid business
  reasons, including pending mergers or other business combination transactions,
  the planned acquisition or divestiture of assets, pending material corporate
  developments and similar events, it is in the best interests of the Company
  to suspend such use, and prior to or contemporaneously with suspending such
  use the Company provides the Holders of Registrable Securities with written
  notice of such suspension (which notice need not specify the nature of the event
  giving rise to such suspension), and the Holder shall suspend the use of the
  prospectus until its receipt of the written notice referred to in the last sentence
  of this Section 1.6(f).  At the end of any suspension period referred to in
  the first or second sentence of this Section 1.6(f), the Company shall
  immediately provide the Holders with written notice of the termination of such
  suspension.

 (g)               
   cause all such Registrable Securities registered hereunder to be listed
  on each securities exchange on which securities of the same class issued by
  the Company are then listed;

 (h)               
   provide a transfer agent and registrar for all Registrable Securities
  registered hereunder and a CUSIP number for all such Registrable Securities,
  in each case not later than the effective date of such registration; and

 (i)                 
   furnish, at the request of any Holder, on the date that such Registrable
  Securities are delivered to the underwriters for sale in connection with a registration
  pursuant to this Section 1, if such securities are being sold through underwriters,
  or, if such securities are not being sold through underwriters, on the date
  that the registration statement with respect to such securities becomes effective,
  (i) an opinion, dated such date, of the counsel representing the Company for
  the purposes of such registration, in form and substance as is customarily given
  to underwriters in an underwritten public offering, addressed to the underwriters,
  if any, and to the Holders requesting registration of Registrable Securities,
  and (ii) a "comfort" letter signed by the independent public accountants who
  have certified the Company's financial statements included in the registration
  statement, covering substantially the same matters with respect to the registration
  statement (and the prospectus included therein) and with respect to events subsequent
  to the date of the financial statements, as are customarily covered in accountants'
  letters delivered to the underwriters in underwritten public offerings of securities
  addressed to the underwriters, if any, and to the Holders requesting registration
  of Registrable Securities.

 1.7             
   Information from Holder.  It shall be a condition precedent to
  the obligations of the Company to take any action pursuant to this Section 1
  with respect to the Registrable Securities of any selling Holder that such Holder
  shall furnish to the Company such information regarding such Holder, the Registrable
  Securities held by such Holder, and the intended method of disposition of such
  securities as shall be required to effect the registration of such Registrable
  Securities.

 1.8             
   Expenses of Registration.  All expenses incurred in connection
  with registrations, filings or qualifications pursuant to this Section 1, including
  without limitation all registration, filing and qualification fees, printing
  fees and expenses, accounting fees and expenses, fees and disbursements of counsel
  for the Company and the fees and disbursements of one counsel for the selling
  Holders selected by the Holders, shall be borne by the Company.  Notwithstanding
  the foregoing, the Company shall not be required to pay for any expenses of
  any registration proceeding begun pursuant to Sections 1.3 and 1.5 if the registration
  request is subsequently withdrawn at the request of the Holders of a majority
  of the Registrable Securities to be registered (in which case all participating
  Holders shall bear such expenses pro rata based on the number of Registrable
  Securities that were requested to be included in the withdrawn registration);
  provided that, if at the time of such withdrawal, the Holders shall have learned
  of a material adverse change in the condition, business, or prospects of the
  Company from that known to the Holders at the time of their request and shall
  have withdrawn the request with reasonable promptness following disclosure by
  the Company of such material adverse change, then the Holders shall not be required
  to pay any of such expenses and shall retain their rights pursuant to Sections
  1.3 and 1.5.  Anything herein to the contrary notwithstanding, all underwriting
  discounts and commissions incurred in connection with a sale of Registrable
  Securities shall be borne and paid by the Holder thereof, and the Company shall
  have no responsibility therefor.

 1.9             
   Indemnification.  If any Registrable Securities are included
  in a registration statement under this Section 1:

 (a)               
   To the extent permitted by law, the Company will indemnify and hold
  harmless each Holder, the partners or officers, directors and stockholders of
  such Holder, legal counsel and accountants for such Holder, any underwriter
  (as defined in the 1933 Act) for such Holder and each person, if any, who controls
  such Holder or underwriter within the meaning of the 1933 Act or the 1934 Act,
  against any losses, claims, damages or liabilities (joint or several) to which
  they may become subject under the 1933 Act, the 1934 Act or any other federal
  or state securities law, insofar as such losses, claims, damages or liabilities
  (or actions in respect thereof) arise out of or are based on any of the following
  statements, omissions or violations (collectively a "Violation"): (i)
  any untrue statement or alleged untrue statement of a material fact contained
  in such registration statement, including any preliminary prospectus or final
  prospectus contained therein or any amendments or supplements thereto, (ii)
  the omission or alleged omission to state therein a material fact required to
  be stated therein, or necessary to make the statements therein not misleading,
  or (iii) any violation or alleged violation by the Company of the 1933 Act,
  the 1934 Act, any state securities law or any rule or regulation promulgated
  under the 1933 Act, the 1934 Act or any state securities law; and the Company
  will reimburse such Holder, underwriter or controlling person for any legal
  or other expenses incurred, as incurred, in connection with investigating or
  defending any such loss, claim, damage, liability or action; provided that the
  indemnity agreement in this Section 1.9(a) shall not apply to amounts paid in
  settlement of any such loss, claim, damage, liability or action if such settlement
  is effected without the consent of the Company (which consent shall not be unreasonably
  withheld or delayed), nor shall the Company be liable in any such case for any
  such loss, claim, damage, liability or action to the extent that it arises out
  of or is based on a Violation that occurs in reliance on and in conformity with
  written information furnished expressly for use in connection with such registration
  by such Holder, underwriter or controlling person.

 (b)              
   To the extent permitted by law, each selling Holder will indemnify and
  hold harmless the Company, each of its directors, each of its officers who shall
  have signed the registration statement, each person, if any, who controls the
  Company within the meaning of the 1933 Act, legal counsel and accountants for
  the Company, any underwriter, any other Holder selling securities in such registration
  statement and any controlling person of any such underwriter or other Holder,
  against any losses, claims, damages or liabilities to which any of the foregoing
  persons may become subject, under the 1933 Act, the 1934 Act or any other federal
  or state securities law, insofar as such losses, claims, damages or liabilities
  (or actions in respect thereof) arise out of or are based on any Violation,
  in each case to the extent (and only to the extent) that such Violation occurs
  in reliance on and in conformity with written information furnished by such
  Holder expressly for use in connection with such registration; and each such
  Holder will reimburse any person intended to be indemnified pursuant to this
  Section 1.9(b), for any legal or other expenses reasonably incurred, as incurred,
  by such person in connection with investigating or defending any such loss,
  claim, damage, liability or action; provided that the indemnity agreement in
  this Section 1.9(b) shall not apply to amounts paid in settlement of any such
  loss, claim, damage, liability or action if such settlement is effected without
  the consent of the Holder (which consent shall not be unreasonably withheld
  or delayed); and provided further that in no event shall any indemnity by such
  Holder under this Section 1.9(b), when aggregated with amounts contributed,
  if any, pursuant to Section 1.9(d), exceed the net proceeds from the sale of
  Registrable Securities hereunder received by such Holder.

 (c)               
   Promptly after receipt by an indemnified party under this Section 1.9
  of notice of the commencement of any action (including any governmental action),
  such indemnified party will, if a claim in respect thereof is to be made against
  any indemnifying party under this Section 1.9, deliver to the indemnifying party
  notice of the commencement thereof and the indemnifying party shall have the
  right to participate in, and, to the extent that the indemnifying party so desires,
  jointly with any other indemnifying party similarly noticed, to assume the defense
  thereof with counsel mutually satisfactory to the parties; provided that an
  indemnified party (together with all other indemnified parties that may be represented
  without conflict by one counsel) shall have the right to retain one separate
  counsel, with the fees and expenses to be paid by the indemnifying party, if
  representation of such indemnified party by the counsel retained by the indemnifying
  party would be inappropriate due to actual or potential differing interests
  between such indemnified party and any other party represented by such counsel
  in such proceeding.  The failure to notify the indemnifying party within a reasonable
  time of the commencement of any such action, if prejudicial to its ability to
  defend such action, shall relieve such indemnifying party of any liability to
  the indemnified party under this Section 1.9, but the omission so to notify
  the indemnifying party will not relieve it of any liability that it may have
  to any indemnified party otherwise than under this Section 1.9.

 (d)              
   If the indemnification provided in this Section 1.9 is held by a court
  of competent jurisdiction to be unavailable to an indemnified party with respect
  to any loss, liability, claim, damage or expense referred to herein, then the
  indemnifying party, in lieu of indemnifying such indemnified party hereunder,
  shall contribute to the amount paid or payable by such indemnified party as
  a result of such loss, liability, claim, damage or expense in such proportion
  as is appropriate to reflect the relative fault of the indemnifying party on
  the one hand and of the indemnified party on the other in connection with the
  statements or omissions that shall have resulted in such loss, liability, claim,
  damage or expense, as well as any other relevant equitable considerations; provided
  that in no event shall any contribution by a Holder under this Section 1.9(d),
  when aggregate with amounts paid, if any, pursuant to Section 1.9(b), exceed
  the net proceeds from the sale of Registrable Securities hereunder received
  by such Holder.  The relative fault of the indemnifying party and of the indemnified
  party shall be determined by reference to, among other things, whether the untrue
  or alleged untrue statement of a material fact or the omission to state a material
  fact relates to information supplied by the indemnifying party or by the indemnified
  party and the parties' relative intent, knowledge, access to information, and
  opportunity to correct or prevent such statement or omission.

 (e)               
   Notwithstanding the foregoing, to the extent that the provisions on
  indemnification and contribution contained in the underwriting agreement entered
  into in connection with the underwritten public offering are in conflict with
  the foregoing provisions, the provisions in the underwriting agreement shall
  control.

 (f)                
   The obligations of the Company and Holders under this Section 1.9
  shall survive the completion of any offering of Registrable Securities in a
  registration statement under this Section 1, and otherwise.

 1.10         
   Reports under 1934 Act.  With a view to making available to the
  Holders the benefits of Rule 144 promulgated under the 1933 Act and any other
  rule or regulation of the SEC that may at any time permit a Holder to sell securities
  of the Company to the public without registration or pursuant to a registration
  statement (including, without limitation, Form S-3), the Company agrees to:

 (a)               
   make and keep public information available, as those terms are used
  in SEC Rule 144, at all times;

 (b)              
   take such action as is necessary to enable the Holders to utilize Form
  S-3 for the sale of their Registrable Securities;

 (c)               
   file with the SEC in a timely manner all reports and other documents
  required of the Company under the 1933 Act and the 1934 Act; and

 (d)              
   furnish to any Holder, so long as the Holder owns any Registrable Securities,
  forthwith on request, (i) a written statement by the Company that it has complied
  with the reporting requirements of SEC Rule 144, the 1933 Act and the 1934 Act,
  or that it qualifies as a registrant whose securities may be resold pursuant
  to Form S-3, (ii) a copy of the most recent annual or quarterly report of the
  Company and such other reports and documents so filed by the Company, and (iii)
  such other information as may be reasonably requested in availing any Holder
  of any rule or regulation of the SEC that permits the selling of any such securities
  without registration or pursuant to such form.

 1.11         
   Assignment of Registration Rights.  The rights to cause the Company
  to register Registrable Securities pursuant to this Section 1 may be assigned
  (but only with all related obligations) by a Holder to a transferee or assignee
  of such Registrable Securities that (i) is a subsidiary, parent, current
  or former partner, current or former limited partner, current or former member,
  current or former manager or stockholder of a Holder, (ii) is an entity
  controlling, controlled by or under common control with a Holder, including
  without limitation a corporation or limited liability company that is a direct
  or indirect parent or subsidiary of the Holder, (iii) is a transferee or
  assignee of a Holder and the number of shares representing or underlying the
  Registrable Securities (whether in the form of shares, warrants to purchase
  shares, or a combination of the foregoing) transferred or assigned constitute
  at least 500,000 shares of Registrable Securities held by such Holder (as adjusted
  for stock split, combinations, dividends and the like); provided that: (a) the
  Company is, within a reasonable time after such transfer, notified of the name
  and address of such transferee or assignee and the Registrable Securities with
  respect to which such registration rights are being assigned; (b) such
  transferee or assignee agrees in writing to be bound by and subject to the terms
  and conditions of this Agreement; (c) such assignment shall be effective
  only if immediately following such transfer the further disposition of such
  securities by the transferee or assignee is restricted under the 1933 Act; and
  (d) such assignment is not made pursuant to a registration statement effected
  pursuant to this Agreement.

 1.12         
   Duplicative Registration Rights.  The rights of the Investors
  under Section 1.4 or Section 1.5 shall not apply to the extent that Registrable
  Securities then held by the Investors are already covered by an effective registration
  statement under Section 1.3 or any other Section of this Agreement.

 1.13         
   Termination of Registration Rights.  No Holder shall be entitled
  to exercise any right provided in this Section 1 with respect to a Registrable
  Security (i) after the date on which that Registrable Security has been sold
  under a registration statement filed in accordance with this Agreement or (ii)
  if all Registrable Securities held by such Holder (and any affiliate of the
  Holder with whom such Holder must aggregate its sales under Rule 144) can be
  sold in any three-month period without volume limitation and without registration
  in compliance with Rule 144 under the 1933 Act.

 2.                 
   Covenants.

 2.1             
   Reserve for Exercise Shares.  The Company shall at all times
  reserve and keep available out of its authorized but unissued shares of Common
  Stock such number of shares (the "Exercise Shares") as shall be sufficient
  to enable it to comply with its exercise obligations under the Registration
  Warrants.  If at any time the number of Exercise Shares shall not be sufficient
  to effect the exercise of the Registration Warrants, the Company will forthwith
  take such corporate action as may be necessary to increase its authorized but
  unissued shares of Common Stock to such number as will be sufficient for such
  purposes.  The parties acknowledge that the Company currently does not have
  any authorized but unissued shares of Common Stock available for issuance and
  the Company hereby agrees to use its best efforts to take action to call a shareholders
  meeting and increase its authorized but unissued Common Stock as soon as practicable.
  The Company will obtain authorization, consent, approval or other action by,
  or make any filing with, any administrative body that may be required under
  applicable state securities laws in connection with the issuance of Exercise
  Shares.

 2.2             
   Confidential Information.  The Company shall provide to each
  Holder not less than ten days' prior written notice of its intention to deliver
  to such Holder confidential or non-public information relating to the Company
  and shall mark such information as "confidential" or "non-public."  If a Holder
  notifies Company that it does not desire to receive such confidential or non-public
  information, then the Company shall not deliver such information to such Holder.
  Whether or not a Holder has so notified the Company, such Holder may, in its
  sole discretion, decline to receive from the Company such confidential or non-public
  information, and as a result thereof shall not be deemed to have received or
  have any knowledge of such confidential or non-public information; provided
  that it has not received the same or promptly returns the same upon receipt
  by such Holder.

 3.                 
   Miscellaneous.

 3.1             
   Successors and Assigns.  Except as otherwise provided herein,
  this Agreement shall inure to the benefit of and bind the respective successors
  and assigns of the parties (including transferees of any shares of Registrable
  Securities).  Nothing in this Agreement, express or implied, is intended to
  confer on any party other than the parties hereto or their respective successors
  and assigns any rights, remedies, obligations, or liabilities under or by reason
  of this Agreement, except as expressly provided in this Agreement.

 3.2             
   Governing Law.  This Agreement shall be governed by and construed
  and interpreted in accordance with the laws of the State of Washington, without
  giving effect to its conflicts of law principles.  All disputes between the
  parties hereto arising out of or in connection with this Agreement or the Registrable
  Securities, whether sounding in contract, tort, equity or otherwise, shall be
  resolved only by state and federal courts located in Spokane, Washington, and
  the courts to which an appeal therefrom may be taken.  All parties hereto waive
  any objections to the location of the above-referenced courts, including but
  not limited to any objection based on lack of jurisdiction, improper venue or
  forum non conveniens.  Notwithstanding the foregoing, any party obtaining an
  order or judgment in any of the above-referenced courts may bring an action
  in a court in another jurisdiction in order to enforce such order or judgment.

 3.3             
   Counterparts.  This Agreement may be executed in two or more
  counterparts, each of which shall be deemed an original, but all of which together
  shall constitute one and the same instrument.

 3.4             
   Headings.  The headings of sections and subsections in this Agreement
  are used for convenience of reference only and are not to be considered in construing
  or interpreting this Agreement.

 3.5             
   Notices.  Any request, consent, notice or other communication
  required or permitted under this Agreement shall be in writing and shall be
  deemed duly given and received when delivered personally or transmitted by facsimile,
  one business day after being deposited for next-day delivery with a nationally
  recognized overnight delivery service, or three business days after being deposited
  as first class mail with the United States Postal Service, all charges or postage
  prepaid, and properly addressed to the party to receive the same at the address
  for such party indicated on the signature page hereof or at such other address
  as such party may designate by advance written notice to the other parties.

 3.6             
   Expenses.  If any action at law or in equity is necessary to
  enforce or interpret any of the terms of this Agreement, the prevailing party
  shall be entitled to reasonable attorneys' fees, costs and disbursements in
  addition to any other relief to which such party may be entitled.  In addition,
  the Company shall pay the reasonable attorneys' fees, costs and disbursements
  of the Investors in enforcing any terms of this Agreement, whether or not any
  action at law or in equity is brought.

  3.7             
   Entire Agreement: Amendments and Waivers.  This Agreement constitutes
  the full and entire understanding and agreement among the parties with regard
  to the subject matter hereof.  Any term of this Agreement may be amended and
  the observance of any term of this Agreement may be waived (either generally
  or in a particular instance and either retroactively or prospectively) only
  with the consent of the Company and the holders of more than 66-2/3% of the
  Registrable Securities; provided that no amendment shall be effective against
  any holder or holders of Registrable Securities that would be affected adversely
  and affected differently from the Holders generally by such amendment, without
  the consent of such holder or holders.  Any amendment or waiver effected in
  accordance with this Section 3.7 shall be binding on the Company, each holder
  of any Registrable Securities and each future holder of all such Registrable
  Securities.

  3.8             
   Severability.  If any provision of this Agreement is held by
  a court of competent jurisdiction to be unenforceable under applicable law,
  such provision shall be excluded from this Agreement and the balance of the
  Agreement shall be interpreted as if such provision were so excluded and shall
  be enforceable in accordance with its terms.

[Remainder of page intentionally
  left blank]

   

By: 
                                                                   

Name:                                                             
   

            Title:                                                                
  

                                                                                  
  

                                               
  2335 Alaska Avenue

El Segundo, CA 90245

Attn: President

Fax: (310) 643-8719

"Investors"

KOYAH LEVERAGE PARTNERS,
  L.P.

By:       Koyah Ventures
  LLC, its general partner

By:                                                                  
  

Name:                                                             
   

            Title:                                                                
  

                                                                       
  c/o ICM Asset Management, Inc.

                                                                                     
  601 West Main Avenue, Suite 600

                                                                                     
  Spokane, WA  99201

                                                                                     
  Attn:     Robert Law

                                                                                   
  Fax:  (509) 444-4500

[Signature page to Registration
  Rights Agreement (Intercreditor)]

KOYAH PARTNERS, L.P.

By:       Koyah Ventures
  LLC, its general partner

By:                                                                  
  

Name:                                                             
   

Title:                                                                
  

 c/o ICM Asset Management,
  Inc.

  601 West Main Avenue, Suite 600

  Spokane, WA  99201

  Attn:     Robert Law

Fax:  (509) 444-4500

KOYAH VENTURES, LLC

By:                                                                  
  

Name:                                                             
   

Title:                                                                
  

c/o ICM Asset Management,
  Inc.

  601 West Main Avenue, Suite 600

  Spokane, WA  99201

  Attn:     Robert Law

Fax:  (509) 444-4500

RAVEN PARTNERS, L.P.

By:       Koyah Ventures
  LLC, its general partner

By:                                                                  
  

Name:                                                             
   

Title:                                                                
  

c/o ICM Asset Management,
  Inc.

  601 West Main Avenue, Suite 600

  Spokane, WA  99201

  Attn:     Robert Law

 Fax:  (509) 444-4500

 [Signature page to
  Registration Rights Agreement (Intercreditor)] 

   

  

EDGAR APPLEBY

                                                                       
  

Peacock Point

  Locust Valley, NY 11560

  Fax:  (516) 674-3748 
  
PRUDENT BEAR FUND,
    INC.

  By:                                                                  
    

  Name:                                                             
     

  Title:                                                                
    

  8140 Walnut Hill Lane,
    Suite 300

    Dallas, TX  75206

    Attn:     Greg Jahnke

  Fax:  (214) 696-5556

  [Signature page to Registration
    Rights Agreement (Intercreditor)] 
    
  

  

  

  

    
 

    

     
    EXHIBIT A

    Form of Registration
      Warrant

    THIS WARRANT AND
      THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED
      UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES
      LAWS OF CERTAIN STATES.  THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
      TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
      PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT
      TO REGISTRATION OR EXEMPTION THEREFROM.  INVESTORS SHOULD BE AWARE THAT
      THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR
      AN INDEFINITE PERIOD OF TIME.  THE ISSUER OF THESE SECURITIES MAY REQUIRE
      AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO
      THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE
      ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

    Warrant To Purchase
      Common Stock

    Of

    Aura Systems, Inc.

  

  

    
______________, ____

  

No.  W-__ 
  

    
This certifies that
      __________________________ (the "Holder") is entitled, subject to the terms
      and conditions of this Warrant, to purchase from AURA SYSTEMS, INC., a Delaware
      corporation (the "Company"), all or any part of an aggregate of ______________
      shares of the Company's authorized and unissued Common Stock, par value
      $.005 (the "Warrant Stock"), at the Warrant Price (as defined herein), upon
      surrender of this Warrant at the principal offices of the Company, together
      with a duly executed subscription form in the form attached hereto as Exhibit
      1 and simultaneous payment of the Warrant Price for each share of Warrant
      Stock so purchased in lawful money of the United States, unless exercised
      in accordance with the provisions of Section 2.5 of this Warrant.  The Holder
      may exercise the Warrant at any time after the date of this Warrant and
      prior to the seventh anniversary of the date hereof (the "Expiration Date").

    This Warrant is issued
      pursuant to the Registration Rights Agreement dated as of August 19, 2004
      (the "Registration Rights Agreement"), by and among the Company, the Holder
      and the other Investors named therein.

     4.                 
       Definitions.  The following definitions shall apply for purposes
      of this Warrant:

     4.1             
       "Acquisition" means any consolidation, merger or reorganization
      of the Company with or into any other corporation or other entity or person,
      or any other corporate reorganization, in which the stockholders of the
      Company immediately prior to such consolidation, merger or reorganization,
      own less than fifty percent of the Company's voting power immediately after
      such consolidation, merger or reorganization, or any transaction or series
      of related transactions to which the Company is a party in which in excess
      of fifty percent of the Company's voting power is transferred, excluding
      any consolidation, merger or reorganization effected exclusively to change
      the domicile of the Company.

     4.2             
       "Asset Transfer" means a sale, lease or other disposition of all
      or substantially all of the assets of the Company.

     4.3             
       "Company" means the "Company" as defined above and includes any
      corporation or other entity that succeeds to or assumes the obligations
      of the Company under this Warrant.

     4.4             
       "Common Stock" means the Common Stock, par value $.005, of the Company.

     4.5             
       "Fair Market Value" of a share of Warrant Stock means (i) if the
      Common Stock is traded on a securities exchange, the average of the closing
      price on each trading day over the ten consecutive trading day period ending
      three trading days before the day the Fair Market Value of the securities
      is being determined, (ii) if the Common Stock is actively traded over-the
      counter, the average of the closing bid and asked prices quoted on the NASDAQ
      system (or similar system) on each trading day over the five consecutive
      trading day period ending one trading day before the day the Fair Market
      Value of the securities is being determined, or (iii) if at any time the
      Common Stock is not listed on any securities exchange or quoted in the NASDAQ
      System or the over-the-counter market, then the Fair Market Value determined
      by the Company's Board of Directors in good faith.

     4.6             
       "Holder" means the "Holder" as defined above and includes any transferee
      who shall at the time be the registered holder of this Warrant.

     4.7             
       "Warrant" means this Warrant and any warrant(s) delivered in substitution
      or exchange therefor, as provided herein.

     4.8             
       "Warrant Price" means $.02 per share of Warrant Stock.  The Warrant
      Price is subject to adjustment as provided herein.

     4.9             
        "Warrant Stock" means the Common Stock.  The number and character
      of shares of Warrant Stock are subject to adjustment as provided herein
      and the term "Warrant Stock" shall include stock and other securities and
      property at any time receivable or issuable upon exercise of this Warrant
      in accordance with its terms.  

     5.                 
       Exercise.

     5.1             
       Method of Exercise.  Subject to the terms and conditions
      of this Warrant, the Holder may exercise the purchase rights represented
      by this Warrant in whole or in part, at any time or from time to time, on
      or after the date hereof and before the Expiration Date, by surrendering
      this Warrant at the principal offices of the Company, with the subscription
      form attached hereto duly executed by the Holder, and payment of an amount
      equal to the product obtained by multiplying (i) the number of shares of
      Warrant Stock so purchased by (ii) the Warrant Price, as specified in Section
      2.2 below.

     5.2             
       Form of Payment.  Except as provided in Section 2.5, payment
      may be made by (i) a check payable to the Company's order, (ii) wire transfer
      of funds to the Company, (iii) cancellation of indebtedness of the Company
      to the Holder, or (iv) any combination of the foregoing.

     5.3             
       Partial Exercise.  Upon a partial exercise of this Warrant,
      this Warrant shall be surrendered by the Holder and replaced with a new
      Warrant or Warrants of like tenor for the balance of the shares of Warrant
      Stock purchasable under the Warrant surrendered upon such purchase.  The
      Warrant or Warrants will be delivered to the Holder thereof within a reasonable
      time.

     5.4             
       No Fractional Shares.  No fractional shares may be issued
      upon any exercise of this Warrant.  If upon any exercise of this Warrant
      a fraction of a share results, such fraction shall be rounded upwards or
      downwards to the nearest whole number.  

     5.5             
       Net Exercise Election.  The Holder may elect to convert all
      or a portion of this Warrant, without the payment by the Holder of any additional
      consideration, by the surrender of this Warrant or such portion to the Company,
      with the net exercise election selected in the subscription form attached
      hereto duly executed by the Holder, into the number of shares of Warrant
      Stock that is obtained under the following formula:

  

	1.1  	X = Y (A-B)
	 	(a)               
       A

  
  

	
      where 

    	 	
       X  =     the number of shares
        of Warrant Stock to be issued to the Holder pursuant to this Section 2.5.

       

    
	 	 	
      Y  =     the number of shares
        of Warrant Stock purchasable under this Warrant, or if only a portion
        of the Warrant is being exercised, the number of shares of Warrant Stock
        represented by the portion of the Warrant being exercised.

       

    
	 	 	
      A  =     the Fair Market Value
        of one share of Warrant Stock at the time the net exercise election is
        made pursuant to this Section 2.5.

       

    
	 	 	B  =     the Warrant
      Price.

  

    
5.6             
       Condition of Exercise.  As a condition to any exercise of
      this Warrant, the Holder shall represent and warrant as to its status as
      an "accredited investor" under the Securities Act of 1933, as amended (the
      "Act"), by delivering the subscription form attached hereto (together with
      the appendix attached thereto).  

     6.                 
       Issuance of Stock.  This Warrant shall be deemed to have
      been exercised immediately prior to the close of business on the date of
      its surrender for exercise as provided above, and the person entitled to
      receive the shares of Warrant Stock issuable upon such exercise shall be
      treated for all purposes as the holder of record of such shares as of the
      close of business on such date.  As soon as practicable, but in any event
      no later than three days after such date, the Company shall issue and deliver
      to the person or persons entitled to receive the same a certificate or certificates
      for the number of whole shares of Warrant Stock issuable upon such exercise. 
      The Company covenants and agrees that all shares of Warrant Stock that are
      issued upon the exercise of the rights represented by this Warrant will,
      upon issuance, be duly authorized, validly issued, fully paid and nonassessable
      and free from all preemptive rights of any stockholder, free of all taxes,
      liens and charges with respect to the issue thereof and free and clear of
      any restrictions on transfer (other than under the Act and state securities
      laws).

     7.                 
       Adjustment Provisions.  The number and character of shares
      of Warrant Stock issuable upon exercise of this Warrant (or any shares of
      stock or other securities or property at the time receivable or issuable
      upon exercise of this Warrant) and the Warrant Price for the Common Stock
      are subject to adjustment upon the occurrence of the following events between
      the date this Warrant is issued and the date it is exercised:

     7.1             
       Adjustment for Stock Splits, Stock Dividends, Recapitalizations,
      etc.  The Warrant Price of this Warrant and the number of shares of
      Warrant Stock issuable upon exercise of this Warrant (or any shares of stock
      or other securities at the time issuable upon exercise of this Warrant)
      shall each be appropriately and proportionally adjusted to reflect any stock
      dividend, stock split, reverse stock split, combination of shares, reclassification,
      recapitalization or other similar event affecting the number of outstanding
      shares of Warrant Stock (or such other stock or securities).

     7.2             
       Adjustment for Other Dividends and Distributions. 
      In case the Company shall make or issue, or shall fix a record date for
      the determination of eligible holders entitled to receive, a dividend or
      other distribution payable with respect to the Warrant Stock that is payable
      in (a) securities of the Company (other than issuances with respect to which
      adjustment is made under Section 4.1), or (b) assets (other than cash dividends
      paid or payable solely out of retained earnings), then, and in each such
      case, the Holder, upon exercise of this Warrant at any time after the consummation,
      effective date or record date of such event, shall receive, in addition
      to the shares of Warrant Stock issuable upon such exercise prior to such
      date, the securities or such other assets of the Company to which the Holder
      would have been entitled upon such date if the Holder had exercised this
      Warrant immediately prior thereto (all subject to further adjustment as
      provided in this Warrant).

     7.3             
       Adjustment for Reorganization, Consolidation,
      Merger.  In case of any reorganization of the Company (or of any other
      corporation or entity, the stock or other securities of which are at the
      time receivable on the exercise of this Warrant), after the date of this
      Warrant, or in case, after such date, the Company (or any such corporation
      or entity) shall consolidate with or merge into another corporation or entity
      or convey all or substantially all of its assets to another corporation
      or entity, then, and in each such case, the Holder, upon the exercise of
      this Warrant (as provided in Section 2), at any time after the consummation
      of such reorganization, consolidation, merger or conveyance, shall be entitled
      to receive, in lieu of the stock or other securities and property receivable
      upon the exercise of this Warrant prior to such consummation, the stock
      or other securities or property to which the Holder would have been entitled
      upon the consummation of such reorganization, consolidation, merger or conveyance
      if the Holder had exercised this Warrant immediately prior thereto, all
      subject to further adjustment as provided in this Warrant, and the successor
      or purchasing corporation or entity in such reorganization, consolidation,
      merger or conveyance (if other than the Company) shall duly execute and
      deliver to the Holder a supplement hereto acknowledging such corporation's
      or entity's obligations under this Warrant; and in each such case, the terms
      of this Warrant shall be applicable to the shares of stock or other securities
      or property receivable upon the exercise of this Warrant after the consummation
      of such reorganization, consolidation, merger or conveyance.

     7.4             
       Notice of Certain Events and Adjustments.  The Company shall
      give thirty days prior written notice of the record date fixed for any Acquisition,
      Asset Transfer or event  referred to in Section 4.2 or 4.3.  The Company
      shall promptly give written notice of each adjustment or readjustment of
      the Warrant Price or the number of shares of Warrant Stock or other securities
      issuable upon exercise of this Warrant.  The notice shall describe the adjustment
      or readjustment and show in reasonable detail the facts on which the adjustment
      or readjustment is based.

     7.5             
       No Change Necessary.  The form of this Warrant need not be
      changed because of any adjustment in the Warrant Price or in the number
      of shares of Warrant Stock issuable upon its exercise.

     8.                 
       No Rights or Liabilities as Stockholder.  This Warrant does
      not by itself entitle the Holder to any voting rights or other rights as
      a stockholder of the Company.  In the absence of affirmative action by the
      Holder to purchase Warrant Stock by exercise of this Warrant, no provisions
      of this Warrant, and no enumeration herein of the rights or privileges of
      the Holder, shall cause the Holder to be a stockholder of the Company for
      any purpose.

     9.                 
       Attorneys' Fees.  The Company shall pay the reasonable attorneys'
      fees, costs and disbursements of the Holder in enforcing any terms of this
      Warrant, whether or not any action at law or in equity is brought.

     10.             
       Transfer.  This Warrant may be transferred or assigned by
      the Holder hereof in whole or in part, if, on the Company's reasonable request,
      the Holder provides an opinion of counsel reasonably satisfactory to the
      Company that such transfer does not require registration under the Act and
      the applicable state securities law, except that this Warrant may be transferred
      by a Holder which is a partnership or limited liability company to a partner,
      former partner, member, former member or other affiliate of such partnership
      or limited liability company, as the case may be, if (a) the transferee
      agrees in writing to be subject to the terms of this Warrant and (b) the
      Holder delivers notice of such transfer to the Company.  The rights and
      obligations of the Company and the Holder under this Warrant shall be binding
      upon and inure to the benefit of their respective permitted successors,
      assigns, heirs, administrators and transferees.

     11.             
       Loss or Mutilation.  Upon receipt by the Company of evidence
      reasonably satisfactory to it of the ownership and the loss, theft, destruction
      or mutilation of this Warrant, and of indemnity reasonably satisfactory
      to it, and (in the case of mutilation) upon surrender and cancellation of
      this Warrant, the Company will execute and deliver in lieu thereof a new
      Warrant of like tenor.

     12.             
       Reservation of Warrant Stock.  If at any time the number
      of authorized but unissued shares of the Warrant Stock shall not be sufficient
      to effect the exercise of this Warrant, the Company shall take all such
      corporate action as may be necessary to increase its authorized but unissued
      shares of the Warrant Stock to such number of shares of the Warrant Stock
      as shall be sufficient for such purpose.  The parties acknowledge that the
      Company currently does not have any shares of the Warrant Stock available
      for issuance and the Company hereby agrees to use its best efforts to take
      action to call a stockholder meeting and increase its authorized but unissued
      Warrant Stock as soon as practicable.

     13.             
       Governing Law.  This Warrant shall be governed by and construed
      and interpreted in accordance with the laws of the State of Washington,
      without giving effect to its conflicts of law principles.  All disputes
      between the parties hereto arising out of or in connection with this Warrant
      or the Warrant Stock, whether sounding in contract, tort, equity or otherwise,
      shall be resolved only by state and federal courts located in Spokane, Washington,
      and the courts to which an appeal therefrom may be taken.  All parties hereto
      waive any objections to the location of the above-referenced courts, including
      but not limited to any objection based on lack of jurisdiction, improper
      venue or forum non conveniens.  Notwithstanding the foregoing, any party
      obtaining an order or judgment in any of the above-referenced courts may
      bring an action in a court in another jurisdiction in order to enforce such
      order or judgment. 

     14.             
       Headings.  The headings and captions used in this Warrant
      are used for convenience only and are not to be considered in construing
      or interpreting this Warrant.  All references in this Warrant to sections
      and exhibits shall, unless otherwise provided, refer to sections hereof
      and exhibits attached hereto, all of which exhibits are incorporated herein
      by this reference.

     15.             
       Notices.  Any request, consent, notice or other communication
      required or permitted under this Warrant shall be in writing and shall be
      deemed duly given and received when delivered personally or transmitted
      by facsimile, one business day after being deposited for next-day delivery
      with a nationally recognized overnight delivery service, or three business
      days after being deposited as first class mail with the United States Postal
      Service, all charges or postage prepaid, and properly addressed to the party
      to receive the same at the address for such party indicated in the Registration
      Rights Agreement or at such other address as such party may have designated
      by advance written notice to the other party.

     16.             
       Amendment; Waiver.  Any term of this Warrant may be amended
      and the observance of any term of this Warrant may be waived (either generally
      or in a particular instance and either retroactively or prospectively) only
      with the written consent of the Company and the Holder in the case of an
      amendment and only with the written consent of the waiving party in the
      case of a waiver.

     17.             
       Severability.  If one or more provisions of this Warrant
      are held to be unenforceable under applicable law, such provision(s) shall
      be excluded from this Warrant and the balance of the Warrant shall be interpreted
      as if such provision(s) were so excluded and shall be enforceable in accordance
      with its terms.

     18.             
       Terms Binding.  By acceptance of this Warrant, the Holder
      accepts and agrees to be bound by all the terms and conditions of this Warrant.

     19.             
       Valid Issuance; Taxes.  All shares of Warrant Stock issued
      upon the exercise of this Warrant shall be validly issued, fully paid and
      non-assessable, and the Company shall pay all taxes and other governmental
      charges that may be imposed in respect of the issue or delivery thereof. 
      The Company shall not be required to pay any transfer tax or other similar
      charge imposed in connection with any transfer involved in the issuance
      of any certificate for shares of Warrant Stock in any name other than that
      of the Holder of this Warrant.

     20.             
       No Impairment.  The Company will not, by amendment of its
      Certificate of Incorporation or bylaws, or through reorganization, consolidation,
      merger, dissolution, issue or sale of securities, sale of assets or any
      other voluntary action, avoid or seek to avoid the observance or performance
      of any of the terms of this Warrant, but will at all times in good faith
      assist in the carrying out of all such terms and in the taking of all such
      action as may be necessary or appropriate in order to protect the rights
      of the Holder of this Warrant against impairment.  Without limiting the
      generality of the foregoing, the Company (a) will not increase the par value
      of any shares of Warrant Stock issuable upon the exercise of this Warrant
      above the amount payable therefor upon such exercise, and (b) will take
      all such action as may be necessary or appropriate in order that the Company
      may validly and legally issue fully paid and non-assessable shares of Warrant
      Stock upon exercise of this Warrant.

  

  

    
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      intentionally left blank]

  

  

  

     
    
IN WITNESS WHEREOF,
      the undersigned has executed this Warrant as of the date and year first
      set forth above.

    	 	
          AURA SYSTEMS, INC.

          By:                                                      
                        

          Name: ______________________________

          Title: _______________________________

        
	 	 

  

  

  
  

  

    
[Signature Page to
      Warrant]

  

  

  

     
    
 1.                 
       Exhibit 1

  

  

    
FORM OF SUBSCRIPTION

  

  

    
(To be signed only
      upon exercise of Warrant)

     

    (1)        Check
      the box that applies and the provide the necessary information:

    o        
      Cash Payment Election.  The undersigned Holder hereby elects to purchase
             shares of Common Stock of Aura Systems, Inc. (the "Warrant
      Stock"), pursuant to the terms of the attached Warrant, and tenders herewith
      payment of the purchase price for such shares in full.

    o        
      Net Exercise Election.  The undersigned Holder elects to convert
      the Warrant into shares of Warrant Stock by net exercise election pursuant
      to Section 2.5 of the Warrant.  This conversion is exercised with respect
      to __________ shares of Common Stock of Aura Systems, Inc. (the "Warrant
      Stock") covered by the Warrant.

    (2)        In exercising
      the Warrant, the undersigned Holder hereby makes the representations and
      warranties set forth on Appendix A hereto as of the date hereof.

    (3)        Please
      issue a certificate or certificates representing such shares of Warrant
      Stock in the name or names specified below:

                                                               
                                                                                         

      (Name)                                                                       
      (Name)

                                                               
                                                                                         

      (Signature)                                                                   
      (Signature)

                                                               
                                                                                         

      (Address)                                                                    
      (Address)

                                                               
                                                                                         

      (City, State, Zip Code)                                                
      (City, State, Zip Code)

                                                               
                                                                                         

      (Federal Tax Identification Number)                              (Federal
      Tax Identification Number)

                                                               
                                                                                         

      (Date)                                                                         
      (Date)

  

  

  

     

  

    
Appendix A

    INVESTMENT REPRESENTATION

  

  

    
 

    The undersigned,
      _____________________ (the "Holder"), intends to acquire shares of Common
      Stock (the "Common Stock") of Aura Systems, Inc. (the "Company") from the
      Company pursuant to the exercise or conversion of a Warrant to purchase
      Common Stock held by the Holder.  The Common Stock will be issued to the
      Holder in a transaction not involving a public offering and pursuant to
      an exemption from registration under the Securities Act of 1933, as amended
      (the "Securities Act"), and applicable state securities laws.  In connection
      with such purchase and in order to comply with the exemptions from registration
      relied upon by the Company, the Holder represents, warrants and agrees as
      follows:

  

  

    
(a)        The Holder
      is acquiring the Common Stock for its own account, to hold for investment,
      and the Holder shall not make any sale, transfer or other disposition of
      the Common Stock in violation of the Securities Act or the General Rules
      and Regulations promulgated thereunder by the Securities and Exchange Commission
      or in violation of any applicable state securities law.  The Holder is an
      "accredited investor" as such term is defined in Rule 501 of Regulation
      D promulgated under the Securities Act.

    (b)        The Holder
      has been advised that the Common Stock has not been registered under the
      Securities Act or state securities laws on the ground that this transaction
      is exempt from registration, and that reliance by the Company on such exemptions
      is predicated in part on the Holder's representations set forth herein.

    (c)        The Holder
      has been informed that under the Securities Act, the Common Stock must be
      held indefinitely unless it is subsequently registered under the Securities
      Act or unless an exemption from such registration (such as Rule 144) is
      available with respect to any proposed transfer or disposition by the Holder
      of the Common Stock.  The Holder further agrees that the Company may refuse
      to permit the Holder to sell, transfer or dispose of the Common Stock (except
      as permitted under Rule 144) unless there is in effect a registration statement
      under the Securities Act and any applicable state securities laws covering
      such transfer, or unless the Holder furnishes an opinion of counsel reasonably
      satisfactory to counsel for the Company to the effect that such registration
      is not required.

    The Holder also understands
      and agrees that there will be placed on the certificate(s) for the Common
      Stock or any substitutions therefor, a legend stating in substance:

                "The
      shares represented by this certificate have not been registered under the
      Securities Act of 1933, as amended (the "Securities Act"), or any state
      securities laws.  These shares have been acquired for investment purposes
      and may not be sold or otherwise transferred in the absence of an effective
      registration statement for these shares under the Securities Act and applicable
      state securities laws or an opinion of counsel satisfactory to the Company
      that registration is not required and that an applicable exemption is available."

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00071-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00071-of-00352.parquet"}]]