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                         HOME DIRECTOR SERVICE AGREEMENT


         THIS AGREEMENT  ("AGREEMENT") is made as of the 17th day of April, 2003
         (the "EFFECTIVE  DATE"),  by and between Sears,  Roebuck and Co., a New
         York  corporation  with its  principal  office  at 3333  Beverly  Road,
         Hoffman  Estates,   Illinois,  for  itself  and  its  agents,  assigns,
         subsidiaries and affiliates (collectively,  "SEARS"), and Home Director
         Inc., a corporation  with its principal  office at 2525 Collier  Canyon
         Road, Livermore,  CA, for itself and its agents, assigns,  subsidiaries
         and affiliates (collectively, "HOME DIRECTOR"). Sears and Home Director
         shall   collectively  be  referred  to  herein  as  the  "PARTIES"  and
         individually as a "PARTY".

         WHEREAS,  the Parties  entered  into a Pilot  Agreement  dated June 27,
         2002,  to market  and sell Home  Networking  Systems  (as  defined  the
         Exhibits) and Services (as defined herein), to builders of new homes in
         metropolitan areas,  ("BUILDERS"),  and new homeowners,  ("HOMEOWNERS")
         who utilize the services of Builders to build their homes.

         WHEREAS,  the Parties seek to enter into a definitive  agreement  where
         Sears desires Home Director to supply Home Networking  Systems to Sears
         and to those designated by Sears including,  contractors  authorized by
         Sears,  ("AUTHORIZED  INTEGRATORS")  as  identified  by  Sears  to Home
         Director  throughout the term of this  Agreement,  and Home Director is
         willing to and able to provide the  requested  products and services in
         accordance with the terms and conditions of this Agreement.

         NOW THEREFORE, it is mutually agreed as follows:

1.       TERM

         The term of this  Agreement  shall  commence on the Effective  Date and
         shall continue in full force for two (2) years from the Effective Date;
         provided,  however,  either  Party  hereto  shall  have  the  right  to
         terminate  this  Agreement at anytime  during the term,  without cause,
         without  penalty and without  liability  for any damages as a result of
         such  termination,  by giving to the other  party at least one  hundred
         twenty  (120)  days  prior  written  notice  of  termination.  Any such
         termination shall not relieve Home Director of obligations  accepted by
         Home Director prior to such  termination or Sears' payment  obligations
         for such services.

2.       RESPONSIBILITIES OF HOME DIRECTOR

         2.1 SALE OF PRODUCTS.  Home Director  agrees to supply the standard and
         custom Home Networking Systems,  (the "PRODUCTS")  specified in Exhibit
         A, and provide such Products to Sears and Authorized Integrators,  upon
         request from Sears, in accordance with the terms of the Home Networking
         Proposal, specified in Exhibit B, and the terms of this Agreement.

         2.2  INVENTORY.  Home  Director  agrees to  maintain  an  inventory  of
         Products in an amount that is sufficient to meet reasonably foreseeable
         demand.  Home Director shall have thirty (30) days upon submission of a
         purchase  order  by  Sears,  to  deliver  the  Product  to Sears or the
         Authorized Integrator in accordance with the purchase order.

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         2.3 PARTS.  Home Director shall be the preferred  supplier to Sears and
         Authorized Integrators for component parts, replacement parts, existing
         parts or new parts (collectively, "Parts") for the Products for which a
         purchase  order  is  placed.  For the  purposes  of this  Section  2.3,
         "preferred supplier" shall mean that, absent a commercially  reasonable
         rationale,  Home Director shall be the supplier of Parts to Sears under
         the terms of this Agreement. The parties acknowledge that under certain
         circumstances,  such as a requirement from a builder or developer Sears
         may  seek  an  alternate   supplier  of  Parts.   Under  these  certain
         circumstances  Sears will for its part, notify Home Director in writing
         of such  request  and Home  Director  shall  have 10  business  days to
         respond  in  writing  to  accept,  or  reject  such  request.  If  Home
         Director's   acceptance   is  not   competitive   under  these  certain
         circumstances,  Sears  may in its  sole  discretion  seek an  alternate
         supplier of Parts.


         2.4 SERVICES.  Home Director agrees to provide certain  services,  (the
         "SERVICES")  including the training of designated Sears representatives
         and Authorized Servicers on the installation, sale and use of Products.
         Home Director  acknowledges that although Sears may consider  accepting
         offers  relating to other services  provided by Home Director which may
         include,  but not be limited to, design and engineering of floor plans,
         proposal generation, technology consulting, sales support, installation
         services and Homeowner  orientations;  as of the Effective Date,  Sears
         has  no  obligation  to  accept  such  offer.   Home  Director  further
         acknowledges  that offering  services such as home security  monitoring
         services and home office equipment to customers is not within the scope
         of this Agreement,  however,  nothing in this Agreement shall be deemed
         to preclude Home  Director from offering such services to  Homebuilders
         and Homeowners as long as the Sears Mark (as defined  hereafter) is not
         associated with such offerings,  and Home Director discloses in writing
         to the customer that such offer is not affiliated with Sears.

         2.5 SALES  TRAINING.  Home Director  shall support Sears  marketing and
         selling efforts by (i) conducting  training ("SALES  TRAINING"),  which
         includes but is not limited to training on the Products  operation  and
         functionality,  technology  updates and sales  techniques based on Home
         Directors patent  application  serial number  09/840,742 filed with the
         United  States  patent  office,  and  (ii)  make  Home  Director  sales
         associate(s)  available to accompany  Authorized  Integrators on select
         sales calls to Builders and  Homeowners.  Home Director shall conduct a
         minimum  of ten (10)  Sales  Training  sessions  per year at  locations
         mutually agreed upon by the Parties at a later date.

         2.6  INSTALLATION   TRAINING.   Home  Director  shall  conduct  Product
         installation and Service training  ("INSTALLATION  Training") for Sears
         employees and Authorized  Integrators.  Home Director acknowledges that
         Authorized  Integrators are not Sears employees,  and shall be directly
         responsible  for  payment  of  Installation  Training  fees  that  Home
         Director  may  charge.   Home  Director   shall  submit   invoices  for
         Installation  Training to the  Authorized  Integrator and agrees not to
         seek payment from Sears in the event of non-payment from the Authorized
         Integrator.   Home   Director  will  conduct  a  minimum  of  ten  (10)
         Installation  Training  sessions per year at locations  mutually agreed
         upon by the Parties at a later date.



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         2.7  DEMONSTRATION   UNITS.  Home  Director  shall  furnish  Authorized
         Integrators with a Dealer Promo Kit, and one (1)  demonstration  unit-
         *confidential treatment*

         2.8 PROMOTIONAL  SUPPORT.  Home Director shall provide, at no charge to
         Sears,  co-operative support for marketing and advertising  initiatives
         by Sears Product Repair Business.  Such support shall include,  without
         limitation,  package inserts,  signage,  promotional items as Sears may
         reasonably request from time to time.

         2.9 HOME DIRECTORS RELATIONSHIPS WITH COMPETITORS. Home Director agrees
         for itself, and its affiliates, that during the term of this Agreement,
         as to providing  Services,  Sales Training and  Installation  Training,
         Home  Director  will not enter into an agreement  or negotiate  for the
         purposes of entering into an agreement  with any  Restricted  Party (as
         defined herein), where such agreement relates to a purpose identical or
         substantially similar to the transactions  specified in this Agreement,
         or assist, directly or indirectly, any third party in any way to do the
         same, unless Sears and Authorized Integrators' total purchases of Parts
         from  alternate  supplier  or  suppliers exceed 25% as measured over a
         Sears fiscal quarter. "RESTRICTED PARTIES" include but are not limited
         to  large  retail  companies such as *confidential treatment*, and all
         affiliates  of  these  companies. Transactions with Restricted Parties
         will  be deemed to be substantially similar if the Services offered to
         the  Restricted  Party  are  related  to  the  Products. Home Director
         warrants that neither it nor any Home Director affiliate currently has
         existing  agreements  with  Restricted Parties to manufacture Products
         including  Home Director's current relationship as a supplier of Parts
         to *confidential treatment*. If Home Director provides Services, Sales
         Training  and  Installation  Training  that  is  identical  to  or
         substantially similar to the Services, Sales Training and Installation
         Training specified in this Agreement, Home Director shall be in breach
         of  this  Agreement.

         2.10 RELEASE OF LIEN. Upon request, Home Director shall furnish a Sworn
         Statement of Account showing the names and addresses of all parties who
         furnish Home Director,  materials,  supplies  and/or  products with the
         amount  due or to become  due and a  description  of the  nature of the
         Services performed and to be performed, as often as requested by Sears.
         A final waiver and release of lien on a form  satisfactory to Sears (or
         otherwise   required  by  applicable  law)  must  be  submitted  before
         disbursement  of final  payment,  together with a final  affidavit from
         Home Director  certifying  that all materials,  supplies,  Products and
         independent contractors, under Home Directors direct contract have been
         paid in full, which affidavit Sears shall be entitled to rely on.

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3.       RESPONSIBILITY OF SEARS

         3.1  MARKETING AND SELLING  PRODUCTS.  Sears shall be  responsible  for
         developing the marketing and business  strategy to sell the Products by
         creating  and managing a business  infrastructure  to support the sales
         and marketing efforts,  which includes entering into relationships with
         Authorized Integrators and managing such relationships.

         3.2 BILLING.  Sears shall be responsible for submitting invoices to the
         Builders  and  Homeowners  at  prices  and other  terms and  conditions
         determined by Sears, in its sole discretion.

4.       ORDERS AND FULFILLMENT

         4.1 PURCHASE ORDERS.  A commitment by Sears to purchase  Products shall
         arise only at such time as Home  Director  receives  a purchase  order,
         from Sears or an Authorized  Integrator  submits a purchase  order to a
         designated  authorized  Home Director  distributor.  The  obligation to
         purchase Products shall be limited to the quantities  specified in such
         purchase orders.

         4.2 ESTIMATES AND FORECASTS. Sears and Home Director shall cooperate to
         develop  estimates  and  forecasts of Sears' future needs for Products.
         Any such estimates and forecasts that exceed the requirements set forth
         in Section 2.2 above,  are for planning  purposes only and shall not in
         any way  represent  or create any  commitment  by Sears to purchase any
         particular quantity of Products. Sears shall have no responsibility for
         any  actions  taken  by  Home  Director  based  on  such  estimates  or
         forecasts.

         4.3      DELIVERY  TERMS.  All  Products  will be delivered to the
         location  specified  on the  purchase  order,  or any  other  location
         specified by Sears prior to shipment,  F.O.B.  Home Director,  or when
         requested by Sears, F.O.B. Origin

         4.4 CHANGES.  Sears or the Authorized  Integrator  may, at any time, by
         written notice to Home Director,  request  changes to a purchase order.
         Home  Director  shall,  within  a  reasonable  time,  provide  Sears or
         Authorized  Integrator with an estimate of the impact,  if any, of such
         requested  change on the  payment  terms and  completion  date.  If the
         Parties  mutually agree to such changes,  a written  description of the
         agreed  change,  ("CHANGE  OF  SPECIFICATION")  as defined in Exhibit B
         attached hereto,  will be prepared which both Parties must sign. In the
         event of any  conflicts  or  inconsistency,  the  terms of a Change  of
         Specification, such Change of Specification shall prevail over those of
         the purchase  order.  Home Director shall continue work pursuant to the
         existing purchase order, and shall not be bound by any change requested
         by Sears or the  Authorized  Integrator,  until  such  change  has been
         accepted in writing by both Parties.

         4.5 INTRODUCTION OF NEW PRODUCTS.  From time to time, Home Director may
         introduce new Home  Networking  System  technology to the market place.
         Prior  to Home  Director  offering  such  Home  Networking  Systems  to
         Authorized Integrators,  Home Director shall meet with Sears to discuss
         the  possibility of including the new technology as part of the Product
         offering.

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         4.6  DISCONTINUATION  OF PRODUCTS.  From time to time,  the Parties may
         review the history of demand of the Product  categories,  and  mutually
         decide to  discontinue  offering  or selling one or more of the Product
         categories,   however,   such  decision  shall  not  relieve  Sears  or
         Authorized  Integrators of any obligations related to accepted purchase
         orders by Home  Director as of the date of the decision to  discontinue
         the Product, or a date mutually agreed to by the Parties.

         4.7  NONCONFORMING  PRODUCTS.  "NONCONFORMING  PRODUCTS"  are  Products
         submitted to Sears or Authorized  Integrators  by Home Director that do
         not conform to the  purchase  order for such  Products,  or (i) are not
         merchantable;  (ii) have  defects  in design,  workmanship,  materials;
         (iii) are not fit for the  purposes for which they are  intended;  (iv)
         are  not  equivalent  to  samples  or  demonstration  units  that  were
         submitted to Sears, or (v) delivered damaged. At the election of Sears,
         such  Nonconforming  Products  (1) may be accepted as is; (2) or may be
         accepted  and Home  Director  shall issue a credit in the amount of the
         selling price for any reduced value of such  Nonconforming  Products as
         mutually  agreed upon by Home  Director and Sears or (3) Home  Director
         may grant a return  authorization and re-deliver such shipments so that
         they are no longer  Nonconforming  Products,  or (4) Home  Director may
         grant a return  authorization and a full credit of all charges for such
         Nonconforming Products.

         4.8  PAYMENT.  Home  Director  shall  submit all  invoices  in the form
         attached as Exhibit C of this  Agreement.  Failure of Home  Director to
         comply with the invoice  requirement  shall  negate  Section 5.2 below.
         Furthermore,   Home  Director   acknowledges   that  if  an  Authorized
         Integrator  submits a purchase  order to the  designated  Home Director
         distributor,  the Authorized Integrator shall be solely responsible for
         the payment of Products  that are shipped,  received and conform to the
         purchase  order during the term of this  Agreement.  Furthermore,  Home
         Director,  and their designated  distributor shall not invoice Sears in
         the event that an Authorized Integrator fails to pay for such Products.
         *confidential treatment*

5.       TERMINATION

         5.1 TERMINATION BY SEARS. This Agreement shall automatically  terminate
         upon  delivery  of  notice of  termination  to Home  Director,  if Home
         Director (i) abandons, surrenders or transfers control of the operation
         of  the  business   without  prior   approval  of  Sears;   offers  any
         unauthorized Services or Products; (ii) offers any services or products
         the same as or similar to the Services and/or Products to a competitor;
         (iii)  has made  any  material  misrepresentation  or  omission  in the
         negotiations of this Agreement with Sears; (iv) is convicted by a trial
         court of or pleads no  contest to a felony,  or other  crime or offense
         that is likely to adversely  affect the reputation of Sears;  (v) makes
         any  unauthorized  use or disclosure of any  Confidential  Information;
         (vi) becomes  insolvent or files for  bankruptcy;  Sears shall have the
         right  to  cancel  or  terminate  immediately  this  Agreement  for any
         particular  line or  lines of  Products  and  Services,  or  cancel  or
         terminate all or any outstanding orders for Products and Services under
         this  Agreements  if  Home  Director  (i) is in  default  of any  other


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         agreement  with Sears or any of its  affiliates,  and such agreement is
         terminated  as a result  thereof;  (ii) fails to  maintain in force the
         insurance  coverage as required by this  Agreement and does not correct
         such  failure  within  thirty  (30) days after  written  notice of such
         failure to comply is delivered to Home Director;  (iii) fails on two or
         more separate  occasions  within any period of twelve (12)  consecutive
         months to comply with the same obligation under this Agreement, whether
         or not such failures to comply are corrected after notice of default is
         given;  or (iv)  fails to  comply  with  any  other  provision  of this
         Agreement  or  any  mandatory  specification,   standard  or  operating
         procedure  prescribed by Sears and does not correct such failure within
         thirty  (30) days  after  written  notice of such  failure to comply is
         delivered to Home Director.

         5.2      IMMEDIATE TERMINATION BY HOME DIRECTOR.  Home Director may
         terminate  this  Agreement by giving  written  notice to Sears if: (i)
         Sears fails to make a payment  required of it under this Agreement and
         such  payment is more than sixty (60) days  delinquent,  or (ii) Sears
         becomes  the subject of a case under the  Federal  Bankruptcy  Code or
         similar state or federal  insolvency  laws,  or (iii) Sears  infringes
         upon the patent rights granted under Home Director patent  application
         serial number 09/840,742 filed with the United States patent office.

         5.3 EFFECTS OF TERMINATION. Termination shall be subject to the Parties
         obligation  to  complete  performance  pursuant  to the  terms  of this
         Agreement, unless circumstances warrant otherwise. In such event, Sears
         and Home Director agree to negotiate in good faith a reasonable process
         to settle  incomplete  matters.  To the extent  that  either  Party has
         expressly  provided  the other Party with  authority to use its name or
         marks in any manner, the other Party shall stop such use immediately or
         within such timeframe otherwise directed by the requesting Party.

6.       INTELLECTUAL PROPERTY RIGHTS

         6.1 OWNERSHIP OF INTELLECTUAL PROPERTY.  Except as specified in Section
         6.2 below, no license is granted to any patent, copyright, trademark or
         other  proprietary  right of either Party,  and each Party hereto shall
         retain ownership of its own intellectual property.

         6.2  GRANT  OF  LICENSE.   Home   Director   hereby   grants   Sears  a
         non-exclusive,  paid-up,  irrevocable,  royalty-free  license under any
         Home Director United States patents, including divisional, continuation
         or  continuation-in-part  patents,  that issue  from the United  States
         patent  application  serial  number  09/840,742,  filed with the United
         States  Patent and Trademark  Office on April 23, 2001,  solely for the
         term of this  Agreement.  Sears  agrees that  neither it nor its wholly
         owned  affiliates  shall authorize any sublicenses of any Home Director
         United  States  patents  that  issue  from  the  United  States  patent
         application serial number 09/840,742.

         6.3 USE OF PROPRIETARY  RIGHTS.  Each Party shall submit for review and
         receive  written  authorization  prior  to  copying,  distributing  and
         preparing   derivative  works  of  its  licensed  marketing   materials
         ("MATERIALS") in connection with the subject matter of this Agreement.

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         6.4  PRODUCTS  BEARING  SEARS'  IDENTIFICATION.  If Sears  directs Home
         Director  to mark or label any Product  with a trade  name,  trademark,
         logo  or  service   mark  owned  by  or  licensed  to  Sears   ("SEARS'
         IDENTIFICATION"),  such  marking  or  labeling  shall be limited to the
         Products  indicated  in  the  purchase  order  and  shall  be  done  in
         accordance  with Sears specific  instructions.  Home Director shall not
         sell or  otherwise  dispose of, nor permit the sale or disposal of, any
         Product  bearing  any  Sears  Identification  (including  any  rejected
         Product)  to anyone  other than Sears  without  first  obtaining  Sears
         express  written  consent  (which  consent  shall  not be  unreasonable
         withheld or delayed).  Sears grants to Home Director a limited  license
         to supply Products bearing Sears' Identification to Sears solely as set
         forth in this Agreement.  This limited license is revocable in whole or
         in part by Sears at any time.  Home Director  shall have no interest or
         rights in any Sears  Identification,  and this Agreement does not grant
         Home Director any rights in any Sears Identification except the limited
         license  to  supply  Products  bearing  such  identification  to  Sears
         pursuant to the terms of this Agreement. The provisions of this Section
         6 shall survive the expiration or termination of this Agreement.

7.       REPORTS AND AUDITS

         7.1 REPORTS.  Home Director shall promptly prepare and forward to Sears
         any and all  reports  reasonably  requested  by Sears,  related  to the
         performance  under this Agreement  including,  but not limited to, work
         specifications,   performance   information,   tests,  complaint  logs,
         scripts, customer comments and communications,  Product sales, shipment
         and  disbursement  of  Products,  back  orders,  aged  orders and other
         information  reasonable  requested by Sears.  All reports  furnished to
         Sears  and all  information  contained  therein  shall be used by Sears
         solely for its internal purposes.

         7.2 AUDITS.  All  records and reports as it relates to this  Agreement,
         shall be  available  for audit by Sears or its  agents  upon  three (3)
         business days prior written  notice at Home  Director's  expense during
         normal  business  hours.  In  addition,  Sears  shall have the right to
         inspect  any site used by Home  Director or its  subcontractors  in the
         performance of this  Agreement.  The audit rights provided herein shall
         survive the  termination of this Agreement and continue for a period of
         three (3) calendar years from the date of termination.

8.       MUTUAL INDEMNIFICATION

         8.1 HOME DIRECTOR INDEMNIFICATION OF SEARS. Home Director shall, at its
         sole  expense,  defend  Sears,  its  subsidiaries,  and  the  officers,
         directors,  employees,  licensees,  agents,  distributors,  independent
         contractors   of  Sears   and/or  its   subsidiaries   and   Authorized
         Integrators,  (each  an  "INDEMNIFIED  PARTY")  from  and  against  all
         allegations  (even though such allegations may be false,  fraudulent or
         groundless)  asserted  in any  claim,  action,  lawsuit  or  proceeding
         between  any  Indemnified  Party  and any  third  party  caused by Home
         Directors  acts, or breaches of its  obligations  under this Agreement,
         and arising out of any of the following  (collectively,  the "CLAIMS"),
         whether  or  not  Home  Director's   indemnification  and  contribution
         obligations  shall apply: (a) infringement or  misappropriation  of any
         patent,  trademark,  trade name, trade dress, copyright,  trade secret,
         right of publicity or other  proprietary  right in connection  with any
         Products, or any unfair competition involving Products; (b) death of or
         injury to any person,  damage to any  property,  or any other damage or


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         loss, by whomsoever  suffered,  resulting or claimed to result in whole
         or in part from an alleged  defect in any  Product,  whether  latent or
         patent, including improper construction or design of the Product, or an
         alleged  failure of the  Product to comply with any  specifications  or
         samples or with any express or implied warranties of Home Director,  or
         any claim of strict  liability  in tort  relating to the  Product;  (c)
         violation by Home Director through the manufacture,  possession, use or
         sale of the Product or Product  parts,  of any federal,  state or local
         laws, regulations,  ordinances or administrative orders or rules of the
         United  States,  its  territories  or any  other  country  in which the
         Product or Product parts is produced or delivered; (d) defect involving
         the packaging, tagging, labeling, packing, shipping and/or invoicing of
         Products;  or  (e)  failure  to  warn  or  inadequate  warnings  and/or
         instructions.  Home Director shall use counsel reasonably  satisfactory
         to Sears in the defense of all Claims. Sears may, at its election, take
         control of the defense and investigation of any Claim(s) and may employ
         and  engage  attorneys  of its own  choice to manage  and  defend  such
         Claim(s),  at Home  Director's  cost,  risk and expense,  provided that
         Sears and its counsel shall proceed with  diligence and good faith with
         respect thereto.  The provisions of this Section 8.1, shall survive for
         a period of two years  beyond the  expiration  or  termination  of this
         Agreement.

         8.2 SEARS  INDEMNIFICATION  OF HOME DIRECTOR.  Sears agrees to protect,
         defend,  hold harmless and indemnify Home Director and its  affiliates,
         subsidiaries,  officers, directors,  employees and agents and hold them
         harmless,  from and  against  any and all  claims,  complaints,  fines,
         penalties,  causes of action,  liabilities,  judgments,  losses, costs,
         damages of every kind and character, and expenses, including reasonable
         attorneys' fees, (collectively,  "Sears Claims") to the extent same are
         proximately  caused by, or proximately  arise out of or alleged to have
         arisen out of:
         (i) a breach of or default  under any  covenant or  provision  of this
         Agreement by Sears;  (ii) the  negligent  acts or omissions or willful
         misconduct of Sears or its officers, employees, or technicians;  (iii)
         violation  by  Sears,  of  any  law,   statute  or  ordinance  or  any
         governmental  administrative  order, rule or regulation in relation to
         its obligations  under this Agreement.  The provisions of this Section
         8.2,  shall survive for a period of two years beyond the expiration or
         termination of this Agreement.

9.       WARRANTY

         9.1  WARRANTY  OF  FITNESS  AND  MERCHANTABILITY.  Without  in any  way
         disclaiming  implied remedies or limiting  remedies for breach thereof,
         Home  Director  represents  and warrants that all Products  shall:  (a)
         conform to the specifications  for such Products;  (b) be merchantable;
         (c) be free from defects in workmanship,  materials and packaging;  (d)
         be  free  from  defects  in  construction  and  design;  (e) be fit and
         sufficient  for the purpose for which it is  intended  and/or  which is
         stated on any  packaging or labeling;  (f) be  equivalent in materials,
         quality,  fit,  finish,  workmanship,  performance  and  design  to any
         samples  submitted  to and  approved  by Sears;  and (g) conform to any
         performance  claim that Home  Director  makes or has made in connection
         with the Products.  In addition,  if Home  Director is notified  during
         such time period of a breach of this warranty,  then Home Director will
         arrange  for  the  necessary   repairs  to  be  made  promptly  without
         additional  charges  to  either  the  Homeowner,   Builder,   Sears  or
         Authorized  Integrator.  Home Director  disclaims all other  warranties
         including, but not limited to, any responsibility for loss of profit or
         other  special,  consequential  or  punitive  damages  for the  term of


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         warranty for each  product.  This warranty does not cover the repair or
         exchange  of the  Product  damaged  as a result  of  misuse,  accident,
         modification,  unsuitable physical or operating  environment,  improper
         installation or  maintenance,  or failure caused by a product for which
         Home  Director  is not  responsible.  This  warranty  shall  be void by
         removal or alteration  of the Product or any labels  specific to use or
         restrictions of use of the Product.

         9.2 OUTSTANDING CLAIMS. Home Director represents and warrants that Home
         Director  has no  liability  (and there is no basis for any  present or
         future complaint,  action, suit,  proceeding,  hearing,  investigation,
         claim or demand against Home Director  giving rise to any liability) in
         connection  with  the   manufacturing   of  the  Product.   No  Product
         manufactured,  sold,  or delivered  by Home  Director is subject to any
         guaranty,  warranty or other indemnity  beyond the applicable  standard
         terms and conditions of sale.

         9.3 PRODUCT LIABILITY.  Home Director represents and warrants that Home
         Director  has no  liability  (and there is no basis for any  present or
         future   charge,   complaint   action,   suit,   proceeding,   hearing,
         investigation, claim or demand against home Director giving rise to any
         liability),  whether  known or  unknown,  airing  out of any  injury to
         persons or property as a result of the ownership,  possession or use of
         any Product manufactured, sold or delivered by Home Director.

         9.4  AUTHORITY TO EXECUTE AND PERFORM.  Home  Director  represents  and
         warrants  that Home  Director has all  requisite  power,  authority and
         approvals  required to enter into,  execute and deliver this  Agreement
         and all of the other documents to be delivered by Home Director, and to
         perform fully Home Director's obligations hereunder.  Furthermore, Home
         Director  warrants that Home Director has not violated or infringed any
         third party's right in proprietary  rights or Confidential  Information
         in performing  under this  Agreement and has complied with all federal,
         state and local laws,  rules,  regulations and orders pertaining to the
         Home Directors performance.

10.      INSURANCE

         10.1 COMMERCIAL  GENERAL LIABILITY  INSURANCE.  Home Director shall, at
         its own  expense,  obtain and  maintain  Commercial  General  Liability
         insurance    with   coverage    including,    but   not   limited   to,
         premises/operations,  contractual, personal and advertising injury, and
         products/completed  operations  liabilities,  with  limits  of at least
         $1,000,000  per  occurrence  and $3,000,000 in the aggregate for bodily
         injury  and  property  damage  combined.  Sears  shall  be  named as an
         additional insured.  Limits of liability  requirements may be satisfied
         by a combination of Commercial  General  Liability and Umbrella  Excess
         Liability policies.

         10.2 EVIDENCE OF INSURANCE. Insurance shall be purchased from companies
         having a rating  of A- VII or better in the  current  Best's  Insurance
         Reports  published by A.M.  Best Company.  Policies of insurance  shall
         provide that they will not be canceled or materially changed without at
         least thirty (30) days prior written notice to Sears.  Certificates  of
         insurance  evidencing  coverage  shall be  submitted  in  advance of or
         concurrent with the execution of this Agreement,  and on each insurance
         policy  renewal  thereafter.  Home Director  shall,  at Sears  request,
         provide copies of requested insurance  policies.  If Home Director does
         not provide  Sears with such  certificates  of  insurance  or, in Sears


                                       9
<PAGE>

         opinion,  such policies do not afford  adequate  protection  for Sears,
         Sears will so advise Home  Director.  If Home Director does not furnish
         evidence of acceptable  coverage within fifteen (15) days after written
         notification to Home Director,  Sears shall have the right, in its sole
         discretion,  to (i)  withhold  payments  from the Home  Director  until
         evidence of such  acceptable  coverage is provided or (ii)  immediately
         terminate  this  Agreement.  Failure  to obtain and  maintain  required
         insurance  shall not relieve Home Director of any obligation  contained
         in this Agreement.  Additionally,  any approval by Sears of any of Home
         Director's  insurance  policies  shall not relieve Home Director of any
         obligation contained in this Agreement,  including liability for claims
         in excess of described limits.

11.      RELATIONSHIP OF THE PARTIES

         Home  Director  is  acting  as an  independent  contractor  under  this
         Agreement. Nothing contained in or performed pursuant to this Agreement
         shall be construed as creating a partnership,  agency or joint venture.
         Home  Director has the full right and the  responsibility  to determine
         the method,  manner and control of the work to be performed pursuant to
         the responsibilities of Home Director set forth in this Agreement. Home
         Director has the sole and exclusive  right to hire,  direct,  supervise
         and  discharge  any  workers  employed  by  Home  Director.   Under  no
         circumstances shall Home Director or its employees represent themselves
         as Sears  employees  or agents in any manner.  Home  Director is solely
         responsible  for all salaries and other  compensation of its employees.
         Under no  circumstances  will Home Director make any purchases or incur
         any  obligation or expense of any kind in the name of Sears;  nor shall
         Home Director  represent to anyone that Sears is in any way responsible
         or liable for any obligation, purchase or expense of Home Director.

12.      CONFIDENTIALITY AND PUBLICITY

         12.1 "CONFIDENTIAL BUSINESS INFORMATION" means any information, whether
         disclosed in oral,  written,  visual,  electronic or other form,  which
         either Party  discloses or either Party observes in connection with its
         performance  of  its  obligations   hereunder.   Confidential  Business
         Information  includes,  but is not  limited  to:  (a)  all  information
         relating to sales,  pricing,  cost,  inventory,  operations,  plans and
         programs of either Party;  (b) all trade  secrets of either Party;  (c)
         patent  applications,  work subject to copyright  protection  and other
         intellectual  property of either Party; (d) any other  information that
         is not  publicly  available  and that is  designated  by that  Party as
         proprietary, confidential or sensitive at the time of first disclosure;
         and (e) the terms and existence of this Agreement.

         12.2 USE OF CONFIDENTIAL BUSINESS INFORMATION. Each Party shall use the
         other Party's  Confidential  Business  Information only as necessary to
         perform its obligations under this Agreement. Each Party shall restrict
         disclosure of  Confidential  Business  Information to its personnel who
         have a need  to  know  such  information  to  perform  its  obligations
         hereunder  and who have  first  agreed to be bound by the terms of this
         Section 12. Each Party is liable for any unauthorized disclosure or use
         of Confidential  Business  Information by any of its personnel.  Within
         ten (10) days after  receiving  a written  request,  Each  Party  shall
         destroy  in such a manner  that it cannot be  retrieved  or return  (as
         instructed  by  the   requesting   Party)  any   materials   containing
         Confidential  Business  Information of the requesting Party. Each Party
         shall certify to the other Party that it has satisfied its  obligations
         under this Section 12.

                                       10
<PAGE>

         12.3  CONFIDENTIAL  BUSINESS  INFORMATION  DISCLOSURE  EXCEPTIONS.  The
         obligations  under this  Section  12, do not apply to any  Confidential
         Business  Information  that  either  Party can  demonstrate:  (i) is or
         becomes publicly  available  without breach of this Agreement;  (ii) is
         independently  developed  by without use of any  Confidential  Business
         Information; or (iii) is received from a third party that does not have
         an obligation of  confidentiality  to Sears.  Either Party may disclose
         Confidential Business Information to the extent that, in the reasonable
         opinion of legal counsel, it is legally required to be disclosed.  Such
         disclosing  Party shall notify the other Party within a reasonable time
         prior to disclosure and allow the other Party a reasonable  opportunity
         to seek appropriate protective measures.

         12.4  "CONFIDENTIAL  PERSONAL  INFORMATION"  means  names,   addresses,
         telephone  numbers,  account numbers,  customer lists, and demographic,
         financial and  transaction  information.  Home Director agrees that any
         Confidential   Personal   Information  about  Builders  and  Homeowners
         provided  by  Sears to Home  Director,  shall  be  deemed  Confidential
         Personal  Information  belonging  to  Sears.  Home  Director  shall use
         Confidential  Personal  Information  only as  necessary  to perform its
         obligations under this Agreement.  Home Director shall not duplicate or
         incorporate the Confidential  Personal Information into its own records
         or databases.  Home Director shall restrict  disclosure of Confidential
         Personal  Information  to its  employees  who have a need to know  such
         information to perform its  obligations and who have first agreed to be
         bound by the terms of this Section 12. Home Director  shall require its
         authorized agents and subcontractors to execute a document stating such
         agreement.  Home Director is liable for any unauthorized  disclosure or
         use of  Confidential  Personal  Information  by  any of its  personnel.
         Unless otherwise prohibited by law, Home Director shall (i) immediately
         notify  Sears of any  legal  process  served on Home  Director  for the
         purpose of obtaining  Confidential Personal Information and (ii) permit
         Sears  adequate time to exercise its legal options to prohibit or limit
         such disclosure.

         12.5  ESTABLISHMENT  OF PROCEDURES.  Home Director shall  establish and
         maintain  written  policies  and  procedures  designed  to  ensure  the
         confidentiality  of the Confidential  Personal  Information.  Copies of
         such  policies  and  procedures  shall be  provided  to Sears  upon our
         request.  Home  Director  shall permit  Sears to audit Home  Director's
         compliance  with the  provisions of this Section 12, at any time during
         Home Director's regular business hours.

         12.6 RETURN OF CONFIDENTIAL PERSONAL INFORMATION.  Within ten (10) days
         following  termination of this Agreement or ten (10) days following the
         completion of a Project for which the Confidential Personal Information
         has been provided,  whichever  first occurs,  Home Director  shall,  at
         Sears discretion,  (i) return the Confidential  Personal Information to
         Sears or (ii)  certify in  writing to the Sears that such  Confidential
         Personal Information has been destroyed in such a manner that it cannot
         be retrieved.

         12.7 REMEDY.  In addition to any other rights Sears may have under this
         Agreement  or in  law,  since  unauthorized  use or  disclosure  of the
         Confidential   Personal   Information   may  result  in  immediate  and
         irreparable  injury  to Sears  for which  monetary  damages  may not be
         adequate,  in  the  event  Home  Director  or  any  officer,  director,
         employee,  agent or subcontractor of Home Director uses or discloses or
         in Sears sole opinion,  any such Party is likely to use or disclose the


                                       11
<PAGE>

         Confidential   Personal   Information  in  breach  of  Home  Director's
         obligations under this Agreement,  Sears shall be entitled to equitable
         relief,   including  temporary  and  permanent  injunctive  relief  and
         specific  performance.  Sears shall also be entitled to the recovery of
         any pecuniary gain realized by Home Director from the  unauthorized use
         or disclosure of the Confidential Personal Information.

13.      ASSIGNMENT

         This  Agreement  shall be binding  upon and inure to the benefit of the
         Parties  and  their  successors  and  assigns;  provided,  however,  no
         assignment with respect to this  Agreement,  by either Party (except by
         Sears to a Sears affiliate or subsidiary)  shall be of any force except
         with the prior written consent of the other Party,  which consent shall
         not be unreasonably withheld.

14.      NOTICES

         All notices required or permitted to be given by one Party to the other
         under this  Agreement  shall be sufficient if sent by either  certified
         mail,  return  receipt  requested,  facsimile  or hand  delivery to the
         Parties at the  respective  addresses  set forth below or to such other
         address as the Party to receive the notice has  designated by notice to
         the other Party:


         If to Sears:              Sears, Roebuck and Co.
                                   3333 Beverly Road
                                   Hoffman Estates, Illinois 60179
                                   Attn: Executive Vice President/Product Repair

         With a copy to:           Sears Law Department
                                   3333 Beverly Road
                                   Hoffman Estates, Illinois 60179
                                   Attn: Vice President-Deputy General
                                         Counsel/Services

         If to Home Director Inc:  2525 Collier Canyon Road
                                   Livermore, CA 94551
                                   Attn: President/COO

         With a copy to:           Barbara Carney
                                   Home Director Inc.
                                   7136 North Ridge Drive
                                   Raleigh, NC 27615


         All notices shall be effective (i) when delivered personally, (ii) five
         (5) days after deposit in mail,  (iii) the business day when  delivered
         by a nationally  recognized  courier, or (iv) the business day on which
         facsimile  transmittal is complete before 4 p.m., provided transmission
         is  followed  by the  notice  requirements  above.  Parties  may change
         address, etc., by giving notice of change, provided that such notice is
         effective only on receipt.

                                       12
<PAGE>

15.      ALTERNATIVE DISPUTE RESOLUTION

         (a) No Party  shall bring a civil  action  seeking  enforcement  of any
         other remedy founded on this Agreement without first complying with the
         terms  set  forth  in this  Section  15  however,  any  Party  may seek
         injunctive  relief to preserve the status quo pending the completion of
         mediation  under this  Agreement.  In the event  that a Dispute  arises
         relating to this  Agreement  that a Party  believes  cannot be resolved
         through negotiation,  with the exception of disputes related to Section
         5.1 above,  the  Parties  shall  attempt  in good faith to resolve  any
         dispute ("DISPUTE")  arising out of or relating to breach,  termination
         or validity of this Agreement, as follows:

                  (i) Either Party may demand  mediation by notifying  the other
         Party in writing.  Within seven (7) days of receipt of the notification
         by the  receiving  Party,  the  Parties  shall  mutually  agree  upon a
         Mediator.  The Party  demanding the mediation shall notify the Mediator
         in writing with a copy to the other Party. The notification  will state
         with  specificity the nature of the Dispute.  The parties shall equally
         share the fees of the Mediator.

                  (ii) Upon receipt of the mediation  demand,  the Mediator will
         immediately  convene a  pre-meditation  telephone  conference  of those
         parties it believes are involved in the  Dispute.  All  representatives
         shall make  themselves  available for such a conference  within two (2)
         business days of being contracted by the Mediator.

         (c) During the  pre-mediation  telephone  conference,  the Parties will
         agree on mediation  procedures,  or in the event they cannot agree, the
         Mediator will set mediation procedures.

         (d) The  mediation  procedures  will  provide for the  mediation  to be
         completed  within thirty (30)  business days of the initial  demand for
         mediation. All interested Parties will participate in good faith in the
         mediation,  and will make best efforts to reach a resolution within the
         30-day time period.  In  particular,  each  interested  Party will make
         available  in a timely  fashion  a  representative  with  authority  to
         resolve the dispute.

         (e) In the event that the dispute has not been  resolved  within thirty
         (30) business days after the  mediation,  the mediation may continue if
         interested Parties so desire.

         (f) In the event hat the mediation  continues  beyond thirty (30) days,
         but is not resolved  within what the Mediator  believes is a reasonable
         time thereafter,  the Mediator will so notify the Parties,  and declare
         the mediation terminated.

16.      MISCELLANEOUS

         16.1     GOVERNING  LAW.  The rights and duties of the Parties  will
         be governed by the local law of the State of Illinois,  excluding  any
         choice-of-law  rules that would require the application of the laws of
         any other jurisdiction.

         16.2  SEVERABILITY.  If any  covenant  set forth in this  Agreement  is
         determined  by  any  court  to  be  unenforceable,  the  invalidity  or
         unenforceability  of any particular  provision of this Agreement  shall
         not affect the other  provisions  hereof,  which shall continue in full
         force and effect.

                                       13
<PAGE>

         16.3  SUBCONTRACTORS.   Home  Director  acknowledges  that  it  is  the
         commitment of Sears to successfully bring minorities and women into the
         American economic system by doing business with qualified  minority and
         women sources.  In furtherance of Sears aforesaid  commitment,  if Home
         Director utilizes the services of  subcontractors,  Home Director shall
         use  reasonable  efforts to utilize  subcontractors  that are qualified
         minority-owned and/or woman-owned sources.

         16.4 AMOUNT OF BUSINESS. No promises or representations whatsoever have
         been made as to any  potential  business that Home Director can expect,
         nor the potential  number of purchase orders (as defined  above),  that
         may be submitted,  at any time during the term of this Agreement.  Home
         Director  represents and warrants that it has not incurred and does not
         intend to incur any expense for  additional  personnel,  facilities  or
         Products in reliance upon or in  anticipation of receiving any purchase
         orders  from  Sears  in  anticipation  of  Home  Directors  performance
         obligations under this Agreement. Home Director agrees that Sears shall
         not  be  obligated  for  any  expense  incurred  by  Home  Director  in
         connection with any increase in employees or for additional  facilities
         or Products.


         16.5 NO WAIVER;  CUMULATIVE  REMEDIES.  The failure of either  Party to
         insist,  in any one or more  instances,  upon the performance of any of
         the terms,  covenants,  or conditions of this  Agreement or to exercise
         any  right   hereunder,   shall  not  be   construed  as  a  waiver  or
         relinquishment  of the  future  performance  of  any  rights,  and  the
         obligations of the Party with respect to such future  performance shall
         continue in full force and effect.  All  remedies  provided for in this
         Agreement shall be cumulative and in addition to and not in lieu of any
         other  remedies  available  to  either  Party  at  law,  in  equity  or
         otherwise.

         16.6 ENTIRE  AGREEMENT.  This  Agreement,  together  with all  Exhibits
         attached  hereto,   constitutes  the  complete,   final  and  exclusive
         statement of the terms of this Agreement  among the Parties  pertaining
         to the  subject  matter  hereof  and  supersede  all prior  agreements,
         understandings,   negotiations  and  discussions  of  the  Parties.  No
         modification  or rescission of this  Agreement  shall be binding unless
         executed in writing by the Party to be bound  thereby.  Notwithstanding
         the   foregoing,   if  the  Parties  have   executed  an  agreement  of
         confidentiality  or  nondisclosure  agreement  (the "NDA")  prior to or
         contemporaneously with this Agreement,  the provisions of the NDA shall
         remain in force,  except to the extent that the terms and conditions of
         this Agreement  shall impose  stricter  requirements  or standards,  in
         which case the stricter terms and  conditions of this  Agreement  shall
         control each  Parties  duties and  obligations  to maintain and protect
         their respective Confidential Information.

         16.7 INTERPRETATION. The Article and Section headings of this Agreement
         are  for  convenience  only  and  shall  not be  deemed  part  of  this
         Agreement.  As used herein,  "include" and its derivatives  (including,
         "e.g.") shall be deemed to mean "including but not limited to".


                                       14
<PAGE>

         16.8 SURVIVAL.  The following  provisions shall survive  termination of
         this  Agreement:   Parts  (Section  2.3);   Termination   (Section  5);
         Intellectual  Property  Rights (Section 6); Reports and Audits (Section
         7);  Indemnification  (Section  8);  Warranty  (Section  9);  Insurance
         (Section 10);  Confidentiality and Publicity (Section 12);  Alternative
         Dispute Resolution (Section 15); and Miscellaneous (Section 16).

IN WITNESS  WHEREOF,  Sears and Home Director  have caused this  Agreement to be
executed by persons duly authorized as of the date of first above stated.



SEARS, ROEBUCK AND CO.                      HOME DIRECTOR INC.

     /s/ Paul Carter                              /s/ Donald Witmer
By: ________________________                By: ______________________

         Paul Carter                                  Donald Witmer
Name: ______________________                Name: ____________________

Title: _____________________                Title: ___________________



                                       15
<PAGE>



                                    EXHIBIT A
                             DEFINITION OF PRODUCTS

PRODUCTS
         (HOME NETWORKING SYSTEMS):


The Home Networking  System utilizes several  independent  systems and dozens of
individual products including the distribution of voice, video, data, audio, and
control  signals that link the  independent  systems and  appliances so they can
work together and be controlled from other sources in order to improve  comfort,
safety and convenience in a customers home.  Examples include structured wiring,
wireless LAN,  telephone and intercom systems,  alarm systems,  home theater and
multi - room music systems, HVAC & lighting control.

Home Networking Systems are divided into these 6 major categories:

o        VOICE AND DATA COMMUNICATION
  o        Wired and wireless Home LAN
  o        Intercom systems
  o        Multi-line phone systems
  o        Door Phones
o        AUDIO/VIDEO ENTERTAINMENT
  o        Home theater
  o        Whole-house audio/video systems
  o        Indoor and Outdoor multi-room/multi-zone speakers
o        SECURITY AND ACCESS CONTROL
  o        Alarm systems
  o        Electronic gates & door locks
  o        Surveillance camera systems
o        HOME CONTROL
  >>       Environmental Control and Energy Management
   o        HVAC (Heating, Ventilating and Air Conditioning) control
   o        Power line conditioning
   o        Water management
  >>       Central Vacuum and Attachments

                                       16
<PAGE>

  >>       Lighting and Window Treatments
   o        Drapery Control
   o        Lighting Control
  >>       Control Overlay Systems
   o        Controller/Processors
   o        Keypads
   o        Touch Pads & Touch Panels
o        SERVICE & SUBSCRIPTIONS
   o        Extended Warranties & Service Agreements
   o        Security Monitoring Services
   o        Telco Services
   o        ISP Services
   o        Cable TV Services
   o        Satellite Services
   o        Fixed Wireless Services
   o        Utility Services

o        MISCELLANEOUS
  o        Rough-in cans
  o        Model specific trim kits (including but not limited to modules,
           routers, modems, hard drives, outlets and plates)



                                       17
<PAGE>


                                    EXHIBIT B
              HOME NETWORKING AND PROPOSAL AND RELEVANT DEFINITIONS

1. STANDARD INSTALLATION:


The  installation  of  all  items  identified  as  "Standard"  according  to the
specifications listed in the Home Networking Proposal. For example, the items to
be installed in each home as a standard feature.


2. UPGRADE INSTALLATION:


The  installation  of all items  selected  by the  homeowner  or  builder  as an
"Upgrade" to the standard installation according to the specifications listed in
the builder Home Networking Proposal.


3. CHANGE OF SPECIFICATION ("COS") FORM:

Work  requested  in  addition  to or  different  from the  Standard  or  Upgrade
Installation, which describes the additional work and additional expenses to the
customer including the method.








                                       18
<PAGE>

<TABLE>
<CAPTION>




                                    EXHIBIT C
                                 INVOICE EXAMPLE
ABC Builder                                            Date Submitted
for Payment
123 Main Street
Anytown, USA 12345                                     Date:__________________
(111) 111-1111                                         Purchase Order (Lot # )


To: Sears Unit #5556                                 Deliver To: (Blank)
3825 Forsyth Road                                    Project: (Location in Development) i.e. LDR10 PL 65
Winter Park, Fl 32792                                Lot: (Lot & Block numbers) i.e.; 001/Q8
Attention: Connected Home Payment Specialist         Permit No: (Permit # on Master Permit)


Plan: (Name of floor plan) i.e. St. Marks  3/2.5 2 Story                           Super: (Super's First Name)
Elevation: (Number of correct elevation floor plan)  i.e. 1R                    Rep: (Design Consultant's Name)
Square Footage: (Square footage of home) i.e. 2,135 sf.
<S>              <C>                                                      <C>

-----------------------------------------------------------------------------------------------------------------------------------
APPROVED       DRAW
         FOR                                                         PAYMENT:
COMPLETE:                                                                                             AMOUNT
 (Builder            (Lot #) i.e. Lot/B1 001 08 LDR10 FL 65
   Invoice)
                                           (Description of Installation) i.e. Structured Wiring/Panel

_______         _______  (date w/integrator initials.)  ( P.O.#-Draw) i.e. 480387  Draw 1-Rough     i.e.$000.00

_______         _______ (date w/integrator initials.)    (P.O. # Draw) i.e. 48037 Draw 2 -Final     i.e.$000.00

                                    BASE CONTRACT AMOUNT:. sum of rough & final                     i.e $000.00
---------------------------------------------------------------------------------------------------------------------



         COLORS/UPGRADES/CREDITS
 (Installation  information  on  standard  installation  provided  by builder and
installation that is considered an upgrade to the standard package. )

----------------------------------------------------------------------------------------------------------------------------
i.e. standard: COMM SOL Starter Package                                                                      i.e. $000.00
-----------------------------------------------------------------------------------------------------------------------------

i.e custom: Move the counter top electrical and quad to the standard height.                                 i.e. $000.00



----------------------------------------------------------------------------------------------------------------------------
                   GRAND TOTAL:  Sum of  Rough, Final, Comm SOL starter Pkg, Custom                       i.e.  $0,000.00
----------------------------------------------------------------------------------------------------------------------------


This purchase  order is subject to all terms and  conditions of the  Subcontract
Agreement  by and between  Subcontractor  and  Contractor  for this  project.  A
complete and notarized  release of lien form must be attached when submitted for
payment.

* All items, in parentheses, on this page are required to be completed.

</TABLE>

                                       19



<PAGE>