**AURA SYSTEMS INC****Term Sheet v10****Series B Cumulative Convertible  Preferred**

| Amount:                                    | Minimum: $5,000,000*        Maximum: $15,000,000* 

*These amounts do        not include any conversion of the Intercreditor Bridge Loans mentioned        below. 

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| Ranking:                                   | Senior to common        stock, Series A and any future series of preferred stock. 

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| Price/Preferred      share:                | $5.00

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| # of Preferred      shares:                | Minimum: 1,000,000        sharesMaximum: 3,000,000        shares

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| Warrant      coverage:                     | 25% of the newly        issued common shares on an as if converted basis, for a total of a minimum        of 62,500,000 warrants and a maximum of 187,500,000 warrants. Warrants        will be for 7 years with an exercise price at $0.02. The underlying common        stock resulting from (i) conversion of Series B (ii) exercise of the warrants        will be registered. 

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| Conversion      to common:                 | $0.02 conversion        price (on investment plus accrued dividends), for a minimum of ____________        and a maximum of __________ common shares initially issuable upon conversion.        

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| Coupon:                                    | 8% per year 

Dividends will be        cumulative and will accrue annually.         Dividends will not be paid in cash, but will accrue and be paid upon conversion        or liquidation through credit for them in the conversion price and liquidation        preference. 

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| Conversion:                                | The Company shall        have the right to force conversion under the following: 

a. The existence        of an effective SEC Registration for the underlying common stock.         b. The closing quoted price shall be greater than $0.10 for 20 consecutive        trading days.         c. The number of authorized common shares has been increased.         d. The Company is not in a quiet period. 

In addition, upon        conversion of a majority of the Series B, the remainder of the Series        B shall automatically convert. 

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| Anti Dilution      Provisions:             | Full ratchet 

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| Liquidation      Preference:               | Investment plus accrued        dividends. 

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| Voting      Rights:                        | Same as common on        an as if converted basis. Additional separate class voting rights on customary        fundamental change and protective provisions. 

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| Conversion      of Bridge Loans:           | $3,000,000 of the        Intercreditor Bridge Loans will be converted to Series B upon initial        funding by the Intercreditor Lenders when $3,000,000 has been subscribed        excluding funds used for the Real Estate transaction or for payments to        settle litigation with the Aries Group. The balance of the Intercreditor        Bridge Loans will be converted upon the occurrence of the following and        in accordance with the following schedule: 

a. All Series B investors        have fulfilled all commitments as scheduled. 

 b. The number of        authorized common shares has been increased. 

c. The existence        of an effective registration statement for the underlying common stock.        

d. The remaining        creditor situation (apart from the real estate and former management situations)        has been resolved to the satisfaction of the Intercreditor lenders. 

e. Provided a thru        d are completed, at the end of each calendar quarter an additional amount        will be converted equal to the amount of additional funds received in        the quarter over the amount set forth above.

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| Extension of the        Secured Notes      | Intercreditor lenders        will agree that the maturity date of the Intercreditor Bridge Loans will        be extended to 12 months from the initial funding by the Series B investors,        with any event of default provisions limited to the existing ones of the        Intercreditor Bridge Loans plus an additional one that the Series B Investors        have fulfilled all commitments.

The Company shall        have the right to prepay the outstanding balance at any time without penalty.        [(Warrants granted in the past for prior extensions will be honored by        the Company).]

Intercreditor lenders        will have the right to convert into Series B if the Company should elect        to exercise its right to prepay the Intercreditor Bridge Loans.

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| Demand      Registration:                  | The Company will        file a registration statement with the SEC for the underlying common stock        resulting from (i) conversion of the Series B and (ii) exercise of the        warrants, within 120 days after shareholder approval for increase in authorized        common shares.

If the Company fails        to file the registration with the SEC or fails to timely respond to any        SEC comments (within 45 days), (i) the conversion price of the Series        B and (ii) the exercise price of the warrants shall be reduced by 2.5%        per month up to a maximum of 12.5%, [change to issuance of additional        warrants] until such time as the filing or response is submitted.

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| Firm Commitment      and Funding Schedule: | The Series B Investors        will contractually agree, under a Subscription Agreement, to investment        amounts totaling at least the minimum and further agree to fund such investments        in an amount and schedule shown in Exhibit A, which shall be acceptable        to the Intercreditor lenders. [Note that current Exhibit A is not.] [Series        B Investors retain rights to fund additional 50% of the agreed funding        within the same time frame.]

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| Penalty      to Investors                  | [Any investor that        fails to fund according to the Schedule shown in Exhibit A will be given        7 days to cure the default. If the default is not cured, investor hereby        agrees to a liquidated damage penalty. Such penalty will be equal to 10%        of the amount not funded when due. In addition each investor hereby agrees        to forfeit 25% of all Series B warrants issued, and agrees that all Series        B held by such investor is subject to mandatory conversion, at the sole        option of the Company, subject to the condition that the Company has registered        the underlying common stock. If the registration of the common stock has        not been completed at the time of the failure to fund, this right of the        Company to enforce mandatory conversion will remain in effect until such        time as the registration is effective. 

 In the event that        any investor fails to meet their funding obligations the board member        nominated by such investor will submit his or her resignation, as permitted        by law.][Note this looks more like an option than a commitment and looks        dependent on when the money is coming in - need to discuss and resolve.]        

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| Series      A Conversion:                  | Series A holders        shall have the right to convert their Series A accrued, but unpaid, dividends        into Series B. 

 Conversion rights        to continue for one year.

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| Board      Representation:                 | Three members of        the Board, as determined by the Series B holders (Series B Investors and        Intercreditor Lenders converting into Series B), will resign from the        Board effective with the initial funding by the Series B Investors. Investors        will provide a legal opinion regarding the legality and enforceability        of this requirement.

Series B holders        will have the right to elect three members of the Board. Under a Voting        Agreement, (i) Koyah will have the right to designate one (See Resignation        Section below) and (ii) of the other Series B investors, each of the first        3 Series B Investors subscribing to at least $1,250,000 in Series B stock        will each have the right to designate one Board Member to fill the vacancies        resulting from the resignations.                                                                                                                                                                                                                                                                                                                                                                                                                  |
| Resignation:                               | Mr. Meehan shall        resign as Chairman/CEO upon the initial funding by the Series B investors.        Mr. Meehan will continue to serve as a Board Member until the final payment        of his severance, and thereafter at the pleasure of Koyah as the designated        appointee of Koyah. [Koyah will provide a letter to the Series B investors        stating their preference for Mr. Meehan's continued service on the Board.]

 Mr. Meehan's severance        payment schedule will include $120,000 at the time of initial funding        (or such later time as may be mutually agreed to by Mr. Meehan and the        Series B investors) and $10,000 per month thereafter for 6 months. In        addition, Mr. Meehan will be granted 10M warrants under the same terms        and conditions as the Series B investors.

 Mr. Meehan will        help in the transition during the period. Mr. Rescino shall continue in        his function at the pleasure of the Board.

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| Management:                                | The new Board shall        select the operating officers for the Company.

This selection to        include the CEO,CFO, General Counsel and VP of Sales.

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| Officers      and Directors                | Series B investors        agree that:

(i) Existing indemnification        provisions for Officers and Directors will be honored by the Company,        and

(ii) Company to maintain        D&O coverage, at the current level or greater, for 5 years, to include        tail for resigning members.

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| Shareholders      Meeting:                 | Aura will call a        special shareholders meeting as soon as possible after the initial funding        by the Series B investors to increase the authorized number of common        shares.

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| Vote to      Increase Authorized Shares:   | All the Series B        investors and the Intercreditor lenders (i) shall vote all of their shares        (common as well as Series A and B) to increase the number of authorized        common shares of the Company and (ii) shall take all appropriate steps        to expedite shareholder approval of this increase.

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| Certificate      of Designation:           | The Company will        file a certificate of designation for the Series B with the State of Delaware        reflecting the terms and conditions.

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| Use of      Proceeds:                      | The Company shall        use proceeds from this investment to: 

a. Pay the differential        amount to cure the arrears and penalties with the lender of the Real Estate,        such differential amount being equal to the amount due to Lennar to cure        (approximately $600,000) less the Yair Ben Moshe payment of $400,000.        

 b. Regular working        capital.

Placement Fees: The        Company shall not pay anyone any fees related to this investment.

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| Real Estate:                               | Aura Realty will        enter into a Sale-Leaseback Agreement for the real estate properties.        The real estate documents shall be in a form and substance satisfactory        to the majority of Series B Investors and the majority of Intercreditor        lenders.

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| Litigation      Settlement:                | The Company will        enter into a global settlement with previous management. Settlement to        be held confidentially, to the extent permited by law. The settlement        documents shall be in a form and substance satisfactory to the Company        and to the majority of Series B investors and the majority of Intercreditor        lenders. 

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| Document      Costs:                       | The Company will        pay up to $10,000 for legal counsel to the Series B investors related        to the preparation of legal documents that reflect this term sheet. 

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This Term Sheet summarizes the principal  terms of the proposed issuance of Series B Cumulative Convertible Preferred  Stock by Aura Systems, Inc.   This Term Sheet is an expression of  the intent of the parties to thisTerm Sheet, but there is no legally binding  obligation on the part of any party to this Term Sheet unless and until definitive  agreements are signed by all parties.  The arrangements regarding the Intercreditor  Bridge Loans that are described in this Term Sheet are subject to the approval  of all of the Intercreditor lenders. Furthermore, any intent by the undersigned  to move toward drafting definitive documents is subject to all parties signing  this document by 6:00 PST June 17, 2004.

The parties hereby agree to this term  sheet on June _____, 2004. 

Series B Investors: 

[NAME] 

____________________________________  Date: ____________________________________

By: ________________________, 

 ________________________ 

[NAME] 

____________________________________  Date: _____________________________________

By: ________________________, 

 ________________________ 

[NAME] 

_____________________________________  Date: _____________________________________

By: ________________________, 

 ________________________ 

The Company: 

AURA SYSTEMS, INC. 

_____________________________________  Date: _____________________________________

By: Neal Meehan, 

 Chief Executive Officer and 

 Chairman of the Board 

Koyah Ventures, LLC for itself and Koyah  Partners, L.P. and Koyah Leverage Partners, L.P.

By James M. Simmons, Manager.

Dated: June 17, 2004

**Aura  Systems, Inc.  Series B Cumulative Convertible Preferred**

**Schedule  A**

|                                                   | **Prior        and        Non-Working Capital        Investments** | **June**             | **July**             | **August**           | **September**        | **October**          | **Nov-emb-er** | **December**         | **Jan-uary**   | **February**         | **March**              | **April**            | **May**                | **Total**            |
|--------------------------------------------------------|--------------------------------------------------------------------|----------------------|----------------------|----------------------|----------------------|----------------------|----------------|----------------------|----------------|----------------------|------------------------|----------------------|------------------------|----------------------|
|                                                   |                                                               |                 |                 |                 |                 |                 |           |                 |           |                 |                   |                 |                   |                 |
| Koyah      (1)                                         | $        160,000                                                   | $        240,000     | $        100,000     |                 |                 |                 |           |                 |           |                 |                   |                 |                   | **$      500,000**   |
|                                                   |                                                               |                 |                 |                 |                 |                 |           |                 |           |                 |                   |                 |                   |                 |
| Yair      Ben Moshe (2)(3)                             | $        300,000                                                   |                 |                 |                 | $        250,000     |                 |           |                 |           | $        250,000     | $        300,000       | $        300,000     | $        400,000       | **$      1,800,000** |
|                                                   |                                                               |                 |                 |                 |                 |                 |           |                 |           |                 |                   |                 |                   |                 |
| David      Maimon (4)                                  | $        200,000                                                   |                 |                 |                 | $        250,000     |                 |           |                 |           |                 | $        300,000       | $        300,000     | $        400,000       | **$      1,450,000** |
|                                                   |                                                               |                 |                 |                 |                 |                 |           |                 |           |                 |                   |                 |                   |                 |
| Aries      Group & Affiliates (5)(6)               | $        215,000                                                   | $        15,000      | $        100,000     | $        225,000     |                 | $        350,000     |           | $        445,000     |           | $        300,000     | $        400,000       |                 | $        450,000       | **$      2,500,000** |
|                                                   |                                                               |                 |                 |                 |                 |                 |           |                 |           |                 |                   |                 |                   |                 |
| Others      (7)(8)                                     |                                                               | $        100,000     | $        200,000     |                 |                 |                 |           |                 |           |                 |                   |                 |                   | **$      300,000**   |
|                                                   |                                                               |                 |                 |                 |                 |                 |           |                 |           |                 |                   |                 |                   |                 |
| **Total**                                              | **$        875,000**                                               | **$        355,000** | **$        400,000** | **$        225,000** | **$        500,000** | **$        350,000** | **$        -** | **$        445,000** | **$        -** | **$        550,000** | **$        1,000,000** | **$        600,000** | **$        1,250,000** | **$      6,550,000** |
|                                                   |
| (1)      $160,000 to Company to cure Lennar default    |
| (2)      $100,000 to Company May 7, 2004               |
| (3)      $200,000 to Company to cure Lennar default    |
| (4)      $200,000 to Company to cure Lennar default    |
| (5)      $115,000 Credit toward Aries Group Settlement |
| (6)      $100,000 to Company to cure Lennar default    |
| (7)      $100,000 in June thru Applebey                |
| (8)      $200,000 in July TBD                          |