SETTLEMENT AGREEMENT
                       AND COMPLETE RELEASE OF ALL CLAIMS

         This   Settlement   Agreement  and  Complete   Release  of  All  Claims
("Agreement")  dated as of October 22,  1999,  is made and  entered  into by RGC
International Investors, LDC, a Cayman Islands limited duration company (?RGC?),
and AURA SYSTEMS, INC.( the "Company").

                              W I T N E S S E T H:

                         WHEREAS,  the  Company  has  previously  issued  to RGC
                    Convertible  Debentures in the original aggregated principal
                    amount of $21,500,000 (the ?Convertible Debentures?) and has
                    issued  Warrants  (?Warrants?)  to  RGC,  which  Convertible
                    Debentures and Warrants are presently owned by RGC; and

         WHEREAS,  the  Company  has  previously  issued to RGC its  Convertible
Senior Secured Note dated October 7, 1998, in the original  principal  amount of
$3,000,000 (the ?Secured Note?); and

         WHEREAS,  the Secured Note is secured by a certain  Security  Agreement
between the Company and RGC (the ?Aura Security Agreement?); and

         WHEREAS,  in order to provide for additional security for the repayment
of the Secured Note, certain subsidiaries of the Company entered into a Guaranty
Agreement (the ?Guaranty Agreements?) in favor of RGC, which Guaranty Agreements
were secured by Security  Agreements  between each of such  subsidiaries and RGC
(the ?Subsidiary Security Agreements?); and

         WHEREAS,  pursuant to a certain Securities Purchase Agreement,  annexed
hereto as Exhibit  ?A,? RGC  proposes to sell its  interests in the  Convertible
Debentures;

         WHEREAS,  RGC and the Company  have agreed  that  outstanding  Warrants
owned by RGC will be exchanged for  1,000,000 new warrants (the ?New  Warrants?)
and that the terms of the Secured  Notes,  the Aura  Security  Agreement and the
Subsidiary  Security  Agreements  will be  amended as of the  Closing  under the
Securities Purchase Agreement; and

         WHEREAS, RGC and the Company desire to enter into this Agreement, to be
effective upon (i) the Closing of the purchase and sale of the Convertible Notes
under the  Securities  Purchase  Agreement,  (ii) the  amendment  of the Secured
Notes, the Aura Security Agreement and the Subsidiary Security  Agreements,  and
(iii) the issuance of the New Warrants in exchange for the outstanding  Warrants
owned by RGC.

         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:



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         1. Release by RGC. Effective as of the ?Effective Date? (as such quoted
term is  hereafter  defined)  RGC,  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, or which they at any time hereafter may, own, hold or claimed to
have,  or claimed to own,  provided  however,  that nothing in this  Paragraph 1
shall  affect  the  rights of RGC  under the  Secured  Note,  the Aura  Security
Agreement,  the Subsidiary Security Agreements,  the Guarantee Agreements or the
Securities  Purchase  Agreement  (as  each  such  agreement  may be  amended  as
contemplated in the ?Whereas? clauses set forth above).

         2. Release by the Company.  Effective as of the  ?Effective  Date?  (as
such quoted term is hereafter defined) the Company, for itself, its subsidiaries
and   for    their    respective    employees,    agents,    predecessors    and
successors-in-interest,  hereby  irrevocably  and  unconditionally  releases and
forever  discharges RGC and its investment  manager and each of their respective
officers, directors,  employees,  partners, agents, attorneys, and shareholders,
former  officers,   directors,   employees,   partners,  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, or which they at any time hereafter may, own, hold or claimed to
have,  or claimed to own,  provided  however,  that nothing in this  Paragraph 2
shall affect the rights of the Company under the Secured Note, the Aura Security
Agreement,  the Subsidiary Security Agreements,  the Guarantee Agreements or the
Securities  Purchase  Agreement  (as  each  such  agreement  may be  amended  as
contemplated in the ?Whereas? clauses set forth above).

3. Waiver of Defaults.  RGC hereby  waives any and all defaults  existing on the
Effective Date (as hereafter defined) (including events, facts and circumstances
existing  on the  Effective  Date (as  hereafter  defined)  which with notice or
passage of time or both could become events of default)  under the Secured Note,
the  Aura  Security  Agreement,  the  Subsidiary  Security  Agreements,  or  the
Guarantee  Agreements.  Notwithstanding  the foregoing,  the waiver set forth in
this Section 3 shall not be applicable to any defaults existing on the Effective
Date which have not been  disclosed to RGC in writing if such  defaults are both
(i) material, and (ii) relate to breaches of covenants in the Secured Notes, the
Aura Security  Agreement or the Subsidiary  Security  Agreements which covenants
are not being  eliminated in their  entirety by the  amendments to the foregoing
documents as of the Effective Date.




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         4. 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
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.

         5. 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.

         6. 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, and agrees to indemnify, defend,
and hold the other party harmless from any  liability,  loss,  claims,  demands,
damages,  costs,  expenses or attorneys  fees  incurred by it as a result of any
person or entity,  including  but not limited  to,  underwriters  and  insurance
carriers, asserting such assignment, transfer, or subrogation.

         7.  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.

         8. Legal Fees.  If any party files a lawsuit based on legal claims that
either  party has  released,  the party  filing a lawsuit will pay for all costs
incurred  by the  defending  party,  including  reasonable  attorneys  fees,  in
defending against the claims asserted by that party.

         9. 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.

         10.  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.



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         11. 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.

         12. 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 referred to in this Agreement.

         13.  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.

         14.  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.

         15. Effective Date of Agreement.  This Agreement shall become effective
upon the  consummation  of all of the following  events:  (i) the Closing of the
purchase  and sale of the  Convertible  Debentures  pursuant  to the  Securities
Purchase  Agreement,  and (ii) the  amendment  of the  Secured  Notes,  the Aura
Security  Agreement  and the  Subsidiary  Security  Agreements,  and  (iii)  the
issuance of the New Warrants in exchange for the  outstanding  Warrants owned by
RGC (the  ?Effective  Date?).  If the Effective  date shall not have occurred by
October 22, 1999,  this  Agreement  shall become null and void,  and each of the
respective  parties shall be restored to their  positions prior to entering into
this Agreement.




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

AURA SYSTEMS, INC.


By:____________________________
      Zvi Kurtzman, CEO

RGC INTERNATIONAL INVESTORS, LDC
By:      Rose Glen Capital Management, L.P., Investment Manager
         By:      RGC General Partner Corp., as General Partner

By:____________________________
       Wayne D. Bloch,
       Managing Director




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