ASSET PURCHASE AGREEMENT

         THIS  ASSET  PURCHASE  AGREEMENT  (the  "Agreement")  is made as of May
14,2001 by and among DIGITAL INTERIORS,  INC., a California corporation with its
principal office in San Jose, California (the "Buyer"),  LOS GATOS HOME THEATER,
INC.,  a  California  corporation  with  its  principal  office  in  Los  Gatos,
California (the "Company"),  and JOSEPH J. PARIS, the Company's sole stockholder
(the "Stockholder").

                              PRELIMINARY STATEMENT

         The  Buyer  desires  to  purchase,  and the  Company  desires  to sell,
substantially  all  of  the  assets  and  business  of  the  Company,   for  the
consideration  set forth below and the  assumption  of certain of the  Company's
liabilities  set  forth  below,  subject  to the terms  and  conditions  of this
Agreement.

         NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth and other good and valuable consideration,  the receipt of which is hereby
acknowledged, the parties hereby agree as follows:

         1. SALE AND DELIVERY OF THE ASSETS

         1.1 Delivery of the Assets

         (a) Subject to and upon the terms and conditions of this Agreement,  at
the closing of the transactions  contemplated by this Agreement (the "CLOSING"),
the Company shall sell, transfer,  convey,  assign and deliver to the Buyer, and
the Buyer shall purchase from the Company, the following properties,  assets and
other claims, rights and interests:

                  (i)  all  inventories  of  raw  materials,  work  in  process,
         finished  goods,  office  supplies,   maintenance  supplies,  packaging
         materials,  spare parts and similar items of the Company (collectively,
         the "INVENTORY") which exist on the Closing Date (as defined below);

                  (ii)  all  accounts,  accounts  receivable,  notes  and  notes
         receivable  existing  on the  Closing  Date  which are  payable  to the
         Company,  including  any  security  held by the Company for the payment
         thereof,  but excluding any account,  account receivable,  note or note
         receivable  payable  by any  affiliate  (as such term is defined in the
         Securities  Act of 1933,  as  amended,  and the rules  and  regulations
         promulgated thereunder (the "1933 ACT")) of Seller ("AFFILIATE") to the
         Company (the accounts, accounts receivable, notes and notes receivable,
         including any related security  therein,  as set forth on SCHEDULE 2.14
         attached  hereto to be  transferred  to the Buyer  pursuant  hereto are
         collectively referred to herein as the ("PURCHASED RECEIVABLES");

                  (iii)  all  rights  of  the  Company   under  the   contracts,
         agreements,  leases,  licenses  and  other  instruments  set  forth  on
         SCHEDULE 2.16 attached hereto (collectively, the "CONTRACT RIGHTS");


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                  (iv) all security  deposits and prepaid  expenses set forth on
         SCHEDULE 2.23 attached hereto;

                  (v)  all  books,   records   and   accounts,   correspondence,
         production records, technical, accounting, manufacturing and procedural
         manuals,  customer  lists,  employment  records,  studies,  reports  or
         summaries  relating to any environmental  conditions or consequences of
         any operation,  present or former,  as well as all studies,  reports or
         summaries relating to any environmental aspect or the general condition
         of the Assets, and any confidential  information which has been reduced
         to writing relating to or arising out of the business of the Company;

                  (vi) all  rights  of the  Company  under  express  or  implied
         warranties from the suppliers of the Company,

                  (vii) the motor  vehicles and other rolling stock owned by the
         Company on the Closing Date;

                  (viii)  all of the  machinery,  equipment,  tools,  production
         reels and  spools,  tooling,  dies,  production  fixtures,  maintenance
         machinery and  equipment,  computer  hardware and software,  furniture,
         leasehold  improvements  and  construction  in  progress  owned  by the
         Company on the Closing Date whether or not reflected as capital  assets
         in the  accounting  records of the  Company  (collectively,  the "FIXED
         ASSETS");

                  (ix) all of the Company's right,  title and interest in and to
         all goodwill and intangible property rights,  including but not limited
         to  inventions,   discoveries,   trade  secrets,  processes,  formulas,
         know-how, United States and foreign patents, patent applications, trade
         names,  including the name "LOS GATOS HOME  THEATER" or any  derivation
         thereof,   trademarks,   trademark   registrations,   applications  for
         trademark registrations, copyrights, copyright registrations, owned or,
         where not owned,  used by the Company in its  business and all licenses
         and other  agreements  to which the Company is a party (as  licensor or
         licensee)  or by which  the  Company  is bound  relating  to any of the
         foregoing  kinds of property or rights to any  "know-how" or disclosure
         or use of ideas (collectively, the "INTANGIBLE PROPERTY"); and

                  (x)  except as  specifically  provided  in  Subsection  1.1(b)
         hereof, all other assets,  properties,  claims, rights and interests of
         the Company  which exist on the Closing  Date, of every kind and nature
         and  description,  whether  tangible or intangible,  real,  personal or
         mixed.

         (b)  Notwithstanding  the provisions of paragraph (a) above, the assets
to be  transferred  to the Buyer under this  Agreement  shall not include  those
assets listed on SCHEDULE 1.1(B) attached  hereto (the "EXCLUDED  ASSETS").  The
accounts  receivable  of the  Company  that are  listed on  SCHEDULE  1.1(B) are
referred to as the "EXCLUDED RECEIVABLES."

         (c)  The  Inventory,  Purchased  Receivables,  Contract  Rights,  Fixed
Assets,  Intangible  Property and other  properties,  assets and business of the
Company described in paragraph (a) above, other than the Excluded Assets,  shall
be referred to collectively as the "ASSETS."


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         1.2  FURTHER  ASSURANCES.  At any time and from time to time  after the
Closing, at the Buyer's request and without further  consideration,  the Company
and the Stockholder promptly shall execute and deliver such instruments of sale,
transfer, conveyance,  assignment and confinnation., and take such other action,
as the Buyer may reasonably  request to more  effectively  transfer,  convey and
assign to the Buyer, and to confirm the Buyer's title to, all of the Assets,  to
put the Buyer in actual possession and operating control thereof,  to assist the
Buyer in exercising all rights with respect thereto and to carry out the purpose
and intent of this Agreement.

         1.3 PURCHASE PRICE AND PAYMENT TERMS.  The total purchase price for the
Assets shall be Three Hundred  Twenty-Five  Thousand  Dollars  ($325,000),  (the
"PURCHASE PRICE"). The Purchase Price shall be payable in cash as follows:

         (a) One Hundred  Seventy Five Thousand  Dollars  ($175,000) of the Cash
Portion (the "INITIAL  PURCHASE PRICE") shall be delivered to the Company at the
Closing.  The  remaining  balance of the  Purchase  Price of One  Hundred  Fifty
Thousand   Dollars   ($150,000)   shall  be  evidenced  by  a  Promissory   Note
substantially in the form attached hereto as EXHIBIT A (the "PROMISSORY  NOTE"),
and shall be paid to the Company on the first  anniversary of the Closing,  less
any offsets for claims of indemnification pursuant to Subsection 9.5 hereof.

         (b) Pursuant to the  "EMPLOYMENT  AGREEMENT,"  as defined  herein,  the
Buyer shall employ the Stockholder  after the Closing,  if, at any time prior to
the first anniversary of the Closing,  the Stockholder resigns as an employee of
the Buyer or the Stockholder's employment with the Buyer is terminated for cause
pursuant to the Employment  Agreement,  the Company shall  immediately repay the
Buyer that  portion of the Initial  Purchase  Price that is equal to the product
obtained by multiplying the Initial Purchase Price by the quotient of the number
of whole months remaining from such date of resignation or termination for cause
until the first anniversary of the Closing divided by twelve (12).

         1.4 ASSUMPTION OF LIABILITIES; ETC.

         (a) At the Closing,  the Buyer shall  execute and deliver an Instrument
of Assumption of Liabilities  (the  "INSTRUMENT OF Assumption")  substantially m
the form  attached  hereto as EXHIBIT B,  pursuant to which it shall  assume and
agree to perform,  pay and discharge all  obligations of the Company  continuing
after the  Closing  under the leases and  contracts  set forth on  Schedule  1.4
attached  hereto  which  become  due and  payable  after the  Closing  Date (the
"ASSUMED LIABILITIES").

         (b) The Buyer shall not at the Closing assume or agree to perform,  pay
or  discharge,  and the Company  shall  remain  unconditionally  liable for, all
obligations,  liabilities and commitments,  fixed or contingent,  of the Company
other than the Assumed Liabilities.

         1.5 ALLOCATION OF PURCHASE PRICE AND ASSUMED LIABILITIES. The aggregate
amount of the  Purchase  Price and the Assumed  Liabilities  shall be  allocated
among the Assets as set forth on SCHEDULE 1.5 attached hereto.

         1.6 THE  CLOSING.  The  Closing  shall  take  place at the  offices  of
Hutchison  & Mason PLLC,  3110  Edwards  Mill Road,  Suite 100,  Raleigh,  North
Carolina at 12:00 p.m.,


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Eastern  Standard Time, on May 15, 2001 or at such other place,  time or date as
may be mutually  agreed upon in writing by the parties  hereto.  The transfer of
the Assets by the  Company to the Buyer  shall be deemed to occur at 12:00 p.m.,
Eastern Standard Time, on the date of the Closing (the "CLOSING DATE").

         1.7 APPORTIONMENT.

         (a) Prepaid premiums on insurance if assigned as herein provided, water
and sewer use charges,  transfer taxes and recording  fees, if any,  incurred in
connection  with  the  transfer  of the  Assets  contemplated  hereby,  and real
property  taxes  for the then  current  tax  period,  shall be  apportioned  and
adjusted as of the Closing Date and the net amount  thereof shall be added to or
deducted from, as the case may be, the Initial Purchase Price.

         (b) If the amount of said real property  taxes has not been  determined
at the  Closing  Date,  they  shall be  apportioned  on the basis of such  taxes
assessed for the preceding year, with a  reapportionment  as soon as the new tax
rate and  valuation  can be  ascertained;  and,  if the  taxes  which  are to be
apportioned  shall  thereafter  be  reduced  by  abatement,  the  amount of such
abatement,  less the reasonable cost of obtaining the same, shall be apportioned
between the parties, provided that neither party shall be obligated to institute
or prosecute  proceedings  for an abatement  unless  otherwise  agreed.  If such
proceedings  are commenced,  the party  commencing the same shall give the other
party notice thereof and shall  prosecute such  proceedings  and not discontinue
the same without  first giving the other party notice of its  intention so to do
and reasonable opportunity to be substituted in such proceedings;  and the other
party agrees to cooperate in such  proceedings  without being obligated to incur
any expense in connectiom therewith.

         2. REPRESENTATIONS OF THE COMPANY AND THE STOCKHOLDER

         The Company and the Stockholder  severally represent and warrant to the
Buyer as follows:

         2.1 ORGANIZATION.  The Company is a corporation duly organized, validly
existing and in good standing under the laws of the state of its  incorporation,
and has all  requisite  power and  authority  (corporate  and  other) to own its
properties,  to carry on its  business  as now being  conducted,  to execute and
deliver this Agreement and the agreements contemplated herein, and to consummate
the  transactions  contemplated  hereby.  The Company does not own,  directly or
indirectly,  any capital  stock or other  equity  interest  in any  corporation,
partnership, joint venture and other entity. The Company is duly qualified to do
business and in good  standing in all  jurisdictions  in which its  ownership of
property or the character of its business requires such qualification. Certified
copies of the  Articles  of  Incorporation  and Bylaws of the  Company,  each as
amended to date, have been previously  delivered to the Buyer,  are complete and
correct,  and no amendments have been made thereto or have been authorized since
the date thereof.

         2.2  CAPITALIZATION OF THE COMPANY.  The Company's  authorized  capital
stock  consists of  1,000,000  shares of Common  Stock,  no par value,  of which
100,000  shares are issued and  outstanding  and all of which are held of record
and  beneficially  by the  Stockholder.  All of such  shares  have been duly and
validly issued and are fully paid and nonassessable.


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         2.3 AUTHORIZATION.  The execution and delivery of this Agreement by the
Company,  and the agreements  provided for herein,  and the  consummation by the
Company of all transactions  contemplated  hereby,  have been duly authorized by
all requisite  corporate and  stockholder  action.  This  Agreement and all such
other agreements and obligations  entered into and undertaken in connection with
the transactions  contemplated hereby to which the Company is a party constitute
the valid and legally binding  obligations of the Company,  enforceable  against
the Company in accordance with their respective  terms. The execution,  delivery
and performance by the Company of this Agreement and the agreements provided for
herein,  and the  consummation  by the  Buyer of the  transactions  contemplated
hereby  and  thereby,  will not,  with or  without  the  giving of notice or the
passage  of time or  both,  (a)  violate  the  provisions  of any  law,  rule or
regulation applicable to the Company; (b) violate the provisions of the Articles
of  Incorporation  or Bylaws of the Company;  (c) violate any judgment,  decree,
order or award of any court,  governmental  body or arbitrator;  or (d) conflict
with or result in the  breach or  termination  of any term or  provision  of, or
constitute  a default  under,  or cause  any  acceleration  under,  or cause the
creation of any lien, charge or encumbrance upon the properties or assets of the
Company pursuant to, any indenture,  mortgage, deed of trust or other instrument
or  agreement  to which the Company is a party or by which the Company or any of
its  properties  is or may be bound.  Schedule 2.3 attached  hereto sets forth a
true,  correct and complete  list of all consents and approvals of third parties
that are required in  connection  with the  consununation  by the Company of the
transactions contemplated by this Agreement.

         2.4 OWNERSHIP OF THE ASSETS SCHEDULE. 2.4(i) attached hereto sets forth
a true; correct and complete list of all claims,  liabilities,  liens,  pledges,
charges,   encumbrances   and  equities  of  any  kind   affecting   the  Assets
(collectively, the "Encumbrances").  The Company is, and at the Closing will be,
the true and  lawful  owner of the  Assets,  and will have the right to sell and
transfer to the Buyer  good,  clear,  recordable,  and  marketable  title to the
Assets,  free and clear of all Encumbrances of any kind,  except as set forth on
Schedule 2.4(11) attached hereto (the "Permitted  Encumbrances") or as set forth
on Schedule 2.26(11) attached hereto (the "Permitted Exceptions").  The delivery
to the Buyer of the  instruments of transfer of ownership  contemplated  by this
Agreement will vest good, clear, recordable,  and marketable title to the Assets
in the  Buyer,  free  and  clear  of all  liens,  mortgages,  pledges,  security
interests, restrictions, prior assignments,  encumbrances and claims of any kind
or nature  whatsoever,  except for the Permitted  Encumbrances and the Permitted
Exceptions.

         2.5 FINANCIAL STATEMENTS.

         (a) The Company has  previously  delivered  to the Buyer its  unaudited
balance  sheet as of December 31, 2000 (the  "YEAR-END  BALANCE  SHEET") and the
related  statements  of income,  stockholders'  equity,  retained  earnings  and
changes in  financial  condition  of the  Company for the fiscal year then ended
(collectively,  including  the  Year-End  Balance  Sheet,  the  "YEAR  FINANCIAL
STATEMENTS"). The Company has also previously delivered to the Buyer its Current
Balance  Sheet and the  related  statements  of  income,  shareholders'  equity,
retained  earnings  and changes in  financial  condition  of the Company for the
three-month   period   then  ended   (collectively,   the   "CURRENT   FINANCIAL
STATEMENTS").  The  Year-End  Financial  Statements  and the  Current  Financial
Statements  (collectively,  the  "FINANCIAL  STATEMENTS")  have been prepared in
accordance with generally accepted  accounting  principles applied  consistently
with  past  practice  and  are  certified  by  the  Company's  certified  public
accountant.


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         (b) The Financial  Statements  fairly present,  as of their  respective
dates, the financial condition, retained earnings, assets and liabilities of the
Company and the results of operations of the Company's  business for the periods
indicated. The Financial Statements contain and reflect adequate reserves, which
are consistent  with previous  reserves  taken,  for all reasonably  anticipated
material  losses arid costs and  expenses;  and the amounts shown as accrued for
current and  deferred  income and other taxes in the  Financial  Statements  are
sufficient  for the payment of all accrued and unpaid  federal,  state and local
income taxes, interest, penalties, assessments or deficiencies applicable to the
Company,  whether  disputed  or not,  for the  applicable  period then ended and
periods prior thereto.

         2.6 Absence of Undisclosed  Liabilities Except as and to the extent (a)
reflected and reserved  against in the Current  Balance Sheet,  (b) set forth on
Schedule 2.6 attached  hereto or (c) incurred in the ordinary course of business
after the date of the Current Balance Sheet and riot material in amount,  either
individually  or in the  aggregate,  the Company does not have any  liability or
obligation,   secured  or  unsecured,  whether  accrued,  absolute,  contingent,
unasserted or otherwise,  affecting the Assets.  For purposes of this Subsection
2.6, "material" means any amount in excess of One Thousand Dollars ($1,000).

         2.7 Litigation Except as set forth on Schedule 27 attached hereto,  the
Company is not a party to, or to the Company's best knowledge  threatened  with,
and  none  of  the  Assets  are  subject  to,  any  litigation,   suit,  action,
investigation, proceeding or controversy before any court, administrative agency
or other  governmental  authority  relating  to or  affecting  the Assets or the
business or condition  (financial or  otherwise) of the Company.  The Company is
not in violation of or in default with  respect to any  judgment,  order,  writ,
injunction,  decree or rule of any court,  administrative agency or governmental
authority  or  any  regulation  of any  administrative  agency  or  governmental
authority.

         2.8 Insurance  Schedule 2.8 attached hereto sets forth a true,  correct
and complete  list of all fire,  theft,  casualty,  general  liability,  workers
compensation,   business   interruption,   environmental   impairment,   product
liability,  automobile  and other  insurance  policies  insuring  the  Assets or
business of the Company and of all life msurance policies  maintained for any of
its  employees,  specifying  the type of coverage,  the amount of coverage,  the
premium, the insurer and the expiration date of each such policy  (collectively,
the  "Insurance  Policies")  and all claims made under such  Insurance  Policies
since 1997. True,  correct and complete copies of all of the Insurance  Policies
have been  previously  delivered  by the  Company  to the Buyer.  The  Insurance
Policies  are in full force and effect and are in amounts and of a nature  which
are adequate and customary for the Company's business.  All premiums' due on the
Insurance  Policies or renewals  thereof  have been paid and there is no default
under  any of the  Insurance  Policies.  Except  as set  forth on  Schedule  2.8
attached hereto, the Company has not received any notice or other  communication
from any issuer of the  Insurance  Policies  since 1997  canceling or materiaily
amending any of the Insurance Policies, materially increasing any deductibles or
retained  amounts  thereunder,  or  materially  increasing  the  annual or other
premiums payable thereunder,  and, to the best knowledge of the Company, no such
cancellation,  amendment or increase of  deductibles,  retainages or premiums is
threatened.

         2.9 Inventory  Schedule 2.9 attached hereto sets forth a true,  correct
and  complete  list  of  the  Inventory  as of  the  date  hereof,  including  a
description and the book value


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thereof.  Schedule 2.9, as updated pursuant to Subsection 7.9 hereof,  shall set
forth a true, correct and complete list of the Inventory as of the Closing Date,
including a description and valuation thereof.  Such Inventory consists of items
of a quality and quantity which are usable or saleable  without  discount in the
ordinary course of the business conducted by the Company. The value of all items
of  obsolete  materials  and of  materials  of below  standard  quality has been
written down to realizable  market value, and the values at which such Inventory
is carried  reflect  the normal  inventory  valuation  policy of the  Company of
stating the  Inventory at the lower of cost or market value in  accordance  with
generally accepted accounting principles.

         2.10 Fixed  Assets  Schedule  2.10  attached  hereto sets forth a true,
correct and complete list of all Fixed Assets as of the date hereof, including a
description  and the book value thereof.  Schedule 2.10, as updated  pursuant to
Subsection 7.9 hereof,  shall set forth a true, correct and complete list of all
Fixed  Assets as of the Closing  Date,  including a  description  and  valuation
thereof.  Mi of the Fixed  Assets are in good  operating  condition  and repair,
normal wear and tear excepted, are currently used by the Company in the ordinary
course of business and in the  production  of products of the Company and normal
maintenance has been consistently performed with respect to such Fixed Assets.

         2.11 Leases  Schedule 2.11 attached  hereto sets forth a true,  correct
and  complete  list as of the  date  hereof  of all  leases  of  real  property,
identifying  separately  each ground lease, to which the Company is a party (the
"Leases").  True, correct and complete copies of the Leases, and all amendments,
modifications  and  supplemental   agreements  thereto,   have  previously  been
delivered by the Company to the Buyer.  The Leases are in full force and effect,
are binding and  enforceable  against each of the parties  thereto in accordance
with their  respective terms and, except as set forth on Schedule 2.11, have not
been  modified or amended  since the date of delivery to the Buyer.  No party to
any Lease has sent written  notice to the other  claiming  that such party is in
default thereunder,  which remains uncured. ExcepL as set forth on Schedule 2.11
attached  hereto,  there has not  occurred  any event which would  constitute  a
breach of or default in the performance of any material  covenant,  agreement or
condition contained m any Lease, nor has there occurred any event which with the
passage of time or the giving of notice or both would  constitute  such a breach
or  material  default.  The  Company  is not  obligated  to pay any  leasing  or
brokerage commission relating to any Lease and, except as set forth on

         Schedule 2.11 attached hereto, will not have any enforceable obligation
to pay any leasing or  brokerage  commission  upon the renewal of any Lease.  No
material  construction,  alteration  or other  leasehold  improvement  work with
respect to any of the Leases  remains to be paid for or to be  performed  by the
Company.  The Financial  Statements contain adequate reserves to provide for the
restoration of the properties subject to the Leases at the end of the respective
Lease terms, to the extent required by the Leases.

         2.12 Change in Financial  Condition  and Assets  Except as set forth on
Schedule 2.12 attached  hereto,  since the Balance Sheet Date, there has been no
change which materially and adversely affects the business,  properties, assets,
condition  (financial or otherwise) or prospects of the Company. The Company has
no knowledge of any existing or

- threatened occurrence, event or development which, as far as can be reasonably
foreseen,  could have a material  adverse effect on the Company or its business,
properties, assets, condition (financial or otherwise) or prospects.


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         2.13 Tax  Matters  The  Company  has in effect a valid  election  under
Section 1362 of the Internal  Revenue Code of 1986, as amended (the "Code"),  to
be treated as an "S Corporation"  for each taxable year since the  incorporation
of the Company. No facts exist that would permit the Jnternal Revenue Service to
revoke such "S  Corporation"  election for any period prior to the Closing Date.
Since the date of the  incorporation  of the Company and up to and including the
Closing  Date,  the Company has not incurred or become  liable for, and will not
incur or become  liable for,  the payment of any  corporate-level  income tax or
related  interest or penalties.  The Company and the Stockholder  have filed all
federal,  state and local tax returns which are required to be filed by them and
have paid all taxes,  interest,  penalties,  assessments and deficiencies  which
have  become  due or which  have been  claimed to be due.  The  Company  and the
Stockholder  are current in the payment of all income,  franchise,  real estate,
sales, use and withholding taxes and other employee benefits,  taxes or imposts.
Except as set forth on Schedule 2.13 attached hereto,  no deficiencies have been
asserted or assessed as a result of any audit by the Infernal Revenue Service or
any state or local taxing  authority  and no such  deficiency  or audit has been
proposed or threatened.

         2.14 Purchased  Receivables  Schedule 2.14 attached hereto sets forth a
true, correct and complete list of all Purchased Receivables, including an aging
thereof as of the Balance  Sheet Date.  Schedule  2.14,  as updated  pursuant to
Subsection 7.9 hereof,  shall set forth a true, correct and complete list of the
Purchased  Receivables as of the Closing Date,  including an aging thereof.  All
Purchased  Receivables  arose out of the sales of  inventory  or services in the
ordinary course of business and are collectible in the face value thereof within
thirty (30) days of the date of invoice, using normal collection procedures, net
of the reserve for  doubtful  accounts as set forth  thereon,  which  reserve is
adequate and was  calculated m accordance  with  generally  accepted  accounting
principles consistently applied.

         2.15 Books and Recoxth The general  ledgers and books of account of the
Company, all federal, state and local income, franchise,  property and other tax
returns  filed by the Company,  with respect to the Assets,  and all other books
and records of the Company are in all material respects complete and correct and
have been maintained in accordance with good business practice and in accordance
with all applicable procedures required by laws and regulations.

         2.16 Contracts and Commitments

i(a)       Schedule 2.16 attached  hereto contains a true,  complete and correct
list and description of the following contracts and agreements,  whether written
or oral (collectively, the "Contracts"):

                  (i) all loan agreements,  indentures, mortgages and guaranties
         to which the  Company is a party or by which the  Company or any of its
         property is bound;

                  (ii)  all  pledges,   conditional   sale  or  title  retention
         agreements,  security  agreements,   equipment  obligations,   personal
         property  leases and lease purchase  agreements  relating to any of the
         Assets to which the  Company is a party or by which the  Company or any
         of its property is bound;
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                  (iii) all contracts, agreements,  commitments, purchase orders
         or other understandings or arrangements to which the Company is a party
         or by which  the  Company  or any of its  property  is bound  which (A)
         involve payth or receipts by the Company of more than $1000 in the case
         of  any  single  contract,  agreement,  commitment,   understanding  or
         arrangement  under which full perfonnance  (including  payment) has not
         been  rendered  by all  parties  thereto  or (B) which  may  materially
         adversely  affect  the  condition   (financial  or  otherwise)  or  the
         properties, assets, business or prospects of the Company;

                  (iv) all  collective  bargaining  agreements,  employment  and
         consulting  agreements,  executive  compensation  plans,  bonus  plans,
         deferred  compensation  agreements,  pension plans,  retirement  plans,
         employee stock option or stock  purchase  plans and group life,  health
         and accident  insurance and other employee  benefit plans,  agreements,
         arrangements or commitments to which the Company is a party or by which
         the Company or any of its property is bound;

                  (v) all agency, distributor,  sales representative and similar
         agreements to which the Company is a party;

                  (vi) all  contracts,  agreements  or other  understandings  or
         arrangements  between the Company,  the Stockholder or Affiliate of the
         Company;

                  (vi) all  leases,  whether  operating,  capital or  otherwise,
         under which the Company is lessor or lessee;

                  (vii)  all  contracts,   agreements  and  other  documents  or
         information  relating  to  past  disposal  of  waste  (whether  or  not
         hazardous); and

                  (ix) any other material  agreement or contract entered into by
         the Company.

         (b) Except as set forth on Schedule 2.16 attached hereto:

                  (i) each  Contract  is a valid and  binding  agreement  of the
         Company,  enforceable against the Company in accordance with its terms,
         and the Company does not have any knowledge  that any Contract is not a
         valid and binding agreement of the other parties thereto;

                  (ii)  the  Company  has  fulfilled  all  material  obligations
         required  pursuant  to the  Contracts  to have  been  performed  by the
         Company on its part prior to the date  hereof,  and the  Company has no
         reason to believe that it will not be able to fulfill, when due, all of
         its obligations  under the Contracts which remain to be performed after
         the date hereof;

                  (iii) the  Company  is not in breach of or  default  under any
         Contract,  and no event has occurred  which with the passage of time or
         giving of notice or both


<PAGE>

         would  constitute such a default,  result in a loss of rights or result
         in the  creation  of any liex,  charge or  encumbrance,  thereunder  or
         pursuant thereto;

                  (iv)  to the  best  knowledge  of  the  Company,  there  is no
         existing  breach or default by any other party to any Contract,  and no
         event has  occurred  which with the passage of time or giving of notice
         or both would  constitute  a default by such other  party,  result in a
         loss of  rights  or  result  in the  creation  of any  lien,  charge or
         encumbrance thereunder or pursuant thereto;

                  (v)  the  Company  is  not  restricted  by any  Contract  from
         carrying on its business anywhere in the world; and

                  (vi) the  Company  has no  written or oral  Contracts  to sell
         products or perform  services which are expected to be performed at, or
         to result in, a loss.

         (c)  Except  as set  forth  on  Schedule  2.3  or  Schedule  2.16,  the
continuation,  validity and  effectiveness of each Contract will not be affected
by the transfer thereof to Buyer under this Agreement and all such Contracts are
assignable to Buyer without a consent.

         (d) True,  correct and complete copies of all Contracts have previously
been delivered by the Company to the Buyer.

         2.17  Compliance with Agreements and Laws The Company has all requisite
licenses, permits and certificates,  including enviromnental,  health and safety
permits,  from  federal,  state and local  authorities  necessary to conduct its
business and own and operate its assets (collectively,  the "Permits"). Schedule
2.17  attached  hereto sets forth a true,  correct and complete list of all such
Permits,  copies of which have  previously  been delivered by the Company to the
Buyer.  The Company is not in  violation  of any law,  regulation  or  ordinance
(including,  without  limitation,  laws,  regulations or ordinances  relating to
building, zoning,  environmental,  disposal of hazardous substances, land use or
similar matters) relating to its properties, the violation of which could have a
material  adverse effect on the Company or its  properties.  The business of the
Company does not violate, in any material respect, any federal,  state, local or
foreign laws, regulations or orders (including,  but not limited to, any of the'
foregoing   relating  to   employment   discrimination,   occupational   safety,
environmental   protection,   hazardous   waste  (as  defmed  in  the   Resource
Conservation and Recovery Act, as amended,  and the regulations adopted pursuant
thereto),  conservation,  or corrupt  practices,  the enforcement of which would
have a material  and  adverse  effect on the  results of  operations,  condition
(financial  or  otherwise),  assets,  properties,  business or  prospects of the
Company.  Except as set forth on Schedule 2.17 attached hereto,  the Company has
not since 1997 received any notice or communication  from any federal,  state or
local governmental or regulatory authority or otherwise of any such violation or
noncompliance.

         2.18 Employee Relations

         (a) The Company is in compliance with all federal, state and

<PAGE>

o municipal  laws  respecting  employment and  employment  practices,  terms and
conditions of employment,  and wages and hours, and is not engaged in any unfair
labor  practice,  and there are no  arrears  in the  payment  of wages or social
security taxes.

         (b) Except as set forth on Schedule 2.18 attached hereto:

                  (i) none of the employees of the Company is represented by any
         labor union;

                  (ii) there is no unfair labor practice  complaint  against the
         Company  pending before the National Labor Relations Board or any state
         or local agency;

                  (iii) there is no pending labor strike or other material labor
         trouble  affecting  the Company  (including,  without  limitation,  any
         organizational drive);

                  (iv) there is no material labor grievance  pending against the
         Company;

                  (v) there is no pending representation question respecting the
         employees of the Company; and

                  (vi) there are no pending arbitration  proceedings arising out
         of or under any collective bargaining agreement to which the Company is
         a party, or to the best knowledge of the Company, any basis for which a
         claim may be made under any  collective  bargaining  agreement to which
         the Company is a party.

         (c)  Schedule  2.18  attached  hereto  sets forth a true,  correct  and
complete  list of (a) the  employee  benefits  provided  by the  Company  to its
employees and all contracts or agreements between the Company and its employees,
and (b) the Company's current payroll, including the job descriptions and salary
or wage rates of each of its employees,  showing separately for each such person
who  received  an  annual  salary in excess  of  Twenty  Five  Thousand  Dollars
($25,000) the amounts paid or payable as salary and bonus  payments for the year
ended December 31, 2000.

         (d) For purposes of this Subsection  2.18, the term "employee" shall be
construed to include sales agents and other independent  contractors who spend a
majority of their working time on the Company's business.

         2.19  Absence  of  Certain  Changes  or  Events  Except as set forth on
Schedule 2.19 attached hereto, since the Balance Sheet Date, the Company has not
entered into any  transaction  which is not in the usual and ordinary  course of
business, and, without limiting the generality of the foregoing, the Company has
not:

         (a) Incurred any material obligation or liability for borrowed money;

         (b)  Discharged  or  satisfied  any  lien or  encumbrance  or paid  any
obligation or liability other than current liabilities  reflected in the Current
Balance Sheet;


<PAGE>


         (c)  Mortgaged,   pledged  or  subjected  to  lien,   charge  or  other
encumbrance any of the Assets;

         (d) Sold or  purchased,  assigned or  transferred  any of its  tangible
assets or  cancelled  any debts or  claims,  except for  inventory  sold and raw
materials purchased in the ordinary course of business;

         (e) Made any material  amendment to or  termination  of any Contract or
done any act or  omitted  to do any act  which  would  cause  the  breach of any
Contract;

         (f) Suffered any losses,  whether insured or uninsured,  and whether or
not in the control of the Seller, in excess of $500 in the aggregate,  or waived
any rights of any value;

         (g) Made any changes in  compensation  of its  officers,  directors  or
employees;

         (h)  Authorized  or issued  recall  notices for any of its  products or
initiated any safety investigations;

         (i)  Received  notice of any  litigation,  warranty  claim or  products
liability claims; or

         (j) Made any material change in the terms,  status or funding condition
of any Employee Plan, as defined in Subsection 2.26 hereof.

         2.20 Customers Schedule 2.20 attached hereto sets forth a true, correct
and complete  list of the names and  addresses  of all current  customers of the
Company.  None of such  customers  has  notified  the Company that it intends to
discontinue its relationship with the Company.

2.20 Suppliers  Schedule 2.21 attached  hereto sets forth a true,  correct,  and
complete  list of the names and  addresses  of the ten  suppliers of the Company
which  accounted  for the largest  dollar volume of purchases by the Company for
the fiscal year ended December 31, 2000. None of such suppliers has notified the
Company that it intends to discontinue its relationship with the Company.

         2.21 Bank  Accounts  Schedule  2.22  attached  hereto  contains a true,
correct and complete  list of all bank  accounts  and safe deposit  boxes in the
name of or  controlled  by the  Company and the names of persons  having  access
thereto.

         2.22 Prepayments and Deposits  Schedule 2.23 attached hereto sets forth
all prep  ayments or deposits  from  customers  for  products to be shipped,  or
services to be performed, after the Closing Date which have been received by the
Company as of the date hereof.

         2.23 Trade Names and Other Intangible Property

         (a)  Schedule  2.24  attached  hereto  sets forth a true,  correct  and
complete list and, where appropriate, a description of, all Intangible Property.
True, correct and


<PAGE>


complete copies of all licenses and other agreements  relating to the Intangible
Property have been previously delivered by the Company to the Buyer.

         (b) Except as otherwise disclosed in Schedule 2.24 attached hereto, the
Company  is the sole and  exclusive  owner of all  Intangible  Property  and all
designs,  permits,  labels and packages used on or in connection therewith.  The
Intangible  Property owned by the Company is sufficient to conduct the Company's
business as presently  conducted and, when  transferred to the Buyer pursuant to
this  Agreement,  will be sufficient to permit the Buyer to conduct the business
of the Company as presently  conducted by the Company.  The Company has received
no notice of, and has no knowledge of any basis for, a claim against it that any
of its operations, activities, products or publications infringes on any patent,
trademark,  trade name,  copyright or other property right of a third party,  or
that it is  illegally  or  otherwise  using the trade  secrets,  formulae or any
property rights of others.  The Company has no disputes with or claims - against
any third party for  infringement by such third party of any trade name or other
Intangible  Property of the Seller.  The Company has taken all steps  reasonably
necessary  to protect its right,  title and  interest  in and to the  Intangible
Property.

         2.24 Employee Benefit Plans

         (a) Employee  Plans  Schedule  2.25  attached  hereto  contains a true,
correct and complete list of all pension,  benefit, profit sharing,  retirement,
deferred  compensation,  welfare,  insurance,  disability,  bonus, vacation pay,
severance pay and other similar plans, programs and agreements,  whether reduced
to writing or not, other than any  "multiemployer  plan" as such term is defined
in  Section  4001(a)(3)  of  ERISA,  relating  to the  Company's  employees,  or
maintained  at any time since 1997 by the  Company  or by any  Affiliate  of any
controlled  group of  corporations,  group of trades or businesses  under common
control, or affiliated service group (as defined for purposes of Section 414(b),
(c) and (m),  respectively,  of the Code) (the "Employee  Plans") and, except as
set forth on Schedule  2.25  attached  hereto,  the Company has no  obligations,
contingent or otherwise,  past or present,  under applicable law or the terms of
any Employee Plan.

         (b)  Prohibited  Transactions  Neither  the  Company  nor  any  of  its
Affiliates, directors, officers, employees or agents, or any "party in interest"
or "disqualified person," as such terms are defined in Section 3 of the Employee
Retirement income Security Act of 1974, as amended  ("ERJSA"),  and Section 4975
of the Code has, with respect to any Employee  Plan,  engaged in or been a party
to any nonexempt  "prohibited  transaction,"  as such term is defined in Section
4975 of the Code or Section 406 of ERISA, in connection with which,  directly or
indirectly,  the Buyer or any of its  Affiliates,  directors or employees or any
Employee Plan or any related funding medium could be subject to either a penalty
assessed pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of
the Code.

         (c) Compliance With respect to all Employee Plans,  the Company and its
Affiliates  are in compliance  with the  requirements  prescribed by any and all
statutes,  orders or  governmental  rules or  regulations  currently  in effect,
including,  but not limited to, ERISA and the Code,  applicable to such Employee
Plans.  The  Company  and its  Affiliates  have in all  respects  performed  all
obligations  required to be performed by them under,  and is not in


<PAGE>


violation  in any respect of, and there has been no default or  violation by any
other party with respect to, any of the Employee  Plans.  Except as set forth on
Schedule 2.25 attached hereto:

                  (i) none of the  Employee  Plans which are subject to Title 1V
         of ERISA has been or will be  terminated in whole or in part within the
         meaning of ERISA or the Code;  (ii) no liability  has been incurred to,
         nor has any  event or  circumstance  occurred,  nor  will any  event or
         circumstance  occur prior to the Closing  Date,  which could  result in
         such  aiiability  being  asserted  by,  the  Pension  Benefit  Guaranty
         Corporation  ("PBGC") with respect to any Employee Plan (other than the
         payment of annual  premiums  under  Section  4007 of ERISA or  benefits
         payable in accordance with the terms of such Employee  Plan);  (iii) no
         Employee  Plan that is subject to Part 3 of  Subtitle  13 of Title I of
         ERISA or Section 412 of the Code,  or both,  incurred any  "accumulated
         funding deficiency" (as defined in ERISA),  whether or not waived; (iv)
         neither Company nor any Affiliate has failed to pay any amounts due and
         owing as required by the terms of any Employee Plan; (v) there has been
         no "reportable  event" within the meaning of Section  4043(b)(l)-(9) of
         ERISA, or any event described in Section 4063(a) of ERISA, with respect
         to any Employee Plan, other than as disclosed herein or on accompanying
         schedules;  (vi) neither  Company nor any  Affiliate has failed to make
         any payment to an Employee Plan required under Section 302 of ERISA nor
         has any lien ever been imposed  under  Section  302(f) of ERISA;  (vii)
         neither  Company  nor any  Affiliate  has adopted an  amendment  to any
         Employee Plan which  requires the  provision of security  under Section
         307 of ERISA,  (viii) the PBGC has not  instituted  any  proceedings to
         terminate an Employee Plan pursuant to Section 4042 of EPJSA.

         (d)   Multiemployer   Plans   Schedule   2.25   lists  each  and  every
multiemployer  plan to which  the  Company  or its  Affiliates  contribute,  are
required  to  contribute,   or  have  ever  been  required  to  contribute.   No
multiemployer plan listed in Schedule 2.25 is in "reorganization" (as defined in
Section  4241 of ERISA) or  "insolvent"  (as defined in Section  4245 of ERISA).
Neither the Company nor any Affiliate has withdrawn or is reasonably expected to
withdraw from a multiemployer plan in a complete or partial withdrawal which has
resulted or will result in  "withdrawal  liability,"  as defined for purposes of
Part I of Subtitle E of Part N of ERISA, with respect to any such plan which has
not been  satisfied  in full.  The  Company and its  Affiliates  have rn.ade all
contributions  to any such plan as are  required  through the Closing Date under
the terms of any such plans or  applicable  statutes,  regulations,  rulings and
other  applicable  law;  and no event has  occurred,  or can occur  prior to the
Closing  Date,  which  could  give rise to any  other  liability  (other  than a
continuing  obligation  to  contribute  to such  plan(s)  under the terms of any
applicable collective  bargaining  agreements) on the part of the Company or the
Buyer,  or their  Affiliates,  officers,  employees or directors with respect to
such plan(s).

         (e) Retiree  Benefits Except as set forth in Schedule 2.25, no Employee
Plan  provides  health or life  insurance  benefits for  retirees.  No such plan
contains any provisions,  and no commitments or agreements  exist,  which in any
way would limit or prohibit  the Buyer from  amending any such plan to reduce or
eliminate such retiree benefits.

         (f) Copies of Em Plans and Related Documents The Company has previously
delivered to the Buyer true,  correct and complete  copies of all Employee Plans
which have been  reduced to writing and  written  descriptions  of all  Employee
Plans which have not been  reduced to  writing,  and all  agreements,  including
trust agreements and insurance contracts,


<PAGE>


related  to such  Employee  Plans,  and the  Summary  Plan  Description  and all
modifications  thereto for each Employee Plan  communicated  to employees.  With
respect to each Employee Plan that is a "defined  benefit plan," as such term is
defined in Section 3(35) of ERISA (the "Defined Benefit Plans"),  true,  correct
and complete copies of (i) the annual actuarial  valuation  reports for the last
five years, (ii) the Form 55 and Schedule A or B thereto, or both, filed for the
last five years and (iii) any  filings  made with the Pension  Benefit  Guaranty
Corporation,   Internal   Revenue   Service  or  Department  of  Labor,  or  any
correspondence with or from such agencies, regarding the termination of any such
Defined Benefit Plan, have been delivered to the Buyer.

         (g) qualifications Each Employee Plan intended to qualify under Section
401(a) of the Code has been  determined  by the Internal  Revenue  Service to so
qualify,  and the trusts created  thereunder  have been  determined to be exempt
from tax under the provisions of Section  501(a).  Each Employee Plan which is a
funded welfare  benefit plan intended to be exempt from tax under the provisions
of Section  501(c)(9) of the Code has been  determined  by the Internal  Revenue
Service to be so exempt.  Copies of all  determination  letters  with respect to
each such  Employee  Plan have been  previously  delivered by the Company to the
Buyer, and nothing has since occurred,  or will occur prior to the Closing Date,
which might cause the loss of such qualification or exemption,  no such Employee
Plan has been  operated in a maimer which would cause it to be  disqualified  in
operation, and all such Employee Plans have been administered in compliance with
and  consistent  with  all  applicable  requirements  of  the  Code  and  ERISA,
including,   without   limitation,   all  reporting,   notice,   and  disclosure
requirements.

         (h) Funding Status. Etc

                  (i) Except as set forth on Schedule 2.25,  neither the Company
         nor any corporation or trade or business  (whether or not incorporated)
         which would be treated as a member of the  controlled  group of Company
         under Section  4001(a)(14) of ERISA would be* liable for (A) any amount
         pursuant to Section 4062,  4063,  4064, 4068 or 4069 of ERISA if any of
         the  Employee  Plans  which are  subject  to Title IV of ERISA  were to
         terminate  or (B) any amount  pursuant  to  Section  4201 of ERISA if a
         complete or partial  withdrawal from any  multiemployer  plan listed on
         Schedule  2.25  occurred  before  the  Closing.  Except as set forth on
         Schedule  2.25,  all  Employee  Plans  which are subject to Title IV of
         ERISA  have no  unfunded  benefit  liabilities,  as  defined in Section
         4001(a)(18) of ERJSA. There is no unpaid  contribution due with respect
         to the plan year of any such  Defined  Benefit  Plan ended prior to the
         Closing Date, as required  under the minimum  funding  requirements  of
         Section 412 of ERISA.  The Company shall be responsible  for a pro rata
         portion of any minimum funding liability for the plan year in which the
         Closing Date falls.

                  (ii) With respect to each  Employee  Plan which is a qualified
         defined  contribution  pension,  profit-sharing or stock bonus plan, as
         defined in ER.ISA,  all employer  contributions  accrued for plan years
         ending  prior to the Closing  Date under the Plan terms and  applicable
         law have been made by the Company. The Company shall be responsible for
         a pro rata  portion of the employer  contribution  for the plan year in
         which the Closing Date falls.

<PAGE>

                  (iii) All premiums or other payments  required by the terms of
         any group or individual  insurance policies and programs  maintained by
         the Company and covering any present or former employees of the Company
         with respect to all periods up to and  including  the Closing Date have
         been fully paid for the length of the obligation.  The Company shall be
         responsible  for any welfare  benefits not fully covered by third-party
         insurance  policies or programs  relating to claims incurred by present
         or former employees of the Company on or before the Closing Date.

         (i) Claims and Litigation  Except as set forth on Schedule 2.25,  there
are no threatened or pending  claims,  suits or other  proceedings by present or
former  employees  of  the  Company  or  its  affiliates,   plan   participants,
beneficiaries or spouses of any of the above, the Internal Revenue Service,  the
PBGC, or any other person or entity involving any Employee Plan including claims
against the assets of any trust,  involving  any Employee  Plan, or any nghts or
benefits  thereunder,  other than  ordinary  and usual  claims for  benefits  by
participants or beneficiaries  including  claims pursuant to domestic  relations
orders.:

         (j) No Implied Rights Nothing  expressed or implied herein shall confer
upon any past or present  employee of the Company,  his or her  representatives,
beneficiaries, successors and assigns, nor upon any collective bargaining agent,
any rights or remedies of any nature, including,  without limitation, any rights
to  employment  or  contmued  employment  with the  Company,  the Buyer,  or any
successor or affiliate.

         (k) Transfer The Company  shall take any actions as may be necessary or
appropriate  under all  applicable  laws and the terms of the Employee  Plans to
establish  the Buyer,  or an  affiliate  of the Buyer,  as having all rights and
obligations  with respect to the Employee  Plans as named pursuant to Subsection
11.5 hereof, including,  without limitation,  rights with respect to all annuity
or insurance contracts which form a part of any of such Employee Plans, together
with all other Employee Plan assets.  The Company shall obtain as of the Closing
Date any and all consents from  trustees  required to effect any transfer of any
trust(s)  related to such assumed  Employee  Plans to such  trustee(s) as may be
appointed by the Buyer.

         (l) Schedule  2.25 attached  hereto sets forth the detailed  procedures
for assuming certain of the Employee Plans pursuant to Subsection 1.4 hereof.

(in)  Liabilities The Buyer assumes no liabilities  with respect to any Employee
Plan which liability relates to any period prior to the Closing Date, including,
without  limitation,  any taxes,  accrued  vacation or sick pay  (whether or not
vested), accrued vacation, sick and personal leaves, employee policies, employee
benefit claims or liability to the Pension Benefit Guaranty Corporation.

         2.25 Real Property The Company does not own any real property.

         2.26 Acquired  Assets Complete The Assets are, when utilized by a labor
force substantially  similar to that employed by the Company on the date hereof,
adequate to conduct the business operations  currently conducted by the Company.

         2.27 Regulatory Approvals All consents,  approvals,  authorizations and
other  requirements  prescribed  by any law,  rule or  regulation  which must be
obtained or satisfied by the


<PAGE>


Company and which are necessary for the execution and delivery by the Company of
this  Agreement and the documents to be executed and delivered by the Company in
connection  herewith  are set forth on Schedule  2.28  attached  hereto and have
been, or will be prior to the Closing Date, obtained and satisfied.

         2.28  Indebtedness to and from Officers.  Directors and the Stockholder
Except as set  forth on  Schedule  2.29  attached  hereto,  the  Company  is not
indebted, directly or indirectly, to any person who is an officer or director of
the  Company or the  Stockholder  or any -  Affiliate  of any such person in any
amount  whatsoever other than for salaries for services rendered or reimbursable
business  expenses,  all of which have been  reflected on the Current  Financial
Statements,  and no such officer or director or to the  Stockholder or Affiliate
is indebted to the Company, except for advances made to employees of the Company
in the  ordinary  course of  business  to meet  reimbursable  business  expenses
anticipated to be incurred by such obligor.

         2.29 Powers of Attorney and Suretyshjp  Except as set forth on Schedule
2.30 attached  hereto,  the Company has no general or special powers of attorney
outstanding  (whether as grantor or grantee  thereof) and has no  obligation  or
liability  (whether  actual,  accrued,  accruing,  contingent  or  otherwise) as
guarantor,  surety, co-signor,  endorser,  co-maker,  indemnitor or otherwise in
respect  of  the  obligation  of any  person,  corporation,  partnership,  joint
venture, association,  organization or other entity, except as endorser or maker
of checks or letters of credit,  respectively,  endorsed or made in the ordinary
course of business.

         2.30  Disclosure No  representation  or warranty by the Company in this
Agreement  or in any  Exhibit  hereto,  or in any list,  statement,  document or
information  set  forth  in or  attached  to  any  Schedule  delivered  or to be
delivered  pursuant  to this  Agreement,  contains  or will  contain  any untrue
statement of a material fact or omits or will omit any material  fact  necessary
in order to make the statements  contained  therein not misleading.  The Company
has disclosed to the Buyer all material  facts  pertaining  to the  transactions
contemplated by this Agreement.

         3. REPRESENTATIONS OF THE BUYER

The Buyer represents and warrants to the Company and the Stockholder as follows:

         3.1  Organization  and  Authority  The  Buyer  is  a  corporation  duly
organized,  validly existing and in good standing under the laws of the State of
California,  and has requisite power and authority  (corporate and other) to own
its  properties and to carry on its business as now being  conducted.  The Buyer
has full power to execute and  deliver  this  Agreement  and the  Instrument  of
Assumption of Liabilities and to consummate the transactions contemplated hereby
and thereby. Certified copies of the Articles of Incorporation and the Bylaws of
the Buyer, as amended to date, have been previously delivered to the Company and
the  Stockholder,  are complete and correct,  and no  amendments  have been made
thereto or have been authorized since the date thereof.

         3.2  Capitalization  of the Buyer As of the date  hereof  and as of the
Closing  Date,  the  authorized   capital  stock  of  the  Buyer  consists  (and
willconsist)  of  33,000,000  shares of Common  Stock and  12,079,795  shares of
Preferred Stock. All of the outstanding shares


<PAGE>


of stock of Digital Interiors are owned by Home Director, Inc. All of the issued
and  outstanding  shares of the Buyer's  capital stock have been duly authorized
and are validly issued,  fully paid and nonassessable.  There are no outstanding
obligations, options, warrants, convertible securities,  subscriptions, or other
com or rights  (matured  or  contingent)  of any  nature to which the Buyer is a
party to acquire or  subscribe  for any  securities  of the Buyer.  There are no
bonds,- debentures, notes or other indebtedness of the Buyer having the right to
vote (or convertible into, or exchangeable  for,  securities having the right to
vote) on any matter on which  stockholders of the Parent may vote.  There are no
preemptive rights, rights of first refusal,  voting rights, change of control or
similar rights,  anti-dilution protections or other rights by which the Buyer is
bound.

         3.3  Authorization  The execution and delivery of this Agreement by the
Buyer, and the agreements provided for herein, and the consummation by the Buyer
of all  transactions  contemplated  hereby,  have  been duly  authorized  by all
requisite  corporate  action.  This Agreement and all such other  agreements and
written   obligations   entered  mto  and  undertaken  in  connection  with  the
transactions  contemplated  hereby  constitute  the  valid and  legally  binding
obligations of the Buyer, enforceable against the Buyer in accordance with their
respective terms. The execution,  delivery and performance of this Agreement and
the agreements  provided for herein,  and the  consummation  by the Buyer of the
transactions  contemplated  hereby and  thereby,  will not,  with or without the
giving of notice or the passage of time or both,  (a) violate the  provisions of
any law, rule or regulation applicable to the Buyer; (1,) violate the provisions
of the Buyer's Articles of  Incorporation  or Bylaws;  (c) violate any judgment,
decree,  order or award of any court,  governmental  body or arbitrator;  or (d)
conflicts  with or result in the breach or  termination of any term or provision
of, or constitute a default under, or cause any acceleration under, or cause the
creation of any lien, charge or encumbrance upon the properties or assets of the
Buyer pursuant to, any indenture,  mortgage, deed of trust or other agreement or
instrument to which it or its  properties is a party or by which the Buyer is or
may be bound.

         3.4 Regulatory  Approvals All consents,  approvals,  authorizations and
other  requirements  prescribed  by any law,  rule or  regulation  which must be
obtained or satisfied by the Buyer and which are necessary for the  consummation
of the  transactions  contemplated by this Agreement have been, or will be prior
to the Closing Date, obtained and satisfied.

         3.5  Disclosure  No  representation  or  warranty  by the Buyer in this
Agreement  or in any  Exhibit  hereto,  or in any list,  statement,  document or
information  set  forth  in or  attached  to  any  Schedule  delivered  or to be
delivered  pursuant  hereto,  contains or will contain any untrue statement of a
material fact or omits or will omit any material fact necessary in order to make
the statements contained therein not misleading.

         4. ACCESS TO INFORMATION; PUBLIC ANNOUNCEMENTS

         4.1 The Buyer's Access to Management. Properties and Records

         (a) From the date of this Agreement until the Closing Date, the Company
shall  afford  the  officers,   attorneys,   accountants  and  other  authorized
representatives  of the Buyer free and full  access upon  reasonable  notice and
during normal business hours to all management personnel,  offices,  properties,
books and records of the Company, so that the Buyer may have full opportunity to
make such investigation as it shall desire to make of the management,  business,
properties and affairs of the Company,  and the Buyer shall be permitted


<PAGE>


to make  abstracts  from, or copies of, all such books and records.  The Company
shall  finnish  to the  Buyer  such  financial  and  operating  data  and  other
information as to the Assets and the- business of the Company as the Buyer shall
reasonably request.

         (b) The Company  shall  authorize the release to the Buyer of all files
pertaining  to the  Company,  the Assets or the  business or  operations  of the
Company held by any federal,  state,  county or local  authorities,  agencies or
instrumentalities.

         4.2 The  Company's  Access to Records  From the date of this  Agreement
until the  Closing  Date,  the  Buyer  shall  afford  the  officers,  attorneys,
accountants and other  authorized  representatives  of the Company free and full
access upon reasonable notice and during normal business hours to all historical
financial statements of the Buyer as the Company shall reasonably request and to
the business plan of the Buyer.

         4.3  Confidentiality  All information  not previously  disclosed to the
public or generally known to persons engaged in the respective businesses of the
Company or the Buyer which shall have been furnished by the Buyer or the Company
to the other party in connection with the transactions contemplated hereby or as
provided  pursuant to this  Section 4 shall not be disclosed to any person other
than theft respective employees, directors, attorneys, accountantsa or financial
advisors  or  other  than  as  contemplated   herein.  In  the  event  that  the
transactions  contemplated by this Agreement shall not be consummated,  all such
information  which shall be in writing shall be returned to the party furnishing
the  same,  including,  to the  extent  reasonably  practicable,  all  copies or
reproductions  thereof which may have been prepared,  and neither party shall at
any time thereafter  disclose to third parties,  or use, directly or indirectly,
for its own benefit,  any such information,  written or oral, about the business
of the other party hereto.

         4.4 Public  Announcements  The parties  agree that prior to the Closing
Date, except as otherwise  required by law, any and all public  announcements or
other public  communications  concerning  this Agreement and the purchase of the
Assets by the Buyer  shall be subject to the  approval  of both  parties,  which
approval shall not be unreasonably withheld.

         5. PRE-CLOSING COVENANTS OF THE COMPANY

         From and after the date hereof and until the Closing Date:

         5.1  Conduct  of  Business  The  Company  shall  carry on its  business
diligently and substantially in the same manner as heretofore and shall not make
or institute any unusual or new methods of manufacture, purchase, sale, shipment
or delivery,  lease, management,  accounting or operation, and shall not ship or
deliver  any  quantity  of  products  in excess of normal  shipment  or delivery
levels,  except as agreed to in writing by the Buyer. All of the property of the
Company  shall be used,  operated,  repaired  and  maintained  in a nor business
manner consistent with past practice.

         5.2 Absence of Material  Changes  Without the prior written  consent of
the Buyer, the Company shall not:

         (a) Take any action to amend its Articles of Incorporation or Bylaws;


<PAGE>


         (b) Issue any stock,  bonds or other corporate  securities or grant any
option or issue any warrant to purchase or subscribe  to any of such  securities
or issue any securities convertible into such securities;

         (c) Incur any obligation or liability (absolute or contingent),  except
current liabilities incurred and obligations under contracts entered into in the
ordinary course of business;

         (d) Declare or make any payment or distribution to the Stockholder with
respect to his stock or purchase or redeem any shares of its capital stock;

         (e)  Mortgage,  pledge,  or  subject  to any lien,  charge or any other
encumbrance any of the Assets;

         (f) Sell,  assign, or transfer any of the Assets,  except for inventory
sold m the ordinary course of business,  at a normal profit margin,  and for not
less than replacement& cost;

         (g)  Cancel  any  debts or  claims,  except in the  ordinary  course of
business;

         (h) Merge or consolidate with or into any corporation or other entity;

         (i) Make,  accrue or become  liable  for any bonus,  profit  sharing or
incentive payment, except for accruals under existing plans, if any, or increase
the  rate of  compensation  payable  or to  become  payable  by it to any of its
officers, directors or employees, other than increases in the ordinary course of
business consistent with past practice;

         (j) Make any  election  or give any  consent  under the Code or the tax
statutes of any state or other jurisdiction or make any termination,  revocation
or  cancellation of any such election or any consent or compromise or settle any
claim for past or present tax due;

         (k) Waive any rights of material value;

         (l) Modif amend, alter or terminate any of its executory contracts of

         a material value or which are material in amount; -

         (m) Take or permit any act or omission constituting a breach or default
under any  contract,  indenture or agreement by which it or its  properties  are
bound;

         (n) Fail to (i) preserve the  possession  and control of its assets and
business,  (ii) keep in faithful service its present officers and key employees,
(iii) preserve the goodwill of its  customers,  suppliers,  agents,  brokers and
others  having  business  relations  with it,  and (iv)  keep and  preserve  its
business existing on the date hereof until after the Closing Date;

         (o) Fail to operate its business  and maintain its books,  accounts and
records  in the  customary  maimer  and in the  ordinary  or  regular  course of
business and maintain in good repair its business premises, fixtures, machinery,
furniture and equipment;


<PAGE>


         (p) Enter into any  leases,  contracts,  agreements  or  understandings
other than those  entered into in the ordinary  course of business  calling for.
payments which in the aggregate do not exceed One Thousand  Dollars ($1,000) for
each such lease, contract, agreement or understanding;

         (q) Engage any employee for a salary in excess of Twenty Five  Thousand
Dollars ($25,000) per annum;

         (r)  Materially  alter the terms,  status or funding  condition  of any
Employee Plan; or

         (s) Commit or agree to do any of the foregoing in the future.

         5.3 Taxes The Company  shall,  on a timely basis,  file all tax returns
for and pay any and all taxes which shall  become due or shall have  accrued (a)
on account of the  operation of the business of the Company or the  ownership of
the Assets on or prior to the  Closmg  Date or (b) on account of the sale of the
Assets  (including a pro-rata portion of all personal  property and excise taxes
payable with respect to the Assets by the Seller).

         5.4 Communication with Customers and Suppliers

         (a) Unless  instructed  otherwise by the Buyer in writing,  the Company
shall accept  customer  orders in the ordinary course of business and consistent
with past practice as the Buyer's agent for all products  offered by the Company
but expected to be shipped by the Buyer after the Closing Date.

         (b) The Company and the Buyer shall  cooperate  in  communication  with
suppliers and customers to accomplish the transfer of the Assets to the Buyer on
the Closing Date.

         5.5  Compliance  with Laws The Company  shall  comply with all laws and
regulations  which are  applicable  to it, its ownership of the Assets or to the
conduct  ofits  business  and  will  perform  and  comply  with  all  contracts,
commitments and obligations by which it is bound.

         5.6 Continued  Truth of  Representations  and Warranties of the Company
The  Company  shall  not take  any  actions  which  would  result  in any of the
representations or warranties set forth in Section 2 hereof being untrue.

         5.7  Continuing  Obli to Inform From time to time prior to the Closing,
the Company  shall  deliver or cause to be delivered  to the Buyer  supplemental
information  concerning  events subsequent to the date hereof which would render
any statement,  representation  or warranty in this Agreement or any information
contained in any Schedule - inaccurate or incomplete in any material  respect at
any time after the date hereof until the Closing Date.

         5.8  Exclusive  Dealing  The  Company  and the  Stockholder  shall not,
directly or indirectly,  through any officer,  director, agent or otherwise, (a)
solicit, initiate or encourage


<PAGE>


submission of proposals or offers from any person relating to any acquisition or
purchase of all or a material portion of the Assets,  or any equity interest in,
the  Company  or  any  equity  investment,  merger,  consolidation  or  business
combination  with  the  Company,  or  (b)  participate  in  any  discussions  or
negotiations   regarding,  or  furnish  to  any  other  person,  any  non-public
information  with respect to, or otherwise  cooperate in any way with, or assist
or participate in,  facilitate or encourage,  any effort or attempt by any other
person to do or seek any of the foregoing. The Company shall promptly notify the
Buyer if any such  proposal or offer,  or any inquiry or contact with any person
with respect thereto, is made.

         6. BEST EFFORTS TO OBTAIN SATISFACTION OF CONDITIONS

The Company, the Stockholder, and the Buyer covenant and agree to use their best
efforts  to  obtain  the  satisfaction  of  the  conditions  specified  in  this
Agreement.

         7. CONDITIONS TO OBLIGATIONS OF THE BUYER

The   obligations  of  the  Buyer  under  this  Agreement  are  subject  to  the
fulfillment, at the Closing Date, of the following conditions precedent, each of
which may be waived in writing in the sole discretion of the Buyer:

         7.1 Continued  Truth of  Representations  and Warranties of the Company
and  the   Stockholder   Compliance   with   Covenants   and   Obligations   The
representations  and warranties of the Company and the Stockholder shall be Irue
on and as of the Closing Date as though such representations and warranties were
made on and as of such date,  except  for any  changes  permitted  by the ternis
hereof or consented to in writing by the Buyer.  The Company and the Stockholder
shall  have  performed  and  complied  with all  terms,  conditions,  covenants,
obligations,  agreements  and  restrictions  required  by this  Agreement  to be
performed or complied with by it prior to or at the Closing Date.

         7.2 Corporate  Proceedings All corporate and other proceedings required
to be taken on the part of the Company and the  Stockholder to authorize or cany
out this Agreement and to convey, assign,  transfer and deliver the Assets shall
have been taken.

- 7.3 Governmental  Approvals All governmental agencies,  departments;  bureaus,
commissions and similar bodies, the consent,  authorization or approval of which
is  necessary  under any  applicable  law,  rule,  order or  regulation  for the
consummation by the Company of the  transactions  contemplated by this Agreement
and the  operation of the Company's  business by the Buyer shall have  consented
to, authorized, permitted or approved such transactions.

         7.3  Consents of Lenders,  Lessors and Other Third  Parties The Company
shall have received all requisite consents and approvals of all lenders, lessors
and other third  parties  whose consent or approval is required in order for the
Company  to  consummate  the   transactions   contemplated  by  this  Agreement,
including, without limitation, those set forth on Schedule 2.3 attached hereto.

         7.4 Adverse  Proceedi No action or proceeding by or before any court or
other  governmental  body  shall  have  been  instituted  or  threatened  by any
governmental body or person whatsoever which shall seek to restrain, prohibit or
invalidate the transactions contemplated by


<PAGE>


this  Agreement  or which might  affect the right of the Buyer to own or use the
Assets after the Closing.

         7.5  Opinion of Counsel  The Buyer  shall have  received  an opinion of
Wintle & Kane LLP, counsel to the Company and the  Stockholder,  dated as of the
Closing Date, in substantially  the form attached hereto as Exhibit C, and as to
such other matters as may be reasonably requested by the Buyer or its counsel.

         7.6 Board of  Directors  Approval  The Board of  Directors of the Buyer
shall have duly authorized the transactions contemplated by this Agreement.

         7.7 The Assets  Except for the Permitted  Encumbrances,  at the Closing
the Buyer shall receive good, clear,  record and marketable title to the Assets,
free and clear of all hens, liabilities,  security interests and encumbrances of
any nature whatsoever.

         7.8  Update The  Company  shall  have  provided  the Buyer with a true,
correct and complete list and amount, as of the Closing Date, of:

         (a) the lnventory

         (b) the Fixed Assets;

         (c) the Purchased Receivables, including an aging thereof;

         (d) the trade accounts payable and accrued liabilities assumed pursuant
to Subsection l.4(a)(i) and (ii) hereof;

         (e) all unfilled customer orders; and

         (f)  all  shipments  made  during  the  period  from  the  date of this

Agreement to the Closing Date, -

none of which  information  shall be materially  different from the  information
supplied by the Company as of the date hereof on Schedules 2.9,  2.10,  2.14 and
2.20 attached hereto.

         7.9 Employment Agreement On or prior to the Closing Date, the Buyer and
the  Stockholder  shall have executed and delivered sri Employment  Agreement in
substantially   the  form  attached   hereto  as  Exhibit  D  (the   "Employment
Agreement").

         7.10 Assignment of Insurance  Policies On or prior to the Closing Date,
the  Company  shall have  assigned to the Buyer any and all  insurance  policies
extending  warranty or products  liability  coverage to the Company for products
manufactured  by the Company  prior to the Closing Date or for claims made on or
prior to the Closing Date.

         7.11 Trade  Payabl On the  Closing  Date,  the  Company  shall not have
obligations,  exceeding  $5,400 in the  aggregate,  to suppliers  and vendors of
goods and services and other trade  creditors  which have been  outstanding  for
more than 60 days.


<PAGE>


         7.12 Tax Lien Waivers On or prior to the Closing Date, the Seller shall
have obtained and delivered to the Buyer tax lien waivers from all jurisdictions
in which Assets are located and which provide such tax lien waivers.

         7.13  Small  Business  Administration  Loan On or prior to the  Closing
Date,  the.  Company  and the  Stockholder  shall  have  paid in full the  Small
Business Administration Loan (the "SBA Loan") currently owed by the Stockholder.
The Buyer may, in its sole  discretion,  agree to pay the SBA Loan,  provided it
receives proper wiring instructions prior to the Closing Date. If the Buyer pays
the SBA Loan  pursuant to this  subsection,  the parties  agree that the Initial
Purchase Price due the Company at the Closing Date shall be reduced by an amount
equal to the final payoff amount of the SBA Loan paid by the Buyer.

         7.14 Closing  Deliveries  The Buyer shall have  received at or prior to
the Closing each of the following documents:

         (a) a bill of sale substantially in the form attached hereto as Exhibit
E;

         (b) such instruments of conveyance,  assignment and transfer,  in forni
and substance  satisfactory  to the Buyer,  as shall be  appropriate  to convey,
transfer  and assign to, and to vest in,  the  Buyer,  good,  clear,  record and
marketable title to the Assets;

         (c) all technical  data,  formulations,  product  literature  and other
documentation  relating to the  Company's  business,  all in form and  substance
satisfactory to the Buyer;

         (d) such  contracts,  files and other data and documents  pertaining to
the Assets or the Company's business as the Buyer may reasonably request;

         (e) copies of the general  ledgers and books of account of the Company,
and all  federal,  state and local  income,  franchise,  property  and other tax
returns filed by the Company with respect to the Assets since 1997;

         (f)  such  certificates  of  the  Company's  officers  and  such  other
documents  evidencing  satisfaction of the conditions  specified in Section 8 as
the Buyer shall reasonably request;

         (g) a certificate  of the Secretary of State of the State of California
as to the legal  existence and good standing  (including  tax) of the Company in
California,

         (h)  certificates  of the  Secretary  of the Company  attesting  to the
incumbency of the Company's  officers,  respectively,  the  authenticity  of the
resolutions authorizing the transactions  contemplated by the Agreement, and the
authenticity and continuing validity of the charter documents delivered pursuant
to Subsection 2.1;

         (i) e  certificates  from each lessor from whom the Company leases real
or personal property consenting to the assumption of such lease by the Buyer and
representing that there are no outstanding  claims against the Company under any
such lease;

<PAGE>

         (j) estoppel  certificates  from each tenant to whom the Company leases
real  property  consenting  to the  assumption  of such  lease by the  Buyer and
representing that there are not outstanding claims against the Company under any
such lease;

         (k) the schedules listed in Subsection 7.9;

         (l) evidence of compliance with all state and federal environmental,

         occupational, work place disclosure and right to know laws;

         (m) cross receipt executed by the Buyer and the Company;

         (n) a letter, in a form and substance  satisfactory to Buyer in Buyer's
sole discretion, from Cupertino National Bank, the financial institution holding
the SBA Loan,  stating  the SBA Loan has been paid in full prior to the  Closing
Date; and

         (o) such other documents,  instruments or certificates as the Buyer may
reasonably request.

         7.16 No  Material  Adverse  Change  There  shall have been no  material
adverse change or decline in the value of the assets or the business,  condition
(financial or  otherwise),  results of  operations,  or prospects of the Company
since the date of this Agreement.

         7.17 Due Diligence The results of Buyer's  accounting,  financial,  and
legal due diligence review of the Company shall be satisfactory to Buyer, within
its sole discretion.

         8. CONDITIONS TO OBLIGATIONS OF THE COMDANY AND THE STOCKHOLDER

The  obligations  of the Company and the  Stockholder  under this  Agreement are
subject to the  fulfillment,  at the Closing Date,  of the following  conditions
precedent,  each of which may be waived in writing at the sole discretion of the
Company and the Stockholder:

         8.1 Continued  Truth of  Representations  and  Warranties of the Buyer;
Comt with Covenants and  Obligations The  representations  and warranties of the
Buyer in this  Agreement  shall be true on and as of the Closing  Date as though
such representations and warranties were made on and as of such date, except for
any changes  consented  to in writing by the Company  and the  Stockholder.  The
Buyer shall have performed and complied with all terms, conditions, obligations,
agreements  and  restrictions  required by this  Agreement  to be  performed  or
complied with by it prior to or at the Closing Date.

         8.2 Corporate  Proceedings All corporate and other proceedings required
to be taken on the part of the Buyer to  authorize  or carry out this  Agreement
shall have been taken.

         8.3 Governmental Ai All governmental  agencies,  departments,  bureaus,
commissions and similar bodies, the consent,  authorization or approval of which
is  necessary  under any  applicable  law,  rule,  order or  regulation  for the
consummation  by the Buyer of the  transactions  contemplated  by this Agreement
shall have consented to, authorized permitted or approved such transactions.


<PAGE>


         8.4  Consents  of Lenders.  Lessors  and Other Third  Parties The Buyer
shall have received all requisite consents and approvals of all lenders, lessors
and other third  parties  whose consent or approval is required in order for the
Buyer to consummate the transactions contemplated by this Agreement.

         8.5 Adverse  Proceedings No action or proceeding by or before any court
or other  governmental  body shall have been  instituted  or  threatened  by any
governmental body or person whatsoever which shall seek to restrain, prohibit or
invalidate the transactions contemplated by this Agreement or which might affect
the right of the Company to transfer the Assets. -

         8.6  Opinion of Counsel  The  Company  and the  Stockholder  shall have
received an opinion of Hutchison & Mason PLLC, counsel to the Buyer, dated as of
the Closing Date, in substantially the form attached hereto as Exhibit F, and as
to such  other  matters as may be  reasonably  requested  by the  Company or its
counsel.

         8.7 Employment Agreement On or prior to the Closing Date, the Buyer and
the Stockholder shall have executed and delivered the Employment Agreement.

         8.8  Closing  Deliveries  The Company  and the  Stockholder  shall have
received at or prior to the Closing each of the following documents:

         (a) such  certificates of the Buyer's officers and such other documents
evidencing  satisfaction  of the  conditions  specified in this Section 8 as the
Company and the Stockholder shall reasonably request;

         (b) a certificate  of the Secretary of State of the State of California
as to the legal  existence  and good  standing  (including  tax) of the Buyer in
California;

         (c) a  certificate  of the  Secretary  of the  Buyer  attesting  to the
incumbency  of  the  Buyer's  officers,  the  authenticity  of  the  resolutions
authorizing  the   transactions   contemplated   by  this  agreement,   and  the
authenticity and contmuing validity of the charter documents  delivered pursuant
to Subsection 3.1;

         (d) Instrument of Assumption of  Liabilities  executed by the Buyer and
accepted by the Company;

         (e) payment of the Initial Purchase Price;

         (f) the Promissory Note;

         (g) cross receipt executed by the Buyer and the Seller; and

         (h) such other documents, instruments or certificates as the Seller may
reasonably request.


<PAGE>


         9. INDEMNIFICATION

         9.1 By the Buyer and the Company and the  Stockholder The Buyer and the
Company  and the  Stockholder,  severally,  each  hereby  indemnifies  and holds
harmless the other party against all claims, damages, losses, liabilities, costs
and expenses  (including,  without  limitation,  settlement costs and any legal,
accounting  or other  expenses for  investigating  or  defending  any actions or
threatened  actions)  reasonably  incurred  by the Buyer or the  Company and the
Stockholder in connection with each and all of the following:

         (a) Any  breach  by the  indemnifying  party of any  representation  or
warranty in this Agreement;

         (b)  Any  breach  of  any  covenant,  agreement  or  obligation  of the
indemnifying   party  contained  in  this  Agreement  or  any  other  agreement,
instrument or document contemplated by this Agreement; and

         (c) Any  misrepresentation  contained in any statement,  certificate or
schedule  furnished by the  indemnifying  party pursuant to this Agreement or in
connection with the transactions contemplated by this Agreement.

         9.2 By the Company and the Stockholder The Company and the Stockholder,
severally,  further agree to indenmify and hold harmless the Buyer- from any and
all claims damages, losses, liabilities,  costs and expenses (including, without
limitation,  settlement  costs and any legal,  accounting or other  expenses for
investigating  or  defending  any  actions  or  threatened  actions)  reasonably
incurred by the Buyer, in connection with each and all of the following:

         (a) Any claims  against,  or liabilities or obligations of, the Company
or against  the  Assets not  specifically  assumed  by the Buyer  pursuant  this
Agreement;

         (b) The  failure of the Buyer to obtain  the  protections  afforded  by
compliance with the notification  and other  requirements of the bulk sales laws
in force in the jurisdictions in which such laws may be applicable to either the
Company or the transactions contemplated by this Agreement;

         (c) Any  violation  by the Company of, or any failure by the Company to
comply with, any law, ruling, order, decree, regulation or zoning, environmental
or permit  requirement  applicable  to the Company,  the Assets or the Company's
business,  whether  or not any such  violation  or  failure  to comply  has been
disclosed to the Buyer,  including any costs  incurred by the Buyer (i) in order
to bring the Assets into compliance with  environmental laws as a consequence of
noncompliance  with such laws on the Closing Date or (ii) in connection with the
transfer of the Assets;

         (d) Any  warranty  claim or product  liability  claim  relating  to (i)
products  manufactured  or sold by the Company prior to the Closing Date or (ii)
the Company's business or operation prior to the Closing Date;

         (e) Any tax liabilities or obligations of the Company;


<PAGE>


         (f) Any claims  against,  or liabilities or obligations of, the Company
with respect to obligations under Employee Plans not specifically assumed by the
Buyer pursuant to this Agreement; and

         (g) Any breach by the Stockholder of the Employment Agreement.

         9.3 Claims  for  Indemnification  Whenever  any claim  shall  arise for
indemnification  hereunder the party seeking  indemnification  (the "Indemnified
Party"),  shall promptly  notify the party from whom  indemnification  is sought
(the "Indemnifying  Party") of the claim and, when known, the facts constituting
the basis for such  claim.  In the event of any such  claim for  indemnification
hereunder resulting from or in connection with any claim or legal proceedings by
a third-party, the notice to the Indemnifying Party shall specify, if known, the
amount or an  estimate of the amount of the  liability  arising  therefrom.  The
Indemnified  Party shall not settle or compromise any claim by a third party for
which it is  entitled to  indemnification  hereunder  without the prior  written
consent of the  Indemnifying  Party,  which shall not be unreasonably  withheld,
unless suit shall have been  instituted  against it and the  Indemnifying  Party
shall not have taken control of such suit alter notification thereof as provided
in Subsection 9.4 of this Agreement. -

         9.4 Defense by  Indemnifying  Party In connection with any claim giving
rise to indemnity  hereunder resulting from or arising out of any claim or legal
proceeding by a person who is not a party to this  Agreement,  the  Indemnifying
Party at its sole cost and expense may, upon written  notice to the  Indemnified
Party,  assume  the  defense  of  any  such  claim  or  legal  proceeding  if it
acknowledges  to the  Indemnified  Party in writing its obligations to indemnify
the  Indemnified  Party  with  respect  to  all  elements  of  such  claim.  The
Indemnified  Party shall be entitled to  participate  in (but not  control)  the
defense of any such  action,  with its  counsel and at its own  expense.  If the
Indemnifying  Party does not assume the defense of any such claim or  litigation
resulting  therefrom  within 30 days after the date such claim is made,  (a) the
Indemnified Party may defend against such claim or litigation, in such maimer as
it may deem appropriate,  including,  but not limited to, settling such claim or
litigation,  after giving notice of the same to the Indemnifying  Party, on such
terms as the Indemnified  Party may deem  appropriate,  and (b) the Indemnifying
Party shall be entitled to  participate in (but not control) the defense of such
action,  with its  counsel and at its own  expense.  If the  Indemnifying  Party
thereafter seeks to question the manner in which the Indemnified  Party defended
such  third  party  claim or the  amount or nature of any such  settlement,  the
Indemnifying  Party  shall  have the burden to prove by a  preponderance  of the
evidence  that the  lndemmfied  Party did not defend or settle  such third party
claim in a reasonably prudent manner.

9.5   Satisfaction of Indemnification  Obligation The Buyer may offset any
amounts  owed by the  Company or the  Stockholder  pursuant  to Section 9 of the
Agreement  against the principal  amount and interest owed by the Buyer pursuant
to the Promissory Note.

         9.6  Survival  of  Representations  Claims - for  Indemnification  All'
representations  and warranties  made by the parties herein or in any instrument
or document  furnished in connection  herewith shall survive the Closing and any
investigation  at any time made by or on behalf of the parties hereto.  All such
representations  and  warranties  shall expire on the second  anniversary of the
Closing Date, except for claims, if any, asserted in writing prior


<PAGE>


to such second  anniversary,  which shall  survive  until  finally  resolved and
satisfied in full. All claims and actions for indemnity pursuant to this Section
9 for breach of any  representation  or warranty shall be asserted or maintained
in  writing by a party  hereto on or prior to the  expiration  of such  two-year
period.

         9.7 Other  Remedies The  foregoing  indemnification  provisions  are in
addition to, and not in derogation of, any statutory,  equitable,  or common law
remedy that any party may have for any indemnification claim pursuant to Section
9 of this Agreement.

         10. POST-CLOSING AGREEMENTS

The  Company  and the  Stockholder,  severally,  agree  that  from and after the
Closing Date:

         10.1 Proprietary Information

         (a) The Company and the Stockholder shall hold in confidence,  and. use
their respective best efforts to have all of the Company's  officers,  directors
and personnel hold in confidence,  all knowledge and  information of a secret or
confidential  nature with  respect to the  business of the Company and shall not
disclose,  publish  or make use of the same  without  the  consent of the Buyer,
except to the extent that such  information  shall have become public  knowledge
other than by breach of this Agreement by the Company or the Stockholder.

         (b) The  Company and the  Stockholder  agree that the remedy at law for
any breach of this  Subsection 10.1 would be inadequate and that the Buyer shall
be entitled  to  injunctive  relief in addition to any other  remedy it may have
upon breach of any provision of this Subsection 10.1.

         10.2 Sharing of Data

         (a) The Company and the  Stockholder  shall have the right for a period
of three years  following  the Closing Date to have  reasonable  access to such.
books,   records  and  accounts,   including   financial  and  tax  information,
correspondence,   production  records,  employment  records  and  other  similar
information  as are  transferred  to the  Buyer  pursuant  to the  terms of this
Agreement  for the limited  purposes of  concluding  the business of the Company
prior to the  Closing  Date  and for  complying  with  their  obligations  under
applicable  securities,  tax,  environmental,   employment  or  other  laws  and
regulations.  The  Buyer  shall  have  the  right  for a period  of three  years
following the Closing Date to have reasonable access to those books, records and
accounts,  including financial and tax information,  correspondence,  production
records,  employment records and other records which are retained by the Company
or the  Stockholder  pursuant to the terms of this  Agreement to the extent that
any of the foregoing  relates to the business of the Company  transferred to the
Buyer hereunder or is otherwise  needed by the Buyer in order to comply with its
obligations under applicable securities, tax, environmental, employment or other
laws and regulations.

         (b) The  Company,  the  Stockholder,  and the Buyer agree that from and
after the Closing Date they shall  cooperate fully with each other to facilitate
the  transfer  of the Assets  from the  Company  to the Buyer and the  operation
thereof by the Buyer.


<PAGE>


         10.3 Use of Name The Company and the Stockholder severally agree not to
use the name "LOS GATOS HOME THEATER,  INC." or any derivation thereof after the
Closing Date in connection with any business related to, competitive with, or an
outgrowth of, the business conducted by the Company on the date hereof.

         10.4  Cooperation in Litigation Each party hereto shall fully cooperate
with the other in the defense or  prosecution  of any  litigation  or proceeding
already instituted or which may be instituted hereafter against or by such party
relating to or arising out of the conduct of the  business of the Company  prior
to or after the Closing Date (other than litigation arising out the transactions
contemplated by this Agreement). The party requesting such cooperation shall pay
the out-of-pocket expenses (including legal fees and disbursements) of the party
providing such cooperation and of its officers, directors, employees, and agcnts
reasonably incurred in connection with providing such cooperation, but shall not
be  responsible  to reimburse  the party  providing  such  cooperation  for such
party's  time  spent in such  cooperation  or the  salaries  or costs of  fringe
benefits or similar expenses paid by the party providing such cooperation to its
officers,  directors,  employees  and agents  while  assisting in the defense or
prosecution of any such litigation or proceeding.

         10.5 Excluded  Receivables  All Excluded  Receivables  shall remain the
property of the Company and the Company shall be responsible  for collecting the
Excluded   Receivables.   If  the  Buyer  receives   payment  for  any  Excluded
Receivables,  the Buyer shall hold such  amounts in trust for the benefit of the
Company and shall pay the Company such amounts  within ten (10)  business  days.
The Buyer shall be responsible for collecting the Purchased Receivables.  If the
Company receives payment for any Purchased  Receivables,  the Company shall hold
such  amounts in trust for the benefit of the Buyer and shall pay the Buyer such
amounts  within ten (10) business days.  Neither party shall be compensated  for
the  services  rendered  by it while  holding any  receivables  in trust for the
benefit of the other party in accordance with the provisions of this paragraph.

         11. TERMINATION OF AGREEMENT

         11.1 Termination by Lapse of Time This Agreement shall terminate at

         5:00 p.m.,  Eastern Standard Time, on May 20, 2001, if the transactions
contemplated  hereby have not been consummated,  unless such date is extended by
the written consent of all of the parties hereto.

         11.2  Termination  by Agreement of the Parties  This  Agreement  may be
terminated by the mutual written  agreement of the parties hereto.  In the event
of such termination by agreement,  the Buyer shall have no further obligation or
liability  to the  Company and the  Stockholder  under this  Agreement,  and the
Company and the Stockholder shall have no further obligation or liability to the
Buyer under this Agreement.

         11.3  Termination  by Reason of Breach This Agreement may be terminated
by the Company and the  Stockholder,  if at any time prior to the Closing  there
shall occur a breach of any of the  representations,  warranties or covenants of
the Buyer or the failure by the Buyer to perform  any  condition  or  obligation
hereunder.  This Agreement may be terminated by the Buyer,  if at any time prior
to the  Closing  there  shall  occur  a  breach  of any of the  representations,


<PAGE>


warranties or covenants of the Company and the Stockholder or the failure of the
Company and the Stockholder to perform any condition or obligation hereunder.


         12. TRANSFER AND SALES TAX

Notwithstanding  any  provisions of law imposing the burden of such taxes on the
Company or the Buyer,  as the case may be, the Company shall be responsible  for
and shall pay (a) all sales,  use and transfer taxes,  and (b) all  governmental
charges,  if any, upon the sale or transfer of any of the Assets  hereunder,  If
the Company shall fail to pay such amounts on a timely basis,  the Buyer may pay
such amounts to the appropriate  governmental authority or authorities,  and the
Company shall promptly reimburse the Buyer for any amounts so paid by the Buyer.

         13. BROKERS

         13.1  For  the  Company  and  the   Stockholder  The  Company  and  the
Stockholder  severally represent and warrant that neither has engaged any broker
or finder or incurred any liability for brokerage fees,  commissions or finder's
fees in connection with the  transactions  contemplated  by this Agreement.  The
Company and the  Stockholder  agree to  indemnify  and hold  harmless  the Buyer
against any claims or  liabilities  asserted  against it by any person acting or
claiming to act as a broker or finder on behalf of the Seller.

         13.2 For the Buyer The Buyer  represents  and warrants  that it has not
engaged any broker or finder or  incurred  any  liability  for  brokerage  fees,
commissions,  or finder's fees, m connection with the transactions  contemplated
by this  Agreement.  The Buyer agrees to indemnify and hold harmless the Company
and the Stockholder against any claims or liabilities asserted against it by any
person acting or claiming to act as a broker or finder on behalf of the Buyer.

         14. NOTICES

Any notices or other  communications  required or permitted  hereunder  shall be
sufficiently  given if delivered  personally or sent by telex,  federal express,
registered or certified mail,  postage prepaid,  addressed as follows or to such
other address of which the parties maya have given notice:

To the Company:            Los Gatos Home Theater Inc.

                           151 East Main Street

                           Los Gatos, CA 95030

                           Attention: Joseph J. Paris, President

                           With a copy to: Wintle & Kane, LLP

                           10 Almaden Boulevard, Suite 1220

                           San Jose, CA 95113

                           Attention: Roger D. Wintle

To the Buyer:              Digital Interiors, Inc.


<PAGE>


                           c/o Home Director, Inc.

                           1015 Aviation Parkway, Suite 100

                           Morrisville, NC 27560

                           Attn: Steven L. Carnevale, Chief Financial Officer

                           With copies to: Hutchison & Mason PLLC

                           3110 Edwards Mill Road, Suite 100

                           Raleigh, North Carolina 27612

                           Attn: J. Robert Tyler, UI


Unless otherwise specified herein, such notices or other communications shall be
deemed received (a) on the date delivered, if delivered personally; or (b) three
business days after being sent, if sent by registered or certified mail.

         15. SUCCESSORS AND ASSIGNS

This  Agreement  shall be binding  upon and inure to the  benefit of the parties
hereto and their respective  successors and assigns,  except that the Buyer, the
Company,  and  the  Stockholder  may not  assign  their  respective  obligations
hereunder  without  the prior  written  consent  of the other  party;  provided,
however,  that  the  Buyer  may  assign  this  Agreement,  and  its  rights  and
obligations  hereunder,  to  a  subsidiary  or  affiliate.   Any  assignment  in
contravention  of this provision shall be void. No assignment  shall release the
Buyer from any obligation or liability under this Agreement.

         16. ENTIRE AGREEMENT: AMENDMENTS; ATTACHMENTS

(a) This Agreement,  all Schedules and Exhibits  hereto,  and all agreements and
instruments to be delivered by the parties  pursuant hereto represent the entire
understanding  and  agreement  between  the parties  hereto with  respect to the
subject  matter  hereof  and  supersede  all  prior  oral  and  written  and all
contemporaneous oral negotiations,  commitments and understandings  between such
parties including without limitation,  the Letter of Intent,  dated February --,
2001,  between  the Buyer and the  Company.  This  Agreement  may be  amended or
modified, in such manner as may be agreed upon, by a written instrument executed
by the Buyer,' the Company, and the Stockholder.

(b) If  the  provisions  of any  Schedule  or  Exhibit  to  this  Agreement  are
inconsistent  with the  provisions  of this  Agreement,  the  provisions  of the
Agreement  shall prevail.  The Exhibits and Schedules  attached  hereto or to be
attached hereafter are hereby incorporated as integral parts of this Agreement.

         17. EXPENSES

Except as otherwise  expressly provided herein, the Buyer, the Company,  and the
Stockholder  shall each pay their own expenses in connection with this Agreement
and the transactions contemplated hereby.


<PAGE>


         18. LEGAL FEES

In the event that legal  proceedings  are  commenced  by the Buyer  against  the
Company or the  Stockholder,  or by the Company or the  Stockholder  against the
Buyer,  in  connection  with this  Agreement  or the  transactions  contemplated
hereby,  the party or parties which do not prevail in such proceedings shall pay
the  reasonable  attorneys'  fees  and  other  costs  and  expenses,   including
investigation costs, incurred by the prevailing party in such proceedings.

         19. GOVERNING LAW

This Agreement shall be governed by and construed in accordance with the laws of
the State of Delaware without giving effect to principles of conflicts of laws.

         20. SECTION HEADINGS

The section headings are for the convenience of the parties and in no way alter,
modify, amend, limit, or restrict the contractual obligations of the parties.

         21. SEVERABILITY

The invalidity or  unenforceability of any provision of this Agreement shall not
affect the validity or enforceability of any other provision of this Agreement.

         22. COUNTERPARTS

This Agreement may be executed in one or more counterparts,  each of which shall
be  deemed  to be an  original,  but all of  which  shall  be one  and the  same
document.

(The remainder of this page left blank intentionally)



IN WITNESS WHEREOF,  this Agreement has been duly executed by the parties hereto
as of and on the date first above written.

BUYER:

DIGITAL INTERIORS, INC.


By:
     ------------------------
Steven L. Carnevale

Chief Financial Officer


COMPANY:

LOS GATOS HOME THEATER, INC.


By:
     ------------------------
Joseph J. Paris

President


<PAGE>


STOCKHOLDER:

By:
     ------------------------
Joseph J. Paris

<PAGE>