10-K

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                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

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                                   FORM 10-K

                 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the fiscal year ended December 31, 2000

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                              HOMESTORE.COM, INC.
            (Exact Name of Registrant as Specified in its Charter)

                                                          
            Delaware                        000-26659                      95-4438337
  (State or Other Jurisdiction
               of                          (Commission                  (I.R.S. Employer
 Incorporation or Organization)            File Number)               Identification No.)

 

                           30700 Russell Ranch Road
                      Westlake Village, California 91362
                                (805) 557-2300
  (Address, Including Zip Code, and Telephone Number, Including Area Code, of
                   Registrant's Principal Executive Offices)

          Securities Registered Pursuant to Section 12(b) of the Act:

                                     None

          Securities Registered Pursuant to Section 12(g) of the Act:

                    Common Stock, par value $.001 per share

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  Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.

                                Yes [X] No [_]

  Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]

                                                          
   Aggregate market value of voting stock held by non-
    affiliates of the registrant as of February 28, 2001......  $2,050,176,207
   Number of shares of common stock outstanding as of February
    28, 2001..................................................     106,971,997

   

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                      DOCUMENTS INCORPORATED BY REFERENCE

  The information required by Part III of this Annual Report, to the extent
not set forth herein, is incorporated herein by reference from the
registrant's definitive proxy statement relating to the annual meeting of
stockholders to be held on May 10, 2001.

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                              Homestore.com, Inc.

                                   Form 10-K

                  For the Fiscal Year Ended December 31, 2000

                                     Index



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PART I

Item 1.   Business...............................................................................   1

Item 2.   Properties.............................................................................  25

Item 3.   Legal Proceedings......................................................................  25

Item 4.   Submission of Matters to a Vote of Security Holders....................................  25

PART II

Item 5.   Market for Registrant's Common Equity and Related Stockholder Matters..................  26

Item 6.   Selected Financial Data................................................................  27

Item 7.   Management's Discussion and Analysis of Financial Condition and Results of Operations..  29

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk.............................  41

Item 8.   Financial Statements and Supplementary Data............................................  42

Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...  93

PART III

Item 10.  Directors and Executive Officers of the Registrant.....................................  93

Item 11.  Executive Compensation.................................................................  93

Item 12.  Security Ownership of Certain Beneficial Owners and Management.........................  93

Item 13.  Certain Relationships and Related Transactions.........................................  93

PART IV

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 10-K.......................  99

SIGNATURES......................................................................................  102



                                    PART I

ITEM 1. BUSINESS

  This Annual Report on Form 10-K and the documents incorporated herein by
reference contain forward-looking statements based on current expectations,
estimates and projections about the Company's industry, management's beliefs
and certain assumptions made by management. Words such as "believes,"
"anticipates," "estimates," "expects," "projections," "may," "potential,"
"plan," "continue"and words of similar import, constitute "forward-looking
statements." The forward-looking statements contained in this Form 10-K
involve known and unknown risks, uncertainties and other factors that may
cause our or our industry's actual results, level of activity, performance or
achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by these
statements. These factors include those listed under the "Risk Factors"
section contained in this Item 1 and elsewhere in this Form 10-K, and the
other documents we file with the Securities and Exchange Commission, or SEC,
including our most recent reports on Form 8-K and Form 10-Q, and amendments
thereto. See also "Management's Discussion and Analysis of Financial Condition
and Results of Operations-Forward-Looking Statements." Although we believe
that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity,
performance or achievements. You should not place undue reliance on these
forward-looking statements.

Overview

  Homestore.com, Inc., or Homestore.com or Homestore, has created an online
marketplace that is the leading destination on the Internet for home and real
estate-related information, products and services, based on the number of
visitors, time spent on the web sites and number of property listings. Through
our family of web sites, Homestore provides a wide variety of information and
tools for consumers, and is the leading supplier of online media and
technology solutions for real estate industry professionals, advertisers and
providers of home and real estate-related products and services. To provide
consumers with real estate listings, access to real estate professionals and
other home and real estate-related information and resources, we have
established relationships with key industry participants. These participants
include real estate market leaders such as the National Association of
REALTORS(R), or the NAR, the National Association of Home Builders, or the
NAHB, the largest Multiple Listing Services, or MLSs, the NAHB Remodelors
Council, the National Association of the Remodeling Industry(R), or NARI, the
American Institute of Architects, or AIA, the Manufactured Housing Institute,
or MHI, real estate franchises, brokers, builders and agents. We also have
distribution agreements with a number of leading Internet portal web sites.

  Homestore.com(TM), REALTOR.com(R), HomeBuilder.com(TM),
SpringStreet.com(TM), Move.com(TM), Rent Net(TM), and iMove.com(TM) are our
trademarks or are exclusively licensed to us. This Form 10-K contains
trademarks of other companies and organizations. "REALTOR(R)" is a registered
collective membership mark which may be used only by real estate professionals
who are members of the NAR and subscribe to its code of ethics.

  We were incorporated in the State of Delaware in 1993 under the name of
InfoTouch Corporation, or InfoTouch. In February 1999, we changed our
corporate name to Homestore.com, Inc. See also the overview described in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for further background on our history.

 The Real Estate Industry

  The home and real estate industry accounts for approximately 15% of the
gross domestic product of the United States and is therefore one of the
largest sectors of the economy. The real estate industry is commonly divided
into the residential and commercial sectors. The residential sector includes
the purchase, sale, rental, relocation, remodeling home product purchases and
new construction of homes and represents approximately $1.9 trillion per year.

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 The Residential Real Estate Market

  Buying a home is the largest financial decision, and represents one of the
most difficult and complex processes, most consumers will ever undertake. The
process of finding a home begins a lifelong cycle which most consumers will
move through once every seven to eleven years. This cycle tracks major life
events such as employment, marriage, children and retirement.

  A significant portion of the United States economy has evolved around
helping consumers as they navigate through this home and real estate cycle. An
enormous network of support services and products exists to assist consumers
in finding a home, building a home, renting or buying a home, moving,
maintaining and improving a home and selling a home.

  Find a Home. The following real estate professionals and organizations
assist consumers in finding a property:

  .  Real Estate Agents. Real estate agents are independent contractors that
     are licensed to negotiate and transact the sale of real estate on behalf
     of prospective buyers and sellers. The Association of Real Estate
     License Law Officials estimates the number of individuals certified to
     practice real estate is approximately 2.0 million. Consumers spend in
     excess of $50 billion annually for assistance with the finding, buying
     and selling of residential property.

  .  Real Estate Brokers. Real estate brokers are paid a commission to bring
     buyers and sellers together and assist in negotiating contracts. Real
     estate brokers often have their own independent offices and may employ
     other licensed real estate agents. There are over 140,000 real estate
     brokers in the United States.

  .  Residential Franchisers. There are six major residential franchisers in
     the United States: Century 21, Coldwell Banker and ERA, which
     collectively comprise the Cendant franchise; RE/MAX; Prudential; and
     GMAC Home Services. These franchisers together represent thousands of
     independently owned and operated real estate offices and hundreds of
     thousands of real estate professionals in the United States.

  .  Multiple Listing Services. MLSs operate proprietary networks that
     provide real estate professionals with listings of properties for sale,
     and are regulated by a governing body of local brokers and/or agents.
     There are approximately 800 MLSs nationwide that aggregate local
     property listings by geographic location.

  .  National Association of REALTORS(R). The NAR is the largest trade
     association in the United States that represents real estate
     professionals. The NAR consists of residential and commercial
     REALTORS(R), including brokers, agents, property managers, appraisers,
     counselors and others engaged in all aspects of the real estate
     industry. The NAR has approximately 758,000 members.

  Build a Home. In addition to the real estate professionals and organizations
involved in finding a home, the new home market is also served by a large
group of dedicated professionals including:

  .  Home Builders. New homes are built primarily by a limited number of
     national home builders and a much larger number of local volume and
     custom builders. In 2000, over 900,000 new homes were sold, generating
     over $184 billion in sales.

  .  National Association of Home Builders. The NAHB is the second largest
     real estate trade association in the United States. As of December 31,
     2000, the NAHB's members included approximately 203,000 firms.
     Approximately one-third of the NAHB's members are home builders and/or
     remodelers, and the remainder work in closely related fields within the
     residential real estate industry, such as mortgage, finance, building
     products, and building services including subcontractors.

  .  Manufactured Housing Institute. The MHI is a nonprofit national trade
     association representing all segments of the manufactured housing
     industry, including manufactured home producers, retailers, developers,
     community owners and managers, suppliers, insurers and financial service
     providers. As of December 31, 2000, the MHI and its affiliated state
     associations had approximately 15,000 members.

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  .  Architects. The AIA is a professional organization for more than 63,000
     architects and allied professionals.

  Rent a Home. Today, over 33 million households in the United States reside
in rental housing. In addition to real estate agents and brokers who assist in
the leasing of residential rental units, professionals serving this segment of
the market include the following:

  .  Property Owners. Property owners include owners of individual apartment
     units, multi-family apartment complexes, individual single family rental
     homes or other residential rental properties. Property owners may lease
     and operate their rental properties themselves or outsource those
     functions to other real estate professionals, such as property managers.
     The residential rental ownership market is highly fragmented, with the
     50 largest owners of multi-family apartment complexes owning
     approximately 16% of all apartment rental units in the United States.

  .  Property Managers. Property managers are typically responsible for
     leasing available rental units, collecting rents, and maintaining the
     property. Property managers typically manage a number of apartment
     complexes, and will employ third party leasing agents to assist them
     with the leasing function. The property manager market is also highly
     fragmented, with the 50 largest property managers, many of whom also own
     their properties, managing approximately 15% of all apartment rental
     units in the United States.

  Buy and Sell a Home. Because of the complexity and size of the purchase or
sale transaction, consumers buying or selling a home typically rely upon a
series of professionals, including real estate agents and ancillary service
providers, such as mortgage brokers, title agents, escrow agents, attorneys,
inspectors and appraisers. These professionals and ancillary service providers
offer products and services, such as mortgages, title insurance, credit
reports, appraisals and inspections, that generated in excess of $95 billion
in transactional fees in 1999.

  Move. Every time consumers buy, sell or rent a home, they need assistance
with various relocation related services, such as insurance and moving
supplies and services. We estimate that consumers spend over $12 billion each
year for home and apartment moves including moving services and related
product purchases. In addition, real estate transactions often lead to
significant lifestyle changes for consumers, including changing neighborhoods,
schools, shopping malls, banks, grocers, cleaners and other retail
relationships. As a result, consumers need information about the wide range of
available product and service alternatives relating to all aspects of their
relocation.

  Maintain and Improve a Home. Ownership represents the longest portion of the
home and real estate life cycle. Homeowners purchase a large number of
household and home related products including furniture, appliances, hardware
and supplies. During this phase of the home life cycle, homeowners also
require a number of ancillary services relating to such activities as home
maintenance and repairs, refinancing, remodeling and landscaping. Each year,
approximately 25 million homeowners undertake some type of home improvement
project. As a result, many homeowners seek sources of information to assist
them in locating providers of these products and services.

 Challenges in the Real Estate Market

  Every participant in the home and real estate life cycle faces a unique set
of challenges:

  Home Buyers. In order to dispel the fear of purchasing the wrong home or
paying too much for a home, consumers must be assured that they have
considered all available options. Therefore, home buyers require an extensive
amount of information and several decision tools to help bolster confidence
during the home buying process. To make an informed decision, consumers need
access to a comprehensive listing of homes for sale and require information
about specific neighborhoods and listed prices of comparable homes for sale in
a given geographic location.

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  Once a home has been selected, consumers must consider a broad range of
related services, including mortgage, title, escrow, insurance, moving and
relocation services as well as remodeling alternatives. As a result, consumers
are continually searching for additional information and resources to assist
them in every aspect of the real estate transaction and need a comprehensive,
convenient and integrated source of information that assists them in each step
of the process.

  Real Estate Agents and Brokers. Real estate agents and brokers depend on
attracting and retaining customers in order to generate increasing numbers of
transactions. Due to its size and complexity, it is not uncommon for the real
estate transaction to take several months to complete. As a result, the job of
real estate agents and brokers is complicated by a variety of factors.
Therefore, real estate agents and brokers are looking for additional
opportunities to market their services, become more productive and compete
more effectively for transactions. In addition, they seek greater efficiency
in disseminating information to their prospective clients and are looking for
tools that can help them streamline their current practices.

  Home Builders. Home building and real estate professionals who focus on new
homes and new home developments also depend on attracting and retaining
customers in order to sell new properties in a timely manner. However, home
builders have not developed an infrastructure similar to an MLS to aggregate,
update and share data regarding available inventory. Nor do they have the
infrastructure to communicate this information to potential buyers. As a
result, home building and real estate professionals continue to seek new ways
to market their products and services and inform prospective home buyers of
the availability of new properties as well as become more productive and
compete more effectively for customers.

  Renters, Property Managers and Owners. To make an informed decision, renters
need access to comprehensive information about available rental units,
specific neighborhoods and rental prices in a given geographic location.
Because of the high turnover rate in rental units, property managers and
owners must regularly attract new tenants to minimize their vacancy rates. The
rental market has not developed a central repository for comprehensive
listings accessible by potential renters nationwide and property managers and
owners are continuously seeking to market their available units in a cost-
effective manner, become more productive and compete more effectively for
customers.

  Contractors and Home Improvement Specialists. Similar to home buyers,
consumers who desire to remodel or improve their homes require information and
decision making tools that enable them to feel confident the work will be
done. They need access to comprehensive information about different remodeling
options and the related costs, as well as help in finding specialists to
provide the needed services. Contractors and home improvement specialists seek
to provide guidance and quality work, ideally leading to a long-term
relationship with the homeowner. These contractors and specialists would
benefit from a centralized location where they could market their offerings to
a targeted group of consumers who are actively engaged in searching for the
types of services they offer.

  Ancillary Service Providers. Consumers require a variety of products and
services throughout the home life cycle. The real estate transaction provides
service providers and retailers the opportunity to target consumers at a time
when they are shifting their buying patterns. Providers and retailers of these
products or services need an effective mechanism to reach consumers who are
most interested in their offerings. Ideally, these providers of products and
services would have a centralized location where they could advertise their
offerings to a target group of consumers who are engaged in the real estate
process.

 The Internet and the Home

  The emergence and acceptance of the Internet is fundamentally changing the
way that consumers and businesses communicate, obtain information, purchase
goods and services and transact business. Because of its size, fragmented
nature and reliance on the exchange of information, the home services and
residential real estate industry is particularly well suited to benefit from
the Internet. The real estate industry currently spends $6 billion a year on
lead generating products. Traditional sources of lead generation, including
classifieds, print media and

                                       4


other off-line sources, are not interactive and are limited by data that is
sometimes incomplete or inaccurate, that is local in scope and is typically
disseminated on a weekly basis. These traditional sources also lack content
that can be searched based on specified terms, a centralized database of
information and the ability to conduct two-way communications. The Internet
offers a compelling means for consumers, real estate professionals,
homebuilders, renters, property managers and owners and ancillary service
providers to come together to improve the dissemination of information and
enhance communications.

 Homestore.com

  We are pioneering the use of the Internet to bring the home services and
real estate industry online as well as enabling real estate industry
participants to benefit from the Internet. We currently operate the most
frequently visited home and real estate-focused family of web sites, including
Homestore.com, REALTOR.com(R), HomeBuilder.com, SpringStreet.com, Remodel.com
and Homefair.com, based on the number of our users, the time users spend on
our web sites and the number of listings. Our family of web sites allows
searches of information that previously had never been compiled as
comprehensively in a single location.

  Comprehensive Source of Real Estate Listings. Our family of web sites
provides the most comprehensive source of real estate listings on the web. As
of December 31, 2000, we had approximately 1.5 million homes listed for sale
in our REALTOR.com(R) web site and we aggregated information on over 130,000
new homes for sale and planned developments throughout the United States on
our HomeBuilder.com web site. We also provide comprehensive rental property
related listing information through our SpringStreet.com web site, which
included listings for over 45,000 properties as of December 31, 2000.

  Key Industry Relationships. We have a number of relationships with key real
estate industry participants. Under our agreements with the NAR, the NAHB and
the MHI, we operate their official web sites and we receive preferential
promotion in their marketing activities. We also have content relationships
under which parties have given us the right to display their property listings
on our web sites for a period of time with approximately 62 of the 200 largest
brokers in the United States through our Broker Gold program, nine of the ten
largest home builders in the United States, each of the six largest real
estate franchises and over 770 of the approximately 800 MLSs in the United
States. In addition, we are the only site endorsed by the remodeling
industry's two leading professional organizations, the NAHB Remodelors Council
and the NARI, together representing more than 100,000 contractors and home
improvement specialists. Our close working relationships with these
organizations allow us to keep pace with the complicated and evolving real
estate industry.

  In order to draw traffic to our web sites, we have established alliances
with America Online, Inc., or AOL, and Budget Group, Inc., or BGI. In April
2000, we established a new home-related channel on AOL that provides AOL's 22
million members an online area to find home-related information, tools and
services. We have become the exclusive national provider of professional home
and moving services across AOL, AOL.COM, CompuServe, Netscape Netcenter and
Digital City. We also have an alliance with BGI in which we will be featured
in BGI's national yellow page advertising, print, television and radio
advertising, and in-store promotions. In addition, our logo will be placed on
the back and side of BGI and Ryder trucks.

  In connection with the acquisition of the Move.com Group from Cendant,
Cendant has agreed to provide us with a 40-year exclusive license to use the
listings from their franchises, which includes Century 21, Coldwell Banker and
ERA. They have also agreed to perform marketing services, exclusively use and
endorse our eRealtor transaction platforms and purchase some of our media and
technology products.

  Provide Comprehensive Set of Products and Services for Consumers. We provide
consumers with access to accurate and timely nationwide listings and to real
estate professionals and home services providers. Through our family of web
sites, consumers can easily search through substantial amounts of information
at all stages of the home and real estate life cycle. For example, we provide
decision support information and tools, such as calculators and worksheets for
helping to select financing options and information about specific
neighborhoods, directories of real estate professionals and home services
providers. We believe that providing consumers with a

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comprehensive and integrated information source for each stage of the home and
real estate life cycle allows them to be better informed and feel more
confident about their home decisions.

  Enable Industry Professionals to Benefit from the Internet. Our subscription
products allow real estate professionals and home service providers to utilize
the Internet to expand and grow their customer base. We design and maintain
personal home pages for real estate professionals and home service providers.
Real estate professionals can also have their listings displayed with detailed
information about a property and can have links from their real estate
listings to their personal home page. Through the reach of our family of web
sites, real estate professionals can significantly increase their visibility
among prospective buyers and sellers, especially those outside of their
region. In addition, we believe buyers and sellers that have used
Homestore.com to research their real estate transaction are more likely to
reach an informed purchase or sale decision in a shorter period of time.
Similarly, we offer home services providers their own personal web pages
promoting their services to a targeted audience. We also offer technology
products designed to help the real estate professional manage mission critical
applications such as contact management and content management.

  Provide Attractive Demographic for Advertisers and Service Providers. Our
family of web sites draws an attractive national target audience for
advertisers and providers of home-related products and services. Because we
attract consumers interested in real estate near the time of a transaction, we
provide businesses with an efficient way to find and communicate with
potential customers. In addition, our audience tends to use our family of web
sites for extended periods of time. Nielsen/NetRating reported that 153.2
million total minutes were spent on Homestore.com web sites in February 2001.
Nielsen/NetRatings also noted that, including the URLs for Move.com and
Rent.net acquired in February 2001, the Homestore.com family of web sites rank
among the most trafficked Internet sites in the United States--21st overall in
page views and 35th overall in unique users.

  Our Business Model Provides Multiple Revenue Opportunities. Our business
model is designed to support continued growth in the utilization of the
Internet as a tool for all phases of the home and real estate life cycle. We
currently generate revenues from selling our subscription and advertising
products and services to a number of different types of real estate industry
participants, including agents and brokers, home builders, rental property
owners and other home service and product providers.

Products and Services

  We offer a suite of tools and information for both consumers and home
service professionals throughout the home life-cycle of finding, financing,
moving, decorating, maintaining, remodeling and selling homes. We generate the
majority of our revenue today from our subscription products consisting of
online media and technology solutions for home and real estate professionals.
The balance of our revenues come from advertising sold on our web sites. Our
web sites are organized into 10 categories: existing homes for sale, newly
constructed homes, apartments and rentals, finance and insurance, moving, home
improvement, decorating, lawn and garden, appliances and electronics and
shopping for the home.

 Existing Homes by REALTOR.com(R)

 Consumer Products

  Existing Homes, marketed under the REALTOR.com(R) brand, seeks to help home
consumers by offering them a comprehensive suite of services for all aspects
of the real estate transaction. REALTOR.com(R) includes information for both
buyers and sellers including a directory of over 750,000 real estate
professionals to help them through the process. For buyers, there is a
searchable database of approximately 1.5 million existing homes for sale. We
have content arrangements with over 770 of the approximately 800 Multiple
Listing Services across the U.S. to provide the listings of residential homes.
Our property listings typically provide information that is significantly more
detailed and timely than that included in alternative media channels, such as
newspaper classified advertisements. In addition, we offer information and
tools regarding mortgages, home affordability, the offer process, applying for
a loan, closing the purchase and planning the move. For sellers, there are
tools

                                       6


and information about setting the price of their home, preparing the home,
listing and advertising the home and making the sale.

 Professional Products

  For real estate professionals, we offer a suite of media and technology
products designed to help them market themselves to home buyers and sellers,
as well as business solutions that enable them to manage and transact their
business online.

  i-Lead. i-Lead, our primary offering for the REALTOR(R), is a personalizable
multi-page web site that links a REALTOR's(R) professional biography and their
inventory of listings to their web page. This product is sold mostly on an
annual subscription basis and can vary in price based on the features selected
for the REALTOR's(R) web site.

  i-Lead Office. i-Lead Office is targeted to individual real estate brokerage
offices. i-Lead Office provides real estate brokers the opportunity to have
their entire inventory of real estate properties linked to the office's
personalizable web site, whether or not their agents purchase our i-Lead
product. The agents of the broker are listed on its web page with i-Lead
subscribers receiving placement above those who do not use i-Lead. An embedded
link to an office's web address is also available as an upgrade to i-Lead
Office users, as well as the display of their office logo on every one of
their listings for the entire year. i-Lead Office subscribers are also listed
in our Yellow Pages Directory of REALTORS(R). This product is sold mostly on
an annual subscription basis.

  One Place. One Place integrates i-Lead Office with an interactive voice
response system, linked to a pager network. With One Place, REALTORS(R) are
immediately paged when a potential home buyer or seller inquires about a
specific house. In addition, if the buyer sees the telephone number on the
"for sale" sign posted in front of the property and calls the interactive
voice response system, the REALTOR(R) is also paged. The pager message
includes a display of the caller's telephone number and specific property
information, which allows the REALTOR(R) to respond instantaneously and
knowledgeably to interested consumers.

  Online Business Solutions. We also offer a growing number of technological
business solutions for real estate professionals such as our Top Producer
product line of contact management software, our WyldFyre listings management
software and our Hessel corporate relocation tools and software. We are
currently in the process of linking these tools together with our i-Lead
product to create an integrated solution for professionals to help them
through all stages of their relationship with consumers.

 New Homes

 Consumer Products

  Our new homes tab, marketed under our HomeBuilder.com brand, provides
builder and realtor information, generated from a nationwide listing of
builders' models, newly built homes and housing plans on new homes (over
130,000 at December 31, 2000), subdivisions and developments across the U.S.
Homebuyers can browse free of charge, through our databases under three types
of search queries, new homes, builders and manufactured homes. In addition to
these searches, we also provide mapping, community profiles and the ability to
send a builder detailed requests via electronic mail or facsimile for
information on each property.

 Professional Products

  Our primary product offering to builders is a subscription product in which
we collect, store and display builder's information and train the builders'
salespersons how to respond to sales leads generated from the Internet. This
product is sold on a monthly or annual basis, and includes such features as
periodic updating of the builder's inventory, input and display of floor
plans, elevations, photos and virtual tours, as well as direct links to the
builders' web sites and lead generation management.

                                       7


 Apartments and Rentals

 Consumer Products

  Our Apartment and Rentals tab, marketed under our SpringStreet.com brand,
provides consumers interested in renting a home or apartment with
comprehensive search and relocation services. Searches stem from a
comprehensive database (more than 45,000 properties, including multi-family
apartment complexes and single family home, at December 31, 2000) located in
over 6,000 cities nationwide. With the acquisition of the Move.com Group, we
added Rent.net which augments our services and capabilities in the online
apartments and rentals category. We also have an information resource center
that includes information relating to moving services, renter's insurance,
furnishings and local content and statistics about a user's new neighborhood.
In addition, users can build and develop personalized moving checklists on our
web site and receive reminders from us by electronic mail as each item on the
checklist is triggered over time.

 Professional Products

  Our primary product offering to property owners who operate their own rental
properties and to rental property managers is a monthly subscription product
in which we offer enhanced features to owners and managers relating to their
property listing. These features include items such as photos, detailed unit
descriptions, driving directions, lead generation from electronic mail and
detailed monthly reports of web page and lead activity, as well as a link to
their web site.

 Finance and Insurance

 Consumer Products

  Under the Finance and Insurance tab, consumers can find information and
decision making tools about financial needs for the home. There are tools and
calculators to help consumers with common questions about mortgages, loans and
credit, insurance, legal matters, investing and taxes.

 Professional Products

  Our primary product under the finance tab is a subscription product for
lenders in which we offer them a marketing presence with a customized web page
that can be individualized to show items such as information about the lender,
pre-approval process for that lender, current rates or an email contact
option.

 Moving

 Consumer Products

  Our Moving tab offers comprehensive content and services for people moving
to a new home or relocating to another community. These resources provide
potential movers with interactive tools and calculators, reports from
proprietary databases, and other resources necessary for making moving
decisions, such as salary calculators, school reports, neighborhood
information and a full service off-line customer support center that provides
individual relocation assistance.

 Professional Products

  Currently, our primary product offerings to moving professionals are in-
depth reports compiled from proprietary research databases. The City Reports
detail demographic, crime and lifestyle information on over 1,300 U.S. cities.
The School Report(TM) provides in-depth information on over 85,000 public
schools. We also formed iMove.com, Inc., or iMove, with industry partners to
create technology for the van line moving industry that will enable online
estimating and reservations.

                                       8


 Home Improvement

 Consumer Products

  Our Home Improvement tab is a comprehensive online resource for all
remodeling, home improvement and home maintenance needs designed for consumers
seeking qualified professionals as well as do-it-yourself information.
Features on the tab include information to help in the planning and budgeting
phase of remodeling projects, calculators, a virtual room designer function to
picture options, and do-it-yourself guides.

 Professional Products

  Our primary product for home improvement professionals is a subscription
product in which we offer them a marketing presence with a customized web page
that can be individualized to display items such as information about their
experience, a showcase of previous projects they have completed, their
specialties and an electronic mail option.

 Decorating

 Consumer Products

  Our Decorating tab is an online resource for consumers seeking ideas and
information about decorating their homes. Features on the tab include
information to help in planning, budgeting and visualizing options as well as
advice and a directory of decoration professionals.

 Professional Products

  Our primary product for home decoration professionals is a subscription
product in which we offer them a marketing presence with a customized web page
that can be individualized to show such things as information about their
experience, a showcase of previous projects they have completed, their
specialties and an electronic mail option.

 Lawn and Garden

 Consumer Products

  Our Lawn and Garden tab is an online resource for consumers seeking ideas
and information about their lawns and gardens. Features on the tab include
information to help in growing essentials, budgeting and planning of landscape
options as well as advice and a directory of landscaping professionals.

 Professional Products

  Our primary product for landscapers is a subscription product in which we
offer them a marketing presence with a customized web page that can be
individualized to display items such as information about their experience, a
showcase of previous projects they have completed, their specialties and an
electronic mail option.

 Appliances and Electronics

 Consumer Products

  Our Appliances and Electronics tab is an online resource for consumers
seeking ideas and information about home appliances and electronic products.
Features on the tab include information on automation products, entertainment
options, personal computers and home office needs as well as a directory of
home technology and electrical professionals.

                                       9


 Professional Products

  Our primary product offering to electrical and home technology professionals
is a subscription product in which we offer them a marketing presence with a
customized web page that can be individualized to display items such as
information about their experience, their specialties and an electronic mail
option.

 Shopping

 Consumer Products

  Our Shopping tab is an online resource for consumers seeking to purchase
products for their home online. Products on the tab are organized into the
following categories: appliances, bed and bath, cooking and dining,
electronics, furniture, home decor, home improvement, home office, lawn and
garden, and security and automation.

 Professional Products

  We offer professionals the ability under the Shopping tab to market their
products on our network and close the sale online for a fee.

 Other Advertising Services

  We currently offer the following traditional Internet advertising options on
our family of web sites that may be purchased individually or in packages:

  Banner Advertising. Advertisers can purchase banner advertisements on
various content areas of our family of web sites to reach consumers interested
in specific regions or in specific products or services relating to the home
and real estate life cycle.

  Sponsorships. Sponsorships allow advertisers to maximize their exposure on
our family of web sites by featuring fixed "buttons" or other prominent
placements on certain pages to gain fixed positions on our sites and present a
user with the opportunity to click-through directly to their site.
Sponsorships are typically sold for a fixed monthly fee over the life of the
contract and may include other advertising components such as content or
banner advertisements.

Product Development

  We believe that it is important for us to continually enhance the
performance of, and features on, our family of web sites. Our development team
is focused on developing products and services for consumers and real estate
professionals that differentiate us from our competitors. We seek to maintain
and enhance our market position by building proprietary systems and features,
such as search engines for real estate listings and the technologies used to
aggregate real estate content. We expect that enhancements to our family of
web sites and to our products and services will come from both internally and
externally developed technologies.

  Our current development activities relate to improving the functionality and
performance of our family of web sites and the creation of new online
application solutions for home and real estate professionals. We are also
currently developing two transaction platforms, eRealtor.com, designed to help
real estate professionals manage the real estate transaction online and iMove,
designed to offer online quoting and reservations for moving vans. Future
delays or unforeseen problems in these development efforts could delay the
introduction of new products, services or features on our family of web sites.

  Our market is characterized by rapid technological developments, new
products and services and evolving industry standards. We will be required to
continually and timely improve the performance and features of our products
and services, particularly in response to competitive offerings. If we do not
develop new features,

                                      10


products or services in a timely manner or if our introductions are not
commercially successful, our web sites and products and services might not be
as attractive to consumers or real estate industry professionals. In addition,
the widespread adoption of new Internet, networking or telecommunications
technologies or standards or other technological changes could render our
products and services obsolete.

Infrastructure and Technology

  Our family of web sites is designed to provide fast, secure and reliable,
high-quality access to our services, while minimizing the capital investment
needed for our computer systems. Our systems supporting our family of web
sites must accommodate a high volume of user traffic, store a large amount of
listings and other related data, process a significant number of user searches
and deliver frequently updated information. Any significant increases in these
could strain the capacity of our computers, causing slower response times or
outages. We intend to pursue the development of a duplicate web site for each
of our web sites' server computers to be located at a third party service
provider in order to help insure maximum disaster recovery and business
continuity. We host our Homestore.com, REALTOR.com(R) and Remodel.com web
sites in Thousand Oaks, California and custom broker web pages in our
Milwaukee, Wisconsin facility. The SpringStreet.com(R) servers are located in
San Jose, California and our Homefair.com servers are located in Phoenix,
Arizona. Because substantially all of our computer and communications hardware
for each of our web sites is located at one location, our systems are
vulnerable to fire, floods, telecommunications failures, break-ins,
earthquakes and similar events. You should read the risk factors on pages 24
and 25 which more fully describe risks relating to our computer infrastructure
and technology.

Competition

  We believe that the principal competitive factors in attracting consumers to
our family of web sites are:

  .  the total number of listings and the number of listings for the
     consumer's specific geographic area of interest available on our web
     sites;

  .  the parties with which we have listing, marketing or distribution
     relationships;

  .  the quality and comprehensiveness of general real estate related,
     particularly home-buying, information available on our web sites;

  .  the availability and quality of other real estate related products and
     services available through our web sites; and

  .  the ease of use of our web sites.

  We believe that the principal competitive factors in attracting advertisers,
content providers and real estate professionals to our family of web sites
are:

  .  the number of visitors to our web sites;

  .  the average length of time these visitors spend viewing pages on our web
     sites;

  .  our relationships with, and support for our services by, the NAR, MLSs,
     the NAHB, the NAHB Remodelors Council, the NARI, the AIA and the MHI;
     and

  .  our relationships and national contracts with the major home builders
     and rental property owners and managers in the United States.

  Our main existing and potential competitors for real estate professionals
and service providers, home buyers, homeowners, sellers and renters and
related content include:

  .  web sites offering real estate listings together with other related
     services;

  .  web sites offering real estate related content and services such as
     mortgage calculators and information on the home buying, selling and
     renting processes;

                                      11


  .  web sites offering real estate improvement content and services;

  .  web sites offering moving and relocation;

  .  general purpose consumer web sites that also offer real estate-related
     content; and

  .  traditional print media such as newspapers and magazines.

  Our main existing and potential competitors for advertisements may include:

  .  general purpose consumer web;

  .  general purpose online services that may compete for advertising
     dollars;

  .  online ventures of traditional media; and

  .  traditional media such as newspapers, magazines and television.

  The barriers to entry for web-based services and businesses are low, making
it possible for new competitors to proliferate rapidly. In addition, parties
with whom we have listing and marketing agreements could choose to develop
their own Internet strategies or competing real estate sites upon the
termination of their agreements with us.

Intellectual Property

  We regard substantial elements of our family of web sites and underlying
technology as proprietary. We attempt to protect these elements and underlying
technology by relying on trademark, service mark, patent, copyright and trade
secret laws, restrictions on disclosure and other methods. We have been issued
a patent with respect to the technology we use to enable searches of the real
estate listings posted on our family of web sites. Despite our precautions, it
may be possible for a third party to copy or otherwise obtain and use our
proprietary information without authorization or to develop similar technology
independently.

  The REALTOR.com(R) domain name and the REALTOR(R) trademark are licensed to
us by the NAR. If we were to lose the use of such trademark or the
"REALTOR.com(R)" domain name, our business would suffer, and we would need to
devote substantial resources towards developing an independent brand identity.

  We also hold other domain names that are important to our business. The
regulation of domain names is subject to change. Some proposed changes include
the creation of additional top-level domains in addition to the current top-
level domains, such as ".com," ".net" and ".org." It is also possible that the
requirements for holding a domain name could change. Therefore, we may not be
able to obtain or maintain relevant domain names for all of the areas of our
business. It may also be difficult for us to prevent third parties from
acquiring domain names that are similar to ours, that infringe our trademarks
or that otherwise decrease the value of our intellectual property.

  We currently license from third parties technologies and information
incorporated into our family of web sites. As we continue to introduce new
services that incorporate new technologies and information, we may be required
to license additional technology and information from others.

  Legal standards relating to the validity, enforceability and scope of
protection of proprietary rights in Internet-related businesses are uncertain
and still evolving, and we can give no assurance regarding the future
viability or value of any of our proprietary rights.

  Litigation may be necessary in the future to enforce our intellectual
property rights, to protect our trade secrets or trademarks or to determine
the validity and scope of the proprietary rights of others. Litigation could
result in substantial costs and diversion of resources and management
attention. Furthermore, other parties may assert infringement claims against
us, including claims that arise from directly or indirectly providing
hypertext links to web sites operated by third parties or claims based on the
content on our site. These claims and any

                                      12


resultant litigation, should it occur, might subject us to significant
liability for damages, might result in invalidation of our proprietary rights
and, even if not meritorious, might result in substantial costs and diversion
of resources and management attention.

Employees

  As of December 31, 2000, we had approximately 2,000 full-time equivalent
employees. We consider our relations with our employees to be good. We have
never had a work stoppage, and none of our employees is represented by
collective bargaining agreements. We believe that our future success will
depend in part on our ability to attract, integrate, retain and motivate
highly qualified personnel, and upon the continued service of our senior
management and key technical personnel. None of our key personnel are bound by
employment agreements that prohibit them from ending their employment at any
time. Competition for qualified personnel in our industry and geographical
locations is intense. We cannot assure you that we will be successful in
attracting, integrating, retaining and motivating a sufficient number of
qualified employees to conduct our business in the future.

                                      13


                                 RISK FACTORS

  The following risk factors and other information included in this Annual
Report should be carefully considered. The risks and uncertainties described
below are not the only ones we face. Additional risks and uncertainties not
presently known to us or that we currently deem immaterial also may impair our
business operations. If any of the following risks actually occur, our
business, financial condition and operating results could be materially
adversely affected.

Risks Related to our Business:

  Our agreement with the National Association of REALTORS(R) could be
terminated by it.

  The REALTOR.com(R) trademark and web site address and the REALTOR(R)
trademark are owned by the NAR. The NAR licenses these trademarks to our
subsidiary RealSelect under a license agreement, and RealSelect operates the
REALTOR.com(R) web site under an operating agreement with the NAR.

  Although the REALTOR.com(R) operating agreement is a lifetime agreement, the
NAR may terminate it for a variety of reasons. These include:

  .  the acquisition of Homestore.com or RealSelect;

  .  a substantial decrease in the number of property listings on our
     REALTOR.com(R) site; and

  .  a breach of any of our other obligations under the agreement that we do
     not cure within 30 days of being notified by the NAR of the breach.

  Absent a breach by the NAR, the agreement does not contain provisions that
allow us to terminate.

  Our agreement with the NAR contains a number of provisions that could
restrict our operations.

  Our operating agreement with the NAR contains a number of provisions that
restrict how we operate our business. These restrictions include:

  .  we must make quarterly royalty payments of up to 15% of RealSelect's
     operating revenues in the aggregate to the NAR and the entities that
     provide us the information for our real property listings, which we
     refer to as our data content providers;

  .  we are restricted in the type and subject matter of, and the manner in
     which we display, advertisements on the REALTOR.com(R) web site;

  .  the NAR has the right to approve how we use its trademarks, and we must
     comply with its quality standards for the use of these marks;

  .  we must meet performance standards relating to the availability time of
     the REALTOR.com(R) web site;

  .  the NAR has the right to review, approve and request changes to the
     content on the pages of our REALTOR.com(R) web site; and

  .  we may be restricted in our ability to create additional web sites or
     pursue other lines of business that engage in displaying real property
     advertisements in electronic form by the terms of our agreements with
     the NAR.

  In addition, our operating agreement with the NAR contains restrictions on
how we can operate the REALTOR.com(R) web site. For instance, we can only
enter into agreements with entities that provide us with real estate listings,
such as MLSs, on terms approved by the NAR. In addition, the NAR can require
us to include on REALTOR.com(R) real estate related content it has developed.
See "Certain Relationships and Related Transactions--Operating Agreement with
the National Association of REALTORS(R)."

                                      14


  If our operating agreement for REALTOR.com(R) terminates, the NAR would be
able to operate the REALTOR.com(R) web site.

  If our operating agreement terminates, we must transfer a copy of the
software that operates the REALTOR.com(R) web site and assign our agreements
with data content providers, such as real estate brokers or MLSs, to the NAR.
The NAR would then be able to operate the REALTOR.com(R) web site itself or
with a third party. Many of these data content agreements are exclusive, and
we could be prevented from obtaining and using listing data from the providers
covered by these transferred agreements until the exclusivity periods lapse.

  We are subject to noncompetition provisions with the NAR which could
adversely affect our business.

  We were required to obtain the consent of the NAR prior to our acquisition
of SpringStreet, Move.com and operation of HomeBuilder.com web sites. In the
future, if we were to acquire or develop another service which provides real
estate listings on an Internet site or through other electronic means, we will
need to obtain the prior consent of the NAR. Any future consents from the NAR,
if obtained, could be conditioned on our agreeing to operational conditions
for the new web site or service. These conditions could include paying fees to
the NAR, limiting the types of content or listings on the web sites or service
or other terms and conditions. Our business could be adversely affected if we
do not obtain consents from the NAR, or if a consent we obtain contains
restrictive conditions. These noncompetition provisions and any required
consents, if accepted by us at our discretion, could have the effect of
restricting the lines of business we may pursue.

  Our agreement with the National Association of Home Builders contains
provisions that could restrict our operations.

  Our operating agreement with the NAHB includes a number of restrictions on
how we operate our HomeBuilder.com web site:

  .  if the NAR terminates our REALTOR.com(R) operating agreement, for the
     next six months the NAHB can terminate this agreement with three months'
     prior notice;

  .  we are restricted in the type and subject matter of advertisements on
     the pages of our HomeBuilder.com web site that contain new home
     listings; and

  .  the NAHB has the right to approve how we use its trademarks and we must
     comply with its quality standards for the use of its marks.

  Our SpringStreet.com web site is subject to a number of restrictions on how
it may be operated.

  In agreeing to our acquisition of SpringStreet Inc., the NAR imposed a
number of important restrictions on how we can operate the SpringStreet.com
web site. These include:

  .  if the consent terminates for any reason, we will have to transfer to
     the NAR all data and content, such as listings, on the rental site that
     were provided by real estate professionals who are members of the NAR,
     known as REALTORS(R);

  .  listings for rental units in smaller non-apartment properties generally
     must be received from a REALTOR(R) or REALTOR(R)-controlled MLSs in
     order to be listed on the web site;

  .  if the consent is terminated, we could be required to operate our rental
     properties web site at a different web address;

  .  if the consent terminates for any reason, other than as a result of a
     breach by the NAR, the NAR will be permitted to use the REALTOR(R)-
     branded web address, resulting in increased competition;

  .  without the consent of the NAR, prior to the time we are using a
     REALTOR(R)-branded web address, we cannot provide a link on the
     SpringStreet.com web site linking to the REALTOR.com(R) web site and
     vice versa;

                                      15


  .  we cannot list properties for sale on the rental web site for the
     duration of our REALTOR.com(R) operating agreement and for an additional
     two years;

  .  we are restricted in the type and subject matter of, and the manner in
     which we display, advertisements on the rental web site;

  .  we must make royalty payments based on the operating revenues of the
     rental site to the NAR and our data content providers at the same rates
     as under our REALTOR.com(R) operating agreement, except that the amount
     payable to data content providers in the aggregate will be
     proportionately based on the percentage of the total content on the site
     supplied by them; and

  .  we must offer REALTORS(R) preferred pricing for home pages or enhanced
     advertising on the rental web site.

  The NAR could revoke its consent to our operating SpringStreet.com.

  The NAR can revoke its consent to our operating the SpringStreet.com web
site for reasons which include:

  .  the acquisition of Homestore.com or RealSelect;

  .  a substantial decrease in property listings on our REALTOR.com(R) web
     site; and

  .  a breach of any of our obligations under the consent or the
     REALTOR.com(R) operating agreement that we do not cure within 30 days of
     being notified by the NAR of the breach.

  The National Association of REALTORS(R) has significant influence over
aspects of our RealSelect subsidiary's corporate governance.

  The NAR will have significant influence over RealSelect's corporate
governance.

  Board representatives. The NAR is entitled to have one representative as a
member of our board of directors and two representatives as members of
RealSelect's board of directors.

  Approval rights. RealSelect's certificate of incorporation contains a
limited corporate purpose, which purpose is the operation of the
REALTOR.com(R) web site and real property advertising programming for
electronic display and related businesses. Without the consent of six-sevenths
of the members of the RealSelect board of directors, which would have to
include at least one NAR appointed director, this limited purpose provision
cannot be amended.

  RealSelect's bylaws also contain protective provisions which could restrict
portions of its operations or require us to incur additional expenses. If the
RealSelect board of directors cannot agree on an annual operating budget for
RealSelect, it would use as its operating budget that from the prior year,
adjusted for inflation. Any expenditures in excess of that budget would have
to be funded by Homestore.com. In addition, if RealSelect desired to incur
debt or invest in assets in excess of $2.5 million without the approval of a
majority of its board, including a NAR representative, we would need to fund
those expenditures.

  RealSelect cannot take the following actions without the consent of at least
one of the NAR's representatives on its board of directors:

  .  amend its certificate of incorporation or bylaws;

  .  pledge its assets;

  .  approve transactions with affiliates, stockholders or employees in
     excess of $100,000;

  .  change its executive officers;

  .  establish, or appoint any members to, a committee of its board of
     directors; or

  .  issue or redeem any of its equity securities.

                                      16


 The NAR can restrict a change of control of Homestore.com.

  Stockholders holding approximately 16.2% of our outstanding capital stock at
December 31, 2000 have agreed to restrict the sale of their shares of common
stock. Without the prior consent of the NAR, these stockholders may not
transfer these shares of common stock to a person, other than to each other,
whose primary business is "real estate-related" or to a transferee who will
become a holder of more than 5% of our capital stock as a result of the
transfer from the stockholder. Accordingly, these types of changes of control,
even if favorable to stockholders, could be prohibited or restricted absent
the NAR's consent.

 We have a history of net losses and expect net losses for the foreseeable
 future.

  We have experienced net losses in each quarterly and annual period since
1993. We incurred an operating loss of $130.5 million for the year ended
December 31, 2000. On a pro forma basis, we incurred operating losses of
$129.2 million in 1999 and $130.5 million for the year ended December 31,
2000. As of December 31, 2000, we had an accumulated deficit of $270.9
million, and we expect to incur net losses for the foreseeable future. The
size of these net losses will depend, in part, on the rate of growth in our
revenues from broker, agent, home builder and rental property owner web
hosting fees, advertising sales and sales of other products and services. The
size of our future net losses will also be impacted by non-cash stock-based
charges relating to deferred compensation and stock and warrant issuances, and
amortization of intangible assets. As of December 31, 2000, we had
approximately $292.5 million of deferred stock-based compensation and
intangible assets to be amortized.

  It is critical to our success that we continue to devote financial, sales
and management resources to developing brand awareness for our web sites as
well as for any other products and services we may add. To accomplish this, we
will continue to develop our content and expand our marketing and promotion
activities, direct sales force and other services. As a result, we expect that
our operating expenses will increase significantly during the next several
years. With increased expenses, we will need to generate significant
additional revenues to achieve net income. As a result, we may never achieve
or sustain net income, and, if we do achieve net income in any period, we may
not be able to sustain or increase net income on a quarterly or annual basis.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."

 We must continue to obtain listings from real estate agents, brokers, home
 builders, Multiple Listing Services and property owners.

  We believe that our success depends in large part on the number of real
estate listings received from agents, brokers, home builders, MLSs and
residential, rental and commercial property owners. Many of our agreements
with MLSs, brokers and agents to display property listings have fixed terms,
typically 12 to 30 months. At the end of the term of each agreement, the other
party may choose not to continue to provide listing information to us on an
exclusive basis or at all and may choose to provide this information to one or
more of our competitors instead. We have expended significant amounts to
secure both our exclusive and non-exclusive agreements for listings of real
estate for sale and may be required to spend additional large amounts or offer
other incentives in order to renew these agreements. If owners of large
numbers of property listings, such as large brokers, MLSs, or property owners
in key real estate markets choose not to renew their relationship with us, our
family of web sites could become less attractive to other real estate industry
participants or consumers.

 We must dedicate significant resources to market our subscription products
 and services to real estate professionals.

  Because the annual fee for services sold to real estate professionals is
relatively low, we depend on obtaining sales from a large number of these
customers. It is difficult to reach and enroll new subscribers cost-
effectively. A large portion of our sales force targets real estate
professionals who are widely distributed across the United States. This
results in relatively high fixed costs associated with our sales activities.
In addition, our sales personnel generally cannot efficiently contact real
estate professionals on an individual basis and instead must

                                      17


rely on sales presentations to groups of agents and/or brokers. Real estate
agents are generally independent contractors rather than employees of brokers.
Therefore, even if a broker uses our subscription products and services, its
affiliated agents are not required to use them.

 It is important to our success that we support our real estate professional
 customers.

  Since many real estate professionals are not sophisticated computer users
and often spend limited amounts of time in their offices, it is important that
these customers find that our products and services significantly enhance
their productivity and are easy to use. To meet these needs, we provide
customer training and have developed a customer support organization that
seeks to respond to customer inquiries as quickly as possible. If our real
estate professional customer base grows, we may need to expand our support
organization further to maintain satisfactory customer support levels. If we
need to enlarge our support organization, we would incur higher overhead
costs. If we do not maintain adequate support levels, these customers could
choose to discontinue using our service.

 Our quarterly financial results are subject to significant fluctuations.

  Our results of operations could vary significantly from quarter to quarter.
In the near term, we expect to be substantially dependent on sales of our
subscription and advertising products and services. We also expect to incur
significant sales and marketing expenses to promote our brand and services.
Therefore, our quarterly revenues and operating results are likely to be
particularly affected by the number of persons purchasing subscription and
advertising products and services as well as sales and marketing expenses for
a particular period. If revenues fall below our expectations, we will not be
able to reduce our spending rapidly in response to the shortfall.

  Other factors that could affect our quarterly operating results include
those described below and elsewhere in this Form 10-K:

  .  the amount of advertising sold on our family of web sites and the timing
     of payments for this advertising and whether these advertisements are
     sold by us directly or on our behalf by America Online or other third
     parties;

  .  the level of renewals for our subscription products and services by real
     estate agents, brokers and rental property owners and managers;

  .  the amount and timing of our operating expenses and capital
     expenditures;

  .  the amount and timing of non-cash stock-based charges, such as charges
     related to deferred compensation or warrants issued to real estate
     industry participants; and

  .  costs related to acquisitions of businesses or technologies.

 Because we have expanded our operations, our success will depend on our
 ability to manage our growth.

  We have rapidly and significantly expanded our operations, both by
acquisition and organic growth, and expect to continue to expand our
operations. This growth has placed, and is expected to continue to place, a
significant strain on our managerial, operational, financial and other
resources. For example, we have grown to approximately 2,000 employees on
December 31, 2000 from approximately 1,000 employees on December 31, 1999.

 We depend on distribution agreements with a number of Internet portals to
 generate traffic on our family of web sites.

  We believe that a substantial portion of our consumer traffic comes from the
following Internet portal sites: America Online and Excite@Home. On some of
these sites we are featured as the exclusive provider of home listings. To
secure both exclusive and non-exclusive distribution relationships, we often
pay significant fees. However, we may not experience sustained increases in
user traffic from these distribution relationships.

                                      18


  There is intense competition for placement on Internet portals. Our
distribution agreements have terms ranging from two to five years. When they
expire, we may be unable to renew our existing agreements or enter into
replacement agreements. If any of these agreements terminates without our
renewing it, we could experience a decline in the number of our users and our
competitive position could be significantly weakened. Even if we renew our
agreements or enter into agreements with new providers, we may be required to
pay significant fees to do so and may be unable to retain any exclusivity that
we may have enjoyed under these agreements.

 Our family of web sites may not achieve the brand awareness necessary to
 succeed.

  In an effort to obtain additional consumer traffic, increase usage by the
real estate community and increase brand awareness, we intend to continue to
pursue an aggressive online and off-line brand enhancement strategy. These
efforts will involve significant expense. If our brand enhancement strategy is
unsuccessful, we may fail to attract new or retain existing consumers or real
estate professionals, which would have a material adverse impact on our
revenues.

  The market for web-based subscription and advertising products and services
relating to real estate is intensely competitive. Our main existing and
potential competitors include web sites offering real estate related content
and services as well as general purpose online services, and traditional media
such as newspapers, magazines and television that may compete for advertising
dollars.


  The barriers to entry for web-based services and businesses are low, making
it possible for new competitors to proliferate rapidly. In addition, parties
with whom we have listing and marketing agreements could choose to develop
their own Internet strategies or competing real estate sites upon the
termination of their agreements with us. Many of our existing and potential
competitors have longer operating histories in the Internet market, greater
name recognition, larger consumer bases and significantly greater financial,
technical and marketing resources than we do.

 We must attract and retain personnel while competition for personnel in our
 industry is intense.

  We may be unable to retain our key employees or to attract, assimilate or
retain other highly qualified employees. We have from time to time in the past
experienced, and we expect in the future to continue to experience, difficulty
in hiring and retaining highly skilled employees with appropriate
qualifications as a result of our rapid growth and expansion. Attracting and
retaining qualified personnel with experience in the real estate industry, a
complex industry that requires a unique knowledge base, is an additional
challenge for us. If we do not succeed in attracting new personnel or
retaining and motivating our current personnel, our business will be adversely
affected.

 We need to continue to develop our content and our product and service
 offerings.

  To remain competitive, we must continue to enhance and improve the ease of
use, responsiveness, functionality and features of our family of web sites.
These efforts may require us to develop internally or to license increasingly
complex technologies. In addition, many companies are continually introducing
new Internet-related products, services and technologies, which will require
us to update or modify our technology. Developing and integrating new
products, services or technologies into our family of web sites could be
expensive and time consuming. Any new features, functions or services may not
achieve market acceptance or enhance our brand loyalty. If we fail to develop
and introduce or acquire new features, functions or services effectively and
on a timely basis, we may not continue to attract new users and may be unable
to retain our existing users. Furthermore, we may not succeed in incorporating
new Internet technologies, or in order to do so, we may incur substantial
expenses.


                                      19


 We may experience difficulty in integrating our recent acquisitions.

  Our recent acquisitions, including WyldFyre in March 2000, Top Producer in
June 2000, The Hessel Group in September 2000 and the Move.com Group in
February 2001, and any future acquisitions, may result in our not achieving
the desired benefits of the transaction. Risks related to our acquisitions
include:

  .  difficulties in assimilating the operations of the acquired businesses;

  .  potential disruption of our existing businesses;

  .  the potential need to obtain the consent of the NAR;

  .  assumption of unknown liabilities and litigation;

  .  our inability to integrate, train, retain and motivate personnel of the
     acquired businesses;

  .  diversion of our management from our day-to-day operations;

  .  our inability to incorporate acquired products, services and
     technologies successfully into our family of web sites;

  .  potential impairment of relationships with our employees, customers and
     strategic partners; and

  .  inability to maintain uniform standards, controls procedures and
     policies.

  Our inability to successfully address any of these risks could materially
harm our business.

 Our business is dependent on our key personnel.

  Our future success depends to a significant extent on the continued services
of our senior management and other key personnel, particularly Stuart H.
Wolff, Ph.D. The loss of the services of Dr. Wolff or other key employees
would likely have a significantly detrimental effect on our business.

  We have no employment agreements that prevent any of our key personnel from
terminating their employment at any time. Although we have obtained "key-
person" life insurance for Mr. Wolff, we believe this coverage will not be
sufficient to compensate us for the loss of his services.

 We rely on intellectual property and proprietary rights.

  We regard substantial elements of our family of web sites and underlying
technology as proprietary. Despite our precautionary measures, third parties
may copy or otherwise obtain and use our proprietary information without
authorization or develop similar technology independently. Although we have
one patent, we may not achieve the desired protection from, and third parties
may design around, this patent or any other patent that we may obtain in the
future. In addition, in any litigation or proceeding involving our patent, or
any other patent that we may obtain in the future, the patent may be
determined invalid or unenforceable. Any legal action that we may bring to
protect our proprietary information could be expensive and distract management
from day-to-day operations.

  Other companies may own, obtain or claim trademarks that could prevent or
limit or interfere with use of the trademarks we use. The REALTOR.com(R) web
site address, or domain name, and trademark and the REALTOR(R) trademark are
important to our business and are licensed to us by the NAR. If we were to
lose the REALTOR.com(R) domain name or the use of these trademarks, our
business would be harmed and we would need to devote substantial resources
towards developing an independent brand identity.

  Legal standards relating to the validity, enforceability and scope of
protection of proprietary rights in Internet-related businesses are uncertain
and evolving, and we can give no assurance regarding the future viability or
value of any of our proprietary rights.


                                      20


 We may not be able to protect the web site addresses that are important to
 our business.

  Our web site addresses, or domain names, are important to our business. The
regulation of domain names is subject to change. Some proposed changes include
the creation of additional top-level domains in addition to the current top-
level domains, such as ".com," ".net" and ".org." It is also possible that the
requirements for holding a domain name could change. Therefore, we may not be
able to obtain or maintain relevant domain names for all of the areas of our
business. It may also be difficult for us to prevent third parties from
acquiring domain names that are similar to ours, that infringe our trademarks
or that otherwise decrease the value of our intellectual property.

 We could be subject to litigation with respect to our intellectual property
 rights.

  Other companies may own or obtain patents or other intellectual property
rights that could prevent or limit or interfere with our ability to provide
our products and services. Companies in the Internet market are increasingly
making claims alleging infringement of their intellectual property rights. For
example, in December 1997, we received a letter claiming that our map
technology infringes patents held by another person. We believe this person
may have instituted legal proceedings against two of our competitors. We have
received no further correspondence with respect to this issue and, after
discussions with our patent counsel, we do not believe any of our technology
infringes these patents. However, we could incur substantial costs to defend
against these or any other claims or litigation. If a claim were successful,
we could be required to obtain a license from the holder of the intellectual
property or redesign our advertising products and services.

 We may expand into international markets which may expose us to relatively
 higher costs and greater risks.

  We are exploring the expansion of our operations internationally as part of
our business strategy. The entry into international markets may require
significant management attention and financial resources and may place
additional burdens on our management, administrative, operational and
financial infrastructure. We cannot be certain that our investments in
establishing facilities in other countries will produce desired levels of
revenue or profitability. In addition, we have limited experience in
developing localized versions of our products and marketing and distributing
them internationally. As our international operations expand, our exposure to
exchange rate fluctuations will increase as we use an increasing number of
foreign currencies. In addition, we may be subject to the following factors:
increased financial accounting and reporting burdens and complexities;
potentially adverse tax consequences; compliance with a wide variety of
complex foreign laws and treaties; reduced protection for intellectual
property rights in some countries; licenses, tariffs and other trade barriers;
and disruption from political and economic instability in the countries in
which our operations are located, which may interrupt our ability to conduct
business and impose additional costs upon us.

Real Estate Industry Risks:

 Our business is dependent on the strength of the real estate industry, which
 is both cyclical and seasonal.

  The real estate industry traditionally has been cyclical. Recently, sales of
real estate in the United States have been at historically high levels.
Economic swings in the real estate industry may be caused by various factors.
When interest rates are high or general national and global economic
conditions are or are perceived to be weak, there is typically less sales
activity in real estate. A decrease in the current level of sales of real
estate and products and services related to real estate could adversely affect
demand for our family of web sites and our subscription and advertising
products and services. In addition, reduced traffic on our family of web sites
would likely cause our subscription and advertising revenues to decline, which
would materially and adversely affect our business.

  We may experience seasonality in our business. The real estate industry
experiences a decrease in activity during the winter. However, because of our
limited operating history under our current business model, we do

                                      21


not know if or when any seasonal pattern will develop or the size or nature of
any seasonal pattern in our business.

 We may particularly be affected by general economic conditions.

  Purchases of real property and related products and services are
particularly affected by negative trends in the general economy. The success
of our operations depends to a significant extent upon a number of factors
relating to discretionary consumer and business spending, and the overall
economy, as well as regional and local economic conditions in markets where we
operate, including:

  .  perceived and actual economic conditions;

  .  interest rates;

  .  taxation policies;

  .  availability of credit;

  .  employment levels; and

  .  wage and salary levels.

  In addition, because a consumer's purchase of real property and related
products and services is a significant investment and is relatively
discretionary, any reduction in disposable income in general may affect us
more significantly than companies in other industries.

 We have risks associated with changing legislation in the real estate
industry.

  Real estate is a heavily regulated industry in the U.S., including
regulation under the Fair Housing Act, the Real Estate Settlement Procedures
Act and state advertising laws. In addition, states could enact legislation or
regulatory policies in the future which could require us to expend significant
resources to comply. These laws and related regulations may limit or restrict
our activities. For instance, we are limited in the criteria upon which we may
base searches of our real estate listings such as age or race. As the real
estate industry evolves in the Internet environment, legislators, regulators
and industry participants may advocate additional legislative or regulatory
initiatives. Should existing laws or regulations be amended or new laws or
regulations be adopted, we may need to comply with additional legal
requirements and incur resulting costs, or we may be precluded from certain
activities. For instance, SpringStreet.com was required to qualify and
register as a real estate agent/broker in the State of California. To date, we
have not spent significant resources on lobbying or related government issues.
Any need to significantly increase our lobbying or related activities could
substantially increase our operating costs.

Internet Industry Risks:

 We depend on increased use of the Internet to expand our real estate related
 advertising products and services.

  If the Internet fails to become a viable marketplace for real estate content
and information, our business will not grow. Broad acceptance and adoption of
the Internet by consumers and businesses when searching for real estate and
related products and services will only occur if the Internet provides them
with greater efficiencies and improved access to information.

  In addition to selling subscription products and services to real estate
professionals, we depend on selling other types of advertisements on our
family of web sites.

  Our business would be adversely affected if the market for web advertising
fails to develop or develops more slowly than expected. Our ability to
generate advertising revenues from selling banner advertising and

                                      22


sponsorships on our web sites will depend on, among other factors, the
development of the Internet as an advertising medium, the amount of traffic on
our family of web sites and our ability to achieve and demonstrate user
demographic characteristics that are attractive to advertisers. Most potential
advertisers and their advertising agencies have only limited experience with
the Internet as an advertising medium and have not devoted a significant
portion of their advertising expenditures to Internet-based advertising. No
standards have been widely accepted to measure the effectiveness of web
advertising. If these standards do not develop, existing advertisers might
reduce their current levels of Internet advertising or eliminate their
spending entirely. The widespread adoption of technologies that permit
Internet users to selectively block out unwanted graphics, including
advertisements attached to web pages, could also adversely affect the growth
of the Internet as an advertising medium. In addition, advertisers in the real
estate industry, including real estate professionals, have traditionally
relied upon other advertising media, such as newsprint and magazines, and have
invested substantial resources in other advertising methods. These persons may
be reluctant to adopt a new strategy and advertise on the Internet.

 Government regulations and legal uncertainties could affect the growth of the
 Internet.

  A number of legislative and regulatory proposals under consideration by
federal, state, local and foreign governmental organizations may lead to laws
or regulations concerning various aspects of the Internet, including online
content, user privacy, access charges, liability for third-party activities
and jurisdiction. Additionally, it is uncertain as to how existing laws will
be applied to the Internet. The adoption of new laws or the application of
existing laws may decrease the growth in the use of the Internet, which could
in turn decrease the usage and demand for our services or increase our cost of
doing business.

  Some local telephone carriers have asserted that the increasing popularity
and use of the Internet have burdened the existing telecommunications
infrastructure, and that many areas with high Internet use have begun to
experience interruptions in telephone service. These carriers have petitioned
the Federal Communications Commission to impose access fees on Internet
service providers and online service providers. If access fees are imposed,
the costs of communicating on the Internet could increase substantially,
potentially slowing the increasing use of the Internet. This could in turn
decrease demand for our services or increase our cost of doing business.

 Taxation of Internet transactions could slow the use of the Internet.

  The tax treatment of the Internet and electronic commerce is currently
unsettled. A number of proposals have been made at the federal, state and
local level and by various foreign governments to impose taxes on the sale of
goods and services and other Internet activities. In 1998, the Internet Tax
Freedom Act was signed into law placing a three-year moratorium on new state
and local taxes on Internet commerce. However, future laws may impose taxes or
other regulations on Internet commerce, which could substantially impair the
growth of electronic commerce.

 We depend on continued improvements to our computer network and the
 infrastructure of the Internet.

  Any failure of our computer systems that causes interruption or slower
response time of our web sites or services could result in a smaller number of
users of our family of web sites or the web sites that we host for real estate
professionals. If sustained or repeated, these performance issues could reduce
the attractiveness of our web sites to consumers and our subscription products
and services to real estate professionals, providers of real estate related
products and services and other Internet advertisers. Increases in the volume
of our web site traffic could also strain the capacity of our existing
computer systems, which could lead to slower response times or system
failures. This would cause the number of real property search inquiries,
advertising impressions, other revenue producing offerings and our
informational offerings to decline, any of which could hurt our revenue growth
and our brand loyalty. We may need to incur additional costs to upgrade our
computer systems in order to accommodate increased demand if our systems
cannot handle current or higher volumes of traffic.


                                      23


  The recent growth in Internet traffic has caused frequent periods of
decreased performance. Our ability to increase the speed with which we provide
services to consumers and to increase the scope of these services is limited
by and dependent upon the speed and reliability of the Internet. Consequently,
the emergence and growth of the market for our services is dependent on the
performance of and future improvements to the Internet.

 Our internal network infrastructure could be disrupted.

  Our operations depend upon our ability to maintain and protect our computer
systems, located at our corporate headquarters in Westlake Village, California
and our other offices in Thousand Oaks, California; Dallas, Texas; Milwaukee,
Wisconsin; Phoenix, Arizona; and San Jose, California. Although we have not
experienced any material outages to date, we currently do not have a redundant
system for our family of web sites and other services at an alternate site.
Therefore, our systems are vulnerable to damage from break-ins, unauthorized
access, vandalism, fire, earthquakes, power loss, telecommunications failures
and similar events. Although we maintain insurance against fires, earthquakes
and general business interruptions, the amount of coverage may not be adequate
in any particular case.

  Experienced computer programmers, or hackers, may attempt to penetrate our
network security from time to time. Although we have not experienced any
material security breaches to date, a hacker who penetrates our network
security could misappropriate proprietary information or cause interruptions
in our services. We might be required to expend significant capital and
resources to protect against, or to alleviate, problems caused by hackers. We
do not currently have a fully redundant system for our family of web sites. We
also may not have a timely remedy against a hacker who is able to penetrate
our network security. In addition to purposeful security breaches, the
inadvertent transmission of computer viruses could expose us to litigation or
to a material risk of loss.

 We could face liability for information on our web sites and for products and
 services sold over the Internet.

  We provide third-party content on our family of web sites, particularly real
estate listings. We could be exposed to liability with respect to this third-
party information. Persons might assert, among other things, that, by directly
or indirectly providing links to web sites operated by third parties, we
should be liable for copyright or trademark infringement or other wrongful
actions by the third parties operating those web sites. They could also assert
that our third party information contains errors or omissions, and consumers
could seek damages for losses incurred if they rely upon incorrect
information.

  We enter into agreements with other companies under which we share with
these other companies revenues resulting from advertising or the purchase of
services through direct links to or from our family of web sites. These
arrangements may expose us to additional legal risks and uncertainties,
including local, state, federal and foreign government regulation and
potential liabilities to consumers of these services, even if we do not
provide the services ourselves. We cannot assure you that any indemnification
provided to us in our agreements with these parties, if available, will be
adequate.

  Even if these claims do not result in liability to us, we could incur
significant costs in investigating and defending against these claims. Our
general liability insurance may not cover all potential claims to which we are
exposed and may not be adequate to indemnify us for all liability that may be
imposed.

 Our common stock price may be volatile, which could result in substantial
 losses for individual stockholders.

  The market price for our common stock is likely to continue to be highly
volatile and subject to wide fluctuations in response to factors, including
the factors described herein and the following, some of which are beyond our
control:

  .  actual or anticipated variations in our quarterly operating results;

                                      24


  .  announcements of technological innovations or new products or services
     by us or our competitors;

  .  changes in financial estimates by securities analysts;

  .  conditions or trends in the Internet, technology and/or real estate and
     real estate-related industries; and

  .  market prices for stocks of Internet companies and other companies whose
     businesses are heavily dependent on the Internet have generally proven
     to be highly volatile, particularly in recent quarters.

ITEM 2. PROPERTIES

 We maintain the following principal facilities:



                                                           Square    Lease
                                      Location              Feet   Expiration
                                      --------             ------- ----------
                                                          
   Principal executive and corporate
    office........................... Westlake Village, CA 137,762    2008
   Web site facility................. Thousand Oaks, CA     71,948    2003
   HomeBuilder.com office............ Dallas, TX            17,650    2002
   SpringStreet.com office........... San Francisco, CA     17,069    2004
   Operations center and offices..... Scottsdale, AZ        64,094    2007


  We believe that our existing facilities and office space are adequate to
meet current requirements, and that suitable additional or substitute space
will be available as needed to accommodate any further physical expansion of
operations.

  In connection with the Move.com Group acquisition in February 2001, we
acquired approximately 184,000 square footage of office and facility space
located in San Francisco, California and Westbury, New York.

ITEM 3. LEGAL PROCEEDINGS

  From time to time, we are involved in legal proceedings and litigation
arising in the ordinary course of business. As of the date of this Form 10-K
and except as set forth herein, we are not a party to any litigation or other
legal proceeding that, in our opinion, could have a material adverse effect on
our business, operating results or financial condition.

  On April 25, 2000, we received a request for information pertaining to our
business from the Antitrust Division of the U.S. Department of Justice, or
DOJ. The request sought information about our business as it relates to
Internet realty sites in the United States, and we have responded to that
request. Following its review under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 of our acquisition of the Move.com Group from Cendant
Corporation, the DOJ notified us in February 2001 that it would not oppose the
closing of the acquisition, but intended to continue its investigation of
certain Homestore.com agreements, including certain agreements between
Homestore.com and Cendant. Homestore.com is continuing to cooperate with the
DOJ with respect to that investigation. An unfavorable outcome of the DOJ's
investigation could adversely affect our business.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

  We did not submit any matters to a vote of security holders during the
fourth quarter of the year ended December 31, 2000.

                                      25


                                    PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

  The company's common stock has been traded on the Nasdaq National Market
under the symbol HOMS since the company's initial public offering on August 5,
1999. The following table shows the high and low sale prices of the common
stock as reported by the Nasdaq National Market for the periods indicated.



     1999                                                         High    Low
     ----                                                        ------- ------
                                                                   
     Third Quarter (from August 5, 1999)........................ $ 59.88 $19.75
     Fourth Quarter.............................................  109.00  33.00
     2000
     ----
     First Quarter..............................................  138.00  34.00
     Second Quarter.............................................   49.00  14.06
     Third Quarter..............................................   55.00  26.50
     Fourth Quarter.............................................   46.88  17.44
     2001
     ----
     First Quarter (through February 28, 2001)..................   37.25  16.38


  As of February 28, 2001, there were approximately 1,004 record holders of
our common stock.

Dividends

  We have never declared or paid any cash dividends on our capital stock and
we do not anticipate paying any cash dividends in the foreseeable future,
except for an annual dividend of $.08 to be paid on the one share of our
Series A preferred stock held by the NAR.

Recent Sales of Unregistered Securities

  Information concerning our unregistered sales of our securities during 1999
is incorporated by reference to the exhibit included on Form 10-K, file no.
000-26659, relating to sales of unregistered securities during 1999.
Information concerning our unregistered sales of our securities by the Company
during 2000 is filed as an exhibit to this Form 10-K.

Use of Proceeds

  On August 4, 1999, a registration statement on Form S-1 (No.333-79689) was
declared effective by the SEC, pursuant to which 8,050,000 shares of our
common stock were offered and sold for our account at a price of $20.00 per
share, generating gross offering proceeds of $161.0 million. Each outstanding
share of preferred stock, except for one share of Series A preferred stock,
was automatically converted into five shares of common stock upon the closing
of the initial public offering. In connection with the offering, we incurred
$11.3 million in underwriting discounts and commissions, and $4.1 million in
other related expenses. The net proceeds of the offering, after deducting
underwriting discounts, commissions and offering expenses, were $145.6
million.

  We have applied substantially all of the proceeds from our initial public
offering as follows: (1) $37.5 million for the repayment of the promissory
note issued in connection with the Homefair acquisition, (2) $6.3 million as a
payment under a distribution agreement, (3) $1.0 million as a payment to
RE/MAX under a marketing services agreement, (4) $900,000 for partial
repayment of a note issued in connection with the acquisition of The
Enterprise of America, Ltd., (5) $600,000 payment to the NAR under the
REALTOR.com operating agreement, and (6) approximately $99.3 million to fund
our general operations and for general corporate purposes, including working
capital, expanding sales and marketing efforts, product development, and
capital expenditures.

                                      26


ITEM 6. SELECTED FINANCIAL DATA

  You should read the following selected consolidated financial data with the
consolidated financial statements and related notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
appearing elsewhere in this Form 10-K. The consolidated statement of
operations data for the years ended December 31, 2000, 1999 and 1998, and the
consolidated balance sheet data as of December 31, 2000 and 1999, are derived
from the audited consolidated financial statements of Homestore.com included
elsewhere in this Form 10-K. The consolidated statement of operations data for
the years ended December 31, 1997 and 1996, and the consolidated balance sheet
data as of December 31, 1998, 1997 and 1996, have been derived from our
audited and unaudited consolidated financial statements not included in this
Form 10-K. The unaudited consolidated financial statements have been prepared
on substantially the same basis as the consolidated audited financial
statements and include all adjustments, consisting only of normal recurring
adjustments, that we consider necessary for a fair presentation of the
financial position and results of operations for the period. The unaudited pro
forma data for the year ended December 31, 1999 is derived from unaudited pro
forma condensed consolidated statement of operations included elsewhere in
this Form 10-K.

  As a result of the reorganization of our holding company structure and due
to the fact that our historical results of operations, financial condition and
cash flows were insignificant prior to December 4, 1996, management believes
that a pro forma presentation, which includes a comparison of results of
operations and financial condition of NetSelect, Inc., NetSelect, LLC,
Homestore.com and RealSelect on a combined basis for 1998 and 1999 is the only
meaningful basis of presentation for investors in evaluating our historical
financial performance. See the basis of presentation described in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

  The unaudited pro forma condensed consolidated statement of operations data
assume that the following transactions occurred on January 1, 1999, except for
preferred stock issued in connection with an acquisition. For this preferred
stock, the weighted average shares reflect the preferred stock as if it had
been issued as of January 1, 1999, or the date of issuance, if later:

  .  conversion of preferred stock in connection with the initial public
     offering;

  .  our acquisition of SpringStreet for common stock and convertible
     preferred stock equivalent to an aggregate of 5,309,058 shares of our
     common stock, with an estimated fair value of $51.7 million;

  .  our acquisition of Homefair for 250,000 shares of our common stock, with
     an estimated fair value of $11.2 million, a $37.5 million promissory
     note and $35.8 million in cash and other acquisition-related expenses;
     and

  .  the reorganization of our holding company structure in February 1999 by
     merging NetSelect, Inc. and NetSelect, LLC with InfoTouch.

  The unaudited consolidated pro forma data may not, however, be indicative of
the consolidated results of operations of Homestore.com that actually would
have occurred had the transactions reflected in the unaudited consolidated pro
forma results of operations occurred at the beginning of the period presented,
or of the consolidated results of operations that we may achieve in the
future.

                                      27




                                         Actual                       Pro Forma
                          -----------------------------------------  ------------
                                 Year Ended December 31,              Year Ended
                          -----------------------------------------  December 31,
                          2000 (1)     1999    1998   1997    1996       1999
                          ---------  --------  -----  -----  ------  ------------
                               (in thousands, except per share amounts)
                                                   
Consolidated Statement
 of Operations Data:
Revenues................  $ 229,967  $ 62,580  $ --   $  42  $1,360   $  73,367
Cost of revenues (2)....     62,239    21,965    --       6      42      25,753
                          ---------  --------  -----  -----  ------   ---------
Gross profit............    167,728    40,615    --      36   1,318      47,614
Operating expenses:
 Sales and marketing
  (2)...................    175,044    85,110    --      14     479      98,386
 Product development
  (2)...................     15,554     5,380    --     --      629       7,381
 General and
  administrative (2)....     60,700    26,892      3     38     441      34,167
 Amortization of
  intangible assets.....     42,900    10,192    --     --      --       28,476
 In-process research and
  development...........      4,048       --     --     --      --          --
 Litigation settlement..        --      8,406    --     --      --        8,406
                          ---------  --------  -----  -----  ------   ---------
 Total operating
  expenses..............    298,246   135,980      3     52   1,549     176,816
                          ---------  --------  -----  -----  ------   ---------
Loss from operations....   (130,518)  (95,365)    (3)   (16)   (231)   (129,202)
Interest income
 (expense), net.........     23,031     2,386    --      (1)    (21)     (2,844)
Other expense, net......     (7,682)      (28)   --     --      --          --
                          ---------  --------  -----  -----  ------   ---------
Net loss................   (115,169)  (93,007)    (3)   (17)   (252)   (132,046)
Accretion of redemption
 value and dividends on
 convertible preferred
 stock .................        --     (2,299)   --     --      --          --
                          ---------  --------  -----  -----  ------   ---------
Net loss applicable to
 common stockholders ...  $(115,169) $(95,306) $  (3) $ (17) $ (252)  $(132,046)
                          =========  ========  =====  =====  ======   =========
Net loss per share
 applicable to common
 stockholders
 Basic and diluted......  $   (1.44) $  (2.32) $ --   $ --   $ (.07)  $   (2.11)
                          =========  ========  =====  =====  ======   =========
Weighted average
 shares--basic and
 diluted................     79,758    41,142  9,173  8,650   3,477      62,474
                          =========  ========  =====  =====  ======   =========

- --------
(1) Since there are no pro forma adjustments after December 31, 1999, no pro
    forma consolidated statement of operations data for the year ended
    December 31, 2000 has been presented.

(2) The following chart summarizes the stock-based charges that have been
    included in the following captions for the periods presented:



                                           Actual                   Pro Forma
                             ------------------------------------  ------------
                                  Year Ended December 31,           Year Ended
                             ------------------------------------  December 31,
                               2000     1999   1998  1997   1996       1999
                             -------- -------- ----  -----  -----  ------------
                                       (in thousands)
                                                 
Cost of revenues...........  $    607 $    943 $--   $ --   $ --     $ 1,432
Sales and marketing........    51,381   14,726  --     --     --      16,383
Product development........       572      447  --     --     --         677
General and
 administrative............     3,095    5,111  --     --     --       5,547
                             -------- -------- ----  -----  -----    -------
                             $ 55,655 $ 21,227 $--   $ --   $ --     $24,039
                             ======== ======== ====  =====  =====    =======


                                        December 31,
                             ------------------------------------
                               2000     1999   1998  1997   1996
                             -------- -------- ----  -----  -----
                                       (in thousands)
                                                 
Consolidated Balance Sheet
 Data:
Cash and cash equivalents..  $180,985 $ 90,382 $ 71  $ 155  $  36
Working capital
 (deficiency)..............   292,402   40,822    1    (37)   (46)
Total assets...............   918,655  276,563   71    155     77
Notes payable, long term
 and current...............       411   38,576  --     --     --
Redeemable convertible
 preferred stock...........       --       --   --     --     --
Total stockholders' equity
 (deficit).................   634,363  195,473  (95)  (133)  (116)


                                      28


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS

  You should read the following discussion in conjunction with the unaudited
pro forma condensed combined consolidated financial data for the years ended
December 31, 1998 and 1999 and the audited consolidated financial statements
for the year ended December 31, 2000 and related notes of Homestore.com
appearing elsewhere in this Form 10-K.

Overview

  Homestore.com, Inc., or Homestore.com or Homestore, has created an online
marketplace that is the leading destination on the Internet for home and real
estate-related information, products and services, based on the number of
visitors, time spent on the web sites and number of property listings. Through
our family of web sites, Homestore provides a wide variety of information and
tools for consumers, and is the leading supplier of online media and
technology solutions for real estate industry professionals, advertisers and
providers of home and real estate-related products and services. To provide
consumers with real estate listings, access to real estate professionals and
other home and real estate-related information and resources, we have
established relationships with key industry participants. These participants
include real estate market leaders such as the National Association of
REALTORS(R), or the NAR, the National Association of Home Builders, or the
NAHB, the largest Multiple Listing Services, or MLSs, the NAHB Remodelors
Council, the National Association of the Remodeling Industry(R), or NARI, the
American Institute of Architects, or AIA, the Manufactured Housing Institute,
or MHI, real estate franchises, brokers, builders and agents. We also have
distribution agreements with a number of leading Internet portal web sites.

 Basis of Presentation

  Initial Business and RealSelect Holding Structure. We were incorporated in
1993 under the name of InfoTouch Corporation, or InfoTouch, with the objective
of establishing an interactive network of real estate "kiosks" for consumers
to search for homes. In 1996, we began to develop the technology to build and
operate real estate related Internet sites. Effective December 4, 1996, we
entered into a series of agreements with the NAR and several investors. Under
these agreements, we transferred technology and assets relating to advertising
the listing of residential real estate on the Internet to a newly-formed
company, NetSelect LLC, or LLC, in exchange for a 46% ownership interest in
LLC. The investors contributed capital to a newly-formed company, NetSelect,
Inc., or NSI, which owned 54% of LLC. LLC received capital funding from NSI
and in turn contributed the assets and technology contributed by InfoTouch as
well as the NSI capital to a newly formed entity, RealSelect, Inc., or
RealSelect, in exchange for common stock representing an 85% ownership
interest in RealSelect. Also effective December 4, 1996, RealSelect entered
into a number of formation agreements with and issued cash and common stock
representing a 15% ownership interest in RealSelect to the NAR in exchange for
the rights to operate the REALTOR.com(R) web site and pursue commercial
opportunities relating to the listing of real estate on the Internet.

  The agreements governing RealSelect required us to terminate our remaining
activities, which were insignificant at that time, and dispose of our
remaining assets and liabilities, which we did in early 1997. Accordingly,
following the formation, NSI, LLC and InfoTouch were shell holding companies
for their investments in RealSelect.

  Our initial operating activities primarily consisted of recruiting
personnel, developing our web site content and raising our initial capital. We
developed our first web site, REALTOR.com(R), in cooperation with the NAR and
actively began marketing our advertising products and services to real estate
professionals in January 1997.

  Reorganization of Holding Structure. Under the formation agreements of
RealSelect, the reorganization of the initial holding structure was provided
for at an unspecified future date. On February 4, 1999, NSI stockholders
entered into a non-substantive share exchange with and were merged into
InfoTouch. In addition,

                                      29


LLC was merged into InfoTouch. We refer to this transaction as the
Reorganization. The share exchange lacked economic substance and, therefore,
was accounted for at historical cost. For a further discussion relating to the
accounting for the Reorganization, see Notes 1, 2 and 3 of Homestore.com's
Notes to the Consolidated Financial Statements. We (InfoTouch) changed our
corporate name to Homestore.com, Inc. in August 1999.

  Our historical consolidated financial statements reflect the results of
operations of Homestore.com, Inc., formerly InfoTouch. For the years ended
December 31, 1997 and 1998, and through the Reorganization on February 4,
1999, Homestore.com was a holding company whose sole business was managing its
investment in RealSelect through LLC. This investment was accounted for under
the equity method, and accordingly, Homestore.com did not record the results
of operations related to the operating entity, RealSelect, until the
Reorganization occurred on February 4, 1999. Prior to February 4, 1999, the
results of operations of RealSelect were consolidated by NSI. Thus, all
revenues through February 4, 1999, were recorded by NSI. Pro forma financial
information that includes a comparison of the results of operations of NSI,
LLC, Homestore.com and RealSelect on a combined basis for the twelve months
ended December 31, 1998 and 1999 has been presented to assist investors in
evaluating our historical financial performance. A comparison of the
historical results of operations of Homestore.com has not been presented
because the financial position, results of operations and cash flows were
insignificant for all periods presented prior to the Reorganization.

  Acquisitions. In March 1998, we acquired The Enterprise of America, Ltd., or
The Enterprise, a provider of web hosting services for real estate brokers,
for $3.0 million in cash, notes and stock. In July 1998, we acquired
MultiSearch Solutions, Inc., or MultiSearch, the initial developer of the
HomeBuilder.com web site, for $8.7 million in cash, notes and stock. In June
1999, we acquired SpringStreet, Inc., or SpringStreet, for common stock and
convertible preferred stock equivalent to an aggregate of 5,309,058 shares of
common stock. In October 1999, we acquired all of the outstanding capital
stock of The Homebuyer's Fair, Inc. and FAS-Hotline, Inc., collectively
Homefair, for $35.8 million in cash and other acquisition-related expenses, a
$37.5 million promissory note and 250,000 shares of our common stock. In May
2000, we acquired WyldFyre Technologies, Inc., or WyldFyre, a leading
developer of technology solutions for real estate professionals to access
multiple listing service (MLS) information via the Internet, for $34.0 million
in stock. In June 2000, we acquired Top Producer Systems, Inc., or Top
Producer, a provider of leads management and marketing software for real
estate professionals, for $24.2 million in cash and stock. Contingent purchase
price payments of approximately $16.2 million may also be paid in cash or
stock, if certain defined targets are met during the years ended December 31,
2000 through December 31, 2004. In September 2000, we acquired The Hessel
Group, a leading provider of technology-driven solutions and services to the
relocation industry, for $15.0 million in cash and assumption of The Hessel
Group's options with an estimated fair value of $4.5 million.

  In February 2001, we completed the acquisitions of Move.com, Inc. and
Welcome Wagon International, Inc, or collectively referred to as the Move.com
Group, from Cendant Corporation, or Cendant, in an all stock transaction
valued at approximately $757.3 million. In connection with the acquisitions,
we issued an aggregate of 21.4 million shares of our common stock in exchange
for all the outstanding shares of capital stock of the Move.com Group, and
assumed approximately 3.2 million outstanding stock options of Move.com, Inc.
Cendant is restricted in its ability to sell the Homestore.com shares it
received in the acquisition and has agreed to vote such shares on all
corporate matters in proportion to the voting decisions of all other
stockholders. In addition, Cendant has agreed to a ten-year standstill
agreement that, under most conditions, prohibits Cendant from acquiring
additional Homestore.com shares. The acquisition will be accounted for as a
purchase in accordance with generally accepted accounting principles.

  We anticipate an increase in absolute dollars for revenues, cost of
revenues, operating expenses and amortization of intangibles in connection
with the Move.com Group acquisition.

  We may seek to continue to expand our current offerings by acquiring
additional businesses, technologies, product lines or service offerings from
third parties. We may be unable to identify future acquisition targets and may
be unable to complete future acquisitions. Even if we complete an acquisition,
we may have difficulty in

                                      30


integrating it with our current offerings, and any acquired features,
functions or services may not achieve market acceptance or enhance our brand
loyalty. Integrating newly acquired organizations and products and services
could be expensive, time consuming and a strain on our resources.

 Accounting Policies

  Revenues. We derive our revenues principally from the sale of subscription
products, consisting of online media and technology solutions for home and
real estate professionals, including web site development, to real estate
agents and brokers, home builders, financial service companies and property
owners and managers. Revenue from technology solutions are derived from the
following: (i) software license revenue (ii) support and service revenues, and
(iii) web site development revenues. We recognize revenues from software
transactions in accordance with provisions of Statement of Position, or SOP,
97-2, "Software Revenue Recognition." Revenues from the sale of software
products are recognized upon delivery of the products and satisfaction of
related obligations, if any, provided that persuasive evidence of an
arrangement exists, the fee is fixed and determinable and collection of the
resulting receivable is probable. For contracts with multiple elements (e.g.,
delivered and undelivered products, support and other services), we allocate
revenues to the undelivered elements of the contract based on vendor-specific
objective evidence of its fair value. This vendor-specific objective evidence
of fair value is the sales price of the element when sold separately or the
renewal rate specified in the arrangement for licensing arrangements with
terms of one year to 18 months that include customer support and unspecified
software updates. Revenues allocated to undelivered elements are recognized
when all revenue recognition criteria are met. Support and services revenues
are recognized ratably over the period of the support contract. Payments for
support and services are generally made in advance and are non-refundable. The
products are sold in annual subscriptions and, accordingly, we defer these
revenues and recognize them ratably over the life of the contract, generally
12 months. These prepayments appear on our balance sheet as deferred revenues.
Contracts involving web site development are accounted for using the
percentage-of-completion method which is generally determined based on
development costs incurred relative to total estimated costs.

  We also sell advertising banners and traditional Internet sponsorships on
our web sites. We sell banner advertising pursuant to contracts with terms
varying from three months to three years, which may include the guarantee of a
minimum number of impressions or times that an advertisement appears in pages
viewed by the users. This advertising revenue is recognized ratably based upon
the lesser of impressions delivered over the total number of guaranteed
impressions or ratably over the period in which the advertisement is
displayed. Equity exchanged for services is recognized during the period in
which the services are provided. We record and measure the value of equity
received in exchange for services in accordance with Emerging Issues Task
Force, or EITF, 00-8 "Accounting by a Grantee for an Equity Instrument to Be
Received in Conjunction with Providing Goods or Services." We recognize
revenues from advertising barter transactions in accordance with EITF 99-17,
"Accounting for Advertising Barter Transactions." Revenues from these
transactions are recognized during the period in which the impressions are
delivered. The services provided are valued based on similar cash transactions
which have occurred within six months prior to the date of the barter
transaction. During the year ended December 31, 2000, revenues from equity-
for-services and advertising barter transactions were less than 5% of
revenues. There were no revenues from these type of transactions during the
year ended December 31, 1999.

  Cost of revenues. Cost of revenues consists of salaries, benefits,
consulting fees and equipment costs related to our web site operations, credit
card processing fees and data aggregation costs. Cost of revenues also
includes royalties paid to third-party real estate listings providers. These
royalties are capitalized and amortized over the related contract period and
are classified on our balance sheet as deferred royalties. Also included in
cost of revenues are stock-based charges attributed to cost of revenues.

  Real estate listings providers generally receive 10% to 12% of the gross
revenues that we generate from their listings. Some real estate listings
providers have entered into national arrangements with us, under which we have
the exclusive right to list their properties on the Internet. The royalty rate
for agreements with these real

                                      31


estate listings providers is slightly higher than for other providers. We also
make royalty payments to the NAR under the terms of our Operating Agreement.
We anticipate continuing increases in cost of revenues in absolute dollars as
our revenues increase. We also expect that cost of revenues will increase as
we continue to make investments to increase the capacity and speed of our
family of web sites.

  Sales and marketing. Sales and marketing expenses include salaries, sales
commissions, benefits, travel and related expenses for our direct sales force,
customer service, marketing, and sales support functions. Sales and marketing
expenses also include fees associated with our Internet portal distribution
agreements and marketing and listing agreements with real estate franchises.
These fees are amortized on a pro rata basis over the terms of the agreements.
We expect to increase the absolute dollar amount of spending in sales and
marketing activities over the next year in an effort to drive consumer traffic
to our family of web sites and increase brand awareness. Also included in
sales and marketing are stock-based charges attributed to sales and marketing
activities.

  Product development. Product development costs include expenses for the
development of new or improved technologies designed to enhance the
performance of our family of web sites, including salaries and related
expenses for our web site design staff, as well as costs for contracted
services, content, facilities and equipment. We believe that a significant
level of product development activity and expense is required in order to
remain competitive with new and existing web sites. Accordingly, we anticipate
that we will continue to devote substantial resources to product development
and that the absolute dollar amount of these costs will increase in future
periods. Also included in product development are stock-based charges
attributed to product development activities.

  General and administrative. General and administrative expenses include
salaries, benefits and expenses for our executive, finance, legal and human
resources personnel. In addition, general and administrative expenses include
occupancy costs, fees for professional service, and other general corporate
related costs. We expect general and administrative expenses to increase in
absolute dollars as we continue to expand our administrative infrastructure to
support the anticipated growth of our business. Also included in general and
administrative expenses are stock-based charges attributed to general and
administrative activities.

  Amortization of intangible assets. Amortization of intangible assets
consists of goodwill and other purchased intangibles resulting from our
acquisition activities. Goodwill and all other purchased intangibles are being
amortized on a straight-line basis over the estimated periods of benefit
ranging from three to fifteen years. We anticipate an increase in amortization
of intangible assets in connection with the acquisition of the Move.com Group.

  We have only a limited operating history under our current business model.
Our prospects must be considered in light of the risks, uncertainties,
expenses and difficulties frequently encountered by companies in their early
stages of development, particularly companies in new and rapidly evolving
markets such as the Internet. To address these risks, we must, among other
things, be able to continue to respond to highly competitive developments,
attract, retain and motivate qualified personnel, implement and successfully
execute our marketing plans, continue to upgrade our technologies, develop new
distribution channels, and improve operational and financial systems. Although
our revenues have grown significantly in recent periods, we may be unable to
sustain this growth. Therefore, you should not consider our historical growth
indicative of future revenue levels or operating results. We may never achieve
net income, and, if we do, we may not be able to sustain it. A more complete
description of other risks relating to our business is set forth under the
caption "Risk Factors."

                                      32


Results of Operations

  The following tables set forth certain pro forma and actual consolidated
statement of operations data. Since there were no pro forma adjustments after
December 31, 1999, no pro forma consolidated statements of operations for the
year ended December 31, 2000 has been presented. The pro forma consolidated
statement of operations data for the periods indicated assumes that the
following transactions had occurred as of January 1, 1998:

  .  our acquisition of The Enterprise for 525,000 shares of common stock,
     with an estimated fair value of $525,000, a $2.2 million note payable,
     and $705,000 in cash and other acquisition-related expenses;

  .  our acquisition of MultiSearch for convertible preferred stock
     equivalent to 1,625,000 shares of our common stock, with an estimated
     fair value of $4.8 million, a $3.6 million note payable and $875,000 in
     cash and other acquisition-related expenses;

  .  our acquisition of SpringStreet for common stock and convertible
     preferred stock equivalent to an aggregate of 5,309,058 shares of our
     common stock, with an estimated fair value of $51.7 million;

  .  our acquisition of Homefair for 250,000 shares of our common stock, with
     an estimated fair value of $11.2 million, a $37.5 million promissory
     note, and $35.8 million in cash and other acquisition-related expenses;
     and

  .  the reorganization of our holding company structure as previously
     described.

  The unaudited consolidated pro forma data may not, however, be indicative of
the consolidated results of operations of Homestore.com that actually would
have occurred had the transactions reflected in the unaudited consolidated pro
forma results of operations occurred at the beginning of the periods
presented, or of the consolidated results of operations that we may achieve in
the future.



                                                  Actual        Pro Forma
                                               ------------ -------------------
                                                                Year Ended
                                                Year Ended     December 31,
                                               December 31, -------------------
                                                   2000       1999       1998
                                               ------------ ---------  --------
                                                       (in thousands)
                                                              
Consolidated Statement of Operations Data:
Revenues.....................................   $ 229,967   $  73,367  $ 23,123
Cost of revenues (1).........................      62,239      25,753    10,274
                                                ---------   ---------  --------
Gross profit.................................     167,728      47,614    12,849
Operating expenses:
 Sales and marketing (1).....................     175,044      98,386    35,066
 Product development (1).....................      15,554       7,381     5,663
 General and administrative (1)..............      60,700      34,167    31,338
 Amortization of intangible assets...........      42,900      28,476    27,897
 In-process research and development.........       4,048         --        --
 Litigation settlement.......................         --        8,406       --
                                                ---------   ---------  --------
 Total operating expenses....................     298,246     176,816    99,964
                                                ---------   ---------  --------
Loss from operations.........................    (130,518)   (129,202)  (87,115)
Interest income (expense), net...............      23,031      (2,844)   (6,090)
Other expense, net...........................      (7,682)        --        --
                                                ---------   ---------  --------
Net loss.....................................   $(115,169)  $(132,046) $(93,205)

- --------
(1) The following chart summarizes the stock-based charges that have been
    included in the following captions for the periods presented:



                                                      Actual       Pro Forma
                                                   ------------ ---------------
                                                                  Year Ended
                                                    Year Ended   December 31,
                                                   December 31, ---------------
                                                       2000      1999    1998
                                                   ------------ ------- -------
                                                          (in thousands)
                                                               
Cost of revenues..................................   $   607    $ 1,432 $   141
Sales and marketing...............................    51,381     16,383     506
Product development...............................       572        677      78
General and administrative........................     3,095      5,547  19,730
                                                     -------    ------- -------
                                                     $55,655    $24,039 $20,455
                                                     =======    ======= =======


                                      33




                                                           Actual  Pro Forma
                                                           ------  -----------
                                                            2000   1999   1998
                                                           ------  ----   ----
                                                                 
As a Percentage of Revenues:
Revenues..................................................  100%    100%   100%
Cost of revenues..........................................   27      35     44
                                                            ---    ----   ----
Gross profit..............................................   73      65     56
                                                            ---    ----   ----
Operating expenses:
  Sales and marketing.....................................   76     134    152
  Product development.....................................    7      10     24
  General and administrative..............................   26      47    135
  Amortization of intangible assets.......................   19      39    121
  In process research and development.....................    2     --     --
  Litigation settlement...................................  --       11    --
                                                            ---    ----   ----
Total operating expenses..................................  130     241    432
                                                            ---    ----   ----
Loss from operations......................................  (57)   (176)  (376)
Interest income (expense), net............................   10      (4)   (27)
Other expense, net........................................   (3)    --     --
                                                            ===    ====   ====
Net loss..................................................  (50)%  (180)% (403)%
                                                            ===    ====   ====


For the Years Ended December 31, 2000 and 1999

 Revenues

  Revenues increased to $230.0 million in 2000 from pro forma revenues of
$73.4 million in 1999. The increase was primarily due to increased revenue
from professional subscriptions as well as an increase in advertising revenue.

  Subscription revenues, which represented approximately 54% of total revenues
for 2000, grew 185% from 1999. The growth in revenue from professional
subscriptions was due to increases in the number of professionals on the
Homestore.com family of web sites as well as an increase in the average
revenue per subscription. Also contributing to the increase was sales of
technology products as well as web development fees. The number of
professional subscriptions increased by 52% to approximately 145,000 compared
to totals at December 31, 1999 and was driven, in part, by bulk purchases from
national franchises. We anticipate that we will have an increase in the number
of professional subscribers and corresponding increases to revenues in
connection with the acquisition of the Move.com Group, resulting in
subscriptions representing a larger percentage of total anticipated revenues
in 2001.

  Advertising revenues, which represented approximately 46% of total revenues
for 2000, grew 250% from 1999. The increase was driven primarily by increases
in advertising and sponsorship arrangements. Although our advertising revenue
has grown significantly in recent periods, we may be unable to sustain growth
as there has been a softening in the online advertising market in general. If
this softening continues or worsens, our advertising revenues could be
adversely affected.

 Cost of Revenues

  Cost of revenues, including non-cash stock-based charges, increased to $62.6
million in 2000 from pro forma cost of revenues of $25.7 million in 1999. The
increase was due primarily to our overall increased sales volume, increased
salaries, increase in royalties, and hosting costs during 2000 as compared to
1999. We anticipate continuing increases in cost of revenues in absolute
dollars as our revenues increase and we continue to make capital investments
to increase the capacity of our family of web sites in order to accommodate
traffic increases.

  Gross margin percentage for 2000 was 72.9%, up from pro forma gross margin
percentage of 64.9% for 1999. The increase in gross margin percentage was
primarily due to renewal of subscriptions as well as the continuing effort to
leverage our existing web site operations.

                                      34


 Operating Expenses

  Sales and marketing. Sales and marketing expenses increased to $175.0
million in 2000 from pro forma sales and marketing of $98.4 million in 1999.
The increase was primarily attributable to a significant increase in costs
associated with Internet portal distribution agreements and marketing and
listing agreements, which we entered into during the third and fourth quarter
of 1999. The increase was also due to increased salaries and commissions.
Increases in advertising for our branding campaign, promotional material, and
trade show expenses during 2000 also contributed to the increase. The increase
was also due to the inclusion of stock-based charges in sales and marketing.
These stock-based charges increased by $36.6 million to $51.3 million in 2000
from $14.7 million in 1999.

  Product development. Product development expenses increased to $15.6 million
in 2000 from pro forma product development of $7.4 million in 1999. The
increase in product development costs was due to increased costs associated
with the continuing expansion of the Homestore.com web sites and the
integration of our acquisitions into our family of web sites, as well as
product development costs from our acquisitions of WyldFyre, Top Producer and
The Hessel Group in 2000.

  General and administrative. General and administrative expenses increased to
$60.7 million in 2000 from pro forma general and administrative expenses of
$34.2 million in 1999. The increase was primarily due to hiring key management
personnel and increased staffing levels required to support our significant
growth and expanded operations and infrastructure as well as increases in
legal and other professional fees. Facility costs increased primarily due to
our new corporate and central service offices. The increase was partially
offset by a decrease in stock-based charges in general and administrative
expenses. These stock-based charges decreased by $2.0 million to $3.1 million
in 2000 from $5.1 million in 1999.

  Amortization of intangible assets. Amortization of intangible assets was
$42.9 million in 2000 compared to pro forma amortization of $28.5 million in
1999. The increase in amortization was due to the acquisitions of WyldFyre,
Top Producer and The Hessel Group in 2000.

  In-process research and development. During 2000, our acquisitions of
WyldFyre and Top Producer resulted in write-offs of in-process research and
development, or IPR&D, of $4.0 million. The fair value of the IPR&D for each
of the acquisitions was determined using the income approach. The income
approach included assumptions relating to revenue estimates, operating
expenses, income taxes and discount rates. The IPR&D was comprised of seven
projects and was charged to expense during the year ended December 31, 2000.

  Litigation Settlement. On October 22, 1999, we announced a settlement of
litigation with Cendant. As part of the settlement, Cendant received 250,000
shares of our common stock. We incurred a non-cash charge of $8.4 million in
connection with the issuance of the 250,000 shares of our common stock in the
year ended December 31, 1999.

 Interest Income, Net

  Interest income, net increased to $23.0 million in 2000 from pro forma
interest income, net of $2.4 million in 1999. The increase was primarily due
to interest income earned on a higher average cash balances as a result of
proceeds received from our follow-on public offering which was completed in
January 2000.

 Other Expense, Net

  Other expense, net increased to $7.7 million in 2000 from pro forma other
expense, net of $28,000 in 1999. The increase was primarily due to the
accretion of the distribution obligation relating to a marketing and
distribution agreement.

                                      35


 Income Taxes

  As a result of operating losses and our inability to recognize a benefit
from our deferred tax assets, we have not recorded a provision for income
taxes in 2000 and 1999. As of December 31, 2000, we had $189.6 million of net
operating loss carryforwards for federal income tax purposes, which expire
beginning in 2007. We have provided a full valuation allowance on our deferred
tax assets, consisting primarily of net operating loss carryforwards, due to
the likelihood that we may not generate sufficient taxable income during the
carry-forward period to utilize the net operating loss carryforwards.

 Stock-Based Charges

  Stock. In March 2000, we issued 1,085,271 shares of our common stock valued
for accounting purposes at approximately $70.0 million to Budget Group, Inc.,
or BGI, in connection with entering into a ten-year strategic alliance
agreement that allows us to participate in online and offline BGI marketing
activities.

  In April 2000, we entered into a five-year marketing and distribution
agreement with AOL. In exchange for entering into this agreement, we paid AOL
$20.0 million in cash and issued to AOL approximately 3.9 million shares of
our common stock. In the agreement, we have guaranteed that the 30-day average
closing price, related to 60%, 20% and 20% of the shares we issued, will be
$68.50 per share on the third, fourth and fifth anniversaries of the
agreement, respectively. This guarantee only applies to shares that continue
to be held by AOL at the end of each respective year. In connection with this
agreement, we recorded $186 million in prepaid distribution expense included
in current and non-current assets that will be recognized as stock-based
charges over the five-year marketing agreement.

  Warrants. In February 2000, we issued warrants to purchase up to 470,089
shares of our common stock at an exercise price of $66.50 to the Broker Gold
program members who elected to renew their existing listing agreements with us
for an additional two years at the end of their existing two-year term. All
warrants issued were fully vested, non-forfeitable and were immediately
exercisable. We incurred a charge of approximately $21.9 million which is
being recognized as expense over the remaining term of the initial two year
Broker Gold program agreements.

  In March 2000, in connection with a marketing agreement we issued warrants
to purchase 400,000 shares of our common stock at an exercise price of $35.63
per share. All warrants issued were fully vested, non-forfeitable and were
immediately exercisable. We incurred a non-cash charge of $5.0 million which
is being recognized as expense over the three years.

  Throughout 2000, we issued warrants to purchase 30,739 shares of our common
stock at a weighted average price of $85.45 per share to Multiple Listing
Services, or MLSs, that agreed to provide their real estate listings to us for
publication on the Internet on a national basis. All warrants issued were
fully vested, non-forfeitable and were immediately exercisable. We incurred a
total non-cash charge of approximately $1.8 million which is being recognized
as expense over the term of the applicable MLS agreement, approximately two to
three years.

Pro Forma for the Years Ended December 31, 1999 and 1998

 Revenues

  Pro forma revenues increased to $73.4 million in 1999 from $23.1 million in
1998. The increase was primarily due to increased revenue from professional
subscriptions as well as an increase in advertising revenue. The growth in
revenue from professional subscriptions was due to an increase in the number
of subscribers on our family of web sites. The growth in advertising revenue
was primarily driven by increased sponsorships, including various alliance
agreements. Banner advertising revenues also increased primarily as a result
of increased traffic to our web sites in 1999 as compared to 1998.

                                      36


 Cost of Revenues

  Pro forma cost of revenues increased to $25.8 million in 1999 from $10.3
million in 1998. The increase was due primarily to our overall increased sales
volume and increased activity during 1999 as compared to 1998.

  Our pro forma gross margin percentage in 1999 was 65%, up from 56% for 1998,
primarily due to increased advertising revenue. The increase was also due to
the inclusion of stock-based charges in cost of revenues. These stock-based
charges increased by $1.3 million to $1.4 million in 1999 from $141,000 in
1998.

 Operating Expenses

  Sales and marketing. Pro forma sales and marketing expenses increased to
$98.4 million in 1999 from $35.1 million in 1998. The increase was primarily
attributable to a significant increase in costs associated with Internet
portal distribution agreements and marketing and listing agreements, which we
entered into throughout 1998 and 1999. The increase was also due to the
significant growth of our direct sales force in the third and fourth quarters
of 1998, resulting in increased salaries and commissions and related travel
and entertainment expenses. Increased sales volume also contributed to an
increase in sales related collateral materials. Increases in advertising,
promotional material and trade show expenses also contributed to the increase.
The increase was also due to the inclusion of stock-based charges in sales and
marketing. These stock-based charges increased by $15.9 million to $16.3
million in 1999 from $506,000 in 1998.

  Product development. Pro forma product development expenses increased to
$7.4 million in 1999 from $5.7 million in 1998. The increase was primarily due
to costs associated with the launch of Remodel.com and the re-launch of the
Homestore.com web site, including salaries and related expenses for staff, as
well as contracted services. The increase was also due to the inclusion of
stock-based charges in product development. These stock-based charges
increased by $599,000 to $677,000 in 1999 from $78,000 in 1998.

  General and administrative. Pro forma general and administrative expenses
increased to $34.2 million in 1999 from $31.3 million in 1998. The increase
was primarily due to hiring key management personnel and increased staffing
levels required to support our significant growth and expanded operations and
infrastructure as a public company. Facility costs associated with our new
corporate office also increased. This increase was offset by the inclusion of
stock-based charges in general and administrative expenses. These stock-based
charges decreased by $14.2 million to $5.5 million in 1999 from $19.7 million
in 1998.

  Amortization of intangible assets. Pro forma amortization of intangible
assets was $28.5 million in 1999 compared to $27.9 million in 1998.

 Stock-Based Charges

  Stock Options. In connection with the grant of stock options to employees
during 1997, 1998 and 1999, we recorded aggregate deferred compensation of
approximately $23.9 million. This deferred compensation represented the
difference between the deemed fair value of our common stock for accounting
purposes and the exercise price of these options at the date of grant.
Deferred compensation is presented as a reduction of stockholders' equity and
amortized over the vesting period of the applicable options, generally four
years.

  Stock. In August 1998, we sold convertible preferred stock equivalent to
8,320,245 shares of common stock at a purchase price of $4.80 per share and
8,369,955 shares of common stock at a purchase price of $1.26 per share. We
incurred a non-cash charge of $18.9 million for the year ended December 31,
1998, which represents the difference between the deemed fair value of the
stock and the price paid by the investors as stock-based compensation in 1998.
This stock-based charge is included in the stock-based charges line item.

  During 1999, we recorded as pro forma deferred compensation the $6.0 million
difference between the deemed fair value of the stock sold in connection with
our Broker Gold program and the price paid. We are amortizing this amount
ratably over the two-year term of the Broker Gold agreements, resulting in a
non-cash charge of $2.8 million in 1999.

                                      37


  Warrants. In April 1998, in connection with a web portal distribution
agreement, we issued warrants to purchase 792,752 shares of our common stock
at a weighted average exercise price of $7.00 per share. We incurred a total
charge of $12.6 million which is being amortized over the remaining term of
the distribution agreement, approximately two years.

  In February 1999, we closed a private equity offering to real estate brokers
under our Broker Gold program. We also issued warrants to purchase up to
364,110 shares of our common stock with an exercise price of $20.00 per share.
All warrants issued are fully vested, non-forfeitable and are immediately
exercisable. We incurred a charge of approximately $4.1 million which is being
recognized as expense over the remaining term of the initial two-year Broker
Gold program agreements.

  Throughout 1999, we issued warrants to purchase 910,844 shares of common
stock at a weighted average exercise price of $21.18 per share to MLSs that
agreed to provide their real estate listings to us for publication on the
Internet on a national basis. All warrants issued are fully vested, non-
forfeitable and were immediately exercisable. We incurred a total charge of
approximately $11.2 million which is being recognized as expense over the term
of the applicable MLS agreement, approximately one to two years.

  In August 1999, in connection with a marketing agreement,, we issued
warrants to purchase 500,000 shares of our common stock at an exercise price
of $20.00 per share. All warrants are fully vested, non-forfeitable and were
immediately exercisable. We incurred a total charge of approximately
$3.5 million which is being recognized as expense over the two-year term of
the agreement.

  In October 1999, in connection with a marketing agreement, we issued
warrants to purchase 119,048 shares of our common stock at an exercise price
of $42.00 per share. All warrants are fully vested, non-forfeitable and were
immediately exercisable. We incurred a total charge of approximately
$1.1 million which is being recognized as expense over the two-year term of
the agreement.

  Litigation Settlement. On October 22, 1999, we announced a settlement of
litigation with Cendant. As part of the settlement, Cendant received 250,000
shares of our common stock. We incurred a non-cash charge of $8.4 million in
connection with the issuance of the 250,000 shares of our common stock in the
year ended December 31, 1999.

 Interest and Other Expense, Net

  Pro forma interest income consists of earnings on our cash and cash
equivalents, net of (1) imputed interest expense on the notes payable issued
in connection with our acquisitions of The Enterprise and MultiSearch and (2)
interest expense incurred on the note payable issued in connection with our
Homefair acquisition. Interest and other expense decreased to $2.8 million in
1999 from $6.1 million in 1998. The decrease was primarily due to interest
income earned on a higher average cash balances as a result of our initial
public offering proceeds.

 Income Taxes

  As a result of operating losses and our inability to recognize a benefit
from our deferred tax assets, we have not recorded a provision for income
taxes in 1999 and 1998.

Liquidity and Capital Resources

  The cash flow information presented below includes the combined cash flow
statements derived from the combined financial statements for the years ended
December 31, 1999 and 1998 of Homestore.com and NetSelect.

  Since 1993, we have funded our operations and met our capital expenditure
requirements through the sale of equity securities, cash generated from the
sale of our products and services and, to a lesser extent, equipment lease
financing. At December 31, 2000, we had cash equivalents of approximately $181
million, short-term

                                      38


investments of approximately $75.3 million and restricted cash of $90 million
totaling approximately $346.3 million as compared to $90.4 million at December
31, 1999.

  Cash used in operating activities of $46.9 million for the year ended
December 31, 2000 was primarily attributable to the net loss of $115.2
million, increases in accounts receivable of $31.5 million, prepaid
distribution expense of $18.2 million and other assets of $19.3 million. This
decrease in cash used in operating activities was primarily offset by
depreciation, amortization and accretion of $53.0 million, stock-based charges
of $55.7 million, in-process research and development of $4.0 million and
increases in accounts payable and accrued liabilities of $22.9 million and
deferred revenue of $2.3 million. Net cash used in operating activities was
$51.0 million in 1999 and $28.2 million in 1998. Net cash used in operating
activities in each of these periods was primarily the result of net operating
losses and payments required to be made relating to our Internet portal
distribution and marketing and listing agreements entered into in 1998. These
operating cash outflows were partially offset by depreciation, amortization
and non-cash equity charges and increases in accounts payable, accrued
liabilities and deferred revenues.

  Cash used in investing activities of $193.1 million for the year ended
December 31, 2000 was attributable to capital expenditures of $43.1 million,
net purchases of short-term investments consisting primarily of commercial
paper of $73.5 million and other investments of $33.9 million. Cash of $42.5
million was also used for acquisitions. Net cash used in investing activities
was $29.0 million in 1999, compared to $5.3 million in 1998. To date, our
investing activities have consisted of acquisitions, purchases of property and
equipment and strategic operating agreements. In June 1999, we acquired
SpringStreet for common stock and convertible preferred stock and assumed
$10.2 million in cash. In October 1999, we used $35.0 million in cash to fund
part of the purchase price for Homefair. In March 1998 and July 1998, we
acquired The Enterprise and MultiSearch, respectively for an aggregate
purchase price of $11.7 million, of which $1.6 million represented cash
payments. Capital expenditures for property and equipment totaled $3.9 million
and $4.0 million in 1998 and 1999, respectively. During 1999, an additional
$3.0 million of capital expenditures were funded through an equipment lease
financing arrangement.

  Cash provided by financing activities of $330.7 million for the year ended
December 31, 2000 was attributable to our follow-on public offering of common
stock of $428.9 million, repayment of notes from stockholders' of $2.5
million, the effect of subsidiary equity transactions of $10.9 million, and
proceeds from the exercise of options and warrants and the employee stock
purchases of $23.4 million. In January 2000, we completed our follow-on public
offering to the public in which we sold 4,073,139 shares of our common stock
at a price of $110 per share, raising approximately $428.9 million, after
deducting underwriting discounts, commissions and offering expenses. This
increase was offset by the transfer of $90 million to restricted cash in
conjunction with a distribution agreement, repayment of notes payable of
$38.6 million, and issuance of notes receivable of $6.5 million. Net cash
provided by financing activities was $155.6 million in 1999 and $45.1 million
in 1998. Cash was provided primarily from net proceeds from the sale of our
common and preferred stock. In April 1999, we issued convertible preferred
stock equivalent to 1,704,775 shares of common stock for $17.0 million. In
August 1999, we completed our initial public offering in which we sold
8,050,000 shares of our common stock at a price of $20.00 per share, raising
approximately $145.6 million, after deducting underwriting discounts and
commissions and offering expenses. We also repurchased shares of our common
and preferred stock in 1998 and 1999 and repaid notes payable.

  In March 2000, we issued 1,085,271 shares of our common stock with an
estimated fair value of approximately $70.0 million to Budget, Inc., or BGI,
in connection with entering into a ten-year strategic alliance agreement that
allows us to participate in online and offline BGI marketing activities. In
this agreement, we have guaranteed that the price of the shares issued to BGI
will be $64.50 per share on any trading day during the six month period after
the second anniversary of the agreement. BGI has the right, during this
period, to require us, with respect to each share as to which the right is
exercised, in our discretion, to i) pay to BGI an amount in cash equal to the
excess of the guaranteed price over the average price of the period ("the Put
Amount"), ii) issue and deliver to BGI the number of common stock with a value
per share equal to the Put Amount, or iii) repurchase all of the shares of the
stock at the guaranteed price.

                                      39


  In April 2000, we entered into a five-year marketing and distribution
agreement with America Online, Inc., or AOL. In exchange for entering into
this agreement, we paid AOL $20.0 million in cash and issued to AOL
approximately 3.9 million shares of our common stock. In the agreement, we
have guaranteed that the 30-day average closing price, related to 60%, 20% and
20% of the shares we issued, will be $68.50 per share on the third, fourth and
fifth anniversaries of the agreement, respectively. This guarantee only
applies to shares that continue to be held by AOL at the end of each
respective year. At December 31, 2000, we recorded $189.8 million in other
non-current liabilities, which represents the fair market value of the 3.9
million shares of our stock issued upon entering the agreement and the
guarantee of the stock. The difference between the total guaranteed amount and
the liability recorded is being recorded as other expense over the term of the
agreement. In connection with the guarantee, we have established a $90.0
million letter of credit and are required to pledge an amount equal to the
unused portion of the letter of credit. As of December 31, 2000, we have
pledged $90.0 million in cash equivalents towards this letter of credit which
is classified as restricted cash on the balance sheet. This letter of credit
can be drawn against by AOL in the event that our 30-day average closing price
is less than $68.50 at the end of each respective guarantee date. The letter
of credit will be reduced to $50.0 million at the end of the third anniversary
of the agreement. The term of the agreement may be reduced if AOL draws more
than $40.0 million from the letter of credit at the end of the third year
anniversary of the agreement.

  In February 2001, we completed the acquisition of the Move.com Group from
Cendant in an all stock transaction valued at approximately $757.3 million. In
connection with the acquisition, we issued an aggregate of approximately 21.4
million shares of our common stock in exchange for all the outstanding shares
of capital stock of Move.com, Inc. and Welcome Wagon International, Inc. and
assumed approximately 3.2 million outstanding stock options of Move.com, Inc.

  At December 31, 2000, we had cash and cash equivalents of approximately $181
million, short-term investments of approximately $75.3 million and restricted
cash of $90 million totaling approximately $346.3 million. We have no material
commitments for capital expenditures over the next twelve months. We also have
total minimum lease obligations of approximately $44.0 million under certain
noncancelable operating leases through 2005 and approximately $11.4 million in
internet portal distribution obligations through December 2003. We currently
anticipate that our existing cash and cash equivalents and any cash generated
from operations will be sufficient to fund our operating activities, capital
expenditures and other obligations through at least the next 12 months.
However, we may need to raise additional funds in order to fund more rapid
expansion, to expand our marketing activities, to develop new or enhance
existing services or products, to satisfy our obligations to BGI or AOL as
described above, to respond to competitive pressures or to acquire
complementary services, businesses or technologies. If we are not successful
in generating sufficient cash flow from operations, we may need to raise
additional capital through public or private financing, strategic
relationships or other arrangements. This additional funding, if needed, might
not be available on terms acceptable to us, or at all. Our failure to raise
sufficient capital when needed could have a material adverse effect on our
business, results of operations and financial condition. If additional funds
were raised through the issuance of equity securities, the percentage of our
stock owned by our then-current stockholders would be reduced. Furthermore,
these equity securities might have rights, preferences or privileges senior to
those of our common and preferred stock.

Recent Accounting Developments

  In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards No. 133, or SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The statement
requires the recognition of all derivatives as either assets or liabilities in
the balance sheet and the measurement of those instruments at fair value. The
accounting for changes in the fair value of a derivative depends on the
planned use of the derivative and the resulting designation. Because we do not
currently hold any derivative instruments and do not engage in hedging
activities, the impact of the adoption of SFAS No. 133 is not currently
expected to have a material impact on our financial position, results of
operations or cash flows. We will be required to implement SFAS No. 133 in the
first quarter of fiscal 2001.

                                      40


  In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, or SAB No. 101, Revenue Recognition in Financial
Statements. SAB No. 101 provides guidance for revenue recognition under
certain circumstances. The adoption of SAB No. 101 in the fourth quarter of
2000 did not have a significant impact on our financial position, results of
operations or cash flows.

  In March 2000, the FASB issued FASB Interpretation No. 44, or FIN No. 44,
Accounting for Certain Transactions Involving Stock Compensation an
Interpretation of APB Opinion No. 25. FIN No. 44 clarifies the application of
Opinion No. 25 for (a) the definition of employee for purposes of applying
Opinion No. 25, (b) the criteria for determining whether a plan qualifies as a
noncompensatory plan, (c) the accounting consequence of various modifications
to the terms of a previously fixed stock option or award, and (d) the
accounting for an exchange of stock compensation awards in a business
combination. FIN No. 44 became effective July 1, 2000, but certain conclusions
cover specific events that occur after either December 15, 1998, or January
12, 2000. The adoption of FIN No. 44 did not have a significant impact on our
financial position, results of operations or cash flows.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

  Interest Rate Risk. Our exposure to market rate risk for changes in interest
rates relates primarily to the our investment portfolio. We have not used
derivative financial instruments in our investment portfolio. We invest our
excess cash in debt instruments of the U.S. Government and its agencies, and
in high-quality corporate issuers and, by policy, this limits the amount of
credit exposure to any one issuer.

  Investments in both fixed rate and floating rate interest earning
instruments carries a degree of interest rate risk. Fixed rate securities may
have their fair market value adversely impacted due to a rise in interest
rates, while floating rate securities may produce less income than expected if
interest rates fall.

                                      41


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



                                                                           Page
                                                                           ----
                                                                        
Unaudited Pro Forma Condensed Consolidated Financial Information
  Statement of Operations Overview........................................  43
  Unaudited Pro Forma Condensed Consolidated Statement of Operations......  44
  Notes to Unaudited Pro Forma Condensed Consolidated Statement of
   Operations.............................................................  45

Homestore.com, Inc. Consolidated Financial Statements
  Report of Independent Accountants.......................................  46
  Consolidated Balance Sheets.............................................  47
  Consolidated Statements of Operations...................................  48
  Consolidated Statements of Stockholders' Equity (Deficit)...............  49
  Consolidated Statements of Cash Flows...................................  50
  Notes to Consolidated Financial Statements..............................  51

NetSelect, Inc. Consolidated Financial Statements
  Report of Independent Accountants.......................................  76
  Consolidated Balance Sheets.............................................  77
  Consolidated Statements of Operations...................................  78
  Consolidated Statements of Stockholders' Equity.........................  79
  Consolidated Statements of Cash Flows...................................  80
  Notes to Consolidated Financial Statements..............................  81


                                       42


                              HOMESTORE.COM, INC.

                  UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
                            STATEMENT OF OPERATIONS

                                   Overview

  On February 4, 1999, NetSelect, Inc. ("NSI") was merged with and into
Homestore.com, Inc. ("Company" or "Homestore") in a non-substantive share
exchange, which was provided for in the agreements governing the formation and
operation of RealSelect, Inc. ("RealSelect"), the operating company. The share
exchange lacked substance since both the Company and NSI were shell companies
for their respective investments in RealSelect, and because the respective
underlying ownership interests of the individual investors were unaffected.
Accordingly, the non-substantive share exchange was accounted for at
historical cost. The share exchange between the Company and NSI is referred to
herein as the "Reorganization". This Reorganization was completed solely to
simplify the Company's legal structure prior to its initial public offering.
See Note 1 of Homestore.com, Inc. Notes to Consolidated Financial Statements
for further discussion about the Reorganization.

  In June 1999, the Company acquired SpringStreet, Inc. ("SpringStreet") for
common stock and convertible preferred stock equivalent to an aggregate of
5,309,058 shares of common stock. The aggregate acquisition cost of $51.7
million was based on terms and preferences of the shares issued in the
transaction relative to the value received by the Company in the April 1999
Series G preferred stock financing. The acquisition has been accounted for as
a purchase. The acquisition cost has been allocated to the assets acquired and
liabilities assumed based on estimates of their respective fair values. The
excess of purchase consideration over net tangible assets acquired of $41.3
million has been allocated to goodwill and other purchased intangible assets
which are being amortized on a straight-line basis over estimated lives
ranging from three to five years.

  In October 1999, the Company acquired Homebuyer's Fair, Inc. and FAS-
Hotline, Inc. (collectively referred to as "Homefair" or "Homefair Group") for
$35.8 million in cash and other acquisition related expenses, a $37.5 million
note payable and 250,000 shares of common stock, with an estimated fair value
of $11.2 million, for a total aggregate purchase price of $83.7 million. The
acquisition has been accounted for as a purchase. The acquisition cost has
been allocated to the assets acquired and liabilities assumed based on
estimates of their respective fair values. The excess of purchase
consideration over net tangible assets acquired of $83.3 million has been
allocated to goodwill and other purchased intangible assets which are being
amortized on a straight-line basis over estimated lives ranging from three to
five years.

  Homestore's unaudited pro forma condensed consolidated statement of
operations for the year ended December 31, 1999 gives effect to the
Reorganization and the acquisitions of Springstreet and Homefair as if they
had occurred on January 1, 1999.

  The unaudited pro forma condensed consolidated statement of operations is
not necessarily indicative of the operating results that would have been
achieved had the transactions been in effect as of January 1, 1999 and should
not be construed as being representative of future operating results.

  The audited historical financial statements of the Company, NSI, The
Enterprise, MultiSearch, SpringStreet, The Homebuyer's Fair, Inc., FAS-
Hotline, Inc. and The Center For Mobility Resources, Inc. and National School
Services, Inc. are incorporated by reference under the caption "Index to
Financial Statements" on Form S-1 (No. 333-94467) as filed with the Securities
and Exchange Commission on January 26, 2000 and to the Form 8K/A filed on
December 7, 1999. The unaudited pro forma condensed consolidated statement of
operations presented herein should be read in conjunction with those financial
statements and related notes.

                                      43


                              HOMESTORE.COM, INC.

       UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                          YEAR ENDED DECEMBER 31, 1999
                    (in thousands, except per share amounts)



                                                           Pro Forma
                          Homestore    NSI    Adjustments  Homestore  SpringStreet Homefair Adjustments    Pro Forma
                          ---------  -------  -----------  ---------  ------------ -------- -----------    ---------
                                                                                   
Revenues................  $ 62,580   $ 2,433    $  --      $ 65,013     $  2,346    $6,159   $   (151)(1)  $  73,367
Cost of revenues
 (including $1,432 in
 non-cash equity
 charges)...............    21,965       853       --        22,818        2,109       826        --          25,753
                          --------   -------    ------     --------     --------    ------   --------      ---------
Gross Profit............    40,615     1,580       --        42,195          237     5,333       (151)        47,614
                          --------   -------    ------     --------     --------    ------   --------      ---------
Operating expenses:
 Sales and marketing
  (including $16,383 in
  non-cash equity
  charges)..............    85,110     4,252       --        89,362        6,975     2,200       (151)(1)     98,386
 Product development
  (including $677 in
  non-cash equity
  charges)..............     5,380       200       --         5,580        1,338       463        --           7,381
 General and
  administrative
  (including $5,547 in
  non-cash equity
  charges)..............    26,892     1,353       --        28,245        4,552     1,370        --          34,167
 Amortization of
  intangible assets.....    10,192       261       --        10,453          --      1,810    (1,810)(2)      28,476
                                                                                               18,023(3)
 Litigation settlement..     8,406       --        --         8,406          --        --         --           8,406
                          --------   -------    ------     --------     --------    ------   --------      ---------
Total operating
 expenses...............   135,980     6,066       --       142,046       12,865     5,843     16,062        176,816
                          --------   -------    ------     --------     --------    ------   --------      ---------
Loss from operations....   (95,365)   (4,486)      --       (99,851)     (12,628)     (510)   (16,213)      (129,202)
Other income (expense),
 net....................     2,358        (5)      --         2,353           44       (89)    (5,152)(4)     (2,844)
                          --------   -------    ------     --------     --------    ------   --------      ---------
Net loss................   (93,007)   (4,491)      --       (97,498)     (12,584)     (599)   (21,365)      (132,046)
Accretion of redemption
 value and dividends on
 convertible preferred
 stock..................    (2,299)     (207)    2,506(5)       --           --        --         --             --
                          --------   -------    ------     --------     --------    ------   --------      ---------
Net loss applicable to
 common stockholders....  $(95,306)  $(4,698)   $2,506     $(97,498)    $(12,584)   $ (599)  $(21,365)     $(132,046)
                          ========   =======    ======     ========     ========    ======   ========      =========
Historical basic and
 diluted net loss per
 share applicable to
 common stockholders....  $  (2.32)
                          ========
Shares used to calculate
 historical basic and
 diluted net loss per
 share applicable to
 common stockholders....    41,142
                          ========
Pro forma basic and
 diluted net loss per
 share applicable to
 common stockholders....                                                                                   $   (2.11)
                                                                                                           =========
Shares used to calculate
 pro forma basic and
 diluted net loss per
 share applicable to
 common stockholders....                                                                                      62,474(6)
                                                                                                           =========




 See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
                                  Information.

                                       44


                              HOMESTORE.COM, INC.

  NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

  Pro forma adjustments reflect the following in the unaudited pro forma
condensed consolidated statement of operations:

 (1) Elimination of intercompany revenues and expenses

 (2) Elimination of amortization of intangible assets

 (3) Amortization of goodwill and other purchased intangible assets on a
     straight-line basis

 (4) Reduction in interest income related to cash paid as part of the purchase
     price, net of an increase in interest expense related to the $37.5
     million promissory note which bears interest at 10.875% issued in
     connection with the acquisition

 (5) Elimination of the accretion of redemption value and dividends on
     convertible preferred stock resulting from the assumed conversion of the
     Company's preferred stock into common stock in connection with the IPO.

 (6) Additional weighted average shares used in the calculation of pro forma
     basic and diluted net loss per share applicable to common stockholders
     reflect the following, as if they been issued as of January 1, 1999,
     except for preferred stock that was not issued in connection with an
     acquisition. For this preferred stock, the weighted average shares
     reflect the preferred stock as if it had been issued as of January 1,
     1999 or the date of issuance, if later:



                                                                   Year ended
                                                                  December 31,
                                                                      1999
                                                                  ------------
                                                               
    SpringStreet acquisition.....................................     2,725
    Homefair acquisition.........................................       208
    NSI Reorganization...........................................     1,163
    Conversion of preferred stock in connection with IPO.........    14,918
    Conversion of NAR's RealSelect shares into HomeStore.com
     shares......................................................     2,318


                                      45


                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
Homestore.com, Inc.

  In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of
Homestore.com and its subsidiaries (the "Company") at December 31, 2000 and
December 31, 1999, and the results of their operations and their cash flows
for each of the three years in the period ended December 31, 2000 in
conformity with accounting principles generally accepted in the United States
of America. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

Century City, California
March 16, 2001

                                      46


                              HOMESTORE.COM, INC.

                          CONSOLIDATED BALANCE SHEETS
                    (in thousands, except per share amounts)


                                                             December 31,
                                                          --------------------
                                                             2000       1999
                                                          ----------  --------
                                                                
                         ASSETS
Current assets:
  Cash and cash equivalents.............................. $  180,985  $ 90,382
  Short-term investments.................................     75,295       --
  Marketable equity security.............................        247     4,230
  Accounts receivable, net of allowance for doubtful
   accounts of $4,477 and $1,627 at December 31, 2000 and
   1999, respectively....................................     44,472    13,428
  Current portion of notes receivable....................      5,598       --
  Current portion of prepaid distribution expense .......     49,140     7,868
  Other current assets...................................     23,567     5,371
                                                          ----------  --------
Total current assets.....................................    379,304   121,279
Prepaid distribution expense, net of current portion.....    159,226     6,167
Property and equipment, net..............................     45,061     6,305
Intangible assets, net...................................    194,742   138,612
Restricted cash..........................................     90,000       --
Other assets.............................................     50,322     4,200
                                                          ----------  --------
    Total assets......................................... $  918,655  $276,563
                                                          ==========  ========
          LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable....................................... $   13,062  $  5,349
  Accrued liabilities....................................     49,235    23,687
  Deferred revenue.......................................     24,194    13,478
  Current portion of notes payable.......................        411    37,943
                                                          ----------  --------
Total current liabilities................................     86,902    80,457
Distribution obligation..................................    189,848       --
Deferred revenue.........................................      2,896       --
Notes payable, net of current portion....................        --        633
Other non-current liabilities............................      4,646       --
                                                          ----------  --------
                                                             284,292    81,090
                                                          ----------  --------
Commitments and contingencies (Note 19)
Stockholders' equity:
  Convertible preferred stock............................        --        --
  Common stock, $.001 par value; 500,000 shares
   authorized, 88,294 and 75,251 shares issued at
   December 31, 2000 and December 31, 1999, respectively,
   and 82,761 and 70,189 shares outstanding at December
   31, 2000 and December 31, 1999, respectively..........         83        70
  Additional paid-in capital.............................  1,027,423   413,244
  Treasury stock, at cost; 5,533 and 5,062 shares at
   December 31, 2000 and December 31, 1999,
   respectively..........................................    (16,556)  (13,676)
  Notes receivable from stockholders.....................     (7,938)  (13,350)
  Deferred stock-based charges...........................    (97,724)  (38,947)
  Accumulated other comprehensive income.................        (23)    3,865
  Accumulated deficit....................................   (270,902) (155,733)
                                                          ----------  --------
    Total stockholders' equity...........................    634,363   195,473
                                                          ----------  --------
    Total liabilities and stockholders' equity........... $  918,655  $276,563
                                                          ==========  ========


  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       47


                              HOMESTORE.COM, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                    (in thousands, except per share amounts)



                                                     Year Ended December 31,
                                                     --------------------------
                                                       2000       1999    1998
                                                     ---------  --------  -----
                                                                 
Revenues...........................................  $ 229,967  $ 62,580  $ --
Cost of revenues (including non-cash equity
 charges, see note 2)..............................     62,239    21,965    --
                                                     ---------  --------  -----
Gross profit.......................................    167,728    40,615    --
                                                     ---------  --------  -----
Operating expenses:
  Sales and marketing (including non-cash equity
   charges, see note 2)............................    175,044    85,110    --
  Product development (including non-cash equity
   charges, see note 2)............................     15,554     5,380    --
  General and administrative (including non-cash
   equity charges, see note 2).....................     60,700    26,892      3
  Amortization of intangible assets................     42,900    10,192    --
  In-process research and development..............      4,048       --     --
  Litigation settlement............................        --      8,406    --
                                                     ---------  --------  -----
Total operating expenses...........................    298,246   135,980      3
                                                     ---------  --------  -----
Loss from operations...............................   (130,518)  (95,365)    (3)
Interest income, net...............................     23,031     2,386    --
Other expense, net.................................     (7,682)      (28)   --
                                                     ---------  --------  -----
Net loss...........................................   (115,169)  (93,007)    (3)
Accretion of redemption value and dividends on
 convertible preferred stock ......................        --     (2,299)   --
                                                     ---------  --------  -----
Net loss applicable to common stockholders ........  $(115,169) $(95,306) $  (3)
                                                     =========  ========  =====
Basic and diluted net loss per share applicable to
 common stockholders...............................  $   (1.44) $  (2.32) $ --
                                                     =========  ========  =====
Shares used to calculate basic and diluted net loss
 per share applicable to common stockholders.......     79,758    41,142  9,173
                                                     =========  ========  =====



  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       48


                              HOMESTORE.COM, INC.

           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                                (in thousands)



                    Convertible
                     Preferred                                            Notes                  Accumulated
                       Stock      Common Stock   Additional             Receivable   Deferred       Other
                   -------------- --------------  Paid-In    Treasury      From     Stock-Based Comprehensive Accumulated
                   Shares  Amount Shares  Amount  Capital     Stock    Stockholders   Charges      Income       Deficit
                   ------  ------ ------  ------ ----------  --------  ------------ ----------- ------------- -----------
                                                                                
Balance at
December 31,
1997.............     --    $--    8,650   $ 9   $    2,721  $    --     $   --      $    --       $   --      $  (2,863)
Exercise of stock
options..........     --     --    1,330     1          591       --        (551)         --           --            --
Net loss.........     --     --      --    --           --        --         --           --           --             (3)
                   ------   ----  ------   ---   ----------  --------    -------     --------      -------     ---------
Balance at
December 31,
1998.............     --     --    9,980    10        3,312       --        (551)         --           --         (2,866)
Reorganization
(Note 1).........   4,528      5  12,480    12       98,119    (1,770)    (3,230)     (10,079)         --        (60,860)
Comprehensive
income (loss):
 Net loss........     --     --      --    --           --        --         --           --           --        (93,007)
 Unrealized gain
 on marketable
 security........     --     --      --    --           --        --         --           --         3,865           --
                                                                                                   -------
 Comprehensive
 income (loss)...     --     --      --    --           --        --         --           --         3,865           --
                                                                                                   -------
Issuance of
common stock and
Series F
preferred stock..      96    --      643   --         3,553       --         --           --           --            --
Issuance of
common stock to
minority
interest.........     --     --      --    --           --        --         --           --           --          1,000
Exercise of stock
options..........     --     --    5,959     5       12,906       --     (11,465)         --           --            --
Other notes
receivable from
shareholders.....     --     --      --    --           --        --      (1,521)         --           --            --
Repurchase of
common stock.....     --     --   (2,903)  --           --    (11,906)     3,630          --           --            --
Issuance of
common stock.....     --     --      660   --        15,767       --        (238)         --           --            --
Repayment from
shareholder......     --     --      --    --           --        --          25          --           --            --
Issuance of
Series G
preferred stock..     341    --      --    --        17,007       --         --           --           --            --
Issuance of
Series H
preferred stock..     845      1     365   --        51,433       --         --           --           --            --
Deferred stock-
based charges....     --     --      --    --        44,095       --         --       (50,095)         --            --
Stock-based
charges..........     --     --      --    --         6,000       --         --        21,227          --            --
Accretion of
Series E
redemption
value............     --     --      --    --          (159)      --         --           --           --            --
Conversion of
convertible
preferred stock..  (5,810)    (6) 29,050    29          (23)      --         --           --           --            --
Conversion of
redeemable
convertible
preferred stock..     --     --    1,625     2        5,122       --         --           --           --            --
Conversion of NAR
shares...........     --     --    3,917     4           (4)      --         --           --           --            --
Issuance of
common stock in
initial public
offering.........     --     --    8,050     8      145,585       --         --           --           --            --
Exercise of
warrants.........     --     --      113   --         2,125       --         --           --           --            --
Litigation
settlement.......     --     --      250   --         8,406       --         --           --           --            --
                   ------   ----  ------   ---   ----------  --------    -------     --------      -------     ---------
Balance at
December 31,
1999.............     --     --   70,189    70      413,244   (13,676)   (13,350)     (38,947)       3,865      (155,733)
Comprehensive
income (loss):
 Net loss........     --     --      --    --           --        --         --           --           --       (115,169)
 Unrealized loss
 on marketable
 securities......     --     --      --    --           --        --         --           --        (4,022)          --
 Foreign currency
 translation.....     --     --      --    --           --        --         --           --           134           --
                                                                                                   -------
 Comprehensive
 loss............     --     --      --    --           --        --         --           --        (3,888)          --
                                                                                                   -------
Issuance of
common stock
under employee
stock purchase
plan and exercise
of stock
options..........     --     --    1,942     2       11,512       --         --           --           --            --
Issuance of
common stock for
acquisitions.....     --     --      613     1       51,275       --         --           --           --            --
Other issuances
of common stock..     --     --    4,992     5       70,837       --         --       (70,798)         --            --
Repayment from
stockholders.....     --     --      --    --           --        --       2,532          --           --            --
Repurchase of
common stock.....     --     --     (471)  --           --     (2,880)     2,880          --           --            --
Deferred stock-
based charges....     --     --      --    --        31,520       --         --       (31,520)         --            --
Stock-based
charges..........     --     --      --    --           --        --         --        43,541          --            --
Issuance of
common stock in
public offering..     --     --    4,073     4      428,899       --         --           --           --            --
Effect of
subsidiary equity
transactions.....     --     --      --    --         8,337       --         --           --           --            --
Exercise of
warrants.........     --     --    1,423     1       11,799       --         --           --           --            --
                   ------   ----  ------   ---   ----------  --------    -------     --------      -------     ---------
Balance at
December 31, 2000
 .................     --    $--   82,761   $83   $1,027,423  $(16,556)   $(7,938)    $(97,724)     $   (23)    $(270,902)
                   ======   ====  ======   ===   ==========  ========    =======     ========      =======     =========

                       Total
                   Stockholder's
                       Equity
                     (Deficit)
                   -------------
                
Balance at
December 31,
1997.............    $    (133)
Exercise of stock
options..........           41
Net loss.........           (3)
                   -------------
Balance at
December 31,
1998.............          (95)
Reorganization
(Note 1).........       22,197
Comprehensive
income (loss):
 Net loss........      (93,007)
 Unrealized gain
 on marketable
 security........        3,865
                   -------------
 Comprehensive
 income (loss)...      (89,142)
                   -------------
Issuance of
common stock and
Series F
preferred stock..        3,553
Issuance of
common stock to
minority
interest.........        1,000
Exercise of stock
options..........        1,446
Other notes
receivable from
shareholders.....       (1,521)
Repurchase of
common stock.....       (8,276)
Issuance of
common stock.....       15,529
Repayment from
shareholder......           25
Issuance of
Series G
preferred stock..       17,007
Issuance of
Series H
preferred stock..       51,434
Deferred stock-
based charges....       (6,000)
Stock-based
charges..........       27,227
Accretion of
Series E
redemption
value............         (159)
Conversion of
convertible
preferred stock..          --
Conversion of
redeemable
convertible
preferred stock..        5,124
Conversion of NAR
shares...........          --
Issuance of
common stock in
initial public
offering.........      145,593
Exercise of
warrants.........        2,125
Litigation
settlement.......        8,406
                   -------------
Balance at
December 31,
1999.............      195,473
Comprehensive
income (loss):
 Net loss........     (115,169)
 Unrealized loss
 on marketable
 securities......       (4,022)
 Foreign currency
 translation.....          134
                   -------------
 Comprehensive
 loss............     (119,057)
                   -------------
Issuance of
common stock
under employee
stock purchase
plan and exercise
of stock
options..........       11,514
Issuance of
common stock for
acquisitions.....       51,276
Other issuances
of common stock..           44
Repayment from
stockholders.....        2,532
Repurchase of
common stock.....          --
Deferred stock-
based charges....          --
Stock-based
charges..........       43,541
Issuance of
common stock in
public offering..      428,903
Effect of
subsidiary equity
transactions.....        8,337
Exercise of
warrants.........       11,800
                   -------------
Balance at
December 31, 2000
 .................    $ 634,363
                   =============


  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       49


                              HOMESTORE.COM, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)



                                                     Year Ended December 31,
                                                     --------------------------
                                                       2000       1999    1998
                                                     ---------  --------  -----
                                                                 
Cash flows from operating activities:
Net loss...........................................  $(115,169) $(93,007) $  (3)
Adjustments to reconcile net loss to net cash used
 in operating activities:
Depreciation and amortization......................     49,064    11,579    --
Accretion of distribution obligation...............      3,909       --     --
Provision for doubtful accounts....................      3,468     1,121    --
Amortization of discount on notes payable..........        --        581    --
Stock-based charges................................     55,655    21,227    --
In-process research and development................      4,048       --     --
Litigation settlement..............................        --      8,406    --
Other non-cash items...............................       (165)      544    --
Changes in operating assets and liabilities, net of
 acquisitions:
  Accounts receivable..............................    (31,509)  (10,025)   --
  Prepaid distribution expense.....................    (18,204)   (3,481)   --
  Other assets.....................................    (23,248)   (3,780)   --
  Accounts payable and accrued liabilities.........     22,961    12,668   (122)
  Deferred revenue.................................      2,266     6,030    --
                                                     ---------  --------  -----
Net cash used in operating activities..............    (46,924)  (48,137)  (125)
                                                     ---------  --------  -----
Cash flows from investing activities:
Purchases of property and equipment................    (43,119)   (3,941)   --
Purchases of cost and equity investments...........    (33,927)      --     --
Purchases of short-term investments................   (219,862)      --     --
Maturities of short-term investments...............    146,320       --     --
Acquisitions, net of cash acquired.................    (42,537)  (23,845)   --
Other assets.......................................        --     (2,390)   --
                                                     ---------  --------  -----
Net cash used in investing activities..............   (193,125)  (30,176)   --
                                                     ---------  --------  -----
Cash flows from financing activities:
Proceeds from payment of stockholders' notes.......      2,532     3,655    --
Proceeds from exercise of stock options, warrants
 and share issuances under employee stock purchase
 plan..............................................     23,358     1,570    --
Net proceeds from issuance of common and preferred
 stock.............................................    428,903   167,596     41
Repurchases of common stock........................        --    (11,906)   --
Transfer to restricted cash........................    (90,000)      --     --
Repayment of notes payable.........................    (38,575)   (4,578)   --
Issuance of notes receivable.......................     (6,509)     (750)   --
Subsidiary equity transactions.....................     10,943       --     --
                                                     ---------  --------  -----
Net cash provided by financing activities..........    330,652   155,587     41
                                                     ---------  --------  -----
Change in cash and cash equivalents................     90,603    77,274    (84)
Cash assumed from NetSelect, Inc. .................        --     13,037    --
Cash and cash equivalents, beginning of period.....     90,382        71    155
                                                     ---------  --------  -----
Cash and cash equivalents, end of period...........  $ 180,985  $ 90,382  $  71
                                                     =========  ========  =====


  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       50


                              HOMESTORE.COM, INC.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS:

  Homestore.com, Inc. ("Homestore.com" or the "Company") has created an online
marketplace that is the leading destination on the Internet for home and real
estate-related information, products and services, based on the number of
visitors, time spent on the web sites and number of property listings. Through
its network of web sites, the Company provides a wide variety of information
and tools for consumers, and is the leading supplier of online media and
technology solutions for real estate industry professionals, advertisers and
providers of home and real estate-related products and services. To provide
consumers with real estate listings, access to real estate professionals and
other home and real estate-related information and resources, the Company has
established relationships with key industry participants. These participants
include real estate market leaders such as the National Association of
REALTORS(R) ("NAR"), the National Association of Home Builders ("NAHB"), the
largest Multiple Listing Services ("MLSs"), the NAHB Remodelors Council, the
National Association of the Remodeling Industry ("NARI"), the American
Institute of Architects ("AIA"), the Manufactured Housing Institute ("MHI"),
real estate franchises, brokers, builders and agents. The Company also has
distribution agreements with a large number of leading Internet portal web
sites.

 Company History

  Initial Business--Homestore.com was incorporated in the State of Delaware in
1993 under the name of InfoTouch Corporation ("InfoTouch") with the objective
of establishing an interactive network of real estate "kiosks" for consumers
to search for homes. In 1996, the Company began to develop the technology to
build and operate high traffic Internet sites with content related to real
estate.

  The RealSelect Venture--Effective December 4, 1996, the Company entered into
a series of agreements with the National Association of REALTORS(R) and its
wholly owned subsidiary REALTORS(R) Information Network (together referred to
as the "NAR") and several investors (the "Investors"). Under these agreements,
the Company transferred its recently developed technology and certain of its
assets relating to advertising the listing of residential real estate on the
Internet into NetSelect, LLC ("LLC"), a Delaware limited liability
corporation, in exchange for a 46% ownership interest. The Investors
contributed capital to a newly formed company, NetSelect, Inc. ("NSI"). LLC
received capital funding from NSI and in-turn contributed the assets,
intellectual property and the NSI capital to RealSelect, Inc. ("RealSelect"),
a Delaware corporation, in exchange for common stock representing an 85%
ownership interest.

  Also effective December 4, 1996, RealSelect entered into a number of
agreements with and issued cash and RealSelect common stock representing a 15%
ownership interest to the NAR in exchange for the rights to operate the web
site REALTOR.com(R) and pursue commercial opportunities relating to the
listing of real estate on the Internet.

  Pursuant to the agreements governing RealSelect, the Company was required to
terminate its remaining activities, which were insignificant, and dispose of
its remaining assets and liabilities. Accordingly, following the formation of
RealSelect, NSI, LLC and the Company were only shell companies as they had no
liabilities and no assets other than their respective ultimate investments in
RealSelect. In addition, under the agreements, NSI was the only entity
permitted to raise capital to support RealSelect which, once invested,
increased NSI's ownership interests and diluted the ownership interests of the
Company and the NAR.

  Reorganization of RealSelect Holding Structure--Under the RealSelect
agreements, the reorganization of the initial holding structure was provided
for at an unspecified future date. On February 4, 1999, NSI stockholders
entered into a non-substantive share exchange with and were merged into the
Company (the "Reorganization"). The share exchange lacked economic substance
since both the Company and NSI were shell companies for their respective
investments in RealSelect, and because the respective underlying ownership
interests of individual investors were unaffected. Accordingly, the non-
substantive exchange was accounted for at historical cost (Note 3).


                                      51


                              HOMESTORE.COM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  The Company has incurred operating losses and negative operating cash flows
since its inception. The Company has funded operations primarily through the
sale of equity securities and revenues generated from operations. The Company
anticipates that its existing cash and cash equivalents and any cash generated
from operations will be sufficient to fund its operating activities, capital
expenditures and other obligations through at least the next 12 months.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

  Principles of Consolidation and Basis of Presentation--The consolidated
financial statements include the accounts of the parent company and all of its
majority owned subsidiaries. All material intercompany transactions and
balances have been eliminated in consolidation.

  The Company's consolidated financial statements reflect the financial
position, results of operations and cash flows of Homestore.com, Inc.,
formerly InfoTouch. The consolidated financial statements for 1998 primarily
reflect the Company's investment in LLC accounted for under the equity method
(Note 3). The consolidated financial statements following the date of the
Reorganization include the accounts of RealSelect and its majority owned
subsidiaries, in which the Company held a 99% ownership interest at December
31, 2000.

  Use of Estimates--The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities and the reported amounts of revenues and
expenses. Actual results could differ from those estimates.

  Certain Reclassifications--Certain reclassifications have been made to prior
years' financial statements in order to conform to the 2000 presentation.

  Cash and Cash Equivalents, Short and Long-Term Investments--All highly
liquid instruments with an original maturity of three months or less are
considered cash and cash equivalents, those with original maturities greater
than three months and current maturities less than twelve months from the
balance sheet date are considered short-term investments, and those with
maturities greater than twelve months from the balance sheet date are
considered long-term investments. The Company invests its excess cash in debt
instruments of the U.S. Government and its agencies, and in high-quality
corporate issuers and money market funds.

  The Company's marketable securities and short-term investments are
classified as available-for-sale and are reported at fair value, with
unrealized gains and losses, net of tax, recorded in stockholders' equity.
Realized gains or losses and permanent declines in value, if any, on
available-for-sale securities are reported in other income or expensed as
incurred.

  Other Investments--The Company also invests in equity instruments of
privately-held companies for business and strategic purposes. These
investments are included in other long-term assets and are accounted for under
the cost method when ownership is less than 20% and the Company does not have
the ability to exercise significant influence over operations and the equity
method when ownership is greater than 20% or the Company has the ability to
exercise significant influence. For these investments in privately-held
companies, the Company's policy is to regularly review and monitor the
companies' operating performance and assumptions underlying the cash flow
forecasts in assessing the carrying values. The Company identifies and records
impairment losses when events and circumstances indicate that such assets
might be impaired.

  Restricted Cash--Restricted cash consists of cash equivalents pledged as
collateral for unused letters of credit.

                                      52


                              HOMESTORE.COM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Concentration of Credit Risk--Financial instruments that potentially subject
the Company to a concentration of credit risk consist of cash and cash
equivalents, short and long term investments, marketable equity security and
accounts and notes receivable. The Company's accounts receivable is derived
primarily from revenue earned from customers located in the United States. The
Company maintains an allowance for doubtful accounts based upon the expected
collectibility of accounts and notes receivable.

  During the years ended December 31, 2000 and 1998, no customer accounted for
more than 10% of the Company's net revenues. During the year ended December
31, 1999, one customer accounted for approximately 11% of the Company's net
revenues. At December 31, 2000, one customer accounted for 14% of net accounts
receivable. At December 31, 1999, no customer accounted for more than 10% of
net accounts receivable.

  Fair Value of Financial Instruments--The Company's financial instruments,
including cash and cash equivalents, short-term investments, accounts and
notes receivable, accounts payable, and notes payable are carried at cost,
which approximates their fair value due to the short-term maturity of these
instruments and the relatively stable interest rate environment.

  Prepaid Distribution--The Company has entered into various web portal
distribution and preferred alliance agreements, which are being amortized
ratably over the term of the agreement, generally two to five years.

  Property and Equipment--Property and equipment are stated at historical
cost. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets, which is generally 3 years for computer
software and equipment and 3 to 5 years for furniture, fixtures and office
equipment. Leasehold improvements are amortized over the shorter of the lease
term or the estimated useful lives.

  Product Development Costs--Costs incurred by the Company to develop,
enhance, manage, monitor and operate the Company's web sites are generally
expensed as incurred, except for certain costs relating to the acquisition and
development of internal-use software that are capitalized and depreciated over
estimated economic lives, generally three years or less in accordance with SOP
98-1 "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use". The Company had $6.5 million of capitalized software costs and
$179,000 of accumulated amortization included in computer software and
equipment at December 31, 2000. There were no capitalized software costs at
December 31, 1999.

  Intangible Assets--Intangible assets resulting from the acquisitions of
entities accounted for using the purchase method of accounting are estimated
by management based on the fair value of assets received. Goodwill and all
other purchased intangibles are being amortized on a straight-line basis over
the estimated periods of benefit ranging from three to five years (Note 4). In
addition, in connection with its formation, RealSelect made various payments
and issued common stock to the NAR for the right to use the REALTOR.com(R)
trademark and domain name, the "REALTORS(R)" trademark and the exclusive
rights to use the web site for real estate listings under an exclusive
lifetime operating agreement. The stock issued and payments made to the NAR,
as well as certain milestone-based amounts subsequently earned by the NAR are
being amortized on a straight-line basis over the estimated period of benefit
of 15 years.

  The Company identifies and records impairment losses on long-lived assets,
including goodwill that is not identified with an impaired asset, when events
and circumstances indicate that such assets might be impaired. Events and
circumstances that may indicate that an asset is impaired include significant
decreases in the market value of an asset, a change in the extent or manner in
which an asset is used, shifts in technology, loss of key management or
personnel, changes in the operating model or strategy and competitive forces.

  If events and circumstances indicate that the carrying amount of an asset
may not be recoverable and the expected undiscounted future cash flow
attributable to the asset is less than the carrying amount of the asset, an
impairment loss equal to the excess of the asset's carrying value over its
fair value is recorded. Fair value is

                                      53


                              HOMESTORE.COM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

determined based on the present value of estimated expected future cash flows
using a discount rate commensurate with the risk involved, quoted market
prices or appraised values, depending on the nature of the assets.

  Revenue Recognition--The Company derives it's revenues principally from the
sale of subscription products consisting of online media and technology
solutions for home and real estate professionals including web site
development to real estate agents and brokers, home builders, financial
service companies and property owners and managers. Revenue from technology
solutions are derived from the following: (i) software license revenue, (ii)
support and service revenues and (iii) web site development revenues. The
Company recognizes revenues from software transactions in accordance with
provisions of Statement of Position ("SOP") 97-2, "Software Revenue
Recognition". Revenues from the sale of software products are recognized upon
delivery of the products and satisfaction of related Company obligations, if
any, provided that persuasive evidence of an arrangement exists, the fee is
fixed and determinable and collection of the resulting receivable is probable.
For contracts with multiple elements (e.g., delivered and undelivered
products, support and other services), the Company allocates revenues to the
undelivered elements of the contract based on vendor-specific objective
evidence of its fair value. This vendor-specific objective evidence of fair
value is the sales price of the element when sold separately or the renewal
rate specified in the arrangement for licensing arrangements with terms of one
year to 18 months that include customer support and unspecified software
updates. Revenues allocated to undelivered elements are recognized when all
revenue recognition criteria are met. Support and services revenues are
recognized ratably over the period of the support contract. Payments for
support and services are generally made in advance and are non-refundable. The
products are sold in annual subscriptions and, accordingly, revenues are
deferred and recognized ratably over the life of the contract, generally 12
months. These prepayments appear on the balance sheet as deferred revenues.
Contracts involving web site development are accounted for using the
percentage-of-completion method which is generally determined based on
development costs incurred relative to total estimated costs.

  The Company sells advertising banners and traditional Internet sponsorships
on our web sites. The Company also sells banner advertising pursuant to
contracts with terms varying from three months to three years, which may
include the guarantee of a minimum number of impressions or times that an
advertisement appears in pages viewed by the users. This advertising revenue
is recognized ratably based upon the lesser of impressions delivered over the
total number of guaranteed impressions or ratably over the period in which the
advertisement is displayed. Equity exchanged for services is recognized during
the period in which the services are provided. The Company records and
measures the value of equity received in exchange for services in accordance
with Emerging Issues Task Force ("EITF") 00-8 "Accounting by a Grantee for an
Equity Instrument to Be Received in Conjunction with Providing Goods or
Services." The Company recognizes revenues from advertising barter
transactions in accordance with EITF 99-17, "Accounting for Advertising Barter
Transactions." Revenues from these transactions are recognized during the
period in which the impressions are delivered. The services provided are
valued based on similar cash transactions which have occurred within six
months prior to the date of the barter transaction. During the year ended
December 31, 2000, revenues from equity-for-services and advertising barter
transactions were less than 5% of revenues. There were no revenues from these
type of transactions during the year ended December 31, 1999.

  Advertising Expense--Advertising costs are expensed as incurred and totaled
$18.1 million and $10.8 million during the years ended December 31, 2000 and
1999, respectively. No advertising costs were incurred during the year ended
December 31, 1998.

                                      54


                              HOMESTORE.COM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Stock-Based Charges--The Company accounts for stock-based employee
compensation arrangements in accordance with the provisions of Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees," and complies with the disclosure provisions of Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation." Under APB No. 25, compensation expense is recognized over the
vesting period based on the difference, if any, on the date of grant between
the deemed fair value for accounting purposes of the Company's stock and the
exercise price on the date of grant. The Company accounts for stock issued to
non-employees in accordance with the provisions of SFAS No. 123 EITF 96-18
"Accounting for Equity Instruments That Are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods and Services."

  The following chart summarizes the stock-based charges that have been
included in the following captions for each of the periods presented (in
thousands):



                                                          Year Ended December
                                                                  31,
                                                         ----------------------
                                                           2000    1999   1998
                                                         -------- ------- -----
                                                                 
Cost of revenues........................................ $    607 $   943 $ --
Sales and marketing.....................................   51,381  14,726   --
Product development.....................................      572     447   --
General and administrative..............................    3,095   5,111   --
                                                         -------- ------- -----
                                                         $ 55,655 $21,227 $ --
                                                         ======== ======= =====


  Income Taxes--Income taxes are accounted for under SFAS No. 109, "Accounting
for Income Taxes." Under SFAS No. 109, deferred tax assets and liabilities are
determined based on differences between the financial reporting and tax basis
of assets and liabilities, and are measured using the enacted tax rates and
laws that will be in effect when the differences are expected to reverse.
Valuation allowances are established when necessary to reduce deferred taxes
to the amount expected to be realized.

  Net Loss Per Share--Net loss per share is computed by dividing the net loss
applicable to common stockholders for the period by the weighted average
number of common shares outstanding. Shares associated with stock options,
warrants and convertible preferred stock are not included to the extent they
are anti-dilutive.

  Foreign Currency Translation--The financial statements of the Company's
foreign subsidiaries are measured using the local currency as the functional
currency. Assets and liabilities of these subsidiaries are translated at the
rate of exchange at the balance sheet date. Income and expense items are
translated at average monthly rates of exchange prevailing during the year.
The resulting translation adjustments are included in accumulated other
comprehensive income as a separate component of stockholders' equity.

  Comprehensive Income--Comprehensive income is defined as the change in
equity of a business enterprise during a period from transactions and other
events and circumstances from nonowner sources. For the Company, comprehensive
income consists of its reported net income or loss, the change in the foreign
currency translation adjustments during a period and the net unrealized gains
or losses on short-term investments and marketable equity securities.

  Segments--The Company operates in one business segment, an Internet
technology solution provider for home and real estate-related information and
advertising products and services. Substantially all of the Company's
operating results and identifiable assets are in the United States.

  Recent Accounting Developments--In June 1998, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities." The statement requires the recognition of
all derivatives as either assets or liabilities in the balance sheet and the
measurement of those

                                      55


                              HOMESTORE.COM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

instruments at fair value. The accounting for changes in the fair value of a
derivative depends on the planned use of the derivative and the resulting
designation. Because the Company does not currently hold any derivative
instruments and does not engage in hedging activities, the impact of the
adoption of SFAS No. 133 is not currently expected to have a material impact
on financial position, results of operations or cash flows. The Company will
be required to implement SFAS No. 133 in the first quarter of fiscal 2001.

  In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101 provides guidance for revenue recognition under
certain circumstances. The adoption of SAB No. 101 in 2000 did not have a
significant impact on the Company's financial position, results of operations
or cash flows.

  In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation an Interpretation of APB
Opinion No. 25." FIN No. 44 clarifies the application of APB Opinion No. 25
for (a) the definition of an employee for purposes of applying APB Opinion No.
25, (b) the criteria for determining whether a plan qualifies as a
noncompensatory plan, (c) the accounting consequence of various modifications
to the terms of a previously fixed stock option or award, and (d) the
accounting for an exchange of stock compensation awards in a business
combination. FIN No. 44 became effective July 1, 2000, but certain conclusions
cover specific events that occur after either December 15, 1998, or January
12, 2000. The adoption of FIN No. 44 did not have a significant impact on the
Company's financial position, results of operations or cash flows.

3. REORGANIZATION OF REALSELECT:

  As described in Note 1, on February 4, 1999, RealSelect was reorganized
through a non-substantive exchange of the Company's capital stock for all of
the outstanding capital stock of NSI, including the assumption of warrants and
options to acquire common stock. Accordingly, the Company issued the following
capital stock to NSI stockholders in exchange for an equivalent number of
shares (in thousands, unaudited):

                                                                    
   Common stock.......................................................... 12,480
   Series A convertible preferred stock..................................  1,378
   Series B convertible preferred stock..................................    191
   Series C convertible preferred stock..................................    614
   Series D convertible preferred stock..................................    681
   Series E redeemable convertible preferred stock.......................    325
   Series F convertible preferred stock..................................  1,664
   Options to purchase common stock......................................  6,560
   Warrants to purchase common stock.....................................    775
   Warrants to purchase preferred stock..................................      5

   

                                      56


                              HOMESTORE.COM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Because the exchange did not affect the economic interests of NSI and
Company stockholders, the Reorganization has been accounted for as a
combination of the historical assets and liabilities of the two individual
companies at February 4, 1999. At the date of the Reorganization, NSI assets,
liabilities and stockholders' equity were as follows (in thousands):



                                                                   February 4,
                                                                      1999
                                                                   -----------
                                                                   (unaudited)
                                                                
                               ASSETS
   Current assets:
     Cash and cash equivalents....................................  $ 13,037
     Other current assets.........................................     8,952
                                                                    --------
   Total current assets...........................................    21,989
   Prepaid distribution expense...................................     7,072
   Property and equipment, net....................................     2,373
   Intangible assets, net.........................................    19,463
   Other..........................................................       286
                                                                    --------
                                                                    $ 51,183
                                                                    ========
       LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
                        STOCKHOLDERS' EQUITY
   Current liabilities:
     Accounts payable and accrued liabilities.....................  $ 12,473
     Deferred revenue.............................................     6,065
   Current portion of notes payable...............................     1,746
                                                                    --------
   Total current liabilities......................................    20,284
   Notes payable..................................................     3,265
                                                                    --------
   Total liabilities..............................................    23,549
                                                                    --------
   Redeemable convertible preferred stock.........................     4,963
                                                                    --------
   Convertible preferred stock....................................         5
   Common stock...................................................         2
   Additional paid-in capital.....................................    98,129
   Treasury stock at cost.........................................    (1,770)
   Notes receivable from stockholders.............................    (3,230)
   Deferred stock charges.........................................   (10,079)
   Accumulated deficit............................................   (60,386)
                                                                    --------
       Total stockholders' equity.................................    22,671
                                                                    --------
                                                                    $ 51,183
                                                                    ========


4. ACQUISITIONS:

 The Enterprise

  In March 1998, NSI acquired all the outstanding stock of The Enterprise of
America, Ltd. ("The Enterprise"), a provider of web hosting services for real
estate brokers, in exchange for aggregate consideration consisting of 525,000
shares of common stock with an estimated fair value of $525,000, which is
based on the terms and preferences of the shares issued in the transaction
relative to the value received by the Company in its most recent financing
prior to the acquisition, a note payable in the amount of $2.2 million,
$705,000 in cash and other acquisition-related expenses and the assumption of
$946,000 of net liabilities. The acquisition has been accounted for as a
purchase. The excess of purchase consideration over net tangible assets of
$3.9 million has

                                      57


                              HOMESTORE.COM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

been allocated to goodwill which is being amortized on a straight-line basis
over five years. The purchase agreement also provides for certain contingent
payments in the event that predetermined levels of sales are achieved. Such
payments, if any, will be accounted for as compensation expense in the period
earned and in no event shall such aggregate payments exceed $1.0 million. For
the years ended December 31, 1998 and 1999, no contingent payments were
required under the terms of the agreement.

 MultiSearch

  In July 1998, NSI acquired all the outstanding stock of MultiSearch
Solutions, Inc. ("MultiSearch"), the initial developer of the HomeBuilder.com
web site, in exchange for issuing 325,000 shares of Series E redeemable
convertible preferred stock with an estimated fair value of $4.8 million,
which is based on the terms and preferences of the shares issued in the
transaction relative to the value received by the Company in its most recent
financing prior to the acquisition, a note payable in the amount of $3.6
million, $875,000 in cash and other acquisition-related expenses and the
assumption of $657,000 of net liabilities. The acquisition has been accounted
for as a purchase. The excess of total purchase consideration over net
tangible assets acquired of $9.4 million has been allocated to goodwill which
is being amortized on a straight-line basis over five years. The purchase
agreement also provides for certain contingent payments in the event that
predetermined levels of sales and earnings are achieved. Such payments, if
any, will be accounted for as compensation expense in the period earned. For
the year ended December 31, 1998, $360,000 of expense was recognized under the
terms of the agreement.

 SpringStreet

  In June 1999, the Company acquired SpringStreet, Inc. ("SpringStreet"), a
leading provider of online listings of homes for rent, for common stock and
convertible preferred stock equivalent to an aggregate of 5,309,058 shares of
common stock. The acquisition costs aggregated approximately $51.7 million and
were based on the privileges and preferences of the shares issued in the
transaction relative to the value received by the Company in its April 1999
Series G financing and certain acquisition expenses. The SpringStreet
acquisition was accounted for using the purchase method of accounting. The
excess of total purchase consideration over net tangible assets acquired of
$41.3 million has been allocated to goodwill and other purchased intangible
assets which are being amortized on a straight-line basis over estimated lives
ranging from three to five years.

 Homefair

  In October 1999, the Company acquired The Homebuyers Fair, Inc. and FAS-
Hotline, Inc., collectively Homefair, one of the largest moving and relocation
sites on the Internet, for $35.8 million in cash and other acquisition related
expenses, a $37.5 million note payable and 250,000 shares of common stock,
with an estimated fair value of $11.2 million, for a total aggregate purchase
price of $83.7 million. The acquisition has been accounted for as a purchase.
The acquisition cost has been allocated to the assets acquired and liabilities
assumed based on estimates of their respective fair values. The excess of
purchase consideration over net tangible assets acquired of $83.3 million has
been allocated to goodwill and other purchased intangible assets and is being
amortized on a straight-line basis over estimated lives ranging from three to
five years.

 WyldFyre

  In March 2000, the Company acquired WyldFyre Technologies, Inc.
("WyldFyre"), a leading developer of technology solutions for real estate
professionals to access MLS information via the Internet, for 589,426 shares
of its common stock with an estimated fair value for accounting purposes of
$34.0 million. The acquisition has been accounted for as a purchase. The
acquisition cost has been allocated to the assets acquired and liabilities
assumed based on their respective fair values. The excess of purchase
consideration over net tangible assets acquired of $34.3 million has been
allocated to goodwill and other identifiable intangible assets and is being
amortized on a straight-line basis over estimated lives ranging from three to
five years. During the year ended

                                      58


                              HOMESTORE.COM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 2000, a portion of the purchase price was charged to acquired in-
process research and development ("IPR&D") upon completion of the purchase
price valuation by an independent third party.

 Top Producer

  In May 2000, the Company acquired Top Producer Systems, Inc. ("Top
Producer"), a leading provider of leads management and marketing software for
real estate professionals, for $12.1 million in cash and 473,538 shares of its
common stock with an estimated fair value of $12.1 million. The shares vest
over a three-year period and are contingent upon the Top Producer's chief
executive officer's employment over a three-year period, and accordingly, the
value of such shares has been recorded in deferred stock-based charges.
Contingent purchase price of approximately $16.2 million may also be paid in
cash or stock, if certain defined performance targets are met during the years
ending December 31, 2000 through December, 31 2004. The acquisition has been
accounted for as a purchase. The acquisition cost has been allocated to the
assets acquired and liabilities assumed based on their respective fair values.
The excess of purchase consideration over net tangible assets acquired of
$27.3 million has been allocated to goodwill, deferred compensation and other
identifiable intangible assets and is being amortized on a straight-line basis
over estimated lives ranging from three to five years. During the year ended
December 31, 2000, a portion of the purchase price was charged to acquired
IPR&D upon completion of the purchase price valuation by an independent third
party.

 The Hessel Group

  In September 2000, the Company acquired The Hessel Group ("THG"), a leading
provider of technology-driven solutions and services to the relocation
industry, for $15.0 million in cash and assumption of THG's option plan
consisting of 135,421 options with an estimated fair value of $4.5 million.
The acquisition has been accounted for as a purchase. The acquisition cost has
been preliminarily allocated to the assets acquired and liabilities assumed
based on estimates of their respective fair values. The excess of purchase
consideration over net tangible assets acquired of $19.3 million has been
allocated to goodwill and other identifiable intangible assets and is being
amortized on a straight-line basis over estimated lives of five years.

  The following summarized unaudited pro forma financial information excludes
the acquisitions of WyldFyre, Top Producer and THG. The pro forma effect of
the WyldFyre, Top Producer and THG transactions are immaterial for all periods
presented and therefore are not included in the pro forma information. As
such, for the year ended December 31, 2000 no pro-forma information has been
presented. This information assumes the Reorganization and the acquisitions of
The Enterprise, MultiSearch, SpringStreet, and Homefair acquisitions occurred
at the beginning of each period (in thousands, except per share amounts):



                                                                     Year Ended
                                                                    December 31,
                                                                        1999
                                                                    ------------
                                                                 
   Revenues........................................................  $  73,367
   Net loss applicable to common stockholders......................   (132,046)
   Net loss per share applicable to common stockholders:
   Basic and diluted...............................................  $   (2.92)
   Weighted average shares.........................................     45,238


 In-process Research and Development

  During the year ended December 31, 2000, approximately $4.0 million of the
purchase price from the acquisitions of WyldFyre and Top Producer was charged
to acquired IPR&D upon completion of the purchase price valuation by an
independent third party.

                                      59


                              HOMESTORE.COM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  The amounts allocated to the IPR&D represented the purchased IPR&D for seven
projects that had not yet reached technological feasibility and had no
alternative future use. The value of these projects was determined by using
the income approach. The income approach values an asset based on the earnings
capacity of the asset based on the future cash flows that could potentially be
generated by the asset over its estimated remaining life. The future cash
flows are discounted to their present value utilizing a discount rate which
would provide sufficient return to a potential investor to estimate the value
of the subject asset. The present value of the cash flows over the life of the
asset are summed to equal the estimated value of the asset.

  To determine the value of IPR&D, the expected future cash flows, including
costs to achieve technological feasibility, were discounted at a rate of 28%,
taking into account risks associated with timely development and roll-out of
the Company's in-process products, as well as strong growth and profit
margins. At the acquisition date, it was estimated that the seven projects
under development ranged from 5% to 81% complete. At the time of the
valuation, these projects were expected to be completed within twelve months.

5. SHORT-TERM INVESTMENTS:

  The following table summarizes the Company's investments in available-for-
sale securities (in thousands):



                                                 December 31, 2000
                                     ------------------------------------------
                                     Amortized Unrealized Unrealized Estimated
                                       Cost      Gains      Losses   Fair Value
                                     --------- ---------- ---------- ----------
                                                         
   Short-term investments...........  $75,334     $ --       $ 39     $75,295
   Marketable equity security.......  $   365     $ --       $118     $   247




                                                December 31, 1999
                                    ------------------------------------------
                                    Amortized Unrealized Unrealized Estimated
                                      Cost      Gains      Losses   Fair Value
                                    --------- ---------- ---------- ----------
                                                        
   Marketable equity security......   $365      $3,865      $ --      $4,230


  Short-term investments consists primarily of commercial paper. There were no
short-term investments at December 31, 1999. The contractual maturities of
available-for-sale debt securities at December 31, 2000 are all due within one
year. Marketable equity security consists of equity instruments of a publicly-
held company.

6. PROPERTY AND EQUIPMENT:

  Property and equipment consists of the following (in thousands):



                                                                December 31,
                                                               ----------------
                                                                2000     1999
                                                               -------  -------
                                                                  
   Computer software and equipment............................ $32,938  $ 5,522
   Furniture, fixtures and office equipment...................   4,962    1,588
   Leasehold improvements.....................................  15,332    1,421
                                                               -------  -------
                                                                53,232    8,531
   Less: accumulated depreciation.............................  (8,171)  (2,226)
                                                               -------  -------
                                                               $45,061  $ 6,305
                                                               =======  =======


  Depreciation expense for the years ended December 31, 2000 and 1999 was $5.9
million and $1.4 million, respectively. The Company held no depreciable assets
in 1998.


                                      60


                              HOMESTORE.COM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


7. INTANGIBLE ASSETS:

  Intangible assets consist of the following (in thousands):



                                                               December 31,
                                                             ------------------
                                                               2000      1999
                                                             --------  --------
                                                                 
     Purchased content...................................... $ 64,680  $ 64,680
     Goodwill...............................................  117,660    56,642
     Porting relationships..................................   10,000    10,000
     Purchased technology...................................   21,580     5,000
     NAR operating agreement................................    7,405     7,405
     Other..................................................   30,072     7,614
                                                             --------  --------
                                                              251,397   151,341
     Less: accumulated amortization.........................  (56,655)  (12,729)
                                                             --------  --------
                                                             $194,742  $138,612
                                                             ========  ========


8. OTHER ASSETS:

  Other assets consist of the following (in thousands):



                                                                  December 31,
                                                                 --------------
                                                                  2000    1999
                                                                 ------- ------
                                                                   
     Cost and equity investments................................ $43,331 $3,123
     Other......................................................   6,991  1,077
                                                                 ------- ------
                                                                 $50,322 $4,200
                                                                 ======= ======


9. ACCRUED LIABILITIES:

  Accrued liabilities consist of the following (in thousands):



                                                                 December 31,
                                                                ---------------
                                                                 2000    1999
                                                                ------- -------
                                                                  
     Accrued payroll and related benefits...................... $16,705 $ 7,306
     Accrued distribution fees.................................   5,576   5,724
     Accrued royalties.........................................  11,161   3,091
     Other.....................................................  15,793   7,566
                                                                ------- -------
                                                                $49,235 $23,687
                                                                ======= =======


10. RELATED-PARTY TRANSACTIONS:


  In March 1999, the NAR received shares of RealSelect common stock
convertible into 297,620 shares of Company common stock in satisfaction of
certain obligations under the NAR operating agreement totaling $1.0 million.

                                      61


                              HOMESTORE.COM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  During the year ended December 31, 1999, the Company issued promissory notes
to employees of the Company totaling $13.0 million for the exercise of stock
options and related expenses. These notes are full recourse and collateralized
by common stock of the Company and bear a weighted average interest of
5.13% per annum. These notes are classified as a component of stockholders'
equity. Approximately $126,000 and $12.8 million of these notes are due in
2003 and 2004, respectively.

  During 2000, the Company received payments, net of accrued interest, of
approximately $2.5 million in connection with the issuance of these notes.
Additionally, the Company repurchased 471,007 shares of common stock for
approximately $2.9 million in exchange for the cancellation of promissory
notes of equal value.

11. NOTES PAYABLE:

  The Company repaid approximately $38.6 million in notes payable during 2000.
At December 31, 2000, the Company had a $411,000 non-interest bearing note
payable outstanding, which has been discounted at 10%. This note is due in
2001.

12. STOCK PLANS:

 Option Plans

  Prior to the Reorganization, the Company granted stock options under the
InfoTouch 1994 Stock Incentive Plan. In connection with the formation of
RealSelect, options to purchase 1,326,000 shares of common stock, representing
all outstanding options granted prior to December 4, 1996, became fully
vested. In December 1996, the Company granted options to purchase 275,000
shares of common stock with an exercise price per share of $.06. In 1997,
options to purchase 258,000 shares at $.45 per share were canceled. In 1998,
options to purchase 1,328,000 shares at a weighted average exercise price of
$.45 were exercised. Accordingly, at December 31, 1998 and up through the date
of the Reorganization, options to purchase 15,000 shares were outstanding with
a weighted average exercise price of $.64 per share.

  In connection with the Reorganization, the Company assumed the NSI 1996
Stock Incentive Plan (the "1996 Plan") which provides for the grant of options
to purchase up to 10,000,000 common shares. Under the terms of the plan,
options and other equity incentive awards may be granted to employees,
officers, directors and consultants at the then-current market value of the
Company's common shares, as determined by the Board of Directors. Options
granted generally vest over four years, 25% for the first year and monthly
thereafter over the remaining three years, and expire 10 years after the date
of grant.

  In January 1999, the Board of Directors adopted, and in March 1999 the
Company's stockholders approved, the 1999 Equity Incentive Plan (the "1999
Plan") to replace the 1996 Plan. The 1999 Plan provides for the issuance of
both non-statutory and incentive stock options to employees, officers,
directors and consultants of the Company. The total number of shares of common
stock reserved for issuance under the 1999 Plan is equal to that number
previously reserved and available for grant under the 1996 Plan. The Company
will not issue new options under the 1996 Plan. In April 1999 and June 1999,
the Board of Directors authorized, and the stockholders approved, an increase
in the number of shares reserved for issuance under the 1999 Plan by an
additional 3,000,000 shares and 625,000 shares, respectively.

  In June 1999, the Board of Directors adopted, and the stockholders approved,
the 1999 Stock Incentive Plan (the "SIP"). The SIP reserves 4,900,000 shares
of common stock for future grants. The SIP contains a provision for an
automatic increase in the number of shares available for grant starting
January 1, 2000 and each January

                                      62


                              HOMESTORE.COM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

thereafter by an amount equal to 4.5% of the outstanding shares as of the
preceeding December 31; provided however that it does not exceed 20 million
shares. In accordance with the provisions of the 1999 Stock Incentive Plan,
the number of options available for grant was increased by 3,158,509 shares in
January 2000.

  In September 2000, in connection with the acquisition of THG, the Company
assumed the Hessel 2000 Stock Option Plan. This Plan has 400,000 shares
authorized for issuance with 135,421 options issued and outstanding. Options
to be granted under this Plan will be nonqualified options and generally vest
20% after one year and monthly thereafter over the remaining four years and
expire ten years after the date of grant.

  The following table summarizes the activities under the option plans
(including the InfoTouch, SpringStreet, and THG options) for the years ended
December 31, 1998, 1999 and 2000 (shares in thousands):



                                                                       Weigted
                                                                       Average
                                            Number of    Price Per     Exercise
                                             Shares        Share        Price
                                            --------- ---------------- --------
                                                              
   Outstanding at December 31, 1997........   4,453   $ 0.05 to $ 0.90  $ 0.26
     Granted...............................   4,782     1.00 to   1.60    1.21
     Exercised.............................  (2,434)    0.06 to   1.00     .31
     Cancelled.............................    (426)    0.30 to   1.00     .71
   Outstanding at December 31, 1998........   6,375      .05 to   1.60     .91
                                             ------   ----------------  ------
     SpringStreet options assumed..........     719      .36 to   9.83    3.36
     Granted...............................  10,214     2.00 to  69.63   13.52
     Exercised.............................  (5,967)     .05 to   9.83    2.20
     Cancelled.............................  (1,072)     .30 to  50.50    4.29
   Outstanding at December 31, 1999........  10,269      .06 to  69.63   12.60
                                             ------   ----------------  ------
     The Hessel Group options assumed......     135    36.00 to  47.13   39.77
     Granted...............................   7,483    16.63 to  89.25   34.98
     Exercised.............................  (1,708)     .30 to  34.50    4.44
     Cancelled.............................  (1,954)     .36 to  89.25   25.16
                                             ------   ----------------  ------
   Oustanding at December 31, 2000.........  14,225   $  .06 to $89.25  $23.79
                                             ======   ================  ======


  NSI options granted during the years ended December 31, 1997 and 1998 and
options granted by the Company during the year ended December 31, 1999
resulted in total compensation of $1.0 million, $9.5 million and $13.4
million, respectively, and were recorded as deferred stock compensation in
stockholders' equity. This deferred compensation represented the difference
between the deemed fair value of the Company's common stock for accounting
purposes and the exercise price of these options at the date of grant. The
deferred stock compensation is included in cost of revenues, sales and
marketing, product development and general and administrative expenses in the
consolidated statement of operations over the related vesting period of the
options. Common stock available for future grants as of December 31, 2000 was
149,270 shares.

                                      63


                              HOMESTORE.COM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Additional information with respect to the outstanding options at December
31, 2000 is as follows (shares in thousands):



                                                                     Options
                           Options Outstanding                     Exercisable
                   ------------------------------------------   ---------------------
                   Number     Weighted Average     Average      Number     Average
                     of          Remaining         Exercise       of       Exercise
    Prices:        Shares     Contractual Life      Price       Shares      Price
    -------        ------     ----------------     --------     ------     --------
                                                            
$   .30 to 1.60     1,305           7.5             $ 1.09        975       $ 1.04
$  2.00 to 3.57       460           8.1               2.68        376         2.64
$  8.00 to 9.83     4,047           8.3               8.87      2,589         8.81
$16.63 to 24.63     1,144           9.2              21.49         81        20.00
$25.13 to 36.00     4,929           9.4              29.74        430        29.82
$45.00 to 54.00     1,765           9.4              47.85         75        48.04
$68.38 to 89.25       575           9.1              76.67         62        74.27
                   ------           ---             ------      -----       ------
$  .30 to 89.25    14,225           8.9             $23.79      4,588       $10.36
                   ======           ===             ======      =====       ======


  The Company follows the intrinsic value method in accounting for its stock
options. Had compensation cost been recognized based on the fair value at the
date of grant for options granted in 2000, 1999 and 1998, the pro forma
amounts of the Company's net loss and net loss per share for the years ended
December 31, 2000, 1999 and 1998 would have been as follows:



                                                     2000       1999     1998
                                                   ---------  ---------  -----
                                                                
   Net loss applicable to common stockholders:
     As reported.................................. $(115,169) $ (95,306) $  (3)
     Pro forma.................................... $(188,004) $(104,669) $  (3)
   Net loss per share-basic and diluted:
     As reported.................................. $   (1.44) $   (2.32) $ --
     Pro forma.................................... $   (2.36) $   (2.54) $ --


  The fair value for each option granted was estimated at the date of grant
using a Black-Scholes option pricing model, assuming no expected dividends and
the following weighted-average assumptions:



                                                  Year Ended December 31,
                                                  ---------------------------
                                                   2000      1999      1998
                                                  -------   -------   -------
                                                             
   Risk-free interest rates......................       6%        6%        5%
   Expected lives (in years).....................       4         5         4
   Dividend yield................................       0%        0%        0%
   Expected volatility...........................     100%       85%        0%


  Options granted prior to the Company's initial public offering were valued
using the minimum value method and therefore volatility was not applicable.
The weighted-average fair value of options granted during the years ended
December 31, 2000, 1999 and 1998 was $25.47, $6.74 and $0.97, respectively.

 Employee Stock Purchase Plan

  In July 1999, the Company adopted, and the stockholders approved, the 1999
Employee Stock Purchase Plan ("ESPP"). Under the terms of the ESPP, the
initial aggregate number of shares of stock that may be issued is 750,000,
cumulatively increased on January 1, 2000 and each January 1 thereafter until
and including January 1, 2009 by an amount equal to half of a percent (.5%) of
the outstanding shares of stock as of the preceding

                                      64


                              HOMESTORE.COM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31; provided, however, that the aggregate shares reserved under the
plan shall not exceed 5,000,000 shares. In January 2000, the amount available
under the plan was increased by 413,806. Employees can choose to have up to
15% of their annual base earnings withheld, but not to exceed $15,000, to
purchase the Company's common stock. The purchase price of the common stock is
85% of the lesser of the fair market value as of the beginning or ending of
the offering period in February and August, as defined in the Plan. The first
offering period started on August 1, 1999. During 2000, the Company issued
230,590 shares of common stock under the ESPP at a weighted issuance price of
$17.54 per share.

13. WARRANTS:

  In connection with the Reorganization, the Company assumed warrants to
purchase common stock. The warrants issued can be converted at the election of
the holder, without the payment by the holder of any additional consideration,
into shares of the Company's common stock having a value equal to the fair
market value of the total number of shares subject to the warrant less the
exercise price for that number of shares. The following describes the terms of
and accounting for the warrants assumed in the Reorganization and issued
subsequently.

  In connection with entering into a web portal distribution agreement in
April 1998, the Company issued warrants to purchase 792,752 shares of the
Company's common stock at a weighted average exercise price of $7.00 per
share. In August 1999, warrants to purchase 107,527 shares of common stock
were exercised at an exercise price of $18.60 per share. The Company incurred
a total charge of $12.6 million which is being amortized to sales and
marketing expense over the term of the distribution agreement, approximately
two years. During the year ended December 31, 2000, warrants to purchase
665,064 shares of the Company's common stock were exercised at a weighted
average exercise price of $4.46 per share.

  In January 1999, NSI entered into an equipment leasing arrangement which
provided for the sale and leaseback of certain existing equipment and lease
financing for additional equipment needs. At December 31, 1999, the Company
had leased $3.0 million of equipment, which covers the total availability
under the agreement. In addition, the agreement provides the lessor with
warrants to purchase up to 5,000 shares of Series F preferred stock at an
exercise price of $24.00 per share, which currently represent warrants to
purchase 25,000 shares of common stock at an exercise price of $4.80 per
share. The Company determined that the fair value of the warrants approximated
$115,000 on the date of grant.

  In February 1999, the Company closed a private equity offering to real
estate brokers under the Company's Broker Gold program. The Company also
issued warrants to purchase up to 364,110 shares of our common stock with an
exercise price of $20.00 per share. All warrants issued are fully vested, non-
forfeitable and are immediately exercisable. The Company incurred a non-cash
charge of approximately $4.1 million which is being recognized as expense over
the remaining term of the initial two year Broker Gold program agreements.
During the year ended December 31, 2000, warrants to purchase 165,901 shares
of the Company's common stock were exercised.

  In August 1999, in connection with a marketing agreement, the Company issued
warrants to purchase 500,000 shares of the Company's common stock at an
exercise price of $20.00 per share. The Company incurred a non-cash charge of
$3.5 million which is being recognized as expense over the two-year term of
the marketing agreement. All warrants issued were fully vested, non-
forfeitable and were immediately exercisable upon the closing of the IPO.
These warrants were exercised in July 2000.

  In October 1999, in connection with a marketing agreement, the Company
issued warrants to purchase 119,048 shares of the Company's common stock at an
exercise price of $42.00 per share. The Company incurred a non-cash charge of
$1.1 million which is being recognized as expense over the two-year term of
the

                                      65


                              HOMESTORE.COM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

marketing agreement. All warrants issued were fully vested, non-forfeitable
and were immediately exercisable. These warrants expired in April 2000.

  Throughout 1999, the Company issued warrants to purchase 910,844 shares of
common stock at a weighted average price of $21.18 per share to Multiple
Listing Services ("MLS") that agreed to provide their real estate listings to
us for publication on the Internet on a national basis. All warrants issued
were fully vested, non-forfeitable and were immediately exercisable. The
Company incurred a total non-cash charge of approximately $11.2 million which
is being recognized as expense over the term of the applicable MLS agreement,
approximately one to two years. During the year ended December 31, 2000,
warrants to purchase 201,034 shares of the Company's common stock were
exercised at a weighted average exercise price of $20.00 per share.

  In February 2000, the Company issued warrants to purchase 470,089 shares of
the Company's common stock at an exercise price of $66.50 per share to the
Broker Gold program members who elected to renew their existing listing
agreements with the Company for an additional two years at the end of their
existing two-year term. All warrants issued were fully vested, non-forfeitable
and were immediately exercisable. The non-cash charge for the warrants totaled
approximately $21.9 million which is being recognized as expense over three
years.

  In March 2000, in connection with a marketing agreement, the Company issued
warrants to purchase 400,000 shares of the Company's common stock at an
exercise price of $35.63 per share. All warrants issued were fully vested,
non-forfeitable and were immediately exercisable. The Company incurred a non-
cash charge of $5.0 million which is being recognized as expense over the two-
year term of the advertising agreement.

  Throughout 2000, the Company issued warrants to purchase 30,739 shares of
the Company's common stock at a weighted average price of $85.45 per share to
Multiple Listing Services ("MLS") that agreed to provide their real estate
listings to the Company for publication on the Internet on a national basis.
All warrants issued were fully vested, non-forfeitable and were immediately
exercisable. The Company incurred a total non-cash charge of approximately
$1.8 million which is being recognized as expense over the term of the
applicable MLS agreement, approximately two to three years.

  The Company recognized $27.3 million and $8.7 million in stock-based charges
for the years ending December 31, 2000 and 1999, respectively in connection
with the issuance of warrants. There were no stock-based charges for 1998.

15. CAPITALIZATION:

  On April 5, 1999, the Board of Directors effected a two-for-one stock split
of the outstanding shares of common stock. All share and per share information
included in these consolidated financial statements have been retroactively
adjusted to reflect this stock split.

  On August 4, 1999, the Board of Directors effected a five-for-two stock
split of the outstanding shares of common stock. All share and per share
information included in these consolidated financial statements have been
retroactively adjusted to reflect this stock split.

                                      66


                              HOMESTORE.COM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Convertible preferred stock immediately prior to the initial public offering
on August 4, 1999 was composed of the following (in thousands):



                                                      Shares
                                              ---------------------- Liquidation
                                              Authorized Outstanding   Amount
                                              ---------- ----------- -----------
                                                            
     Series A................................   1,647       1,378     $  4,561
     Series B................................     353         191        1,379
     Series C................................     614         614        5,054
     Series D................................     681         681       10,991
     Series F................................   2,100       1,760       44,686
     Series G................................     341         341       17,231
     Series H................................     845         845       42,358
     Undesignated............................   3,094         --           --
                                                -----       -----     --------
                                                9,675       5,810     $126,260
                                                =====       =====     ========


  On August 4, 1999, the Company completed its initial public offering of
common stock. At that time, all issued and outstanding shares of the Company's
convertible preferred stock, except for one share of Series A preferred stock
issued to the NAR, were converted into an aggregate of 29,049,369 shares of
common stock.

  Immediately prior to the initial public offering, the holders of the
convertible preferred stock had the following rights:

  Voting--Each share of convertible preferred stock has a number of votes
equal to the number of shares of common stock then issuable upon its
conversion. The convertible preferred stock generally votes together with the
common stock and not as a separate class.

  Dividends--The holders of each series of convertible preferred stock are
entitled to receive dividends when, as and if declared by the Board of
Directors at a rate of 6.5% of the respective issuance price per share per
annum. The holders of Series D and Series F are entitled to receive cumulative
dividends in preference to the holders of Series A, Series B, and Series C
preferred stock and Series E redeemable convertible preferred stock and the
common stock. In the event of a public offering of the Company's equity
securities meeting certain minimum size requirements and timing, as defined in
the Certificate of Incorporation, dividends declared, if any, will not be
payable and will lapse. The holders of the Series D and Series F convertible
preferred stock are entitled to dividends at their stated rate whether or not
earned which are payable upon conversion provided the Company's public
offering does not meet certain minimum size requirements and timing.
Accordingly, the Company has recorded accretion from the date of the
Reorganization of $2.3 million for the year ended December 31, 1999 related to
the Series D and Series F dividends. No dividends have been declared or paid
from inception.

  Liquidation--In the event of any liquidation or winding up of the Company,
the holders of each series of convertible preferred stock will be entitled to
receive, in preference to the holders of common stock, any distribution of
assets of the Company equal to the sum of the respective issuance price of
such shares plus any accrued and unpaid dividends. The holders of Series D and
Series F are entitled to receive any distribution of assets of the Company
before the holders of Series A, Series B, and Series C convertible preferred
stock and Series E redeemable convertible preferred stock. The holders of
Series A, Series B, Series C and Series E preferred stock are also entitled to
receive an amount equal to the dividend rate (6.5%) accruing on a quarterly
basis on the last day of each calendar quarter for the period from the
respective date of issuance of such shares to the date of liquidation.

                                      67


                              HOMESTORE.COM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  After the full liquidation preference on all outstanding shares of
convertible preferred stock has been paid, any remaining funds and assets of
the Company will be distributed pro rata among the holders of the common
stock.

  Redemption--If a liquidation or initial public offering has not occurred by
June 30, 2002, the holders of Series E redeemable convertible preferred stock
are entitled to a redemption out of the assets of the Company equal to the
Series E liquidation preference. The Company recorded accretion from the date
of the Reorganization of $154,000 for the year ended December 31, 1999 related
to the Series E redeemable convertible preferred stock redemption value.

  Conversion--Each share of convertible preferred stock is convertible at the
holder's option at any time into common stock, according to a ratio which is
five-for-one, subject to adjustment for dilution. Each share of convertible
preferred stock automatically converts into common stock at the then
applicable conversion rate for each upon (i) the closing of an underwritten
public offering pursuant to which the post-closing enterprise value is at
least $300 million of Company stock at a price of at least $9.97 per share,
(ii) the consent of at least two-thirds of the outstanding preferred stock, or
(iii) as to each series of convertible preferred stock, upon the date that
less than 100 shares of such series are outstanding.

  On August 10, 1999, the Company amended its certificate of incorporation
authorizing the Company to issue two classes of shares which are designated as
common stock, $0.001 par value per share, and preferred stock, $0.001 par
value per share. The total number of shares the Company is authorized to issue
is 500 million shares of common stock and 10 million shares of preferred
stock. At December 31, 2000, the Company had authorized the issuance of one
share of Series A preferred stock. At December 31, 2000, one share of Series A
preferred stock was issued and outstanding. The holder of Series A preferred
stock has the following rights:

  Voting--Except as provided in this paragraph, the Series A preferred
stockholder is not entitled to notice of any stockholders' meetings and shall
not be entitled to vote on any matters with respect to any question upon which
holders of common stock or preferred stock have the right to vote, except as
may be required by law (and, in any such case, the Series A preferred shall
have one vote per share and shall vote together with the common stock as a
single class). The holder of Series A preferred is entitled to elect one (1)
director of the Company. If there is any vacancy in the office of a director
elected by the holder of the Series A preferred, then a director to hold
office for the unexpired term of such directorship may be elected by the vote
or written consent of the holder of the Series A preferred stock. The
provisions of the Article dealing with preferred stockholders rights included
in the certificate of incorporation may not be amended without the approval of
the holder of the Series A preferred stock.

  Dividends--In each calendar year, the holder of the Series A preferred is
entitled to receive, when, as and if declared by the Board, non-cumulative
dividends in an amount equal to $0.08 per share (as appropriately adjusted for
stock splits, stock dividends, recapitalizations and the like), prior and in
preference to the payment of any dividend on the common stock in such calendar
year. If, after dividends in the full preferential amounts specified in this
Section for the Series A Preferred have been paid or declared and set apart in
any calendar year of the Company, the holder of Series A preferred shall have
no further rights to receive any further dividends that the Board may declare
or pay in that calendar year.

  Liquidation--In the event of any liquidation, dissolution or winding up of
the Company, whether voluntary or involuntary, the Series A preferred is
entitled to receive, prior and in preference to any payment or distribution on
any shares of common stock, an amount per share equal to $1.00 per share of
Series A preferred. After payment of such amount, any further amounts
available for distribution shall be distributed among the holders of common
stock and the holders of preferred stock other than Series A preferred, if
any, entitled to receive such distributions.

                                      68


                              HOMESTORE.COM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Redemption--Upon the earlier to occur of (i) termination of that certain
Operating Agreement dated November 26, 1996, as the same may be amended from
time to time (the "Operating Agreement"), or (ii) the National Association of
REALTORS(R) ("NAR") ceases to own at least 149,778 shares of common stock of
the Company, or (iii) the existence and continuance of a material breach by
the NAR of that certain Joint Ownership Agreement, dated as of November 26,
1996, among the NAR, NetSelect and NetSelect, L.L.C., or the Trademark License
dated as of November 26, 1996, by and between NAR and RealSelect, at any time
thereafter the Company may, at the option of the Board, redeem the Series A
preferred. The redemption price for each share of Series A preferred shall be
$1.00 per share.

  Conversion--Each share of Series A preferred stock shall automatically be
converted into one share of common stock upon any sale, transfer, pledge, or
other disposition of the share of Series A preferred to any person or entity
other than the initial holder of such share of Series A preferred, or any
successor by operation of law that functions as a non-profit trade association
for REALTORS(R) under Section 501(c)(6) of Internal Revenue Code of 1986, as
amended, that owns the REALTOR(R) trademark, or any wholly-owned affiliate of
such holder as long as the holder continues to own such affiliate.

 Repurchase of Common Stock

  In February 1999, the Company repurchased 2,903,865 shares of common stock
for $11.9 million.

  During 2000, the Company repurchased 471,007 shares of common stock for
approximately $2.9 million in exchange for the cancellation of notes payable
to the Company of equal value.

 Sale of Common Stock and Series F Convertible Preferred Stock

  In February 1999, the Company closed a private equity offering to real
estate brokers under its Broker Gold program. In the aggregate, the Company
sold 94,248 shares of Series F convertible preferred stock and 628,760 shares
of common stock for approximately $3.5 million. The Company recorded the $6.0
million difference between the deemed fair value of the stock for accounting
purposes and the price paid by the brokers as deferred compensation, which is
being amortized ratably over the two-year term of the Broker Gold agreement,
resulting in a non-cash charge of $2.0 million for the year ended December 31,
1999. Under the terms of the Broker Gold agreement, brokers provide the
Company with the right to display their property listings on an exclusive
basis.

  In March 2000 and May 2000, in connection with acquisitions of WyldFyre
Technologies, Inc. and Top Producer Systems Inc., the Company issued 589,426
shares of the Company's common stock (Note 4).

  In March 2000, in connection with a marketing agreement, the Company issued
1,085,271 shares of the Company's common stock to Budget Group, Inc. The
Company recorded the $70 million difference between the fair value of the
stock and the price paid by the Budget Group as deferred stock charges, which
is being amortized ratably over the ten-year term of the marketing agreement
(Note 19).

  In April 2000, in connection with a marketing and distribution agreement,
the Company issued 3,894,343 shares of the Company's common stock to AOL (Note
19).

  The Company recognized $21.9 million and $2.8 million in stock-based charges
in connection with the issuance of common stock for the years ended December
31, 2000 and 1999, respectively. There were no stock-based charges for 1998.

                                      69


                              HOMESTORE.COM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


15. NET LOSS PER SHARE:

  The following table sets forth the computation of basic and diluted net loss
per share applicable to common stockholders per share for the periods
indicated (in thousands, except per share amounts):



                                                    Year Ended December 31,
                                                   ---------------------------
                                                     2000       1999     1998
                                                   ---------  --------  ------
                                                               
   Historical presentation numerator:
     Net loss....................................  $(115,169) $(93,007) $   (3)
     Accretion of redemption value and dividends
      on convertible preferred stock.............        --     (2,299)    --
                                                   ---------  --------  ------
     Net loss applicable to common stockholders..  $(115,169) $(95,306) $   (3)
                                                   =========  ========  ======
   Denominator:
     Weighted average shares.....................     79,758    41,142   9,173
                                                   =========  ========  ======
   Basic and diluted net loss per share
    applicable to common stockholders............  $   (1.44) $  (2.32) $  --
                                                   =========  ========  ======


  The per share computations exclude preferred stock, options and warrants
which are anti-dilutive. The number of such shares excluded from the basic and
diluted net loss per share computation were 16,107,866, 12,892,571 and 15,000
for the years ended December 31, 2000, 1999 and 1998, respectively.

16. SUPPLEMENTAL CASH FLOW INFORMATION:

  During the year ended December 31, 2000:

  .  The Company paid $1.4 million for interest.

  .  The Company acquired Top Producer for $12.1 million in cash and 473,538
     shares of common stock with an estimated fair value of $12.1 million and
     assumed net liabilities of $522,000 in connection with this purchase.

  .  The Company issued 589,426 shares of common stock valued at $34.3
     million as part of the WyldFyre acquisition.

  .  The Company paid cash of $15.0 million and assumed an option plan
     consisting of 135,421 options with an estimated fair value of $4.5
     million and assumed net assets of $747,220 as part of the The Hessel
     Group acquisition.

  .  The Company issued 1,085,271 shares of common stock in connection with a
     marketing agreement.

  .  The Company issued 3,894,343 shares of common stock in connection with a
     marketing and distribution agreement.

  .  During 2000, the Company repurchased 471,007 shares of common stock for
     approximately $2.9 million in exchange for the cancellation of
     promissory notes to the Company of equal value.

  .  The Company received $10.4 million in equity securities for services.

  During the year ended December 31, 1999:

  .  The Company issued shares of RealSelect common stock convertible into
     297,620 shares of Company common stock to the NAR in satisfaction of
     certain obligations under the operating agreement totaling $1.0 million.

                                      70


                              HOMESTORE.COM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  .  The Company issued notes receivable to stockholders for $12.1 million in
     connection with exercising stock options and issuing restricted common
     stock.

  .  The Company issued 364,000 shares of common stock valued at $3.3
     million, 844,569 shares of Series H convertible preferred stock valued
     at $42.1 million and assumed net assets of $10.1 million as part of the
     SpringStreet acquisition.

  .  The Company issued 187,500 shares of common stock to the NAR in
     satisfaction of certain obligations under the operating agreement
     totaling $1.3 million.

  .  The Company issued 162,500 shares of common stock totaling $488,000 to
     an employee for cash of $250,000 and a note receivable of $238,000.

  .  The Company converted all of the shares of RealSelect held by the NAR
     into 3,917,265 shares of its common stock.

  .  The Company issued 250,000 shares of common stock valued at $11.2
     million, a $37.5 million promissory note, and assumed $911,000 net
     liabilities as part of the Homefair acquisition.

  .  The Company funded $3.0 million of capital expenditures through an
     equipment lease financing arrangement.

  .  The Company issued 250,000 shares of common stock in satisfaction of the
     Cendant Litigation.

  .  The Company issued 18,604 shares of common stock in exchange for a $1.0
     million investment in a company.

  .  The Company paid $79,000 for interest.

  During the year ended December 31, 1998:

  .  The Company paid $1,000 for interest.

17. DEFINED CONTRIBUTION PLAN:

  The Company has a savings plan (the "Savings Plan") that qualifies as a
defined contribution plan under Section 401(k) of the Internal Revenue Code.
Under the Savings Plan, participating employees may defer a percentage (not to
exceed 15%) of their eligible pretax earnings up to the Internal Revenue
Service's annual contribution limit. All full-time employees on the payroll of
the Company are eligible to participate in the Plan. The Company is not
required to contribute to the Savings Plan and has made no contributions since
the inception of the Savings Plan.

                                      71


                              HOMESTORE.COM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


18. INCOME TAXES:

  As a result of net operating losses, the Company has not recorded a
provision for income taxes. The components of the deferred tax assets and
related valuation allowance at December 31, 2000 and 1999 are as follows (in
thousands):



                                                      December 31, December 31,
                                                          2000         1999
                                                      ------------ ------------
                                                             
   Deferred tax assets:
     Net operating loss carryforwards................   $ 75,154     $ 44,571
     Equity compensation.............................     19,053        5,106
     Other...........................................      2,338        1,723
                                                        --------     --------
                                                          96,545       51,400
     Less: valuation allowance.......................    (62,068)     (16,570)
                                                        --------     --------
   Net deferred tax assets...........................     34,477       34,830
                                                        --------     --------
   Deferred tax liabilities:
     Amortization of acquired intangible assets......    (34,477)     (34,830)
                                                        --------     --------
   Total gross deferred tax liabilities..............    (34,477)     (34,830)
                                                        --------     --------
   Net deferred tax asset (liability)................   $    --      $    --
                                                        ========     ========


  Based on management's assessment, the Company has placed a valuation
allowance against its otherwise recognizable deferred tax assets due to the
likelihood that the Company may not generate sufficient taxable income during
the carryforward period to utilize the net operating loss carryforwards. The
valuation allowance for net deferred taxes was increased by $45,498 in 2000.
The increase was the result of net changes in temporary differences as well as
adjustments attributable to acquisitions.

  At December 31, 2000 and 1999, the Company had net operating losses for
federal income tax purposes of approximately $189.6 million and $116.7
million, respectively, which begin to expire in 2007. At December 31, 2000 and
1999, the Company had net operating losses for state income tax purposes of
approximately $99.5 million and $63.3 million, respectively, which begin to
expire in 2001. At December 31, 2000 and 1999, the net operating loss includes
approximately $56.3 million and $1.0 million related to the exercise of
employee stock options and warrants, respectively. Any benefit resulting from
the utilization of this portion of the net operating loss will be credited
directly to equity.

19. COMMITMENTS AND CONTINGENCIES:

 Operating Leases

  The Company leases certain facilities and equipment under noncancellable
operating leases with various expiration dates through 2008. The leases
generally contain renewal options and payments that may be adjusted for
increases in operating expenses and increases in the Consumer Price Index. The
company also assumed noncancellable operating leases from NSI in conjunction
with the Reorganization. Future minimum lease payments under these operating
leases as of December 31, 2000 are as follows (in thousands):

                                                                 
     2001............................................................... $10,522
     2002...............................................................   8,565
     2003...............................................................   7,499
     2004...............................................................   4,819
     2005 and thereafter................................................  12,633
                                                                         -------
       Total............................................................ $44,038
                                                                         =======

     

                                      72


                              HOMESTORE.COM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Rental expense for the Company for operating leases was $7.5 million and
$3.8 million for the years ended December 31, 2000 and 1999, respectively.
Total NSI rental expense for operating leases was $749,000 for the year ended
December 31, 1998.

 Distribution Agreements

  In connection with the Reorganization, the Company assumed various Internet
portal distribution agreements and marketing and listing agreements with real
estate franchises. Payments remaining over the next five years for these
agreements at December 31, 2000 are as follows (in thousands):

                                                                 
     2001............................................................... $ 7,202
     2002...............................................................   3,750
     2003...............................................................     500
     2004...............................................................     --
     2005 and thereafter................................................     --
                                                                         -------
       Total............................................................ $11,452
                                                                         =======

     

 AOL Agreement and Letter of Credit

  In April 2000, the Company entered into a five-year marketing and
distribution agreement with AOL. In exchange for entering into this agreement,
the Company paid AOL $20.0 million in cash and issued to AOL approximately 3.9
million shares of its common stock. In the agreement, the Company has
guaranteed that the 30-day average closing price, related to 60%, 20% and 20%
of the shares it issued, will be $68.50 per share on the third, fourth and
fifth anniversaries of the agreement, respectively. This guarantee only
applies to shares that continue to be held by AOL at the end of each
respective year. As of December 31, 2000, the Company has recorded $189.8
million in other non-current liabilities, which represents the fair market
value of the 3.9 million shares of the Company's stock issued upon entering
the agreement and the guarantee of the stock. The difference between the total
guaranteed amount and the liability recorded is being recorded as other
expense over the term of the agreement. In connection with the guarantee, the
Company established a $90.0 million letter of credit and is required to pledge
an amount equal to the unused portion of the letter of credit. As of December
31, 2000, the Company had pledged $90.0 million in cash equivalents towards
this letter of credit which is classified as restricted cash on the balance
sheet. This letter of credit can be drawn against by AOL in the event that our
30-day average closing price is less than $68.50 at the end of each respective
guarantee date. The letter of credit will be reduced to $50.0 million at the
end of the third anniversary of the agreement. The term of the agreement may
be reduced if AOL draws more than $40.0 million from the letter of credit at
the end of the third year anniversary of the agreement.

 Budget Agreement

  In March 2000, the Company issued 1,085,271 shares of its common stock with
an estimated fair value of approximately $70.0 million to Budget Group, Inc.,
or BGI, in connection with entering into a ten-year strategic alliance
agreement that allows the Company to participate in online and offline BGI
marketing activities. In this agreement, the Company has guaranteed that the
price of the shares issued will be $64.50 per share on any trading day during
the six month period after the second anniversary of the agreement. BGI has
the right, during this period, to require Homestore, with respect to each
share as to which the right is exercised, at Homestore's discretion elects, to
i) pay to BGI an amount in cash equal to the excess of the guaranteed price
over the average price of the period ("the Put Amount"); ii) issue and deliver
to BGI the number of shares of common stock with a value per share equal to
the Put Amount; or iii) repurchase all of the shares of the stock at the
guaranteed price.

                                      73


                              HOMESTORE.COM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 Contingencies

  From time to time, the Company has been party to various litigation and
administrative proceedings relating to claims arising from its operations in
the normal course of business. Based on the advice of counsel, management
believes that the resolution of these matters will not have a material adverse
effect on the Company's business, results of operations, financial condition
or cash flows.

 Legal Proceedings

  On October 22, 1999, the Company and Cendant Corporation ("Cendant")
announced a settlement of the pending litigation between the two companies. As
part of the settlement, Cendant received 250,000 shares of the Company's
common stock and agreed to take various actions to reaffirm various alliance
agreements with the Company. In connection with the issuance of the 250,000
shares, the Company recorded a non-cash charge of $8.4 million in 1999.

  On April 25, 2000, the Company received a request for information pertaining
to its business from the Antitrust Division of the U.S. Department of Justice,
or DOJ. The request sought information about the Company's business as it
relates to Internet realty sites in the United States, and has responded to
that request. Following their review under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 of the Company's acquisition of Move.com, Inc.
("Move.com") and Welcome Wagon International, Inc. ("Welcome Wagon"),
collectively referred to as the Move.com Group from Cendant, the DOJ notified
the Company in February 2001 that it would not oppose the closing of the
acquisition, but intended to continue its investigation of certain
Homestore.com agreements, including certain agreements between Homestore.com
and Cendant. Homestore.com is continuing to cooperate with the DOJ with
respect to that investigation.

20. SUBSEQUENT EVENTS:

 Acquisitions

  In February 2001, the Company completed the acquisitions of Move.com, Inc.
and Welcome Wagon International, Inc., or collectively referred to as to the
Move.com Group from Cendant in an all stock transaction valued at $757.3
million. In connection with the acquisition, the Company issued an aggregate
of 21.4 million shares of the Company's common stock in exchange for all the
outstanding shares of capital stock of the Move.com Group and assumed
approximately 3.2 million outstanding stock options of Move.com, Inc. Cendant
is restricted in its ability to sell the Homestore.com shares it received in
the acquisition and has agreed to vote such shares on all corporate matters in
proportion to the voting decisions of all other stockholders. In addition,
Cendant has agreed to a ten-year standstill agreement that, under most
conditions, prohibits Cendant from acquiring additional Homestore.com shares.
The acquisition will be accounted for as a purchase, in accordance with
generally accepted accounting principles.

 Stock Plans

  In January 2001, in accordance with plan provisions, the number of shares
reserved for issuance under the 1999 Stock Incentive Plan and the 1999
Employee Stock Purchase Plan were increased by an additional 3,724,252 and
413,806, shares, respectively.


                                      74


                              HOMESTORE.COM, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

22. QUARTERLY FINANCIAL DATA (UNAUDITED):



                                                    Three months Ended
                         --------------------------------------------------------------------------------
                         Mar. 31,  June 30,  Sept. 30,  Dec. 31,  Mar. 31,  June 30,  Sept. 30,  Dec. 31,
                           1999      1999      1999       1999      2000      2000      2000       2000
                         --------  --------  ---------  --------  --------  --------  ---------  --------
                                         (in thousands, except per share amounts)
                                                                         
Revenues................ $  5,570  $ 11,016  $ 18,625   $ 27,369  $ 38,599  $ 50,152  $ 62,203   $ 79,013
Gross profit............    2,655     6,388    12,460     19,112    27,841    36,719    45,878     57,290
Loss from operations....  (10,415)  (18,317)  (35,534)   (31,099)  (33,607)  (30,986)  (32,851)   (33,074)
Net loss................ $(10,486) $(18,280) $(34,226)  $(30,015) $(29,212) $(24,712) $(27,058)  $(34,187)
Net loss applicable to
 common stockholders.... $(10,900) $(19,343) $(35,048)  $(30,015) $(29,212) $(24,712) $(27,058)  $(34,187)
Basic and diluted net
 loss per share
 applicable to common
 stockholders........... $  (0.66) $  (0.79) $  (0.66)  $  (0.43) $  (0.39) $  (0.31) $  (0.33)  $  (0.41)


                                       75


                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders NetSelect, Inc.

  In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of
NetSelect, Inc. and its subsidiaries (the "Company") at December 31, 1997 and
1998 and the results of their operations and their cash flows for the years
ended December 31, 1997 and 1998 in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.

/s/ PricewaterhouseCoopers LLP

Century City, California
March 31, 1999

                                      76


                                NETSELECT, INC.

                          CONSOLIDATED BALANCE SHEETS
                    (in thousands, except per share amounts)



                                                    December 31,
                                                  -----------------  February 4,
                                                   1997      1998       1999
                                                  -------  --------  -----------
                                                                     (unaudited)
                                                            
                     ASSETS

Current assets:
 Cash and cash equivalents......................  $ 3,094  $ 14,690   $ 13,037
 Accounts receivable, net of allowance for
  doubtful accounts of $42, $378 and $455 at
  December 31, 1997, 1998 and February 4, 1999,
  respectively..................................      282     2,070      2,333
 Current portion of prepaid distribution
  expense.......................................      --      3,830      3,482
 Deferred royalties.............................      137     1,327      1,398
 Other current assets...........................      158     1,674      1,739
                                                  -------  --------   --------
Total current assets............................    3,671    23,591     21,989
Prepaid distribution expense....................      --      7,742      7,072
Property and equipment, net.....................      397     4,118      2,373
Intangible assets, net..........................    5,019    19,724     19,463
Other assets....................................      169       187        286
                                                  -------  --------   --------
   Total assets.................................  $ 9,256  $ 55,362   $ 51,183
                                                  =======  ========   ========

 LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED
         STOCK AND STOCKHOLDERS' EQUITY

Current liabilities:
 Accounts payable...............................  $   494  $  5,499   $  4,117
 Accrued liabilities............................      772     5,801      6,156
 Due to related party...........................      --      2,200      2,200
 Deferred revenue...............................    1,314     5,439      6,065
 Current portion of notes payable...............      --      1,746      1,746
                                                  -------  --------   --------
   Total current liabilities....................    2,580    20,685     20,284

Notes payable...................................      --      3,236      3,265
Minority interest...............................      222       --         --
                                                  -------  --------   --------
                                                    2,802    23,921     23,549
                                                  -------  --------   --------

Commitments and contingencies (Note 16)

Series E redeemable convertible preferred stock,
 $.001 par value; 325 shares authorized, issued
 and outstanding at December 31, 1998 and
 February 4, 1999; redemption value of $6,003...      --      4,939      4,963
                                                  -------  --------   --------
Stockholders' equity:
 Convertible preferred stock, $.001 par value;
  9,675 shares authorized; 2,614, 4,959 and
  4,959 shares issued at December 31, 1997 and
  1998 and February 4, 1999, respectively;
  2,614, 4,528 and 4,528 shares outstanding at
  December 31, 1997 and 1998 and February 4,
  1999, respectively; liquidation preference of
  $62,048 at December 31, 1998..................        3         5          5
 Common stock, $.001 par value; 90,000
  authorized; 383, 2,496 and 2,496 issued and
  outstanding at December 31, 1997 and 1998 and
  February 4, 1999, respectively................      --          2          2
 Additional paid-in capital.....................   12,117    96,066     98,129
 Treasury stock, at cost; 431 shares of
  convertible preferred stock at December 31,
  1998 and February 4, 1999.....................      --     (1,770)    (1,770)
 Notes receivable from stockholders.............      --     (3,230)    (3,230)
 Deferred stock charges.........................     (739)   (8,676)   (10,079)
 Accumulated deficit............................   (4,927)  (55,895)   (60,386)
                                                  -------  --------   --------
   Total stockholders' equity...................  $ 6,454  $ 26,502   $ 22,671
                                                  -------  --------   --------
                                                  $ 9,256  $ 55,362   $ 51,183
                                                  =======  ========   ========


  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       77


                                NETSELECT, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                    (in thousands, except per share amounts)



                                                    Year Ended       January 1
                                                   December 31,         to
                                                 -----------------  February 4,
                                                  1997      1998       1999
                                                 -------  --------  -----------
                                                                    (unaudited)
                                                           
Revenues........................................ $ 1,282  $ 15,003    $ 2,433
Cost of revenues (excluding $141 in non-cash
 equity charges for the year ended December 31,
 1998)..........................................     335     7,338        798
                                                 -------  --------    -------
Gross profit....................................     947     7,665      1,635
                                                 -------  --------    -------
Operating expenses:
  Sales and marketing (excluding $506 in non-
   cash equity charges for the year ended
   December 31, 1998)...........................   3,200    25,560      4,064
  Product development (excluding $78 in non-cash
   equity charges for the year ended December
   31, 1998)....................................     506     4,139        174
  General and administrative (excluding $837 in
   non-cash equity charges for the year ended
   December 31, 1998)...........................   2,687     6,929      1,053
  Amortization of intangible assets.............     360     1,893        261
  Stock-based charges...........................     257    20,455        569
                                                 -------  --------    -------
Total operating expenses........................   7,010    58,976      6,121
                                                 -------  --------    -------
Loss from operations............................  (6,063)  (51,311)    (4,486)
Other income (expense), net.....................      74       121         (5)
                                                 -------  --------    -------
Net loss before minority interest...............  (5,989)  (51,190)    (4,491)
Minority interest...............................   1,239       222        --
                                                 -------  --------    -------
Net loss........................................  (4,750)  (50,968)    (4,491)
Accretion of redemption value and dividends on
 convertible preferred stock....................     --     (1,659)      (207)
Repurchase of convertible preferred stock.......     --     (7,727)       --
                                                 -------  --------    -------
Net loss applicable to common stockholders...... $(4,750) $(60,354)   $(4,698)
                                                 =======  ========    =======



  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       78


                                NETSELECT, INC.

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (in thousands)



                        Convertible
                         Preferred                                          Notes
                           Stock      Common Stock  Additional            Receivable  Deferred                  Total
                       -------------- -------------  Paid-in   Treasury      from      Stock    Accumulated Stockholders'
                       Shares  Amount Shares Amount  Capital    Stock    Stockholders Charges     Deficit      Equity
                       ------  ------ ------ ------ ---------- --------  ------------ --------  ----------- -------------
                                                                              
Balance at January 1,
 1997................  1,160    $  1    353   $--    $ 3,879   $   --      $   --     $    --    $   (177)    $  3,703
Issuance of Series A
 preferred...........    729       1    --     --      2,064       --          --          --         --         2,065
Issuance of Series B
 preferred...........    111     --     --     --        686       --          --          --         --           686
Issuance of Series C
 preferred...........    614       1    --     --      4,439       --          --          --         --         4,440
Issuance of common
 stock for
 acquisition of
 TouchTech, Inc. ....    --      --      30    --         53       --          --          --         --            53
Deferred stock
 charges.............    --      --     --     --        996       --          --         (996)       --           --
Stock-based charges..    --      --     --     --        --        --          --          257        --           257
Net loss.............    --      --     --     --        --        --          --          --      (4,750)      (4,750)
                       -----    ----  -----   ----   -------   -------     -------    --------   --------     --------
Balance at December
 31, 1997............  2,614       3    383    --     12,117       --          --         (739)    (4,927)       6,454
Issuance of Series D
 preferred...........    681       1    --     --      9,999       --          --          --         --        10,000
Issuance of common
 stock for
 acquisition of The
 Enterprise of
 America, Ltd. ......    --      --     105    --        525       --          --          --         --           525
Issuance of Series F
 preferred...........  1,664       1    --     --     39,701       --          --          --         --        39,702
Issuance of common
 stock...............    --      --   1,674      2    10,442       --          --          --         --        10,444
Exercise of stock
 options for notes
 receivable..........    --      --     221    --        151       --         (151)        --         --           --
Note receivable from
 stockholder.........    --      --     --     --        --        --       (3,079)        --         --        (3,079)
Exercise of
 warrants............    --      --     113    --        --        --          --          --         --           --
Deferred stock
 charges.............    --      --     --     --      9,497       --          --       (9,497)       --           --
Issuance of warrants
 and common stock....    --      --     --     --      2,637       --          --          --         --         2,637
Stock-based charges..    --      --     --     --     18,895       --          --        1,560        --        20,455
Accretion of Series E
 redemption value....    --      --     --     --       (171)      --          --          --         --          (171)
Repurchase of Series
 A and B preferred...   (431)    --     --     --     (7,727)   (1,770)        --          --         --        (9,497)
Net loss.............    --      --     --     --        --        --          --          --     (50,968)     (50,968)
                       -----    ----  -----   ----   -------   -------     -------    --------   --------     --------
Balance at December
 31, 1998............  4,528       5  2,496      2    96,066    (1,770)     (3,230)     (8,676)   (55,895)      26,502
Issuance of warrants
 (unaudited).........    --      --     --     --        115       --          --          --         --           115
Deferred stock
 charges
 (unaudited).........    --      --     --     --      1,972       --          --       (1,972)       --           --
Stock-based charges
 (unaudited).........    --      --     --     --        --        --          --          569        --           569
Accretion of Series E
 redemption value
 (unaudited).........    --      --     --     --        (24)      --          --          --         --           (24)
Net loss
 (unaudited).........    --      --     --     --        --        --          --          --      (4,491)      (4,491)
                       -----    ----  -----   ----   -------   -------     -------    --------   --------     --------
Balance at February
 4, 1999
 (unaudited).........  4,528    $  5  2,496   $  2   $98,129   $(1,770)    $(3,230)   $(10,079)  $(60,386)    $ 22,671
                       =====    ====  =====   ====   =======   =======     =======    ========   ========     ========



  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       79


                                NETSELECT, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)


                                                  Year ended      January 1 to
                                                 December 31,     February 4,
                                               -----------------  ------------
                                                1997      1998        1999
                                               -------  --------  ------------
                                                                  (unaudited)
                                                         
Cash flows from operating activities:
Net loss...................................... $(4,750) $(50,968)   $(4,491)
Adjustments to reconcile net loss to net cash
 provided by (used in) operating activities:
Depreciation and amortization.................     472     2,551        339
Provision for doubtful accounts...............     --        416         68
Amortization of discount on notes payable.....     --        215         29
Other non-cash items..........................     --        961        206
Minority interest in loss.....................  (1,239)     (222)       --
Stock-based charges...........................     257    20,455        569
Changes in operating assets and liabilities,
 net of acquisitions:
Accounts receivable...........................     (91)   (1,638)      (330)
Prepaid distribution expense..................     --    (11,228)     1,018
Deferred royalties............................    (137)   (1,190)       (71)
Due from affiliated company...................    (119)       74         (6)
Other assets..................................    (241)       (3)       178
Accounts payable and accrued liabilities......     441     8,350     (1,026)
Deferred revenue..............................   1,290     4,125        626
                                               -------  --------    -------
Net cash provided by (used in) operating
 activities...................................  (4,117)  (28,102)    (2,891)
                                               -------  --------    -------
Cash flows from investing activities:
Purchases of property and equipment...........    (372)   (3,853)       (61)
Acquisition of The Enterprise, net of cash
 acquired.....................................     --       (705)       --
Acquisition of MultiSearch, net of cash
 acquired.....................................     --       (761)       --
Proceeds from sale of fixed assets............     --        --       1,299
Payments made in connection with operating
 agreement....................................  (1,260)      --         --
                                               -------  --------    -------
Net cash provided by (used in) investing
 activities...................................  (1,632)   (5,319)     1,238
                                               -------  --------    -------
Cash flows from financing activities:
Repayment of notes payable....................     --     (1,490)       --
Proceeds from bridge loan.....................     --     12,000        --
Repayments on bridge loan.....................     --     (1,325)       --
Note receivable from stockholder..............     --     (3,079)       --
Net proceeds from issuance of common stock....       9     8,066        --
Net proceeds from issuance of preferred
 stock........................................   7,191    40,342        --
Repurchase of preferred stock.................     --     (9,497)       --
                                               -------  --------    -------
Net cash provided by financing activities.....   7,200    45,017        --
                                               -------  --------    -------
Change in cash and cash equivalents...........   1,451    11,596     (1,653)
Cash and cash equivalents, beginning of
 period.......................................   1,643     3,094     14,690
                                               -------  --------    -------
Cash and cash equivalents, end of period...... $ 3,094  $ 14,690    $13,037
                                               =======  ========    =======
Supplemental disclosure of cash flow
 activities:
Cash paid during the year for interest........ $   --   $    170    $   --
                                               =======  ========    =======


  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       80


                                NETSELECT, INC.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS:

  NetSelect, Inc. ("NSI" or the "Company") was incorporated in the state of
Delaware on October 28, 1996. The Company's primary business activity has been
managing its investment in NetSelect LLC ("LLC"). Effective December 4, 1996,
the Company made its initial investment in LLC (see Note 3--Investment in
NetSelect, LLC) along with InfoTouch Corporation ("InfoTouch"), the minority
stockholder in LLC. LLC is the majority stockholder of RealSelect, Inc.
("RealSelect"), which is an operating company created to establish an
Internet-based marketing service for real estate.

  Pursuant to a number of agreements governing the formation of RealSelect,
both InfoTouch and the Company were required to remain shell companies for
their respective investments in LLC. On February 4, 1999, the Company entered
into a non-substantive share exchange and merged into InfoTouch, which then
changed its name to NetSelect. InfoTouch issued shares of preferred and common
stock and assumed all outstanding NSI options and warrants for InfoTouch
common and preferred stock pursuant to an exchange ratio equivalent to the
respective ownership in LLC of NSI and InfoTouch stockholders.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

  Unaudited Interim Financial Information--The interim consolidated financial
information of the Company for the nine months ended September 30, 1998 and
the period from January 1, 1999 to February 4, 1999 is unaudited. The
unaudited interim consolidated financial information has been prepared on the
same basis as the annual consolidated financial statements and, in the opinion
of management, reflect all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the financial position, results of
operations and cash flows at and for the period from January 1, 1999 to
February 4, 1999.

  Principles of Consolidation--The consolidated financial statements include
the accounts of the Company and its majority owned subsidiaries. As a result
of net losses, minority stockholders' interests have been eliminated to the
extent of such minority stockholders' investments. All material intercompany
transactions and balances have been eliminated in consolidation.

  Use of Estimates--The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities and the reported amounts of revenues and
expenses. Actual results could differ from those estimates.

  Cash Equivalents--The Company considers all highly liquid investments with
an original maturity of three months or less to be cash equivalents. Cash
equivalents consist primarily of deposits in money market funds.

  Concentration of Credit Risk--Financial instruments that potentially subject
the Company to a concentration of credit risk consist of cash and cash
equivalents and accounts receivable. Cash and cash equivalents are deposited
with high credit quality financial institutions. The Company's accounts
receivable are derived from revenue earned from customers located in the
United States. Accounts receivable balances are typically settled through
customer credit cards and, as a result, the majority of accounts receivable
are collected upon processing of credit card transactions. The Company
maintains an allowance for doubtful accounts based upon the expected
collectibility of accounts receivable.

  During the years ended December 31, 1997 and 1998, and the period from
January 1, 1999 to February 4, 1999 (unaudited), no customers accounted for
more than 10% of net revenues or net accounts receivable.

  Fair Value of Financial Instruments--The Company's financial instruments,
including cash and cash equivalents, accounts receivable, accounts payable,
and notes payable are carried at cost, which approximates

                                      81


                                NETSELECT, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

their fair value because of the short-term maturity of these instruments and
the relatively stable interest rate environment.

  Prepaid Distribution--The Company has entered into various web portal
distribution and preferred alliance agreements, which are being amortized
ratably over the term of the agreements, generally two to five years.

  Property and Equipment--Property and equipment are stated at historical
cost. Depreciation and amortization is computed using the straight-line method
over the estimated useful lives of the assets, generally three years or less,
or the shorter of the lease term or the estimated useful lives of the assets,
if applicable.

  Intangible Assets--Intangible assets primarily consist of goodwill resulting
from the acquisitions of The Enterprise of America, Ltd. ("The Enterprise")
and MultiSearch Solutions, Inc. ("MultiSearch"). This goodwill is being
amortized on a straight-line basis over the estimated periods of benefit of
five years. In addition, in connection with its formation, the Company entered
into an exclusive lifetime operating agreement with the NAR and received
intellectual property from InfoTouch. Pursuant to an operating agreement, the
Company made various payments and issued RealSelect common stock to the
National Association of REALTORS(R) (the "NAR") for the right to use the
REALTOR.com(R) trademark and domain name, the "REALTORS(R)" trademark and the
exclusive use of the web site for real estate listings. The InfoTouch
intellectual property, the stock issued and payments made to the NAR, as well
as certain milestone-based amounts subsequently earned by the NAR have been
recorded as intangible assets and are being amortized on a straight-line basis
over the estimated period of benefit of 15 years.

  The Company reviews its long-lived and intangible assets for impairment
whenever events or changes in circumstances indicate the carrying amount of
such assets may not be recoverable. Recoverability of these assets is
determined by comparing the forecasted undiscounted cash flows attributable to
such assets to their carrying value. If the carrying value of the assets
exceeds the forecasted undiscounted cash flows, then the assets are written
down to their fair value. Fair value is determined based on discounted cash
flows or appraised values, depending upon the nature of the assets.

  Revenue Recognition--The Company's revenues are derived principally from the
sale of advertising products and services to real estate agents and brokers,
home builders, property owners and managers. Revenues associated with the sale
of agent products are recognized ratably over the term of the contract,
generally 12 months. Royalties directly associated with these revenues are
deferred and amortized over the same period. The Company also sells banner
advertising pursuant to short-term contracts, which may include the guarantee
of a minimum number of impressions or times that an advertisement appears in
pages viewed by the users of the Company's online properties. This advertising
revenue is recognized ratably based upon the lesser of impressions delivered
over the total number of guaranteed impressions or ratably over the period in
which the advertisement is displayed.

  Product Development Costs--Costs incurred by the Company to develop,
enhance, manage, monitor and operate the Company's web sites are generally
expensed as incurred, except for certain costs relating to the acquisition and
development of internal-use software that are capitalized and depreciated over
estimated economic lives, generally three years or less.

  Advertising Expense--Advertising costs, including co-operative advertising
costs, are expensed as incurred and totaled $818,000 and $3.3 million during
the years ended December 31, 1997 and 1998, respectively.

  Stock-Based Charges--The Company accounts for stock-based employee
compensation arrangements in accordance with the provisions of Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees," and complies with the disclosure provisions of Statement of
Financial Accounting

                                      82


                                NETSELECT, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation." Under
APB 25, compensation expense is recognized over the vesting period based on
the difference, if any, on the date of grant between the fair value of the
Company's stock and the exercise price. The Company accounts for stock issued
to non-employees in accordance with the provisions of SFAS No. 123 and EITF
96-18.

  Income Taxes--Income taxes are accounted for under SFAS No. 109, "Accounting
for Income Taxes." Under SFAS No. 109, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax basis of
assets and liabilities, and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.

  Comprehensive Income--Effective January 1, 1998, the Company adopted the
provisions of SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130
establishes standards for reporting comprehensive income and its components in
financial statements. Comprehensive income, as defined, includes all changes
in equity (net assets) during a period from non-owner sources. To date, the
Company has not had any transactions that are required to be reported in
comprehensive income.

  Segments--The Company operates in one principal business segment, an
Internet destination for home and real estate-related information and
advertising products and services. Substantially all of the Company's
operating results and identifiable assets are in the United States.

  During the years ended December 31, 1997 and 1998 and for the period from
January 1 through February 4, 1999, no customer accounted for more than 10% of
net revenues or net accounts receivable.

  Recent Accounting Pronouncements--In March 1998, the American Institute of
Certified Public Accountants ("AICPA") issued Statement of Position ("SOP")
No. 98-1, "Software for Internal Use," which provides guidance on accounting
for the cost of computer software developed or obtained for internal use. The
adoption of SOP 98-1 during the first quarter of 1999 did not have a
significant impact on financial position, results of operations or cash flows.

  In April 1998, the AICPA issued SOP No. 98-5, "Reporting on the Costs of
Start-Up activities." SOP No. 98-5 requires that all start-up costs related to
new operations must be expensed as incurred. In addition, start-up costs that
were capitalized in the past must be written off when SOP No. 98-5 is adopted.
The adoption of SOP No. 98-5 during the first quarter of 1999 did not have a
significant impact on financial position, results of operations or cash flows.

3. INVESTMENT IN NETSELECT, LLC:

  Effective December 4, 1996, the Company entered into a series of agreements
with the National Associations of REALTORS(R), and its wholly owned subsidiary
REALTORS(R) Information Network (together referred to as the "NAR"), InfoTouch
and several investors (collectively referred to as the "Investors") in
connection with the formation of RealSelect.

  The Company sold $7.0 million of common and preferred stock to the Investors
which in turn was invested in LLC for an ownership interest of 54% in LLC.
InfoTouch received a 46% interest in LLC for the transfer of its assets,
liabilities and intellectual property relating to the concept of listing
residential real estate on the Internet. The book value of the net liabilities
transferred amounted to $96,000. LLC transferred $5.8 million and the
InfoTouch intellectual property to RealSelect, for an 85% ownership interest
in RealSelect. RealSelect received from the NAR the right to use certain
trademarks, an agreement not to compete and in return assumed certain debt of
the NAR. As part of this transaction, RealSelect and the NAR entered into an
operating agreement for the Internet site REALTOR.com(R), an agreement not to
compete and certain trademark agreements. RealSelect

                                      83


                                NETSELECT, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

paid the NAR and its creditors $3.4 million, forgave debt of $266,000 and
issued common stock representing a 15% ownership interest to the NAR.

  Since inception, the Company has raised additional capital and issued common
and preferred stock in connection with acquisitions all of which has been
completely invested in RealSelect through LLC. As a result, the ownership
interests of the Company in LLC, and LLC's ownership interest in RealSelect,
increased to 66% and 87%, respectively, as of December 31, 1997, and 79% and
93%, respectively, as of December 31, 1998. The minority investments of
InfoTouch and the NAR in LLC and RealSelect, respectively, have been
eliminated in the consolidated financial statements as each stockholder's
share of the net investee losses have exceeded their investments and there is
no future funding requirements.

4. ACQUISITIONS:

 TouchTech Corporation

  Effective December 31, 1997, the Company acquired all the outstanding stock
of TouchTech Corporation, a Canadian company, in exchange for 29,382 shares of
common stock with a value of $53,000. The acquisition has been accounted for
as a purchase. The excess of fair value of purchase consideration over net
tangible assets has been allocated to goodwill and is being amortized on a
straight-line basis over five years.

 The Enterprise

  Effective March 31, 1998, the Company acquired The Enterprise in exchange
for aggregate consideration consisting of 105,000 shares of Company common
stock with an estimated fair value of $525,000, a note payable in the amount
of $2.2 million, $705,000 in cash and the assumption of $946,000 of net
liabilities. Included in liabilities assumed were $836,000 of demand notes
payable that were paid by the Company on the effective date of the
acquisition. The acquisition has been accounted for as a purchase. The excess
of purchase consideration over net tangible assets acquired of $3.9 million
has been allocated to goodwill which is being amortized on a straight-line
basis over five years. The purchase agreement also provides for certain
contingent payments in the event that predetermined levels of sales are
achieved. Such payments, if any, will be accounted for as compensation expense
in the period earned and in no event shall such aggregate payments exceed $1.0
million. For the year ended December 31, 1998, no contingent payments were
required under the terms of the agreement.

 MultiSearch

  Effective July 1, 1998, the Company acquired MultiSearch, in exchange for
aggregate consideration consisting of 325,000 shares of Series E convertible
preferred stock with a value of $4.8 million, a note payable in the amount of
$3.6 million, $875,000 in cash and the assumption of $657,000 of net
liabilities. Included in liabilities assumed were $654,000 of demand notes
payable that were paid by the Company on the effective date of the
acquisition. The acquisition has been accounted for as a purchase. The excess
of total purchase consideration over net tangible assets acquired of $9.4
million has been allocated to goodwill which is being amortized on a straight-
line basis over five years. The purchase agreement also provides for certain
contingent payments in the event that predetermined levels of sales and
earnings are achieved. Such payments, if any, will be accounted for as
compensation expense in the period earned. For the year ended December 31,
1998, $360,000 of expense was recognized under the terms of the agreement.

                                      84


                                NETSELECT, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  The following summarized unaudited pro forma financial information assumes
The Enterprise and MultiSearch acquisitions occurred at the beginning of each
period (in thousands):



                                                       December 31, December 31,
                                                           1997         1998
                                                       ------------ ------------
                                                              
   Revenues...........................................   $ 8,505      $ 18,026
   Net loss applicable to common stockholders.........    (9,470)      (61,969)


5. PROPERTY AND EQUIPMENT:

  Property and equipment consists of the following (in thousands):



                                                       December 31, December 31,
                                                           1997         1998
                                                       ------------ ------------
                                                              
   Computer equipment.................................    $ 394        $2,903
   Furniture and fixtures.............................       77         1,337
   Leasehold improvements.............................       50           700
                                                          -----        ------
                                                            521         4,940
   Less: Accumulated depreciation.....................     (124)         (822)
                                                          -----        ------
                                                          $ 397        $4,118
                                                          =====        ======


  Depreciation expense for the years ended December 31, 1997 and 1998 was
$119,000 and $659,000, respectively.

6. INTANGIBLE ASSETS:

  Intangible assets consist of the following (in thousands):



                                                       December 31, December 31,
                                                           1997         1998
                                                       ------------ ------------
                                                              
   Goodwill...........................................    $  --       $13,243
   RIN operating agreement............................     4,745        6,745
   Other..............................................       656        2,012
                                                          ------      -------
                                                           5,401       22,000
   Less: Accumulated amortization.....................      (382)      (2,276)
                                                          ------      -------
                                                          $5,019      $19,724
                                                          ======      =======


  Amortization expense for the years ended December 31, 1997 and 1998 was
$360,000 and $1.9 million, respectively.

7. ACCRUED LIABILITIES:

Accrued liabilities consist of the following (in thousands):



                                                       December 31, December 31,
                                                           1997         1998
                                                       ------------ ------------
                                                              
   Accrued payroll and related benefits...............     $442        $1,973
   Accrued distribution fees..........................      --          1,366
   Accrued royalties..................................      --            979
   Other..............................................      330         1,483
                                                           ----        ------
                                                           $772        $5,801
                                                           ====        ======


                                      85


                                NETSELECT, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


8. RELATED-PARTY TRANSACTIONS:

  At December 31, 1997 and 1998, the Company was indebted to an officer for
$168,000 and $188,000, respectively. The loan is due on demand and bears
interest at 10% per annum.

  In August 1998, the Company issued 57,671 shares of common stock and 26,504
shares of Series F convertible preferred stock to the NAR in satisfaction of a
$1.0 million obligation for the Company's share of advertising costs for a co-
operative advertising program with the NAR. At December 31, 1998, the Company
was indebted to the NAR for $2.2 million pursuant to certain provisions of the
operating agreement.

  In connection with a 1998 stock redemption agreement, the Company loaned
$3.1 million to a stockholder of InfoTouch. The note is non-interest bearing,
full recourse and collateralized by the shares of common stock. At December
31, 1998, the note was classified as a component of stockholders' equity.

  At December 31, 1998, the Company held promissory notes from employees and
directors totaling $151,000 for the exercise of stock options. The notes bear
interest at 5.3% per annum and are due on or before August 21, 2003. The
notes, which are classified as a component of stockholders' equity, are full
recourse and collateralized by shares of common stock of the Company owned by
the employees and directors.

9. NOTES PAYABLE:

  As part of the acquisition of The Enterprise, the Company issued a $2.2
million non-interest bearing note payable which has been discounted at 10%.
The unamortized balance of the discount at December 31, 1998 was $354,000. The
note is payable in four installments, and matures on March 31, 2001.

  As part of the acquisition of MultiSearch, the Company issued a $3.6 million
non-interest bearing note payable which has been discounted at 10%. The
unamortized balance of the discount at December 31, 1998 was $453,000. The
note is payable in three installments, and matures on April 1, 2001.

  As of December 31, 1998, future payments under the notes are as follows (in
thousands):



                                                                       Principal
     Year Ending December 31,                                          Payments
     ------------------------                                          ---------
                                                                    
     1999.............................................................  $2,097
     2000.............................................................   1,797
     2001.............................................................   1,895
                                                                        ------
                                                                         5,789
     Less: Discount...................................................   (807)
                                                                        ------
     Present value of notes payable...................................   4,982
     Less: Current portion............................................   1,746
                                                                        ------
     Long-term portion................................................  $3,236
                                                                        ======


10. STOCK OPTIONS:

  The Company's 1996 Stock Incentive Plan (the "Plan") provides for the grant
of options to employees, officers, directors and consultants at the then-
current market value of the Company's common stock, as determined by the Board
of Directors. Options granted generally vest over four years, 25% on the first
anniversary and monthly thereafter over the remaining three years, and expire
10 years from the date of grant.

                                      86


                                NETSELECT, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  The following table summarizes activity under the Plan for the years ended
December 31, 1997 and 1998, and for the period from January 1, 1999 to
February 4, 1999 (shares in thousands):



                                                                      Weighted
                                                                      Average
                                              Number of     Price     Exercise
                                               Shares     Per Share    Price
                                              --------- ------------- --------
                                                             
   Outstanding at January 1, 1997............     335   $         .28  $  .28
     Granted.................................     287            1.50    1.50
                                                -----
   Outstanding at December 31, 1997..........     622     .28 to 1.50     .84
     Granted.................................     956    5.00 to 8.00    6.02
     Exercised...............................    (221)    .28 to 5.00     .68
     Canceled................................     (85)   1.50 to 5.00    3.90
                                                -----
   Outstanding at December 31, 1998..........   1,272     .28 to 8.00    4.56
     Granted (unaudited).....................      40           10.00   10.00
                                                -----
   Outstanding at February 4, 1999
    (unaudited)..............................   1,312    .28 to 10.00    4.74
                                                =====


  Options granted during the years ended December 31, 1997 and 1998 resulted
in total compensation of $1.0 million and $9.5 million, respectively and were
recorded as deferred stock compensation in stockholders' equity. This deferred
compensation represented the difference between the deemed fair value of the
Company's common stock for accounting purposes and the exercise price of these
options at the date of grant. The deferred stock compensation amount will be
recognized as stock-based compensation over the related vesting period of the
options. During the years ended December 31, 1997 and 1998, such stock-based
compensation was $257,000 and $1.6 million, respectively. Options outstanding
at December 31, 1998 were exercisable for 144,000 shares of common stock.
Common stock available for future grants at December 31, 1998 was 507,000
shares.

  Additional information with respect to the outstanding options as of
December 31, 1998 is as follows (shares in thousands):



                                                                  Options
                                 Options Outstanding            Exercisable
                         ----------------------------------- ------------------
                                   Weighted Average Average            Average
                         Number of    Remaining     Exercise Number of Exercise
   Prices:                Shares   Contractual Life  Price    Shares    Price
   -------               --------- ---------------- -------- --------- --------
                                                        
   $ .28................     113         7.90        $ .28        8     $ .28
    1.50................     250         8.70         1.50       67      1.50
    5.00................     224         9.20         5.00       18      5.00
    6.00................     181         9.50         6.00       23      6.00
    6.32................     421         9.70         6.32       27      6.32
    8.00................      83         9.90         8.00        1      8.00
                           -----                                ---
                           1,272                                144
                           =====                                ===


  The Company calculated the minimum fair value of each option grant on the
date of the grant using the minimum value option pricing model as prescribed
by SFAS No. 123 using the following assumptions:



                                                                   December 31,
                                                                  ----------------
                                                                  1996  1997  1998
                                                                  ----  ----  ----
                                                                     
   Risk-free interest rates......................................   6%    6%    5%
   Expected lives (in years).....................................   4     5     4
   Dividend yield................................................   0%    0%    0%
   Expected volatility...........................................   0%    0%    0%


                                      87


                                NETSELECT, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  The compensation expense associated with the stock-based compensation plans
did not result in a material difference from the reported net loss for the
years ended December 31, 1997 and 1998.

11. WARRANTS:

  In connection with entering into a distribution agreement with America
Online in April 1998, the Company issued a warrant to purchase 113,295 shares
of the Company's common stock at an exercise price of $6.32 per share. America
Online will also hold warrants to acquire $3.0 million of common stock with a
weighted average exercise price of 137.5% of the initial public offering
price. If warrants are purchased in connection with an IPO, the fair value
will be measured at the date of the IPO and amortized to sales and marketing
expense over the remaining term of the distribution agreement.

  Under the terms of an operating agreement entered into in 1998, the Company
issued an immediately exercisable warrant to purchase 113,288 shares of common
stock at an exercise price $.001 per share. The Company determined that the
fair value of the warrant approximated $1.4 million at the date of issuance
which is included in amortization of intangible assets over the estimated
useful life of the operating agreement. The warrant was exercised in November
1998.

  During 1998, the Company issued warrants to purchase up to 41,876 shares of
common stock to Multiple Listing Services ("MLSs") that agreed to provide
their real estate listings to us for publication on the Internet on a
preferred national basis over an initial term of 18 months. The issuance of
these warrants is contingent upon completion of an IPO. The exercise price
will be equal to the IPO per share price. The fair value of issuable warrants
will be measured at the date an IPO is deemed to be probable and recognized as
expense over the terms of the applicable MLS agreement.

12. CAPITALIZATION:

  Convertible preferred stock at December 31, 1998 consists of the following
(in thousands):



                                                      Shares
                                              ---------------------- Liquidation
                                              Authorized Outstanding   Amount
                                              ---------- ----------- -----------
                                                            
   Series A..................................   1,647       1,378      $ 4,416
   Series B..................................     353         191        1,334
   Series C..................................     614         614        4,884
   Series D..................................     681         681       10,543
   Series F..................................   2,100       1,664       40,871
   Undesignated..............................   4,280         --           --
                                                -----       -----      -------
                                                9,675       4,528      $62,048
                                                =====       =====      =======


  Voting--Each share of convertible preferred stock has a number of votes
equal to the number of shares of common stock then issuable upon its
conversion. The convertible preferred stock generally votes together with the
common stock and not as a separate class.

  Dividends--The holders of each series of convertible preferred stock are
entitled to receive dividends when, as and if declared by the Board of
Directors at a rate of 6.5% of the respective issuance price per share
per annum. The holders of Series D and Series F are entitled to receive
cumulative dividends in preference to the holders of Series A, Series B, and
Series C preferred stock and Series E redeemable convertible preferred stock
and the common stock. In the event of a public offering of the Company's
equity securities meeting certain minimum size requirements and timing, as
defined in the Certificate of Incorporation, dividends declared, if any,

                                      88


                                NETSELECT, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

will not be payable and will lapse. The holders of the Series D and Series F
convertible preferred stock are entitled to dividends at their stated rate
whether or not earned which are payable upon conversion provided the Company's
public offering does not meet certain minimum size requirements and timing.
Accordingly, the Company has recorded accretion of $1.5 million for the year
ended December 31, 1998 related to the Series D and Series F dividends.

  No dividends have been declared or paid from inception through December 31,
1998.

  Liquidation--In the event of any liquidation or winding up of the Company,
the holders of each series of convertible preferred stock will be entitled to
receive, in preference to the holders of common stock, any distribution of
assets of the Company equal to the sum of the respective issuance price of
such shares plus any accrued and unpaid dividends. The holders of Series D and
Series F are entitled to receive any distribution of assets of the Company
before the holders of Series A, Series B, and Series C convertible preferred
stock and Series E redeemable convertible preferred stock. The holders of
Series A, Series B, Series C and Series E preferred stock are also entitled to
receive an amount equal to the dividend rate (6.5%) accruing on a quarterly
basis on the last day of each calendar quarter for the period from the
respective date of issuance of such shares to the date of liquidation.

  After the full liquidation preference on all outstanding shares of
convertible preferred stock has been paid, any remaining funds and assets of
the Company will be distributed pro rata among the holders of the common
stock.

  Redemption--If a liquidation or initial public offering has not occurred by
June 30, 2002, the holders of Series E redeemable convertible preferred stock
are entitled to a redemption out of the assets of the Company equal to the
Series E liquidation preference. The Company has recorded accretion of
$171,000 for the year ended December 31, 1998 related to the Series E
redeemable preferred stock redemption value.

  Conversion--Each share of convertible preferred stock is convertible at the
holder's option at any time into common stock, according to a ratio which is
two-for-one, subject to adjustment for dilution. Each share of convertible
preferred stock automatically converts into common stock at the then
applicable conversion rate for each upon (i) the closing of an underwritten
public offering pursuant to which the post-closing enterprise value is at
least $300 million of Company stock at a price of at least $24.93 per share,
(ii) the consent of at least two-thirds of the outstanding preferred stock, or
(iii) as to each series of convertible preferred stock, upon the date that
less than 100 shares of such series are outstanding.

  Repurchase of Preferred Stock--In November 1998, the Company repurchased
431,664 shares of Series A and Series B convertible preferred stock for $9.5
million. The difference of $7.7 million between the carrying value of the
preferred stock prior to repurchase and the price paid has been included in
net loss for the year ended December 31, 1998 in the computation of net loss
applicable to common stockholders.

  Sale of Common Stock--In connection with the August 1998 Series F financing,
the Company sold an aggregate of 1,673,991 shares of common stock to certain
investors and received gross proceeds of approximately $10.6 million. The
Company recognized the $18.9 million difference between the estimated fair
value of the stock and the price paid by investors as stock-based compensation
in 1998.

13.  SUPPLEMENTAL CASH FLOW INFORMATION:

  During the period from January 1, 1999 to February 4, 1999 (unaudited):

  .  In connection with an equipment lease financing arrangement, the Company
     sold $749,000 of net property and equipment in exchange for assumption
     of third party payables.

                                      89


                                NETSELECT, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  During the year ended December 31, 1998:

  .  The Company issued common and convertible preferred stock valued at $1.9
     million in connection with an advertising agreement.

  .  The Company incurred a $2.0 million payable to a related party in
     connection with certain obligations under a lifetime operating
     agreement.

  .  Convertible notes in the amount of $10.7 million, plus $64,000 in
     accrued interest, were converted into Series F convertible preferred
     stock.

  .  The Company issued notes receivable to stockholders for $151,000 in
     connection with the exercise of stock options.

  .  The Company issued warrants with a fair value of $1.4 million.

  .  The Company issued 105,000 shares of common stock valued at $525,000, a
     note payable of $2.2 million and assumed net liabilities of $946,000 as
     part of the acquisition of The Enterprise.

  .  The Company issued 325,000 shares of Series E redeemable convertible
     preferred stock valued at $4.8 million, a note payable of $3.6 million
     and assumed net liabilities of $657,000 as part of the acquisition of
     MultiSearch.

  During the year ended December 31, 1997:

  .  The Company issued 29,382 shares of common stock with a value of $53,000
     as part of the acquisition of TouchTech.

14. DEFINED CONTRIBUTION PLAN:

  The Company has a savings plan (the "Savings Plan") that qualifies as a
defined contribution plan under Section 401(k) of the Internal Revenue Code.
Under the Savings Plan, participating employees may defer a percentage (not to
exceed 15%) of their eligible pretax earnings up to the Internal Revenue
Service's annual contribution limit. All full-time employees on the payroll of
the Company are eligible to participate in the Plan. The Company is not
required to contribute to the Savings Plan and has made no contributions since
the inception of the Savings Plan.

15. INCOME TAXES:

  As a result of net operating losses, the Company has not recorded a
provision for income taxes. The components of the deferred tax assets and
related valuation allowance at December 31, 1997 and 1998 are as follows (in
thousands):



                                                                December 31,
                                                              -----------------
                                                               1997      1998
                                                              -------  --------
                                                                 
   Deferred tax assets:
     Net operating loss carryforwards........................ $ 2,036  $ 12,807
     Other...................................................     348     1,078
                                                              -------  --------
                                                                2,384    13,885
     Less: valuation allowance...............................  (2,384)  (13,885)
                                                              -------  --------
   Net deferred taxes........................................ $   --   $    --
                                                              =======  ========


                                      90


                                NETSELECT, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Due to the uncertainty surrounding the timing of the realization of the
benefits from its favorable tax attributes in future tax returns, the Company
has placed a valuation allowance against its otherwise recognizable deferred
tax assets.

  NSI, LLC and RealSelect do not file income tax returns on a consolidated
basis. As a result, net operating losses of one entity may not be available to
offset future taxable income of another entity. NSI has net operating loss
carryforwards for federal and state income tax purposes of approximately
$161,000 and $80,000, respectively, which begin to expire in 2018 for federal
and 2003 for state purposes. RealSelect has net operating loss carryforwards
for federal and state purposes of approximately $34.4 million and $18.1
million, respectively, which begin to expire in 2007 for federal and 2001 for
state purposes. LLC is treated as a partnership for federal and state
purposes. As a result, all income and loss items flow through to its
investors. Utilization of the above carryforwards may be subject to
utilization limitations, which may inhibit the Company's ability to use
carryforwards in the future.

16. COMMITMENTS AND CONTINGENCIES:

 Operating Leases

  The Company leases certain facilities and equipment under noncancellable
operating leases with various expiration dates through 2003. The leases
generally contain renewal options and payments that may be adjusted for
increases in operating expenses and the Consumer Price Index. Future minimum
lease payments under noncancellable operating leases at December 31, 1998 are
(in thousands):

                                                                   
   1999................................................................. $ 2,295
   2000.................................................................   2,686
   2001.................................................................   2,553
   2002.................................................................   1,636
   2003.................................................................   1,365
                                                                         -------
     Total.............................................................. $10,535
                                                                         =======

   

  Total rental expense for operating leases was $149,000 and $749,000 for the
years ended December 31, 1997 and 1998, respectively.

 Distribution Agreements

  The Company has entered into various Internet portal distribution and
marketing and listing agreements with real estate franchises. Payments
remaining over the next five years for these agreements are as follows
(in thousands):

                                                                  
   1999................................................................ $ 23,643
   2000................................................................   21,536
   2001................................................................   14,646
   2002................................................................    4,250
   2003................................................................      500
                                                                        --------
     Total............................................................. $ 64,575
                                                                        ========

   

                                      91


                                NETSELECT, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 Contingencies

  From time to time, the Company has been party to various litigation and
administrative proceedings relating to claims arising from its operations in
the normal course of business. Based on the advice of counsel, management
believes that the resolution of these matters will not have a material adverse
effect on the Company's business, results of operations, financial condition
or cash flows.

17. SUBSEQUENT EVENTS (UNAUDITED):

 Equipment Leasing Arrangement

  In January 1999, the Company entered into an equipment leasing arrangement
which provided for the sale and leaseback of certain of the Company's existing
equipment and lease financing for additional equipment needs. The total
availability under the agreement is $3.0 million. In addition, the agreement
provides the lessor with warrants to purchase up to 5,000 shares of Series F
convertible preferred stock at an exercise price of $24.00 per share. The
Company determined that the fair value of the warrants approximated $115,000
on the date of grant.

 Stock Options

  In January 1999, the Board of Directors adopted the 1999 Equity Incentive
Plan (the "Plan") to replace the 1996 Stock Incentive Plan ("1996 Plan"). The
Plan provides for the issuance of both non-statutory and incentive stock
options to employees, officers, directors and consultants of the Company. The
total number of shares of common stock reserved for issuance under the Plan is
equal to that number previously reserved and available for grant under the
1996 Plan. The Company will not issue new options under the 1996 Plan.

                                      92


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

  Effective January 21, 1999, PricewaterhouseCoopers LLP was engaged as our
independent accountants. Prior to January 21, 1999, Deloitte & Touche LLP had
been our independent accountants. The decision to change independent
accountants was approved by our board of directors.

  For the period from October 28, 1996 through December 31, 1998 and for the
period from January 1, 1999 through January 21, 1999, we and Deloitte & Touche
LLP did not have any disagreement on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure.

                                   PART III

  Pursuant to Paragraph G (3) of the General Instructions to Form 10-K,
portions of the information required by Part III of Form 10-K are incorporated
by reference from the Company's Proxy Statement to be filed with the
Commission in connection with the 2001 Annual Meeting of Stockholders ("the
Proxy Statement").

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

  Information concerning Directors and Executive Officers of the Company
appears in the Company's Proxy Statement, under Item 1 "Election of
Directors". This portion of the Proxy Statement is incorporated herein by
reference.

ITEM 11. EXECUTIVE COMPENSATION

  Information concerning executive compensation appears in the Company's Proxy
Statement, under the caption "Executive Compensation", and is incorporated
herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

  Information concerning the security ownership of certain beneficial owners
and management appears in the Company's Proxy Statement, under Item 1
"Election of Directors", and is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

  Information concerning certain relationships and related transactions
appears in the Company's Proxy Statement, under Item 1 "Election of Directors"
under the headings "Director Compensation," "Executive Compensation," and
"Related Party Transactions," and is incorporated herein by reference.

Operating Agreement with the National Association of REALTORS(R)

  In November 1996, we entered into an operating agreement with the NAR which
governs how our RealSelect subsidiary operates the REALTOR.com(R) web site on
behalf of the NAR. The agreement may be terminated if:

  .  the number of real estate listings on REALTOR.com(R) falls below
     500,000;

  .  we breach any of our obligations under the agreement and do not cure
     that breach within 30 days;

  .  a third party acquires more than 50% of Homestore.com's or RealSelect's
     voting stock; or

  .  the individuals on RealSelect's board of directors, as it was
     constituted on November 1996, cease to constitute a majority of our
     board of directors without the approval of the board or directors
     approved by the board.

                                      93


  Restrictions on How We Operate the REALTOR.com(R) Web Site

  The operating agreement contains a number of restrictions on how our
RealSelect subsidiary can operate the REALTOR.com(R) web site. These include:

  .  it cannot display any "for sale by owner" real estate listings;

  .  it can only enter into agreements with parties that provide us with real
     estate listings, such as MLSs, on terms approved by the NAR;

  .  there are specific provisions as to the types of information that the
     real property listings may contain as well as the manner in which they
     may be displayed;

  .  the NAR has the right to approve the design and layout of the
     REALTOR.com(R) home page;

  .  the NAR can require RealSelect to include on REALTOR.com(R) real estate
     related content it develops;

  .  RealSelect cannot provide links from listings of existing real property
     listings to rental or new home listings with exceptions for our
     HomeBuilder.com and SpringStreet.com web sites;

  .  we cannot market any data or information received from data content
     providers such as real estate agents or brokers other than aggregate
     statistical data without its consent; and

  .  although we can collect fees for enhanced Internet services, we cannot
     charge fees to brokers or agents who provide us only basic real property
     listing information.

  We Are Subject to Noncompetition Provisions

  The REALTOR.com(R) operating agreement with the NAR requires that our
REALTOR.com(R) site be our exclusive web site for displaying real property
listings. This required us to obtain the consent of the NAR prior to our
acquisition of the SpringStreet.com web site and the launch of our
HomeBuilder.com web site and our acquisition of the Move.com Group. In the
future, if we were to acquire or develop another service which provides real
estate listings on an Internet site or through other electronic means, we will
need to obtain the prior consent of the NAR in order to complete the
acquisition. Any future consents from the NAR, if obtained, could be
conditioned on our restricting the operations of the new web site or service.
These conditions could include paying fees to the NAR, limiting the types of
content or listings on the web sites or service or other terms and conditions.
Our business could be adversely affected if we do not obtain consents from the
NAR, or if a consent we obtain contains restrictive conditions.

  Performance Requirements for the REALTOR.com(R) Web Site

  RealSelect must maintain adequate computer systems, communications and
capacity to accommodate all the real property listings on the REALTOR.com(R)
web site. The computer system must also meet a number of other performance
requirements. If another means of displaying electronic advertisements for
real property emerges, and we do not adequately provide for the electronic
display of these advertisements in the new medium, the NAR is entitled to
select another real property listing provider for that new medium.

  Restrictions on the Types of Advertising We May Display on the
REALTOR.com(R) Site

  RealSelect cannot display advertisements in connection with a real property
listing from many types of advertisers. For example, RealSelect cannot include
advertisements related to political issues, religion, alcoholic beverages or
adult-oriented products and services. Also, there are restrictions as to how
RealSelect displays advertisements from banks, loan brokers, mortgage bankers
and other participants in the real estate lending industry. For example, none
of these advertisers can occupy or reserve more than 25% of the available
advertising space for a geographic location or be given an exclusive right to
advertise with respect to a particular business on the REALTOR.com(R) web
site.

                                      94


  Compensation to the NAR

  As consideration for entering into the operating agreement with respect to
REALTOR.com(R), we are obligated to pay the amounts described below to the
NAR.

  Fixed Fees. We paid the NAR $1.0 million to fund advertising activities of
the NAR. This amount was paid by issuing shares of our Series F convertible
preferred stock and common stock described above. We also paid the NAR an
additional $1.0 million for advertising and for exceeding 1,300,000 real
property listings, as specified in the operating agreement. This amount was
paid by issuing the NAR shares of RealSelect common stock.

  Additional Payment. On May 28, 1999, we issued 187,500 shares of common
stock to the NAR in cancellation of $600,000 of our $1.2 million outstanding
obligation to the NAR. The remaining $600,000 was repaid in August 1999.

  Variable Fees. Beginning in 1999, we are required to make quarterly payments
to the NAR based on RealSelect's operating revenues.

  In 2000 and each year after 2000, RealSelect must pay the NAR annually the
lesser of:

  .  5% of RealSelect's operating revenues;

  .  15% of RealSelect's operating revenues less the percentage of our
     operating revenues paid to parties that provide us with real estate
     listings; or

  This royalty payment is reduced by 2% to the extent earnings before interest
and taxes are less than 10% of revenue, for that quarter.

  For 1999 and 2000, we paid the NAR $99,288 and approximately $1.8 million in
royalties, respectively. These operating revenues are RealSelect's
consolidated gross revenues as defined under this agreement, less sales
commissions paid to third parties related to those revenues, less any revenues
from permitted marketing of information or data.

Protective Provisions in Agreements with Respect to RealSelect

  The board of directors of RealSelect consists of ten members, two of whom
are appointed by the NAR under the RealSelect stockholders agreement. Without
the consent of the approval of six of its seven board members, RealSelect
cannot (1) enter into a merger or consolidation transaction, (2) sell
substantially all of its assets, or (3) change its business purpose from that
specified in its certificate of incorporation, which purpose is the operation
of the REALTOR.com(R) web site and real property advertising programming for
electronic display and related businesses.

  It also cannot engage in a number of transactions without the approval of a
majority of its board members and at least one member nominated by the NAR.
These include:

  .  amending its certificate of incorporation or bylaws;

  .  establishing, or appointing any members to, a board committee;

  .  approving transactions with affiliates, stockholders or employees in
     excess of $100,000;

  .  changing its executive officers;

  .  pledging its assets;

  .  issuing more than 10 shares of RealSelect stock; and

  .  declaring dividends or making other distributions to its stockholders.

                                      95


  The RealSelect bylaws also contain protective provisions which could
restrict portions of RealSelect's operations or require us to incur additional
expenses. For instance, if the RealSelect board of directors cannot agree on
an annual budget for RealSelect, it would use as its budget that from the
prior year adjusted for inflation. Any expenditures in excess of that budget
would have to be funded by Homestore.com. In addition, if RealSelect desired
to incur debt or invest in assets in excess of $2.5 million or review salaries
for or award bonuses to executive officers of RealSelect without the approval
of a majority of its board, including an NAR representative, we would also
need to fund those expenditures.

Conversion of RealSelect Stock into Homestore.com Stock

  Effective immediately prior to our initial public offering on August 4,
1999, the NAR converted all of its shares of RealSelect except for one half of
one share of RealSelect common stock into an aggregate of 3,917,265 shares of
our common stock.

Restrictions on How We Operate the SpringStreet.com Web Site

  We were required to obtain the consent of the NAR in connection with our
SpringStreet acquisition. In agreeing to the acquisition, the NAR imposed a
number of important restrictions on how we can operate the SpringStreet.com
web site. We must pay the NAR an annual royalty equal the lesser of (1) 5% of
the rental site's operating revenues and (2) 15% of the rental site's
operating revenues multiplied by the percentage of our real estate listings
for REALTORS less the percentage of our operating revenues paid to data
content providers.

  Under the consent, in addition to the SpringStreet.com web address, we must
use a REALTOR(R)-branded rental web address. If the consent is terminated we
could be required to operate our rental properties web site at a different web
address.

  Unless the consent is terminated as a result of a breach by the NAR, the NAR
would be entitled to use the REALTOR(R)-branded web address. As a result, we
would face competition from the NAR. Other important restrictions include:

  .  we cannot display advertisements from the same types of advertisers that
     we are prohibited from displaying on our REALTOR.com(R) web site;

  .  we are subject to the same restrictions as we are on the REALTOR.com(R)
     site as to how we display advertisements from banks, loan brokers,
     mortgage brokers and other participants in the real estate industry on
     pages containing listings by a REALTOR(R);

  .  the site will be owned by or through RealSelect;

  .  we must offer REALTORS(R) preferred pricing for home pages or enhanced
     advertising on the rental web site;

  .  we must use our best efforts to ensure that operating the rental site
     will not impact the quality or timeliness of how we perform our
     obligations under the operating agreement for REALTOR.com(R);

  .  without the consent of the NAR, prior to the time we are using only the
     REALTOR(R)-branded web address, we cannot provide a link on the
     SpringStreet.com web site linking the REALTOR.com(R) web site to the
     SpringStreet.com web site and vice versa;

  .  we cannot display listings for rental of units in smaller properties
     unless those units are listed with a REALTOR(R) or listed on a
     REALTOR(R)-controlled MLS, unless the NAR agrees that in a particular
     market, fewer than 50% of the listings are listed through REALTORS(R),
     in which case these properties must be listed with other non-REALTOR(R)
     real estate professionals; and

  .  we cannot list properties for sale on this site for the duration of our
     REALTOR.com(R) operating agreement and for an additional two years.

                                      96


Trademark License and Joint Ownership of Software

  Under a trademark license agreement with the NAR, we are exclusively
authorized to use the NAR's federally registered REALTOR(R) membership mark,
the domain name REALTOR.com(R) and a NAR logo in conjunction with our
REALTOR.com(R) web site. Under a joint ownership agreement, the software we
use to run the REALTOR.com(R) web site and any enhancements to that software
are jointly owned by the NAR and us. If the agreement under which we operate
REALTOR.com(R) is terminated, we must transfer a copy of this software and
assign our agreements with data content providers, including MLSs, to the NAR.
The NAR would then be entitled to use the software for "real estate related
businesses" and could operate the REALTOR.com(R) web site itself or through a
third party. Following any termination of the operating agreement, the NAR
could also terminate the trademark license agreement.

Right of First Refusal

  RealSelect has a stockholders agreement with the NAR which provides that we
must give RealSelect a right of first refusal to invest in "real estate
related" business opportunities prior to our entry into any of these
businesses. "Real estate related" businesses include real estate brokerage,
real estate management, mortgage financing, appraising, counseling, land
development and building, title insurance, escrow services, franchising,
operation of an association comprised of real estate licensees and operation
of a Multiple Listing Service.

Board Representation

  On August 4, 1999, we issued to the NAR one share of our Series A preferred
stock. As long as the REALTOR.com(R) operating agreement is in effect and the
NAR continues to hold at least 20% of the shares of common stock it owned
prior to our initial public offering on August 4, 1999, the NAR will be
entitled to nominate one member to our board, through its ownership of the one
share of our Series A preferred stock. See "Description of Capital Stock."
Under our RealSelect stockholders agreement, so long as our operating
agreement remains in effect, the NAR will have the right to nominate two
members to RealSelect's board of directors.

  Mr. McDermott, the NAR designee to our board, is a member of the Executive
Committee of the National Association of REALTORS(R).

Agreements with the National Association of Home Builders

  Operating Agreement

  In June 1998, we entered into an operating agreement with the NAHB. Under
this agreement, we agreed to display electronic ads for new residential
property.

  The NAHB's agreement not to compete. The NAHB agreed it would not, during
the term of the operating agreement and for the one year period after the
agreement terminates:

  .  engage in the electronic display, other than through analog television,
     of advertisements for new residential property;

  .  develop, maintain or house home pages for members of the NAHB; or

  .  create Internet sites for persons affiliated with the sale or marketing
     of new residential real estate.

  Term of the agreement. This agreement runs through June 2018 and
automatically renews for successive two year periods. However, if the NAR
terminates our REALTOR.com(R) operating agreement, the NAHB can terminate the
agreement within the six months following such termination, for any reason if
it provides us with three months' prior notice. If the NAHB chooses to
terminate the agreement in this manner prior to June 2008, however, its non-
competition obligation described above will last for a period of two years
after the agreement

                                      97


terminates. In addition, the NAHB can terminate the agreement within 30 days
of a change of control of Homestore.com. The operating agreement may also be
terminated if either of us materially breaches a term of the agreement or
becomes bankrupt or insolvent.

  Warrant

  In June 1998, we issued a warrant to purchase 566,440 shares of our common
stock to the NAHB at an exercise price of $.0002 per share. This warrant has
been exercised.

  Restrictions on the NAHB's Ability to Sell Shares

  The NAHB cannot transfer any of the shares it received upon exercise of the
warrant until June 2003. It cannot sell more than 50% of the shares unless the
transferee agrees to be bound by the surrender provisions described above.

                                      98


                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

  (a) The following documents are filed as part of this report:

  (1) Consolidated Financial Statements and Supplementary Data: See Index to
      Consolidated Financial Statements at Item 8 on page 44 of this report.

  (2) Financial Statement Schedule: See Item 14, "Exhibits on Form 10-K,"
      Exhibit Number 99.02.

  (b) Reports on Form 8-K

  On October 27, 2000, the Company filed a report on Form 8-K with the
Securities and Exchange Commission in connection with the proposed acquisition
of the Move.com Group.

  (c) Exhibits



   Number                              Exhibit Title
   ------                              -------------
         
    2.01    Agreement and Plan of Merger dated December 31, 1998, between
             NetSelect, Inc. and InfoTouch Corporation.(1)
    2.02    Agreement and Plan of Reorganization dated June 20, 1998, among
             NetSelect, Inc., National New Homes Co., Inc., MultiSearch
             Solutions, Inc., Fred White, and R. Fred White III.(1)
    2.03    Exchange Agreement dated March 31, 1998, among NetSelect, Inc., The
             Enterprise of America, Ltd., and Roger Scommegna.(1)
    2.04    Agreement and Plan of Reorganization/Merger between NetSelect, Inc.
             and SpringStreet.com.(1)
    2.05    Stock Purchase Agreement dated as of October 12, 1999 by and among
             Homestore.com, a Delaware Corporation, The Homebuyer's Fair, Inc.,
             an Arizona corporation ("HBF"), the current shareholders of HBF as
             of the date thereof and certain persons who will become
             shareholders of HBF prior to the Closing, and Central Newspapers,
             Inc., an Indiana corporation ("CNI"), as Shareholder Agent.(2)
    2.06    Stock Purchase Agreement dated as of October 12, 1999 by and among
             Homestore.com, Inc., FAS-Hotline, Inc., an Arizona corporation
             ("FAS"), the shareholders of FAS, and CNI, as Shareholder
             Agent.(2)
    2.07    Agreement and Plan of Reorganization, by and among Homestore.com,
             Inc., Metal Acquisition Corp., WW Acquisition Corp., Move.com,
             Inc., Welcome Wagon International, Inc., Cendant Membership
             Services Holdings, Inc. and Cendant Corporation, dated as of
             October 26, 2000. (5)
    3.01    Registrant's Amended and Restated Certificate of Incorporation.(1)
    3.02    Registrant's Bylaws.(1)
    3.05.1  RealSelect, Inc.'s Certificate of Incorporation dated October 25,
             1996.(1)
    3.05.2  RealSelect, Inc.'s Certificate of Amendment to Certificate of
             Incorporation dated November 25, 1996.(1)
    3.06    RealSelect, Inc.'s Bylaws dated November 26, 1996.(1)
    3.07    Amended By-Laws of RealSelect, Inc.(1)
    4.01    Form of Specimen Certificate for Registrant's common stock.(1)
    4.02.1  NetSelect, Inc. Second Amended and Restated Stockholders Agreement
             dated January 28, 1999.(1)
    4.02.2  Amendment No. 1 to NetSelect, Inc. Second Amended and Restated
             Stockholders Agreement dated January 28, 1999.(1)
   10.01    Form of Indemnity Agreement between Registrant and each of its
             directors and executive officers.(1)
   10.02.1  Operating Agreement dated November 26, 1996, between REALTORS(R)
             Information Network, Inc. and RealSelect, Inc.(1)
   10.02.2  First Amendment to Operating Agreement between REALTORS(R)
             Information Network, Inc. and RealSelect, Inc. dated December 27,
             1996.(1)


                                      99




   Number                              Exhibit Title
   ------                              -------------
         
   10.02.3  Amendment No. 2 to Operating Agreement between REALTORS(R)
             Information Network, Inc. and RealSelect, Inc. dated May 28,
             1999.(1)
   10.03    Master Agreement dated November 26, 1996, among NetSelect, Inc.,
             NetSelect, L.L.C., RealSelect, Inc., CDW Internet, L.L.C., Whitney
             Equity Partners, L.P., Allen & Co., InfoTouch Corporation, and
             REALTORS(R) Information Network, Inc.(1)
   10.04    Joint Ownership Agreement dated November 26, 1996, among the
             National Association of REALTORS(R), NetSelect, L.L.C., and
             NetSelect, Inc.(1)
   10.05    Trademark License dated November 26, 1996, between the National
             Association of REALTORS(R) and RealSelect, Inc.(1)
   10.06    Stock and Interest Purchase Agreement (NetSelect Series A and B
             Preferred) dated November 26, 1996, among NetSelect, Inc.,
             NetSelect L.L.C., and InfoTouch Corporation.(1)
   10.07    NetSelect, Inc. 1996 Stock Incentive Plan.(1)
   10.08    NetSelect, Inc. 1999 Equity Incentive Plan.(1)
   10.09    Homestore.com, Inc. 1999 Stock Incentive Plan.(1)
   10.10    Homestore.com, Inc. 1999 Employee Stock Purchase Plan.(1)
   10.11    InfoTouch Corporation 1994 Stock Incentive Plan.(1)
   10.12    Move.com, Inc. Stock Incentive Plan.(6)
   10.13    Cendant Corporation Move.com Group 1999 Stock Option Plan as
             assumed by Cendant Corporation from Move.com, Inc. and amended and
             restated effective as of March 21, 2000.(6)
   10.14    1997 Stock Initiative Plan of Cendant Corporation as amended and
             restated through October 14, 1998.(6)
   10.15    Amendment to Amended and Restated 1997 Stock Incentive Plan of
             Cendant Corporation dated March 27, 2000.(6)
   10.16    Amendment to Amended and Restated 1997 Stock Incentive Plan of
             Cendant Corporation dated March 28, 2000.(6)
   10.17    Employment Agreement between NetSelect, Inc. and Stuart H. Wolff,
             Ph.D.(1)
   10.18    Employment Agreement between NetSelect, Inc. and Richard
             Janssen.(1)
   10.19    Employment Agreement between NetSelect, Inc. and Michael A.
             Buckman.(1)
   10.20    Office Lease dated September 18, 1998 between RealSelect, Inc. and
             WHLNF Real Estate Limited Partnership for 225 West Hillcrest,
             Suite 100, Thousand Oaks, California.(1)
   10.21    First Amendment to Office Lease dated March 31, 1999 between
             RealSelect, Inc. and WHLNF Real Estate Limited Partnership for 225
             West Hillcrest, Suite 100, Thousand Oaks, California(1)
   10.22    401(k) Plan.(1)
   10.23    Employment Agreement between NetSelect, Inc. and Peter Tafeen.(1)
   10.24    Amendment to Employment Contract between NetSelect, Inc. and Peter
             Tafeen.(1)
   10.25    Employment Agreement between NetSelect, Inc. and John M.
             Giesecke.(1)
   10.26    Employment Agreement between NetSelect, Inc. and David
             Rosenblatt.(1)
   10.27    Agreement dated August 21, 1998 among RealSelect, RIN, the NAR,
             NetSelect and NetSelect L.L.C.(1)
   10.28    Agreement among NetSelect, Inc., RealSelect, Inc., RIN and NAR
             dated May 28, 1999.(1)
   10.29    Second Amended and Restated Interactive Marketing Agreement among
             RealSelect, Inc., NetSelect, Inc. and America Online, Inc. dated
             April 8, 1998.(1)(3)
   10.30    Letter Agreement regarding rental site acquisition among the NAR,
             RIN and RealSelect, Inc. dated May 17, 1999.(1)(3)
   10.31    Employment Agreement between Homestore.com, Inc. and M. Jeffrey
             Charney.(1)
   10.32    Employment Agreement between Homestore.com, Inc. and Catherine
             Kwong Giffen.(1)
   10.33    Standard Office Lease Form, Westlake North Business Park, dated
             March 7, 2000, between Westlake North Associates, LLC, and
             Homestore.com, Inc. for 30700 Russell Ranch Road, Westlake
             Village, California*
   21.01    Subsidiaries of Registrant.*
   23.01    Consent of PricewaterhouseCoopers LLP, independent accountants.*
   23.02    Report on Independent Accountants on Financial Statement
             Schedules.*


                                      100




   Number                           Exhibit Title
   ------                           -------------
       
   99.01  Information Incorporated by Reference Concerning Recent Sales of
           Unregistered Securities.*
   99.02  Schedule II--Valuation and Qualifying Accounts.*

- --------
 *   Filed herewith.

(1)  Incorporated by reference to exhibits previously filed with the Company's
     Registrant Statement on Form S-1 (File No. 333-79689).

(2)  Incorporated by reference to exhibits previously filed with the Company's
     Current Report on Form 8-K/A filed with the Securities and Exchange
     Commission on December 7, 1999.

(3)  Confidential treatment has been granted with respect to certain
     information in these exhibits pursuant to a previous confidential
     treatment request.

(4)  Incorporated by reference to exhibits previously filed with the Company's
     Registration Statement on Form S-1 (File No. 333-94467).

(5)  Incorporated by reference herein to the Appendix to the Definitive Proxy
     Statement filed with the Securities and Exchange Commission on November
     29, 2000.

(6)  Incorporated by reference herein to the Company's Form S-8 filed with the
     Securities and Exchange Commission on February 16, 2001.

                                      101


                                  SIGNATURES

  Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Homestore.com, Inc. has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.

Date: March 30, 2001
                                          Homestore.com, Inc.

                                                    /s/ Stuart H. Wolff
                                          By: _________________________________
                                                      Stuart H. Wolff
                                                 Chairman of the Board and
                                                  Chief Executive Officer

                                                    /s/ Joseph J. Shew
                                          By: _________________________________
                                                      Joseph J. Shew
                                               Senior Vice President, Chief
                                              Financial Officer and Assistant
                                                         Secretary

  Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.



             Signature                           Title                  Date
             ---------                           -----                  ----
Principal Executive Officer:

                                                             
      /s/ Stuart H. Wolff            Chairman of the Board, Chief  March 30, 2001
____________________________________ Executive Officer and
          Stuart H. Wolff            Director

Principal Financial Officer and
Principal Accounting Officer:

       /s/ Joseph J. Shew            Senior Vice President, Chief  March 30, 2001
____________________________________ Financial Officer and
           Joseph J. Shew            Assistant Secretary

Additional Directors:

   /s/ Terrence M. McDermott         Director                      March 30, 2001
____________________________________
       Terrence M. McDermott

       /s/ L. John Doerr             Director                      March 30, 2001
____________________________________
           L. John Doerr

       /s/ Joe F. Hanauer            Director                      March 30, 2001
____________________________________
           Joe F. Hanauer


                                      102




             Signature                           Title                  Date
             ---------                           -----                  ----

                                                             
     /s/ William E. Kelvie           Director                      March 30, 2001
____________________________________
         William E. Kelvie

      /s/ Kenneth K. Klein           Director                      March 30, 2001
____________________________________
          Kenneth K. Klein


                                      103

EX-10.33

                                                                   Exhibit 10.33


                          STANDARD OFFICE LEASE FORM

                         WESTLAKE NORTH BUSINESS PARK





                    LANDLORD:WESTLAKE NORTH ASSOCIATES, LLC

                          TENANT: homestore.com, Inc.


                                     LEASE
                                     -----

                            Basic Lease Information


     The foregoing Basic Lease Information is incorporated in and made a part of
the Lease to which it is attached. If there is any conflict between the Basic
Lease Information and the Lease, the Basic Lease Information shall control.

Date (for reference
purposes only):          March 7, 2000

Landlord:                Westlake North Associates, LLC,
                         a Delaware limited liability company

Tenant:                  homestore.com, Inc.,
                         a Delaware corporation

Guarantor:               N/A

Premises (Section 1.1):  All of Building I ("Building") outlined in Exhibit A-1,
          -----------                                               -----------
                         containing 137,762 rentable square feet ("RSF") and
                         125,509 usable square feet ("USF") of building area,
                         subject to remeasurement as provided in Section 1.2.
                                                                 -----------

Building:                Building I is located at 30700 Russell Ranch Road,
                         Westlake Village, California which consists of a
                         two-story building.

Project (Section 1.1):   The land and the buildings outlined in Exhibit A-2,
         -----------                                            -----------
                         containing 336,684 RSF of total building area, located
                         in Westlake Village, California and known as Westlake
                         North Business Park.

Term (Section 2.1):      Ninety (90) months
      -----------

Anticipated Commencement
Date:                    August 1, 2000


Commencement Date:       See Section 2.1
                             -----------

Anticipated Expiration
Date:                    January 31, 2008 (See Section 2.1)
                                               -----------

Monthly Base Rent
(Section 3.1(a)):        $216,286 34/100, subject to adjustment as provided in
 --------------          Sections 1.2 and 3.1(a).
                         -----------------------

Tenant's Percentage
Share (Section 3.1(b)):  100%
       --------------

Parking (Section 15.8):  538 spaces

                                      -1-


Security Deposit
(Section 3.3):           Letter of Credit for $8,329,856 Exhibit L) to be
 -----------                                             ---------
                         delivered at Lease signing; one month's Rent to be
                         delivered when Letter of Credit expires.

Rent Payment
Address (Section 3.7):   Westlake North Associates, LLC
         -----------
                         c/o Investment Development Services, Inc.
                         888 West Sixth Street, 9th Floor
                         Los Angeles, California 90017
                         Attention: David Saeta

Permitted Use
(Section 4.1):           General business office use plus any other use
 -----------             permitted to a significant Tenant (i.e., one occupying
                         15,000 RSF or more) within the Project

Landlord's
Address (Section 14.1):  Westlake North Associates, LLC
         ------------
                         c/o Investment Development Services, Inc.
                         888 West Sixth Street, 9th Floor
                         Los Angeles, California 90017
                         Attention: David G. Mgrublian

Tenant's
Address (Section 14.1):  homestore.com, Inc.
         ------------
                         225 West Hillcrest Drive, Suite 100
                         Thousand Oaks, California 91360
                         Attention: Catherine Kwong Giffen

                         with a copy to:

                         Pillsbury Madison & Sutro LLP
                         725 South Figueroa Street
                         Los Angeles, California 90017
                         Attention: John J. Duffy, Esq.

                         After Commencement Date, the notice address for Tenant
                         should be the Premises with a copy to:

                         Pillsbury Madison & Sutro LLP
                         725 South Figueroa Street
                         Los Angeles, California 90017
                         Attention: John J. Duffy, Esq.

Guarantor's
Address (Section 14.1):  N/A
         ------------
                                      -2-


Landlord's Brokers
(Section 15.5):          Investment Development Services, Inc.
 ------------            888 West Sixth Street, 9/th/ Floor
                         Los Angeles, California 90017
                         Tel:  (213) 362-9319
                         Fax:  (213) 627-9937
                         Attention: David Saeta

                         and

                         Grubb & Ellis Company
                         15260 Ventura Blvd., Suite 1800
                         Sherman Oaks, California 91403
                         Attention: James F. Lindvall and Thomas A. Festa

Tenant's Broker
(Section 15.5):          Grubb & Ellis Company
 ------------
                         15260 Ventura Blvd., Suite 1800
                         Sherman Oaks, California 91403
                         Attention: James F. Lindvall

Exhibits
- --------

Exhibit A-1       Plan(s) Outlining the Premises and the Building
Exhibit A-2       Plan(s) Outlining the Project
Exhibit B         Work Letter Agreement
Schedule B-1      Description of Base Building Improvements
Exhibit C         Form of Memorandum Confirming Term
Exhibit D         N/A
Exhibit E         Rules and Regulations
Exhibit F         Option to Extend
Exhibit G         N/A
Exhibit H         N/A
Exhibit I         Right of First Offer/Fair Market Value Option
Exhibit J         Janitorial Services
Exhibit K         Parking Rules and Regulations
Exhibit L         Letter of Credit Information
Exhibit M         Certain CAM Expense Limitations

                                      -3-


                               TABLE OF CONTENTS
                               -----------------



ARTICLE                                                                    PAGE
- -------                                                                    ----
                                                                        
ARTICLE 1     Premises....................................................   1

     1.1      Lease of Premises...........................................   1

     1.2      Remeasurement...............................................   2

ARTICLE 2     Term........................................................   2

     2.1      Term of Lease...............................................   2

     2.2      Landlord to Construct Base Building Improvements............   4

     2.3      Tenant to Construct Tenant Improvements.....................   4

     2.4      Entry Into Premises.........................................   4

     2.5      Memorandum Confirming Term..................................   5

     2.6      Holding Over................................................   5

     2.7      Building II and Building III................................   6

ARTICLE 3     Rent........................................................   6

     3.1      Base Rent and Additional Rent...............................   6

     3.2      Procedures..................................................   7

     3.3      Letter of Credit, Security Deposit and First Month's Rent...   9

     3.4      Late Payment................................................  10

     3.5      Other Taxes Payable by Tenant...............................  10

     3.6      Certain Definitions.........................................  11

     3.7      Rent Payment Address........................................  13

     3.8      Management Oriented Services................................  13

ARTICLE 4     Use of the Premises.........................................  13

     4.1      Permitted Use...............................................  13

     4.2      Environmental Definitions...................................  14

     4.3      Environmental Requirements..................................  14

     4.4      Compliance With Law.........................................  15

     4.5      Rules and Regulations.......................................  15

     4.6      Entry by Landlord...........................................  15

ARTICLE 5     Utilities and Services......................................  16

     5.1      Tenant's Responsibilities...................................  16

     5.2      Landlord's Responsibilities.................................  16


                                      -1-




                                                                          Page
                                                                          ----
                                                                       
ARTICLE 6     Maintenance and Repairs.....................................  18

     6.1      Obligations of Landlord.....................................  18

     6.2      Obligations of Tenant.......................................  20

     6.3      Tenant's Obligations at the End of the Term.................  20

ARTICLE 7     Alteration of the Premises..................................  22

     7.1      No Alterations by Tenant....................................  22

     7.2      Landlord's Property; Removal at End of Term.................  23

ARTICLE 8     Indemnification and Insurance...............................  24

     8.1      Damage or Injury............................................  24

     8.2      Insurance Coverages and Amounts.............................  24

     8.3      Insurance Requirements......................................  25

     8.4      Subrogation.................................................  25

     8.5      Landlord's Fire and Casualty Insurance......................  26

ARTICLE 9     Assignment or Sublease......................................  26

     9.1      Prohibition.................................................  26

     9.2      Landlord's Consent or Termination...........................  27

     9.3      Completion..................................................  28

     9.4      Tenant Not Released.........................................  28

     9.5      Landlord's Consent..........................................  29

     9.6      Remedies....................................................  29

ARTICLE 10    Events of Default and Remedies..............................  30

     10.1     Default by Tenant...........................................  30

     10.2     Termination.................................................  31

     10.3     Continuation................................................  31

     10.4     Remedies Cumulative.........................................  31

     10.5     Tenant's Primary Duty.......................................  32

     10.6     Abandoned Property..........................................  32

     10.7     Landlord Default............................................  32

ARTICLE 11    Damage or Destruction.......................................  32


                                     -ii-




                                                                            Page
                                                                            ----
                                                                         
    11.1     Restoration; Rent Abatement.................................... 32

    11.3     Exclusive Remedy............................................... 33

ARTICLE 12   Eminent Domain................................................. 34

    12.1     Condemnation................................................... 34

    12.2     Award.......................................................... 34

    12.3     Temporary Use.................................................. 34

    12.4     Definition of Taking........................................... 35

    12.5     Exclusive Remedy............................................... 35

ARTICLE 13   Subordination and Sale......................................... 35

    13.1     Subordination.................................................. 35

    13.2     Sale of the Project............................................ 35

    13.3     Estoppel Certificate........................................... 35

ARTICLE 14   Notices........................................................ 36

    14.1     Method......................................................... 36

ARTICLE 15   Miscellaneous.................................................. 37

    15.1     General........................................................ 37

    15.2     No Waiver...................................................... 37

    15.3     Attorneys' Fees................................................ 37

    15.4     Exhibits....................................................... 37

    15.5     Broker(s)...................................................... 38

    15.6     Waivers of Jury Trial and Certain Damages...................... 38

    15.7     Entire Agreement............................................... 38

    15.8     Parking........................................................ 38

    15.9     Choice of Law.................................................. 39

    15.10    No Air Rights.................................................. 39

    15.11    Modification of Lease.......................................... 39

    15.12    Landlord's Title............................................... 39

    15.13    Application of Payments........................................ 39

    15.14    Time of Essence................................................ 40


                                     -iii-




                                                                       Page
                                                                       ----
                                                                    
     15.15    Right to Lease...........................................  40

     15.16    Force Majeure............................................  40

     15.17    Exculpation..............................................  40

     15.18    No Discrimination........................................  40

     15.19    Counterparts.............................................  41

     15.20    Roof Rights..............................................  41

     15.21    Signage..................................................  41

     15.22    Consent/Duty to Act Reasonably...........................  41

ARTICLE 16    Arbitration..............................................  42

     16.1     Exclusive Remedy/Payment Under Protest...................  42


                                     -iv-


                                     LEASE
                                     -----

     This Lease (together with the Basic Lease Information and Exhibits A
                                                               ----------
through M which are incorporated into the Lease by this reference, collectively,
- ---------
the "Lease") is made as of the date specified in the Basic Lease Information, by
and between WESTLAKE NORTH ASSOCIATES, LLC, a Delaware limited liability company
("Landlord"), and the tenant specified in the Basic Lease Information
("Tenant"), who hereby agree as follows:

                                   ARTICLE 1
                                   ---------

                                   Premises
                                   --------

     1.1  Lease of Premises.  (a)  Landlord hereby leases to Tenant, and Tenant
          -----------------
hereby leases from Landlord, for the term and subject to the covenants
hereinafter set forth, to all of which Landlord and Tenant hereby agree, the
space(s) described on Exhibit A-1 (the "Premises") in the Building described on
                      -----------
Exhibit A-1 (the "Building") specified in the Basic Lease Information located on
- -----------
the real property specified in the Basic Lease Information and described more
specifically on Exhibit A-2 (the "Project").  The Project includes the land and
                -----------
the Building in which the Premises are located.  Subject to the effect of
Section 1.2, Landlord and Tenant stipulate that, for purposes of this Lease, the
- -----------
Premises and the Building contain the number of RSF and USF specified in the
Basic Lease Information, and Tenant's Percentage Share specified in the Basic
Lease Information is the ratio of such RSF of the Premises to the RSF in the
Building (i.e., 100% because Tenant is leasing the entire building).  During the
term of this Lease, Tenant shall have the parking rights described in Section
                                                                      -------
15.8 and, in addition, the nonexclusive right, in common with other tenants of
- ----
the Project, to use only for their intended purposes the common areas (such as
driveways, sidewalks, parking areas, loading areas and access roads) in the
Project that are designated by Landlord as common areas and not leased to or
allocated for the exclusive use of another tenant of the Project.  Landlord
shall have the right from time to time to change the size, location,
configuration, character or use of any such common areas, construct additional
improvements or facilities in any such common areas, or close any such common
areas; provided, that no such change, construction or closing shall materially
and adversely affect Tenant's access to or use of the Premises or the exclusive
parking areas described in Section 15.8, except as provided in such Section.
                           ------------
Tenant shall not interfere with the rights of Landlord and other tenants of the
Project to use such common areas.

     (b)  Common Area.  Landlord and Tenant acknowledge that on the date hereof
          -----------
there is no "common area", as that term is used in this Lease.  Landlord shall
have the absolute right to designate, improve and operate "common area" within
the Project from time to time in its sole discretion, although without Tenant's
written consent no CAM Expense, Capital Costs, depreciation, Property Taxes or
Insurance Costs related thereto shall be charged to Tenant.  Tenant acknowledges
that it shall not have the right to utilize any such common area unless it
agrees in writing, in a form satisfactory to Landlord, to bear a reasonable
share of the costs related to such common area.

                                      -1-


     1.2  Remeasurement.
          -------------

     (a)  Landlord has caused its architect to measure the RSF and USF in the
Building and the Premises in accordance with the standards set forth in ANSI
Z65.1-1996, as promulgated by the Building Owners and Managers Association
("BOMA Standard"), and the results of such measurement are contained in the
Basic Lease Information.  Tenant shall have the right, exercisable within
fifteen (15) days after the date hereof, to elect to cause its architect to
remeasure the Premises and the Building in accordance with the BOMA Standard.
If it so elects, Tenant shall deliver its architect's certification of the RSF
and USF of the Premises and the Building to Landlord within fifteen (15) days
after Tenant's election.  If Tenant's architect certifies that the RSF or USF in
the Premises or the Building is less than ninety-eight percent (98%) or more
than one hundred two percent (102%) of the RSF or USF set forth in the Basic
Lease Information, Landlord and Tenant shall meet within fifteen (15) days after
Landlord's receipt of Tenant's architect's certification to attempt to resolve
the discrepancy.  If they agree to change the RSF or USF in the Premises and the
Building, they shall reduce their agreement to writing and paragraph (b) shall
                                                           -------------
apply.  Otherwise, either Landlord or Tenant may submit the matter to
arbitration pursuant to Article 16 within thirty (30) days after the delivery to
                        ----------
Landlord of Tenant's architect's certification, but if neither does so, the
measurements expressed in the Basic Lease Information shall bind both Landlord
and Tenant.  Only a discrepancy (i.e., in RSF or USF) which is outside the 98%-
102% parameters set forth above may be disputed or arbitrated.  If Tenant's
architect certifies that the RSF or USF of the Premises and the Building are
more than ninety-eight percent (98%) but less than one hundred two percent
(102%) of the RSF or USF set forth in the Basic Lease Information, no adjustment
to the RSF or USF of the Premises or the Building shall be made.

     (b)  If, by agreement of the parties or through arbitration, the RSF or USF
of the Premises and the Building are determined to be different than as stated
in the Basic Lease Information, then (i) all payments due from Tenant to
Landlord or from Landlord to Tenant based upon RSF or USF (including Base Rent
and Additional Monthly Rent) shall be proportionately, retroactively and
prospectively reduced or increased, as the case may be, to reflect the number of
RSF or USF or both as determined by agreement or arbitration, and (ii) Landlord
and Tenant shall promptly execute and deliver an amendment to this Lease which
memorializes the new RSF, USF or both and the revised payments.

                                   ARTICLE 2
                                   ---------

                                     Term
                                     ----

     2.1  Term of Lease.  The term of this Lease ( the "Term") shall be the term
          -------------
specified in the Basic Lease Information, which shall commence on August 1,
2000, as such date is extended by Landlord Delays and Tenant Force Majeure
Delays, if any (the "Commencement Date").

     (a)  "Landlord Delays" are the actual periods of delay, if any, suffered by
Tenant in the construction of its Tenant Improvements or the installation of its
trade fixtures and personal property in the Premises on account of any of the
following:  (i) the failure of the Entry Date

                                      -2-


(defined in Section 2.4(a)) to occur by March 31, 2000; (ii) the failure of the
            --------------
Delivery Date (defined below) to occur by May 1, 2000; provided, that after the
Delivery Date Landlord and its contractors and agents may remain in the Premises
for the purpose of completing the Base Building Improvements and for the other
purposes permitted in this Lease. However, during such period such Landlord
presence shall not interfere with or delay Tenant in the construction of its
Tenant Improvements. If such presence is interfering with or delaying Tenant,
Tenant shall notify Landlord in writing, and if Landlord does not within one (1)
business day thereafter correct the conduct which caused the interference or
delay, then Landlord Delay shall be deemed to have occurred to the extent of the
actual delay suffered thereby by Tenant; (iii) Tenant's failure or inability to
obtain a certificate of occupancy or temporary certificate of occupancy (either,
a "C of O") for the Building on account of a failure of Landlord to perform in a
timely manner its obligations in the Work Letter Agreement, including, without
limitation, Tenant's inability to obtain a C of O because Russell Ranch Road has
not been completed; and any other delay caused by Landlord; provided, that (A)
no reasonable exercise of its rights under this Lease shall be deemed to be a
delay by Landlord; and (B) no act, conduct or omission shall be deemed to be a
Landlord Delay if Landlord discontinues such act or conduct (or remedies an
omission) within one (1) business day after receiving written notice from Tenant
of the same (but Landlord shall be entitled to only five (5) such notices -- for
any delays after such five (5) notices have been given, the period of delay
shall begin on receipt by Landlord from Tenant of written notice of the act,
conduct or omission constituting the delay. Notwithstanding the foregoing, none
of the foregoing shall constitute a Landlord Delay, and the Commencement Date
shall not be postponed beyond August 1, 2000, to the extent that the reason for
the Landlord Delay was due to any Tenant Delay or any other action of Tenant
other than the normal construction of the Tenant's Improvements in the Premises.
For example, there shall be no Landlord Delay, and no postponement of the
Commencement Date beyond August 1, 2000, for the failure to obtain a C of O for
the Premises if the reason for the failure was the inability of Tenant to
complete portions of its work (e.g., restrooms) necessary to obtain the C of O
(assuming that such failure was not caused by another Landlord Delay).

     (b)  A "Tenant Force Majeure Delay" means any delay suffered by Tenant in
the completion of its Tenant Improvements on account of acts of God, strikes or
moratoriums on occupancy or the completion of the Tenant Improvements imposed by
any governmental agency, but only to the extent of the actual delay thereby
caused.  However, unless such moratorium affects occupancy by tenants or the
completion of tenant improvements in the entire Project or a larger geographical
area (whether caused by the City of Westlake Village or the County of Los
Angeles), such as a moratorium on the granting of building permits within such
areas, such moratorium shall not be deemed to be a moratorium for purposes of
the preceding sentence.

     (c)  No act or circumstance shall constitute a Landlord Delay or a Tenant
Force Majeure Delay unless within three (3) business days after Tenant first
became aware of the alleged delay Tenant notifies Landlord of the occurrence of
the same and thereafter keeps Landlord reasonably informed of the continuance,
severity and likely end of the same.  Tenant shall have the obligation to take
commercially reasonable actions, though not to spend significant amounts of
money, in order to shorten, terminate and otherwise avoid the effects of a
Landlord Delay and a Tenant Force Majeure Delay.

          The Term shall end on the Expiration Date which shall be ninety (90)
calendar months following the Commencement Date.  However, should the
Commencement Date occur

                                      -3-


on other than the first day of a month, then the Term shall begin on the
Commencement Date and the Expiration Date shall be ninety (90) calendar months
following the end of the month in which the Commencement Date occurs. If the
Delivery Date does not occur on or before May 1, 2000, this Lease shall not be
void or voidable and Landlord shall not be liable to Tenant for any loss or
damage resulting therefrom. Tenant acknowledges that (i) Tenant has inspected
the Premises and the Building (in their current state of completion) or has had
them inspected by professional consultants retained by Tenant, (ii) Tenant is
familiar with the plans for and condition of the Premises and the Building,
(iii) when completed in accordance with the plans therefor delivered to Tenant
and described in Schedule 1 to Exhibit B, the Premises and the Building will be
                               ----------
suitable for Tenant's purposes, (iv) except for the Base Building Improvements
to be constructed or installed by Landlord pursuant to Exhibit B, the condition
                                                       ---------
of the Premises and the Building is acceptable to Tenant. Except for the Base
Building Improvements, Landlord shall have no obligation to construct or install
any improvements in the Premises or the Project or to remodel, renovate,
recondition, alter or improve the Premises or the Building in any manner, and
Tenant shall accept the Premises "as is" on the Delivery Date, subject to (i)
Landlord's completion of minor aspects of and punch list items relating to the
Base Building Improvements, and (ii) completion by Landlord of the Base Building
Improvements in substantial accordance with the plans therefor and in compliance
with the applicable law. Tenant shall be deemed to have accepted the Premises,
however, subject to all matters reasonably discoverable or observable by Tenant
in the course of a standard punch list review.

     2.2  Landlord to Construct Base Building Improvements.  Landlord shall
          ------------------------------------------------
construct or install the Base Building Improvements to be constructed or
installed by Landlord pursuant to terms and conditions of the Work Letter
Agreement attached as Exhibit B.  Landlord shall deliver possession of the
                      ---------
Premises to Tenant on the Delivery Date, and Tenant shall accept such delivery
of the Premises, subject to the completion of minor items to be completed and
Landlord's punch list items described in the Work Letter Agreement attached
hereto as Exhibit B.  The "Delivery Date" shall be the date on which
          ---------
construction of the Base Building Improvements (less any portion thereof which
Landlord is not required to construct on account of Tenant exercising its right,
under Section 4.2 of the Work Letter Agreement, to redesign the common areas
      -----------
(lobbies and restrooms) of the Building and the second floor of the Building) is
in Landlord's reasonable judgment sufficiently complete, substantially in
accordance with the plans and specifications therefor and water tight, so that
Tenant may take possession of the Premises for the purpose of completing its
Tenant Improvements.  Landlord shall give Tenant at least thirty (30) days'
notice of the anticipated Delivery Date and shall thereafter keep Tenant
informed of any changes in that schedule.  Landlord shall in all cases give
Tenant at least ten (10) days' prior notice of the actual Delivery Date.

     2.3  Tenant to Construct Tenant Improvements.  Tenant shall construct the
          ---------------------------------------
Tenant Improvements pursuant to the terms and conditions of the Work Letter
Agreement attached as Exhibit B.
                      ---------

     2.4  Entry Into Premises.
          -------------------

     (a)  Landlord shall permit Tenant early entrance to the Premises in order
to commence construction of the Tenants Improvements; provided, that the same
                                                      --------
can be accomplished by Tenant in a manner which not interfere with, or delay
Landlord in the completion of, the Base Building Improvements. Any such delay
shall constitute a Tenant Delay and shall not be a

                                      -4-


reason for the extension of or the postponement of the Commencement Date.
Landlord shall give Tenant five (5) business days prior notice of such date (the
"Entry Date"). If the Entry Date does not occur on or before September 1, 2000
for any reason other than damage described in Section 11.1 (in which case such
                                              ------------
Section shall control), Tenant shall have the right to terminate this Lease upon
written notice given to Landlord within thirty (30) days after September 1,
2000. In the event of such termination, Tenant shall have the right to recover
from Landlord its costs incurred in designing and building its Tenant
Improvements (but no other damages) but shall have no further obligation to
Landlord other than obligations arising prior to the date of termination.

     (b)  Landlord shall not be responsible for, and Tenant is required to
obtain insurance covering, any loss (including theft), damage or destruction to
any work or material installed or stored by Tenant or Landlord, or by any
contractor or individual involved in the construction of the Tenant
Improvements, or for any injury to Tenant or Tenant's employees, agents,
contractors, licensees, directors, officers, partners, trustees, visitors or
invitees or to any other person. Landlord shall have the right to post the
appropriate notices of non-responsibility and to require Tenant to provide
Landlord with evidence that Tenant has fulfilled its obligation to provide
insurance pursuant to this Lease. Such insurance shall be commercially
reasonable in coverage and amount, including deductibles (which shall be paid by
Tenant in the event of a covered loss). All terms and conditions of this Lease
shall apply to Tenant's early entry into the Premises except for the payment of
Base Rent, CAM Expenses, Property Taxes and Insurance pursuant to Section 3.1
                                                                  -----------
below, which will not occur until the time described in such Section.
                                                             -------

     (c)  Following the Delivery Date, Tenant shall have the right to enter the
Premises for the purposes of completing Tenant Improvements and in order to
install its furniture, fixtures and equipment.  Tenant's occupancy prior to the
Commencement Date shall be on all of the terms set forth in Section 2.4(a).
                                                            --------------

     2.5  Memorandum Confirming Term.  Landlord and Tenant each shall, promptly
          --------------------------
after the Commencement Date has been determined, execute and deliver to the
other a Memorandum Confirming Term in the form of Exhibit C attached hereto,
                                                  ---------
which shall set forth the actual Commencement Date and the Expiration Date for
this Lease, but the term of this Lease shall commence and end in accordance with
this Lease whether or not the Memorandum Confirming Term is executed.

     2.6  Holding Over.  If, with the written consent of Landlord, Tenant holds
          ------------
possession of the Premises after expiration of the term of this Lease, Tenant
shall become a tenant from month to month under this Lease, but the Base Rent
during such month to month tenancy shall be equal to one hundred twenty-five
percent (125%) of the Base Rent in effect at the expiration of the term of this
Lease.  Landlord and Tenant each shall have the right to terminate such month to
month tenancy by giving at least thirty (30) days' written notice of termination
to the other at any time, in which event such tenancy shall terminate on the
termination date set forth in such termination notice.  If Tenant, without the
written consent of Landlord, holds possession of the Premises without the
written consent of Landlord, Tenant shall pay rent as set forth in the first
sentence of this Section 2.6 and shall be responsible to Landlord for all
                 -----------
damages incurred by Landlord as a result of such holdover and reasonable
attorneys' fees and costs pursuant to Section 15.3 of this Lease.  Nothing in
                                      ------------
this Lease shall be deemed to expressly, or by implication, grant Tenant the
right to hold over in the Premises, and Landlord's consent to any

                                      -5-


holdover shall occur only if Landlord, in the exercise of its sole and absolute
discretion, agrees to such holdover pursuant to a separate written agreement
signed by both Landlord and Tenant.

     2.7  Building II and Building III.  Building II contains or will contain
          ----------------------------
65,517 rentable square feet and Building III contains or will contain 133,405
rentable square feet.

                                   ARTICLE 3
                                   ---------

                                     Rent
                                     ----

     3.1  Base Rent and Additional Rent. Tenant shall pay to Landlord the
          -----------------------------
following amounts as rent for the Premises, subject to adjustment pursuant to
Section 1.2:
- -----------

     (a)  During the Term beginning with the Commencement Date, Tenant shall pay
to Landlord, as Base Rent each month the amount of Monthly Base Rent specified
below:

              Monthly Base Rent      Monthly Periods Following
                                        Commencement Date

                 $108,143.17               Months 1-6

                 $216,286.34               Months 7-12

                 $224,937.79               Months 13-24

                 $233,935.31               Months 25-36

                 $243,292.72               Months 37-48

                 $253,024.43               Months 49-60

                 $263,145.40               Months 61-72

                 $273,671.22               Months 73-84

                 $284,618.07               Months 85-90


          Notwithstanding the foregoing, if at any time during the first six (6)
months of the Term an Event of Default occurs with respect to a material
provision of this Lease, then the Monthly Base Rent for each of the first six
months of the Term shall be the same as the Monthly Base Rent for the second six
(6) months of the Term, and Tenant shall immediately pay to Landlord an amount
necessary so that the total amount paid as Monthly Base Rent to that point in
time is equal to the amount which would have been paid had Monthly Base Rent
been payable at the rate of $216,286.34 per month.  In addition, Tenant shall
pay Monthly Base Rent for the balance of the first six (6) months of the Term at
such monthly rate.  Should the Commencement Date occur other than on the first
day of a month, then the Monthly Base Rent for the partial

                                      -6-


month shall be at the rate of $216,286.34 prorated for such partial month, which
shall be paid on the Commencement Date.

     (b)  During each calendar year (or part thereof) during the Term, Tenant
shall pay to Landlord, as additional monthly rent ("Additional Monthly Rent"):

          (i)   Tenant's Percentage Share specified in the Basic Lease
     Information of all CAM Expenses paid or incurred by Landlord in such year;

          (ii)  Tenant's Percentage Share specified in the Basic Lease
     Information of the total dollar amount of all Property Taxes paid or
     incurred by Landlord in such year; and

          (iii) Tenant's Percentage Share specified in the Basic Lease
     Information of the total dollar amount of all Insurance Costs paid or
     incurred by Landlord in such year.

In addition, if prior to the Commencement Date Tenant occupies the Premises for
the conduct of regular business and the Tenant Improvements are substantially
completed, Tenant shall pay Landlord Additional Monthly Rent for the period
between the date of such occupation and the Commencement Date, upon receipt of
an invoice therefor from Landlord.

     (c)  Throughout the Term, Tenant shall pay, as additional rent, all other
amounts of money and charges required to be paid by Tenant under this Lease
("Additional Rent"), whether or not such amounts of money or charges are
designated Additional Rent.  As used in this Lease, "rent" and "Rent" shall mean
and include all Base Rent, Additional Monthly Rent and Additional Rent payable
by Tenant in accordance with this Lease.

     3.2  Procedures.  The Additional Monthly Rent payable by Tenant pursuant to
          ----------
Section 3.1(b) hereof (CAM Expenses, Property Taxes and Insurance Costs) shall
- --------------
be calculated and paid in accordance with the following procedures:

     (a)  On or before the Commencement Date, or as soon thereafter as
practicable, and on or before the first day of each subsequent calendar year
during the term of this Lease, or as soon thereafter as practicable, Landlord
shall give Tenant written notice of Landlord's estimate of the amounts payable
under Section 3.1(b) hereof for the balance of the first calendar year after the
      --------------
Commencement Date or for the ensuing calendar year, as the case may be.  Tenant
shall pay such estimated amounts to Landlord in equal monthly installments, in
advance, on or before the Commencement Date and on or before the first day of
each month during such balance of the first calendar year after the Commencement
Date or during such ensuing calendar year, as the case may be.  If such notice
is not given for any calendar year, Tenant shall continue to pay on the basis of
the prior year's estimate until the month after such notice is given, and
subsequent payments by Tenant shall be based on Landlord's current estimate.
If, at any time, Landlord determines that the amounts payable under Section
                                                                    -------
3.1(b) hereof for the current calendar year will vary from Landlord's estimate,
- ------
Landlord may, by giving written notice to Tenant, revise Landlord's estimate for
such year, and subsequent payments by Tenant for such year shall be based on
such revised estimate.

     (b)  By each April 1 during the Term, or a reasonable time thereafter,
Landlord shall give Tenant a written statement of the amounts payable by Tenant
under Section 3.1(b) hereof for the prior such calendar year certified by
      --------------
Landlord.  If such statement shows a total amount

                                      -7-


owing by Tenant that is less than the estimated payments for such calendar year
previously made by Tenant, Landlord shall credit the excess to the next
installment(s) of Rent payable by Tenant (or, if the Term has ended, Landlord
shall refund the excess to Tenant with such statement). If such statement shows
a total amount owing by Tenant that is more than the estimated payments for such
calendar year previously made by Tenant, Tenant shall pay the deficiency to
Landlord within ten (10) days after delivery of such statement. Failure by
Landlord to give any notice or statement to Tenant under this Section 3.2 shall
                                                              -----------
not waive Landlord's right to receive, or Tenant's obligation to pay, the
amounts payable by Tenant under Section 3.1(b) hereof, unless the expense was
                                --------------
incurred more than two (2) years prior to the date it was assessed to Tenant.

     (c)  In the event that Tenant disputes the amount of CAM Expenses, Property
Taxes and Insurance Costs (collectively, "Operating Costs") set forth in any
annual statement delivered by Landlord, then subject to the terms and conditions
below, Tenant shall have the right to provide notice to Landlord that it intends
to inspect and copy Landlord's accounting records for the calendar year covered
by such statement during normal business hours ("Tenant Review") and shall sign
an agreement with Landlord whereby Tenant agrees not to disclose the results of
such (and the information obtained in connection with such) Tenant Review to
anyone other than Tenant's employees and/or attorneys and/or accountants or
other professionals who shall also sign an agreement to keep such information
confidential.  If Tenant retains a third party to inspect Landlord's accounting
records (a "Third Party Auditor"), then as a condition precedent to any such
inspection, Tenant shall deliver to Landlord a copy of Tenant's written
agreement with such Third Party Auditor, which agreement shall include
provisions which state that (i) Landlord is an intended third-party beneficiary
of such agreement, (ii) such Third Party Auditor will not in any manner solicit
or agree to represent any other tenant of the Project with respect to an audit
or other review of Landlord's accounting records at the Building or Project, and
(iii) such Third Party Auditor shall maintain in strict confidence any and all
information obtained in connection with the Tenant Review and shall not disclose
such information to any person or entity other than to the management personnel
of Tenant and its attorneys.  Any Tenant Review shall take place in Landlord's
office at the Project or at such other location as Landlord may reasonably
designate in Southern California, and Landlord will provide Tenant with
reasonable accommodations for such Tenant Review and reasonable use of such
available office equipment, but may charge Tenant for telephone calls, faxes,
and photocopies.  Tenant shall provide Landlord with not less than two (2)
weeks' prior written notice of its desire to conduct such Tenant Review.  In
connection with the foregoing review, Landlord shall furnish Tenant with such
reasonable supporting documentation relating to the subject statement as Tenant
may reasonably request.  In no event shall Tenant have the right to conduct such
Tenant Review if (a) an Event of Default by Tenant is then in existence under
this Lease with respect to any of Tenant's monetary obligations, including,
without limitation, the payment by Tenant of Tenant's Percentage Share of
Operating Costs described in the statement which is the subject of Tenant's
Review, which payment, at Tenant's election, may be made under dispute or (b) if
any amount invoiced by Landlord to Tenant remains unpaid, but Tenant may make
such payment to Landlord under protest.  In the event that following Tenant's
Review, Tenant and Landlord continue to dispute the amount of Operating Costs
shown on Landlord's statement and Landlord and Tenant are unable to resolve such
dispute, then subject to the last paragraph of this clause (c), either Landlord
or Tenant may submit the matter to arbitration pursuant to Article 16 of this
                                                           ----------
Lease and the proper amount of the disputed items and/or categories of Operating
Costs shown on such statement shall be determined by such proceeding producing
an arbitration award.  The

                                      -8-


arbitration award shall be conclusive and binding upon both Landlord and Tenant.
If the resolution of the parties' dispute with regard to Tenant's Percentage
Share of Operating Costs shown on the statement, pursuant to the arbitration
award, reveals an error in the calculation of Tenant's Percentage Share of those
Operating Costs to be paid for such calendar year, the parties' sole remedy
shall be for the parties to make appropriate payments or reimbursements, as the
case may be, to each other as are determined to be owing. Any such payments
shall be made within thirty (30) days following the resolution of such dispute.
Tenant shall be responsible for all costs and expenses associated with Tenant's
Review, and Tenant shall be responsible for all reasonable audit fees,
attorney's fees and related costs of Tenant relating to an Arbitration Award
(collectively, the "Costs"), provided that if the parties' final resolution of
the dispute involves the overstatement by Landlord for such calendar year in
excess of five percent (5%), then Landlord shall be responsible for all Costs.
An overcharge by Landlord of Operating Costs shall not entitle Tenant to
terminate this Lease. Landlord shall not be obligated to make a refund to Tenant
until thirty (30) days after the issuance of a final arbitration award. Subject
to the terms set forth below, this provision shall survive the termination of
this Lease to allow the parties to enforce their respective rights hereunder.

     Tenant shall have no further right to conduct a Tenant Review with respect
to any statement submitted by Landlord, or to dispute the amount of Tenant's
Percentage Share of Operating Costs set forth in the applicable statement,
unless Tenant (i) notifies Landlord within six (6) months after receipt of the
statement that Tenant disputes or wishes to audit the same, (ii) Tenant
completes its audit within twelve (12)  months after receipt of such statement,
if an audit is performed, and (iii) unless the matter has otherwise been
resolved by Landlord and Tenant, commences arbitration with respect to such
dispute within twelve (12) months after receipt of such statement.

     (d)  If the term of this Lease commences or ends on a day other than the
first or last day of a calendar year, respectively, the amounts payable by
Tenant under Section 3.1(b) hereof applicable to the calendar year in which such
             --------------
term commences or ends shall be prorated according to the ratio which the number
of days during the term of this Lease in such calendar year bears to three
hundred sixty-five (365).  Termination of this Lease shall not affect the
obligations of Landlord and Tenant pursuant to Section 3.2(b) hereof to be
                                               --------------
performed after such termination.

     3.3  Letter of Credit, Security Deposit and First Month's Rent.  Upon
          ---------------------------------------------------------
signing this Lease, Tenant shall deliver to Landlord a letter of credit in the
form and amount required by Exhibit L and an amount equal to the Base Rent for
                            ---------
the first two (2) months of the term of this Lease for which the Base Rent is to
be paid, which amount Landlord shall apply to the Base Rent for such first two
(2) months.  Upon the expiration of such letter of credit, Tenant shall pay to
Landlord an amount equal to the monthly Base Rent and Additional Rent then
applicable under this Lease (the "Security Deposit").  The Security Deposit
shall be held by Landlord as security for the performance by Tenant of all of
the covenants of this Lease to be performed by Tenant, and Tenant shall not be
entitled to interest thereon.  If Tenant fails to perform any of the covenants
of this Lease to be performed by Tenant, then Landlord shall have the right, but
no obligation, to apply the proceeds of the Security Deposit, or so much thereof
as may be necessary, or to call on the letter of credit and utilize the proceeds
thereof to cure any such failure by Tenant, without prior notice to Tenant.  If
Landlord applies the proceeds of the letter of credit or the Security Deposit or
any part thereof to cure any such failure by Tenant, then

                                      -9-


Tenant shall immediately restore the letter of credit to its amount immediately
prior to such application and pay to Landlord the sum necessary to restore the
Security Deposit to the full amount required by this Section 3.3. Landlord shall
                                                     -----------
return any remaining portion of the Security Deposit to Tenant as soon after
termination of this Lease as Landlord is able to determine, acting reasonably,
whether Tenant owes any further obligation to Landlord under this Lease, but in
any event no later than ninety (90) days after termination of the Lease. Tenant
acknowledges that in the event this Lease is terminated following an Event of
Default by Tenant, Landlord shall have the right to utilize the proceeds of the
letter of credit, if any then remain, or the amount of the Security Deposit to
pay or reimburse Landlord for amounts due to Landlord under the terms of this
Lease. Upon termination of the original Landlord's or any successor owner's
interest in the Premises, the original Landlord or such successor owner shall be
released from further liability with respect to the letter of credit or Security
Deposit upon the original Landlord's or such successor owner's transferring the
letter of credit or Security Deposit to the new owner.

     3.4  Late Payment.  Tenant acknowledges that the late payment by Tenant of
          ------------
any monthly installment of Base Rent or Additional Monthly Rent will cause
Landlord to incur costs and expenses, the exact amount of which is extremely
difficult and impractical to fix.  Such costs and expenses will include
administration and collection costs and processing and accounting expenses.
Therefore, if any monthly installment of Base Rent or Additional Monthly Rent is
not received by Landlord within five (5) days after such installment is due, or
three (3) days after Landlord notifies Tenant that such installment is due,
whichever is later, Tenant shall immediately pay to Landlord a late charge equal
to three  percent (3%) of such delinquent installment; provided, that no late
                                                       --------
charge shall be due with respect to the first delinquent installment within any
twenty-four (24) month period.  Landlord and Tenant agree that such late charge
represents a reasonable estimate of such costs and expenses and is fair
reimbursement to Landlord.  In no event shall such late charge be deemed to
grant to Tenant a grace period or extension of time within which to pay any
monthly rent or prevent Landlord from exercising any right or enforcing any
remedy available to Landlord upon Tenant's failure to pay each installment of
monthly rent due under this Lease when due, including the right to terminate
this Lease and recover all damages from Tenant.  All amounts of money payable by
Tenant to Landlord hereunder, if not paid when due, shall bear interest from the
due date (and disregarding the five (5) day period applicable to late charges)
until paid at the lower of the highest rate permitted by law and two percent
(2%) over the rate designated in the Wall Street Journal as the Prime Rate at
the time such amounts first become due, adjusted monthly ("Interest Rate") and
Tenant shall pay such interest to Landlord on written demand in addition to the
late charge, which late charge (as contrasted with interest) will not be due
unless Tenant is late in making such payment by more than five (5) days.

     3.5  Other Taxes Payable by Tenant.  Tenant shall reimburse Landlord upon
          -----------------------------
written demand for all taxes, assessments, excises, levies, fees and charges,
including all payments related to the cost of providing facilities or services,
whether or not now customary or within the contemplation of Landlord and Tenant,
that are payable by Landlord and levied, assessed, charged, confirmed or imposed
by any public or government authority upon, or measured by, or reasonably
attributable to (a) the cost or value of Tenant's furniture, fixtures, equipment
and other personal property located in the Premises or the cost or value of any
improvements made in or to the Premises by or for Tenant, regardless of whether
title to such improvements is vested in Tenant or Landlord, but only to the
extent not included in Property Taxes, (b) any rent payable under this Lease,
including any gross income tax or excise tax levied by any public or

                                     -10-


government authority with respect to the receipt of any such rent so long as
such tax is a tax on rent, (c) the possession, leasing, operation, management,
maintenance, alteration, repair, use or occupancy by Tenant of the Premises, or
(d) this transaction or any document to which Tenant is a party creating or
transferring Tenant's interest or Tenant's estate in the Premises. Such taxes,
assessments, excises, levies, fees and charges shall not include net income
(measured by the income of Landlord from all sources or from sources other than
solely rent) or franchise taxes of Landlord, unless levied or assessed against
Landlord in whole or in part in lieu of, as a substitute for, or as an addition
to any such taxes, assessments, excises, levies, fees and charges. All taxes,
assessments, excises, levies, fees and charges payable by Tenant under this
Section 3.5 shall be deemed to be, and shall be paid as, additional rent.
- -----------

     3.6  Certain Definitions.  As used in this Lease, certain words are defined
          -------------------
as follows:

     (a)  "CAM Expenses" shall mean all direct and indirect costs and expenses
paid or incurred by Landlord in connection with the ownership, management,
operation, maintenance or repair of the Premises, the Building, the parking
areas described in Section 15.8, any portion of the Project which is located
                   ------------
East of Russell Ranch Road and (subject to Section 1.1(b)) the common areas in
                                           --------------
the Project or providing services in accordance with this Lease, including but
not limited to the following, to the extent that each relates to the ownership,
management, operation, maintenance and repair of the Premises, the Building,
such common areas and parking areas and such portion of the Project: permit and
inspection fees; electricity, gas, fuel, steam, heat, light, power, water, sewer
and other utilities; the Management Fees (defined below); security and guard
service (which shall be supplied in the sole discretion of Landlord);
extermination, water treatment, garbage and waste disposal, rubbish removal,
janitorial services, plumbing and other services; maintenance of the fire
suppression systems; landscape maintenance; supplies, tools, materials and
equipment; accounting and other professional fees and expenses; painting the
exterior of the Building; maintaining and repairing the foundations, the
exterior walls and roof, the parking and loading areas, the sidewalks,
landscaping and common areas, and the other parts of the Project East of Russell
Ranch Road; amounts paid to Tenant pursuant to Section 6.1(b), other than
                                               --------------
interest costs; costs and expenses required by or resulting from compliance with
any laws, ordinances, rules, regulations or orders applicable to the Project,
other than Buildings II and III, regardless of whether they are Capital Costs,
other than those costs and expenses which are Landlord's responsibility under
Exhibit B; and costs and expenses of contesting by appropriate proceedings any
- ---------
matter concerning managing, operating, maintaining or repairing the Project,
other than Buildings II and III, or the validity or applicability of any law,
ordinance, rule, regulation or order relating to the Project, or the amount or
validity of any Property Taxes with respect to the Premises.  CAM Expenses shall
not include Property Taxes, Insurance Costs, charges payable by Tenant pursuant
- ---
to Section 3.5 hereof, depreciation on the Project, costs of tenants'
   -----------
improvements, real estate brokers' commissions, the cost of repair or
restoration work necessitated by fire or other casualty damage to the extent of
net insurance proceeds received by Landlord with respect thereto; provided, that
the amount of such cost which is not covered by such net insurance proceeds
(other than the deductible amount) and thus is included in CAM Expenses shall
not exceed One Million Dollars ($1,000,000) and shall be amortized, with
interest at a reasonable rate, over the then remaining term of the Lease.  The
deductible amounts under any casualty (including earthquake) insurance policies
maintained by Landlord with reference to the Premises and the Building shall be
CAM Expenses; provided, that the deductible amount under a policy of earthquake
              --------
insurance shall be amortized (with interest) over the useful life of the
Improvements built or repaired by Landlord

                                     -11-


following an earthquake; and provided further, that any such deductible amount
                             ----------------
under a casualty insurance policy shall be amortized and included in CAM Expense
(with interest) in equal monthly installments over the balance of the Term of
the Lease. Notwithstanding the foregoing, if any of the foregoing CAM Expenses
are Capital Costs, then except as otherwise provided above Landlord shall
include in CAM Expenses for any particular year only that portion of such CAM
Expenses (together with a reasonable interest component) which is properly
allocable to such year in accordance with an amortization schedule permitted
under general accepted accounting principles. The costs which may be included in
CAM Expenses are further limited by the provisions of Exhibit M.
                                                      ---------

     (b)  "Property Taxes" shall mean all taxes, assessments, excises, levies,
fees and charges (and any tax, assessment, excise, levy, fee or charge levied
wholly or partly in lieu thereof or as a substitute therefor or as an addition
thereto) of every kind and description, general or special, ordinary or
extraordinary, foreseen or unforeseen, secured or unsecured, whether or not now
customary or within the contemplation of Landlord and Tenant, that are levied,
assessed, charged, confirmed or imposed by any public or government authority on
or against, or otherwise with respect to, the Premises or any part thereof or
any real property which is part of the Project East of Russell Ranch Road or any
personal property used in connection with the Premises.  Property Taxes shall
include any gross receipts tax but shall not include net income (measured by the
income of Landlord from all sources or from sources other than solely rent) or
franchise taxes of Landlord, unless levied or assessed against Landlord in whole
or in part in lieu of, as a substitute for, or as an addition to any Property
Taxes.  Property Taxes shall not include charges payable by Tenant pursuant to
Section 3.5 hereof.
- -----------

     (c)  "Insurance Costs" shall mean all premiums and other charges for all
property, earthquake, flood, loss of rental income, business interruption,
liability and other insurance carried by Landlord relating to the Premises or
any real property which is part of the Project East of Russell Ranch Road.

     (d)  "Capital Costs" refers to costs which are required to be capitalized,
rather than expensed, in accordance with the generally accepted accounting
principles.

     (e)  To the extent Landlord is providing services or incurring costs
included within the categories of CAM Expenses and/or Insurance Costs or
incurring Property Taxes that pertain to Buildings I, II and III or the Project
as a whole as contrasted to CAM Expenses, Insurance Costs and Property Taxes
that pertain solely to Building I, the parking areas described in Section 15.8
                                                                  ------------
and that portion of the Project which is East of Russell Ranch Road (for
example, if such buildings are all covered by the same insurance policy or
security contract), such costs shall be allocated by Landlord to Building I and
included in CAM Expenses, Insurance Costs and Property Taxes allocable to
Building I on a pro rata basis based on the RSF in Building I (137,762 RSF) to
the RSF in all three Buildings (336,684 RSF), which pro rata share is 40.92%.
These percentages shall be applicable beginning with the Commencement Date
regardless of whether Buildings II and III have been started or completed on the
date thereof.

     (f)  In the event that the Premises, the Building, the parking areas
described in Section 15.8 and any other portion of the Project East of Russell
             ------------
Ranch Road ever become a single parcel for real property tax assessment purposes
(and Landlord agrees to use commercially reasonable efforts to cause them to
be), Landlord shall not unreasonably withhold or delay its consent to a

                                     -12-


request by Tenant to cause Tenant to be responsible only for CAM Expenses,
Property Taxes and Insurance Costs which relate to such single parcel alone,
subject to paragraph (e) above, plus Tenant's share which relates to common
           -------------
areas within the Project, if any, permitted by Section 1.1(b).
                                               --------------

     (g)  "Management Fees" mean an amount equal to Eight Thousand Eight Hundred
Eighty-Five and 65/100 dollars ($8,885.65) for each of the first twelve (12)
months following the Commencement Date, increased by three percent (3%) per
year, compounded, for each subsequent twelve (12) consecutive month period
during the Term, and prorated for any partial calendar month at the beginning of
the Term.  The Management Fees are attributed to and applicable only to the
Premises and will not be allocated to any other portion of the Project.

     3.7  Rent Payment Address.  Tenant shall pay all Base Rent and Additional
          --------------------
Monthly Rent under Section 3.1 hereof to Landlord, in advance, on or before the
                   -----------
first day of each and every calendar month during the term of this Lease.
Tenant shall pay all rent to Landlord without notice, demand, deduction,
abatement or offset, except as otherwise set forth in the Lease, in lawful money
of the United States of America, at the address for the payment of rent
specified in the Basic Lease Information, or to such other person or at such
other place as Landlord may from time to time designate in writing.

     3.8  Management Oriented Services.  Landlord agrees that it will not
          ----------------------------
provide to any other tenant in the Project management oriented services (such as
cleaning or repair services) on a basis which is more favorable to such tenant
than Landlord is willing to provide the same services to Tenant.

                                   ARTICLE 4
                                   ---------

                              Use of the Premises
                              -------------------

     4.1  Permitted Use.  Tenant shall use the Premises only for the Permitted
          -------------
Use of the Premises specified in the Basic Lease Information and for lawful
purposes incidental thereto, and no other purpose whatsoever.  Tenant shall not
do or permit to be done in, on or about the Premises, nor bring or keep or
permit to be brought or kept therein, anything which is prohibited by or will in
any way conflict with any law, ordinance, rule, regulation or order now in force
or which may hereafter be enacted, or which is prohibited by any insurance
policy carried by Landlord for the Project, or will in any way increase the
existing rate of (except to the extent Tenant pays the cost of any such
increase), or disallow any fire rating or sprinkler credit, or cause a
cancellation of, or affect any insurance for the Project.  If Tenant causes any
increase in the premium for any insurance covering the Project carried by
Landlord, Tenant shall pay to Landlord, on written demand as Additional Rent,
the entire amount of such increase.  Tenant shall not do or permit anything to
be done in or about the Premises which will in any way unreasonably obstruct or
interfere with the rights of Landlord or other tenants of the Project, or injure
or annoy them.  Tenant shall not use or allow the Premises to be used for any
improper, immoral, unlawful or objectionable activity, nor shall Tenant cause,
maintain or permit any nuisance in, on or about the Premises or commit or suffer
to be committed any waste in, on or about the Premises.  Tenant shall not store
any materials, equipment or vehicles outside the

                                     -13-


Premises and agrees that no washing of any type (including washing vehicles)
shall take place in or outside the Premises. Tenant shall not receive, store or
otherwise handle any product or material that is explosive or highly
inflammable. Tenant shall not install any signs on the Premises except as
permitted in the Work Letter Agreement. Tenant shall, at Tenant's expense,
remove all such signs prior to or upon termination of this Lease, repair any
damage caused by the installation or removal of such signs, and restore the
Premises to the condition that existed before installation of such signs.

     4.2  Environmental Definitions.  As used in this Lease, "Hazardous
          -------------------------
Material" shall mean any substance that is (a) defined under any Environmental
Law as a hazardous substance, hazardous waste, hazardous material, pollutant or
contaminant, (b) a petroleum hydrocarbon, including crude oil or any fraction or
mixture thereof, (c) hazardous, toxic, corrosive, flammable, explosive,
infectious, radioactive, carcinogenic or a reproductive toxicant, or (d)
otherwise regulated pursuant to any Environmental Law.  As used in this Lease,
"Environmental Law" shall mean all federal, state and local laws, statutes,
ordinances, regulations, rules, judicial and administrative orders and decrees,
permits, licenses, approvals, authorizations and similar requirements of all
federal, state and local governmental agencies or other governmental authorities
pertaining to the protection of human health and safety or the environment, now
existing or later adopted during the term of this Lease.  As used in this Lease,
"Permitted Activities" shall mean the lawful activities of Tenant that are part
of the ordinary course of Tenant's business in accordance with the Permitted Use
specified in the Basic Lease Information.  As used in this Lease, "Permitted
Materials" shall mean the materials that do not constitute Hazardous Materials
and which are otherwise handled by Tenant in the ordinary course of conducting
Permitted Activities.

     4.3  Environmental Requirements.  Tenant hereby agrees that:  (a) Tenant
          --------------------------
shall conduct, or permit to be conducted, on the Premises only activities which
are Permitted Activities; (b) Tenant shall not use, store or otherwise handle,
or permit any use, storage or other handling of, any Hazardous Material except
for small amounts of office supplies for the photocopy machine, white-out and
the like, on or about the Premises, and except for a diesel generator and fuel
therefor which are part of the Tenant Improvements, and which Tenant agrees to
install and operate in accordance with Environmental Law; (c) Tenant shall
obtain and maintain in effect all permits and licenses required pursuant to any
Environmental Law for Tenant's activities on the Premises, and Tenant shall at
all times comply with all applicable Environmental Laws; (d) Tenant shall not
engage in the storage, treatment or disposal on or about the Premises of any
Hazardous Material except for any temporary accumulation of waste generated in
the course of Permitted Activities; (e) Tenant shall not install any aboveground
or underground storage tank or any subsurface lines for the storage or transfer
of any Hazardous Material; (f) Tenant shall not cause or permit to occur any
release of any Hazardous Material or any condition of pollution or nuisance on
or about the Premises, whether affecting surface water or groundwater, air, the
land or the subsurface environment; (g) Tenant shall promptly remove from the
Premises any Hazardous Material introduced, or permitted to be introduced, onto
the Premises by Tenant; and (h) if any release of a Hazardous Material to the
environment, or any condition of pollution or nuisance, occurs on or about or
beneath the Premises as a result of any act or omission of Tenant or its agents,
officers, employees, contractors, invitees or licensees, Tenant shall, at
Tenant's sole cost and expense, promptly undertake all remedial measures
required to clean up and abate or otherwise respond to the release, pollution or
nuisance in accordance with all applicable Environmental Laws.  Landlord and
Landlord's representatives

                                     -14-


shall have the right, but not the obligation, to enter the Premises at any
reasonable time and upon reasonable notice for the purpose of inspecting the
Premises in order to determine Tenant's compliance with the requirements of this
Lease and applicable Environmental Law. If Landlord gives written notice to
Tenant that Tenant's use, storage or handling of any Hazardous Material on the
Premises may not comply with this Lease or applicable Environmental Law, Tenant
shall correct any such violation within five (5) days after Tenant's receipt of
such notice from Landlord, but nothing herein shall be construed to allow Tenant
to use, store or handle Hazardous Materials in the Premises. Tenant shall
indemnify and defend Landlord against and hold Landlord harmless from all
claims, demands, actions, judgments, liabilities, costs, expenses, losses,
damages, penalties, fines and obligations of any nature (including reasonable
attorneys' fees and disbursements incurred in the investigation, defense or
settlement of claims) that Landlord may incur as a result of, or in connection
with, claims arising from the presence, use, storage, transportation, treatment,
disposal, release or other handling, on or about or beneath the Premises, of any
Hazardous Material introduced or permitted on or about or beneath the Premises
by any act or omission of Tenant or its agents, officers, employees,
contractors, invitees or licensees. The liability of Tenant under this Section
                                                                       -------
4.3 shall survive the termination of this Lease with respect to acts or
- ---
omissions that occur before such termination.

     Notwithstanding the foregoing, but without limiting Tenant's liability
under this Section 4.3, Tenant shall be entitled to use at the Premises office
           -----------
supplies regularly used in the conduct of Tenant's business so long as the same
are purchased, used, stored and disposed of in accordance with applicable
Environmental Laws.  From time to time at Landlord's request Tenant shall advise
Landlord which, if any, of these supplies constitute Hazardous Material. Tenant
acknowledges that (i)  Landlord has delivered to Tenant a copy of the most
recent Phase I environmental report pertaining to the Premises which is in
Landlord's possession, and (ii) Tenant has read and is satisfied with the same.

     4.4  Compliance With Law.  Tenant shall, at Tenant's sole cost and expense,
          -------------------
promptly comply with all laws, ordinances, rules, regulations, orders and other
requirements of any government or public authority now in force or which may
hereafter be in force, with all requirements of any board of fire underwriters
or other similar body now or hereafter constituted, and with all directions and
certificates of occupancy issued pursuant to any law by any governmental agency
or officer, insofar as any thereof relate to or are required by the condition,
use or occupancy of the Premises or the operation, use or maintenance of any
personal property, trade fixtures, machinery, equipment or improvements in the
Premises, but Tenant shall not be required to make structural changes or changes
to the systems included in Base Building Improvements unless such changes are
related to or required by Tenant's acts or use of the Premises or by
improvements made by or for Tenant or are otherwise specifically made the
responsibility of Tenant in this Lease.

     4.5  Rules and Regulations.  Tenant shall faithfully observe and fully
          ---------------------
comply with all reasonable rules and regulations (the "Rules and Regulations")
from time to time made in writing and delivered to Tenant by Landlord for the
safety, care, use and cleanliness of the Project or the common areas of the
Project and the preservation of good order therein.  If there is any conflict,
this Lease shall prevail over the Rules and Regulations.

     4.6  Entry by Landlord.  Landlord shall have the right to enter the
          -----------------
Premises at any reasonable time and upon reasonable prior notice (except in the
event of an emergency) to (a)

                                     -15-


inspect the Premises, (b) exhibit the Premises to prospective purchasers,
lenders or tenants, (c) determine whether Tenant is performing all of Tenant's
obligations, (d) supply any service to be provided by Landlord, (e) post notices
of nonresponsibility, and (f) make any repairs to the Premises, or make any
repairs to any adjoining space or utility services, or make any repairs,
alterations or improvements to any other portion of the Project, provided all
such work shall be done as promptly as reasonably practicable and so as to cause
as little interference to Tenant as reasonably practicable. Tenant waives all
claims for damages for any injury or inconvenience to or interference with
Tenant's business, any loss of occupancy or quiet enjoyment of the Premises or
any other loss occasioned by such entry, except to the extent caused by
Landlord's gross negligence or willful misconduct. Tenant shall provide Landlord
at all times, without request, with a key or keys to all locks for all doors in,
on or about the Premises (excluding Tenant's vaults, safes and similar special
security areas designated in writing by Tenant). Landlord shall have the right
to use any and all means which Landlord may deem proper to open such doors in an
emergency to obtain entry to the Premises. Any entry to the Premises obtained by
Landlord by any of such means shall not under any circumstances be construed or
deemed to be a forcible or unlawful entry into or a detainer of the Premises or
an eviction, actual or constructive, of Tenant from the Premises or any portion
thereof.

                                   ARTICLE 5
                                   ---------

                            Utilities and Services
                            ----------------------

     5.1  Tenant's Responsibilities.  Tenant shall pay, directly to the
          -------------------------
appropriate supplier before delinquency, for all telephone services supplied to
the Premises (and with any other service or utility that Landlord, in the
exercise of its reasonable discretion, agrees that Tenant may provide directly
to itself rather than through Landlord, collectively "Exempt S&U") together with
all taxes, assessments, surcharges and similar expenses relating to such
utilities and services.  If any such utilities or services are jointly metered
with the Premises and another part of the Project, Landlord shall reasonably
determine Tenant's share of the cost of such jointly metered utilities and
services based on Landlord's estimate of usage, and Tenant shall pay as
additional rent Tenant's share of the cost of such jointly metered utilities and
services to Landlord within ten (10) days after receipt of Landlord's written
statement for such cost.  Landlord shall not be in default under this Lease or
be liable for any damage or loss directly or indirectly resulting from, nor
shall the rent be abated (except as provided in Section 5.2(i)) or a
                                                --------------
constructive or other eviction be deemed to have occurred by reason of, any
interruption of or failure to supply or delay in supplying any such utilities
and services, including those described in Section 5.2 below, or any limitation,
                                           -----------
curtailment, rationing or restriction on use of water, electricity, gas or any
resource or form of energy or other service serving the Premises or the Project,
whether such results from mandatory restrictions or voluntary compliance with
guidelines.  To the extent Tenant is permitted by Landlord to provide an Exempt
S&U, there shall be excluded from CAM Expenses any service or utility supplied
to the Building by the Exempt S&U.

     5.2  Landlord's Responsibilities.  Landlord shall provide the following
          ---------------------------
utilities and services to the Building:

                                     -16-


     (a)  HVAC. Landlord shall, on Monday through Friday, from 8:00 A.M. to 6:00
          ----
P.M. and Saturday, from 9:00 A.M. to 1:00 P.M. ("Normal Hours") except for the
following holidays: New Year's Day, Martin Luther King Day, Presidents' Day,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas
("Normal Holidays"), provide to the Premises heating, ventilation, and air
conditioning ("HVAC") for the comfortable occupancy of the Premises in
accordance with the capacity of the HVAC system furnished by Landlord as part of
the Base Building Improvements (as described on Schedule 1 to Exhibit B). With
                                                              ---------
respect to Tenant's computer room, Tenant will provide, at its sole cost and
expense (except as may be reimbursed from the Tenant Improvement Allowance), any
supplemental HVAC unit required to provide air conditioning to such computer
room on a twenty-four (24) hour basis.

     (b)  Electricity.  Landlord shall provide to the Premises, twenty-four (24)
          -----------
hours a day, seven (7) days a week, every day of the year, a minimum of five (5)
watts consumed load per USF of the Premises of electric power (in addition to
the electrical power required for lighting) for the operation of Tenant's
computers, equipment and machines for the conduct of business offices ("General
Use"), not to exceed the reasonable capacity of the Base Building.

     (c)  Water.  Landlord shall provide at all times reasonably necessary
          -----
amounts of water for restrooms and drinking fountains furnished by Landlord.

     (d)  Janitorial. Landlord shall provide janitorial services to the Premises
          ----------
each evening, five days per week (except for normal holidays) which shall at
least include the services on the attached Exhibit J. Such services may be
                                           ---------
expanded, or provided by Tenant rather than Landlord, to the extent provided in
Exhibit J.
- ---------

     (e)  Lights.  Landlord shall replace all electric light bulbs, tubes and
          ------
ballasts in the Premises throughout the Term promptly following notice from
Tenant and shall charge Tenant separately for the actual costs incurred by
Landlord in connection therewith.  Landlord may, at Landlord's reasonable
discretion and following prior notice to Tenant, adopt a system of relamping and
reballasting periodically on a group basis in accordance with good practice and
shall charge Tenant separately for the actual costs incurred by Landlord in
connection therewith.

     (f)  Window Washing/Window Washing Equipment.  Landlord shall furnish as a
          ---------------------------------------
service for the Building window washing of all windows in the Premises, both
inside and out, at such times as shall be required in Landlord's reasonable
judgment, but all exterior windows shall be washed at least twice each year and
the interior side of such exterior windows shall be washed one (1) time per
year.

     (g)  Separate Metering. Landlord anticipates that all utilities it provides
          -----------------
to the Premises will be separately metered to measure only Tenant's use.

     (h)  Excess Usage.  In the event Tenant utilizes the HVAC at other than
          ------------
Normal Hours, Landlord shall have the right to charge Tenant for each
utilization by imposing a fee of ten dollars forty-two cents ($10.42) per hour
(increased by 4% per year, compounded, on each anniversary of the Commencement
Date).  Such hourly amount is the charge for HVAC for the entire Building - if
Tenant utilizes the HVAC for less than the entire Building, the hourly fee
charged shall be an appropriate pro rata portion of $10.42 per hour.  Tenant
agrees to install, at

                                     -17-


Tenant's expense, monitoring equipment reasonably acceptable to Landlord, which
will measure and report HVAC after hours use. Such fee shall be additional rent.
In the event Tenant utilizes at the Premises a second or third shift of
personnel or its equivalent, Tenant acknowledges that there will be wear and
tear on the Base Building Improvements, including non-HVAC and other systems,
which exceed that contemplated by Landlord on the date hereof, and that Landlord
shall have the right to recover for the cost of the excess wear and tear in one
or both of the following ways, although Landlord may not recover twice for the
same cost: (i) by imposing a periodic change on Tenant which Landlord reasonably
determines is proportionate to the excess wear and tear caused by Tenant and to
the shortened economic life of the components of the Base Building Improvements
or any of them (other than HVAC); and (ii) should any of such Base Building
Improvements (other than HVAC) require replacement or repairs which are Capital
Expenses during the Lease Term, by amortizing the cost of such replacement or
repair over a period of time permitted by generally accepted accounting
principles and including such amortization during the Lease Term as part of
Additional Monthly Rent. For these purposes, (a) Landlord's cost may include
actual or anticipated interest expense and a fee of five percent (5%) of such
cost for management, (b) this paragraph (h) shall control over anything to the
contrary in Section 3.6 or Exhibit M and (c) nothing in this paragraph (h) shall
            -----------    ---------
relieve Landlord of its responsibilities in Exhibit B with respect to the
                                            ---------
construction of the Base Building Improvements.

     (i)  In the event that Tenant is prevented from using, and does not use,
the Premises or any significant portion thereof for three (3) consecutive
business days or ten (10) business days in any twelve (12) month period (the
"Eligibility Period") as a result the failure of Landlord to provide the
services described above in this Section 5.2, then the Base Rent and Additional
                                 -----------
Rent shall be abated or reduced, as the case may be, after expiration of the
Eligibility Period for such time that Tenant continues to be so prevented from
using, and does not use, the Premises or any substantial portion thereof, in the
proportion that the rentable area of the portion of the Premises Tenant is
prevented from using, and does not use, bears to the total rentable area of the
Premises, but only to the extent that the foregoing is caused by Landlord's
negligence or willful misconduct or that of its agents, employees or contractors
(other than the suppliers of utilities). If Tenant's non use is not caused by
Landlord's negligence or willful misconduct but Landlord receives proceeds of
rent or other insurance to compensate it for any abatement afforded to Tenant,
then Base Rent and Additional Rent shall be abated to the extent that Landlord
actually receives such rent or other insurance.

                                   ARTICLE 6
                                   ---------

                            Maintenance and Repairs
                            -----------------------

     6.1  Obligations of Landlord.
          -----------------------

     (a)  Landlord shall maintain, and keep in good repair and operating
condition, reasonable wear and tear excepted, the Building, the Premises (other
than the Tenant Improvements and Tenant's furniture, trade fixtures and
equipment which shall be the responsibility of Tenant to keep in good repair and
operating condition), the roof and other structural components of the Premises
and the common areas of the Project.  Tenant shall give Landlord written notice
of the need for any maintenance or repair for which Landlord is

                                     -18-


responsible, after which Landlord shall have a reasonable opportunity to perform
the maintenance or make the repair, and Landlord shall not be liable for any
failure to do so unless such failure continues for an unreasonable time after
Tenant gives such written notice to Landlord. Tenant waives any right to perform
maintenance or make repairs for which Landlord is responsible at Landlord's
expense, except as provided in paragraph (b) below. Landlord's liability with
respect to any maintenance or repair for which Landlord is responsible shall be
limited to the cost of the maintenance or repair. Any damage to any part of the
Project for which Landlord is responsible that is caused by Tenant or any agent,
officer, employee, contractor, licensee or invitee of Tenant shall be repaired
by Landlord at Tenant's expense and Tenant shall pay to Landlord, upon billing
by Landlord, as Additional Rent, the cost of such repairs incurred by Landlord
to the extent such repairs are not covered by insurance carried by Landlord
pursuant to this Lease.

     (b)  Tenant's Right to Make Repairs.  Notwithstanding paragraph (a) above,
          ------------------------------
if Tenant provides written notice to Landlord of Landlord's failure to repair or
replace any portion of the Building or the Premises which Landlord is required
to repair or replace hereunder and Landlord fails to repair within a reasonable
period of time, given the circumstances, after the receipt of such notice, but
in any event not later than twenty-one (21) days after receipt of such notice
(plus such additional time as is reasonably required under the circumstances,
assuming that Landlord began work within such twenty-one (21) day period), then
Tenant may proceed to make the repair or replacement upon delivery of an
additional ten (10) business days' notice to Landlord specifying that Tenant is
doing so if such repairs or replacement was not made by Landlord within such ten
(10) business day period (or commenced to be made and thereafter pursued
diligently to completion).  If Tenant makes such repair or replacement following
Landlord's refusal to do so, Tenant shall be entitled to prompt reimbursement by
Landlord of Tenant's reasonable costs and expenses in doing so plus interest
thereon at the Interest Rate as defined in Section 3.4 of the Lease.  In the
                                           -----------
event Tenant makes the repair or replacement, and such work will affect the
structure of the Building and/or the Building systems, Tenant shall use only
those contractors used by Landlord in the Building for work on such structure of
the Building or Building systems unless such contractors are unwilling or unable
to perform, or timely and competitively perform, such work, in which event
Tenant may utilize the services of any other qualified contractor which normally
and regularly performs similar work in comparable buildings.  Furthermore, if
Landlord does not deliver a detailed  written objection to Tenant within thirty
(30) days after receipt of an invoice by Tenant of its costs of taking action
which Tenant claims should have been taken by Landlord, and if such invoice from
Tenant sets forth a reasonably particularized breakdown of its costs and
expenses in connection with taking such action on behalf of Landlord, then
Tenant shall be entitled to deduct, from Rent payable by Tenant under the Lease,
the amount set forth in such invoice.  If, however, Landlord delivers to Tenant,
within thirty (30) days after receipt of Tenant's invoice, a written objection
to the payment of such invoice, setting forth with reasonable particularity
Landlord's reasons for its claim that such action did not have to be taken by
Landlord pursuant to the terms of the Lease or that the charges are excessive
(in which case Landlord shall pay the amount it contends would not have been
excessive), then Tenant shall not then be entitled to such deduction from Rent,
but as Tenant's sole remedy, Tenant may proceed to claim a default by Landlord
or, if elected by either Landlord or Tenant, the matter shall proceed to
resolution by the selection of an arbitrator to resolve the dispute, which
arbitrator shall be selected and qualified pursuant to the procedures set forth
in Section 16 (Arbitration) of the Lease, and whose costs shall be paid for by
   ----------
the losing

                                     -19-


party, unless it is not clear that there is a "losing party," in which event the
costs of arbitration shall be shared equally. If Tenant prevails in the
arbitration, the amount of the award (which shall include interest at the
Interest Rate from the time of each expenditure by Tenant until the date Tenant
receives such amount by payment or offset and attorneys' fees and related costs)
may be deducted by Tenant from the rents next due and owing under the Lease.

     Notwithstanding the foregoing, Tenant shall have the right to make repairs
or replacements which Landlord is otherwise required to make hereunder, and to
recover up to $25,000 of the cost thereof as provided in the preceding
paragraph, without written notice to Landlord, if each of the following
conditions is met:  (i) such repairs or replacements must be made immediately in
order to avoid imminent danger to life or significant property damage, (ii) the
need for such repairs or replacements became known to Tenant in such a time
frame that written notice to Landlord is not practical and (iii) Tenant gives
such notice to Landlord as is practical in the circumstances.

     6.2  Obligations of Tenant.  Tenant shall, at all times during the term of
          ---------------------
this Lease and at Tenant's sole cost and expense, maintain and repair the
Premises and every part thereof (except only the parts for which Landlord is
expressly made responsible under this Lease) and all equipment, fixtures and
improvements therein and keep all of the foregoing clean and in good order and
operating condition, ordinary wear and tear excepted.  Tenant shall not damage
the Premises or disturb the integrity and support provided by the floor and
ceiling slabs and each wall within the Premises.  Tenant shall, at Tenant's
expense (to the extent such repairs are not covered by insurance carried by
Landlord pursuant to this Lease), repair any damage to the Premises caused by
Tenant or any agent, officer, employee, contractor, licensee or invitee of
Tenant.  Tenant shall take good care of the Premises and keep the Premises free
from dirt, rubbish, waste and debris at all times.  Tenant shall not overload
the floors in the Premises or exceed the load-bearing capacity of the floors in
the Premises.  Tenant hereby waives the benefit of California Civil Code
Sections 1932, 1941 and 1942 or under any similar law, statute or ordinance now
- ----------------------------
or hereafter in effect.

     6.3  Tenant's Obligations at the End of the Term.
          -------------------------------------------

     (a)  Tenant shall, at the end of the Term, surrender to Landlord the
Premises and all alterations, additions, fixtures (other than trade fixtures)
and improvements therein or thereto in the same condition as when received,
ordinary wear and tear and casualty damage excepted.  In the event of any damage
to the Premises on account of the removal of any movable furniture, equipment,
trade fixtures, computers, office machines or other personal property, as
permitted by Section 7.2, Tenant shall repair such damage at its expense prior
             -----------
to the end of the Term.

     (b)  Under the circumstances specified in the Work Letter Agreement, Tenant
may alter certain major components of the Building (such as the second floor,
lobbies and restrooms).  If Tenant elects to do so:

          (i)  before commencing such alteration and after Landlord's approval
     of the plans therefor, Tenant shall deliver to Landlord a letter of credit
     issued by a financial institution, and in form and substance, satisfactory
     to Landlord. The face amount of the letter of credit shall be for such
     amount as Landlord reasonably determines would be necessary to restore the
     major components of the Building so altered by Tenant to their

                                     -20-


     design and condition as described in the plans therefor contained in
     Schedule 1 to Exhibit B hereto, increased by four percent (4%) per year.
                   ---------
     Such letter of credit shall be held as security for Tenant's obligation to
     reimburse to Landlord all of its Restoration Costs described below. The
     expiration date on such letter of credit shall be at least one year after
     the Commencement Date and shall be renewed by Tenant for at least one year
     at a time no later than thirty (30) days prior to each scheduled
     expiration. In the event that Tenant does not deliver to Landlord written
     evidence of such renewal prior to the beginning of each of such thirty (30)
     day periods, Landlord may call the letter of credit in full and hold the
     proceeds thereof, without paying interest, as security for the obligations
     of Tenant under clauses (ii) and (iii) below;

          (ii)  in the event Landlord determines, in the exercise of its
     reasonable judgment, that it is desirable at the end of the Term to restore
     the major components of the Building which were altered by Tenant to the
     design and condition contemplated by the plans therefor, which are
     described in Schedule 1 to Exhibit B hereto, then Landlord shall have the
                                ---------
     right to so restore such major components to such design and condition (A)
     after the end of the Term or (B) if in Landlord's reasonable judgment it is
     necessary to complete the work of such restoration before the end of the
     Term in order to avoid an economic hardship to Landlord on account of a
     then active lease negotiation, then before the end of the Term (provided,
     that Landlord shall in all cases have the right to commence and complete
     such restoration so that it will be complete no later than sixty (60) days
     after the end of the Term). Landlord shall give Tenant notice at the time
     Landlord approves Tenant's space plan pursuant to Exhibit B of Landlord's
                                                       ---------
     determination of whether such major components must be removed at the end
     of the Term. Under no circumstances shall an open ceiling plan be deemed a
     "major component" for this purpose. All of the reasonable costs and
     expenses of Landlord in prosecuting and completing such restoration
     (including the fees of architects, contractors and others, the costs of
     permits and approvals and a fee of five percent (5%) to Landlord for
     supervision) ("Restoration Costs") shall be paid by Tenant or reimbursed to
     Landlord within ten (10) days after receipt of an invoice from Landlord
     itemizing such costs and requesting payment or reimbursement. Landlord
     shall bid competitively the hard costs of the Restoration Work. Landlord
     shall have the right to call on the letter of credit described above in the
     event any such payment by Tenant is not made when due. At Landlord's
     election, it may design and construct such restoration in a way which is
     different from the plans described in Schedule I of Exhibit B; however,
                                                         ---------
     Tenant shall not be obligated to reimburse Landlord for any sum which
     exceeds what the Restoration Cost would have been had the restoration been
     in accordance with such plans;

          (iii) Tenant shall grant Landlord full access to the Building for the
     purpose of designing and carrying out the restoration described above, and
     no interruption or disturbance by Landlord or its agents or contractors of
     Tenant's operations in the conduct of such restoration shall constitute a
     default by Landlord hereunder or grant Tenant the right to damages or to
     terminate this Lease; and

          (iv)  Landlord shall use commercially reasonable efforts in conducting
     the restoration described above to coordinate with Tenant in order to
     mitigate disruption to and interference with Tenant's business operations.

                                     -21-


                                   ARTICLE 7
                                   ---------

                          Alteration of the Premises
                          --------------------------

     7.1  No Alterations by Tenant.  Tenant shall not make any alterations,
          ------------------------
additions or improvements in or to the Premises or any part thereof
(collectively, "Alterations"), including attaching any fixtures or equipment
thereto, without Landlord's prior written consent which shall not be withheld
unreasonably. However, Tenant may make Alterations without Landlord's consent if
the total cost of such Alterations in any calendar year is fifty thousand
dollars ($50,000) or less and such Alterations do not affect Building systems,
the structure or roof of the Building or the exterior aesthetics of the
Building.  Tenant shall give Landlord at least ten (10) days prior written
notice before commencing any such Alterations.  All Alterations (except
improvements made by Landlord pursuant to Exhibit B, if any) in or to the
                                          ---------
Premises shall be made by Tenant at Tenant's sole cost and expense as follows:

     (a)  Tenant shall submit to Landlord, for Landlord's written approval if it
is required, complete plans and specifications for all Alterations to be done by
Tenant.  If it is usual and customary for similarly situated tenants to prepare
less than complete plans and specifications before commencing comparable work,
then Tenant may deliver to Landlord what is usual and customary.  Such plans and
specifications shall be prepared by responsible interior designers and
engineer(s), shall comply with all applicable codes, laws, ordinances, rules and
regulations, shall demonstrate that the exterior appearance of the Building will
not be affected by such Alterations, shall be in a form sufficient to secure the
approval of all government authorities with jurisdiction over the Project, and
shall not propose Alterations which will adversely affect the structure or the
structural integrity of the Building or any systems, components or elements of
the Building or Project, unreasonably interfere with any other tenant's normal
and customary business office operations, or affect the aesthetics of the
exterior of the Building (individually and collectively, the "Design Criteria").

     (b)  Tenant shall obtain all required permits for the Alterations.  Tenant
shall engage responsible licensed contractor(s) and subcontractor(s) to perform
all work.  The contractor(s) shall be subject to Landlord's consent, which shall
not be withheld unreasonably.  Tenant shall perform all work in accordance with
the plans and specifications approved by Landlord, in a good and workmanlike
manner, in full compliance with all applicable laws, codes, ordinances, rules
and regulations, and free and clear of any mechanics' liens and in full
compliance with the construction rules and regulations included as part of the
Tenant Improvement Manual identified in Section 4.1 of the Work Letter
                                        -----------
Agreement.  Tenant shall pay for all work (including the cost of all utilities,
permits, fees, taxes, and property and liability insurance premiums in
connection therewith) required to make the Alterations.  In addition, Tenant
shall pay Landlord a construction management fee of three (3%) percent of the
total cost of the Alterations, additions and/or improvements, such fee to be
paid in installments as the work progresses.  Under no circumstances shall
Landlord be liable to Tenant for any damage, loss, cost or expense incurred by
Tenant on account of design of any work, construction of any work, or delay in
completion of any work.  All work of the Alterations, regardless of whether
Landlord's consent is required, shall be scheduled through and be subject to the
reasonable supervision of Landlord and shall be performed in accordance with any
reasonable conditions or regulations imposed by Landlord. In this regard,
Landlord's construction manager shall safeguard the interests of Tenant as well
as

                                     -22-


represent Landlord. All work of Alterations shall be in compliance with the
Union Requirement described in Section 13 of the Work Letter Agreement.
                               -----------

     (c)  Tenant shall give written notice to Landlord of the date on which
construction of any work will be commenced at least ten (10) business days prior
to such date.  Tenant shall keep the Premises and the Project free from
mechanics', materialmen's and all other liens arising out of any work performed,
labor supplied, materials furnished or other obligations incurred by Tenant.
Tenant shall promptly and fully pay and discharge all claims on which any such
lien could be based.  Tenant shall have the right to contest the amount or
validity of any such lien, provided Tenant gives prior written notice of such
contest to Landlord, prosecutes such contest by appropriate proceedings in good
faith and with diligence, and, upon request by Landlord, furnishes such bond as
may be required by law or such security as Landlord may require to protect the
Premises and the Project from such lien.  Landlord shall have the right to post
and keep posted on the Premises any notices that may be provided by law or which
Landlord may deem to be proper for the protection of Landlord, the Premises and
the Project from such liens, and to take any other action Landlord deems
necessary to remove or discharge liens or encumbrances at the expense of Tenant.

     (d)  In connection with any work performed by Tenant in accordance with
this Section 7.1, upon completion of any such work, at Landlord's request,
     -----------
Tenant agrees to prepare and Landlord shall execute if factually correct, and
Tenant shall cause a Notice of Completion to be recorded in the County
Recorder's Office in accordance with Section 3093 of the Civil Code of the State
                                     ------------
of California or any successor statute. On completion of the work, Tenant shall
deliver to Landlord both a hard copy and copy on CAD Diskette of the "as built"
plan and specifications (including working drawings) for all Alterations.
Promptly following the completion of any Alterations, Tenant shall deliver to
Landlord a copy of any signed-off permits, inspection cards or other
documentation, if any is required and available given the nature of the
Alteration, evidencing governmental approval of completion of the work. Any
supervision by Landlord of Alteration shall in no event constitute Landlord's
approval of the work so performed.

     7.2  Landlord's Property; Removal at End of Term.  All Alterations,
          -------------------------------------------
including Alterations made pursuant to Exhibit B, whether temporary or permanent
                                       ---------
in character, made in or to the Premises by Landlord or Tenant shall become part
of the Project and Landlord's property.  Upon expiration or earlier termination
of this Lease, Landlord shall have the right, at Landlord's option, by giving
written notice to Tenant at any time before or within sixty (60) days after such
expiration or termination, to retain all such Alterations in the Premises,
without compensation to Tenant.  Under the circumstances described below,
Landlord may on expiration or termination remove some or all of such
Alterations, repair all damage caused by any such removal, restore the Premises
to the condition in which the Premises existed before such Alterations were made
and charge the cost thereof to Tenant.  The circumstances are these:  (i) in the
case of the Alterations described in Exhibit B (i.e., the original Tenant
                                     ---------
Improvements), Landlord may remove at Tenant's expense only nonstandard
improvements which it identifies to Tenant in writing at the time of Landlord's
approval of Tenant's plans therefor, as provided in Exhibit B; and (ii) in the
                                                    ---------
case of other Alterations, Landlord may remove those which in Landlord's
reasonable judgment would not have significant value in connection with
reletting the Premises; provided, that if Tenant requests Landlord's approval to
                        --------
make such Alterations, Landlord will advise Tenant at that time whether Landlord
will require removal.  Where Tenant

                                     -23-


is responsible for the cost of removal, repair and restoration, it shall pay to
Landlord, upon billing by Landlord, the cost of such removal, repair and
restoration (including a reasonable charge for Landlord's overhead and profit).
Landlord shall have the hard costs of removal, repair and restoration
competitively bid. All movable furniture, equipment, trade fixtures, computers,
office machines and other personal property shall remain the property of Tenant.
Upon termination of this Lease, Tenant shall, at Tenant's expense, remove all
such movable furniture, equipment, trade fixtures, computers, office machines
and other personal property from the Project and repair all damage caused by any
such removal. Termination of this Lease shall not affect the obligations of
Tenant pursuant to this Section 7.2 to be performed after such termination.
                        -----------


                                   ARTICLE 8
                                   ---------

                         Indemnification and Insurance
                         -----------------------------

     8.1  Damage or Injury.  Landlord shall not be liable to Tenant, and Tenant
          ----------------
hereby waives all claims against Landlord, for any damage to or loss or theft of
any property or for any bodily or personal injury, illness or death of any
person in, on or about the Premises or the Building or the Project arising at
any time and from any cause whatsoever, except to the extent caused by the gross
negligence or willful misconduct of Landlord, its agents, employees or
contractors.  Tenant shall indemnify and defend Landlord against and hold
Landlord harmless from all claims, demands, liabilities, damages, losses, costs
and expenses, including reasonable attorneys' fees and disbursements, arising
from or related to (i) any use or occupancy of the Premises or any condition of
the Premises (provided, that Tenant shall have no responsibility for Hazardous
Materials existing on or in the Premises or the Project on the date hereof or
hereafter brought onto the Project by Landlord), (ii) any default in the
performance of Tenant's obligations under this Lease, (iii) any damage to any
property (including property of employees and invitees of Tenant), or (iv) any
bodily or personal injury, illness or death of any person (including employees
and invitees of Tenant), in each case which occurs in, on or about the Premises
or any part thereof arising at any time and from any cause whatsoever (except to
the extent caused by the gross negligence or willful misconduct of Landlord its
agents, employees or contractors), or which occurs in, on or about any other
part of the Project to the extent caused by any act or omission of Tenant or its
agents, officers, employees, contractors, invitees or licensees.  This Section
                                                                       -------
8.1 shall survive the termination of this Lease with respect to any damage,
- ---
bodily or personal injury, illness or death occurring prior to such termination.
Under no circumstances shall Landlord or Tenant be liable to the other, or to
the officers, directors, members, agents or employees of the other, for
consequential or exemplary damages arising from or relating to a breach by
Landlord or Tenant of its obligations under this Lease.

     8.2  Insurance Coverages and Amounts.  Tenant shall, at all times during
          -------------------------------
the term of this Lease and at Tenant's sole cost and expense, obtain and keep in
force the insurance coverages and amounts set forth in this Section 8.2.  Tenant
                                                            -----------
shall maintain commercial general liability insurance, including contractual
liability for the obligations of Tenant in this Lease, broad form property
damage liability, fire, legal liability, premises and completed operations, and
medical payments, with limits not less than three million dollars ($3,000,000)
per occurrence and aggregate, insuring against claims for bodily injury,
personal injury and property damage

                                     -24-


arising from the use, occupancy or maintenance of the Premises and the Project.
The policy shall contain an exception to any pollution exclusion which insures
damage or injury arising out of heat, smoke or fumes from a hostile fire. Any
general aggregate shall apply on a per location basis. Tenant shall maintain
business auto liability insurance with limits not less than two million dollars
($2,000,000) per accident covering owned, hired and non-owned vehicles used by
Tenant. Tenant shall maintain umbrella excess liability insurance on a following
form basis in excess of the required commercial general liability, business auto
and employers liability insurance with limits not less than five million dollars
($5,000,000) per occurrence and aggregate. Tenant shall carry workers'
compensation insurance for all of its employees in statutory limits in the state
in which the Project is located and employers liability insurance which affords
not less than five hundred thousand dollars ($500,000) for each coverage. Tenant
shall maintain all risk property insurance for all personal property of Tenant
and improvements, fixtures and equipment constructed or installed by Tenant or
Landlord (including Tenant Improvements and subsequent Alterations) in the
Premises in an amount not less than the full replacement cost. If required by
Landlord, Tenant shall maintain boiler and machinery insurance against loss or
damage from an accident from the equipment in the Premises in an amount
determined by Landlord and plate glass insurance coverage against breakage of
plate glass in the Premises. Any deductibles selected by Tenant shall be the
sole responsibility of Tenant.

     8.3  Insurance Requirements.  All insurance and all renewals thereof shall
          ----------------------
be issued by companies with a rating of at least "A-" "VIII" or better in the
current edition of Best's Insurance Reports and be licensed to do and doing
business in the state in which the Project is located.  Each policy shall
expressly provide that the policy shall not be canceled or materially altered
without thirty (30) days' prior written notice to Landlord and shall remain in
effect notwithstanding any such cancellation or alteration until such notice
shall have been given to Landlord and such period of thirty (30) days shall have
expired.  All liability insurance (except employers' liability) shall name
Landlord and any other parties designated by Landlord (including any investment
manager, asset manager or property manager) as an additional insured, shall be
primary and noncontributing with any insurance which may be carried by Landlord,
shall afford coverage for all claims based on any act, omission, event or
condition that occurred or arose (or the onset of which occurred or arose)
during the policy period and in any way pertaining to this Lease or Tenant's
occupancy of the Premises, and shall expressly provide that Landlord, although
named as an insured, shall nevertheless be entitled to recover under the policy
for any loss, injury or damage to Landlord.  All property insurance shall name
Landlord as loss payee as respects Landlord's interest in any improvements and
betterments.  Tenant shall deliver certificates of insurance, acceptable to
Landlord, to Landlord at least ten (10) days before the Commencement Date and at
least ten (10) days before expiration of each policy.  If Tenant fails to insure
or fails to furnish any such insurance certificate, Landlord shall have the
right from time to time to effect such insurance for the benefit of Tenant or
Landlord or both of them, and Tenant shall pay to Landlord on written demand, as
additional rent, all premiums paid by Landlord.

     8.4  Subrogation.  Tenant waives on behalf of all insurers under all
          -----------
policies of property insurance now or hereafter carried by Tenant insuring or
covering the Premises, or any portion or any contents thereof, or any operations
therein, all rights of subrogation which any such insurer might otherwise, if at
all, have to any claims of Tenant against Landlord.  Landlord waives on behalf
of all insurers under all policies of property insurance now or hereafter
carried by Landlord insuring or covering the Project, or any portion or any
contents thereof, or any

                                     -25-


operations therein, all rights of subrogation which any such insurer might
otherwise, if at all, have to any claims of Landlord against Tenant. Landlord
and Tenant shall procure from each of the insurers under all policies of
property insurance now or hereafter carried by Tenant insuring or covering the
Premises, or any portion or any contents thereof, or any operations therein, a
waiver of all rights of subrogation which the insurer might otherwise, if at
all, have to any claims of Tenant against Landlord as required by this Section
                                                                       -------
8.4.
- ---

     8.5  Landlord's Fire and Casualty Insurance.  Landlord shall insure the
          --------------------------------------
Building and the Project against loss or damage due to fire and other casualties
covered within the classification of fire and extended coverage, vandalism
coverage and malicious mischief, sprinkler leakage, water damage and special
extended coverage.  Such coverage shall be in such amounts, from such companies,
and on such other terms and conditions, as Landlord may from time to time
reasonably determine, provided that such coverage shall (i) be for full
replacement of the Building and the Project in compliance with all then existing
applicable laws, (ii) provide for rent continuation insurance equal to not less
than twelve (12) months rent; and (iii) be with companies and have policies
meeting the criteria set forth in Section 8.3 in this Lease.  However, if Tenant
                                  -----------
at any time determines that the proceeds of such insurance would not be adequate
to cover all or substantially all of the repair and restoration costs for which
Landlord would be responsible under Section 11.2 should a casualty covered
                                    ------------
thereby occur ("repair costs"), it may require Landlord to increase the amount
or coverage of the insurance required to be obtained by Landlord under this
Section 8.5 in order that such insurance will cover all or substantially all of
- -----------
the repair costs, but only if such insurance is readily available from insurers
meeting the requirements of Section 8.3; any increased cost of such insurance
                            -----------
shall be an Operating Cost.  Landlord shall not be obligated to insure the
Tenant Improvements or Tenant's Alterations, moveable furniture, equipment,
trade fixtures, or personal property.  Additionally, at the sole option of
Landlord, such insurance coverage may include the risks of earthquakes and/or
flood damage and additional hazards, a rental loss endorsement and one or more
loss payee endorsements in favor of the holders or any mortgages or deeds of
trust encumbering the interest of Landlord in the Building or the Project.

                                   ARTICLE 9
                                   ---------

                            Assignment or Sublease
                            ----------------------

     9.1  Prohibition.  (a)  Tenant shall not, directly or indirectly, without
          -----------
the prior written consent of Landlord (which consent shall not be unreasonably
withheld, conditioned or delayed), assign this Lease or any interest herein or
sublease the Premises or any part thereof, or permit the use or occupancy of the
Premises by any person or entity other than Tenant.  Tenant shall not, directly
or indirectly, without the prior written consent of Landlord, pledge, mortgage
or hypothecate this Lease or any interest herein.  This Lease shall not, nor
shall any interest herein, be assignable as to the interest of Tenant
involuntarily or by operation of law without the prior written consent of
Landlord.  For purposes of this Lease, any of the following transfers on a
cumulative basis shall constitute an assignment of this Lease that requires the
prior written consent of Landlord: if Tenant is a corporation, the transfer of
more than forty-nine percent (49%) of the stock of the corporation; if Tenant is
a partnership, the transfer of more than forty-nine percent (49%) of the capital
or profits interest in the partnership; and if Tenant is a trust, the

                                     -26-


transfer of more than forty-nine (49%) of the beneficial interest under the
trust. However, if Tenant is a corporation with equity securities registered
under Section 12 of the Securities Exchange Act of 1934, then a transfer of such
securities shall not be deemed an assignment of this Lease for which Landlord's
consent is required. Any of the foregoing acts without such prior written
consent of Landlord shall be void and shall, at the option of Landlord,
constitute a default that entitles Landlord to terminate this Lease. Tenant
agrees that the instrument by which any assignment or sublease to which Landlord
consents is accomplished shall expressly provide that the assignee or subtenant
will perform all of the covenants to be performed by Tenant under this Lease (in
the case of a sublease, only insofar as such covenants relate to the portion of
the Premises subject to such sublease) as and when performance is due after the
effective date of the assignment or sublease and that Landlord will have the
right to enforce such covenants directly against such assignee or subtenant. Any
purported assignment or sublease without an instrument containing the foregoing
provisions shall be void. Tenant shall in all cases remain liable for the
performance by any assignee or subtenant of all such covenants.

     (b)  Notwithstanding paragraph (a) above, without obtaining Landlord's
prior written consent, Tenant shall have the right: (i) to sublease not more
than fifty percent (50%) of the Premises to affiliates of Tenant (meaning
entities in which Tenant owns 50% or more of the outstanding voting interests)
provided that Tenant notifies Landlord in advance of such subletting and
delivers to Landlord (x) the names and addresses of such affiliates, (y) the
part of the Premises which they will occupy and (z) a written commitment of such
affiliates to observe all of the terms of this Lease which pertain to such part;
(ii) to permit suppliers to Tenant to occupy no more than twenty percent (20%)
of the Premises upon satisfying the foregoing requirements as to such suppliers,
and so long as the presence of such suppliers is permitted by the Permitted
Uses; (iii) to assign this Lease, after notice to Landlord, to any entity which
acquires all or substantially all of Tenant (assets or voting stock) so long as
such entity agrees to assume and perform all of the obligations of Tenant
hereunder in a form reasonably acceptable to Landlord on or before the date of
assignment; and (iv) to assign this Lease or to sublet 50% or more of the
Premises to an affiliate of Tenant, as defined above, upon prior notice to
Landlord; provided, that no right to assign or sublet to an affiliate hereunder
          --------
shall be used as a subterfuge to avoid Landlord's rights to consent to transfers
or to recapture the Premises, and Landlord's consent shall be required with
respect to all proposed assignments of this Lease or subletting of 50% or more
of the Premises to affiliates of Tenant or its successors in interest after an
aggregate of two (2) such assignments or sublettings have been made.

     9.2  Landlord's Consent or Termination.  If Tenant wishes to assign this
          ---------------------------------
Lease or sublease all or any part of the Premises, Tenant shall give written
notice to Landlord identifying the intended assignee or subtenant by name and
address and specifying all of the terms of the intended assignment or sublease.
Tenant shall simultaneously give Landlord such additional information concerning
the intended assignee or subtenant (including complete financial statements and
a business history) and the intended assignment or sublease (including true
copies thereof) as Landlord requests.  For a period of thirty (30) days after
such written notice is given by Tenant, Landlord shall have the right, by giving
written notice to Tenant, (a) to consent in writing to the intended assignment
or sublease, (b) in the case of an assignment of this Lease or a sublease of
substantially the entire Premises for substantially the balance of the term of
this Lease when Landlord's consent is required, to terminate this Lease, which
termination shall be effective as of the date on which the intended assignment
or sublease would have been effective if Landlord had not exercised such
termination right or (c) to withhold its consent, provided such

                                     -27-


consent is not unreasonably withheld. If Landlord fails to notify Tenant of its
election within such thirty (30) day period, Landlord will be deemed to have
consented to the proposed assignment or, when appropriate, the proposed
sublease.

     9.3  Completion.  If Landlord consents in writing, Tenant may complete the
          ----------
intended assignment or sublease subject to the following covenants:  (a) the
assignment or sublease shall be on substantially the same terms (and at the
rent) as set forth in the written notice given by Tenant to Landlord, (b) no
assignment or sublease shall be valid and no assignee or subtenant shall take
possession of the Premises or any part thereof until an executed duplicate
original of such assignment or sublease or photocopy thereof, in compliance with
Section 9.1 hereof, has been delivered to Landlord, (c) no assignee or subtenant
- -----------
shall have a right further to assign or sublease except in accordance with the
provisions contained in this Lease, including the termination right granted to
Landlord, and (d) one half (1/2) of the "excess rent" (as hereinafter defined)
derived from such assignment or sublease shall be paid to Landlord.  Such excess
rent shall be deemed to be, and shall be paid by Tenant to Landlord as,
additional rent.  Tenant shall pay such excess rent to Landlord immediately as
and when such excess rent becomes due and payable to Tenant.  As used in this
Section 9.3, "excess rent" shall mean the amount by which the total money and
- -----------
other economic consideration to be paid by the assignee or subtenant for the
assignment or sublease, whether denominated rent or otherwise, exceeds, in the
aggregate, the total amount of rent which Tenant is obligated to pay to Landlord
under this Lease (prorated to reflect the rent allocable to the portion of the
Premises subject to such assignment or sublease and for that portion of the Term
hereof covered), less only (i) the reasonable costs paid by Tenant for
additional improvements installed in the portion of the Premises subject to such
assignment or sublease by Tenant at Tenant's sole cost and expense for the
specific assignee or subtenant in question, (ii) reasonable leasing commissions
paid by Tenant in connection with such assignment or sublease, if any, without
deduction for carrying costs due to vacancy or otherwise, and (iii) any
improvement allowance or other economic concession (planning allowance, moving
expenses, etc.) paid by Tenant to its sublessee or assignee and pertaining
directly to the sublease or assignment in question.  For this purpose, Tenant
shall allocate to such assignment or sublet a fair amount of the economic
consideration received by Tenant in a related transaction if the assignment or
sublet is part of the related transaction involving Tenant and the proposed
assignee or subtenant.  No part of the economic consideration being paid for any
of the following shall be included in "excess rent":  good will related to the
operating business of Tenant as opposed to the Premises, moveable furniture,
equipment, trade fixtures, computers, office machines and other personal
property.

     9.4  Tenant Not Released.  No assignment or sublease whatsoever shall
          -------------------
release Tenant from Tenant's obligations and liabilities under this Lease or
alter the primary liability of Tenant to pay all rent and to perform all
obligations to be paid and performed by Tenant.  No assignment or sublease shall
amend or modify this Lease in any respect, and every assignment and sublease
shall be subject and subordinate to this Lease.  The acceptance of rent by
Landlord from any other person or entity shall not be deemed to be a waiver by
Landlord of any provision of this Lease.  Consent to one assignment or sublease
shall not be deemed consent to any subsequent assignment or sublease.  Tenant
shall pay to Landlord all direct costs and shall reimburse Landlord for all
expenses incurred by Landlord in connection with any assignment or sublease
requested by Tenant.  If any assignee, subtenant or successor of Tenant defaults
in the performance of any obligation to be performed by Tenant under this Lease,
Landlord may proceed directly against Tenant without the necessity of exhausting
remedies against such

                                     -28-


assignee, subtenant or successor. Landlord may consent to subsequent assignments
or subleases or amendments or modifications to this Lease with assignees,
subtenants or successors of Tenant, without notifying Tenant or any successor of
Tenant and without obtaining any consent thereto from Tenant or any successor of
Tenant, and such action shall not release Tenant from liability under this
Lease.

     9.5  Landlord's Consent.  If Landlord does not elect to terminate the
          ------------------
Lease, Landlord shall not unreasonably withhold, condition or delay its consent
to any proposed assignment and/or subletting.  The parties hereby agree that the
reasons under this Lease and under any Applicable Law for Landlord to withhold
consent to any proposed assignment or subleasing shall include, but not be
limited to, one or more of the following:

     (a)  The assignee or sublessee is of a character or reputation or engaged
in a business which is not consistent with the quality of the Building or the
Project as reflected by the then existing tenants of the Project with respect to
comparable space;

     (b)  The assignee or sublessee intends to use the Premises for purposes
which are not permitted under this Lease;

     (c)  The assignee or sublessee is either a governmental agency or
instrumentality thereof unless Landlord, with respect to the Building, has
leased space to, or approved subleases with, comparable (in terms of use,
security issues, express or implied power of eminent domain, reputation,
character and size of space in the Project) governmental agencies or
instrumentalities thereof;

     (d)  The assignee or sublessee is not a party of reasonable financial worth
and/or financial stability in light of the responsibilities to be undertaken in
connection with the assignment or sublease on the date consent is requested;

     (e)  The proposed assignment or sublease would cause a violation of an
exclusive right granted by Landlord in good faith in another lease for space in
the Project, or would give an occupant of the Project a right to cancel its
lease as a result of the proposed use to be made of the space by the sublessee
or assignee, provided that upon request from Tenant, Landlord shall provide
Notice of all applicable exclusive rights;

     (f)  The proposed assignee or sublessee, or any person or entity which
directly or indirectly, controls, is controlled by, or is under common control
with, the proposed assignee or sublessee, has been in negotiation with Landlord
to lease space in the Project within the prior six (6) months or is a tenant in
the Project; provided, that this paragraph (f) shall not be applicable if
                                 -------------
Landlord does not have comparably sized space available in the Project which is
available for rent by such proposed assignee or sublessee.

     9.6  Remedies.  If Tenant assigns or sublets without Landlord's consent,
          --------
such an assignment or subleasing shall be null and void and Landlord may
exercise its rights and remedies under this Lease.  If Landlord unreasonably
withholds its consent to a proposed sublease or assignment, Tenant may institute
arbitration proceedings seeking specific performance and/or damages under
Article 16.
- ----------

                                     -29-


                                  ARTICLE 10
                                  ----------

                        Events of Default and Remedies
                        ------------------------------

     10.1 Default by Tenant.  The occurrence of any one or more of the following
          -----------------
events ("Event of Default") shall constitute a breach of this Lease by Tenant:

     (a)  Tenant fails to pay any Base Rent, or any Additional Monthly Rent, or
any Additional Rent or other amount of money or charge payable by Tenant
hereunder as and when such rent becomes due and payable and such failure
continues for more than three (3) business days after Landlord gives written
notice thereof to Tenant; provided that any such notice shall be in lieu of, and
not in addition to, any notice required under California Code of Civil Procedure
Section 1161; or
- ------------

     (b)  Tenant fails to perform or breaches any other agreement or covenant of
this Lease to be performed or observed by Tenant as and when performance or
observance is due and such failure or breach continues for more than twenty (20)
days after Landlord gives written notice thereof to Tenant; provided, however,
that if, by the nature of such agreement or covenant, such failure or breach
cannot reasonably be cured within such period of twenty (20) days, an Event of
Default shall not exist as long as Tenant commences with due diligence and
dispatch the curing of such failure or breach within such period of twenty (20)
days and, having so commenced, thereafter prosecutes with diligence and dispatch
and completes the curing of such failure or breach within a period of forty-five
(45) days after Landlord's notice; and provided further that any such notice
shall be in lieu of, and not in addition to, any notice required under
California Code of Civil Procedure Section 1161; or
                                   ------------

     (c)  Tenant (i) files, or consents by answer or otherwise to the filing
against it of, a petition for relief or reorganization or arrangement or any
other petition in bankruptcy or for liquidation or to take advantage of any
bankruptcy, insolvency or other debtors' relief law of any jurisdiction, (ii)
makes an assignment for the benefit of its creditors, or (iii) consents to the
appointment of a custodian, receiver, trustee or other officer with similar
powers of Tenant or of any substantial part of Tenant's property; or

     (d)  Without consent by Tenant, a court or government authority enters an
order, and such order is not vacated within thirty (30) days, (i) appointing a
custodian, receiver, trustee or other officer with similar powers with respect
to Tenant or with respect to any substantial part of Tenant's property, or (ii)
constituting an order for relief or approving a petition for relief or
reorganization or arrangement or any other petition in bankruptcy or for
liquidation or to take advantage of any bankruptcy, insolvency or other debtors'
relief law of any jurisdiction, or (iii) ordering the dissolution, winding-up or
liquidation of Tenant; or

     (e)  This Lease or any estate of Tenant hereunder is levied upon under any
attachment or execution and such attachment or execution is not vacated within
thirty (30) days; or

     (f)  Tenant abandons the Premises within the meaning of California Civil
Code Section 1951.3.
     --------------

                                     -30-


     10.2 Termination.  In the event of any such Event of Default by Tenant, in
          -----------
addition to any other remedies available to Landlord at law or in equity,
Landlord shall have the immediate option to terminate this Lease and all rights
of Tenant hereunder and to remove Tenant from the Premises.  In the event that
Landlord shall elect to so terminate this Lease then Landlord may recover from
Tenant:

     (a)  the worth at the time of award of any unpaid rent which had been
earned at the time of such termination; plus

     (b)  the worth at the time of award of the amount by which the unpaid rent
which would have been earned after termination until the time of award exceeds
the amount of such rental loss that Tenant proves could have been reasonably
avoided; plus

     (c)  the worth at the time of award of the amount by which the unpaid rent
for the balance of the term after the time of award exceeds the amount of such
rental loss that Tenant proves could be reasonably avoided; plus

     (d)  any other amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform his obligations
under this Lease or which in the ordinary course of things would be likely to
result therefrom.

As used in Subsection 10.2(a) and (b) above, the "worth at the time of award" is
           --------------------------
computed by allowing interest at the maximum rate permitted by law per annum.
As used in Subsection 10.2(c) above, the "worth at the time of award" is
           ------------------
computed by discounting such amount at the discount rate of the Federal Reserve
Bank of San Francisco at the time of award plus one percent (1%).

     10.3 Continuation.  In the event of any such Event of Default by Tenant,
          ------------
Landlord shall also have the right, with or without terminating this Lease, to
re-enter the Premises and remove all persons and property from the Premises;
such property may be removed and stored in a public warehouse or elsewhere at
the cost of and for the account of Tenant for such period of time as may be
required by applicable law after which time Landlord may dispose of such
property in accordance with applicable law.  No re-entry or taking possession of
the Premises by Landlord pursuant to this Section 10.3 shall be construed as an
                                          ------------
election to terminate this Lease unless a written notice of such intention be
given to Tenant or unless the termination thereof be decreed by a court of
competent jurisdiction.  In addition to its other rights under this Lease,
Landlord has the remedy described in California Civil Code Section 1951.4
                                                           --------------
(Landlord may continue the Lease in effect after Tenant's breach and abandonment
and recover the rent as it becomes due, if Tenant has the right to sublet or
assign, subject only to reasonable limitations).

     10.4 Remedies Cumulative.  Upon the occurrence of an Event of Default,
          -------------------
Landlord shall have the right to exercise and enforce all rights and remedies
granted or permitted by law.  The remedies provided for in this Lease are
cumulative and in addition to all other remedies available to Landlord at law or
in equity by statute or otherwise.  Exercise by Landlord of any remedy shall not
be deemed to be an acceptance of surrender of the Premises by Tenant, either by
agreement or by operation of law.  Surrender of the Premises can be effected
only by the written agreement of Landlord and Tenant.

                                     -31-


     10.5 Tenant's Primary Duty.  All agreements and covenants to be performed
          ---------------------
or observed by Tenant under this Lease shall be at Tenant's sole cost and
expense and without any abatement of rent, except as otherwise expressly set
forth in this Lease.  If Tenant fails to pay any sum of money to be paid by
Tenant or to perform any other act to be performed by Tenant under this Lease
beyond any applicable notice and cure period, Landlord shall have the right, but
shall not be obligated, and without waiving or releasing Tenant from any
obligations of Tenant, to make any such payment or to perform any such other act
on behalf of Tenant in accordance with this Lease.  All sums so paid by Landlord
and all costs incurred or paid by Landlord shall be deemed additional rent
hereunder and Tenant shall pay the same to Landlord on written demand, together
with interest on all such sums and costs from the date of expenditure by
Landlord to the date of repayment by Tenant at the rate of ten percent (10%) per
annum.

     10.6 Abandoned Property.  If Tenant vacates the Premises, or is
          ------------------
dispossessed by process of law or otherwise, any movable furniture, equipment,
trade fixtures or personal property belonging to Tenant and left in the Premises
shall, at the option of the Landlord, be deemed to be abandoned, and Landlord
shall have the right to use, sell or otherwise dispose of such personal property
in any commercially reasonable manner.

     10.7 Landlord Default.  If Landlord defaults under this Lease, Tenant shall
          ----------------
give written notice to Landlord specifying such default with particularity, and
Landlord shall have thirty (30) days after receipt of such notice within which
to cure such default; provided, that if by the nature of the obligation of which
Landlord is in default the default cannot reasonably be cured within such period
of thirty (30) days, Landlord shall not be deemed in default hereunder so long
as it commences with due diligence and dispatch the curing of such default
within such period of thirty (30) days and, having so commenced, thereafter
prosecutes with diligence and dispatch and completes the curing of such default
within a period of sixty (60) days after Tenant's notice.  In the event of any
default by Landlord, Tenant's exclusive remedy shall be an action for damages
and the provisions of Section 15.17 shall apply.
                      -------------

                                  ARTICLE 11
                                  ----------

                             Damage or Destruction
                             ---------------------

     11.1 Restoration; Rent Abatement.  If the Building or the Premises, or any
          ---------------------------
part thereof, is damaged by fire or other casualty before the Commencement Date
or during the term of this Lease, and this Lease is not terminated pursuant to
Section 11.2 hereof, Landlord shall repair such damage and restore the Building
- ------------
and the Premises (but not the Tenant Improvements, Alterations or any of
Tenant's trade fixtures or personal property) to substantially the same
condition in which the Building and the Premises existed before the occurrence
of such fire or other casualty and this Lease shall, subject to this Section
                                                                     -------
11.1, remain in full force and effect.  If such fire or other casualty damages
- ----
the Premises or common areas of the Building necessary for Tenant's use and
occupancy of the Premises then, during the period the Premises are rendered
unusable by such damage, including a reasonable time for Tenant to repair or
replace its Tenant Improvements, Alterations, equipment, trade fixtures and
personal property, Tenant shall be entitled to a reduction in Base Rent and
Additional Rent in the proportion that the area of the Premises rendered
unusable by such damage bears to the total area of the Premises, and to the

                                     -32-


extent that such portion damaged is rendered unusable.  Landlord shall not be
obligated to repair any damage to, or to make any replacement of, any Tenant
Improvements, Alterations, movable furniture, equipment, trade fixtures or
personal property in the Premises.  Tenant shall, at Tenant's sole cost and
expense, promptly repair and replace all such Tenant Improvements, Alterations,
movable furniture, equipment, trade fixtures and personal property in accordance
with the rules and procedures applicable to Alterations and shall coordinate
with Landlord and its work in order to complete the same in an expeditious and
commercially reasonable manner.

     11.2 Termination of Lease.  If the Building or the Premises, or any part
          --------------------
thereof, is damaged by fire or other casualty before the Commencement Date or
during the term of this Lease and (a) such fire or other casualty occurs during
the last twelve (12) months of the term of this Lease, Tenant has not exercised
an option to extend the Lease Term and the repair and restoration work to be
performed by Landlord and Tenant in accordance with Section 11.1 hereof would
                                                    ------------
cost, as reasonably estimated by Landlord, fifty (50%) percent or more of the
cost to replace the entire Premises, or (b) the insurance proceeds received by
Landlord in respect of such damage are, together with an additional One Million
Dollars ($1,000,000) not adequate to pay the entire cost (excluding the
deductible amount), as reasonably estimated by Landlord, of the repair and
restoration work to be performed by Landlord in accordance with Section 11.1
                                                                ------------
hereof, or (c) the repair and restoration work to be performed by Landlord in
accordance with Section 11.1 hereof cannot, as reasonably estimated by Landlord,
                ------------
be completed within one (1) year after the occurrence of such fire or other
casualty, then, in any such event, Landlord shall have the right, by giving
written notice within sixty (60) days after the occurrence of such fire or other
casualty, to terminate this Lease as of the date of such notice. In addition, in
each of the circumstances described in clauses (a) and (c) above, Tenant shall
have the right, by giving Landlord written notice to Tenant within sixty (60)
days after the occurrence of such fire or other casualty, to terminate this
Lease as of the date of such notice.  In addition, Tenant shall have the right
to terminate this Lease in the circumstance described in clause (b) above when
Landlord notifies Tenant, within sixty (60) days after the occurrence of such
fire or other casualty, of Landlord's election to perform the restoration work
to be performed by Landlord in accordance with Section 11.1 and to bear the cost
                                               ------------
thereof to the extent it exceeds the insurance proceeds in respect of such fire
or other casualty plus One Million Dollars ($1,000,000).  If neither Landlord
nor Tenant exercises its right to terminate this Lease in accordance with this
Section 11.2, Landlord shall repair such damage and restore the Building and the
- ------------
Premises in accordance with Section 11.1 hereof, Tenant shall repair its Tenant
                            ------------
Improvements, Alterations, movable furniture, equipment, trade fixtures and
personal property and this Lease shall, subject to Section 11.1 hereof, remain
                                                   ------------
in full force and effect.

     11.3 Exclusive Remedy.  This Article 11 shall be Tenant's sole and
          ----------------        ----------
exclusive remedy in the event of damage or destruction to the Premises or the
Building, and Tenant, as a material inducement to Landlord entering into this
Lease, irrevocably waives and releases Tenant's rights under California Civil
Code Sections 1932(2) and 1933(4).  No damages, compensation or claim shall be
     ----------------     -------
payable by Landlord for any inconvenience, any interruption or cessation of
Tenant's business, or any annoyance, arising from any damage to or destruction
of all or any portion of the Premises or the Building.

                                     -33-


                                  ARTICLE 12
                                  ----------

                                Eminent Domain
                                --------------

     12.1 Condemnation.  Landlord shall have the right to terminate this Lease
          ------------
if all or any substantial part of the Premises is taken by exercise of the power
of eminent domain before the Commencement Date or during the term of this Lease.
Tenant shall have the right to terminate this Lease if a substantial portion of
the Premises is taken by exercise of the power of eminent domain before the
Commencement Date or during the term of this Lease and the remaining portion of
the Premises is not reasonably suitable for Tenant's purposes.  In each such
case, Landlord or Tenant shall exercise such termination right by giving written
notice to the other within thirty (30) days after the date of such taking.  If
either Landlord or Tenant exercises such right to terminate this Lease in
accordance with this Section 12.1, this Lease shall terminate as of the date of
                     ------------
such taking.  If neither Landlord nor Tenant exercises such right to terminate
this Lease in accordance with this Section 12.1, this Lease shall terminate as
                                   ------------
to the portion of the Premises so taken as of the date of such taking and shall
remain in full force and effect as to the portion of the Premises not so taken,
and the Base Rent and Tenant's Percentage Share shall be reduced as of the date
of such taking in the proportion that the area of the Premises so taken bears to
the total area of the Premises and an appropriate adjustment shall be made to
Tenant's share of CAM Expenses, Property Taxes and Insurance Costs incurred with
respect to the Project as a whole.  If all of the Premises are taken by exercise
of the power of eminent domain before the Commencement Date or during the term
of this Lease, this Lease shall terminate as of the date of such taking.

     12.2 Award.  If all or any part of the Premises is taken by exercise of the
          -----
power of eminent domain, all awards, compensation, damages, income, rent and
interest payable in connection with such taking shall, except as expressly set
forth in this Section 12.2, be paid to and become the property of Landlord, and
              ------------
Tenant hereby assigns to Landlord all of the foregoing.  Without limiting the
generality of the foregoing, Tenant shall have no claim against Landlord or the
entity exercising the power of eminent domain for the value of the leasehold
estate created by this Lease or any unexpired term of this Lease.  Tenant shall
have the right to claim and receive directly from the entity exercising the
power of eminent domain only the share of any award determined to be owing to
Tenant for the taking of improvements installed in the portion of the Premises
so taken by Tenant at Tenant's sole cost and expense based on the unamortized
cost actually paid by Tenant for such improvements, for the taking of Tenant's
movable furniture, equipment, trade fixtures and personal property, for loss of
goodwill, for interference with or interruption of Tenant's business, or for
removal and relocation expenses.

     12.3 Temporary Use.  Notwithstanding Sections 12.1 and 12.2 hereof to the
          -------------                   ----------------------
contrary, if the use of all or any part of the Premises is taken by exercise of
the power of eminent domain during the term of this Lease on a temporary basis
for a period of less than one (1) year, this Lease shall continue in full force
and effect, Tenant shall continue to pay all of the rent and to perform all of
the covenants of Tenant in accordance with this Lease, to the extent reasonably
practicable under the circumstances, and the condemnation proceeds in respect of
such temporary taking shall be paid to Tenant.

                                     -34-


     12.4 Definition of Taking.  As used herein, a "taking" means the
          --------------------
acquisition of all or part of the Building for a public use by exercise of the
power of eminent domain or voluntary conveyance in lieu thereof and the taking
shall be considered to occur as of the earlier of the date on which possession
of the Building (or part so taken) by the entity exercising the power of eminent
domain is authorized as stated in an order for possession or the date on which
title to the Building (or part so taken) vests in the entity exercising the
power of eminent domain.

     12.5 Exclusive Remedy.  This Article 12 shall be Tenant's sole and
          ----------------        ----------
exclusive remedy in the event of a taking or condemnation.  Tenant hereby waives
the benefit of California Code of Civil Procedure Section 1265.130.
                                                  ----------------

                                  ARTICLE 13
                                  ----------

                            Subordination and Sale
                            ----------------------

     13.1 Subordination.  This Lease shall be subject and subordinate at all
          -------------
times to the lien of all deeds of trust securing any amount or amounts
whatsoever which may now exist or hereafter be placed on or against the Building
or the Project or on or against Landlord's interest or estate therein, all
without the necessity of having further instruments executed by Tenant to effect
such subordination.  Notwithstanding the foregoing, in the event of a
foreclosure of any such deed of trust or of any other action or proceeding for
the enforcement thereof, or of any sale thereunder, this Lease shall not be
terminated or extinguished, nor shall the rights and possession of Tenant
hereunder be disturbed, if no Event of Default then exists under this Lease, and
Tenant shall attorn to the person who acquires Landlord's interest hereunder
through any such deed of trust.  In the event Landlord elects to place a deed of
trust on its interest in the Building or the Project, it shall obtain for the
benefit of its Lender and Tenant a subordination, nondisturbance and attornment
agreement in a commercially reasonable form, reasonably acceptable to its
Lender, and Tenant agrees to execute, acknowledge and deliver upon demand such
agreement and further instruments evidencing such subordination of this Lease to
the lien of all such deeds of trust as may reasonably be required by Landlord or
its lender.  Landlord agrees that if the existing deed of trust affecting the
Building has not been reconveyed by January 31, 2001, at Tenant's request
Landlord shall obtain such a subordination, non-disturbance and attornment
agreement with respect thereto.

     13.2 Sale of the Project.  If the original Landlord hereunder, or any
          -------------------
successor owner of the Project, sells or conveys the Project, all liabilities
and obligations on the part of the original Landlord, or such successor owner,
under this Lease accruing after such sale or conveyance shall terminate and the
original Landlord, or such successor owner, shall automatically be released
therefrom, and thereupon all such liabilities and obligations shall be binding
upon the new owner.  Tenant agrees to attorn to such new owner.

     13.3 Estoppel Certificate.  At any time and from time to time, Tenant
          --------------------
shall, within ten (10) days after written request by Landlord, execute,
acknowledge and deliver to Landlord a certificate certifying:  (a) that this
Lease is unmodified and in full force and effect (or, if there have been
modifications, that this Lease is in full force and effect as modified, and
stating the date and nature of each modification); (b) the Commencement Date and
the Expiration Date

                                     -35-


determined in accordance with Article 2 hereof and the date, if any, to which
                              ---------
all rent and other sums payable hereunder have been paid; (c) that no notice has
been received by Tenant of any default by Tenant hereunder which has not been
cured, except as to defaults specified in such certificate; (d) that to the best
of Tenant's knowledge Landlord is not in default under this Lease, except as to
defaults specified in such certificate; and (e) such other matters as may be
reasonably requested by Landlord or any actual or prospective purchaser or
mortgage lender. Any such certificate may be relied upon by Landlord and any
actual or prospective purchaser or mortgage lender of the Project or any part
thereof. At any time and from time to time, Tenant shall, within ten (10) days
after written request by Landlord, deliver to Landlord copies of all current
financial statements (including a balance sheet, an income statement, and an
accumulated retained earnings statement), annual reports, and other financial
and operating information and data of Tenant prepared by Tenant in the course of
Tenant's business. In the event Tenant has securities registered under Section
12 of the Securities Exchange Act of 1934, Tenant shall be required to furnish
only those financial statements and operating information which are available to
the public. Unless available to the public, Landlord shall disclose such
financial statements, annual reports and other information or data only to
actual or prospective purchasers or mortgage lenders or partners of the Project
or any part thereof, and otherwise keep them confidential unless other
disclosure is required by law. Landlord agrees that within ten (10) days of the
written request of Tenant given not more than two (2) times in any calendar
year, Landlord will furnish to Tenant a certificate certifying to the
information contained in clauses (a), (b), (c) and (d) (except that such
information shall be with respect to notices received by Landlord and defaults
of Tenant) above, and any such certificate may be relied upon by Tenant and its
lenders, assignees and subtenants to the same extent as Landlord is entitled to
rely upon a similar certificate given by Tenant.

                                  ARTICLE 14
                                  ----------

                                    Notices
                                    -------

     14.1 Method.  All requests, approvals, consents, notices and other
          ------
communications given by Landlord or Tenant under this Lease shall be properly
given only if made in writing and either deposited in the United States mail,
postage prepaid, certified with return receipt requested, or delivered by hand
(which may be through a messenger or recognized delivery, courier or air express
service) and addressed as follows:  To Landlord, c/o Investment Development
Services, Inc., 888 West 6/th/ Street, 9/th/ Floor, Los Angeles, California
90017, Attn.:  David G. Mgrublian, with a copy to:  Paul, Hastings, Janofsky &
Walker LLP, 345 California Street, Twenty-Ninth Floor, San Francisco, California
94104, Attn: Charles V. Thornton, or at such other place as Landlord may from
time to time designate in a written notice to Tenant; to Tenant at the address
of Tenant specified in the Basic Lease Information, or at such other place as
Tenant may from time to time designate in a written notice to Landlord; and to
Guarantor (if any) at the address of Guarantor specified in the Basic Lease
Information, or at such other place as Guarantor may from time to time designate
in a written notice to Landlord.  Such requests, approvals, consents, notices
and other communications shall be effective on the date of receipt (evidenced by
the certified mail receipt) if mailed or on the date of hand delivery if hand
delivered.  If any such request, approval, consent, notice or other
communication is not received or cannot be delivered due to a change in the
address of the receiving party of which notice was

                                     -36-


not previously given to the sending party or due to a refusal to accept by the
receiving party, such request, approval, consent, notice or other communication
shall be effective on the date delivery is attempted. Any request, approval,
consent, notice or other communication under this Lease may be given on behalf
of a party by the attorney for such party.

                                  ARTICLE 15
                                  ----------

                                 Miscellaneous
                                 -------------

     15.1 General.  The words "Landlord" and "Tenant" as used herein shall
          -------
include the plural as well as the singular.  The words "include," "includes" and
"including" shall be deemed to be followed by the phrase "without limitation."
If there is more than one Tenant, the obligations hereunder imposed upon Tenant
shall be joint and several.  Time is of the essence of this Lease and each and
all of its provisions.  This Lease shall benefit and bind Landlord and Tenant
and the permitted personal representatives, heirs, successors and assigns of
Landlord and Tenant.  If any provision of this Lease is determined to be illegal
or unenforceable, such determination shall not affect any other provision of
this Lease and all such other provisions shall remain in full force and effect.
Tenant shall not record this Lease or any memorandum or short form of it.  This
Lease shall be governed by and construed in accordance with the laws of the
state in which the Project is located.

     15.2 No Waiver.  The waiver by Landlord or Tenant of any breach of any
          ---------
covenant in this Lease shall not be deemed to be a waiver of any subsequent
breach of the same or any other covenant in this Lease, nor shall any custom or
practice which may grow up between Landlord and Tenant in the administration of
this Lease be construed to waive or to lessen the right of Landlord or Tenant to
insist upon the performance by Landlord or Tenant in strict accordance with this
Lease.  The subsequent acceptance of rent hereunder by Landlord or the payment
of rent by Tenant shall not waive any preceding breach by Tenant of any covenant
in this Lease, nor cure any Event of Default, nor waive any forfeiture of this
Lease or unlawful detainer action, other than the failure of Tenant to pay the
particular rent so accepted, regardless of Landlord's or Tenant's knowledge of
such preceding breach at the time of acceptance or payment of such rent.

     15.3 Attorneys' Fees.  If there is any legal action or proceeding between
          ---------------
Landlord and Tenant to enforce this Lease or to protect or establish any right
or remedy under this Lease, the unsuccessful party to such action or proceeding
shall pay to the prevailing party all costs and expenses, including reasonable
attorneys' fees and disbursements, incurred by such prevailing party in such
action or proceeding and in any appeal in connection therewith.  If such
prevailing party recovers a judgment in any such action, proceeding or appeal,
such costs, expenses and attorneys' fees and disbursements shall be included in
and as a part of such judgment.

     15.4 Exhibits.  Exhibit A (Plan(s) Outlining the Premises and the Project),
          --------   ---------
Exhibit B (Work Letter Agreement), Exhibit C (Form of Memorandum Confirming
- ---------                          ---------
Term), Exhibit E (Rules and Regulations), Exhibit F (Option to Extend/Fair
       ---------                          ---------
Market Rental Rate), Exhibit I (Right of First Offer), Exhibit J (Janitorial
                     ---------                         ---------
Services), Exhibit K (Parking Rules and Regulations), Exhibit L (Letter of
           ---------                                  ---------
Credit Information), Exhibit M (Certain Limitations on CAM Expenses) and
                     ---------

                                     -37-


any other attachments specified in the Basic Lease Information, are attached to
and made a part of this Lease and once again incorporated into this Lease by
this reference.

     15.5 Broker(s).  Landlord and Tenant warrant and represent to one another
          ---------
that the representing party has negotiated this Lease directly with the real
estate broker(s) specified in the Basic Lease Information and has not authorized
or employed, or acted by implication to authorize or to employ, any other real
estate broker to act for the representing party in connection with this Lease.

     15.6 Waivers of Jury Trial and Certain Damages.  Landlord and Tenant each
          -----------------------------------------
hereby expressly, irrevocably, fully and forever releases, waives and
relinquishes any and all right to trial by jury and any and all right to receive
punitive, exemplary and consequential damages from the other (or any past,
present or future board member, trustee, director, officer, employee, agent,
representative, or advisor of the other) in any claim, demand, action, suit,
proceeding or cause of action in which Landlord and Tenant are parties, which in
any way (directly or indirectly) arises out of, results from or relates to any
of the following, in each case whether now existing or hereafter arising and
whether based on contract or tort or any other legal basis:  this Lease; any
past, present or future act, omission, conduct or activity with respect to this
Lease; any transaction, event or occurrence contemplated by this Lease; the
performance of any obligation or the exercise of any right under this Lease; or
the enforcement of this Lease.  Landlord and Tenant reserve the right to recover
actual or compensatory damages, with interest, attorneys' fees, costs and
expenses as provided in this Lease, for any breach of this Lease.

     15.7 Entire Agreement.  There are no oral agreements between Landlord and
          ----------------
Tenant affecting this Lease, and this Lease supersedes and cancels any and all
previous negotiations, arrangements, term sheets, brochures, videos, CD ROMS,
Web site info, offers, agreements and understandings, oral or written, if any,
between Landlord and Tenant or displayed by Landlord to Tenant with respect to
the subject matter of this Lease, the Premises or the Project.  There are no
commitments, representations or assurances between Landlord and Tenant or
between any real estate broker and Tenant other than those expressly set forth
in this Lease and all reliance with respect to any commitments, representations
or assurances is solely upon commitments, representations and assurances
expressly set forth in this Lease.  This Lease may not be amended or modified in
any respect whatsoever except by an agreement in writing signed by Landlord and
Tenant.

     15.8 Parking.
          -------

     (a)  Tenant shall be entitled to the exclusive use of the number of
unreserved parking spaces designated in the Basic Lease Information free of
charge (except that the costs incurred by Landlord with respect to such parking
shall be included in Operating Costs) for the initial term of this Lease except
for any charges imposed by governmental agencies beyond Landlord's control.
Tenant shall not use more parking spaces than said number and shall comply with
the Parking Rules and Regulations attached as Exhibit K.
                                              ---------

     (b)  The "Edison Easement" is shown on Exhibit A-1, and Landlord has the
                                            -----------
right to use the same subject to the rights of Southern California Edison
Company ("SCE").  Subject to the rights of SCE, Tenant shall have the exclusive
right to use the area covered by the Edison Easement to the same extent and
subject to the same conditions applicable to Landlord.

                                     -38-


However, in the event Landlord wishes to utilize part or all of the Edison
Easement for other purposes related to the Project or for the benefit of other
tenants in the Project, it may so notify Tenant. If within five (5) business
days after receiving such notice Tenant notifies Landlord that Tenant intends to
use the Edison Easement area, Tenant shall be obligated to spend at least one
hundred seventy-five thousand dollars ($175,000) to improve the Edison Easement
area within a period of ninety (90) days thereafter, to Landlord's reasonable
satisfaction and in accordance with applicable law. If Tenant does not give such
notice, Tenant shall have no further rights to the Edison Easement area. In such
event Landlord shall have the right to permit the Edison Easement area to be
used by other tenants in the Project, and for that purpose shall have the right
to permit such other tenants free and unencumbered access across Tenant's
parking area in order to gain access to the Edison Easement area. Such access
shall not reduce below five hundred thirty-eight (538) the number of parking
spaces to which Tenant is entitled, and Tenant and Landlord shall cooperate in
order to ensure that the users of the Edison Easement area do not also utilize
any of Tenant's exclusive parking spaces.

     15.9   Choice of Law. This Lease shall be governed by and construed
            -------------
pursuant to the laws of the State of California.

     15.10  No Air Rights.  No rights to any view or to light or air over any
            -------------
property, whether belonging to Landlord or any other person, are granted to
Tenant by this Lease.  If at any time the light or view from windows is
obstructed by reason of any repairs, improvements, maintenance or cleaning in or
about the Project, the same shall be without liability to Landlord and without
any reduction or diminution of Tenant's obligations under this Lease.

     15.11  Modification of Lease.  Should any current or prospective mortgagee
            ---------------------
or ground lessor for the Building or Project require a modification of this
Lease, which modification will not cause an increased cost or expense to Tenant
or (other than in a de minimus manner) or adversely change the rights or
obligations of Tenant hereunder, then and in such event, Tenant agrees that this
Lease may be so modified and agrees to execute whatever documents are reasonably
required therefor and to deliver the same to Landlord within twenty (20) days
following a request therefor.  At the request of Landlord or Tenant or any
mortgagee or ground lessor, Tenant and Landlord agree to execute a short form of
Lease memorandum and deliver the same to the requesting party within twenty (20)
days following the request therefor, the recordation of which shall be at the
sole cost and expense of the party seeking recordation.  Landlord shall pay for
Tenant's reasonable costs (not to exceed two thousand five hundred dollars
($2,500)) in reviewing and negotiating any such modification.

     15.12  Landlord's Title.  Landlord's title is and always shall be paramount
            ----------------
to the title of Tenant.

     15.13  Application of Payments.  Unless Tenant, by Notice to Landlord,
            -----------------------
specifically restricts how such payment is to be applied, Landlord shall have
the right to apply payments received from Tenant pursuant to this Lease,
regardless of Tenant's designation of such payments, to satisfy any obligations
of Tenant hereunder, in such order and amounts as Landlord, in its sole
discretion, may elect.  However, while Landlord must accept payments made under
protest, Landlord is not obligated to accept a payment made with other
restrictions, and such payment, if not accepted by Landlord, shall be returned
to Tenant within five (5) business days of demand by Tenant.

                                     -39-


     15.14  Time of Essence.  Time is of the essence with respect to the
            ---------------
performance of every term, covenant and condition of this Lease in which time of
performance is a factor.  Whenever in the Lease a payment is required to be made
by one party to the other, but a specific date for payment is not set forth or a
specific number of days within which payment is to be made is not set forth, or
the words "immediately," "promptly," and/or "on demand," or their equivalent,
are used to specify when such payment is due, then such payment shall be due
thirty (30) days after the date that the party which is entitled to such payment
sends Notice to the other party demanding such payment.

     15.15  Right to Lease.  Landlord reserves the absolute right to effect such
            --------------
other tenancies in the Project as Landlord in the exercise of its sole business
judgment and shall determine to best promote the interests of the Building or
Project.

     15.16  Force Majeure.  Any prevention, delay or stoppage due to strikes,
            -------------
lockouts, labor disputes, acts of God, inability to obtain services, labor, or
materials or reasonable substitutes therefor, governmental actions, civil
commotions, fire, earthquake or other casualty, and other causes beyond the
reasonable control of the party obligated to perform, except with respect to the
obligations imposed with regard to rent and other charges to be paid by Tenant
pursuant to this Lease (collectively, a "Force Majeure Event"), shall excuse the
performance of such party for a period equal to any such prevention, delay or
stoppage notwithstanding anything to the contrary contained in this Lease.
Therefore, if this Lease specifies a time period for performance of an
obligation of either party, that time period shall be extended by the period of
any delay in such party's performance caused by a Force Majeure Event.

     15.17  Exculpation.  The liability of Landlord to Tenant for any default by
            -----------
Landlord under this Lease or arising in connection herewith or with Landlord's
operation, management, leasing, repair, renovation, alteration or any other
matter relating to the Project or the Premises shall be limited solely and
exclusively to an amount which is equal to the interest of Landlord in the
Building (including any insurance proceeds which Landlord receives).  Landlord
shall have no personal liability therefor, and Tenant hereby expressly waives
and releases such personal liability on behalf of itself and all persons
claiming by, through or under Tenant.  Under no circumstances shall Tenant seek
or obtain a personal money judgment against Landlord.  The limitations of
liability contained in this Section 15.17 shall inure to the benefit of
                            -------------
Landlord's present and future partners, beneficiaries, officers, directors,
trustees, shareholders, agents and employees, and their respective partners,
heirs, successors and assigns.  Under no circumstances shall any present or
future partner or member of Landlord (if Landlord is a partnership or limited
liability company), or trustee or beneficiary (if Landlord or any partner of
Landlord is a trust), have any liability for the performance of Landlord's
obligations under this Lease.  Notwithstanding any contrary provision herein,
neither Landlord nor Tenant shall be liable under any circumstances for injury
or damage to, or interference with, Tenant's or Landlord's business, including
but not limited to, loss of profits, loss of rents or other revenues, loss of
business opportunity, loss of goodwill or loss of use, in each case, however
occurring.

     15.18  No Discrimination.  Tenant covenants by and for itself and Tenant's
            -----------------
officers, executives, administrators, assigns and all persons claiming under or
through Tenant, that this Lease is made and accepted upon and subject to the
following conditions:  there shall be no discrimination against or segregation
of any person or group of persons, on account of race, color, creed, religion,
sex, marital status, national origin or ancestry in the leasing, subleasing,

                                     -40-


transferring, use, occupancy, tenure or enjoyment of the Premises hereby leased,
nor shall Tenant itself, or any person claiming under or through Tenant,
establish or permit any such practice or practices of discrimination or
segregation with reference to the selection, location, number, use or occupancy
of subtenants, sublessees or vendees in the Premises.

     15.19  Counterparts.  This Lease may be executed in any number of
            ------------
counterparts, each of which shall be deemed to be an original and all of which,
taken together, shall constitute one and the same instrument.

     15.20  Roof Rights.  As part of its Tenant Improvements, Tenant shall have
            -----------
the right, at its expense but without the  payment of additional rent, to
install telecommunications equipment on the roof of the Building for its own use
and that of its affiliates who are subleasing space in the Premises from Tenant,
although it shall not have the right to utilize such equipment for the use of
others, with or without compensation.  The installation of such
telecommunications equipment shall be subject to the Design Criteria and all of
the provisions of the Work Letter Agreement, and shall not prohibit the use of
the roof for equipment of Landlord, so long as such equipment of Landlord does
not unreasonably interfere with equipment installed by Tenant.  Under no
circumstances shall Tenant's use of its telecommunications equipment interfere
with the ability of Landlord or other tenants of the Project to utilize
telecommunications equipment, and the installation of such equipment shall be
consistent with Landlord's plan regarding the aesthetics of the Building.  All
of such telecommunications equipment, if installed, shall be removed by Tenant
at its expense on the expiration or earlier termination of the Lease, and all
damages caused by such removal shall be paid upon demand by Tenant to Landlord.

     15.21  Signage.  Subject to obtaining Landlord's consent, which shall not
            -------
be withheld unreasonably, and consistent with the Design Criteria, Tenant shall
have the right to install, at its sole cost and expense, signage on the top of
the Building (which shall be an exclusive right), at the entry to the Building
and monument signage in front of the Building, all of which identifies Tenant.
The location, size, design and material of each of these signs shall be subject
to Landlord's consent.  In addition, subject to compliance with the Design
Criteria, Tenant may incorporate its logo and signage on the walls of the
elevator lobbies of the Building and on the entrance doors of the Building.  At
the expiration or earlier termination of the Lease, all of such signage shall be
removed by Tenant at its sole cost and expense, and Tenant shall repair any
damages caused by such removal. Landlord shall have the right to install
monument signs identifying the Westlake North Business Park and, so long as they
do not unreasonably interfere with Tenant's identification of the Premises,
other signs identifying the management of the Premises by Landlord.

     15.22  Consent/Duty to Act Reasonably.  Except for any reference to the
            ------------------------------
words "sole", "absolute" or in "the sole discretion" (and except for matters
which (a) might have an adverse effect on the structural integrity of the
Building, (b) might have an adverse effect on the systems of the Building, or
(c) might have an effect on the aesthetics of the Building or the Project,
including the exterior appearance of the Building), any time the consent of
Landlord or Tenant is required, such consent shall not be unreasonably withheld,
conditioned or delayed.  Whenever the Lease grants Landlord or Tenant the right
to take action, exercise discretion, establish rules and regulations or make
allocations or other determinations (other than decisions to exercise expansion,
contraction, cancellation, termination or renewal options and decisions with
respect to

                                     -41-


Rent), Landlord and Tenant shall act reasonably and in good faith.


                                  Arbitration
                                  -----------


     16.1   Exclusive Remedy/Payment Under Protest. The provisions of this
            --------------------------------------
Article 16 contain the sole and exclusive method, means and procedure to resolve
- ----------
any and all disputes or disagreements, including whether any particular matter
constitutes, or with the passage of time would constitute, an Event of Default.
The parties hereby irrevocably waive any and all rights to the contrary and
shall at all times conduct themselves in strict, full, complete and timely
accordance with the provisions of this Article 16. Any and all attempts to
                                       ----------
circumvent the provisions of this Article 16 shall be absolutely null and void
                                  ----------
and of no force or effect whatsoever. As to any matter submitted to arbitration
to determine whether it would, with the passage of time, constitute an Event of
Default, such passage of time shall not commence to run until any such
affirmative determination, so long as it is simultaneously determined that the
challenge of such matter as a potential Event of Default was made in good faith,
except with respect to the payment of money. With respect to the payment of
money, such passage of time shall not commence to run only if the party which is
obligated to make the payment does in fact make the payment to the other party.
Such payment can be made "under protest," which shall occur when such payment is
accompanied by a good-faith notice stating why the party has elected to make a
payment under protest. Such protest will be deemed waived unless the subject
matter identified in the protest is submitted to arbitration as set forth as
follows:


     (a)    Arbitration Panel. Within ninety (90) days after delivery of written
            -----------------
notice ("Notice of Dispute") of the existence and nature of any dispute given by
any party to the other party, and unless otherwise provided herein in any
specific instance, the parties shall each:  (i) appoint one (1) lawyer actively
engaged in the licensed and full-time practice of law, specializing in real
estate leasing matters, in Los Angeles County for a continuous period
immediately preceding the date of delivery ("Dispute Date") of the Notice of
Dispute of not less than ten (10) years, but who has at no time ever represented
or acted on behalf of any of the parties, and (ii) deliver written notice of the
identity of such lawyer and a copy of his or her written acceptance of such
appointment and acknowledgment of and agreement to be bound by the time
constraints and other provisions of this Article 16 ("Acceptance") to the other
                                         ----------
parties hereto.  The party who selects the lawyer may not consult with such
lawyer, directly or indirectly, to determine the lawyer's position on the issue
which is the subject of the dispute.  In the event that any party fails to so
act, such arbitrator shall be appointed pursuant to the same procedure that is
followed when agreement cannot be reached as to the third arbitrator.  Within
ten (10) days after such appointment and notice, such lawyers shall appoint a
third lawyer (together with the first two (2) lawyers, "Arbitration Panel") of
the same qualification and background and shall deliver written notice of the
identity of such lawyer and a copy of his or her written Acceptance of such
appointment to each of the parties.  In the event that agreement cannot be
reached on the appointment of a third lawyer within such period, such
appointment and notification shall be made as quickly as possible by any court
of competent jurisdiction, by any licensing authority, agency or organization
having jurisdiction over such lawyers, by any professional association of
lawyers in existence for not less than ten (10) years at the time of such
dispute or disagreement and the geographical membership boundaries of which
extend to Los Angeles County or by any arbitration association or organization
in existence for not less than ten (10) years at the time of such dispute or
disagreement and the geographical boundaries

                                     -42-


of which extend to Los Angeles County, as determined by the party giving such
Notice of Dispute and simultaneously confirmed in writing delivered by such
party to the other party. Any such court, authority, agency, association or
organization shall be entitled either to directly select such third lawyer or to
designate in writing, delivered to each of the parties, an individual who shall
do so. In the event of any subsequent vacancies or inabilities to perform among
the Arbitration Panel, the lawyer or lawyers involved shall be replaced in
accordance with the provisions of this Article 16 as if such replacement was an
                                       ----------
initial appointment to be made under this Article 16 within the time constraints
                                          ----------
set forth in this Article 16, measured from the date of notice of such vacancy
                  ----------
or inability, to the person or persons required to make such appointment, with
all the attendant consequences of failure to act timely if such appointed person
is a party hereto.

     (b)  Duty.  Consistent with the provisions of this Article 16, the members
          ----                                          ----------
of the Arbitration Panel shall utilize their utmost skill and shall apply
themselves diligently so as to hear and decide, by majority vote, the outcome
and resolution of any dispute or disagreement submitted to the Arbitration Panel
as promptly as possible, but in any event on or before the expiration of thirty
(30) days after the appointment of the members of the Arbitration Panel.  None
of the members of the Arbitration Panel shall have any liability whatsoever for
any acts or omissions performed or omitted in good faith pursuant to the
provisions of this Article 16.
                   ----------

     (c)  Authority.  The Arbitration Panel shall (i) enforce and interpret the
          ---------
rights and obligations set forth in this Lease to the extent not prohibited by
law, (ii) fix and establish any and all rules as it shall consider appropriate
in its sole and absolute discretion to govern the proceedings before it,
including any and all rules of discovery, procedure and/or evidence, and (iii)
make and issue any and all orders, final or otherwise, and any and all awards,
as a court of competent jurisdiction sitting at law or in equity could make and
issue, and as it shall consider appropriate in its sole and absolute discretion,
including the awarding of monetary damages (but shall not award consequential
damages to either party and shall not award punitive damages except in
situations involving knowing fraud or egregious conduct condoned by, or
performed by, the person who, in essence, occupies the position which is the
equivalent of the chief executive officer of the party against whom damages are
to be awarded), the awarding of reasonable attorneys' fees and costs to the
prevailing party as determined by the Arbitration Panel and the issuance of
injunctive relief.  If the party against whom the award is issued complies with
the award, within the time period established by the Arbitration Panel, then no
Event of Default will be deemed to have occurred, unless the Event of Default
pertained to the non-payment of money by Tenant or Landlord, and Tenant or
Landlord failed to make such payment under protest.

     (d)  Appeal.  The decision of the Arbitration Panel shall be final and
          ------
binding, may be confirmed and entered by any court of competent jurisdiction at
the request of any party and may not be appealed to any court of competent
jurisdiction or otherwise except upon a claim of fraud on the part of the
Arbitration Panel, or on the basis of a mistake as to the applicable law.  The
Arbitration Panel shall retain jurisdiction over any dispute until its award has
been implemented, and judgment on any such award may be entered in any court
having appropriate jurisdiction.

     (e)  Compensation. Each member of the Arbitration Panel shall be
          ------------
compensated for any and all services rendered under this Article 16 at a rate of
                                                         ----------
compensation equal to the sum of (i) Two Hundred Fifty Dollars ($250.00) per
hour and (ii) the sum of Ten Dollars ($10.00) per

                                     -43-


hour multiplied by the number of full years of the expired term under this
Lease, plus reimbursement for any and all expenses incurred in connection with
the rendering of such services, payable in full promptly upon conclusion of the
proceedings before the Arbitration Panel. Such compensation and reimbursement
shall be borne by the nonprevailing party as determined by the Arbitration Panel
in its sole and absolute discretion.

     (f)  Exception.  Notwithstanding the foregoing, Landlord shall have the
          ---------
right to exercise its remedy of unlawful detainer against Tenant following the
failure of Tenant to pay any portion of the rent or other sums due hereunder,
and without regard to the other provisions of this Article 16.  In addition,
                                                   ----------
Landlord and Tenant hereby waive trial by jury in any action, proceeding or
counterclaim brought by either of them against the other or in connection with
any matter whatsoever arising out of or in connection with this Lease, the
relationship of Landlord and Tenant, Tenant's use or occupancy of the Premises
or any claim of injury or damage or the enforcement of any remedy under any
statute, or otherwise.

                                     -44-


     IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the
date specified in the Basic Lease Information.


"Landlord"                                   "Tenant"


WESTLAKE NORTH ASSOCIATES, LLC,              homestore.com, Inc.
a Delaware limited liability company         a Delaware corporation

By:  IDS Westlake North Associates,
     LLC, a California limited liability     By: /s/ John Giesecke
                                                 ----------------------
     company                                 Name: John Giesecke
                                                   ---------------------
                                             Its:  EVP & CFO
                                                   ---------------------

     By: /s/ David Mgrublian                 By: /s/ Catherine Giffen
        -------------------------                -----------------------
     Name: David Mgrublian                   Name: Catherine Giffen
           ----------------------                  ---------------------
     Its:  Managing Director                 Its:  SVP HR & ADMIN
           ----------------------                  ---------------------


                                     -45-


                                  EXHIBIT A-1
                                  -----------

                PLAN(S) OUTLINING THE PREMISES AND THE BUILDING
                -----------------------------------------------

This site plan is used solely for the purpose of identifying the approximate
location and size of the Premises.

                                  EXHIBIT A-1
                                      -1-


                                  EXHIBIT A-2
                                  -----------

                          PLAN OUTLINING THE PROJECT
                          --------------------------


This Project plan is used solely for the purpose of identifying the approximate
location, size and scope of the of the Project.  Building sizes, Project site
dimensions, access, common and parking areas, and existing tenants and locations
are subject to change at Landlord's discretion.

                                  EXHIBIT A-2
                                      -1-


                                   EXHIBIT B
                                   ---------
                             WORK LETTER AGREEMENT
                             ---------------------
                              (Tenant Constructs)

     This Work Letter Agreement ("Agreement") is being entered into as of March
7, 2000, between Westlake North Associates, LLC, a Delaware limited liability
company ("Landlord") and homestore.com, Inc., a Delaware corporation ("Tenant"),
in connection with the execution of the Lease ("Lease") between Landlord and
Tenant dated as of the date hereof and pertaining to space in Building I located
at 30700 Russell Ranch Road, Westlake Village, California ("Building").
Landlord and Tenant hereby agree as follows:

1.   General.
     -------

     1.1  Purpose of Agreement.  The purpose of this Agreement is to set forth
          --------------------
how certain interior improvements in the Building and in the Premises are to be
constructed, who will do such construction, who will pay for such construction,
and the time schedule for completion of such construction.

     1.2  Defined Terms.  Except as defined in this Agreement to the contrary,
          -------------
all capitalized terms used in this Agreement shall have the same meaning as in
the Lease.

     1.3  Lease Provisions.  The provisions of the Lease, except where clearly
          ----------------
inconsistent or inapplicable to this Agreement, are incorporated into this
Agreement.

     2.   Landlord's Work.  Landlord shall, at Landlord's sole cost and expense
          ----------------
and without any deduction from the Tenant Improvement Allowance described below,
perform the work necessary to construct the Building, including Base Building
Improvements ("Landlord's Work"), listed on the plans itemized on the attached
Schedule 1.  Tenant acknowledges receipt of a copy of said plans.  Landlord
- ----------
agrees to make no change to said plans which would reduce the size of the
Premises or reduce in any material way the quality of the Base Building
Improvements without Tenant's written consent.  Landlord agrees (i) to construct
the Base Building Improvements in substantial accordance with the plans therefor
and in compliance with all applicable laws, and (ii) to obtain warranties of
contractors and suppliers which are customary in the industry.

     3.   Tenant's Designer.  Tenant has elected to retain, at Tenant's sole
          -----------------
cost and expense, Wirt Design Group, Inc. as designer ("Tenant's Designer") to
prepare the Space Plan, Working Drawings and Final Plans (as defined in Sections
                                                                        --------
4.2, 4.3 and 4.5, respectively) for the Tenant Improvements (as defined in
- ----------------
Section 12.1).  Tenant's Designer shall be familiar with the Building and with
- -------------
all applicable laws, statutes, codes, rules or regulations, including
regulations and procedures promulgated by Landlord (collectively "Laws")
applicable to tenant construction in the Building.

                                   EXHIBIT B
                                      -1-


     4.   Plans and Specifications.
          ------------------------

     4.1  Tenant Improvement Manual. On or before the effective date of the
          -------------------------
Lease, Landlord shall deliver to Tenant the current instructions and
requirements for performing tenant improvement work in the Building titled
"Tenant Improvement Manual" dated January, 2000 ("Tenant Improvement Manual") to
allow Tenant's Designer to complete a Space Plan, Working Drawings and Final
Plans.

     4.2  Preparation and Approval of Space Plan.  Tenant shall submit to
          --------------------------------------
Landlord a space plan prepared by Tenant's Designer ("Space Plan") showing all
demising walls, corridors, entrances, exits, doors, stairwells, interior
partitions, and the locations of all offices, rooms and other spaces, including
any conference rooms, computer rooms, mini-service kitchens, and reception
areas.  Landlord acknowledges that Tenant wishes to design creative space
employing such features as exposed ceilings, limited private offices,
potentially removal of a portion of the second floor and an outdoor recreation
area.  Landlord agrees to cooperate with Tenant and Tenant's desire to achieve a
distinctive work environment which will enhance productivity and aid Tenant's
recruiting and employee retention programs.  As part of its efforts Tenant shall
have the right, subject to Landlord's consent, to redesign the common areas
(lobbies and restrooms) of the Building and the second floor of the Building,
subject to Section 6.3 of the Lease.
           -----------

     Within three (3) business days after Landlord receives the Space Plan,
Landlord shall by notice to Tenant either approve or disapprove the Space Plan,
such approval not to be withheld unreasonably.  Tenant shall make any changes
necessary to respond to any disapproval, including failure to comply with the
Design Criteria, and shall return the revised Space Plan to Landlord, who shall
approve or disapprove it within two (2) business days after Landlord receives
it.  This procedure shall be repeated until Landlord's final written approval of
the Space Plan has been delivered to Tenant. For purposes of approving the Space
Plan, Landlord shall not require that Tenant's lighting plan be perceived as
uniform when viewed from the outside of the Building

     4.3  Preparation and Approval of Working Drawings.  Following Landlord's
          --------------------------------------------
final approval of the Space Plan, Tenant shall submit to Landlord drawings
prepared by Tenant's Designer ("Working Drawings") which shall be compatible
with the design, construction and equipment of the Building (subject to Section
                                                                        -------
4.2), comply with all Laws, be capable of logical measurement and construction,
- ---
contain all information required for the preparation of the Engineering Drawings
(as defined in Section 4.4) and for the construction of the Tenant Improvements,
               -----------
including but not limited to all architectural plans and specifications and all
partition locations, plumbing locations, special air-conditioning requirements,
reflected ceiling plans, office equipment locations, security systems and
locations of electrical and computer outlets and all telephone switches and
outlets.

     Within five (5) business days after Landlord receives the Working Drawings
(or such portion as has from time to time been submitted), Landlord shall by
notice to Tenant either approve them or designate the specific changes
reasonably required to comply with the Design Criteria (subject to Section 4.2).
                                                                   -----------
Tenant shall make any changes required and shall return the revised Working
Drawings to Landlord, who shall approve or disapprove them within three (3)

                                   EXHIBIT B
                                      -2-


business days after Landlord receives them.  This procedure shall be repeated
until Landlord's final written approval of all of the Working Drawings has been
delivered to Tenant.

     4.4  Preparation and Approval of Engineering Drawings.  Tenant shall submit
          ------------------------------------------------
to Landlord for Landlord's review and approval (a) engineering drawings prepared
by R.M. Byrd & Associates, Inc. showing all structural steel modifications to
the base building within the Premises, (b) mechanical drawings prepared by an
engineer selected by Tenant and consented to by Landlord showing complete
mechanical, electrical and plumbing plans relating to the Tenant Improvements
and (c) telecommunications drawings prepared by an engineer or contractor
selected by Tenant and approved by Landlord showing all telecommunication and
computer cabling and all other engineering relating to the Tenant Improvements,
including any roof installation (collectively, "Engineering Drawings").

     Within five (5) business days after Landlord receives the Engineering
Drawings (or such portion as has from time to time been submitted), Landlord
shall by notice to Tenant either approve them or designate the specific changes
reasonably required to be made to the Engineering Drawings to comply with the
Design Criteria (subject to Section 4.2).  Tenant shall make any necessary
                            -----------
changes and shall return the revised Engineering Drawings to Landlord, who shall
approve or disapprove them within three (3) business days after Landlord
receives them.  This procedure shall be repeated until Landlord's final written
approval of all of the Engineering Drawings has been delivered to Tenant.

     4.5  Integration of Working Drawings and Engineering Drawings into Final
          -------------------------------------------------------------------
Plans.  After Landlord has finally approved the Engineering Drawings, Tenant
- -----
shall cause Tenant's Designer to integrate the approved Working Drawings with
the approved Engineering Drawings into final plans (collectively "Final Plans")
and deliver the Final Plans to Landlord.

     Within three (3) business days after Landlord receives the Final Plans,
Landlord shall by notice to Tenant either approve them or designate the specific
changes reasonably required to comply with the Design Criteria (subject to
Section 4.2) and prior approvals.  Tenant shall make any required changes and
- -----------
shall return the revised Final Plans to Landlord, who shall approve or
disapprove them within three (3) business days after Landlord receives them.
This procedure shall be repeated until Landlord's final written approval of the
Final Plans has been delivered to Tenant.

     4.6  Cost of Design and Engineering.  The cost of all architectural and
          ------------------------------
design work, as well as the cost of all engineering and all permits, licenses
and fees relating to the development of the Tenant Improvements, shall be paid
by Tenant, but may be deducted from the Tenant Improvement Allowance.

     4.7  Landlord's Review.  Tenant agrees and understands that Landlord shall
          -----------------
not be the guarantor of, or responsible for, the correctness or accuracy of the
Final Plans or compliance of the Final Plans with any Laws or for the
performance of Tenant's Designer and or Tenant's Contractor of the work related
to the design and construction of the Tenant Improvements.  However, Landlord
shall be responsible for the accuracy of the Base Building Plans, and in the
event of any delay in the time necessary for Tenant to obtain approval of the
Final Plans caused

                                   EXHIBIT B
                                      -3-


by material inaccuracies in the Base Building Plans, (i) the Anticipated
Commencement Date shall be delayed by the period of the delay Tenant
experiences, assuming that Tenant acts promptly to notify Landlord of any such
inaccuracy and does what it can reasonably do to avoid the consequences of the
delay and (ii) Landlord shall reimburse Tenant for the reasonable, additional
costs which it incurs and which are caused by such inaccuracies.

     4.8  Permits and Approvals.  Tenant shall be solely responsible (although
          ---------------------
Landlord agrees to cooperate at no cost to Landlord) for obtaining all
governmental approvals of the Final Plans to the full extent necessary for the
issuance of a building permit for the Tenant Improvements based on the Final
Plans.  Thereafter, Tenant shall also be solely responsible for obtaining all
other necessary approvals and permits, including temporary and permanent
certificates of occupancy, from all governmental agencies having authority over
the construction and installation of the Tenant Improvements and shall undertake
all steps necessary to insure that the construction of the Tenant Improvements
is accomplished in compliance with the Final Plans, all Laws and the
requirements and standards of any insurance underwriting board, inspection
bureau or insurance carrier insuring the Premises pursuant to the Lease.

     5.   Contractors and Subcontractors.  Contractors, subcontractors and other
          ------------------------------
agents engaged by Tenant, Tenant's Designer or Tenant's Contractor (as defined
below) from time to time to perform services with respect to the Tenant
Improvements shall be subject to Landlord's prior reasonable approval and shall
be subject to the Union Requirement.  Each of the contractors and subcontractors
listed in the Tenant Improvement Manual, if selected by Tenant in accordance
with the terms hereof, is deemed approved by Landlord for work in the Building.
All fire life safety work shall be performed by the fire life safety
subcontractor listed in the Tenant Improvement Manual.

     After Landlord has finally approved the Final Plans, Tenant shall then
submit the approved Final Plans for pricing to one or more licensed contractors
selected by Tenant and approved by Landlord.  Tenant shall select the contractor
("Tenant's Contractor") to construct the Tenant Improvements.  Tenant's
Contractor shall be duly licensed in the State of California and shall be
experienced in the construction of tenant improvements in similar office
buildings.

     Each contractor which Tenant proposed to use shall be notified in the bid
package that Landlord and Tenant require that such general contractor identify
all of the subcontractors it desires to use, which subcontractors shall be
mutually approved by Landlord and Tenant.  Tenant shall enter into a
construction contract with Tenant's Contractor, which contract shall provide for
a ten percent (10%) retention of each periodic progress payment.

     6.   Tenant's Contractors To Work in Harmony with Landlord's Contractors.
          -------------------------------------------------------------------
Tenant shall be solely responsible for the performance of all work performed by
Tenant's Contractor and any subcontractor, supplier and the like performing
services with respect to the Tenant Improvements.  At Landlord's reasonable
request, Tenant shall immediately remove from the Building any contractor or
subcontractor who causes conflict with any other contractor or subcontractor
acting under any union or other contract with Landlord or any other tenant, or
any contractor or subcontractor of Landlord or any other tenant, and in any
event, Tenant shall be solely responsible for resolving any such conflict.

                                   EXHIBIT B
                                      -4-


     7.   Construction of the Tenant Improvements.  Promptly following the
          ---------------------------------------
execution of the construction contract pursuant to Section 5, Tenant shall
                                                   ---------
direct Tenant's Contractor immediately to commence and proceed to complete, in
accordance with industry custom and practice, construction of the Tenant
Improvements in accordance with the Final Plans.  All Tenant Improvement work
shall be carried out in accordance with reasonable rules and regulations from
time to time promulgated by Landlord and in such manner as to minimize, as much
as reasonably possible, interference with the use of common areas of the
Building and, prior to the Delivery Date, with Landlord work not yet completed.
Such work shall be performed diligently in a first-class, workmanlike manner and
in accordance with all Laws.  Prior to commencing such work, Tenant shall
furnish Landlord with evidence satisfactory to Landlord that Tenant and Tenant's
Contractor are carrying workers' compensation insurance in statutorily required
amounts, comprehensive general liability insurance and all other insurance
required by the Lease.  Landlord shall have the right at all times to enter the
Premises to post notices of nonresponsibility.  Tenant shall ensure lien-free
completion of the Tenant Improvements, and Tenant shall comply with all
provisions of the Lease regarding liens. The construction of the initial Tenants
Improvements shall be subject to the provisions of Section 2.4 of the Lease
                                                   -----------
regarding Tenant's right to occupy the Premises for these purposes.

     Landlord or Landlord's agents shall have the right at all reasonable times
to inspect the work, it being understood that Landlord shall be reasonable in
its inspection of the work and that Landlord shall recognize, to the extent
commercially reasonable and practicable, the necessity of field changes based on
field conditions.  Such inspections shall not unduly interfere with the conduct
of Tenant's work.  If Landlord shall give notice of faulty construction or any
other deviation from the Final Plans, Tenant shall cause Tenant's Contractor to
make corrections promptly.  However, neither the privilege herein granted to
Landlord to make such inspections nor the making of such inspections by Landlord
shall operate as a waiver of any rights of Landlord to require good and
workmanlike construction of the Tenant Improvements in accordance with the Final
Plans.

     8.   Tenant Improvement Allowance.  Landlord will, for the initial premises
          ----------------------------
demised to Tenant under the Lease ("Initial Premises"), pay (i) $3,388,743 plus
(ii) an amount equal to the cost savings (determined reasonably by Landlord)
realized by Landlord on account of Landlord not having to construct any lobby
and restrooms which are otherwise a part of the Base Building Improvements on
account of a desire of Tenant to change the same as described in Subsection 4.2
                                                                 --------------
("Tenant Improvement Allowance") toward the Total Cost (as defined in Section
                                                                      -------
12.2) of the design, engineering and construction of the Tenant Improvements in
- ----
the Initial Premises.  Not more than ten (10%) percent of Tenant Improvement
Allowance may be utilized by Tenant towards the cost of programming, space
planning, design and to construction documentation.  Landlord will make payments
to Tenant's Contractor from the Tenant Improvement Allowance not more frequently
than once per month in an amount equal to ninety percent (90%) of the amount
requested by Tenant.  Landlord shall make each such payment to Tenant prior to
the end of the first full month following the month in which the Request For
Payment is received by Landlord but each such Request For Payment must be
received before the twenty-first (21/st/) day of the prior month.  Each Request
For Payment shall consist of: (1) Tenant's request for payment detailing the
amounts requested, (2) supporting bills, invoices and such other information as
Landlord may reasonably require, and (3) conditional lien releases

                                   EXHIBIT B
                                      -5-


supporting the amounts requested in the current month's application (in the form
specified in Civil Code Section 3262(d)(1)), together with unconditional
                        ------------------
releases supporting the amounts requested in the previous month's application
(in the form specified in Civil Code Section 3262(d)(2)), such releases to be
                                     ------------------
provided at Landlord's option, by subcontractors, suppliers and/or materialmen,
in addition to Tenant's Contractor. The remaining ten percent (10%) ("Retention
Amount") shall be paid to Tenant prior to the end of the first full month
following the month in which such final Request For Payment is received by
Landlord. Such final Request For Payment must be delivered before the 21/st/ day
of the prior month after the recording of a valid Notice of Completion of the
Tenant Improvements and receipt of conditional lien releases (in the form
specified in Civil Code Section 3262(d)(3)) from Tenant's Contractor,
                        ------------------
subcontractors, suppliers, and materialmen, provided, however, that (i) no
Retention Amount shall be withheld where the request is for the payment of an
invoice from a supplier who has no lien rights and (ii) the Retention Amount for
any given trade shall be paid by Landlord upon the satisfactory completion of
all of the work to be performed by that trade and Landlord's receipt of all lien
releases and any other supporting documentation reasonably requested by Landlord
with respect thereto.  In the event the Total Cost of the Tenant Improvements in
the Initial Premises exceeds the Tenant Improvement Allowance, the difference
shall be paid by Tenant after the Tenant Improvement Allowance has been
exhausted.  If the Total Cost of the Tenant Improvements is less than the Tenant
Improvement Allowance, the difference may be utilized by Tenant for its
furniture, fixtures and equipment.  The Tenant Improvements, whether or not the
cost thereof is covered by the Tenant Improvement Allowance, shall become the
property of Landlord upon expiration or earlier termination of the Lease and
shall remain on the Premises at all times during the Term of the Lease, except
as may be otherwise provided in the Lease.

          If Tenant notifies Landlord that it has failed to pay or reimburse in
a timely manner any portion of the Tenant Improvement Allowance required to be
paid or reimbursed hereunder, and if such failure continues for fifteen (15)
days after such notice, then (i) if within the fifteen (15) day period Landlord
does not dispute such failure by notice to Tenant or pay the disputed amount,
Tenant shall have the right to offset the disputed amount from the rent
otherwise payable to Landlord under the Lease, together with interest thereon at
the Interest Rate from the date of Tenant's notice until the date of offset, and
(ii) if Landlord disputes such failure by notice to Tenant within such fifteen
(15) day period, the dispute shall be resolved by arbitration pursuant to
Section 16 of the Lease.  If Tenant prevails in the arbitration, Tenant shall
- ----------
have the right to offset the amount of its judgment against the rent otherwise
payable to Landlord under the Lease.  Except as provided above, Tenant shall
have no right to offset payments or reimbursements due from Landlord under this
Exhibit B against rent due under the Lease.
- ---------

     9.   Change Orders.  Tenant may from time to time in writing request or
          -------------
approve changes to the Final Plans (each, a "Change Order").  Except as set
forth below, no Change Order will be effective without Landlord's prior written
consent.  Landlord shall only withhold its consent to any Change Order if the
Change Order does not comply with the Design Criteria.  Tenant shall pay for
each Change Order out of the Tenant Improvement Allowance and, to the extent the
then unallocated portion, if any, of the Tenant Improvement Allowance is not
sufficient, Tenant shall pay for each such Change Order from its own funds.

                                   EXHIBIT B
                                      -6-


          Landlord shall respond to Tenant's request for a Change Order within
three (3) business days after all documentation reasonably required by Landlord
has been delivered to those persons whom Landlord desires to consider the same -
in the absence of such response, the Change Order in question shall be deemed
approved.  Furthermore, notwithstanding anything to the contrary set forth
herein, Tenant shall notify Landlord of, but not be required to obtain
Landlord's prior written consent with respect to, any Change Order which does
not affect the structure of the Building or the Building systems and does not
involve anything which can be seen from the exterior of the Building so long as
it does not cost in excess of $5,000.00.

     10.  Default.  Any default by Tenant under the terms of this Agreement
          -------
shall constitute a default under the Lease and shall entitle Landlord to
exercise all remedies set forth in the Lease.  Tenant shall have any and all
rights to remedy such default pursuant to the provisions of the Lease.

     11.  Landlord's Oversight Fee.  Landlord shall be paid a fee of $101,662.29
          ------------------------
for Landlord's performance of its review obligation under this Agreement,
payable ratably as Tenant's work progresses.  In addition, Tenant shall
reimburse Landlord for up to ten thousand dollars ($10,000) of the cost of
outside consultants, including without limitation structural, mechanical and
electrical engineers, required in connection with Tenant's design and
construction of the Tenant Improvements. Landlord may deduct these amounts from
the Tenant Improvement Allowance.  Landlord's construction manager shall
safeguard the interests of Tenant as well as represent Landlord.

     12.  Certain Definitions.
          -------------------

     12.1 Tenant Improvements.  "Tenant Improvements" means all improvements
          -------------------
shown on the Final Plans as modified by any Change Order approved by Landlord,
but Tenant Improvements shall not include any of Tenant's furniture, telephone
systems, computer systems or other personal property.

     12.2 Total Cost.  "Total Cost" includes (a) all design and engineering fees
          ----------
incurred in connection with the preparation of the Space Plan, Working Drawings,
Engineering Drawings and Final Plans (including the cost of Landlord's
consulting engineers and other consultants subject to the limitation set forth
in Section 11 above), (b) costs of permits, fees and taxes, (c) testing and
   ----------
inspecting costs, (d) the actual costs and charges for material and labor,
contractor's profit and contractor's general overhead incurred by Tenant in
having the Tenant Improvements constructed, (e) Landlord's oversight fee under
Section 11 and (f) all other costs incurred in connection with the design and
- ----------
construction of the Tenant Improvements.

     13.  Labor.  All workers who perform work on the Project which is paid for,
          -----
in whole or in part, with the proceeds of the Tenant Allowance must be members
in good standing of the union having jurisdiction over the trade work being
performed, if applicable, and each contractor performing such work on the
Project must be a party to a union contract, if the type of work performed by
the contractor is covered by the Union Requirement.  The "Union Requirement" is
the obligation to (a) be a party to or bound by a collective bargaining
agreement with a labor organization affiliated with Building and Construction
Trade Department of the AFL-CIO, if

                                   EXHIBIT B
                                      -7-


applicable, to the trade or activity in question which is paid for, in whole or
in part, with the proceeds of the Tenant Allowance, and (b) employ only workers
of such labor organizations to perform work within their respective
jurisdictions.

     14.  Reasonable Diligence.  Both Landlord and Tenant agree to use
          --------------------
reasonable diligence in performing all of their respective obligations and
duties under this Agreement and in proceeding with the construction and
completion of all Tenant Improvements in the Premises.

     15.  Clean-Up Expenses.  Landlord shall clean its work areas in the
          -----------------
Premises immediately prior to the Delivery Date for the continuation of the
construction of the Tenant Improvements.

     16.  No Miscellaneous Charges.  Neither Tenant nor its contractor shall be
          ------------------------
charged for, and Landlord shall provide, parking for Tenant's architects,
designers, contractors and subcontractors (including those people working on the
Tenant Improvements) or for the use of electricity, water, toilet facilities,
HVAC, security, elevators [and/or hoists] during the construction period or the
move-in period.  All such equipment, areas, elevators and utilities shall be
made reasonably available to Tenant's contractor and the subcontractors during
the construction period and the move-in period.  In this connection the HVAC
systems for the Premises shall be run prior to the Commencement Date only for
testing and balancing purposes.

                                   EXHIBIT B
                                      -8-


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


                             LANDLORD:

                              WESTLAKE NORTH ASSOCIATES, LLC,
                              a Delaware limited liability company

                              By:  IDS Westlake North Associates, LLC, a
                                   California limited liability company

                                 By:    /S/  David Mgrublian
                                        ---------------------------
                                 Name:  David Mgrublian

                                 Its:   /S/  Managing Director
                                        ---------------------------

                                 Date:
                                        ---------------------------


                              TENANT:

                              homestore.com, Inc.
                              a Delaware corporation

                              By:    /S/  John Giesecke
                                     ---------------------------
                              Name:  John Giesecke

                              Its:   EVP & CFO
                                     ---------------------------

                              By:    /S/  Catherine Giffen
                                     ---------------------------
                              Name:  Catherine Giffen

                              Its:   SVP HR & ADMIN
                                     ---------------------------

                              Date:
                                     ---------------------------

                                   EXHIBIT B
                                      -9-


                                  SCHEDULE 1
                                      TO
                             WORKLETTER AGREEMENT

                   Description of Base Building Improvements

                                  SCHEDULE 1
                                      -1-


                                   EXHIBIT C
                                   ---------

                          MEMORANDUM CONFIRMING TERM
                          --------------------------

     THIS MEMORANDUM, made as of _______________, ____, by and between WESTLAKE
NORTH ASSOCIATES, LLC, a Delaware limited liability company ("Landlord"), and
homstore.com, Inc. ("Tenant").

                             W I T N E S S E T H:

     Recital of Facts:
     -----------------

     Landlord and Tenant entered into the Lease (the "Lease") dated _______,
2000. Words defined in the Lease have the same meanings in this Memorandum.

     NOW, THEREFORE, in consideration of the covenants in the Lease, Landlord
and Tenant agree as follows:

     1.   Landlord and Tenant hereby confirm that:

     (a)  The Commencement Date under the Lease is  ______________________,
___________;

     (b)  The Expiration Date under the Lease is  ______________________,
___________; and

     (c)  The date on which Tenant's obligation to pay rent begins under the
Lease is  ______________________, ___________.

     2.   Tenant hereby confirms that:

     (a)  All commitments, representations and assurances made to induce Tenant
to enter into the Lease have been fully satisfied;

     (b)  All improvements to the Project and in the Premises to be constructed
or installed by Landlord have been completed and furnished in accordance with
the Lease to the satisfaction of Tenant other than minor punch list items of
which Tenant has notified Landlord, although Landlord shall not hereby be
released from its obligation to pay for latent defects in the Base Building
Improvements which are unknown to Tenant; and

     (c)  Tenant has accepted and is in full and complete possession of the
Premises.

     3.   This Memorandum shall be binding upon and inure to the benefit of
Landlord and Tenant and their permitted successors and assigns under the Lease.
The Lease is in full force and effect.

                                   EXHIBIT C
                                      -1-


     IN WITNESS WHEREOF, Landlord and Tenant have executed this Memorandum as of
 the date first hereinabove written.

"Landlord"                                   "Tenant"


WESTLAKE NORTH ASSOCIATES, LLC,              homestore.com, Inc.,
a Delaware limited liability company         a Delaware corporation


By   IDS Westlake North Associates,          By: __________________________
     LLC, a California limited liability     Name: ________________________
     company                                 Its: _________________________


     By: __________________________          By: __________________________
     Name: ________________________          Name: ________________________
     Its: _________________________          Its: _________________________

                                   EXHIBIT C
                                      -2-


                                   EXHIBIT E

                             RULES AND REGULATIONS
                             ---------------------

     1.   The sidewalks, entrances, exits, passages, parking areas, courts,
elevators, vestibules, stairways, corridors, terraces, lobbies or halls shall
not be obstructed or used for any purpose other than ingress and egress.  No
Tenant or Tenant's Employee shall go up on the roof of the Building except as
specifically permitted by the Lease.

     2.   No curtains, blinds, shades or screens shall be attached to or hung
in, or used in connection with, any window of the Premises other than Landlord's
standard window covering without Landlord's prior consent.  All electric ceiling
fixtures hung in offices or spaces along the perimeter of the Building must be
consistent with the initial plan for the Building, of a quality, type, and
design and bulb color approved by Landlord.  Neither the interior nor exterior
of any windows shall be coated or otherwise sun-screened without consent of
Landlord.

     3.   No signs, picture, placard, advertisement, notice, lettering,
direction or handbill shall be exhibited, distributed, painted, installed,
displayed, inscribed, placed or affixed by any Tenant on any part of the
exterior of Premises or the interior of the Premises which is visible from the
exterior of the Premises, the Building or the Project without the prior consent
of Landlord.  In the event of the violation of the foregoing by any Tenant,
Landlord may remove or dispose of same without any liability, and may charge the
expense incurred in such removal to the Tenant violating this rule.

     4.   Tenant shall not drill into, or in any way deface any part of the
Premises.  No boring, cutting or stringing of wires or laying of linoleum or
other similar floor coverings shall be permitted, except with the prior consent
of the Landlord.

     5.   No vehicles, birds or animals of any kind shall be brought into or
kept in or about the Premises or the Building. Tenant may operate a cafeteria in
the Premises, subject to compliance with the Design Criteria.

     6.   The Premises shall not be used for manufacturing or for the storage of
merchandise except as such storage may be incidental to the use of the Premises
for general office purposes.  No Tenant shall occupy or permit any portion of
the Premises to be occupied for the manufacture or sale of liquor, narcotics, or
tobacco in any form, or as a medical office, or as a barber or manicure shop, or
as an employment bureau, or as a travel agency, without the consent of Landlord.
Tenant shall not sell or permit the sale of newspapers, magazines, periodicals,
theater tickets or any other goods or merchandise in or on the Premises other
than to its employees.  The Premises shall not be used for lodging or sleeping
or for any illegal purposes.

     7.   No Tenant shall make, or permit to be made, any unseemly noises which
disturb other occupants of the Project, whether by the use of any musical
instrument, radio, television, phonograph, screening room, loud, unusual or
disruptive noise, or in any other way.  No Tenant shall use, keep or permit to
be used any foul or noxious gas or substance in, on or about the Premises.

                                   EXHIBIT E
                                      -1-


     8.   No Tenant nor any of Tenant's Employees shall at any time bring or
keep within the Premises or the Building any flammable, combustible or explosive
fluid, chemical substance, or material. Electric space heaters shall not be used
at any time by Tenant.

     9.   Tenant must furnish Landlord with keys to all parts of the Premises
other than security areas.  Tenant must, upon the termination of its tenancy,
give, return, and restore to Landlord all keys of stores, offices, vaults, and
toilet rooms, either furnished to, or otherwise procured by Tenant, and in the
event at any time of any loss of keys so furnished, Tenant shall pay to Landlord
the cost of replacing the same or of changing the lock or locks opened by such
lost key if Landlord shall deem it necessary to make such changes.

     10.  No furniture shall be placed in front of the Building without the
prior written consent of Landlord.  Landlord shall have the right to remove all
non-permitted furniture, without notice to Tenant, and at the expense of Tenant.

     11.  No Tenant shall purchase water, ice, towel, janitorial or maintenance,
or other like services, from any person or persons disapproved in writing by the
Landlord.  No Tenant shall obtain or purchase food or beverages on the Project
from any vendor or supplier except at hours and under regulations fixed by
Landlord.

     12.  The Building may not be contained in any advertising sponsored or
permitted by Tenant without Landlord's prior approval, which it may condition or
withhold for any reason.

     13.  Tenant shall be responsible for all persons whom it causes to be
present in the Building and shall be liable to Landlord for all acts of such
persons.  In the case of invasion, riot, public excitement, act of God, or other
circumstance rendering such action advisable in Landlord's opinion, Landlord
reserves the right to prevent access of all persons, including Tenant, to the
Building during the continuance of the same by such actions as Landlord may deem
appropriate, including the closing and locking of doors.

     14.  Any persons employed by Tenant to do any work in or about the Premises
shall, while in the Building and outside of the Premises, be subject to and
under the control and direction of the superintendent of the Building (but shall
not be deemed to be an agent or servant of said superintendent or of the
Landlord), and Tenant shall be responsible for all acts of such persons.

     15.  Canvassing, soliciting and peddling in the Building are prohibited and
each Tenant shall cooperate to prevent the same.

     16.  No air-conditioning unit or other similar apparatus shall be installed
or used by Tenant without the consent of Landlord.

     17.  Tenant shall faithfully observe and comply with the terms of any and
all covenants, conditions and restrictions recorded against the Project.

     18.  In the event the Building or the Premises is or later becomes equipped
at Landlord's expense (including through use of the Tenant Allowance) with an
electronic access control

                                   EXHIBIT E
                                      -2-


device, Tenant shall give Landlord the sum of twenty-five dollars ($25.00) for
each identification key or card issued to Tenant as a deposit against the return
of the identification key or card to Landlord.

     19.  For all purposes of this Exhibit, the term "Tenant" shall include and
encompass Tenant's Employees and Tenant's contractors.

                                   EXHIBIT E
                                      -3-


                                   EXHIBIT F

                   OPTION TO EXTEND/FAIR MARKET RENTAL RATE
                   ----------------------------------------

     1.   OPTION.  Tenant shall have two options to extend the term of this
          ------
Lease (the "Renewal Options") on all the provisions contained in this Lease
except as to the Rent, except as otherwise provided herein.  The first Renewal
Option shall be for an additional five (5) year period (the "First Option Term")
following the expiration of the initial Term set forth in Section 2.1 of the
                                                          -----------
Lease (the "Initial Term"). The second Renewal Option shall be for an additional
five (5) year period (the "Second Option Term") following expiration of the
initial Term, as extended by the First Option Term. A Renewal Option shall be
solely exercised by Tenant giving written notice of its exercise of the Renewal
Option (the "Option Notice") to Landlord at least twelve (12) months, but not
more than fifteen (15) months, before the expiration of the Initial Term (or, in
the case of the Second Option Term, on or before twelve (12) months, but not
more than fifteen (15) months, before the expiration of the First Option Term).
If such Option Notice is not sent during such three (3) month period, such
Renewal Option shall be null and void and in no event shall Tenant have any
right to extend the Term or renew the Lease. Tenant may not exercise the Renewal
Option for the Second Term Option Term unless it has first exercised the Renewal
Option for the First Option Term. At Tenant's request made at any time during
the three (3) month period prior to the last date for exercise of each Renewal
Option, Landlord will negotiate with Tenant in good faith the Fair Market Rental
Rate for the Option Term in question.

     2.   OPTION PERSONAL.  The Renewal Options are personal to Tenant and may
          ---------------
not be exercised or assigned, voluntarily or involuntarily, by, or to, any
person or entity other than Tenant.  The Renewal Options are not assignable
separate and apart from this Lease.  In the event that, at the time the Renewal
Option is exercisable by Tenant, this Lease has been assigned other than to an
affiliate, or a sublease or subleases exist as to thirty-five percent (35%) or
more of the Premises other than to an affiliate, the Renewal Options shall be
deemed null and void and none of Tenant, any assignee, or any sublessee shall
have the right to exercise the Renewal Options.

     3.   EFFECT OF DEFAULT ON RENEWAL OPTIONS.  Tenant shall have no right to
          ------------------------------------
exercise a Renewal Option (a) if, at the time permitted for the exercise of such
Renewal Option, or at the commencement of an Option Term, an Event of Default
exists under any of the provisions of this Lease or a notice of default has been
given by Landlord and the default described in the notice is not cured by Tenant
within the time permitted in this Lease for cure, if any, or (b) in the event
that Landlord has given to Tenant two (2) or more notices of default under this
Lease during the twelve (12) month period prior to the time that Tenant attempts
to exercise the Renewal Option.

     4.   BASIC RENT DURING THE OPTION TERM.  Tenant shall pay to Landlord, as
          ---------------------------------
Base Rent for the Premises during each Option Term, the Fair Market Rental Rate,
which means the rental rate (including all applicable rental increases and
tenant concessions) being charged to tenants in new, direct lease, non-equity
transactions as of six (6) months prior to the

                                   EXHIBIT F
                                      -1-


commencement of the Option Term in question for comparable, unencumbered space
by Landlord in the Project and for comparable, unencumbered space in similar
buildings in the vicinity of the Project, with similar amenities, taking into
consideration the size, location, floor level, the proposed term of the Option
Term, the extent of the services to be provided, CAM Expenses and Property
Taxes, credit enhancements, the security deposit, the value of existing tenant
improvements and any other relevant terms and conditions, in each instance
taking into account any so-called "free rent" and any other "tenant concessions"
then being offered to prospective new tenants in the Project or comparable
buildings. For purposes of the foregoing determination, the parties and any
arbitrator shall assume that (i) no free rent is granted in comparable
transactions for any period prior to the date when the Tenant takes possession
of the premises after having completed its tenant improvements and (ii) the
space in question has been built out for a general office use. All Rent payable
during each Option Term shall be payable in the same manner and under the same
terms and conditions as Rent is paid during the Initial Term.

     5.   DOCUMENTATION.  Landlord and Tenant shall execute and deliver
          -------------
appropriate documentation to evidence any renewal of the Lease and the terms and
conditions of the Lease during an Option Term.  Landlord shall bear the cost of
its attorneys and personnel in documenting such renewal.

     6.   TERMS.  All terms used in this Exhibit, unless otherwise defined in
          -----
this Exhibit, shall have the same meaning as the terms defined in the Lease.

     7.   FAIR MARKET RENTAL RATE.  Landlord shall determine the Fair Market
          -----------------------
Rental Rate using its good faith judgment. Landlord shall use its best efforts
to provide written notice of such amount within thirty (30) days (but in no
event later than sixty (60) days) after Tenant sends the Option Notice to
Landlord exercising a Renewal Option. Tenant shall have fifteen (15) days (the
"Tenant's Review Period") after receipt of Landlord's notice of the new rental
within which to accept such rental or to reasonably object thereto in writing.
In the event Tenant objects, Landlord and Tenant shall attempt to agree upon
such Fair Market Rental Rate, using their best good faith efforts. If Landlord
and Tenant fail to reach agreement within fifteen (15) days following Tenant's
Review Period (the "Outside Agreement Date"), then each party shall place in a
separate sealed envelope their final proposal as to Fair Market Rental Rate and
such determination shall be submitted to arbitration in accordance with
subsections (a) through (e) below. Failure of Tenant to so elect in writing
within Tenant's Review Period shall conclusively be deemed its rejection of the
new rental determined by Landlord. In the event that Landlord fails to timely
generate the initial written notice of Landlord's opinion of the Fair Market
Rental Rate which triggers the negotiation period of this provision, then Tenant
may commence such negotiations by providing the initial notice, in which event
Landlord shall have fifteen (15) days ("Landlord's Review Period") after receipt
of Tenant's notice of the new rental within which to accept such rental. In the
event Landlord does not give its written consent to Tenant's proposed rental in
timely fashion, such proposed rental shall be deemed rejected and Landlord and
Tenant shall attempt in good faith to agree upon such Fair Market Rental Rate,
using their best good faith efforts. If Landlord and Tenant fail to reach
agreement within fifteen (15) days following Landlord's Review Period (which
shall be, in such event, the "Outside Agreement Date" in lieu of the above
definition of such date), then each party shall

                                   EXHIBIT F
                                      -2-


place in a separate sealed envelope its final proposal as to Fair Market Rental
Rate and such determination shall be submitted to arbitration in accordance with
subsections (a) through (e) below.

     (a)  Landlord and Tenant shall meet with each other within five (5)
business days of the Outside Agreement Date and exchange the sealed envelopes
and then open such envelopes in each other's presence. If Landlord and Tenant do
not mutually agree upon the Fair Market Rental Rate within one (1) business day
of the exchange and opening of envelopes, then, within ten (10) business days of
the exchange and opening of envelopes Landlord and Tenant shall agree upon and
jointly appoint a single arbitrator who shall by profession be a real estate
broker who shall have been active over the five (5) year period ending on the
date of such appointment in the leasing of commercial properties in the vicinity
of the Building. Neither Landlord nor Tenant shall consult with such broker as
to his or her opinion as to Fair Market Rental Rate prior to the appointment.
The determination of the arbitrator shall be limited solely to the issue of
whether Landlord's or Tenant's submitted Fair Market Rental Rate for the
Premises is the closer to the actual Fair Market Rental Rate for the Premises as
determined by the arbitrator, taking into account the requirements of this
Exhibit regarding same. Such arbitrator may hold such hearings and require such
briefs as the arbitrator, in his or her sole discretion, determines is
necessary.

     (b)  The arbitrator shall, within thirty (30) days of his or her
appointment, reach a decision as to whether the parties shall use Landlord's or
Tenant's submitted Fair Market Rental Rate, and shall notify Landlord and Tenant
thereof.

     (c)  The decision of the arbitrator shall be binding upon Landlord and
Tenant, except as provided below.

     (d)  If Landlord and Tenant fail to agree upon and appoint an arbitrator,
then the appointment of the arbitrator shall be made by the Presiding Judge of
the Los Angeles Superior Court, or, if he or she refuses to act, by any judge
having jurisdiction over the parties.

     (e)  The cost of arbitration shall be paid by Landlord and Tenant equally.

     (8)  Exceptions.  While the terms of this Lease (other than Rent) are
          ----------
applicable to each Option Term, the provisions of the Work Letter Agreement are
not, and the provisions of the Work Letter Agreement shall not apply during any
Option Term.  In addition, there shall be no right to extend the Term of this
Lease beyond the end of the Second Option Term.

                                   EXHIBIT F
                                      -3-


                                   EXHIBIT I

                             RIGHT OF FIRST OFFER
                             --------------------

                         (Leasing and Sale of Project)

     1.   Leasing.
          -------

     (a)  After the Lease has been executed and delivered by Landlord and
Tenant, Landlord shall notify Tenant if Landlord has a bona fide prospective
tenant for more than twenty percent (20%) of the space on the second floor of
Building II or any space in Building III (the "Lease Option Space"). The notice
("Landlord's Notice") shall identify (i) the Lease Option Space together with
all other space then available for lease in the Building in which the Lease
Option Space is located (together with the Lease Option Space, the "Available
Space"), (ii) the term of the proposed lease, which shall begin as provided
below and shall end two (2) years after the expiration of the Lease (with
options comparable to those under the Lease, although the failure of Tenant to
exercise a Lease option shall void contemporaneous or future options under a
lease of the Lease Option Space or Available Space); (iii) the Base Rent it
proposes for the Lease Option Space and the Available Space; (iv) the Tenant
Improvement Allowance which it proposes to give for the Lease Option Space and
the Available Space; (v) the date anticipated for delivery of the Lease Option
Space and the Available Space to Tenant for the construction of its tenant
improvements; (vi) the period anticipated for the construction of tenant
improvements and the date for rent commencement, which in each case shall be
commercially reasonable given when the Lease Option Space and the Available
Space are scheduled for delivery; and (vii) any other terms it proposes to seek
for the Lease Option Space and the Available Space which are different from the
terms of this Lease. Together with all of the terms of this Lease which are not
inconsistent with the foregoing [including, without limitation, a letter of
credit and security deposit which are comparable and proportional to those in
this Lease], the provisions in clauses (i) through (vii) are referred to herein,
collectively, as the "Lease Option Terms". Tenant shall have the right,
exercisable within five (5) business days after its receipt of Landlord's
Notice, to notify Landlord that Tenant: (A) agrees to lease the Lease Option
Space or the Available Space on the Lease Option Terms or (B) agrees to lease
the Lease Option Space or the Available Space on "Negotiated Terms", which means
all the Lease Option Terms other than those described in clauses (iii), (iv),
(vi) and (vii) thereof, which would be as negotiated between Landlord and Tenant
and, in the absence of agreement, determined by arbitration pursuant to Section
16. In its notice (if any), Tenant shall specify whether it wishes to lease just
the Lease Option Space or the Available Space.

          (A)  If Landlord's Notice is as to Building II, Tenant shall have no
     further rights under this Section 1 with respect to any Available Space in
                               ---------
     Building. II as to which it does not exercise its option.

          (B)  If Landlord's Notice is as to Building III, and the Lease Option
     Space identified in Landlord's Notice represents twenty percent (20%) or
     more of the Available Space in Building III, Tenant shall have no further
     rights under this Section 1 with
                       ---------

                                   EXHIBIT I
                                      -1-


     respect to any Available Space in Building III as to which it did not
     exercise its option. In such case, Landlord may lease any unleased
     Available Space to any third party on such terms as it elects, without
     reference to this Exhibit I. However, if the Lease Option Space identified
                       ---------
     in Landlord's Notice is less than twenty percent (20%) of the Available
     Space in Building III, then the provisions of this Section 1 shall continue
                                                        ---------
     to apply to any other space in Building III as to which Tenant does not
     exercise its option and as to which Landlord has a bona fide prospective
     tenant; provided, that if Tenant did not exercise its option as to the
     Lease Option Space, Landlord may lease such space as provided in the
     preceding sentence.

     In the event that Tenant exercises its option to lease the Lease Option
Space, it shall deposit with Landlord an amount equal to twelve (12) months'
rent for the Lease Option Space, determined from the proposal in clause (iii)
above.  In the event that Tenant is required to enter into a lease of such space
but does not do so within ten (10) days after the last date for execution of
such lease (which shall be the time set forth in paragraph (b) below, but in the
event of an arbitration of a term of the new lease subject to arbitration, then
ten (10) business days following the presentation to Tenant by Landlord of an
execution copy of a lease which is consistent with the terms of the decision in
such arbitration), then Tenant shall be deemed in default hereunder and, among
its other remedies, Landlord shall have the right to terminate Tenant's rights
with respect to the Lease Option Space and any further rights of Tenant under
this Section 1.
     ---------

     (b)  If Tenant notifies Landlord in timely fashion of its agreement to
lease the Lease Option Space on the Lease Option Terms, then Landlord shall
deliver to Tenant within ten (10) business days a form of lease and related
documents in order to memorialize the lease of the Lease Option Space. The terms
of such lease shall be on the Lease Option Terms plus such additional terms (the
"implementing terms") as are necessary to implement the new lease, in Landlord's
judgment, in a fair and reasonable manner (for example, Tenant's Percentage
under the new lease shall be the RSF of the new premises divided by the RSF of
the building in which the new premises are located.) The parties shall execute
and deliver the new lease and related documents (including delivery by Tenant of
the required letter of credit) within fifteen (15) business days after Tenant's
notice to Landlord. Any disputes regarding the implementation of this paragraph
(b) shall be determined by arbitration in accordance with Section 16 of the
                                                          ----------
Lease.

     (c)  If Tenant notifies Landlord that it elects Negotiated Terms for the
new lease, then the parties shall promptly negotiate in good faith those terms
of the new lease which are subject to negotiation (i.e., the terms in clauses
(iii), (iv), (vi) and (vii) of paragraph (a) above). If the parties have not
agreed on all of such terms within thirty (30) days after Tenant's notice to
Landlord, at the election of either party such terms of the new lease shall be
determined by arbitration in accordance with Section 16. For this purpose, each
                                             ----------
party shall submit to the other, within ten (10) days after request of either of
them, a comprehensive proposal for all of the terms subject to negotiation. Each
party's proposal shall then be submitted to arbitration, and the arbitrator
shall determine which party's proposal, together with the provisions of the
Lease Option Terms which are otherwise applicable, most nearly approximates the
Fair Rental Value of the Lease Option Space. The Fair Rental Value of the Lease
Option Space means (1) the binding Lease Option Terms which are otherwise
applicable, (2) one hundred five percent (105%) of (x) the rental rate
(including all applicable rental increases and tenant concessions) being charged
to

                                   EXHIBIT I
                                      -2-


tenants in new, direct lease, non-equity transactions as of six (6) months prior
to the commencement of the Lease Option term in question for comparable,
unencumbered space by Landlord in the Project or, if not enough comparable
transactions exist in the Project, then (y) the rental rate being charged to
tenants in new, direct lease, non-equity transactions as of the commencement of
the Lease Option term in question for comparable, unencumbered space in similar
buildings in the vicinity of the Project, with similar amenities, taking into
consideration the size, location, floor level, the proposed term of the Option
Term, the extent of the services to be provided, CAM Expenses and Property
Taxes, credit enhancements, the security deposit, the value of existing tenant
improvements and any other relevant terms and conditions, in each instance
taking into account any so-called "free rent" and any other "tenant concessions"
then being offered to prospective new tenants in the Project or comparable
buildings and (3) otherwise, on the implementing terms. Landlord's judgment as
to the implementing terms shall control unless the arbitrator determines such
judgment to have been unreasonable.

     2.   Sale.  In the event Landlord desires to sell its interest in the
          ----
Project or the Building, it shall first notify Tenant of such desire.  If Tenant
promptly notifies Landlord of Tenant's desire to purchase Landlord's interest in
the Project or the Building (whichever was the subject of Landlord's notice),
then for a period of thirty (30) days after Landlord's notice to Tenant,
Landlord and Tenant shall negotiate in good faith the sale of Landlord's
interest in the Project to Tenant.  If a fully binding, written agreement
containing all of the terms and provisions of a sale of Landlord's interest in
the Project or the Building to Tenant is not executed and delivered by Landlord
and Tenant within such thirty (30) day period, Landlord shall be free to sell
all or any portion of its interest in the Project or the Building at any price
and on any terms, regardless of whether such price or terms are similar or
dissimilar to those discussed by Landlord and Tenant.  In addition, Tenant shall
have no further rights under this Section 2.  The right in this Section 2 is
                                  ---------                     ---------
personal to Tenant and may not be assigned or otherwise transferred either with
or without a transfer of Tenant's interest in this Lease.

                                   EXHIBIT I
                                      -3-


                                   EXHIBIT J

                               CLEANING SCHEDULE
                               -----------------

OFFICE AREAS:
- ------------

NIGHTLY SERVICES - FIVE (5) NIGHTS PER WEEK
- -------------------------------------------

     .    Empty wastebaskets, ashtrays and other trash receptacles. Ashtrays are
          to be wiped clean. Trash is to be removed from building to designated
          pick-up area.

     .    All chairs and wastebaskets to be returned to proper position after
          cleaning.

     .    Dust mop all composition floors with specially treated dust mops.

     .    Vacuum carpets.

     .    Thoroughly dust desks, office furniture and office accessories. Desk-
                                                                          -----
          top papers, desk accessories are not to be moved.
          ------------------------------------------------

     .    Remove fingerprints, soil smudges from doors, door frames and wall-
          switch plates.

     .    Spot-clean entrance door glass and all partition glass.

     .    Clean glass desk tops. Desk tops must be completely cleared of all
                                 -------------------------------------------
          papers.
          ------

PUBLIC AREAS:
- ------------

NIGHTLY SERVICES - FIVE (5) NIGHTS PER WEEK
- -------------------------------------------

     .    Clean, polish and sanitize drinking fountains.

     .    Dust-mop all composition floors with specially treated dust mop. Damp-
          mop and buff, as necessary.

     .    Thoroughly vacuum all corridor carpets.

     .    Remove fingerprints, soil smudges from doors, door frames and wall-
          switch plates.

     .    Empty wastebaskets, ashtrays and other trash receptacles. Ashtrays are
          to be wiped clean. Trash is to be removed from building to designated
          pick-up area. (Trash removal from building to be provided by outside
          trash-removal vendor.)

     .    Spot-clean entrance door glass and all partition glass.

                                   EXHIBIT J
                                      -1-


     .    Clean and polish elevator doors and control panels. Thoroughly clean
          inside of elevator cabs. Vacuum door tracks and saddles.

     .    Sand jars to be wiped clean and fine-screened.

     .    Spot-mop traffic areas for spillage.

     .    Police all outside entrance-ways to building lobby.


OFFICE AND PUBLIC AREAS:
- -----------------------

WEEKLY SERVICES - ONCE PER WEEK
- -------------------------------

     .    Completely dust all low-reach areas, chair rungs and inside of door
          jambs.

     .    Completely dust window sills, window ledges, door louvers and wood
          paneling modeling, handrails and railings.

     .    Dust levelor blinds where applicable.

     .    Clean and polish entrance door metal and thresholds.

     .    Clean fire extinguishers and/or fire hose cabinets; dust and clean
          cabinet glass.

     .    Remove all spots, smudges, and marks from doors, partitions, walls,
          woodwork, window frames, mullions and ledges, wall switches and outlet
          plugs on floors and walls.

     .    Police all stairways throughout building.

     .    Clean all baseboards.

     .    Clean and sanitize telephones.


MONTHLY SERVICES - ONCE PER MONTH
- ---------------------------------

     .    Dust all high-reach areas; door frames, door tops and partitions.

     .    Dust all picture moldings, frames and blinds.

     .    Clean fire extinguishers and/or fire hose cabinets; dust and clean
          cabinet glass.

                                   EXHIBIT J
                                      -2-


RESTROOM SERVICE:
- ----------------

NIGHTLY SERVICES - FIVE (5) NIGHTS PER WEEK
- -------------------------------------------

     .    Empty wastebaskets and sanitary napkin receptacles.

     .    Refill toilet tissue, paper towel, seat-cover, soap and sanitary
          napkin dispensers.

     .    Wash, rinse and wipe dry all lavatory and lavatory fixtures.

     .    Clean and polish all metalwork.

     .    Thoroughly clean and disinfect toilets; top and bottom.

     .    Thoroughly clean toilet bowls and urinals; removing stains - keep free
          of scale.

     .    Mop floors with a germicidal solution.

WEEKLY SERVICES
- ---------------

     .    Dust tops of partitions and wainscoting.

     .    Wash down urinal screens and adjacent tile.

MONTHLY SERVICES
- ----------------

     .    Dust walls and ceiling vents.

     .    Scrub floors with a special germicidal solution.

     .    Thoroughly wipe down all the walls and partitions.

     .    Spot-clean walls around lavatories.

     .    De-scale toilets and urinals.


QUARTERLY SERVICES - ONCE EVERY THREE MONTHS
- --------------------------------------------

     .    Pour clean water down floor drains to prevent sewer gas from escaping.

     .    Thoroughly clean all soap dispenser nozzles.


FLOOR SERVICES:
- --------------

     .    Damp mop hard-surface lobby floors - Nightly.

     .    Clean and refinish all hard-surface floors - Monthly.

                                   EXHIBIT J
                                      -3-


MISCELLANEOUS SERVICES:
- ----------------------

     .    All cleaning personnel will be instructed to immediately report any
          damages, plumbing problems, etc. which they encounter during cleaning
          to the Crew Supervisor.

     .    All designated lights will be turned off - Nightly.

     .    Janitor's storage closet and all building service areas will be kept
          in a neat and orderly condition at all times.

     .    Interior windows are cleaned once per year and exterior windows are
          cleaned two (2) times per year.

     .    Tenant may request that additional cleaning be performed by Landlord
          on the Premises, and Landlord shall not unreasonably withhold its
          consent thereto, provided that Tenant pays the reasonable cost
          thereof. In addition, with Landlord's consent and subject to such
          reasonable conditions as Landlord shall impose, Tenant may elect to
          perform its own cleaning of the Premises, or hire a third party to do
          so, and in such case Landlord shall not include in CAM Expenses the
          cost of cleaning the Premises.

                                   EXHIBIT J
                                      -4-


                                  EXHIBIT "K"

                         PARKING RULES AND REGULATIONS
                         -----------------------------

     1.   When reasonably requested by Landlord in order to enforce the balance
of this Exhibit K, Tenant shall submit a written notice in a form specified by
        ---------
Landlord, containing the names, and office addresses and telephone numbers of
those persons who are authorized by Tenant to use the parking privileges on a
monthly basis (the "Authorized Users") and shall identify each automobile to
which each such parking privilege shall be assigned by make, model and license
number.  Such notice shall be given to Landlord prior to the beginning of the
Lease Term (such notice, as amended from time to time, hereinafter referred to
as the "Parking Notice").  No officer, principal, employee, supplier, shipper,
customer, visitor, invitee or contractor of Tenant or any other party whose name
and address is not contained in the then current Parking Notice shall have any
right to park an automobile in the area of the Building parking facilities
designated for monthly parking.  No person, whether or not his or her name is
included in the Parking Notice, shall have any right to park an automobile not
identified in the Parking Notice without (in either case) except in the area
designated for visitor parking.

     2.   Tenant and Authorized Users shall comply with all rules and
regulations as set forth in these Parking Rules and Regulations, as they may be
amended by Landlord from time to time.  Landlord reserves the right to modify,
add to, or delete from time to time such Parking Rules and Regulations as it
deems reasonably necessary for the operation of the Building parking facilities
which consist of paved surface outdoor parking within the Project.  Landlord may
refuse the issuance of monthly stickers or other identification devices, or to
permit to park in the Building parking facility any person who violates the
Parking Rules and Regulations or any City, State or Federal ordinance or Law or
agreement, and any violation of the rules shall subject such person's car to
removal. Tenant shall acquaint all Authorized Users with the Parking Rules and
Regulations.

     3.   Every Authorized User is requested to park and lock his or her own
car.  All responsibility for damage to cars is assumed by Authorized Users and
Landlord shall have no responsibility therefor.  Tenant shall repair or cause to
be repaired at its sole cost and expense any and all damage to the Building
parking facility or any part thereof caused by Tenant or its Authorized Users or
resulting from vehicles of Authorized Users.

     4.   Parking stickers or any other device or form of identification
supplied by Landlord, if any, shall remain the property of Landlord.  Such
parking identification device must be displayed as requested and may not be
mutilated in any manner.  The serial number of the parking identification device
may not be obliterated.  Devices are not transferable.  Loss or theft of parking
identification devices from automobiles must be reported immediately to Garage
Manager.  Any such device in the possession of an unauthorized holder will be
confiscated.  If a monthly parker automobile is found without its monthly
identification device visible, the automobile is subject to being tagged and the
User may lose future parking privileges.  There will be a replacement charge to
the Tenant or Authorized User of $50.00 for loss of any magnetic parking card or
other parking identification device.  This charge is refundable in the event the
lost card is found.

                                   EXHIBIT K
                                      -1-


     5.   [Tenant and Authorized Users shall not park vehicles in any parking
areas designated by Landlord as areas for parking by visitors to the Building].
Tenant and Authorized Users shall not leave vehicles in the Building parking
areas overnight without written permission from the Garage Manager or Property
Manager, nor park any vehicles in the Building parking areas other than
automobiles, motorcycles, motor driven or non-motor driven bicycles or four-
wheeled trucks and vans.  Landlord may, in its sole discretion, designate
separate areas for bicycles and motorcycles.

     6.   All responsibility for damage to persons or their vehicles is assumed
by Authorized Users.

     7.   Authorized Users shall not load or unload in areas other than those
designated by Landlord for such activities.  Tenant shall not permit or allow
any vehicles that belong to or are controlled by Tenant or Tenant's employees,
suppliers, shippers, customers, visitors or invitees to be loaded, unloaded, or
parked in areas other than those designed by Landlord for such activities.

     8.   Washing, waxing, cleaning or servicing of any vehicle by the
Authorized User and/or his agents is prohibited. Landlord or Landlord's agent
may provide such services to Tenants, visitors, and guests at fees to be set by
Landlord or such agent from time to time.

     9.   Cars must be parked "head in only" and entirely within the stall lines
painted on the floor.

     10.  All directional signs and arrows must be observed.

     11.  The speed limit shall be 5 miles per hour.

     12.  Spaces are for the express purpose of one automobile per space unless
a parking attendant approved by Landlord directs otherwise.

     13.  Parking is prohibited, unless a parking attendant employed by Landlord
directs otherwise:

          a.   in areas not striped for parking;

          b.   in aisles;

          c.   where No Parking or, unless the parker or passenger is
     handicapped, where Handicap signs are posted;

          d.   on ramps;

          e.   in crosshatched areas; or

          f.   in such other areas as may be designated by Landlord, its agent,
     lessee or licensee.

                                   EXHIBIT K
                                      -2-


     14.  Landlord reserves the right at any time to relocate parking spaces and
to substitute an equivalent number of parking spaces in the Building's parking
facilities.  In addition, Landlord reserves the right at any time to temporarily
relocate parking spaces in a different parking facility within a reasonable
distance of the Premises.

     15.  If Tenant permits or allows any of the prohibited activities described
in these Rules and Regulations, then Landlord shall have the right, without
notice, in addition to such other rights and remedies that it may have, to
remove or tow away the vehicle involved and charge the cost to Tenant, which
cost shall be immediately payable upon demand by Landlord.

     16.  These Parking Rules and Regulations may not be modified except by
Landlord rendering a written notice to Tenant setting forth the new, modified or
changed rules and regulations.

                                   EXHIBIT K
                                      -3-


                                  EXHIBIT "L"

                            LETTER OF CREDIT TERMS

     1.   The letter of credit described in Section 3.3 of the Lease (the
                                            -----------
"Letter of Credit") shall be in form and substance, and issued by a financial
institution, acceptable to Landlord in the exercise of its sole discretion.

     2.   The initial expiration date of the Letter of Credit shall be no sooner
than one year after Anticipated Commencement Date. On or before thirty (30) days
prior to the expiration date of the Letter of Credit (both the initial
expiration and each succeeding expiration date occurring during the Term of this
Lease), Tenant shall extend the expiration of the term of the Letter of Credit
by one year. If, for any reason, Tenant has not delivered to Landlord on or
before the beginning of each of such thirty (30) day periods evidence
satisfactory to Landlord in its sole discretion of such extension of the
expiration date of the Letter of Credit, then Landlord shall have the absolute
right to call on the full amount of the Letter of Credit to obtain the proceeds
thereof and to hold such proceeds, without interest, as security for the
performance by Tenant of its obligations under the Lease. In such case, such
proceeds shall be deemed to be part of the Security Deposit under the Lease.

     3.   The initial face amount of the Letter of Credit shall be $8,329,856.

     4.   If the conditions in this paragraph 4 are met, the face amount of the
Letter of Credit shall be reduced by $809,166 on each anniversary of the
Anticipated Commencement Date. This amount represents the amortization of
Landlord's transaction costs of the Lease, including the Tenant Improvement
Allowance, leasing commissions, legal fees and free rent. The conditions as of
each scheduled date for reduction, are: (i) not more than one Event of Default
shall have occurred during the twelve (12) month period preceding said date; and
(ii) no notice of default under the Lease shall have been sent by Landlord and
remain uncured. The failure to meet the conditions to a particular annual
reduction shall not affect Tenant's right to qualify for the next annual
reduction. The failure to qualify for a particular annual reduction shall not
operate to increase the amount of any future scheduled reduction.

     5.   Landlord shall return the Letter of Credit to Tenant, and Tenant shall
have no further obligation to provide this Letter of Credit to Landlord, upon
Tenant's satisfaction, in Landlord's reasonable discretion, of the criteria in
paragraphs (a) and (c) or (b)and (c) below, as shown in the appropriate 10Q or
10K report filed by Tenant pursuant to the Securities Exchange Act of 1934:

     (a)  The EBITDA of Tenant for each of four (4) consecutive fiscal quarters
of Tenant is $35,000,000 or more; or

     (b)  (i) Tenant's aggregate EBITDA for any of its four (4) consecutive
fiscal quarters is $80,000,000 or more, (ii) its EBITDA during such fiscal
quarter has increased over its EBITDA in each prior fiscal quarter, (iii) Tenant
has maintained an average balance of cash and

                                   EXHIBIT L
                                      -1-


cash equivalents of $50,000,000 or more during such fiscal quarters, and (iv)
Tenant's balance of cash and cash equivalents is at least $50,000,000 for the
last of the four (4) fiscal quarters referenced in clause (iii) above; and

     (c)  The "shareholder equity" of Tenant at the time that the criteria in
paragraph (a) or paragraph (b) have been met is at least $200,000,000.
"Shareholder equity" means Tenant's shareholder equity as shown on its 10Q or
10K report plus amortization of all non cash related expenses from inception,
including without limitation, stock based charges and the amortization of good
will and any other acquisition related intangible assets (such as trademarks,
customer lists, contracts, etc.).

     Tenant shall have the obligation of demonstrating to the reasonable
satisfaction of Landlord that the foregoing criteria have been met.  Landlord
agrees that it will not unreasonably withhold its acknowledgement that such
criteria have been met if Tenant presents audited financial statements of
Tenant, or a written statement from Tenant's auditors (which must be a
nationally recognized accounting firm) to the effect that such criteria have
been met.  Any dispute regarding whether Tenant is entitled to the return of the
Letter of Credit shall be resolved by arbitration in accordance with Section 16
                                                                     ----------
of the Lease.

     In the event Tenant has assigned its interest in the Lease as permitted
therein, the foregoing criteria shall be deemed satisfied if they are satisfied
with respect to Tenant or its successor in interest as Tenant under the Lease,
assuming for this purpose that each remains fully responsible for all of
Tenant's obligations under the Lease.

                                   EXHIBIT L
                                      -2-


                                  EXHIBIT "M"

                       CERTAIN CAM EXPENSE RESTRICTIONS

     (a)  Notwithstanding anything to the contrary in the definition of CAM
Expenses, Cam Expenses shall not include the following, except to the extent
specifically permitted by a specific exception to the following:

          (i)   Any ground lease rental;

          (ii)  Costs of items considered Capital Costs (other than repair of
     the same) ("Capital Items"), except for (1) the annual amortization
     (amortized over the useful life) of costs, including financing costs, if
     any, incurred by Landlord after the Commencement Date for any capital
     improvements installed or paid for by Landlord and required by any new (or
     change in) laws, rules or regulations of any governmental or quasi-
     governmental authority as of the date of approval by the City of Westlake
     Village of the Plans for the Building; (2) the annual amortization
     (amortized over the useful life) of costs, including financing costs, if or
     any equipment, device or capital improvement purchased or incurred as a
     labor-saving measure or to affect other economics in the operation or
     maintenance of the Building; or (3) minor capital improvements, tools or
     expenditures to the extent each such improvement or acquisition costs less
     than Three Thousand Dollars ($3,000) and the total cost of same are not in
     excess of Ten Thousand Dollars ($10,000) in any twelve (12) month period;

          (iii) Rentals for items (except when needed in connection with normal
     repairs and maintenance of permanent systems) which if purchased, rather
     than rented, would constitute a Capital Item which is specifically excluded
     in Subsection (ii) above (excluding, however, equipment not affixed to the
     Building which is used in providing janitorial or similar services);

          (iv)  Costs incurred by Landlord for the repair of damage to the
     Building or the Project, to the extent that Landlord is reimbursed by
     insurance proceeds.

          (v)   Costs, including permit, license and inspection costs, incurred
     with respect to the installation of tenants' or other occupants'
     improvements in the Project, or incurred in renovating or otherwise
     improving, decorating, painting or redecorating vacant space for tenants or
     other occupants of the Project;

          (vi)  Depreciation, amortization and interest payments, except as
     provided herein and except on materials, tools, supplies and vendor-type
     equipment purchased by Landlord to enable Landlord to supply services
     Landlord might otherwise contract for with a third party where such
     depreciation, amortization and interest payments would otherwise have been
     included in the charge for such third party's services, all as determined
     in accordance with generally accepted accounting principles, consistently
     applied, and when depreciation or amortization is permitted or required,
     the item shall be amortized over its reasonably anticipated useful life;

                                   EXHIBIT M
                                      -1-


          (vii)   Marketing costs including, without limitation, leasing
     commissions, attorneys' fees in connection with the negotiation and
     preparation of letters, deal memos, letters of intent, leases, subleases
     and/or assignments, space planning costs, and other costs and expenses
     incurred in connection with lease, sublease and/or assignment negotiations
     and transactions with present or prospective tenants or other occupants of
     the Project;

          (viii)  Expenses in connection with services or other benefits which
     are not offered to Tenant or for which Tenant is charged for directly but
     which are provided to another tenant or occupant of the Project;

          (ix)    Costs incurred by Landlord due to the violation by Landlord or
     any tenant of the terms and conditions of any lease of space in the
     Project;

          (x)     Overhead and profit increment paid to Landlord or to
     subsidiaries or affiliates of Landlord for goods and/or services in or to
     the Building or to the Project to the extent the same exceeds the costs of
     such goods and/or services rendered by unaffiliated third parties on a
     competitive basis;

          (xi)    Interest, principal, points and fees on debts or amortization
     on any mortgage or mortgages or any other debt instrument encumbering the
     Building or the Project (except as permitted in Subsection (ii) above);

          (xii)   Landlord's general corporate overhead and general and
     administrative expenses; provided, that an onsite management office in the
                              --------
     Project may be included in CAM Expenses to the extent it is utilized for
     matters pertaining to the Project;

          (xiii)  Any compensation paid to clerks, attendants or other persons
     in commercial concessions (meaning such operations as shoe shine parlors
     and drug stores where the income therefrom is not netted with the related
     expenses) operated by Landlord;

          (xiv)   Advertising and promotional expenditures, and costs of signs
     in or on the Building identifying the owner of the Building or other
     tenants' signs;

          (xv)    The cost of any electric power, water, gas or other utility
     used by any tenant in the Project;

          (xvi)   Services and utilities provided, taxes attributable to, and
     costs incurred in connection with the operation of any retail or restaurant
     operations in the Project, except to the extent the square footage of such
     operations are included in the rentable square feet of the Project and do
     not exceed the services, utility and tax costs which would have been
     incurred had the retail and/or restaurant space been used for general
     office purposes;

          (xvii)  Costs incurred in connection with upgrading the Building or
     the Project to comply with disability, life, fire and safety codes,
     ordinances, statutes, or other laws in effect and required to be complied
     with prior to the Commencement Date, including,

                                   EXHIBIT M
                                      -2-


     without limitation, the ADA, including penalties or damages incurred due to
     such non-compliance;

          (xviii)  Tax penalties incurred as a result of Landlord's negligence,
     inability or unwillingness to make payments and/or to file any tax or
     informational returns when due;

          (xix)    [intentionally omitted];

          (xx)     Costs arising from the gross negligence or fault of other
     tenants or Landlord or its agents, or any vendors, contractors, or
     providers of materials or services selected, hired or engaged by Landlord
     or its agents including, without limitation, the selection of Building
     materials;

          (xxi)    Notwithstanding any contrary provision of the Lease,
     including, without limitation, any provision relating to capital
     expenditures, any and all costs arising from the presence of hazardous
     materials or substances (as defined by Applicable Laws in effect on the
     date the Lease is executed) in or about the Premises, the Building or the
     Project on the date of the Lease including, without limitation, hazardous
     substances in the ground water or soil, not placed in the Premises, the
     Building, or the Project by Tenant;

          (xxii)   Costs arising from Landlord's charitable or political
     contributions;

          (xxiii)  Costs arising from latent defects in the Base Building
     Improvements installed by Landlord;

          (xxiv)   Costs for sculpture, paintings or other objects of art;

          (xxv)    Costs (including in connection therewith all attorneys' fees
     and costs of settlement judgments and payments in lieu thereof) arising
     from claims, disputes or potential disputes pertaining to Landlord and
     Tenant or another tenant of the Project;

          (xxvi)   Costs associated with the operation of the business of the
     partnership or entity which constitutes Landlord as the same are
     distinguished from the costs of operation of the Building or the Project,
     including partnership accounting and legal matters, costs of defending any
     lawsuits with any mortgagee (except as the actions of Tenant may be in
     issue), costs of selling, syndicating, financing, mortgaging or
     hypothecating any of Landlord's interest in the Building or the Project,
     costs of any disputes between Landlord and its employees (if any) not
     engaged in Building operation, disputes of Landlord with Building
     management, or outside fees paid in connection with disputes with other
     tenants;

          (xxvii)  [intentionally omitted];

          (xxviii) Costs of any "tap fees" or any sewer or water connection fees
     for the exclusive benefit of any particular tenant in the Project;

                                   EXHIBIT M
                                      -3-


          (xxix)    Costs incurred in connection with any environmental clean-
     up, response action, or remediation on, in, under or about the Premises or
     the Building, including but not limited to, costs and expenses associated
     with the defense, administration, settlement, monitoring or management
     thereof, but only to the extent the same are caused by Landlord or another
     tenant of the Project;

          (xxx)     Any commercially unreasonable expenses incurred by Landlord
     for use of any portions of the Project to accommodate events including, but
     not limited to shows, promotions, kiosks, displays, filming, photography,
     private events or parties, ceremonies, and advertising, beyond the normal
     expenses otherwise attributable to providing Building services, such as
     lighting and HVAC to such public portions of the Project in normal Building
     operations during standard Building hours of operation;

          (xxxi)    Any unreasonable or uncustomary entertainment or dining
     expenses;

          (xxxii)   Any unreasonable flowers, gifts, balloons, etc. provided to
     any entity whatsoever, to include, but not limited to, Tenant, other
     tenants, employees, vendors, contractors, prospective tenants and agents;

          (xxxiii)  Any "above-standard" cleaning, including, but not limited to
     construction cleanup or special cleanings associated with parties/events
     and specific tenant requirements in excess of service provided to Tenant,
     including related trash collection, removal, hauling and dumping;

          (xxxiv)   The cost of any magazine, newspaper, trade or other
     subscriptions;

          (xxxv)    [Intentionally Omitted.]

          (xxxvi)   The commercially unreasonable cost of any "tenant relations"
     parties, events or promotion;

          (xxxvii)  "In-house" legal and accounting fees; and

          (xxxviii) Any other expenses which, in accordance with generally
     accepted accounting principles, consistently applied, would not normally be
     treated as CAM Expenses by comparable landlords of Comparable Buildings.

     (b)  In the event any facilities, services or utilities used in connection
with the Building are provided from another building owned or operated by
Landlord or vice versa, the costs incurred by the Landlord in connection
therewith shall be allocated to CAM Expenses by Landlord on or reasonably
equitable basis

     (c)  Landlord agrees that since one of the purposes of CAM Expenses is to
require Tenant to pay for the costs attributable to its Premises, Landlord
agrees that Landlord will not collect or be entitled to collect CAM Expenses
from Tenant in an amount which is in excess of one hundred percent (100%) of the
CAM Expenses actually paid by Landlord in connection with the operation of the
Building plus Landlord's Management Fee.

                                   EXHIBIT M
                                      -4-


     (d)  Landlord agrees that if it is permitted to pay real property taxes or
assessments in installments without penalty or interest, then for purposes of
including such amounts as Property Taxes it will either do so or include such
amounts in Property Taxes as if it had done so.

     (e)  [Intentionally Omitted].

                                   EXHIBIT M
                                      -5-

EX-21.01

                                                                   EXHIBIT 21.01

                           SUBSIDIARIES OF REGISTRANT



Name                                State of Incorporation  Doing Business As
- ----                                ---------------------- --------------------
                                                     
RealSelect, Inc. .................  Delaware               N/A
The Enterprise of America, Ltd. ..  Wisconsin              N/A
National New Homes Co., Inc. .....  Delaware               HomeBuilder.com
SpringStreet, Inc. ...............  California             SpringStreet.com
HomeBuyer's Fair, Inc. ...........  Arizona                HomeFair.com,
                                                           FAS Hotline, and FAS
                                                           Relocation Network
WyldFyre Technologies, Inc. ......  California             N/A
Touchtech Corporation.............  Ontario, Canada        N/A
Homestore Mobility Technologies,
 Inc. ............................  Delaware               N/A
The Hessel Group, Inc. ...........  Connecticut            N/A
The Hessel Group Limited..........  England and Wales      N/A
Top Producer Systems Company......  Nova Scotia, Canada    N/A
Top Producer Systems Corp. .......  Washington             N/A
Homestore Virtual Tours, Inc. ....  Delaware               N/A
VT Canada Inc. ...................  Ontario, Canada        N/A
Transco Platform, Inc. ...........  Delaware               eREALTOR.com
FireTap Communications............  Delaware               N/A
iMOVE.com, Inc. ..................  Delaware               N/A
HomeWrite Incorporated............  Delaware               N/A
Homestore International Limited...  British Virgin Islands N/A
Move.com, Inc. ...................  Delaware               N/A
Rent Net, Inc. ...................  Delaware               N/A
Welcome Wagon International
 Inc. ............................  New York               N/A
Homestore Facilities Company......  Delaware               N/A
Homestore Sales Company...........  Delaware               N/A
Homestore Service Company.........  Delaware               N/A

EX-23.01

                                                                  EXHIBIT 23.01

                      CONSENT OF INDEPENDENT ACCOUNTANTS

  We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 333-55828, 333-54886, 333-48582, 333-46252 and
333-84545) and on Form S-3 (No. 333-80419) of Homestore.com, Inc. of our
report dated March 16, 2001 relating to the financial statements of
Homestore.com, Inc. which appear in this Annual Report on Form 10-K. We also
consent to the incorporation by reference of our report dated March 16, 2001
relating to the financial statement schedule, which appears in this Annual
Report on Form 10-K.

/s/ PricewaterhouseCoopers LLP

Century City, California
March 30, 2001

EX-23.02

                                                                  EXHIBIT 23.02

                     REPORT OF INDEPENDENT ACCOUNTANTS ON
                         FINANCIAL STATEMENT SCHEDULE

To the Board of Directors
of Homestore.com, Inc.:

  Our audits of the consolidated financial statements referred to in our
report dated March 16, 2001 appearing in the Annual Report to Shareholders of
Homestore.com, Inc. (which report and consolidated financial statements are
included in this Annual Report on Form 10-K) also included an audit of the
financial statement schedule listed in Item 14(a)(2) of this Form 10-K. In our
opinion, this financial statement schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements.

/s/ PricewaterhouseCoopers LLP

Century City, California
March 16, 2001

EX-99.01

                                                                  EXHIBIT 99.01

               INFORMATION INCORPORATED BY REFERENCE CONCERNING
                       SALES OF UNREGISTERED SECURITIES

  The following table sets forth information regarding unregistered sales of
securities by the Company during 2000:



                                                                  Aggregate
Class of                  Date of                      Number of  Purchase       Form of
Purchaser                   Sale   Title of Securities Securities   Price     Consideration
- ---------                 -------- ------------------- ---------- --------- ------------------
                                                             
Pickford Realty, Ltd....  1/7/00   Common Stock(1)        12,500   $40,000                Cash

Manufactured Housing      1/19/00  Warrant to purchase    40,000    -- --           As part of
 Industry...............           Common Stock(1)                                   operating
                                                                                     agreement

Broker Gold Warrants....  2/18/00  Warrant to purchase   470,089    -- --           As partial
                                   Common Stock(1)                               consideration
                                                                              for data content
                                                                                    agreements

Budget Group, Inc.......  3/7/00   Common Stock(1)     1,085,271    -- --           As part of
                                                                                   advertising
                                                                                     agreement

17 Shareholders of        3/15/00  Common Stock(1)       589,426    -- --          Exchange of
 WyldFyre Technologies,                                                              shares in
 Inc, as a group........                                                            connection
                                                                                 with WyldFyre
                                                                            Technologies, Inc.
                                                                                   acquisition

GMAC Mortgage             3/23/00  Warrant to purchase   400,000    -- --           As part of
 Corporation............           Common Stock(1)                                   marketing
                                                                                     agreement

America Online, Inc.....  4/25/00  Common Stock(1)     3,894,343   $ 3,894          As part of
                                                                                  distribution
                                                                                     agreement

American Society of Home  6/27/00  Warrant to purchase     7,000    -- --           As part of
 Inspectors.............           Common Stock(1)                                 advertising
                                                                                     agreement

Jay Minkoff.............  11/24/00 Common Stock(1)        23,126    -- --          Exchange of
                                                                                     shares in
                                                                                    connection
                                                                                     with Home
                                                                                     Marketing
                                                                               Solutions, Inc.
                                                                                   acquisition

- --------
(1) Sales made in reliance on Section 4(2) of the Securities Act and/or Rule
    506 of Regulation D promulgated under the Securities Act

EX-99.02

                                                                   EXHIBIT 99.02

                 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

                  Years ended December 31, 2000, 1999 and 1998

                                 (in thousands)



                                            Additions
                                        ------------------
                             Balance at Charged to               Write-offs
    Allowance for Doubtful   Beginning  Costs and                  Net of   Balance at
           Accounts           of Year    Expenses   Other        Recoveries End of Year
    ----------------------   ---------- ---------- -------       ---------- -----------
                                                             
   2000....................   $ 1,627    $ 3,035   $   789(2)       $974      $ 4,477
   1999....................   $   --     $ 1,121   $ 1,103(1)       $597      $ 1,627
   1998....................   $   --     $   --    $   --           $--       $   --

   Valuation Allowance for
     Deferred Tax Assets
   -----------------------
                                                             
   2000....................   $16,570    $29,718   $15,780(2)(3)    $--       $62,068
   1999....................   $   929    $ 1,756   $13,885(1)       $--       $16,570
   1998....................   $   928    $     1   $   --           $--       $   929

- --------
(1) Balances acquired from the NSI Reorganization and acquisitions.

(2) Balances acquired from acquisitions.

(3) Balances will be credited to equity upon reduction of valuation allowances.