ALCOHOL SENSORS INTERNATIONAL, LTD.
                                  11 Oval Drive
                            Islandia, New York 11722

                                                     August 14, 1998

J. Ernest Hansen, President
American International Insurance Company
70 Pine Street
New York, New York 10270

          Re:  Series A Cumulative Non-Redeemable Convertible Preferred Stock


Dear Mr. Hansen:

          This  letter  will  serve to confirm  and  memorialize  the  agreement
between American  International  Insurance  Company ("AIIC") and Alcohol Sensors
International, Ltd. (ASI") that, notwithstanding the terms and provisions of the
Certificate of Incorporation  of ASI, as amended to date (the  "Charter"),  that
certain Convertible Preferred Stock and Warrant Purchase Agreement,  dated as of
December 20, 1996 (the  "Purchase  Agreement"),  between ASI and AIIC,  and that
certain  Registration  Rights  Agreement,  dated as of  December  20,  1996 (the
"Registration Rights Agreement"),  between ASI and AIIC, AIIC, as the registered
and beneficial  owner of all of the 833,333 shares (the  "Preferred  Shares") of
the Series A Cumulative  Non-redeemable  Convertible  Preferred Stock, par value
$.001 per share,  of ASI currently  authorized  and  outstanding,  has agreed to
accept the following  number of shares (the  "Shares") of the common stock,  par
value  $.001  per share  (the  "Common  Stock"),  of ASI,  in full and  complete
satisfaction  of all dividend  payments  due AIIC with respect to the  Preferred
Shares for the Dividend  Payment  Dates (the  singular of term as defined in the
Charter) of June 30, 1997,  December 31, 1997, June 30, 1998, December 31, 1998,
June 30, 1999 and December 31, 1999:

               (a) 79,583  shares of Common  Stock with  respect to the Dividend
     Payment  Date of June 30, 1997,  determined  by  multiplying  the amount of
     dividends  due  on  said  Dividend  Payment  Date  (i.e.,  $119,375),  by a
     fraction,  the numerator of which is $3.00 and the  denominator of which is
     $4.50;

               (b) 75,639  shares of Common  Stock with  respect to the Dividend
     Payment Date of December 31, 1997,  determined by multiplying the amount of
     dividends  due  on  said  Dividend  Payment  Date  (i.e.,  $112,500),  by a
     fraction,  the numerator of which is $3.00 and the  denominator of which is
     $4.462;

               (c) 75,639  shares of Common  Stock with  respect to the Dividend
     Payment  Date of June 30, 1998,  determined  by  multiplying  the amount of
     dividends  due  on  said  Dividend  Payment  Date  (i.e.,  $112,500),  by a
     fraction,  the numerator of which is $3.00 and the  denominator of which is
     $4.462;




               (d) such  number of shares  of  Common  Stock as shall  equal the
     amount of dividends due on December 31, 1998, multiplied by a fraction, the
     numerator of which shall be $3.00 and the denominator of which shall be the
     Conversion  Price  (as such  term is  defined  in the  Charter)  as then in
     effect, with respect to such Dividend Payment Date;

               (e) such  number of shares  of  Common  Stock as shall  equal the
     amount of dividends  due on June 30, 1999,  multiplied  by a fraction,  the
     numerator of which shall be $3.00 and the denominator of which shall be the
     Conversion  Price as then in effect,  with respect to such Dividend Payment
     Date; and

               (f) such  number of shares  of  Common  Stock as shall  equal the
     amount of dividends due on December 31, 1999, multiplied by a fraction, the
     numerator of which shall be $3.00 and the denominator of which shall be the
     Conversion  Price as then in effect,  with respect to such Dividend Payment
     date.

          In addition,  each and all of the Shares shall be deemed  "Registrable
Securities"  under, and shall be subject to, the  Registration  Rights Agreement
for all purposes contained therein.

          Except as  modified by the  matters  set forth  herein,  the terms and
condition of the Charter,  Purchase Agreement and Registration  Rights Agreement
shall remain in full force and effect.

          If  the  foregoing  accurately  reflects  your  understanding  of  our
agreement with respect to the foregoing matters, kindly acknowledge and agree to
such by executing the duplicate  copy of this letter in the space  indicated for
such below.


                                        Very truly yours,

                                        Alcohol Sensors International, Ltd.


                                  By:         /s/ Joseph M. Lively
                                             Joseph M. Lively, President

Accepted and Agreed to:

American International Insurance Company


By:    /s/ J. Ernest Hansen
       J. Ernest Hansen, President