##### Table of Contents





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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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Form 10-K/A

Amendment No. 1
to

þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2003


o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________


Commission file number: 000-26659



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Homestore, Inc.

(Exact Name of Registrant as Specified in its Charter)


Delaware
    
    95-4438337(State or Other Jurisdiction of
Incorporation or Organization)
    
    (I.R.S. Employer Identification No.)30700 Russell Ranch RoadWestlake Village, California
    
    91362(Address of Principal Executive Offices)
    
    (Zip Code)


Registrants telephone number, including area code:
(805) 557-2300

Securities Registered Pursuant to Section 12(b) of the Act:
None

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

Common Stock, par value $.001 per share
Warrants to purchase Common Stock, par value $.001 per share



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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes þ     No o

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

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2). Yes þ     No o

Aggregate market value of voting common stock held by
non-affiliates of the registrant as of June 30, 2003*
    
    $
    135,397,371Number of shares of common stock outstanding as of April 15, 2004
    
    
    122,701,648


Based on the closing price of the common stock of $1.72 per share on that date,
as reported on the Nasdaq Stock Markets SmallCap Market and, for purposes of
this computation only, the assumption that all of the registrants directors,
executive officers and beneficial owners of 10% or more of the registrants
common stock are affiliates.



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TABLE OF CONTENTS  PART IIIItem 10. Directors and Executive Officers of the RegistrantItem 11. Executive CompensationItem 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related TransactionsItem 14. Principal Accountant Fees and ServicesPART IVItem 15. Exhibits, Financial Statement Schedules and Reports on Form 8-KSIGNATURESINDEXEXHIBIT 31.01EXHIBIT 31.02    Table of Contents  
 PART III 
 Item 10.Directors and Executive Officers of the Registrant Directors and Executive Officers The following table sets forth information regarding our directors and our
executive officers. Name
    
    Age
    
    PositionJoe F. Hanauer(1)(2)
    
    
    66
    
    
    Chairman of the Board and DirectorL. John Doerr(1)(2)
    
    
    52
    
    
    DirectorWilliam E. Kelvie(2)
    
    
    56
    
    
    DirectorKenneth K. Klein(3)
    
    
    60
    
    
    DirectorW. Michael Long
    
    
    51
    
    
    Chief Executive Officer and DirectorTerrence M. McDermott
    
    
    61
    
    
    DirectorBruce G. Willison(1)(3)
    
    
    55
    
    
    DirectorV. Paul Unruh(3)(4)
    
    
    55
    
    
    DirectorJack D. Dennison
    
    
    47
    
    
    Chief Operating OfficerLewis R. Belote, III
    
    
    48
    
    
    Chief Financial OfficerAllan D. Dalton
    
    
    55
    
    
    President, REALTOR.com®Allan P. Merrill
    
    
    37
    
    
    Executive Vice President, Strategy and Corporate DevelopmentMichael R. Douglas
    
    
    50
    
    
    Executive Vice President, General Counsel and Secretary
   (1)
    
    Member of management development and compensation committee.(2)
    
    Member of governance and nominating committee.(3)
    
    Member of audit committee established in accordance with Section
3(a)(58)(A) of the Securities Exchange Act of 1934.(4)
    
    The board of directors has determined that Mr. Unruh meets the requirements
of an audit committee financial expert as defined in SEC rules and
regulations. Mr. Unruh meets the requirements for being independent as
defined by SEC rules and regulations. Our bylaws provide for our board of directors to be divided into three
classes as nearly equal in size as possible with staggered three-year terms.
The term of office for Class I, Class II and Class III directors will expire at
the annual meeting of stockholders to be held in 2006, 2004 and 2005,
respectively, or upon a directors earlier death, resignation or removal. By virtue of its ownership of our sole outstanding share of Series A
preferred stock, the National Association of REALTORS® has the right to elect
one of our directors, and the National Association of REALTORS® has exercised
that right to elect Mr. McDermott as a director. Joe F. Hanauerhas served as one of our directors since November 1996, as
vice chairman of the board from November 2001 to January 2002, and chairman of
the board since January 2002; he was the National Association of REALTORS® representative on the 2




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board through November 2000. Mr. Hanauer
is a Class III director. Since 1988, Mr. Hanauer, through Combined Investments,
L.P., has directed investments in companies primarily involved in real estate
and financial services. Mr. Hanauer is a former chairman and director of Grubb
& Ellis Company and a former chairman of Coldwell Banker Residential Group,
Inc. Mr. Hanauer is a director of MAF Bancorp, Inc., a trustee of each of
Calamos Investment Trust, Calamos Advisors Trust and Calamos Convertible
Opportunities and Income Fund, and a member of the National Association of
REALTORS®. L. John Doerrhas served as one of our directors since August 1998. Mr.
Doerr is a Class III director. Mr. Doerr has been a general partner of Kleiner
Perkins Caufield & Byers, a venture capital firm, since 1980. Prior to his
tenure at Kleiner Perkins, Mr. Doerr was employed by Intel Corporation for five
years. He serves on the board of directors of Amazon.com, Inc., drugstore.com,
Inc., Intuit Inc., palmOne, Inc., Segway Corp. and Sun Microsystems, Inc. William E. Kelviehas served as one of our directors since August 1998.
Mr. Kelvie is a Class II director. He has served as chief executive officer of
Overture Corporation, an information technology company, since July 2000. Prior
to his tenure at Overture Corporation, Mr. Kelvie was the executive vice
president and chief information officer responsible for information technology
systems at Fannie Mae, the worlds largest non-bank financial services company,
from 1992 to 2000. He then served as special adviser to the chief executive
officer of Fannie Mae until January 2003. Mr. Kelvie joined Fannie Mae in 1990
as senior vice president and chief information officer. Prior to his tenure at
Fannie Mae, Mr. Kelvie was a partner with Nolan, Norton & Co., a management
consulting company specializing in information technology strategies and plans.
He also served in various capacities with The Dexter Corporation, a specialized
manufacturing company, and The Travelers Insurance Company, an insurance and
financial services company. Kenneth K. Kleinhas served as one of our directors since August 1998. Mr.
Klein is a Class II director. He is president and chief executive officer of a
privately held group of companies involved in diversified residential and light
commercial construction and land development, including Kleinco Construction
Services, Inc. of which Mr. Klein has served as president and chief executive
officer since 1980. Mr. Klein was national vice president of the National
Association of Home Builders during the calendar years 1999 and 2000. W. Michael Longhas served as our chief executive officer and as one of
our directors since January 2002. Mr. Long is a Class III director. From
November 1999 to April 2001, Mr. Long served as chairman of the board and as a
director of WebMD Corporation, a provider of healthcare information services
and technology solutions. From 1997 to November 1999, Mr. Long served as chief
executive officer of Healtheon Corporation, a predecessor of WebMD. From 1996
to 1997, Mr. Long served as president and chief executive officer of CSC
Continuum, Inc., a unit of Computer Sciences Corporation. Prior to its
acquisition by CSC, Mr. Long was president and chief executive officer of The
Continuum Company, Inc. Terrence M. McDermotthas served as one of our directors (as the National
Association of REALTORS® representative) since December 2000. Mr. McDermott is
a Class I director. He has served as executive vice president/chief executive
officer of the National Association of REALTORS® since 1997. From 1993 to 1997,
Mr. McDermott served as executive vice president and chief executive officer of
the American Institute of Architects. Mr. McDermott was president of Cahners
Publishing Co. from 1987 to 1993, a firm he joined in 1969. Bruce G. Willisonhas served as one of our directors since December 2002.
Mr. Willison is a Class I director. Since 1999, Mr. Willison has served as Dean
of The Anderson School of Management at UCLA. This appointment followed a
26-year career in the banking industry, most recently as president and chief
operating officer of H.F. Ahmanson & Co., the parent company of Home Savings of
America. Prior to that, Mr. Willison held several executive positions at First
Interstate Bancorp, including chairman and chief executive officer of First
Interstates Oregon operation and chairman, president, and chief executive
officer of First Interstate Bank of California, as well as vice chairman of the
banks holding company, First Interstate Bancorp. Mr. Willison began his
banking career at Bank of America Corp. in 1973. Mr. Willison is a director of
Health Net, Inc., an integrated managed care organization. V. Paul Unruhhas served as one of our directors since May 2003. Mr.
Unruh is a Class I director. For 25 years, Mr. Unruh worked at Bechtel, a
privately held global engineering and construction services organization. 3




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Prior to his retirement in 2002, Mr. Unruh served as vice chairman of
Bechtel Group, Inc. from January 2001 to December 2002 and president of Bechtel
Enterprises, a development and financing subsidiary, from July 1997 to January
2001. His previous responsibilities at Bechtel included both operating and
financial positions, including chief financial officer, treasurer and
controller. Mr. Unruh is currently a director of VERITAS Software Corporation.
Prior to joining Bechtel in 1978, Mr. Unruh practiced as a certified public
accountant with what is now PricewaterhouseCoopers LLP for seven years. Jack D. Dennisonhas served as our chief operating officer since January
2002. From July 1998 to January 2001, Mr. Dennison served as executive vice
president, general counsel and secretary of WebMD Corporation. From 1996 to
July 1998, Mr. Dennison served as vice president and deputy general counsel to
Computer Sciences Corporation. Prior to that time, Mr. Dennison was general
counsel at The Continuum Company, Inc. Lewis R. Belote, IIIhas served as our chief financial officer since
January 2002. From May 1998 to April 2001, Mr. Belote served as senior vice
president, finance of WebMD Corporation. From June 1996 to May 1998, Mr. Belote
served as senior vice president and chief financial officer for ActaMed
Corporation. Prior to 1996, Mr. Belote served for twelve years with the
accounting firm of Ernst & Young LLP. Allan D. Daltonhas served as president of REALTOR.com®, one of our
consumer websites and the official Internet site of the National Association of
REALTORS®, since October 2002. From August 2002 to October 2002, Mr. Dalton
served as executive vice president of Coldwell Banker New England Metro, the
largest real estate services organization in New England. From January 1998 to
August 2002, Mr. Dalton was senior vice president of NRT, a residential real
estate brokerage company and a subsidiary of Cendant Corporation, an entity
which held approximately 7.7% of our common stock outstanding as of April 15,
2004. Mr. Daltons 20-plus year career in the real estate industry includes 12
years as president and co-owner of an independent real estate brokerage with
more than 20 offices. He has also served as executive vice president of
Coldwell Banker Hunneman. Allan P. Merrillhas served as executive vice president of strategy and
corporate development since October 2001. From April 2000 to October 2001, Mr.
Merrill was president of Homebuilder.com, one of our consumer websites. Mr.
Merrill joined us following a 13-year tenure, from 1987 to March 2000, with the
investment banking firm Warburg Dillon Read (now UBS Investment Bank), where he
was a managing director and served most recently as co-head of the Global
Resources Group, overseeing the construction and building materials, chemicals,
forest products, mining and energy industry groups. Mr. Merrill is a member of
the Urban Land Institute and the Policy Advisory Board of the Joint Center for
Housing Studies at Harvard University. Michael R. Douglashas served as our executive vice president, general
counsel, and secretary since October 2002. From 1997 to October 2002, Mr.
Douglas served as a product liability consultant. From 1987 to 1997, Mr.
Douglas was senior vice president, general counsel and secretary at Fibreboard
Corporation. Mr. Douglas has also served as director of law of the Asbestos
Claims Facility, litigation counsel for Jim Walter Corporation and as an
attorney in private practice. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Exchange Act requires our directors, executive
officers and beneficial owners of more than 10% of our common stock (the
Reporting Persons), to file with the SEC initial reports of ownership and
reports of changes in ownership of our common stock. Reporting Persons are
required by SEC regulations to furnish us with copies of all Section 16(a)
reports they file. Based solely on our review of the copies of Section 16(a) reports received
or written representations from certain Reporting Persons, we believe that all
reporting requirements under Section 16(a) for the fiscal year ended December
31, 2003 were met in a timely manner by the Reporting Persons, except
that Mr. Willison filed an amended Form 4 on April 4,
2003 reporting the grant of an additional 25,000 restricted shares of
our common stock that were inadvertently omitted from the Form 4
that was previously filed with the SEC on February 27, 2003. Code of Conduct and Business Ethics We have a strong commitment to business ethics and to complying with the
laws that govern the conduct of our businesses. We believe that a commitment
to honesty and integrity is a valuable asset that builds trust with
our customers, suppliers, employees, stockholders and the 4




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communities in which
we operate. To implement our commitment, we have developed a code of conduct
and business ethics. The code applies to all of our employees, directors,
officers, agents and consultants. We have also established a compliance
program that is intended to ensure that we have in place policies and systems
designed to prevent and detect violations of the code or any applicable law,
policy or regulation. A copy of the code is available at our website at
http://media.corporate-ir.net/media_files/IROL/11/111114/gov/COC8.03.pdf. We will post on our website any amendments to, or waivers from, a
provision of the code that applies to our principal executive officer,
principal financial officer, principal accounting officer or controller or
persons performing similar functions, and that relates to any of the following:
(i) honest and ethical conduct, including the ethical handling of actual or
apparent conflicts of interest between personal and professional relationships;
(ii) full, fair, accurate, timely, and understandable disclosure in reports and
documents that we file with, or submit to, the SEC and in other public
communications made by us; (iii) compliance with applicable governmental laws,
rules and regulations; (iv) the prompt internal reporting of violations of the
code to an appropriate person or persons identified in the code; or (v)
accountability for adherence to the code. 5




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Item 11.Executive Compensation Summary Compensation Table The following table sets forth all compensation paid during 2003, 2002,
and 2001 to all persons who served as our chief executive officer during 2003
and our other five most highly compensated executive officers during 2003. We
collectively refer to these persons as the named executive officers. Summary Compensation Table Long TermAnnual Compensation
    
    CompensationBonus ($)
    
    
    
    
    
    SecuritiesName and Principal
    
    
    
    
    
    
    
    
    
    
    
    Other Annual
    
    Underlying
    
    Restricted
    
    All OtherPosition
    
    Year
    
    Salary ($)
    
    Sign-On
    
    Performance
    
    Compensation ($)
    
    Options (#)
    
    Shares ($)
    
    Compensation ($)W. Michael Long(1)
    
    
    2003
    
    
    
    500,000
    
    
    
    
    
    
    
    500,000
    
    
    
    
    
    
    
    
    
    
    
    300,000
    (2)
    
    
    Chief Executive
    
    
    2002
    
    
    
    480,769
    
    
    
    500,000
    (3)
    
    
    500,000
    
    
    
    
    
    
    
    5,200,000
    
    
    
    
    
    
    
    Officer
    
    
    2001
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Jack D. Dennison(1)
    
    
    2003
    
    
    
    400,000
    
    
    
    
    
    
    
    425,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,775
    (4)Chief Operating
    
    
    2002
    
    
    
    384,616
    
    
    
    400,000
    (3)
    
    
    400,000
    
    
    
    
    
    
    
    2,600,000
    
    
    
    
    
    
    
    Officer
    
    
    2001
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Lewis R. Belote, III(1)
    
    
    2003
    
    
    
    350,000
    
    
    
    
    
    
    
    350,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Chief Financial
    
    
    2002
    
    
    
    336,539
    
    
    
    350,000
    (3)
    
    
    350,000
    
    
    
    
    
    
    
    1,730,000
    
    
    
    
    
    
    
    Officer
    
    
    2001
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Allan D. Dalton (5)
    
    
    2003
    
    
    
    325,000
    
    
    
    
    
    
    
    425,000
    
    
    
    17,526
    (6)
    
    
    
    
    
    
    
    
    
    
    90,933
    (7)President,
    
    
    2002
    
    
    
    68,750
    
    
    
    
    
    
    
    81,250
    
    
    
    28,249
    (6)
    
    
    1,200,000
    
    
    
    
    
    
    
    53,751
    (4)REALTOR.com®
    
    
    2001
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Michael R. Douglas(5)
    
    
    2003
    
    
    
    325,000
    
    
    
    
    
    
    
    350,000
    
    
    
    78,292
    (6)
    
    
    
    
    
    
    
    
    
    
    156,129
    (8)Executive Vice
    
    
    2002
    
    
    
    68,750
    
    
    
    
    
    
    
    81,250
    
    
    
    25,227
    (6)
    
    
    1,200,000
    
    
    
    
    
    
    
    41,198
    (4)President and
    
    
    2001
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    General CounselAllan P. Merrill
    
    
    2003
    
    
    
    325,000
    
    
    
    
    
    
    
    350,000
    
    
    
    
    
    
    
    550,001
    (9)
    
    
    
    
    
    
    Executive Vice
    
    
    2002
    
    
    
    315,385
    
    
    
    
    
    
    
    500,000
    
    
    
    
    
    
    
    1,150,000
    
    
    
    
    
    
    
    President, Strategy
    
    
    2001
    
    
    
    185,693
    
    
    
    
    
    
    
    
    
    
    
    454,000
    (10)
    
    
    366,667
    (11)
    
    
    
    
    
    
    and Corporate Development
   (1)
    
    The executive officer joined us in January 2002.(2)
    
    Represents 70,922 shares of restricted stock granted to Mr. Long on March
31, 2004 in consideration for his services to us during 2003. These
shares will vest in full on March 31, 2007.(3)
    
    We provided this sign-on bonus to the executive officer as part of his
employment agreement in order to attract him to join us.(4)
    
    Represents relocation expenses paid by us.(5)
    
    The executive officer joined us in October 2002.(6)
    
    Represents amounts reimbursed for the payment of taxes and tax gross-up
amounts associated with relocation expenses.(7)
    
    Represents $13,357 of expense paid by us for travel on an airplane
indirectly owned by Mr. Long, and $77,576 of relocation expenses paid by
us. 6




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(8)
    
    Represents $100,000 payment for the expected loss on the sale of
executive officers residence in connection with relocation and $56,129 of
relocation expenses paid by us.(9)
    
    50,001 of which were granted in connection with an option exchange offer
in which we offered our employees the opportunity to exchange all
outstanding options granted to them (or assumed by us) between August 5,
1999 (the date of our initial public offering) and December 31, 2001 for
new options (the Option Exchange Offer).(10)
    
    Represents cumulative amounts owed pursuant to a prior employment
agreement.(11)
    
    All of these options were cancelled in August 2002 in connection with our
Option Exchange Offer. Stock Option Grants in 2003 The following table sets forth grants of stock options to the named
executive officers in 2003. All options granted to the named executive officers in 2003 are either
incentive stock options or nonqualified stock options. The options expire ten
years from the date of grant and were granted at an exercise price equal to the
fair market value of our common stock on the date of grant. Potential realizable values are computed by (a) multiplying the number of
shares of common stock subject to a given option by the exercise price per
share, (b) assuming that the aggregate stock value derived from that
calculation compounds at the annual 5% or 10% rates shown in the table for the
entire ten-year term of the option, and (c) subtracting from that result the
aggregate option exercise price. The 5% and 10% assumed annual rates of stock
price appreciation are provided in accordance with the rules of the SEC and do
not represent our estimate or projection of future common stock prices. Number ofSecuritiesUnderlyingOptions
    
    Percent ofTotal OptionsGranted inEmployees in
    
    ExercisePrice
    
    Expiration
    
    Potential Realizable Value ofAssumed Annual Rates of StockPrice Appreciation for Option TermOption Term ($)Name
    
    Granted (#)
    
    2003
    
    ($/Sh)
    
    Date
    
    5%
    
    10%W. Michael Long
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Jack D. Dennison
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Lewis R. Belote III
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Allan D. Dalton
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Michael R. Douglas
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Allan P. Merrill
    
    
    50,001
    (1)(2)
    
    
    1.949
    
    
    
    0.56
    
    
    
    03/31/13
    
    
    
    17,609
    
    
    
    44,626500,000
    (3)
    
    
    19.49
    
    
    
    3.24
    
    
    
    11/24/13
    
    
    
    1,018,809
    
    
    
    2,581,863
   (1)
    
    Granted in connection with our Option Exchange Offer.(2)
    
    Options vest ratably on a monthly basis over 36 months beginning on March
31, 2003.(3)
    
    125,000 options vest on November 24, 2004 and remainder vest ratably on a
monthly basis thereafter over 36 months. The percentage of total options granted to employees is based on options
to purchase a total of 2,564,293 shares of our common stock granted during
2003. If exercised, these options would represent 2.12% of the total number of
shares of our common stock outstanding at December 31, 2003. Aggregated Option Exercises in 2003 and Option Values at December 31, 2003 The following table sets forth the number of shares acquired and the value
realized upon exercise of stock options during 2003 and the number of shares of
common stock subject to exercisable and unexercisable stock options held as of
December 31, 2003 by the named executive officers. Also reported are values of
in-the-money
options, which represent the positive spread between the exercise prices
of outstanding stock options and the fair market value of $4.73 per share,
which was the closing price of our common stock on December 31, 2003. 7




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Number ofSecurities Underlying
    
    Value of UnexercisedNumber of
    
    
    
    
    
    Unexercised Options at
    
    In-the-Money Options atShares
    
    
    
    
    
    12/31/03
    
    12/31/03Acquired on
    
    ValueName
    
    Exercise
    
    Realized
    
    Exercisable
    
    Unexercisable
    
    Exercisable
    
    UnexercisableW. Michael Long
    
    
    
    
    
    
    
    
    
    
    3,168,750
    
    
    
    2,031,250
    
    
    
    9,411,188
    
    
    
    6,032,813Jack D. Dennison
    
    
    
    
    
    
    
    
    
    
    1,584,375
    
    
    
    1,015,625
    
    
    
    4,705,594
    
    
    
    3,016,406Lewis R. Belote III
    
    
    
    
    
    
    
    
    
    
    1,054,218
    
    
    
    675,782
    
    
    
    3,131,028
    
    
    
    2,007,073Allan D. Dalton
    
    
    
    
    
    
    
    
    
    
    527,082
    
    
    
    672,918
    
    
    
    2,287,536
    
    
    
    2,920,464Michael R. Douglas
    
    
    
    
    
    
    
    
    
    
    512,499
    
    
    
    687,501
    
    
    
    2,224,246
    
    
    
    2,983,754Allan P. Merrill
    
    
    
    
    
    
    
    
    
    
    563,540
    
    
    
    1,136,461
    
    
    
    1,583,056
    
    
    
    2,565,448
 Employment-Related Agreements Mr. Long We entered into an employment agreement with Mr. Long dated as of March 6,
2002 that provides for his employment as our chief executive officer. Mr. Longs employment agreement provides for annual base compensation of
$500,000. We provided Mr. Long a signing bonus of $500,000 to be paid in four
equal quarterly installments, the last of which was paid on January 31, 2003.
Under his 2003 executive bonus plan, Mr. Long was also eligible to receive a
performance bonus of up to twice his annual base compensation for 2003; he
received $500,000, and 70,922 shares of restricted stock which will vest in
full on March 31, 2007. We granted Mr. Long a Sign-On Option, which fully vested on January 24,
2002, to purchase 1,300,000 shares of our common stock at an exercise price of
$1.76 per share. We also granted Mr. Long a Principal Option to purchase
3,900,000 shares of our common stock at an exercise price of $1.76 per share.
Mr. Longs Principal Option vests ratably on a monthly basis over 48 months
beginning on February 1, 2002. The Sign-On Option and Principal Option may be exercised after a
termination of employment (but no later than their expiration date, January 23,
2012) as follows: (i) within 90 days after termination for cause; (ii) within
one year after voluntary termination prior to a change in control; or (iii)
within three years after termination for any other reason. We agreed to provide residential accommodations to Mr. Long for up to two
years within reasonable commuting distance of our offices, with costs not to
exceed $5,000 per month. We will reimburse Mr. Long the actual and reasonable
fixed operating costs and the actual and reasonable business related variable
operating costs of an airplane indirectly owned by him; Mr. Long was reimbursed
approximately $1.3 million for the use of this airplane in 2003. We also will
reimburse him for actual and reasonable business expenses. If the foregoing
reimbursements are subject to federal or state income taxes, we will pay an
amount necessary to place Mr. Long in the same after-tax position as he would
have been in had no such taxes been imposed. If there is a termination of employment without cause, a termination for
death or disability or a constructive termination of employment, whether or not
in connection with a change in control, subject to his execution of a release
of claims, Mr. Long will receive his annual base salary and his full annual
bonus for the fiscal year in which the termination occurs, payable in equal
installments over twelve months. In the event of termination without cause,
constructive termination, death or disability, Mr. Longs Principal Option will
vest and become exercisable. In the event that any portion of the amounts payable are subject to the
excise tax imposed by Section 4999 of the Internal Revenue Code, we will pay
Mr. Long an amount necessary to place him in the same after-tax position as he
would have been in had no such excise tax been imposed. 8




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Mr. Dennison We entered into an employment agreement with Mr. Dennison dated as of
March 6, 2002 that provides for his employment as our chief operating officer. Mr. Dennisons employment agreement provides for annual base compensation
of $400,000. We provided Mr. Dennison a signing bonus of $400,000 to be paid in
four equal quarterly installments, the last of which was paid on January 31,
2003. Under his 2003 executive bonus plan, Mr. Dennison was also eligible to
receive a performance bonus of up to twice his annual base compensation for
2003; he received $425,000. We granted Mr. Dennison a Sign-On Option, which fully vested on January
24, 2002, to purchase 650,000 shares of our common stock at an exercise price
of $1.76 per share. We also granted Mr. Dennison a Principal Option to
purchase 1,950,000 shares of our common stock at an exercise price of $1.76 per
share. Mr. Dennisons Principal Option vests ratably on a monthly basis over 48
months beginning on February 1, 2002. The Sign-On Option and Principal Option may be exercised after a
termination of employment (but no later than their expiration date, January 23,
2012) as follows: (i) within 90 days after termination for cause; (ii) within
one year after voluntary termination prior to a change in control; or (iii)
within three years after termination for any other reason. We agreed to provide residential accommodations to Mr. Dennison for up to
two years within reasonable commuting distance of our offices, with costs not
to exceed $5,000 per month. Mr. Dennison relocated to our headquarters in 2003
at which time we ceased providing him with residential accommodations. We will
reimburse Mr. Dennison for actual and reasonable business expenses. If the
foregoing reimbursements are subject to federal or state income taxes, we will
pay an amount necessary to place Mr. Dennison in the same after-tax position as
he would have been in had no such taxes been imposed. If there is a termination of employment without cause, a termination for
death or disability or a constructive termination of employment, whether or not
in connection with a change in control, subject to his execution of a release
of claims, Mr. Dennison will receive his annual base salary and his full annual
bonus for the fiscal year in which the termination occurs, payable in equal
installments over twelve months. In the event of termination without cause,
constructive termination, death or disability, Mr. Dennisons Principal Option
will vest and become exercisable. In the event that any portion of the amounts payable are subject to the
excise tax imposed by Section 4999 of the Internal Revenue Code, we will pay
Mr. Dennison an amount necessary to place him in the same after-tax position as
he would have been in had no such excise tax been imposed. Mr. Belote We entered into an employment agreement with Mr. Belote dated as of March
6, 2002 that provides for his employment as our chief financial officer. Mr. Belotes employment agreement provides for annual base compensation of
$350,000. We provided Mr. Belote a signing bonus of $350,000 to be paid in four
equal quarterly installments, the last of which was paid on January 31, 2003.
Under his 2003 executive bonus plan, Mr. Belote was also eligible to receive a
performance bonus of up to twice his annual base compensation for 2003; he
received $350,000. We granted Mr. Belote a Sign-On Option, which fully vested on January
24, 2002, to purchase 432,500 shares of our common stock at an exercise price
of $1.76 per share. We also granted Mr. Belote a Principal Option to purchase
1,297,500 shares of our common stock at an exercise price of $1.76 per share.
Mr. Belotes Principal Option vests ratably on a monthly basis over 48 months
beginning on February 1, 2002. The Sign-On Option and Principal Option may be exercised after a
termination of employment (but no later than their expiration date, January 23,
2012) as follows: (i) within 90 days after termination for cause; (ii) within
one year after voluntary termination prior to a 9




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##### Table of Contents



change in control; or (iii)
within three years after termination for any other reason. We agreed to provide residential accommodations to Mr. Belote for up to
two years within reasonable commuting distance of our offices, with costs not
to exceed $5,000 per month. We will reimburse Mr. Belote for actual and
reasonable business expenses. If the foregoing reimbursements are subject to
federal or state income taxes, we will pay an amount necessary to place Mr.
Belote in the same after-tax position as he would have been in had no such
taxes been imposed. If there is a termination of employment without cause, a termination for
death or disability or a constructive termination of employment, whether or not
in connection with a change in control, subject to his execution of a release
of claims, Mr. Belote will receive his annual base salary and his full annual
bonus for the fiscal year in which the termination occurs, payable in equal
installments over twelve months. In the event of termination without cause,
constructive termination, death or disability, Mr. Belotes Principal Option
will vest and become exercisable. In the event that any portion of the amounts payable are subject to the
excise tax imposed by Section 4999 of the Internal Revenue Code, we will pay
Mr. Belote an amount necessary to place him in the same after-tax position as
he would have been in had no such excise tax been imposed. Mr. Dalton On September 30, 2002, we entered into an executive retention and
severance agreement with Mr. Dalton pursuant to which he agreed to serve as
President, REALTOR.com®. Additionally, we entered into a compensation
arrangement with Mr. Dalton that provides for annual base compensation of
$325,000. Under his 2003 executive bonus plan, Mr. Dalton was also eligible to
receive a performance bonus of up to twice his annual base compensation for
2003; he received $425,000. We will reimburse Mr. Dalton for actual and reasonable business expenses.
In addition, as described above under Summary Compensation Table, Mr. Dalton
was reimbursed for reasonable expenses associated with his relocation to our
headquarters. This included taxes and tax gross-up amounts associated with
payments made to relocate Mr. Dalton to our headquarters. We purchased a
residence in the fourth quarter of 2002 from Mr. Dalton for $1.95 million to
facilitate his move to our headquarters. We are actively attempting to sell
such house. Effective October 8, 2002, we granted Mr. Dalton an option to purchase
1,200,000 shares of our common stock at an exercise price of $0.39 per share.
This option vested as to 250,000 shares on the date of grant and the remainder
vests ratably on a monthly basis over 48 months beginning on November 1, 2002. In the event of a termination without cause, subject to his provision of
transition services if requested and his execution of a release of claims, Mr.
Dalton will receive a lump sum payment in an amount equal to his annual base
salary, payment of his continued medical coverage premiums for up to 12 months,
and a payment in an amount equal to 50% of his target bonus for the year in
which his termination occurs (the Minimum Bonus Payment). In addition, if the
termination occurs after June 30 of any year, and before January 1 of the next
year, and our financial performance goals for the year have been achieved, we
will pay Mr. Dalton a prorated portion of his target bonus less his Minimum
Bonus Payment. All equity awards Mr. Dalton was granted by us prior to
September 30, 2002 will vest and any such options will remain exercisable for a
period of 12 months following the later of his termination date or the end of
any transition services period. Mr. Douglas On September 30, 2002, we entered into an executive retention and
severance agreement with Mr. Douglas pursuant to which he agreed to serve as
Executive Vice President, General Counsel and Secretary. Additionally, we
entered into a compensation arrangement with Mr. Douglas that provides for
annual base compensation of $325,000. Under his 2003 executive bonus plan, Mr.
Douglas was also eligible to receive a performance bonus of up to twice his
annual base compensation for 2003; he received $350,000. 10




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We will reimburse Mr. Douglas for actual and reasonable business expenses.
In addition, Mr. Douglas was reimbursed for reasonable expenses associated
with his relocation to our headquarters as described above under Summary
Compensation Table. In connection with the expected loss on the sale of his
residence, we paid $100,000 to Mr. Douglas in the first quarter of 2003 to
facilitate his move to our headquarters. Effective October 8, 2002, we granted Mr. Douglas an option to purchase
1,200,000 shares of our common stock at an exercise price of $0.39 per share.
This option vested as to 200,000 shares on the date of grant and the remaining
1,000,000 options vests ratably on a monthly basis over 48 months beginning on
November 1, 2002. In the event of a termination without cause, subject to his provision of
transition services if requested and his execution of a release of claims, Mr.
Douglas will receive a lump sum payment in an amount equal to his annual base
salary, payment of his continued medical coverage premiums for up to 12 months,
and a payment in an amount equal to 50% of his target bonus for the year in
which his termination occurs (the Minimum Bonus Payment). In addition, if the
termination occurs after June 30 of any year, and before January 1 of the next
year, and our financial performance goals for the year have been achieved, we
will pay Mr. Douglas a prorated portion of his target bonus less his Minimum
Bonus Payment. All equity awards Mr. Douglas was granted by us prior to
September 30, 2002 will vest and any such options will remain exercisable for a
period of 12 months following the later of his termination date or the end of
any transition services period. Mr. Merrill On April 24, 2002, we entered into an executive retention and severance
agreement with Mr. Merrill pursuant to which he agreed to continue to serve as
executive vice president of strategy and corporate development. Additionally,
we entered into a new compensation arrangement with Mr. Merrill that provides
for annual base compensation of $325,000, effective January 21, 2002. Under his
2003 executive bonus plan, Mr. Merrill was also eligible to receive a
performance bonus of up to twice his annual base compensation for 2003; he
received $350,000. Effective January 17, 2002, we granted Mr. Merrill an option to purchase
450,000 shares of our common stock at an exercise price of $2.25 per share.
This option vests ratably on a monthly basis over 48 months beginning on
February 1, 2002. Additionally, effective January 24, 2002, we granted Mr.
Merrill an option to purchase 700,000 shares of our common stock at an exercise
price of $1.76 per share. This option vested as to 87,500 shares on July 24,
2002 and the remainder vests ratably on a monthly basis over 42 months
beginning on August 1, 2002. In the event of a termination without cause, subject to his provision of
transition services if requested and his execution of a release of claims, Mr.
Merrill will receive a lump sum payment in an amount equal to his annual base
salary, payment of his continued medical coverage premiums for up to 12 months,
and a payment in an amount equal to 50% of his target bonus for the year in
which his termination occurs (the Minimum Bonus Payment). In addition, if the
termination occurs after June 30 of any year, and before January 1 of the next
year, and our financial performance goals for the year have been achieved, we
will pay Mr. Merrill a prorated portion of his target bonus less his Minimum
Bonus Payment. All equity awards Mr. Merrill was granted by us prior to April
24, 2002 will vest and any such options will remain exercisable for a period of
12 months following the later of his termination date or the end of any
transition services period. Director Compensation Prior
to 2002, directors did not generally receive cash compensation for
their services as directors, but were reimbursed for their reasonable and
necessary expenses in attending meetings of board of directors and committees
of the board. Compensation for services was provided solely in the form of
stock options. However, in connection with the boards investigation of
previously announced accounting matters, we began to pay cash compensation in
addition to stock options and the reimbursement of these expenses because these
activities involved significant additional efforts and time commitments. We
intend to continue to pay cash compensation in addition to equity compensation
and expense reimbursements to directors due to the directors increased time
commitments as well as increased corporate governance responsibilities. 11




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Non-employee directors receive an annual retainer of $25,000 in cash,
which is paid in quarterly installments. Each committee chair receives an
additional annual retainer of $5,000 in cash, except the chairman of the audit
committee receives $10,000 in cash. Each of these directors also receives
$1,500 in cash per meeting for each board and committee meeting attended that
requires a significant commitment of time, except that members of the audit
committee receive $2,000 for each audit committee meeting attended that
requires a significant commitment of time. In 2003, Mr. Hanauer, in his
capacity as chairman of the board, received an additional annual retainer of
$70,000 in cash, which was paid in quarterly installments. In 2003, each non-employee director (other than any director who is
entitled to a seat on our board of directors on a contractual basis) was
granted 35,000 restricted shares of our common stock and an option to purchase
15,000 shares under our 1999 Stock Incentive Plan. As new members of the board,
each of Messrs. Willison and Unruh was granted an additional 25,000 restricted
shares of our common stock and an option to purchase an additional 25,000
shares under that plan. Mr. Hanauer, in his capacity as chairman of the board,
was granted an additional 52,500 restricted shares and an option to purchase an
additional 22,500 shares under that plan. With respect to 2004, each
non-employee director (other than any director who is entitled to a seat on our
board of directors on a contractual basis) was granted 10,300 restricted shares
of our common stock under our 1999 Stock Incentive Plan. Mr. Hanauer, in his
capacity as chairman of the board, was granted an additional 15,450 restricted
shares. Each restricted share will vest three years after the grant date. One
fourth of the options granted to each of these directors will vest upon the
first anniversary of the date on which such options were granted, with the
remainder vesting ratably on a monthly basis over 36 months. Each option has
an exercise price equal to the fair market value of our common stock on the
date of grant and a ten-year term, but will terminate within a specified time,
in accordance with the terms of the 1999 Stock Incentive Plan, following the
date the option holder ceases to be a director or employee of, or consultant
to, us. All
options and restricted stock will immediately vest if the director is not
nominated for re-election, is nominated for re-election and is not elected or
must resign due to health reasons, or upon such directors death. Upon a
directors resignation or termination for other reasons, including but not
limited to business conflicts with us, all of the directors unvested options
and restricted stock will be terminated immediately. Compensation Committee Interlocks and Insider Participation The management development and compensation committee is composed of three
non-employee directors, Messrs. Hanauer, Doerr and Willison, none of whom have
any interlocking relationships as defined by the SEC. 12




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Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security Ownership of Certain Beneficial Owners and Management The following table sets forth information relating to beneficial
ownership of our common stock as of April 15, 2004, by  
    
    each stockholder known by us to be the beneficial owner of 5% or more of our common stock,
    
    each of our directors,
    
    each of the executive officers listed in the summary compensation table, and
    
    all of our directors and executive officers as a group. Unless otherwise noted, the address for each stockholder listed is c/o
Homestore, Inc., 30700 Russell Ranch Road, Westlake Village, California 91362. Shares of Series AShares of Common Stock
    
    Preferred StockBeneficially Owned
    
    Beneficially OwnedName of Beneficial Owner
    
    Number
    
    Percent
    
    Number
    
    PercentCapital Research and Management Company (1)
    
    
    13,600,000
    
    
    
    11.1
    %
    
    
    
    
    
    
    FMR Corp. (2)
    
    
    13,464,869
    
    
    
    11.0
    %
    
    
    
    
    
    
    Cendant Corporation (3)
    
    
    9,431,503
    
    
    
    7.7
    %
    
    
    
    
    
    
    National Association of REALTORS® (4)
    
    
    4,025,640
    
    
    
    3.3
    %
    
    
    1
    
    
    
    100
    %L. John Doerr (5)
    
    
    4,341,047
    
    
    
    3.5
    %
    
    
    
    
    
    
    Terrence M. McDermott (6)
    
    
    4,025,640
    
    
    
    3.3
    %
    
    
    1
    
    
    
    100
    %W. Michael Long (7)
    
    
    3,731,318
    
    
    
    3.0
    %
    
    
    
    
    
    
    Jack D. Dennison (8)
    
    
    1,852,295
    
    
    
    1.5
    %
    
    
    
    
    
    
    Lewis R. Belote, III (9)
    
    
    1,240,748
    
    
    
    1.0
    %
    
    
    
    
    
    
    Allan P. Merrill (10)
    
    
    737,689
    
    
    
    *
    
    
    
    
    
    
    
    Allan D. Dalton (11)
    
    
    650,664
    
    
    
    *
    
    
    
    
    
    
    
    Michael R. Douglas (12)
    
    
    639,296
    
    
    
    *
    
    
    
    
    
    
    
    Joe F. Hanauer (13)
    
    
    798,841
    
    
    
    *
    
    
    
    
    
    
    
    Kenneth K. Klein (14)
    
    
    127,662
    
    
    
    *
    
    
    
    
    
    
    
    William E. Kelvie (15)
    
    
    78,862
    
    
    
    *
    
    
    
    
    
    
    
    Bruce G. Willison (16)
    
    
    83,841
    
    
    
    *
    
    
    
    
    
    
    
    V. Paul Unruh (17)
    
    
    80,300
    
    
    
    *
    
    
    
    
    
    
    
    All 13 directors and executive officers as a group
    
    
    18,388,203
    
    
    
    15
    %
    
    
    1
    
    
    
    100
    %
   *
    
    Represents beneficial ownership of less than 1%.(1)
    
    The information shown is as of December 31, 2003 and is based upon
information disclosed by Capital Research and Management Company in an
amendment to a Schedule 13G filed with the SEC. Capital Research and
Management Company reported that it has sole power to dispose or to direct
the disposition of 13,600,000 shares of our common stock. The address of
CRMC is 333 South Hope Street, Los Angeles, California 90071.(2)
    
    The information shown is as of March 31, 2004 and is based upon
information disclosed by FMR Corp., Edward C. Johnson 3d, Abigail P.
Johnson, Fidelity Management & Research Company and Fidelity OTC
Portfolio in a Schedule 13G filed with the SEC. Such persons reported
that FMR Corp. and the other members of the filing group have sole power
to dispose or to direct the disposition of 12,039,619 shares of our common
stock. Sole power to vote the other shares beneficially owned by the
filing group resides in the respective boards of trustees of the funds
that have invested in the shares. Such persons also reported that
Fidelity Management Trust Company and the other members of the filing
group have sole power to dispose or to direct the disposition of and sole power to vote or direct the voting 13




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of 1,426,290
shares of our common stock. The address of the above persons is 82
Devonshire Street, Boston, Massachusetts 02109.(3)
    
    The information shown is as of February 24, 2004 and is based upon
information disclosed by Cendant Corporation in an amendment to a Schedule
13D filed with the SEC. The shares beneficially owned by Cendant
Corporation are held of record by Cendant Membership Services Holdings,
Inc., a wholly-owned subsidiary of Cendant Corporation. The address of
Cendant Membership Services is 9 West 57th Street, 7th Floor, New York,
New York 10019.(4)
    
    We have authorized the issuance of one share of Series A preferred stock,
which is held by National Association of REALTORS®. Although the Series A
preferred stockholder is generally not entitled to notice of any
stockholders meetings or to vote on any matters with respect to any
question upon which holders of our common stock or preferred stock have
the right to vote, except as may be required by law (in which case, the
Series A preferred would have one vote per share and would vote together
with the common stock as a single class), the holder of Series A preferred
is entitled to elect one member of our board of directors. The address
of National Association of REALTORS® is 430 North Michigan Avenue,
Chicago, Illinois 60611.(5)
    
    Includes 355,150 shares of restricted stock, of which 45,300 shares will
not be vested or transferable as of June 14, 2004. Also includes 44,062
shares issuable upon the exercise of options that are held by Mr. Doerr,
which are vested and exercisable as of June 14, 2004. Also includes
3,657,895 shares held by Kleiner Perkins Caufield & Byers VIII, 210,967
shares held by KPCB VIII Founders Fund, and 1,615 shares held by KPCB
Information Sciences Zaibatsu Fund II. Mr. Doerr is a general partner of
KPCB Associates VIII, which is the general partner of each of Kleiner
Perkins Caufield & Byers VIII and KPCB VIII Founders Fund, and a general
partner of KPCB Associates VII, which is the general partner of KPCB
Information Sciences Zaibatsu Fund II. Mr. Doerr disclaims beneficial
ownership of these shares except to the extent of his pecuniary interest
in these entities. Also includes 68,756 shares held in the John and Ann
Doerr Childrens Trust dated 5/26/94, of which Mr. Doerr disclaims
beneficial ownership. Also includes 2,602 shares in the Brook H. Byers
Trust dated 1986 of which Mr. Doerr is trustee, with respect to which Mr.
Doerr disclaims beneficial ownership. The address of the Kleiner Perkins
Caufield & Byers entities is 2750 Sand Hill Road, Menlo Park, California
94025.(6)
    
    Includes 4,025,640 shares of common stock and one share of Series A
Preferred Stock held by National Association of REALTORS®, of which Mr.
McDermott is the executive vice president/chief executive officer. Mr.
McDermott disclaims beneficial ownership of all of these shares.(7)
    
    Includes 70,922 shares of restricted stock, none of which will be vested
or transferable as of June 14, 2004. Also includes 3,656,250 shares
issuable upon the exercise of options that are vested and exercisable as
of June 14, 2004.(8)
    
    Includes 1,828,125 shares issuable upon the exercise of options that are
vested and exercisable as of June 14, 2004.(9)
    
    Includes 1,216,406 shares issuable upon the exercise of options that are
vested and exercisable as of June 14, 2004.(10)
    
    Includes 714,235 shares issuable upon the exercise of options that are
vested and exercisable as of June 14, 2004.(11)
    
    Includes 645,832 shares issuable upon the exercise of options that are
vested and exercisable as of June 14, 2004.(12)
    
    Includes 637,499 shares issuable upon the exercise of options that are
vested and exercisable as of June 14, 2004.(13)
    
    Includes 237,338 shares of restricted stock, none of which shares will be
vested or transferable as of June 14, 2004. Also includes 155,155 shares
issuable upon the exercise of options that are held by Mr. Hanauer that
are vested and exercisable as of June 14, 2004. Also includes 406,348
shares held by Ingleside Interests, L.P. Mr. Hanauer is a general partner of this entity. Mr. Hanauer disclaims 14




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beneficial ownership of these shares except to the extent of his pecuniary
interest in this entity.(14)
    
    Includes 75,100 shares of restricted stock, of which 45,300 shares will
not be vested or transferable as of June 14, 2004. Also includes 52,562
shares issuable upon the exercise of options that are vested and
exercisable as of June 14, 2004.(15)
    
    Includes 57,300 shares of restricted stock, of which 45,300 shares will
not be vested or transferable as of June 14, 2004. Also includes 21,562
shares issuable upon the exercise of options that are vested and
exercisable as of June 14, 2004.(16)
    
    Includes 70,300 shares of restricted stock, none of which will be vested
or transferable as of June 14, 2004. Also includes 13,541 shares issuable
upon the exercise of options that are vested and exercisable as of June
14, 2004.(17)
    
    Includes 70,300 shares of restricted stock, none of which will be vested
or transferable as of June 14, 2004. Also includes 10,000 shares issuable
upon the exercise of options that are vested and exercisable as of June
14, 2004. Securities Authorized for Issuance Under Equity Compensation Plans The following table provides information as of December 31, 2003 regarding
compensation plans (including individual compensation arrangements) under which
our equity securities are authorized for issuance. Equity Compensation Plan Information Number of SecuritiesNumber of Securities
    
    
    
    
    
    Remaining Available forto be
    
    Weighted-Average
    
    Future Issuance UnderIssued Upon Exercise of
    
    Exercise Price of
    
    Equity CompensationOutstanding Options,
    
    Outstanding Options,
    
    Plans (excluding securitiesPlan Category
    
    Warrants and Rights
    
    Warrants and Rights
    
    reflected in column (a))(a)
    
    (b)
    
    (c)(In thousands)
    
    
    
    (In thousands)Equity
compensation plans
approved by
security holders
    
    
    10,641
    
    
    $
    3.63
    
    
    
    8,817
    (1)Equity
compensation plans
not approved by
security holders
    
    
    11,908
    
    
    $
    2.19
    
    
    
    8,357Total
    
    
    22,549
    
    
    $
    2.87
    
    
    
    17,174
    (1)
   (1)
    
    Includes 801,007 shares of common stock reserved for issuance under our
1999 Employee Stock Purchase Plan. For additional information regarding the
Employee Stock Purchase Plan, see Note 14 Stock Plans to our Consolidated
Financial Statements contained in Item 8 of this Form 10-K. Each of the above plans provides that the number of shares with respect to
which options may be granted, and the number of shares of common stock subject
to an outstanding option, shall be proportionately adjusted in the event of a
subdivision or consolidation of shares or the payment of a stock dividend on
common stock, and the purchase price per share of outstanding options shall be
proportionately revised. Options outstanding as of December 31, 2003 pursuant
to compensation plans assumed in connection with prior acquisitions, in the
aggregate, total 247,274 and the weighted average exercise price of those
option shares is $20.50. The Homestore, Inc. 1999 Stock Incentive Plan, a security-holder approved
plan, contains a provision for an automatic increase in the number of shares
available for issuance each January 1 (until January 1, 2009) by
an amount equal to 4.5% of the total number of outstanding 15




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shares as of the
preceding December 31; provided that the aggregate number of shares that
qualify as Incentive Stock Options (as defined in the plan) must not exceed
20.0 million shares. The Homestore, Inc. 1999 Employee Stock Purchase Plan, a security-holder
approved plan, also contains a provision for an automatic increase in the
number of shares available for issuance each January 1 (until January 1, 2009)
by an amount equal to one-half of one percent (0.5%) of the total number of
outstanding shares as of the preceding December 31; provided that the aggregate
number of shares reserved under this plan must not exceed 5.0 million shares. Non-Shareholder Approved Plans Options are granted from the Homestore, Inc. 2002 Stock Incentive Plan, a
new plan established in January 2002 to attract and retain qualified personnel.
No more then 40% of the available securities granted under this plan may be
awarded to our directors or executive officers. Option grants under this plan
are non-qualified stock options and generally have a 4-year vesting schedule
and a 10-year life. Other non-shareholder approved plans include the following plans assumed
in connection with prior acquisitions: The 1997-1998 Stock Incentive Plan of
Cendant Corporation, the Cendant Corporation Move.com Group 1999 Stock Option
Plan, as amended and restated effective as of March 21, 2000, the Move.com,
Inc. 2000 Stock Incentive Plan, the HomeWrite Incorporated 2000 Equity
Incentive Plan, the ConsumerInfo.com, Inc. 1999 Stock Option Plan, the iPlace
2000 Stock Option Plan, the eNeighborhoods, Inc. 1998 Stock Option Plan, the
Qspace, Inc. 1999 Stock Option Plan, the iPlace, Inc. 2001 Equity Incentive
Plan and The Hessel Group, Inc. 2000 Stock Option Plan. Each of these plans (i)
was intended to attract, retain and motivate employees, (ii) was administered
by the Board of the Directors or by a committee of the Board of Directors of
such entities, and (iii) provided that options granted thereunder would be
exercisable as determined by such Board or committee, provided that no option
would be exercisable after the expiration of 10 years after the grant date. We
did not grant options under any of these plans in 2003, and we do not plan to
do so in the future. For additional information regarding our equity compensation plans, see
Note 14, Stock Plans, to our Consolidated Financial Statements contained in
Item 8 of this Form 10-K. 16




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Item 13.Certain Relationships and Related Transactions Operating Agreement with the National Association of REALTORS® In November 1996, we entered into an operating agreement with the National
Association of REALTORS® (the NAR), which governs how our subsidiary,
RealSelect, Inc., operates the REALTOR.com® web site on behalf of the NAR. For
a description of the operating agreement, please see Item 1 of
this Form 10-K. Under our operating agreement as originally entered into with the NAR, we
were required to make quarterly royalty payments of up to 15% of RealSelects
operating revenue in the aggregate to the NAR and the entities that provide us
the information for the our real property listings (data content providers). In 2002, we and the NAR amended the NAR operating agreement. In
accordance with the operating agreement, as amended, we paid $1,300,000 to the
NAR in 2003 and will make the following fixed payments to the NAR:  
    
    For 2003, we must pay $1,300,000 in four installments of
$325,000 due on the last day of each calendar quarter of 2003.
    
    For 2004, we must pay $1,400,000 in four installments of
$350,000 due on the last day of each calendar quarter of 2004.
    
    For 2005, we must pay $1,500,000 in four installments of
$375,000 due on the last day of each calendar quarter of 2005.
    
    For 2006, we must pay $1,500,000 plus or minus, as the case
may be, the percentage change in the Consumer Price Index for 2005,
in four equal installments due on the last day of each calendar
quarter of 2006.
    
    For 2007 and beyond, we must pay the amount due during the
prior calendar year plus or minus, as the case may be, the
percentage change in the Consumer Price Index for the prior calendar
year, in four equal installments due on the last day of each
calendar quarter for that calendar year. In January 2004, we and the NAR entered into a letter agreement regarding
the availability of REALTOR.com® property listing data through the MSN network
of websites. The NAR agreed to reimburse us for slotting fees that we may be
required to pay to Microsoft Online, LP (Microsoft), such reimbursement not
to exceed $250,000 per quarter for the first two years of our agreement with
Microsoft (up to a maximum total reimbursement of $2 million). The NAR may
recoup from us any amounts paid to us under this letter agreement to the extent
of our portion of any advertising revenue generated as a result of our
agreement with Microsoft which are earned by us during the first two years of
that agreement. Cendant Corporation In connection with our acquisition of Move.com, Inc. and Welcome Wagon
International, Inc. (the Move.com Group) from Cendant Corporation in 2001, we
entered into a series of agreements with Cendant that, among other things,
provided us with certain promotion and exclusive data rights and placed certain
restrictions on Cendants ability to dispose of our shares. Revenue of $7.7
million related to these transactions was recognized in 2003. During 2003, we
received approximately $1.2 million of cash and recorded at December 31, 2003
deferred revenue of approximately $6.9 million related to these agreements.
This deferred revenue will be recognized over the next five years. In connection with our acquisition of the Move.com Group, Cendant
previously alleged that we breached certain representations and warranties made
in the acquisition agreement as a result of the restatement of our consolidated
financial statements for the year ended December 31, 2000 and the first three
quarters of 2001. On August 5, 2003, we and Cendant settled potential claims
relating to our acquisition of the Move.com Group and we entered into certain new agreements with Cendant. The settlement
terminated certain existing arrangements 17




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between us and Cendant and resulted in
several new arrangements between the parties. The following summarizes the
material terms of the settlement. Settlement Agreement.Under the terms of the Settlement Agreement, Cendant
agreed not to sue us or our officers, directors and other related parties with
respect to the acquisition of the Move.com Group and the prior restatement of
our consolidated financial statements. However, in the circumstances described
below, Cendant retains the right to sue us for contribution, indemnification,
or similar relief if Cendant is held liable for or settles claims against it in
the consolidated securities class action lawsuit brought against us (the
Securities Class Action Lawsuit) up to the amount for which it is held liable
or for which it settles. On March 7, 2003, the court in the Securities Class Action Lawsuit
dismissed with prejudice Cendant as a defendant. However, that dismissal is
subject to appeal to the United States Court of Appeals for the Ninth Circuit.
If Cendants dismissal as a defendant in the Securities Class Action Lawsuit is
reversed on appeal and Cendant is subsequently found liable or settles the
claims against it in the Securities Class Action Lawsuit, Cendant will likely
seek indemnification, contribution or similar relief from us. However, as part
of our settlement of the Securities Class Action Lawsuit, the parties have
requested that the court enter an order barring claims by third parties against
us for indemnification, contribution and similar relief with respect to
liability such third parties may have in the Securities Class Action Lawsuit.
In the event that the settlement is ultimately approved, we anticipate that the
court will enter the requested bar order. Such an order may preclude Cendant from seeking indemnification,
contribution or similar relief from us in the event Cendant is found liable or
settles claims against it in the Securities Class Action Lawsuit. However, we
have been advised by counsel that the law is unclear on whether Cendant would
be so precluded. Therefore, we would likely incur significant expenses in
defending such an action by Cendant and could ultimately be found liable to
Cendant or settle with Cendant, notwithstanding the bar order. Such expenses,
liability or settlement could have a material adverse effect on our financial
position and results of operations. In addition, if Cendant is not permitted to share in the settlement of the
Securities Class Action Lawsuit (which would be the case if its dismissal as a
defendant is reversed on appeal), we have agreed to pay or otherwise provide to
Cendant the amount of money and/or other consideration that Cendant would have
been otherwise entitled to receive from that portion of the class action
settlement fund provided by us had Cendant been a class member and Cendants
proof of claim in respect of its shares had been accepted in full. Because the
proofs of claim have not yet been accepted in the settlement of
the Securities Class Action Lawsuit, we are unable to estimate the amount of
cash and number of shares that Cendant could be entitled to receive from us
should Cendant be prevented from participating in the settlement. For our part, we released all claims against Cendant (including a release
of any derivative claims, to the extent permitted by law) relating to the
acquisition of the Move.com Group (other than with respect to the existing
Falcon license agreement described below) and our prior restatement of our
consolidated financial statements. The Settlement Agreement also provides for the termination of a
stockholders agreement that contained a standstill provision under which
Cendant had agreed not to acquire additional Homestore stock, a requirement
that Cendant vote its Homestore stock in proportion to the vote of all other
stockholders and restrictions on Cendants ability to sell its Homestore stock. The Settlement Agreement contains other provisions, including the
requirement that we prepay approximately $1.5 million under an existing
insurance contract that would otherwise be payable over three years. In addition to the Settlement Agreement, we and Cendant executed a new
Registration Rights Agreement, an Option Agreement, a new Listings License
Agreement and a Source Code License and Maintenance Services Agreement, each of
which is described below. New Registration Rights Agreement.The new Registration Rights Agreement
required us to file a shelf registration statement relating to the
approximately 18.3 million shares held by Cendant as a result of the
acquisition of the Move.com Group, with expenses to be paid by us. The
registration statement was declared effective on September 5, 2003. Cendant may request an underwritten offering pursuant
to the new 18




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Registration Rights Agreement, with underwriters to be chosen by
Cendant. Option Agreement.The Option Agreement granted to us an option to purchase
7,264,812 shares of our common stock held by Cendant. The option became
exercisable on August 15, 2003 and expired on October 4, 2003 without being
exercised. New Listings License Agreement.Under the new Listings License Agreement,
Cendant granted to us a non-exclusive license to use Listing Data (generally
defined as data and information related to the sale, purchase, lease, or rental
of residential property) and Broker Agent Data (generally defined as data and
information related to residential real property brokers or sales agents) on
any of our websites where REALTOR.com® listings are displayed. Cendant is not
obligated to provide any data to the extent that we can obtain the same data
under one of our multiple listing services, or MLS, agreements. Cendant can
terminate the license for any reason upon 90 days written notice. The new
Listings License Agreement also prohibits us from charging referral fees during
the term of the agreement and for a period of three years following
termination. Also for a period of three years following a termination of the
new Listings License Agreement, Cendant cannot directly or indirectly take
action to reduce the quality, quantity, substance, accuracy or timeliness of
listings available to us from any MLS, or from Cendant or its affiliates or
franchisees. The new Listings License Agreement replaces the prior Master Operating
Agreement under which Cendant granted to us an exclusive license to use the
Listing Data and a non-exclusive license to use the Broker Agent Data. The
prior Master Operating Agreement had an initial term of 40 years, contained
specific termination rights, provided us with additional non-exclusive licenses
to New Resident Data (generally defined as data and information regarding the
purchasers, renters, or lessors of residential real property) and other data
related to residential property, granted us wider usage rights with regard to
the licensed data, and provided for marketing and promotional efforts between
the parties. Prior to the settlement, we were not receiving any Listings Data or Broker
Agent Data from Cendant under the Master Operating Agreement because we receive
such data from our arrangements with approximately 900 MLSs across the United
States. The new Listings License Agreement does not affect our arrangements
with these MLSs. Thus, the new Listings License Agreement, like the now
terminated Master Operating Agreement, serves as a backup source for such data. In conjunction with the termination of the exclusive license under the
Master Operating Agreement, we relinquished certain exclusive data rights and
rights under other agreements. As a result of the surrender of those rights,
certain intangible assets associated with those rights no longer have value to
us, and, accordingly, we have recorded an impairment charge of $12.2 million
for the year ended December 31, 2003. Source Code License and Maintenance Services Agreement.Pursuant to an
agreement dated October 26, 2000 (the First Falcon Agreement), we agreed to
provide Real Estate Technology Trust (RETT), an independent trust established
in 1996 to provide technology services and products to Cendants real estate
franchisees, a modified version of our Top Producer Online contact management
software for real estate agents known as Falcon. The First Falcon Agreement
contemplated that the parties would enter into a maintenance services agreement
with respect to Falcon. In connection with the settlement, a Source Code
License and Maintenance Services Agreement (the Second Falcon Agreement) was
executed with Cendant under which we agreed to provide Cendant with the source
code for the Falcon software and for certain other Top Producer Online
software. Cendant may use this source code to maintain, modify, and upgrade the
Falcon software. We also agreed to provide Cendant with a dedicated support
staff who will use commercially reasonable efforts to maintain, modify, and
upgrade Falcon as instructed by Cendant. The initial term for such support is
three years, and Cendant will have the option to renew for one additional year.
We are entitled to receive approximately $2.3 million in maintenance fees which
will be recognized on a straight-line basis over the three-year term of the
maintenance agreement. Cendant agreed not to develop or promote a competitive
online real estate customer relationship management system for two years. Following the settlement, we and RETT also entered into an Amendment to
Software License Agreement (the Amendment), thereby amending the First Falcon
Agreement. The Amendment modifies certain of the Falcon software functionality
that we must deliver to RETT and establishes deadlines by which the various
Falcon software components must be delivered. The Amendment also
requires us to 19




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develop
new features and functionality for certain other Top Producer Online software.
Further, the Amendment grants to RETT, Cendant, and certain of Cendants
affiliates (including affiliates outside of the real estate industry) a license
to use the Falcon software as newly described in the Amendment, and a license
to use certain other Top Producer Online software. Loans to and Transactions with Executive Officers As part of an employment agreement entered into in 2002, we reimburse Mr.
Long for the business use of an airplane that is owned indirectly by him.
Total reimbursement for usage in 2003 was approximately $1.3 million. 20




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Item 14.Principal Accountant Fees and Services PricewaterhouseCoopers LLP (PricewaterhouseCoopers) served as the
Companys principal independent accountant to audit the Companys financial
statements for the fiscal year ended December 31, 2002. As previously
disclosed, on September 29, 2003 our audit committee notified
PricewaterhouseCoopers that it would not be retained to perform the audit of
the financial statements of the Company for the fiscal year ending December 31,
2003 and determined to engage Ernst & Young LLP (Ernst & Young) as
independent accountants to audit the Companys financial statements for the
fiscal period ended December 31, 2003. The fees billed in the fiscal years
ended December 31, 2002 and December 31, 2003 for PricewaterhouseCooperss
services to us and the fees billed in the fiscal period ended December 31, 2003
for Ernst & Youngs services to us were: PricewaterhouseCoopers
    
    Ernst & YoungYear ended
    
    Year ended
    
    Year endedDecember 31, 2002
    
    December 31, 2003
    
    December 31, 2003Audit Fees (1)
    
    
    1,289,000
    
    
    
    365,000
    
    
    
    1,090,000Audit-Related Fees (2)
    
    
    
    
    
    
    
    
    
    
    Tax Fees (3)
    
    
    312,000
    
    
    
    88,000
    
    
    
    8,000All Other Fees (4)
    
    
    162,000
    
    
    
    
    
    
    
    Total Fees
    
    
    1,763,000
    (5)
    
    
    453,000
    
    
    
    1,098,000
   (1)
    
    Audit fees are fees billed by the independent auditors for professional
services for the audit of the consolidated financial statements included
in our Form 10-K and review of financial statements included in our Form
10-Qs, or for services that are normally provided by the auditors in
connection with statutory and regulatory filings or engagements.(2)
    
    Audit-related fees are fees billed by the independent auditors for
assurance and related services that are reasonably related to the
performance of the audit or review of the financial statements, and are
not reported under audit fees. Fees associated with registration
statements that were previously included in audit-related fees in the
proxy statement for our 2003 annual meeting of stockholders have been
reclassified under audit fees above.(3)
    
    Tax fees are fees billed by the independent auditors for professional
services for tax compliance, tax advice, and tax planning.(4)
    
    All other fees are fees billed by the independent auditors to the
Company for any services not included in the first three, and include fees
for accounting services provided to us and in connection with our response
to inquires from the SEC.(5)
    
    Reflects an increase of $256,000 from the amount disclosed in the proxy
statement for our 2003 annual meeting of stockholders. The audit committees policy is to approve in advance all audit and
permitted non-audit services provided by the independent accountant. In
addition, in December 2003, the audit committee authorized the committees
audit committee financial expert to pre-approve on behalf of the audit
committee permitted auditing and non-auditing services of $50,000 or less to be
provided by Ernst & Young, Grant Thornton LLP and any other accounting services
firms, with the audit committee financial expert to report each pre-approval of
services to the full committee at its next scheduled meeting after such
pre-approval. None of the audit and non-audit services described above were approved by
the audit committee pursuant to the waiver of pre-approval provisions set forth
in applicable rules of the SEC. 21




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PART IV 
 Item 15.Exhibits, Financial Statement Schedules and Reports on Form 8-K (a)(3) Exhibits See Index to Exhibits beginning on page E-1, which is incorporated by
reference herein. 22




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SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereto duly authorized, on the 29th day of
April, 2004. HOMESTORE, INC.By:
    
    /s/ LEWIS R. BELOTE, IIILewis R. Belote, IIIChief Financial Officer
 23




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INDEX Number
    
    Exhibit Title31.01
    
    Certification of Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.31.02
    
    Certification of Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.