Document:

NEITHER THIS  SECURED  NOTE NOR THE  GUARANTIES  OF THE  SUBSIDIARIES  HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES  ACT"),
OR THE "BLUE SKY" OR SECURITIES LAWS OF ANY STATE BY REASON OF THEIR ISSUANCE IN
A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR
SUCH STATE SECURITIES LAWS, AND, ACCORDINGLY,  MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO AN EFFECTIVE  REGISTRATION  STATEMENT  UNDER THE  SECURITIES  ACT OR
PURSUANT  TO  AN  AVAILABLE   EXEMPTION  FROM  THE   REGISTRATION   REQUIREMENTS
THEREUNDER, AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS.

                               AURA SYSTEMS, INC.

                                  SECURED NOTE

$10,411,928                                                 February 22, 2000
                                                         El Segundo, California

                  FOR VALUE RECEIVED, Aura Systems, Inc., a Delaware corporation
(the "Company"),  promises to pay to the order of Infinity  Investors Limited, a
corporation  organized  and existing  under the laws of Nevis,  West Indies (the
"Holder")  or its  assigns,  the  principal  amount of Ten Million  Four Hundred
Eleven  Thousand Nine Hundred  Twenty Eight  ($10,411,928)  on November 30, 2002
(the  "Maturity  Date") and to pay interest  (computed on the basis of a 360-day
year  of  30-day  months)  ("Interest")  (a)  on  the  principal  amount  hereof
outstanding  at the rate of eight  percent  (8%) per annum from the date hereof,
payable in arrears on (i) August 1, 2000 and  quarterly  thereafter  on each 1st
day of November,  February,  May and August,  (ii) the Maturity Date, (iii) each
date this Secured Note, or any portion hereof,  is converted,  and (iv) the date
the  principal  amount of this  Secured  Note shall be  declared  to be or shall
automatically become due and payable, and (b) to the extent permitted by law, on
any overdue  amount  hereunder at the rate of sixteen  percent  (16%) per annum.
Should any interest or other charges paid hereunder result in the computation or
earning of interest  hereunder in excess of the maximum rate or amount permitted
by applicable law, such excess shall be credited  against (and be deemed to have
been a payment in reduction of) principal  owing  hereunder,  and any portion of
such excess which portion exceeds the principal owing hereunder shall be paid to
the Company.  Principal and accrued but unpaid  Interest  hereunder shall be due
and  payable  on demand  on or after the  Maturity  Date or in  accordance  with
Section 5 hereof after the occurrence of an Event of Default (which has not been
cured in accordance  with the terms hereof),  unless  converted by the Holder in
accordance with Section 8 hereof.

                  If any payment of interest  hereunder  becomes due and payable
on a day which is not a Business  Day,  the due date  thereof  shall be the next
preceding  day which is a Business  Day, and the  interest  payable on such next
preceding  Business Day shall be the interest  which would  otherwise  have been
payable on the due date which was not a Business Day.

                  Payments  of  principal   and   interest   shall  be  made  in
immediately  available funds, in lawful money of the United States of America at
the  locations set forth  hereunder,  or at such other place as the Holder shall
have designated for such purpose in writing,  and may be paid by cashier's check
or wire  transfer  to the address or account  designated  by the Holder for such
purpose.

                  This Secured Note (the  "Secured  Note") is secured by, and is
one of the secured notes referred to in (i) that certain  Security  Agreement of
even date herewith  between the Company,  the Guarantors  (defined below) and HW
Partners,  LP,  as Agent  for the  Funds,  and (ii) that  certain  Stock  Pledge
Agreement of even date herewith between the Company and the Agent for the Funds.

                  This Secured Note is guaranteed  by, and is one of the Secured
Notes  referred  to in,  that  certain  Guaranty  of even date  herewith  of the
Guarantors  (defined below) made for the benefit of the Funds, which Guaranty is
secured by the Security Agreement.

                  The Company further agrees as follows:

                  SECTION 1.        Definitions and Principles of Construction.

                  1.1.  Defined  Terms.  As  used  in  this  Secured  Note,  the
following  terms shall have the following  meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined, except as
otherwise provided):

                  "Affiliate"  shall mean, with respect to any specified Person,
(i) any other Person that, directly or indirectly, is controlled by, or is under
common  control with,  or controls such Person,  (ii) any other Person in which,
directly or  indirectly,  such Person  holds,  of record or  beneficially,  five
percent or more of the equity or voting securities,  (iii) any other Person that
holds, of record or  beneficially,  five percent or more of the equity or voting
securities of such Person, or (iv) any director,  officer, partner or individual
holding a similar position in respect of such Person.

                "Agent" shall mean HW Partners, LP, a Texas limited partnership.

                  "Applicable   Discount"   shall  mean,  with  respect  to  any
applicable  prepayment of principal  under this Secured Note in accordance  with
the terms hereof,  a percentage  which on the  Execution  Date shall be equal to
twenty  percent (20%) and thereafter  shall  decrease on a daily,  straight line
basis to zero percent (0%) on the Maturity Date.

         "Aura Ceramics" shall mean Aura Ceramics, Inc., a Delaware corporation.

                  "AuraGen" shall mean that certain power  generator  developed,
manufactured,  marketed, distributed and/or sold by or for the Company or any of
its  Subsidiaries  under the trademark  AuraGen or any successor or  replacement
mark thereto,  or any similar,  derivative or related  product line which may be
developed, manufactured, marketed, distributed and/or sold by or for the Company
or any of its Subsidiaries.

                 "AuraSound" shall mean AuraSound, Inc., a Delaware corporation.

                  "Authority"  shall  mean  any   governmental,   regulatory  or
administrative body, agency,  commission,  board,  arbitrator or authority,  any
court or  judicial  authority,  or any public,  private or  industry  regulatory
authority, whether international, national, federal, state or local.

                  "Bankruptcy  Code"  shall mean  title 11 of the United  States
Code (11  U.S.C.  ss.  101 et  seq.),  as  amended  from  time to time.  Section
references to the Bankruptcy Code are to the Bankruptcy Code as in effect on the
date of this  Agreement and any subsequent  provisions of the  Bankruptcy  Code,
amendatory thereof, supplemental thereto or substituted therefor.

          "Board of Directors" shall mean the Board of Directors of the Company.

                  "Business Day" shall mean any day except Saturday,  Sunday and
any day which shall be a legal holiday or a day on which banking institutions in
the State of New York or the State of California  are  authorized or required by
law or other government actions to close.

                  "Claim" shall mean any action, claim,  lawsuit,  demand, suit,
inquiry, hearing, investigation,  notice of a violation, litigation, proceeding,
arbitration,  appeals or other dispute, whether civil, criminal,  administrative
or otherwise.

                  "Code"  shall  mean the  Internal  Revenue  Code of  1986,  as
amended from time to time, and the  regulations  promulgated  and rulings issued
thereunder.  Section  references to the Code are to the Code as in effect on the
date of this  Agreement and any  subsequent  provisions of the Code,  amendatory
thereof, supplemental thereto or substituted therefor.

         "Collateral" shall mean all property subject to the Security Documents.

                 "Commission" shall mean the Securities and Exchange Commission.

                  "Common  Stock" shall mean shares now or hereafter  authorized
of the class of common stock of the Company, stock of any other class into which
such  shares may  hereafter  be  reclassified  or changed  and any other  equity
securities of the Company hereafter designated as common stock.

                "Company" shall mean Aura Systems, Inc., a Delaware corporation.

                  "Contingent  Obligation"  shall  mean,  as  to  any  specified
Person, any obligation of such Person arising under, pursuant to or derived from
any derivatives transactions or guaranteeing any Indebtedness, leases, dividends
or other obligations  ("primary  obligations") of any other Person (the "primary
obligor") in any manner,  whether  directly or  indirectly,  including,  without
limitation,  any obligation of such Person,  whether or not  contingent,  (i) to
purchase any such primary  obligation  or any  property  constituting  direct or
indirect security therefor, (ii) to advance or supply funds (x) for the purchase
or payment of any such primary  obligation or (y) to maintain working capital or
equity capital of the primary  obligor or otherwise to maintain the net worth or
solvency  of the primary  obligor,  (iii) to purchase  property,  securities  or
services  primarily  for the purpose of assuring  the holder of any such primary
obligation of the ability of the primary obligor to make payment of such primary
obligation  or (iv)  otherwise  to assure or hold  harmless  the  holder of such
primary obligation against loss in respect thereof; provided,  however, that the
term  Contingent  Obligation  shall not include  endorsements of instruments for
deposit or  collection  in the ordinary  course of  business.  The amount of any
Contingent  Obligation  shall be deemed to be an amount  equal to the  stated or
determinable  amount  of  the  primary  obligation  in  respect  of  which  such
Contingent  Obligation  is made (subject to any  limitation  therein) or, if not
stated or determinable,  the maximum reasonably anticipated liability in respect
thereof  (assuming such Person is required to perform  thereunder) as determined
by such Person in good faith.

                  "Contract"  shall mean any  agreement,  contract,  commitment,
instrument or other binding  arrangement or  understanding,  whether  written or
oral.

     "Conversion Date" shall have the meaning set forth in Section 8.3 hereof.

     "Conversion  Event" shall mean any Event of Default (after giving effect to
the applicable cure, if any).

     "Conversion Price" shall have the meaning set forth in Section 8.2 hereof.

     "CNA" shall mean American Casualty Company of Reading, Pennsylvania.

                  "CNA   Restructuring   Agreement"   shall  mean  that  certain
agreement by and between the Company and CNA in the form of Exhibit A hereto.

                  "Date Data" shall mean any data of any type that includes date
information or which is otherwise derived from,  dependent on or related to date
information.

                  "Date-Sensitive System" shall mean any software,  microcode or
hardware  system  or  component,  including  any  electronic  or  electronically
controlled  system  or  component,  that  processes  any  Date  Data and that is
installed,  in development or on order by the Company or any of its Subsidiaries
for its  internal  use,  or that the Company or any of its  Subsidiaries  sells,
leases,  licenses,  assigns or otherwise provides, or the provision or operation
of which the Company or any of its  Subsidiaries  provides the  benefit,  to its
customers, vendors, suppliers, affiliates or any other third party.

                  "Deadline"  shall  have  the  meaning  given  to such  term in
Section 8.8 hereof.

                  "DFS" shall mean Deutsche Financial Services.

                  "DFS  Claims"  shall  mean the claims of DFS  relating  to the
obligations  of the  Company  with  respect  to debts  owed by NewCom to DFS and
guaranteed by the Company.

                  "Disclosure Materials" shall mean, collectively,  the exhibits
and schedules to this Secured Note and the other Transaction Documents furnished
by or on behalf of the Company.

                  "ERISA" shall mean the Employee Retirement Income Security Act
of 1974,  as amended  from time to time,  and the  regulations  promulgated  and
rulings issued thereunder. Section references to ERISA are to ERISA as in effect
on the date of this Agreement and any subsequent provisions of ERISA, amendatory
thereof, supplemental thereto or substituted therefor.

                  "ERISA  Affiliate"  shall  mean each  person  (as  defined  in
Section 3(9) of ERISA) which  together  with the Company or a Subsidiary  of the
Company  would be deemed to be a "single  employer"  (i) within  the  meaning of
Section  414(b),  (c), (m) or (o) of the Code or (ii) as a result of the Company
or a Subsidiary  of the Company  being or having been a general  partner of such
person.

     "Event of Default" shall have the meaning set forth in Section 5 hereof.

                  "Exchange  Act"  shall  mean  the  United  States   Securities
Exchange Act of 1934, as amended from time to time.

                  "Exchange   Agreement"   shall  mean  that  certain   Exchange
Agreement of even date herewith executed and delivered by the Company, the Agent
and the Funds, as the same may be amended, modified or supplemented.

                  "Execution Date" shall mean the date of this Secured Note.

                  "Existing  Indebtedness"  shall have the meaning given to such
term in Section 2.11 hereof.

                  "Existing  Liens" shall have the meaning given to such term in
Section 4.1(c) hereof.

                  "Existing Secured  Indebtedness"  means Existing  Indebtedness
secured by the Existing Liens (other than judgment liens).

                  "Financial  Statements"  shall have the meaning  given to such
term in Section 2.7(a) hereof.

                  "Foreign  Pension Plan" shall mean any plan, fund  (including,
without   limitation,   any  superannuation   fund)  or  other  similar  program
established or maintained outside the United States of America by the Company or
any one or more of its  Subsidiaries  primarily  for the benefit of employees of
the Company or such Subsidiaries  residing outside the United States of America,
which plan, fund or other similar program  provides,  or results in,  retirement
income,  a deferral of income in  contemplation  of retirement or payments to be
made upon  termination of employment,  and which plan is not subject to ERISA or
the Code.

     "Funds"  shall mean Infinity  Investors  Limited,  Global  Growth  Limited,
Glacier Capital Limited and Summit Capital Limited.

                  "GAAP" shall mean generally accepted accounting  principles in
the United States consistently applied during a relevant period.

                 "GSS" shall mean GSS Array Technologies Public Company Limited.

                  "Guarantee"  shall  mean any  guarantee  or  other  Contingent
Obligation (other than any endorsement for collection or deposit in the ordinary
course of  business),  direct or indirect,  with respect to any  obligations  of
another  Person,   through  an  agreement  or  otherwise,   including,   without
limitation,  (i) any  endorsement  or  discount  with  recourse  or  undertaking
substantially  equivalent to or having economic effect similar to a guarantee in
respect of any such  obligations  and (ii) any Contract  (x) to purchase,  or to
advance or supply  funds for the payment or purchase  of, any such  obligations,
(y) to purchase,  sell or lease property,  products,  materials or supplies,  or
transportation or services,  in respect of enabling such other Person to pay any
such  obligation or to assure the owner thereof  against loss  regardless of the
delivery or  nondelivery  of the  property,  products,  materials or supplies or
transportation  or  services  or  (z) to  make  any  loan,  advance  or  capital
contribution to or other investment in, or to otherwise provide funds to or for,
such other  Person in respect of enabling  such Person to satisfy an  obligation
(including any liability for a dividend,  stock liquidation  payment or expense)
or to assure a minimum equity,  working capital or other balance sheet condition
in respect of any such obligation.

                  "Guarantor"   shall  mean  each   Subsidiary  of  the  Company
executing the Guaranty or otherwise made a party thereto in accordance  with the
terms thereof.

                  "Guaranty"  shall  mean  that  certain  Guaranty  of even date
herewith executed and delivered by the Guarantors and the Agent, as the same may
be amended, modified or supplemented.

                  "Holder"  shall  have the  meaning  given to such  term in the
first paragraph of this Secured Note.

                  "Indebtedness" shall mean, as to any specified Person, without
duplication,  (i) all  indebtedness  (including  principal,  interest,  fees and
charges) of such Person (x) evidenced by any notes, bonds, debentures or similar
instruments made or issued by such Person, (y) for borrowed money or (z) for the
deferred  purchase  price of property or  services,  (ii) the face amount of all
letters of credit issued for the account of such Person,  (iii) all  liabilities
secured by any Lien upon any property owned by such Person,  whether or not such
liabilities have been assumed by such Person, (iv) the aggregate amount required
to be capitalized  in accordance  with GAAP under leases under which such Person
is the lessee and (v) all Contingent Obligations and Guarantees of such Person.

                  "Independent  Director"  shall mean a director  of the Company
who has no  relationship  to the Company that may interfere with the exercise of
such individual's independence from the Company or its management.  For purposes
hereof,  "relationship" shall include, without limitation, (i) being employed by
the Company or any of its  Affiliates  at any time during the year in which such
individual  was elected to the Board of  Directors of the Company or at any time
during any of the three calendar years preceding the year of such election, (ii)
accepting any compensation  from the Company or any of its Affiliates other than
compensation  for board  service or benefits  under a  tax-qualified  retirement
plan,  (iii) being a member of the immediate  family of an individual who at any
time  during  the  year in which  such  director  was  elected  to the  Board of
Directors  of the  Company  is, or has been at any time  during any of the three
calendar years  preceding the year of such election,  employed by the Company or
any of its  Affiliates  as an executive  officer,  (iv) being a partner in, or a
controlling  shareholder or an executive officer of, any for-profit organization
to which the Company or any of its  Affiliates  made,  or from which the Company
received,  payments  (other than those arising  solely from  investments  in the
Company's  securities)  that exceed  five  percent  (5%) of such  organization's
consolidated  gross  revenues for that year, or $200,000,  whichever is more, at
any time during any of the three calendar  years  preceding the year of election
of the director to the Company's  Board of Directors,  and (v) being employed as
an executive of another company where any of the Company's  executives  serve on
such other company's compensation committee.

     "Interest" shall have the meaning given to such term in the first paragraph
of this Secured
Note.

                  "Isosceles" shall mean Isosceles Fund Ltd.

                  "Lien" shall mean,  with respect to any asset,  any  mortgage,
lien, pledge,  encumbrance,  right of first refusal, charge or security interest
of any kind in or on such asset or the revenues or income thereon or therefrom.

                  "Material  Adverse  Effect"  shall mean,  with  respect to the
Company and its  Subsidiaries  taken as a whole,  any material adverse effect on
the  ability  of the  Company  or  the  Subsidiaries  to  perform  any of  their
obligations under any Transaction Document.

                  "Maturity  Date" shall have the meaning  given to such term in
the first paragraph of this Secured Note.

     "Merger" shall have the meaning set forth in Section 8.6(c) hereof.

                "NEC" shall mean NEC Technologies, Inc., a Delaware corporation.

                  "NewCom" shall mean NewCom, Inc., a Delaware corporation.

                  "Non-Core  Assets"  shall mean those assets and  properties of
the Company or any of its Subsidiaries which are not used in connection with, or
related to, directly or indirectly,  the AuraGen  business of the Company or any
aspect  thereof,  including,  without  limitation,  the  capital  stock  of  any
Subsidiary  so  long  as  neither  such  Subsidiary  nor  any of its  assets  or
properties  are used  directly  or  indirectly  in the  conduct  of the  AuraGen
business or any aspect thereof.

     "Notice of  Conversion"  shall have the  meaning  set forth in Section  8.1
hereof.

                  "Obligations"  shall mean all present and future  obligations,
liabilities  and other amounts owing to the Holder pursuant to this or any other
Secured Note or any other Transaction Document.

                  "Option" shall mean any subscription,  option, warrant, right,
security, Contract, commitment,  understanding,  or stock appreciation,  phantom
stock option,  profit participation or arrangement by which the Company is bound
to issue any additional  shares of its capital stock or rights pursuant to which
any Person has a right to purchase shares of the Company's capital stock.

                  "Order" shall mean any decree,  order,  judgment,  injunction,
rule, ruling, Lien, voting right, or consent of or by an Authority.

     "OSHA" shall mean the Occupational Safety and Health Administration.

                  "PBGC"  shall mean the Pension  Benefit  Guaranty  Corporation
established pursuant to Section 4002 of ERISA, or any successor thereto.

                  "Permits"  shall mean all  permits,  licenses,  registrations,
certificates, Orders or approvals from any Authority or other Person (including,
without  limitation,  those  relating to the occupancy or use of owned or leased
real property) issued to or held by the Company.

                  "Permitted Liens" shall have the meaning given to such term in
Section 4.1 hereof.

                  "Person"   shall  mean  an   individual   or  a   corporation,
partnership,  trust, incorporated or unincorporated association,  joint venture,
limited  liability  company,  joint stock  company,  government (or an agency or
political subdivision thereof) or other entity of any kind.

                  "Plan"  shall mean any pension plan as defined in Section 3(2)
of ERISA  which is  maintained  or  contributed  to by (or to which  there is an
obligation  to  contribute  of) the Company or a Subsidiary of the Company or an
ERISA  Affiliate,  and each  such  plan  for the  five-year  period  immediately
following  the latest date on which the Company,  or a Subsidiary of the Company
or an  ERISA  Affiliate  maintained,  contributed  to or  had an  obligation  to
contribute to such plan.

                  "Preferred Stock" shall have the meaning given to such term in
Section 3.15 hereof.

                  "Proprietary  Rights"  shall  mean  all  (i)  patents,  patent
applications,    patent    disclosures    and    all    related    continuation,
continuation-in-part,   divisional,  reissue,  reexamination,   utility,  model,
certificate of invention and design patents, patent applications,  registrations
and applications for registrations, (ii) trademarks, service marks, trade dress,
logos,  trade names and corporate names and  registrations  and applications for
registration  thereof,  (iii) copyrights and  registrations and applications for
registration  thereof,  (iv) mask works and  registrations  and applications for
registration thereof, (v) computer software, data and documentation,  (vi) trade
secrets  and   confidential   business   information,   whether   patentable  or
unpatentable and whether or not reduced to practice, know-how, manufacturing and
production  processes  and  techniques,  research and  development  information,
copyrightable  works,  financial,  marketing and business data, pricing and cost
information,  business and marketing  plans and customer and supplier  lists and
information, (vii) other proprietary rights relating to any of the foregoing and
(viii) copies and tangible embodiments thereof.

                  "Prospectus"   shall  mean  the   prospectus   included  in  a
Registration Statement,  including any prospectus subject to completion, and any
such  Prospectus as amended or  supplemented  by any prospectus  supplement with
respect to the terms of the  offering  of any portion of the Shares and, in each
case, by all other  amendments  and  supplements to such  prospectus,  including
post-effective  amendments, and in each case including all material incorporated
by reference therein.

                  "Registration Statement" shall mean any registration statement
of  the  Company  which  covers  any of  the  Shares,  and  all  amendments  and
supplements  to  any  such  Registration  Statement,   including  post-effective
amendments,  in each  case  including  the  Prospectus  contained  therein,  all
exhibits thereto and all material incorporated by reference therein.

                  "Regulation"   shall  mean  any  rule,  law,  code,   statute,
regulation, ordinance,  requirement,  announcement or other binding action of or
by an Authority.

                  "Reportable  Event"  shall mean an event  described in Section
4043(c)  of ERISA  with  respect  to a Plan that is subject to Title IV of ERISA
other than those  events as to which the 30-day  notice  period is waived  under
subsection .22, .23, .25, .27 or .28 of PBGC Regulation Section 4043.

     "Restructuring"  shall mean the  restructuring  of the Company's  financial
affairs.

                  "Rose Glen"  shall mean RGC  International  Investors,  LDC, a
limited duration company of the Cayman Islands.

     "SEC Documents" shall have the meaning set forth in Section 2.23 hereof.

                  "Secured  Note" shall mean this Secured  Note, as the same may
be  amended,  modified  or  supplemented  and any  replacement  or  substitution
therefor.

     "Securities  Act" shall mean the United States  Securities  Act of 1933, as
amended from time to time.

                  "Security   Agreement"   shall  mean  that  certain   Security
Agreement of even date  herewith  executed and  delivered by the Company and the
Agent, as the same may be amended, modified or supplemented.

                  "Security  Documents"  shall mean (i) the Security  Agreement,
(ii) the Stock Pledge Agreement, and (iii) all other documents, certificates and
instruments executed and delivered in connection with any of the foregoing.

                  "Shares"  shall  mean  shares  of Common  Stock  issued to the
Holder upon conversion of this Secured Note or exercise of the Warrants.

                  "Stock Pledge  Agreement" shall mean that certain Stock Pledge
Agreement of even date  herewith  executed and  delivered by the Company and the
Agent, as the same may be amended, modified or supplemented.

                  "Subsidiaries"  has the meaning  given to such term in Section
2.1 hereof;  provided,  however,  that for purposes of this Secured Note and the
other Transaction Documents, the term "Subsidiaries" shall not include NewCom.

                  "Taxes" shall mean any taxes,  including,  without limitation,
income, gross receipts, net proceeds, alternative or add-on minimum, ad valorem,
value added,  turnover,  sales, use,  property,  personal property (tangible and
intangible),  stamp, leasing,  lease, user, excise, duty,  franchise,  transfer,
license,  withholding,  payroll,  employment,  foreign,  fuel,  excess  profits,
occupational and interest equalization,  windfall profits,  severance, and other
charges (including interest and penalties).

                  "Trading  Day" shall mean (i) a day on which the Common  Stock
is traded  on the  Nasdaq  Stock  Market,  Inc.  or  Nasdaq  SmallCap  Market or
principal national  securities  exchange or market on which the Common Stock has
been  listed or quoted,  or (ii) if the Common  Stock is not listed or quoted on
the  Nasdaq  Stock  Market,  Inc.  or Nasdaq  SmallCap  Market or any  principal
national  securities  exchange  or market,  a day on which the  Common  Stock is
traded in the  over-the-counter  market,  as reported by the National  Quotation
Bureau  Incorporated  (or any  similar  organization  or agency  succeeding  its
functions of reporting prices).

                  "Transaction  Documents"  shall  mean  and  include  (i)  this
Secured Note, (ii) the Security Documents, (iii) the Guaranty, (iv) the Exchange
Agreement and (v) all other documents, certificates and instruments executed and
delivered in connection with any of the foregoing.

                  "UCC" shall mean the Uniform  Commercial  Code as from time to
time in effect in the relevant jurisdiction.

                  "Unfunded  Current  Liability"  of any  Plan  shall  mean  the
amount,  if any, by which the value of the  accumulated  plan benefits under the
Plan  determined  on a plan  termination  basis  in  accordance  with  actuarial
assumptions  at such  time  consistent  with  those  prescribed  by the PBGC for
purposes of Section  4044 of ERISA,  exceeds  the fair market  value of all plan
assets  allocable to such  liabilities  under Title IV of ERISA  (excluding  any
accrued but unpaid  contributions).  "Warrants"  shall mean the Warrants of even
date herewith to purchase Common Stock at an exercise price of $0.375 per share.

                  "Working  Capital   Indebtedness"   shall  mean   Indebtedness
incurred by the Company for working capital purposes, on commercially reasonable
terms,  in arm's length  transactions  and approved in each case by no less than
two-thirds  (2/3) of the Board of  Directors  of the  Company  (composed  in the
manner set forth in Section 3.12(a) hereof) prior to the incurrence thereof.

                  "Year  2000  Compliant"  shall  mean (i) with  respect to Date
Data,  that such  data is in proper  format  and  accurate  for all dates in the
twentieth and twenty-first  centuries,  and (ii) with respect to  Date-Sensitive
Systems, that each such system accurately processes all Date Data, including for
the twentieth and twenty-first  centuries,  without loss or any functionality or
performance,  including but not limited to calculating,  comparing,  sequencing,
storing and displaying such Date Data (including all leap year  considerations),
when used as a  stand-alone  system or in  combination  with other  software  or
hardware.

                  1.2.     Principles of Construction.

                  (a) All references to sections,  schedules and exhibits are to
sections,  schedules  and exhibits in or to this  Secured Note unless  otherwise
specified.  The words  "hereof,"  "herein" and  "hereunder" and words of similar
import  when used in this  Secured  Note shall refer to this  Secured  Note as a
whole and not to any particular provision of this Secured Note.

                  (b) All accounting terms not specifically defined herein shall
be  construed  in  accordance  with GAAP in  conformity  with  those used in the
preparation of the financial statements described in Section 3.1 hereof.

                  SECTION 2.        Representations and Warranties.

                  In order to induce the Holder to accept this Secured Note, the
Company makes the following  representations,  warranties and agreements, all of
which shall  survive the issuance and  delivery of this Secured  Note,  with the
occurrence  of the  issuance  and  delivery of this Secured Note being deemed to
constitute  a  representation  and warranty  that the matters  specified in this
Section  2 are  true  and  correct  in all  material  respects  on and as of the
Execution  Date (it being  understood  and  agreed  that any  representation  or
warranty  which by its terms is made as of a specified date shall be required to
be true and correct in all material respects only as of such specified date):

                  2.1. Corporate Status. Each of the Company,  Aura Ceramics and
AuraSound is a  corporation,  duly  incorporated,  validly  existing and in good
standing under the laws of the State of Delaware,  with the requisite  corporate
power and authority to own and use its properties and assets and to transact the
business in which it is engaged and  presently  proposes to engage.  The Company
has no subsidiaries  or equity  investment in any other Person other than as set
forth in Schedule 2.1 hereto  (collectively,  the "Subsidiaries"),  and the only
Subsidiaries  with assets or property  having more than  minimal  value are Aura
Ceramics, AuraSound and Aura Realty.

                  2.2. Corporate Power and Authority;  Enforcement.  Each of the
Company,  Aura  Ceramics and AuraSound  has the  requisite  corporate  power and
authority  to execute,  deliver and  perform  the terms and  provisions  of each
Transaction  Document  to  which  it is a party  and  has  taken  all  necessary
corporate  action to authorize the execution,  delivery and performance by it of
such Transaction Document.  Each of the Company, Aura Ceramics and AuraSound has
duly executed and delivered  each  Transaction  Document to which it is a party,
and each such  Transaction  Document  constitutes  the legal,  valid and binding
obligation of the Company, Aura Ceramics and AuraSound enforceable in accordance
with its terms,  except to the extent  that the  enforceability  thereof  may be
limited  by  applicable  bankruptcy,  insolvency,  reorganization,   moratorium,
liquidation or similar laws relating to, or affecting  generally the enforcement
of, creditors'  rights and remedies or by other equitable  principles of general
application (regardless of whether enforcement is sought in equity or at law).

                  2.3.  Capitalization.  The authorized,  issued and outstanding
capital stock of the Company and its  Subsidiaries  is set forth on Schedule 2.3
hereto (as may be  supplemented  in  accordance  with Section 3.19  hereof).  No
shares of Common Stock are entitled to preemptive or similar rights.  Except for
the Secured  Notes and as  otherwise  specifically  disclosed  in  Schedule  2.3
hereto, there are no outstanding Options,  warrants,  script rights to subscribe
to, calls or commitments of any character whatsoever relating to, or securities,
rights or obligations convertible into or exchangeable for, or giving any Person
any right to subscribe for or acquire any shares of capital stock of the Company
or  any of its  Subsidiaries,  or  contracts,  commitments,  understandings,  or
arrangements  by which the Company or any  Subsidiary  is or may become bound to
issue additional shares of Common Stock, or securities or rights  convertible or
exchangeable into shares of Common Stock. Neither the Company, Aura Ceramics nor
AuraSound is in violation of any of the provisions of its respective certificate
of incorporation, bylaws or other charter or similar organizational documents.

                  2.4. Issuance of Secured Note. This Secured Note has been duly
and validly  authorized,  issued and delivered and constitutes the legal,  valid
and binding  obligation of the Company  enforceable in accordance with its terms
free and clear of all Liens.

                  2.5.  No  Violation.   Neither  the  execution,   delivery  or
performance by the Company of this Secured Note or Warrants or of the Company or
any of its Subsidiaries of any of the other Transaction Documents nor compliance
by any of them  with the  terms  and  provisions  hereof  and  thereof,  nor the
consummation  of the  transactions  contemplated  hereby  or  thereby,  will (i)
contravene any applicable provision of any law, statute, rule or regulation,  or
any order, writ, judgment,  injunction, decree or other restriction of any court
or Authority (including federal and state securities laws and regulations), (ii)
conflict or be inconsistent  with, or result in any breach of, any of the terms,
covenants,  conditions  or  provisions  of, or constitute a default (or an event
which with  notice or lapse of time or both would  become a default)  under,  or
give  to  others  any  rights  of   termination,   amendment,   acceleration  or
cancellation  of, or result in the creation or imposition of (or the  obligation
to create or impose) any Lien upon any of the  property or assets of the Company
or its Subsidiaries  pursuant to the terms of any indenture,  mortgage,  deed of
trust,  loan  agreement,  credit  agreement  or any  other  material  agreement,
Contract  or  instrument  to which the Company or any of its  Subsidiaries  is a
party or by which it or any of its  property or assets is bound,  affected or to
which it may be subject (but not  including any default  arising under  Existing
Secured  Indebtedness  of the Company  owed to Imperial  Bank as a result of the
granting of Liens under the Security Documents in respect of the Secured Notes),
or (iii)  conflict  or be  inconsistent  with or violate  any  provision  of the
certificate of incorporation,  bylaws or other charter or similar organizational
document (each as amended  through the date hereof) of the Company or any of its
Subsidiaries.  The businesses of the Company and its Subsidiaries have not been,
and are not  currently  being,  conducted in violation of any law,  ordinance or
regulation of any Authority, except for violations which, individually or in the
aggregate,  do not have, or could not reasonably be expected to have, a Material
Adverse Effect.

                  2.6. Consents and Approvals. No consent, waiver, authorization
or order of, or any filing or  registration  with,  any court or other  federal,
state, local or other governmental Authority or other Person (except (A) as have
been obtained or made on or prior to the Execution Date and which remain in full
force and effect on such date and (B) for the filing  and  effectiveness  of the
Registration  Statement  referred  to in Section  3.14  hereof) is  required  to
authorize,  or is required in connection  with, (i) the execution,  delivery and
performance of any Transaction Document or (ii) the legality,  validity, binding
effect or enforceability of any such Transaction Document.

     2.7. Financial Statements;  Financial Condition;  Undisclosed  Liabilities;
Projections; etc.

                  (a) The audited  consolidated  year-end  balance sheets of the
Company  for each of the  fiscal  years  ended  February  28,  1998 and 1997 and
related consolidated statements of income, cash flow and shareholders' equity of
the  Company and its  Subsidiaries  for the fiscal  years,  ended on such dates,
copies of which  are  attached  hereto as  Schedule  2.7(a)  (collectively,  the
"Financial  Statements"),  fairly present the financial condition of the Company
and its  Subsidiaries  as of such  dates  and the  consolidated  results  of the
operations of the Company and its Subsidiaries for such fiscal years. All of the
foregoing  financial  statements  have been prepared (i) in accordance with GAAP
(except as stated  therein or in the notes  thereto) and (ii) from the books and
records of the Company,  except that the unaudited financial  statements have no
notes attached thereto and do not have year-end adjustments (none of which would
be recurring).  All properties used in the Company's  business  operations as of
each  Financial  Statement  date are  reflected in the  Financial  Statements in
accordance with and to the extent required by GAAP.

                  (b) On and as of the  Execution  Date and after giving  effect
hereto,  the  Restructuring  and  to  all  Indebtedness   (including  under  the
Transaction  Documents)  being  incurred  or  assumed  by the  Company  and  its
Subsidiaries in connection therewith, (i) the sum of the tangible and intangible
assets,  at a fair valuation,  of the Company and Aura Ceramics on a stand-alone
basis and of the Company and its Subsidiaries taken as a whole will exceed their
debts; (ii) the Company and Aura Ceramics on a stand-alone basis and the Company
and its  Subsidiaries  taken as a whole have not  incurred  and do not intend to
incur,  and do not believe that they will incur,  debts beyond their  ability to
pay such debts as such debts mature;  and (iii) the Company and Aura Ceramics on
a stand-alone  basis and the Company and its Subsidiaries  taken as a whole will
have sufficient  capital with which to conduct their  businesses.  The amount of
Contingent  Obligations  at any time shall be  computed as the amount  that,  in
light of all the facts and circumstances  existing at such time,  represents the
amount that can reasonably be expected to become an actual or matured liability.
A copy of the pro forma  consolidated  balance sheet of the Company after giving
effect hereto, to the Restructuring and to all Indebtedness (including under the
Transaction  Documents)  being  incurred  or  assumed  by the  Company  and  its
Subsidiaries  in  connection  therewith  is attached  hereto as Schedule  2.7(b)
hereto.

                  (c) Except as fully disclosed in the Financial  Statements and
Schedule  2.11  hereto,  there were as of the  Execution  Date no  Indebtedness,
liabilities  or  obligations   with  respect  to  the  Company  or  any  of  its
Subsidiaries of any nature whatsoever  (whether absolute,  accrued,  contingent,
unliquidated or otherwise,  known or unknown to the Company, whether or not due)
which,  either  individually or in the aggregate,  have, or could  reasonably be
expected to have, a Material  Adverse  Effect.  As of the  Execution  Date,  the
Company  does not know of any basis for the  assertion  against it or any of its
Subsidiaries  of  any  Indebtedness,  liability  or  obligation  of  any  nature
whatsoever that is not fully  disclosed in the Financial  Statements or Schedule
2.11  hereto  which,  either  individually  or in the  aggregate,  has, or could
reasonably be expected to have, a Material Adverse Effect.

                  (d) The  projections  delivered to the Agent on the  Execution
Date have been prepared in good faith and are based on  reasonable  assumptions,
and there are no statements or  conclusions in the  projections  which are based
upon or  include  information  known  to the  Company  to be  misleading  in any
material respect or which fail to take into account material  information  known
to the Company regarding the matters reported therein. The Company believes that
the  projections  are  reasonable  and  attainable,  it being  recognized by the
Holder,  however,  that  projections as to future events are not to be viewed as
facts and that the actual  results  during the period or periods  covered by the
projections  may differ from the projected  results and that the differences may
be material.

                  2.8. Ranking.  The Obligations under this Secured Note and the
other Transaction Documents constitute unconditional secured Indebtedness of the
Company and the Guarantors,  and (with respect to the Company, Aura Ceramics and
AuraSound) rank and will rank (i) at least pari passu in priority of payment and
in all other respects with all other present and future secured  Indebtedness of
such Persons subject to the priority  rights of holders of (A) Existing  Secured
Indebtedness as of the Execution Date as set forth on Schedule 2.8(i)(A) hereto,
(B) validly created and fully perfected  senior secured  Indebtedness  permitted
under  Sections  4.5(c) and 4.5(d)  hereof  incurred  by the  Company  after the
Execution Date, and (C) obligations of the Company,  Aura Ceramics and AuraSound
existing on the  Execution  Date secured by valid and perfected  judgment  liens
against  such  Persons  as set forth in  Schedule  2.8(i)(C)  hereto;  provided,
however,  that the Company may  supplement  such  Schedule  2.8(i)(C) to reflect
judgment liens validly  created and fully  perfected  through the Execution Date
which  the  Company  had  no  knowledge  of  and  were  not  identified  in  UCC
certificates  set  forth  in  Schedule  2.8(i)(C),   and  senior  to  all  other
Indebtedness of such Persons.

                  2.9. Litigation; Proceedings. There is no action, suit, notice
of violation,  proceeding or  investigation  pending or, to the knowledge of the
Company,  threatened against or affecting the Company or any of its Subsidiaries
or  any of  their  respective  assets  or  properties  before  or by any  court,
governmental or administrative  agency or regulatory Authority (federal,  state,
county,  local or foreign)  which (A)  relates to or  challenges  the  legality,
validity or enforceability  hereof or of any of the Transaction  Documents or of
any transaction  contemplated hereby or thereby,  (B) could,  individually or in
the  aggregate,  adversely  impair such  Person's  ability to perform fully on a
timely basis its obligations under any of the Transaction Documents, or (C) has,
or could  reasonably  be expected to have,  a Material  Adverse  Effect from and
after the Execution Date (except for the DFS Claims).

                  2.10. No Default or Violation. On and as of the Execution Date
(except  as  otherwise  provided  herein,  in the  Transaction  Documents  or as
disclosed in Schedule 2.10 hereto),  neither the Company nor Aura Ceramics:  (i)
will be in  default  under or in  violation  of any  indenture,  loan or  credit
agreement or any other agreement  evidencing  Indebtedness of the Company or any
of its  Subsidiaries or any other agreement or instrument to which it is a party
or by which it or any of its  properties is bound (but not including any default
arising under Existing Secured Indebtedness of the Company owed to Imperial Bank
as a result of the granting of Liens under the Security  Documents in respect of
the  Secured  Notes),  (ii)  will be in  violation  of any  order of any  court,
arbitrator, governmental body or Authority, or (iii) will be in violation of any
statute,  rule or regulation of any Authority,  except as could not, in any such
case,  individually  or in the  aggregate,  (A)  adversely  affect the legality,
validity or enforceability of any transaction  contemplated hereby or any of the
Transaction Documents,  or (B) adversely impair such Person's ability to perform
fully on a timely basis its obligations  under any of the Transaction  Documents
or (C) has, or could reasonably be expected to have, a Material Adverse Effect.

                  2.11. Indebtedness. Schedule 2.11 hereto sets forth a true and
complete list (subject to variances not to exceed seven and one-half  percent (7
1/2%) in the aggregate) of all Indebtedness  (excluding  Indebtedness  under the
Secured  Notes  and  the  other  Transaction  Documents)  of the  Company,  Aura
Ceramics,  and Aura  Realty  as of the  Execution  Date and  which is to  remain
outstanding  (the "Existing  Indebtedness"),  in each case showing the aggregate
principal  amount thereof,  accrued  interest in respect thereof and the name of
any Person which directly or indirectly guaranteed such debt.

                  2.12. True and Complete  Disclosure.  All factual  information
(taken  as a whole)  furnished  by or on  behalf  of the  Company  or any of its
Subsidiaries in writing to the Agent or any Fund (including, without limitation,
all information  contained in the  Transaction  Documents) for purposes of or in
connection  with this  Secured  Note,  any  other  Transaction  Document  or any
transaction  contemplated  hereby or  thereby  is,  and all other  such  factual
information  (taken  as a whole)  hereafter  furnished  by or on  behalf  of the
Company or any of its  Subsidiaries  in writing to the Agent or any Fund will be
true  and  accurate  in all  material  respects  on the  date as of  which  such
information  is dated or certified  and not  incomplete by omitting to state any
fact necessary to make such information (taken as a whole) not misleading in any
material  respect at such time in light of the  circumstances  under  which such
information  was provided.  There is no fact which the Company has not disclosed
to the Agent or the Funds herein and of which the Company, its Subsidiaries,  or
any of their respective officers,  directors or executive employees is aware and
which has, or could reasonably be expected to have, a Material Adverse Effect.

                  2.13.  Tax  Returns  and  Payments.  Except  as  disclosed  in
Schedule 2.13 hereto,  each of the Company,  Aura  Ceramics,  AuraSound and Aura
Realty (i) has filed all income tax returns and all other  material tax returns,
domestic and foreign, required to be filed by it and has paid all material taxes
and assessments  payable by it which have become due, except for those contested
in good faith and  adequately  disclosed and fully provided for on its financial
statements  in  accordance  with GAAP,  and (ii) has at all times  paid,  or has
provided adequate reserves (in the good faith judgment of the management of such
Person) for the payment of, all income  taxes  applicable  for all prior  fiscal
years and for the current  fiscal year to date.  Except as disclosed in Schedule
2.13  hereto,  there is no material  action,  suit,  proceeding,  investigation,
audit, or claim now pending or, to the knowledge of the Company,  Aura Ceramics,
AuraSound,  or Aura Realty,  threatened  by any  Authority  regarding  any taxes
relating to such Person.  As of the Execution  Date,  neither the Company,  Aura
Ceramics,  AuraSound, nor Aura Realty has entered into an agreement or waiver or
been  requested to enter into an agreement  or waiver  extending  any statute of
limitations relating to the payment or collection of taxes of such Person, or is
aware of any  circumstances  that would cause the taxable years or other taxable
periods of such Person not to be subject to the normally  applicable  statute of
limitations.

                  2.14.    Compliance with ERISA.

                  (a) Schedule 2.14 hereto sets forth each Plan;  each Plan (and
each related trust,  insurance  contract or fund) is in  substantial  compliance
with its terms and with all  applicable  laws,  including,  without  limitation,
ERISA and the Code; each Plan (and each related trust, if any) which is intended
to be qualified  under Section  401(a) of the Code has received a  determination
letter  from the  Internal  Revenue  Service  to the  effect  that it meets  the
requirements of Sections 401(a) and 501(a) of the Code; no Reportable  Event has
occurred;  no  Plan  which  is a  multiemployer  plan  (as  defined  in  Section
4001(a)(3) of ERISA) is insolvent or in reorganization;  no Plan has an Unfunded
Current  Liability;  no Plan  which is  subject  to  Section  412 of the Code or
Section 302 of ERISA has an accumulated funding  deficiency,  within the meaning
of such  sections of the Code or ERISA,  or has applied for or received a waiver
of an accumulated funding deficiency or an extension of any amortization period,
within the  meaning of Section  412 of the Code or Section  303 or 304 of ERISA;
all  contributions  required  to be made with  respect to a Plan have been made;
neither the Company nor any  Subsidiary  of the Company nor any ERISA  Affiliate
has incurred any material  liability  (including  any  indirect,  contingent  or
secondary liability) to or on account of a Plan pursuant to Section 409, 502(i),
502(l),  515, 4062,  4063,  4064,  4069,  4201, 4204 or 4212 of ERISA or Section
401(a)(29),  4971 or 4975 of the Code or  expects  to incur  any such  liability
under any of the  foregoing  sections  with  respect to any Plan;  no  condition
exists which  presents a material  risk to the Company or any  Subsidiary of the
Company or any ERISA  Affiliate  of  incurring a liability to or on account of a
Plan pursuant to the foregoing  provisions of ERISA and the Code; no proceedings
have been  instituted to terminate or appoint a trustee to  administer  any Plan
which is subject to Title IV of ERISA;  no action,  suit,  proceeding,  hearing,
audit or  investigation  with  respect to the  administration,  operation or the
investment  of assets of any Plan (other than  routine  claims for  benefits) is
pending,  expected or threatened;  using  actuarial  assumptions and computation
methods consistent with Part 1 of subtitle E of Title IV of ERISA, the aggregate
liabilities of the Company and its  Subsidiaries and its ERISA Affiliates to all
Plans which are multiemployer  plans (as defined in Section 4001(a)(3) of ERISA)
in the event of a  complete  withdrawal  therefrom,  as of the close of the most
recent  fiscal year of each such Plan ended prior to the Execution  Date,  would
not exceed  $100,000;  each group  health plan (as defined in Section  607(1) of
ERISA or Section  4980B(g)(2) of the Code) which covers or has covered employees
or former employees of the Company,  any Subsidiary of the Company, or any ERISA
Affiliate has at all times been operated in  compliance  with the  provisions of
Part 6 of subtitle B of Title I of ERISA and Section  4980B of the Code; no lien
imposed  under the Code or ERISA on the assets of the Company or any  Subsidiary
of the Company or any ERISA Affiliate exists or is likely to arise on account of
any Plan; and the Company and its  Subsidiaries  may cease  contributions  to or
terminate any employee benefit plan maintained by any of them without  incurring
any material liability.

                  (b) Neither the  Company nor any of its  Subsidiaries  has, or
has ever had, a Foreign Pension Plan.

                  2.15.   Compliance   with   Law  and   Applicable   Government
Regulations. Each of the Company and its Subsidiaries is presently in compliance
with regard to its operations,  practices,  real property,  plants,  structures,
machinery,  equipment and other property, and all other aspects of its business,
with all applicable Regulations and Orders,  including,  but not limited to, all
Regulations relating to the safe conduct of business,  environmental protection,
quality and labeling,  antitrust, Taxes, consumer protection, equal opportunity,
discrimination,  health,  sanitation,  fire,  zoning,  building and occupational
safety, except for such non-compliances which, individually or in the aggregate,
would not have,  nor could  reasonably  be expected to have, a Material  Adverse
Effect. There are no Claims pending or, to the Company's knowledge,  threatened,
nor has the Company  received any written notice regarding any violations of any
Regulations  or Orders  enforced by any Authority  including any  requirement of
OSHA or any pollution and environmental control agency (including air and water)
which have, or could reasonably be expected to have, a Material Adverse Effect.

                  2.16.  Security  Documents.  The  provisions  of  each  of the
Security  Documents will, on the Closing Date, create in favor of the Agent, for
the benefit of the Funds,  as security for the  Obligations  hereunder and under
all other Exchange  Documents,  a valid  security  interest in all of the right,
title and interest of the relevant assignor or pledgor  thereunder in and to the
Collateral described therein and, with respect to the Company, Aura Ceramics and
AuraSound,  superior to all Liens  subject to the priority  rights of holders of
Permitted  Liens of the types  described  in clauses  (c) and (i) of Section 4.1
(and any extension,  renewal or replacement  thereof to the extent  permitted by
Section 4.1(k)).

                  2.17.  Investment  Company Act. Neither the Company nor any of
its  Subsidiaries  is an "investment  company" or a company  "controlled"  by an
"investment company," within the meaning of the United States Investment Company
Act of 1940, as amended.

                  2.18.  Public Utility Holding Company Act. Neither the Company
nor any of its Subsidiaries is a "holding company," or a "subsidiary company" of
a "holding company," or an "affiliate" of a "holding company" within the meaning
of the United States Public Utility Holding Company Act of 1935, as amended.

                  2.19.   Labor   Relations.   Each  of  the   Company  and  its
Subsidiaries is on the Execution Date in compliance with all federal,  state and
local  Regulations  or Orders  affecting  employment  and  employment  practices
applicable to each such Person, including terms and conditions of employment and
wages and hours, except for certain failure to make salary or other compensation
payments to management and such  non-compliances  which,  individually or in the
aggregate,  would not have, nor could reasonably be expected to have, a Material
Adverse Effect.  The Company and its Subsidiaries  have on the Execution Date no
collective  bargaining agreements and there have been no strikes, work stoppages
or any demands for  collective  bargaining  by any union or labor  organization.
Neither the Company nor any of its Subsidiaries is engaged on the Execution Date
in any unfair labor practice that has, or could  reasonably be expected to have,
a Material Adverse Effect. There is as of the Execution Date (A) no unfair labor
practice complaint pending against the Company or any of its Subsidiaries or, to
the best knowledge of the Company,  threatened against the Company or any of its
Subsidiaries, and no grievance or arbitration proceeding arising out of or under
any collective bargaining agreement is pending against the Company or any of its
Subsidiaries  or, to the best knowledge of the Company,  threatened  against the
Company or any of its Subsidiaries,  (B) no strike,  labor dispute,  slowdown or
stoppage  pending against the Company or any of its Subsidiaries or, to the best
knowledge  of  the  Company,  threatened  against  the  Company  or  any  of its
Subsidiaries   and  (C)  to  the  best  knowledge  of  the  Company,   no  union
representation question existing with respect to the employees of the Company or
any of its  Subsidiaries  and, to the best  knowledge of the  Company,  no union
organizing  activities  are taking  place,  except  (with  respect to any matter
specified  in  clause  (A),  (B) or (C)  above,  either  individually  or in the
aggregate)  which does not have,  nor could  reasonably  be expected to have,  a
Material Adverse Effect.

                  2.20. Proprietary Rights,  Licenses,  Franchises and Formulas.
Each of the Company and its Subsidiaries owns all Proprietary Rights,  licenses,
franchises and formulas, or rights with respect to any of the foregoing, and has
obtained assignments of all leases and other rights of whatever nature necessary
for the present  conduct of its  business,  without any known  conflict with the
rights of others which, or the failure to obtain which, as the case may be, has,
or could reasonably be expected to have, a Material Adverse Effect.  To the best
knowledge  of the  Company,  no claim is pending  that the Company or any of its
Subsidiaries  infringes  upon the asserted  rights of any other Person under any
intellectual property, except for claims which could not, individually or in the
aggregate, have, or could not reasonably be expected to have, a Material Adverse
Effect.  To the best  knowledge  of the  Company,  no claim is pending that such
intellectual   property  owned  or  licensed  by  the  Company  or  any  of  its
Subsidiaries or which such Person  otherwise has the right to use is invalid and
unenforceable,  except  for  claims  which  could  not,  individually  or in the
aggregate,  have,  or reasonably  could be expected to have, a Material  Adverse
Effect.  The consummation of the transactions  contemplated  hereby or by any of
the other  Transaction  Documents  will not alter or  impair  any  rights of the
Company or any of its  Subsidiaries  to use any  intellectual  property in a way
that would not, individually or in the aggregate,  have, or could not reasonably
be expected to have,  a Material  Adverse  Effect.  The Company is the legal and
beneficial  owner of all  right,  title  and  interest  in,  to,  and  under the
Proprietary Rights with respect to AuraGen, and the Company has not entered into
any  agreement or  understanding  with any Person  concerning  any sale,  lease,
transfer,  option, license,  assignment or other disposition of such Proprietary
Rights.

                  2.21.  Certain Fees. No fees or commission  will be payable by
the Company to any broker, finder, investment banker or bank with respect to the
consummation  of the  transactions  contemplated  hereby  or by any of the other
Transaction Documents.

                  2.22. Private Offering.  The offer,  issuance and sale of this
Secured Note are exempt from registration  under the Securities Act or any state
securities  or blue sky law.  Neither the  Company nor any person  acting on its
behalf has taken or will take any action  (including,  without  limitation,  any
offering  of any  securities  of the  Company  under  circumstances  which would
require the  integration of such offering with the offering of this Secured Note
under the Securities Act) which might subject the offering,  issuance or sale of
this Secured Note to the registration requirements of the Securities Act.

                  2.23.  SEC  Documents.  Attached  hereto as Schedule 2.23 is a
true and complete list of all forms,  reports and documents required to be filed
by the Company and its Subsidiaries  under the Exchange Act,  including pursuant
to Section 13(a) or 15(d) thereof (the "SEC  Documents"),  which the Company has
failed to file as of the Execution Date.

                  2.24.  Directors and  Management  Compensation.  Schedule 2.24
hereto sets forth a list of all officers,  directors and key employees  (meaning
those earning more than $50,000.00  annually  including all bonuses and non-cash
consideration) of the Company and its Subsidiaries,  together with a description
of their  respective  positions and total  compensation  and a list of all other
outstanding  obligations owed by the Company to each of such Persons.  On and as
of the  Execution  Date,  the  Company  and its  Subsidiaries  will not have any
liability to any of their employees,  officers or directors (except as set forth
in Schedule 2.24(i)) other than for the payment of salaries and director fees to
be paid in the ordinary course of business.

                  2.25.  Absence of Certain  Changes.  Since  November 30, 1998,
except as fully disclosed on Schedule 2.25 hereto or otherwise  provided in this
Secured  Note,  there  has not  been  any (a)  material  adverse  change  in the
business,  operations,  properties,  assets, condition (financial or otherwise),
results,   plans,  strategies  or  prospects  of  the  Company  or  any  of  its
Subsidiaries  which has, or could  reasonably  be  expected to have,  a Material
Adverse Effect; (b) damage, destruction or loss, whether covered by insurance or
not,  which has, or could  reasonably  be expected to have,  a Material  Adverse
Effect with regard to the  Company's  or any of its  Subsidiaries'  property and
business;  (c)  declaration,  setting  aside  or  payment  of  any  dividend  or
distribution (whether in cash, stock or property) in respect of the Company's or
any of its  Subsidiaries'  capital stock, or any redemption or other acquisition
of such stock by the  Company or any of its  Subsidiaries;  (d)  increase in the
compensation  payable  to or to  become  payable  by the  Company  or any of its
Subsidiaries to its officers,  Insiders or employees (other than in the ordinary
course) or any adoption of or increase in any bonus, insurance, pension or other
employee  benefit  plan,  payment or  arrangement  made to, for or with any such
officers,  Insiders  or  employees  (other than in the  ordinary  course) or any
Affiliate of the Company or any of its Subsidiaries; (e) entry into any material
Contract not in the ordinary course of business,  including, without limitation,
any  borrowing or capital  expenditure;  (f) change by the Company or any of its
Subsidiaries in accounting methods or principles;  or (g) consensual Lien placed
on any property of the Company or any of its  Subsidiaries  other than Permitted
Liens.

                  2.26. Year 2000 Compliance.  As of the Execution Date,  except
as set forth on Schedule 2.26 hereto, all Date Data and Date-Sensitive  Systems,
if any, of the Company and its Subsidiaries are Year 2000 Compliant. The Company
and its Subsidiaries  have obtained written  representations  or assurances from
each  entity  that  (x)  provides  Date  Data  to  the  Company  or  any  of its
Subsidiaries,  or (y)  processes  in any way Date Data for the Company or any of
its  Subsidiaries or otherwise  provides any material  product or service to the
Company or any of its Subsidiaries that is dependent on Year 2000 Compliant Date
Data or a Year 2000 Compliant  Date-Sensitive  System, that all of such entity's
Date Data and  Date-Sensitive  Systems  that are used for,  or on behalf of, the
Company or any of its Subsidiaries are Year 2000 Compliant.

                  2.27. Capital  Expenditures and Investments.  Each Contract of
the  Company  and its  Subsidiaries  for capital  expenditures  and  investments
involving  $50,000 or more entered  into on or after  November 30, 1998 is fully
disclosed in Schedule 2.27 hereto.

                  2.28.  Dealings  with  Affiliates.  Schedule  2.28 hereto sets
forth a complete  and  accurate  list,  including  the  parties,  of all oral or
written Contracts to which the Company and its Subsidiaries are, will be or have
been a party,  at any time from November 30, 1998 to and including the Execution
Date, and to which any one or more of their  Affiliates is also a party.  Except
as set forth on Schedule 2.28 hereto,  since  November 30, 1998, the Company and
its  Subsidiaries  have not made any  payments,  loaned any funds or property or
made any credit arrangement with any Affiliate or employee of the Company or any
of its  Subsidiaries  except for the payment of employee  salaries  and director
compensation in the ordinary course of business.

                  2.29. Solicitation Materials.  The Company did not solicit any
offer  to buy or  sell  this  Secured  Note by  means  of any  form  of  general
solicitation or advertising.

                  2.30.  Aura  Ceramics.  On  and as of the  Closing  Date,  the
Company has not entered into any binding  agreement for the sale, lease or other
disposition of all or substantially all of the assets of Aura Ceramics.

     2.31.  Aura Tech.  Aura Tech,  Inc.  has no assets and has never  owned any
assets.

                  SECTION 3.        Affirmative Covenants.

                  The  Company  covenants  and  agrees  that  on and  after  the
Execution  Date and  until  this  Secured  Note has been  paid in full and is no
longer outstanding:

                  3.1. Information  Covenants.  It will furnish to the Agent for
distribution to the Holder and each of the Funds:

                  (a) Quarterly Financial  Statements.  As soon as available and
in any event within 45 days after the close of the first three  fiscal  quarters
in each  fiscal  year of the  Company  following  the  Execution  Date,  (i) the
consolidated  balance sheet of the Company as at the end of such fiscal  quarter
and the related  consolidated  statements  of income and  retained  earnings and
statement of cash flows, in each case setting forth comparative  figures for the
related  periods in the prior fiscal year,  all of which shall be in  reasonable
detail and certified by the Chief Financial Officer of the Company to the effect
that such financial  statements  have been prepared in accordance  with GAAP and
that  they  fairly  present  the  financial  condition  of the  Company  and its
Subsidiaries as of the dates  indicated and the results of their  operations and
changes  in their  cash  flows  for the  periods  indicated,  subject  to normal
year-end audit  adjustments  and the absence of footnotes and (ii)  management's
discussion and analysis of the important operational and financial  developments
during the  fiscal  quarter  and  year-to-date  periods in the form  customarily
prepared by management or as otherwise agreed with the Agent.

                  (b) Annual Financial  Statements.  As soon as available and in
any event  within 90 days  after the close of each  fiscal  year of the  Company
following the Execution Date, (i) the consolidated  balance sheet of the Company
as at the end of such  fiscal year and the related  consolidated  statements  of
income and retained  earnings and  statement of cash flows for such fiscal year,
in each case setting forth comparative budgeted figures for such fiscal year and
setting forth  comparative  consolidated  figures for the preceding fiscal year,
and  certified  by  a  firm  of  independent  certified  public  accountants  of
recognized  international  standing  as shall be  reasonably  acceptable  to the
Agent,  in each case to the  effect  that such  financial  statements  have been
prepared in accordance with GAAP and fairly present in all material respects the
financial  condition  of the  Company  and  its  Subsidiaries  as of  the  dates
indicated  and the  results  of  their  operations  and  cash  flows,  and  (ii)
management's  discussion and analysis of the important operational and financial
developments  during  such  fiscal  year,  in the form  customarily  prepared by
management or as otherwise agreed with the Agent.

                  (c) Officer's Certificates. At the time of the delivery of the
financial statements provided for in Section 3.1(a) or (b), a certificate of the
Chief  Financial  Officer of the Company to the effect that, to the best of such
officer's  knowledge,  no Event of Default has occurred and is continuing or, if
any Event of Default has occurred and is  continuing,  specifying the nature and
extent thereof.

                  (d) Notice of Default, Judgment or Litigation.  From and after
the  Execution  Date,  promptly  upon,  and in any event within 10 Business Days
after the Chief Executive Officer, the President, the Chief Financial Officer or
the General Counsel of the Company or any of its Subsidiaries  obtains knowledge
thereof, notice of (i) the occurrence of any event which constitutes an Event of
Default,  (ii) any judgment by or against the Company or any of its Subsidiaries
with respect to any material Indebtedness,  (iii) any notice of default given to
the  Company  or any of its  Subsidiaries  in respect  of any  Existing  Secured
Indebtedness,   and  (iv)  any  litigation  or  governmental   investigation  or
proceeding  commenced (x) against the Company or any of its  Subsidiaries  which
has, or could  reasonably be expected to have, a Material  Adverse  Effect,  (y)
with  respect  to  any  material  Indebtedness  of  the  Company  or  any of its
Subsidiaries or (z) with respect to any Transaction  Document or any transaction
contemplated hereby or thereby.

                  (e) Other  Reports and Filings.  Promptly  after the filing or
delivery thereof, copies of all financial information,  proxy materials, reports
and other material filings, if any, which the Company or any of its Subsidiaries
shall  publicly  file with any Authority  (including,  without  limitation,  the
Commission)  and  with  any  international  or  national   securities   exchange
(including, without limitation, the Nasdaq Stock Market, Inc.).

                  (f) Year 2000 Compliance. It will promptly notify the Agent in
the  event  that it  discovers  or  determines  that  any  computer  application
(including,  without  limitation,  those of its  suppliers  and vendors) that is
material to its or any of its Subsidiaries'  business and operations will not be
Year 2000  Compliant on a timely  basis,  except to the extent that such failure
does not have,  nor could  reasonably  be expected to have,  a Material  Adverse
Effect.

                  (g)  Other   Information.   From  time  to  time,  such  other
information  or documents  (financial or otherwise) as the Agent,  the Holder or
any Fund may reasonably request,  including,  without limitation,  the quarterly
financial  statements of any of the Company or any of its Subsidiaries  prepared
in accordance with the provisions of Section 3.1(a).

                  3.2. Books,  Records and Inspections.  It will, and will cause
each of its  Subsidiaries  to keep proper  books of record and accounts in which
full, true and correct  entries are made (and with respect to the Company,  Aura
Ceramics and Aura Realty in conformity  with GAAP) and all  requirements  of law
shall be made of all dealings and  transactions  in relation to its business and
activities. The Company will, and will cause each of its Subsidiaries to, permit
officers and designated  representatives of the Agent, the Holder or any Fund to
visit and inspect, under guidance of officers of the Company or such Subsidiary,
any of the  properties  of the  Company or such  Subsidiary,  and to examine the
books of account of the Company or such  Subsidiary  and  discuss  the  affairs,
finances and accounts of the Company or such Subsidiary  with, and be advised as
to the same by, its and their  officers and  independent  accountants,  all upon
reasonable  prior notice and at such reasonable  times and intervals and to such
reasonable extent as the Agent, the Holder or such Fund may reasonably request.

                  3.3.  Corporate  Existence and  Franchises.  Within sixty (60)
days  following  the Execution  Date, it will,  and will cause Aura Ceramics and
AuraSound  to, do or cause to be done all things  necessary to effect,  preserve
and keep in full force and effect its  existence  and its good  standing in each
jurisdiction  where the  ownership,  leasing or operation of its property or the
conduct of its business requires such qualification.

                  3.4.  Compliance  with Statutes,  etc. It will, and will cause
each of its  Subsidiaries to, comply with all applicable  statutes,  regulations
and orders of, and all  applicable  restrictions  imposed  by, all  governmental
Authorities,  domestic or foreign, in respect of the conduct of its business and
the  ownership  of its property  (including  applicable  statutes,  regulations,
orders and  restrictions  relating to  environmental  standards  and  controls),
except such noncompliances as could not, individually or in the aggregate, have,
or could reasonably be expected to have, a Material Adverse Effect.

                  3.5.  Compliance with Environmental  Laws. It will comply, and
will cause each of its Subsidiaries to comply, in all material respects with all
environmental  laws  applicable to the ownership or use of its real property now
or hereafter owned or operated by the Company or any of its  Subsidiaries,  will
promptly pay or cause to be paid all costs and expenses  incurred in  connection
with such  compliance,  and will keep or cause to be kept all such real property
free and clear of any Liens imposed pursuant to such environmental laws.

                  3.6. ERISA. As soon as possible and, in any event,  within ten
(10)  days  after  the  Company,  any  Subsidiary  of the  Company  or any ERISA
Affiliate knows or has reason to know of the occurrence of any of the following,
the  Company  will  deliver  to each of the  Funds a  certificate  of the  chief
financial  officer  of the  Company  setting  forth the full  details as to such
occurrence  and the action,  if any, that the Company,  such  Subsidiary or such
ERISA  Affiliate  is required or  proposes  to take,  together  with any notices
required or proposed to be given or filed by the Company,  such Subsidiary,  the
Plan  administrator  or such  ERISA  Affiliate  to or with the PBGC or any other
government  agency,  or a Plan  participant  and  any  notices  received  by the
Company,  such  Subsidiary  or  ERISA  Affiliate  from  the  PBGC  or any  other
government agency, or a Plan participant with respect thereto: that a Reportable
Event has  occurred  (except  to the  extent  that the  Company  has  previously
delivered to the Funds a certificate  and notices (if any) concerning such event
pursuant to the next clause hereof);  that a contributing sponsor (as defined in
Section  4001(a)(13) of ERISA) of a Plan subject to Title IV of ERISA is subject
to the advance reporting requirement of PBGC Regulation Section 4043.61 (without
regard to  subparagraph  (b)(1)  thereof),  and an event described in subsection
 .62,  .63,  .64,  .65,  .66,  .67 or .68 of  PBGC  Regulation  Section  4043  is
reasonably  expected to occur with respect to such Plan within the  following 30
days; that an accumulated funding deficiency,  within the meaning of Section 412
of the Code or Section 302 of ERISA,  has been incurred or an application may be
or has been made for a waiver or modification  of the minimum  funding  standard
(including   any  required   installment   payments)  or  an  extension  of  any
amortization period under Section 412 of the Code or Section 303 or 304 of ERISA
with respect to a Plan; that any  contribution  required to be made with respect
to a Plan or Foreign Pension Plan has not been timely made; that a Plan has been
or may be terminated, reorganized, partitioned or declared insolvent under Title
IV of ERISA; that a Plan has an Unfunded Current Liability; that proceedings may
be or have been  instituted  to terminate  or appoint a trustee to  administer a
Plan  which  is  subject  to  Title  IV of  ERISA;  that a  proceeding  has been
instituted pursuant to Section 515 of ERISA to collect a delinquent contribution
to a Plan;  that  the  Company,  any  Subsidiary  of the  Company  or any  ERISA
Affiliate will or may incur any liability  (including any indirect,  contingent,
or secondary  liability)  to or on account of the  termination  of or withdrawal
from a Plan under Section 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or
with respect to a Plan under Section 401(a)(29),  4971, 4975 or 4980 of the Code
or Section 409, 502(i) or 502(l) of ERISA or with respect to a group health plan
(as defined in Section 607(1) of ERISA or Section 4980B(g)(2) of the Code) under
Section 4980B of the Code; or that the Company or any  Subsidiary of the Company
may incur any material  liability  pursuant to any employee welfare benefit plan
(as  defined  in  Section  3(1) of ERISA)  that  provides  benefits  to  retired
employees  or other former  employees  (other than as required by Section 601 of
ERISA) or any Plan or any Foreign Pension Plan. The Company will deliver to each
of the Funds copies of any records,  documents or other information that must be
furnished  to the PBGC with  respect to any Plan  pursuant  to  Section  4010 of
ERISA. The Company will also deliver to each of the Funds a complete copy of the
annual  report (on  Internal  Revenue  Service  Form  5500-series)  of each Plan
(including,  to  the  extent  required,  the  related  financial  and  actuarial
statements  and  opinions  and  other  supporting  statements,   certifications,
schedules  and  information)  required  to be filed  with the  Internal  Revenue
Service.  In  addition to any  certificates  or notices  delivered  to the Funds
pursuant to the first sentence hereof, copies of annual reports and any records,
documents or other information required to be furnished to the PBGC or any other
government  agency,  and any  material  notices  received  by the  Company,  any
Subsidiary  of the Company or any ERISA  Affiliate  with  respect to any Plan or
Foreign Pension Plan shall be delivered to the Funds no later than ten (10) days
after the date such  annual  report  has been filed  with the  Internal  Revenue
Service or such records,  documents and/or information has been furnished to the
PBGC or any other  government  agency or such  notice has been  received  by the
Company, the Subsidiary or the ERISA Affiliate,  as applicable.  The Company and
each of its applicable  Subsidiaries shall ensure that all Foreign Pension Plans
administered  by it or into  which it makes  payments  obtains  or  retains  (as
applicable)  registered  status under and as required by  applicable  law and is
administered  in a  timely  manner  in  all  respects  in  compliance  with  all
applicable laws except where the failure to do any of the foregoing would not be
reasonably  likely to result in a material  adverse  effect  upon the  business,
operations,  condition  (financial  or otherwise) or prospects of the Company or
any Subsidiary of the Company.

                  3.7. End of Fiscal Years;  Fiscal Quarters.  It will, and will
cause each of its  Subsidiaries  to, provide the Agent prior written notice with
respect to the change of their respective fiscal years and fiscal quarters.

                  3.8. Performance of Obligations.  It will, and will cause each
of its Subsidiaries  to, perform all of its obligations  under the terms of each
mortgage,  indenture, security agreement, loan agreement and each other material
agreement, Contract or instrument by which it or any of its properties or assets
is bound, except such non-performances which,  individually or in the aggregate,
do not have,  nor could  reasonably  be  expected  to have,  a Material  Adverse
Effect.

                  3.9.  Payment of Taxes.  It will pay and  discharge,  and will
cause each of its Subsidiaries to pay and discharge,  all taxes, assessments and
governmental charges or levies imposed upon it or upon its income or profits, or
upon any properties belonging to it, prior to the date on which penalties attach
thereto,  and all lawful claims for sums that have become due and payable which,
if unpaid,  might  become a Lien not  otherwise  permitted  under  Section  4.1;
provided, that neither the Company nor any of its Subsidiaries shall be required
to pay any such tax, assessment,  charge, levy or claim which is being contested
in good faith and by proper  proceedings if it has maintained  adequate reserves
with respect thereto in accordance with GAAP.

                  3.10.  CNA  Restructuring  Agreement.  No later  than the date
which is sixty (60) days following the Execution Date, the Company and CNA shall
have executed and delivered the CNA  Restructuring  Agreement and all conditions
to the CNA  Restructuring  Agreement shall have been satisfied and not waived to
the  satisfaction  of the Funds  unless  otherwise  agreed to in  writing by the
Funds.

                  3.11. DFS Claims and Isosceles Indebtedness.  It will give the
Agent prompt  written notice (but in no event later than three Business Days) of
(i)  any  settlement,   liquidation,  arbitral  award,  judgment  or  any  other
resolution of the DFS Claim and any action taken by or for the benefit of DFS to
enforce  any such  award,  judgment  or  other  resolution  (including,  without
limitation, by way of levy, attachment, garnishment,  foreclosure, or possession
of the Company's  assets) or (ii) any settlement,  liquidation,  arbitral award,
judgment or any other  resolution  of the  Indebtedness  of the Company  owed to
Isosceles  and any action  taken by or for the benefit of  Isosceles  to enforce
such Indebtedness  (including,  without limitation,  by way of levy, attachment,
garnishment, foreclosure, or possession of the Company's assets).

                  3.12.  Certain Corporate  Matters.  (a) No later than the date
which is 60 days  following  the Execution  Date,  the Board of Directors of the
Company shall be composed of seven directors, not less than four of whom must be
Independent Directors;

                  (b) No later than August 31,  2000,  the Board of Directors of
the Company shall be composed of nine directors, not less than five of whom must
be Independent Directors; and

                  (c) No  later  than the date  which is 30 days  following  the
Execution  Date,  the  Company  shall  file with the  Commission  and such other
authorities  as applicable  law may require proxy  materials with respect to the
matters provided in clauses (a) and (b) above.

                  3.13.  Issuance of Shares.  No later than the date which is 90
days following the Execution  Date,  the Shares shall have been duly  authorized
for  issuance in  accordance  with the terms of this  Secured Note and the other
Transaction Documents.

                  3.14.  Registration Statement. No later than the date which is
90 days  following  the  Execution  Date,  the Company shall have filed with the
Commission a  Registration  Statement  with respect to the resale of the Shares.
The Company shall use its best efforts to (i) cause such Registration  Statement
to become  effective  as soon as  possible  thereafter  and (ii)  maintain  such
Registration Statement's effectiveness.

                  3.15.  Additional  Equity. No later than the date which is 180
days following the Execution Date, the Company shall have received,  in addition
to the New Equity,  equity  contributions  in cash in an amount of not less than
$1,600,000 in exchange for new Common  Stock.  The Company shall be permitted to
issue preferred stock  ("Preferred  Stock") strictly in accordance with the term
sheet  annexed  hereto as  Schedule  3.15 as  authorized  by 2/3 of the Board of
Directors of the Company  (composed  in the manner set forth in Section  3.12(a)
hereof); provided,  however, that the certificate of designation with respect to
the Preferred  Stock shall not be filed without the prior written consent of the
Agent (which shall not be  unreasonably  withheld) to confirm the  provisions in
Schedule 3.15.

                  3.16. Supplemental Information. From time to time, the Company
shall promptly supplement or amend information previously delivered to the Funds
with respect to any matter hereafter  arising which, if existing or occurring at
the  Execution  Date,  would have been  required  to be set forth or  disclosed;
provided,  however, that such supplemental information shall not be deemed to be
an amendment to any schedule or exhibit hereto.

                  3.17 Covenant to Guarantee  Obligations and Give Security.  In
the event that the Company or any of its Subsidiaries  shall create or acquire a
subsidiary, such Person shall, at its expense:

                  (a)  within  10  days  after  the  date of  such  creation  or
acquisition,  cause each such new  Subsidiary to duly execute and deliver to the
Agent (i) a Guaranty  substantially  in the form of  Exhibit B hereto,  and (ii)
such Security Documents as the Agent may request;

                  (b)  within  15  days  after  the  date of  such  creation  or
acquisition,  deliver  to the Agent,  upon the  request of the Agent in its sole
discretion,  a favorable opinion,  addressed to the Agent and each of the Funds,
of counsel for such Guarantor acceptable to the Agent, as to such matters as the
Agent may reasonably request; and

                  (c) at any time and from time to time,  promptly  execute  and
deliver any and all further  instruments and documents and take all such actions
as the Agent may deem  necessary or reasonably  desirable in order to obtain the
full benefits of such Guaranty and Security Documents.

                  For purposes of this Section  3.17,  "subsidiary"  shall mean,
with respect to the Company or any Subsidiary, (i) any corporation more than 50%
of whose  stock of any class or  classes  having by the terms  thereof  ordinary
voting  power  to  elect  a  majority  of  the  directors  of  such  corporation
(irrespective  of  whether  or not at the time  stock of any class or classes of
such  corporation  shall  have or  might  have  voting  power by  reason  of the
happening of any  contingency) is at the time owned by such Person and/or one or
more subsidiaries of such Person, and (ii) any partnership,  association,  joint
venture or other entity in which such Person and/or one of more  subsidiaries of
such Person has more than a 50% equity interest at the time.

                  3.18.  Further  Assurances.  The  Company  will,  at  its  own
expense, make, execute, endorse,  acknowledge,  file and/or deliver, or cause to
be made, executed, endorsed,  acknowledged, filed and/or delivered, to the Agent
from time to time such vouchers,  invoices,  schedules,  conveyances,  powers of
attorney,  certificates,  reports and other  assurances or instruments  and take
such  further  steps  relating  to the  Collateral  as the Agent may  reasonably
require in order to provide  the Agent with the Liens and rights  granted  under
the Security Documents with respect to the Collateral.

     3.19. Guarantors. The Company will supplement Schedule 2.3 hereof within 10
days of the Closing to reflect the authorized,  issued and  outstanding  capital
stock of Aura Medical Systems, Inc. and Electrotec Productions, Inc.

                  3.20. Bank Accounts. The Company will give notice to the Agent
subject  to and in  accordance  with  Section  2.5  of  the  Security  Agreement
regarding the location of all of its bank accounts (including account numbers).

                  3.21.  Non-Recourse  Notes. Within forty-five (45) days of the
Closing  Date, at least fifty  percent  (50%) of the  Indebtedness  owing to the
holders  of the 8%  Secured  Convertible  Non-Recourse  Note Due 2008  listed in
Schedule 4.1(l) shall have been converted into Common Stock of the Company.

                  3.22.  Guzik Opinion.  The legal opinion of Guzik & Associates
(Exhibit H to the Exchange  Agreement)  shall be  supplemented  to cover the due
execution,  authorization  and  delivery  of the  Transaction  Documents  by the
Guarantors to which they are a party.

                  3.23.  Stock  Certificates.  The Company  shall  deliver stock
certificates  and stock voting powers for the  Guarantors to the Agent within 10
days of the Closing Date.

                  SECTION 4.        Negative Covenants.

                  The Company hereby  covenants and agrees that on and after the
Execution  Date and  until  this  Secured  Note has been  paid in full and is no
longer outstanding:

                  4.1.  Liens.  It will  not,  and  will not  permit  any of its
Subsidiaries to, create,  incur, assume or suffer to exist any Lien upon or with
respect  to any of the  property  or  assets  (real  or  personal,  tangible  or
intangible, including, without limitation, Proprietary Rights) of the Company or
any of its Subsidiaries,  whether now owned or hereafter  acquired,  or sell any
such property or assets subject to an understanding or agreement,  contingent or
otherwise,  to repurchase such property or assets  (including  sales of accounts
receivable with recourse to the Company or any of its  Subsidiaries),  or assign
any right to receive income or permit the filing of any notice of Lien under any
recording or notice  statute;  provided that the  provisions of this Section 4.1
shall not prevent the  creation,  incurrence,  assumption  or  existence  of the
following (Liens described below are herein referred to as "Permitted Liens"):

                  (a)  inchoate  Liens for taxes,  assessments  or  governmental
charges or levies not yet due or Liens for taxes,  assessments  or  governmental
charges or levies being  contested in good faith and by appropriate  proceedings
for which adequate reserves have been established in accordance with GAAP;

                  (b) Liens in respect of  property  or assets of the Company or
any of its  Subsidiaries  imposed by law,  which were  incurred in the  ordinary
course of business and do not secure  Indebtedness  for borrowed money,  such as
carriers', warehousemen's,  materialmen's and mechanics' liens and other similar
Liens  arising in the ordinary  course of business,  and (x) which do not in the
aggregate  materially  detract  from the  value of such  property  or  assets or
materially  impair  the use  thereof in the  operation  of the  business  of the
Company  or any of its  Subsidiaries  or (y) which are being  contested  in good
faith  by  appropriate  proceedings,   which  proceedings  have  the  effect  of
preventing  the forfeiture or sale of the property or assets subject to any such
Lien;

                  (c) Liens in existence on the Execution Date which are listed,
and the property  subject  thereto  described,  in Schedule  4.1(c)  hereto (the
"Existing  Liens"),  but only to the respective  date, if any, set forth in such
Schedule 4.1(c) for the removal, replacement and termination of any such Liens;

                  (d)      Liens created pursuant to the Security Documents;

                  (e) easements, rights-of-way,  restrictions, encroachments and
other similar charges or  encumbrances,  and minor title  deficiencies,  in each
case not securing  Indebtedness and not materially  interfering with the conduct
of the business of the Company or any of its Subsidiaries;

                  (f) statutory and common law landlords'  liens under leases to
which the Company or any of its Subsidiaries is a party;

                  (g) Liens  incurred  in the  ordinary  course of  business  in
connection with workers' compensation claims,  unemployment insurance and social
security  benefits and Liens securing the performance of bids,  tenders,  leases
and contracts in the ordinary course of business, statutory obligations,  surety
bonds,  performance bonds and other obligations of a like nature incurred in the
ordinary course of business  (exclusive of obligations in respect of the payment
for  borrowed  money),   provided  that  the  aggregate  outstanding  amount  of
obligations  secured by Liens permitted by this clause (g) (and the value of all
cash and property  encumbered  by Liens  permitted  pursuant to this clause (g))
shall not at any time exceed $100,000;

                  (h) Liens arising after the Execution Date solely by virtue of
any statutory provision relating to banker's liens, rights of set-off or similar
rights and  remedies as to deposit  accounts or other  funds  maintained  with a
creditor  depository  institution;  provided,  however,  that (A)  such  deposit
account  is not a  dedicated  cash  collateral  account  and is not  subject  to
restrictions  against access by the Company or any of its Subsidiaries,  and (B)
such deposit  account is not intended by the Company or any of its  Subsidiaries
to provide collateral to the depository institution (except to Imperial Bank);

     (i) Liens in connection with  Indebtedness  permitted under Sections 4.5(c)
and 4.5(d)
hereof;

                  (j) Liens  subordinate  to the Liens  created  pursuant to the
Security  Documents;  provided that (A) any such  consensual  Lien shall only be
created,  assumed or suffered to exist if each Person in favor of whom such Lien
is  created  shall,  contemporaneously  or prior to the  creation  of such Lien,
execute and deliver to the Agent a lien  subordination  agreement to that effect
reasonably  satisfactory  to the Agent and (B) any such  statutory,  judgment or
other  nonconsensual  Lien  against the Company  and Aura  Ceramics  (including,
without limitation, any judgment liens which are not Permitted Liens pursuant to
Section  4.1(c))  shall only be  created,  assumed,  or suffered to exist if the
total amount of such Liens in the aggregate (excluding the DFS Claims) shall not
at any time exceed $1,066,666.67; and

                  (k) any  extension,  renewal or  replacement  of the foregoing
Liens; provided, however, that the Liens permitted hereunder shall not cover any
additional  Indebtedness or property  (other than like property  substituted for
property covered by such Lien) except as otherwise permitted pursuant to Section
4.5(c).

                  In connection with the granting of Liens of the type described
in Section 4.1(i) by the Company or any of its Subsidiaries, the Agent is hereby
authorized by the Funds and shall take any actions  reasonably  requested by the
Company in writing in connection therewith  (including,  without limitation,  by
executing  appropriate lien  subordination  agreements in favor of the holder or
holders of such Liens  solely with  respect to the item or items of equipment or
other assets subject to such Liens).

                  Notwithstanding the foregoing, any Permitted Liens (other than
Existing  Liens  or  Liens  under  Sections  4.1(d))  upon  or with  respect  to
Proprietary  Rights  and  other  general  intangibles  of the  Company  and  its
Subsidiaries  shall only be created,  assumed or suffered to exist to the extent
any such Lien shall be subordinate to the Liens created pursuant to the Security
Documents  and  each  Person  in  favor of which  such  Lien is  created  shall,
contemporaneously  or prior to the creation of such Lien, execute and deliver to
the Agent a lien subordination  agreement to that effect reasonably satisfactory
to the Agent.

                  4.2.  Proprietary  Rights.  Except  with  respect to  Non-Core
Assets in accordance  with the terms hereof,  the Company will not, and will not
permit any of its  Subsidiaries  to, nor shall any such  Person  allow any other
Person to,  sell,  assign or transfer  any  interest  in any of the  Proprietary
Rights of the Company,  or file or record any  consensual  Lien,  assignment  or
other  instrument,  certificate or document having a similar effect with respect
to any of the Proprietary  Rights of the Company or any of its Subsidiaries with
the U.S.  Patent  and  Trademark  Office.  Nothing  herein  shall be  deemed  or
construed as an argument or admission that the Liens upon the Proprietary Rights
of the Company and its Subsidiaries  created pursuant to the Security  Documents
are impaired or unperfected.

                  4.3.  Consolidation,  Merger, Purchase or Sale of Assets, etc.
It will not, and will not permit any of its  Subsidiaries to, wind up, liquidate
or  dissolve   its  affairs  or  enter  into  any   transaction   of  merger  or
consolidation, or convey, sell, lease or otherwise dispose of all or any part of
their  property or assets,  or enter into any  sale-leaseback  transactions,  or
purchase or otherwise  acquire (in one or a series of related  transactions) any
part of the property or assets (other than  purchases or other  acquisitions  of
inventory,  materials and  equipment in the ordinary  course of business) of any
Person (or agree to do any of the foregoing at any future time), except that:

                  (a) the  Company,  Aura  Ceramics  and  AuraSound,  taken as a
whole,  may lease (as  lessee) (i) real  property  in an amount no greater  than
$1,200,000 in the aggregate in any 12 month period or (ii) personal  property in
an amount no greater than $500,000 in the  aggregate in any 12 month period,  or
create a capitalized lease obligation;

                  (b) the Company, Aura Ceramics and AuraSound may make sales of
inventory in the ordinary course of business and consistent with past practices;

                  (c) the  Company  and its  Subsidiaries  may sell,  lease,  or
otherwise  dispose of  equipment  or  materials  with a value of no greater than
$25,000 in the aggregate which, in the reasonable  judgment of such Person,  are
obsolete, worn-out or otherwise no longer useful in the conduct of such Person's
business and the Funds shall take such actions as may reasonably be requested by
the  Company  in writing  in  connection  therewith  (including,  if  necessary,
executing  an  appropriate  release of the Liens  under the  Security  Documents
solely with respect to such equipment and materials);

                  (d) so long as no Event of  Default  shall  occur  and has not
been cured in accordance with the terms hereof, the Company and its Subsidiaries
may sell, lease, or otherwise  dispose of Non-Core Assets,  including all of the
Company's stock of any of its  Subsidiaries,  at fair value (as determined by no
less than 2/3 of the Board of  Directors  of the Company  composed in the manner
set forth in Section 3.12(a) or (b) hereof) in arm's length transactions and the
Funds shall take such actions as may be  reasonably  requested by the Company in
writing in  connection  therewith  (including,  if  necessary,  by  executing an
appropriate  release  solely with respect to such  Non-Core  Assets of the Liens
under the Security  Documents  and the  Obligations,  including  indemnification
obligations, under the Guaranty);

                  (e) any Subsidiary of the Company may sell, lease, transfer or
otherwise  dispose of any or all of its property (upon voluntary  liquidation or
otherwise) to the Company; and

                  (f) any Guarantor may merge with and into the Company.

                  Notwithstanding  anything to the  contrary  contained  in this
Section 4.3, neither the Company nor any of its  Subsidiaries may convey,  sell,
lease,  or otherwise  dispose of any property  having more than minimal value to
any  existing  or future  Subsidiary  of the Company  without the Agent's  prior
written consent.  Neither the Company nor any of its Subsidiaries shall transfer
or deliver any  Instrument  or  Investment  Property (as defined in the Security
Agreement) to any Person  (other than the Agent)  except as otherwise  expressly
permitted by the Security Agreement or this Secured Note.

                  4.4. Dividends.  (a) It will not declare or pay any dividends,
or return  any  capital,  to its  stockholders  or  authorize  or make any other
distribution,  payment or delivery of  property or cash to its  stockholders  as
such, or redeem, retire, purchase or otherwise acquire,  directly or indirectly,
for consideration, any shares of any class of its capital stock now or hereafter
outstanding  (or any options or warrants  issued by the Company  with respect to
its capital stock), or set aside any funds for any of the foregoing purposes, or
permit  any  of  its   Subsidiaries   to  purchase  or  otherwise   acquire  for
consideration any shares of any class of the capital stock of the Company now or
hereafter  outstanding  (or any options or warrants  issued by the Company  with
respect to its capital stock).

                  (b) Except as otherwise provided in this Secured Note, it will
not permit any of its  Subsidiaries  to declare or pay any dividends,  or return
any capital,  to its  stockholders or authorize or make any other  distribution,
payment or delivery of property or cash to its  stockholders as such, or redeem,
retire,   purchase  or  otherwise  acquire,   directly  or  indirectly,   for  a
consideration,  any shares of any class of its  capital  stock now or  hereafter
outstanding  (or any options or warrants  issued by such Subsidiary with respect
to its capital stock), or set aside any funds for any of the foregoing purposes,
or permit  any of its  Subsidiaries  to  purchase  or  otherwise  acquire  for a
consideration  any shares of any class of the capital  stock of such  Subsidiary
now or  hereafter  outstanding  (or  any  options  or  warrants  issued  by such
Subsidiary  with respect to its capital  stock),  except that any Subsidiary may
pay cash dividends to the Company, including,  without limitation, in respect of
any sales of Non-Core Assets in accordance with the terms hereof.

     4.5. Indebtedness. It will not, and will not permit any of its Subsidiaries
to, contract, create, incur, assume or suffer to exist any Indebtedness, except:

     (a)  Indebtedness  incurred  pursuant  to this  Secured  Note and the other
Transaction
Documents;

                  (b)      Existing Indebtedness;

                  (c) Working Capital  Indebtedness  incurred by (i) the Company
only in  connection  with the AuraGen  business,  or (ii) Aura  Ceramics only in
connection with its existing business as of the Execution Date;

                  (d)  Indebtedness  incurred by (i) the  Company in  connection
with capital  expenditures  related only to the AuraGen business in an aggregate
amount  not to exceed at any one time  outstanding  $1,000,000  within  one year
following the Execution  Date and such amount as determined by two-thirds  (2/3)
of the Board of  Directors  of the Company  (composed in the manner set forth in
Section 3.12(a) hereof) in arm's length transactions at any time after the first
anniversary  of the  Execution  Date or (ii) Aura  Ceramics in  connection  with
capital  expenditures  related only to its existing business as of the Execution
Date  not to  exceed  at any one  time  outstanding  $500,000  within  one  year
following the Execution  Date and such amount as determined by two-thirds  (2/3)
of the Board of  Directors  of the Company  (composed in the manner set forth in
Section 3.12(a) hereof) in arm's length transactions at any time after the first
anniversary of the Execution Date;

                  (e) additional  unsecured trade  Indebtedness  incurred by the
Company  related only to the AuraGen  business in the  ordinary  course in arm's
length transactions in an aggregate principal amount not to exceed $2,000,000 at
any one time  outstanding;  provided that any Indebtedness  permitted under this
Section 4.5(e) shall be subordinate to the Secured Notes; and

                  (f)  additional  unsecured  trade  Indebtedness  incurred by a
Subsidiary in the ordinary course in an aggregate principal amount not to exceed
$500,000 at any one time outstanding;  provided that any Indebtedness  permitted
under this Section 4.5(f) shall be subordinate to the Secured Notes;

provided that the foregoing  Indebtedness  shall only be incurred if immediately
prior to such  incurrence and after giving effect  thereto,  no Event of Default
shall have  occurred  which has not been cured in  accordance  with the terms of
this Secured Note.

                  4.6.  Transactions with Affiliates.  It will not, and will not
permit  any of its  Subsidiaries  to,  enter into any  transaction  or series of
related  transactions,  with any  Affiliate  of any of them,  other  than in the
ordinary  course  of  business  and on terms  and  conditions  substantially  as
favorable to the Company or such  Subsidiary as would  reasonably be obtained by
the  Company  or such  Subsidiary  at that  time in a  comparable  arm's  length
transaction with a Person other than an Affiliate.

                  4.7.    Limitation   on    Modifications    of   Indebtedness;
Modifications  of  Certificate  of  Incorporation,  By-Laws  and  Certain  Other
Agreements. Except as otherwise permitted by this Secured Note, it will not, and
will not permit any of its Subsidiaries  to, (i) amend or modify,  or permit the
amendment or  modification  of, any  provision of any  Indebtedness  (including,
without limitation,  the Restructured NEC Debt and all Restructured Trade Debts)
or of any agreement  (including,  without  limitation,  any purchase  agreement,
indenture, loan agreement or security agreement) relating thereto other than any
amendments or modifications to the Existing Indebtedness which do not in any way
materially and adversely  affect the ability of the Company or its  Subsidiaries
to perform their obligations under the Transaction Documents, (ii) make (or give
any notice in respect  thereof) any voluntary or optional  payment or prepayment
on or redemption or  acquisition  for value of, or any  prepayment or redemption
of,  any  Indebtedness,  except  that the  Company  may make  such  payments  or
redemptions  in the aggregate  amount of $500,000 in any 12 month period so long
as no Event of Default  shall have occurred  (except for the DFS Claims),  (iii)
amend or modify,  or permit the amendment or  modification  of, any provision of
any  Indebtedness or any agreement  relating  thereto,  other than amendments or
modifications  which  do not in any way  materially  and  adversely  affect  the
ability of the Company or its  Subsidiaries to perform their  obligations  under
the Transaction Documents,  or (iv) amend, modify or change their certificate of
incorporation  (including,  without limitation, by the filing or modification of
any  certificate  of  designation)  or  bylaws  (or  equivalent   organizational
documents),  or any agreement entered into by any of them, with respect to their
capital stock  (including any  shareholders'  agreement),  or enter into any new
agreement  with  respect to their  capital  stock,  other  than any  amendments,
modifications or changes to this clause (iv) or any such new agreements pursuant
to this clause (iv) which do not in any way materially and adversely  affect the
ability of the Company or its  Subsidiaries to perform their  obligations  under
the Transaction  Documents;  provided,  however,  that the Company may (A) enter
into a settlement and payment of unsecured  Indebtedness  of the Company owed to
GSS as of the Execution  Date in an aggregate  amount not to exceed  $4,000,000,
(B) enter into a settlement  and payment of the DFS Claims owed to DFS as of the
Execution Date in an aggregate  amount not to exceed  $5,000,000,  and (C) issue
capital stock in accordance with Section 4.8 hereof.

                  4.8.  Limitation on Issuance of Capital Stock. (a) The Company
will not,  and will not permit any of its  Subsidiaries  to, issue any equity or
capital stock which may be redeemed,  called or put, or which has any preference
or extraordinary  rights,  other than Preferred Stock as contemplated  under and
pursuant to this Secured Note.

                  (b) The  Company  will  not,  and will not  permit  any of the
Guarantors to, issue or agree to issue any equity or capital stock (including by
way of sales of treasury  stock,  options,  warrants to purchase,  or securities
convertible  into,  capital  stock)  unless at a price at or above the then fair
value as determined by no less than 2/3 of the Board of Directors of the Company
(composed in the manner set forth in Section  3.12(a) hereof) either at the time
of issuance or the time of the relevant agreement.

                  SECTION 5.        Events of Default.

                  Upon the occurrence of any of the following  specified  events
(each an "Event of Default"):

                  5.1  Payments.  The  Company  shall (i) default in the payment
when due of any principal  hereunder,  or (ii)  default,  and such default shall
continue  unremedied for three or more Business Days, in the payment when due of
any interest  hereunder or any fees or any other amounts (other than  principal)
owing hereunder or under any other Transaction Document; or

                  5.2.  Representations,  etc. Any  representation,  warranty or
statement made by the Company or any of its Subsidiaries  herein or in any other
Transaction  Document or in any  certificate  delivered to the Agent or any Fund
pursuant  hereto or thereto shall prove to be untrue in any material  respect on
the date as of which made or deemed made and such  misrepresentation is material
and  continues to be material to the  business,  operations,  assets,  revenues,
properties,  liabilities or prospects of the Company or any of its  Subsidiaries
on earlier of (i) the date notice of an Event of Default is given to the Company
or (ii) the date on which the Company or any of its  Subsidiaries  becomes aware
of such default; or

                  5.3.  Covenants.  The Company or any of its Subsidiaries shall
(a) default in the due performance or observance by it of any term,  covenant or
agreement  contained in Sections 3.1(d),  3.3, 3.10,  3.11,  3.12, 3.13,  3.14.,
3.15, 3.17, 3.19, 3.20, 3.21, 3.22, 3.23 or Section 4 hereof,  or (b) default in
the due performance or observance by it of any other term, covenant or agreement
contained in this Secured Note (other than those set forth in Section 5.1 or 5.2
or clause (a) of this  Section 5.3) or any other  Transaction  Document and such
default shall  continue  unremedied for a period of 30 days after written notice
thereof to the defaulting party by the Agent or any Fund; or

                  5.4.  Default  Under  Other  Agreements.   The  Company,   the
Guarantors or any of their  Subsidiaries shall (i) default in any payment of any
Existing  Secured  Indebtedness  beyond  the  period of grace  (not to exceed 30
days), if any, provided in the instrument or agreement under which such Existing
Secured   Indebtedness  was  created  or  (ii)  default  in  the  observance  or
performance  of any  agreement  or condition  relating to any  Existing  Secured
Indebtedness or contained in any instrument or agreement evidencing, securing or
relating thereto,  or any other event shall occur or condition exist, the effect
of which  default  or other  event or  condition  is to cause,  or to permit the
holder or holders of such Existing  Secured  Indebtedness (or a trustee or agent
on behalf of such  holder or  holders) to cause  (determined  without  regard to
whether any notice is  required),  any such  Existing  Secured  Indebtedness  to
become due prior to its stated maturity; or any Existing Secured Indebtedness of
the Company,  the Guarantor or any of their Subsidiaries shall be declared to be
due and payable,  or required to be prepaid other than by a regularly  scheduled
required prepayment,  prior to the stated maturity thereof;  provided,  however,
that (a) such default shall  continue  unremedied  for a period of 30 days after
notice of  default  has been  given to the  Company  by the  holder of  Existing
Secured  Indebtedness  asserting the default (or shall continue unremedied up to
an  additional  60 days beyond such initial  30-day cure period if the holder of
Existing Secured Indebtedness asserting the default forbears,  waives or extends
such  default  in  writing  for such  additional  time and the Funds  shall have
received commensurate therewith cash or other consideration equal to the cash or
other  consideration  given to such holder of Existing  Secured  Indebtedness on
account of, or in  connection  with,  or related to such  holder's  forbearance,
waiver or  extension of the default) and (b) this Section 5.4 shall not apply to
any default arising under Existing  Secured  Indebtedness of the Company owed to
Imperial Bank as a result of the granting of Liens under the Security  Documents
in respect of the Secured Notes.

                  5.5. Bankruptcy.  The Company or any of its Subsidiaries shall
commence a voluntary case  concerning  itself under the  Bankruptcy  Code; or an
involuntary  case is  commenced  against  the  Company  and the  petition is not
controverted  within 10 days after service,  or is not dismissed within 30 days,
after  commencement  of the case or a custodian  (as  defined in the  Bankruptcy
Code) is  appointed  for, or takes  charge of, all or  substantially  all of the
property of the foregoing Persons.  The Company or any of its Subsidiaries shall
commence any other proceeding under any reorganization,  arrangement, assignment
for  the  benefit  of  creditors,   adjustment  of  debt,   relief  of  debtors,
dissolution,  insolvency  or  liquidation  or  similar  law of any  jurisdiction
whether  now or  hereafter  in  effect  relating  to the  Company  or any of its
Subsidiaries.  There is commenced  against the Company or Aura Ceramics any such
proceeding  which  remains  undismissed  for a period of 30 days,  or any of the
Company and Aura Ceramics is adjudicated  insolvent or bankrupt, or any order of
relief or other order  approving any such case or proceeding is entered,  or the
Company or Aura Ceramics  suffers any  appointment  of any custodian or the like
for it or any  substantial  part of its  property  to continue  undischarged  or
unstayed  for a  period  of 30  days,  or the  Company  or Aura  Ceramics  shall
generally  not pay its debts as they become due or there shall be deemed to have
occurred a suspension  of  payments,  or the Company or Aura  Ceramics  shall be
substantively consolidated with any other Person, or any judgment or order which
has a Material Adverse Effect shall have been entered against the Company or any
of its Subsidiaries  pursuant to Bankruptcy Code sections 506(c), 542, 543, 544,
545,  547,  548,  549,  550,  551,  552(b)  and 553.  The  Company or any of its
Subsidiaries  makes a general  assignment  for the benefit of creditors,  or any
corporate  action is taken by the  Company  or any of its  Subsidiaries  for the
purpose of effecting any of the foregoing; or

     5.6. Security  Documents.  Any of the Security  Documents shall cease to be
valid and in full force and effect,  or, except as otherwise  permitted  hereby,
shall cease to give the Agent,  for the benefit of the Funds, the Lien purported
to be created thereby; or

                  5.7.  Guaranty.  At any time after the  execution and delivery
thereof,  any Guaranty or any provision  thereof shall cease to be in full force
or effect as to any  Guarantor,  or any  Guarantor or any Person acting by or on
behalf of such Guarantor  shall deny or disaffirm such  Guarantor's  obligations
under its Guaranty or any  Guarantor  shall  default in the due  performance  or
observance  of any term,  covenant or  agreement  on its part to be performed or
observed pursuant to its Guaranty; or

     5.8.  Material Adverse Change.  Any event or condition shall occur or exist
which,  in the  reasonable  judgment of the Agent,  has, or could  reasonably be
expected to have, a Material Adverse Effect; or

                  5.9.  Denial  of  Liability.  (a)  The  Company  or any of its
Subsidiaries  shall deny its  obligations  under this  Secured Note or any other
Transaction  Document;  (b) any law, rule or regulation  shall purport to render
invalid,  or preclude  enforcement of, any provision of this Secured Note or any
other  Transaction  Document  or  impair  performance  of the  Company's  or any
Subsidiary's  obligations  hereunder or under any other Transaction  Document or
(c)  any  dominant  authority  asserting  or  exercising  de  jure  or de  facto
governmental or police powers shall,  by moratorium  laws or otherwise,  cancel,
suspend or defer the obligation of the Company or any of its Subsidiaries to pay
any  amount  required  to be paid  hereunder  or  under  any  other  Transaction
Document; or

                  5.10. DFS. DFS shall obtain (i) a settlement of the DFS Claims
in  excess  of $5  million,  or (ii)  an  arbitral  award,  judgment,  or  other
resolution of the DFS Claims in excess of $5,000,000 and DFS obtains property or
assets  of the  Company  or any of its  Subsidiaries  in excess  of  $50,000  in
connection therewith (including, without limitation, by way of levy, attachment,
garnishment, foreclosure or possession); or

                  5.11. Isosceles.  Isosceles shall fail to convert its existing
Indebtedness  owed by the Company  into Common  Stock of the Company  within six
months of the  Execution  Date,  or  Isosceles  at any time  obtains a judgment,
attaches,  garnishes,  takes possession or otherwise forecloses on the Company's
assets or property in respect of such Indebtedness;

then, and in any such event, and at any time thereafter, if any Event of Default
shall  occur  (which  has not been  cured in  accordance  with the terms of this
Secured Note), the Holder may take any or all of the following actions,  without
prejudice to the rights of the Holder to enforce its claims  against the Company
or any of its  Subsidiaries  (provided that if an Event of Default  specified in
Section  5.5  above  shall  occur  with  respect  to the  Company  or any of its
Subsidiaries,  the result which would occur upon the giving of written notice by
the Holder as  specified in clause (i) below shall occur  automatically  without
the giving of any such notice): (i) (x) declare the principal of and any accrued
interest in respect of all Obligations owing hereunder to be, whereupon the same
shall become, forthwith due and payable without presentment,  demand, protest or
other notice of any kind, all of which are hereby waived by the Company and each
of the Guarantors,  or (y) convert all or any portion of the  Obligations  owing
hereunder;  and (ii) exercise any other rights  available  under the Transaction
Documents or  applicable  law; and  immediately,  with respect to any  violation
(without  any right to cure) of the  representation  contained  in Section  2.30
hereof  and/or the  covenant  contained  in Section  4.3(d) or 4.8  hereof,  the
Conversion Price shall be reduced from $0.60 to $0.30.

                  SECTION 6.        Maturity.

                  If this  Secured  Note is not  converted  at the option of the
Holder in accordance with Section 8 hereof, the principal amount of this Secured
Note,  together  with accrued but unpaid  interest,  shall be due and payable on
demand on the Maturity Date.

                  SECTION 7.        Optional Prepayment.

                  Upon  giving the Agent at least  three  Business  Days'  prior
written notice (which shall be irrevocable), the Company shall have the right to
prepay amounts of principal under this Secured Note at any time, without premium
or penalty,  in an aggregate  principal amount of at least $1,000,000,  together
with  interest  accrued as of the date of such  prepayment;  provided,  however,
that, with respect to any such prepayment,  so long as no Event of Default shall
occur which has not been cured in accordance with the terms of Section 5 hereof,
the principal amount hereunder shall be reduced by an amount equal to the sum of
the principal so prepaid and the Applicable Discount.  Notwithstanding  anything
to the contrary contained herein, the Applicable Discount shall not apply to any
prepayments  from  proceeds of any issuance of  Preferred  Stock as set forth in
Schedule 3.15 hereof.

                  SECTION 8.        Conversion.

                  8.1.  Conversion  Events.  Upon the  occurrence and during the
continuation of any Conversion  Event, all or any portion of any Obligations due
under this Secured Note may be converted into Shares at the option of the Holder
following  delivery of a notice of  conversion  to the Company in the manner set
forth in Section  11.4 (the "Notice of  Conversion")  at any time on or prior to
the Maturity Date, subject to the terms and conditions set forth in this Section
8. Upon  conversion  into  Shares,  any  amounts  converted  hereunder  shall be
discharged.

                  8.2.  Conversion  Price.  The number of Shares  into which any
amount under this Secured Note may be converted  shall be determined by dividing
the amount  subject to  conversion  as set forth in the Notice of  Conversion by
$0.60 (the "Conversion Price").

                  8.3. Method of Conversion. Before the Holder shall be entitled
to receive Shares upon the conversion of any amount under this Secured Note, the
Holder  shall  surrender  this  Secured  Note  solely  for the  purposes  of the
conversion  thereof  together  with a Notice of  Conversion to the office of the
Company or its designated  agent.  The Notice of Conversion  shall state therein
the amount(s) in which the  certificate(s) for Shares are to be issued. The time
of  conversion  (the  "Conversion  Date")  shall be the close of business on the
calendar day  following  the date on which a Notice of Conversion is sent to the
Company in  accordance  with  Section  11.4.  Interest on the amount  under this
Secured  Note  subject to  conversion  as set forth in the Notice of  Conversion
shall cease to accrue on and after the Conversion  Date.  Upon the conversion of
any amount under this Secured Note, the Company shall execute and deliver on the
Conversion Date, in exchange and substitution for and upon  cancellation of this
Secured Note, a new secured note in the principal  amount equal to the amount of
this Secured Note less such amount subject to conversion.

                  8.4.  Issuance  of  Shares.  The  Company  shall,  as  soon as
practicable  after the  Conversion  Date,  but in no event  more than  three (3)
business  days  thereafter,   issue  and  deliver  to  the  Holder  certificates
representing  the  number of Shares to which the  Holder  shall be  entitled  as
aforesaid;  provided,  however,  that  the  Company  may pay in full in cash all
Obligations  owing to the Funds  hereunder and under the  Transaction  Documents
within  three  (3)  business  days  after  the  Conversion  Date  in lieu of the
Company's  obligations to issue and deliver the  certificates  representing  the
Shares to the Holder under this Section 8.4.

                  8.5. No  Fractional  Shares.  No  fractional  Shares  shall be
issuable  upon  conversion  of any amount  under this  Secured  Note  subject to
conversion as set forth in the Notice of  Conversion.  If the conversion of such
amount would result in the issuance of a fractional Share, such fractional share
shall be rounded up to the nearest whole share and issued to the Holder.

                  8.6.     Adjustment of Conversion Price; Merger.

                  (a) If at any time or from time to time while any amount under
this Secured Note is outstanding  (i) the Company shall declare or pay,  without
consideration, any dividend on the Common Stock payable in Common Stock, or (ii)
the Company shall effect a subdivision of the outstanding shares of Common Stock
into  a  greater   number  of   shares   of  Common   Stock  (by  stock   split,
reclassification  or otherwise  than by payment of a dividend in Common Stock or
in any right to acquire Common Stock), or (iii) the outstanding shares of Common
Stock shall be combined or consolidated,  by reclassification or otherwise, into
a lesser number of shares of Common Stock,  then the Conversion  Price in effect
immediately before such event shall, concurrently with the effectiveness of such
event, be proportionately decreased or increased, as appropriate. If the Company
shall declare or pay,  without  consideration,  any dividend on the Common Stock
payable  in any right to acquire  Common  Stock for no  consideration,  then the
Company  shall be deemed to have made a dividend  payable in Common  Stock in an
amount of shares equal to the maximum number of shares issuable upon exercise of
such rights to acquire Common Stock.

                  (b) If the Shares issuable upon conversion of any amount under
this Secured Note, if any, shall be changed into the same or a different  number
of  shares  of  any  other  class  or  classes  of  stock,  whether  by  capital
reorganization,  reclassification  or  otherwise  (other than a  subdivision  or
combination of shares provided for in Section 8.6(a)), the Conversion Price then
in effect shall,  concurrently with the effectiveness of such  reorganization or
reclassification,  be  proportionately  adjusted  so that  the  Shares  shall be
convertible  into,  in lieu of the  number of shares of Common  Stock  which the
Holder would otherwise have been entitled to receive, a number of shares of such
other  class or classes of stock  equivalent  to the number of Shares that would
have been subject to receipt by the Holder upon  conversion  of any amount under
this Secured Note immediately before that change.

                  (c) In case of any  consolidation  or  merger  of the  Company
permitted by Section  4.3(f)  hereof (each such  transaction,  a "Merger"),  the
survivor of the Merger shall succeed to the  covenants,  stipulations,  promises
and  agreements  contained in this Secured Note.  In the event of a Merger,  the
Company  shall make  appropriate  provisions  so that the Holder  shall have the
right thereafter to convert any amount under this Secured Note into the kind and
amount of  securities  receivable  upon such Merger by a Holder of the number of
securities  into  which any  amount  under  this  Secured  Note  might have been
converted  immediately  prior to a Merger.  The above provisions shall similarly
apply to successive Mergers.

                  (d) Upon the occurrence of each  adjustment or readjustment of
any  Conversion  Price  pursuant to this Section 8.6, the Company at its expense
shall promptly  compute such  adjustment or  readjustment in accordance with the
terms hereof and prepare and furnish to the Holder a notice  setting  forth such
adjustment  or  readjustment  and  showing  in detail  the facts upon which such
adjustment or readjustment is based.

                  8.7.  Reservation of Stock. The Company shall, at all times on
and after the date which is 90 days  following the Execution  Date,  reserve and
keep available out its authorized  but unissued  shares of Common Stock,  solely
for the purpose of  effecting  the  conversion  of any amount under this Secured
Note into  Shares,  such number of its shares of Common Stock as shall from time
to time be sufficient to effect the  conversion of any amount under this Secured
Note into  Shares;  and if at any time the  number of  authorized  but  unissued
shares of Common Stock shall not be sufficient  to effect the  conversion of any
amount  under this  Secured  Note into  Shares,  then the Company will take such
corporate  action as may be necessary to increase  its  authorized  but unissued
shares of Common Stock to such number of shares as shall be sufficient  for such
purpose, including,  without limitation,  engaging in best efforts to obtain the
requisite  stockholder  approval of any  necessary  amendment to its articles of
incorporation.

                  8.8.     Failure to Issue and/or Deliver Shares.

                  (a) The  Company  shall  issue and  deliver,  within  five (5)
Trading Days after the Holder has  fulfilled  all  conditions  and submitted all
necessary  documents  duly executed and in proper form  required for  conversion
(the  "Deadline"),  to the Holder or any party  receiving  the Secured  Notes by
transfer from Holder,  at the address of the Holder on the books of the Company,
a certificate or certificates for the number of Shares to which the Holder shall
be  entitled.  The  Company  understands  that a delay  in the  issuance  and/or
delivery of the Shares beyond the Deadline  could result in economic loss to the
Holder.  As compensation to the Holder for such a loss, and not as penalty,  the
Company  agrees to pay  liquidated  damages to the Holder for late  issuance  of
Shares upon conversion in accordance with the following  schedule (where "No. of
Business Days Late" is the number of Business Days from the Deadline  until (and
including) the Business Day on which the Holder receives the Shares):

<TABLE>
<CAPTION>

                                                                                 Liquidated Damages
                                                                   (per one hundred thousand dollars of principal
                                                                 outstanding hereunder, based on an amount not less
                                                                     than the stated principal amount due on the
                                                                                   Maturity Date)
                            No. of Business Days Late
<S>                                     <C>                                              <C>
                                        2                                                $50
                                        3                                               $100
                                        4                                               $150
                                        5                                               $200
                                        6                                               $250
                                        7                                               $300
                                        8                                               $350
                                        9                                               $400
                                       10                                               $450
                                       11                                               $500
                                       >11                       $500 plus an additional $100 for each Business Day
                                                                              beyond 11 Business Days.
</TABLE>
                  (b) The Company  shall pay the Holder any  liquidated  damages
incurred under this Section 8.8 by wire transfer of immediately  available funds
to an account  designated by Holder upon the earlier to occur of (i) issuance of
the Shares to the Holder or (ii) each monthly  anniversary of the receipt by the
Company of such Holder's  Notice of  Conversion.  Nothing herein shall waive the
Company's  obligations to deliver  Shares upon a total or partial  conversion of
this  Secured Note or limit  Holder's  rights to pursue  actual  damages for the
Company's  failure to issue and deliver Shares to such Holder in accordance with
the terms of this Secured Note.

                  (c) The Company agrees that, in addition to any other remedies
which may be available to the Holder,  including,  but not limited, to, remedies
available hereunder or under the other Transaction  Documents,  in the event the
Company  fails  for any  reason  to effect  delivery  to Holder of  certificates
representing  Shares  within  five (5)  Trading  Days  following  receipt by the
Company  of a Notice of  Conversion,  a Holder  will be  entitled  to revoke the
Notice  of  Conversion  by  delivering  a notice to such  effect to the  Company
whereupon the Company and the Holder shall each be restored to their  respective
positions immediately prior to delivery of such Notice of Conversion.

     SECTION  9.  Other  Provisions  Relating  to Rights  of the  Holder of this
Secured Note.

                  9.1.  Shareholder  Rights. This Secured Note shall not entitle
the  Holder to any of the rights of a  shareholder  of the  Company,  including,
without  limitation,   the  right  to  vote,  to  receive  dividends  and  other
distributions,  or  to  receive  any  notice  of,  or  to  attend,  meetings  of
shareholders or any other proceedings of the Company;  provided,  however,  this
Section  9.1 shall not affect the  rights of the Holder  under the Stock  Pledge
Agreement or in its  capacity as a  shareholder  of the Company  pursuant to any
Common Stock held by the Holder, including,  without limitation, upon conversion
of any amount under this Secured Note pursuant to Section 8 hereof or otherwise.

                  9.2.  Lost,  Stolen,  Mutilated  or  Destroyed  Note.  If this
Secured Note shall be mutilated,  lost, stolen, or destroyed,  the Company shall
execute and deliver, in exchange and substitution for and upon cancellation of a
mutilated Secured Note, or in lieu of or in substitution for a lost,  stolen, or
destroyed  Secured  Note,  a new Secured Note for the  principal  amount of this
Secured Note so mutilated,  lost,  stolen, or destroyed but only upon receipt of
evidence (which may consist of a signed affidavit of the Holder),  of such loss,
theft, or destruction of this Secured Note.

                  SECTION 10.  Other Agreements.

                  10.1.    Transfer Restrictions.

                  (a) If the Holder  should  decide to  dispose of this  Secured
Note, the Holder  understands  and agrees that it may do so only (i) pursuant to
an effective  registration  statement under the Securities Act, or (ii) pursuant
to an available exemption from registration under the Securities Act.

                  (b) The Holder agrees to the  imprinting,  so long as required
by the terms of the  Securities  Act, of the  following  legend on  certificates
representing the Shares:

                  THE  SHARES  EVIDENCED  BY  THIS  CERTIFICATE  HAVE  NOT  BEEN
                  REGISTERED  UNDER THE  SECURITIES ACT OF 1933, AS AMENDED (THE
                  "SECURITIES ACT"), OR THE "BLUE SKY" OR SECURITIES LAWS OF ANY
                  STATE BY REASON OF THEIR ISSUANCE IN A TRANSACTION EXEMPT FROM
                  THE  REGISTRATION  REQUIREMENTS  OF THE SECURITIES ACT OR SUCH
                  STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR
                  SOLD EXCEPT  PURSUANT TO AN EFFECTIVE  REGISTRATION  STATEMENT
                  UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION
                  FROM  THE  REGISTRATION   REQUIREMENTS   THEREUNDER,   AND  IN
                  COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS.

                  (c) The  legend set forth in clause (b) above and in the first
paragraph  of this  Secured  Note shall be removed as soon as allowed  under the
Securities Act or the  regulations  promulgated  thereunder.  The Company agrees
that it will provide the Holder,  upon  request,  with any  required  opinion of
counsel and a substitute  certificate or certificates,  free from such legend at
such time as such legend is no longer applicable, at no charge.

                  10.2.    Filing and Furnishing of Reports and Information.

                  (a) The  Company's  Common Stock is  registered  under Section
12(g) of the  Securities  Act. On and after the date which is 90 days  following
the  Execution  Date and for so long as the  Holder  owns this  Secured  Note or
Shares,  the Company  shall timely file all reports  required to be filed by the
Company with the  Commission  after the Execution Date pursuant to Section 13(a)
or 15(d) of the Exchange Act and to furnish to the Holder within 10 days of each
such filing true and complete  copies of all such filings and the Company  shall
not  terminate  its  status  as an issuer  required  to file  reports  under the
Exchange Act even if the Exchange  Act or the rules and  regulations  thereunder
would permit such  termination.  The Company will take all  necessary  action to
meet  the  "registrant  eligibility"  requirements  set  forth  in  the  general
instructions  to Form S-3.  If the  Company is not at the time  required to file
reports  pursuant to such  sections,  it will  prepare and furnish to the Holder
annual and quarterly financial statements, together with a management discussion
and analysis of such  financial  statements in form and substance  substantially
similar to those that would  otherwise  be  required  to be  included in reports
required by Section  13(a) or 15(d) of the  Exchange Act in the time period that
such filings would have been required to have been made under the Exchange Act.

                  (b) The  Company  shall  deliver  copies to the  Holder of any
documents or financial statements it delivers to any secured lender concurrently
with such delivery to such lender, subject to the confidentiality  provisions of
Section 6.12 of that certain Exchange Agreement dated February 14, 2000, between
the Company and the Funds.

                  10.3.  Blue Sky Laws.  The Company  shall qualify this Secured
Note  and  the  Shares  under  the   securities  or  "Blue  Sky"  laws  of  such
jurisdictions as the Holder may request and shall continue such qualification at
all times as long as the Holder owns any Shares.

                  10.4.  Integration.  The Company  shall not, and shall use its
best efforts to ensure that no Affiliate shall,  sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any "security" (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of  this  Secured  Note  or the  Shares  in a  manner  that  would  require  the
registration  under the  Securities  Act of the sale of this Secured Note or the
Shares to the Holder.

                  SECTION 11.  Miscellaneous.

                  11.1.  Fees and Expenses.  The Company and the Funds shall pay
the fees and expenses of their  respective  advisers,  counsel,  accountants and
other  experts,  if  any,  and  all  other  expenses  incurred  incident  to the
negotiation,  preparation,  execution,  delivery and performance of this Secured
Note and the other  Transaction  Documents.  The Company shall pay all stamp and
other  taxes  (other  than  income)  and duties  levied in  connection  with the
issuance of the Secured Notes and Shares pursuant hereto.

                  11.2.    Indemnification.

                  (a) Except with respect to litigation  concerning the priority
of Permitted  Liens or  assertions  by the Company in  accordance  with the last
sentence  of  Section  2.1 of the  Security  Agreement,  the  Company  agrees to
indemnify and hold harmless,  to the extent permitted by law, the Holder and its
respective officers and directors,  employees,  advisors, attorneys, agents, and
representatives   against  any  and  all  claims,  causes  of  action,   losses,
liabilities, damages or expenses incurred by any of them as a result of, arising
out of, or in any way  related to, or by reason of, any breach or default by the
Company  under any  provision  of this  Secured  Note or any  other  Transaction
Document,  including,  but not  limited  to,  any  breach by the  Company of its
representations and warranties set forth in Section 2.1 hereto.

                  (b) Any person entitled to indemnification hereunder shall (i)
give prompt written notice to the  indemnifying  party of any claim with respect
to which it seeks  indemnification  and (ii) unless in such indemnified  party's
reasonable  judgment  a  conflict  of  interest  between  such  indemnified  and
indemnifying  parties  may  exist  with  respect  to  such  claim,  permit  such
indemnifying  party to assume the defense of such claim with counsel  reasonably
satisfactory  to  the  indemnified  party.  If  such  defense  is  assumed,  the
indemnifying party shall not be subject to any liability for any settlement made
by the  indemnified  party  without its consent (but such  consent  shall not be
unreasonably  withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim shall not be obligated to pay the fees and
expenses  of  more  than  one  counsel  for  all  parties  indemnified  by  such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any  indemnified  party  a  conflict  of  interest  may  exist  between  such
indemnified party and any other of such indemnified parties with respect to such
claim.

                  (c) The  indemnification  provided for under this Secured Note
shall remain in full force and effect regardless of any investigation made by or
on behalf of the  indemnified  party or any  officer,  director  or  controlling
person of such  indemnified  party and shall survive the transfer of securities.
The Company also agrees to make such  provisions as are reasonably  requested by
any indemnified  party for contribution to such party in the event the Company's
indemnification is unavailable for any reason.

                  11.3. Entire Agreement;  Amendments. This Secured Note and the
other Transaction Documents, together with the exhibits and schedules hereto and
thereto,  contain the entire  understanding  of the parties  with respect to the
subject  matter hereof and supersede all prior  agreements  and  understandings,
oral or written, with respect to such matters.

                  11.4. Notices.  Any and all notices or other communications or
deliveries  required or permitted to be provided  hereunder  shall be in writing
and  shall be deemed  given and  effective  on the  earliest  of (i) the date of
transmission,  if such notice or communication is delivered via facsimile at the
facsimile  telephone  number  specified  in this Section 11.4 prior to 4:30 p.m.
(New York City time) on a Business  Day, (ii) the Business Day after the date of
transmission,  if such notice or communication is delivered via facsimile at the
facsimile  telephone  number specified below later than 4:30 p.m. (New York City
time) on any date and earlier than 11:59 p.m. (New York City time) on such date,
(iii) the  Business Day  following  the date of mailing,  if sent by  nationally
recognized  overnight courier service,  or (iv) upon actual receipt by the party
to  whom  such  notice  is  required  to  be  given.   The  addresses  for  such
communications shall be:

          If to the Company:        Aura Systems, Inc.
                                    2335 Alaska Avenue
                                    El Segundo, California  90245
                                    Attn:  Michael Froch, Esq.
                                    Facsimile No.:  (310) 643-8719

          With copies to:           Robinson, Diamant & Brill
                                    1888 Century Park East, Suite 1500
                                    Los Angeles, California 90067
                                    Attn:  Lawrence A. Diamant, Esq.
                                    Facsimile No.:  (310) 277-7584

          If to the Holder:         Infinity Investors Limited
                                    Hunkins Waterfront Plaza
                                    Main Street
                                    P.O. Box 556
                                    Charlestown, Nevis, West Indies
                                    Attn:  Gwen McLaughlin
                                    Facsimile No.:  (345) 949-0881

          With copies to:           White & Case LLP
                                    4900 First Union Financial Center
                                    200 South Biscayne Boulevard
                                    Miami, Florida  33131
                                    Attn:  Thomas E Lauria, Esq.
                                    Facsimile No.:  (305) 358-5744

                   and              Mr. Stuart J. Chasanoff
                                    c/o HW Partners LP
                                    1601 Elm Street, Suite 4000
                                    Dallas, Texas 75201
                                    Facsimile No.:  (214) 720-1667

or such other  address as may be designated  in writing  hereafter,  in the same
manner, by such person.

                  11.5.  Amendments;  Waivers. No provision of this Secured Note
may be waived or amended except in a written  instrument  signed, in the case of
an amendment,  by both the Company and the Holder,  or, in the case of a waiver,
by the party against whom enforcement of any such waiver is sought. No waiver of
any default with respect to any  provision,  condition  or  requirement  of this
Secured Note shall be deemed to be a continuing waiver in the future or a waiver
of any other provision,  condition or requirement hereof, nor shall any delay or
omission of either  party to exercise any right  hereunder in any manner  impair
the exercise of any such right accruing to it thereafter.

                  11.6.  Headings  Descriptive.  The  headings  herein  are  for
convenience only, do not constitute a part of this Secured Note and shall not be
deemed to limit or affect any of the provisions hereof.

                  11.7.    Benefit of Secured Note; Assignments; Participations.

                  (a) This  Secured  Note shall be binding upon and inure to the
benefit of and be enforceable  by the  respective  successors and assigns of the
parties hereto,  provided that the Company may not assign or transfer any of its
rights or obligations hereunder or under any other Transaction Documents.

                  (b)  The  Holder   may  sell,   assign,   transfer   or  grant
participations  in all or a portion of its rights  and  outstanding  Obligations
hereunder to any person,  each of which  assignees  shall become a party to this
Secured Note as a Holder,  provided that the new Secured Note will be issued, at
the Company's  expense,  to such new Holder and to the assigning Holder upon the
request of such new Holder or assigning  Holder,  such new Secured Note to be in
conformity  with  the  requirements   under  the  Transaction   Documents  (with
appropriate   modifications)  to  the  extent  needed  to  reflect  the  revised
outstanding  Obligations.  The  assigning  Holder will notify the Company of any
assignment pursuant to this Section 11.7(b); provided, however, that the failure
to give any such notice,  or any error in such  notice,  shall not affect any of
the  obligations  of the  Company  hereunder  or  under  any  other  Transaction
Document.

                  (c) Nothing in this Secured Note shall prevent or prohibit any
Holder from pledging its rights hereunder.

                  11.8.  No  Third-Party  Beneficiaries.  This  Secured  Note is
intended for the benefit of the parties  hereto and their  respective  permitted
successors  and assigns  and is not for the  benefit  of, nor may any  provision
hereof be enforced by, any other person.

     11.9.  GOVERNING LAW;  SUBMISSION TO  JURISDICTION;  VENUE;  WAIVER OF JURY
TRIAL.

                  (a) THIS SECURED NOTE AND THE OTHER TRANSACTION  DOCUMENTS AND
THE RIGHTS AND  OBLIGATIONS  OF THE PARTIES  HEREUNDER AND  THEREUNDER  SHALL BE
CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK
WITHOUT  GIVING EFFECT TO THE  PRINCIPLES  THEREOF  RELATING TO CONFLICTS OF LAW
EXCEPT SECTION 5-1401 OF THE NEW YORK GENERAL  OBLIGATIONS LAW. ANY LEGAL ACTION
OR  PROCEEDING  WITH RESPECT TO THIS SECURED NOTE OR ANY SUCH OTHER  TRANSACTION
DOCUMENT  MAY BE  BROUGHT  IN (i) THE  COURTS OF THE STATE OF NEW YORK OR OF THE
UNITED STATES FOR THE SOUTHERN  DISTRICT OF NEW YORK,  AND/OR (ii) THE COURTS OF
THE DEFENDANT'S RESPECTIVE CORPORATE DOMICILE, AND, BY THE ISSUANCE AND DELIVERY
OF THIS SECURED NOTE,  EACH PARTY HEREBY  IRREVOCABLY  ACCEPTS FOR ITSELF AND IN
RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY,  THE JURISDICTION OF THE
AFORESAID  COURTS.  THE COMPANY  HEREBY  IRREVOCABLY  DESIGNATES,  APPOINTS  AND
EMPOWERS CT  CORPORATION  SYSTEM,  WITH OFFICES ON THE DATE HEREOF AT 111 EIGHTH
AVENUE,  NEW YORK,  NEW YORK  10011,  AS ITS  DESIGNEE,  APPOINTEE  AND AGENT TO
RECEIVE,  ACCEPT AND  ACKNOWLEDGE  FOR AND ON ITS BEHALF,  AND IN RESPECT OF ITS
PROPERTY,  SERVICE OF ANY AND ALL LEGAL PROCESS,  SUMMONS, NOTICES AND DOCUMENTS
WHICH MAY BE SERVED IN ANY SUCH  ACTION OR  PROCEEDING.  IF FOR ANY REASON  SUCH
DESIGNEE,  APPOINTEE  AND AGENT SHALL CEASE TO BE AVAILABLE TO ACT AS SUCH,  THE
COMPANY AGREES TO DESIGNATE A NEW DESIGNEE, APPOINTEE AND AGENT IN NEW YORK CITY
ON THE TERMS AND FOR THE PURPOSES OF THIS  PROVISION  SATISFACTORY  TO THE AGENT
UNDER THIS SECURED NOTE. THE COMPANY FURTHER IRREVOCABLY CONSENTS TO THE SERVICE
OF  PROCESS  OUT OF ANY OF THE  AFOREMENTIONED  COURTS  IN ANY  SUCH  ACTION  OR
PROCEEDING BY THE MAILING OF COPIES  THEREOF BY  REGISTERED  OR CERTIFIED  MAIL,
POSTAGE PREPAID, TO THE COMPANY AT ITS ADDRESS SET FORTH IN SECTION 11.4 HEREOF,
SUCH SERVICE TO BECOME  EFFECTIVE  30 DAYS AFTER SUCH  MAILING.  NOTHING  HEREIN
SHALL  AFFECT THE RIGHT OF THE AGENT OR THE HOLDER OF THIS SECURED NOTE TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR
OTHERWISE  PROCEED  AGAINST  THE  COMPANY  AND/OR  ANY  GUARANTOR  IN ANY  OTHER
JURISDICTION.

                  (b) THE COMPANY HEREBY  IRREVOCABLY WAIVES ANY OBJECTION WHICH
IT MAY NOW OR  HEREAFTER  HAVE TO THE  LAYING  OF VENUE OF ANY OF THE  AFORESAID
ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS SECURED NOTE OR
ANY OTHER  TRANSACTION  DOCUMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (a)
ABOVE AND HEREBY FURTHER  IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN
ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING  BROUGHT IN ANY SUCH COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM.

                  (c) THE COMPANY HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL
BY JURY IN ANY ACTION,  PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO
THIS  SECURED  NOTE,  THE  OTHER  TRANSACTION   DOCUMENTS  OR  THE  TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY.  THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE
PARTIES HERETO TO ENTER INTO THIS SECURED NOTE.

                  11.10.  Publicity.  The Company and the Holder  shall  consult
with each  other in  issuing  any press  releases  or  otherwise  making  public
statements  with  respect to the  transactions  contemplated  hereby and neither
party  shall  issue any such press  release or  otherwise  make any such  public
statement  without the prior written  consent of the other,  which consent shall
not be unreasonably  withheld or delayed,  except for such releases,  filings or
public   statements  that  are  required  by  law  or  any  regulatory  body  or
governmental authority of competent jurisdiction.

                  11.11. Severability. In case any one or more of the provisions
of this  Secured  Note shall be invalid or  unenforceable  in any  respect,  the
validity  and  enforceability  of the  remaining  terms and  provisions  of this
Secured  Note  shall not in any way be  affected  or  impaired  thereby  and the
parties will attempt to agree upon a valid and enforceable provision which shall
be a reasonable  substitute therefor,  and, upon so agreeing,  shall incorporate
such substitute provision in this Secured Note.

                  11.12. Remedies. In addition to being entitled to exercise all
rights provided  herein or granted by law,  including  recovery of damages,  the
Holder  will be  entitled  to specific  performance  of the  obligations  of the
Company under this Secured Note. The Company agrees that monetary  damages would
not be adequate  compensation  for any loss  incurred by reason of any breach of
its obligations  described in the foregoing  sentence and hereby agrees to waive
in any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.

                  11.13. Survival. Each of the representations and warranties of
the Company contained in Section 2 and the other agreements and covenants of the
parties  contained in this Secured Note shall  survive  issuance of this Secured
Note until repayment in full of the Obligations evidenced hereby.

                            [SIGNATURE PAGE FOLLOWS]

<PAGE>

                                [SIGNATURE PAGE]
                  IN WITNESS  WHEREOF,  the Company has caused this Secured Note
to be  signed  in its  name by its duly  authorized  officers  this  22nd day of
February, 2000.

                                                     AURA SYSTEMS, INC.

                                                     By:
                                                     Name:  Gerald Papazian
                                                     Title:    President

                                                     By:
                                                     Name:  Steven C. Veen
                                                     Title:Senior Vice President

<PAGE>

STATE OF ____________               )
                                    )SS:
COUNTY OF __________                )

         The  foregoing  instrument  was  acknowledged  before  me  this  day of
_________,  ___  by   _________________________  as  ___________________of  Aura
Systems, Inc. on behalf of the corporation. He personally appeared before me, is
personally known to me or produced  __________________  as  identification,  and
[did] [did not] take an oath.

                                                     Notary:
[NOTARIAL SEAL]                                      Print Name:
                                                     Notary Public, State of
                                                     My commission expires:

<PAGE>

                              NOTICE OF CONVERSION

                  The undersigned, being the holder of the attached Secured Note
due the Maturity  Date (as defined in the Secured  Note) of Aura  Systems,  Inc.
(the "Company"),  hereby exercises the option to convert  $[________]  under the
Secured  Note into  Shares (as  defined in the  Secured  Note) of the Company in
accordance with the terms of the Secured Note.

                  The  amount of  principal  and  accrued  but  unpaid  interest
outstanding on the Secured Note as of the date hereof is  $____________  and the
number of Shares to be issued upon conversion is _____________.

                  The undersigned  directs that the Shares be issued in the name
of and delivered as soon as practicable and in accordance with the provisions of
the Secured Note to:

                  Full address:

                  Date:

                  Name:  [HOLDER]NEITHER THIS  SECURED  NOTE NOR THE  GUARANTIES  OF THE  SUBSIDIARIES  HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES  ACT"),
OR THE "BLUE SKY" OR SECURITIES LAWS OF ANY STATE BY REASON OF THEIR ISSUANCE IN
A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR
SUCH STATE SECURITIES LAWS, AND, ACCORDINGLY,  MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO AN EFFECTIVE  REGISTRATION  STATEMENT  UNDER THE  SECURITIES  ACT OR
PURSUANT  TO  AN  AVAILABLE   EXEMPTION  FROM  THE   REGISTRATION   REQUIREMENTS
THEREUNDER, AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS.

                               AURA SYSTEMS, INC.

                                  SECURED NOTE

$410,712                                                      February 22, 2000
                                                         El Segundo, California

                  FOR VALUE RECEIVED, Aura Systems, Inc., a Delaware corporation
(the  "Company"),  promises  to pay to the order of  Global  Growth  Limited,  a
corporation  organized  and existing  under the laws of Nevis,  West Indies (the
"Holder")  or its  assigns,  the  principal  amount of Four Hundred Ten Thousand
Seven Hundred Twelve  ($410,712) on November 30, 2002 (the "Maturity  Date") and
to pay  interest  (computed  on the  basis of a 360-day  year of 30-day  months)
("Interest") (a) on the principal amount hereof outstanding at the rate of eight
percent (8%) per annum from the date hereof, payable in arrears on (i) August 1,
2000 and  quarterly  thereafter on each 1st day of November,  February,  May and
August,  (ii) the  Maturity  Date,  (iii) each date this  Secured  Note,  or any
portion  hereof,  is converted,  and (iv) the date the principal  amount of this
Secured  Note  shall be  declared  to be or shall  automatically  become due and
payable, and (b) to the extent permitted by law, on any overdue amount hereunder
at the rate of sixteen  percent  (16%) per annum.  Should any  interest or other
charges  paid  hereunder  result  in the  computation  or  earning  of  interest
hereunder in excess of the maximum rate or amount  permitted by applicable  law,
such excess  shall be credited  against (and be deemed to have been a payment in
reduction of) principal  owing  hereunder,  and any portion of such excess which
portion  exceeds the  principal  owing  hereunder  shall be paid to the Company.
Principal and accrued but unpaid Interest  hereunder shall be due and payable on
demand on or after the  Maturity  Date or in  accordance  with  Section 5 hereof
after  the  occurrence  of an  Event of  Default  (which  has not been  cured in
accordance with the terms hereof),  unless converted by the Holder in accordance
with Section 8 hereof.

                  If any payment of interest  hereunder  becomes due and payable
on a day which is not a Business  Day,  the due date  thereof  shall be the next
preceding  day which is a Business  Day, and the  interest  payable on such next
preceding  Business Day shall be the interest  which would  otherwise  have been
payable on the due date which was not a Business Day.

                  Payments  of  principal   and   interest   shall  be  made  in
immediately  available funds, in lawful money of the United States of America at
the  locations set forth  hereunder,  or at such other place as the Holder shall
have designated for such purpose in writing,  and may be paid by cashier's check
or wire  transfer  to the address or account  designated  by the Holder for such
purpose.

                  This Secured Note (the  "Secured  Note") is secured by, and is
one of the secured notes referred to in (i) that certain  Security  Agreement of
even date herewith  between the Company,  the Guarantors  (defined below) and HW
Partners,  LP,  as Agent  for the  Funds,  and (ii) that  certain  Stock  Pledge
Agreement of even date herewith between the Company and the Agent for the Funds.

                  This Secured Note is guaranteed  by, and is one of the Secured
Notes  referred  to in,  that  certain  Guaranty  of even date  herewith  of the
Guarantors  (defined below) made for the benefit of the Funds, which Guaranty is
secured by the Security Agreement.

                  The Company further agrees as follows:

                  SECTION 1.        Definitions and Principles of Construction.

                  1.1.  Defined  Terms.  As  used  in  this  Secured  Note,  the
following  terms shall have the following  meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined, except as
otherwise provided):

                  "Affiliate"  shall mean, with respect to any specified Person,
(i) any other Person that, directly or indirectly, is controlled by, or is under
common  control with,  or controls such Person,  (ii) any other Person in which,
directly or  indirectly,  such Person  holds,  of record or  beneficially,  five
percent or more of the equity or voting securities,  (iii) any other Person that
holds, of record or  beneficially,  five percent or more of the equity or voting
securities of such Person, or (iv) any director,  officer, partner or individual
holding a similar position in respect of such Person.

                "Agent" shall mean HW Partners, LP, a Texas limited partnership.

                  "Applicable   Discount"   shall  mean,  with  respect  to  any
applicable  prepayment of principal  under this Secured Note in accordance  with
the terms hereof,  a percentage  which on the  Execution  Date shall be equal to
twenty  percent (20%) and thereafter  shall  decrease on a daily,  straight line
basis to zero percent (0%) on the Maturity Date.

         "Aura Ceramics" shall mean Aura Ceramics, Inc., a Delaware corporation.

                  "AuraGen" shall mean that certain power  generator  developed,
manufactured,  marketed, distributed and/or sold by or for the Company or any of
its  Subsidiaries  under the trademark  AuraGen or any successor or  replacement
mark thereto,  or any similar,  derivative or related  product line which may be
developed, manufactured, marketed, distributed and/or sold by or for the Company
or any of its Subsidiaries.

                 "AuraSound" shall mean AuraSound, Inc., a Delaware corporation.

                  "Authority"  shall  mean  any   governmental,   regulatory  or
administrative body, agency,  commission,  board,  arbitrator or authority,  any
court or  judicial  authority,  or any public,  private or  industry  regulatory
authority, whether international, national, federal, state or local.

                  "Bankruptcy  Code"  shall mean  title 11 of the United  States
Code (11  U.S.C.  ss.  101 et  seq.),  as  amended  from  time to time.  Section
references to the Bankruptcy Code are to the Bankruptcy Code as in effect on the
date of this  Agreement and any subsequent  provisions of the  Bankruptcy  Code,
amendatory thereof, supplemental thereto or substituted therefor.

          "Board of Directors" shall mean the Board of Directors of the Company.

                  "Business Day" shall mean any day except Saturday,  Sunday and
any day which shall be a legal holiday or a day on which banking institutions in
the State of New York or the State of California  are  authorized or required by
law or other government actions to close.

                  "Claim" shall mean any action, claim,  lawsuit,  demand, suit,
inquiry, hearing, investigation,  notice of a violation, litigation, proceeding,
arbitration,  appeals or other dispute, whether civil, criminal,  administrative
or otherwise.

                  "Code"  shall  mean the  Internal  Revenue  Code of  1986,  as
amended from time to time, and the  regulations  promulgated  and rulings issued
thereunder.  Section  references to the Code are to the Code as in effect on the
date of this  Agreement and any  subsequent  provisions of the Code,  amendatory
thereof, supplemental thereto or substituted therefor.

         "Collateral" shall mean all property subject to the Security Documents.

                 "Commission" shall mean the Securities and Exchange Commission.

                  "Common  Stock" shall mean shares now or hereafter  authorized
of the class of common stock of the Company, stock of any other class into which
such  shares may  hereafter  be  reclassified  or changed  and any other  equity
securities of the Company hereafter designated as common stock.

                "Company" shall mean Aura Systems, Inc., a Delaware corporation.

                  "Contingent  Obligation"  shall  mean,  as  to  any  specified
Person, any obligation of such Person arising under, pursuant to or derived from
any derivatives transactions or guaranteeing any Indebtedness, leases, dividends
or other obligations  ("primary  obligations") of any other Person (the "primary
obligor") in any manner,  whether  directly or  indirectly,  including,  without
limitation,  any obligation of such Person,  whether or not  contingent,  (i) to
purchase any such primary  obligation  or any  property  constituting  direct or
indirect security therefor, (ii) to advance or supply funds (x) for the purchase
or payment of any such primary  obligation or (y) to maintain working capital or
equity capital of the primary  obligor or otherwise to maintain the net worth or
solvency  of the primary  obligor,  (iii) to purchase  property,  securities  or
services  primarily  for the purpose of assuring  the holder of any such primary
obligation of the ability of the primary obligor to make payment of such primary
obligation  or (iv)  otherwise  to assure or hold  harmless  the  holder of such
primary obligation against loss in respect thereof; provided,  however, that the
term  Contingent  Obligation  shall not include  endorsements of instruments for
deposit or  collection  in the ordinary  course of  business.  The amount of any
Contingent  Obligation  shall be deemed to be an amount  equal to the  stated or
determinable  amount  of  the  primary  obligation  in  respect  of  which  such
Contingent  Obligation  is made (subject to any  limitation  therein) or, if not
stated or determinable,  the maximum reasonably anticipated liability in respect
thereof  (assuming such Person is required to perform  thereunder) as determined
by such Person in good faith.

                  "Contract"  shall mean any  agreement,  contract,  commitment,
instrument or other binding  arrangement or  understanding,  whether  written or
oral.

     "Conversion Date" shall have the meaning set forth in Section 8.3 hereof.

     "Conversion  Event" shall mean any Event of Default (after giving effect to
the applicable cure, if any).

     "Conversion Price" shall have the meaning set forth in Section 8.2 hereof.

     "CNA" shall mean American Casualty Company of Reading, Pennsylvania.

                  "CNA   Restructuring   Agreement"   shall  mean  that  certain
agreement by and between the Company and CNA in the form of Exhibit A hereto.

                  "Date Data" shall mean any data of any type that includes date
information or which is otherwise derived from,  dependent on or related to date
information.

                  "Date-Sensitive System" shall mean any software,  microcode or
hardware  system  or  component,  including  any  electronic  or  electronically
controlled  system  or  component,  that  processes  any  Date  Data and that is
installed,  in development or on order by the Company or any of its Subsidiaries
for its  internal  use,  or that the Company or any of its  Subsidiaries  sells,
leases,  licenses,  assigns or otherwise provides, or the provision or operation
of which the Company or any of its  Subsidiaries  provides the  benefit,  to its
customers, vendors, suppliers, affiliates or any other third party.

                  "Deadline"  shall  have  the  meaning  given  to such  term in
Section 8.8 hereof.

                  "DFS" shall mean Deutsche Financial Services.

                  "DFS  Claims"  shall  mean the claims of DFS  relating  to the
obligations  of the  Company  with  respect  to debts  owed by NewCom to DFS and
guaranteed by the Company.

                  "Disclosure Materials" shall mean, collectively,  the exhibits
and schedules to this Secured Note and the other Transaction Documents furnished
by or on behalf of the Company.

                  "ERISA" shall mean the Employee Retirement Income Security Act
of 1974,  as amended  from time to time,  and the  regulations  promulgated  and
rulings issued thereunder. Section references to ERISA are to ERISA as in effect
on the date of this Agreement and any subsequent provisions of ERISA, amendatory
thereof, supplemental thereto or substituted therefor.

                  "ERISA  Affiliate"  shall  mean each  person  (as  defined  in
Section 3(9) of ERISA) which  together  with the Company or a Subsidiary  of the
Company  would be deemed to be a "single  employer"  (i) within  the  meaning of
Section  414(b),  (c), (m) or (o) of the Code or (ii) as a result of the Company
or a Subsidiary  of the Company  being or having been a general  partner of such
person.

     "Event of Default" shall have the meaning set forth in Section 5 hereof.

                  "Exchange  Act"  shall  mean  the  United  States   Securities
Exchange Act of 1934, as amended from time to time.

                  "Exchange   Agreement"   shall  mean  that  certain   Exchange
Agreement of even date herewith executed and delivered by the Company, the Agent
and the Funds, as the same may be amended, modified or supplemented.

                  "Execution Date" shall mean the date of this Secured Note.

                  "Existing  Indebtedness"  shall have the meaning given to such
term in Section 2.11 hereof.

                  "Existing  Liens" shall have the meaning given to such term in
Section 4.1(c) hereof.

                  "Existing Secured  Indebtedness"  means Existing  Indebtedness
secured by the Existing Liens (other than judgment liens).

                  "Financial  Statements"  shall have the meaning  given to such
term in Section 2.7(a) hereof.

                  "Foreign  Pension Plan" shall mean any plan, fund  (including,
without   limitation,   any  superannuation   fund)  or  other  similar  program
established or maintained outside the United States of America by the Company or
any one or more of its  Subsidiaries  primarily  for the benefit of employees of
the Company or such Subsidiaries  residing outside the United States of America,
which plan, fund or other similar program  provides,  or results in,  retirement
income,  a deferral of income in  contemplation  of retirement or payments to be
made upon  termination of employment,  and which plan is not subject to ERISA or
the Code.

     "Funds"  shall mean Infinity  Investors  Limited,  Global  Growth  Limited,
Glacier Capital Limited and Summit Capital Limited.

                  "GAAP" shall mean generally accepted accounting  principles in
the United States consistently applied during a relevant period.

                 "GSS" shall mean GSS Array Technologies Public Company Limited.

                  "Guarantee"  shall  mean any  guarantee  or  other  Contingent
Obligation (other than any endorsement for collection or deposit in the ordinary
course of  business),  direct or indirect,  with respect to any  obligations  of
another  Person,   through  an  agreement  or  otherwise,   including,   without
limitation,  (i) any  endorsement  or  discount  with  recourse  or  undertaking
substantially  equivalent to or having economic effect similar to a guarantee in
respect of any such  obligations  and (ii) any Contract  (x) to purchase,  or to
advance or supply  funds for the payment or purchase  of, any such  obligations,
(y) to purchase,  sell or lease property,  products,  materials or supplies,  or
transportation or services,  in respect of enabling such other Person to pay any
such  obligation or to assure the owner thereof  against loss  regardless of the
delivery or  nondelivery  of the  property,  products,  materials or supplies or
transportation  or  services  or  (z) to  make  any  loan,  advance  or  capital
contribution to or other investment in, or to otherwise provide funds to or for,
such other  Person in respect of enabling  such Person to satisfy an  obligation
(including any liability for a dividend,  stock liquidation  payment or expense)
or to assure a minimum equity,  working capital or other balance sheet condition
in respect of any such obligation.

                  "Guarantor"   shall  mean  each   Subsidiary  of  the  Company
executing the Guaranty or otherwise made a party thereto in accordance  with the
terms thereof.

                  "Guaranty"  shall  mean  that  certain  Guaranty  of even date
herewith executed and delivered by the Guarantors and the Agent, as the same may
be amended, modified or supplemented.

                  "Holder"  shall  have the  meaning  given to such  term in the
first paragraph of this Secured Note.

                  "Indebtedness" shall mean, as to any specified Person, without
duplication,  (i) all  indebtedness  (including  principal,  interest,  fees and
charges) of such Person (x) evidenced by any notes, bonds, debentures or similar
instruments made or issued by such Person, (y) for borrowed money or (z) for the
deferred  purchase  price of property or  services,  (ii) the face amount of all
letters of credit issued for the account of such Person,  (iii) all  liabilities
secured by any Lien upon any property owned by such Person,  whether or not such
liabilities have been assumed by such Person, (iv) the aggregate amount required
to be capitalized  in accordance  with GAAP under leases under which such Person
is the lessee and (v) all Contingent Obligations and Guarantees of such Person.

                  "Independent  Director"  shall mean a director  of the Company
who has no  relationship  to the Company that may interfere with the exercise of
such individual's independence from the Company or its management.  For purposes
hereof,  "relationship" shall include, without limitation, (i) being employed by
the Company or any of its  Affiliates  at any time during the year in which such
individual  was elected to the Board of  Directors of the Company or at any time
during any of the three calendar years preceding the year of such election, (ii)
accepting any compensation  from the Company or any of its Affiliates other than
compensation  for board  service or benefits  under a  tax-qualified  retirement
plan,  (iii) being a member of the immediate  family of an individual who at any
time  during  the  year in which  such  director  was  elected  to the  Board of
Directors  of the  Company  is, or has been at any time  during any of the three
calendar years  preceding the year of such election,  employed by the Company or
any of its  Affiliates  as an executive  officer,  (iv) being a partner in, or a
controlling  shareholder or an executive officer of, any for-profit organization
to which the Company or any of its  Affiliates  made,  or from which the Company
received,  payments  (other than those arising  solely from  investments  in the
Company's  securities)  that exceed  five  percent  (5%) of such  organization's
consolidated  gross  revenues for that year, or $200,000,  whichever is more, at
any time during any of the three calendar  years  preceding the year of election
of the director to the Company's  Board of Directors,  and (v) being employed as
an executive of another company where any of the Company's  executives  serve on
such other company's compensation committee.

     "Interest" shall have the meaning given to such term in the first paragraph
of this Secured
Note.

                  "Isosceles" shall mean Isosceles Fund Ltd.

                  "Lien" shall mean,  with respect to any asset,  any  mortgage,
lien, pledge,  encumbrance,  right of first refusal, charge or security interest
of any kind in or on such asset or the revenues or income thereon or therefrom.

                  "Material  Adverse  Effect"  shall mean,  with  respect to the
Company and its  Subsidiaries  taken as a whole,  any material adverse effect on
the  ability  of the  Company  or  the  Subsidiaries  to  perform  any of  their
obligations under any Transaction Document.

                  "Maturity  Date" shall have the meaning  given to such term in
the first paragraph of this Secured Note.

     "Merger" shall have the meaning set forth in Section 8.6(c) hereof.

     "NEC" shall mean NEC Technologies, Inc., a Delaware corporation.

                  "NewCom" shall mean NewCom, Inc., a Delaware corporation.

                  "Non-Core  Assets"  shall mean those assets and  properties of
the Company or any of its Subsidiaries which are not used in connection with, or
related to, directly or indirectly,  the AuraGen  business of the Company or any
aspect  thereof,  including,  without  limitation,  the  capital  stock  of  any
Subsidiary  so  long  as  neither  such  Subsidiary  nor  any of its  assets  or
properties  are used  directly  or  indirectly  in the  conduct  of the  AuraGen
business or any aspect thereof.

     "Notice of  Conversion"  shall have the  meaning  set forth in Section  8.1
hereof.

                  "Obligations"  shall mean all present and future  obligations,
liabilities  and other amounts owing to the Holder pursuant to this or any other
Secured Note or any other Transaction Document.

                  "Option" shall mean any subscription,  option, warrant, right,
security, Contract, commitment,  understanding,  or stock appreciation,  phantom
stock option,  profit participation or arrangement by which the Company is bound
to issue any additional  shares of its capital stock or rights pursuant to which
any Person has a right to purchase shares of the Company's capital stock.

                  "Order" shall mean any decree,  order,  judgment,  injunction,
rule, ruling, Lien, voting right, or consent of or by an Authority.

     "OSHA" shall mean the Occupational Safety and Health Administration.

                  "PBGC"  shall mean the Pension  Benefit  Guaranty  Corporation
established pursuant to Section 4002 of ERISA, or any successor thereto.

                  "Permits"  shall mean all  permits,  licenses,  registrations,
certificates, Orders or approvals from any Authority or other Person (including,
without  limitation,  those  relating to the occupancy or use of owned or leased
real property) issued to or held by the Company.

                  "Permitted Liens" shall have the meaning given to such term in
Section 4.1 hereof.

                  "Person"   shall  mean  an   individual   or  a   corporation,
partnership,  trust, incorporated or unincorporated association,  joint venture,
limited  liability  company,  joint stock  company,  government (or an agency or
political subdivision thereof) or other entity of any kind.

                  "Plan"  shall mean any pension plan as defined in Section 3(2)
of ERISA  which is  maintained  or  contributed  to by (or to which  there is an
obligation  to  contribute  of) the Company or a Subsidiary of the Company or an
ERISA  Affiliate,  and each  such  plan  for the  five-year  period  immediately
following  the latest date on which the Company,  or a Subsidiary of the Company
or an  ERISA  Affiliate  maintained,  contributed  to or  had an  obligation  to
contribute to such plan.

                  "Preferred Stock" shall have the meaning given to such term in
Section 3.15 hereof.

                  "Proprietary  Rights"  shall  mean  all  (i)  patents,  patent
applications,    patent    disclosures    and    all    related    continuation,
continuation-in-part,   divisional,  reissue,  reexamination,   utility,  model,
certificate of invention and design patents, patent applications,  registrations
and applications for registrations, (ii) trademarks, service marks, trade dress,
logos,  trade names and corporate names and  registrations  and applications for
registration  thereof,  (iii) copyrights and  registrations and applications for
registration  thereof,  (iv) mask works and  registrations  and applications for
registration thereof, (v) computer software, data and documentation,  (vi) trade
secrets  and   confidential   business   information,   whether   patentable  or
unpatentable and whether or not reduced to practice, know-how, manufacturing and
production  processes  and  techniques,  research and  development  information,
copyrightable  works,  financial,  marketing and business data, pricing and cost
information,  business and marketing  plans and customer and supplier  lists and
information, (vii) other proprietary rights relating to any of the foregoing and
(viii) copies and tangible embodiments thereof.

                  "Prospectus"   shall  mean  the   prospectus   included  in  a
Registration Statement,  including any prospectus subject to completion, and any
such  Prospectus as amended or  supplemented  by any prospectus  supplement with
respect to the terms of the  offering  of any portion of the Shares and, in each
case, by all other  amendments  and  supplements to such  prospectus,  including
post-effective  amendments, and in each case including all material incorporated
by reference therein.

                  "Registration Statement" shall mean any registration statement
of  the  Company  which  covers  any of  the  Shares,  and  all  amendments  and
supplements  to  any  such  Registration  Statement,   including  post-effective
amendments,  in each  case  including  the  Prospectus  contained  therein,  all
exhibits thereto and all material incorporated by reference therein.

                  "Regulation"   shall  mean  any  rule,  law,  code,   statute,
regulation, ordinance,  requirement,  announcement or other binding action of or
by an Authority.

                  "Reportable  Event"  shall mean an event  described in Section
4043(c)  of ERISA  with  respect  to a Plan that is subject to Title IV of ERISA
other than those  events as to which the 30-day  notice  period is waived  under
subsection .22, .23, .25, .27 or .28 of PBGC Regulation Section 4043.

     "Restructuring"  shall mean the  restructuring  of the Company's  financial
affairs.

                  "Rose Glen"  shall mean RGC  International  Investors,  LDC, a
limited duration company of the Cayman Islands.

     "SEC Documents" shall have the meaning set forth in Section 2.23 hereof.

                  "Secured  Note" shall mean this Secured  Note, as the same may
be  amended,  modified  or  supplemented  and any  replacement  or  substitution
therefor.

     "Securities  Act" shall mean the United States  Securities  Act of 1933, as
amended from time to
time.

                  "Security   Agreement"   shall  mean  that  certain   Security
Agreement of even date  herewith  executed and  delivered by the Company and the
Agent, as the same may be amended, modified or supplemented.

                  "Security  Documents"  shall mean (i) the Security  Agreement,
(ii) the Stock Pledge Agreement, and (iii) all other documents, certificates and
instruments executed and delivered in connection with any of the foregoing.

                  "Shares"  shall  mean  shares  of Common  Stock  issued to the
Holder upon conversion of this Secured Note or exercise of the Warrants.

                  "Stock Pledge  Agreement" shall mean that certain Stock Pledge
Agreement of even date  herewith  executed and  delivered by the Company and the
Agent, as the same may be amended, modified or supplemented.
                  "Subsidiaries"  has the meaning  given to such term in Section
2.1 hereof;  provided,  however,  that for purposes of this Secured Note and the
other Transaction Documents, the term "Subsidiaries" shall not include NewCom.

                  "Taxes" shall mean any taxes,  including,  without limitation,
income, gross receipts, net proceeds, alternative or add-on minimum, ad valorem,
value added,  turnover,  sales, use,  property,  personal property (tangible and
intangible),  stamp, leasing,  lease, user, excise, duty,  franchise,  transfer,
license,  withholding,  payroll,  employment,  foreign,  fuel,  excess  profits,
occupational and interest equalization,  windfall profits,  severance, and other
charges (including interest and penalties).

                  "Trading  Day" shall mean (i) a day on which the Common  Stock
is traded  on the  Nasdaq  Stock  Market,  Inc.  or  Nasdaq  SmallCap  Market or
principal national  securities  exchange or market on which the Common Stock has
been  listed or quoted,  or (ii) if the Common  Stock is not listed or quoted on
the  Nasdaq  Stock  Market,  Inc.  or Nasdaq  SmallCap  Market or any  principal
national  securities  exchange  or market,  a day on which the  Common  Stock is
traded in the  over-the-counter  market,  as reported by the National  Quotation
Bureau  Incorporated  (or any  similar  organization  or agency  succeeding  its
functions of reporting prices).

                  "Transaction  Documents"  shall  mean  and  include  (i)  this
Secured Note, (ii) the Security Documents, (iii) the Guaranty, (iv) the Exchange
Agreement and (v) all other documents, certificates and instruments executed and
delivered in connection with any of the foregoing.

                  "UCC" shall mean the Uniform  Commercial  Code as from time to
time in effect in the relevant jurisdiction.

                  "Unfunded  Current  Liability"  of any  Plan  shall  mean  the
amount,  if any, by which the value of the  accumulated  plan benefits under the
Plan  determined  on a plan  termination  basis  in  accordance  with  actuarial
assumptions  at such  time  consistent  with  those  prescribed  by the PBGC for
purposes of Section  4044 of ERISA,  exceeds  the fair market  value of all plan
assets  allocable to such  liabilities  under Title IV of ERISA  (excluding  any
accrued but unpaid  contributions).  "Warrants"  shall mean the Warrants of even
date herewith to purchase Common Stock at an exercise price of $0.375 per share.

                  "Working  Capital   Indebtedness"   shall  mean   Indebtedness
incurred by the Company for working capital purposes, on commercially reasonable
terms,  in arm's length  transactions  and approved in each case by no less than
two-thirds  (2/3) of the Board of  Directors  of the  Company  (composed  in the
manner set forth in Section 3.12(a) hereof) prior to the incurrence thereof.

                  "Year  2000  Compliant"  shall  mean (i) with  respect to Date
Data,  that such  data is in proper  format  and  accurate  for all dates in the
twentieth and twenty-first  centuries,  and (ii) with respect to  Date-Sensitive
Systems, that each such system accurately processes all Date Data, including for
the twentieth and twenty-first  centuries,  without loss or any functionality or
performance,  including but not limited to calculating,  comparing,  sequencing,
storing and displaying such Date Data (including all leap year  considerations),
when used as a  stand-alone  system or in  combination  with other  software  or
hardware.

                  1.2.     Principles of Construction.

                  (a) All references to sections,  schedules and exhibits are to
sections,  schedules  and exhibits in or to this  Secured Note unless  otherwise
specified.  The words  "hereof,"  "herein" and  "hereunder" and words of similar
import  when used in this  Secured  Note shall refer to this  Secured  Note as a
whole and not to any particular provision of this Secured Note.

                  (b) All accounting terms not specifically defined herein shall
be  construed  in  accordance  with GAAP in  conformity  with  those used in the
preparation of the financial statements described in Section 3.1 hereof.

                  SECTION 2.        Representations and Warranties.

                  In order to induce the Holder to accept this Secured Note, the
Company makes the following  representations,  warranties and agreements, all of
which shall  survive the issuance and  delivery of this Secured  Note,  with the
occurrence  of the  issuance  and  delivery of this Secured Note being deemed to
constitute  a  representation  and warranty  that the matters  specified in this
Section  2 are  true  and  correct  in all  material  respects  on and as of the
Execution  Date (it being  understood  and  agreed  that any  representation  or
warranty  which by its terms is made as of a specified date shall be required to
be true and correct in all material respects only as of such specified date):

                  2.1. Corporate Status. Each of the Company,  Aura Ceramics and
AuraSound is a  corporation,  duly  incorporated,  validly  existing and in good
standing under the laws of the State of Delaware,  with the requisite  corporate
power and authority to own and use its properties and assets and to transact the
business in which it is engaged and  presently  proposes to engage.  The Company
has no subsidiaries  or equity  investment in any other Person other than as set
forth in Schedule 2.1 hereto  (collectively,  the "Subsidiaries"),  and the only
Subsidiaries  with assets or property  having more than  minimal  value are Aura
Ceramics, AuraSound and Aura Realty.

                  2.2. Corporate Power and Authority;  Enforcement.  Each of the
Company,  Aura  Ceramics and AuraSound  has the  requisite  corporate  power and
authority  to execute,  deliver and  perform  the terms and  provisions  of each
Transaction  Document  to  which  it is a party  and  has  taken  all  necessary
corporate  action to authorize the execution,  delivery and performance by it of
such Transaction Document.  Each of the Company, Aura Ceramics and AuraSound has
duly executed and delivered  each  Transaction  Document to which it is a party,
and each such  Transaction  Document  constitutes  the legal,  valid and binding
obligation of the Company, Aura Ceramics and AuraSound enforceable in accordance
with its terms,  except to the extent  that the  enforceability  thereof  may be
limited  by  applicable  bankruptcy,  insolvency,  reorganization,   moratorium,
liquidation or similar laws relating to, or affecting  generally the enforcement
of, creditors'  rights and remedies or by other equitable  principles of general
application (regardless of whether enforcement is sought in equity or at law).

                  2.3.  Capitalization.  The authorized,  issued and outstanding
capital stock of the Company and its  Subsidiaries  is set forth on Schedule 2.3
hereto (as may be  supplemented  in  accordance  with Section 3.19  hereof).  No
shares of Common Stock are entitled to preemptive or similar rights.  Except for
the Secured  Notes and as  otherwise  specifically  disclosed  in  Schedule  2.3
hereto, there are no outstanding Options,  warrants,  script rights to subscribe
to, calls or commitments of any character whatsoever relating to, or securities,
rights or obligations convertible into or exchangeable for, or giving any Person
any right to subscribe for or acquire any shares of capital stock of the Company
or  any of its  Subsidiaries,  or  contracts,  commitments,  understandings,  or
arrangements  by which the Company or any  Subsidiary  is or may become bound to
issue additional shares of Common Stock, or securities or rights  convertible or
exchangeable into shares of Common Stock. Neither the Company, Aura Ceramics nor
AuraSound is in violation of any of the provisions of its respective certificate
of incorporation, bylaws or other charter or similar organizational documents.

                  2.4. Issuance of Secured Note. This Secured Note has been duly
and validly  authorized,  issued and delivered and constitutes the legal,  valid
and binding  obligation of the Company  enforceable in accordance with its terms
free and clear of all Liens.

                  2.5.  No  Violation.   Neither  the  execution,   delivery  or
performance by the Company of this Secured Note or Warrants or of the Company or
any of its Subsidiaries of any of the other Transaction Documents nor compliance
by any of them  with the  terms  and  provisions  hereof  and  thereof,  nor the
consummation  of the  transactions  contemplated  hereby  or  thereby,  will (i)
contravene any applicable provision of any law, statute, rule or regulation,  or
any order, writ, judgment,  injunction, decree or other restriction of any court
or Authority (including federal and state securities laws and regulations), (ii)
conflict or be inconsistent  with, or result in any breach of, any of the terms,
covenants,  conditions  or  provisions  of, or constitute a default (or an event
which with  notice or lapse of time or both would  become a default)  under,  or
give  to  others  any  rights  of   termination,   amendment,   acceleration  or
cancellation  of, or result in the creation or imposition of (or the  obligation
to create or impose) any Lien upon any of the  property or assets of the Company
or its Subsidiaries  pursuant to the terms of any indenture,  mortgage,  deed of
trust,  loan  agreement,  credit  agreement  or any  other  material  agreement,
Contract  or  instrument  to which the Company or any of its  Subsidiaries  is a
party or by which it or any of its  property or assets is bound,  affected or to
which it may be subject (but not  including any default  arising under  Existing
Secured  Indebtedness  of the Company  owed to Imperial  Bank as a result of the
granting of Liens under the Security Documents in respect of the Secured Notes),
or (iii)  conflict  or be  inconsistent  with or violate  any  provision  of the
certificate of incorporation,  bylaws or other charter or similar organizational
document (each as amended  through the date hereof) of the Company or any of its
Subsidiaries.  The businesses of the Company and its Subsidiaries have not been,
and are not  currently  being,  conducted in violation of any law,  ordinance or
regulation of any Authority, except for violations which, individually or in the
aggregate,  do not have, or could not reasonably be expected to have, a Material
Adverse Effect.

                  2.6. Consents and Approvals. No consent, waiver, authorization
or order of, or any filing or  registration  with,  any court or other  federal,
state, local or other governmental Authority or other Person (except (A) as have
been obtained or made on or prior to the Execution Date and which remain in full
force and effect on such date and (B) for the filing  and  effectiveness  of the
Registration  Statement  referred  to in Section  3.14  hereof) is  required  to
authorize,  or is required in connection  with, (i) the execution,  delivery and
performance of any Transaction Document or (ii) the legality,  validity, binding
effect or enforceability of any such Transaction Document.

     2.7. Financial Statements;  Financial Condition;  Undisclosed  Liabilities;
Projections; etc.

                  (a) The audited  consolidated  year-end  balance sheets of the
Company  for each of the  fiscal  years  ended  February  28,  1998 and 1997 and
related consolidated statements of income, cash flow and shareholders' equity of
the  Company and its  Subsidiaries  for the fiscal  years,  ended on such dates,
copies of which  are  attached  hereto as  Schedule  2.7(a)  (collectively,  the
"Financial  Statements"),  fairly present the financial condition of the Company
and its  Subsidiaries  as of such  dates  and the  consolidated  results  of the
operations of the Company and its Subsidiaries for such fiscal years. All of the
foregoing  financial  statements  have been prepared (i) in accordance with GAAP
(except as stated  therein or in the notes  thereto) and (ii) from the books and
records of the Company,  except that the unaudited financial  statements have no
notes attached thereto and do not have year-end adjustments (none of which would
be recurring).  All properties used in the Company's  business  operations as of
each  Financial  Statement  date are  reflected in the  Financial  Statements in
accordance with and to the extent required by GAAP.

                  (b) On and as of the  Execution  Date and after giving  effect
hereto,  the  Restructuring  and  to  all  Indebtedness   (including  under  the
Transaction  Documents)  being  incurred  or  assumed  by the  Company  and  its
Subsidiaries in connection therewith, (i) the sum of the tangible and intangible
assets,  at a fair valuation,  of the Company and Aura Ceramics on a stand-alone
basis and of the Company and its Subsidiaries taken as a whole will exceed their
debts; (ii) the Company and Aura Ceramics on a stand-alone basis and the Company
and its  Subsidiaries  taken as a whole have not  incurred  and do not intend to
incur,  and do not believe that they will incur,  debts beyond their  ability to
pay such debts as such debts mature;  and (iii) the Company and Aura Ceramics on
a stand-alone  basis and the Company and its Subsidiaries  taken as a whole will
have sufficient  capital with which to conduct their  businesses.  The amount of
Contingent  Obligations  at any time shall be  computed as the amount  that,  in
light of all the facts and circumstances  existing at such time,  represents the
amount that can reasonably be expected to become an actual or matured liability.
A copy of the pro forma  consolidated  balance sheet of the Company after giving
effect hereto, to the Restructuring and to all Indebtedness (including under the
Transaction  Documents)  being  incurred  or  assumed  by the  Company  and  its
Subsidiaries  in  connection  therewith  is attached  hereto as Schedule  2.7(b)
hereto.

                  (c) Except as fully disclosed in the Financial  Statements and
Schedule  2.11  hereto,  there were as of the  Execution  Date no  Indebtedness,
liabilities  or  obligations   with  respect  to  the  Company  or  any  of  its
Subsidiaries of any nature whatsoever  (whether absolute,  accrued,  contingent,
unliquidated or otherwise,  known or unknown to the Company, whether or not due)
which,  either  individually or in the aggregate,  have, or could  reasonably be
expected to have, a Material  Adverse  Effect.  As of the  Execution  Date,  the
Company  does not know of any basis for the  assertion  against it or any of its
Subsidiaries  of  any  Indebtedness,  liability  or  obligation  of  any  nature
whatsoever that is not fully  disclosed in the Financial  Statements or Schedule
2.11  hereto  which,  either  individually  or in the  aggregate,  has, or could
reasonably be expected to have, a Material Adverse Effect.

                  (d) The  projections  delivered to the Agent on the  Execution
Date have been prepared in good faith and are based on  reasonable  assumptions,
and there are no statements or  conclusions in the  projections  which are based
upon or  include  information  known  to the  Company  to be  misleading  in any
material respect or which fail to take into account material  information  known
to the Company regarding the matters reported therein. The Company believes that
the  projections  are  reasonable  and  attainable,  it being  recognized by the
Holder,  however,  that  projections as to future events are not to be viewed as
facts and that the actual  results  during the period or periods  covered by the
projections  may differ from the projected  results and that the differences may
be material.

                  2.8. Ranking.  The Obligations under this Secured Note and the
other Transaction Documents constitute unconditional secured Indebtedness of the
Company and the Guarantors,  and (with respect to the Company, Aura Ceramics and
AuraSound) rank and will rank (i) at least pari passu in priority of payment and
in all other respects with all other present and future secured  Indebtedness of
such Persons subject to the priority  rights of holders of (A) Existing  Secured
Indebtedness as of the Execution Date as set forth on Schedule 2.8(i)(A) hereto,
(B) validly created and fully perfected  senior secured  Indebtedness  permitted
under  Sections  4.5(c) and 4.5(d)  hereof  incurred  by the  Company  after the
Execution Date, and (C) obligations of the Company,  Aura Ceramics and AuraSound
existing on the  Execution  Date secured by valid and perfected  judgment  liens
against  such  Persons  as set forth in  Schedule  2.8(i)(C)  hereto;  provided,
however,  that the Company may  supplement  such  Schedule  2.8(i)(C) to reflect
judgment liens validly  created and fully  perfected  through the Execution Date
which  the  Company  had  no  knowledge  of  and  were  not  identified  in  UCC
certificates  set  forth  in  Schedule  2.8(i)(C),   and  senior  to  all  other
Indebtedness of such Persons.

                  2.9. Litigation; Proceedings. There is no action, suit, notice
of violation,  proceeding or  investigation  pending or, to the knowledge of the
Company,  threatened against or affecting the Company or any of its Subsidiaries
or  any of  their  respective  assets  or  properties  before  or by any  court,
governmental or administrative  agency or regulatory Authority (federal,  state,
county,  local or foreign)  which (A)  relates to or  challenges  the  legality,
validity or enforceability  hereof or of any of the Transaction  Documents or of
any transaction  contemplated hereby or thereby,  (B) could,  individually or in
the  aggregate,  adversely  impair such  Person's  ability to perform fully on a
timely basis its obligations under any of the Transaction Documents, or (C) has,
or could  reasonably  be expected to have,  a Material  Adverse  Effect from and
after the Execution Date (except for the DFS Claims).

                  2.10. No Default or Violation. On and as of the Execution Date
(except  as  otherwise  provided  herein,  in the  Transaction  Documents  or as
disclosed in Schedule 2.10 hereto),  neither the Company nor Aura Ceramics:  (i)
will be in  default  under or in  violation  of any  indenture,  loan or  credit
agreement or any other agreement  evidencing  Indebtedness of the Company or any
of its  Subsidiaries or any other agreement or instrument to which it is a party
or by which it or any of its  properties is bound (but not including any default
arising under Existing Secured Indebtedness of the Company owed to Imperial Bank
as a result of the granting of Liens under the Security  Documents in respect of
the  Secured  Notes),  (ii)  will be in  violation  of any  order of any  court,
arbitrator, governmental body or Authority, or (iii) will be in violation of any
statute,  rule or regulation of any Authority,  except as could not, in any such
case,  individually  or in the  aggregate,  (A)  adversely  affect the legality,
validity or enforceability of any transaction  contemplated hereby or any of the
Transaction Documents,  or (B) adversely impair such Person's ability to perform
fully on a timely basis its obligations  under any of the Transaction  Documents
or (C) has, or could reasonably be expected to have, a Material Adverse Effect.

                  2.11. Indebtedness. Schedule 2.11 hereto sets forth a true and
complete list (subject to variances not to exceed seven and one-half  percent (7
1/2%) in the aggregate) of all Indebtedness  (excluding  Indebtedness  under the
Secured  Notes  and  the  other  Transaction  Documents)  of the  Company,  Aura
Ceramics,  and Aura  Realty  as of the  Execution  Date and  which is to  remain
outstanding  (the "Existing  Indebtedness"),  in each case showing the aggregate
principal  amount thereof,  accrued  interest in respect thereof and the name of
any Person which directly or indirectly guaranteed such debt.

                  2.12. True and Complete  Disclosure.  All factual  information
(taken  as a whole)  furnished  by or on  behalf  of the  Company  or any of its
Subsidiaries in writing to the Agent or any Fund (including, without limitation,
all information  contained in the  Transaction  Documents) for purposes of or in
connection  with this  Secured  Note,  any  other  Transaction  Document  or any
transaction  contemplated  hereby or  thereby  is,  and all other  such  factual
information  (taken  as a whole)  hereafter  furnished  by or on  behalf  of the
Company or any of its  Subsidiaries  in writing to the Agent or any Fund will be
true  and  accurate  in all  material  respects  on the  date as of  which  such
information  is dated or certified  and not  incomplete by omitting to state any
fact necessary to make such information (taken as a whole) not misleading in any
material  respect at such time in light of the  circumstances  under  which such
information  was provided.  There is no fact which the Company has not disclosed
to the Agent or the Funds herein and of which the Company, its Subsidiaries,  or
any of their respective officers,  directors or executive employees is aware and
which has, or could reasonably be expected to have, a Material Adverse Effect.

                  2.13.  Tax  Returns  and  Payments.  Except  as  disclosed  in
Schedule 2.13 hereto,  each of the Company,  Aura  Ceramics,  AuraSound and Aura
Realty (i) has filed all income tax returns and all other  material tax returns,
domestic and foreign, required to be filed by it and has paid all material taxes
and assessments  payable by it which have become due, except for those contested
in good faith and  adequately  disclosed and fully provided for on its financial
statements  in  accordance  with GAAP,  and (ii) has at all times  paid,  or has
provided adequate reserves (in the good faith judgment of the management of such
Person) for the payment of, all income  taxes  applicable  for all prior  fiscal
years and for the current  fiscal year to date.  Except as disclosed in Schedule
2.13  hereto,  there is no material  action,  suit,  proceeding,  investigation,
audit, or claim now pending or, to the knowledge of the Company,  Aura Ceramics,
AuraSound,  or Aura Realty,  threatened  by any  Authority  regarding  any taxes
relating to such Person.  As of the Execution  Date,  neither the Company,  Aura
Ceramics,  AuraSound, nor Aura Realty has entered into an agreement or waiver or
been  requested to enter into an agreement  or waiver  extending  any statute of
limitations relating to the payment or collection of taxes of such Person, or is
aware of any  circumstances  that would cause the taxable years or other taxable
periods of such Person not to be subject to the normally  applicable  statute of
limitations.

                  2.14.    Compliance with ERISA.

                  (a) Schedule 2.14 hereto sets forth each Plan;  each Plan (and
each related trust,  insurance  contract or fund) is in  substantial  compliance
with its terms and with all  applicable  laws,  including,  without  limitation,
ERISA and the Code; each Plan (and each related trust, if any) which is intended
to be qualified  under Section  401(a) of the Code has received a  determination
letter  from the  Internal  Revenue  Service  to the  effect  that it meets  the
requirements of Sections 401(a) and 501(a) of the Code; no Reportable  Event has
occurred;  no  Plan  which  is a  multiemployer  plan  (as  defined  in  Section
4001(a)(3) of ERISA) is insolvent or in reorganization;  no Plan has an Unfunded
Current  Liability;  no Plan  which is  subject  to  Section  412 of the Code or
Section 302 of ERISA has an accumulated funding  deficiency,  within the meaning
of such  sections of the Code or ERISA,  or has applied for or received a waiver
of an accumulated funding deficiency or an extension of any amortization period,
within the  meaning of Section  412 of the Code or Section  303 or 304 of ERISA;
all  contributions  required  to be made with  respect to a Plan have been made;
neither the Company nor any  Subsidiary  of the Company nor any ERISA  Affiliate
has incurred any material  liability  (including  any  indirect,  contingent  or
secondary liability) to or on account of a Plan pursuant to Section 409, 502(i),
502(l),  515, 4062,  4063,  4064,  4069,  4201, 4204 or 4212 of ERISA or Section
401(a)(29),  4971 or 4975 of the Code or  expects  to incur  any such  liability
under any of the  foregoing  sections  with  respect to any Plan;  no  condition
exists which  presents a material  risk to the Company or any  Subsidiary of the
Company or any ERISA  Affiliate  of  incurring a liability to or on account of a
Plan pursuant to the foregoing  provisions of ERISA and the Code; no proceedings
have been  instituted to terminate or appoint a trustee to  administer  any Plan
which is subject to Title IV of ERISA;  no action,  suit,  proceeding,  hearing,
audit or  investigation  with  respect to the  administration,  operation or the
investment  of assets of any Plan (other than  routine  claims for  benefits) is
pending,  expected or threatened;  using  actuarial  assumptions and computation
methods consistent with Part 1 of subtitle E of Title IV of ERISA, the aggregate
liabilities of the Company and its  Subsidiaries and its ERISA Affiliates to all
Plans which are multiemployer  plans (as defined in Section 4001(a)(3) of ERISA)
in the event of a  complete  withdrawal  therefrom,  as of the close of the most
recent  fiscal year of each such Plan ended prior to the Execution  Date,  would
not exceed  $100,000;  each group  health plan (as defined in Section  607(1) of
ERISA or Section  4980B(g)(2) of the Code) which covers or has covered employees
or former employees of the Company,  any Subsidiary of the Company, or any ERISA
Affiliate has at all times been operated in  compliance  with the  provisions of
Part 6 of subtitle B of Title I of ERISA and Section  4980B of the Code; no lien
imposed  under the Code or ERISA on the assets of the Company or any  Subsidiary
of the Company or any ERISA Affiliate exists or is likely to arise on account of
any Plan; and the Company and its  Subsidiaries  may cease  contributions  to or
terminate any employee benefit plan maintained by any of them without  incurring
any material liability.

                  (b) Neither the  Company nor any of its  Subsidiaries  has, or
has ever had, a Foreign Pension Plan.

                  2.15.   Compliance   with   Law  and   Applicable   Government
Regulations. Each of the Company and its Subsidiaries is presently in compliance
with regard to its operations,  practices,  real property,  plants,  structures,
machinery,  equipment and other property, and all other aspects of its business,
with all applicable Regulations and Orders,  including,  but not limited to, all
Regulations relating to the safe conduct of business,  environmental protection,
quality and labeling,  antitrust, Taxes, consumer protection, equal opportunity,
discrimination,  health,  sanitation,  fire,  zoning,  building and occupational
safety, except for such non-compliances which, individually or in the aggregate,
would not have,  nor could  reasonably  be expected to have, a Material  Adverse
Effect. There are no Claims pending or, to the Company's knowledge,  threatened,
nor has the Company  received any written notice regarding any violations of any
Regulations  or Orders  enforced by any Authority  including any  requirement of
OSHA or any pollution and environmental control agency (including air and water)
which have, or could reasonably be expected to have, a Material Adverse Effect.

                  2.16.  Security  Documents.  The  provisions  of  each  of the
Security  Documents will, on the Closing Date, create in favor of the Agent, for
the benefit of the Funds,  as security for the  Obligations  hereunder and under
all other Exchange  Documents,  a valid  security  interest in all of the right,
title and interest of the relevant assignor or pledgor  thereunder in and to the
Collateral described therein and, with respect to the Company, Aura Ceramics and
AuraSound,  superior to all Liens  subject to the priority  rights of holders of
Permitted  Liens of the types  described  in clauses  (c) and (i) of Section 4.1
(and any extension,  renewal or replacement  thereof to the extent  permitted by
Section 4.1(k)).

                  2.17.  Investment  Company Act. Neither the Company nor any of
its  Subsidiaries  is an "investment  company" or a company  "controlled"  by an
"investment company," within the meaning of the United States Investment Company
Act of 1940, as amended.

                  2.18.  Public Utility Holding Company Act. Neither the Company
nor any of its Subsidiaries is a "holding company," or a "subsidiary company" of
a "holding company," or an "affiliate" of a "holding company" within the meaning
of the United States Public Utility Holding Company Act of 1935, as amended.

                  2.19.   Labor   Relations.   Each  of  the   Company  and  its
Subsidiaries is on the Execution Date in compliance with all federal,  state and
local  Regulations  or Orders  affecting  employment  and  employment  practices
applicable to each such Person, including terms and conditions of employment and
wages and hours, except for certain failure to make salary or other compensation
payments to management and such  non-compliances  which,  individually or in the
aggregate,  would not have, nor could reasonably be expected to have, a Material
Adverse Effect.  The Company and its Subsidiaries  have on the Execution Date no
collective  bargaining agreements and there have been no strikes, work stoppages
or any demands for  collective  bargaining  by any union or labor  organization.
Neither the Company nor any of its Subsidiaries is engaged on the Execution Date
in any unfair labor practice that has, or could  reasonably be expected to have,
a Material Adverse Effect. There is as of the Execution Date (A) no unfair labor
practice complaint pending against the Company or any of its Subsidiaries or, to
the best knowledge of the Company,  threatened against the Company or any of its
Subsidiaries, and no grievance or arbitration proceeding arising out of or under
any collective bargaining agreement is pending against the Company or any of its
Subsidiaries  or, to the best knowledge of the Company,  threatened  against the
Company or any of its Subsidiaries,  (B) no strike,  labor dispute,  slowdown or
stoppage  pending against the Company or any of its Subsidiaries or, to the best
knowledge  of  the  Company,  threatened  against  the  Company  or  any  of its
Subsidiaries   and  (C)  to  the  best  knowledge  of  the  Company,   no  union
representation question existing with respect to the employees of the Company or
any of its  Subsidiaries  and, to the best  knowledge of the  Company,  no union
organizing  activities  are taking  place,  except  (with  respect to any matter
specified  in  clause  (A),  (B) or (C)  above,  either  individually  or in the
aggregate)  which does not have,  nor could  reasonably  be expected to have,  a
Material Adverse Effect.

                  2.20. Proprietary Rights,  Licenses,  Franchises and Formulas.
Each of the Company and its Subsidiaries owns all Proprietary Rights,  licenses,
franchises and formulas, or rights with respect to any of the foregoing, and has
obtained assignments of all leases and other rights of whatever nature necessary
for the present  conduct of its  business,  without any known  conflict with the
rights of others which, or the failure to obtain which, as the case may be, has,
or could reasonably be expected to have, a Material Adverse Effect.  To the best
knowledge  of the  Company,  no claim is pending  that the Company or any of its
Subsidiaries  infringes  upon the asserted  rights of any other Person under any
intellectual property, except for claims which could not, individually or in the
aggregate, have, or could not reasonably be expected to have, a Material Adverse
Effect.  To the best  knowledge  of the  Company,  no claim is pending that such
intellectual   property  owned  or  licensed  by  the  Company  or  any  of  its
Subsidiaries or which such Person  otherwise has the right to use is invalid and
unenforceable,  except  for  claims  which  could  not,  individually  or in the
aggregate,  have,  or reasonably  could be expected to have, a Material  Adverse
Effect.  The consummation of the transactions  contemplated  hereby or by any of
the other  Transaction  Documents  will not alter or  impair  any  rights of the
Company or any of its  Subsidiaries  to use any  intellectual  property in a way
that would not, individually or in the aggregate,  have, or could not reasonably
be expected to have,  a Material  Adverse  Effect.  The Company is the legal and
beneficial  owner of all  right,  title  and  interest  in,  to,  and  under the
Proprietary Rights with respect to AuraGen, and the Company has not entered into
any  agreement or  understanding  with any Person  concerning  any sale,  lease,
transfer,  option, license,  assignment or other disposition of such Proprietary
Rights.

                  2.21.  Certain Fees. No fees or commission  will be payable by
the Company to any broker, finder, investment banker or bank with respect to the
consummation  of the  transactions  contemplated  hereby  or by any of the other
Transaction Documents.

                  2.22. Private Offering.  The offer,  issuance and sale of this
Secured Note are exempt from registration  under the Securities Act or any state
securities  or blue sky law.  Neither the  Company nor any person  acting on its
behalf has taken or will take any action  (including,  without  limitation,  any
offering  of any  securities  of the  Company  under  circumstances  which would
require the  integration of such offering with the offering of this Secured Note
under the Securities Act) which might subject the offering,  issuance or sale of
this Secured Note to the registration requirements of the Securities Act.

                  2.23.  SEC  Documents.  Attached  hereto as Schedule 2.23 is a
true and complete list of all forms,  reports and documents required to be filed
by the Company and its Subsidiaries  under the Exchange Act,  including pursuant
to Section 13(a) or 15(d) thereof (the "SEC  Documents"),  which the Company has
failed to file as of the Execution Date.

                  2.24.  Directors and  Management  Compensation.  Schedule 2.24
hereto sets forth a list of all officers,  directors and key employees  (meaning
those earning more than $50,000.00  annually  including all bonuses and non-cash
consideration) of the Company and its Subsidiaries,  together with a description
of their  respective  positions and total  compensation  and a list of all other
outstanding  obligations owed by the Company to each of such Persons.  On and as
of the  Execution  Date,  the  Company  and its  Subsidiaries  will not have any
liability to any of their employees,  officers or directors (except as set forth
in Schedule 2.24(i)) other than for the payment of salaries and director fees to
be paid in the ordinary course of business.

                  2.25.  Absence of Certain  Changes.  Since  November 30, 1998,
except as fully disclosed on Schedule 2.25 hereto or otherwise  provided in this
Secured  Note,  there  has not  been  any (a)  material  adverse  change  in the
business,  operations,  properties,  assets, condition (financial or otherwise),
results,   plans,  strategies  or  prospects  of  the  Company  or  any  of  its
Subsidiaries  which has, or could  reasonably  be  expected to have,  a Material
Adverse Effect; (b) damage, destruction or loss, whether covered by insurance or
not,  which has, or could  reasonably  be expected to have,  a Material  Adverse
Effect with regard to the  Company's  or any of its  Subsidiaries'  property and
business;  (c)  declaration,  setting  aside  or  payment  of  any  dividend  or
distribution (whether in cash, stock or property) in respect of the Company's or
any of its  Subsidiaries'  capital stock, or any redemption or other acquisition
of such stock by the  Company or any of its  Subsidiaries;  (d)  increase in the
compensation  payable  to or to  become  payable  by the  Company  or any of its
Subsidiaries to its officers,  Insiders or employees (other than in the ordinary
course) or any adoption of or increase in any bonus, insurance, pension or other
employee  benefit  plan,  payment or  arrangement  made to, for or with any such
officers,  Insiders  or  employees  (other than in the  ordinary  course) or any
Affiliate of the Company or any of its Subsidiaries; (e) entry into any material
Contract not in the ordinary course of business,  including, without limitation,
any  borrowing or capital  expenditure;  (f) change by the Company or any of its
Subsidiaries in accounting methods or principles;  or (g) consensual Lien placed
on any property of the Company or any of its  Subsidiaries  other than Permitted
Liens.

                  2.26. Year 2000 Compliance.  As of the Execution Date,  except
as set forth on Schedule 2.26 hereto, all Date Data and Date-Sensitive  Systems,
if any, of the Company and its Subsidiaries are Year 2000 Compliant. The Company
and its Subsidiaries  have obtained written  representations  or assurances from
each  entity  that  (x)  provides  Date  Data  to  the  Company  or  any  of its
Subsidiaries,  or (y)  processes  in any way Date Data for the Company or any of
its  Subsidiaries or otherwise  provides any material  product or service to the
Company or any of its Subsidiaries that is dependent on Year 2000 Compliant Date
Data or a Year 2000 Compliant  Date-Sensitive  System, that all of such entity's
Date Data and  Date-Sensitive  Systems  that are used for,  or on behalf of, the
Company or any of its Subsidiaries are Year 2000 Compliant.

                  2.27. Capital  Expenditures and Investments.  Each Contract of
the  Company  and its  Subsidiaries  for capital  expenditures  and  investments
involving  $50,000 or more entered  into on or after  November 30, 1998 is fully
disclosed in Schedule 2.27 hereto.

                  2.28.  Dealings  with  Affiliates.  Schedule  2.28 hereto sets
forth a complete  and  accurate  list,  including  the  parties,  of all oral or
written Contracts to which the Company and its Subsidiaries are, will be or have
been a party,  at any time from November 30, 1998 to and including the Execution
Date, and to which any one or more of their  Affiliates is also a party.  Except
as set forth on Schedule 2.28 hereto,  since  November 30, 1998, the Company and
its  Subsidiaries  have not made any  payments,  loaned any funds or property or
made any credit arrangement with any Affiliate or employee of the Company or any
of its  Subsidiaries  except for the payment of employee  salaries  and director
compensation in the ordinary course of business.

                  2.29. Solicitation Materials.  The Company did not solicit any
offer  to buy or  sell  this  Secured  Note by  means  of any  form  of  general
solicitation or advertising.

                  2.30.  Aura  Ceramics.  On  and as of the  Closing  Date,  the
Company has not entered into any binding  agreement for the sale, lease or other
disposition of all or substantially all of the assets of Aura Ceramics.

     2.31.  Aura Tech.  Aura Tech,  Inc.  has no assets and has never  owned any
assets.

                  SECTION 3.        Affirmative Covenants.

                  The  Company  covenants  and  agrees  that  on and  after  the
Execution  Date and  until  this  Secured  Note has been  paid in full and is no
longer outstanding:

                  3.1. Information  Covenants.  It will furnish to the Agent for
distribution to the Holder and each of the Funds:

                  (a) Quarterly Financial  Statements.  As soon as available and
in any event within 45 days after the close of the first three  fiscal  quarters
in each  fiscal  year of the  Company  following  the  Execution  Date,  (i) the
consolidated  balance sheet of the Company as at the end of such fiscal  quarter
and the related  consolidated  statements  of income and  retained  earnings and
statement of cash flows, in each case setting forth comparative  figures for the
related  periods in the prior fiscal year,  all of which shall be in  reasonable
detail and certified by the Chief Financial Officer of the Company to the effect
that such financial  statements  have been prepared in accordance  with GAAP and
that  they  fairly  present  the  financial  condition  of the  Company  and its
Subsidiaries as of the dates  indicated and the results of their  operations and
changes  in their  cash  flows  for the  periods  indicated,  subject  to normal
year-end audit  adjustments  and the absence of footnotes and (ii)  management's
discussion and analysis of the important operational and financial  developments
during the  fiscal  quarter  and  year-to-date  periods in the form  customarily
prepared by management or as otherwise agreed with the Agent.

                  (b) Annual Financial  Statements.  As soon as available and in
any event  within 90 days  after the close of each  fiscal  year of the  Company
following the Execution Date, (i) the consolidated  balance sheet of the Company
as at the end of such  fiscal year and the related  consolidated  statements  of
income and retained  earnings and  statement of cash flows for such fiscal year,
in each case setting forth comparative budgeted figures for such fiscal year and
setting forth  comparative  consolidated  figures for the preceding fiscal year,
and  certified  by  a  firm  of  independent  certified  public  accountants  of
recognized  international  standing  as shall be  reasonably  acceptable  to the
Agent,  in each case to the  effect  that such  financial  statements  have been
prepared in accordance with GAAP and fairly present in all material respects the
financial  condition  of the  Company  and  its  Subsidiaries  as of  the  dates
indicated  and the  results  of  their  operations  and  cash  flows,  and  (ii)
management's  discussion and analysis of the important operational and financial
developments  during  such  fiscal  year,  in the form  customarily  prepared by
management or as otherwise agreed with the Agent.

                  (c) Officer's Certificates. At the time of the delivery of the
financial statements provided for in Section 3.1(a) or (b), a certificate of the
Chief  Financial  Officer of the Company to the effect that, to the best of such
officer's  knowledge,  no Event of Default has occurred and is continuing or, if
any Event of Default has occurred and is  continuing,  specifying the nature and
extent thereof.

                  (d) Notice of Default, Judgment or Litigation.  From and after
the  Execution  Date,  promptly  upon,  and in any event within 10 Business Days
after the Chief Executive Officer, the President, the Chief Financial Officer or
the General Counsel of the Company or any of its Subsidiaries  obtains knowledge
thereof, notice of (i) the occurrence of any event which constitutes an Event of
Default,  (ii) any judgment by or against the Company or any of its Subsidiaries
with respect to any material Indebtedness,  (iii) any notice of default given to
the  Company  or any of its  Subsidiaries  in respect  of any  Existing  Secured
Indebtedness,   and  (iv)  any  litigation  or  governmental   investigation  or
proceeding  commenced (x) against the Company or any of its  Subsidiaries  which
has, or could  reasonably be expected to have, a Material  Adverse  Effect,  (y)
with  respect  to  any  material  Indebtedness  of  the  Company  or  any of its
Subsidiaries or (z) with respect to any Transaction  Document or any transaction
contemplated hereby or thereby.

                  (e) Other  Reports and Filings.  Promptly  after the filing or
delivery thereof, copies of all financial information,  proxy materials, reports
and other material filings, if any, which the Company or any of its Subsidiaries
shall  publicly  file with any Authority  (including,  without  limitation,  the
Commission)  and  with  any  international  or  national   securities   exchange
(including, without limitation, the Nasdaq Stock Market, Inc.).

                  (f) Year 2000 Compliance. It will promptly notify the Agent in
the  event  that it  discovers  or  determines  that  any  computer  application
(including,  without  limitation,  those of its  suppliers  and vendors) that is
material to its or any of its Subsidiaries'  business and operations will not be
Year 2000  Compliant on a timely  basis,  except to the extent that such failure
does not have,  nor could  reasonably  be expected to have,  a Material  Adverse
Effect.

                  (g)  Other   Information.   From  time  to  time,  such  other
information  or documents  (financial or otherwise) as the Agent,  the Holder or
any Fund may reasonably request,  including,  without limitation,  the quarterly
financial  statements of any of the Company or any of its Subsidiaries  prepared
in accordance with the provisions of Section 3.1(a).

                  3.2. Books,  Records and Inspections.  It will, and will cause
each of its  Subsidiaries  to keep proper  books of record and accounts in which
full, true and correct  entries are made (and with respect to the Company,  Aura
Ceramics and Aura Realty in conformity  with GAAP) and all  requirements  of law
shall be made of all dealings and  transactions  in relation to its business and
activities. The Company will, and will cause each of its Subsidiaries to, permit
officers and designated  representatives of the Agent, the Holder or any Fund to
visit and inspect, under guidance of officers of the Company or such Subsidiary,
any of the  properties  of the  Company or such  Subsidiary,  and to examine the
books of account of the Company or such  Subsidiary  and  discuss  the  affairs,
finances and accounts of the Company or such Subsidiary  with, and be advised as
to the same by, its and their  officers and  independent  accountants,  all upon
reasonable  prior notice and at such reasonable  times and intervals and to such
reasonable extent as the Agent, the Holder or such Fund may reasonably request.

                  3.3.  Corporate  Existence and  Franchises.  Within sixty (60)
days  following  the Execution  Date, it will,  and will cause Aura Ceramics and
AuraSound  to, do or cause to be done all things  necessary to effect,  preserve
and keep in full force and effect its  existence  and its good  standing in each
jurisdiction  where the  ownership,  leasing or operation of its property or the
conduct of its business requires such qualification.

                  3.4.  Compliance  with Statutes,  etc. It will, and will cause
each of its  Subsidiaries to, comply with all applicable  statutes,  regulations
and orders of, and all  applicable  restrictions  imposed  by, all  governmental
Authorities,  domestic or foreign, in respect of the conduct of its business and
the  ownership  of its property  (including  applicable  statutes,  regulations,
orders and  restrictions  relating to  environmental  standards  and  controls),
except such noncompliances as could not, individually or in the aggregate, have,
or could reasonably be expected to have, a Material Adverse Effect.

                  3.5.  Compliance with Environmental  Laws. It will comply, and
will cause each of its Subsidiaries to comply, in all material respects with all
environmental  laws  applicable to the ownership or use of its real property now
or hereafter owned or operated by the Company or any of its  Subsidiaries,  will
promptly pay or cause to be paid all costs and expenses  incurred in  connection
with such  compliance,  and will keep or cause to be kept all such real property
free and clear of any Liens imposed pursuant to such environmental laws.

                  3.6. ERISA. As soon as possible and, in any event,  within ten
(10)  days  after  the  Company,  any  Subsidiary  of the  Company  or any ERISA
Affiliate knows or has reason to know of the occurrence of any of the following,
the  Company  will  deliver  to each of the  Funds a  certificate  of the  chief
financial  officer  of the  Company  setting  forth the full  details as to such
occurrence  and the action,  if any, that the Company,  such  Subsidiary or such
ERISA  Affiliate  is required or  proposes  to take,  together  with any notices
required or proposed to be given or filed by the Company,  such Subsidiary,  the
Plan  administrator  or such  ERISA  Affiliate  to or with the PBGC or any other
government  agency,  or a Plan  participant  and  any  notices  received  by the
Company,  such  Subsidiary  or  ERISA  Affiliate  from  the  PBGC  or any  other
government agency, or a Plan participant with respect thereto: that a Reportable
Event has  occurred  (except  to the  extent  that the  Company  has  previously
delivered to the Funds a certificate  and notices (if any) concerning such event
pursuant to the next clause hereof);  that a contributing sponsor (as defined in
Section  4001(a)(13) of ERISA) of a Plan subject to Title IV of ERISA is subject
to the advance reporting requirement of PBGC Regulation Section 4043.61 (without
regard to  subparagraph  (b)(1)  thereof),  and an event described in subsection
 .62,  .63,  .64,  .65,  .66,  .67 or .68 of  PBGC  Regulation  Section  4043  is
reasonably  expected to occur with respect to such Plan within the  following 30
days; that an accumulated funding deficiency,  within the meaning of Section 412
of the Code or Section 302 of ERISA,  has been incurred or an application may be
or has been made for a waiver or modification  of the minimum  funding  standard
(including   any  required   installment   payments)  or  an  extension  of  any
amortization period under Section 412 of the Code or Section 303 or 304 of ERISA
with respect to a Plan; that any  contribution  required to be made with respect
to a Plan or Foreign Pension Plan has not been timely made; that a Plan has been
or may be terminated, reorganized, partitioned or declared insolvent under Title
IV of ERISA; that a Plan has an Unfunded Current Liability; that proceedings may
be or have been  instituted  to terminate  or appoint a trustee to  administer a
Plan  which  is  subject  to  Title  IV of  ERISA;  that a  proceeding  has been
instituted pursuant to Section 515 of ERISA to collect a delinquent contribution
to a Plan;  that  the  Company,  any  Subsidiary  of the  Company  or any  ERISA
Affiliate will or may incur any liability  (including any indirect,  contingent,
or secondary  liability)  to or on account of the  termination  of or withdrawal
from a Plan under Section 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or
with respect to a Plan under Section 401(a)(29),  4971, 4975 or 4980 of the Code
or Section 409, 502(i) or 502(l) of ERISA or with respect to a group health plan
(as defined in Section 607(1) of ERISA or Section 4980B(g)(2) of the Code) under
Section 4980B of the Code; or that the Company or any  Subsidiary of the Company
may incur any material  liability  pursuant to any employee welfare benefit plan
(as  defined  in  Section  3(1) of ERISA)  that  provides  benefits  to  retired
employees  or other former  employees  (other than as required by Section 601 of
ERISA) or any Plan or any Foreign Pension Plan. The Company will deliver to each
of the Funds copies of any records,  documents or other information that must be
furnished  to the PBGC with  respect to any Plan  pursuant  to  Section  4010 of
ERISA. The Company will also deliver to each of the Funds a complete copy of the
annual  report (on  Internal  Revenue  Service  Form  5500-series)  of each Plan
(including,  to  the  extent  required,  the  related  financial  and  actuarial
statements  and  opinions  and  other  supporting  statements,   certifications,
schedules  and  information)  required  to be filed  with the  Internal  Revenue
Service.  In  addition to any  certificates  or notices  delivered  to the Funds
pursuant to the first sentence hereof, copies of annual reports and any records,
documents or other information required to be furnished to the PBGC or any other
government  agency,  and any  material  notices  received  by the  Company,  any
Subsidiary  of the Company or any ERISA  Affiliate  with  respect to any Plan or
Foreign Pension Plan shall be delivered to the Funds no later than ten (10) days
after the date such  annual  report  has been filed  with the  Internal  Revenue
Service or such records,  documents and/or information has been furnished to the
PBGC or any other  government  agency or such  notice has been  received  by the
Company, the Subsidiary or the ERISA Affiliate,  as applicable.  The Company and
each of its applicable  Subsidiaries shall ensure that all Foreign Pension Plans
administered  by it or into  which it makes  payments  obtains  or  retains  (as
applicable)  registered  status under and as required by  applicable  law and is
administered  in a  timely  manner  in  all  respects  in  compliance  with  all
applicable laws except where the failure to do any of the foregoing would not be
reasonably  likely to result in a material  adverse  effect  upon the  business,
operations,  condition  (financial  or otherwise) or prospects of the Company or
any Subsidiary of the Company.

                  3.7. End of Fiscal Years;  Fiscal Quarters.  It will, and will
cause each of its  Subsidiaries  to, provide the Agent prior written notice with
respect to the change of their respective fiscal years and fiscal quarters.

                  3.8. Performance of Obligations.  It will, and will cause each
of its Subsidiaries  to, perform all of its obligations  under the terms of each
mortgage,  indenture, security agreement, loan agreement and each other material
agreement, Contract or instrument by which it or any of its properties or assets
is bound, except such non-performances which,  individually or in the aggregate,
do not have,  nor could  reasonably  be  expected  to have,  a Material  Adverse
Effect.

                  3.9.  Payment of Taxes.  It will pay and  discharge,  and will
cause each of its Subsidiaries to pay and discharge,  all taxes, assessments and
governmental charges or levies imposed upon it or upon its income or profits, or
upon any properties belonging to it, prior to the date on which penalties attach
thereto,  and all lawful claims for sums that have become due and payable which,
if unpaid,  might  become a Lien not  otherwise  permitted  under  Section  4.1;
provided, that neither the Company nor any of its Subsidiaries shall be required
to pay any such tax, assessment,  charge, levy or claim which is being contested
in good faith and by proper  proceedings if it has maintained  adequate reserves
with respect thereto in accordance with GAAP.

                  3.10.  CNA  Restructuring  Agreement.  No later  than the date
which is sixty (60) days following the Execution Date, the Company and CNA shall
have executed and delivered the CNA  Restructuring  Agreement and all conditions
to the CNA  Restructuring  Agreement shall have been satisfied and not waived to
the  satisfaction  of the Funds  unless  otherwise  agreed to in  writing by the
Funds.

                  3.11. DFS Claims and Isosceles Indebtedness.  It will give the
Agent prompt  written notice (but in no event later than three Business Days) of
(i)  any  settlement,   liquidation,  arbitral  award,  judgment  or  any  other
resolution of the DFS Claim and any action taken by or for the benefit of DFS to
enforce  any such  award,  judgment  or  other  resolution  (including,  without
limitation, by way of levy, attachment, garnishment,  foreclosure, or possession
of the Company's  assets) or (ii) any settlement,  liquidation,  arbitral award,
judgment or any other  resolution  of the  Indebtedness  of the Company  owed to
Isosceles  and any action  taken by or for the benefit of  Isosceles  to enforce
such Indebtedness  (including,  without limitation,  by way of levy, attachment,
garnishment, foreclosure, or possession of the Company's assets).

                  3.12.  Certain Corporate  Matters.  (a) No later than the date
which is 60 days  following  the Execution  Date,  the Board of Directors of the
Company shall be composed of seven directors, not less than four of whom must be
Independent Directors;

                  (b) No later than August 31,  2000,  the Board of Directors of
the Company shall be composed of nine directors, not less than five of whom must
be Independent Directors; and

                  (c) No  later  than the date  which is 30 days  following  the
Execution  Date,  the  Company  shall  file with the  Commission  and such other
authorities  as applicable  law may require proxy  materials with respect to the
matters provided in clauses (a) and (b) above.

                  3.13.  Issuance of Shares.  No later than the date which is 90
days following the Execution  Date,  the Shares shall have been duly  authorized
for  issuance in  accordance  with the terms of this  Secured Note and the other
Transaction Documents.

                  3.14.  Registration Statement. No later than the date which is
90 days  following  the  Execution  Date,  the Company shall have filed with the
Commission a  Registration  Statement  with respect to the resale of the Shares.
The Company shall use its best efforts to (i) cause such Registration  Statement
to become  effective  as soon as  possible  thereafter  and (ii)  maintain  such
Registration Statement's effectiveness.

                  3.15.  Additional  Equity. No later than the date which is 180
days following the Execution Date, the Company shall have received,  in addition
to the New Equity,  equity  contributions  in cash in an amount of not less than
$1,600,000 in exchange for new Common  Stock.  The Company shall be permitted to
issue preferred stock  ("Preferred  Stock") strictly in accordance with the term
sheet  annexed  hereto as  Schedule  3.15 as  authorized  by 2/3 of the Board of
Directors of the Company  (composed  in the manner set forth in Section  3.12(a)
hereof); provided,  however, that the certificate of designation with respect to
the Preferred  Stock shall not be filed without the prior written consent of the
Agent (which shall not be  unreasonably  withheld) to confirm the  provisions in
Schedule 3.15.

                  3.16. Supplemental Information. From time to time, the Company
shall promptly supplement or amend information previously delivered to the Funds
with respect to any matter hereafter  arising which, if existing or occurring at
the  Execution  Date,  would have been  required  to be set forth or  disclosed;
provided,  however, that such supplemental information shall not be deemed to be
an amendment to any schedule or exhibit hereto.

                  3.17 Covenant to Guarantee  Obligations and Give Security.  In
the event that the Company or any of its Subsidiaries  shall create or acquire a
subsidiary, such Person shall, at its expense:

                  (a)  within  10  days  after  the  date of  such  creation  or
acquisition,  cause each such new  Subsidiary to duly execute and deliver to the
Agent (i) a Guaranty  substantially  in the form of  Exhibit B hereto,  and (ii)
such Security Documents as the Agent may request;

                  (b)  within  15  days  after  the  date of  such  creation  or
acquisition,  deliver  to the Agent,  upon the  request of the Agent in its sole
discretion,  a favorable opinion,  addressed to the Agent and each of the Funds,
of counsel for such Guarantor acceptable to the Agent, as to such matters as the
Agent may reasonably request; and

                  (c) at any time and from time to time,  promptly  execute  and
deliver any and all further  instruments and documents and take all such actions
as the Agent may deem  necessary or reasonably  desirable in order to obtain the
full benefits of such Guaranty and Security Documents.

                  For purposes of this Section  3.17,  "subsidiary"  shall mean,
with respect to the Company or any Subsidiary, (i) any corporation more than 50%
of whose  stock of any class or  classes  having by the terms  thereof  ordinary
voting  power  to  elect  a  majority  of  the  directors  of  such  corporation
(irrespective  of  whether  or not at the time  stock of any class or classes of
such  corporation  shall  have or  might  have  voting  power by  reason  of the
happening of any  contingency) is at the time owned by such Person and/or one or
more subsidiaries of such Person, and (ii) any partnership,  association,  joint
venture or other entity in which such Person and/or one of more  subsidiaries of
such Person has more than a 50% equity interest at the time.

                  3.18.  Further  Assurances.  The  Company  will,  at  its  own
expense, make, execute, endorse,  acknowledge,  file and/or deliver, or cause to
be made, executed, endorsed,  acknowledged, filed and/or delivered, to the Agent
from time to time such vouchers,  invoices,  schedules,  conveyances,  powers of
attorney,  certificates,  reports and other  assurances or instruments  and take
such  further  steps  relating  to the  Collateral  as the Agent may  reasonably
require in order to provide  the Agent with the Liens and rights  granted  under
the Security Documents with respect to the Collateral.

     3.19. Guarantors. The Company will supplement Schedule 2.3 hereof within 10
days of the Closing to reflect the authorized,  issued and  outstanding  capital
stock of Aura Medical Systems, Inc. and Electrotec Productions, Inc.

                  3.20. Bank Accounts. The Company will give notice to the Agent
subject  to and in  accordance  with  Section  2.5  of  the  Security  Agreement
regarding the location of all of its bank accounts (including account numbers).

                  3.21.  Non-Recourse  Notes. Within forty-five (45) days of the
Closing  Date, at least fifty  percent  (50%) of the  Indebtedness  owing to the
holders  of the 8%  Secured  Convertible  Non-Recourse  Note Due 2008  listed in
Schedule 4.1(l) shall have been converted into Common Stock of the Company.

                  3.22.  Guzik Opinion.  The legal opinion of Guzik & Associates
(Exhibit H to the Exchange  Agreement)  shall be  supplemented  to cover the due
execution,  authorization  and  delivery  of the  Transaction  Documents  by the
Guarantors to which they are a party.

                  3.23.  Stock  Certificates.  The Company  shall  deliver stock
certificates  and stock voting powers for the  Guarantors to the Agent within 10
days of the Closing Date.

                  SECTION 4.        Negative Covenants.

                  The Company hereby  covenants and agrees that on and after the
Execution  Date and  until  this  Secured  Note has been  paid in full and is no
longer outstanding:

                  4.1.  Liens.  It will  not,  and  will not  permit  any of its
Subsidiaries to, create,  incur, assume or suffer to exist any Lien upon or with
respect  to any of the  property  or  assets  (real  or  personal,  tangible  or
intangible, including, without limitation, Proprietary Rights) of the Company or
any of its Subsidiaries,  whether now owned or hereafter  acquired,  or sell any
such property or assets subject to an understanding or agreement,  contingent or
otherwise,  to repurchase such property or assets  (including  sales of accounts
receivable with recourse to the Company or any of its  Subsidiaries),  or assign
any right to receive income or permit the filing of any notice of Lien under any
recording or notice  statute;  provided that the  provisions of this Section 4.1
shall not prevent the  creation,  incurrence,  assumption  or  existence  of the
following (Liens described below are herein referred to as "Permitted Liens"):

                  (a)  inchoate  Liens for taxes,  assessments  or  governmental
charges or levies not yet due or Liens for taxes,  assessments  or  governmental
charges or levies being  contested in good faith and by appropriate  proceedings
for which adequate reserves have been established in accordance with GAAP;

                  (b) Liens in respect of  property  or assets of the Company or
any of its  Subsidiaries  imposed by law,  which were  incurred in the  ordinary
course of business and do not secure  Indebtedness  for borrowed money,  such as
carriers', warehousemen's,  materialmen's and mechanics' liens and other similar
Liens  arising in the ordinary  course of business,  and (x) which do not in the
aggregate  materially  detract  from the  value of such  property  or  assets or
materially  impair  the use  thereof in the  operation  of the  business  of the
Company  or any of its  Subsidiaries  or (y) which are being  contested  in good
faith  by  appropriate  proceedings,   which  proceedings  have  the  effect  of
preventing  the forfeiture or sale of the property or assets subject to any such
Lien;

                  (c) Liens in existence on the Execution Date which are listed,
and the property  subject  thereto  described,  in Schedule  4.1(c)  hereto (the
"Existing  Liens"),  but only to the respective  date, if any, set forth in such
Schedule 4.1(c) for the removal, replacement and termination of any such Liens;

                  (d)      Liens created pursuant to the Security Documents;

                  (e) easements, rights-of-way,  restrictions, encroachments and
other similar charges or  encumbrances,  and minor title  deficiencies,  in each
case not securing  Indebtedness and not materially  interfering with the conduct
of the business of the Company or any of its Subsidiaries;

                  (f) statutory and common law landlords'  liens under leases to
which the Company or any of its Subsidiaries is a party;

                  (g) Liens  incurred  in the  ordinary  course of  business  in
connection with workers' compensation claims,  unemployment insurance and social
security  benefits and Liens securing the performance of bids,  tenders,  leases
and contracts in the ordinary course of business, statutory obligations,  surety
bonds,  performance bonds and other obligations of a like nature incurred in the
ordinary course of business  (exclusive of obligations in respect of the payment
for  borrowed  money),   provided  that  the  aggregate  outstanding  amount  of
obligations  secured by Liens permitted by this clause (g) (and the value of all
cash and property  encumbered  by Liens  permitted  pursuant to this clause (g))
shall not at any time exceed $100,000;

                  (h) Liens arising after the Execution Date solely by virtue of
any statutory provision relating to banker's liens, rights of set-off or similar
rights and  remedies as to deposit  accounts or other  funds  maintained  with a
creditor  depository  institution;  provided,  however,  that (A)  such  deposit
account  is not a  dedicated  cash  collateral  account  and is not  subject  to
restrictions  against access by the Company or any of its Subsidiaries,  and (B)
such deposit  account is not intended by the Company or any of its  Subsidiaries
to provide collateral to the depository institution (except to Imperial Bank);

     (i) Liens in connection with  Indebtedness  permitted under Sections 4.5(c)
and 4.5(d) hereof;

                  (j) Liens  subordinate  to the Liens  created  pursuant to the
Security  Documents;  provided that (A) any such  consensual  Lien shall only be
created,  assumed or suffered to exist if each Person in favor of whom such Lien
is  created  shall,  contemporaneously  or prior to the  creation  of such Lien,
execute and deliver to the Agent a lien  subordination  agreement to that effect
reasonably  satisfactory  to the Agent and (B) any such  statutory,  judgment or
other  nonconsensual  Lien  against the Company  and Aura  Ceramics  (including,
without limitation, any judgment liens which are not Permitted Liens pursuant to
Section  4.1(c))  shall only be  created,  assumed,  or suffered to exist if the
total amount of such Liens in the aggregate (excluding the DFS Claims) shall not
at any time exceed $1,066,666.67; and

                  (k) any  extension,  renewal or  replacement  of the foregoing
Liens; provided, however, that the Liens permitted hereunder shall not cover any
additional  Indebtedness or property  (other than like property  substituted for
property covered by such Lien) except as otherwise permitted pursuant to Section
4.5(c).

                  In connection with the granting of Liens of the type described
in Section 4.1(i) by the Company or any of its Subsidiaries, the Agent is hereby
authorized by the Funds and shall take any actions  reasonably  requested by the
Company in writing in connection therewith  (including,  without limitation,  by
executing  appropriate lien  subordination  agreements in favor of the holder or
holders of such Liens  solely with  respect to the item or items of equipment or
other assets subject to such Liens).

                  Notwithstanding the foregoing, any Permitted Liens (other than
Existing  Liens  or  Liens  under  Sections  4.1(d))  upon  or with  respect  to
Proprietary  Rights  and  other  general  intangibles  of the  Company  and  its
Subsidiaries  shall only be created,  assumed or suffered to exist to the extent
any such Lien shall be subordinate to the Liens created pursuant to the Security
Documents  and  each  Person  in  favor of which  such  Lien is  created  shall,
contemporaneously  or prior to the creation of such Lien, execute and deliver to
the Agent a lien subordination  agreement to that effect reasonably satisfactory
to the Agent.

                  4.2.  Proprietary  Rights.  Except  with  respect to  Non-Core
Assets in accordance  with the terms hereof,  the Company will not, and will not
permit any of its  Subsidiaries  to, nor shall any such  Person  allow any other
Person to,  sell,  assign or transfer  any  interest  in any of the  Proprietary
Rights of the Company,  or file or record any  consensual  Lien,  assignment  or
other  instrument,  certificate or document having a similar effect with respect
to any of the Proprietary  Rights of the Company or any of its Subsidiaries with
the U.S.  Patent  and  Trademark  Office.  Nothing  herein  shall be  deemed  or
construed as an argument or admission that the Liens upon the Proprietary Rights
of the Company and its Subsidiaries  created pursuant to the Security  Documents
are impaired or unperfected.

                  4.3.  Consolidation,  Merger, Purchase or Sale of Assets, etc.
It will not, and will not permit any of its  Subsidiaries to, wind up, liquidate
or  dissolve   its  affairs  or  enter  into  any   transaction   of  merger  or
consolidation, or convey, sell, lease or otherwise dispose of all or any part of
their  property or assets,  or enter into any  sale-leaseback  transactions,  or
purchase or otherwise  acquire (in one or a series of related  transactions) any
part of the property or assets (other than  purchases or other  acquisitions  of
inventory,  materials and  equipment in the ordinary  course of business) of any
Person (or agree to do any of the foregoing at any future time), except that:

                  (a) the  Company,  Aura  Ceramics  and  AuraSound,  taken as a
whole,  may lease (as  lessee) (i) real  property  in an amount no greater  than
$1,200,000 in the aggregate in any 12 month period or (ii) personal  property in
an amount no greater than $500,000 in the  aggregate in any 12 month period,  or
create a capitalized lease obligation;

                  (b) the Company, Aura Ceramics and AuraSound may make sales of
inventory in the ordinary course of business and consistent with past practices;

                  (c) the  Company  and its  Subsidiaries  may sell,  lease,  or
otherwise  dispose of  equipment  or  materials  with a value of no greater than
$25,000 in the aggregate which, in the reasonable  judgment of such Person,  are
obsolete, worn-out or otherwise no longer useful in the conduct of such Person's
business and the Funds shall take such actions as may reasonably be requested by
the  Company  in writing  in  connection  therewith  (including,  if  necessary,
executing  an  appropriate  release of the Liens  under the  Security  Documents
solely with respect to such equipment and materials);

                  (d) so long as no Event of  Default  shall  occur  and has not
been cured in accordance with the terms hereof, the Company and its Subsidiaries
may sell, lease, or otherwise  dispose of Non-Core Assets,  including all of the
Company's stock of any of its  Subsidiaries,  at fair value (as determined by no
less than 2/3 of the Board of  Directors  of the Company  composed in the manner
set forth in Section 3.12(a) or (b) hereof) in arm's length transactions and the
Funds shall take such actions as may be  reasonably  requested by the Company in
writing in  connection  therewith  (including,  if  necessary,  by  executing an
appropriate  release  solely with respect to such  Non-Core  Assets of the Liens
under the Security  Documents  and the  Obligations,  including  indemnification
obligations, under the Guaranty);

                  (e) any Subsidiary of the Company may sell, lease, transfer or
otherwise  dispose of any or all of its property (upon voluntary  liquidation or
otherwise) to the Company; and

                  (f) any Guarantor may merge with and into the Company.

                  Notwithstanding  anything to the  contrary  contained  in this
Section 4.3, neither the Company nor any of its  Subsidiaries may convey,  sell,
lease,  or otherwise  dispose of any property  having more than minimal value to
any  existing  or future  Subsidiary  of the Company  without the Agent's  prior
written consent.  Neither the Company nor any of its Subsidiaries shall transfer
or deliver any  Instrument  or  Investment  Property (as defined in the Security
Agreement) to any Person  (other than the Agent)  except as otherwise  expressly
permitted by the Security Agreement or this Secured Note.

                  4.4. Dividends.  (a) It will not declare or pay any dividends,
or return  any  capital,  to its  stockholders  or  authorize  or make any other
distribution,  payment or delivery of  property or cash to its  stockholders  as
such, or redeem, retire, purchase or otherwise acquire,  directly or indirectly,
for consideration, any shares of any class of its capital stock now or hereafter
outstanding  (or any options or warrants  issued by the Company  with respect to
its capital stock), or set aside any funds for any of the foregoing purposes, or
permit  any  of  its   Subsidiaries   to  purchase  or  otherwise   acquire  for
consideration any shares of any class of the capital stock of the Company now or
hereafter  outstanding  (or any options or warrants  issued by the Company  with
respect to its capital stock).

                  (b) Except as otherwise provided in this Secured Note, it will
not permit any of its  Subsidiaries  to declare or pay any dividends,  or return
any capital,  to its  stockholders or authorize or make any other  distribution,
payment or delivery of property or cash to its  stockholders as such, or redeem,
retire,   purchase  or  otherwise  acquire,   directly  or  indirectly,   for  a
consideration,  any shares of any class of its  capital  stock now or  hereafter
outstanding  (or any options or warrants  issued by such Subsidiary with respect
to its capital stock), or set aside any funds for any of the foregoing purposes,
or permit  any of its  Subsidiaries  to  purchase  or  otherwise  acquire  for a
consideration  any shares of any class of the capital  stock of such  Subsidiary
now or  hereafter  outstanding  (or  any  options  or  warrants  issued  by such
Subsidiary  with respect to its capital  stock),  except that any Subsidiary may
pay cash dividends to the Company, including,  without limitation, in respect of
any sales of Non-Core Assets in accordance with the terms hereof.

     4.5. Indebtedness. It will not, and will not permit any of its Subsidiaries
to, contract, create, incur, assume or suffer to exist any Indebtedness, except:

     (a)  Indebtedness  incurred  pursuant  to this  Secured  Note and the other
Transaction Documents;

                  (b)      Existing Indebtedness;

                  (c) Working Capital  Indebtedness  incurred by (i) the Company
only in  connection  with the AuraGen  business,  or (ii) Aura  Ceramics only in
connection with its existing business as of the Execution Date;

                  (d)  Indebtedness  incurred by (i) the  Company in  connection
with capital  expenditures  related only to the AuraGen business in an aggregate
amount  not to exceed at any one time  outstanding  $1,000,000  within  one year
following the Execution  Date and such amount as determined by two-thirds  (2/3)
of the Board of  Directors  of the Company  (composed in the manner set forth in
Section 3.12(a) hereof) in arm's length transactions at any time after the first
anniversary  of the  Execution  Date or (ii) Aura  Ceramics in  connection  with
capital  expenditures  related only to its existing business as of the Execution
Date  not to  exceed  at any one  time  outstanding  $500,000  within  one  year
following the Execution  Date and such amount as determined by two-thirds  (2/3)
of the Board of  Directors  of the Company  (composed in the manner set forth in
Section 3.12(a) hereof) in arm's length transactions at any time after the first
anniversary of the Execution Date;

                  (e) additional  unsecured trade  Indebtedness  incurred by the
Company  related only to the AuraGen  business in the  ordinary  course in arm's
length transactions in an aggregate principal amount not to exceed $2,000,000 at
any one time  outstanding;  provided that any Indebtedness  permitted under this
Section 4.5(e) shall be subordinate to the Secured Notes; and

                  (f)  additional  unsecured  trade  Indebtedness  incurred by a
Subsidiary in the ordinary course in an aggregate principal amount not to exceed
$500,000 at any one time outstanding;  provided that any Indebtedness  permitted
under this Section 4.5(f) shall be subordinate to the Secured Notes;

provided that the foregoing  Indebtedness  shall only be incurred if immediately
prior to such  incurrence and after giving effect  thereto,  no Event of Default
shall have  occurred  which has not been cured in  accordance  with the terms of
this Secured Note.

                  4.6.  Transactions with Affiliates.  It will not, and will not
permit  any of its  Subsidiaries  to,  enter into any  transaction  or series of
related  transactions,  with any  Affiliate  of any of them,  other  than in the
ordinary  course  of  business  and on terms  and  conditions  substantially  as
favorable to the Company or such  Subsidiary as would  reasonably be obtained by
the  Company  or such  Subsidiary  at that  time in a  comparable  arm's  length
transaction with a Person other than an Affiliate.

                  4.7.    Limitation   on    Modifications    of   Indebtedness;
Modifications  of  Certificate  of  Incorporation,  By-Laws  and  Certain  Other
Agreements. Except as otherwise permitted by this Secured Note, it will not, and
will not permit any of its Subsidiaries  to, (i) amend or modify,  or permit the
amendment or  modification  of, any  provision of any  Indebtedness  (including,
without limitation,  the Restructured NEC Debt and all Restructured Trade Debts)
or of any agreement  (including,  without  limitation,  any purchase  agreement,
indenture, loan agreement or security agreement) relating thereto other than any
amendments or modifications to the Existing Indebtedness which do not in any way
materially and adversely  affect the ability of the Company or its  Subsidiaries
to perform their obligations under the Transaction Documents, (ii) make (or give
any notice in respect  thereof) any voluntary or optional  payment or prepayment
on or redemption or  acquisition  for value of, or any  prepayment or redemption
of,  any  Indebtedness,  except  that the  Company  may make  such  payments  or
redemptions  in the aggregate  amount of $500,000 in any 12 month period so long
as no Event of Default  shall have occurred  (except for the DFS Claims),  (iii)
amend or modify,  or permit the amendment or  modification  of, any provision of
any  Indebtedness or any agreement  relating  thereto,  other than amendments or
modifications  which  do not in any way  materially  and  adversely  affect  the
ability of the Company or its  Subsidiaries to perform their  obligations  under
the Transaction Documents,  or (iv) amend, modify or change their certificate of
incorporation  (including,  without limitation, by the filing or modification of
any  certificate  of  designation)  or  bylaws  (or  equivalent   organizational
documents),  or any agreement entered into by any of them, with respect to their
capital stock  (including any  shareholders'  agreement),  or enter into any new
agreement  with  respect to their  capital  stock,  other  than any  amendments,
modifications or changes to this clause (iv) or any such new agreements pursuant
to this clause (iv) which do not in any way materially and adversely  affect the
ability of the Company or its  Subsidiaries to perform their  obligations  under
the Transaction  Documents;  provided,  however,  that the Company may (A) enter
into a settlement and payment of unsecured  Indebtedness  of the Company owed to
GSS as of the Execution  Date in an aggregate  amount not to exceed  $4,000,000,
(B) enter into a settlement  and payment of the DFS Claims owed to DFS as of the
Execution Date in an aggregate  amount not to exceed  $5,000,000,  and (C) issue
capital stock in accordance with Section 4.8 hereof.

                  4.8.  Limitation on Issuance of Capital Stock. (a) The Company
will not,  and will not permit any of its  Subsidiaries  to, issue any equity or
capital stock which may be redeemed,  called or put, or which has any preference
or extraordinary  rights,  other than Preferred Stock as contemplated  under and
pursuant to this Secured Note.

                  (b) The  Company  will  not,  and will not  permit  any of the
Guarantors to, issue or agree to issue any equity or capital stock (including by
way of sales of treasury  stock,  options,  warrants to purchase,  or securities
convertible  into,  capital  stock)  unless at a price at or above the then fair
value as determined by no less than 2/3 of the Board of Directors of the Company
(composed in the manner set forth in Section  3.12(a) hereof) either at the time
of issuance or the time of the relevant agreement.

                  SECTION 5.        Events of Default.

                  Upon the occurrence of any of the following  specified  events
(each an "Event of Default"):

                  5.1  Payments.  The  Company  shall (i) default in the payment
when due of any principal  hereunder,  or (ii)  default,  and such default shall
continue  unremedied for three or more Business Days, in the payment when due of
any interest  hereunder or any fees or any other amounts (other than  principal)
owing hereunder or under any other Transaction Document; or

                  5.2.  Representations,  etc. Any  representation,  warranty or
statement made by the Company or any of its Subsidiaries  herein or in any other
Transaction  Document or in any  certificate  delivered to the Agent or any Fund
pursuant  hereto or thereto shall prove to be untrue in any material  respect on
the date as of which made or deemed made and such  misrepresentation is material
and  continues to be material to the  business,  operations,  assets,  revenues,
properties,  liabilities or prospects of the Company or any of its  Subsidiaries
on earlier of (i) the date notice of an Event of Default is given to the Company
or (ii) the date on which the Company or any of its  Subsidiaries  becomes aware
of such default; or

                  5.3.  Covenants.  The Company or any of its Subsidiaries shall
(a) default in the due performance or observance by it of any term,  covenant or
agreement  contained in Sections 3.1(d),  3.3, 3.10,  3.11,  3.12, 3.13,  3.14.,
3.15, 3.17, 3.19, 3.20, 3.21, 3.22, 3.23 or Section 4 hereof,  or (b) default in
the due performance or observance by it of any other term, covenant or agreement
contained in this Secured Note (other than those set forth in Section 5.1 or 5.2
or clause (a) of this  Section 5.3) or any other  Transaction  Document and such
default shall  continue  unremedied for a period of 30 days after written notice
thereof to the defaulting party by the Agent or any Fund; or

                  5.4.  Default  Under  Other  Agreements.   The  Company,   the
Guarantors or any of their  Subsidiaries shall (i) default in any payment of any
Existing  Secured  Indebtedness  beyond  the  period of grace  (not to exceed 30
days), if any, provided in the instrument or agreement under which such Existing
Secured   Indebtedness  was  created  or  (ii)  default  in  the  observance  or
performance  of any  agreement  or condition  relating to any  Existing  Secured
Indebtedness or contained in any instrument or agreement evidencing, securing or
relating thereto,  or any other event shall occur or condition exist, the effect
of which  default  or other  event or  condition  is to cause,  or to permit the
holder or holders of such Existing  Secured  Indebtedness (or a trustee or agent
on behalf of such  holder or  holders) to cause  (determined  without  regard to
whether any notice is  required),  any such  Existing  Secured  Indebtedness  to
become due prior to its stated maturity; or any Existing Secured Indebtedness of
the Company,  the Guarantor or any of their Subsidiaries shall be declared to be
due and payable,  or required to be prepaid other than by a regularly  scheduled
required prepayment,  prior to the stated maturity thereof;  provided,  however,
that (a) such default shall  continue  unremedied  for a period of 30 days after
notice of  default  has been  given to the  Company  by the  holder of  Existing
Secured  Indebtedness  asserting the default (or shall continue unremedied up to
an  additional  60 days beyond such initial  30-day cure period if the holder of
Existing Secured Indebtedness asserting the default forbears,  waives or extends
such  default  in  writing  for such  additional  time and the Funds  shall have
received commensurate therewith cash or other consideration equal to the cash or
other  consideration  given to such holder of Existing  Secured  Indebtedness on
account of, or in  connection  with,  or related to such  holder's  forbearance,
waiver or  extension of the default) and (b) this Section 5.4 shall not apply to
any default arising under Existing  Secured  Indebtedness of the Company owed to
Imperial Bank as a result of the granting of Liens under the Security  Documents
in respect of the Secured Notes.

                  5.5. Bankruptcy.  The Company or any of its Subsidiaries shall
commence a voluntary case  concerning  itself under the  Bankruptcy  Code; or an
involuntary  case is  commenced  against  the  Company  and the  petition is not
controverted  within 10 days after service,  or is not dismissed within 30 days,
after  commencement  of the case or a custodian  (as  defined in the  Bankruptcy
Code) is  appointed  for, or takes  charge of, all or  substantially  all of the
property of the foregoing Persons.  The Company or any of its Subsidiaries shall
commence any other proceeding under any reorganization,  arrangement, assignment
for  the  benefit  of  creditors,   adjustment  of  debt,   relief  of  debtors,
dissolution,  insolvency  or  liquidation  or  similar  law of any  jurisdiction
whether  now or  hereafter  in  effect  relating  to the  Company  or any of its
Subsidiaries.  There is commenced  against the Company or Aura Ceramics any such
proceeding  which  remains  undismissed  for a period of 30 days,  or any of the
Company and Aura Ceramics is adjudicated  insolvent or bankrupt, or any order of
relief or other order  approving any such case or proceeding is entered,  or the
Company or Aura Ceramics  suffers any  appointment  of any custodian or the like
for it or any  substantial  part of its  property  to continue  undischarged  or
unstayed  for a  period  of 30  days,  or the  Company  or Aura  Ceramics  shall
generally  not pay its debts as they become due or there shall be deemed to have
occurred a suspension  of  payments,  or the Company or Aura  Ceramics  shall be
substantively consolidated with any other Person, or any judgment or order which
has a Material Adverse Effect shall have been entered against the Company or any
of its Subsidiaries  pursuant to Bankruptcy Code sections 506(c), 542, 543, 544,
545,  547,  548,  549,  550,  551,  552(b)  and 553.  The  Company or any of its
Subsidiaries  makes a general  assignment  for the benefit of creditors,  or any
corporate  action is taken by the  Company  or any of its  Subsidiaries  for the
purpose of effecting any of the foregoing; or

     5.6. Security  Documents.  Any of the Security  Documents shall cease to be
valid and in full force and effect,  or, except as otherwise  permitted  hereby,
shall cease to give the Agent,  for the benefit of the Funds, the Lien purported
to be created thereby; or

                  5.7.  Guaranty.  At any time after the  execution and delivery
thereof,  any Guaranty or any provision  thereof shall cease to be in full force
or effect as to any  Guarantor,  or any  Guarantor or any Person acting by or on
behalf of such Guarantor  shall deny or disaffirm such  Guarantor's  obligations
under its Guaranty or any  Guarantor  shall  default in the due  performance  or
observance  of any term,  covenant or  agreement  on its part to be performed or
observed pursuant to its Guaranty; or

     5.8.  Material Adverse Change.  Any event or condition shall occur or exist
which,  in the  reasonable  judgment of the Agent,  has, or could  reasonably be
expected to have, a Material Adverse Effect; or

                  5.9.  Denial  of  Liability.  (a)  The  Company  or any of its
Subsidiaries  shall deny its  obligations  under this  Secured Note or any other
Transaction  Document;  (b) any law, rule or regulation  shall purport to render
invalid,  or preclude  enforcement of, any provision of this Secured Note or any
other  Transaction  Document  or  impair  performance  of the  Company's  or any
Subsidiary's  obligations  hereunder or under any other Transaction  Document or
(c)  any  dominant  authority  asserting  or  exercising  de  jure  or de  facto
governmental or police powers shall,  by moratorium  laws or otherwise,  cancel,
suspend or defer the obligation of the Company or any of its Subsidiaries to pay
any  amount  required  to be paid  hereunder  or  under  any  other  Transaction
Document; or

                  5.10. DFS. DFS shall obtain (i) a settlement of the DFS Claims
in  excess  of $5  million,  or (ii)  an  arbitral  award,  judgment,  or  other
resolution of the DFS Claims in excess of $5,000,000 and DFS obtains property or
assets  of the  Company  or any of its  Subsidiaries  in excess  of  $50,000  in
connection therewith (including, without limitation, by way of levy, attachment,
garnishment, foreclosure or possession); or

                  5.11. Isosceles.  Isosceles shall fail to convert its existing
Indebtedness  owed by the Company  into Common  Stock of the Company  within six
months of the  Execution  Date,  or  Isosceles  at any time  obtains a judgment,
attaches,  garnishes,  takes possession or otherwise forecloses on the Company's
assets or property in respect of such Indebtedness;

then, and in any such event, and at any time thereafter, if any Event of Default
shall  occur  (which  has not been  cured in  accordance  with the terms of this
Secured Note), the Holder may take any or all of the following actions,  without
prejudice to the rights of the Holder to enforce its claims  against the Company
or any of its  Subsidiaries  (provided that if an Event of Default  specified in
Section  5.5  above  shall  occur  with  respect  to the  Company  or any of its
Subsidiaries,  the result which would occur upon the giving of written notice by
the Holder as  specified in clause (i) below shall occur  automatically  without
the giving of any such notice): (i) (x) declare the principal of and any accrued
interest in respect of all Obligations owing hereunder to be, whereupon the same
shall become, forthwith due and payable without presentment,  demand, protest or
other notice of any kind, all of which are hereby waived by the Company and each
of the Guarantors,  or (y) convert all or any portion of the  Obligations  owing
hereunder;  and (ii) exercise any other rights  available  under the Transaction
Documents or  applicable  law; and  immediately,  with respect to any  violation
(without  any right to cure) of the  representation  contained  in Section  2.30
hereof  and/or the  covenant  contained  in Section  4.3(d) or 4.8  hereof,  the
Conversion Price shall be reduced from $0.60 to $0.30.

                  SECTION 6.        Maturity.

                  If this  Secured  Note is not  converted  at the option of the
Holder in accordance with Section 8 hereof, the principal amount of this Secured
Note,  together  with accrued but unpaid  interest,  shall be due and payable on
demand on the Maturity Date.

                  SECTION 7.        Optional Prepayment.

                  Upon  giving the Agent at least  three  Business  Days'  prior
written notice (which shall be irrevocable), the Company shall have the right to
prepay amounts of principal under this Secured Note at any time, without premium
or penalty,  in an aggregate  principal amount of at least $1,000,000,  together
with  interest  accrued as of the date of such  prepayment;  provided,  however,
that, with respect to any such prepayment,  so long as no Event of Default shall
occur which has not been cured in accordance with the terms of Section 5 hereof,
the principal amount hereunder shall be reduced by an amount equal to the sum of
the principal so prepaid and the Applicable Discount.  Notwithstanding  anything
to the contrary contained herein, the Applicable Discount shall not apply to any
prepayments  from  proceeds of any issuance of  Preferred  Stock as set forth in
Schedule 3.15 hereof.

                  SECTION 8.        Conversion.

                  8.1.  Conversion  Events.  Upon the  occurrence and during the
continuation of any Conversion  Event, all or any portion of any Obligations due
under this Secured Note may be converted into Shares at the option of the Holder
following  delivery of a notice of  conversion  to the Company in the manner set
forth in Section  11.4 (the "Notice of  Conversion")  at any time on or prior to
the Maturity Date, subject to the terms and conditions set forth in this Section
8. Upon  conversion  into  Shares,  any  amounts  converted  hereunder  shall be
discharged.

                  8.2.  Conversion  Price.  The number of Shares  into which any
amount under this Secured Note may be converted  shall be determined by dividing
the amount  subject to  conversion  as set forth in the Notice of  Conversion by
$0.60 (the "Conversion Price").

                  8.3. Method of Conversion. Before the Holder shall be entitled
to receive Shares upon the conversion of any amount under this Secured Note, the
Holder  shall  surrender  this  Secured  Note  solely  for the  purposes  of the
conversion  thereof  together  with a Notice of  Conversion to the office of the
Company or its designated  agent.  The Notice of Conversion  shall state therein
the amount(s) in which the  certificate(s) for Shares are to be issued. The time
of  conversion  (the  "Conversion  Date")  shall be the close of business on the
calendar day  following  the date on which a Notice of Conversion is sent to the
Company in  accordance  with  Section  11.4.  Interest on the amount  under this
Secured  Note  subject to  conversion  as set forth in the Notice of  Conversion
shall cease to accrue on and after the Conversion  Date.  Upon the conversion of
any amount under this Secured Note, the Company shall execute and deliver on the
Conversion Date, in exchange and substitution for and upon  cancellation of this
Secured Note, a new secured note in the principal  amount equal to the amount of
this Secured Note less such amount subject to conversion.

                  8.4.  Issuance  of  Shares.  The  Company  shall,  as  soon as
practicable  after the  Conversion  Date,  but in no event  more than  three (3)
business  days  thereafter,   issue  and  deliver  to  the  Holder  certificates
representing  the  number of Shares to which the  Holder  shall be  entitled  as
aforesaid;  provided,  however,  that  the  Company  may pay in full in cash all
Obligations  owing to the Funds  hereunder and under the  Transaction  Documents
within  three  (3)  business  days  after  the  Conversion  Date  in lieu of the
Company's  obligations to issue and deliver the  certificates  representing  the
Shares to the Holder under this Section 8.4.

                  8.5. No  Fractional  Shares.  No  fractional  Shares  shall be
issuable  upon  conversion  of any amount  under this  Secured  Note  subject to
conversion as set forth in the Notice of  Conversion.  If the conversion of such
amount would result in the issuance of a fractional Share, such fractional share
shall be rounded up to the nearest whole share and issued to the Holder.

                  8.6.     Adjustment of Conversion Price; Merger.

                  (a) If at any time or from time to time while any amount under
this Secured Note is outstanding  (i) the Company shall declare or pay,  without
consideration, any dividend on the Common Stock payable in Common Stock, or (ii)
the Company shall effect a subdivision of the outstanding shares of Common Stock
into  a  greater   number  of   shares   of  Common   Stock  (by  stock   split,
reclassification  or otherwise  than by payment of a dividend in Common Stock or
in any right to acquire Common Stock), or (iii) the outstanding shares of Common
Stock shall be combined or consolidated,  by reclassification or otherwise, into
a lesser number of shares of Common Stock,  then the Conversion  Price in effect
immediately before such event shall, concurrently with the effectiveness of such
event, be proportionately decreased or increased, as appropriate. If the Company
shall declare or pay,  without  consideration,  any dividend on the Common Stock
payable  in any right to acquire  Common  Stock for no  consideration,  then the
Company  shall be deemed to have made a dividend  payable in Common  Stock in an
amount of shares equal to the maximum number of shares issuable upon exercise of
such rights to acquire Common Stock.

                  (b) If the Shares issuable upon conversion of any amount under
this Secured Note, if any, shall be changed into the same or a different  number
of  shares  of  any  other  class  or  classes  of  stock,  whether  by  capital
reorganization,  reclassification  or  otherwise  (other than a  subdivision  or
combination of shares provided for in Section 8.6(a)), the Conversion Price then
in effect shall,  concurrently with the effectiveness of such  reorganization or
reclassification,  be  proportionately  adjusted  so that  the  Shares  shall be
convertible  into,  in lieu of the  number of shares of Common  Stock  which the
Holder would otherwise have been entitled to receive, a number of shares of such
other  class or classes of stock  equivalent  to the number of Shares that would
have been subject to receipt by the Holder upon  conversion  of any amount under
this Secured Note immediately before that change.

                  (c) In case of any  consolidation  or  merger  of the  Company
permitted by Section  4.3(f)  hereof (each such  transaction,  a "Merger"),  the
survivor of the Merger shall succeed to the  covenants,  stipulations,  promises
and  agreements  contained in this Secured Note.  In the event of a Merger,  the
Company  shall make  appropriate  provisions  so that the Holder  shall have the
right thereafter to convert any amount under this Secured Note into the kind and
amount of  securities  receivable  upon such Merger by a Holder of the number of
securities  into  which any  amount  under  this  Secured  Note  might have been
converted  immediately  prior to a Merger.  The above provisions shall similarly
apply to successive Mergers.

                  (d) Upon the occurrence of each  adjustment or readjustment of
any  Conversion  Price  pursuant to this Section 8.6, the Company at its expense
shall promptly  compute such  adjustment or  readjustment in accordance with the
terms hereof and prepare and furnish to the Holder a notice  setting  forth such
adjustment  or  readjustment  and  showing  in detail  the facts upon which such
adjustment or readjustment is based.

                  8.7.  Reservation of Stock. The Company shall, at all times on
and after the date which is 90 days  following the Execution  Date,  reserve and
keep available out its authorized  but unissued  shares of Common Stock,  solely
for the purpose of  effecting  the  conversion  of any amount under this Secured
Note into  Shares,  such number of its shares of Common Stock as shall from time
to time be sufficient to effect the  conversion of any amount under this Secured
Note into  Shares;  and if at any time the  number of  authorized  but  unissued
shares of Common Stock shall not be sufficient  to effect the  conversion of any
amount  under this  Secured  Note into  Shares,  then the Company will take such
corporate  action as may be necessary to increase  its  authorized  but unissued
shares of Common Stock to such number of shares as shall be sufficient  for such
purpose, including,  without limitation,  engaging in best efforts to obtain the
requisite  stockholder  approval of any  necessary  amendment to its articles of
incorporation.

                  8.8.     Failure to Issue and/or Deliver Shares.

                  (a) The  Company  shall  issue and  deliver,  within  five (5)
Trading Days after the Holder has  fulfilled  all  conditions  and submitted all
necessary  documents  duly executed and in proper form  required for  conversion
(the  "Deadline"),  to the Holder or any party  receiving  the Secured  Notes by
transfer from Holder,  at the address of the Holder on the books of the Company,
a certificate or certificates for the number of Shares to which the Holder shall
be  entitled.  The  Company  understands  that a delay  in the  issuance  and/or
delivery of the Shares beyond the Deadline  could result in economic loss to the
Holder.  As compensation to the Holder for such a loss, and not as penalty,  the
Company  agrees to pay  liquidated  damages to the Holder for late  issuance  of
Shares upon conversion in accordance with the following  schedule (where "No. of
Business Days Late" is the number of Business Days from the Deadline  until (and
including) the Business Day on which the Holder receives the Shares):

<TABLE>
<CAPTION>

                                                                                 Liquidated Damages
                                                                   (per one hundred thousand dollars of principal
                                                                 outstanding hereunder, based on an amount not less
                                                                     than the stated principal amount due on the
                                                                                   Maturity Date)
                            No. of Business Days Late
<S>                                     <C>                                              <C>
                                        2                                                $50
                                        3                                               $100
                                        4                                               $150
                                        5                                               $200
                                        6                                               $250
                                        7                                               $300
                                        8                                               $350
                                        9                                               $400
                                       10                                               $450
                                       11                                               $500
                                       >11                       $500 plus an additional $100 for each Business Day
                                                                              beyond 11 Business Days.
</TABLE>
                  (b) The Company  shall pay the Holder any  liquidated  damages
incurred under this Section 8.8 by wire transfer of immediately  available funds
to an account  designated by Holder upon the earlier to occur of (i) issuance of
the Shares to the Holder or (ii) each monthly  anniversary of the receipt by the
Company of such Holder's  Notice of  Conversion.  Nothing herein shall waive the
Company's  obligations to deliver  Shares upon a total or partial  conversion of
this  Secured Note or limit  Holder's  rights to pursue  actual  damages for the
Company's  failure to issue and deliver Shares to such Holder in accordance with
the terms of this Secured Note.

                  (c) The Company agrees that, in addition to any other remedies
which may be available to the Holder,  including,  but not limited, to, remedies
available hereunder or under the other Transaction  Documents,  in the event the
Company  fails  for any  reason  to effect  delivery  to Holder of  certificates
representing  Shares  within  five (5)  Trading  Days  following  receipt by the
Company  of a Notice of  Conversion,  a Holder  will be  entitled  to revoke the
Notice  of  Conversion  by  delivering  a notice to such  effect to the  Company
whereupon the Company and the Holder shall each be restored to their  respective
positions immediately prior to delivery of such Notice of Conversion.

     SECTION  9.  Other  Provisions  Relating  to Rights  of the  Holder of this
Secured Note.

                  9.1.  Shareholder  Rights. This Secured Note shall not entitle
the  Holder to any of the rights of a  shareholder  of the  Company,  including,
without  limitation,   the  right  to  vote,  to  receive  dividends  and  other
distributions,  or  to  receive  any  notice  of,  or  to  attend,  meetings  of
shareholders or any other proceedings of the Company;  provided,  however,  this
Section  9.1 shall not affect the  rights of the Holder  under the Stock  Pledge
Agreement or in its  capacity as a  shareholder  of the Company  pursuant to any
Common Stock held by the Holder, including,  without limitation, upon conversion
of any amount under this Secured Note pursuant to Section 8 hereof or otherwise.

                  9.2.  Lost,  Stolen,  Mutilated  or  Destroyed  Note.  If this
Secured Note shall be mutilated,  lost, stolen, or destroyed,  the Company shall
execute and deliver, in exchange and substitution for and upon cancellation of a
mutilated Secured Note, or in lieu of or in substitution for a lost,  stolen, or
destroyed  Secured  Note,  a new Secured Note for the  principal  amount of this
Secured Note so mutilated,  lost,  stolen, or destroyed but only upon receipt of
evidence (which may consist of a signed affidavit of the Holder),  of such loss,
theft, or destruction of this Secured Note.

                  SECTION 10.  Other Agreements.

                  10.1.    Transfer Restrictions.

                  (a) If the Holder  should  decide to  dispose of this  Secured
Note, the Holder  understands  and agrees that it may do so only (i) pursuant to
an effective  registration  statement under the Securities Act, or (ii) pursuant
to an available exemption from registration under the Securities Act.

                  (b) The Holder agrees to the  imprinting,  so long as required
by the terms of the  Securities  Act, of the  following  legend on  certificates
representing the Shares:

                  THE  SHARES  EVIDENCED  BY  THIS  CERTIFICATE  HAVE  NOT  BEEN
                  REGISTERED  UNDER THE  SECURITIES ACT OF 1933, AS AMENDED (THE
                  "SECURITIES ACT"), OR THE "BLUE SKY" OR SECURITIES LAWS OF ANY
                  STATE BY REASON OF THEIR ISSUANCE IN A TRANSACTION EXEMPT FROM
                  THE  REGISTRATION  REQUIREMENTS  OF THE SECURITIES ACT OR SUCH
                  STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR
                  SOLD EXCEPT  PURSUANT TO AN EFFECTIVE  REGISTRATION  STATEMENT
                  UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION
                  FROM  THE  REGISTRATION   REQUIREMENTS   THEREUNDER,   AND  IN
                  COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS.

                  (c) The  legend set forth in clause (b) above and in the first
paragraph  of this  Secured  Note shall be removed as soon as allowed  under the
Securities Act or the  regulations  promulgated  thereunder.  The Company agrees
that it will provide the Holder,  upon  request,  with any  required  opinion of
counsel and a substitute  certificate or certificates,  free from such legend at
such time as such legend is no longer applicable, at no charge.

                  10.2.    Filing and Furnishing of Reports and Information.

                  (a) The  Company's  Common Stock is  registered  under Section
12(g) of the  Securities  Act. On and after the date which is 90 days  following
the  Execution  Date and for so long as the  Holder  owns this  Secured  Note or
Shares,  the Company  shall timely file all reports  required to be filed by the
Company with the  Commission  after the Execution Date pursuant to Section 13(a)
or 15(d) of the Exchange Act and to furnish to the Holder within 10 days of each
such filing true and complete  copies of all such filings and the Company  shall
not  terminate  its  status  as an issuer  required  to file  reports  under the
Exchange Act even if the Exchange  Act or the rules and  regulations  thereunder
would permit such  termination.  The Company will take all  necessary  action to
meet  the  "registrant  eligibility"  requirements  set  forth  in  the  general
instructions  to Form S-3.  If the  Company is not at the time  required to file
reports  pursuant to such  sections,  it will  prepare and furnish to the Holder
annual and quarterly financial statements, together with a management discussion
and analysis of such  financial  statements in form and substance  substantially
similar to those that would  otherwise  be  required  to be  included in reports
required by Section  13(a) or 15(d) of the  Exchange Act in the time period that
such filings would have been required to have been made under the Exchange Act.

                  (b) The  Company  shall  deliver  copies to the  Holder of any
documents or financial statements it delivers to any secured lender concurrently
with such delivery to such lender, subject to the confidentiality  provisions of
Section 6.12 of that certain Exchange Agreement dated February 14, 2000, between
the Company and the Funds.

                  10.3.  Blue Sky Laws.  The Company  shall qualify this Secured
Note  and  the  Shares  under  the   securities  or  "Blue  Sky"  laws  of  such
jurisdictions as the Holder may request and shall continue such qualification at
all times as long as the Holder owns any Shares.

                  10.4.  Integration.  The Company  shall not, and shall use its
best efforts to ensure that no Affiliate shall,  sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any "security" (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of  this  Secured  Note  or the  Shares  in a  manner  that  would  require  the
registration  under the  Securities  Act of the sale of this Secured Note or the
Shares to the Holder.

                  SECTION 11.  Miscellaneous.

                  11.1.  Fees and Expenses.  The Company and the Funds shall pay
the fees and expenses of their  respective  advisers,  counsel,  accountants and
other  experts,  if  any,  and  all  other  expenses  incurred  incident  to the
negotiation,  preparation,  execution,  delivery and performance of this Secured
Note and the other  Transaction  Documents.  The Company shall pay all stamp and
other  taxes  (other  than  income)  and duties  levied in  connection  with the
issuance of the Secured Notes and Shares pursuant hereto.

                  11.2.    Indemnification.

                  (a) Except with respect to litigation  concerning the priority
of Permitted  Liens or  assertions  by the Company in  accordance  with the last
sentence  of  Section  2.1 of the  Security  Agreement,  the  Company  agrees to
indemnify and hold harmless,  to the extent permitted by law, the Holder and its
respective officers and directors,  employees,  advisors, attorneys, agents, and
representatives   against  any  and  all  claims,  causes  of  action,   losses,
liabilities, damages or expenses incurred by any of them as a result of, arising
out of, or in any way  related to, or by reason of, any breach or default by the
Company  under any  provision  of this  Secured  Note or any  other  Transaction
Document,  including,  but not  limited  to,  any  breach by the  Company of its
representations and warranties set forth in Section 2.1 hereto.

                  (b) Any person entitled to indemnification hereunder shall (i)
give prompt written notice to the  indemnifying  party of any claim with respect
to which it seeks  indemnification  and (ii) unless in such indemnified  party's
reasonable  judgment  a  conflict  of  interest  between  such  indemnified  and
indemnifying  parties  may  exist  with  respect  to  such  claim,  permit  such
indemnifying  party to assume the defense of such claim with counsel  reasonably
satisfactory  to  the  indemnified  party.  If  such  defense  is  assumed,  the
indemnifying party shall not be subject to any liability for any settlement made
by the  indemnified  party  without its consent (but such  consent  shall not be
unreasonably  withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim shall not be obligated to pay the fees and
expenses  of  more  than  one  counsel  for  all  parties  indemnified  by  such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any  indemnified  party  a  conflict  of  interest  may  exist  between  such
indemnified party and any other of such indemnified parties with respect to such
claim.

                  (c) The  indemnification  provided for under this Secured Note
shall remain in full force and effect regardless of any investigation made by or
on behalf of the  indemnified  party or any  officer,  director  or  controlling
person of such  indemnified  party and shall survive the transfer of securities.
The Company also agrees to make such  provisions as are reasonably  requested by
any indemnified  party for contribution to such party in the event the Company's
indemnification is unavailable for any reason.

                  11.3. Entire Agreement;  Amendments. This Secured Note and the
other Transaction Documents, together with the exhibits and schedules hereto and
thereto,  contain the entire  understanding  of the parties  with respect to the
subject  matter hereof and supersede all prior  agreements  and  understandings,
oral or written, with respect to such matters.

                  11.4. Notices.  Any and all notices or other communications or
deliveries  required or permitted to be provided  hereunder  shall be in writing
and  shall be deemed  given and  effective  on the  earliest  of (i) the date of
transmission,  if such notice or communication is delivered via facsimile at the
facsimile  telephone  number  specified  in this Section 11.4 prior to 4:30 p.m.
(New York City time) on a Business  Day, (ii) the Business Day after the date of
transmission,  if such notice or communication is delivered via facsimile at the
facsimile  telephone  number specified below later than 4:30 p.m. (New York City
time) on any date and earlier than 11:59 p.m. (New York City time) on such date,
(iii) the  Business Day  following  the date of mailing,  if sent by  nationally
recognized  overnight courier service,  or (iv) upon actual receipt by the party
to  whom  such  notice  is  required  to  be  given.   The  addresses  for  such
communications shall be:

     If to the Company:        Aura Systems, Inc.
                               2335 Alaska Avenue
                               El Segundo, California  90245
                               Attn:  Michael Froch, Esq.
                               Facsimile No.:  (310) 643-8719

     With copies to:           Robinson, Diamant & Brill
                               1888 Century Park East, Suite 1500
                               Los Angeles, California 90067
                               Attn:  Lawrence A. Diamant, Esq.
                               Facsimile No.:  (310) 277-7584

     If to the Holder:         Global Growth Limited
                               Hunkins Waterfront Plaza
                               Main Street
                               P.O. Box 556
                               Charlestown, Nevis, West Indies
                               Attn:  Gwen McLaughlin
                               Facsimile No.:  (345) 949-0881

     With copies to:           White & Case LLP
                               4900 First Union Financial Center
                               200 South Biscayne Boulevard
                               Miami, Florida  33131
                               Attn:  Thomas E Lauria, Esq.
                               Facsimile No.:  (305) 358-5744

              and              Mr. Stuart J. Chasanoff
                               c/o HW Partners LP
                               1601 Elm Street, Suite 4000
                               Dallas, Texas 75201
                               Facsimile No.:  (214) 720-1667

or such other  address as may be designated  in writing  hereafter,  in the same
manner, by such person.

                  11.5.  Amendments;  Waivers. No provision of this Secured Note
may be waived or amended except in a written  instrument  signed, in the case of
an amendment,  by both the Company and the Holder,  or, in the case of a waiver,
by the party against whom enforcement of any such waiver is sought. No waiver of
any default with respect to any  provision,  condition  or  requirement  of this
Secured Note shall be deemed to be a continuing waiver in the future or a waiver
of any other provision,  condition or requirement hereof, nor shall any delay or
omission of either  party to exercise any right  hereunder in any manner  impair
the exercise of any such right accruing to it thereafter.

                  11.6.  Headings  Descriptive.  The  headings  herein  are  for
convenience only, do not constitute a part of this Secured Note and shall not be
deemed to limit or affect any of the provisions hereof.

                  11.7.    Benefit of Secured Note; Assignments; Participations.

                  (a) This  Secured  Note shall be binding upon and inure to the
benefit of and be enforceable  by the  respective  successors and assigns of the
parties hereto,  provided that the Company may not assign or transfer any of its
rights or obligations hereunder or under any other Transaction Documents.

                  (b)  The  Holder   may  sell,   assign,   transfer   or  grant
participations  in all or a portion of its rights  and  outstanding  Obligations
hereunder to any person,  each of which  assignees  shall become a party to this
Secured Note as a Holder,  provided that the new Secured Note will be issued, at
the Company's  expense,  to such new Holder and to the assigning Holder upon the
request of such new Holder or assigning  Holder,  such new Secured Note to be in
conformity  with  the  requirements   under  the  Transaction   Documents  (with
appropriate   modifications)  to  the  extent  needed  to  reflect  the  revised
outstanding  Obligations.  The  assigning  Holder will notify the Company of any
assignment pursuant to this Section 11.7(b); provided, however, that the failure
to give any such notice,  or any error in such  notice,  shall not affect any of
the  obligations  of the  Company  hereunder  or  under  any  other  Transaction
Document.

                  (c) Nothing in this Secured Note shall prevent or prohibit any
Holder from pledging its rights hereunder.

                  11.8.  No  Third-Party  Beneficiaries.  This  Secured  Note is
intended for the benefit of the parties  hereto and their  respective  permitted
successors  and assigns  and is not for the  benefit  of, nor may any  provision
hereof be enforced by, any other person.

     11.9.  GOVERNING LAW;  SUBMISSION TO  JURISDICTION;  VENUE;  WAIVER OF JURY
TRIAL.

                  (a) THIS SECURED NOTE AND THE OTHER TRANSACTION  DOCUMENTS AND
THE RIGHTS AND  OBLIGATIONS  OF THE PARTIES  HEREUNDER AND  THEREUNDER  SHALL BE
CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK
WITHOUT  GIVING EFFECT TO THE  PRINCIPLES  THEREOF  RELATING TO CONFLICTS OF LAW
EXCEPT SECTION 5-1401 OF THE NEW YORK GENERAL  OBLIGATIONS LAW. ANY LEGAL ACTION
OR  PROCEEDING  WITH RESPECT TO THIS SECURED NOTE OR ANY SUCH OTHER  TRANSACTION
DOCUMENT  MAY BE  BROUGHT  IN (i) THE  COURTS OF THE STATE OF NEW YORK OR OF THE
UNITED STATES FOR THE SOUTHERN  DISTRICT OF NEW YORK,  AND/OR (ii) THE COURTS OF
THE DEFENDANT'S RESPECTIVE CORPORATE DOMICILE, AND, BY THE ISSUANCE AND DELIVERY
OF THIS SECURED NOTE,  EACH PARTY HEREBY  IRREVOCABLY  ACCEPTS FOR ITSELF AND IN
RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY,  THE JURISDICTION OF THE
AFORESAID  COURTS.  THE COMPANY  HEREBY  IRREVOCABLY  DESIGNATES,  APPOINTS  AND
EMPOWERS CT  CORPORATION  SYSTEM,  WITH OFFICES ON THE DATE HEREOF AT 111 EIGHTH
AVENUE,  NEW YORK,  NEW YORK  10011,  AS ITS  DESIGNEE,  APPOINTEE  AND AGENT TO
RECEIVE,  ACCEPT AND  ACKNOWLEDGE  FOR AND ON ITS BEHALF,  AND IN RESPECT OF ITS
PROPERTY,  SERVICE OF ANY AND ALL LEGAL PROCESS,  SUMMONS, NOTICES AND DOCUMENTS
WHICH MAY BE SERVED IN ANY SUCH  ACTION OR  PROCEEDING.  IF FOR ANY REASON  SUCH
DESIGNEE,  APPOINTEE  AND AGENT SHALL CEASE TO BE AVAILABLE TO ACT AS SUCH,  THE
COMPANY AGREES TO DESIGNATE A NEW DESIGNEE, APPOINTEE AND AGENT IN NEW YORK CITY
ON THE TERMS AND FOR THE PURPOSES OF THIS  PROVISION  SATISFACTORY  TO THE AGENT
UNDER THIS SECURED NOTE. THE COMPANY FURTHER IRREVOCABLY CONSENTS TO THE SERVICE
OF  PROCESS  OUT OF ANY OF THE  AFOREMENTIONED  COURTS  IN ANY  SUCH  ACTION  OR
PROCEEDING BY THE MAILING OF COPIES  THEREOF BY  REGISTERED  OR CERTIFIED  MAIL,
POSTAGE PREPAID, TO THE COMPANY AT ITS ADDRESS SET FORTH IN SECTION 11.4 HEREOF,
SUCH SERVICE TO BECOME  EFFECTIVE  30 DAYS AFTER SUCH  MAILING.  NOTHING  HEREIN
SHALL  AFFECT THE RIGHT OF THE AGENT OR THE HOLDER OF THIS SECURED NOTE TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR
OTHERWISE  PROCEED  AGAINST  THE  COMPANY  AND/OR  ANY  GUARANTOR  IN ANY  OTHER
JURISDICTION.

                  (b) THE COMPANY HEREBY  IRREVOCABLY WAIVES ANY OBJECTION WHICH
IT MAY NOW OR  HEREAFTER  HAVE TO THE  LAYING  OF VENUE OF ANY OF THE  AFORESAID
ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS SECURED NOTE OR
ANY OTHER  TRANSACTION  DOCUMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (a)
ABOVE AND HEREBY FURTHER  IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN
ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING  BROUGHT IN ANY SUCH COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM.

                  (c) THE COMPANY HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL
BY JURY IN ANY ACTION,  PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO
THIS  SECURED  NOTE,  THE  OTHER  TRANSACTION   DOCUMENTS  OR  THE  TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY.  THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE
PARTIES HERETO TO ENTER INTO THIS SECURED NOTE.

                  11.10.  Publicity.  The Company and the Holder  shall  consult
with each  other in  issuing  any press  releases  or  otherwise  making  public
statements  with  respect to the  transactions  contemplated  hereby and neither
party  shall  issue any such press  release or  otherwise  make any such  public
statement  without the prior written  consent of the other,  which consent shall
not be unreasonably  withheld or delayed,  except for such releases,  filings or
public   statements  that  are  required  by  law  or  any  regulatory  body  or
governmental authority of competent jurisdiction.

                  11.11. Severability. In case any one or more of the provisions
of this  Secured  Note shall be invalid or  unenforceable  in any  respect,  the
validity  and  enforceability  of the  remaining  terms and  provisions  of this
Secured  Note  shall not in any way be  affected  or  impaired  thereby  and the
parties will attempt to agree upon a valid and enforceable provision which shall
be a reasonable  substitute therefor,  and, upon so agreeing,  shall incorporate
such substitute provision in this Secured Note.

                  11.12. Remedies. In addition to being entitled to exercise all
rights provided  herein or granted by law,  including  recovery of damages,  the
Holder  will be  entitled  to specific  performance  of the  obligations  of the
Company under this Secured Note. The Company agrees that monetary  damages would
not be adequate  compensation  for any loss  incurred by reason of any breach of
its obligations  described in the foregoing  sentence and hereby agrees to waive
in any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.

                  11.13. Survival. Each of the representations and warranties of
the Company contained in Section 2 and the other agreements and covenants of the
parties  contained in this Secured Note shall  survive  issuance of this Secured
Note until repayment in full of the Obligations evidenced hereby.

                            [SIGNATURE PAGE FOLLOWS]

<PAGE>

                                [SIGNATURE PAGE]
                  IN WITNESS  WHEREOF,  the Company has caused this Secured Note
to be  signed  in its  name by its duly  authorized  officers  this  22nd day of
February, 2000.

                                                     AURA SYSTEMS, INC.

                                                     By:
                                                     Name:  Gerald Papazian
                                                     Title:    President

                                                     By:
                                                     Name:  Steven C. Veen
                                                     Title:Senior Vice President

<
STATE OF ____________               )
                                    )SS:
COUNTY OF __________                )

         The  foregoing  instrument  was  acknowledged  before  me  this  day of
_________,  ___  by   _________________________  as  ___________________of  Aura
Systems, Inc. on behalf of the corporation. He personally appeared before me, is
personally known to me or produced  __________________  as  identification,  and
[did] [did not] take an oath.

                                                     Notary:
[NOTARIAL SEAL]                                      Print Name:
                                                     Notary Public, State of
                                                     My commission expires:

<PAGE>

                                       (i)

                  03/09/00 12:29 PM03/09/00 12:29 PM
                  losangeles 38031 v1  Tcf01!.docTcf01!.doc

                              NOTICE OF CONVERSION

                  The undersigned, being the holder of the attached Secured Note
due the Maturity  Date (as defined in the Secured  Note) of Aura  Systems,  Inc.
(the "Company"),  hereby exercises the option to convert  $[________]  under the
Secured  Note into  Shares (as  defined in the  Secured  Note) of the Company in
accordance with the terms of the Secured Note.

                  The  amount of  principal  and  accrued  but  unpaid  interest
outstanding on the Secured Note as of the date hereof is  $____________  and the
number of Shares to be issued upon conversion is _____________.

                  The undersigned  directs that the Shares be issued in the name
of and delivered as soon as practicable and in accordance with the provisions of
the Secured Note to:

                  Full address:

                  Date:

                  Name:  [HOLDER]

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