<SUBMISSION>
<ACCESSION-NUMBER>0000950133-02-002886
<TYPE>10-Q
<PUBLIC-DOCUMENT-COUNT>5
<PERIOD>20020630
<FILING-DATE>20020813
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>COSTAR GROUP INC
<CIK>0001057352
<ASSIGNED-SIC>7374
<IRS-NUMBER>522091508
<STATE-OF-INCORPORATION>DE
<FISCAL-YEAR-END>1231
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>10-Q
<ACT>34
<FILE-NUMBER>000-24531
<FILM-NUMBER>02728755
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>2 BETHESDA METRO CENTER
<STREET2>10TH FLOOR
<CITY>BETHESDA
<STATE>MD
<ZIP>20814
<PHONE>3012158300
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>2 BETHESDA METRO CENTER
<CITY>BETHESDA
<STATE>MD
<ZIP>20814
</MAIL-ADDRESS>
</FILER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>w62833e10vq.htm
<DESCRIPTION>FORM 10-Q
<TEXT>
<HTML>
<HEAD>
<TITLE>e10vq</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="center"><FONT size="2"><B>UNITED STATES</B>
</FONT>

<P align="center"><FONT size="2"><B>SECURITIES AND EXCHANGE COMMISSION</B>
</FONT>

<P align="center"><FONT size="2"><B>Washington, DC 20549</B>
</FONT>
<BR>&nbsp;
<P align="center"><FONT size="2"><B>FORM 10-Q</B>
</FONT>
<BR>&nbsp;
<P align="center"><FONT size="2"><B>(Mark One)</B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
        <TD width="2%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="97%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2"><b>&#091;X&#093;</b></FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><FONT size="2">
<b>QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.</b></FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2"><B>For the quarterly period ended: June&nbsp;30, 2002</B>
</FONT>

<P align="center"><FONT size="2"><B>OR</B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
        <TD width="2%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="97%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2"><b>&#091; &#093;</b></FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><FONT size="2">
<b>TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.</b></FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2"><B>For the transition period from ________ to ________</B>
</FONT>

<P align="center"><FONT size="2"><B>Commission file number: 0-24531</B>
</FONT>

<P align="center"><FONT size="2"><B>COSTAR GROUP, INC.</B>
</FONT>

<P align="center"><FONT size="2"><B>(Exact name of registrant as specified in its charter)</B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="55%">
<TR valign="bottom">
        <TD width="57%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="38%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD valign="top" align="center"><FONT size="2"><B>DELAWARE<BR>
(State or other jurisdiction of
incorporation or organization)</B></FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><FONT size="2">
<b>52-2091509<BR>
(IRS Employer<BR>
Identification Number)</b></FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2"><B>2 BETHESDA METRO CENTER<BR>
BETHESDA, MD 20814<BR>
(301)&nbsp;215-8300</B>
</FONT>

<P align="center"><FONT size="2"><B>(Address, including zip code, and telephone number, including area code, of<BR>
registrant&#146;s principal executive offices)</B>
</FONT>

<P><FONT size="2">Indicate by check mark whether the registrant (1)&nbsp;has filed all reports
required to be filed by Section&nbsp;13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12&nbsp;months (or for such shorter period that the
registrant was required to file such reports), and (2)&nbsp;has been subject to such
filing requirements for the past 90&nbsp;days. Yes &#091; X &#093; &#151; No &#091; &#093;
</FONT>
<P><FONT size="2">As of August&nbsp;6, 2002 there were 15,775,445 shares outstanding of the
Registrant&#146;s Common Stock, par value $.01.
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<P align="center"><FONT size="2"><B>COSTAR GROUP, INC.</B>
</FONT>

<P align="center"><FONT size="2"><B>TABLE OF CONTENTS</B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
        <TD width="92%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2"><B>PART I &#150; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;FINANCIAL INFORMATION</B></FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
        <TD width="92%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">Item&nbsp;1 &#150; Financial Statements</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
        <TD width="92%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">Condensed Consolidated Statements of Operations</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2">
3</FONT></TD>
</TR>
<TR valign="bottom">
        <TD width="92%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">Condensed Consolidated Balance Sheets</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2">
4</FONT></TD>
</TR>
<TR valign="bottom">
        <TD width="92%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">Condensed Consolidated Statements of Cash Flows</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2">
5</FONT></TD>
</TR>
<TR valign="bottom">
        <TD width="92%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">Notes to Condensed Consolidated Financial Statements</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2">
6</FONT></TD>
</TR>
<TR valign="bottom">
        <TD width="92%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
</TR>

<TR valign="bottom">
        <TD valign="top"><FONT size="2">Item&nbsp;2 &#150; Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2">
9</FONT></TD>
</TR>
<TR valign="bottom">
        <TD width="92%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">Item&nbsp;3 &#150; Quantitative and Qualitative Disclosures About Market Risk</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2">
18</FONT></TD>
</TR>
<TR valign="bottom">
        <TD width="92%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2"><B>PART II &#150; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;OTHER INFORMATION</B></FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
        <TD width="92%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">Item&nbsp;1 &#150; Legal Proceedings</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2">
19</FONT></TD>
</TR>
<TR valign="bottom">
        <TD width="92%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">Item&nbsp;2 &#150; Changes in Securities</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2">
19</FONT></TD>
</TR>
<TR valign="bottom">
        <TD width="92%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">Item&nbsp;3 &#150; Defaults upon Senior Securities</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2">
19</FONT></TD>
</TR>
<TR valign="bottom">
        <TD width="92%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">Item&nbsp;4 &#150; Submission of Matters to a Vote of Security Holders</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2">
19</FONT></TD>
</TR>
<TR valign="bottom">
        <TD width="92%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">Item&nbsp;5 &#150; Other Information</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2">
19</FONT></TD>
</TR>
<TR valign="bottom">
        <TD width="92%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">Item&nbsp;6 &#150; Exhibits and Reports on Form&nbsp;8-K</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2">
20</FONT></TD>
</TR>
<TR valign="bottom">
        <TD width="92%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">Signatures</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2">
21</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">2</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
        <TD width="10%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="85%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2"><B>PART 1</B></FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
<B>FINANCIAL INFORMATION</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD width="10%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="85%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2"><B>ITEM 1</B></FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
<B>FINANCIAL STATEMENTS</B></FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">CoStar Group, Inc.<BR>
Condensed Consolidated Statements of Operations<BR>
(in thousands, except per share data)<BR>
(unaudited)
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
        <TD width="3%">&nbsp;</TD>
        <TD width="44%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="7"><FONT size="1"><B>For the Three Months</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="7"><FONT size="1"><B>For the Six Months</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="7"><FONT size="1"><B>Ended June 30,</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="7"><FONT size="1"><B>Ended June 30,</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="7"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="7"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Revenues</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">19,539</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">18,073</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">38,600</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">35,427</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cost of revenues</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">6,937</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">7,516</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">14,033</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">15,506</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Gross margin</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">12,602</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">10,557</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">24,567</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">19,921</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Operating expenses:</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Selling and marketing</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">5,565</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">5,944</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">11,234</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">12,853</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Software development</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">1,385</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">1,357</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">2,782</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">2,586</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">General and administrative</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">6,235</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">7,659</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">12,102</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">15,360</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Purchase amortization</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">898</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">1,907</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">1,791</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">3,697</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">14,083</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">16,867</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">27,909</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">34,496</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Loss from operations</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(1,481</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(6,310</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(3,342</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(14,575</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other income, net</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">214</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">374</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">453</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">949</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net loss before income taxes</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(1,267</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(5,936</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(2,889</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(13,626</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Income tax benefit</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&#150;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">41</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&#150;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">82</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net loss</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(1,267</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(5,895</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(2,889</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(13,544</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Basic and diluted net loss per share</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(0.08</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(0.38</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(0.18</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(0.87</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Weighted average common shares</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">15,742</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">15,610</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">15,730</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">15,592</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">See accompanying notes.</FONT>

<P align="center"><FONT size="2">3</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>



<P align="center"><FONT size="2">CoStar Group, Inc.<BR>
Condensed Consolidated Balance Sheets<BR>
(in thousands)</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
        <TD width="5%">&nbsp;</TD>
        <TD width="62%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="6%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="7%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>June 30,</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>December 31,</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">ASSETS</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="3" align="center"><FONT size="2">(unaudited)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Current assets:</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cash and cash equivalents</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">29,843</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">30,746</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Short-term investments</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">12,240</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">11,256</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accounts receivable, less allowance for doubtful
accounts of $2,342 and $2,483 as of
June&nbsp;30, 2002 and December&nbsp;31, 2001</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">6,391</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">5,983</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Prepaid expenses and other current assets</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">380</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">957</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total current assets</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">48,854</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">48,942</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"></FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2"></FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2"></FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Property and equipment</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">24,755</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">23,266</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accumulated depreciation and amortization</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(13,688</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(11,390</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">11,067</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">11,876</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"></FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2"></FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2"></FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Goodwill, net</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">26,177</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">25,745</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Intangibles and other assets, net</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">32,847</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">36,726</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Deposits</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">281</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">357</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total assets</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">119,226</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">123,646</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
        <TD width="5%">&nbsp;</TD>
        <TD width="62%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="6%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="7%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">LIABILITIES AND STOCKHOLDERS&#146; EQUITY</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Current liabilities:</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accounts payable and accrued expenses</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">9,224</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">11,095</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Deferred revenue</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">4,508</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">4,532</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total current liabilities</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">13,732</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">15,627</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"></FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2"></FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2"></FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Stockholders&#146; equity</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">105,494</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">108,019</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total liabilities and stockholders&#146; equity</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">119,226</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">123,646</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">See accompanying notes.</FONT>

<P align="center"><FONT size="2">4</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>



<P align="center"><FONT size="2">CoStar Group, Inc.<BR>
Condensed Consolidated Statements of Cash Flows<BR>
(in thousands)<BR>
(unaudited)</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
        <TD width="5%">&nbsp;</TD>
        <TD width="69%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="7"><FONT size="1"><B>For the Six Months</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="7"><FONT size="1"><B>Ended June 30,</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="7"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Operating activities:</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net loss</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(2,889</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(13,544</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Depreciation</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">2,108</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">2,496</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Amortization</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">3,937</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">6,938</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Provision for losses on accounts receivable</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">1,155</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">1,054</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Income tax benefit</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&#151;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(82</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Changes in operating assets and liabilities</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(2,538</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(1,526</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net cash provided by (used in) operating activities</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">1,773</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(4,664</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
        <TD width="5%">&nbsp;</TD>
        <TD width="69%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Investing activities:</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Purchases of property and equipment, net</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(1,579</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(1,178</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Goodwill, intangibles and other assets</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(391</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(131</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Purchases and sales of short-term investments, net</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(984</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(1,842</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net cash used in investing activities</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(2,954</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(3,151</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
        <TD width="5%">&nbsp;</TD>
        <TD width="69%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Financing activities:</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net proceeds from exercise of stock options</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">278</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">892</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net cash provided by financing activities</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">278</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">892</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
        <TD width="5%">&nbsp;</TD>
        <TD width="69%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net decrease in cash and cash equivalents</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(903</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(6,923</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cash and cash equivalents at beginning of period</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">30,746</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">43,925</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cash and cash equivalents at end of period</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">29,843</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">37,002</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">See accompanying notes.</FONT>

<P align="center"><FONT size="2">5</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>



<P align="left"><FONT size="2"><B>COSTAR GROUP, INC.<BR>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B>
</FONT>

<P align="left"><FONT size="2"><b>1. ORGANIZATION</b>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;CoStar Group, Inc. (the &#147;Company&#148;) has created a comprehensive,
proprietary database of commercial real estate information for metropolitan
areas throughout the United States. Based on its unique database, the Company
provides information to the commercial real estate and related business
community and operates within one reportable business segment. The information
in the Company&#146;s database is distributed to its clients under license
agreements, which are typically one to three years in duration.
</FONT>
<P align="left"><FONT size="2"><B>2. SUMMARY OF CERTAIN SIGNIFICANT ACCOUNTING POLICIES</B>
</FONT>

<P align="left"><FONT size="2"><B>BASIS OF PRESENTATION</B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The consolidated financial statements of the Company include the accounts
of LeaseTrend, Inc. (&#147;LeaseTrend&#148;) acquired on January&nbsp;8, 1999, Jamison
Research, Inc. (&#147;Jamison&#148;) acquired on January&nbsp;22, 1999, ARES Development
Group, LLC (&#147;ARES&#148;) acquired on September&nbsp;15, 1999, COMPS.COM, Inc. (&#147;Comps&#148;)
acquired on February&nbsp;10, 2000 and First Image Technologies, Inc. (&#147;First
Image&#148;) acquired and merged into Comps on November&nbsp;9, 2000. LeaseTrend and
Jamison were merged into CoStar Realty Information, Inc. (&#147;CoStar Realty&#148;) on
December&nbsp;31, 1999 and ARES was merged into CoStar Realty on December&nbsp;31, 2000.
Comps was merged into CoStar Realty on December&nbsp;31, 2001.
</FONT>
<P align="left"><FONT size="2"><B>INTERIM FINANCIAL STATEMENTS</B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The accompanying unaudited condensed consolidated financial statements of
the Company have been prepared in accordance with accounting principles
generally accepted in the United States for interim financial information. In
the opinion of the Company&#146;s management, the financial statements reflect all
adjustments necessary to present fairly the results of operations for the three
and six month periods ended June&nbsp;30, 2002 and 2001, the Company&#146;s financial
position at June&nbsp;30, 2002, and the cash flows for the six month periods ended
June&nbsp;30, 2002 and 2001. These adjustments are of a normal recurring nature.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain notes and other information have been condensed or omitted from
the interim financial statements presented in this Quarterly Report on Form
10-Q. Therefore, these financial statements should be read in conjunction with
the Company&#146;s Annual Report on Form&nbsp;10-K for the year ended December&nbsp;31, 2001
and the Company&#146;s Quarterly Reports on Form&nbsp;10-Q for the periods ended June
30, 2001, September&nbsp;30, 2001 and March&nbsp;31, 2002.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The results of operations for the three and six month periods ended June
30, 2002 are not necessarily indicative of future financial results.
</FONT>
<P align="left"><FONT size="2"><B>CONSOLIDATION</B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The consolidated financial statements include the accounts of the Company
and its subsidiaries after elimination of all significant intercompany
transactions.
</FONT>
<P align="left"><FONT size="2"><B>USE OF ESTIMATES</B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
</FONT>
<P align="left"><FONT size="2"><B>RECLASSIFICATIONS</B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain previously reported amounts have been reclassified to conform to
the Company&#146;s current presentation.
</FONT>
<P align="center"><FONT size="2">6</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<P align="left"><FONT size="2"><B>COSTAR GROUP, INC.<BR>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)</B>
</FONT>

<P align="left"><FONT size="2"><B>3. GOODWILL</B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Goodwill consists of the following (in thousands):
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
        <TD width="56%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="8%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="8%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="8%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="8%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>June 30,</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>December 31,</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Goodwill</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">37,400</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">36,968</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accumulated amortization</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(11,223</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(11,223</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Goodwill, net</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">26,177</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">25,745</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P><FONT size="2">In connection with the Company&#146;s acquisition of First Image Technologies, Inc.
(&#147;First Image&#148;) on November&nbsp;9, 2000, the Company made a cash payment of
approximately $333,000 and issued 4,712 shares of common stock, par value $.01
per share, to the sole shareholder of First Image on June&nbsp;7, 2002 in
consideration for the completion of one of the earn-out conditions relating to
the acquisition of First Image. The total additional consideration was valued
for accounting purposes at approximately $432,000.
</FONT>
<P align="left"><FONT size="2"><B>4. INTANGIBLES AND OTHER ASSETS</B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Intangibles and other assets consists of the following (in thousands):
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
        <TD width="66%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="6%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="6%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>June 30,</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>December 31,</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Capitalized product development costs</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">1,795</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">1,795</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accumulated amortization</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(1,325</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(1,173</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">470</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">622</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Building photography</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">4,701</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">4,643</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Acquired database technology</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">17,949</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">17,949</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Customer base</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">31,945</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">31,945</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Tradename</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">4,198</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">4,198</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accumulated amortization</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(26,416</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(22,631</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">32,377</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">36,104</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Intangibles and other assets, net</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">32,847</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">36,726</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">7</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="left"><FONT size="2"><B>COSTAR GROUP, INC.<BR>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)</B>
</FONT>

<P align="left"><FONT size="2"><B>5. NEW ACCOUNTING PRONOUNCEMENTS</B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June 2001, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No.&nbsp;141, &#147;Business Combinations&#148;, and No.
142, &#147;Goodwill and Other Intangible Assets&#148;, effective for fiscal years
beginning after December&nbsp;15, 2001. Under the new rules, goodwill and
intangible assets deemed to have indefinite lives will no longer be amortized
but will be subject to annual impairment tests in accordance with the
Standards. Other intangible assets will continue to be amortized over their
useful lives. The Company applied the new rules on accounting for goodwill and
intangible assets deemed to have indefinite lives beginning in the first
quarter of 2002. During the second quarter of 2002, the Company completed the
initial impairment test of goodwill and indefinite lived intangible assets,
which did not indicate an impairment loss. The Company estimates that the
effect of the new rules will be to decrease amortization expense related to
goodwill by approximately $3.4&nbsp;million for the year ending December&nbsp;31, 2002.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As required by the new rules, the results for the prior year (three and
six months ended June&nbsp;30, 2001) have not been restated. Reconciliations of
previously reported net loss and net loss per share to the amounts adjusted for
the exclusion of goodwill amortization net of the related tax effects are as
follows:
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
        <TD width="47%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="7"><FONT size="1"><B>For the Three Months</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="7"><FONT size="1"><B>For the Six Months</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="7"><FONT size="1"><B>Ended June 30,</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="7"><FONT size="1"><B>Ended June 30,</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="7"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="7"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Reported net loss</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(1,267</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(5,895</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(2,889</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(13,544</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Goodwill amortization, net of tax</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&#151;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">832</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&#151;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">1,640</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Adjusted net loss</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(1,267</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(5,063</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(2,889</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(11,904</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
        <TD width="47%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Basic and diluted net loss per share
as reported</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(0.08</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(0.37</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(0.18</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(0.87</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Goodwill amortization, net of tax</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&#151;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">0.05</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&#151;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">0.11</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Adjusted basic and diluted net loss
per share</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(0.08</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(0.32</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(0.18</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(0.76</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
        <TD width="47%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Weighted average common shares</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">15,742</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">15,610</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">15,730</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">15,592</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">8</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<CENTER>
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        <TD valign="top"><FONT size="2"><B>ITEM 2</B></FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
<B>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS</B></FONT></TD>
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<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following Management&#146;s Discussion and Analysis of Financial Condition
and Results of Operations contains &#147;forward-looking statements,&#148; which involve
many risks and uncertainties that could cause actual results to differ
materially from those discussed in these statements. Factors that could cause
or contribute to such differences include, but are not limited to, successful
adoption of our products, competition, general economic conditions, changes or
consolidations in the commercial real estate industry, managerial execution,
customer retention, development of our sales force, data quality, employee
retention, changes in accounting policies or practices and our ability to adapt
to technological changes. More information concerning these and other potential
factors that could cause actual results to differ materially from those
discussed in any forward-looking statements include, but are not limited to,
those stated below under the heading &#147;Risk Factors&#148; and those included from
time-to-time in our filings with the Securities and Exchange Commission. All
forward-looking statements are based on information available to us on the date
of this filing, and we assume no obligation to update such statements. The
following discussion should be read in conjunction with our filings with the
Securities and Exchange Commission and the unaudited condensed consolidated
financial statements included in this report.
</FONT>
<P align="left"><FONT size="2"><B>Overview</B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;CoStar is the leading provider of information services to the U.S.
commercial real estate industry. We have created a digital marketplace where
the members of the commercial real estate and related business community can
continuously interact and facilitate transactions by efficiently exchanging
accurate and standardized commercial real estate information. Our wide array of
digital service offerings includes a leasing marketplace, a selling
marketplace, comparable sales information, decision support, tenant
information, property marketing, data hosting for clients&#146; Web sites, contact
management, property data integration and industry news. Substantially all of
our current services are digitally delivered over the Internet.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We completed our initial public offering in July, 1998, and received net
proceeds of approximately $22.7&nbsp;million. We primarily used those net proceeds
to fund the geographic and service expansion of our business, including three
strategic acquisitions, and to expand our sales and marketing organization. In
May, 1999, we completed a follow-on public offering and received net proceeds
of approximately $97.4&nbsp;million. We used a portion of those net proceeds to fund
the acquisition of COMPS.COM, Inc. (&#147;Comps&#148;) and we expect to use the remainder
of the proceeds primarily for development and distribution of new services,
expansion of all existing services across our current markets, geographic
expansion in the United States and international markets, strategic
acquisitions and working capital and general corporate purposes.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From 1994 through 2001, we expanded the geographical coverage of our
existing services and developed new services. In addition to internal growth,
this expansion included the acquisitions of Chicago ReSource, Inc. in Chicago
in 1996 and New Market Systems, Inc. in San Francisco in 1997. In August, 1998,
we expanded into the Houston region through the acquisition of Houston-based
real estate information provider C Data Services, Inc. In January, 1999, we
expanded further into the Midwest and Florida by acquiring LeaseTrend, and into
Atlanta and Dallas/Fort Worth by acquiring Jamison Research, Inc. In September,
1999, we acquired ARES, a Los Angeles based developer and distributor of ARES
for ACT!. In February, 2000, we acquired Comps. In November, 2000, we acquired
First Image Technologies.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since our inception, the development of our business has required
substantial investments for the expansion of services and the establishment of
operating regions throughout the United States, which has resulted in
substantial net losses on an overall basis. Throughout 1999 and 2000, we
experienced a rapid expansion in the number of services that we offer and the
number of regions in which we operate. By the beginning of 2001, we had
substantially completed our goal of establishing a national platform of
operating regions and service offerings in 50 market areas from which we
believe we can appropriately meet the needs of the commercial real estate
community for comprehensive national building specific information. During
2001, we focused on continuing to grow revenue while controlling and reducing
costs, in an effort to reduce operating losses, and ultimately, move our
business to profitability. As a result, the Company has generated positive
earnings before interest, taxes, depreciation and amortization for the last
four quarters. We believe that the opportunity to continue to grow revenue
from our existing national platform and services is significant and that a
large component of the operating cost structure of the Company consists of
fixed operating costs. Therefore, based on expected revenue growth and
continued cost control, we believe that during 2002 we can reduce our overall
operating losses as compared to 2001 and generate positive operating cash
flows.
</FONT>
<P align="center"><FONT size="2">9</FONT>
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<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We may develop and distribute new services and expand existing services
across our current regions and we may experience continued geographic expansion
in the United States and/or international markets. The incremental cost of
introducing new services in the future may reduce the profitability of a region
or cause it to incur losses. Therefore, while we expect current services
offerings in existing regions to remain generally profitable and provide
substantial funding for our overall business, it is possible that further
overall expansion could cause us to generate additional losses and negative
cash flow from operations in the future.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;While our services continue to expand, our CoStar Property, CoStar Tenant
and CoStar COMPS services currently generate the largest portion of our
revenue. The CoStar Property, CoStar Tenant and CoStar COMPS subscription
contracts generally have terms of one to three years and renew automatically.
Upon renewal, many of the contract rates increase in accordance with contract
provisions or as a result of contract renegotiations. To encourage clients to
use our services regularly, we generally charge fixed amounts rather than fees
based on actual system usage. We charge our clients based on the number of
sites, organization size, the client&#146;s business focus and the number of
services to which a client subscribes.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our contract renewal rate historically has exceeded 90% on an annual
basis. However, during 2001 many telecommunications companies, which
represented approximately 6% of our revenues at their peak, cancelled our
services as a result of discontinuing or curtailing their operations. Sales to
telecommunications companies currently represent approximately 1% of our
revenues. These cancellations, together with the impact of general economic
conditions on our entire customer base, have resulted in renewal rates
exceeding 85% over the past twelve months.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Over 90% of our revenues arise from clients under subscription contracts.
Our subscription clients pay contract fees on an annual, quarterly or monthly
basis. We recognize this revenue over the life of the contract on a
straight-line basis beginning with the installation or renewal date. Annual and
quarterly advance payments result in deferred revenue, substantially reducing
the working capital requirements generated by accounts receivable.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We applied the new rules on accounting for goodwill and intangible assets
deemed to have indefinite lives beginning in the first quarter of 2002. In
accordance with Financial Accounting Standards No.&nbsp;142, &#147;Goodwill and Other
Intangible Assets&#148;, goodwill and intangible assets deemed to have indefinite
lives will no longer be amortized but will be subject to annual impairment
tests. Other intangible assets will continue to be amortized over their useful
lives. During the second quarter of 2002, we completed the initial impairment
test of goodwill and indefinite lived intangible assets, which did not indicate
an impairment loss. We estimate that the effect of the new rules will be to
decrease amortization expense related to goodwill by approximately $3.4&nbsp;million
for the year ending December&nbsp;31, 2002 compared to the previous year.
</FONT>
<P align="center"><FONT size="2">10</FONT>
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<P align="center"><FONT size="2"><B>Three Months Ended June&nbsp;30, 2001 Compared To<BR>
Three Months Ended June&nbsp;30, 2002</B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Revenues. Revenues grew 8.1% from $18.1&nbsp;million in the second quarter of
2001 to $19.5&nbsp;million in the second quarter of 2002. The growth was
principally the result of further penetration of our services in our potential
customer base across our national platform, as well as the successful
cross-selling of our services into our existing customer base. Subscription
based information products, including CoStar Property, CoStar Tenant, CoStar
COMPS, CoStar Exchange and CoStar Connect, continue to account for over 90% of
the Company&#146;s revenues.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Gross Margin. Gross margin increased from $10.6&nbsp;million in the second
quarter of 2001 to $12.6&nbsp;million in second quarter of 2002. Gross margin
percentage also increased from 58.4% to 64.5%. The increase in gross margin
amounts and percentages resulted from revenue growth combined with a decline in
the cost of revenues principally due to a $700,000 decrease in purchase
amortization from the LeaseTrend, Jamison, ARES, Comps and First Image
acquisitions, which was somewhat offset by an increase in research personnel
costs compared to the same period in 2001.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Selling and Marketing Expenses. Selling and marketing expenses decreased
6.4% from $5.9&nbsp;million in the second quarter of 2001 to $5.6&nbsp;million in the
second quarter of 2002 and decreased as a percentage of revenues from 32.9% to
28.5%. Selling and marketing expenses decreased principally as a result of a
reduction in marketing and advertising activities as well as a reduction in
operating costs associated with our sales organization, including
communications, travel, recruiting and decreased sales administration and
advertising account executive personnel costs.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Software Development Expenses. Software development expenses remained at
$1.4&nbsp;million for the second quarter of 2001 and the second quarter of 2002 and
remained constant as a percentage of revenues at 7%. Software development
expenses reflect development costs for the products we support including CoStar
COMPS, CoStar Exchange and CoStar Connect, as well as the support of internal
systems to manage the Company&#146;s growth.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; General and Administrative Expenses. General and administrative expenses
decreased from $7.7&nbsp;million in the second quarter of 2001 to $6.2&nbsp;million in
the second quarter of 2002 and decreased as a percentage of revenues from 42.4%
to 31.9%. General and administrative expenses decreased due to reductions in
administrative headcount, communications, consulting, travel costs and outside
services during 2002.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Purchase Amortization. Purchase amortization decreased from $1.9&nbsp;million
in the second quarter of 2001 to $900,000 in the second quarter of 2002.
Purchase amortization decreased primarily due to the adoption of the Statements
of Financial Accounting Standards No.&nbsp;141, &#147;Business Combinations&#148;, and No.
142, &#147;Goodwill and Other Intangible Assets&#148;. Under the new rules, goodwill and
intangible assets deemed to have indefinite lives will no longer be amortized
but will be subject to annual impairment tests in accordance with the
Standards. We estimate that the effect of the new rules was to decrease
amortization expense related to goodwill by approximately $845,000 for the
second quarter of 2002 as compared to the same period in 2001.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Other Income, Net. Interest and other income decreased from $374,000 in
the second quarter of 2001 to $214,000 in the second quarter of 2002. This
decrease was primarily a result of lower average cash, cash equivalents and
short-term investments balances from one period to another, and a decline in
market interest rates for invested cash, cash equivalents and short-term
investments.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Income Tax Benefit. Income tax benefit decreased from $41,000 in the
second quarter of 2001 to $0 in the second quarter of 2002 as a result of the
reversal of the deferred tax liability incurred in connection with the
amortization of identified intangibles assets acquired through acquisitions
incurred in the second quarter of 2001.
</FONT>
<P align="center"><FONT size="2">11</FONT>
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<P align="center"><FONT size="2"><B>Six Months Ended June&nbsp;30, 2001 Compared To<BR>
Six Months Ended June&nbsp;30, 2002</B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Revenues. Revenues grew 9.0% from $35.4&nbsp;million for the six months ended
June&nbsp;30, 2001 to $38.6&nbsp;million for the six months ended June&nbsp;30, 2002. The
growth was principally the result of further penetration of our services in our
potential customer base across our national platform, as well as the successful
cross-selling of our services into our existing customer base. Subscription
based information products, including CoStar Property, CoStar Tenant, CoStar
COMPS, CoStar Exchange and CoStar Connect, continue to account for over 90% of
the Company&#146;s revenues.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Gross Margin. Gross margin increased from $19.9&nbsp;million for the six months
ended June&nbsp;30, 2001 to $24.6&nbsp;million for the six months ended June&nbsp;30, 2002.
Gross margin percentage also increased from 56.2% to 63.6%. The increase in
gross margin amounts and percentages resulted from revenue growth combined with
a decline in the cost of revenues principally due to a $1.1&nbsp;million decrease in
purchase amortization from the LeaseTrend, Jamison, ARES, Comps and First Image
acquisitions, which was somewhat offset by an increase in research personnel
costs compared to the same period in 2001.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Selling and Marketing Expenses. Selling and marketing expenses decreased
12.6% from $12.9&nbsp;million for the six months ended June&nbsp;30, 2001 to $11.2
million for the six months ended June&nbsp;30, 2002 and decreased as a percentage of
revenues from 36.3% to 29.1%. Selling and marketing expenses decreased
principally as a result of a reduction in marketing and advertising activities
as well as a reduction in operating costs associated with the sales
organization, including communications, travel, recruiting and decreased sales
administration and advertising account executive personnel costs.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Software Development Expenses. Software development expenses increased
from $2.6&nbsp;million for the six months ended June&nbsp;30, 2001 to $2.8&nbsp;million for
the six months ended June&nbsp;30, 2002 and remained constant as a percentage of
revenues at 7%. The increase in software development expenses reflects
development costs for the increased number of products we now support including
CoStar COMPS, CoStar Exchange and CoStar Connect, as well as the increase in
support of internal systems to manage the Company&#146;s growth.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; General and Administrative Expenses. General and administrative expenses
decreased from $15.4&nbsp;million for the six months ended June&nbsp;30, 2001 to $12.1
million for the six months ended June&nbsp;30, 2002 and decreased as a percentage of
revenues from 43.4% to 31.4%. General and administrative expenses decreased due
to reductions in administrative headcount, communications, consulting, travel
costs and outside services during 2002.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Purchase Amortization. Purchase amortization decreased from $3.7&nbsp;million
for the six months ended June&nbsp;30, 2001 to $1.8&nbsp;million for the six months ended
June&nbsp;30, 2002. Purchase amortization decreased primarily due to the adoption of
the Statements of Financial Accounting Standards No.&nbsp;141, &#147;Business
Combinations&#148;, and No.&nbsp;142, &#147;Goodwill and Other Intangible Assets&#148;. Under the
new rules, goodwill and intangible assets deemed to have indefinite lives will
no longer be amortized but will be subject to annual impairment tests in
accordance with the Standards. We estimate that the effect of the new rules was
to decrease amortization expense related to goodwill by approximately $1.7
million for the six months ended June&nbsp;30, 2002 as compared to the same period
in 2001.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Other Income, Net. Interest and other income decreased from $949,000 for
the six months ended June&nbsp;30, 2001 to $453,000 for the six months ended June
30, 2002. This decrease was primarily a result of lower average cash, cash
equivalents and short-term investments balances from one period to another, and
a decline in market interest rates for invested cash, cash equivalents and
short-term investments.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Income Tax Benefit. Income tax benefit decreased from $82,000 for the six
months ended June&nbsp;30, 2001 to $0 for the six months ended June&nbsp;30, 2002 as a
result of the reversal of the deferred tax liability incurred in connection
with the amortization of identified intangibles assets acquired through
acquisitions incurred during the six months ended June&nbsp;30, 2001.
</FONT>
<P align="center"><FONT size="2">12</FONT>
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<P align="left"><FONT size="2"><B>Liquidity and Capital Resources</B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our principal sources of liquidity are cash, cash equivalents and
short-term investments. Our cash and cash equivalents balance was $29.9
million and $30.7&nbsp;million, and our short-term investments balance was $12.2
million and $11.3&nbsp;million, at June&nbsp;30, 2002 and December&nbsp;31, 2001,
respectively. Total cash, cash equivalents and short-term investments were
$42.1&nbsp;million at June&nbsp;30, 2002 an increase of $100,000 from $42.0&nbsp;million at
December&nbsp;31, 2001. This increase was due principally to cash provided by
operating activities of $1.8&nbsp;million and $278,000 of proceeds from the exercise
of stock options offset by cash purchases of property and equipment totaling
$1.6&nbsp;million and a cash payment of $333,000 in consideration for the completion of one of the earn-out
conditions relating to the acquisition of First Image Technologies, Inc. on
November&nbsp;9, 2000.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash provided by operating activities for the six month period ended
June&nbsp;30, 2002 of $1.8&nbsp;million compared to net cash used in operating activities
of $4.6&nbsp;million for the six month period ended June&nbsp;30, 2001. This $6.4
million increase in net cash provided by operating activities was a result of
revenue growth and a reduction in operating expenses, both of which contributed
to a reduction of our net loss for the first six months of 2002 compared to the
first six months of 2001.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash used in investing activities amounted to $3.0&nbsp;million for the six
months ended June&nbsp;30, 2002 as compared to net cash used in investing activities
of $3.1&nbsp;million for the six months ended June&nbsp;30, 2001. Net cash used in
investing activities decreased by $100,000 during the first six months of 2002
compared to the first six months of 2001 primarily due to a decline in the
purchases of short-term investments offset by an increase in the purchases of
property and equipment.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have entered into numerous operating leases for office space throughout
the country, including our headquarters, and have annual commitments for total
rent payments ranging from $450,000 to $5,386,000 over the next nine years. As
a result of the planned third quarter relocation of our San Diego office, we
currently have commitments of approximately $1.5&nbsp;million for capital
expenditures, which we expect to incur during the third and fourth quarter of
2002.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To date, we have grown in part by acquiring other companies, and we may
continue to make acquisitions. Our acquisitions may vary in size and could be
material to our current operations. We expect to use cash, stock, debt or other
means of funding to make these acquisitions.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the first six months of 2002, we experienced overall losses
combined with positive cash flow from operating activities. For the remainder
of 2002, as the Company continues to emerge from a period of rapid product and
geographical expansion, we expect continued sequential quarterly growth in
revenue, which we believe will generally exceed growth in our cost structure, a
large component of which consists of fixed operating costs. As a result, we
expect continued reductions in the level of our overall operating losses in
2002 as compared to 2001 and continued cash flow provided by operating
activities during 2002.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based on current plans, we believe that our available cash combined with
positive cash flow provided by operating activities should be sufficient to
fund our operations for the next 12&nbsp;months.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although we have experienced losses to date, future profits, to the extent
not offset by the benefits of loss carryforwards, would result in income tax
liabilities. In addition, we have recorded a valuation allowance for the
portion of the deferred tax assets related to tax loss carryforwards.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We do not believe the impact of inflation has significantly affected our
operations.
</FONT>
<P align="center"><FONT size="2">13</FONT>
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<P align="left"><FONT size="2"><B>Recent Accounting Pronouncements</B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June 2001, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No.&nbsp;141, &#147;Business Combinations&#148;, and No.
142, &#147;Goodwill and Other Intangible Assets&#148;, effective for fiscal years
beginning after December&nbsp;15, 2001. Under the new rules, goodwill and
intangible assets deemed to have indefinite lives will no longer be amortized
but will be subject to annual impairment tests in accordance with the
Standards. Other intangible assets will continue to be amortized over their
useful lives. We have applied the new rules on accounting for goodwill and
intangible assets deemed to have indefinite lives beginning in the first
quarter of 2002. During the second quarter of 2002, we completed the initial
impairment test of goodwill and indefinite lived intangible assets, which did
not indicate an impairment loss. We estimate that the effect of the new rules
will be to decrease amortization expense related to goodwill by approximately
$3.4&nbsp;million for the year ending December&nbsp;31, 2002.
</FONT>
<P align="left"><FONT size="2"><B>Cautionary Statement Concerning Forward-Looking Statements</B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have made forward-looking statements in this Report that are subject to
risks and uncertainties. Forward-looking statements include information that is
not purely historic fact, including statements concerning our financial outlook
for 2002 and estimates for the future, our possible or assumed future results
of operations generally, and other statements and information regarding
assumptions about our revenues, earnings per share, capital and other
expenditures, operating losses, financing plans, cash flow, capital structure,
amortization expense, impairment losses, legal proceedings and claims, future
economic performance, operating income, management&#146;s plans, goals and
objectives for future operations and growth and markets for stock. The sections
of this Report, which contain forward-looking statements, include the Financial
Statements and related Notes and &#147;Management&#146;s Discussion and Analysis of
Financial Condition and Results of Operations.&#148;
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our forward-looking statements are also identified by words such as
&#147;believes,&#148; &#147;expects,&#148; &#147;anticipates,&#148; &#147;intends,&#148; &#147;estimates&#148; or similar
expressions. You should understand that these forward-looking statements are
necessarily estimates reflecting our judgment, not guarantees of future
performance. They are subject to a number of assumptions, risks and
uncertainties that could cause actual results to differ materially from those
expressed or implied in the forward-looking statements. You should understand
that the following important factors, in addition to those discussed in &#147;Risk
Factors,&#148; could affect our future results and could cause those results or
other outcomes to differ materially from those expressed or implied in our
forward-looking statements: successful adoption of our products; competition;
general economic conditions; changes or consolidations in the commercial real
estate industry; customer retention; development of our sales force; business
combinations and strategic alliances by other industry participants; managerial
execution; growth in commerce conducted over the Internet; changes in
relationships with real estate brokers and other strategic partners; changes in
accounting policies or practices; and legal and regulatory issues.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accordingly, you should not place undue reliance on forward-looking
statements, which speak only as of the date of this Report. All subsequent
written and oral forward-looking statements attributable to us or any person
acting on our behalf are expressly qualified in their entirety by the
cautionary statements contained or referred to in this section. We do not
undertake any obligation to release publicly any revisions to these
forward-looking statements to reflect events or circumstances after the date of
this Report or to reflect the occurrence of unanticipated events.
</FONT>
<P align="left"><FONT size="2"><B>Risk Factors</B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Our future profitability is uncertain. </I>To date, we have not recorded an
overall operating profit because the investment required for geographic
expansion and new services has caused our expenses to exceed our profits. Our
ability to earn a profit will largely depend on our ability to manage our
growth, and to generate profits that exceed the expenses related to our
investment in geographic expansion and new services. In addition, our ability
to earn a profit, to increase revenues or to control costs could be affected by
the factors set forth below. We may not be able to generate revenues or control
expenses sufficient to earn a profit, to maintain profits on a quarterly or
annual basis, or to sustain or increase our future revenue growth.
</FONT>
<P align="center"><FONT size="2">14</FONT>
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<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Our operating results may fluctuate significantly.</I> Our operating results,
revenues and expenses may fluctuate with general economic conditions and also
for many other reasons, such as: successful adoption of the Company&#146;s products;
competition; loss of clients or revenues; changes or consolidation in the real
estate industry; the development of our sales force; managerial execution;
cancellations or non-renewals of our products; data quality; employee
retention; our investments in geographic expansion; the timing of new service
introductions and enhancements; the timing of investing the net proceeds from
our offerings; acquisitions of other companies or assets; sales, brand
enhancement and marketing promotional activities; client training and support
activities; changes in client budgets; our ability to control expenses; or our
investments in other corporate resources. In addition, changes in accounting
policies or practices may affect our results of operations, including without
limitation, changes requiring us to expense stock options.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>We may not be able to attract and retain clients.</I> Our success and revenues
depend on attracting and retaining subscribers to our services. The CoStar
Property, CoStar Tenant and CoStar COMPS subscription contracts, which generate
the largest portion of our revenue, generally range from terms of one to three
years. Our clients may decide not to renew or to cancel their agreements as a
result of several factors, including: a decision that they have no need for our
products; a decision to use alternative products; pricing and budgetary
constraints; consolidation in the real estate industry; data quality; technical
problems; or economic or competitive pressures. If clients decide not to renew
or cancel their agreements, and we do not attract new clients, then our
revenues will be adversely affected.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Our operating costs may be higher than we expect.</I> Many of our expenses,
particularly personnel costs and occupancy costs, are relatively fixed. As a
result, we may not be able to adjust spending quickly enough to offset any
unexpected revenue shortfall or increase in expenses. Additionally, we may
experience higher than expected operating costs, including increased personnel
costs, selling and marketing costs, occupancy costs, communications costs,
travel costs, software development costs, outside services costs and other
costs. If operating costs exceed our expectations or cannot be adjusted
accordingly, our business, results of operations and financial condition will
be adversely affected.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Competition could render our services uncompetitive.</I> The market for
information systems and services in general is highly competitive and rapidly
changing. The barriers to entry for Web-based services and businesses are low,
making it possible for the number of competitors to proliferate rapidly. Our
existing competitors, or potential new competitors, may have longer operating
histories in the Internet market, greater name recognition, larger customer
bases, better technology or data, lower prices, easier access to data, greater
user traffic or greater financial, technical and marketing resources than we
have. Our competitors may be able to undertake more extensive marketing
campaigns, obtain more data, adopt more aggressive pricing policies, make more
attractive offers to potential employees, subscribers, distribution partners
and content providers and may be able to respond more quickly to new or
emerging technologies and changes in Internet user requirements. Increased
competition could result in lower revenues and higher expenses, which would
reduce our profitability.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Downturns and consolidation in the commercial real estate industry could
have an adverse effect on our business. </I>Our business may be affected by
conditions in the commercial real estate industry, including conditions
affecting businesses that supply or invest in that industry. A decrease in the
level of commercial real estate activities could adversely affect demand for
our services. The traditional economic downturns in the commercial real estate
industry could also harm our business. These changes could decrease new sales
and increase cancellation rates, which could have a material adverse impact on
our operating results. Also, companies in this industry are consolidating,
often in order to reduce expenses. Consolidation could reduce the number of our
existing clients, reduce the size of our target market and increase our
clients&#146; bargaining power. Any of these factors could adversely affect our
business.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>General economic conditions could have an adverse effect on our business.</I>
Our business and the commercial real estate industry are particularly affected
by negative trends in the general economy. The success of our business depends
on a number of factors relating to general global, national, regional and local
economic conditions, including inflation, interest rates, perceived and actual
economic conditions, taxation policies, availability of credit, employment
levels, and wage and salary levels. Negative trends in any of these general
economic conditions could adversely affect our business. For example, a
significant increase in inflation could increase our expenses, which may not be
offset by increased revenues. In addition, a downturn in the
telecommunications industry in 2001 forced many of our telecom company clients
to discontinue or curtail their operations, which resulted in an increased
number of cancellations of our services. If other clients choose to cancel our
services as a result of economic conditions, and we do not acquire new clients,
our financial position could be adversely affected.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>If our data is not accurate, comprehensive or reliable, our business could
be harmed. </I>Our success depends on our clients&#146; confidence in the
comprehensiveness, accuracy and reliability of the data we provide. The task of
establishing and maintaining accurate and reliable data is challenging. If our
data is not current, accurate, comprehensive or reliable, we could experience
reduced demand for our services or legal claims by our customers, which could
result in lower revenues and higher expenses.
</FONT>
<P align="center"><FONT size="2">15</FONT>
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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>If we are unable to hire, retain and continue to develop our sales force,
it could have a material adverse effect on our business. </I>In order to support
revenue growth, we need to continue to develop, train and retain our sales
force. Our ability to build and develop a strong sales force may be affected by
a number of factors, including: our ability to integrate and motivate sales
personnel; our ability to effectively train our sales force; the ability of our
sales force to sell an increased number of products; the length of time it
takes new sales personnel to become productive; the competition we face from
other companies in hiring and retaining sales personnel; and our ability to
manage a multi-location sales organization. If we are unable to hire, develop
or retain the members of our sales force, or if our sales force is
unproductive, it could have a material adverse effect on our revenues and
expenses.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>We may not be able to successfully introduce new product or upgraded
products. </I>Our future business and financial success will depend on our ability
to continue to introduce new products and upgraded products into the
marketplace. Developing new products and upgrades to products imposes heavy
burdens on our systems development department, product managers, management and
researchers. In addition, successfully launching and selling a new product,
such as CoStar Office Report, or an upgraded product such as CoStar Web
Property, puts pressure on our sales and marketing resources. If we are unable
to develop new products or upgrades to our products, then our customers may
choose a competitive service over ours and our business may be adversely
affected. In addition, if we incur significant costs in developing new products
or upgrades to our products, or are not successful in marketing and selling
these new products or upgrades, it could have a material adverse effect on our
results of operations.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Our business depends on retaining and attracting highly capable management
and operating personnel. </I>Our success depends in large part on our ability to
retain and attract management and operating personnel, including our President
and Chief Executive Officer, Andrew Florance, our officers and other key
employees. Our business requires highly skilled technical, sales, management,
Web-development, marketing and research personnel, who are in high demand and
are often subject to competing offers. To retain and attract key personnel, we
use various measures, including employment agreements, a stock option plan and
incentive bonuses for key executive officers. These measures may not be enough
to retain and attract the personnel we need or to offset the impact on our
business of the loss of the services of Mr.&nbsp;Florance or other key officers or
employees.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>We may not be able to adapt to the rapid technological changes to the
Internet and Internet products. </I>To be successful, we must adapt to the rapid
technological changes to the Internet and Internet products by continually
enhancing our products and services, and introducing and integrating new
services and products to capitalize on the technological advances in the
Internet. This process is costly and we cannot assure you that we will be able
to successfully integrate our services and products with the Internet&#146;s
technological advances. The products that collect, store, manage and
disseminate commercial real estate information from a centralized database on
the Internet were developed recently and continue to evolve. Our market is
characterized by rapidly changing technologies, evolving industry standards,
increasingly sophisticated customer needs and frequent new product
introductions. These factors are exacerbated by the rapid technological change
experienced in the computer and software industries. Our business increasingly
depends on our ability to anticipate and adapt to all of these changes, as well
as our customers&#146; ability to adapt to the use of our existing and future
services and products on the Internet. We could incur substantial costs if we
need to modify our services or infrastructure in order to adapt to these
changes, and our customers&#146; failure to accept these changes could have a
material adverse effect on our revenues. If we incurred significant costs
without adequate results or we are unable to adapt to rapid technological
changes, it could have a material adverse effect on our business.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Unsatisfactory Internet performance, interruption or failure could have an
adverse effect on our business. </I>Our business increasingly depends upon the
satisfactory performance, reliability and availability of our Web site, the
Internet and the World Wide Web. Problems with our Web site, the Internet or
the Web may impede the development of our business for a number of reasons. As
the number of Internet users or their use of Internet resources continues to
grow, and as companies deliver increasingly larger amounts of data over the
Internet, the Internet&#146;s infrastructure must also grow. Growth in Internet
usage that is not matched by comparable growth of the infrastructure supporting
the Internet could result in slower response time, cause outright failure of
the Internet, or otherwise adversely affect usage. In addition, if we
experience technical problems in distributing our products over the Web,
including interruption or failure of services provided by our local exchange
carriers or Internet service providers, we could experience reduced demand for
our products.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Temporary or permanent outages of our computers, software or
telecommunications equipment could have an adverse effect on our business. </I>Our
operations depend on our ability to protect our database, computers and
software, telecommunications equipment and facilities against damage from
potential dangers such as fire, power loss, security breaches and
telecommunications failures. Any temporary or permanent loss of one or more of
these systems or facilities from an accident, equipment malfunction or some
other cause could harm our business. If we experience a failure that results in
our not being able to deliver our products to clients, or to update our
products, we could experience reduced demand for our products.
</FONT>
<P align="center"><FONT size="2">16</FONT>
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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>International expansion may result in new business risks. </I>If we expand
internationally, this expansion could subject us to new business risks,
including: adapting to the differing business practices and laws in foreign
commercial real estate markets; difficulties in managing foreign operations;
limited protection for intellectual property rights in some countries;
difficulty in collecting accounts receivable and longer collection periods;
costs of enforcing contractual obligations; impact of recessions in economies
outside the United States; currency exchange rate fluctuations; and potentially
adverse tax consequences. In addition, the investment required for
international expansion could exceed the profit generated from such expansion,
which could adversely affect our financial condition.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>We may be subject to legal liability for displaying or distributing
information. </I>Because the content in our database is distributed to others, we
may be subject to claims for defamation, negligence or copyright or trademark
infringement or claims based on other theories. We could also be subject to
claims based upon the content that is accessible from our Web site through
links to other Web sites or information on our Web site supplied by third
parties. Even if these claims do not result in liability to us, we could incur
significant costs in investigating and defending against any claims. Our
potential liability for information distributed by us to others could require
us to implement measures to reduce our exposure to liability, which may require
the expenditure of substantial resources and limit the attractiveness of our
service to users.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>We may be unable to enforce or defend our ownership and use of
intellectual property. </I>The success of our business depends in large part on the
intellectual property involved in our methodologies, database and software. We
rely on a combination of trade secret, patent, copyright and other laws,
nondisclosure and noncompetition provisions, license agreements and other
contractual provisions and technical measures to protect our intellectual
property rights. However, current law may not provide for adequate protection
of our databases and the actual data. In addition, legal standards relating to
the validity, enforceability and scope of protection of proprietary rights in
Internet-related businesses are uncertain and evolving, and we cannot assure
you of the future viability or value of any of our proprietary rights. Our
business could be significantly harmed if we are not able to protect our
content and our other intellectual property. The same would be true if a court
found that our services infringe other persons&#146; intellectual property rights.
Any intellectual property lawsuits in which we are involved, either as a
plaintiff or as a defendant, could cost us a significant amount of time and
money. In addition, if any intellectual property claims are adversely
determined, this could result in a material adverse result on our financial
position and our business.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Litigation in which we become involved may adversely affect our business.</I>
Currently and from time to time, we are involved in litigation incidental to
the conduct of our business. We cannot assure you that we will have insurance
to cover our pending claims or our future claims. Any lawsuits in which we are
involved could cost us a significant amount of time and money. If any pending
claims or future claims are adversely determined, they could have a material
adverse effect on our financial position or results of operations.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Problems with our software could impair the use of our services. </I>The
software underlying our services is complex and may contain undetected errors.
We have previously discovered errors in our proprietary software. Despite
testing, we cannot be certain that errors will not be found in current
versions, new versions or enhancements of our software. Any errors could result
in adverse publicity, impaired use of our services, loss of revenues, cost
increases and legal claims by customers. All these factors could seriously
damage our business, operating results and financial condition.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>We may not be able to manage successfully our geographic expansion. </I>Our
future business and financial success will depend on our ability to manage our
geographic expansion. Our efforts to manage expanded growth must occur while
information technology is rapidly changing. These efforts impose additional
burdens on our research, systems development, sales and general managerial
resources. If we were not able to manage our expanded growth successfully, it
would have a material adverse effect on our profitability.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>If we are unable to provide our clients with training and customer
support, our business could be harmed. </I>It is important that our clients find
our products easy to use. To meet these needs, we provide client training and
have developed a client support network that seeks to respond to client
inquiries as soon as possible. If we do not maintain adequate training and
support levels, we could experience reduced demand for our services.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>If there is a reduction in our supply of data from public record
providers, our business could be harmed. </I>We license a small portion of our data
from public records providers and other data providers to enhance our products
and services. If we are unable to enter into licensing agreements with these
entities, if this data becomes unavailable for any reason, or if the costs for
this data rise, we could experience increased costs and our financial position
could be adversely affected.
</FONT>
<P align="center"><FONT size="2">17</FONT>
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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Our increasing use of the Internet and the World Wide Web exposes us to
regulatory and other uncertainties. </I>Most of our clients currently receive their
CoStar data via the Internet. This exposes us to various uncertainties arising
from the future course of development of the Internet and the World Wide Web.
Governments in the United States and abroad might adopt laws or regulations
applicable to Internet commerce that could harm our business by, for example,
regulating our transmissions over the Internet or exposing our business to new
taxes in various jurisdictions. User concerns about the privacy and security of
Internet-distributed communications might impede the growth of our business. We
may need to expend substantial resources to protect against security breaches
on our Web site or in our Internet communications.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>We face risks associated with legislation in the real estate industry.</I>
Real estate is a regulated industry in the United States. These laws and
related regulations, and any newly adopted regulations, may limit or restrict
our activities or could require us to expend significant resources to comply.
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. In addition, if we are found to be in violation of these
regulations, we may incur penalties and legal costs or we may be precluded from
certain activities.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Our business depends on our management team&#146;s ability to execute our
business plan. </I>Our business depends on the ability of our assembled management
team to successfully execute our business plan. The inability of our management
team to successfully execute our business plan could have an adverse effect on
our operations.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>If we do not generate sufficient cash flows from operations, we may need
additional capital. </I>To date, we have financed our operations through cash from
profitable operations in certain of our regions, the sale of our stock and
borrowing money. If we do not generate enough cash from operations to finance
our business, including any acquisitions, in the future, we will need to raise
additional funds through public or private financing. Selling additional equity
securities could dilute the equity interests of our stockholders. If we borrow
money, we will have to pay interest and agree to restrictions that may limit
our operating flexibility. We may not be able to obtain funds needed to finance
our operations at all or may be able to obtain funds only on unattractive
terms. If we require additional funds and are not able to obtain such funds, it
would have a material adverse effect on our operations.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Market volatility may have an adverse effect on our stock price. </I>The
trading price of our common stock has fluctuated widely in the past, and we
expect that it will continue to fluctuate in the future. The price could
fluctuate widely based on numerous factors, including: quarter-to-quarter
variations in our operating results; changes in analysts&#146; estimates of our
earnings; announcements by us or our competitors of technological innovations
or new services; general conditions in the commercial real estate industry;
developments or disputes concerning copyrights or proprietary rights;
regulatory developments; and economic or other factors. In addition, in recent
years, the stock market in general, and the shares of Internet-related and
other technology companies in particular, have experienced extreme price
fluctuations. This volatility has had a substantial effect on the market prices
of securities issued by many companies for reasons unrelated to the operating
performance of the specific companies.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Stock ownership by executive officers and directors provides substantial
influence over matters requiring a vote of stockholders. </I>Our executive officers
and directors, and entities affiliated with them, beneficially own a sufficient
number of shares of our outstanding common stock to exercise substantial
influence over the election of directors and other matters requiring a vote of
stockholders. This concentrated ownership might delay or prevent a change in
control and may impede or prevent transactions in which stockholders might
otherwise receive a premium for their shares.
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
        <TD width="10%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="85%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2"><B>ITEM 3</B></FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
<b>QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK</b></FONT></TD>
</TR>
</TABLE>
</CENTER>
<P><FONT size="2">We do not have significant exposure to market risks associated with the changes
in interest rates related to cash equivalent securities held as of June&nbsp;30,
2002.
</FONT>
<P align="center"><FONT size="2">18</FONT>
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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<P align="left"><FONT size="2"><B>PART II. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;OTHER INFORMATION</B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
        <TD width="10%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="85%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2"><B>ITEM 1</B></FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
<B>LEGAL PROCEEDINGS</B></FONT></TD>
</TR>
</TABLE>
</CENTER>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Currently and from time to time, we are involved in litigation incidental
to the conduct of our business. We are not a party to any lawsuit or proceeding
that, in the opinion of our management, is likely to have a material adverse
effect on our financial position or results of operations.
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
        <TD width="10%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="85%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2"><B>ITEM 2</B></FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
<B>CHANGES IN SECURITIES</B></FONT></TD>
</TR>
</TABLE>
</CENTER>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with the acquisition of First Image Technologies, Inc.
(&#147;First Image&#148;), the Company issued to Joseph J. Klug, the sole shareholder of
First Image, 4,712 shares of common stock, par value $.01 per share, on June&nbsp;7,
2002 in consideration for the completion of one of the earn-out conditions
relating to the acquisition of First Image. The shares were issued in reliance
on the exemption from registration under Section&nbsp;4(2) of the Securities Act of
1933, as amended.
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
        <TD width="10%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="85%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2"><B>ITEM 3</B></FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
<B>DEFAULTS UPON SENIOR SECURITIES</B></FONT></TD>
</TR>
</TABLE>
</CENTER>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
        <TD width="10%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="85%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2"><B>ITEM 4</B></FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
<B>SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS</B></FONT></TD>
</TR>
</TABLE>
</CENTER>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Annual Meeting of our stockholders was held on June&nbsp;18, 2002. The
following people were elected to our Board of Directors for a one-year term:
Michael Klein, Andrew Florance, David Bonderman, Warren Haber, Josiah Low III,
and Christopher Nassetta. The vote was as follows:
</FONT>
<p align="left">
<TABLE cellspacing="0" border="0" cellpadding="0" width="70%">
<TR valign="bottom">
        <TD width="5%">&nbsp;</TD>
        <TD width="60%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="10%">&nbsp;</TD>
        <TD width="10%">&nbsp;</TD>
        <TD width="10%">&nbsp;</TD>

</TR>
<TR valign="bottom"><TD width="10%">&nbsp;</TD>
        <TD nowrap align="left"><FONT size="1"><B><u>Name</u></B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap><FONT size="1"><B><u>Votes For</u></B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap><FONT size="1"><B><u>Votes Withheld</u></B></FONT></TD>
</TR>
<TR valign="bottom"><TD width="10%">&nbsp;</TD>
        <TD nowrap align="center">&nbsp;</TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD>&nbsp;</TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><TD width="10%">&nbsp;</TD>
        <TD valign="top"><FONT size="2">Michael Klein<BR>
Andrew Florance<BR>
David Bonderman<BR>
Warren Haber<BR>
Josiah Low III<BR>
Christopher Nassetta</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD valign="top"><FONT size="2">
14,233,929
14,271,029
13,792,654
14,219,429
14,219,429
14,271,029
</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD valign="top"><FONT size="2">294,154
257,054
735,429
308,654
308,654
257,054</FONT></TD>
</TR>
</TABLE>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The appointment of Ernst &#038; Young, LLP as our independent public
accountants for the fiscal year ending December&nbsp;31, 2002 was approved upon the
following vote: For 14,315,316 shares; against, 212,631 shares; and abstain 136
shares.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The amendment to our 1998 Stock Incentive Plan, as amended, was approved
upon the following vote: For, 13,101,611 shares; against, 1,416,618 shares; and
abstain, 9,854 shares.
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
        <TD width="10%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="85%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2"><B>ITEM 5</B></FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
<B>OTHER INFORMATION</B></FONT></TD>
</TR>
</TABLE>
</CENTER>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None
</FONT>
<P align="center"><FONT size="2">19</FONT>
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
        <TD width="10%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="85%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2"><B>ITEM 6</B></FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
<B>EXHIBITS AND REPORTS ON FORM 8-K</B></FONT></TD>
</TR>
</TABLE>
</CENTER>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company did not file any reports of Form&nbsp;8-K during the quarter ended June&nbsp;30, 2002.
</FONT>
<P align="left"><FONT size="2"><B>EXHIBIT NUMBER: EXHIBIT DESCRIPTION:</B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
        <TD width="6%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="91%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">10.1</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
CoStar Group, Inc. 1998 Stock Incentive Plan, as amended.</FONT></TD>
</TR>
<TR valign="bottom">
        <TD width="6%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="91%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">10.2</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Office Sublease, dated June&nbsp;14, 2002, between CoStar Realty Information, Inc., CoStar Group, Inc. and Gateway, Inc.</FONT></TD>
</TR>
<TR valign="bottom">
        <TD width="6%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="91%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">99.1</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Certification of Principal Executive Officer pursuant to 18 USC Section&nbsp;1350.</FONT></TD>
</TR>
<TR valign="bottom">
        <TD width="6%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="91%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">99.2</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Certification of Principal Financial Officer pursuant to 18 USC Section&nbsp;1350.</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">20</FONT>
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<P align="left"><FONT size="2"><B>SIGNATURES</B>
</FONT>

<P><FONT size="2">Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
</FONT>
<p align="right">
<TABLE cellspacing="0" border="0" cellpadding="0" width="65%">
<TR valign="bottom">
        <TD width="31%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="64%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
<B>COSTAR GROUP, INC.</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD width="31%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="64%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD width="31%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="64%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD width="31%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="64%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">Date: August&nbsp;13, 2002</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
By: /s/ Frank A. Carchedi</FONT></TD>
</TR>
<TR valign="bottom">
        <TD width="31%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="64%">&nbsp;</TD>
</TR>
<TR>
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
<HR size="1" noshade></FONT></TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Frank A. Carchedi</FONT></TD>
</TR>

<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Chief Financial Officer</FONT></TD>
</TR>

<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
(Principal Financial and Accounting Officer</FONT></TD>
</TR>

<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
and Duly Authorized Officer)</FONT></TD>
</TR>
</TABLE>

<P align="center"><FONT size="2">21</FONT>

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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>3
<FILENAME>w62833exv10w1.htm
<DESCRIPTION>STOCK INCENTIVE PLAN
<TEXT>
<HTML>
<HEAD>
<TITLE>exv10w1</TITLE>
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<P align="right"><FONT size="2">EXHIBIT 10.1
</FONT>

<P align="center"><FONT size="2"><B>C</B></FONT><FONT size="1"><B>OSTAR</B></FONT>
<FONT size="2"><B>G</B></FONT><FONT size="1"><B>ROUP</B></FONT><FONT size="2"><B>,
I</B></FONT><FONT size="1"><B>NC</B></FONT><FONT size="2"><B>.</B></FONT><BR>
<FONT size="2"><B>1998 S</B></FONT><FONT size="1"><B>TOCK</B></FONT>
<FONT size="2"><B>I</B></FONT><FONT size="1"><B>NCENTIVE</B></FONT>
<FONT size="2"><B>P</B></FONT><FONT size="1"><B>LAN</B></FONT><FONT size="2"><BR>
<B>(A</B></FONT><FONT size="1"><B>S</B>
</FONT><FONT size="2"><B>L</B></FONT><FONT size="1"><B>AST</B> </FONT>
<FONT size="2"><B>A</B></FONT><FONT size="1"><B>MENDED</B> </FONT>
<FONT size="2"><B>O</B></FONT><FONT size="1"><B>N</B>
</FONT><FONT size="2"><B>J</B></FONT><FONT size="1"><B>UNE</B></FONT><FONT size="2"><B>&nbsp;18, 2002)</B>
</FONT>

<P align="left"><FONT size="2"><B>I. </B>&nbsp;&nbsp;&nbsp;<B>Purpose</B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;CoStar Group, Inc., a Delaware corporation <I>&#147;CoStar&#148; </I>or the <I>&#147;Company&#148;)</I>,
wishes to recruit, reward, and retain employees and outside directors. To
further these objectives, the Company hereby sets forth the CoStar Group, Inc.
1998 Stock Incentive Plan (the <I>&#147;Plan&#148;</I>) to provide options (<I>&#147;Options&#148;</I>) or direct
grants (<I>&#147;Stock Grants&#148;</I> and, together with the Options, <I>&#147;Awards&#148;</I>) to employees
and outside directors with respect to shares of the Company&#146;s common stock (the
<I>&#147;Common Stock&#148;</I>). The Plan is effective as of the effective date (the
<I>&#147;Effective Date&#148;</I>) of the Company&#146;s registration under Section&nbsp;12 of the
Securities Exchange Act of 1934 (the <I>&#147;Exchange Act&#148;</I>) with respect to its
initial public offering (<I>&#147;IPO&#148;</I>).
</FONT>
<P align="left"><FONT size="2"><B>II.</B>&nbsp;&nbsp;&nbsp; <B>Participants</B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All Employees of CoStar and any Eligible Subsidiaries are eligible for
Options and Stock Grants under this Plan, as are the directors of CoStar and
the Eligible Subsidiaries who are not employees (<I>&#147;Eligible Directors&#148;</I>).
Eligible employees and directors become <I>&#147;optionees&#148;</I> when the Administrator
grants them an option under this Plan or <I>&#147;recipients&#148;</I> when they receive a
direct grant of Common Stock. (Optionees and recipients are referred to
collectively as <I>&#147;participants.&#148;</I> The term <I>participant </I>also includes, where
appropriate, a person authorized to exercise an Award in place of the original
optionee.) The Administrator may also grant Options or make Stock Grants to
certain other service providers.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Employee </I>means any person employed as a common law employee of the Company
or an Eligible Subsidiary.
</FONT>
<P align="left"><FONT size="2"><B>III. </B>&nbsp;&nbsp;&nbsp;<B>Administrator</B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The <I>Administrator </I>will be the Compensation Committee of the Board of
Directors of CoStar (the <I>&#147;Compensation Committee&#148;</I>), unless the Board specifies
another committee. The Board may also act under the Plan as though it were the
Compensation Committee.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Administrator is responsible for the general operation and
administration of the Plan and for carrying out its provisions and has full
discretion in interpreting and administering the provisions of the Plan.
Subject to the express provisions of the Plan, the Administrator may exercise
such powers and authority of the Board as the Administrator may find necessary
or appropriate to carry out its functions. The Administrator may delegate its
functions (other than those described in the <B>Granting of Awards </B>section) to
officers or employees of CoStar.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Administrator&#146;s powers will include, but not be limited to, the power
to amend, waive, or extend any provision or limitation of any Award. The
Administrator may act through meetings of a majority of its members or by
unanimous consent.
</FONT>
<P align="left"><FONT size="2"><B>IV. </B>&nbsp;&nbsp;&nbsp; <B>Granting of Awards</B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subject to the terms of the Plan, the Administrator will, in its sole
discretion, determine:
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>

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<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
        <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="1%" align="left" nowrap><FONT size="2">(a)</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="91%"><FONT size="2">the participants who receive Awards,</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="1%" align="left" nowrap><FONT size="2">(b)</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="91%"><FONT size="2">the terms of such Awards,</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="1%" align="left" nowrap><FONT size="2">(c)</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="91%"><FONT size="2">the schedule for exercisability or nonforfeitability
(including any requirements that the participant or the Company
satisfy performance criteria),</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="1%" align="left" nowrap><FONT size="2">(d)</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="91%"><FONT size="2">the time and conditions for expiration of the Award, and</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="1%" align="left" nowrap><FONT size="2">(e)</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="91%"><FONT size="2">the form of payment due upon exercise, if any.</FONT></TD>
</TR>
</TABLE>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Administrator&#146;s determinations under the Plan need not be uniform and
need not consider whether possible participants are similarly situated.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Options granted to employees may be nonqualified stock options (<I>&#147;NQSOs&#148;</I>)
or &#147;incentive stock options&#148; (<I>&#147;ISOs&#148;</I>) within the meaning of Section&nbsp;422 of the
Internal Revenue Code of 1986, as amended from time to time (the <I>&#147;Code&#148;</I>), or
the corresponding provision of any subsequently enacted tax statute. Options
granted to Eligible Directors must be NQSOs. The Administrator will not grant
ISOs unless the stockholders have approved the Plan.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Administrator may impose such conditions on or charge such price for
the Stock Grants as it deems appropriate.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Substitutions.&nbsp;&nbsp;&nbsp;The Administrator may also grant Awards in substitution for
options or other equity interests held by individuals (i)&nbsp;as a result of their
employment by or services to Realty Information Group, L.P. or (ii)&nbsp;who become
Employees of the Company or of an Eligible Subsidiary as a result of the
Company&#146;s acquiring or merging with the individual&#146;s employer or acquiring its
assets. If necessary to conform the Awards to the interests for which they are
substitutes, the Administrator may grant substitute Awards under terms and
conditions that vary from those the Plan otherwise requires.
</FONT>
<P align="left"><FONT size="2"><B>V. </B>&nbsp;&nbsp;&nbsp; <B>Director Automatic Option Grants</B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At the first meeting of the Board of Directors following each annual
meeting of stockholders, the Chairman of the Board of Directors and each
non-employee director serving on the Board of Directors shall receive an annual
automatic grant of options to purchase 5,000 shares of Common Stock of the
Company. These options shall have an exercise price equal to the Fair Market
Value (as defined below) of the Common Stock on the date of grant, and
one-fourth of the options will vest and become exercisable on each anniversary
of the date of grant, as long as such director is still serving on the
Company&#146;s Board of Directors on such vesting date.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, at the first meeting of the Board of Directors following each
annual meeting of stockholders, the Chairman of each Board committee of the
Company shall receive an annual automatic grant of options to purchase 1,000
shares of Common Stock of the Company. These options shall have an exercise
price equal to the Fair Market Value of the Common Stock on the date of grant,
and one-fourth of the options will vest and become exercisable on each
anniversary of the date of grant, as long as such director is still serving on
the Company&#146;s Board of Directors on such vesting date.
</FONT>
<P align="left"><FONT size="2"><B>VI. </B>&nbsp;&nbsp;&nbsp; <B>Date of Grant</B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The <I>Date of Grant </I>will be the date as of which this Plan or the
Administrator grants an Award to a participant, as specified in the Plan or in
the Administrator&#146;s minutes.
</FONT>
<P align="center"><FONT size="2">2</FONT>

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<P align="left"><FONT size="2"><B>VII.</B>&nbsp;&nbsp;&nbsp; <B>Exercise Price</B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The <I>Exercise Price </I>is the value of the consideration that a participant
must provide in exchange for one share of Common Stock. The Administrator will
determine the Exercise Price under each Award and may set the Exercise Price
without regard to the Exercise Price of any other Awards granted at the same or
any other time. The Company may use the consideration it receives from the
participant for general corporate purposes.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Exercise Price per share for NQSOs may not be less than 100% of the
Fair Market Value of a share on the Date of Grant. If an Option is intended to
be an ISO, the Exercise Price per share may not be less than 100% of the Fair
Market Value (on the Date of Grant) of a share of Common Stock covered by the
Option; provided, however, that if the Administrator decides to grant an ISO to
someone covered by Sections&nbsp;422(b)(6) and 424(d) (as a
more-than-10%-stock-owner), the Exercise Price of the Option must be at least
110% of the Fair Market Value (on the Date of Grant).
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Administrator may satisfy any state law requirements regarding
adequate consideration for Stock Grants by (i)&nbsp;issuing Common Stock held as
treasury stock or (ii)&nbsp;charging the recipients at least the par value for the
shares covered by the Stock Grant. The Administrator may designate that a
recipient may satisfy (ii)&nbsp;either by direct payments or by the Administrator&#146;s
withholding from other payments due to the recipient.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Fair
Market Value. Fair Market Value of a share of Common Stock for
purposes of the Plan will be determined as follows:
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="5%"></TD>
        <TD width="95%"></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;if the Common Stock is traded on a national securities exchange,
the closing sale price on that date;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;if the Common Stock is not traded on any such exchange, the
closing sale price as reported by the National Association of Securities
Dealers, Inc. Automated Quotation System (<I>&#147;Nasdaq&#148;</I>) for such date;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;if no such closing sale price information is available, the
average of the closing bid and asked prices as reported by Nasdaq for
such date; or</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;if there are no such closing bid and asked prices, the average
of the closing bid and asked prices as reported by any other commercial
service for such date.</FONT></TD>
</TR>
</TABLE>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For any date that is not a trading day, the Fair Market Value of a share
of Common Stock for such date shall be determined by using the closing sale
price or the average of the closing bid and asked prices, as appropriate, for
the immediately preceding trading day.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Fair Market Value will be deemed equal to the IPO price for any
Options granted as of the date on which the IPO&#146;s underwriters price the IPO.
</FONT>
<P align="left"><FONT size="2"><B>VIII. </B>&nbsp;&nbsp;&nbsp;<B>Exercisability</B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Administrator will determine the times and conditions for exercise of
or purchase under each Award but may not extend the period for exercise beyond
the tenth anniversary of its Date of Grant (or five years for ISOs granted to
10% owners covered by Code Sections&nbsp;422(b)(6) and 424(d)).
</FONT>
<P align="center"><FONT size="2">3</FONT>

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<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Awards will become exercisable at such times and in such manner as the
Administrator determines and the Award Agreement, if any, indicates; provided,
however, that the Administrator may, on such terms and conditions as it
determines appropriate, accelerate the time at which the participant may
exercise any portion of an Award or at which restrictions on Stock Grants
lapse. For Stock Grants, &#147;exercise&#148; refers to acceptance of the Award or lapse
of restrictions, as appropriate in context.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If the Administrator does not specify otherwise, Options will become
exercisable and restrictions on Stock Grants (other than the Director Formula
Grants) will lapse as to one-third of the covered shares on each of the first,
second, and third anniversaries of the Date of Grant.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No portion of an Award that is unexercisable at a participant&#146;s
termination of employment will thereafter become exercisable, unless the Award
Agreement provides otherwise, either initially or by amendment.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Change of Control. Upon a Change of Control (as defined below), all
Options held by current Employees and directors will become fully exercisable
and all restrictions on Stock Grants will lapse. A <I>Change of Control </I>for this
purpose means the occurrence, after the Company&#146;s IPO, of any one or more of
the following events:
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="5%"></TD>
        <TD width="95%"></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a person, entity, or group (other than the Company, any Company
subsidiary, any Company benefit plan, or any underwriter temporarily
holding securities for an offering of such securities) acquires ownership
of more than 80% of the undiluted total voting power of the Company&#146;s
then-outstanding securities eligible to vote to elect members of the
Board (<I>&#147;Company Voting Securities&#148;</I>);</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;consummation of a merger or consolidation of the Company into
any other entity &#151; unless the holders of the Company Voting Securities
outstanding immediately before such consummation, together with any
trustee or other fiduciary holding securities under a Company benefit
plan, hold securities that represent immediately after such merger or
consolidation at least 20% of the combined voting power of the then
outstanding voting securities of either the Company or the other
surviving entity or its parent; or</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;the stockholders of the Company approve (i)&nbsp;a plan of complete
liquidation or dissolution of the Company or (ii)&nbsp;an agreement for the
Company&#146;s sale or disposition of all or substantially all the Company&#146;s
assets, <I>and </I>such liquidation, dissolution, sale, or disposition is
consummated.</FONT></TD>
</TR>
</TABLE>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Even if other tests are met, a Change of Control has not occurred under
any circumstance in which the Company files for bankruptcy protection or is
reorganized following a bankruptcy filing.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The <B>Adjustment Upon Changes in Capital Stock </B>provisions will also apply if
the Change of Control is a <B>Substantial Corporate Change </B>(as defined in those
provisions).
</FONT>
<P align="left"><FONT size="2"><B>IX. </B>&nbsp;&nbsp;&nbsp; <B>Limitation on ISOs</B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;An Option granted to an employee will be an ISO only to the extent that
the aggregate Fair Market Value (determined at the Date of Grant) of the stock
with respect to which ISOs are exercisable for the first time by the optionee
during any calendar year (under the Plan and all other plans of the Company and
its subsidiary corporations, within the meaning of Code Section&nbsp;422(d)), does
not exceed $100,000. This
</FONT>
<P align="center"><FONT size="2">4</FONT>

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<P><FONT size="2"> limitation will be applied by taking Options into account in the order in
which such Options were granted. If, by design or operation, the Option
exceeds this limit, the excess will be treated as an NQSO.
</FONT>
<P align="left"><FONT size="2"><B>X. </B>&nbsp;&nbsp;&nbsp; <B>Method of Exercise</B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To exercise any exercisable portion of an Award, the participant must:
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="5%"></TD>
        <TD width="95%"></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deliver a written notice of exercise to the Secretary of the
Company (or to whomever the Administrator designates), in a form
complying with any rules the Administrator may issue, signed by the
participant, and specifying the number of shares of Common Stock
underlying the portion of the Award the participant is exercising;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pay the full Exercise Price, if any, by cashier&#146;s or certified
check for the shares of Common Stock with respect to which the Award is
being exercised, unless the Administrator consents to another form of
payment (which could include the use of Common Stock); and</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deliver to the Administrator such representations and documents
as the Administrator, in its sole discretion, may consider necessary or
advisable.</FONT></TD>
</TR>
</TABLE>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Payment in full of the Exercise Price need not accompany the written
notice of exercise provided the notice directs that the stock certificates for
the shares issued upon the exercise be delivered to a licensed broker
acceptable to the Company as the agent for the individual exercising the option
and at the time of closing of the sale of the Common Stock issued upon exercise
of the Option, the broker will tender to the Company cash or cash equivalents
acceptable to the Company and equal to the Exercise Price.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If the Administrator agrees to payment through the tender to the Company
of shares of Common Stock, the individual must have held the stock being
tendered for at least six months at the time of surrender. Shares of stock
offered as payment will be valued, for purposes of determining the extent to
which the participant has paid the Exercise Price, at their Fair Market Value
on the date of exercise. The Administrator may also, in its discretion, accept
attestation of ownership of Common Stock and issue a net number of shares upon
Option exercise.
</FONT>
<P align="left"><FONT size="2"><B>XI.</B>&nbsp;&nbsp;&nbsp; <B>Award Expiration</B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No one may exercise an Award more than ten years after its Date of Grant
(or five years, for an ISO granted to a more-than-10% shareholder). Unless the
Award Agreement provides otherwise, either initially or by amendment, no one
may exercise an Award after the first to occur of:
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Employment Termination. The 90th day after the date of termination of
employment (other than for death or Disability), where termination of
employment means the time when the employer-employee or other service-providing
relationship between the employee and the Company ends for any reason,
including retirement. Unless the Award Agreement provides otherwise,
termination of employment does not include instances in which the Company
immediately rehires a common law employee as an independent contractor. The
Administrator, in its sole discretion, will determine all questions of whether
particular terminations or leaves of absence are terminations of employment;
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Disability. For disability, the earlier of (i)&nbsp;the first anniversary of
the participant&#146;s termination of employment for disability and (ii)&nbsp;thirty (30)
days after the participant no longer has a disability, where
</FONT>
<P align="center"><FONT size="2">5</FONT>

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<P><FONT size="2"> <I>&#147;disability&#148;</I> means the inability to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment
that can be expected to result in death or that has lasted or can be expected
to last for a continuous period of not less than twelve months; or
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
        <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="96%"><FONT size="2">Death.&nbsp;&nbsp;&nbsp;&nbsp;The date twelve months after the participant&#146;s death.</FONT></TD>
</TR>
</TABLE>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If exercise is permitted after termination of employment, the Award will
nevertheless expire as of the date that the former service provider violates
any covenant not to compete in effect between the Company and the former
employee. In addition, an optionee who exercises an Option more than 90&nbsp;days
after termination of employment with the Company and/or the Eligible
Subsidiaries will only receive ISO treatment to the extent permitted by law,
and becoming or remaining an employee of another related company (that is not
an Eligible Subsidiary) or an independent contractor to the Company will not
prevent loss of ISO status as a result of the formal termination of employment.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Nothing in this Plan extends the term of an Award beyond the tenth
anniversary of its Date of Grant, nor does anything in this <B>Award Expiration</B>
section make an Award exercisable that has not otherwise become exercisable.
</FONT>
<P align="left"><FONT size="2"><B>XII.</B>&nbsp;&nbsp;&nbsp; <B>Award Agreement</B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Option Agreements will set forth the terms of each Option and will include
such terms and conditions, consistent with the Plan, as the Administrator may
determine are necessary or advisable. To the extent the agreement is
inconsistent with the Plan, the Plan will govern. The Option Agreements may
contain special rules. The Administrator may, but is not required to, issue
agreements for Stock Grants.
</FONT>
<P align="left"><FONT size="2"><B>XIII. </B>&nbsp;&nbsp;&nbsp;<B>Stock Subject to Plan</B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Except as adjusted below under <B>Corporate Changes</B>, the aggregate number of
shares of Common Stock that may be issued under the Awards (whether ISOs,
NQSOs, or Stock Grants) may not exceed 3,750,000 shares and the maximum number
of shares that may be granted under Awards for a single individual in a
calendar year may not exceed 400,000 shares. (The individual maximum applies
only to Awards first made under this Plan and not to Awards made in
substitution of a prior employer&#146;s options or other incentives, except as Code
Section&nbsp;162(m) otherwise requires.) The Common Stock will come from either
authorized but unissued shares or from previously issued shares that the
Company reacquires, including shares it purchases on the open market. If any
Award expires, is canceled, or terminates for any other reason, the shares of
Common Stock available under that Award will again be available for the
granting of new Awards (but will be counted against that calendar year&#146;s limit
for a given individual).
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No adjustment will be made for a dividend or other right for which the
record date precedes the date of exercise.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The participant will have no rights of a stockholder with respect to the
shares of stock subject to an Award except to the extent that the Company has
issued certificates for, or otherwise confirmed ownership of, such shares upon
the exercise of the Award.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company will not issue fractional shares pursuant to the exercise of
an Award, but the Administrator may, in its discretion, direct the Company to
make a cash payment in lieu of fractional shares.
</FONT>
<P align="center"><FONT size="2">6</FONT>

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<P align="left"><FONT size="2"><B>XIV.</B>&nbsp;&nbsp;&nbsp; <B>Person Who May Exercise</B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the participant&#146;s lifetime, only the participant or his duly
appointed guardian or personal representative may exercise the Awards. After
his death, his personal representative or any other person authorized under a
will or under the laws of descent and distribution may exercise any then
exercisable portion of an Award. If someone other than the original recipient
seeks to exercise any portion of an Award, the Administrator may request such
proof as it may consider necessary or appropriate of the person&#146;s right to
exercise the Award.
</FONT>
<P align="left"><FONT size="2"><B>XV.</B>&nbsp;&nbsp;&nbsp; <B>Adjustments upon Changes in Capital Stock</B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subject to any required action by the Company (which it shall promptly
take) or its stockholders, and subject to the provisions of applicable
corporate law, if, after the Date of Grant of an Award:
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="5%"></TD>
        <TD width="95%"></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;the outstanding shares of Common Stock increase or decrease or
change into or are exchanged for a different number or kind of security
by reason of any recapitalization, reclassification, stock split, reverse
stock split, combination of shares, exchange of shares, stock dividend,
or other distribution payable in capital stock, or</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;some other increase or decrease in such Common Stock occurs
without the Company&#146;s receiving consideration,</FONT></TD>
</TR>
</TABLE>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;the Administrator may make a proportionate and appropriate adjustment in
the number of shares of Common Stock underlying each Award, so that the
proportionate interest of the participant immediately following such event
will, to the extent practicable, be the same as immediately before such event.
(This adjustment does not apply to Common Stock that the optionee has already
purchased nor to Stock Grants that are already nonforfeitable, except to the
extent of similar treatment for all stockholders.) Unless the Administrator
determines another method would be appropriate, any such adjustment to an Award
will not change the total price with respect to shares of Common Stock
underlying the unexercised portion of the Award but will include a
corresponding proportionate adjustment in the Award&#146;s Exercise Price.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Administrator will make a commensurate change to the maximum number
and kind of shares provided in the <B>Stock Subject to Plan </B>section.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any issue by the Company of any class of preferred stock, or securities
convertible into shares of common or preferred stock of any class, will not
affect, and no adjustment by reason thereof will be made with respect to, the
number of shares of Common Stock subject to any Award or the Exercise Price
except as this <B>Adjustments </B>section specifically provides. The grant of an
Award under the Plan will not affect in any way the right or power of the
Company to make adjustments, reclassifications, reorganizations or changes of
its capital or business structure, or to merge or to consolidate, or to
dissolve, liquidate, sell, or transfer all or any part of its business or
assets.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Substantial Corporate Change. Upon a <I>Substantial Corporate Change</I>, the
Plan and any unexercised Awards will terminate unless provision is made in
writing in connection with such transaction for:
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="5%"></TD>
        <TD width="95%"></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;the assumption or continuation of outstanding
Awards, or</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">7</FONT>

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<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="5%"></TD>
        <TD width="95%"></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;the substitution for such options or grants of any options or
grants covering the stock or securities of a successor employer
corporation, or a parent or subsidiary of such successor, with
appropriate adjustments as to the number and kind of shares of stock
and prices, in which event the Awards will continue in the manner and
under the terms so provided.</FONT></TD>
</TR>
</TABLE>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Unless the Board determines otherwise, if an Award would otherwise
terminate pursuant to the preceding sentence, participants who are then
Employees or directors of the Company will have the right, at such time before
the consummation of the transaction causing such termination as the Board
reasonably designates, to exercise any unexercised portions of the Award,
whether or not they had previously become exercisable. However, unless the
Board determines otherwise, the acceleration will not occur if it would render
unavailable &#147;pooling of interest&#148; accounting for any reorganization, merger, or
consolidation of the Company.
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
        <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="96%"><FONT size="2">A <I>Substantial Corporate Change </I>means the:</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="5%"></TD>
        <TD width="95%"></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;dissolution or liquidation of the Company,</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;merger, consolidation, or reorganization of the Company with one
or more corporations in which the Company is not the surviving
corporation,</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;the sale of substantially all of the assets of the Company to
another corporation, or</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;any transaction (including a merger or reorganization in which
the Company survives) approved by the Board that results in any person or
entity (other than any affiliate of the Company as defined in Rule
144(a)(1) under the Securities Act) owning 100% of the combined voting
power of all classes of stock of the Company.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2"><B>XVI. </B>&nbsp;&nbsp;&nbsp;<B>Subsidiary Employees</B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Employees of Company Subsidiaries will be entitled to participate in the
Plan, except as otherwise designated by the Board of Directors or the
Committee.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Eligible Subsidiary means each of the Company&#146;s Subsidiaries, except as
the Board otherwise specifies. For ISO grants, <I>Subsidiary </I>means any corporation
(other than the Company) in an unbroken chain of corporations beginning with
the Company if, at the time an ISO is granted to a Participant under the Plan,
each of the corporations (other than the last corporation in the unbroken
chain) owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain. For
NQSOs, the Board or the Committee can use a different definition of Subsidiary
in its discretion.
</FONT>
<P align="left"><FONT size="2"><B>XVII.</B>&nbsp;&nbsp;&nbsp; <B>Legal Compliance</B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company will not issue any shares of Common Stock under an Award until
all applicable requirements imposed by Federal and state securities and other
laws, rules, and regulations, and by any applicable regulatory agencies or
stock exchanges, have been fully met. To that end, the Company may require the
participant to take any reasonable action to comply with such requirements
before issuing such shares. No provision in the Plan or action taken under it
authorizes any action that is otherwise prohibited by Federal or state laws.
</FONT>
<P align="center"><FONT size="2">8</FONT>

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<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Plan is intended to conform to the extent necessary with all
provisions of the Securities Act of 1933 (<I>&#147;Securities
Act&#148;</I>) and the Exchange
Act and all regulations and rules the Securities and Exchange Commission issues
under those laws. Notwithstanding anything in the Plan to the contrary, the
Administrator
must administer the Plan, and Awards may be granted and exercised, only in
a way that conforms to such laws, rules, and regulations. To the extent
permitted by applicable law, the Plan and any Awards will be deemed amended to
the extent necessary to conform to such laws, rules, and regulations.
</FONT>
<P align="left"><FONT size="2"><B>XVIII. </B>&nbsp;&nbsp;&nbsp;<B>Purchase for Investment and Other Restrictions</B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Unless a registration statement under the Securities Act covers the shares
of Common Stock a participant receives upon exercise of his Award, the
Administrator may require, at the time of such exercise or receipt of a grant,
that the participant agree in writing to acquire such shares for investment and
not for public resale or distribution, unless and until the shares subject to
the Award are registered under the Securities Act. Unless the shares are
registered under the Securities Act, the participant must acknowledge:
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
        <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="1%" align="left" nowrap><FONT size="2">(a)</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="91%"><FONT size="2">that the shares purchased on exercise of the
Award are not so registered, and</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="1%" align="left" nowrap><FONT size="2">(b)</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="91%"><FONT size="2">that the participant may not sell or otherwise
transfer the shares unless:</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
        <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="1%" align="left" nowrap><FONT size="2">(1)</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="86%"><FONT size="2">the shares have been registered under
the Securities Act in connection with the sale or
transfer thereof, or</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="1%" align="left" nowrap><FONT size="2">(2)</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="91%"><FONT size="2">counsel satisfactory to the Company
has issued an opinion satisfactory to the Company that
the sale or other transfer of such shares is exempt from
registration under the Securities Act, and</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="1%" align="left" nowrap><FONT size="2">(3)</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="91%"><FONT size="2">such sale or transfer complies with
all other applicable laws, rules, and regulations,
including all applicable Federal and state securities
laws, rules, and regulations.</FONT></TD>
</TR>
</TABLE>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Additionally, the Common Stock, when issued upon the exercise of an Award,
will be subject to any other transfer restrictions, rights of first refusal,
and rights of repurchase set forth in or incorporated by reference into other
applicable documents, including the Company&#146;s articles or certificate of
incorporation, by-laws, or generally applicable stockholders&#146; agreements.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Administrator may, in its sole discretion, take whatever additional
actions it deems appropriate to comply with such restrictions and applicable
laws, including placing legends on certificates and issuing stop-transfer
orders to transfer agents and registrars.
</FONT>
<P align="left"><FONT size="2"><B>XIX. </B>&nbsp;&nbsp;&nbsp;<B>Tax Withholding</B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The participant must satisfy all applicable Federal, state, and local
income and employment tax withholding requirements before the Company will
deliver stock certificates upon the exercise of an Award. The Company may
decide to satisfy the withholding obligations through additional withholding on
salary or wages. If the Company does not or cannot withhold from other
compensation, the participant must pay the Company, with a cashier&#146;s check or
certified check, the full amounts required by withholding. Payment of
withholding obligations is due before the Company issues shares with respect to
the Award. If the Committee so determines, the participant may instead satisfy
the withholding obligations by directing the Company to
</FONT>
<P align="center"><FONT size="2">9</FONT>

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<P><FONT size="2">retain shares from the
Award exercise, by tendering previously owned shares, or by attesting to his
ownership of shares (with the distribution of net shares).
</FONT>
<P align="left"><FONT size="2"><B>XX. </B>&nbsp;&nbsp;&nbsp; <B>Transfers, Assignments and Pledges</B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Unless the Administrator otherwise approves in advance in writing, an
Award may not be assigned, pledged, or otherwise transferred in any way,
whether by operation of law or otherwise or through any legal or equitable
proceedings (including bankruptcy), by the participant to any person, except by
will or by operation of applicable laws of descent and distribution. If Rule
16b-3 then applies to an Award, the participant may not transfer or pledge
shares of Common Stock acquired under a Stock Grant or upon exercise of an
Option until at least six (6)&nbsp;months have elapsed from (but excluding) the Date
of Grant, unless the Administrator approves otherwise in advance in writing.
</FONT>
<P align="left"><FONT size="2"><B>XXI. </B>&nbsp;&nbsp;&nbsp;<B>Amendment or Termination of Plan and Options</B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Board may amend, suspend, or terminate the Plan at any time, without
the consent of the participants or their beneficiaries; provided, however, that
no amendment will deprive any participant or beneficiary of any previously
declared Award. Except as required by law or by the <B>Corporate Changes </B>section,
the Administrator may not, without the participant&#146;s or beneficiary&#146;s consent,
modify the terms and conditions of an Award so as to adversely affect the
participant. No amendment, suspension, or termination of the Plan will,
without the participant&#146;s or beneficiary&#146;s consent, terminate or adversely
affect any right or obligations under any outstanding Awards.
</FONT>
<P align="left"><FONT size="2"><B>XXII.</B>&nbsp;&nbsp;&nbsp; <B>Privileges of Stock Ownership</B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No participant and no beneficiary or other person claiming under or
through such participant will have any right, title, or interest in or to any
shares of Common Stock allocated or reserved under the Plan or subject to any
Award except as to such shares of Common Stock, if any, that have been issued
to such participant.
</FONT>
<P align="left"><FONT size="2"><B>XXIII.</B>&nbsp;&nbsp;&nbsp; <B>Effect on Other Plans</B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Whether exercising or receiving an Award causes the participant to accrue
or receive additional benefits under any pension or other plan is governed
solely by the terms of such other plan.
</FONT>
<P align="left"><FONT size="2"><B>XXIV. </B>&nbsp;&nbsp;&nbsp;<B>Limitations on Liability</B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Notwithstanding any other provisions of the Plan, no individual acting as
a director, employee, or agent of the Company shall be liable to any
participant, former participant, spouse, beneficiary, or any other person for
any claim, loss, liability, or expense incurred in connection with the Plan,
nor shall such individual be personally liable because of any contract or other
instrument he executes in such other capacity. The Company will indemnify and
hold harmless each director, employee, or agent of the Company to whom any duty
or power relating to the administration or interpretation of the Plan has been
or will be delegated, against any cost or expense (including attorneys&#146; fees)
or liability (including any sum paid in settlement of a claim with the Board&#146;s
approval) arising out of any act or omission to act concerning this Plan unless
arising out of such person&#146;s own fraud or bad faith.
</FONT>
<P align="left"><FONT size="2"><B>XXV. </B>&nbsp;&nbsp;&nbsp;<B>No Employment Contract</B>
</FONT>

<P align="center"><FONT size="2">10</FONT>

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<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Nothing contained in this Plan constitutes an employment contract between
the Company and the participants. The Plan does not give any participant any
right to be retained in the Company&#146;s employ, nor does it enlarge or diminish
the Company&#146;s right to terminate the participant&#146;s employment.
</FONT>
<P align="left"><FONT size="2"><B>XXVI. </B>&nbsp;&nbsp;&nbsp;<B>Applicable Law</B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The laws of the State of Delaware (other than its choice of law
provisions) govern this Plan and its interpretation.
</FONT>
<P align="left"><FONT size="2"><B>XXVII.</B>&nbsp;&nbsp;&nbsp; <B>Duration of Plan</B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Unless the Board extends the Plan&#146;s term, the Administrator may not grant
Awards after May&nbsp;8, 2008. The Plan will then terminate but will continue to
govern unexercised and unexpired Awards.
</FONT>

<P align="center"><FONT size="2">11</FONT>



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<DOCUMENT>
<TYPE>EX-10.2
<SEQUENCE>4
<FILENAME>w62833exv10w2.htm
<DESCRIPTION>OFFICE SUBLEASE
<TEXT>
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<TITLE>exv10w2</TITLE>
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<P align="right"><FONT size="2"><B>EXHIBIT 10.2</B>
</FONT>

<P align="center"><FONT size="2"><B>SUBLEASE</B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>THIS SUBLEASE </B>(this &#147;Sublease&#148;) is made and entered into as of the 14th
day of June, 2002, by and between GATEWAY, INC., a Delaware corporation
(hereinafter called &#147;Sublandlord&#148;), as sublandlord, and COSTAR REALTY
INFORMATION, INC., a Delaware corporation (hereinafter called &#147;CRII&#148;), and
COSTAR GROUP, INC., a Delaware corporation (hereinafter called &#147;CGI&#148;; CRII and
CGI are hereinafter collectively called &#147;Subtenant&#148;), jointly and severally, as
subtenant.
</FONT>
<P align="center"><FONT size="2"><B>W I T N E S S E T H</B>:
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>WHEREAS</B>, by that certain Amended and Restated Lease dated as of April&nbsp;15,
1999 (the &#147;Original Lease&#148;), as amended by that certain First Amendment to
Amended and Restated Lease Agreement dated as of April&nbsp;17, 2000 (the &#147;First
Amendment&#148;; the Original Lease and the First Amendment are hereinafter
collectively referred to with all amendments and agreements regarding same as
the &#147;Prime Lease&#148;), a copy of which Prime Lease is attached hereto as Exhibit
&#147;A&#148; and by this reference made a part hereof, Carramerica Development, Inc., a
Delaware corporation (hereinafter, together with its successors and assigns,
called &#147;Landlord&#148;), leased to Sublandlord the entirety of a building located at
4535 Towne Centre Court in San Diego, California containing approximately
41,551 gross rentable square feet (the &#147;Premises&#148; and sometimes also referred
to herein as the &#147;Building&#148;); and
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>WHEREAS</B>, subject to the consent of Landlord, Subtenant desires to sublease
from Sublandlord, and Sublandlord desires to sublease to Subtenant, the
Premises, all upon the terms and subject to the conditions and provisions
hereinafter set forth;
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>NOW, THEREFORE</B>, in consideration of the foregoing and of the mutual
covenants and promises contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby mutually
acknowledged, Sublandlord and Subtenant hereby agree as follows:
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Demise; Use</B>. Sublandlord hereby leases to Subtenant and Subtenant
hereby leases from Sublandlord the Premises for the term and rental and upon
the other terms and conditions hereinafter set forth, to be used and occupied
by Subtenant solely for the purpose of general office purposes and for no other
purpose.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Term</B>. The term of this Sublease shall commence (the &#147;Commencement
Date&#148;) on September&nbsp;1, 2002 and, unless sooner terminated pursuant to the
provisions hereof, shall terminate on the earlier of August&nbsp;31, 2007 and the
prior termination of the term of the Prime Lease. As used herein, the phrase
&#147;Lease Year&#148; shall mean the twelve calendar month period commencing on the Rent
Commencement Date (as hereinafter defined)(or, if the Rent Commencement Date is
not the first day of a calendar month, then commencing on the first day of the
calendar month during which the Rent Commencement Date occurs) and each
anniversary thereof, except that (a)&nbsp;the last Lease Year may not be twelve
calendar months and shall terminate on the last day of the term of this
Sublease, and (b)&nbsp;the first Lease Year shall
</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>

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<P><FONT size="2">include that period of time from the
Commencement Date to and including the Rent Commencement Date. Notwithstanding
the foregoing, solely for purposes of performing certain improvements,
alterations and/or additions to the Premises, Subtenant shall be permitted
access to the Premises following Landlord&#146;s consent to this Sublease but prior
to the Commencement Date (which Sublandlord and Subtenant anticipate as of the
time of the full execution of this Sublease shall be on or about the date upon
which this Sublease is fully executed and Landlord&#146;s consent hereto is
obtained); provided, however, (1)&nbsp;in no event shall the foregoing be deemed to
be Sublandlord&#146;s consent to any such alterations, additions and/or
improvements, which such alterations, additions and/or improvements shall be
performed in strict accordance with the terms and provisions of this Sublease,
(2)&nbsp;in the event that Subtenant occupies any portion of the Premises for the
conduct of its business operations therein prior to the Commencement Date, then
the Commencement Date shall be deemed to have occurred on the date upon which
Subtenant commenced the conduct of its business from the Premises,
notwithstanding that the conditions set forth above for the occurrence of the
Commencement Date have not been met, and (3)&nbsp;although Subtenant shall not be
obligated to pay any Minimum Rent during such pre-term occupancy, Subtenant
shall be responsible to comply with all of the other terms and conditions of
this Sublease with respect to such pre-term occupancy, including, without
limitation, the obligation to pay for any and all additional costs (including
pass-throughs from the Prime Lease) and all utilities provided to the Premises
during such period of time.
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
        <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="1%" align="left" nowrap><FONT size="2">3.</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="91%"><FONT size="2"><B>Base Rent</B>.</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="5%"></TD>
        <TD width="95%"></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;Commencing on the Rent Commencement Date, Subtenant shall pay to
Sublandlord base annual rental (hereinafter called &#147;Minimum Rent&#148;) for
the Premises as follows:</FONT></TD>
</TR>
</TABLE>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="65%">
<TR valign="bottom">
        <TD width="31%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="11%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="11%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="10%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="10%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>Annual Minimum</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>Rent Rate Per</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>Annual Minimum Rent</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>Rentable Square</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>(based on 41,551</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>Monthly</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD nowrap align="center"><FONT size="1"><B>Time Period</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>Foot</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>Rentable Square Feet)</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>Installments</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD nowrap align="center"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">1st Lease Year</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">20.64</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">857,612.64</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">71,467.72</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2nd Lease Year</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">21.26</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">883,374.26</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">73,614.52</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">3rd Lease Year</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">21.90</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">909,966.90</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">75,830.58</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">4th Lease Year</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">22.55</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">936,975.05</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">78,081.25</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">5th Lease Year</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">23.23</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">965,229.73</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">80,435.81</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
        <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="96%"><FONT size="2">Annual Minimum Rent shall be due and payable in twelve equal
installments. Each such installment shall be due and payable in advance
on the fifth day prior to the first day of each calendar month of the
term hereof. If the term of this Sublease commences on a day other than
the first day of a month or ends on a day other than the last day of a
month, Minimum Rent for such month shall be prorated; prorated Minimum
Rent for any such </FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">2</FONT>

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<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
        <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="96%"><FONT size="2">partial first month of the term hereof shall be paid on
the date on which the term commences. Notwithstanding anything in this
Sublease to the contrary, Subtenant shall pay to
Sublandlord the first monthly installment of Minimum Rent due under this
Sublease upon the execution and delivery of this Sublease by Subtenant to
Sublandlord.</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="5%"></TD>
        <TD width="95%"></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;All Minimum Rent and additional rent shall be paid without
setoff or deduction whatsoever and shall be paid to Sublandlord at its
office at the following address: Real Estate Administration, Gateway,
Inc., 610 Gateway Drive Y91, North Sioux City, South Dakota 97049 or at
such other place as Sublandlord may designate by notice to Subtenant.</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;Sublandlord and Subtenant acknowledge and agree that so long as
Subtenant is not then in default under this Sublease, Subtenant shall be
entitled to an abatement of the Minimum Rent due and owing under this
Sublease for the first sixty (60)&nbsp;days of the term of this Sublease
following the Commencement Date (the expiration of such sixty (60)&nbsp;day
period is hereinafter referred to as the &#147;Rent Commencement Date&#148;);
provided, however, during such abatement period, Subtenant shall remain
responsible to pay under this Sublease any and all amounts due and owing
for additional rent due hereunder (including all pass-throughs from the
Prime Lease) and all utilities provided to the Premises.</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
        <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="1%" align="left" nowrap><FONT size="2">4.</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="91%"><FONT size="2"><B>Additional Rent; Payments; Interest</B>.</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="5%"></TD>
        <TD width="95%"></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;Except for &#147;Base Rent&#148; (as such term is defined in the Prime
Lease and for the payment of which Subtenant shall have no obligation
under this Sublease), Subtenant shall also pay to Sublandlord all other
amounts payable by Sublandlord under the Prime Lease which are
attributable to the Premises or attributable to Subtenant, its agents,
employees, customers or invitees, including without limitation, the
Operating Cost Share Rent, the Tax Share Rent, the Parking Rent, if any,
and the Additional Rent (as such terms are defined in the Prime Lease).
By way of example and not by way of limitation, charges by Landlord for
furnishing air conditioning or heating to the Premises at times in
addition to those certain times specified in the Prime Lease, costs
incurred by Landlord in repairing damage to the Building caused by an
employee of Subtenant, increased insurance premiums due as a result of
Subtenant&#146;s use of the Premises, and amounts expended or incurred by
Landlord on account of any default by Subtenant which gives rise to a
default under the Prime Lease would be amounts payable by Subtenant
pursuant to this Subsection 4(a).</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;Each amount due to Sublandlord pursuant to Subsection 4(a) above
and each other amount payable by Subtenant hereunder, unless a date for
payment of such amount is provided for elsewhere in this Sublease, shall
be due and payable on the fifth day following the date on which Landlord
or Sublandlord has given notice to Subtenant of the amount thereof, but
in no event later than the date on which any such amount is due and
payable under the Prime Lease.</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;All amounts other than Minimum Rent payable to Sublandlord under this</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">3</FONT>

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<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="5%"></TD>
        <TD width="95%"></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">Sublease shall be deemed to be additional rent due under this
Sublease. All past due installments of Minimum Rent and additional rent
shall bear interest from the date due until paid at the rate per annum
equal to five percent (5%) in excess of the Prime Rate (as hereinafter
defined) in effect from time to time, which rate shall change from time
to time as of the effective date of each change in the Prime Rate, unless a lesser
rate shall then be the maximum rate permissible by law with respect
thereto, in which event said lesser rate shall be charged. For the
purposes of this Sublease, the term &#147;Prime Rate&#148; shall mean the rate of
interest announced from time to time by Bank One, N.A. as its prime or
corporate base rate.</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="5%"></TD>
        <TD width="95%"></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;Subtenant shall pay Landlord on the due dates for services
requested by Subtenant which are billed by Landlord directly to Subtenant
rather than Sublandlord.</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;In addition to the Minimum Rent payable pursuant to Section&nbsp;3
above, from and after the Commencement Date, for each calendar year of
the term, Subtenant, as additional rent, shall pay Subtenant&#146;s Percentage
Share (which Sublandlord and Subtenant acknowledge and agree is equal to
100%) of Operating Cost Share Rent, Tax Share Rent, Parking Rent, if any,
and Additional Rent payable by Sublandlord for the then current calendar
year. Sublandlord shall give Subtenant written notice of Sublandlord&#146;s
estimate of the amount of additional rent per month payable pursuant to
this Subsection for each calendar year following Sublandlord&#146;s receipt
of Landlord&#146;s estimate of such amounts payable under the Prime Lease.
Thereafter, the additional rent payable pursuant to this Subsection shall
be determined and adjusted in accordance with the provisions below.</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="5%"></TD>
        <TD width="95%"></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;The determination and adjustment of additional rent contemplated
under Subsection 4(e) above shall be made in accordance with the
following procedures:</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="9%"></TD>
        <TD width="91%"></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1)&nbsp;Upon receipt of a statement from Landlord specifying the
estimated Operating Cost Share Rent, Tax Share Rent, Parking Rent,
if any, and Additional Rent to be charged to Sublandlord under the
Prime Lease with respect to each calendar year, or as soon after
receipt of such statement as practicable, Sublandlord shall give
Subtenant written notice of its estimate of additional rent payable
under Subsection 4(e) for the ensuing calendar year, which estimate
shall be prepared based on the estimate received from Landlord (as
Landlord&#146;s estimate may change from time to time), together with a
copy of the statement received from Landlord. Sublandlord&#146;s
estimate of additional rent to be paid by Subtenant pursuant to
this Sublease shall not exceed Subtenant&#146;s Percentage Share of
Landlord&#146;s estimate delivered to Sublandlord pursuant to the Prime
Lease (as Landlord&#146;s estimate may change from time to time). On or
before the first day of each month during each calendar year,
Subtenant shall pay to Sublandlord as additional rent one-twelfth
(1/12th) of such estimated amount together with the Minimum Rent.</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2)&nbsp;In the event Sublandlord&#146;s notice set forth in Subsection
4(f)(1) is not given in December of the calendar year preceding the
calendar year for which Sublandlord&#146;s notice is applicable, as the
case may be, then until the</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">4</FONT>

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<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="9%"></TD>
        <TD width="91%"></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">calendar month after such notice is
delivered by Sublandlord, Subtenant shall continue to pay to
Sublandlord monthly, during the ensuing calendar year, estimated
payments equal to the amounts payable hereunder during the calendar
year just ended. Upon receipt of any such post-December notice
Subtenant shall (i)&nbsp;commence as of the immediately following
calendar month, and continue for the remainder of the calendar
year, to pay to Sublandlord monthly such new estimated payments
and (ii)&nbsp;if the monthly installment of the new estimate of
such additional rent is greater than the monthly installment of the
estimate for the previous calendar year, pay to Sublandlord within
thirty (30)&nbsp;days of the receipt of such notice an amount equal to
the difference of such monthly installment multiplied by the number
of full and partial calendar months of such year preceding the
delivery of such notice.</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="9%"></TD>
        <TD width="91%"></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(3)&nbsp;Within thirty (30)&nbsp;days after the receipt by Sublandlord
of a final statement of such costs from Landlord with respect to
each calendar year, Sublandlord shall deliver to Subtenant a
statement of the adjustment to be made pursuant to Section&nbsp;4(f)
hereof for the calendar year just ended, together with a copy of
the statement received by Sublandlord from Landlord. If on the
basis of such statement Subtenant owes an amount that is less than
the estimated payments for the calendar year just ended previously
paid by Subtenant, Sublandlord shall credit such excess to the next
payments of rent coming due or, if the term of this Sublease is
about to expire, so long as Subtenant is not in default under this
Sublease, promptly refund such excess to Subtenant. If on the
basis of such statement Subtenant owes an amount that is more than
the estimated payments for the calendar year just ended previously
made by Subtenant, Subtenant shall pay the deficiency to
Sublandlord within thirty (30)&nbsp;days after delivery of the statement
from Sublandlord to Subtenant.</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(4)&nbsp;For partial calendar years during the term of this
Sublease, the amount of additional rent payable pursuant to
Subsection 4(f) that is applicable to that partial calendar year
shall be prorated based on the ratio of the number of days of such
partial calendar year falling during the term of this Sublease to
365. The expiration or earlier termination of this Sublease shall
not affect the obligations of Sublandlord and Subtenant pursuant to
this Section&nbsp;4, and such obligations shall survive and remain to be
performed after any expiration or earlier termination of this
Sublease.</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
        <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="1%" align="left" nowrap><FONT size="2">5.</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="91%"><FONT size="2"><B>Condition of Premises and Construction of Improvements</B>.</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="5%"></TD>
        <TD width="95%"></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subtenant hereby acknowledges and agrees that it is to demise the
Premises in an &#147;as-is&#148; condition and Subtenant&#146;s taking possession of
the Premises shall be conclusive evidence as against Subtenant that
the Premises were in good order and satisfactory condition when
Subtenant took possession. No promise of Sublandlord to alter,
remodel or improve the Premises, and no representation respecting the
condition of the Premises have been made by Sublandlord to Subtenant.
Upon the expiration of the term hereof, or upon any earlier
termination of the term hereof or of Subtenant&#146;s right to possession,
Subtenant shall surrender the Premises in at least as good condition
as at the </FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">5</FONT>

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<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="5%"></TD>
        <TD width="95%"></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">commencement of the term of this Sublease, ordinary wear and
tear excepted.</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
        <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="1%" align="left" nowrap><FONT size="2">6.</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="91%"><FONT size="2"><B>The Prime Lease</B>.</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="5%"></TD>
        <TD width="95%"></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;This Sublease and all rights of Subtenant hereunder and with
respect to the Premises are subject to the terms, conditions and
provisions of the Prime Lease. Subtenant hereby assumes and agrees to
perform faithfully and be bound by, with respect to the Premises, all of
Sublandlord&#146;s obligations, covenants, agreements and liabilities under
the Prime Lease and all terms, conditions, provisions and restrictions
contained in the Prime Lease except:</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="9%"></TD>
        <TD width="91%"></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;for the payment of &#147;Base Rent&#148; (as such term is defined in
the Prime Lease);</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;that Subtenant shall not have any obligations to
construct or install tenant improvements except as may be provided
herein; and</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;that the following provisions of the Prime Lease do not
apply to this Sublease: any provisions in the Prime Lease allowing
or purporting to allow Sublandlord any rent concessions or
abatements or construction or refurbishment allowances, any
provisions allowing Sublandlord to extend or renew the term of the
Prime Lease (including, without limitation, Section&nbsp;30 of the Prime
Lease), any provisions of the Prime Lease granting any option to
purchase or lease the Building or any other space in the Building
or Project (including, without limitation, Section&nbsp;39 of the Prime
Lease), Section&nbsp;17.E. of the Prime Lease, Section&nbsp;26.J. of the
Prime Lease, Section&nbsp;28.H. of the Prime Lease, and Section&nbsp;36 of
the Prime Lease.</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="5%"></TD>
        <TD width="95%"></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;Without limitation of the foregoing:</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="9%"></TD>
        <TD width="91%"></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;Subtenant shall not make any changes, alterations or
additions in or to the Premises except as otherwise expressly
provided herein. In connection therewith, Sublandlord and Subtenant
acknowledge and agree that Subtenant may desire to make certain
alterations, additions and/or improvements to the Premises
following its occupancy thereof (hereinafter referred to as the
&#147;Subtenant Work&#148;). Such Subtenant Work shall be performed at the
sole cost and expense of Subtenant and shall strictly conform to
all the terms and provisions of the Prime Lease. Subtenant shall
obtain the approval of both the Landlord and Sublandlord with
respect to any and all aspects of the Subtenant Work prior to
commencing same;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;If Subtenant desires to take any other action and the
Prime Lease would require that Sublandlord obtain the consent of
Landlord before undertaking any action of the same kind, Subtenant
shall not undertake the same without the prior written consent of
Sublandlord. Sublandlord may condition its consent on the consent
of Landlord being obtained and may require Subtenant to contact
Landlord directly for such consent;</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">6</FONT>

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<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="9%"></TD>
        <TD width="91%"></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;All rights given to Landlord and its agents and
representatives by the Prime Lease to enter the premises covered by
the Prime Lease shall inure to the benefit of Sublandlord and their
respective agents and representatives with respect to the Premises;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;Sublandlord shall also have all other rights, and all
privileges, options, reservations and remedies, granted or allowed
to, or held by, Landlord under the Prime Lease;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v)&nbsp;Subtenant shall maintain insurance of the kinds and in the
amounts required to be maintained by Sublandlord under the Prime
Lease. All policies of liability insurance shall name as
additional insureds the Landlord and Sublandlord and their
respective officers, directors or partners, as the case may be, and
the respective agents and employees of each of them; and</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi)&nbsp;Subtenant shall not do anything or suffer or permit
anything to be done which could result in a default under the
Prime Lease or permit the Prime Lease to be canceled or terminated.</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="5%"></TD>
        <TD width="95%"></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;Notwithstanding anything contained herein or in the Prime Lease
which may appear to be to the contrary, Sublandlord and Subtenant hereby
agree as follows:</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="13%"></TD>
        <TD width="87%"></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) (A)&nbsp;Subtenant shall not, without the
prior written consent of Sublandlord, assign, mortgage,
pledge, hypothecate or otherwise transfer or permit the
transfer of this Sublease or any interest of Subtenant in
this Sublease, by operation of law or otherwise, or permit
the use of the Premises or any part thereof by any persons
other than Subtenant and Subtenant&#146;s employees, or sublet
the Premises or any part thereof. Sublandlord shall not
unreasonably withhold, condition or delay its consent to
any such transfer; provided, however, it shall not be
unreasonable for Sublandlord to withhold its consent to
such transfer if (1)&nbsp;Subtenant is then in default under
any of the terms and conditions of this Sublease, (2)&nbsp;the
proposed transferee is not sufficiently creditworthy, in
Sublandlord&#146;s sole determination, and (3)&nbsp;the proposed
transferee is a competitor of Sublandlord or is a
governmental agency (the foregoing reasons are not meant
to be an exhaustive list of the bases upon which
Sublandlord may withhold its consent to such a transfer);</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(B)&nbsp;Notwithstanding the foregoing, in no event shall
Subtenant be obligated to obtain the consent of Sublandlord
in connection with any sub-sublet of all or any portion of
the Premises to any entity which is in control of, under
common control, or controlled by, Subtenant (any such entity
is referred to herein as an &#147;Affiliate&#148;) or an assignment of
Subtenant&#146;s interest hereunder to any Affiliate of Subtenant
or in connection with the merger, consolidation or
reorganization of Subtenant with any other entity or the sale
of all or substantially all of Subtenant&#146;s </FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">7</FONT>


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<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="13%"></TD>
        <TD width="87%"></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">stock or assets
provided the following conditions are met: (1)&nbsp;to the extent
that the Landlord&#146;s
consent under the Prime Lease is required in connection with
such a transfer, Subtenant obtains same at its sole cost and
expense and provides evidence of same to Sublandlord, (2)
Subtenant provides written notice to Sublandlord and Landlord
not less than ten (10)&nbsp;business days prior to the
effectiveness of such transfer, (3)&nbsp;in the case of a
sub-sublet or actual assignment of this Sublease (as opposed
to a transfer by operation of law, such as a merger), such
sub-subtenant or assignee enters into an agreement in form
and content reasonably satisfactory to Sublandlord assuming
all of the obligations of the Subtenant hereunder, whether
accruing prior to or after the effectiveness of the transfer,
(4)&nbsp;there is no release of the Subtenant in connection with
any such transfer, (5)&nbsp;the net worth of the Subtenant entity
which is liable for the terms and provisions of this Sublease
immediately following such transfer is satisfactory to
Sublandlord, and (6)&nbsp;no default has occurred under this
Sublease beyond applicable notice and cure periods (the
transfers noted in this clause (B)&nbsp;are referred to herein as
&#147;Permitted Transfers&#148;);</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="13%"></TD>
        <TD width="87%"></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(C)&nbsp;Further, other than in connection with any
Permitted Transfers, in the event of any assignment of this
Sublease or sub-sublease of the Premises by Subtenant,
Subtenant shall pay to Sublandlord fifty percent (50%) of any
consideration received by Subtenant for such assignment or
sub-sublease, as the case may be, in excess of the rent
payable under this Sublease and the reasonable actual
out-of-pocket cost incurred by Subtenant solely for brokerage
commissions, legal fees and any costs of alterations
necessary to effect such transfer, such payment to be
provided to Sublandlord no later than thirty (30)&nbsp;days after
the determination thereof and the date such excess rent is
received by Subtenant;</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="9%"></TD>
        <TD width="91%"></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;neither rental nor other payments hereunder shall abate
by reason of any damage to or destruction of the Premises, the
premises subject to the Prime Lease, or the Building or any part
thereof, unless, and then only to the extent that, rental and such
other payments actually abate under the Prime Lease with respect to
the Premises on account of such event;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;notwithstanding clause (c)(ii) above, in the event that
Sublandlord receives an abatement of rent due under the Prime Lease
pursuant to the provisions of Section&nbsp;4.F. thereof, then Subtenant
shall be entitled the same abatement of rent under this Sublease;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;Subtenant shall not have any right to any portion of the
proceeds of any award for a condemnation or other taking, or a
conveyance in lieu thereof, of all or any portion of the Premises;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v)&nbsp;If the Prime Lease gives Sublandlord any right to
terminate the</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">8</FONT>

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<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="9%"></TD>
        <TD width="91%"></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">Prime Lease in the event of any casualty or
condemnation of the Premises, so long as (1)&nbsp;Subtenant is not in
default under this Sublease beyond applicable notice and
cure periods, and (2)&nbsp;such right to so terminate the Prime Lease is
then effective and applicable, Subtenant shall be entitled to the
same right to so terminate this Sublease as afforded to Sublandlord
under the Prime Lease except that Subtenant shall be required to
give notice to Sublandlord of such election to so terminate this
Sublease with sufficient time so as to provide Sublandlord with not
less than ten (10)&nbsp;business days following Sublandlord&#146;s receipt of
such written notice of Subtenant&#146;s election to so terminate this
Sublease to permit Sublandlord to elect to terminate the Prime
Lease pursuant to the terms and conditions of the Prime Lease;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi)&nbsp;Notwithstanding anything contained in Section&nbsp;22.J. of
the Prime Lease, following a written request from Subtenant,
Sublandlord shall subordinate any statutory or contractual lien and
security interest it may have on Subtenant&#146;s equipment, furniture,
moveable trade fixtures or other personal property owned by
Subtenant and kept at the Premises to the lien of any bona fide
vendor or institutional lender providing financing for Subtenant to
acquire such equipment, furniture, moveable trade fixtures or other
personal property, such subordination to be pursuant to an
instrument which is reasonably satisfactory to Sublandlord;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vii)&nbsp;Subtenant shall not have any right to exercise or have
Sublandlord exercise any option under the Prime Lease, including,
without limitation, any option to extend the term of the Prime
Lease or lease additional space; and</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(viii)&nbsp;In the event of any conflict between the terms,
conditions and provisions of the Prime Lease and of this Sublease,
the terms, conditions and provisions of this Sublease shall, in all
instances, govern and control.</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="5%"></TD>
        <TD width="95%"></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;It is expressly understood and agreed that Sublandlord does not
assume and shall not have any of the obligations or liabilities of
Landlord under the Prime Lease and that Sublandlord is not making the
representations, warranties or indemnifications, if any, made by Landlord
in the Prime Lease. With respect to work, services, repairs and
restoration or the performance of other obligations required of Landlord
under the Prime Lease, Sublandlord&#146;s sole obligation with respect thereto
shall be to request the same, upon written request from Subtenant, and to
use reasonable efforts, at Subtenant&#146;s sole cost and expense, to obtain
the same from Landlord. Sublandlord shall not be liable in damages, nor
shall rent abate hereunder, for or on account of any failure by Landlord
to perform the obligations and duties imposed on it under the Prime
Lease. Sublandlord and Subtenant acknowledge and agree that any repair,
maintenance and/or replacement obligations with respect to the Premises
which are the responsibility of the Sublandlord, as tenant under the
Prime Lease, shall be performed by Subtenant at Subtenant&#146;s sole cost and
expense. In the event that a condition exists in the Premises that
Landlord is obligated to repair under the terms of the Prime Lease,
Subtenant shall so advise Sublandlord, and Sublandlord, in turn, shall
promptly advise Landlord thereof. At Subtenant&#146;s request, in the event
that Landlord fails to fulfill any repair or maintenance obligation under
the terms of the </FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">9</FONT>

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<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="5%"></TD>
        <TD width="95%"></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">Prime Lease with respect to the Premises, Sublandlord
shall use its good faith, due diligent and commercially reasonable
efforts to have Landlord fulfill such repair and maintenance obligations,
all of which reasonable efforts shall at be Subtenant&#146;s sole cost and
expense. All such amounts which are payable by
Subtenant hereunder shall be deemed additional rent due under this
Sublease. Sublandlord and Subtenant acknowledge and agree that the
provisions of Section&nbsp;26.J. of the Prime Lease provide the &#147;Tenant&#148; under
the Prime Lease certain self-help and offset rights under the Prime Lease
in the event of a default thereunder by the Landlord. In connection
therewith, in the event of such a default by the Landlord under the Prime
Lease, upon written request by Subtenant, Sublandlord shall be entitled
(but shall have no obligation) to take such steps as are reasonably
necessary and permitted under the Prime Lease to effect such self-help
and offset rights under the Prime Lease. Subtenant hereby covenants and
agrees that it shall be responsible to reimburse to Sublandlord any and
all of the costs and expenses incurred by Sublandlord in effecting such
cure, to the extent same are not offset against the rent owed by
Sublandlord under the Prime Lease. Such amounts shall be deemed
additional rent due and owing under this Sublease. Alternatively,
Sublandlord may elect to have Subtenant perform such self-help rights
under the Prime Lease upon the following terms and conditions: (i)&nbsp;such
rights are exercised by Subtenant at its sole cost and expense, (ii)
Subtenant obtains the prior written approval by Sublandlord of the acts
to be taken by Subtenant with respect to such self-help rights and (iii)
Subtenant performs such self-help rights in strict accordance with the
terms and provisions of the Prime Lease. In the event that Subtenant
performs such self-help
acts in accordance with the foregoing terms and
provisions and as a result thereof, Sublandlord receives an offset of the
rent due under the Prime Lease, then Subtenant shall receive the same
offset against the rent due under this Sublease.</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="5%"></TD>
        <TD width="95%"></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;Nothing contained in this Sublease shall be construed to create
privity of estate or contract between Subtenant and Landlord, except the
agreements of Subtenant in Sections&nbsp;10 and 11 hereof in favor of
Landlord, and then only to the extent of the same.</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;Sublandlord hereby represents and warrants as to the following:
(i)&nbsp;as of the date of Sublandlord&#146;s execution of this Sublease,
Sublandlord has received no notice of default under the Prime Lease from
Landlord, (ii)&nbsp;as of the date of Sublandlord&#146;s execution of this
Sublease, Sublandlord has not forwarded any notice of default to Landlord
under the Prime Lease which has not been cured, and (iii)&nbsp;as of the date
of Sublandlord&#146;s execution of this Sublease, to Sublandlord&#146;s actual
knowledge (with no investigation or inquiry), Sublandlord has received no
notice that the Premises is not in compliance with applicable laws,
codes, rules and/or regulations of applicable governing authorities.</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="5%"></TD>
        <TD width="95%"></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g)&nbsp;Subject to the terms and provisions of the Prime Lease and this
Sublease, so long as Subtenant shall perform all of its obligations
under this Sublease, Subtenant shall enjoy peaceful and quiet possession
of the Premises in accordance with the terms and provisions of this
Sublease against any party claiming through or under Sublandlord. In
addition to the foregoing, Sublandlord hereby covenants and agrees that
it shall not enter into any modification or amendment to the Prime Lease
which materially and</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">10</FONT>


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<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="5%"></TD>
        <TD width="95%"></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">adversely affect Subtenant&#146;s rights under this Sublease.</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
        <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="1%" align="left" nowrap><FONT size="2">7.</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="91%"><FONT size="2"><B>Default by Subtenant</B>.</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="5%"></TD>
        <TD width="95%"></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;Upon the happening of any of the following:</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="9%"></TD>
        <TD width="91%"></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;Subtenant fails to pay any Minimum Rent within five (5)
days after the date it is due;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;Subtenant fails to pay any other amount due from
Subtenant hereunder and such failure continues for three (3)&nbsp;days
after notice thereof from Sublandlord to Subtenant;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;Subtenant fails to perform or observe any other covenant
or agreement set forth in this Sublease and such failure continues
for seven (7)&nbsp;days after notice thereof from Sublandlord to
Subtenant; or</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;any other event occurs which involves Subtenant or the
Premises and which would constitute a default under the Prime Lease
if it involved Sublandlord or the premises covered by the Prime
Lease;</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
        <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
        <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="95%"><FONT size="2">Subtenant shall be deemed to be in default hereunder, and Sublandlord may
exercise, without limitation of any other rights and remedies available
to it hereunder or at law or in equity, any and all rights and remedies
of Landlord set forth in the Prime Lease in the event of a default by
Sublandlord thereunder.</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="5%"></TD>
        <TD width="95%"></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;In the event Subtenant fails or refuses to make any payment or
perform any covenant or agreement to be performed hereunder by Subtenant,
Sublandlord may make such payment or undertake to perform such covenant
or agreement (but shall not have any obligation to Subtenant to do so).
In such event, amounts so paid and amounts expended in undertaking such
performance, together with all costs, expenses and attorneys&#146; fees
incurred by Sublandlord in connection therewith, shall be additional rent
hereunder.</FONT></TD>
</TR>
</TABLE>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Nonwaiver</B>. Failure of Sublandlord to declare any default or delay in
taking any action in connection therewith shall not waive such default. No
receipt of moneys by Sublandlord from Subtenant after the termination in any
way of the term or of Subtenant&#146;s right of possession hereunder or after the
giving of any notice shall reinstate, continue or extend the term or affect any
notice given to Subtenant or any suit commenced or judgment entered prior to
receipt of such moneys.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Cumulative Rights and Remedies</B>. All rights and remedies of Sublandlord
under this Sublease shall be cumulative and none shall exclude any other rights
or remedies allowed by law.
</FONT>
<P align="center"><FONT size="2">11</FONT>


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<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Waiver of Claims and Indemnity</B>.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;Subtenant hereby releases and waives any and all claims against
Landlord and Sublandlord and each of their respective officers, directors,
partners, agents and employees for injury or damage to person, property or
business sustained in or about the Building or the Premises by Subtenant other
than by reason of gross negligence or willful misconduct and except in any case
which would render this release and waiver void under law.
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="5%"></TD>
        <TD width="95%"></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;Subtenant agrees to indemnify, defend and hold harmless Landlord
and its beneficiaries, Sublandlord and the managing agent of the Building
and each of their respective officers, directors, partners, agents and
employees, from and against any and all claims, demands, costs and
expenses of every kind and nature, including attorneys&#146; fees and
litigation expenses, arising from Subtenant&#146;s occupancy of the Premises,
Subtenant&#146;s construction of any leasehold improvements in the Premises or
from any breach or default on the part of Subtenant in the performance of
any agreement or covenant of Subtenant to be performed or performed under
this Sublease or pursuant to the terms of this Sublease, or from any act
or neglect of Subtenant or its agents, officers, employees, guests,
servants, invitees or customers in or about the Premises. In case any
such proceeding is brought against any of said indemnified parties,
Subtenant covenants, if requested by Sublandlord, to defend such
proceeding at its sole cost and expense by legal counsel reasonably
satisfactory to Sublandlord.</FONT></TD>
</TR>
</TABLE>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Waiver of Subrogation</B>. Anything in this Sublease to the contrary
notwithstanding, Sublandlord and Subtenant each hereby waive any and all rights
of recovery, claims, actions or causes of action against the other and the
officers, directors, partners, agents and employees of each of them, and
Subtenant hereby waives any and all rights of recovery, claims, actions or
causes of action against Landlord and its agents and employees for any loss or
damage that may occur to the Premises or any improvements thereto, or any
personal property of any person therein or in the Building, by reason of fire,
the elements or any other cause insured against under valid and collectible
fire and extended coverage insurance policies, regardless of cause or origin,
including negligence, except in any case which would render this waiver void
under law, to the extent that such loss or damage is actually recovered under
said insurance policies.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Brokerage Commissions</B>. Each party hereby represents and warrants to
the other that other than Julien J. Studley, Inc. and BRE Commercial Real
Estate (whose commissions shall be paid by Sublandlord) it has had no dealings
with any real estate broker or agent in connection with this Sublease, and that
it knows of no real estate broker or agent who is or might be entitled to a
commission in connection with this Sublease. Each party agrees to protect,
defend, indemnify and hold the other harmless from and against any and all
claims inconsistent with the foregoing representations and warranties for any
brokerage, finder&#146;s or similar fee or commission in connection with this
Sublease, if such claims are based on or relate to any act of the indemnifying
party which is contrary to the foregoing representations and warranties.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Successors and Assigns</B>. This Sublease shall be binding upon and inure
to the benefit of the successors and assigns of Sublandlord and shall be
binding upon and inure to the benefit of the successors of Subtenant and, to
the extent any such assignment may be approved,
</FONT>
<P align="center"><FONT size="2">12</FONT>

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<P><FONT size="2">Subtenant&#146;s assigns. The provisions of Subsection 6(e) and Sections&nbsp;10 and 11 hereof shall inure to
the benefit of the successors and assigns of Landlord.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;14.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Entire Agreement</B>. This Sublease contains all the terms, covenants,
conditions and agreements between Sublandlord and Subtenant relating in any
manner to the rental, use and occupancy of the Premises. No prior agreement or
understanding pertaining to the same shall be valid or of any force or effect.
The terms, covenants and conditions of this Sublease cannot be altered,
changed, modified or added to except by a written instrument signed by
Sublandlord and Subtenant.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;15.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Notices</B>.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;In the event any notice from the Landlord or otherwise relating to the
Prime Lease is delivered to the Premises or is otherwise received by Subtenant,
Subtenant shall, as soon thereafter as possible, but in any event within
twenty-four (24)&nbsp;hours, deliver such notice to Sublandlord if such notice is
written or advise Sublandlord thereof by telephone if such notice is oral.
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="5%"></TD>
        <TD width="95%"></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;Notices and demands required or permitted to be given by either
party to the other with respect hereto or to the Premises shall be in
writing and shall not be effective for any purpose unless the same shall
be served either by personal delivery with a receipt requested, by
overnight air courier service or by United States certified or registered
mail, return receipt requested, postage prepaid; provided, however, that
all notices of default shall be served either by personal delivery with a
receipt requested or by overnight air courier service, addressed as
follows:</FONT></TD>
</TR>
</TABLE>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="85%">
<TR valign="bottom">
        <TD width="34%">&nbsp;</TD>
        <TD width="10%">&nbsp;</TD>
        <TD width="56%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD align="right" valign="top"><FONT size="2">if to Sublandlord:</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
c/o <B>GATEWAY, INC.</B><BR>
Real Estate Administration<BR>
610 Gateway Drive Y91<BR>
North Sioux City, South Dakota 97049</FONT></TD>
</TR>
<TR><TD><FONT size="2">&nbsp;</FONT></TD></TR>
<TR valign="bottom">
        <TD align="right" valign="top"><FONT size="2">and</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
c/o <B>GATEWAY, INC.</B><BR>
14303 Gateway Place<BR>
Poway, California 92064<BR>
Attn: General Counsel</FONT></TD>
</TR>
<TR><TD><FONT size="2">&nbsp;</FONT></TD></TR>
<TR valign="bottom">
        <TD align="right" valign="top"><FONT size="2">if to Subtenant:</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
<B>COSTAR REALTY INFORMATION, INC.</B><BR>
4535  Towne Centre Court<BR>
San Diego, California<BR>
Attn.: Facility Manager</FONT></TD>
</TR>
<TR><TD><FONT size="2">&nbsp;</FONT></TD></TR>
<TR valign="bottom">
        <TD align="right" valign="top"><FONT size="2">and</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
<B>COSTAR GROUP, INC.</B><BR>
2 Bethesda Metro Center, 10th Floor<BR>
Bethesda, Maryland 20814<BR>
Attn: Director of Facilities</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
        <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="95%"><FONT size="2">Notices and demands shall be deemed to have been given two (2)&nbsp;days after
mailing, if mailed, or, if made by personal delivery or by overnight air
courier service, then upon </FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">13</FONT>

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<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
        <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="95%"><FONT size="2">such delivery. Either party may change its address for receipt of notices by
giving notice to the other party.</FONT></TD>
</TR>
</TABLE>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Authority</B>. Subject to Section&nbsp;19 hereof, each party represents and
warrants to the other that this Sublease has been duly authorized, executed and
delivered by and on behalf of such party and constitutes the valid, enforceable
and binding agreement of such party.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;17.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Limitation on Liability. </B>Sublandlord shall not be liable for
personal injury or property damage to Subtenant, its officers, agents,
employees, invitees, guests, licensees or any other person in the Premises,
regardless of how such injury or damage may be caused; provided, however solely
as such waiver relates to claims of property damage, the foregoing shall not
limit or restrict any liability which may arise solely and directly due to the
gross negligence or willful misconduct of Sublandlord. Any property of
Subtenant kept or stored in the Premises shall be kept or stored at the sole
risk of Subtenant. Subtenant shall hold Sublandlord harmless from any claims
arising out of any personal injury or property damage occurring in the
Premises, including subrogation claims by Subtenant&#146;s insurance carrier(s)
except to the extent noted in the first sentence of this Section&nbsp;17.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;18.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Consents and Approvals. </B>In any instance when Sublandlord&#146;s consent
or approval is required under this Sublease, Sublandlord&#146;s refusal to consent
to or approve any matter or thing shall be deemed reasonable if, among other
matters, such consent or approval is required under the provisions of the Prime
Lease incorporated herein by reference but has not been obtained from Landlord.
Except as otherwise provided herein, Sublandlord shall not unreasonably
withhold or delay its consent to or approval of a matter if such consent or
approval is required under the provisions of the Prime Lease and Landlord has
consented to or approved of such matter. If Subtenant shall seek the approval
by or consent of Sublandlord and Sublandlord shall fail or refuse to give such
consent or approval, Subtenant shall not be entitled to any damages for any
withholding or delay of such approval or consent by Sublandlord, it being
agreed that Subtenant&#146;s sole remedy in connection with an alleged wrongful
refusal or failure to approve or consent shall be an action for injunction or
specific performance shall be available only in those cases where Sublandlord
shall have expressly agreed in this Sublease not to unreasonably withhold or
delay its consent.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;19.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Consent of Landlord</B>. The obligations of Sublandlord and Subtenant
under this Sublease are conditioned and contingent upon the Landlord consenting
hereto. In the event Landlord&#146;s consent is not obtained within thirty (30)
days after the date hereof this Sublease shall automatically terminate and
become null and void, and neither Sublandlord nor Subtenant shall have any
further obligations or liability hereunder or to each other with respect to the
Premises. Sublandlord hereby covenants and agrees to use its commercially
reasonable efforts to obtain Landlord&#146;s consent to this Sublease as promptly as
reasonably possible following the full execution and delivery of this Sublease.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;20.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Examination</B>. Submission of this instrument for examination or
signature by Subtenant does not constitute a reservation of or option for the
Premises or in any manner bind Sublandlord, and no lease, sublease or
obligation on Sublandlord shall arise until this instrument is signed and
delivered by Sublandlord and Subtenant and the consent of Landlord is obtained
as described in Section&nbsp;19 above.
</FONT>
<P align="center"><FONT size="2">14</FONT>

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<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;21.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Security Deposit. </B>Subtenant concurrently with the execution of this
Sublease, shall deposit with Sublandlord the sum of $284,440.41 (which
Sublandlord and Subtenant acknowledge and agree is equal to three (3)&nbsp;months&#146;
gross rent due under this Sublease) as security for the faithful performance by
Subtenant of all terms, covenants and conditions of this Sublease in the form
of a letter of credit as more particularly set forth below. Such letter of
credit shall be in a form consistent with that form of letter of credit
attached to this Sublease as Exhibit &#147;C&#148; and issued upon a bank with a minimum
long term capital rating of &#147;AA&#148;, with a branch in San Diego, California for
purposes of Sublandlord&#146;s ability to draw thereon and shall otherwise be
satisfactory to Sublandlord (in its sole and absolute discretion). Further,
such letter of credit shall be irrevocable, &#147;evergreen&#148;, &#147;clean&#148; and in the
full amount required naming Sublandlord as beneficiary, and providing for
partial and multiple draws and shall otherwise be satisfactory to Sublandlord
as set forth hereinabove. Such letter of credit shall be held by Sublandlord
as security for the faithful performance by Subtenant of all terms, covenants
and conditions of this Sublease. Subtenant agrees that Sublandlord may apply
(or draw upon, as the case may be) the security deposit to remedy any failure
by Subtenant to repair or maintain the Premises or to perform any other terms,
covenants and conditions contained herein or make any payment owing hereunder,
all following the expiration of applicable notice and cure periods. If
Subtenant has kept and performed all terms, covenants and conditions of this
Sublease during the term, Sublandlord will, within thirty (30)&nbsp;days after the
expiration hereof, promptly return the security deposit to Subtenant or the
last permitted assignee of Subtenant&#146;s interest hereunder. Should Sublandlord
use (or draw upon, as the case may be) any portion of the security deposit to
cure any default by Subtenant hereunder, Subtenant shall forthwith replenish
the security deposit to the original amount. Sublandlord shall not be required
to keep the security deposit separate from its general funds, and Subtenant
shall not be entitled to interest on any such deposit. Subtenant hereby
acknowledges and agrees that Sublandlord may draw upon such letter of credit at
such time as Sublandlord is permitted to do so under this paragraph 21 or if
Subtenant fails to provide Sublandlord with a replacement letter of credit no
later than thirty (30)&nbsp;days prior to the expiration date of any then held
letter of credit in Sublandlord&#146;s possession. In the event Sublandlord draws
down such letter of credit, then Sublandlord shall hold such cash security
deposit in accordance with the terms and provisions of this paragraph 21.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;22. <B>Furniture</B>. Sublandlord and Subtenant acknowledge and agree that
Subtenant shall be entitled to use, at no additional cost, fee or charge to
Subtenant imposed by Sublandlord, the furniture currently located within the
Premises and scheduled on Exhibit &#147;B&#148; hereto (the &#147;Furniture&#148;) during the term
of this Sublease, and any extensions thereof. During the term of this
Sublease, Subtenant shall be responsible, at Subtenant&#146;s sole cost and expense,
to maintain such Furniture in good condition and repair and shall surrender
same to Sublandlord upon the expiration of the term of this Sublease or earlier
termination hereof in good condition and repair, subject to reasonable wear and
tear from Subtenant&#146;s use of such Furniture during the term of this Sublease.
Subtenant acknowledges and agrees that it shall accept such furniture in its
&#147;as-is&#148; condition and in no event does Sublandlord make any representation or
warranty of any kind with respect to the Furniture or its adequacy for
Subtenant&#146;s purposes and Sublandlord hereby disclaims the delivery of any such
warranties, including any warranty of merchantability, fitness for a particular
purpose or any thing or nature whatsoever.
</FONT>
<P align="center"><FONT size="2">15</FONT>

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<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;23.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Security System</B>. Sublandlord and Subtenant acknowledge and agree that
there is currently located within the Premises a security system servicing the
Premises (except that Sublandlord acknowledge and agree that the data
processing equipment (the &#147;Data Equipment&#148;) for such security system is located
in a building adjacent to the Premises. Subtenant shall be entitled to use, at
no additional cost, fee or charge to Subtenant imposed by Sublandlord, the
security system currently located within the Premises and scheduled on Exhibit
&#147;B-1&#148; attached hereto (the &#147;Security System&#148;) during the term of this Sublease,
and any extensions thereof. Subtenant shall be responsible, at Subtenant&#146;s
sole cost and expense, to surrender such Security System to Sublandlord upon
the expiration of the term of this Sublease or earlier termination hereof in
the condition and in the manner required under the Prime Lease. Subtenant
acknowledges and agrees it shall accept such security system in its &#147;as-is&#148;
condition and that in no event does Sublandlord make any representation or
warranty of any kind with respect to the Security System or its adequacy for
Subtenant&#146;s purposes and Sublandlord hereby disclaims the delivery of any such
warranties, including any warranty of merchantability, fitness for a particular
purpose or any thing or nature whatsoever. Further, Subtenant hereby
acknowledges and agrees that in no event shall Subtenant have any right to use
or access the Data Equipment.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;24.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Server Infrastructure Network</B>. Sublandlord and Subtenant acknowledge
and agree that there is currently located within the Premises server room
hardware, air conditioners and a fire suppression system (and related
furniture). Subtenant shall be entitled to use, at no additional cost, fee or
charge to Subtenant imposed by Sublandlord, such server room hardware, air
conditioners and a fire suppression system (and related furniture currently
located within the Premises and scheduled on Exhibit &#147;B-2&#148; attached hereto (the
&#147;Server Infrastructure Network&#148;) during the term of this Sublease, and any
extensions thereof. Subtenant shall be responsible, at Subtenant&#146;s sole cost
and expense, to surrender such Server Infrastructure Network to Sublandlord
upon the expiration of the term of this Sublease or earlier termination hereof
in the condition and in the manner required under the Prime Lease. Subtenant
acknowledges and agrees it shall accept such Server Infrastructure Network in
its &#147;as-is&#148; condition and that in no event does Sublandlord make any
representation or warranty of any kind with respect to the Server
Infrastructure Network or its adequacy for Subtenant&#146;s purposes and Sublandlord
hereby disclaims the delivery of any such warranties, including any warranty of
merchantability, fitness for a particular purpose or any thing or nature
whatsoever.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;25.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Parking</B>. During the term of this Sublease, so long as Subtenant is
not in default under this Sublease, Subtenant and its employees shall be
entitled to use Subtenant&#146;s Percentage Share of the parking rights granted to
Sublandlord, as Tenant, under the Prime Lease, including, without limitation,
the terms and provisions of Section&nbsp;4.G. of the Prime Lease. Subtenant
acknowledges and agrees that its right to use such parking area shall be upon
the terms and conditions set forth in the Prime Lease, including, without
limitation, any and all regulations promulgated by Landlord with respect
thereto.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;26.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Signage</B>. Sublandlord and Subtenant hereby acknowledge and agree that
so long as Subtenant is not in default under this Sublease, Subtenant shall be
granted the right provided to Sublandlord, as Tenant under the Prime Lease, to
install the Building Sign as set
</FONT>
<P align="center"><FONT size="2">16</FONT>

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<P><FONT size="2">forth in Section&nbsp;31 of the Prime Lease,
subject to the following terms and conditions: (i)&nbsp;in no event shall Subtenant
be permitted to install such Building Sign unless and until Subtenant obtains
any and all necessary approvals in connection therewith, including, without
limitation, the approval of Landlord, Sublandlord and any necessary governmental entity or agency having
jurisdiction over the Premises; and (ii)&nbsp;Subtenant shall comply with all the
terms and provisions of the Prime Lease and this Sublease in connection with
the installation of same. Further, Sublandlord and Subtenant acknowledge and
agree that subject to approval by Sublandlord (such approval not to be
unreasonably withheld, conditioned or delayed) and Landlord, Subtenant shall
have the right to utilize Subtenant&#146;s Percentage Share of the remaining signage
rights granted to Sublandlord under the Prime Lease, at Subtenant&#146;s sole cost
and expense. Such signage rights shall be subject to clauses (i)&nbsp;and (ii)&nbsp;set
forth hereinabove with respect to the Building Sign. Any and all signage
installed by Subtenant at the Premises shall be the responsibility and at the
sole cost of Subtenant to repair, maintain, replace, and remove upon the
expiration of the term of this Sublease or earlier termination hereof.
Subtenant shall repair any damage caused to the Premises as a result of any
such repair, maintenance, placement and/or removal of such signage.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;27.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Option to Extend</B>. Sublandlord and Subtenant acknowledge and agree
that Subtenant shall have the right to extend the term of this Sublease through
August&nbsp;31, 2012 (which is the expiration of the term of the Prime Lease) upon
the following terms and conditions: (i)&nbsp;Subtenant shall provide Sublandlord
with prior written notice of Subtenant&#146;s election to so extend the term of this
Sublease not less than nine (9)&nbsp;months prior the expiration of the then current
term of this Sublease, time being of the essence; (ii)&nbsp;all of the terms and
conditions of such extension term shall be the same as during the initial term
of this Sublease except that the Minimum Rent shall be equal to the then
current fair market rental rate for the Premises as agreed to between
Sublandlord and Subtenant in their reasonable and good faith determination (if
Sublandlord and Subtenant are unable to agree upon the then current fair market
rental rate for the Premises within thirty (30)&nbsp;days following Sublandlord&#146;s
receipt of Subtenant&#146;s exercise of its option to extend the Sublease term as
set forth herein, then the parties shall submit such dispute to arbitration in
accordance with the then current rules of the American Arbitration Association
in order to resolve such dispute, with each party bearing one-half (1/2) of the
cost of such arbitration); and (iii)&nbsp;Subtenant shall have no right to extend
the term of this Sublease (a)&nbsp;if upon the exercise thereof by Subtenant and/or
on the date upon which such extended term is to begin Subtenant is in default
under this Sublease and/or (b)&nbsp;if Subtenant has assigned this Sublease or
sublet all or any portion of the Premises to any party other than an Affiliate
(as defined in Section&nbsp;6(c)(i) of this Sublease).
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;28.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Counterparts; Execution; Joint and Several Liability</B>. This Sublease
may be executed in any number of counterparts, each of which when so executed
and delivered shall be deemed to be an original and all of which counterparts
taken together shall constitute but one and the same instrument. Signature
pages may be detached from the counterparts and attached to a single copy of
this Sublease to physically form one document. This Sublease may also be
delivered by telefacsimile and any signature of a party on a telefacsimile copy
shall be binding. Any party delivering an executed counterpart of this
Sublease by telefacsimile shall also deliver by overnight service to the other
party or parties an original counterpart of this Sublease, provided the failure
to deliver an original counterpart shall not affect the validity,
enforceability and binding effect of this Sublease. The obligations of CRII and
CGI shall be
</FONT>
<P align="center"><FONT size="2">17</FONT>

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<P><FONT size="2">joint and several and each of CRII and CGI shall be fully liable
for the obligations imposed on the Subtenant under this Sublease regardless of
the obligations of the other party. In no event shall Sublandlord be required
to proceed against one of the parties comprising Subtenant hereunder prior to
proceeding under this Sublease against the other party comprising Subtenant
hereunder.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>IN WITNESS WHEREOF</B>, Sublandlord and Subtenant have executed this Sublease
as of the date aforesaid.
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
        <TD width="2%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="33%">&nbsp;</TD>
        <TD width="10%">&nbsp;</TD>
        <TD width="54%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2"><B>SUBLANDLORD</B>:</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD colspan="3" valign="top" align="left"><FONT size="2"><B>ATTEST</B>:</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">GATEWAY, INC., a Delaware corporation</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">By:</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">By:&nbsp;&nbsp;/s/&nbsp;&nbsp;Stephen Smurthwaite</FONT></TD>
</TR>
<TR>
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;Its:&nbsp;&nbsp;Vice President</FONT></TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;&nbsp;&nbsp;Its:</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;&nbsp;&nbsp;</FONT></TD>
</TR>
<TR>
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
<HR size="1" noshade></FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2"><B>SUBTENANT:</B></FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD colspan="3" valign="top" align="left"><FONT size="2"><B>ATTEST</B>:</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">COSTAR REALTY INFORMATION, INC.,<br>
a Delaware corporation</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">By:&nbsp;&nbsp;<BR>
&nbsp;&nbsp;&nbsp;Its:</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
/s/&nbsp;&nbsp;Carla Garrett<BR>
&nbsp;&nbsp;Secretary
</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">By:&nbsp;&nbsp;/s/&nbsp;&nbsp;Andrew Florance<BR>
&nbsp;&nbsp;&nbsp;Its:&nbsp;&nbsp;Chief Executive Officer</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD colspan="3" valign="top" align="left"><FONT size="2"><B>ATTEST</B>:</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">COSTAR GROUP, INC.,<br>
a Delaware corporation</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">By:&nbsp;&nbsp;<BR>
&nbsp;&nbsp;&nbsp;Its:</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
/s/&nbsp;&nbsp;Carla Garrett<BR>
&nbsp;&nbsp;Secretary
</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">By:&nbsp;&nbsp;/s/&nbsp;&nbsp;Andrew Florance<BR>
&nbsp;&nbsp;&nbsp;Its:&nbsp;&nbsp;Chief Executive Officer</FONT></TD>
</TR>
</TABLE>
</CENTER>

<P align="center"><FONT size="2">18</FONT>




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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.1
<SEQUENCE>5
<FILENAME>w62833exv99w1.htm
<DESCRIPTION>CERTIFICATION OF CHIEF EXECUTIVE OFFICER
<TEXT>
<HTML>
<HEAD>
<TITLE>exv99w1</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<P align="right"><FONT size="2">EXHIBIT 99.1</FONT>

<P><FONT size="2">CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION
1350:
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with the accompanying Quarterly Report on Form&nbsp;10-Q of
CoStar Group, Inc., for the quarter ended June&nbsp;30, 2002, I, Andrew C. Florance,
Chief Executive Officer of CoStar Group, Inc., hereby certify pursuant to 18
U.S.C. Section&nbsp;1350, as adopted pursuant to Section&nbsp;906 of the Sarbanes-Oxley
Act of 2002, that:
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1) such Quarterly Report on Form&nbsp;10-Q of CoStar Group, Inc., for the
quarter ended June&nbsp;30, 2002, fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2) the information contained in such Quarterly Report on Form&nbsp;10-Q of
CoStar Group, Inc., for the quarter ended June&nbsp;30, 2002, fairly presents, in
all material respects, the financial condition and results of operations of
CoStar Group, Inc.
</FONT>
<p align="left">
<TABLE cellspacing="0" border="0" cellpadding="0" width="55%">
<TR valign="bottom">
        <TD width="42%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="53%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">Dated: August&nbsp;13, 2002</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
By: /s/ Andrew C. Florance</FONT></TD>
</TR>
<TR valign="bottom">
        <TD width="42%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="53%">&nbsp;</TD>
</TR>
<TR>
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
<HR size="1" noshade></FONT></TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Andrew C. Florance</FONT></TD>
</TR>

<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Chief Executive Officer</FONT></TD>
</TR>

<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
(Principal Executive Officer</FONT></TD>
</TR>

<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
and Duly Authorized Officer)</FONT></TD>
</TR>
</TABLE>

<P align="center"><FONT size="2">&nbsp;</FONT>
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</HTML>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2
<SEQUENCE>6
<FILENAME>w62833exv99w2.htm
<DESCRIPTION>CERTIFICATION OF CHIEF FINANCIAL OFFICER
<TEXT>
<HTML>
<HEAD>
<TITLE>exv99w2</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<P align="right"><FONT size="2">EXHIBIT 99.2</FONT>

<P><FONT size="2">CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION
1350:
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with the accompanying Quarterly Report on Form&nbsp;10-Q of
CoStar Group, Inc., for the quarter ended June&nbsp;30, 2002, I, Frank A. Carchedi,
Chief Financial Officer of CoStar Group, Inc., hereby certify pursuant to 18
U.S.C. Section&nbsp;1350, as adopted pursuant to Section&nbsp;906 of the Sarbanes-Oxley
Act of 2002, that:
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1) such Quarterly Report on Form&nbsp;10-Q of CoStar Group, Inc., for the
quarter ended June&nbsp;30, 2002, fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2) the information contained in such Quarterly Report on Form&nbsp;10-Q of
CoStar Group, Inc., for the quarter ended June&nbsp;30, 2002, fairly presents, in
all material respects, the financial condition and results of operations of
CoStar Group, Inc.
</FONT>
<p align="left">
<TABLE cellspacing="0" border="0" cellpadding="0" width="55%">
<TR valign="bottom">
        <TD width="42%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="53%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">Dated: August&nbsp;13, 2002</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
By: /s/ Frank A. Carchedi</FONT></TD>
</TR>
<TR valign="bottom">
        <TD width="42%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="53%">&nbsp;</TD>
</TR>
<TR>
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
<HR size="1" noshade></FONT></TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Frank A. Carchedi</FONT></TD>
</TR>

<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Chief Financial Officer</FONT></TD>
</TR>

<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
(Principal Financial Officer</FONT></TD>
</TR>

<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
and Duly Authorized Officer)</FONT></TD>
</TR>
</TABLE>
</CENTER>

<P align="center"><FONT size="2">&nbsp;</FONT>






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</HTML>

</TEXT>
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