ASSET PURCHASE AGREEMENT

     THIS ASSET PURCHASE  AGREEMENT is made as of the 17th day of July, 1997, by
and among Payne Fabrics, Inc., a Delaware corporation ("Seller"),  Bell National
Corporation,  a California  corporation  ("Shareholder"),  and Westgate Fabrics,
Inc., a Texas corporation ("Purchaser").

                              W I T N E S S E T H:

     WHEREAS,  the Seller is a  distributor  of  decorative  fabrics and related
products to the interior design profession (the "Business"); and

     WHEREAS, the Seller desires to sell to Purchaser,  and Purchaser desires to
purchase  from the  Seller,  the  assets  used or  useful in the  ownership  and
operation of the Business hereinafter described,  under the terms and conditions
herein set forth; and

     WHEREAS, the Shareholder is the sole shareholder of the Seller;

     NOW,  THEREFORE,  in consideration of the premises and the mutual covenants
and agreements herein contained, the parties hereto agree as follows:

1.   PURCHASE AND SALE OF ASSETS.

     1.1  Purchase and Sale of Assets.  Subject to the  conditions  set forth in
this Agreement, at the Closing (as defined hereinafter),  the Seller shall sell,
assign, transfer,  convey and deliver to Purchaser, and Purchaser shall purchase
and receive from the Seller, all of Seller's right, title and interest in and to
the following  assets that are owned or held by Seller (the "Assets"),  free and
clear of all liens, security interests, charges, encumbrances and similar rights
of others ("Liens") (other than Permitted Liens, as hereinafter defined), except
those assets  specifically  listed on Schedule 1 attached  hereto (the "Excluded
Assets"):

          (a) All of the leasehold interests in real property located at (i) 390
     Decorative  Center,  Dallas,  Texas 75207,  (ii) 351 Peachtree Hills Avenue
     N.E., #141, Atlanta, Georgia 30305, (iii) 979 Third Avenue, Space 1510, New
     York, New York 10022, and (iv) 41 Madison Avenue at 26th Street, 5th Floor,
     New York, New York 10010  (collectively  the "Real Estate"),  including but
     not limited to all improvements and all options thereon,  subject, however,
     to such modifications of and/or amendments to such leasehold interests (and
     the leases  therefor)  as may be required or  requested  by any  applicable
     landlord thereof (and,  unless such  modification or amendment would result
     in incremental cost or expense to Purchaser,  not unreasonably  objected to
     by the Seller or Purchaser);

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          (b)  All  equipment,   machinery,  spare  parts,  tools,  instruments,
     vehicles,  furniture, fixtures and other similar items of tangible personal
     property used or held for use in the Business  and/or located at any of the
     Real Estate;

          (c) All  inventory,  samples and sample  books used or held for use in
     the Business  (whether on location or in transit)  and/or located at any of
     the Real Estate;

          (d) All accounts receivable relating to the Business;

          (e) All purchase orders,  contracts and commitments of Seller relating
     to the Business,  including,  but not limited to, those for the purchase of
     items of inventory or other personal property placed or incurred by Seller;

          (f) All items of prepaid  expense  incurred by Seller in the operation
     of the Business;

          (g) All of Seller's  customer  lists,  work orders,  file and computer
     copies of customer invoices, customer files and other customer records, all
     drawings,  specification  sheets,  files of all types primarily relating to
     the Business,  technical  information,  administrative  systems,  telephone
     numbers,  facsimile numbers, e-mail and internet addresses,  and other such
     property which relates to the Business;

          (h) All of  Seller's  (i)  proprietary  information,  designs,  design
     properties  (developed  and  undeveloped),  trade secrets and  confidential
     information,  technical information and data,  trademarks,  trade names and
     service  marks  relating to the  Business;  (ii)  machinery  and  equipment
     warranties and service contracts relating to the Business; (iii) all causes
     of action not  pending as of the date  hereof to the extent  related to the
     Business or any of the Assets; and (iv) all other documentation  (including
     archival  properties)  primarily relating to the operation of the Business,
     including all licenses and permits necessary or related to the operation of
     the Business (to the extent transferable);

          (i) All books  and  records  primarily  related  to the  Assets or the
     operation  of the Business (or the  appropriate  extracts  therefrom to the
     extent that such  information is commingled with  information  unrelated to
     the Assets or Business),  including all financial,  accounting and property
     tax records,  computer data and programs,  market data,  technical data and
     records and all correspondence with and documents  pertaining to suppliers,
     governmental  authorities  and other third  parties  (it being  understood,
     however, that copies of the same may be retained by the Seller);


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<PAGE>

          (j) The  contractual  rights  of the  Seller  under  those  contracts,
     agreements and other documents listed as "Assumed Contracts" in part II on

     Schedule 2 hereto,  as the same may be amended through the Closing Date (as
     defined in Section 2.2) with the mutual consent of the Seller and Purchaser
     (the "Assumed Contracts"); and

          (k) All other assets of Seller, both tangible and intangible,  used or
     held for use in the  operation  of the  Business and which are not Excluded
     Assets,  including,  but not limited to, all insurance recoveries or rights
     to the same relating to damages to or loss of the Assets.

In this Agreement,  the term "Permitted Lien" means and includes:  (i) liens for
taxes,  assessments and other government  charges not yet due and payable;  (ii)
liens  imposed  by  law,  such  as  banker's,  warehouseman's,   mechanic's  and
materialmen's  liens, and other similar statutory or common law liens arising in
the ordinary  course of business;  (iii) Liens arising out of pledges,  bonds or
deposits under  worker's  compensation  laws,  unemployment  insurance,  old age
pension or other social security or retirement  benefits or similar  legislation
and deposits securing obligations for self-insurance  arrangements in connection
with any of the foregoing; (iv) easements, rights of way, building restrictions,
minor defects or irregularities in title and such other  encumbrances or charges
against  property (real,  personal or mixed) as are of a nature that do not in a
materially  adverse way affect the  marketability  of the same or interfere with
the use thereof in the ordinary course of business as presently  conducted;  (v)
liens of landlords  arising under the leases as to which a Company is lessee and
which are  disclosed  pursuant to part II of  Schedule 2 hereto;  and (vi) liens
securing indebtedness  disclosed or reflected in the Seller Financial Statements
(as defined in Section 3.6) which will be released and  discharged in full on or
prior to the Closing Date.

     1.2 Assumed  Liabilities.  At the Closing,  the Purchaser  shall assume and
agree to pay, perform, satisfy and discharge in accordance with their respective
terms (subject to any defenses or claimed offsets asserted in good faith against
the obligee to whom such  liabilities  are owed) the following  liabilities  and
obligations of the Seller (collectively the "Assumed Liabilities"):

          (a) The current trade accounts payable, open purchase orders, customer
     deposits and other accrued expenses  (including  accrued employee  vacation
     and sick pay) and Real Estate expenses relating to the Business,  as of the
     Closing Date, set forth in the categories  listed on Schedule 2 hereto,  in
     each case only to the  extent  accrued  on the  Closing  Balance  Sheet (as
     finalized as provided in Section 2.4); and

          (b) To the extent  relating to periods on and after the  Closing,  the
     contractual obligations of the Seller under the Assumed Contracts.


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<PAGE>

Except as specifically  set forth above,  Purchaser does not assume and shall in
no event be liable for any debt, obligation,  responsibility or liability of the
Business or Seller.

2.   CONSIDERATION; CLOSING.

     2.1  Purchase  Price.  The  consideration  to be  received by the Seller in
exchange for the Assets (the "Purchase  Price") shall be $3.85 million  (subject
to  adjustment  as described  in Section 2.4 hereof),  of which (i) $3.7 million
will be paid to the  Seller in cash at the  Closing  (and  shall be  subject  to
adjustment  pursuant to Section 2.4) and (ii)  $150,000  will be paid in cash at
the Closing to an escrow agent (the "Escrow  Agent") and held in accordance with
the terms of the  Post-Closing  Escrow Agreement in the form of Exhibit A hereto
(the  "Escrow  Agreement").  The  Purchaser  and Seller  agree to  allocate  the
foregoing  Purchase Price and Assumed  Liabilities  for federal and state income
tax purposes  among the Assets (i) in  accordance  with their mutual  agreement,
which  Purchaser and Seller will use their  reasonable best efforts to arrive at
within 60 days after the Closing  Date,  and (ii) in any event,  in a manner not
inconsistent  with Section 1060 of the Internal Revenue Code of 1986, as amended
(the  "Code"),  and the related  Treasury  Regulations  issued  thereunder  (the
"Treasury  Regulations");  provided,  however,  that if such agreement is not so
arrived at within such time period,  either the  Purchaser or Seller may, at its
own expense,  obtain appraisals of the Assets from qualified appraisers selected
in good faith by the requesting  party,  and such  appraisals  shall control the
allocation  of the  Purchase  Price and  Assumed  Liabilities  among the Assets,
absent manifest error.  With regard to the allocation  described in this Section
2.1,  the  Purchaser  and the  Seller  agree to file Form 8594 and all  required
supplemental and other forms, if any, with the Internal Revenue Service when due
(including  after  extension)  consistent  with  the  allocations  agreed  to or
otherwise determined hereunder.

     2.2 Time of Closing. A closing (the "Closing") for the sale and purchase of
the  Assets  and  assumption  of the  Assumed  Liabilities  shall be held at the
offices of Purchaser in Dallas, Texas (or such other place as may be agreed upon
by the parties in writing) on July 31, 1997 (provided,  however,  that such date
may be extended by the Purchaser to no later than August 7, 1997 to  accommodate
any delay's in consummating  Purchaser's  financing) (the "Closing  Date").  The
Closing shall be deemed to be effective as of 12:01 a.m. on the Closing Date.

     2.3  Closing  Procedure.  At the  Closing,  the  Seller  shall  deliver  to
Purchaser such bills of sale, instruments of assignment, transfer and conveyance
and similar  documents  as  Purchaser  shall  reasonably  request.  Against such
delivery,  Purchaser  shall (i) issue and deliver to Seller and the Escrow Agent
the  Purchase  Price in  accordance  with Section 2.1 above and (ii) execute and
deliver the assumption agreements with respect to the Assumed Liabilities as are
contemplated  by Section  1.2  hereof.  Each  party  will cause to be  prepared,
executed  and  delivered  all other  documents  required to be delivered by such
party pursuant to this Agreement and all


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<PAGE>

other  appropriate  and customary  documents as another party or its counsel may
reasonably request for the purpose of consummating the transactions contemplated
by this Agreement. All actions taken at the Closing shall be deemed to have been
taken  simultaneously  at the  time the  last of any  such  actions  is taken or
completed.

     2.4.  Purchase  Price  Adjustment.  The Purchase Price shall be adjusted in
accordance with the following procedures:

          (a) On or prior to the Closing Date,  the Seller and  Purchaser  shall
     mutually  determine a preliminary and estimated balance sheet of the Seller
     as of immediately  prior to the effective time of the Closing,  prepared in
     accordance  with  generally   accepted   accounting   principles,   applied
     consistently with the Seller's past practices; provided, however, that: (i)
     any items  eliminated  in  connection  with the  transactions  contemplated
     hereby  (such as Excluded  Assets and any other  liabilities  which are not
     Assumed  Liabilities) shall be excluded  therefrom;  and (ii) in connection
     with the  computation of current  assets,  (x) the inventory value of goods
     purchased prior to 1995 will not be permitted to exceed $449,000  (Pre-1995
     Inventory"),  (y)  there  will be an  inventory  reserve  of no  less  than
     $130,000, and (z) "remnants" (i.e., pieces of less than four yards) will be
     given no economic value. The balance sheet so agreed-upon shall be referred
     to herein as the "Provisional Closing Balance Sheet".

          (b) Not later than 90 days after the Closing,  the  Purchaser,  at its
     own cost, shall prepare and deliver to Seller a balance sheet of the Seller
     as of immediately  prior to the effective time of the Closing (the "Closing
     Balance  Sheet"),  prepared in  accordance  with:  (i)  generally  accepted
     accounting   principles,   applied  consistently  with  the  Seller's  past
     practices (it being  understood  that the Purchaser  will not seek to apply
     Purchaser's  historic inventory valuation policy for such purpose) and (ii)
     otherwise,  the provisos set forth in Section 2.4(a) above. The time period
     for  preparation  of the Closing  Balance  Sheet shall be extended for such
     additional  time  period  that may be required in the event that the Seller
     and its  representatives  do not furnish to the Purchaser books and records
     (or  supplemental  information  relating  thereto)  that may be  reasonably
     requested in order for the Purchaser to prepare the Closing Balance Sheet.

          (c) In  connection  with  preparing  and  finalizing  (as  hereinafter
     provided)  the Closing  Balance  Sheet,  the parties  shall  determine  (as
     provided herein) the Working Capital of the Seller as of immediately  prior
     to the  effective  time of the Closing  (the  "Closing  Date  Value").  For
     purposes of this Agreement,  "Working Capital" means the difference between
     (i) total current assets of the Seller, as set forth on the Closing Balance
     Sheet, less (ii) the Assumed Liabilities of the Seller, as set forth on the
     Closing  Balance Sheet;  in each case giving effect to: (x) the adjustments
     described or referred to in clauses (a) and (b) above, and (y)


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<PAGE>

     the  procedures  for the final  determination  thereof  as set forth in the
     following provisions of this Section 2.4.

          (d) Within 60 days after the Closing  Balance  Sheet is  delivered  to
     Seller  pursuant  to clause  (b)  above,  Seller,  at its own  cost,  shall
     complete its examination  thereof,  and provide for the examination thereof
     by its accountants, if necessary, and shall deliver to the Purchaser either
     (i) a written acknowledgment accepting the Closing Balance Sheet, including
     the  determination  of the  Closing  Date Value,  or (ii) a written  report
     setting forth in reasonable detail any proposed  adjustments to the Closing
     Balance Sheet or the Closing Date Value ("Adjustment Report"). A failure by
     Seller to deliver the  Adjustment  Report within the required 60 day period
     shall  constitute  its  acceptance  of the  Closing  Balance  Sheet and the
     Closing Date Value.  The Purchaser  shall,  and shall cause its independent
     auditors  to,  cooperate  with Seller and its  accountants  (including  any
     independent accountants) in the course of the preparation of the Adjustment
     Report.  Such 60 day time period set forth above shall be extended for such
     additional time period that may be required in the event that the Purchaser
     and its  representatives do not furnish to the Seller books and records (or
     supplemental information relating thereto) that may be reasonably requested
     in order for the Seller to prepare the Adjustment Report.

          (e) During a period of 30 days following the delivery by Seller of the
     Adjustment  Report,  Seller and  Purchaser  shall  attempt  to resolve  any
     difference  they  may  have  with  respect  to the  matters  raised  in the
     Adjustment  Report.  In the event Seller and Purchaser fail to agree on all
     of the proposed adjustments  contained in the Adjustment Report within such
     30 day  period,  then  Seller  and  Purchaser  mutually  agree that the New
     Orleans,   Louisiana  office  of  Arthur  Andersen  LLP  (the  "Independent
     Auditors")  shall  make  the  final   determination  with  respect  to  the
     correctness of the proposed  adjustments in the Adjustment  Report in light
     of the terms and provisions of this Agreement;  provided, however, that the
     Independent  Auditors shall not propose  changes to the  Adjustment  Report
     that would result in the Closing Date Value being outside the range between
     the  respective  determinations  of such  Closing  Date Value by Seller and
     Purchaser.  The  decision of the  Independent  Auditors  shall be final and
     binding  on  Seller  and  Purchaser,  and may be used in a court  of law by
     either Seller or Purchaser for the purpose of enforcing such decision.  The
     costs and expenses of the Independent  Auditors and their services rendered
     pursuant to this clause (e) shall be borne by the non-prevailing  party or,
     if neither party prevails, equally by Seller and Purchaser.

          (f) In the event  that,  after  finalization  of the  Closing  Balance
     Sheet,  the Closing  Date Value as set forth  thereon is greater  than $2.5
     million, Seller shall be entitled to receive from Purchaser,  and Purchaser
     shall be obligated to pay to Seller, an amount of cash equal to such excess
     (without any interest).


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<PAGE>

     In the  event  that such  Closing  Date  Value is less  than $2.5  million,
     Purchaser  shall be entitled to receive  from  Seller,  and Seller shall be
     obligated to pay to Purchaser,  an amount of cash equal to such  deficiency
     (without any  interest);  and Seller hereby  authorizes  Purchaser to claim
     such amount from the Escrow Agent in accordance  with the provisions of the
     Escrow  Agreement.  In either  event,  such cash shall be paid  within five
     business days after the  finalization  of the Closing Balance Sheet to such
     account as may be designated by the party entitled to receive the same.

3.   REPRESENTATIONS AND WARRANTIES OF THE SELLER.

     The Seller hereby represents and warrants to the Purchaser, as follows:

     3.1  Organization  and  Good  Standing  of  the  Seller.  The  Seller  is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware.

     3.2 Subsidiaries, Investments. The Seller has no equity, profit sharing,
participation or other ownership interest in any corporation or partnership.

     3.3  Corporate  Power and  Authority;  Binding  Effect.  The Seller has the
corporate power and authority and all material  licenses and permits required by
governmental authorities to own, lease and operate its properties and assets, to
carry on its business as currently being conducted,  and to execute, deliver and
perform this Agreement, the Consulting Agreement (as defined in Section 7.4) and
the Escrow  Agreement  (the  Consulting  Agreement  and Escrow  Agreement  being
collectively referred to as the "Ancillary Agreements"). Each of this Agreements
and the Ancillary  Agreement,  has been, or at the time of the Closing will have
been, duly authorized,  executed and delivered by the Seller and is, or from and
after the Closing will be, the legal, valid and binding obligation of the Seller
enforceable  against the Seller in  accordance  with its terms,  except that (i)
enforceability  may be limited by  bankruptcy,  insolvency or other similar laws
affecting  creditors' rights  generally,  and (ii) the availability of equitable
remedies may be limited by equitable principles of general applicability.

     3.4 Compliance with Other  Instruments.  Neither the execution and delivery
by  the  Seller  of  this  Agreement  and  the  Ancillary   Agreements  nor  the
consummation  by it of the  transactions  contemplated  hereby and thereby  will
violate,  breach,  be in conflict with, or constitute a default under, or permit
the termination or the  acceleration of maturity of, or result in the imposition
of any lien,  claim or  encumbrance  upon any  property  or asset of the  Seller
pursuant to (i) the Seller's certificate or articles of incorporation or bylaws,
(ii)  any  note,  bond,  indenture,   mortgage,   deed  of  trust,  evidence  of
indebtedness, loan or material lease agreement, other agreement or instrument by
which the  Seller is bound,  to which it is a party or 


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<PAGE>

to which  its  assets  are  subject  ("Material  Seller  Agreements"),  or (iii)
judgment,  order, injunction or decree by which the Seller is bound, to which it
is a party or to which its assets are subject,  excepting,  however, in the case
of the foregoing clause (ii): (x) such Material Seller  Agreements which are not
Assumed  Contracts  and which the Seller shall satisfy or discharge in full with
the  Purchase  Price  funds,  and  (y)  such  violations,  breaches,  conflicts,
defaults,  accelerations,   liens,  claims  and  encumbrances  which  could  not
reasonably  be  expected  to have a  material  adverse  effect on the  business,
results of  operations,  Assets or condition  (financial  or  otherwise)  of the
Business or on the ability of the Seller to perform its  obligations  under this
Agreement (a "Material Adverse Effect").

     3.5 Consents. No approval,  authorization,  consent,  order or other action
of, or filing  with,  any  governmental  authority or  administrative  agency is
required in  connection  with the  execution  and delivery by the Seller of this
Agreement or the Ancillary  Agreements or the  consummation by the Seller of the
transactions  contemplated  hereby and thereby.  No approval,  authorization  or
consent of any other third party is required in  connection  with the  execution
and delivery by the Seller of this Agreement or the Ancillary Agreements and the
consummation of the  transactions  contemplated  hereby and thereby,  except for
such authorizations and consents: (i) under non-Assumed Contracts and satisfy or
discharge in full with the Purchase  Price Funds,  and (ii) the failure of which
to obtain could not reasonably be expected to have a Material Adverse Effect.

     3.6 Financial Statements and Records of the Seller.

          (a) The Seller has delivered to Purchaser  true,  correct and complete
     copies of (i) the balance sheet of the Seller as of December 31, 1996,  and
     the related statement of income for the year then ended, accompanied by the
     audit report of Ernst & Young thereon, and (ii) the unaudited balance sheet
     of the Seller as of May 31, 1997,  and the related  statement of income for
     the  five  months   then  ended   (collectively,   the  "Seller   Financial
     Statements").

          (b) The Seller  Financial  Statements  present  fairly in all material
     respects the  financial  position of the Seller as of the dates thereof and
     the results of operations  thereof for the periods then ended and have been
     prepared  in  conformity  with  generally  accepted  accounting  principles
     applied on a consistent basis with prior periods.  The books and records of
     the  Seller  have been and are being  maintained  in  accordance  with good
     business  practice,  reflect  only valid  transactions,  are  complete  and
     correct  in all  material  respects,  and  present  fairly in all  material
     respects the basis for the financial  position and results of operations of
     the Seller set forth in the Seller Financial Statements.


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<PAGE>

     3.7  Absence of Certain  Changes.  Since May 31,  1997,  the Seller has not
(except as may result from the  transactions  contemplated  by this Agreement or
otherwise disclosed in writing to the Purchaser).

          (i)  suffered  any  change in its  business,  results  of  operations,
     working capital, assets,  liabilities or condition (financial or otherwise)
     or the manner of conducting its business other than changes in the ordinary
     course of business that,  individually or in the aggregate,  have not had a
     Material Adverse Effect;

          (ii) suffered any damage or  destruction  to or loss of its assets not
     covered by  insurance,  or any loss of  suppliers,  that has had a Material
     Adverse Effect;

          (iii)  acquired  or  disposed  of any  asset,  or  incurred,  assumed,
     guaranteed  or endorsed  any  indebtedness,  liability  or  obligation,  or
     subjected or permitted to be subjected any material amount of Assets to any
     lien,  claim or encumbrance of any kind,  except in the ordinary  course of
     business or pursuant to agreements in force at the date of this Agreement;

          (iv) forgiven, compromised, canceled, released, waived or permitted to
     lapse any material rights or claims;

          (v) entered into or terminated any material  agreement,  commitment or
     transaction,   or  agreed  or  made  any  changes  in  material  leases  or
     agreements,   other  than  renewals  or  extensions   thereof  and  leases,
     agreements,  transactions  and  commitments  entered  into in the  ordinary
     course of business;

          (vi)  written  up,  written  down or written off the book value of any
     material amount of assets;

          (vii)  increased  the  compensation  of or  paid  any  bonuses  to any
     employees  or  contributed  to any  employee  benefit  plan,  other than in
     accordance with established policies, practices or requirements;

          (viii)  entered  into  any  employment,  consulting,  compensation  or
     collective bargaining agreement with any person or group;

          (ix) entered into, adopted or amended any employee benefit plan; or

          (x)  declared or  distributed  any  dividend in respect of its capital
     stock,  or repurchased any of its capital stock, or paid any management fee
     or similar payment to the Shareholder or its affiliates.


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<PAGE>

     3.8 No Material Undisclosed Liabilities.  There are no material liabilities
or  obligations  of  the  Seller  of  any  nature,  whether  absolute,  accrued,
contingent or otherwise, other than (i) the liabilities and obligations that are
fully  reflected,   accrued,   or  reserved  against  on  the  Seller  Financial
Statements,  for which the reserves are appropriate and reasonable,  or incurred
in the ordinary  course of business and consistent with past practices since May
31, 1997 or (ii)  liabilities  or  obligations  not  required to be disclosed in
financial  statements  prepared in accordance with generally accepted accounting
principles.

     3.9 Tax Liabilities.  The Seller has filed all federal,  state,  county and
local tax returns and reports  required to be filed by it,  including those with
respect  to   income,   payroll,   property,   withholding,   social   security,
unemployment, franchise, excise and sales and use taxes; has either paid in full
all taxes  that have  become  due as  reflected  on any return or report and any
interest and penalties with respect thereto or has fully accrued on its books or
has established adequate reserves for all taxes payable but not yet due; and has
made  required  cash  deposits   with   appropriate   governmental   authorities
representing  estimated  payments of taxes,  including income taxes and employee
withholding  tax  obligations.   No  extension  or  waiver  of  any  statute  of
limitations  has been  granted to or requested by the Seller with respect to any
tax. No unsatisfied  deficiency,  delinquency or default for any tax, assessment
or  governmental  charge has been  assessed (or, to the knowledge of the Seller,
claimed or proposed)  against the Seller,  nor has the Seller received notice of
any such deficiency, delinquency or default.

     3.10 Title to Properties.

          (a) The Seller has good and marketable  fee or leasehold  title to the
     Assets  reflected  in its  books  and  records  as being  owned or  leased,
     including  (except as they have since been affected by  transactions in the
     ordinary  course of business or otherwise  permitted by Purchaser) the real
     and  personal  properties  reflected  in the  Seller  Financial  Statements
     (except for assets subject to financing  leases  required to be capitalized
     under  generally  accepted  accounting  principles,  all  of  which  are so
     reflected in the Seller  Financial  Statements or notes  thereto),  and all
     assets  purchased  by the  Seller  since the date of the  Seller  Financial
     Statements  (except for such assets as have been  disposed of by the Seller
     in the ordinary  course of business or otherwise  permitted by  Purchaser),
     free and clear of any lien,  claim or encumbrance,  except (i) as reflected
     in the Seller Financial  Statements or notes thereto,  (ii) Permitted Liens
     and (iii) arising from the absence of lessor consent  required by the terms
     of any lease.

          (b) (i)  Applicable  zoning  ordinances  permit the  operation  of the
     Business at the Real Estate; (ii) the Seller (or owners of the Real Estate)
     has all  easements  and  rights,  including  easements  for all  utilities,
     services,  roadways  


                                       10

<PAGE>

     and other means of ingress and egress,  necessary to operate the  Business;
     and (iii)  neither  the whole nor any  portion of the Real  Estate has been
     condemned, requisitioned or otherwise taken by any public authority, and no
     notice of any such  condemnation,  requisition or taking has been received;
     except in each case  where the  failure of such  provisions  to be true and
     correct  would  not have a  material  adverse  effect on the  business  and
     operations  of  the   Business.   To  the  Seller's   knowledge,   no  such
     condemnation, requisition or taking is threatened or contemplated and there
     are no pending public  improvements which may result in special assessments
     against or which may otherwise materially and adversely affect the Business
     conducted at Real Estate.  To the knowledge of the Seller,  the Real Estate
     has not been used for deposit or disposal of hazardous wastes or substances
     in violation  of any past or current law in any material  respect and there
     is no material  liability  of the Seller or Business  under past or current
     law with  respect to any  hazardous  wastes or  substances  which have been
     deposited or disposed of on or in the Real Estate.

          (c) The Seller has received no notice of, and has no actual  knowledge
     of, any material violation of any zoning, building, health, fire, water use
     or similar statute,  ordinance,  law, regulation or code in connection with
     the Business conducted at the Real Estate.

          (d) To the knowledge of the Seller, no hazardous or toxic material (as
     hereinafter  defined)  exists in any structure  located on, or exists on or
     under the surface of, the Real  Estate  which is, in any case,  in material
     violation of  applicable  environmental  law. For purposes of this Section,
     "hazardous  or toxic  material"  shall mean  waste,  substance,  materials,
     smoke,  gas  or  particulate  matter  designated  as  hazardous,  toxic  or
     dangerous  under any  environmental  law.  For  purposes  of this  Section,
     "environmental law" shall include the Comprehensive  Environmental Response
     Compensation  and Liability Act, the Clean Air Act, the Clean Water Act and
     any  other  applicable  federal,  state or local  environmental,  health or
     safety  law,  rule or  regulation  relating  to or  imposing  liability  or
     standards  concerning or in connection with  hazardous,  toxic or dangerous
     waste, substance, materials, smoke, gas or particulate matter.

     3.11 Equipment, Inventory, Sample Books, Accounts Receivable.

          (a) All of the equipment included in the Assets viewed as a whole (and
     not on an asset by asset basis) are in good  condition  and working  order,
     ordinary wear and tear and obsolescence excepted, are suitable for the uses
     for which intended, and are free from any known defects,  ordinary wear and
     tear and obsolescence  excepted and except for such minor defects as do not
     substantially interfere with the continued use thereof.


                                       11

<PAGE>

          (b) The inventory included in the Assets (excluding Pre-1995 Inventory
     and "remnants" (i.e., pieces of less than four yards)) is, to the knowledge
     of the  Seller  and  Shareholder,  (i) of good  and  merchantable  quality,
     subject  to such  inventory  reserves  (of not less than  $130,000  for all
     inventories) as are set forth in the Seller  Financial  Statements and (ii)
     valued in the Seller Financial  Statements in accordance with past practice
     of the Seller.

          (c) The accounts  receivable included in the Assets are collectible in
     the  ordinary  course of  business,  subject to such  reserves for doubtful
     accounts as are set forth in the Seller Financial Statements.

          (d) Seller's  sample book spending in 1996 was at least  $689,000.  In
     1997, Seller's sample book spending through June 30 was at least $293,000.

     3.12 Contracts.  Included in part II of Schedule 2 hereto is a complete and
accurate  list of all of the following  categories of contracts and  commitments
(including  summaries of oral contracts) to which the Seller is a party or bound
and which are included in the Assumed Contracts:

          (i)  contracts  with  any  labor  union;  employee  benefit  plans  or
     contracts;  and  employment,  consulting  or similar  contracts,  including
     confidentiality agreements;

          (ii) leases, whether as lessor or lessee; all agreements,  instruments
     of  indebtedness  or commitments  in each case involving  liabilities to be
     assumed  pursuant  to  the  terms  of  this  Agreement;   and  guaranty  or
     suretyship,  performance bond,  indemnification or contribution  agreements
     involving obligations;

          (iii) contracts with third parties that involve aggregate  payments by
     the Seller of more than $25,000;

          (iv) a current  listing  of  purchase  orders or  commitments  for the
     purchase of items of inventory or other personal property;

          (v) insurance policies material to the business of the Seller; and

          (vi) other contracts that are material to the operations,  business or
     financial condition of the Business.

To the extent requested, the Seller has furnished or made available accurate and
complete   copies  of  the  Assumed   Contracts   to   Purchaser.   All  of  the
above-referenced

                                       12

<PAGE>

Assumed Contracts are valid, binding,  subsisting and enforceable obligations of
the Seller.

     3.13 Litigation and Government Claims.  There is no pending suit, action or
litigation,  or administrative,  arbitration or other proceeding or governmental
investigation or inquiry,  to which the Seller is a party or to which its assets
are subject which would, if decided  against the Seller,  individually or in the
aggregate, have a Material Adverse Effect. To the knowledge of the Seller, there
are no such  proceedings  threatened  or  contemplated  which would,  if decided
against the Seller,  individually or in the aggregate,  have a material  adverse
effect  on the  business,  results  of  operations,  assets  or  the  condition,
financial or otherwise, of the Business.

     3.14 No Violations or Defaults.  To the knowledge of the Seller, the Seller
is not in violation of or default under nor has any event  occurred  that,  with
the lapse of time or the giving of notice or both,  would constitute a violation
of or default under, or permit the  termination or the  acceleration of maturity
of,  or  result  in the  imposition  of a lien,  claim or  encumbrance  upon any
property or asset of the Seller  pursuant  to, the articles of  organization  or
bylaws  of the  Seller  or any  loan or  lease  agreement,  other  agreement  or
instrument,  judgment,  order,  injunction  or decree  to which the  Seller is a
party,  by which it is bound,  or to which any of its assets is subject,  except
(i) Material Seller  Agreementswhich  are not Assumed Contracts and which Seller
shall not satisfy or discharge  in full with the  Purchase  Price funds and (ii)
where such violation or default would not have a Material Adverse Effect. To the
knowledge of the Seller,  there are no existing violations of any law applicable
to the Business that have a material adverse effect on the business, operations,
properties, assets or condition of the Business.

     3.15 Labor Matters.

          (a) The Seller is not party to any  collective  bargaining  agreements
     with any union, and no collective  bargaining  agreement is currently being
     negotiated by the Seller.

          (b) There are no  discrimination  charges against the Seller (relating
     to sex, age, race,  national  origin,  handicap or veteran  status) pending
     before any federal or state agency or authority  that is reasonably  likely
     to have a Material Adverse Effect.

          (c) There is no labor strike or similar  material  dispute pending or,
     to the knowledge of the Seller, threatened against or involving the Seller.

          (d) There is no arbitration proceeding under any collective bargaining
     agreement pending or, to the knowledge of the Seller,  threatened involving
     any employees of the Seller.

          (e) For the past two  years,  the Seller has  followed  the  practices
     outlined in its  employee  policy  manuals in all  material  respects  with
     regard to conditions and terms of employment and termination  benefits with
     respect to its employees.


                                       13

<PAGE>

     3.16 Brokers and  Finders.  The Seller has not engaged any person to act or
render services as a broker,  finder or similar  capacity in connection with the
transactions contemplated herein and no person has, as a result of any agreement
or action by the Seller, any right or valid claim against the Seller,  Purchaser
or any of Purchaser's  affiliates for any commission,  fee or other compensation
as a broker  or  finder,  or in any  similar  capacity  in  connection  with the
transactions contemplated herein.

     3.17 No Oral  Representations.  The Purchaser  acknowledges and agrees that
neither  the  Seller  nor  Shareholder  (nor any of their  respective  officers,
directors, affiliates, employees,  representatives or other agents) has made any
oral  representation or warranty with respect to the Seller, the Business,  this
Agreement and/or the transactions contemplated hereby.

4.   REPRESENTATIONS AND WARRANTIES OF PURCHASER.

     Purchaser hereby represents and warrants to the Seller as follows:

     4.1  Organization  and  Good  Standing.  Purchaser  is a  corporation  duly
organized, validly existing and in good standing under the laws of Texas and has
all requisite  corporate power and authority to own and lease its properties and
carry on its business as currently conducted.

     4.2 Due Authorization, Execution and Delivery. Purchaser has full power and
authority  to  enter  into  this  Agreement  and to  carry  out its  obligations
hereunder.  The  execution  and  delivery of this  Agreement  and the  Ancillary
Agreements and the  consummation  of the  transactions  contemplated  hereby and
thereby have been duly authorized by all necessary  corporate action on the part
of Purchaser.  This  Agreement has been duly executed and delivered by Purchaser
and  constitutes  the  legal,  valid  and  binding   obligations  of  Purchaser,
enforceable against it in accordance with its terms, except as may be limited by
applicable  bankruptcy,  insolvency,  reorganization,  moratorium  or other laws
affecting creditors' rights generally or general equitable principles.  From and
after the Closing,  each of the Ancillary  Agreements  will be duly executed and
delivered  by  Purchaser  and will  constitute  the  legal,  valid  and  binding
obligation of Purchaser,  enforceable  against it in accordance  with its terms,
except as may be limited by applicable bankruptcy,  insolvency,  reorganization,
moratorium  or other  laws  affecting  creditors'  rights  generally  or general
equitable principles.


                                       14

<PAGE>

     4.3 No  Violation.  Neither the execution and delivery by Purchaser of this
Agreement or the Ancillary  Agreements nor the  consummation of the transactions
contemplated  hereby or thereby will violate,  breach,  be in conflict  with, or
constitute a default under,  or permit the  termination or the  acceleration  of
maturity of (i) the  Purchaser's  certificate  or articles of  incorporation  or
bylaws, (ii) any note, bond,  indenture,  mortgage,  deed of trust,  evidence of
indebtedness, loan or material lease agreement, other agreement or instrument by
which the Purchaser is bound,  to which it is a party or to which its assets are
subject, or (iii) judgment,  order,  injunction or decree by which the Purchaser
is bound, to which it is a party or to which its assets are subject.

     4.4 Consents. No consent, approval,  authorization,  license, exemption of,
filing or  registration  with any  court,  governmental  authority,  commission,
board,  bureau,  agency or instrumentality,  domestic or foreign, is required by
Purchaser in connection with the execution and delivery of this Agreement or the
Ancillary  Agreements or the consummation by it of any transaction  contemplated
hereby and  thereby.  No approval,  authorization  or consent of any other third
party is required in connection  with the execution and delivery by Purchaser of
this  Agreement  or  the  Ancillary  Agreements,  or  the  consummation  of  the
transactions contemplated hereby and thereby, except as may have been previously
obtained by Purchaser and are in full force and effect.

     4.5 Finders and  Brokers.  The  Purchaser  has not engaged any person other
than  Conrad/Collins  Merchant  Banking Group ("MBG"),  the fees and expenses of
which will be paid by the Purchaser or its affiliates, to act or render services
as a broker,  finder or similar  capacity in  connection  with the  transactions
contemplated  herein  and no  person  (including  MBG)  has,  as a result of any
agreement  or action by the  Purchaser  or any of its  affiliates,  any right or
valid claim against the Seller or any of Seller's affiliates for any commission,
fee or other  compensation as a broker or finder,  or in any similar capacity in
connection with the transactions contemplated herein.

     4.6 No Oral  Representations.  The Seller and  Shareholder  acknowledge and
agree that neither the Purchaser nor any of its officers, directors, affiliates,
employees,  representatives or other agents has made any oral  representation or
warranty with respect to the Purchaser,  this Agreement  and/or the transactions
contemplated hereby.

5.   CERTAIN COVENANTS AND AGREEMENTS.

     5.1 Reasonable Efforts. Each of the Seller, Shareholder and Purchaser shall
take all reasonable action necessary to consummate the transactions contemplated
by this  Agreement  and  will  use all  necessary  and  reasonable  means at its
disposal to obtain all  necessary  consents and  approvals of other  persons and
governmental  authorities  required to enable it to consummate the  transactions
contemplated by this 


                                       15

<PAGE>


Agreement.  Except as otherwise provided herein, each of the Seller, Shareholder
and  Purchaser  acknowledges  and agrees that it shall pay all of its own costs,
fees and  expenses  incurred by it in  obtaining  such  necessary  consents  and
approvals.  Each party  shall make all  filings,  applications,  statements  and
reports to all  governmental  agencies or entities which are required to be made
prior to the Closing Date by or on its behalf  pursuant to any statute,  rule or
regulation in connection with the  transactions  contemplated by this Agreement,
and copies of all such filings,  applications,  statements  and reports shall be
provided to the others.

     5.2 Public Announcements.  Prior to Closing, no party hereto shall make any
announcement to the public, the Seller's or Purchaser's  respective  "trades" or
to the respective  employees,  customers or suppliers of such parties, or to any
federal, state, local or foreign government,  agency or authority,  with respect
to  this   Agreement   and/or   the   transactions   contemplated   hereby   (an
"Announcement")  to which any other such party hereto shall  reasonably  object;
however, Shareholder will be required under the Securities Exchange Act of 1934,
as amended,  to report this Agreement and such transactions,  and such reporting
(to the extent required under such Act) shall be permitted in all events.  Prior
to Closing,  each party shall afford the other parties hereto the opportunity to
review and comment upon each Announcement proposed to be made by it prior to the
release thereof.

     5.3 Ordinary Course of Business.  During the period from the date hereof to
the Closing Date,  unless the prior  consent of Purchaser is first  obtained and
except as may be  required  to obtain  consents  and  approvals  required  under
Section 5.1, the Seller shall not, and the Shareholder shall cause the Seller to
not,  (i)  knowingly  take any  action  which  would  cause  any  representation
contained in Article 3 to be untrue as of the Closing Date,  (ii) enter into any
transaction  with respect to the Business  other than in the ordinary  course of
business,  (iii) permit any encumbrance,  mortgage or pledge on any Asset (other
than Permitted Liens),  (iv) dispose of any material Asset, or (v) except in the
ordinary  course of business,  incur any  liabilities in the category of Assumed
Liabilities not reflected on the Seller Financial Statements.  During the period
from the date hereof to the Closing Date,  unless the prior consent of Seller is
first  obtained and except as may be required to obtain  consents and  approvals
required  under Section 5.1, the Purchaser  shall not knowingly  take any action
which would cause any  representation  contained in Article 4 to be untrue as of
the Closing Date.

     5.4 Employees. Seller will terminate all of its employees as of the Closing
Date and shall assume all liabilities or obligations to such employees  relating
to: (i) any violation by Seller of (or non-compliance by Seller with) the Worker
Adjustment and  Retraining  Notification  Act with respect to "plant  closings,"
(ii) salary and severance  obligations  to such  employees  accrued  through the
Closing Date,  (iii) claims for health care and other benefits  accrued  through
the Closing Date (excluding vacation and sick pay accrued on the Closing Balance
Sheet) and (iv) any failure to provide  health  continuation  coverage,  if any,
required by ERISA to any employees not hired by 


                                       16

<PAGE>


Purchaser.  Seller  acknowledges that Purchaser may elect to offer employment to
certain of such terminated employees on and after the Closing Date.

     5.5 Acquisition  Proposals.  From the date hereof until the Closing Date or
until this  Agreement is terminated or abandoned as provided in this  Agreement,
neither Seller nor  Shareholder  shall,  directly or indirectly,  (i) solicit or
initiate  discussion with or (ii) enter into negotiations or agreements with, or
furnish any information to, any corporation, partnership, person or other entity
or group (other than  Purchaser or its  authorized  representatives  pursuant to
this  Agreement)  concerning  any  proposal  for a merger,  sale of  substantial
assets,  sale of shares of stock or  securities  or other  takeover  or business
combination  transaction involving Seller or the Assets, and each of Shareholder
and Seller will instruct its officers, directors, advisors and its financial and
legal  representatives  and  consultants  not to take any action contrary to the
foregoing provisions of this sentence.

     5.6 Seller  Financial  Statements.  From the date hereof  until the Closing
Date,  Seller  shall  promptly  furnish  to the  Purchaser  copies of all of its
internally prepared unaudited financial  statements for periods on and after May
31, 1997.

     5.7 Seller Name.  Promptly after the Closing,  Shareholder  shall cause the
Seller to change its  corporate  name to a name which does not contain the words
"Payne" or "Fabrics."

     5.8  Confidential  Information.  In the event the Closing  shall not occur,
each  party  and  their  respective  counsel,  accountants,  lenders  and  their
respective  employees,  agents and representatives shall treat in confidence all
confidential  documents and materials and other  confidential  information which
they shall have obtained regarding the other and its respective  business during
the course of the negotiations  leading to the transactions  contemplated hereby
and shall return all copies (including  computer files) of non-public  documents
and materials which have been furnished in connection therewith. Further, in the
event the Closing shall occur, Seller and Seller's counsel, accountants, lenders
and their  respective  employees,  agents  and  representatives  shall  treat in
confidence  all  confidential  documents and  materials  and other  confidential
information which they shall have obtained regarding the Business, the Purchaser
or any affiliate thereof, if obtained at any time insofar as the same relates to
the Business or (as the same  relates to the  Purchaser  or any  affiliate),  if
obtained  during the  course of the  negotiations  leading  to the  transactions
contemplated  hereby, and shall return or destroy all copies (including computer
files) of  non-public  confidential  documents  and  materials  which  have been
furnished in  connection  therewith or which contain or  incorporate  any of the
foregoing.

     5.9  Cooperation.  After the Closing Date,  the Purchaser and Seller shall:
(1) make  available to each other,  as reasonably  requested,  and to any taxing
authority or any accountant or other  authorized  employee  representative,  all
information, records


                                       17

<PAGE>

or documents (i) relating to tax liabilities or potential tax liabilities of the
Seller  and/or  Business for all periods prior to or including the Closing date,
and  (ii)  reasonably  necessary  in  order to  prepare  consolidated  financial
statements  for any period prior to or including the Closing Date, and (2) shall
preserve all such information, records and documents until the expiration of any
applicable  statute  of  limitations  (including  extensions  thereof)  or other
relevant  period.  The  Purchaser  shall not take any action with respect to any
taxes or tax returns which could result in any liability,  payment or obligation
to the Seller or  Shareholder in respect of any taxes owing by the Seller and/or
Business without the prior written consent of Seller. Seller and Purchaser shall
promptly notify Seller in writing of any notice, inquiry, audit,  examination or
other state of fact which could result in any  liability,  payment or obligation
to Seller in respect of any taxes owing by the Seller  and/or  Business.  Seller
shall be  responsible  for any  assessment  of tax for periods up to the Closing
Date,  shall  control any audit or  assessment  process,  and shall bear its own
costs.  Each party shall bear its own expenses in complying  with the  foregoing
provisions.

     5.10  Financing.  Purchaser  has  delivered  to Seller  true,  correct  and
complete  copies of its  commitments to obtain the  financing(s) in order to pay
the entire cash Purchase Price. Any additional  information  requested by Seller
in writing and provided by  Purchaser  with  respect to such  financing(s),  the
sources  thereof and the  Purchaser's  own financial  resources shall be, to the
knowledge of the Purchaser, true, complete and correct in all material respects.
Purchaser  will use its  reasonable  best  efforts  to  comply  (or  will  cause
compliance)  with all  covenants  with respect to, will use its best  reasonable
efforts to satisfy (or cause to be satisfied) all conditions  within its (or its
affiliates)  control to, such  financing(s).  The Purchaser will promptly advise
Seller of any facts,  circumstances  or events  reasonably  likely to prevail or
occur that would grant any such financing source the right to refuse to fund, or
otherwise lead such  financing  source to refuse to be or be unable to fund, the
financing(s) committed to by such source(s).

     5.11 Ohio Real Estate  Lease.  Purchaser  agrees from and after the Closing
Date to assume all  expenses of the tenant (on a "triple  net basis")  under the
lease for the Seller's Kettering, Ohio facility for the 90 day period referenced
in Section 6.6, including rent, utilities,  insurance,  taxes and other expenses
chargeable to tenant  thereunder  (but excluding any lease  termination  fees or
fees  paid  for  consents  to the  transactions  contemplated  hereby).  Nothing
contained  herein shall require  Purchaser to enter into any sublease or similar
arrangement with the landlord of such real estate.

6.   CONDITIONS TO PURCHASER'S CLOSING.

     All  obligations of Purchaser  under this Agreement shall be subject to the
fulfillment  at or prior to the Closing of the  following  conditions,  it being
understood that Purchaser may, in its sole discretion,  waive any or all of such
conditions in whole or in part:


                                       18

<PAGE>

     6.1  Representations,  Etc. The Seller shall have performed in all material
respects the covenants and agreements contained in this Agreement that are to be
performed  by it at or  prior  to  the  Closing,  and  the  representations  and
warranties of the Seller  contained in this Agreement  shall be true and correct
in all  material  respects as of the Closing Date with the same effect as though
made at such time (except as contemplated or permitted by this  Agreement).  The
Seller shall have  executed  and  delivered to the  Purchaser a  certificate  or
certificates certifying its compliance with the foregoing, in form and substance
satisfactory to the Purchaser.  Notwithstanding the foregoing sentence: (i) from
time to time on or prior to the  Closing,  the  Seller  shall  be  permitted  to
deliver to Purchaser  information  which changes,  modifies or  supplements  the
representations  and warranties set forth in Section 3 because of the occurrence
or non-occurrence of any event, or any circumstance  arising,  after the date of
this  Agreement;  (ii) upon such delivery such  representations  and  warranties
shall deemed to be amended by such information,  and (iii) if, in the reasonable
judgment  of  Purchaser,   such  event(s)  or  circumstance(s)  results  in  the
incurrence  of  additional  losses,  claims,  expenses  or  liabilities  to  the
Purchaser for which Seller or  Shareholder  has not made adequate  provision for
payment,  then the condition  stated in the second  sentence of this Section 6.1
shall be deemed not to have been satisfied.  If, notwithstanding (x) any failure
of such  condition  as  provided in the  foregoing  clause  "(iii)",  or (y) any
misrepresentation  on the part of the Seller as to which  Purchaser has received
written notice (such notice specifically noting the section(s) of this Agreement
as to which  there  has been a  misrepresentation)  from or on  behalf of Seller
prior to the Closing,  Purchaser proceeds with the Closing, then such failure of
condition and/or such misrepresentation (as the case may be) shall be deemed for
all purposes to be waived.

     6.2  Consents.  All  consents  and  approvals  required to  consummate  the
transactions  contemplated  by this Agreement  shall have been obtained  without
material cost or other materially adverse  consequence to Purchaser and shall be
in full force and effect.

     6.3 No Adverse Litigation. No order or temporary,  preliminary or permanent
injunction or restraining  order shall have been entered and no action,  suit or
other legal or administrative proceeding by any court or governmental authority,
agency or other person shall be pending or  threatened on the Closing Date which
may have the effect of (i) making any of the  transactions  contemplated  hereby
illegal,  (ii) materially  adversely  affecting the value of the Assets or (iii)
making Purchaser or its officers, directors or affiliates liable for the payment
of damages to any person.

     6.4  Inventory  Due  Diligence  Investigation.  Purchaser's  due  diligence
investigation  of the Business  shall not have  revealed any matters  materially
adverse to Purchaser  regarding the condition,  age or value of the inventory of
the Business.


                                       19

<PAGE>

     6.5 Financing.  Purchaser shall have obtained the financing(s)  referred to
in Section 5.10 hereof;  provided,  however, that this condition shall be deemed
to be satisfied if such  financing  shall not have been obtained due to a breach
by Purchaser of Section 5.10.

     6.6 Ohio Real Estate.  The landlord of the real estate  leased by Seller in
Kettering,  Ohio shall have agreed to permit Purchaser to access and occupy such
facilities  for a period of 90 days from the Closing  Date at a monthly  cost to
Purchaser equal to the monthly cost presently incurred by Seller for such space.

     6.7 Closing Deliveries. Purchaser shall have received each of the documents
or items required to be delivered to it pursuant to Section 8.1 hereof.

7.   CONDITIONS TO SELLER'S CLOSING.

     All  obligations of the Seller under this Agreement shall be subject to the
fulfillment  at or prior to the Closing of the  following  conditions,  it being
understood that the Seller may, in its sole discretion, waive any or all of such
conditions in whole or in part:

     7.1  Representations,  Etc.  Purchaser shall have performed in all material
respects the covenants and agreements contained in this Agreement that are to be
performed by Purchaser as of the Closing, and the representations and warranties
of  Purchaser  contained  in this  Agreement  shall be true and  correct  in all
material  respects as of the Closing Date with the same effect as though made at
such time (except as contemplated or permitted by this Agreement).

     7.2  Consents.  All  consents  and  approvals  required to  consummate  the
transactions  contemplated  by this Agreement  shall have been obtained  without
material cost or other materially adverse  consequence to Seller and shall be in
full force and effect.

     7.3 No Adverse Litigation. No order or temporary,  preliminary or permanent
injunction or restraining  order shall have been entered and no action,  suit or
other legal or administrative proceeding by any court or governmental authority,
agency or other person shall be pending or  threatened on the Closing Date which
may have the effect of (i) making any of the  transactions  contemplated  hereby
illegal,  or (ii)  making the  Seller,  Shareholder  or any of their  respective
officers,  directors  or  affiliates  liable  for the  payment of damages to any
person.

     7.4 Consulting Agreement The Purchaser shall have entered into a consulting
agreement  with  Seller  in the  form  of  Exhibit  B  hereto  (the  "Consulting
Agreement").


                                       20

<PAGE>

     7.5  Closing  Deliveries.  The  Seller  shall  have  received  each  of the
documents or items required to be delivered to it pursuant to Section 8.2.

8.   DOCUMENTS TO BE DELIVERED AT CLOSING.

     8.1 To Purchaser. At the Closing, there shall be delivered to Purchaser:

          (a)  The  bills  of  sale,   agreements  of  assignment   and  similar
     instruments of transfer to the Assets contemplated by Section 2.3 hereof.

          (b) A certificate, signed by an executive officer of Seller, as to the
     fulfillment of the conditions set forth in Sections 6.1 through 6.3 hereof.

          (c) The Ancillary Agreements.

          (d) All other items reasonably requested by Purchaser.

     8.2 To Seller. At the Closing, there shall be delivered to the Seller:

          (a) The cash Purchase Price contemplated by Section 2.1 hereof, in the
     form of wire  transfer or cashier's  or  certified  check as the Seller may
     direct;

          (b) A certificate,  signed by an executive officer of Purchaser, as to
     the fulfillment of the conditions set forth in Sections 7.1 and 7.2 hereof.

          (c) An assumption  agreement  pursuant to which Purchaser shall assume
     the Assumed Liabilities.

          (d) The Ancillary Agreements.

          (e) All other items reasonably requested by the Seller.

9.   SURVIVAL.

     All representations, warranties, covenants and agreements made by any party
to this Agreement or pursuant  hereto shall be deemed to be material and to have
been relied upon by the parties hereto and shall survive the Closing;  provided,
however,  that  notice of any  claim,  whether  made  under the  indemnification
provisions hereof or otherwise, based on a breach of a representation, warranty,
covenant or  agreement  must be given within one year from the Closing Date (two
years from the Closing Date with  respect to the  covenant  contained in Section
5.4).  The  representations  and warranties  hereunder  shall not be affected or
diminished  by any  investigation  at any time by or on  behalf of the party for
whose benefit such  representations  and  warranties  were made.  All statements
contained  herein  or in  any  certificate,  exhibit,


                                       21

<PAGE>

list or other  document  delivered  pursuant  hereto or in  connection  with the
transactions  contemplated  hereby  shall be  deemed to be  representations  and
warranties. No representation or warranty contained herein shall be deemed to be
made at any time after the date of this  Agreement or, if made in a certificate,
the date of such certificate.

10.  INDEMNIFICATION OF PURCHASER.

     Subject to the  limitations  set forth in Sections 9 and 12, the Seller and
the Shareholder,  jointly and severally, shall, from and after the Closing Date,
indemnify and hold Purchaser harmless from, against, for and in respect of:

          (a) any and all damages,  losses,  settlement  payments,  obligations,
     liabilities, claims, actions or causes of action and encumbrances suffered,
     sustained,  incurred  or required  to be paid by  Purchaser  because of the
     breach of any written  representation,  warranty,  agreement or covenant of
     the Seller  contained in this  Agreement or any  document,  certificate  or
     agreement executed in connection with this Agreement;

          (b) any and all non-Assumed Liabilities of Seller; and

          (c) all reasonable costs and expenses (including,  without limitation,
     attorneys'  fees,   interest  and  penalties)   incurred  by  Purchaser  in
     connection  with  any  action,  suit,  proceeding,  demand,  assessment  or
     judgment incident to any of the matters indemnified against in this Section
     10.

11.   INDEMNIFICATION OF SELLER.

     Subject to the limitations set forth in Sections 9 and 12, Purchaser shall,
from  and  after  the  Closing  Date,  indemnify  and hold  the  Seller  and the
Shareholder harmless from, against, for and in respect of:

          (a) any and all damages,  losses,  settlement  payments,  obligations,
     liabilities, claims, actions or causes of action and encumbrances suffered,
     sustained,  incurred or  required  to be paid by the Seller  because of the
     breach of any written  representation,  warranty,  agreement or covenant of
     Purchaser  contained in this  Agreement  or any  document,  certificate  or
     agreement executed in connection with this Agreement;

          (b) any and all liabilities,  obligations,  claims and demands arising
     out of the ownership and operation of the Business on and after the Closing
     Date,  except to the extent the same  arises  from a breach of any  written
     representation,  warranty, agreement or covenant of the Seller contained in


                                       22

<PAGE>

     this  Agreement  or any  document,  certificate  or  agreement  executed in
     connection with this Agreement;

          (c) any of the Assumed Liabilities; and

          (d) all reasonable costs and expenses (including,  without limitation,
     attorneys'  fees,  interest  and  penalties)  incurred  by  the  Seller  in
     connection  with  any  action,  suit,  proceeding,  demand,  assessment  or
     judgment incident to any of the matters indemnified against in this Section
     11.

12.   GENERAL RULES REGARDING INDEMNIFICATION.

     The obligations and liabilities of each  indemnifying  party hereunder with
respect to claims resulting from the assertion of liability by the third parties
shall be subject to the following terms and conditions:

          (a) The  indemnified  party shall give prompt written notice (which in
     no event shall exceed 30 days from the date on which the indemnified  party
     first became aware of such claim or assertion) to the indemnifying party of
     any claim which might give rise to a claim by the indemnified party against
     the  indemnifying  party based on the  indemnity  agreements  contained  in
     Section 10 or 11 hereof,  stating  the nature and basis of said  claims and
     the amounts thereof, to the extent known;

          (b)  If  any  action,  suit  or  proceeding  is  brought  against  the
     indemnified  party with  respect to which the  indemnifying  party may have
     liability  under the  indemnity  agreements  contained  in Section 10 or 11
     hereof,  the indemnifying party shall have the right to control the defense
     (including  all  proceedings  on appeal or for review which counsel for the
     indemnified party shall deem appropriate) of the action, suit or proceeding
     shall, upon the written acknowledgment by the indemnifying party that it is
     obligated to indemnify  under such  indemnity  agreement.  The  indemnified
     party shall have the right to employ its own counsel in any such case,  but
     the fees and expenses of such counsel shall be at the  indemnified  party's
     own expense  unless (A) the  employment  of such counsel and the payment of
     such fees and  expenses  both shall have been  specifically  authorized  in
     writing by the  indemnifying  party in connection  with the defense of such
     action, suit or proceeding,  or (B) counsel to such indemnified party shall
     have reasonably concluded and specifically  notified the indemnifying party
     that there may be specific  defenses  available  to it which are  different
     from or additional  to those  available to the  indemnifying  party or that
     such  action,  suit or  proceeding  involves  or could have an effect  upon
     matters beyond the scope of the indemnity  agreements contained in Sections
     10 and 11 hereof.  In the latter  such case only that  portion of such fees
     and expenses of the indemnified party's separate counsel reasonably


                                       23

<PAGE>

     related to matters covered by the indemnity agreements contained in Section
     10 or 11 hereof shall be borne by the  indemnifying  party. The indemnified
     party shall be kept fully  informed of such action,  suit or  proceeding at
     all stages thereof whether or not it is represented by separate counsel.

          (c) The  indemnified  party shall make  available to the  indemnifying
     party and its  attorneys  and  accountants  all books  and  records  of the
     indemnified  party  relating  to such  proceedings  or  litigation  and the
     parties  hereto agree to render to each other such  assistance  as they may
     reasonably require of each other in order to ensure the proper and adequate
     defense of any such action, suit or proceeding.

          (d) Neither the  indemnified  party nor the  indemnifying  party shall
     make any settlement of any claims without the written  consent of the other
     such party, which consent shall not be unreasonably withheld or delayed.

          (e) If any claims  are made by third  parties  against an  indemnified
     party for which an  indemnifying  party  would be  liable,  and it  appears
     likely that such claims  might also be covered by the  indemnified  party's
     insurance  policies,  the indemnified party shall make a timely claim under
     such  policies and to the extent that such party  obtains any recovery from
     such insurance,  such recovery shall be offset against any sums due from an
     indemnifying  party (or shall be  repaid  by the  indemnified  party to the
     extent that an indemnifying  party has already paid any such amounts).  The
     parties acknowledge,  however, that if an indemnified party is self-insured
     as to any matters,  either  directly or through an insurer  which  assesses
     retroactive premiums based on loss experience,  then to the extent that the
     indemnified   party  bears  the  economic  burden  of  any  claims  through
     self-insurance   or  retroactive   premiums  or  insurance   ratings,   the
     indemnifying  party's  obligation  shall only be  reduced by any  insurance
     recovery  in excess  of the  amount  paid or to be paid by the  indemnified
     party in insurance premiums.

          (f) No indemnified  party shall make any claim unless and until it has
     incurred  indemnified  losses,  damages  and  expenses  in  the  cumulative
     aggregate  amount of  $10,000,  and then only in respect of the excess over
     such $10,000 minimum.

          (g) No party hereto shall have any liability to any other party hereto
     for any punitive,  consequent,  incidental or special  damages by virtue of
     any breach of any  representation,  warranty,  covenant or  agreement in or
     pursuant to this Agreement or any other agreement, instrument,  certificate
     or other document  executed and delivered  pursuant hereto or in connection
     herewith or the transactions contemplated hereby.


                                       24

<PAGE>

          (h) Each party  hereto  agrees  that the sole  liability  of any other
     party  hereto for any claim with respect to the  transactions  contemplated
     under this  Agreement  from and after the Closing  Date shall be limited to
     indemnification  under Sections 10, 11 and 12; provided,  however, that the
     foregoing  shall not be deemed to prohibit or restrict the  availability of
     any equitable remedies (including specific performance) in the event of any
     "Default" described in Section 13 (or in any provision of this Agreement or
     other document which specifically contemplates the availability, or permits
     the exercise, of equitable remedies (including specific performance)).

          (i) In the event that  Seller  indemnifies  Purchaser  in respect of a
     claim for  indemnification  under Section 10(a) in connection with a breach
     of Section  3.11(c) with respect to any accounts  receivable of the Seller,
     then the Purchaser shall promptly assign (without recourse,  representation
     or warranty) the relevant  receivable or receivables to (or as directed by)
     the Seller, but only to the extent of the amounts actually paid by Seller.

          (j) To the extent  that funds are  available  for such claim under the
     Escrow  Agreement,  Purchaser  shall  make a claim  against  such funds (in
     accordance with the terms and conditions of the Escrow  Agreement) in order
     to satisfy a claim for indemnification permitted under this Agreement.

13.  DEFAULT; REMEDIES.

     In the event that the  Closing is not  consummated  by virtue of a material
default  made by the Seller or  Purchaser  in the  observance  or in the due and
timely  performance  of any of its  covenants  or  agreements  herein  contained
("Default"),  the non-Defaulting party shall be entitled to specific performance
of Sections 1, 2, 5, 6, 7, and 8 of this  Agreement.  In the event that specific
performance is not available, the non-Defaulting party shall be entitled to such
other remedies as are available at law or in equity.

14.  TERMINATION PRIOR TO CLOSING

     This Agreement may be terminated by either  Purchaser or the Seller (as set
forth below), if either such party is not then in Default upon written notice to
the other upon the occurrence of any of the following:

          (a) By the non-Defaulting  party, if the other party Defaults and such
     Default has not been cured within 30 days of written notice of such Default
     by the other party;

          (b) By mutual consent of the Seller and the Purchaser; or


                                       25

<PAGE>

          (c) If the Closing has not occurred on or before August 7, 1997.

15.  MISCELLANEOUS PROVISIONS.

     15.1 Expenses.  Except as otherwise  expressly provided herein,  each party
shall  pay  the  fees  and  expenses  incurred  by it  in  connection  with  the
transactions contemplated by this Agreement. If any action is brought for breach
of this Agreement or to enforce any provision of this Agreement,  the prevailing
party  shall be  entitled  to recover  court  costs,  arbitration  expenses  and
reasonable attorneys' fees.

     15.2 Prorations. All items of income and expense arising from the operation
of the Business  with respect to the Assets and the Assumed  Liabilities  before
the Closing Date shall be for the account of the Seller and thereafter  shall be
for the account of the Purchaser.

     15.3  Amendment.  This  Agreement may be amended at any time but only by an
instrument in writing signed by the parties hereto.

     15.4 Notices.  All notices and other  communications  hereunder shall be in
writing and shall be deemed  given to the  receiving  party or  parties:  (x) if
mailed  by  certified  mail,  return  receipt  requested,   five  business  days
thereafter,  (y) if sent by nationally  recognized  "next-day" delivery service,
the next business day thereafter, and (z) if personally delivered or telecopied,
the day thereof (or, if not a business day, the next business day thereafter) if
addressed  or sent to the  telecopy  number  set forth  below (or at such  other
address ro  telecopy  number for a party as shall be  specified  by like  notice
hereunder):

If to the Seller:

     c/o Bell  National  Corporation
     4209  Vineland  Road,  Suite J-1
     Orlando, Florida 32811 
     Attention: President 
     Fax: 407-849-0625

If to the Purchaser:

     1000 Fountain Parkway
     Grand Prairie, Texas 75050
     Attention: Floyd W. Collins, Chief Executive Officer
     Fax: 800-527-2517

     15.5  Assignment.  This  Agreement  shall be binding  upon and inure to the
benefit  of the  parties  hereto  and  their  respective  successors,  heirs and
permitted  


                                       26

<PAGE>

assigns.  The parties hereto acknowledge and agree that Purchaser may assign, in
whole or in part, its rights and obligations hereunder to its parent corporation
(Westgate Acquisition  Corporation) or another entity controlled by, controlling
or under common control with, Purchaser and such affiliated corporation shall be
deemed the "Purchaser"  pursuant hereto;  provided,  however, if such assignment
occurs,  Westgate  Fabrics,  Inc. will continue to have ultimate  responsibility
for, and will guarantee  performance of, all  obligations,  representations  and
duties  contained  herein and shall  guarantee the  obligations of such assignee
hereunder.

     15.6  Counterparts.  This  Agreement  may  be  executed  in any  number  of
counterparts,  each of  which  shall be  deemed  an  original,  but all of which
together shall constitute one and the same instrument.

     15.7 Headings.  The headings of the Sections of this Agreement are inserted
for convenience only and shall not constitute a part hereof.

     15.8 Entire Agreement.  This Agreement and the documents referred to herein
contain the entire understanding of the parties hereto in respect of the subject
matter  contained  herein.  There  are no  restrictions,  promises,  warranties,
conveyances or undertakings  other than those  expressly set forth herein.  This
Agreement supersedes any prior agreements and understandings between the parties
with respect to the subject matter.

     15.9  Waiver.  No  attempted  waiver of  compliance  with any  provision or
condition  hereof,  or consent  pursuant to this  Agreement,  will be  effective
unless  evidenced  by an  instrument  in writing by the party  against  whom the
enforcement of any such waiver or consent is sought.

     15.10  Bulk  Sales.  The  Purchaser  hereby  waives   compliance  with  all
applicable  bulk  sales  laws  (if  any) in  connection  with  the  transactions
contemplated hereby.

     15.11  Governing Law. This Agreement  shall be governed by and construed in
accordance with the laws of the State of Texas.

     15.12 Intended Beneficiaries.  The rights and obligations contained in this
Agreement  are  hereby  declared  by the  parties  hereto to have been  provided
expressly  for the  exclusive  benefit of such  entities as set forth herein and
shall not benefit, and do not benefit, any unrelated third parties.

     15.13 Mutual Contribution.  The parties to this Agreement and their counsel
have mutually  contributed to its drafting.  Consequently,  no provision of this
Agreement  shall be  construed  against  any party on the ground that such party
drafted the  provision  or caused it to be drafted or the  provision  contains a
covenant of such party.


                                       27

<PAGE>

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

                                         PAYNE FABRICS, INC.


                                         By:/s/ Thomas R. Druggish
                                            ------------------------------------



                                         BELL NATIONAL CORPORATION


                                         By:/s/ Thomas R. Druggish
                                            ------------------------------------



                                         WESTGATE FABRICS, INC.


                                         By:/s/ Floyd W. Collins
                                            ------------------------------------


                                       28

<PAGE>


                                                                      Schedule 1

                                 Excluded Assets


1.   The  following  properties  of  Affiliates  of  the  Seller  in  use at its
     facilities:

         o   One Dell Latitude LM & Accessories
         o   One Compaq LTE 386s/20 & Accessories
         o   One Winbook XP & Accessories
         o   Two Canon BJ-30 Printers & Accessories

2.   Seller's corporate seal, minute books,  charter documents,  corporate stock
     record books and other books and records  that pertain to the  organization
     or Seller

3.   All cash and cash equivalents


<PAGE>

                                                                      Schedule 2

                               Assumed Liabilities


I.   Categories of Assumed Liabilities

         a.   Trade accounts payable
         b.   Open purchase orders
         c.   Customer deposits
         d.   Accrued expenses
         e.   Customer return obligations
         f.   Employee vacation and sick pay


II.  Assumed Contracts
<TABLE>
<CAPTION>
<S>                          <C>                                           <C>
Name                         Description                                   Expiration

1.  Wells Fargo              Dayton building security system               30 day notice
2.  IBM                      Mainframe computer                            9/30/95 (est.)
3.  Dempsey Waste            Garbage collection                            1/1/97 (est.)
    System
4.  UPS                      Shipping
5.  Miami Valley Office      Fax Maintenance - Panafax (serial             30 days notice
    Products                 number 02940600545)
6.  Telecorp                 Telephone maintenance                         Annual
7.  Scoville                 Sample book fastener rental
8.  USA Mobile               Pagers                                        4/1/97
    Communications
9.  AT&T Dallas              Dallas showroom phone
10. Centel Lease             Telecommunications software
11. GE Capital               Auto leases
12. Roadway Express          Freight Discount Agreement
13. Smith Transfer           Freight Agreement
14. Bank One                 Credit card merchant agreement                30 day notice
15. Arch Pagin               Gary Murphy & Bill Arden Pagers
16. Pitney Bowes             Postage Meter Rental, quarterly
17. Panasophic               Easytrieve software license agreement         None
18. Ameritech                Ohio Yellow Pages
19. NY Showroom lease        NY Showroom (requires Letter of               12/31/03
                             Credit or security deposit of $26,250)
20. Dallas Showroom lease    Dallas showroom                               7/31/98
21. Atlanta Showroom         Atlanta showroom                              6/30/97 (possibly
    lease                                                                  extended month
                                                                           to month at 150%
                                                                           of current rent)

<PAGE>

22. Marion Kent, Ltd. d.b.a  High Point, NC Agent Representative           30 day notice
    Altizer Cole Inc.        Agreement
23. Davison, George &        Boston, MA Agent Representative               60 day notice
    Frances                  Agreement
24. Dean-Warren, Ltd.        Scottsdale, AZ Agent Representative           90 day notice
                             Agreement
25. Decorators Walk          Los Angeles, CA Agent Representative          120 day notice
                             Agreement
26. Decorators Walk          San Francisco, CA Agent                       60 day notice
                             Representative Agreement
27. Designers Showroom       Seattle, WA Agent Representative              30 day notice
                             Agreement
28. Hines & Company          Washington, DC Agent Representative           Not Signed
                             Agreement, implied agreement has run
                             3 years. See new proposed agreement
                             below.
29. Hines & Company          Washington, DC Agent Representative           60 day notice
                             Agreement, new agreement signed by
                             Payne awaits their signature
30. J.T. Hooker Showroom     Denver, CO Agent Representative               60 day notice
                             Agreement
31. Interior Trading         Tampa, FL Agent Representative                60 day notice
    Company, Inc.            Agreement
32. J.W. Showroom, Inc.      Philadelphia, PA Agent Representative         90 day notice
                             Agreement
33. Lee Lawrence, Ltd.       San Diego, CA Agent Representative            60 day notice
                             Agreement. See new Laguna Nigel
                             agreement below.
34. Lee Lawrence, Ltd.       Laguna Nigel, CA Agent Representative         60 day notice
                             Agreement, new agreement signed by
                             Payne awaits their signature
35. Maximilian International New Orleans, LA Agent Representative          120 day notice
    Showrooms                Agreement
36. Pacific Home             Honolulu, HI Agent Representative             30 day notice
    Furnishings              Agreement
37. Jeffrey Michael          Dania (Miami), FL Agent Representative        90 day notice
    Showroom                 Agreement                                     after 2/5/98
38. Gene Smiley Inc.         Minneapolis, MN Agent Representative          30 day notice
                             Agreement
39. Thybony Wallcoverings    Troy (Detroit), MI Agent Representative       120day notice
                             Agreement
40. Thybony Wallcoverings    Chicago, IL Agent Representative              30 day notice
                             Agreement
41. TradeMarks, Inc.         Houston, TX Agent Representative              120 day notice
                             Agreement
42. TradeMarks, Inc.         Houston, TX Agent Representative              30 day notice
                             Agreement, new agreement signed by
                             Payne awaits their signature.

                                                  2

<PAGE>

43. Bailey Showroom          Kansas City Affiliate Showroom                120 day notice
                             Agreement
44. Central Products d.b.a.  Oklahoma City Affiliate Showroom              No contract
    Designer's Works         Discount on fabric
45. Charlotte Designer's     Charlotte Affiliate Showroom                  60 day notice
    Showroom                 Agreement
46. Chicago Design Team      Itasca, IL Affiliate Showroom Agreement       30 day notice
47. DSR Design Group Inc.    Carmel, IN Affiliate Showroom                 120 day notice
                             Agreement
48. Design Extension         Tulsa, OK Affiliate Showroom                  No contract
                             Discount on fabric
49. Design Resource Inc.     Baton Rouge, LA Affiliate Showroom            No contract
                             Discount on fabric
50. Wholesale Accessories,   Birmingham, AL Affiliate Showroom             90 day notice
    Inc. d.b.a. Designers    Agreement
    Studio Resource
51. Josin Fabrics            Omaha, NE Affiliate Showroom                  No contract
                             Discount on fabric
52. Josin Fabrics            Lincoln, NE Affiliate Showroom                No contract
                             Discount on fabric
53. KBK, Inc.                San Antonio, TX Affiliate Showroom            Not signed, 30
                             Agreement                                     day notice
                                                                           implied
54. Larry's Inc.             Little Rock, AR Affiliate Showroom            120 day notice
                             Agreement
55. Laurco Fabrics Inc.      Wichita, KS Affiliate Showroom                No contract
                             Discount on fabric
56. Monroe & Associates      Beechwood, OH Affiliate Showroom              120 day notice
                             Agreement
57. Prade Inc.               Milwaukee, WI Affiliate Showroom              No contract
                             Discount on fabric
58. To The Trade             St. Louis, MO Affiliate Showroom              30 day notice
                             Agreement, proposed agreement would
                             become effective 7/1/97 subject to both
                             signatures
59. Showplace of Design      Austin, TX Affiliate Showroom                 No contract
                             Discount on fabric
60. Singer Showroom          Cincinnati, OH Affiliate Showroom             60 day notice
                             Agreement
61. Statements               Des Moines, IA Affiliate Showroom             No contract
                             Discount on fabric
62. Villa Decor Resource     Orlando, FL Affiliate Showroom                120 day notice
    Center Inc.              Agreement
63. Villa Decor Resource     Orlando, FL Affiliate Showroom                30 day notice
    Center, Inc.             Agreement, proposed agreement
                             awaits their signature
64. Coralys Designs          Puerto Rico Foreign Affiliate Showroom        No contract
                             Discount on fabric

                                                  3

<PAGE>

65. I.F.T. Design Centre     Calgary Alberta Canada Foreign Affiliate      60 day notice
                             Showroom Agreement
66. AnneStarr Agencies       Vancouver British Columbia Canada             60 day notice
                             Foreign Affiliate Showroom Agreement
67. Tissa, Inc.              Montreal Quebec Canada Foreign                60 day notice
                             Affiliate Showroom Agreement
68. Tissa, Inc.              Toronto Canada Foreign Affiliate              60 day notice
                             Showroom Agreement
69. Unidad Textile Puente    Mexico City & Guadalajara, Mexico             60 day notice
                             Foreign Affiliate Showroom Agreement
70. Names & Marks, Inc.      Royalty Agreement Payable (8%) on
                             product sales
71. British National Trust   Royalty Agreement Payable (6%) on
                             product sales
72. Jane Albert Studio       Royalty Agreement Payable (5%) on
                             product sales
73. AnneStarr/WD Western     Royalty Agreement Payable (5%) on
    Design Upholstry         product sales
74. Jeff Jump                NC, SC & TN Independent Selling               30 day notice
                             Agent Agreement
75. Sardia, S.A.             Asian Pacific Rim Independent Selling         Not signed
                             Agent Agreement
76. George Young             Employment Contract
77. Corporate Care           Health Insurance Program
    Providers
78. Insurance Contracts
</TABLE>

                                                  4

<PAGE>

                                                                       Exhibit A



                              [See Exhibit 2.4]



<PAGE>

                                                                       Exhibit B

                              CONSULTING AGREEMENT

     This  Consulting  Agreement  ("Agreement")  entered  into  this ____ day of
___________,  1997, by and between Westgate  Fabrics,  Inc., a Texas corporation
(the "Company"), and Payne Fabrics, Inc. ("Consultants").

     For good and valuable  consideration,  the receipt and sufficiency of which
are hereby acknowledged,  the parties to this Agreement do covenant and agree as
follows:

     1. Consulting Services.  During the term of this Agreement, the Consultants
will be reasonably  available from time to time for  consultation on the subject
of  integrating  the  operations  of Payne  Fabrics,  Inc.  into the Company and
advising  the Company  regarding  such  operations.  At the  Company's  request,
Consultants  shall be available  to perform  consulting  services as  reasonably
requested by the Company.  Consultants may assign all or a portion of the rights
and obligations  hereunder to Bell National  Corporation,  Cadmus Corporation or
any of their respective affiliates.

     2. Term. The term of the  Consultants'  performance of consulting  services
under this  Agreement  shall  commence on the date hereof and continue for three
months from the date hereof.

     3.  Compensation.  The  Company  shall  pay to the  Consultants  the sum of
$60,000, payable at the rate of $20,000 per month payable in arrears.

     4.  Enforceability.  All  provisions  of this  Agreement are intended to be
interpreted  and construed in a manner making such provisions  valid,  legal and
enforceable.  In the event any provision of this Agreement or portion thereof is
found to be  wholly  or  partially  invalid,  illegal  or  unenforceable  in any
judicial proceeding, such provision shall be deemed to be modified or restricted
to the extent necessary to make such provision valid, legal and enforceable.  In
the event  such  provision  or any  portion  thereof  cannot be so  modified  or
restricted, such provision or portion thereof shall be deemed to be excised from
this Agreement and the validity, legality and enforceability of the remainder of
this Agreement shall not be affected or impaired in any manner.

     5.  Successors  and  Assigns.  This  Agreement  shall bind and inure to the
benefit of the parties hereto and their respective successors and assigns.

     6. Amendment.  This Agreement may be amended, modified or supplemented only
by a written  instrument  signed by the party  against whom  enforcement  of any
amendment, modification or supplement is sought.


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     7. Governing Law. This Agreement  shall be governed by and construed  under
and enforced in  accordance  with the laws of the State of Texas,  excluding the
conflict of laws provisions of such jurisdiction.

     IN WITNESS WHEREOF,  the parties have executed this Agreement as of the day
and year first above written.

                                             WESTGATE FABRICS, INC.


                                             By:________________________________


                                             PAYNE FABRICS, INC.


                                             By:________________________________


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