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                              SETTLEMENT AGREEMENT
                              AND RELEASE OF CLAIMS

         This Settlement  Agreement and Release of Claims ("Agreement") dated as
of December 1, 1999, is made and entered into by JNC OPPORTUNITY  FUND,  LTD., a
Cayman Islands company ("JNC"), and AURA SYSTEMS,  INC., a Delaware company (the
"Company").

                              W I T N E S S E T H:

         WHEREAS,  the  Company  has  previously  issued  to  JNC a  Convertible
Debenture  dated June 27, 1997, in the original  principal  amount of $4,000,000
(the  "Convertible   Debenture")  pursuant  to  a  certain  Securities  Purchase
Agreement  between JNC and the Company  dated as of June 27, 1997, as amended by
an agreement dated as of November 21, 1997 (the Securities  Purchase  Agreement,
as amended is referred to herein as the  "Purchase  Agreement"),  and has issued
Warrants  ("Warrants")  to JNC,  which  Convertible  Debenture  and Warrants are
presently owned by JNC; and

         WHEREAS,  on  October  21,  1998,  JNC filed a  Complaint  against  the
Company,  entitled JNC Opportunity  Fund v. Aura Systems,  Inc.  (CA98-595) (the
"Action"),  seeking damages of not less than $3,584,983  arising out the alleged
breach of the Purchase Agreement by the Company; and

         WHEREAS,  the parties  desire to enter into this  Agreement in order to
terminate the Action and to provide for (i) a cash payment by the Company to JNC
of  $430,000,  (ii) the issuance to JNC of Three  Million Five Hundred  Thousand
(3,500,000)  shares of the Company's Common Stock (the "Shares") pursuant to the
Convertible Debenture, (iii) the issuance by the Company to JNC of a warrant, in
the form  attached  hereto,  entitling  JNC from  time to time to  purchase  One
Hundred  Thirteen  Thousand  (113,000)  shares of  Company's  Common Stock at an
exercise  price of $0.375 per share  (the  "Settlement  Warrant"),  and (iv) the
surrender and cancellation of the Convertible Debenture and the Warrants; and

         WHEREAS,  contemporaneously  with the  execution of this  Agreement the
parties are entering  into an Escrow  Agreement  (the "Escrow  Agreement")  with
Robinson  Silverman  Pearce  Aronsohn & Berman  LLP,  as escrow  agent  ("Escrow
Agent") to facilitate the consummation of the transactions  contemplated by this
Agreement.

         NOW,  THEREFORE,  in consideration of the mutual covenants and promises
herein contained and other good and valuable consideration,  receipt of which is
hereby acknowledged, it is hereby agreed by and between the parties as follows:


         1. The Exchange. Within three business days of the date of execution of
this  Agreement,  the parties shall deliver to the Escrow Agent,  1290 Avenue of
the Americas,  New York, NY 10104, to hold in escrow pending the consummation of
the  exchange  contemplated  by this Section 1, the  following:  (A) the Company
shall deliver (i) a stock  certificate  evidencing  the Shares,  which are being
issued as a partial conversion of the Debenture,  registered in the name of JNC,
free and clear of any restrictive legends,  together with a legal opinion to the
effect that such shares have been  validly  issued and may be resold  under Rule
144 promulgated  under the Securities Act of 1933 and a certification  that such
opinion has been  accepted by the  transfer  agent for the Common Stock for such
purchase,  (ii) the sum of Four Hundred Thirty Thousand Dollars  ($430,000) (the
"Cash Payment"),  in immediately  available funds to the account specified prior
thereto  for such  purpose  by  Escrow  Agent,  (iii)  the  Settlement  Warrant,
registered  in the  name  of  JNC,  and  (iv)  two  executed  originals  of this
Agreement;  and (B) JNC shall deliver (i) the Convertible Debenture and Warrant,
and (ii) two executed originals of this Agreement.

         2.  Closing.  Subject to and in accordance  with the Escrow  Agreement,
Escrow  Agent  shall  notify  each of the  Company  and JNC when it  shall  have
received  all of the  items  required  to have  been  delivered  by the  parties
pursuant to Section 1 (each a "Closing  Item," and  collectively,  the  "Closing
Items").  Promptly  thereafter,  Escrow Agent shall deliver without liability or
other  risk to any  party,  which is  hereby  waived,  (A) to the  Company:  the
Convertible  Debenture,  the Warrant and one executed original of this Agreement
and (B) to or as directed by JNC: the Cash Payment,  the Settlement Warrant, the
Shares (and the related  Rule 144  opinion)  and one  executed  original of this
Agreement  (the date that all of the Closing  Items are received is the "Closing
Date").  JNC agrees that within two  business  days of the Closing  Date it will
cause the Action to be dismissed with prejudice.  If Escrow Agent shall not have
received all of the Closing Items in  satisfactory  form and when required under
this Agreement,  this Agreement may be terminated by the non-defaulting party as
if it never existed and Escrow Agent's sole duties and  obligations  shall be as
set forth in the Escrow Agreement


         3.  Warranties  of JNC. JNC  represents  and warrants to the Company as
follows:

                         (a) Authorization;  Enforcement.  JNC has all requisite
                    power and authority to enter into and perform this Agreement
                    and to consummate  the exchange  contemplated  hereby.  This
                    Agreement has been duly and validly  authorized by JNC. This
                    Agreement  has  been  duly  executed  by JNC and  upon  full
                    delivery of the Closing Items will  constitute the valid and
                    binding   obligation  of  JNC  enforceable   against  it  in
                    accordance with its terms.

                         (b)  Information;  Acknowledgment  of Risk. The Company
                    has  furnished  JNC  and its  advisors,  if  any,  with  all
                    materials relating to the business,  finances and operations
                    of the  Company  which  have been  requested  by JNC and its
                    advisors.  JNC has  been  afforded  the  opportunity  to ask
                    questions  of the  Company  and  has  received  satisfactory
                    answers  to  such  questions  concerning  the  terms  of the
                    securities  offered,  sold or exchanged hereby. JNC is aware
                    that the Shares and the Settlement  Warrant are speculative,
                    that an investment in the Company  involves a high degree of
                    risk,  that it may lose its  entire  investment  and JNC can
                    afford to bear the risks of an  investment  in the  Company.
                    JNC is a sophisticated investor with considerable experience
                    in investments  of this nature.  JNC  acknowledges  that the
                    Company makes no  representations or warranties with respect
                    to the Company,  the Shares or the Settlement  Warrant other
                    than those  representations  or warranties set forth in this
                    Agreement,  and  JNC has in no way  relied  upon  any  other
                    statement made or information provided by the Company.


                         (c)   Accredited   Investor.   JNC  is  an  "accredited
                    investor"   within  the  meaning  of  Regulation  D  of  the
                    Securities Act of 1933 (the "Securities Act").

                         (d)  Non-Affiliate  Status.  JNC is not presently or at
                    any time  within the past three  months,  and on the Closing
                    Date  will not be, an  "affiliate"  of the  Company  as such
                    quoted term is defined in the Securities Act.

         4.  Warranties of the Company.  The Company  represents and warrants to
JNC as follows:

                         (e) (a) Authorization; Enforcement. The Company has all
                    requisite power and authority to enter into and perform this
                    Agreement  and  to  consummate  the  exchange   contemplated
                    hereby.  This Agreement has been duly and validly authorized
                    by the Company. This Agreement has been duly executed by the
                    Company and upon full  delivery  of the  Closing  Items will
                    constitute  the valid and binding  obligation of the Company
                    enforceable against it in accordance with its terms.


                    (b)  Ownership  of Shares.  On the Closing  Date the Shares,
                    when  delivered to JNC in accordance  with the terms of this
                    Agreement  (i)  will  be  free  and  clear  of any  security
                    interests,  liens, claims or other  encumbrances,  (ii) will
                    have been duly and validly  authorized and delivered,  fully
                    paid  and  nonassessable  and  will  be  valid  and  binding
                    obligations  of the  Company,  (iii)  will  not  have  been,
                    individually and  collectively,  issued or sold in violation
                    of any  preemptive or other similar rights of the holders of
                    any securities or obligations of the Company,  (iv) will not
                    subject the JNC to personal  liability  by reason of being a
                    shareholder,  and (v) will be  eligible  for sale under Rule
                    144(k) of the Securities Act.

                    (c) No Conflicts. The execution, delivery and performance of
                    this  Agreement by the Company and the  consummation  by the
                    Company of the exchange  contemplated hereby do not and will
                    not  (i)  conflict  with or  violate  any  provision  of the
                    company's  certificate of incorporation  or bylaws,  or (ii)
                    conflict  with,  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,
                    acceleration or cancellation (with or without notice,  lapse
                    of time or both ) of, any  agreement or other  obligation of
                    the  Company,  or (iii)  result in a  violation  of any law,
                    rule,  regulation,  order, judgment,  injunction,  decree or
                    other restriction of any court or governmental  authority to
                    which the  Company is subject  (including  federal and state
                    securities laws and regulations).

                    (d)  Filing,  Consents  and  Approvals.  The  Company is not
                    required to obtain any  consent,  waiver,  authorization  or
                    order  of,  give  any  notice  to,  or make  any  filing  or
                    registration with, any court, other governmental  authority,
                    person or entity in connection with the execution,  delivery
                    and  performance by the Company of this Agreement other than
                    the filing of a Form D  pursuant  to the  Securities  Act of
                    1933.

                    (e)  Other   Arrangements.   The  Company   has   negotiated
                    settlements with certain of its investors in connection with
                    a general  restructuring  of the Company by such  investors,
                    i.e.  RGC  International  Investors,  LDC  ("RGC"),  and the
                    investors  represented by HW Partners,  L.P. The Company has
                    not yet  reached  an  agreement  with  the  Isosceles  Fund.
                    Schedule One to this Agreement sets forth the amount of cash
                    and securities issued or proposed to be issued to RGC and HW
                    Investors,  L.P. The Company  understands  that the accuracy
                    and  completeness of this  representation  and warranty is a
                    material  inducement to JNC's willingness to enter into this
                    Agreement.

         5. Release by JNC. Effective as of the Closing Date JNC, for itself and
for its  employees,  agents,  predecessors  and  successors-in-interest,  hereby
irrevocably and unconditionally  releases and forever discharges the Company and
each of its  subsidiaries,  and each of their  respective  officers,  directors,
employees, agents, attorneys, and shareholders,  former officers, directors, and
employees,    agents,    attorneys   and   shareholders,    predecessors,    and
successors-in-interest  and each of them  from  any and all  claims,  causes  of
action, demands, damages,  attorneys fees, or charges of whatever kind or nature
known or unknown, suspected or unsuspected,  fixed or contingent, which they now
have,  own,  hold, or claim to have, or claim to own, or which they at any time,
heretofore  had,  owned,  held,  or claimed to have or claimed to own,  from the
beginning  of the world  through the date of this  Agreement,  including  claims
arising out of the Action.


         6.  Release  by the  Company.  Effective  as of the  Closing  Date  the
Company,  for  itself,  its  subsidiaries  and  for  its  and  their  respective
employees,  agents, predecessors and successors-in-interest,  hereby irrevocably
and unconditionally releases and forever discharge JNC and each of its officers,
directors,  employees,  agents,  attorneys,  and shareholders,  former officers,
directors, and employees, agents, attorneys and shareholders,  predecessors, and
successors-in-interest  and each of them  from  any and all  claims,  causes  of
action, demands, damages,  attorneys fees, or charges of whatever kind or nature
known or unknown, suspected or unsuspected,  fixed or contingent, which they now
have,  own,  hold, or claim to have, or claim to own, or which they at any time,
heretofore  had,  owned,  held,  or claimed to have or claimed to own,  from the
beginning  of the world  through the date of this  Agreement,  including  claims
arising out of the Action.

4. 7. Effect of General  Release.It  is the  intention  of the parties that this
Agreement shall be effective as a full and final accord and satisfactory  relief
of  each  and  every  matter  as  specifically  or  generally  referred  to.  In
furtherance  of that  intention,  the parties hereby  acknowledge  that they are
familiar  with  Section  1542 of the  California  Civil Code which  provides  as
follows:

                    "A  general  release  does not  extend to  claims  which the
                    creditor  does not know or  suspect to exist in its favor at
                    the time of  executing  the  release,  which if known by him
                    must  have  materially  affected  his  settlement  with  the
                    debtor." The parties  hereby waive and relinquish all rights
                    and  benefits  which they have or may have up to the date of
                    this Agreement  under Section 1542 of the  California  Civil
                    Code or the law of any other  state or  jurisdiction  to the
                    same or  similar  affect  to the full  extent  that they may
                    lawfully  waive all such rights and benefits  pertaining  to
                    the subject matter of this Agreement.

         8. Subsequent Discoveries. The parties acknowledge that there is a risk
that  subsequent to the execution of this  Agreement,  they will discover facts,
which are unknown or unanticipated at the time this Agreement is executed, which
if known by them on a date that this Agreement is executed,  may have materially
affected their decisions to execute this Agreement. The parties expressly assume
the risk of  discovery  of such  unknown and  unanticipated  facts and that this
Agreement shall be fully valid notwithstanding the discovery of any such facts.

         9. No Assignment  of Claims.  Each party  represents  and warrants that
they have not assigned or otherwise  transferred  or subrogated  any interest in
any claims which are the subject matter hereto.

         10.  Covenant Not to Sue. The parties  covenant and agree not to sue or
bring any action, whether federal,  state, or local, judicial or administrative,
now or at any future time,  against  each other or any of the released  parties,
with respect to any claim released hereby. The parties represent and warrant and
represent  that they have not  commenced any such action or proceeding as of the
execution date of this Agreement except the Action.

         11. Binding  Effect.  This Agreement shall be binding upon and inure to
the  benefit  of the  heirs,  administrators,  executors,  successors,  and  the
assignees of each of the parties.

         12.  Miscellaneous.  Whenever this Agreement so requires,  the singular
number shall include the plural, the plural shall include the singular,  and the
masculine gender shall include the feminine and neuter genders.

         13. Severability.  If any portion of this Agreement shall be held to be
illegal or invalid by a court of  competent  jurisdiction,  the  validity of the
remainder of this Agreement shall not be affected.

         14. Entire  Agreement.  This  Agreement and the  agreements  referenced
herein  memorializes  and  constitutes  the entire  Agreement and  understanding
between the parties and supersedes and replaces all prior negotiations, proposed
Agreements and Agreements  whether written or unwritten.  Each of the parties to
this Agreement acknowledges that no other party nor any agent or attorney of any
other  party  has made any  promise,  representation,  or  warranty  whatsoever,
express or implied,  which is not expressly  contained in this  Agreement.  Each
party further  acknowledges  that it has not executed this Agreement in reliance
upon a collateral promise, representation, or warranty.

         15.  Governing Law. This Agreement shall be deemed to have been made in
the State of California and shall, for all purposes be governed by and construed
exclusively in accordance  with the laws thereof,  regardless of where any court
action or proceeding is brought in connection with this Agreement.

         16.  Counterparts.  This  Agreement  may be  executed  in  two or  more
counterparts, and an executed facsimile copy or counterpart shall be binding and
enforceable in the same manner as the original.

[REMAINER OF PAGE INTENTIONALLY LEFT BLANK]


<PAGE>



                  IN WITNESS  THEREOF,  the parties have executed this Agreement
effective as of the date first written above.

AURA SYSTEMS, INC.


By:____________________________
      Zvi Kurtzman, CEO


JNC OPPORTUNITY FUND, LTD.


By:____________________________
       Name:
       Title:



<PAGE>



Schedule One

RGC International Investors, LDC:

Five Million Dollars ($5,000,000) Cash,
One Million (1,000,000)  Warrants  exercisable at $.037 per share, An additional
Five Hundred Thousand (500,000) Warrants to be issued
  If HW Partners, LP receives a more favorable settlement, in exchange for three
  Unsecured convertible notes and outstanding warrants.
Three Million Dollar ($3,000,000) Secured Note modified to eliminate all accrued
  interest and convertibility feature, and payment terms changed to 8% interest,
  amortized over three years.


HW Partners, LP:

Three Million Dollars ($3,000,000) cash,
1,111,111 shares of Common Stock,
and new secured  Note in the  principal  amount of Twelve  Million  Five Hundred
Thousand Dollars  ($12,500,000),  interest only at 8%, principal due and payable
in three years, no conversion  right unless the company is in default,  in which
case the  conversion  price is $0.60,  which Note is  prepayable  at a discount,
initially
20%,  declining  on a straight  line basis over the life of the Note;  Issued in
exchange for outstanding Note and outstanding Warrants.