ASSET PURCHASE AGREEMENT


                                     among:


                                AURASOUND, INC.,
                             a Delaware corporation;


                               AURA SYSTEMS, INC.,
                             a Delaware corporation;



                                ALGO SOUND, INC.,
                            a California corporation;



                                       and

                             ALGO TECHNOLOGY, INC.,
                            a California corporation

                          ----------------------------


                          Dated as of December 1, 1999

                          ----------------------------




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                                                         28

                                                     1

ASSET PURCHASE AGREEMENT

                  THIS ASSET  PURCHASE  AGREEMENT is entered into as of December
1, 1999, by and among:  AURASOUND,  INC., a Delaware corporation (the "Seller");
AURA SYSTEMS,  INC., a Delaware  corporation and Seller's sole  shareholder (the
"Shareholder");  and ALGO TECHNOLOGY,  INC., a California corporation ("Parent")
and ALGO SOUND,  INC.,  a  California  corporation  (the  "Purchaser").  Certain
capitalized terms used in this Agreement are defined in Exhibit A.


                                                     RECITALS

         A.       The Shareholder is the sole shareholder of the Seller.

         B. The  Shareholder  and the  Seller  wish to  provide  for the sale of
substantially  all of the assets of the Seller to the Purchaser on the terms set
forth in this Agreement.

         C. The  Shareholder  has  licensed  and  granted  an option to  certain
intellectual  property  rights  pursuant  to a  license  agreement  of even date
herewith (the "License Ageement").

                                                     AGREEMENT

         The parties to this Agreement,  intending to be legally bound, agree as
follows:

1.       SALE OF ASSETS; RELATED TRANSACTIONS.

1.1 Sale of  Assets.  The  Shareholder  and the Seller  shall  cause to be sold,
assigned,  transferred,  conveyed and delivered to the Purchaser, at the Closing
(as defined below),  good and valid title to the Assets (as defined below), free
of any  Encumbrances,  on the terms and subject to the  conditions  set forth in
this Agreement. For purposes of this Agreement,  "Assets" shall mean and include
all of the  properties,  rights,  interests  and other  tangible and  intangible
assets of the  Seller  (wherever  located  and  whether  or not  required  to be
reflected on a balance sheet  prepared in  accordance  with  generally  accepted
accounting principles;  provided, however, that the Assets shall not include any
Excluded Assets.  Without  limiting the generality of the foregoing,  the Assets
shall include:

                           (1) all accounts  receivable,  notes  receivable  and
         other  receivables  of the Seller  (including  all accounts  receivable
         identified in Part 2.8 of the Disclosure Schedule);

                           (2)  all  inventories  and  work-in-progress  of  the
         Seller,  and all rights to collect from  customers  (and to retain) all
         fees and other  amounts  payable,  or that may become  payable,  to the
         Seller with respect to services performed on behalf of the Seller on or
         prior to the Closing Date;

                           (3)  all  equipment,  materials,  prototypes,  tools,
         supplies,  vehicles,  furniture,   fixtures,   improvements  and  other
         tangible assets of the Seller (including the tangible assets identified
         in Part 2.11 of the Disclosure Schedule);

                           (4)      all advertising and promotional materials
                                    possessed by the Seller;

                           (5)      all  Proprietary  Assets and goodwill of the
                                    Seller  (including the Proprietary Assets
                                    identified in Part 2.13 of the Disclosure
                                    Schedule);

                           (6)  all  rights  of  the  Seller  under  the  Seller
         Contracts  (including the Seller  Contracts  identified in Part 2.14 of
         the Disclosure Schedule);

                           (7)      all Governmental  Authorizations held by the
                                    Seller (including the Governmental
                                    Authorizations identified in Part 2.17 of
                                    the Disclosure Schedule);

                           (8)   all   claims   (including   claims   for   past
         infringement of Proprietary  Assets) and causes of action of the Seller
         against  other  Persons  (regardless  of whether or not such claims and
         causes of action have been  asserted by the Seller),  and all rights of
         indemnity, warranty rights, rights of contribution,  rights to refunds,
         rights of reimbursement  and other rights of recovery  possessed by the
         Seller  (regardless of whether such rights are currently  exercisable);
         and

                           (9) all books, records,  files and data of the Seller
         or  Shareholder  necessary  for the  non-interrupted  operation  of the
         business of Seller.

1.2  License  Agreement.  It shall be a  condition  to Closing  that the parties
thereto shall have entered into that certain license  agreement in substantially
the form attached hereto as Exhibit ___.

1.3      Purchase Price.

(a)      As consideration for the sale of the Assets to the Purchaser:


(i)      at the Closing (as defined  below),  the Purchaser shall (i) pay to the
         Seller a total of  $100,000.00  (less all  principal  and  accrued  and
         unpaid  interest  accrued as of the Closing  Date under  those  certain
         promissory notes,  dated June 7, 1999, June 25, 1999, July 1, 1999, and
         July 1, 1999 (the  "Notes"),  issued  by Seller to Lender  (as  defined
         therein) and (ii) deliver the canceled Notes;

                           intentionally omitted;

(iii)    subject to Section  6.4,  beginning on January 15, 2000 and on the 15th
         of each month thereafter for a total of nineteen (19) payments,  Parent
         shall  pay to  Seller  each  month,  in cash,  $100,000.00  for a total
         payment of $1,900,000.00;

(iv)     subject to Section 6.4, on each annual  anniversary of the Closing Date
         until such time as the payment  obligations of Sections  1.2(a)(ii) and
         (iii) have been  completed,  Parent  shall pay to the Seller,  in cash,
         interest that has accrued on amounts unpaid under  Sections  1.2(a)(ii)
         and (iii).  Interest shall accrue commencing on the Closing Date at the
         rate of eight percent (8%) per annum; and


(v)      at the Closing,  the Purchaser shall assume the Assumed  Liabilities by
         delivering  to the Seller a Bill of Sale,  Assignment,  and  Assumption
         Agreement  in  substantially  the form of Exhibit ___ (the  "Assumption
         Agreement").


         Notwithstanding  the  foregoing,  Parent's  payment  obligations  under
Sections 1.2(a)(iii) and (iv) may be suspended in accordance with Section 6.4.


(b) For purposes of this  Agreement  "Assumed  Liabilities"  shall mean only the
following liabilities of the Seller:

(i)      those  accounts  payable  of the  Seller in an amount not to exceed one
         million six hundred thousand dollars  ($1,600,000) that arose from bona
         fide  transactions  entered into in the Ordinary Course of Business and
         that  remained  unpaid as of the Closing  Date which are listed in Part
         2.15(b) of the Disclosure Schedule; and

(ii)     the  obligations  of the Seller under the Contracts  identified in Part
         2.14  to  the  Disclosure  Schedule,   but  only  to  the  extent  such
         obligations  (A) arise after the Closing Date, (B) do not arise from or
         relate to any  Breach by the  Seller  of any  provision  of any of such
         Contracts,  (C) do not arise from or relate to any event,  circumstance
         or  condition  occurring  or existing  on or prior to the Closing  Date
         that,  with notice or lapse of time,  would  constitute  or result in a
         Breach of any of such Contracts,  and (D) are  ascertainable (in nature
         and amount) solely by reference to the express terms of such Contracts;

provided,  however,  that  notwithstanding  the foregoing,  and  notwithstanding
anything to the contrary contained in this Agreement,  the "Assumed Liabilities"
shall not  include,  and the  Purchaser  shall not be  required  to assume or to
perform or discharge:

                           (1)      any Liability of any Shareholder or any
                                    other Person, except for the Seller;

                           (2)      any  Liability  of the Seller  arising
                                    out of or  relating  to the  execution,
                                    delivery or performance of any of the
                                    Transactional Agreements;

                           (3)      any  Liability  of the  Seller  for any
                                    fees,  costs or  expenses  of the type
                                    referred to in Section 8.4(a) of Agreement;

                           (4)  any  Liability  of the  Seller  arising  from or
         relating to any action taken by the Seller,  or any failure on the part
         of the Seller to take any action, at any time after the Closing Date;

                           (5)  any  Liability  of the  Seller  arising  from or
         relating to (x) any services  performed by the Seller for any customer,
         or (y) any claim or Proceeding against the Seller;

                           (6)  any Liability of the Seller for the payment
                                of any Tax;

                           (7) any  Liability  of the Seller to any  employee or
         former  employee of the Seller  under or with  respect to any  Employee
         Benefit Plan, profit sharing plan or dental plan or for severance pay;

                           (8)      any Liability of the Seller to any
                                    Shareholder or any other Related Party;

                           (9) any Liability  under any Contract,  if the Seller
         shall  not  have  obtained,  prior to the  Closing  Date,  any  Consent
         required to be obtained from any Person with respect to the  assignment
         or delegation to the Purchaser of any rights or obligations  under such
         Contract;

                           (10)  any  Liability  that  is  inconsistent  with or
         constitutes an inaccuracy in, or that arises or exists by virtue of any
         Breach of, (x) any representation or warranty made by the Seller or any
         Shareholder in any of the Transactional Agreements, or (y) any covenant
         or obligation of the Seller or any Shareholder  contained in any of the
         Transactional Agreements; or

                           (11) any  other  Liability  that is not  referred  to
         specifically in clause "(i)" or "(ii)" of this sentence.

1.4  Sales  Taxes.  The  Seller  shall  bear and pay,  and shall  reimburse  the
Purchaser and the Purchaser's  affiliates  for, any transfer taxes,  documentary
charges,  recording  fees or similar taxes,  charges,  fees or expenses that may
become payable in connection  with the sale of the Assets to the Purchaser or in
connection with any of the other Transactions.

1.5  Allocation.  At or prior to the  Closing,  Purchaser  shall  deliver to the
Seller a statement setting forth the Purchaser's good faith determination of the
manner in which the consideration referred to in Sections 1.2(a)(i),  1.2(a)(ii)
and 1.2(a)(iii) is to be allocated among the Assets.  The allocation  prescribed
by such statement  shall be conclusive and binding upon the  Shareholder and the
Seller for all purposes,  and neither the Seller nor Shareholder  shall file any
Tax Return or other document with, or make any statement or declaration  to, any
Governmental Body that is inconsistent with such allocation.

1.6       Closing.

(a) The closing of the sale of the Assets to the Purchaser (the "Closing") shall
take place at the  offices of Cooley  Godward LLP in Palo Alto,  California,  at
10:00 a.m.  on such date as the  Purchaser  may  designate  in a written  notice
delivered to the Seller;  provided,  however, that if any condition set forth in
Section 4 has not been  satisfied as of the date  designated  by the  Purchaser,
then the  Purchaser  may, at its election,  unilaterally  postpone the Scheduled
Closing  Time by up to 60  days.  For  purposes  of this  Agreement,  "Scheduled
Closing  Time"  shall mean the time and date as of which the Closing is required
to take place pursuant to this Section 1.6(a); and "Closing Date" shall mean the
time and date as of which the Closing actually takes place.

(b)      At the Closing:

(i)      the Seller  shall  execute and deliver to the  Purchaser  such bills of
         sale,  endorsements,  assignments  and other  documents  as may (in the
         reasonable  judgment of the  Purchaser  or its counsel) be necessary or
         appropriate  to assign,  convey,  transfer and deliver to the Purchaser
         good and valid title to the Assets free of any Encumbrances;


(ii)     the  Purchaser  shall  pay  to  the  Seller  such  amount  in  cash  as
         contemplated by Section 1.2(a)(i) and deliver the canceled Notes;


     (iii) the Purchaser  shall execute and deliver to the Seller the Assumption
     Agreement;

     (iv) the  Shareholder  and the  Seller  shall  execute  and  deliver to the
     Purchaser a  certificate  (the  "Closing  Certificate")  setting  forth the
     representations  and warranties of the  Shareholder and the Seller that (A)
     each of the  representations and warranties made by the Shareholder and the
     Seller in this  Agreement  was  accurate in all  respects as of the date of
     this  Agreement,   (B)  except  as  expressly  set  forth  in  the  Closing
     Certificate,  each  of  the  representations  and  warranties  made  by the
     Shareholder and the Seller in this Agreement is accurate in all respects as
     of the  Closing  Date as if  made  on the  Closing  Date,  (C)  each of the
     covenants  and  obligations  that any of the  Shareholder  or the Seller is
     required to have complied with or performed  pursuant to this  Agreement at
     or prior to the Closing has been duly  complied  with and  performed in all
     respects, and (D) except as expressly set forth in the Closing Certificate,
     each of the  conditions  set forth in Section 4.3 has been satisfied in all
     respects; and

     (v) the parties  thereto  shall have  executed  and  delivered  the License
     Agreement.


2. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER AND THE SELLER.

                  The  Shareholder  and  the  Seller,   jointly  and  severally,
represent and warrant, to and for the benefit of the Indemnitees, as follows:

2.1 Due  Organization;  No  Subsidiaries;  Etc. The Seller is a corporation duly
organized,  validly existing and in good standing under the laws of the State of
Delaware. The Seller is not required to be qualified, authorized,  registered or
licensed to do business as a foreign  corporation in any jurisdiction other than
the jurisdictions listed in Part 2.1 of the Disclosure  Schedule.  The Seller is
in good standing as a foreign corporation in each of the jurisdictions listed in
Part 2.1 of the Disclosure  Schedule.  The Seller does not have any subsidiaries
other than those  listed in Part 2.1 of the  Disclosure  Schedule,  and does not
own, beneficially or otherwise, any shares or other securities of, or any direct
or indirect  interest of any nature in, any other  Entity.  The Seller has never
conducted  any  business  under or  otherwise  used,  for any  purpose or in any
jurisdiction, any fictitious name, assumed name, trade name or other name.

2.2 Certificate of Incorporation and Bylaws;  Records.  The Seller has delivered
to (or made  available for  inspection  by) the Purchaser  accurate and complete
copies of:  (i) the  certificate  of  incorporation  and  bylaws of the  Seller,
including all amendments thereto;  and (ii) the stock records of the Seller. The
books of account,  stock  records,  minute books and other records of the Seller
are accurate,  up-to-date and complete,  and have been  maintained in accordance
with sound and prudent business practices.  All of the records of the Seller are
in the actual possession and direct control of the Seller.

2.3  Capitalization.  The Shareholder is the sole shareholder of the Seller.  No
person other than the Shareholder has any right to vote with respect to the sale
of the Assets to the Purchaser or any of the other Transactions.

2.4  Financial  Statements.  The  Seller  has  delivered  to the  Purchaser  the
following financial statements (collectively,  the "Financial Statements"):  (a)
the  unaudited  balance  sheet of the Seller as of February  28,  1999,  and the
unaudited  statement  of income of the  Seller  for the one year  period  ending
February  28, 1999 ; and (b) the balance  sheet of the Seller as of May 31, 1999
(the "Unaudited Interim Balance Sheet") and the unaudited statement of income of
the Seller for the period of March 1, 1999 through May 31, 1999.  The  Financial
Statements  are  accurate and complete in all  respects,  have been  prepared in
accordance with generally accepted accounting principles applied on a consistent
basis  throughout  the periods  covered  (except that the  financial  statements
referred to in clause  "(b)" of this  Section 2.4 do not have notes) and present
fairly the financial position of the Seller as of the respective dates thereof.

2.5 Absence Of Changes.  Except as set forth in Part 2.5 of the  Disclosure
     Schedule, since February 28, 1999:

(a)      there has not been any  adverse  change in,  and no event has  occurred
         that might have an adverse effect on, the business,  condition, assets,
         liabilities, operations, financial performance, net income or prospects
         of the Seller;

(b)      there has not been any loss,  damage or  destruction  to, or any
         interruption  in the use of,  any of the assets of the Seller (whether
         or not covered by insurance);

(c)      the Seller has not  purchased or otherwise  acquired any asset from any
         other  Person,  except  for  supplies  acquired  by the  Seller  in the
         Ordinary Course of Business;

(d)      the Seller has not leased or licensed any asset from any other Person;

(e)      the Seller has not made any capital expenditure;

(f)      the Seller has not sold or otherwise transferred, or leased or
         licensed, any asset to any other Person;

(g)      the Seller has not written off as  uncollectible,  or established any
         extraordinary  reserve with respect to, any account receivable or other
         indebtedness;

(h)      the Seller has not made any loan or advance to any other Person;

(i)      the Seller has not (i)  established  or adopted  any  Employee  Benefit
         Plan,  or (ii) paid any  bonus or made any  profit-sharing  or  similar
         payment to, or increased the amount of the wages, salary,  commissions,
         fees, fringe benefits or other compensation or remuneration payable to,
         any of its directors, officers, employees or independent contractors;

(j)      no Contract  by which the Seller or any of the assets  owned or used by
         the  Seller is or was bound,  or under  which the Seller has or had any
         rights or interest, has been amended or terminated;

(k)      the Seller has not incurred, assumed or otherwise become subject to any
         Liability,  other than  accounts  payable  (of the type  required to be
         reflected  as  current  liabilities  in the  "liabilities"  column of a
         balance sheet prepared in accordance  with GAAP) incurred by the Seller
         in bona  fide  transactions  entered  into in the  Ordinary  Course  of
         Business;

(l)      the Seller has not discharged any Encumbrance or discharged or paid any
         indebtedness or other  Liability,  except for accounts payable that (i)
         are reflected as current liabilities in the "liabilities" column of the
         Unaudited  Interim  Balance  Sheet or have been  incurred by the Seller
         since May 31,  1999,  in bona  fide  transactions  entered  into in the
         Ordinary  Course of Business,  and (ii) have been discharged or paid in
         the Ordinary Course of Business;

(m)      the Seller has not forgiven any debt or otherwise released or waived
         any right or claim;

(n)      the Seller has not changed any of its methods of accounting or
         accounting practices in any respect;

(o)      the Seller has not entered into any  transaction or taken any other
         action outside the Ordinary  Course of Business; and

(p)      the  Seller  has not  agreed,  committed  or  offered  (in  writing  or
         otherwise)  to take any of the  actions  referred  to in clauses  "(c)"
         through "(o)" above.

2.6 Title To Assets.  The Seller  owns,  and has good and valid title to, all of
the all assets purported to be owned by it and transferred to Purchaser pursuant
to this  Agreement,  including:  all assets  reflected on the Unaudited  Interim
Balance Sheet;  all assets acquired by the Seller since May 31, 1999; all assets
referred to in Parts 2.7, 2.8,  2.10,  2.11,  2.12,  and 2.13 of the  Disclosure
Schedule; all rights of the Seller under Seller Contracts;  and all other assets
reflected  in the books and  records of the Seller as being owned by the Seller.
Except as set forth in Part 2.6 of the Disclosure  Schedule,  all of said assets
are  owned by the  Seller  free and clear of any  Encumbrances.  Part 2.6 of the
Disclosure  Schedule  identifies  all of the  assets  that are  being  leased or
licensed to the Seller.  The Assets, in conjunction with the License  Agreement,
will  collectively  constitute,  as of the Closing Date, all of the  properties,
rights,  interests and other tangible and intangible  assets necessary to enable
the Purchaser to conduct Seller's  business in the manner in which such business
is  currently  being  conducted  and in the  manner in which  such  business  is
proposed to be conducted.

2.7 Bank Accounts.  Part 2.7 of the Disclosure  Schedule  accurately sets forth,
with respect to each account  maintained  by or for the benefit of the Seller at
any bank or other  financial  institution:  (a) the  name  and  location  of the
institution  at which  such  account is  maintained;  (b) the name in which such
account is maintained and the account number of such account;  (c) a description
of such account and the purpose for which such account is used;  (d) the current
balance in such account;  (e) the rate of interest  being earned on the funds in
such account; and (f) the names of all individuals authorized to draw on or make
withdrawals  from such  account.  There  are no safe  deposit  boxes or  similar
arrangements maintained by or for the benefit of the Seller.

2.8 Receivables.  Part 2.8 of the Disclosure  Schedule  provides an accurate and
complete  breakdown and aging of all accounts  receivable,  notes receivable and
other  receivables of the Seller as of the Closing Date.  Except as set forth in
Part 2.8 of the Disclosure  Schedule,  all existing  accounts  receivable of the
Seller:  (i) represent valid obligations of customers of the Seller arising from
bona fide transactions entered into in the Ordinary Course of Business; and (ii)
are current and will be collected in full (without any  counterclaim  or setoff)
on or before September 15, 1999). Part 2.8 of the Disclosure Schedule identifies
all  unreturned  security  deposits and other  deposits  made by, or held by any
Person for the benefit of, the Seller.

2.9  Customers;  Distributors.  Part 2.9 of the Disclosure  Schedule  accurately
identifies,  and  provides an accurate  and  complete  breakdown of the revenues
received  from,  each  customer  or  other  Person  that  (together  which  such
customer's or other Person's  affiliates)  accounted for more than $20,000.00 of
the  gross  revenues  of the  Seller  in  1997,  1998,  or 1999.  Other  than as
identified  in Part 2.9 of the  Disclosure  Schedule,  neither  the  Seller  nor
Shareholder  has  received  any  notice or other  communication  (in  writing or
otherwise),  and  neither  the Seller nor  Shareholder  has  received  any other
information, indicating that any customer or other Person identified or required
to be identified in Part 2.9 of the  Disclosure  Schedule may cease dealing with
the Seller or may  otherwise  reduce the volume of business  transacted  by such
Person  with  the  Seller  below  historical  levels.  Neither  the  Seller  nor
Shareholder  has  received  any  notice or other  communication  (in  writing or
otherwise),  or  has  received  any  other  information,   indicating  that  any
distributor of any of the Seller's products may cease acting as a distributor of
such products or otherwise dealing with the Seller.

2.10 Inventory.  Part 2.10 of the Disclosure  Schedule  provides an accurate and
complete  breakdown of all inventory  (including raw materials,  work in process
and finished  goods) of the Seller as of the Closing  Date.  All of the Seller's
existing inventory not identified otherwise as "scrap" or "closeout":  (a) is of
such  quality  and  quantity  as to be usable and  saleable by the Seller in the
Ordinary Course of Business;  (b) has been priced at the lower of cost or market
value using the "last-in,  first-out"  method;  and (c) is free of any defect or
deficiency.

2.11 Equipment,  Etc. Part 2.11 of the Disclosure Schedule accurately identifies
all equipment,  materials,  prototypes,  tools, supplies,  vehicles,  furniture,
fixtures,  improvements and other tangible assets owned by the Seller. Part 2.11
of the Disclosure Schedule also accurately identifies all tangible assets leased
to the Seller.  Each asset  identified or required to be identified in Part 2.11
of the  Disclosure  Schedule:  (i) is  structurally  sound,  free of defects and
deficiencies and in good condition and repair (ordinary wear and tear excepted);
(ii) complies in all respects  with, and is being operated and otherwise used in
full compliance with, all applicable Legal  Requirements;  and (iii) is adequate
and appropriate for the uses to which it is being put. The assets  identified in
Part  2.11 of the  Disclosure  Schedule  are  adequate  for the  conduct  of the
business of the Seller in the manner in which such  business is currently  being
conducted and in the manner in which such business is proposed to be conducted.

2.12 Real Property. The Seller does not own any real property or any interest in
real property,  except for the leaseholds created under the real property leases
identified in Part 2.12 of the Disclosure Schedule.  Part 2.12 of the Disclosure
Schedule  provides an accurate and complete  description of the premises covered
by said leases and the facilities  located on such  premises.  The Seller enjoys
peaceful and undisturbed possession of such premises.

2.13     Proprietary Assets.

(a) Part 2.13(a)(1) of the Disclosure  Schedule  identifies and provides a brief
description of all Proprietary Assets owned by the Seller (or by Shareholder and
that are  needed  for the  conduct  of, or are useful in  connection  with,  the
business of the Seller).  Part 2.13(a)(2) of the Disclosure  Schedule identifies
and provides a brief  description of each Proprietary Asset that is owned by any
other  Person  and that is  licensed  to or used by the Seller  (except  for any
Proprietary  Asset that is licensed to the Seller under any third party software
license that (1) is generally available to the public, and (2) imposes no future
monetary obligation on the Seller) and identifies the license agreement or other
agreement under which such Proprietary Asset is being licensed to or used by the
Seller.  The  Seller  or  Shareholder  has  good and  valid  title to all of the
Proprietary  Assets  identified in Part  2.13(a)(1) of the Disclosure  Schedule,
free of any  Encumbrances,  and has a valid right to use and otherwise  exploit,
and to license  others to use and  otherwise  exploit,  all  Proprietary  Assets
identified in Part 2.13(a)(2) of the Disclosure Schedule. Except as set forth in
Part 2.13(a)(3) of the Disclosure Schedule,  the Seller is not obligated to make
any payment to any Person for the use or other  exploitation  of any Proprietary
Asset.  Except as set forth in Part 2.13(a)(4) of the Disclosure  Schedule,  the
Seller is free to use,  modify,  copy,  distribute,  sell,  license or otherwise
exploit each of the Seller  Proprietary Assets on an exclusive basis (other than
Proprietary  Assets  consisting  of software  licensed to the Seller under third
party  licenses  generally  available  to the public,  with respect to which the
Seller's rights are not exclusive).

(b) The Seller or Shareholder has taken all reasonable  measures and precautions
necessary to protect and maintain the  confidentiality and secrecy of all Seller
and Shareholder  Proprietary  Assets (except Seller and Shareholder  Proprietary
Assets whose value would be  unimpaired by public  disclosure)  and otherwise to
maintain and protect the value of all Seller Proprietary  Assets. The Seller and
Shareholder  have not  disclosed  or  delivered  or permitted to be disclosed or
delivered to any Person,  and no Person  (other than the Seller or  Shareholder)
has access to or has any rights with respect to, the source code, or any portion
or aspect of the source code, of any Seller or Shareholder Proprietary Asset.

(c) All patents,  trademarks,  service marks and copyrights  that are registered
with any  Governmental  Body and held by the Seller or Shareholder are valid and
subsisting.  None of the Seller  Proprietary  Assets infringes or conflicts with
any  Proprietary  Asset  owned or used by any other  Person.  The  Seller is not
infringing,  misappropriating  or making any unlawful use of, and the Seller has
not at any time  infringed,  misappropriated  or made any  unlawful  use of,  or
received any notice or other communication of any actual,  alleged,  possible or
potential  infringement,  misappropriation  or unlawful use of, any  Proprietary
Asset owned or used by any other  Person.  To the best of the  knowledge  of the
Seller and the Shareholder,  no other Person is infringing,  misappropriating or
making any unlawful use of, and no Proprietary  Asset owned or used by any other
Person infringes or conflicts with, any Seller Proprietary Asset.

(d) The Proprietary  Assets  constitute all the Proprietary  Assets necessary to
enable the Seller to conduct its  business in the manner in which such  business
is being  conducted  and in the manner in which such  business is proposed to be
conducted.  The Seller has not licensed any of the Seller  Proprietary Assets to
any Person on an exclusive  basis.  The Seller has not entered into any covenant
not to compete or  Contract  limiting  its  ability to exploit  fully any of the
Seller  Proprietary Assets or to transact business in any market or geographical
area or with any Person.

(e) Except as set forth in Part 2.13(e) of the Disclosure  Schedule,  the Seller
has not entered into and is not bound by any Contract under which any Person has
the right to distribute  or license any  Proprietary  Asset.  The Seller has not
disclosed or delivered to any Person, or permitted the disclosure or delivery to
any Person,  of the source code, or any portion or aspect of the source code, or
any  proprietary  information or algorithm  contained in any source code, of any
Proprietary  Asset.  No event has  occurred,  and no  circumstance  or condition
exists, that (with or without notice or lapse of time) will, or could reasonably
be expected to, result in the disclosure or delivery to any Person of the source
code,  or  any  portion  or  aspect  of the  source  code,  or  any  proprietary
information or algorithm contained in any source code, of any Proprietary Asset.

2.14     Contracts.

(a) Part 2.14 of the Disclosure Schedule identifies and provides an accurate and
complete  description  of  each  Seller  Contract,  except  for  any  Immaterial
Contract. The Seller has delivered to the Purchaser accurate and complete copies
of all Contracts identified in Part 2.14 of the Disclosure  Schedule,  including
all  amendments  thereto.  Each  Seller  Contract is valid and in full force and
effect.

(b) Except as set forth in Part 2.14 of the Disclosure  Schedule:  (i) no Person
has violated or breached, or declared or committed any default under, any Seller
Contract;  (ii) no event has occurred,  and no circumstance or condition exists,
that might  (with or without  notice or lapse of time) (A) result in a violation
or breach of any of the provisions of any Seller  Contract,  (B) give any Person
the right to declare a default or exercise any remedy under any Seller Contract,
(C) give any Person the right to accelerate  the maturity or  performance of any
Seller Contract, or (D) give any Person the right to cancel, terminate or modify
any  Seller  Contract;  (iii) the Seller  has not  received  any notice or other
communication (in writing or otherwise) regarding any actual, alleged,  possible
or potential violation or breach of, or default under, any Seller Contract;  and
(iv) the Seller has not waived any right under any Seller Contract.

(c) To the best of the knowledge of the Seller and the Shareholder,  each Person
against which the Seller has or may acquire any rights under any Seller Contract
is  solvent  and is able to  satisfy  all of such  Person's  current  and future
monetary obligations and other obligations and Liabilities thereunder.

(d) Except as set forth in Part 2.14 of the Disclosure Schedule,  the Seller has
never guaranteed or otherwise agreed to cause,  insure or become liable for, and
the Seller has never  pledged any of its assets to secure,  the  performance  or
payment of any obligation or other Liability of any other Person.

(e) The performance of the Seller  Contracts will not result in any violation of
or failure to comply with any Legal Requirement.

(f) No Person is renegotiating, or has the right to renegotiate, any amount paid
or  payable  to the  Seller  under any  Seller  Contract  or any  other  term or
provision of any Seller Contract.

(g) The Seller has no  knowledge of any basis upon which any party to any Seller
Contract may object to (i) the  assignment  to the  Purchaser of any right under
such Seller Contract,  or (ii) the delegation to or performance by the Purchaser
of any obligation under such Seller Contract.

(h)  The  Contracts   identified  in  Part  2.14  of  the  Disclosure   Schedule
collectively  constitute all of the Contracts  necessary to enable the Seller to
conduct its  business in the manner in which such  business is  currently  being
conducted and in the manner in which such business is proposed to be conducted.

(i) Part 2.14 of the Disclosure Schedule identifies and provides an accurate and
complete  description  of each  proposed  Contract  as to which any bid,  offer,
written proposal,  term sheet or similar document has been submitted or received
by the Seller.

2.15     Liabilities.

(a) Except as set forth in Part 2.15 of the Disclosure Schedule,  the Seller has
no  Liabilities,   except  for:  (i)  liabilities  identified  as  such  in  the
"liabilities"  columns of the Unaudited  Interim  Balance  Sheet;  (ii) accounts
payable (of the type  required to be  reflected  as current  liabilities  in the
"liabilities"  column of a balance  sheet  prepared  in  accordance  with  GAAP)
incurred by the Seller in bona fide  transactions  entered  into in the Ordinary
Course of Business since May 31, 1999; and (iii) obligations under the Contracts
listed in Part 2.14 of the Disclosure Schedule, to the extent that the existence
of such obligations is ascertainable solely by reference to such Contracts.

(b) Part 2.15 of the Disclosure Schedule:  (i) provides an accurate and complete
breakdown  and aging of the  accounts  payable of the  Seller as of the  Closing
Date; (ii) provides an accurate and complete  breakdown of any customer deposits
or other deposits held by the Seller as of the date of this Agreement; and (iii)
provides an  accurate  and  complete  breakdown  of all notes  payable and other
indebtedness of the Seller as of the date of this Agreement.

(c) Except as set forth in Part 2.15 of the Disclosure Schedule,  the Seller has
not paid,  and the Seller is not and will not become  liable for the payment of,
any fees, costs or expenses of the type referred to in Section 8.4(a).

(d) Part 2.15 of the Disclosure Schedule accurately identifies,  and provides an
accurate and complete  breakdown of the amounts paid to, each  supplier or other
Person that (together which such Person's affiliates) received more than $50,000
in the aggregate from the Seller in any of 1997, 1998, or 1999.

(e) The  Seller  has not,  at any time,  (i) made a general  assignment  for the
benefit of  creditors,  (ii)  filed,  or had filed  against  it, any  bankruptcy
petition or similar  filing,  (iii)  suffered the  attachment or other  judicial
seizure of all or a substantial  portion of its assets, (iv) admitted in writing
its  inability  to pay its debts as they become due, (v) been  convicted  of, or
pleaded  guilty or no contest to, any felony,  or (vi) taken or been the subject
of any action  that may have an adverse  effect on its ability to comply with or
perform  any of its  covenants  or  obligations  under any of the  Transactional
Agreements.

2.16 Compliance with Legal Requirements. Except as set forth in Part 2.16 of the
Disclosure  Schedule:  (a) the  Seller is in full  compliance  with  each  Legal
Requirement  that is  applicable  to it or to the conduct of its business or the
ownership  or use of any of its assets;  (b) the Seller has at all times been in
full compliance with each Legal  Requirement  that is or was applicable to it or
to the conduct of its business or the ownership or use of any of its assets; (c)
no event has occurred, and no condition or circumstance exists, that might (with
or without notice or lapse of time)  constitute or result directly or indirectly
in a  violation  by the  Seller  of, or a failure  on the part of the  Seller to
comply with, any Legal Requirement;  and (d) the Seller has not received, at any
time,  any notice or other  communication  (in  writing or  otherwise)  from any
Governmental  Body  or any  other  Person  regarding  (i) any  actual,  alleged,
possible  or  potential  violation  of, or  failure  to comply  with,  any Legal
Requirement,  or (ii) any actual,  alleged,  possible or potential obligation on
the part of the Seller to  undertake,  or to bear all or any portion of the cost
of, any cleanup or any remedial,  corrective  or response  action of any nature.
The  Shareholder  and the Seller have delivered to the Purchaser an accurate and
complete  copy of each  report,  study,  survey or other  document  to which the
Shareholder or the Seller has access that addresses or otherwise  relates to the
compliance of the Seller with, or the  applicability to the Seller of, any Legal
Requirement.  To the best of the knowledge of the Seller and the Shareholder, no
Governmental  Body has proposed or is considering any Legal Requirement that, if
adopted or  otherwise  put into  effect,  (i) may have an adverse  effect on the
business, condition, assets, liabilities, operations, financial performance, net
income or  prospects of the Seller or on the ability of the  Shareholder  or the
Seller to comply with or perform any  covenant  or  obligation  under any of the
Transactional Agreements,  or (ii) may have the effect of preventing,  delaying,
making illegal or otherwise interfering with any of the Transactions.

2.17  Governmental   Authorizations.   Part  2.17  of  the  Disclosure  Schedule
identifies:  (a) each Governmental Authorization that is held by the Seller; and
(b) each other Governmental  Authorization that, to the best of the knowledge of
the  Shareholder  and the  Seller,  is held by any  employee  of the  Seller and
relates to or is useful in  connection  with the  business  of the  Seller.  The
Shareholder and the Seller have delivered to the Purchaser accurate and complete
copies of all of the Governmental  Authorizations identified in Part 2.17 of the
Disclosure Schedule,  including all renewals thereof and all amendments thereto.
Each Governmental  Authorization identified or required to be identified in Part
2.17 of the Disclosure Schedule is valid and in full force and effect. Except as
set forth in Part 2.17 of the Disclosure Schedule:  (i) the Seller is and has at
all times been in full compliance with all of the terms and requirements of each
Governmental  Authorization identified or required to be identified in Part 2.17
of the  Disclosure  Schedule;  (ii) no event has  occurred,  and no condition or
circumstance  exists,  that might (with or without  notice or lapse of time) (A)
constitute  or result  directly or  indirectly in a violation of or a failure to
comply with any term or requirement of any Governmental Authorization identified
or required to be identified  in Part 2.17 of the  Disclosure  Schedule,  or (B)
result  directly  or  indirectly  in  the  revocation,  withdrawal,  suspension,
cancellation,  termination or  modification  of any  Governmental  Authorization
identified or required to be identified in Part 2.17 of the Disclosure Schedule;
(iii) the  Seller  has never  received  any  notice or other  communication  (in
writing or otherwise) from any  Governmental  Body or any other Person regarding
(A) any actual, alleged, possible or potential violation of or failure to comply
with any  term or  requirement  of any  Governmental  Authorization,  or (B) any
actual,  proposed,  possible or potential  revocation,  withdrawal,  suspension,
cancellation, termination or modification of any Governmental Authorization; and
(iv) all  applications  required  to have  been  filed  for the  renewal  of the
Governmental  Authorizations  required  to be  identified  in  Part  2.17 of the
Disclosure  Schedule have been duly filed on a timely basis with the appropriate
Governmental Bodies, and each other notice or filing required to have been given
or made with respect to such Governmental  Authorizations has been duly given or
made on a timely basis with the appropriate  Governmental Body. The Governmental
Authorizations identified in Part 2.17 of the Disclosure Schedule constitute all
of the Governmental Authorizations necessary (i) to enable the Seller to conduct
its business in the manner in which such business is currently  being  conducted
and in the manner in which such business is proposed to be  conducted,  and (ii)
to permit  the  Seller to own and use its assets in the manner in which they are
currently  owned and used and in the  manner in which  they are  proposed  to be
owned and used.

2.18     Tax Matters.

(a) Each Tax required to have been paid, or claimed by any Governmental  Body to
be payable,  by the Seller has been duly paid in full on a timely basis. Any Tax
required to have been withheld or collected by the Seller has been duly withheld
and collected;  and (to the extent  required) each such Tax has been paid to the
appropriate Governmental Body.

(b) Part 2.18 of the Disclosure Schedule accurately  identifies each examination
or audit of any Tax Return of the Seller that has been conducted  since December
31,  1996.  The  Shareholders  and the Seller have  delivered  to the  Purchaser
accurate  and complete  copies of all audit  reports and similar  documents  (to
which any Shareholder or the Seller has access) relating to such Tax Returns.

(c)  Except as set forth in Part 2.18 of the  Disclosure  Schedule,  no claim or
other  Proceeding is pending or has been  threatened  against or with respect to
the Seller in respect of any Tax. There are no unsatisfied Liabilities for Taxes
(including liabilities for interest,  additions to tax and penalties thereon and
related  expenses) with respect to any notice of deficiency or similar  document
received by the Seller.  The Seller has not entered  into or become bound by any
agreement or consent pursuant to Section 341(f) of the Code.

(d) There is no agreement,  plan,  arrangement  or other  Contract  covering any
employee or independent  contractor or former employee or independent contractor
of the Seller that,  individually or  collectively,  could give rise directly or
indirectly to the payment of any amount that would not be deductible pursuant to
Section 280G or Section 162 of the Code.

(e) The  Shareholder  and the Seller have  delivered to (or made  available  for
inspection  by) the  Purchaser  accurate and complete  copies of all Tax Returns
that have been filed on behalf of or with respect to the Seller  since  December
31, 1996. The information contained in such Tax Returns is accurate and complete
in all respects.

2.19     Employee And Labor Matters.

(a) Part 2.19 of the Disclosure  Schedule accurately sets forth, with respect to
each employee of the Seller (including any employee who is on a leave of absence
or on  layoff  status):  (i) the  name  and  title  of such  employee;  (ii) the
aggregate  dollar  amounts  of  the  compensation   (including  wages,   salary,
commissions,  director's fees, fringe benefits, bonuses, profit-sharing payments
and other  payments or benefits of any type)  received by such employee from the
Seller with  respect to services  performed in 1998 and with respect to services
performed in 1999; (iii) such employee's annualized  compensation as of the date
of this Agreement; (iv) the number of hours of sick-time which such employee has
accrued as of the date hereof and the aggregate  dollar amount thereof;  and (v)
the number of hours of vacation  time which such  employee has accrued as of the
date hereof and the aggregate dollar amount thereof.

(b) Part 2.19 of the  Disclosure  Schedule  accurately  identifies  each  former
employee of the Seller who is  receiving  or is  scheduled  to receive (or whose
spouse or other  dependent is receiving or is scheduled to receive) any benefits
from the Seller relating to such former  employee's  employment with the Seller;
and Part 2.19 of the Disclosure Schedule accurately describes such benefits.

(c) Except as set forth in Part 2.19 of the Disclosure  Schedule,  the Seller is
not a party to or bound  by,  and has  never  been a party to or bound  by,  any
employment contract or any union contract,  collective  bargaining  agreement or
similar Contract.

(d) The employment of the employees of the Seller is terminable by the Seller at
will and no employee is entitled to severance  pay or other  benefits  following
termination or resignation, except as otherwise provided by law. The Shareholder
and the Seller have delivered to the Purchaser  accurate and complete  copies of
all employee manuals and handbooks,  disclosure materials, policy statements and
other materials  relating to the employment of the current and former  employees
of the Seller.

(e) The Seller is not engaged in any unfair labor practice of any nature.  There
has never been any slowdown,  work stoppage,  labor dispute or union  organizing
activity, or any similar activity or dispute, affecting the Seller or any of its
employees,  and no Person has  threatened  to commence any such  slowdown,  work
stoppage,  labor dispute or union organizing activity or any similar activity or
dispute.

2.20     Benefit Plans; ERISA.

(a) Part 2.20 of the Disclosure Schedule identifies and provides an accurate and
complete  description of each Plan. The Seller has never  established,  adopted,
maintained, sponsored, contributed to, participated in or incurred any Liability
with respect to any Employee  Benefit Plan,  except for the Plans  identified in
Part 2.20 of the Disclosure Schedule;  and the Seller has never provided or made
available  any  fringe  benefit  or other  benefit  of any  nature to any of its
employees, except as set forth in Part 2.20 of the Disclosure Schedule.

(b) No Plan:  (i)  provides or provided  any benefit  guaranteed  by the Pension
Benefit Guaranty  Corporation;  (ii) is or was a "multiemployer plan" as defined
in  Section  4001(a)(3)  of ERISA;  or (iii) is or was  subject  to the  minimum
funding  standards of Section 412 of the Code or Section 302 of ERISA.  There is
no Person that (by reason of common  control or otherwise) is or has at any time
been treated together with the Seller as a single employer within the meaning of
Section 414 of the Code.

(c) The Shareholder and the Seller have caused to be delivered to the Purchaser,
with respect to each Plan:  (i) an accurate  and complete  copy of such Plan and
all amendments thereto (including any amendment that is scheduled to take effect
in the future);  (ii) an accurate and complete copy of each Contract  (including
any trust agreement,  funding agreement,  service provider agreement,  insurance
agreement,  investment management agreement or recordkeeping agreement) relating
to such Plan; (iii) an accurate and complete copy of any  description,  summary,
notification,  report or other  document that has been furnished to any employee
of the Seller with respect to such Plan;  (iv) an accurate and complete  copy of
any form, report,  registration  statement or other document that has been filed
with or submitted to any Governmental Body with respect to such Plan; and (v) an
accurate and complete copy of any determination letter, notice or other document
that has been  issued  by, or that has been  received  by the Seller  from,  any
Governmental Body with respect to such Plan.

(d) Each Plan is being and has at all times been  operated and  administered  in
full compliance with the provisions thereof.  Each contribution or other payment
that is required to have been  accrued or made under or with respect to any Plan
has been duly  accrued  and made on a timely  basis.  Each Plan has at all times
complied  and  been  operated  and  administered  in full  compliance  with  all
applicable  reporting,  disclosure and other  requirements of ERISA and the Code
and all other applicable Legal  Requirements.  The Seller has never incurred any
Liability to the Internal  Revenue Service or any other  Governmental  Body with
respect to any Plan; and no event has occurred, and no condition or circumstance
exists,  that might (with or without notice or lapse of time) give rise directly
or indirectly to any such  Liability.  Neither the Seller nor any Person that is
or was an  administrator  or fiduciary of any Plan (or that acts or has acted as
an agent of the Seller or any such  administrator  or fiduciary)  has engaged in
any  transaction  or has  otherwise  acted or failed to act in a manner that has
subjected or may subject the Seller to any Liability for breach of any fiduciary
duty or any other duty. No Plan,  and no Person that is or was an  administrator
or  fiduciary  of any Plan (or  that  acts or has  acted as an agent of any such
administrator  or  fiduciary):  (i) has  engaged in a  "prohibited  transaction"
within the meaning of Section 406 of ERISA or Section 4975 of the Code; (ii) has
failed to  perform  any of the  responsibilities  or  obligations  imposed  upon
fiduciaries  under Title I of ERISA;  or (iii) has taken any action that (A) may
subject such Plan or such Person to any Tax,  penalty or  Liability  relating to
any "prohibited  transaction," or (B) may directly or indirectly give rise to or
serve as a basis for the  assertion  (by any employee or by any other Person) of
any claim under, on behalf of or with respect to such Plan.

(e) No inaccurate or misleading representation, statement or other communication
has been made or  directed  (in writing or  otherwise)  to any current or former
employee  of the  Seller  (i) with  respect  to such  employee's  participation,
eligibility for benefits, vesting, benefit accrual or coverage under any Plan or
with respect to any other matter  relating to any Plan,  or (ii) with respect to
any  proposal or intention on the part of the Seller to establish or sponsor any
Employee  Benefit  Plan or to provide or make  available  any fringe  benefit or
other benefit of any nature.

(f) The Seller has not advised any of its  employees  (in writing or  otherwise)
that it intends or expects to establish or sponsor any Employee  Benefit Plan or
to provide or make  available any fringe  benefit or other benefit of any nature
in the future.

2.21     Environmental Matters.

(a) The Seller is not liable or  potentially  liable  for any  response  cost or
natural  resource  damages  under Section  107(a) of CERCLA,  or under any other
so-called  "superfund" or "superlien"  law or similar Legal  Requirement,  at or
with respect to any site.

(b) The Seller has never received any notice or other  communication (in writing
or otherwise) from any  Governmental  Body or other Person regarding any actual,
alleged,  possible  or  potential  Liability  arising  from or  relating  to the
presence, generation, manufacture, production, transportation, importation, use,
treatment,  refinement,   processing,  handling,  storage,  discharge,  release,
emission or disposal of any Hazardous Material.  No Person has ever commenced or
threatened to commence any contribution  action or other Proceeding  against the
Seller in  connection  with any such  actual,  alleged,  possible  or  potential
Liability;  and no event has occurred,  and no condition or circumstance exists,
that may directly or indirectly  give rise to, or result in the Seller  becoming
subject to, any such Liability.

(c) Except as set forth in Part 2.21 of the Disclosure Schedule,  the Seller has
never generated,  manufactured,  produced, transported, imported, used, treated,
refined,  processed,  handled, stored,  discharged,  released or disposed of any
Hazardous Material (whether lawfully or unlawfully). Except as set forth in Part
2.21 of the Disclosure  Schedule,  the Seller has never permitted  (knowingly or
otherwise) any Hazardous Material to be generated, manufactured, produced, used,
treated, refined, processed,  handled, stored, discharged,  released or disposed
of (whether  lawfully or unlawfully):  (i) on or beneath the surface of any real
property that is, or that has at any time been, owned by, leased to,  controlled
by or used by the Seller; (ii) in or into any surface water,  groundwater,  soil
or air  associated  with or adjacent to any such real  property;  or (iii) in or
into any well,  pit,  pond,  lagoon,  impoundment,  ditch,  landfill,  building,
structure,  facility,  improvement,  installation,  equipment,  pipe,  pipeline,
vehicle or storage container that is or was located on or beneath the surface of
any such real  property or that is or has at any time been owned by,  leased to,
controlled by or used by the Seller.

(d) All  property  that is owned by,  leased  to,  controlled  by or used by the
Seller,  and all surface water,  groundwater,  soil and air  associated  with or
adjacent to such property: (i) is in clean and healthful condition; (ii) is free
of any Hazardous Material and any harmful chemical or physical  conditions;  and
(iii) is free of any environmental contamination of any nature.

(e) Each storage tank or other storage  container  that is or has been owned by,
leased to, controlled by or used by the Seller, or that is located on or beneath
the surface of any real property  owned by, leased to,  controlled by or used by
the  Seller:  (i) is in sound  condition;  and (ii)  has  been  demonstrated  by
accepted testing methodologies to be free of any corrosion or leaks.

2.22 Sale of  Products.  Each  product  that has been sold by the  Seller to any
Person:  (i)  conformed  and  complied  in  all  respects  with  the  terms  and
requirements  of  any  applicable  warranty  or  other  Contract  and  with  all
applicable  Legal  Requirements;  and  (ii)  was  free  of  any  design  defects
construction  defects or other defects or  deficiencies at the time of sale. The
Seller  will not incur or  otherwise  become  subject to any  Liability  arising
directly or indirectly from any product manufactured or sold by the Seller on or
at any time prior to the Closing  Date. No product  manufactured  or sold by the
Seller has been the subject of any recall or other similar action;  and no event
has  occurred,  and no condition  or  circumstance  exists,  that might (with or
without notice or lapse of time) directly or indirectly give rise to or serve as
a basis  for any  such  recall  or other  similar  action  relating  to any such
product.

2.23 Performance Of Services. All services that have been performed on behalf of
the Seller were  performed  properly and in full  conformity  with the terms and
requirements  of all  applicable  warranties  and other  Contracts  and with all
applicable Legal Requirements.  The Purchaser will not incur or otherwise become
subject to any  Liability  arising  directly  or  indirectly  from any  services
performed by the Seller.  There is no claim pending or being threatened  against
the Seller relating to any services performed by the Seller, and, to the best of
the  knowledge  of the  Shareholder  and the  Seller,  there is no basis for the
assertion of any such claim.

2.24     Insurance.

(a) Part 2.24 of the Disclosure  Schedule accurately sets forth, with respect to
each insurance  policy  maintained by or at the expense of, or for the direct or
indirect  benefit of, the Seller:  (i) the name of the  insurance  carrier  that
issued such  policy and the policy  number of such  policy;  (ii)  whether  such
policy is a "claims made" or an "occurrences" policy; (iii) a description of the
coverage  provided by such policy and the material  terms and provisions of such
policy  (including  all  applicable  coverage  limits,  deductible  amounts  and
co-insurance  arrangements and any non-customary exclusions from coverage); (iv)
the annual premium  payable with respect to such policy,  and the cash value (if
any) of such policy; and (v) a description of any claims pending, and any claims
that  have  been  asserted  in the  past,  with  respect  to such  policy or any
predecessor  insurance  policy.  Part  2.24  of  the  Disclosure  Schedule  also
identifies (1) each pending application for insurance that has been submitted by
or on behalf of the Seller, (2) each self-insurance or risk-sharing  arrangement
affecting  the Seller or any of the assets of the Seller,  and (3) all  material
risks (of the type  customarily  insured by  Comparable  Entities) for which the
Seller does not maintain insurance coverage. The Shareholder and the Seller have
delivered to the Purchaser  accurate and complete copies of all of the insurance
policies  identified  in Part 2.24 of the  Disclosure  Schedule  (including  all
renewals thereof and endorsements  thereto) and all of the pending  applications
identified  in  Part  2.24 of the  Disclosure  Schedule.  Each  of the  policies
identified in Part 2.24 of the Disclosure Schedule is valid,  enforceable and in
full force and effect,  and has been issued by an insurance carrier that, to the
best of the knowledge the Seller and the  Shareholder,  is solvent,  financially
sound  and  reputable.  All of the  information  contained  in the  applications
submitted in connection  with said policies was (at the times said  applications
were submitted) accurate and complete,  and all premiums and other amounts owing
with respect to said policies have been paid in full on a timely basis.

(b) Part 2.24 of the Disclosure Schedule identifies each insurance claim made by
the Seller since  December 31, 1996. No event has occurred,  and no condition or
circumstance  exists,  that  might  (with or  without  notice  or lapse of time)
directly or indirectly  give rise to or serve as a basis for any such  insurance
claim. The Seller has not received:  (i) any notice or other  communication  (in
writing  or  otherwise)  regarding  the  actual  or  possible   cancellation  or
invalidation  of any of the policies  identified in Part 2.24 of the  Disclosure
Schedule or  regarding  any actual or possible  adjustment  in the amount of the
premiums payable with respect to any of said policies;  (ii) any notice or other
communication (in writing or otherwise) regarding any actual or possible refusal
of coverage under, or any actual or possible  rejection of any claim under,  any
of the policies identified in Part 2.24 of the Disclosure Schedule; or (iii) any
indication that the issuer of any of the policies identified in Part 2.24 of the
Disclosure Schedule may be unwilling or unable to perform any of its obligations
thereunder.

2.25  Related  Party  Transactions.  Except  as set  forth  in Part  2.25 of the
Disclosure Schedule: (a) no Related Party has any direct or indirect interest of
any nature in any of the assets of the Seller;  (b) no Related  Party is, or has
at any time since  December  31, 1996 been,  indebted  to the Seller;  (c) since
December 31, 1996,  no Related  Party has entered into, or has had any direct or
indirect  financial  interest in, any Seller  Contract,  transaction or business
dealing of any nature  involving the Seller;  (d) no Related Party is competing,
or has at any time since  December 31, 1996  competed,  directly or  indirectly,
with the Seller; (e) no Related Party has any claim or right against the Seller;
and (f) no event has occurred,  and no condition or  circumstance  exists,  that
might (with or without notice or lapse of time) directly or indirectly give rise
to or serve as a basis  for any  claim  or right in favor of any  Related  Party
against the Seller.

2.26 Certain Payments, Etc. The Seller has not, and no officer,  employee, agent
or other Person associated with or acting for or on behalf of the Seller has, at
any time,  directly or indirectly:  (a) used any corporate funds (i) to make any
unlawful  political  contribution  or  gift or for any  other  unlawful  purpose
relating to any  political  activity,  (ii) to make any unlawful  payment to any
governmental  official  or  employee,  or (iii) to  establish  or  maintain  any
unlawful  or  unrecorded  fund or account of any  nature;  (b) made any false or
fictitious entry, or failed to make any entry that should have been made, in any
of the books of account or other  records of the  Seller;  (c) made any  payoff,
influence payment,  bribe,  rebate,  kickback or unlawful payment to any Person;
(d) performed any favor or given any gift which was not  deductible  for federal
income tax purposes; (e) made any payment (whether or not lawful) to any Person,
or  provided  (whether  lawfully or  unlawfully)  any favor or anything of value
(whether  in the form of  property  or  services,  or in any other  form) to any
Person,  for the purpose of obtaining or paying for (i)  favorable  treatment in
securing  business,  or  (ii)  any  other  special  concession;  or (f)  agreed,
committed  or offered  (in  writing  or  otherwise)  to take any of the  actions
described in clauses "(a)" through "(e)" above.

2.27  Proceedings;  Orders.  Except as set forth in Part 2.27 of the  Disclosure
Schedule,  there is no  pending  Proceeding,  and no Person  has  threatened  to
commence any Proceeding:  (i) that involves the Seller or that otherwise relates
to or might affect the  business of the Seller or any of the Assets  (whether or
not the Seller is named as a party thereto);  or (ii) that  challenges,  or that
may have the  effect  of  preventing,  delaying,  making  illegal  or  otherwise
interfering with, any of the  Transactions.  Except as set forth in Part 2.27 of
the Disclosure Schedule,  no event has occurred,  and no claim, dispute or other
condition or circumstance exists, that might directly or indirectly give rise to
or serve as a basis for the commencement of any such  Proceeding.  Except as set
forth in Part  2.27 of the  Disclosure  Schedule,  no  Proceeding  has ever been
commenced  by or against  the  Seller.  The  Shareholders  and the  Seller  have
delivered  to the  Purchaser  accurate  and  complete  copies of all  pleadings,
correspondence  and other  written  materials (to which the  Shareholder  or the
Seller has access) that relate to the Proceedings identified in Part 2.27 of the
Disclosure Schedule. There is no Order to which the Seller, or any of the assets
owned or used by the Seller,  is subject;  and neither the  Shareholders nor any
other  Related  Party is  subject  to any Order  that  relates  to the  Seller's
business or to any of the assets of the Seller.  To the best of the knowledge of
the  Seller and the  Shareholder,  no  employee  of the Seller is subject to any
Order that may prohibit  employee from  engaging in or  continuing  any conduct,
activity  or  practice  relating  to the  business  of the  Seller.  There is no
proposed  Order that,  if issued or otherwise  put into effect,  (i) may have an
adverse  effect on the business,  condition,  assets,  liabilities,  operations,
financial  performance,  net income or prospects of the Seller or on the ability
of the  Shareholder  or the Seller to comply  with or perform  any  covenant  or
obligation  under  any of the  Transactional  Agreements,  or (ii)  may have the
effect of preventing, delaying, making illegal or otherwise interfering with any
of the Transactions.

2.28     Authority; Binding Nature Of Agreements.

(a) The Seller has the absolute and unrestricted  right,  power and authority to
enter  into and to  perform  its  obligations  under  each of the  Transactional
Agreements to which it is or may become a party; and the execution, delivery and
performance by the Seller of the Transactional  Agreements to which it is or may
become a party have been duly authorized by all necessary  action on the part of
the Seller and its shareholders, board of directors and officers. This Agreement
constitutes the legal, valid and binding  obligation of the Seller,  enforceable
against the Seller in accordance  with its terms.  Upon the execution of each of
the  other  Transactional   Agreements  at  the  Closing,  each  of  such  other
Transactional  Agreements  to which the  Seller is a party will  constitute  the
legal,  valid and  binding  obligation  of the  Seller  and will be  enforceable
against the Seller in accordance with its terms.

(b) The Shareholder has the absolute and unrestricted  right, power and capacity
to enter into and to perform  its  obligations  under each of the  Transactional
Agreements to which it is or may become a party. This Agreement  constitutes the
legal, valid and binding obligation of the Shareholder,  enforceable against the
Shareholder  in  accordance  with its terms.  Upon the  execution of each of the
other Transactional  Agreements at the Closing, each of such other Transactional
Agreements to which the Shareholder is a party will constitute the legal,  valid
and  binding   obligation  of  Shareholder  and  will  be  enforceable   against
Shareholder in accordance with its terms.

2.29  Non-Contravention;  Consents.  Except  as set  forth  in Part  2.29 of the
Disclosure  Schedule,   neither  the  execution  and  delivery  of  any  of  the
Transactional  Agreements,  nor the  consummation  or  performance of any of the
Transactions,  will directly or indirectly  (with or without  notice or lapse of
time):

(a)      contravene,  conflict  with or  result in a  violation  of, or give any
         Governmental  Body or other  Person the right to  challenge  any of the
         Transactions or to exercise any remedy or obtain any relief under,  any
         Legal  Requirement or any Order to which the Shareholder or the Seller,
         or any of the assets of the Seller, is subject;

(b)      cause the Purchaser or any  affiliate of the  Purchaser to become
         subject to, or to become liable for the payment of, any Tax;

(c)      cause any of the Assets to be reassessed or revalued by any taxing
         authority or other Governmental Body;

(d)      contravene,  conflict with or result in a violation of any of the terms
         or requirements of, or give any Governmental  Body the right to revoke,
         withdraw,  suspend,  cancel,  terminate  or  modify,  any  Governmental
         Authorization  that is to be  included  in the Assets or is held by the
         Seller or any employee of the Seller;

(e)      contravene,  conflict  with or  result in a  violation  or breach  of,
         or result in a default  under,  any provision of any Contract;

(f)      give any Person  the right to (i)  declare a default  or  exercise  any
         remedy under any Contract,  (ii) accelerate the maturity or performance
         of any Contract, or (iii) cancel, terminate or modify any Contract; or

(g)      result in the imposition or creation of any Encumbrance upon or with
         respect to any of the Assets.

Except as set forth in Part 2.29 of the Disclosure Schedule,  neither the Seller
nor Shareholder  was, is or will be required to make any filing with or give any
notice to, or to obtain any  Consent  from,  any Person in  connection  with the
execution  and  delivery  of  any  of  the   Transactional   Agreements  or  the
consummation or performance of any of the Transactions.

2.30 Brokers.  Neither the Seller nor Shareholder has agreed or become obligated
to pay, or has taken any action that might  result in any Person  claiming to be
entitled  to  receive,  any  brokerage  commission,   finder's  fee  or  similar
commission or fee in connection with any of the Transactions.

2.31     The Shareholders.

(a) The Shareholder  has never (i) made a general  assignment for the benefit of
creditors,  (ii)  filed,  or had filed  against it, any  bankruptcy  petition or
similar filing,  (iii) suffered the attachment or other judicial  seizure of all
or a substantial  portion of its assets,  (iv) admitted in writing its inability
to pay its debts as they  become  due,  or (v) taken or been the  subject of any
action that may have an adverse  effect on its ability to comply with or perform
any of its covenants or obligations under any of the Transactional Agreements.

(b) The Shareholder is not subject to any Order or is bound by any Contract that
may have an adverse  effect on his  ability to comply with or perform any of his
or her covenants or obligations under any of the Transactional Agreements. There
is no  Proceeding  pending,  and  no  Person  has  threatened  to  commence  any
Proceeding,  that may have an adverse  effect on the ability the  Shareholder to
comply  with or perform any of its  covenants  or  obligations  under any of the
Transactional  Agreements. No event has occurred, and no claim, dispute or other
condition or circumstance exists, that might directly or indirectly give rise to
or serve as a basis for the commencement of any such Proceeding.

2.32 Full  Disclosure.  None of the  Transactional  Agreements  contains or will
contain any untrue statement of fact; and none of the  Transactional  Agreements
omits  or  will  omit  to  state  any  fact   necessary   to  make  any  of  the
representations, warranties or other statements or information contained therein
not misleading. All of the information set forth in the Disclosure Schedule, and
all other information regarding the Seller and its business,  condition, assets,
liabilities,  operations,  financial performance,  net income and prospects that
has been furnished to the Purchaser or any of the Purchaser's Representatives by
or on behalf of the  Shareholder or the Seller or by any  Representative  of the
Shareholder or of the Seller, is accurate and complete in all respects.


3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.

         The Purchaser  represents  and warrants,  to and for the benefit of the
Seller, as follows:

3.1 Authority;  Binding Nature Of Agreements. The Purchaser has the absolute and
unrestricted   right,  power  and  authority  to  enter  into  and  perform  its
obligations  under  this  Agreement,  and the  execution  and  delivery  of this
Agreement by the Purchaser have been duly authorized by all necessary  action on
the part of the  Purchaser  and its board of  directors.  The  Purchaser has the
absolute and unrestricted  right,  power and authority to enter into and perform
its obligations under the Assumption Agreement, and the execution,  delivery and
performance  of  the  Assumption  Agreement  by the  Purchaser  have  been  duly
authorized by all necessary action on the part of the Purchaser and its board of
directors. This Agreement constitutes the legal, valid and binding obligation of
the Purchaser,  enforceable  against it in accordance  with its terms.  Upon the
execution  and  delivery  of  the  Assumption  Agreement  at  the  Closing,  the
Assumption Agreement will constitute the legal, valid and binding obligations of
the Purchaser, enforceable against the Purchaser in accordance with their terms.

3.2 Brokers.  The Purchaser  has not become  obligated to pay, and has not taken
any action that might  result in any Person  claiming to be entitled to receive,
any  brokerage  commission,  finder's  fee  or  similar  commission  or  fee  in
connection with any of the Transactions.


4. CONDITIONS PRECEDENT TO THE PURCHASER'S OBLIGATION TO CLOSE.

         The Purchaser's obligation to purchase the Assets and to take the other
actions  required to be taken by the  Purchaser at the Closing is subject to the
satisfaction,  at or prior to the Closing,  of each of the following  conditions
(any of which may be waived by the Purchaser, in whole or in part, in writing):

4.1 Accuracy Of Representations.  All of the representations and warranties made
by the Shareholder and the Seller in this Agreement  (considered  collectively),
and each of said representations and warranties (considered individually), shall
have been  accurate in all material  respects as of the date of this  Agreement,
and shall be accurate in all material respects as of the Closing Date as if made
at the  Closing  Date,  without  giving  effect to any update to the  Disclosure
Schedule.

4.2      Performance Of Obligations.

(a)  Each of the  documents  referred  to in  Sections  1.6(b)(i),  1.6(b)(iii),
1.6(b)(iv),  and  1.6(b)(v),  shall have been  executed  by each of the  parties
thereto and delivered to the Purchaser.

(b) All of the covenants and obligations that the Shareholder and the Seller are
required  to comply  with or to perform at or prior to the  Closing  (considered
collectively),   and  each  of  said  covenants  and   obligations   (considered
individually),  shall have been duly complied with and performed in all material
respects.

4.3 Consents.  Each of the Consents  identified  in Part 2.29 of the  Disclosure
Schedule shall have been obtained and shall be in full force and effect.

4.4      Additional Documents.  Purchaser shall have received the following
         documents:

(a)      an opinion letter from counsel to the Seller, dated the Closing Date,
         in the form of Exhibit ___; and

(b) such other  documents as Purchaser may request in good faith for the purpose
of (i)  evidencing  the accuracy of any  representation  or warranty made by the
Shareholder or the Seller,  (ii) evidencing the compliance by the Shareholder or
the Seller with, or the  performance  by the  Shareholder  or the Seller of, any
covenant  or  obligation  set  forth in this  Agreement,  (iii)  evidencing  the
satisfaction  of any  condition  set forth in this Section 4, or (iv)  otherwise
facilitating the consummation or performance of any of the Transactions.

4.5 No  Prohibition.  Neither the  consummation  nor the  performance of any the
Transactions  will,  directly or indirectly  (with or without notice or lapse of
time),  contravene  or conflict  with or result in a violation  of, or cause the
Purchaser  or any Person  affiliated  with the  Purchaser  to suffer any adverse
consequence under, any applicable Legal Requirement or Order.

5. CONDITIONS PRECEDENT TO THE SELLER'S OBLIGATION TO CLOSE.

         The  Seller's  obligation  to sell the  Assets  and to take  the  other
actions  required  to be taken by the  Seller at the  Closing  is subject to the
satisfaction,  at or prior to the Closing,  of each of the following  conditions
(any of which may be waived by the Shareholders' Representative,  in whole or in
part, in writing):

5.1 Accuracy Of Representations.  All of the representations and warranties made
by the Purchaser in this Agreement (considered  collectively),  and each of said
representations  and  warranties  (considered  individually),  shall  have  been
accurate in all material  respects as of the date of this Agreement and shall be
accurate  in all  material  respects  as of the  Closing  Date as if made at the
Closing Date.

5.2      Purchaser's Performance.

(a) The Purchaser shall have executed and delivered the Assumption Agreement and
shall have made the payment contemplated by Section 1.6(b)(ii).

(b) All of the other covenants and obligations that the Purchaser is required to
comply with or to perform  pursuant to this Agreement at or prior to the Closing
(considered   collectively),   and  each  of  said  covenants  and   obligations
(considered  individually),  shall have been  complied with and performed in all
material respects.


6.       INDEMNIFICATION, ETC.

6.1      Survival Of Representations And Covenants.

(a) The representations,  warranties, covenants and obligations of each party to
this Agreement shall survive (without limitation):  (i) the Closing and the sale
of the Assets to the Purchaser; (ii) any sale or other disposition of any or all
of the Assets by the Purchaser;  and (iii) the death or dissolution of any party
to  this  Agreement.  Except  as set  forth  in  Section  6.1(c),  all  of  said
representations,  warranties,  covenants  and  obligations  shall remain in full
force and effect and shall survive for an unlimited period of time.

(b)  The   representations,   warranties,   covenants  and  obligations  of  the
Shareholder and the Seller, and the rights and remedies that may be exercised by
the Indemnitees, shall not be limited or otherwise affected by or as a result of
any information  furnished to, or any investigation made by or any knowledge of,
any of the Indemnitees or any of their Representatives.

(c) Subject to Section 6.1(d), the  representations  and warranties set forth in
Section 2 shall expire on the fourth anniversary of the Closing Date;  provided,
however,   that  if  a  Claim  Notice  (as  defined   below)   relating  to  any
representation  or  warranty  set forth in any of said  Sections is given to the
Shareholder's  Representative  on or  prior  to the  fourth  anniversary  of the
Closing Date, then,  notwithstanding  anything to the contrary contained in this
Section 6.1(c),  such representation or warranty shall not so expire, but rather
shall  remain in full force and effect  until such time as each and every  claim
(including any  indemnification  claim asserted by any Indemnitee  under Section
6.2) that is based  directly or  indirectly  upon,  or that relates  directly or
indirectly to, any Breach or alleged Breach of such  representation  or warranty
has been fully and  finally  resolved,  either by means of a written  settlement
agreement  executed  on  behalf  of the  Shareholder's  Representative  and  the
Purchaser or by means of a final,  non-appealable  judgment issued by a court of
competent jurisdiction.

(d)  Notwithstanding  anything to the contrary  contained in Section 6.1(c) (and
without limiting the generality of anything contained in Section 6.1(a)), if the
Shareholder or the Seller had knowledge, on or prior to the Closing Date, of any
circumstance  that  constitutes  or that has given rise or could be  expected to
give  rise,  directly  or  indirectly,  to any Breach of any  representation  or
warranty set forth in Section 2, then such  representation or warranty shall not
expire, but rather shall remain in full force and effect for an unlimited period
of time (regardless of whether any Claim Notice relating to such  representation
or warranty is ever given).

(e) For purposes of this  Agreement,  a "Claim Notice"  relating to a particular
representation or warranty shall be deemed to have been given if any Indemnitee,
acting in good faith,  delivers to the  Shareholders'  Representative  a written
notice  stating  that  such  Indemnitee  believes  that  there  is or has been a
possible  Breach of such  representation  or warranty and containing (i) a brief
description of the circumstances  supporting such Indemnitee's belief that there
is or has been  such a  possible  Breach,  and (ii) a  non-binding,  preliminary
estimate of the aggregate dollar amount of the actual and potential Damages that
have  arisen  and may arise as a direct  or  indirect  result  of such  possible
Breach.

(f) For purposes of this Agreement,  each statement or other item of information
set forth in the Disclosure Schedule or in any update to the Disclosure Schedule
shall be deemed to be a representation  and warranty made by the Shareholder and
the Seller in this Agreement.

6.2      Indemnification By The Shareholders And The Seller.

(a) The Shareholder and the Seller,  jointly and severally,  shall hold harmless
and indemnify each of the Indemnitees from and against, and shall compensate and
reimburse  each of the  Indemnitees  for,  any  Damages  that  are  directly  or
indirectly suffered or incurred by any of the Indemnitees or to which any of the
Indemnitees may otherwise  become subject at any time  (regardless of whether or
not such Damages  relate to any  third-party  claim) and that arise  directly or
indirectly  from or as a direct  or  indirect  result  of,  or are  directly  or
indirectly connected with:

(i)      any  Breach of any of the  representations  or  warranties  made by the
         Shareholder  or  the  Seller  in  this  Agreement  or  in  the  Closing
         Certificate or any of the other Transactional Agreements;

(ii)     any Breach of any representation,  warranty, statement,  information or
         provision contained in the Disclosure Schedule or in any other document
         delivered or otherwise  made  available to the  Purchaser or any of its
         Representatives  by or on behalf of the Shareholder,  the Seller or any
         Representative of the Shareholder or of the Seller;

(iii)    any  Breach of any  covenant  or  obligation  of the  Shareholder  or
the Seller  contained  in any of the Transactional Agreements;

     (iv) any  Liability of the Seller or of any Related  Party,  other than the
     Assumed Liabilities;

     (v) any  Liability  (other  than the  Assumed  Liabilities)  to  which  the
     Purchaser  or any of the other  Indemnitees  may  become  subject  and that
     arises directly or indirectly from or relates directly or indirectly to (A)
     any product  produced or sold or any services  performed by or on behalf of
     the Seller,  (B) the presence of any Hazardous  Material at any site owned,
     leased, occupied or controlled by the Seller on or at any time prior to the
     Closing Date, (C) the generation, manufacture, production,  transportation,
     importation,  use, treatment,  refinement,  processing,  handling, storage,
     discharge,  release or disposal of any Hazardous Material (whether lawfully
     or  unlawfully)  by or on behalf of the Seller,  (D) the  operation  by the
     Seller of its business, or (E) any failure to comply with any bulk transfer
     law  or  similar  Legal   Requirement   in  connection   with  any  of  the
     Transactions;

(vi) any matter  identified or referred to in Part ____ or Part ____ of the
     Disclosure Schedule; or

(vii)    any Proceeding  relating directly or indirectly to any Breach,  alleged
         Breach,  Liability or matter of the type  referred to in clause  "(i),"
         "(ii),"   "(iii),"   "(iv),"  "(v)"  or  "(vi)"  above  (including  any
         Proceeding commenced by any Indemnitee for the purpose of enforcing any
         of its rights under this Section 7).

6.3      Indemnification By Purchaser.

(a) The Purchaser shall hold harmless and indemnify the Seller from and against,
and shall compensate and reimburse the Seller for, any Damages that are directly
or  indirectly  suffered  or  incurred  by the Seller or to which the Seller may
otherwise  become subject at any time (regardless of whether or not such Damages
relate to any  third-party  claim) and that arise directly or indirectly from or
as a direct or indirect result of, or are directly or indirectly connected with:

(i)      any failure on the part of the  Purchaser to perform and  discharge
         the Assumed  Liabilities  on a timely basis;

(ii)     any Breach of any representation or warranty made by the Purchaser
         in this Agreement; or

(iii)    any Proceeding relating directly or indirectly to any failure or Breach
         of the type referred to in clause "(i)" or "(ii)" above  (including any
         Proceeding  commenced  by the Seller for the purpose of  enforcing  its
         rights under this Section 6.3).


6.4 Setoff.  In addition to any rights of setoff or other rights that the Parent
or  Purchaser  or any  of the  other  Indemnitees  may  have  at  common  law or
otherwise,  Parent and Purchaser shall have the right to withhold and deduct any
sum that may be owed to any  Indemnitee  under  this  Section 6 from any  amount
otherwise  payable by any  Indemnitee,  including  amounts  payable  pursuant to
Sections 1.2(a) (iii) and (iv), to the  Shareholder's  Representative  or to the
Seller or the  Shareholder.  Additionally,  Parent and Purchaser  shall have the
right, but not the obligation, to withhold and deduct such amount as is equal to
the  difference  between (a) (i) the June 14th Accounts  Payable Amount plus any
other accounts  payable amounts accrued prior to June 14, 1999 minus (ii) actual
amounts  collected  by Purchaser  directly (or  collected by Seller prior to the
Closing and  delivered  to  Purchaser)  from the June 14th  Accounts  Receivable
Amount minus (b) three hundred thousand dollars ($300,000);  provided,  however,
that Purchaser shall assign such uncollected accounts receivable to Shareholder.
The  withholding and deduction of any such sum shall operate for all purposes as
a complete  discharge  (to the extent of such sum) of the  obligation to pay the
amount from which such sum was withheld and deducted.


         From time to time,  Parent or Purchaser may give notice (a "Notice") to
Seller and  Shareholder  specifying in  reasonable  detail the nature and dollar
amount of any claim (a "Claim") it may have under  Section 6 of this  Agreement;
Parent and Purchaser may make more than one claim with respect to any underlying
state of facts.  If Seller gives notice to Parent and  Purchaser  disputing  any
Claim (a  "Counter  Notice")  within 30 days  following  receipt  by Seller  and
Shareholder of the Notice regarding such Claim,  such Claim shall be resolved as
provided below. If no Counter Notice is received by Parent and Purchaser  within
such  30-day  period,  then the dollar  amount of  damages  claimed by Parent or
Purchaser as set forth in its Notice shall be deemed established for purposes of
this  Agreement  and,  at the end of such  30-day  period,  Purchaser  shall  be
entitled to withhold and deduct from  payments  owed to Seller the dollar amount
claimed in the Notice.


         If a Counter Notice is given with respect to a Claim,  Purchaser  shall
withhold and deduct from  payment  owed to Seller with respect  thereto only (i)
upon  the  mutual  agreement  of  Purchaser  and  Shareholder  or  (ii) a  final
non-appealable order of a court of competent  jurisdiction;  provided,  however,
until such Claim is resolved pursuant to (i) or (ii) above,  Purchasers  payment
obligations under Sections 1.2(a) (iii) and (iv) shall be suspended. Purchaser's
payment obligations will only resume upon such time as the Claim is resolved.


6.5 Nonexclusivity Of Indemnification Remedies. The indemnification remedies and
other  remedies  provided in this Section 6 shall not be deemed to be exclusive.
Accordingly,  the exercise by any Person of any of its rights under this Section
6 shall not be deemed to be an election  of remedies  and shall not be deemed to
prejudice, or to constitute or operate as a waiver of, any other right or remedy
that such  Person may be entitled to  exercise  (whether  under this  Agreement,
under any other Contract, under any statute, rule or other Legal Requirement, at
common law, in equity or otherwise).

6.6 Defense Of Third Party Claims. In the event of the assertion or commencement
by any Person of any claim or Proceeding (whether against the Purchaser, against
any other  Indemnitee  or against any other  Person)  with  respect to which the
Shareholder  or the Seller may become  obligated to  indemnify,  hold  harmless,
compensate or reimburse any Indemnitee pursuant to this Section 6, the Purchaser
shall  have  the  right,  at  its  election,   to  designate  the  Shareholder's
Representative  to assume the  defense of such claim or  Proceeding  at the sole
expense  of the  Shareholder  and the  Seller.  If the  Purchaser  so  elects to
designate  the  Shareholder's  Representative  to assume the defense of any such
claim or Proceeding:

(a)      the Shareholder's  Representative shall proceed to defend such claim or
         Proceeding  in a  diligent  manner  with  counsel  satisfactory  to the
         Purchaser;

(b)      the Purchaser shall make available to the Shareholder's  Representative
         any  non-privileged  documents and  materials in the  possession of the
         Purchaser  that  may be  necessary  to the  defense  of such  claim  or
         Proceeding;

(c)      the Shareholder's  Representative  shall keep the Purchaser informed of
         all  material  developments  and  events  relating  to  such  claim  or
         Proceeding;

(d)      the Purchaser shall have the right to participate in the defense of
         such claim or Proceeding;

(e)      the Shareholder's Representative shall not settle, adjust or compromise
         such  claim or  Proceeding  without  the prior  written  consent of the
         Purchaser; and

(f)      the Purchaser may at any time (notwithstanding the prior designation of
         the Shareholder's Representative to assume the defense of such claim or
         Proceeding) assume the defense of such claim or Proceeding.

If the Purchaser does not elect to designate the Shareholder's Representative to
assume the  defense  of any such claim or  Proceeding  (or if,  after  initially
designating  the  Shareholder's  Representative  to  assume  such  defense,  the
Purchaser  elects to assume such  defense),  the  Purchaser may proceed with the
defense of such claim or  Proceeding  on its own. If the  Purchaser  so proceeds
with the defense of any such claim or Proceeding on its own:

(i)      all  expenses  relating  to the  defense  of such  claim or  Proceeding
         (whether  or not  incurred  by the  Purchaser)  shall be borne and paid
         exclusively by the Shareholder and the Seller;

(ii)     the  Shareholder  and the Seller shall make  available to the Purchaser
         any documents  and materials in the  possession or control of either of
         the  Shareholder  or the Seller that may be necessary to the defense of
         such claim or Proceeding;

(iii)    the Purchaser shall keep the Shareholder's  Representative  informed of
         all  material  developments  and  events  relating  to  such  claim  or
         Proceeding; and

(iv)     the Purchaser shall have the right to settle, adjust or compromise such
         claim  or   Proceeding   with   the   consent   of  the   Shareholder's
         Representative;    provided,    however,    that   the    Shareholder's
         Representative shall not unreasonably withhold such consent.

6.7 Exercise Of Remedies By  Indemnitees  Other Than  Purchaser.  No  Indemnitee
(other than the Purchaser or any successor  thereto or assign  thereof) shall be
permitted to assert any indemnification claim or exercise any other remedy under
this Agreement unless the Purchaser (or any successor thereto or assign thereof)
shall have  consented  to the  assertion  of such  indemnification  claim or the
exercise of such other remedy.


7.       CERTAIN POST-CLOSING COVENANTS.

7.1 Further  Actions.  From and after the Closing Date, the  Shareholder and the
Seller shall  cooperate  with the Purchaser and the  Purchaser's  affiliates and
Representatives,  and shall  execute and deliver  such  documents  and take such
other  actions as the  Purchaser  may  reasonably  request,  for the  purpose of
evidencing the  Transactions and putting the Purchaser in possession and control
of all of the Assets. Without limiting the generality of the foregoing, from and
after the Closing  Date,  the Seller shall  promptly  remit to the Purchaser any
funds  that  are  received  by the  Seller  and that are  included  in,  or that
represent payment of receivables included in, the Assets. The Seller: (a) hereby
irrevocably  authorizes  the  Purchaser,  at all times on and after the  Closing
Date, to endorse in the name of the Seller any check or other instrument that is
made  payable to the  Seller  and that  represents  funds  included  in, or that
represents the payment of any receivable included in, the Assets; and (b) hereby
irrevocably  nominates,  constitutes  and appoints the Purchaser as the true and
lawful  attorney-in-fact  of  the  Seller  (with  full  power  of  substitution)
effective as of the Closing Date, and hereby  authorizes  the Purchaser,  in the
name of and on behalf of the Seller, to execute, deliver, acknowledge,  certify,
file and record any document,  to institute and prosecute any  Proceeding and to
take any other  action  (on or at any time  after  the  Closing  Date)  that the
Purchaser may deem  appropriate  for the purpose of (i)  collecting,  asserting,
enforcing  or  perfecting  any  claim,  right or  interest  of any kind  that is
included in or relates to any of the Assets,  (ii) defending or compromising any
claim or Proceeding  relating to any of the Assets, or (iii) otherwise  carrying
out or facilitating any of the  Transactions.  The power of attorney referred to
in the preceding  sentence is and shall be coupled with an interest and shall be
irrevocable, and shall survive the dissolution or insolvency of the Seller.

7.2 Publicity.  The  Shareholder and the Seller shall ensure that, on and at all
times after the Closing Date: (a) no press release or other publicity concerning
any of the  Transactions is issued or otherwise  disseminated by or on behalf of
the Shareholder or the Seller without the Purchaser's prior written consent; (b)
the  Shareholder and the Seller continue to keep the terms of this Agreement and
the  other  Transactional   Agreements  strictly   confidential;   and  (c)  the
Shareholder  and the Seller keep strictly  confidential,  and neither the Seller
nor the  Shareholder  uses or  discloses  to any other  Person,  any  non-public
document  or other  information  that  relates  directly  or  indirectly  to the
business of the Seller, the Purchaser or any affiliate of the Purchaser.

7.3 No Hiring or Solicitation of Employees.  Shareholder agrees that, during the
Noncompetition  Period,  Shareholder  shall not, and shall not permit any of its
Affiliates  to:  (a)  hire  any  Employee  of  Purchaser,  or  (b)  directly  or
indirectly,  personally or through others, encourage, induce, attempt to induce,
solicit or attempt to solicit (on the  Shareholder's  own behalf or on behalf of
any  other  Person)  or any  Employee  to leave his or her  employment  with the
Purchaser or any of the Purchaser's  other  subsidiaries.  (For purposes of this
Section 7.3,  "Employee" shall mean any individual who (i) is or was an employee
of any of the Seller on the date of this  Agreement or during the 180-day period
ending on the date of this Noncompetition Agreement, and (ii) remains or becomes
an employee of the Purchaser or any of the Purchaser's other subsidiaries on the
date of this Agreement or at any time during the Noncompetition Period.)


8.       MISCELLANEOUS PROVISIONS.

8.1 Joint And Several  Liability.  The  Shareholder  agrees that the Shareholder
shall be jointly  and  severally  liable  with the Seller for the due and timely
compliance  with and performance of each of the covenants and obligations of the
Seller set forth in the Transactional Agreements.  The Shareholder's obligations
and liability under this Agreement and the other Transactional  Agreements shall
not be limited in any way by: (i) any  failure on the part of the  Purchaser  or
any other  Indemnitee  to  exercise  any right or assert any claim  against  the
Seller;  (i)  the  dissolution  or  insolvency  of,  or the  appointment  of any
receiver,  conservator or liquidator for, or the commencement of any bankruptcy,
reorganization,  moratorium, arrangement or other proceeding by, against or with
respect to, the Seller or the Shareholder;  (iii) any merger or consolidation of
the Seller with or into any other Entity;  or (iv) the sale or other disposition
by the Shareholder of any or all of the Shareholder's shares of the stock of the
Seller.

8.2      Shareholder's and Seller's Representative.


(a) The Shareholder and the Seller hereby irrevocably  nominate,  constitute and
appoint Harry Kurtzman as the agent and true and lawful  attorney-in-fact of the
Shareholder and the Seller (the "Shareholder's Representative"), with full power
of substitution,  to act in the name, place and stead of the Shareholder and the
Seller for purposes of executing  any  documents and taking any actions that the
Shareholder's  Representative  may,  in his  sole  discretion,  determine  to be
appropriate in connection with any of the Transactional Agreements or any of the
Transactions.  Harry Kurtzman  hereby accepts his  appointment as  Shareholder's
Representative.


(b)  The  Shareholder   and  the  Seller  hereby  grant  to  the   Shareholder's
Representative full authority to execute,  deliver,  acknowledge,  certify, file
and  record on  behalf of the  Shareholder  and the  Seller  (in the name of the
Shareholder,   the  Seller  or  otherwise)   any  and  all  documents  that  the
Shareholder's  Representative  may,  in his  sole  discretion,  determine  to be
appropriate,  in such forms and containing such provisions as the  Shareholder's
Representative  may,  in  his  sole  discretion,  determine  to  be  appropriate
(including  any amendment to or waiver of rights under any of the  Transactional
Agreements).  Notwithstanding  anything to the contrary  contained in any of the
Transactional   Agreements:   (i)  the  Purchaser  shall  be  entitled  to  deal
exclusively with the Shareholder's Representative on all matters
         relating to the respective  Transactional Agreements and the respective
         Transactions  (including all matters  relating to any notice to, or any
         Consent  to be given or action to be taken by, the  Shareholder  or the
         Seller); and

(ii)     each Indemnitee shall be entitled to rely conclusively (without further
         evidence of any kind whatsoever) on any document  executed or purported
         to be executed on behalf of the  Shareholder or on behalf of the Seller
         by the Shareholder's  Representative,  and on any other action taken or
         purported to be taken on behalf of the  Shareholder or on behalf of the
         Seller by the Shareholder's  Representative,  as fully binding upon the
         Shareholder and on the Seller.

(c) The  Shareholder  and the  Seller  recognize  and  intend  that the power of
attorney  granted in Section  8.2(a):  (i) is coupled  with an  interest  and is
irrevocable;  (ii) may be delegated  by the  Shareholder's  Representative;  and
(iii) shall survive the dissolution of the Shareholder or Seller.

(d) If the Shareholder's  Representative shall die, become disabled or otherwise
be unable to fulfill his responsibilities  hereunder, the Shareholder's,  within
ten days  after such  death or  disability,  shall  appoint a  successor  to the
Shareholder's  Representative and immediately thereafter notify the Purchaser of
the  identity  of  such   successor.   Any  such  successor  shall  succeed  the
Shareholder's Representative as Shareholder's Representative hereunder.

(e) All expenses incurred by the Shareholder's Representative in connection with
the performance of his duties as Shareholder's Representative shall be borne and
paid by the Shareholder and the Seller.

8.3 Further  Assurances.  Each party  hereto  shall  execute  and/or cause to be
delivered to each other party hereto such instruments and other  documents,  and
shall take such other actions, as such other party may reasonably request (prior
to, at or after the Closing) for the purpose of carrying out or  evidencing  any
of the Transactions.

8.4      Fees and Expenses.

(a) The  Shareholder  and the  Seller  shall  bear and pay all  fees,  costs and
expenses  that have been  incurred  or that are in the  future  incurred  by, on
behalf of or for the  benefit of the  Shareholder  or the  Seller in  connection
with:  (i) the  negotiation,  preparation  and review of any letter of intent or
similar document relating to any of the Transactions; (ii) the investigation and
review  conducted by the Purchaser and its  Representatives  with respect to the
business of the Seller (and the  furnishing of  information to the Purchaser and
its Representatives in connection with such investigation and review); (iii) the
negotiation,  preparation and review of this Agreement (including the Disclosure
Schedule),   the  other   Transactional   Agreements  and  all  bills  of  sale,
assignments,   certificates,   opinions  and  other  instruments  and  documents
delivered or to be  delivered  in  connection  with the  Transactions;  (iv) the
preparation  and submission of any filing or notice required to be made or given
in  connection  with any of the  Transactions,  and the obtaining of any Consent
required to be obtained in connection with any of the Transactions;  and (v) the
consummation and performance of the Transactions.

(b) Subject to the provisions of Section 6.2 (including the  indemnification and
other obligations of the Seller and Shareholder  thereunder) and Section 8.4(c),
the Purchaser  shall bear and pay all fees,  costs and expenses  (including  all
legal fees and expenses  payable to Cooley  Godward LLP) that have been incurred
or  that  are in the  future  incurred  by or on  behalf  of  the  Purchaser  in
connection  with: (i) the  negotiation,  preparation and review of any letter of
intent  or  similar  document  relating  to any of the  Transactions;  (ii)  the
investigation and review conducted by the Purchaser and its Representatives with
respect to the business of the Seller;  (iii) the  negotiation,  preparation and
review of this Agreement,  the other  Transactional  Agreements and all bills of
sale,  assignments,  certificates,  opinions and other instruments and documents
delivered or to be delivered in connection with the  Transactions;  and (iv) the
consummation and performance of the Transactions.

8.5 Attorneys' Fees. If any legal action or other legal  proceeding  relating to
any of the  Transactional  Agreements or the enforcement of any provision of any
of the Transactional  Agreements is brought against any party to this Agreement,
the prevailing  party shall be entitled to recover  reasonable  attorneys' fees,
costs and disbursements (in addition to any other relief to which the prevailing
party may be entitled).

8.6  Notices.  Any notice or other  communication  required or  permitted  to be
delivered  to any party  under this  Agreement  shall be in writing and shall be
deemed  properly  delivered,  given and received  when  delivered  (by hand,  by
registered  mail, by courier or express delivery service or by facsimile) to the
address or facsimile  telephone  number set forth beneath the name of such party
below (or to such other  address  or  facsimile  telephone  number as such party
shall have specified in a written notice given to the other parties hereto):

                  if to the Shareholder or to the Shareholder's Representative:

                                    Aura Systems, Inc.
                                    Attn: Harry Kurtzman, CEO
                                    2335 Alaska Avenue
                                    El Segundo, CA 90245
                                    Facsimile: 310-643-7585

                  if to the Seller:
                                    Aurasound, Inc. c/o Aura Systems, Inc.
                                    Attn: Steven Veen, CFO
                                    2335 Alaska Avenue
                                    El Segundo, CA 90245
                                    Facsimile: 310-643-8719

                  if to the Purchaser:
                                    Algo Technology, Inc.
                                    47338 Fremont Blvd.
                                    Fremont, CA 94538
                                    Facsimile: 510-770-3622


8.7      Time Of The Essence.  Time is of the essence of this Agreement.

8.8  Headings.  The  underlined  headings  contained in this  Agreement  are for
convenience  of  reference  only,  shall  not be  deemed  to be a part  of  this
Agreement and shall not be referred to in connection  with the  construction  or
interpretation of this Agreement.

8.9 Counterparts.  This Agreement may be executed in several counterparts,  each
of which shall  constitute  an original and all of which,  when taken  together,
shall constitute one agreement.

8.10     Governing Law; Venue.

(a) This  Agreement  shall be construed in accordance  with, and governed in all
respects by, the internal laws of the State of California (without giving effect
to principles of conflicts of laws).

(b) Any legal action or other legal proceeding relating to this Agreement or the
enforcement  of any  provision  of this  Agreement  may be brought or  otherwise
commenced  in any state or federal  court  located in the County of Santa Clara,
California. Each party to this Agreement:

(i)      expressly and irrevocably  consents and submits to the  jurisdiction of
         each state and  federal  court  located  in the County of Santa  Clara,
         California   (and  each  appellate   court  located  in  the  State  of
         California) in connection with any such legal proceeding;

(ii)     agrees that each state and federal court located in the County of Santa
         Clara, California shall be deemed to be a convenient forum; and

(iii)    agrees not to assert (by way of motion, as a defense or otherwise),  in
         any such  legal  proceeding  commenced  in any state or  federal  court
         located in the County of Santa Clara,  California,  any claim that such
         party is not subject personally to the jurisdiction of such court, that
         such legal proceeding has been brought in an inconvenient  forum,  that
         the venue of such  proceeding is improper or that this Agreement or the
         subject  matter of this  Agreement  may not be  enforced  in or by such
         court.

(c) The  Shareholder  and the Seller agree that, if any  Proceeding is commenced
against any  Indemnitee  by any Person in or before any court or other  tribunal
anywhere in the world,  then such Indemnitee may proceed against the Shareholder
and the Seller in or before  such court or other  tribunal  with  respect to any
indemnification  claim or other claim  arising  directly or  indirectly  from or
relating directly or indirectly to such Proceeding or any of the matters alleged
therein or any of the circumstances giving rise thereto.

(d) Nothing in this Section  8.10 shall be deemed to limit or  otherwise  affect
the right of any  Indemnitee  to  commence  any  legal  proceeding  against  the
Shareholder or the Seller in any forum or jurisdiction.

(e) The  Shareholder  irrevocably  constitutes  and appoints  the  Shareholder's
Representative as its agent to receive service of process in connection with any
legal proceeding  relating to this Agreement or the enforcement of any provision
of this Agreement.

8.11     Successors And Assigns; Parties In Interest.

(a) This  Agreement  shall be binding upon:  the Seller and its  successors  and
assigns   (if   any);   the   Shareholder   and   the   Shareholder's   personal
representatives,   executors,  administrators,  estate,  heirs,  successors  and
assigns (if any);  and the  Purchaser and its  successors  and assigns (if any).
This Agreement shall inure to the benefit of: the Seller;  the Shareholder;  the
Purchaser;  the other  Indemnitees  (subject to Section 6.7); and the respective
successors and assigns (if any) of the foregoing.

(b)  The  Purchaser  may  freely  assign  any or all of its  rights  under  this
Agreement (including its indemnification rights under Section 6), in whole or in
part, to any other Person without obtaining the consent or approval of any other
Person.  Neither the Seller nor the Shareholder shall be permitted to assign any
of his or its  rights  or  delegate  any of his or its  obligations  under  this
Agreement without the Purchaser's prior written consent.

(c) Except for the  provisions  of Section 6 hereof,  none of the  provisions of
this Agreement is intended to provide any rights or remedies to any Person other
than the parties to this Agreement and their  respective  successors and assigns
(if any).  Without limiting the generality of the foregoing,  (i) no employee of
the Seller shall have any rights under this  Agreement or under any of the other
Transactional  Agreements,  and (ii) no  creditor  of the Seller  shall have any
rights under this Agreement or any of the other Transactional Agreements.

8.12 Remedies Cumulative;  Specific Performance.  The rights and remedies of the
parties hereto shall be cumulative  (and not  alternative).  The Shareholder and
the Seller agree that:  (a) in the event of any Breach or  threatened  Breach by
the Shareholder or the Seller of any covenant, obligation or other provision set
forth in this  Agreement,  the  Purchaser  shall be entitled (in addition to any
other  remedy that may be  available to it) to (i) a decree or order of specific
performance  or mandamus  to enforce  the  observance  and  performance  of such
covenant, obligation or other provision, and (ii) an injunction restraining such
Breach  or  threatened  Breach;  and (b)  neither  the  Purchaser  nor any other
Indemnitee shall be required to provide any bond or other security in connection
with any such decree,  order or  injunction  or in  connection  with any related
action or Proceeding.

8.13     Waiver.

(a) No failure on the part of any Person to exercise any power, right, privilege
or  remedy  under  this  Agreement,  and no delay on the part of any  Person  in
exercising any power,  right,  privilege or remedy under this  Agreement,  shall
operate as a waiver of such power, right,  privilege or remedy; and no single or
partial  exercise of any such power,  right,  privilege or remedy shall preclude
any other or further exercise thereof or of any other power, right, privilege or
remedy.

(b) No Person  shall be  deemed to have  waived  any claim  arising  out of this
Agreement, or any power, right, privilege or remedy under this Agreement, unless
the waiver of such claim,  power,  right,  privilege or remedy is expressly  set
forth in a written  instrument  duly  executed  and  delivered on behalf of such
Person; and any such waiver shall not be applicable or have any effect except in
the specific instance in which it is given.

8.14  Amendments.  This  Agreement  may not be  amended,  modified,  altered  or
supplemented  other  than by means of a written  instrument  duly  executed  and
delivered  on  behalf  of  the  Purchaser,  the  Seller  and  the  Shareholder's
Representative.

8.15  Severability.  In the event that any provision of this  Agreement,  or the
application of any such provision to any Person or set of  circumstances,  shall
be determined to be invalid,  unlawful, void or unenforceable to any extent, the
remainder of this Agreement, and the application of such provision to Persons or
circumstances  other  than  those as to which it is  determined  to be  invalid,
unlawful, void or unenforceable, shall not be impaired or otherwise affected and
shall continue to be valid and  enforceable  to the fullest extent  permitted by
law.

8.16  Entire  Agreement.  The  Transactional  Agreements  set forth  the  entire
understanding  of  the  parties  relating  to the  subject  matter  thereof  and
supersede all prior  agreements and  understandings  among or between any of the
parties relating to the subject matter thereof.

8.17 Knowledge. For purposes of this Agreement, a Person shall be deemed to have
"knowledge" of a particular fact or other matter if any  Representative  of such
Person has knowledge of such fact or other matter.

8.18     Construction.

(a) For purposes of this Agreement,  whenever the context requires: the singular
number shall  include the plural,  and vice versa;  the  masculine  gender shall
include the feminine and neuter  genders;  the feminine gender shall include the
masculine and neuter genders;  and the neuter gender shall include the masculine
and feminine genders.

(b) The parties  hereto agree that any rule of  construction  to the effect that
ambiguities  are to be resolved  against the drafting party shall not be applied
in the construction or interpretation of this Agreement.

(c) As used  in  this  Agreement,  the  words  "include"  and  "including,"  and
variations  thereof,  shall not be deemed to be terms of limitation,  but rather
shall be deemed to be followed by the words "without limitation."

(d)  Except  as  otherwise  indicated,  all  references  in  this  Agreement  to
"Sections"  and  "Exhibits"  are intended to refer to Sections of this Agreement
and Exhibits to this Agreement.



<PAGE>



         The parties to this Agreement have caused this Agreement to be executed
and delivered as of December 1, 1999.

                               AURA SYSTEMS, INC.,

                             a Delaware corporation




                               By:
                                  Harry Kurtzman, CEO



                               AURASOUND, INC.,
                             a Delaware corporation



                             By:
                                Steve Veen, Chief Financial Officer



                             ALGO TECHNOLOGY, INC.,
                             a California corporation



                             By:
                                 Arthur Liu, Chief Executive Officer



                             ALGO SOUND, INC.,
                             a California corporation




                               By:
                                 Raymond Yu, President










<PAGE>


                          EXHIBIT A CERTAIN DEFINITIONS
            For purposes of the Agreement (including this Exhibit A):

         Acquisition  Transaction.  "Acquisition  Transaction"  shall  mean  any
transaction  involving:  (a) the sale or other disposition of all or any portion
of the business or assets of the Seller  (other than in the  Ordinary  Course of
Business);  (b) the issuance, sale or other disposition of (i) any capital stock
or other  securities  of the  Seller,  (ii) any option,  call,  warrant or right
(whether or not  immediately  exercisable) to acquire any capital stock or other
securities of the Seller,  or (iii) any security,  instrument or obligation that
is or may become convertible into or exchangeable for any capital stock or other
securities  of  the  Seller;   or  (c)  any  merger,   consolidation,   business
combination, share exchange, reorganization or similar transaction involving the
Seller.

         Affiliate. "Affiliate" shall mean with respect to any specified Person,
any  other  Person   that,   directly  or   indirectly,   through  one  or  more
intermediaries,  controls, is controlled by or is under common control with such
specified Person.

     Agreement.  "Agreement"  shall mean the Asset  Purchase  Agreement to which
this Exhibit A is attached  (including  the Disclosure  Schedule),  as it may be
amended from time to time.

     Best Efforts.  "Best  Efforts" shall mean the efforts that a prudent Person
desiring to achieve a  particular  result would use in order to ensure that such
result is achieved as expeditiously as possible.

         Breach.  There  shall be deemed to be a "Breach"  of a  representation,
warranty,  covenant,  obligation or other  provision if there is or has been (a)
any inaccuracy in or breach  (including any inadvertent or innocent  breach) of,
or any failure  (including any  inadvertent  failure) to comply with or perform,
such representation,  warranty, covenant,  obligation or other provision, or (b)
any claim (by any Person) or other  circumstance  that is inconsistent with such
representation,  warranty, covenant, obligation or other provision; and the term
"Breach" shall be deemed to refer to any such inaccuracy, breach, failure, claim
or circumstance.

     CERCLA.  "CERCLA"  shall  mean the  Comprehensive  Environmental  Response,
Compensation and Liability Act.

     Code. "Code" shall mean the Internal Revenue Code of 1986, as amended.

     Comparable Entities.  "Comparable Entities" shall mean Entities (other than
the  Seller)  that are  engaged in  businesses  similar to the  business  of the
Seller.

     Consent.  "Consent"  shall  mean  any  approval,   consent,   ratification,
permission, waiver or authorization (including any Governmental Authorization).

         Contract.  "Contract"  shall mean any written,  oral,  implied or other
agreement,  contract,  understanding,  arrangement,  instrument, note, guaranty,
indemnity,  representation,  warranty,  deed,  assignment,  power  of  attorney,
certificate,  purchase  order,  work  order,  insurance  policy,  benefit  plan,
commitment, covenant, assurance or undertaking of any nature.

         Damages.  "Damages" shall include any loss, damage,  injury, decline in
value, lost opportunity,  Liability, claim, demand, settlement, judgment, award,
fine, penalty,  Tax, fee (including any legal fee, expert fee, accounting fee or
advisory fee), charge,  cost (including any cost of investigation) or expense of
any nature.

     Disclosure Schedule.  "Disclosure  Schedule" shall mean the schedule (dated
as of the date of the  Agreement)  delivered  to the  Purchaser on behalf of the
Shareholder  and the Seller,  a copy of which is attached to the  Agreement  and
incorporated in the Agreement by reference.

     Employee  Benefit  Plan.  "Employee  Benefit  Plan"  shall have the meaning
specified in Section 3(3) of ERISA.

         Encumbrance.  "Encumbrance" shall mean any lien, pledge, hypothecation,
charge,  mortgage,  security interest,  encumbrance,  equity,  trust,  equitable
interest,  claim,  preference,  right of possession,  lease,  tenancy,  license,
encroachment, covenant, infringement,  interference, Order, proxy, option, right
of first refusal, preemptive right, community property interest, legend, defect,
impediment,  exception,  reservation,  limitation,  impairment,  imperfection of
title,  condition or restriction of any nature (including any restriction on the
transfer of any asset, any restriction on the receipt of any income derived from
any asset,  any  restriction on the use of any asset and any  restriction on the
possession,  exercise or transfer of any other  attribute  of  ownership  of any
asset).

         Entity.  "Entity" shall mean any corporation  (including any non-profit
corporation),   general  partnership,  limited  partnership,  limited  liability
partnership,  joint venture, estate, trust,  cooperative,  foundation,  society,
political party,  union,  company  (including any limited  liability  company or
joint stock company),  firm or other  enterprise,  association,  organization or
entity.

     ERISA.  "ERISA" shall mean the Employee  Retirement  Income Security Act of
1974.

         ERISA Affiliate.  "ERISA  Affiliate" shall mean any Person that is, was
or would be  treated as a single  employer  with any of the  Specified  Entities
under Section 414 of the Code.

     Excluded  Assets.  "Excluded  Assets"  shall mean the assets  identified on
Exhibit B (to the extent owned by the Seller on the Closing Date).

         GAAP.  "GAAP" shall mean generally accepted accounting principles.

         Governmental  Authorization.  "Governmental  Authorization"  shall mean
any: (a) permit, license, certificate, franchise, concession, approval, consent,
ratification,   permission,   clearance,   confirmation,   endorsement,  waiver,
certification, designation, rating, registration, qualification or authorization
issued,  granted, given or otherwise made available by or under the authority of
any Governmental Body or pursuant to any Legal  Requirement;  or (b) right under
any Contract with any Governmental Body.

         Governmental  Body.  "Governmental  Body"  shall mean any:  (a) nation,
principality,  state, commonwealth,  province,  territory, county, municipality,
district  or other  jurisdiction  of any  nature;  (b)  federal,  state,  local,
municipal,  foreign or other government;  (c) governmental or quasi-governmental
authority  of any nature  (including  any  governmental  division,  subdivision,
department,   agency,  bureau,  branch,  office,  commission,   council,  board,
instrumentality, officer, official, representative,  organization, unit, body or
Entity and any court or other  tribunal);  (d)  multi-national  organization  or
body; or (e) individual, Entity or body exercising, or entitled to exercise, any
executive, legislative, judicial,  administrative,  regulatory, police, military
or taxing authority or power of any nature.

         Hazardous  Material.   "Hazardous  Material"  shall  include:  (a)  any
petroleum,  waste oil, crude oil, asbestos, urea formaldehyde or polychlorinated
biphenyl; (b) any waste, gas or other substance or material that is explosive or
radioactive;   (c)  any  "hazardous  substance,"   "pollutant,"   "contaminant,"
"hazardous  waste,"  "regulated   substance,"  "hazardous  chemical"  or  "toxic
chemical" as designated,  listed or defined (whether  expressly or by reference)
in any statute,  regulation or other Legal Requirement (including CERCLA and any
other so-called  "superfund" or "superlien"  law and the respective  regulations
promulgated  thereunder);  (d) any other  substance or material  (regardless  of
physical form) or form of energy that is subject to any Legal  Requirement which
regulates or  establishes  standards  of conduct in  connection  with,  or which
otherwise  relates to, the protection of human health,  plant life, animal life,
natural  resources,  property  or the  enjoyment  of life or  property  from the
presence in the environment of any solid,  liquid,  gas, odor,  noise or form of
energy; and (e) any compound,  mixture,  solution, product or other substance or
material that  contains any  substance or material  referred to in clause "(a)",
"(b)", "(c)" or "(d)" above.

         Immaterial  Contract.  "Immaterial  Contract"  shall  mean  any  Seller
Contract  that:  (a) was entered  into by the Seller in the  Ordinary  Course of
Business;  (b) is identical in all material respects to one of the Standard Form
Agreements;  (c)  has a term of less  than 30 days or may be  terminated  by the
Seller  (without  penalty)  within 30 days after the  delivery of a  termination
notice by the Seller to the other party thereto; and (d) does not contemplate or
involve  the  payment  of cash or other  consideration  in an amount or having a
value in excess of $15,000.00.

     Indemnitees.  "Indemnitees"  shall  mean  the  following  Persons:  (a) the
Purchaser; (b) the Purchaser's current and future affiliates; (c) the respective
Representatives of the Persons referred to in clauses "(a)" and "(b)" above; and
(d) the respective  successors and assigns of the Persons referred to in clauses
"(a)", "(b)" and "(c)" above.

          June 14th Accounts Payable Amount. "June 14th Accounts Payable Amount"
shall  mean the sum of the list of  accounts  payable  of  Seller as at June 14,
1999, attached hereto as Exhibit ___.

         June 14th  Accounts  Receivable  Amount.  "June 14th  Accounts  Payable
Amount"  shall mean the sum of the list of accounts  receivable  of Seller as at
June 14, 1999, attached hereto as Exhibit ___.

         Legal Requirement.  "Legal Requirement" shall mean any federal,  state,
local,  municipal,  foreign or other law,  statute,  legislation,  constitution,
principle  of  common  law,   resolution,   ordinance,   code,  edict,   decree,
proclamation,   treaty,   convention,   rule,  regulation,   ruling,  directive,
pronouncement,  requirement, specification,  determination, decision, opinion or
interpretation issued, enacted,  adopted, passed, approved,  promulgated,  made,
implemented  or  otherwise  put into  effect  by or under the  authority  of any
Governmental Body.

         Liability.  "Liability"  shall  mean  any  debt,  obligation,  duty  or
liability  of  any  nature  (including  any  unknown,  undisclosed,   unmatured,
unaccrued, unasserted,  contingent,  indirect, conditional,  implied, vicarious,
derivative,  joint, several or secondary liability),  regardless of whether such
debt,  obligation,  duty or  liability  would be required to be  disclosed  on a
balance  sheet  prepared  in  accordance  with  generally  accepted   accounting
principles and regardless of whether such debt, obligation, duty or liability is
immediately due and payable.

     Noncompetition  Period.  "Noncompetition  Period"  shall  mean  the  period
commencing on the date of this Agreement and ending on the fifth  anniversary of
the date of this Agreement.

         Order. "Order" shall mean any: (a) order, judgment,  injunction, edict,
decree,  ruling,  pronouncement,   determination,  decision,  opinion,  verdict,
sentence,  subpoena, writ or award issued, made, entered,  rendered or otherwise
put into effect by or under the authority of any court, administrative agency or
other  Governmental Body or any arbitrator or arbitration panel; or (b) Contract
with any Governmental Body entered into in connection with any Proceeding.

         Ordinary  Course of  Business.  An action  taken by or on behalf of the
Seller  shall  not be  deemed  to have  been  taken in the  "Ordinary  Course of
Business" unless:

                           (a) such action is recurring in nature, is consistent
         with the past  practices  of the  Seller  and is taken in the  ordinary
         course of the normal day-to-day operations of the Seller;

                           (b)      such action is taken in accordance with
         sound and prudent business practices;

                           (c) such action is not required to be  authorized  by
         the shareholders of the Seller, the board of directors of the Seller or
         any  committee  of the board of  directors  of the  Seller and does not
         require any other separate or special authorization of any nature; and

                           (d) such action is similar in nature and magnitude to
         actions   customarily   taken,   without   any   separate   or  special
         authorization,   in  the  ordinary  course  of  the  normal  day-to-day
         operations of Comparable Entities.

               Person.  "Person" shall mean any individual, Entity or
         Governmental Body.

         Proceeding.  "Proceeding"  shall  mean any  action,  suit,  litigation,
arbitration,   proceeding  (including  any  civil,   criminal,   administrative,
investigative or appellate proceeding and any informal proceeding), prosecution,
contest,   hearing,   inquiry,  inquest,  audit,  examination  or  investigation
commenced, brought, conducted or heard by or before, or otherwise involving, any
Governmental Body or any arbitrator or arbitration panel.

         Proprietary Asset.  "Proprietary  Asset" shall mean any patent,  patent
application,  trademark  (whether  registered or unregistered and whether or not
relating to a published work),  trademark  application,  trade name,  fictitious
business name, service mark (whether  registered or unregistered),  service mark
application,   copyright   (whether   registered  or  unregistered),   copyright
application,  maskwork,  maskwork application,  trade secret, know-how, customer
list,  franchise,  system,  computer  software,  invention,  design,  blueprint,
engineering drawing, proprietary product, technology, proprietary right or other
intellectual property right or intangible asset.

         Related Party.  Each of the following  shall be deemed to be a "Related
Party":  (a) each  individual who is, or who has at any time been, an officer of
the Seller; (b) each member of the family of each of the individuals referred to
in clause "(a)" above;  and (c) any Entity  (other than the Seller) in which any
one of the  individuals  referred  to in clauses  "(a)" and "(b)" above holds or
held (or in which more than one of such individuals  collectively hold or held),
beneficially  or  otherwise,  a  controlling  interest  or  a  material  voting,
proprietary or equity interest.

     Representatives.   "Representatives"   shall  mean   officers,   directors,
employees, agents, attorneys, accountants, advisors and representatives.

     Seller Contract.  "Seller  Contract" shall mean any Contract:  (a) to which
the  Seller is a party;  (b) by which the  Seller or any of its assets is or may
become  bound or under  which the  Seller  has,  or may become  subject  to, any
obligation;  or (c)  under  which the  Seller  has or may  acquire  any right or
interest.  Seller Proprietary Asset.  "Seller  Proprietary Asset" shall mean any
Proprietary  Asset owned by or licensed to the Seller or  otherwise  used by the
Seller.

     Standard Form Agreements.  "Standard Form Agreements"  shall mean the forms
of  agreements  attached as  Appendices  2.14(A)  and 2.14(B) to the  Disclosure
Schedule.

         Tax. "Tax" shall mean any tax (including any income tax, franchise tax,
capital gains tax,  estimated tax, gross receipts tax,  value-added tax, surtax,
excise  tax,  ad valorem  tax,  transfer  tax,  stamp tax,  sales tax,  use tax,
property tax,  business tax,  occupation  tax,  inventory  tax,  occupancy  tax,
withholding tax or payroll tax), levy, assessment,  tariff, impost,  imposition,
toll,  duty  (including  any customs  duty),  deficiency or fee, and any related
charge or amount (including any fine, penalty or interest), that is, has been or
may in the  future  be (a)  imposed,  assessed  or  collected  by or  under  the
authority of any  Governmental  Body, or (b) payable pursuant to any tax-sharing
agreement or similar Contract.

         Tax  Return.   "Tax  Return"  shall  mean  any  return  (including  any
information return), report, statement, declaration, estimate, schedule, notice,
notification,  form, election, certificate or other document or information that
is, has been or may in the future be filed with or submitted  to, or required to
be filed with or submitted  to, any  Governmental  Body in  connection  with the
determination,  assessment,  collection  or payment of any Tax or in  connection
with the administration, implementation or enforcement of or compliance with any
Legal Requirement relating to any Tax.

     Transactional  Agreements.  "Transactional  Agreements" shall mean: (a) the
Agreement;  (b) the Assumption Agreement;  (c) the License Agreement and (d) the
Closing Certificate.

         Transactions.  "Transactions" shall mean (a) the execution and delivery
of the  respective  Transactional  Agreements,  and (b) all of the  transactions
contemplated by the respective Transactional Agreements, including: (i) the sale
of the Assets by the Seller and the  execution  of the License  Agreement by the
Shareholder  to the  Purchaser  in  accordance  with  the  Agreement;  (ii)  the
assumption  of  the  Assumed  Liabilities  by  the  Purchaser  pursuant  to  the
Assumption  Agreement;  and (iii) the performance by the Seller, the Shareholder
and the  Purchaser  of their  respective  obligations  under  the  Transactional
Agreements, and the exercise by the Seller, the Shareholder and the Purchaser of
their respective rights under the Transactional Agreements.



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                                                   TABLE OF CONTENTS
                                                      (CONTINUED)
    PAGE


                                                        iii.
                                                   TABLE OF CONTENTS



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<S>     <C>                                                                                                       <C>


1.       SALE OF ASSETS; RELATED TRANSACTIONS.....................................................................1

         1.1      Sale of Assets..................................................................................1

         1.2      License Agreement...............................................................................2

         1.3      Purchase Price..................................................................................2

         1.4      Sales Taxes.....................................................................................4

         1.5      Allocation......................................................................................4

         1.6      Closing.........................................................................................4

2.       REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER AND THE SELLER.........................................5

         2.1      Due Organization; No Subsidiaries; Etc..........................................................5

         2.2      Certificate of Incorporation and Bylaws; Records................................................5

         2.3      Capitalization..................................................................................6

         2.4      Financial Statements............................................................................6

         2.5      Absence Of Changes..............................................................................6

         2.6      Title To Assets.................................................................................7

         2.7      Bank Accounts...................................................................................8

         2.8      Receivables.....................................................................................8

         2.9      Customers; Distributors.........................................................................8

         2.10     Inventory.......................................................................................8

         2.11     Equipment, Etc..................................................................................8

         2.12     Real Property...................................................................................9

         2.13     Proprietary Assets..............................................................................9

         2.14     Contracts......................................................................................10

         2.15     Liabilities....................................................................................11

         2.16     Compliance with Legal Requirements.............................................................12

         2.17     Governmental Authorizations....................................................................13

         2.18     Tax Matters....................................................................................13

         2.19     Employee And Labor Matters.....................................................................14

         2.20     Benefit Plans; ERISA...........................................................................15

         2.21     Environmental Matters..........................................................................16

         2.22     Sale of Products...............................................................................17

         2.23     Performance Of Services........................................................................17

         2.24     Insurance......................................................................................17

         2.25     Related Party Transactions.....................................................................18

         2.26     Certain Payments, Etc..........................................................................18

         2.27     Proceedings; Orders............................................................................19

         2.28     Authority; Binding Nature Of Agreements........................................................19

         2.29     Non-Contravention; Consents....................................................................20

         2.30     Brokers........................................................................................21

         2.31     The Shareholders...............................................................................21

         2.32     Full Disclosure................................................................................21

3.       REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.........................................................21

         3.1      Authority; Binding Nature Of Agreements........................................................21

         3.2      Brokers........................................................................................22

4.       CONDITIONS PRECEDENT TO THE PURCHASER'S OBLIGATION TO CLOSE.............................................22

         4.1      Accuracy Of Representations....................................................................22

         4.2      Performance Of Obligations.....................................................................22

         4.3      Consents.......................................................................................22

         4.4      Additional Documents...........................................................................22

         4.5      No Prohibition.................................................................................23

5.       CONDITIONS PRECEDENT  TO THE SELLER'S OBLIGATION TO CLOSE...............................................23

         5.1      Accuracy Of Representations....................................................................23

         5.2      Purchaser's Performance........................................................................23

6.       INDEMNIFICATION, ETC....................................................................................23

         6.1      Survival Of Representations And Covenants......................................................23

         6.2      Indemnification By The Shareholders And The Seller.............................................24

         6.3      Indemnification By Purchaser...................................................................25

         6.4      Setoff.........................................................................................26

         6.5      Nonexclusivity Of Indemnification Remedies.....................................................26

         6.6      Defense Of Third Party Claims..................................................................27

         6.7      Exercise Of Remedies By Indemnitees Other Than Purchaser.......................................28

7.       CERTAIN POST-CLOSING COVENANTS..........................................................................28

         7.1      Further Actions................................................................................28

         7.2      Publicity......................................................................................28

         7.3      No Hiring or Solicitation of Employees.........................................................29

8.       MISCELLANEOUS PROVISIONS................................................................................29

         8.1      Joint And Several Liability....................................................................29

         8.2      Shareholder's and Seller's Representative......................................................29

         8.3      Further Assurances.............................................................................30

         8.4      Fees and Expenses..............................................................................30

         8.5      Attorneys' Fees................................................................................31

         8.6      Notices........................................................................................31

         8.7      Time Of The Essence............................................................................32

         8.8      Headings.......................................................................................32

         8.9      Counterparts...................................................................................32

         8.10     Governing Law; Venue...........................................................................32

         8.11     Successors And Assigns; Parties In Interest....................................................33

         8.12     Remedies Cumulative; Specific Performance......................................................33

         8.13     Waiver.........................................................................................33

         8.14     Amendments.....................................................................................34

         8.15     Severability...................................................................................34

         8.16     Entire Agreement...............................................................................34

         8.17     Knowledge......................................................................................34

         8.18     Construction...................................................................................34

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