AURA SYSTEMS INC
SETTLEMENT AGREEMENT AND RELEASE OF CLAIMS
<DOCUMENT>
<TYPE>EX-10.42
<SEQUENCE>20
<FILENAME>0020.txt
<DESCRIPTION>SETTLEMENT AGREEMENT AND RELEASE OF CLAIMS
<TEXT>

                              SETTLEMENT AGGREEMENT
                              AND RELEASE OF CLAIMS

         This Settlement  Agreement and Release of Claims ("Agreement") dated as
of March 6, 2000,  is made and entered into by The  Isosceles  Fund  Limited,  a
Bahamian company ("ISOSCELES"),  and AURA SYSTEMS, INC., a Delaware company (the
"Company").

                             W I T H N E S S E T H:

         WHEREAS,  the Company has previously  issued to ISOSCELES a Convertible
Debenture dated October 27, 1998, in the original principal amount of $1,000,000
(the  "Convertible   Debenture")  pursuant  to  a  certain  Securities  Purchase
Agreement  between  ISOSCELES and the Company dated as of October 27, 1998, (the
"Purchase  Agreement"),  which  Convertible  Debenture  is  presently  owned  by
ISOSCELES; and

         WHEREAS, the obligations of the Company under the Debenture are secured
by a certain Security Agreement dated as of October 27, 1998; and

         WHEREAS,  the parties  desire to enter into this  Agreement in order to
provide for (i) the issuance to ISOSCELES of Three Million (3,000,000) shares of
the Company's Common Stock (the "Shares") pursuant to the Convertible Debenture,
(ii) the issuance by the Company to ISOSCELES of a warrant, in the form attached
hereto,  entitling  ISOSCELES  from  time  to time to  purchase  Fifty  Thousand
(50,000)  shares of Company's  Common  Stock at an exercise  price of $0.375 per
share (the  "Settlement  Warrant"),  and (iii) the surrender and cancellation of
the Convertible Debenture; and

         WHEREAS,  contemporaneously  with the  execution of this  Agreement the
parties are entering  into an Escrow  Agreement  (the "Escrow  Agreement")  with
Guzik  &  Associates,  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.  The Company  shall notify  ISOSCELES  and the Escrow
Agent  within two (2)  business  days of the date that the Company  shall comply
with  the  current  public  information  requirements  of  Rule  144(c)  of  the
Securities Act of 1933 (the "Securities Act").  Within five business days of the
date  that  the  Company  shall  comply  with  the  current  public  information
requirements  of Rule  144(c) of the  Securities  Act of 1933  (the  "Securities
Act"),  the parties  shall  deliver to the Escrow Agent, 1800 Century Park East,
Fifth Floor, Los Angeles, California, 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
ISOSCELES, together with a legal opinion of Escrow Agent 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 that the  holding  period  for the Shares
under  such  Rule  commenced  on the date the  Debenture  was  issued,  (ii) the
Settlement Warrant,  registered in the name of ISOSCELES, and (iii) two executed
originals of this Agreement; and (B) ISOSCELES shall deliver (i) the Convertible
Debenture, 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  ISOSCELES  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, and one executed original of this Agreement and (B) to or
as directed by ISOSCELES:  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").  If Escrow Agent shall
not have  received all of the Closing  Items in  satisfactory  form on or before
March15,  2000,  this Agreement may be terminated by either party as if it never
existed and Escrow  Agent's sole duties and  obligations  shall be to return the
items deposited with it as set forth in the escrow agreement.

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

     (a)  Authorization;  Enforcement.  ISOSCELES  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 ISOSCELES. This Agreement has been duly executed
          by  ISOSCELES  and  upon  full  delivery  of the  Closing  Items  will
          constitute the valid and binding  obligation of ISOSCELES  enforceable
          against it in accordance with its terms.

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

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

     (d)  Non-Affiliate Status. ISOSCELES 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 ISOSCELES
as follows:

     (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
          ISOSCELES 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,  full 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 ISOSCELES to personal liability by
          reason of being a shareholder, and (v) will be eligible for sale under
          Rule 144 of the Securities Act.

     (c)  No  Conflicts.  The  execution,  delivered  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 and 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 or  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 government  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,  deliver
          and  performance by the Company of this  Agreement  other than filings
          required to be made by it under the Securities Exchange Act of 1934.

         5. Release by  ISOSCELES.  Effective as of the Closing Date  ISOSCELES,
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  ISOSCELES 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 of nature know 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.

         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 wave 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 the 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 feminine and neutral 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.


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

AURA SYSTEMS, INC.

By: ____________________________
         Zvi Kurtzman, CEO


ISOSCELES

By:_____________________________
         Name;
         Title:


<PAGE>


                            GENERAL POWER OF ATTORNEY


         I, the undersigned  Carl M. O'Connell,  of the Western  District of the
Island of New Providence, one of the Islands of the Commonwealth of the Bahamas,
in my capacity as Sole Director of International  Business  Companies  organized
under and in accordance with the International Business Companies Act of 1989 as
amended,  of the Commonwealth of The Bahamas,  and whose  Registered  Office and
Registered Agent is situated at Citco Bank and Trust Company (Bahamas)  Limited,
Bahamas  Financial  Centre,  3rd Floor,  Charlotte & Shirley  Streets,  P.O. Box
CB-13136, Nassau, Bahamas, do hereby nominate, constitute and appoint:

         Tarez Curry, Businesswoman, of Nassau, The Bahamas

                                    And

         Andrew Dipkin, Businessman, of Nassau, The Bahamas

as my true and lawful  attorneys-in-fact,  acting  singly or jointly,  with full
power  to  represent  me in any  and  all  dealings  related  to  achieving  the
objectives of any Company of which I am Sole Director,  and to conduct  business
on behalf of that  Company as the said  attorneys-in-fact  my deem  necessary or
desirable.

     This  Power-of-Attorney  shall  remain in effect  for the  period  start of
business on March 6, 2000 through the close of business on March 7, 2000.

         IN WITNESS WHEREOF,  I, the said Carl M. O'Connell have hereunto set my
hand and seal at Nassau,  New Providence in the Commonwealth of The Bahamas,  on
this 3rd day of March, 2000.


                                          ----------------------------------
                                            Carl M. O'Connell

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</DOCUMENT>
